Sales Part 1 and 2

RFBT Chapter 3

Art. 1458 (Contract of Sale)

One party obligates himself to transfer ownership and deliver a determinate thing; the other to pay a price certain in money or its equivalent.

Three requisites of a sale

(1) Consent; (2) determinate subject matter; (3) price certain in money or its equivalent. Absence of any one makes the contract VOID.

Perfection of a sale

By mere consent on the thing and the price (Art. 1475) — it is a consensual contract.

Transfer of ownership in a sale

By DELIVERY, not by the contract itself. Sale is only the title; delivery is the mode (Arts. 712, 1477, 1496). This is the #1 tested principle.

Seller need not own the thing at perfection

Art. 1459 — the seller must have the right to transfer ownership only at the time of delivery; a sale of a thing not yet owned is valid.

Emptio rei speratae

Sale of an expected (future) thing; conditional — if the thing never comes into existence, there is no obligation to pay.

Emptio spei

Sale of the hope itself; aleatory — buyer pays regardless of outcome. Void only if the hope was vain (Art. 1461).

Price — gross inadequacy (Art. 1470)

Does NOT affect the validity of the sale, unless it shows a defect in consent or that a donation was intended.

Price — simulated (Art. 1471)

The sale is VOID, but may be shown to have been a donation or other act.

Price cannot be determined (Art. 1474)

The sale is inefficacious; but if the thing was delivered and appropriated, the buyer must pay a reasonable price.

Form of a contract of sale

Generally irrelevant to validity. Art. 1358 (public instrument for immovables) is only for convenience/registration. A verbal sale of land is valid between the parties.

Statute of Frauds (Art. 1403[2])

Contract is UNENFORCEABLE unless in writing for: (d) sale of goods P500 or more; (e) sale of real property or an interest therein. Applies only to executory contracts; cured by partial performance or failure to object.

Art. 1490 — sale between spouses

VOID, unless there is a separation of property between them. Cannot be ratified (public policy).

Art. 1491(4)-(6) — VOID sales

Public officers buying property under their administration; and justices, judges, prosecutors, clerks, and lawyers buying property in litigation they take part in. Ground: public policy — cannot be ratified.

Art. 1491(1)-(3) — VOIDABLE sales

Guardian buying ward's property; agent buying principal's property without consent; executor/administrator buying estate property. Ground: private interest — curable by ratification.

Lawyer's prohibition on buying property in litigation

Applies only while the litigation is pending. After final termination, the lawyer may validly buy. A contingent fee payable out of the property is not covered.

Sale vs. Contract to Sell — ownership

Sale: ownership passes upon delivery. Contract to sell: seller reserves title despite delivery, until full payment.

Sale vs. Contract to Sell — full payment

Sale: full payment is a resolutory condition. Contract to sell: full payment is a positive suspensive condition.

Sale vs. Contract to Sell — non-payment

Sale: non-payment is a breach → specific performance or rescission (Arts. 1191, 1592). Contract to sell: non-payment is not a breach — the obligation to sell never arises; no rescission needed.

Sale vs. Contract to Sell — double sale

Art. 1544 (double sale) applies to a contract of sale but does NOT apply to a contract to sell — the still-owner seller may validly sell to a second buyer.

How to distinguish sale from contract to sell

The caption/title of the document never controls; look for a reservation-of-title clause.

Sale vs. Barter (Art. 1468)

When consideration is partly money, partly a thing: follow the manifest intention of the parties; if unclear, it is barter if the thing's value exceeds the money, and sale if the money is equal to or greater.

Dation in payment (Art. 1245)

Extinguishes a pre-existing debt by delivering property to the creditor; governed by the law on sales.

Sale vs. Piece of Work (Art. 1467)

Made specially for the customer, not in the ordinary course of business → piece of work. Manufacturer keeps stock for the general public → sale.

Sale vs. Agency to Sell (Art. 1466)

Agency: agent does not acquire ownership, must account for proceeds, and may return unsold goods. Sale: buyer must pay the price regardless of resale.

Earnest money (Art. 1482)

Proof that a sale has already been perfected; forms part of the purchase price; giver is bound to pay the balance; generally recoverable if the deal falls through unless forfeiture is stipulated.

