villanueva reviewer.doc

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ATENEODE MANILALAW SCHOOL

LAW ON SALES OUTLINE1 DEANCESAR L. VILLANUEVAFirst Semester, SY 2009-2010 ANDATTY. ALEXANDERC. D Y

I. THE NATURE OF SALE

A. DEFINITION(Art. 1458)

Sale is a contract by which one of the contracting parties obligates himself to transfer theownership2 and to deliver possession, of a determinate thing, and the other to pay therefor aprice certain in money or its equivalent. xCruz v. Fernando , 477 SCRA 173 (2005).3

1. Elements of Sale

Elements of sale: (a) consent or meeting of the minds; (b) determinate subject matter;and (c) price certain in money or its equivalent. xNavarra v. Planters Dev. Bank , 527SCRA 562 (2007).4

1The Outline presents the manner by which the L AW ON S ALES will be taken-up in class.The x's and those footnoted in the Outline represent cases or topics which need no

extended discussions, either because the essence of the rulings are already summarized in the Outline or they contain similar rulings or doctrines as other cases to be discussed.Unless otherwise indicated, the numbered articles refer to articles of the Civil Code of thePhilippines.

2Ownership is the independent and general power of a person over a thing for purposesrecognized by law and within the limits established thereby. According to Art. 428 of the CivilCode, this means that: The owner has the right to enjoy and dispose of a thing, without other limitations than those established by law. x x x Aside from the jus utendi and the jus abutendi inherent in the right to enjoy the thing, the right to dispose, or the jus disponendi , is the power of the owner to alienate,encumber , transform and even destroy the thing owned.Flancia v. Court of Appeals , 457 SCRA 224 (2005).

3 Alfredo v. Borras , 404 SCRA 145 (2003);Manila Metal Container Corp. v. PNB , 511 SCRA444 (2006);Roberts v. Papio , 515 SCRA 346 (2007).

4Jovan Land, Inc. v. CA , 268 SCRA 160 (1997);Quijada v. CA , 299 SCRA 695 (1998);Co v.CA, 312 SCRA 528 (1999);San Andres v. Rodriguez , 332 SCRA 769 (2000);Roble v. Arbasa,362 SCRA 69 (2001); Polytechnic University v. CA , 368 SCRA 691 (2001); Katipunan v.Katipunan , 375 SCRA 199 (2002);Londres v. CA, 394 SCRA 133 (2002);Manongsong v.Estimo , 404 SCRA 683 (2003);Jimenez, Jr. v. Jordana , 444 SCRA 250 (2004);San LorenzoDev. Corp. v. CA , 449 SCRA 99 (2005);Yason v. Arciaga , 449 SCRA 458 (2005);Roberts v.Papio , 515 SCRA 346 (2007);Navarra v. Planters Dev. Bank , 527 SCRA 562 (2007);Republic v.

Absence of any essential elements negates a sale xDizon v. CA , 302 SCRA 288(1999),5 even when earnest money has been paid. Manila Metal Container Corp. v. PNB ,511 SCRA 444 (2006).

Sale being a consensual contract, its essential elements must be proven xVillanuevav. CA , 267 SCRA 89 (1997); but once proven, a sales validity is not affected by apreviously executed fictitious deed of sale xPealosa v. Santos, 363 SCRA 545 (2001);and the burden is on the other party to prove otherwise. xHeirs of Ernesto Biona v. CA,362 SCRA 29 (2001).

2. Stages of Contract of Sale

Policitacion covers the period from the time the prospective contracting partiesindicate interest in the contract to the time the contract is perfected.Perfection takesplace upon the concurrence of the essential elements, which are the meeting of the mindsof the parties as to the object of the contract and upon the price.Consummation beginswhen the parties perform their respective undertakings, culminating in the extinguishmentthereof. xSan Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000).6

3. Sale Creates Real Obligations To Give (Art. 1165)

4. Essential Characteristics of Sale:

a. Nominate and Principal

A contract of sale is what the law defines it to be, taking into consideration itsessential elements, and not what the contracting parties call it. xSantos v. Court of

Appeals , 337 SCRA 67 (2000).7

b. Consensual (Art. 1475)

Florendo , 549 SCRA 527 (2008).5Roberts v. Papio , 515 SCRA 346 (2007).6Limketkai Sons Milling, Inc. v. Court of Appeals , 250 SCRA 523 (1995);Jovan Land, Inc. v.

CA, 268 SCRA 160 (1997);Bugatti v. Court of Appeals , 343 SCRA 335 (2000);Moreno, Jr. v.Private Management Office , 507 SCRA 63 (2006);Manila Metal Container Corp. v. PNB , 511SCRA 444 (2006);Navarra v. Planters Dev. Bank , 527 SCRA 562 (2007);Province of Cebu v.Heirs of Rufina Morales , 546 SCRA 315 (2008).

7Bowe v. CA , 220 SCRA 158 (1993);Romero v. CA , 250 SCRA 223 (1995);Lao v. CA , 275SCRA 237 (1997);Cavite Development Bank v. Lim , 324 SCRA 346 (2000).


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A contract of sale is not a real, but a consensual contract, and becomes valid andbinding upon the meeting of the minds of the parties as to the object and the price8, that:

Upon its perfection, the parties may reciprocally demand performance.xHeirs of Venancio Bejenting v. Baez , 502 SCRA 531 (2006);9 subject

only to the provisions of the law governing the form of contracts. xCruz v.Fernando , 477 SCRA 173 (2005). It remains valid even if parties have not affixed their signatures to its

written form xGabelo v. CA, 316 SCRA 386 (1999), or the manner of payment is breached. xPilipinas Shell Petroleum Corp v. Gobonseng ,496 SCRA 305 (2006).

The binding effect of sale is based on the principle that the obligations arisingtherefrom have the force of law between the parties. xVeterans Federation of thePhilippines v. Court of Appeals , 345 SCRA 348 (2000).

Perfection Distinguished from Demandability Not all contracts of salebecome automatically and immediately effective. In sales with assumption of mortgage,there is a condition precedent to the sellers consent and without the approval of themortgagee, the sale is not perfected. xBian Steel Corp. v. Court of Appeals , 391SCRA 90 (2002).

No Contract Situation versus Void Contract Absence of consent (i.e.,complete meeting of minds) negates the existence of a perfected sale. xFirme v. Bukal Enterprises and Dev. Corp. , 414 SCRA 190 (2003). The contract then is null and voidab initio , absolutely wanting in civil effects; hence, it does not create, modify, or extinguish the juridical relation to which it refers. xCabotaje v. Pudunan , 436 SCRA 423(2004).

When there is no meeting of the minds on price, the contract is not perfectedand does not serve as a binding juridical relation between the parties. xManila Metal Container Corp. v. PNB , 511 SCRA 444 (2006),10 and should be more accuratelydenominated as inexistent, as it did not pass the stage of generation to the point of perfection. xNHA v. Grace Baptist Church , 424 SCRA 147 (2004).

8Romero v. CA , 250 SCRA 223 (1995);Balatbat v. CA, 261 SCRA 128 (1996);Coronel v. CA ,263 SCRA 15 (1996);City of Cebu v. Heirs of Candido Rubi, 306 SCRA 408 (1999);Agasen v.CA, 325 SCRA 504 (2000);Laforteza v. Machuca, 333 SCRA 643 (2000);Londres v. Court of

Appeals , 394 SCRA 133 (2002);Alcantara-Daus v. de Leon , 404 SCRA 74 (2003);Buenaventurav. Court of Appeals , 416 SCRA 263 (2003);San Lorenzo Dev. Corp. v. CA , 449 SCRA 99 (2005);Yason v. Arciaga , 449 SCRA 458 (2005);Ainza v. Padua , 462 SCRA 614 (2005);Roberts v.Papio , 515 SCRA 346 (2007);MCC Industrial Sales Corp. v. Ssangyong Corp. , 536 SCRA 408(2007);Castillo v. Reyes . 539 SCRA 193 (2007) .

9Province of Cebu v. Heirs of Rufina Morales , 546 SCRA 315 (2008).10Roberts v. Papio , 515 SCRA 346 (2007).

c. Bilateral and Reciprocal (Arts. 1169 and 1191)

A contract of sale gives rise to reciprocal obligations, which arise from the samecause with each party being a debtor and creditor of the other, such that the obligationof one is dependent upon the obligation of the other; and they are to be performedsimultaneously, so that the performance of one is conditioned upon the simultaneousfulfillment of the other. xCortes v. Court of Appeals , 494 SCRA 570 (2006).11

The power to rescind is implied in reciprocal ones in case one of the obligorsshould not comply with what is incumbent upon him, and without need of prior demand.

xAlmocera v. Ong , 546 SCRA 164 (2008).12

d. Onerous (Gaite v. Fonacier, 2 SCRA 830 [1961]).

e. Commutative (BUT SEE : Arts. 1355 and 1470)

In a contract of sale, there is no requirement that the price be equal to the exactvalue of the subject matter of sale; all that is required is that the parties believed thatthey will receive good value in exchange for what they will give.Buenaventura v. CA ,416 SCRA 263 (2003).

f. Sale Is Title and Not Mode

Sale is not a mode, but merely a title. A mode is the legal means by whichdominion or ownership is created, transferred or destroyed, but title is only the legalbasis by which to affect dominion or ownership. Sale by itself does not transfer or affectownership; the most that sale does is to create the obligation to transfer ownership. It istradition or delivery, as a consequence of sale, that actually transfers ownership. xSanLorenzo Dev. Corp. v. CA , 449 SCRA 99 (2005),13 citing VILLANUEVA, P HILIPPINEL AW ON S ALES, 1995 ed., at p. 5.

Sellers ownership of the thing sold is not an element of perfection; what the lawrequires is that seller has the right to transfer ownership at the time of delivery.xQuijada v. CA, 299 SCRA 695 (1998).14

BUT S EE : xTitong v. CA, 287 SCRA 102 (1998), which defined a sale as a contract transferring dominion and other real rights in the thing sold.

11Ong v. Court of Appeals , 310 SCRA 1 (1999);Mortel v. KASSCO , 348 SCRA 391 (2000); Agro Conglomerates, Inc. v. CA, 348 SCRA 450 (2000);Velarde v. Court of Appeals , 361 SCRA56 (2001);Carrascoso, Jr. v. Court of Appeals , 477 SCRA 666 (2005).

12Vda. De Quirino v. Palarca, 29 SCRA 1 (1969)13 Acap v. CA , 251 SCRA 30 (1995).14Equatorial Realty Dev. Inc. v. Mayfair Theater, Inc. , 370 SCRA 56 (2001); Alcantara-Daus v.

de Leon , 404 SCRA 74 (2003);Heirs of Jesus M. Mascuana v. Court of Appeals , 461 SCRA186 (2005).

