CIVIL LAW REVIEW II LAW ON SALES Atty. Crisostomo Uribe - Course Outline (Dec. 2009) Donnell R. Agaton | Recoletos de Manila - College of Law
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Art. 1458 (CC) By the contract of sale, one of the contracting parties obligates himself to transfer ownership of and to deliver a determinate thing, and the other to pay therefor a price in money or its equivalent.
Insurance contracts.
6. Nominate contract - has a particular name to distinguish it from others. As to nature:
When one of the parties delivers a thing and the other pays a price it constitute a contract of sale? Not necessarily. Not all delivery of a thing and the concomitant payment of a price constitute a contract of sale. It could be a contract of lease. What is necessary is the intent of the parties to transfer ownership over the subject matter of the contract of sale.
1. movable or immovable - This is important because one must determine the object of the sale.
Statute of Frauds: a. movable b. immovable Maceda Law Recto Law
Note: Sale is a contract and therefore, the provision on obligations and contract under the civil code may generally apply.
2. A thing or a right - important as to the mode of delivery.
What are the characteristics of a contract of sale?
3. Valid, Voidable, Void, unenforceable Rescissible etc.
1. Consensual 2. Perfected by meeting of the minds as to the price and the object.
What are the distinctions between absolute sale and conditional sale?
except: in cattle registration decree to be a perfected contract it requires to be in a public instrument, registered and a certificate of title be issued. 3. It is a principal contract such that it can stand on its own for its perfection and validity. 4. It is onerous where both parties are obliged to give something.
Absolute Sale
Conditional Sale
The seller does not reserve his title over the thing sold, ownership passes upon delivery whether the buyer has actually paid a single centavo or not.
Conditions are imposed by the seller in order that ownership will pass.
5. Commutative because there is equivalence of value to be performed by both parties.
except: aleatory contracts or sale of hope. The obligation of a party will only arise upon the happening of a certain event or conditions. The performance of one of the parties or both is contingent on the occurrence of a particular event.
Ownership automatically passes from the moment the condition happened. Contract to sell
e.g. sale of lotto ticket is contingent upon the numbers would appear in the draw. 2
A receipt was issued by A to B for the sum of 75k as partial payment for a car, the balance to be paid at the end of the month. Is this a contract of sale? This is a contract of sale. This is not a contract to sell because in a contract to sell ownership is reserved by the seller, such that despite delivery to the buyer, the buyer did not acquire ownership over the thing upon delivery. In a contract to sell, upon the happening of the condition or conditions imposed by the seller, ownership does not automatically pass to the buyer. Though a contract to sell is a special form of a conditional sale, it is a peculiar kind of sale because despite the happening of all the conditions, and despite actual delivery to the buyer, the buyer does not automatically acquire ownership. Upon the happening of the condition in a contract to sell, the buyer is only given the right to compel the seller to execute a final deed of sale. Dation in payment Art. 1245 Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law on sales. For dation in payment to be governed by the law on sales it is required that one of the pre existing obligation must be in money, if the other consideration is not in money covered by dation in payment, it will not be governed by the law on sales, such will be governed by the law on novation. Practically there is a change in the object of the contract. Example: If A owes B 100k and A would offer a car to V, and if B accepts, such would be dation in payment. This would be governed by the law on sales because the pre exsiting obligation is in money. However, if A is obliged to deliver a horse but instead delivered a car and B accepts, this would be dation in payment but not under Art.