Option money (Art. 1479, par. 2)

Consideration for a separate option contract where no sale yet exists; distinct from the price, deducted only if stipulated; giver not bound to buy; generally forfeited if the deal falls through.

Sanchez v. Rigos doctrine

An option without a separate consideration is a mere offer. But if the offeree accepts before withdrawal, a contract of sale is perfected (Arts. 1319, 1324).

Right of first refusal

Not an option contract — no fixed object or price. Remedy for its violation is rescission of the sale made to a bad-faith third party, not specific performance.

Actual/real delivery (Art. 1497)

The thing is placed in the buyer's control and possession.

Delivery by public instrument (Art. 1498)

Execution of a public instrument is equivalent to delivery, unless a contrary intention appears or the seller had no actual control (e.g., a third person is in adverse possession).

Traditio symbolica (Art. 1498, par. 2)

Delivery of the keys to the place where the thing is stored.

Traditio longa manu (Art. 1499)

Delivery by merely pointing out the thing, when it cannot yet be physically transferred.

Traditio brevi manu (Art. 1499)

The buyer already held the thing in another capacity (e.g., as lessee) and now holds it as owner.

Constitutum possessorium (Art. 1500)

The seller remains in possession of the thing sold, but now holds it in another capacity (e.g., as lessee of the buyer).

Quasi-tradition (Art. 1501)

Delivery of incorporeal property, via public instrument, or by placing the titles of ownership in the buyer's possession.

Memory hook: brevi manu vs. constitutum possessorium

Brevi manu = buyer already had it (now as owner). Constitutum possessorium = seller keeps it (now as another capacity, e.g. lessee). Mirror images — common exam trap.

Double sale — movable property (Art. 1544)

Ownership goes to whoever first took POSSESSION of the movable in good faith.

Double sale — immovable property (Art. 1544)

(1) First to REGISTER in good faith; (2) if none, first to POSSESS in good faith; (3) if none, the one with the oldest title in good faith.

Double sale — good faith rule

Good faith must be continuous from acquisition until registration. A second buyer who learns of the first sale before registering cannot invoke Art. 1544; registration in bad faith is registration in nothing.

When Art. 1544 (double sale) does NOT apply

Where the first transaction was a contract to sell; where one sale is void because the seller was not the owner; or where the land is unregistered (Act 3344 governs instead).

Risk of loss — thing lost at perfection (Art. 1493)

If entirely lost, the contract is without effect. If partly lost, the buyer may withdraw or take the remainder at a proportionate price.

Risk of loss — after perfection, before delivery, of goods (Art. 1504)

Borne by the SELLER until ownership transfers. Exceptions: (a) title reserved only to secure payment → buyer's risk from delivery; (b) delivery delayed through a party's fault → that party bears the risk.

Risk of loss — after delivery

Borne by the buyer (res perit domino).

Remedy — buyer of immovable fails to pay (Art. 1592)

The buyer may still pay even after the period has lapsed, so long as no demand for rescission has been made judicially or by notarial act. After such demand, the court may not grant a new term.

Remedy — buyer of movable fails to pay or accept (Art. 1593)

The seller may rescind by mere notice, immediately, without court action.

Remedies of an unpaid seller of goods (Art. 1526)

Four remedies: (1) possessory lien; (2) stoppage in transitu (buyer insolvent); (3) special right of resale; (4) special right to rescind.

Remedy — buyer disturbed in possession (Art. 1590)

The buyer may suspend payment until the disturbance ceases or the seller gives security. Mere trespass is not enough.

Sale of real estate by unit price (Arts. 1539-1540)

Deficiency in area → proportionate reduction of price, or rescission — but only if the lack in area is at least 1/10 of the stated area.

Sale of real estate for a lump sum / a cuerpo cierto (Art. 1542)

No increase or decrease of price regardless of actual area; the boundaries prevail over the stated area.

Prescription — unit price or lump sum sale of real estate (Art. 1543)

6 months from delivery.

Express warranty (Art. 1546)

An affirmation of fact or promise whose natural tendency is to induce the purchase, relied upon by the buyer. Statements of value/opinion are NOT warranties (dealer's talk), unless made by an expert and relied upon. Remedy: breach of contract, ordinary prescription.