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B. SALEDISTINGUISHED FROMSIMILARCONTRACTS

A contract is what the law defines it to be, taking into consideration its essential elements,and the title given to it by the parties is not as much significant as its substance.15 The transfer of ownership in exchange for a price paid or promised is the very essence of a contract of sale.xSantos v. Court of Appeals, 337 SCRA 67 (2000).

In determining the real character of sale, courts look at the intent of the parties, their trueaim and purpose in entering into the contract, as well as by their conduct, words, actions anddeeds prior to, during and immediately after executing the agreement, and not at thenomenclature used to describe it, xLao v. Court of Appeals , 275 SCRA 237 (1997).

1. Donation (Arts. 725 and 1471)

Unlike a donation, sale is a disposition for valuable consideration with no diminution of the estate but merely substitution of values, with the property sold replaced by theequivalent monetary consideration; unlike donation, a valid sale cannot have the legal effectof depriving the compulsory heirs of their legitimes. xManongsong v. Estimo , 404 SCRA683 (2003).

The rules on double sales under Art. 1544 find no relevance to contracts of donation.xHemedes v. Court of Appeals, 316 SCRA 347 (1999).

2. Barter (Arts. 1468, 1638 to 1641)3. Contract for Piece-of-Work (Arts. 1467, 1713 to 1715)

The Crux: Ineluctably, whether the contract be one of sale or one for a piece of work, a transfer of ownership is involved and a party necessarily walks away with anobject. xCommissioner of Internal Revenue v. CA , 271 SCRA 605 (1997), citing VILLANUEVA, L AW ON S ALES, pp. 7-9 (1995). In both provisions on warranty of title againsthidden defects applies. xDio v. CA , 359 SCRA 91 (2001).

When a person stipulates for the future sale of articles which he is habitually making,and which at the time are not made or finished, it is essentially a contract of sale and nota contract for labor xInchausti & Co. v. Cromwell , 20 Phil. 345 (1911); even when heexecutes production thereof only after an order is placed by customers.Celestino & Co.v. Collector , 99 Phil. 841 (1956).

If the thing is specially done only upon the specific order of another, this is a contractfor a piece of work; if the thing is manufactured or procured for the general market in theordinary course of business, it is a contract of sale.Commissioner of Internal Revenue v. Engineering Equipment & Supply Co. , 64 SCRA 590 (1975).16

15Romero v. CA , 250 SCRA 223 (1995);Lao v. Court of Appeals , 275 SCRA 237 (1997);Orden v. Aurea , 562 SCRA 660 (2008);Ver Reyes v. Salvador, Sr. , 564 SCRA 456 (2008)..

To Tolentino, the distinction depends on the intention of parties : if parties intendedthat at some future date an object has to be delivered, without considering the work or labor of the party bound to deliver, the contract is one of sale; but if one of the partiesaccepts the undertaking on the basis of some plan, taking into account the work he willemploy personally or through another, the contract is for a piece of work. xEngineering &Machinery Corp. v. CA , 252 SCRA 156 (1996).

4. Agency to Sell (Art. 1466)

Assumption by agent of the risk pertaining to the cost or price of the subject matter makes the relationship that of buyer-seller, for the agent does not assume risk withrespect to the price or the property subject of the relationship. xKer & Co., Ltd. v. Lingad ,38 SCRA 524 (1971). Consequently: (a) the contractual relationship is not inherentlyrevocable. Quiroga v. Parsons , 38 Phil. 501 (1918); or (b) the purported agent doesnot have to account for the profit margin earned from acquiring the property for thepurported principal.Puyat v. Arco Amusement Co. , 72 Phil. 402 (1941).

One factor that most clearly distinguishes agency from other legal concepts,including sale, iscontrol ; one person the agent agrees to act under the control or direction of another the principal. xVictorias Milling Co., Inc. v. CA, 333 SCRA 663(2000).

Commercial broker, commission merchant or indentor is amiddleman acting in hisown name , and acts as agent for both seller and buyer to effect a sale between them. Although he is neither seller nor buyer to the contract effected he may voluntarily assumewarranties of seller. xSchmid and Oberly, Inc. v. RJL Martinez , 166 SCRA 493 (1988).

5. Dacion En Pago (Arts. 1245 and 1934)

Governed by the law on sales , dation in payment is a transaction that takes placewhen property is alienated to the creditor in full satisfaction of a debt in moneyit involvesthe delivery and transmission of ownership of a thing as an accepted equivalent of theperformance of the obligation. xYuson v. Vitan , 496 SCRA 540 (2007).

In its modern concept, what actually takes place indacion en pago is an objectivenovation of the obligation where the thing offered as an accepted equivalent of theperformance of an obligation is considered as the object of the contract of sale, while thedebt is considered as the purchase price. xAquintey v. Tibong 511 SCRA 414 (2006).

Elements of dation in payment: (a) performance of the prestation in lieu of payment

(animo solvendi ) which may consist in the delivery of a corporeal thing or a real right or acredit against the third person; (b) some difference between the prestation due and thatwhich is given in substitution (aliud pro alio ); and (c) agreement between the creditor anddebtor that the obligation is immediately extinguished by reason of the performance of a

16Commissioner of Internal Revenue v. Arnoldus Carpentry Shop , 159 SCRA 199 (1988);Del Monte Philippines, Inc. v. Aragones , 461 SCRA 139 (2005).

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Under Art. 1347, a sale involving future inheritance is void and cannot be thesource of any right nor create any obligation. xTaedo v. Court of Appeals , 252 SCRA80 (1996).

Article 1347 does not cover waiver of hereditary rights which is not equivalent tosale, since waiver is a mode of extinction of ownership in favor of the other personswho are co-heirs. x Acap v. Court of Appeals , 251 SCRA 30 (1995).

A mortgagor is not prevented from selling the property, since it is merelyencumbrance and effect a loss of his principal attribute as owner to dispose of theproperty. Law even considers void a stipulation forbidding the owner from alienatingmortgaged immovable. xPineda v. CA , 409 SCRA 438 (2003).

3. Must Be Determinate or At Least Determinable (Art. 1460)

When the deed of sale describes a lot adjacent to the land seen, agreed upon anddelivered to the buyer, such land is the one upon which the minds have met, and notthat erroneously described in the deed. Atilano v. Atilano , 28 SCRA 231 (1969).1

a. Generic things may be object of sale (Arts. 1246 and 1409[6])

Subject matter is determinable when by a formula or description agreed uponat perfection there is a way by which the courts can delineate independent of thewill of the parties.Melliza v. City of Iloilo , 23 SCRA 477 (1968).

Where the lot sold is said to adjoin the previously paid lot on three sidesthereof, the subject lot is capable of being determined without the need of any newcontract, even when the exact area of the adjoining residential lot is subject to theresult of a survey. xSan Andres v. Rodriguez, 332 SCRA 769 (2000).

Determinable subject matter of sale are not subject to risk of loss until they arephysically segregated or particularly designated.Yu Tek & Co. v. Gonzales , 29Phil. 384 (1915).

b. Undivided Interest (Art. 1463)or Undivided Share in a Mass of Fungible Goods(Art. 1464) May result it co-ownership.

4. Quantity of Subject Matter Not Essential for Perfection? (Art. 1349)

Sale of grains is perfected even when the exact quantity or quality is not known,so long as the source of the subject is certain.NGA v. IAC , 171 SCRA 131 (1989).

Where seller quoted to buyer the items offered for sale, by item number, partnumber, description and unit price, and the buyer had sent in reply a purchase order without indicating the quantity being order, there was already a perfected contract of

1Londres v. CA , 394 SCRA 133 (2002).

sale, even when required letter of credit had not been opened by the buyer.Johannes Schuback & Sons Phil. Trading Corp. v. CA , 227 SCRA 719 (1993).

5. Sellers Obligation to Transfer Title to Buyer (Art. 1459, 1462, and 1505)

a. Seller's Ownership Need Not Exist at Perfection:

Sale of copra for future delivery does not make seller liable for estafa for failingto deliver because the contract is still valid and the obligation was civil and notcriminal. xEsguerra v. People , 108 Phil. 1078 (1960).

A perfected contract of sale cannot be challenged on the ground of the sellersnon-ownership of the thing sold at the time of the perfection of the contract; it is atdelivery that the law requires the seller to have the right to transfer ownership of thething sold. x Alcantara-Daus v. de Leon , 404 SCRA 74 (2003).

It is essential that seller is owner of the property he is selling. The principalobligation of a seller is to transfer the ownership of the property sold (Art. 1458).This law stems from the principle that nobody can dispose of that which does notbelong to him. NEMO DAT QUOD NON HABET . xNoel v. CA, 240 SCRA 78(1995).

That the sellers are no longer owners of the goods at perfection does notappear to be one of the void contracts enumerated in Art. 1409 of Civil Code, andunder Art. 1402 the Civil Code itself recognizes a sale where the goods are to beacquired x x x by the seller after the perfection of the contract of sale clearlyimplying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property later on; nevertheless such contractmay be deemed to be inoperative and may thus fall, by analogy, under Art. 1409(5):Those which contemplate an impossible service.Nool v. CA, 276 SCRA 149(1997).

b. Subsequent Acquisition of Title by Non-Owner Seller (Art. 1434) validates thesale and title passes to the seller by operation of law.

c. Acquisition by the Buyer May Even Depend on Contingency (Art. 1462).

X 6. Illegality of Subject Matter (Arts. 1409, 1458, 1461, 1462, and 1575)

a. Special Laws : narcotics (R.A. 6425); wild bird or mammal (Act 2590, Sec. 7); rarewild plants (Act 3983); poisonous plants or fruits (R.A. 1288); dynamited fish (R.A428); gunpowder and explosives (Act 2255); firearms and ammunitions (P.D. 9);sale of realty by non-Christians (Sec. 145, Revised Adm. Code, R.A 4252)

b. Following Sales of Land Void: By Non-Christian if not approved by Provincial Governor per Sec. 145 of

Revised Administrative Code. xTac-an v. CA , 129 SCRA 319 (1984).

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Friar land without consent of Secretary of Agriculture required under Act No.1120. x Alonso v. Cebu Country Club, Inc., 375 SCRA 390 (2002);Liao v. CA,323 SCRA 430 (2000).

Made in violation of land reform laws declaring tenant-tillers as the full owners of the lands they tilled. xSiacor v. Gigantana , 380 SCRA 306 (2002).

Reclaimed lands are of the public domain and cannot, without congressional fiat,be sold, public or private.Fisheries Dev. Authority v. Court of Appeals , 534SCRA 490 (2007).