Warranty against eviction — requisites (Arts. 1548-1560)

(1) buyer deprived of the thing; (2) by final judgment; (3) based on a right prior to the sale; (4) seller was summoned in the suit; (5) no waiver.

Warranty against eviction — remedy (Art. 1555)

Buyer recovers the value of the thing at the time of eviction, fruits, costs of suit, expenses of the contract, and damages only if the seller was in bad faith.

Warranty against eviction — waiver types

Waiver consciente (no knowledge of risk) → seller pays value only. Waiver intencionada (with knowledge of risk) → seller not liable at all.

Warranty against hidden defects — requisites (Arts. 1561-1571)

Defect is hidden, existed at the time of sale, and renders the thing unfit or diminishes its fitness such that the buyer would not have bought it or would have paid less. Seller is liable even if unaware (Art. 1566).

Warranty against hidden defects — remedy and prescription

Alternative and exclusive remedies: accion redhibitoria (withdraw) OR accion quanti minoris (reduce price). Prescribes in 6 MONTHS from delivery (Art. 1571).

Warranty against non-apparent servitude (Art. 1560)

Applies when an immovable is burdened by a non-apparent easement not mentioned in the deed. Remedy: rescission or indemnity, within 1 YEAR from execution of the deed; thereafter damages only, within 1 year from discovery.

Warranty of fitness/merchantability (Art. 1562)

Arises when the buyer makes known the particular purpose and relies on the seller's skill, or buys goods by description from a dealer in such goods.

Goods sold under a patent or trade name (Art. 1563)

Carry NO warranty of fitness for a particular purpose.

Warranty on sale of animals (Arts. 1572-1581)

No warranty for animals sold at fairs/public auction, or sold as condemned (Art. 1574). Sale of animals with a contagious disease is VOID (Art. 1575).

Warranty on sale of animals — prescription (Art. 1577)

40 DAYS from delivery. If the animal dies within 3 days, seller is liable if the disease pre-existed the sale (Art. 1578).

Consumer Act warranty (RA 7394, Art. 68)

Written warranty on consumer products: minimum 60 days, maximum 1 year; retailer is solidarily liable with the manufacturer.

Lemon Law (RA 10642)

Covers brand-new motor vehicles for 12 months or 20,000 km, whichever comes first, after 4 repair attempts or 30 days out of service for the same defect.

Recto Law (Arts. 1484-1486)

Governs installment sales of PERSONAL property; the seller has three ALTERNATIVE remedies — electing one is a waiver of the others.

Recto Law — remedy 1: exact fulfillment

Available upon any default; deficiency after execution of the judgment is still recoverable.

Recto Law — remedy 2: cancel the sale

Requires default in TWO OR MORE installments.

Recto Law — remedy 3: foreclose the chattel mortgage

Requires default in TWO OR MORE installments. No further action may be brought to recover the unpaid balance; contrary stipulation is VOID.

Recto Law — scope exclusions

Does not apply to: a straight sale (lump sum, or down payment + one future balance) even with a small down payment; sale of real property (Maceda territory); a loan secured by a chattel mortgage where the chattel is not the thing sold.

Art. 1485

Extends Recto Law protection to a lease of personal property with an option to buy, where the lessor has deprived the lessee of possession.

Art. 1486

A stipulation that installments already paid shall not be returned to the buyer is VALID, so long as it is not unconscionable.

Maceda Law (RA 6552)

Governs the sale/financing of residential real estate on installment, including residential condominium units; applies to contracts to sell too.

Maceda Law — excluded transactions (Sec. 3)

Industrial lots; commercial buildings and commercial lots; sales to tenants under RA 3844 (agrarian reform).

Maceda Law — buyer paid at least 2 years of installments (Sec. 3)

Entitled to a grace period of 1 month for every 1 year of installments paid, without interest, exercisable only once every 5 years; plus a cash surrender value if cancelled.

Maceda Law — cash surrender value formula

CSV = Total Payments × [50% + 5%(N − 5)], where N = number of full years of installments paid; bracket capped at 90% (reached at N = 13 and beyond).

Maceda Law — worked CSV example

Total payments P900,000 over 7 years → 50% + 5%(7−5) = 60% → CSV = P540,000.