IV. PRICE AND OTHER CONSIDERATION (Arts. 1469-1474)

Price signifies the sum stipulated as the equivalent of the thing sold and also everyincident taken into consideration for the fixing of the price put to the debit of the buyer andagreed to by him. xInchausti & Co. v. Cromwell, 20 Phil. 345 (1911).

Seller cannot unilaterally increase the price previously agreed upon with the buyer,even when due to increased construction costs. xGSIS v. Court of Appeals , 228 SCRA 183(1993).

Buyer who opted to purchase the land on installment basis with imposed interest,cannot later unilaterally disavow the obligation created by the stipulation in the contractwhich sets the interest at 24% per annum: The rationale behind having to pay a higher sumon the installment is to compensate the vendor for waiting a number of years beforereceiving the total amount due. The amount of the stated contract price paid in full today isworth much more that a series of small payments totaling the same amount. x x x To assertthat mere prompt payment of the monthly installments should obviate imposition of thestipulated interest is to ignore an economic fact and negate one of the most importantprinciples on which commerce operates. xBortikey v. AFP RSBS , 477 SCRA 511 (2005).

1. Price Must Be Real (Art. 1471)

a. When Price Simulated

(1) Mapalo v. Mapalo , 17 SCRA 114 (1966), versus: When two aged ladies, notversed in English, sign a Deed of Sale on representation by buyer that it wasmerely to evidence their lending of money, the situation constitutes more than justfraud and vitiation of consent to give rise to a voidable contract, since there was infact no intention to enter into a sale, there was no consent at all, and moreimportantly, there was no consideration or price agreed upon, which makes thecontract voidab initio . Rongavilla v. Court of Appeals, 294 SCRA 289 (1998).

(2) Mate v. CA, 290 SCRA 463 (1998),versus: When Deed of Sale was executed tofacilitate transfer of property to buyer to enable him to construct a commercialbuilding and to sell the property to the children, such arrangement being merely a

subterfuge on the part of buyer, the agreement cannot also be taken as aconsideration and sale is void.Yu Bun Guan v. Ong , 367 SCRA 559 (2001).

(3) Effects When Price Simulated The principle of in pari delicto nonoritur action ,which denies all recovery to the guilty partiesinter se , where the price issimulated; the doctrine applies only where the nullity arises from the illegality of

the consideration or the purpose of the contract. xModina v. Court of Appeals ,317 SCRA 696 (1999).2

b. When Price is False (Arts. 1353 and 1354)

When the parties intended to be bound but the deed did not reflect the actualprice agreed upon, there is only a relative simulation of the contract which remainsvalid and enforceable, but subject to reformation. xMacapgal v. Remorin , 458 SCRA652 (2005).

When price indicated in deed of absolute sale is undervalued considerationpursuant to intention to avoid payment of higher capital gains taxes, the price statedis false, but the sale is still valid and binding on the real terms. xHeirs of SpousesBalite v. Lim , 446 SCRA 54 (2004).

c. Non-Payment of Price

Sale being consensual, failure of buyer to pay the price does not make thecontract void for lack of consideration or simulation, but results in buyers default, for which the seller may exercise his legal remedies. xBalatbat v. CA , 261 SCRA 128(1996).3

In a contract of sale, the non-payment of the price is a resolutory conditionwhich extinguishes the transaction that, for a time, existed and discharges theobligations created thereunder.[?] The remedy of an unpaid seller in a contract of sale is to seek either specific performance or rescission. xHeirs of Pedro Escanlar v.Court of Appeals, 281 SCRA 176 (1997).4

Badge That Price Is Simulated, Not Just Unpaid: It is a badge of simulatedprice, which render the sale void, when the price, which appears thereon as paid, hasin fact never been paid by the purchaser to the seller. xVda. de Catindig. v. Heirs of Catalina Roque , 74 SCRA 83 (1976).5

2Yu Bun Guan v. Ong, , 367 SCRA 559 (2001);Gonzales v. Trinidad, 67 Phil. 682 (1939)3Pealosa v. Santos, 363 SCRA 545 (2001);Soliva v. The Intestate Estate of Marcelo M.

Villalba , 417 SCRA 277 (2003);Province of Cebu v. Heirs of Rufina Morales , 546 SCRA 315(2008).

4Villaflor v. Court of Appeals , 280 SCRA 297 (1997).5Ocejo v. Florex , 40 Phil. 921 (1920);Ladanga v. CA , 131 SCRA 361 (1984);Rongavilla v.

Court of Appeals, 294 SCRA 289 (1998);Labagala v. Santiago , 371 SCRA 360 (2001);Cruz v.

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2. Must Be in Money or Its Equivalent (Arts. 1458 and 1468)

Price must be valuable consideration as mandated by Civil Law, instead of anyprice mandated in common law.Ong v. Ong , 139 SCRA 133 (1985); Bagnas v.CA , 176 SCRA 159 (1989); Republic v. Phil. Resources Dev. , 102 Phil. 960 (1958).

Consideration for sale can take different forms, such as the prestation or promiseof a thing or service by another, thus:

When deed provides that the consideration was the expected profits from thesubdivision project. xTorres v. Court of Appeals , 320 SCRA 428 (1999).

Cancellation of liabilities on the property in favor of the seller. xPolytechnic University v. Court of Appeals , 368 SCRA 691 (2001).

Assumption of mortgage constituted on the property sold. xDoles v. Angeles ,492 SCRA 607 (2006).6

3. Must Be Certain or Ascertainable at Perfection (Art. 1469)

a. How Price Determined to Be Ascertainable

(i) Set by third person appointed at perfection (Art. 1469)

(ii) Set by the courts (Art. 1469)

(iii) By reference to a definite day, particular exchange or market (Art. 1472)

(iv) By reference to another thing certain, such as to invoices then in existenceand clearly identified by the agreement xMcCullough v. Aenlle , 3 Phil. 285(1904); or known factors or stipulated formula ( xMitsui v. Manila , 39 Phil. 624(1919).

Price is ascertainable if the terms of the contract furnishes the courts a basis or measure for determining the amount agreed upon, without having to refer back toeither or both parties. xVillanueva v. Court of Appeals , 267 SCRA 89 (1997).7

Where the sale involves an asset under a privatization scheme which attaches apeculiar meaning or signification to the term indicative price as merely constituting aball-park figure, then the price is not certain. xMoreno, Jr. v. Private Management Office , 507 SCRA 63 (2006).

Bancom Finance Corp. , 379 SCRA 490 (2002);Montecillo v. Reynes , 385 SCRA 244 (2002);Republic v. Southside Homeowners Asso. , 502 SCRA 587 (2006);Quimpo, Sr. v Abad Vda deBeltran , 545 SCRA 174 (2008).

6The deed of sale with assumption of mortgage is a registrable instrument and must beregistered with the Register of Deeds in order to bind third parties.Rodriguez v. Court of Appeals ,495 SCRA 490 (2006).

7Boston Bank of the Philippines v. Manalo , 482 SCRA 108 (2006).

Consideration is generally agreed upon as whole even if it consists of severalparts, and even if it is contained in one or more instruments; otherwise there would beno price certain, and the contract of sale not perfected. x Arimas v. Arimas , 55 O.G.8682.

b. Price Never Set By One or Both Parties (Arts. 1473, 1182),unless the price isseparately accepted by the other party .

c. Effects of Unascertainability: Sale is inefficacious .

BUT: If Buyer Appropriates the Object, He Must Pay Reasonable Price . (Art.1474)

There can be no concept of appropriation when it comes to land? Where a church organization has been allowed possession and introduceimprovements on the land as part of its application to purchase with the NHA, andthereafter it refused the formal resolution of the NHA Board setting the price andinsisted on paying the lower price allegedly given by the NHA Field Office, therecan be no binding contract of sale upon which an action for specific performancecan prosper, not even on fixing the price equal to the fair market value of theproperty. xNHA v. Grace Baptist Church , 424 SCRA 147 (2004).

4. Manner of Payment of Price ESSENTIAL A definite agreement on the manner of payment of price is an essential element in the

formation of a binding and enforceable contract sale; without it the sale is void and an actionfor specific performance must fail.Navarra v. Planters Dev. Bank , 527 SCRA 562(2007).8

When the manner of payment of the price is discussed after acceptance, then suchacceptance did not produce a binding and enforceable contract of sale. xNavarro v. Sugar Producer's Corp ., 1 SCRA 1180 (1961).

Where there is no other basis for the payment of the subsequent amortizations in aDeed of Conditional Sale, the reasonable conclusion one can reach is that the subsequentpayments shall be made in the same amount as the first payment. [?] xDBP v. Court of

Appeals, 344 SCRA 492 (2000).

5. Inadequacy of Price Does Not Affect Ordinary Sale (Arts. 1355 and 1470)

8Velasco v. CA , 51 SCRA 439 (1973);Co v. Court of Appeals, 286 SCRA 76 (1998);SanMiguel Properties Philippines v. Huang, 336 SCRA 737 (2000);Montecillo v. Reynes , 385 SCRA244 (2002);Edrada v. Ramos , 468 SCRA 597 (2005);Cruz v. Fernando , 477 SCRA 173 (2005);Marnelego v. Banco Filipino Savings and Mortgage Bank , 480 SCRA 399 (2006);Boston Bank of the Phil. v. Manalo , 482 SCRA 108 (2006);Platinum Plans Phil., Inc. v. Cucueco , 488 SCRA 156(2006);Manila Metal Container Corp. v. PNB , 511 SCRA 444 (2006).

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Mere inadequacy of the price does not affect the validity of the sale when both partiesare in a position to form an independent judgment concerning the transaction, unless fraud,mistake, or undue influence indicative of a defect in consent is present. The contract may beannulled for vitiated consent and not due to the inadequacy of price. xBautista v. Court of

Appeals , 436 SCRA 141 (2004).9

Absent any evidence of the fair market value of a land as of the time of its sale, itcannot be concluded that the price at which it was sold was inadequate. x Acabal v. Acabal,454 SCRA 897 (2005).10

a. Gross Inadequacy of Price May Avoid Judicial Sale:

(i) Only when it is shocking to the conscience of man. xPascua v. Simeon , 161 SCRA 1(1988); and

(ii) There is showing that, in the event of a resale, a better price can be obtained. xCuBie v. Court of Appeals , 15 SCRA 307 (1965).11

UNLESS : There is right of redemption, in which case the proper remedy is to redeem. xDe Leon v. Salvador , 36 SCRA 567 (1970).12

BUT: By way of extraordinary circumstances perceived, when in a judicial sale the rightof redemption has been lost, where the inadequacy of the price is purely shocking to the conscience, such that the mind revolts at it and such that a

reasonable man would neither directly or indirectly be likely to consent to it, thesame will be se aside. xCometa v. Court of Appeals, 351 SCRA 294 (2001).