Maceda Law — buyer paid less than 2 years of installments (Sec. 4)

Grace period of not less than 60 days from the date the installment became due; NO cash surrender value.

Maceda Law — cancellation requirements

Effective 30 days from the buyer's receipt of the notarial notice of cancellation AND (if ≥2 years paid) upon full payment of the cash surrender value — both must concur.

Maceda Law — other buyer rights (Secs. 5-7)

Sec. 5: sell/assign his rights, or reinstate by updating payments before actual cancellation. Sec. 6: pay in advance without interest, annotated on title. Sec. 7: contrary stipulations are VOID.

PD 957, Sec. 20

Developer must complete the development within 1 YEAR from issuance of the license to sell.

PD 957, Sec. 23

If the buyer desists from paying because the developer failed to develop, no installment is forfeited; buyer recovers the TOTAL amount paid (incl. amortization interests, excl. delinquency interests) with legal interest — not limited to the Maceda CSV, since buyer is not the defaulting party.

PD 957, Sec. 25

The developer must deliver the title to the buyer upon full payment of the price.

PD 957, Sec. 18

No mortgage of a unit/lot without prior written approval of the regulator; the buyer may pay installments directly to the mortgagee.

Regulator of PD 957 / RA 4726

DHSUD (regulation) and HSAC (adjudication) under RA 11201 — HLURB no longer exists.

Condominium Act (RA 4726)

A condominium is a separate interest in a unit plus an undivided interest in the common areas; title is a CCT; membership in the condominium corporation is inseparable from unit ownership; foreign ownership ceiling is 40%.

Pacto de retro sale (Art. 1601)

Seller reserves the right to repurchase in the SAME instrument; ownership passes immediately to the buyer a retro, subject to a resolutory condition. A separate LATER agreement to resell is a mere promise to sell (Art. 1479).

Period to redeem in pacto de retro — no agreement (Art. 1606)

4 YEARS from the date of the contract.

Period to redeem in pacto de retro — with agreement (Art. 1606)

As agreed, but NOT MORE THAN 10 YEARS; a longer stipulated period is reduced to 10 years.

Art. 1606, par. 3

Gives the seller 30 DAYS from finality of the judgment declaring the contract a true pacto de retro sale to redeem — available only to a seller who litigated in good faith believing it was an equitable mortgage.

Art. 1616

To redeem, the seller must return the price, expenses of the contract and other legitimate payments, and necessary/useful expenses; tender must be actual and in full.

Art. 1607

Consolidation of ownership by the buyer a retro cannot be recorded without a JUDICIAL ORDER, after the seller is heard.

Art. 1602 — badges of an equitable mortgage

(1) unusually inadequate price; (2) seller remains in possession as lessee or otherwise; (3) another instrument extending the redemption period executed upon/after expiry; (4) buyer retains part of the purchase price; (5) seller binds himself to pay the taxes; (6) any other case showing real intent to secure a debt.

Art. 1602 — how many badges are needed

ONLY ONE badge is needed; they are not cumulative.

Art. 1603

In case of doubt, a sale with right to repurchase is construed as an equitable mortgage.

Art. 1604

The equitable mortgage presumption applies even to a contract purporting to be an ABSOLUTE sale.

Art. 1605

The remedy where a contract is found to be an equitable mortgage is REFORMATION of the instrument.

Why the equitable mortgage doctrine exists

To defeat pactum commissorium (Art. 2088); the disguised "buyer" is really a mortgagee and must foreclose rather than automatically appropriate the property.

Legal redemption — co-owner (Art. 1620)

Other co-owners may redeem a share sold to a third person within 30 days from WRITTEN NOTICE by the vendor (Art. 1623); if two+ redeem, pro rata to shares; no right if sale is to another co-owner.

Legal redemption — adjoining owner of rural land (Art. 1621)

30 days from written notice; land sold must not exceed 1 hectare and redemptioner must own no rural land; preference to owner of the smaller adjoining area.

Legal redemption — adjoining owner of urban land (Art. 1622)

30 days from written notice; applies when land is so small it cannot be used for any practical purpose and was bought for speculation; pre-emption before resale, redemption after resale.