There is gross inadequacy in price if a reasonable man will not agree to dispose of his property.Dorado Vda. De Delfin v. Dellota , 542 SCRA 397 (2008).

When judicial sale is voided without fault of purchaser, the latter is entitled re turn of price with simple interest, together with all sums paid out by him in improvementsintroduced on the property, taxes, and other expenses. xSeven Brothers Shipping Corp.v. Court of Appeals , 246 SCRA 33 (1995).

b. Lesion of more than 1/4 of value of thing makes sale rescissible unless approvedby court (Art. 1386).

c. Gross inadequacy of price may raise the presumption of equitable mortgage (Art.1602).

9Ereeta v. Bezore , 54 SCRA 13 (1973).10 Avila v. Barabat , 485 SCRA 8 (2006).11Tayengco v. Court of Appeals , 15 SCRA 306 (1965);Republic v. NLRC , 244 SCRA 564

(1995).12Vda. de Gordon v. Court of Appeals , 109 SCRA 388 (1981).

V. FORMATION OF CONTRACT OF SALE (Arts. 1475-1488)

A. P OLICITACION STAGE (Art. 1479)

Policitation stage covers the doctrine of freedom of contract which signifies or implies the right to choose with whom to contract. A property owner is free to offer hisproperty for sale to any interested person, and is not duty bound to sell the same to theoccupant thereof, absent any prior agreement vesting the occupants the right of firstpriority to buy. xGabelo v. Court of Appeals, 316 SCRA 386 (1999).

A negotiation is formally initiated by an offer, which, however, must be certain. Atany time prior to the perfection of the contract, either negotiating party may stop thenegotiation. At this stage, the offer may be withdrawn; the withdrawal is effectiveimmediately after its manifestation. To convert the offer into a contract, the acceptancemust be absolute and must not qualify the terms of the offer; it must be plain,unequivocal, unconditional and without variance of any sort from the proposal.ManilaMetal Container Corp. v. PNB , 511 SCRA 444 (2006).13

An unaccepted unilateral promise (offer to buy or to sell) prior to acceptance, doesnot give rise to any obligation or right. xRaroque v. Marquez , 37 O.G. 1911.

Where the offer is given with a stated time for its acceptance, the offer is terminatedat the expiration of that time. xVillegas v. Court of Appeals , 499 SCRA 276 (2006).

1. Option Contract An option is a preparatory contract in which one party grants to the other, for a fixed

period and under specified conditions, the power to decide, whether or not to enter into aprincipal contract. It binds the party who has given the option, not to enter into theprincipal contract with any other person during the period designated, and, within thatperiod, to enter into such contract with the one to whom the option was granted, if thelatter should decide to use the option. It is a separate agreement distinct from thecontract of sale which the parties may enter into upon the consummation of the option.Carceller v. Court of Appeals, 302 SCRA 718 (1999).14

An option imposes n o binding obligation on the person holding the option asidefrom the consideration for the offer. Until accepted, it is not treated as a sale.Tayag v.Lacson , 426 SCRA 282 (2004).15

13Navarra v. Planters Dev. Bank , 527 SCRA 562 (2007).14Laforteza v. Machuca, 333 SCRA 643 (2000);Buot v. CA , 357 SCRA 846 (2001);Tayag v.

Lacson , 426 SCRA 282 (2004); Abalos v. Macatangay, Jr., 439 SCRA 649 (2004);Vasquez v. Ayala Corp. , 443 SCRA 231 (2004).

15 Adelfa Properties, Inc. v. CA , 240 SCRA 565 (1995);Kilosbayan, Inc. v. Morato , 246 SCRA540 (1995);San Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000);Limson v.CA, 357 SCRA 209 (2001).

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Tenants, not being the registered owners, cannot grant an option on the land, muchless any exclusive right to buy the property under the Latin saying nem dat quod nonhabet . xTayag v. Lacson , 426 SCRA 282 (2004).

a. Meaning of Separate Consideration (Arts. 1479 and 1324)

A unilateral promise to sell, in order to be binding upon the promissor, must befor a price certain and supported by a consideration separate from such price.

xSalame v. Court of Appeals , 239 SCRA 356 (1995).16

The separate consideration in an option may be anything of value, unlike insale where it must be the price certain in money or its equivalent.Villamor v. Court of Appeals, 202 SCRA 607 (1991),17 such when the option is attached to a realestate mortgage xSoriano v. Bautista , 6 SCRA 946 (1962).

Although no consideration is expressly mentioned in an option contract, it ispresumed that it exists and may be proved, and once proven, the option is binding.

xMontinola v. Cojuangco , 78 Phil. 481 (1947).

b. No Separate Consideration: Void as Option, Valid as a Certain Offer Sanchez v. Rigos , 45SCRA 368(1972).18

BUT L ATELY : xYao Ka Sin Trading v. CA , 209 SCRA 763 (1991);xMontilla v. CA ,161 SCRA 855 (1988); xNatino v. IAC, 197 SCRA 323 (1991); and

xDiamante v. CA, 206 SCRA 52 (1992).

c. There Must Be Acceptance of Option Offer. Vazquez v. CA , 199 SCRA 102(1991).

d. Proper Exercise of Option Contract . Nietes v. CA , 46 SCRA 654 (1972).

An option attached to a lease when not exercised within the option period isextinguished and cannot be deemed to have been included in the implied renewal(tacita reconduccion ) of the lease. xDizon v. CA , 302 SCRA 288 (1999).

Proper exercise of an option gives rise to the reciprocal obligations of salexHeirs of Luis Bacus v. Court of Appeals, 371 SCRA 295 (2001),19 which must be

16JMA House, Inc. v. Sta. Monica Industrial and Dev. Corp. , 500 SCRA 526 (2006).17De la Cavada v. Diaz , 37 Phil. 982 (1918); xSan Miguel Properties Philippines, Inc. v.

Huang, 336 SCRA 737 (2000)18 Affirming Atkins, Kroll & Co., Inc. v. Cua , 102 Phil. 948 (1958);overturning Southwestern

Sugar Molasses Co. v. Atlantic Gulf & Pacific Co. , 97 Phil. 249 (1955).19Limson v. Court of Appeals, 357 SCRA 209 (2001).

enforced with ten (10) years as provided under Art. 1144. xDizon v. Court of Appeals ,302 SCRA 288 (1999).

There must be virtual exercise of option with the option period.Carceller v.Court of Appea ls , 302 SCRA 718 (1999).

2. Right of First Refusal A right of first refusal cannot be the subject of specific performance, but breach

would allow a recovery of damages. xGuerrero v. Yigo, 96 Phil. 37 (1954).

Rights of first refusal only constitute innovative juridical relations, but do not rise tothe level of contractual commitment since with the absence of agreement on pricecertain, they are not subject to contractual enforcement. Ang Yu Asuncion v. Court of

Appeals , 238 SCRA 602 (1994).

Right of first refusal contained in a lease, when breached by promissor allowsenforcement by the promisee by way of rescission of the sale entered into with the thirdparty, pursuant to Arts. 1381(3) and 1385 of Civil Code. xGuzman, Bocaling & Co. v.Bonnevie , 206 SCRA 668 (1992);Equatorial Realty Dev., Inc. v. Mayfair Theater,Inc. , 264 SCRA 483 (1996);20 Paranaque Kings Enterprises, Inc. v. CA, 268 SCRA727, 741 (1997).

In a right of first refusal, while the object might be made determinate, the exercise of the right would be dependent not only on the grantors eventual intention to enter into abinding juridical relation with another but also on terms, including the price, that are yetto be firmed up. . . . the offer may be withdrawn anytime by communicating thewithdrawal to the other party.Vasquez v. Ayala Corp. , 443 SCRA 231 (2004).

A right of first refusal clause simply means that should the lessor decide to sell theleased property during the term of the lease, such sale should first be offered to thelessee; and the series of negotiations that transpire between the lessor and the lesseeon the basis of such preference is deemed a compliance of such clause even when nofinal purchase agreement is perfected between the parties . The lessor was then at libertyto offer the sale to a third party who paid a higher price, and there is no violation of theright of the lessee.Riviera Filipina, Inv. v. Court of Appeals , 380 SCRA 245 (2002).21

A right of first refusal in a lease in favor of the lessee cannot be availed of by thesublessee. xSadhwani v. Court of Appeals , 281 SCRA 75 (1997).

4. Mutual Promises to Buy and Sell (Art. 1479): True Contract to Sell 20Rosencor Dev. Corp. v. Inquing , 354 SCRA 119 (2001);Conculada v. CA, 367 SCRA 164

(2001); Polytechnic University v. CA , 368 SCRA 691 (2001);Riviera Filipina, Inv. v. Court of Appeals , 380 SCRA 245 (2002);Lucrative Realty and Dev. Corp. v. Bernabe, Jr. , 392 SCRA 679(2002);Villegas v. Court of Appeals , 499 SCRA 276 (2006).

21Polytechnic University v. CA , 368 SCRA 691 (2001);Villegas v. CA , 499 SCRA 276 (2006).

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Mutual promises to buy and sell a certain thing for a certain price gives each of thecontracting parties a right to demand from the other the fulfillment of the obligation.

xBorromeo v. Franco , 5 Phil. 49 (1905).

Even in this case the certainty of the price must also exist, otherwise, there is novalid and enforceable contract to sell. xTan Tiah v. Yu Jose , 67 Phil. 739 (1939).

An accepted bilateral promise to buy and sell is in a sense similar to, but notexactly the same, as a perfected contract of sale because there is already a meeting of minds upon the thing which is the object of the contract and upon the price.22 But acontract of sale is consummated only upon delivery and payment, whereas in a bilateralpromise to buy and sell gives the contracting parties rightsin personam, such that eachhas the right to demand from the other the fulfillment of their respective undertakings.Macion v. Guiani, 225 SCRA 102 (1993).23

The cause of action under a mutual promise to buy and sell is 10 years. xVillamor v. Court of Appeals , 202 SCRA 607 (1991).

B. PERFECTIONSTAGE (Arts. 1475, 1319, 1325 and 1326)

Sale is perfected at the moment there is a meeting of minds upon the thing which isthe object of the contract and upon the price. From that moment, the parties mayreciprocally demand performance subject to the law governing the form of contracts.xMarnelego v. Banco Filipino Savings and Mortgage Bank , 480 SCRA 399 (2006).24

Mutual consent being a state of mind, its existence may only be inferred from theconfluence of two acts of the parties: an offer certain as to the object of the contract and itsconsideration, and an acceptance of the offer which is absolute in that it refers to the exactobject and consideration embodied in said offer. xVillanueva v. PNB , 510 SCRA 275(2006).25

If a material element of a contemplated contract is left for future negotiations, thesame is too indefinite to be enforceable. For a contract to be enforceable, its terms mustbe certain and explicit, not vague or indefinite.xBoston Bank of the Phil. v. Manalo , 482SCRA 108 (2006).

So long as there is any uncertainty or indefiniteness, or future negotiations or consideration yet to be had between the parties, there is no contract at all. xMoreno, Jr. v.Private Management Office , 507 SCRA 63 (2006).

22

El Banco Nacional Filipino v. Ah Sing, 69 Phil. 611 (1940);Manuel v. Rodriguez, 109 Phil. 1(1960).23Borromeo v. Franco , 5 Phil. 49 (1905);Villamor v. CA , 202 SCRA 607 (1991);Coronel v.

CA, 263 SCRA 15 (1996).24Valdez v. Court of Appeals , 439 SCRA 55 (2004);Blas v. Angeles-Hutalla , 439 SCRA 273

(2004);Ainza v. Padua , 462 SCRA 614 (2005);Cruz v. Fernando , 477 SCRA 173 (2005).25Moreno, Jr. v. Private Management Office , 507 SCRA 63 (2006).

1. Absolute Acceptance of a Certain Offer (Art. 1475)

A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of the original offer. The acceptance must be identical in all respectswith that of the offer so as to produce consent or meeting of minds.Manila Metal Container Corp. v. PNB , 511 SCRA 444 (2006).26

Placing the word Noted and signing such note at the bottom of the written offer cannot be considered an acceptance that would give rise to a valid contract of sale. xDBP v. Ong , 460 SCRA 170 (2005).

If sale subject to suspensive condition: No perfected sale of a lot where theaward thereof was expressly made subject to approval by the higher authorities andthere eventually was no acceptance manifested by the supposed awardee. xPeople'sHomesite & Housing Corp. v. CA , 133 SCRA 777 (1984).

2. When Deviation Allowed: Villonco v. Bormaheco , 65 SCRA 352 (1975).

3. Sale by Auction (Arts. 1476, 1403(2)(d), 1326)

The terms and conditions provided by the owner of property to be sold at auctionare binding upon all bidders, whether they knew of such conditions or not. xLeoquincov. Postal Savings Bank , 47 Phil. 772 (1925).

A auction sale is perfected by the fall of the hammer or in other customary manner and it does not matter that another was allowed to match the bid of the highest bidder.xProvince of Cebu v. Heirs of Rufina Morales , 546 SCRA 315 (2008).

4. Earnest Money (Art. 1482)

Earnest money given by the buyer shall be considered as part of the price and asproof of the perfection of the contract. It constitutes an advance payment to be deductedfrom the total price. xEscueta v. Lim , 512 SCRA 411 (2007).

Absent proof of the concurrence of all the essential elements of a contract of sale,the giving of earnest money cannot establish the existence of a perfected contract of sale. Manila Metal Container Corp. v. PNB , 511 SCRA 444 (2006). 27

Article 1482 does not apply when earnest money given in a contract to sell xSerrano v. Caguiat , 517 SCRA 57 (2007), especially where by stipulation the buyer has

the right to walk away from the transaction, with no obligation to pay the balance,26Beaumont v. Prieto , 41 Phil. 670 (1916);Zayco v. Serra, 44 Phil. 326 (1923).27Limjoco v. CA , 37 SCRA 663 (1971); Villonco v. Bormaheco , 65 SCRA 352 (1975);

Spouses Doromal, Sr. v. CA , 66 SCRA 575 (1975);PNB v. CA , 262 SCRA 464 (1996);SanMiguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000);Platinum Plans Phil. Inc. v.Cucueco , 488 SCRA 156 (2006).

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the details of the consummation of contracts. xLagon v. Hooven ComalcoIndustries, Inc., 349 SCRA 363 (2001).

2. WHENFORMIMPORTANT INSALE

a. To Bind Third Parties

Article 1358 which requires the embodiment of certain contracts in a publicinstrument is only for convenience, and registration of the instrument only adverselyaffects third parties. Formal requirements are, therefore, for the benefit of thirdparties; and non-compliance therewith does not adversely affect the validity of thecontract nor the contractual rights and obligations of the parties thereunder.Fule v.CA , 286 SCRA 698 (1998);34 Dalion v. CA , 182 SCRA 872 (1990).35

Non-registration of a contract of sale does not affect its validity and bindingeffect as between the contracting parties themselves. xUniversal Robina Sugar Milling Corp. v. Heirs of Angel Teves , 389 SCRA 316 (2002).

While sale of land appearing in a private deed is binding between the parties, itcannot be considered binding on third persons, if it is not embodied in a publicinstrument and recorded in the Registry of Deeds.Secuya v. Vda. De Selma, 326SCRA 244 (2000).36

b. For Enforceability Between the Parties: S TATUTE OF FRAUDS (Arts. 1403 and 1405)The term Statute of Frauds is descriptive of the statutes which require certain

classes of contracts, such as agreements for the sale of real property, to be in writing,the purpose being to prevent fraud and perjury in the enforcement of obligationsdepending for their evidence on the unassisted memory of witnesses by requiringcertain enumerated contracts and transactions to be evidenced by a writing signed bythe party to be charged.37

Presupposes Valid Contract of Sale The application of the Statute of Frauds presupposes the existence of a perfected contract. When the records showthat there was no perfected contract of sale, there is no basis for the application of the Statute of Frauds. xFirme v. Bukal Enterprises and Dev. Corp. , 414 SCRA 190(2003).38

(1) Coverage:

34Universal Robina Sugar Milling Corp. v. Heirs of Angel Teves , 389 SCRA 316 (2002).35Limketkai Sons Milling, Inc. v. CA , 250 SCRA 523 (1995); Agasen v. CA, 325 SCRA 504

(2000).36Talusan v. Tayag, 356 SCRA 263 (2001);Santos v. Manalili, 476 SCRA 679 (2005).37Shoemaker v. La Tondea , 68 Phil. 24 (1939).38xRosencor Development Corp. v. Inquing , 354 SCRA 119 (2001).

(i) Sale of Real Property A sale of realty cannot be proven by means of witnesses, but must necessarily be evidenced by a written instrument, dulysubscribed by the party charged, or by secondary evidence of the contentsof such document. No other evidence can be received except thedocumentary evidence referred to. xGorospe v. Ilayat, 29 Phil. 21 (1914).39

(ii) Agency to Sell or to Buy As contrasted from sale, an agency to sell doesnot belong to any of the three categories of contracts covered by Arts. 1357and 1358 and not one enumerated under the Statutes of Frauds in Art.1403. xLim v. Court of Appeals , 254 SCRA 170 (1996).40

(iii) Rights of First Refusal A right of first refusal is not covered by thestatute of frauds. Furthermore, Art. 1403(2)(e) of Civil Code presupposesthe existence of a perfected, albeit unwritten, contract of sale; a right of firstrefusal, such as the one involved in the instant case, is not by any means aperfected contract of sale of real property. xRosencor Dev. Corp. v.Inquing , 354 SCRA 119 (2001).

(iv) Equitable Mortgage Statute does not stand in the way of treating anabsolute deed as a mortgage, when such was the parties intention,although the agreement for redemption or defeasance is proved by parolevidence. xCuyugan v. Santos , 34 Phil. 100 (1916).41

(v) Right to Repurchase The deed of sale and the verbal agreement allowingthe right of repurchase should be considered as an integral whole; thedeed of sale is itself the note or memorandum evidencing the contract.xMactan Cebu International Airport Authority v. Court of Appeals, 263SCRA 736 (1996).

(2) Memorandum (Yuviengco v. Dacuycuy , 104 SCRA 668 [1981]; Limketkai Sons Milling, Inc. v. CA , 250 SCRA 523 [1995]; BUT SEE 255 SCRA 6).

For the memorandum to take the sale out of the coverage of the Statute of Frauds, it must contain all the essential terms of the contract of sale. xTorcuator v. Bernabe , 459 SCRA 439 (2005),42 even when scattered into variouscorrespondences which can be brought together xCity of Cebu v. Heirs of Candido Rubi, 306 SCRA 408 (1999).43

EXCEPTION: Electronic Documents under the E-C OMMERCEACT (R.A. 8792)

39 Alba Vda. De Rax v. Court of Appeals, 314 SCRA 36 (1999).40Torcuator v. Bernabe , 459 SCRA 439 (2005).41Rosales v. Suba , 408 SCRA 664 (2003).42Paredes v. Espino , 22 SCRA 1000 (1968).43Berg v. Magdalena Estate, Inc., 92 Phil. 110 (1952);Limketkai Sons Milling, Inc. v. CA , 250

SCRA 523 (1995);First Philippine Intl Bank v. CA , 252 SCRA 259 (1996).

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(3) Partial Execution (Art. 1405) Ortega v. Leonardo , 103 Phil. 870 (1958);Claudel v. Court of Appeals , 199SCRA 113 (1991).

Delivery of the deed to buyers agent, with no intention to part with the titleuntil the purchase price is paid, does not take the case out of the Statute of Frauds. xBaretto v. Manila Railroad Co. , 46 Phil. 964 (1924).

The Statute of Frauds does not apply to contracts either partially or totallyperformed. In addition, a contract that violates the Statute of Frauds is ratified bythe acceptance of benefits under the contract, such as the acceptance of thepurchase price and using the proceeds to pay outstanding loans. Alfredo v.Borras, 404 SCRA 145 (2003).44

(4) Waiver (Art. 1405) Cross-examination on the contract is deemed a waiver of thedefense of the Statute. xLimketkai Sons Milling, Inc. v. CA , 250 SCRA 523(1995).45

(5) Rulings on Receipts and Other Documentary Evidence of Sale

Since a contract of sale is perfected by mere consent, then when the dealer of motor vehicles accepts a deposit of P50,0000 and pulls out a unit from theassembler for that purpose, it was in breach of contract when it sold the car

subsequently to another buyer. xXentrex Automotive, Inc. v. Court of Appeals ,291 SCRA 66 (1998).

A sales invoice is a commercial document-commercial documents or papers are those used by merchants or businessmen to promote or facilitatetrade or credit transactionsthey are not mere scraps of paper bereft of probative value, but vital pieces of evidence of commercial transactions, writtenmemorials of the details of the consummation of contracts.Seaiol PetroleumCorp. v. Autocorp Group , 569 SCRA 387 (2008).

Sales invoices are not evidence of payment of the price, but evidence of the receipt of the goods; since the best evidence to prove payment is the officialreceipt. El Oro Engravers Corp. v. Court of Appeals , 546 SCRA 42 (2008).

A receipt which is merely an acknowledgment of the sum received, withoutany indication therein of the total purchase price of the land or of the monthlyinstallments to be paid, cannot be the basis of valid sale. xLeabres v. CA , 146

SCRA 158 (1986).46

44Vda. de Jomoc v. CA , 200 SCRA 74 (1991);Soliva v. The Intestate Estate of Marcelo M.Villalba , 417 SCRA 277 (2003); Ainza v. Padua , 462 SCRA 614 (2005);De la Cena v. Briones ,508 SCRA 62 (2006).

45Lacanilao v. CA, 262 SCRA 486 (1996).46Limson v. CA , 357 SCRA 209 (2001).

In itself, the absence of receipts, or any proof of consideration, would notbe conclusive of the inexistence of a sale since consideration is alwayspresumed. xTigno v. Aquino , 444 SCRA 61 (2003).

Receipts proves payment which takes the sale out of the Statute of Frauds.Toyota Shaw, Inc. v. Court of Appeals, 244 SCRA 320 (1995).

c. For Validity: Sale of Realty Through Agent, Authority Must Be in Writing (Art. 1874)

When sale of a piece of land or any interest therein is through an agent, theauthority of the latter shall be in writing;otherwise, the sale shall be void , even when:

Agent is the son of the owner. xDelos Reyes v. CA , 313 SCRA 632 (1999) There is partial payment of the price received by the supposed agent. xDizon

v. CA , 396 SCRA 154 (2003).47

In the case of a corporate owner of realty. xCity-Lite Realty Corp. v. CA, 325SCRA 385 (2000).48

When the Contract to Sell was signed by the co-owners themselves as witnesses,the written authority for their agent mandated under Article 1874 of the Civil Code is nolonger required. xOesmer v. Paraiso Dev. Corp. , 514 SCRA 228, 237 (2007).

c. Sale of Large Cattle (Art. 15851; Sec. 529, Revised Adm. Code)

X D. SIMULATEDSALES

Characteristic of simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the parties juridical situation, or that theparties have no intention to be bound by the contract. The requisites are: (a) an outwarddeclaration of will different from the will of the parties; (b) false appearance must have beenintended by mutual agreement; and (c) purpose is to deceive third persons. xManilaBanking Corp. v. Silverio , 466 SCRA 438 (2005).49

1. Badges and Non-badges of Simulation: Non-payment of the stipulated consideration, absence of any attempt by the buyers

to assert their alleged rights over the subject property. xVillaflor v. CA , 280 SCRA297 (1997).50

47Firme v. Bukal Enterprises and Dev. Corp. , 414 SCRA 190 (2003).48Pineda v. CA, 376 SCRA 222 (2002).49Rosario v. CA , 310 SCRA 464 (1999);Loyola v. CA , 326 SCRA 285 (2000);Yu Bun Guan

v. Ong , 367 SCRA 559 (2001);Payongayong v. CA , 430 SCRA 210 (2004).50Solidstate Multi-Products Corp. v. Catienza-Villaverde , 559 SCRA 197 (2008).

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Failure of alleged buyers to collect rentals from alleged seller. xSantiago v. CA , 278SCRA 98 (1997); but not when there appears a legitimate lessor-lessee relationshipbetween the vendee and the vendor. xUnion Bank v. Ong , 491 SCRA 581 (2006).

Although the agreement did not provide for the absolute transfer ownership of theland to buyer, that did not amount to simulation, since delivery of certificate of ownership and execution of deed of absolute sale were expressly stipulated assuspensive conditions, which gave rise to the corresponding obligation on part of buyer to pay the last installments. xVillaflor v. CA , 280 SCRA 297 (1997).

When signature on a deed of sale is a forgery.Fidel v. Court of Appeals , 559 SCRA186 (2008). But bare assertions that the signature appearing on the Deeds of Saleis not that of her husband is not enough to allege simulation, since forgery is notpresumed; it must be proven by clear, positive and convincing evidence. xR.F.Navarro & Co. v. Vailoces, 361 SCRA 139 (2001).

Simulation of contract and gross inadequacy of price are distinct legal concepts,with different effects the concept of a simulated sale is incompatible withinadequacy of price. When the parties to an alleged contract do not really intend tobe bound by it, the contract is simulated and void. Gross inadequacy of price byitself will not result in a void contract, and it does not even affect the validity of acontract of sale, unless it signifies a defect in the consent or that the parties actuallyintended a donation or some other contract. xBravo-Guerrero v. Bravo , 465 SCRA244 (2005).

2. When Motive Nullifies the Sale

In sale, consideration is, as a rule, different from the motive of parties, and whenthe primary motive is illegal, such as when the sale was executed over a land toillegally frustrate a person's right to inheritance and to avoid payment of estate tax, thesale is void because illegal motive predetermined purpose of the contract. xOlegario v.CA, 238 SCRA 96 (1994).51

Where the parties to a contract of sale agreed to a consideration, but the amountreflected in the final Deed of Sale was lower, their motivation being to pay lower taxeson the transaction, the contract of sale remains valid and enforceable upon the terms of the real consideration. Although illegal, the motives neither determine nor take theplace of the consideration. xHeirs of Spouses Balite v. Lim , 446 SCRA 54 (2004).

3. Remedies Allowed When Sale Simulated

When a contract of sale is void, the right to set up its nullity or non-existence isavailable to third persons whose interests are directly affected thereby. Likewise, theremedy of accion pauliana is available when the subject matter is a conveyance,

51Uy v. CA, 314 SCRA 69, 81 (1999).

otherwise valid, undertaken in fraud of creditors. xManila Banking Corp. v. Silverio , 466SCRA 438 (2005).

The rescissory action to set aside contracts in fraud of creditors isaccion pauliana ,essentially a subsidiary remedy accorded under Article 1383 which the party sufferingdamage can avail of only when he has no other legal means to obtain reparation for thesame. In such action, it must be shown that both contracting parties have actedmaliciously so as to prejudice the creditors who were prevented from collecting their claims. Rescission if generally unavailing should a third person, acting in good faith, is inlawful possession of the property since he is protect by law against a suit for rescission bythe registration of the transfer to him in the registry. xUnion Bank v. Ong , 491 SCRA 581(2006).

4. Effect When Sale Declared Void: The action for the declaration of the contracts nullity is imprescriptiblean action for

reconveyance of property on a void contract of sale does not prescribe.Fil-EstateGolf and Dev., Inc. v. Navarro , 526 SCRA 51 (2007).

Possessor is entitled to keep the fruits during the period for which the buyer held theproperty in good faith. xDBP v. CA, 316 SCRA 650 (1999).

Then restoration of what has been given is in order, since the relationship between

parties in any contract even if subsequently voided must always be characterizedand punctuated by good faith and fair dealing. xDe los Reyes v. CA, 313 SCRA632 (1999); xHeirs of Ignacia Aguilar-Reyes v. Mijares , 410 SCRA 97 (2003).

Alien who purchases land in the name of his Filipina lover, has no standing to seeklegal remedies to either recover the property or the purchase price paid, since thetransaction is voidab initio for being in violation of the constitutional prohibition. xFrenzel v. Catito , 406 SCRA 55 (2003).

VI. CONSUMMATION (Arts. 1493-1506)AND PERFORMANCE OF CONTRACT (Arts. 1536-1544, 1582-1590)

A. OBLIGATIONS OF SELLER

1. Preserve Subject Matter (Art. 1163)

2. Deliver with Fruits and Accessories (Arts. 1164, 1166, 1495, 1537)

3. DELIVER THESUBJECTMATTER (Art. 1477)

a. Legal Premises for Doctrines on Tradition

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When the sale is void or fictitious, no valid title over the subject matter can beconveyed to the buyer even with delivery.Nemo potest nisi quod de jure

potest No man can do anything except what he can do lawfully . xTradersRoyal Bank v. CA, 269 SCRA 15 (1997).

When seller had no ownership over the subject matter at the time of delivery,no valid title can pass in favor of the buyer.Nemo dat quod non habet Noman can give that which he does not have . xTsai v. CA , 366 SCRA 324(2001).52

One can sell only what one owns or is authorized to sell, and the buyer canacquire no more than what the seller can transfer legally.Daclag v. Macahilig , 560SCRA 137 (2008).

A tax declaration, by itelf, is not considered conclusive evidence of ownershipit is merely anindicium of a claim of ownership.Daclag v. Macahilig ,560 SCRA 137 (2008). Nevertheless when at the time of delivery there is no proof that the seller had ownership and as in fact the tax declaration to the subjectproperty was in the name of another person, then there was no transfer of ownership by delivery. xHeirs of Severina San Miguel v. Court of Appeals , 364SCRA 523 (2001).

b. General Doctrines on Tradition, Whether Actual or Constructive:

It may be stipulated that ownership in the thing shall not pass to buyer until hehas fully paid price (Art. 1478).

In the absence of such stipulation to the contrary, tradition produces its naturaleffects in law, most important of which being conveyance of ownership, withoutprejudice to right of the seller to claim payment of the price. xFroilan v. Pan Oriental Shipping Co. , 12 SCRA 276 (1964).53

Delivery contemplates the absolute giving up of the control and custody of theproperty on the part of the vendor, and the assumption of the same by the vendee.Non nudis pactis sed traditione dominia rerum transferantur . And there is said to bedelivery if and when the thing sold is placed in the control and possession of thevendee. xEquatorial Realty Dev. Inc. v. Mayfair Theater, Inc. , 370 SCRA 56(2001).

Since delivery of subject matter of sale is an obligation on the part of the seller,

the acceptance thereof by the buyer is not a condition for the completeness of delivery. xLa Fuerza v. CA , 23 SCRA 1217 (1968).

52Tangalin v. Court of Appeals , 371 SCRA 49 (2001)53Kuenzle & Streiff v. Watson & Co. , 13 Phil. 26 (1909);Ocejo, Perez & Co. v. Int'l Banking

Corp. , 37 Phil. 631 (1918).

In the absence of an express stipulation to the contrary, payment of purchaseprice of the goods is not a condition precedent to the transfer of title to the buyer,but title passes by the delivery of the goods. xPhil. Suburban Dev. Corp. v. Auditor General , 63 SCRA 397 (1975).54

Failure of the buyer to make good the price does not, in law, cause theownership to revest to the seller unless the bilateral contract of sale is firstrescinded or resolved pursuant to Art. 1191. xBalatbat v. CA , 261 SCRA 128(1996).

c. Physical Delivery (Art. 1497)

It is not necessary that seller himself delivers title to the buyer because thething sold is understood as delivered when it is placed in control and possession of buyer. Thus, when sellers themselves introduced the tenant to the buyer as the newowners of the land, and from that time on the buyer acted as landlord thereof, therewas delivery that transferred title to the buyer. xAlfredo v. Borras , 404 SCRA 145(2003).

d. Constructive Delivery: E XECUTION OF A PUBLICINSTRUMENT (Art. 1498)

Where deed of sale or any agreement analogous to a deed of sale, is madethrough a public instrument, its execution is equivalent to the delivery of the property.Caoibes, Jr. v. Caoibes-Pantoja , 496 SCRA 273 (2006).55

Under Art. 1498, the mere execution of the deed of conveyance in a publicinstrument is equivalent to the delivery of the property, and that prior physicaldelivery or possession is not legally required, since ownership and possession aretwo entirely different legal concepts. Notwithstanding the presence of illegaloccupants on the subject property, transfer of ownership by symbolic delivery under Art. 1498 can still be effected through the execution of the deed of conveyance.xSabio v. International Corporate Bank, 364 SCRA 385 (2001).

There is nothing in Article 1498 that provides that execution of a deed of sale isa conclusive presumption of delivery of possession; presumptive delivery can benegated by the failure of the vendee to take actual possession of the land or thecontinued enjoyment of possession by the vendor.Santos v. Santos, 366 SCRA395 (2001).56

(i) As to Movables (Arts. 1498-1499, 1513-1514;Dy, Jr. v. CA , 198 SCRA 826).

54Ocampo v. Court of Appeals , 233 SCRA 551 (1994).55Tating v. Marcella , 519 SCRA 79 (2007)56

Equatorial Realty Dev. Inc. v. Mayfair Theater, Inc. , 370 SCRA 56 (2001); xEngreso v. DeLa Cruz , 401 SCRA 217 (2003);Ten Forty Realty and Dev. Corp. v. Cruz , 410 SCRA 484 (2003);Copuyoc v. De Solas , 504 SCRA 176 (2006).

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Where it is stipulated that deliveries must be made to the buyer or his dulyauthorized representative named in the contracts, the seller is under obligation todeliver in accordance with such instructions.. xLagon v. Hooven ComalcoIndustries, Inc., 349 SCRA 363 (2001).

Execution by supposed buyers of a chattel mortgage over subject vehicle infavor of the financing company does not mean that ownership had been transferredto them, for delivery must be on the part of the seller. xUnion Motor Corp. v. CA ,361 SCRA 506 (2001).

Neither issuance of an invoice, which is not a document of title xP.T. CernaCorp. v. CA, 221 SCRA 19 (1993),57 nor of the registration certificate of vehicle

xUnion Motor Corp. v. CA , 361 SCRA 506 (2001),58 would constitute constructivedelivery.

(ii) As to Immovables (Art. 1498)

Issuance of an acknowledgment receipt of partial payment, when it is not apublic instrument does not convey title. xSan Lorenzo Dev. Corp. v. Court of

Appeals , 449 SCRA 99 (2005).

In case of immovables, when sale is made through a public instrument, theexecution thereof shall be equivalent to the delivery of the thing which is the objectof the contract, if from the deed the contrary does not appear or cannot clearly beinferred xMunicipality of Victorias v. CA , 149 SCRA 31 (1987);59 and that prior physical delivery or possession is not legally required since execution of the deed isdeemed equivalent to delivery. xManuel R. Dulay Enterprises, Inc. v. Court of

Appeals , 225 SCRA 678 (1993),Provided That:

(a) The thing sold is subject to the control of the seller Addison v. Felix , 38Phil. 404 (1918); and

(b) Such control should remain within a reasonable period after the executionof the instrumentDanguilan v. IAC , 168 SCRA 22 (1988); Pasagui v. Villablanca , 68 SCRA 18 (1975).

EXCEPT: When buyer assumes the risks of ownership and possession. Power Commercial and Industrial Corp. v. CA, 274 SCRA 597 (1997).

Execution of Deed of Conditional Sale with provision that final deed of saleto be executed upon full payment does not transfer ownership of the subjectmatter. xFortune Tobacco Corp. v. NLRC , 200 SCRA 766 (1991).

57Norkis Distributors v. CA, 193 SCRA 694 (1991).58 Abuan v. Garcia , 14 SCRA 759 (1965);Santos v. Santos , 366 SCRA 395 (2001).59Florendo v. Foz , 20 Phil. 388 (1911);Sanchez v. Ramos , 40 Phil. 614 (1919);Quimson v.

Rosete , 87 Phil. 159 (1950);Phil. Suburban Dev. v. Auditor , 63 SCRA 397 (1975).

(1) Registration of Title is Separate Mode from Execution of Public Instrument The recording of the sale with the proper Registry of Deedsand the transfer of the certificate of title in the name of the buyer arenecessary only to bind third parties to the transfer of ownership. As betweenthe seller and the buyer, the transfer of ownership takes effect upon theexecution of a public instrument conveying the real estate. Chua v. Court

of Appeals, 401 SCRA 54 (2003).BUT S EE : Under Art. 1495, seller is obliged to transfer title over the property

and deliver the same to the vendee. Vive Eagle Land, Inc. v.Court of Appeals , 444 SCRA 445 (2004).

(2) Customary Steps in Selling Immovables Customarily, in the absence of acontrary agreement, the submission by an individual seller to the buyer of thefollowing papers would complete a sale of real estate: (1) owners duplicatecopy of the Torrens title; (2) signed deed of absolute sale; (3) tax declaration;and (4) latest realty tax receipt. They buyer can retain the amount for thecapital gains tax and pay it upon authority of the seller, or the seller can paythe tax, depending on the agreement of the parties.Chua v. Court of

Appeals, 401 SCRA 54 (2003).

(iii) As to Incorporeal Property (Arts. 1498 and 1501).

e. Constitutum Possessorium (Art. 1500) A provision in the deed of sale granting toseller a right to lease the subject matter of the sale is valid: the possession is deemed tobe constituted in the vendee by virtue of this mode of tradition. x Amigo v. Teves , 96Phil. 252 (1954).

f. Traditio Brevi Manu Prior to the sale, petitioners were in possession of the subjectproperty as lessees. Upon sale to them of the rights, interests and participation as to the portion pro indiviso , they remained in possession, not in the concept of lesseesanymore but as owners now through symbolic delivery known astraditio brevi manu .xHeirs of Pedro Escanlar v. CA, 281 SCRA 176 (1997).

4. Transfer Ownership to Vendee Upon Delivery (Arts. 1477, 1478, and 1496)

a. When Buyer Refuses to Accept (Art. 1588)

b. In Case of Express or Implied Reservation (Arts. 1478 and 1503)

5. Taking-Out Insurance Coverage (Art. 1523)

6. Time and Place of Delivery (Art. 1521).

7. Expenses of Execution and Registration (Art. 1487), and of Putting Goods inDeliverable Estate (Art. 1521).

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Unless otherwise stipulated: (a) under Art. 1487 the expenses for the registration of the sale should be shouldered by the vendor xVive Eagle Land, Inc. v. Court of Appeals ,444 SCRA 445 (2004); and (b) duty to withhold taxes due on the sale is imposed onseller. xEquitable Realty Development Inc. v. Mayfair Theater, Inc. , 332 SCRA 139(2000).

Buyer has more interest in having the capital gains tax paid immediately since thisis a pre-requisite to the issuance of a new Torrens title in his name. Nevertheless, as far as the government is concerned, the capital gains tax remains a liability of the seller sinceit is a tax on the sellers gain from the sale of the real estate.Payment of the capital gainstax, however, is not a pre-requisite to the transfer of ownership to the buyer. The transfer of ownership takes effect upon the signing and notarization of the deed of absolute sale.xChua v. Court of Appeals, 401 SCRA 54 (2003).

A judgment on a contract of sale that decrees sellers obligations to execute anddeliver the deed of absolute sale and the certificate of title, does not necessarily includewithin its terms the obligation to pay for the expenses in notarizing a deed of sale andin obtaining new certificate of title. xJose Clavano, Inc. v. HLRB , 378 SCRA 172(2002).

B. SPECIALRULES ON COMPLETENESS OF DELIVERY

1. In Case of Movables (Art. 1522 and 1537, 1480)

When the contract does not provide for the measuring or weighing of a soldspecific mass, and the price agreed upon was not based on such measurement, then[t]he subject matter of the sale is, therefore, a determinate object, the mass, and notthe actual number of units or tons contained therein, so that all that is required of seller was to deliver in good faith to his buyer all of those found in the mass, notwithstandingthat the quantity delivered is less than the amount estimated in the contract. xGaite v.Fonacier , 2 SCRA 831 (1961).

a. Rules on Delivery to Carrier (Art. 1523)

(i) FAS Sales The seller pays all charges and is subject to risk until the goodsare placed alongside the vessel. x A. Soriano Y Cia. v. Collector , 97 Phil. 505(1955).

(ii) FOB Sales In mercantile contracts of American origin, F.O.B. stand for thewords Free on Board,i.e ., that the seller shall bear all expenses until the

goods are delivered according as to whether the goods are to be deliveredF.O.B. at the point of shipment or at the point of destination determines thetime when property passes. Behn Meyer & Co. v. Yangco , 38 Phil. 602,606 (1918).

(iii) CIF Sales General Foods v. NACOCO , 100 Phil. 337 (1956).

C.I.F. found in British contracts stand for costs, insurance, and freight; theysignify that the price fixed covers not only the costs of the goods, but the expense of freight and insurance to be paid by the seller. Behn Meyer & Co. v. Yangco , 38Phil. 602, 606 (1918).

Under an arrangement c.i.f. Pacific Coast (destination), the vendor is to paynot only the cost of the goods, but also the freight and insurance expenses, and, asit was judicially interpreted, this is taken to indicate that the delivery is to be made atthe port of destination.Pacific Vegetable Oil Corp. v. Singzon , Supreme CourtAdvance Decisions, 29 April 1955.

b. Sale on Approval, Trial or Satisfaction (Art. 1502)

In a sale or return, the ownership passes to the buyer on delivery pursuantto a perfected contract of sale; and the subsequent return of the goods revertsownership back to the seller. In such case, tradition as a mode of acquiringownership must be in consequence of a contract. xVallarta v. Court of Appeals ,150 SCRA 336 (1987).

In a sale on approval (also called sale on acceptance, sale on trial or sale on satisfaction), the delivery of the object does not transfer ownership to thebuyer since the delivery was not for purposes of transferring ownership, since theprestation to effect a meeting of the minds to give rise to a valid contract is

incumbent on the buyer. xVallarta v. Court of Appeals , 150 SCRA 336 (1987).For a sale to be a sale or return or a sale on approval, there must be a

clear agreement to either of such effect, otherwise, the provisions of Art. 1502 of Civil Code governing such sales cannot be invoked by either party to the contract.

xIndustrial Textile Manufacturing Co. v. LPJ Enterprises, Inc. , 217 SCRA 322(1993).

c. Sale by Description and/or Sample (Art. 1481)

There is a sale by sample when a small quantity is exhibited by the seller as afair specimen of the bulk, which is not present and there is no opportunity to inspector examine the same; and the parties treated the sample as the standard of qualityand that they contracted with reference to the sample with the understanding thatthe product to be delivered would correspondent with the sample. xMendoza v.David , 441 SCRA 172 (004)

Even in sales by description and/or sample, buyer will not be released from hisobligation to accept and pay for the goods by deviations on the part of the seller from the exact terms of the contract, if buyer had acquiesced to such deviationsafter due notice thereof. xEngel v. Mariano Velasco & Co. , 47 Phil. 115 (1924).

When the machine delivered is in accordance with the description stated in thesales contract, the buyer cannot refuse to pay the balance of the purchase price

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and the cost of installation if it proves that the machine cannot be used satisfactorilyfor the purposes for which he bought it when such purpose was not made known tothe seller. xPacific Commercial Co. v. Ermita Market & Cold Stores , 56 Phil. 617(1932).

d. Buyer's Right to Inspect Before Acceptance (Arts. 1481 and 1584)Except when

carrier delivers COD .2. In Case of Immovables

a. Where Sold Per Unit or Number (Arts. 1539 and 1540)

In a unit price sale, the statement of the area of immovable is not conclusive andthe price may be reduced or increased depending on the area actually delivered. If the vendor delivers less than the area agreed upon, the vendee may oblige thevendor to deliver all that is stated in the contract or demand for the proportionatereduction of the purchase price if delivery is not possible. If the vendor delivers morethan the area stated in the contract, the vendee has the option to accept only theamount agreed upon or to accept the whole area, provided he pays for the additionalarea at the contract rate. Rudolf Lietz, Inc. v. Court of Appeals , 478 SCRA 451(2005).60

b. Where Sold for a Lump Sum [ A cuerpo cierto or por precio alzado ] (Art. 1542)

In a contract of sale of land in a mass, the specific boundaries stated in thecontract must control over any statement with respect to the area contained within itsboundaries. Salinas v. Faustino , 566 SCRA 18 (2008).

In a lump sum sale, when the land delivered to the buyer is exactly as thatdescribed in the deed and covered within the boundaries designated, the differencein actual area (34 versus 10 hectares) will not authorize the buyer to rescind thecontract because the seller has complied with delivering the subject matter agreedupon. xTeran v. Villanueva , 56 Phil. 677 (1932); this is the rule when evidenceshows that the parties never gave importance to the area of the land in fixing theprice (97 versus 60 hectares). x Azarraga v. Gay, 52 Phil. 599 (1928).

EXCEPT: A buyer of land, when sold in gross or with the description more or less or similar words in designating quantity covers only a reasonable excess of deficiency. In the case at bar an area of 644 square meters more is notreasonable excess or deficiency, to be deemed included in the deed of sale. xRoble v. Arbasa , 362 SCRA 69 (2001);Rudolf Lietz, Inc. v.Court of Appeals , 478 SCRA 451 (2005).61

60Goyena v. Tambunting , 1 Phil. 490 (1902);Santa Ana v. Hernandez , 18 SCRA 973 (1966).61 Asiain v. Jalandoni , 45 Phil 296 (1923);Balantakbo v. Court of Appeals , 249 SCRA 323

(1995);Esguerra v. Trinidad , 518 SCRA 186 (2007).

EXCEPTION TO EXCEPTION: When buyer, who has been occupying the land for twoyears as lessee, actually is deemed to take risk on the actual size of theproperty bought at lump sum. xGarcia v. Velasco, 72 Phil. 248 (1941).

C. DOUBLESALES (Arts. 1544 and 1165)

1. Priority of Torrens System of Registration The rules on double sales under Art. 1544do not overcome the rules provided under the Property Registration Decree (P.D. 1459),such as:

(a) When two different titles are issued over the same registered land, the buyer whoclaims under a title that was first issued shall be preferred. xLiao v. Court of

Appeals, 323 SCRA 430 (2000);

(b) Invoking the rules on double sales and priority in time under Art. 1544 would bemisplaced by a first buyer who bought the land not within the Torrens system butunder Act No. 3344, as against the second buyer who bought the same propertywhen it was already registered under the Torrens system, because:

of the well-known rule in this jurisdiction that persons dealing withregistered land have the legal right to rely on the fact of the TorrensCertificate of Title and to dispense with the need to inquire further,except when the party concerned has actual knowledge of facts andcircumstances that would impel a reasonably cautious man to makesuch inquiry; and

the Torrens system rule that formal registration proceedings undertakenon the property and the subsequent issuance of a title over the land hadunder the Torrens system had the legal effect of cleansing title on theproperty of all liens and claims which were not annotated therein.

Naawan Community Rural Bank, Inc. v. Court of Appeals , 395 SCRA 43(2003).62

BUT S EE : Naval v. Court of Appeals , 483 SCRA 102 (2006).

2. Tests Applicable under Article 1544:

Caveat emptor requires the buyer to be aware of the supposed title of the seller and he who buys without checking the seller's title takes all the risks and lossesconsequent to such failure. xCaram, Jr. v. Laureta , 103 SCRA 7 (1981).

The provision on double sale presumes title or ownership to pass to first buyer,exception being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by either of the two buyers, when

62Reiterated in Abrigo v. De Vera , 432 SCRA 544 (2005);Ver Reyes v. Salvador, Sr. , 564SCRA 456 (2008).

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the second buyer, in good faith, acquires possession of the property ahead of the firstbuyer. Unless, the second buyer satisfies these requirements, title or ownership will nottransfer to him to the prejudice of the first buyer. xCoronel v. CA, 263 SCRA 15(1996).

In spite of the three levels of tests provided under Art. 1544, the Court seems torecognize only registration in good faith by the second buyer and does not characterizethe meaning of the last two test of possession and oldest title.Carillo v. Court of

Appeals , 503 SCRA 66 (2006).

a. MAINRULE: P RIOR T EMPORE , P RIOR J URE . Carbonell v. CA , 69 SCRA 99 (1976).63

3. Requisites for Double Sale:

a. There Must Be Two Different Valid Sales : Article 1544 do not apply where:

There is only one valid sale, while the other sale over the same property is void.Fudot v. Cattleya Land, Inc. , 533 SCRA 350 (2007);64 or

Where one of the contract is a contract to sell.San Lorenzo Dev. Corp. v.Court of Appeals , 449 SCRA 99 (2005).65

(1) Doctrine on Conditional Sales/Contracts to Sell and Adverse Claims:

Mendoza v. Kalaw, 42 Phil. 236 (1921); Adalin v. CA , 280 SCRA 536(1997).

The rules on double sales under Art. 1544 are not applicable to contract tosell, because of the circumstances that must concur in order for the provisions to Art. 1544 on double sales to apply, namely that there must be a valid salestransactions, and buyers must be at odds over the rightful ownership of thesubject matter who must have bought from the very same seller, are lacking in acontract to sell for neither a transfer of ownership nor a sales transaction hasbeen consummated, and such contract is binding only upon the fulfillment or non-fulfillment of an event. Nevertheless, thegoverning principle of Art. 1544 shouldapply, mainly the governing principle of primus tempore,portior jure (first in time,stronger in right).Cheng v. Genato , 300 SCRA 722 (1998).

b. Exact Same Subject Matter

Article 1544 applies where the same thing is sold to different buyers by thesame seller. xOng v. Oalsiman , 485 SCRA 464 (2006); and therefore does not

63Tanglao v. Parungao , 535 SCRA 123 (2007).64Espiritu v. Valerio , 9 SCRA 761 (1963);Remalante v. Tibe , 158 SCRA 138 (1988);Delfin v.

Valdez , 502 SCRA 24 (2006).65Torrecampo v. Alindogan, Sr., 517 SCRA 84 (2007).

apply where there was a sale to one party of the land itself while the other contractwas a mere promise to sell the land or at most an actual assignment of the rights torepurchase the same land. xDischoso v. Roxas , 5 SCRA 781 (1962).

c. Exact Same Seller for Both Sales

Article 1544 applies where thesame thing is sold to different vendeesby thesame vendor. It does not apply where the same thing is sold to different vendees bydifferent vendors.or even to the same buyer but by different sellers.Salera v.Rodaje , 530 SCRA 432, 438 (2007).66

For Article 1544 to apply, it is necessary that the conveyance must have beenmade by a party who has an existing right in the thing and the power to dispose of it. It cannot be invoked where the two different contracts of sale are made by twodifferent persons, one of them not being the owner of the property sold. And even if the sale was made by the same person, if the second sale was made when suchperson was no longer the owner of the property, because it had been acquired bythe first purchaser in full dominion, the second purchaser cannot acquire any right.Consolidated Rural Bank (Cagayan Valley), Inc. v. Court of Appeals , 448SCRA 347 (2005),67 citing VILLANUEVA, PHILIPPINEL AW ON S ALES100 (1995).

3. Registration in Good Faith as First Priority

a. Meaning of RegistrationThe annotation of adverse claim can qualify as the registration mandated under

the rules on double sale. Carbonnel v. Court of Appeals , 69 SCRA 99 (1976).

Registration means any entry made in the books of the registry, including bothregistration in its ordinary and strict sense, and cancellation,annotation, and evenmarginal notes . It is the entry made in the registry which records solemnly andpermanently the right of ownership and other real rights. xCheng v. Genato , 300SCRA 722 (1998).68

Declaration of purchase for taxation purposes does not comply with the requiredregistration, and the fact alone does not even itself constitute evidence of ownership.

xBayoca v. Nogales, 340 SCRA 154 (2000).

Registration of the Extra-judicial Partition which merely mentions the sale is notthe registration covered under Art. 1544 and cannot prevail over the registration of the pacto de retro sale. xVda. de Alcantara v. CA , 252 SCRA 457 (1996).

66Ong v. Olasiman , 485 SCRA 464 (2006).67Gallardo v. Gallardo , 46 O.G. No. 11 p. 5568; Sigaya v. Mayuga , 467 SCRA 341, 357

(2005).68Ulep v. Court of Appeals , 472 SCRA 241 (2005).

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There can be no constructive notice to the second buyer through registrationunder Act 3344 if the property is registered under the Torrens system. xAmodia Vda.De Melencion v. Court of Appeals , 534 SCRA 62, 82 (2007).

b. Registration Must Always Be in Good Faith In cases of double sales of immovables, what finds relevance and materiality is not whether or not the second

buyer was a buyer in good faith or that he was first to register, but whether or notsaid second buyer registers such second sale in good faith, that is, withoutknowledge of any defect in the title of the property sold. xMartinez v. CA, 358 SCRA38 (2001);69 this is so because the defense of indefeasibility of a Torrens title doesnot extend to a transferee who takes the certificate of title in bad faith. xOccea v.Esponilla , 431 SCRA 116 (2004).

c. Knowledge of First Buyer of the Second Sale Does Not Amount to Registrationin Fav