1245 but by novation by changing the object of the obligation. As to nature, dation in payment is a special form of payment, while sales is a contract. In dation in payment there must be a pre existing obligation. Since this is a special form of payment, there has to be an obligation. There is no pre exiting obligation in a contract of sale. Massachusetts Rule It is a rule where a contract was entered into for a contract for a piece of work. For example, a person who entered a store to buy shoes, but since there is no size that would fit such person, the store offered to make a pair of shoes specially made for him. In a contract of sale, the shoes ordinarily sold are for the general market, while the shoes specially made, is a contract for piece of work. A obliged himself to deliver to B a car work 250k. B on the other hand, obliged himself to deliver to B a watch plus cash in the amount of 150k. What is the nature of the transaction between A and B? Depending on the intention of the parties, A and B may consider as one of sale or barter. If the intention of the parties are not clear base on the agreement, the nature of the contract would depend on the value of the watch. If the value of the watch is greater than 150k, it will be barter, but if the value of the watch is equal or less than 150k, then it would be sale. The value f the car is irrelevant. A gave B the exclusive right to sell his denim jeans, promising B 20% discount on sales. However, it was stipulated in their agreement that B shall pay the price of this jeans 60 days from delivery. After the jeans was deliver to B and before B could sell the jeans, the store was burned without the fault of anyone. Thus, can B still be compelled to pay the price of this jeans?
Under Art. 1466, in construing a contract containing provisions characteristic of both the 3
contract of sale and of the contract of agency to sell, the essential clauses of the whole instrument shall be considered. If assuming this is a contract of agency the ownership does not pass to B, the owner-seller shall bear the loss and noting that B is not negligent under the facts. If however it is a contract of sale, then ownership passes to B, and since he is the owner, he bears the loss. Since both are characteristic of a contract of sale and agency, the provisions of Art. 1466 however shall be applied. Here, the essential clauses of the whole instrument must be inquired into. One of the clauses or condition agreed upon by the parties is that “B had to pay the price within 60 days.” As such, that would make the contract as one of sale and not of agency. This is because 60 days from delivery, whether or not B has sold those jeans to other persons, he is already obliged to pay the price. Being a contract of sale therefor and there having a delivery, ownership passes to the buyer. Hence, the buyer bears the loss. Therefore he cannot be compelled to pay the price of the jeans. Essential elements of a contract of sale? 1. Consent of the contracting parties 2. Object or subject matter which is a determinate thing or determinate subject matter (may either be a thing or right).
Service cannot be a subject matter of a contract of sale.
3. Cause or consideration
As to the seller: the price in money or its equivalent.
What is the effect of a contract of sale when there is no consent given by one or both of the parties? If consent is not given by one or both of the parties, the contract is void because one of the essential elements is lacking. Under the law, it is considered as a fictitious contract. A fictitious contract would normally be that “the signature of
the parties in the sale was forged. If the signature of the seller was forged, that would be a fictitious contract. The alleged seller will not have participation in the execution of the contract.
Simulated Contract HEre the parties actually have participation. They (the parties) voluntarily sign the deed of sale, however they do not intend to be bound by the terms of the contract, or they may intend to be bound but not under a contract of sale but on some other contract. 2 Kinds of simulated contracts 1. Absolutely simulated Contracts - Here, the parties do not want to be bound by the contract, the common reason is to defraud creditors. For example, the debtor wold sell his remaining properties in a simulated contract to make it appear that he has no property, that may be reached by his creditors. 2. Relatively simulated contracts - Here it may appear to be in a valid deed of sale but they actually intend to enter into another contract such that it is actually a donation or to circumvent the provisions of the legitime. If consent is given, would it mean that the contract is valid? Not necessarily, because when consent is given by an incapacitated person, such is void or voidable as the case may be. This is because there are specific rules followed depending on the basis of incapacity. What are the kinds of incapacity 1. Absolute incapacity - A party cannot validly give consent to any contract. 2. Relative incapacity - The party is prohibited in entering into specific contracts or specific persons or things.
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a. Sale between spouses - The SC would consistently consider this contract as void, except:
a1. when the spouses in their marriage settlement, and agreed they constitute complete separation of property. They can enter into a contract of sale with each other.
object of any litigation in which they may take part by virtue of their profession.
c. Aliens are prohibited from acquiring private lands by purchase, except:
a2. Even if they did not execute a marriage settlement, if during their marriage obtained a judicial declaration of complete separation of property. a. sale by persons mentioned under Art. 1491, namely:
b1. The guardian, the property of the person or persons who may be under his guardianship;
b 2 . A g e n t s , t h e p r o p e r t y w h o s e administration or sale may have been entrusted to them, unless the consent of the principal has been given;
b3, Executors and administrators, the
p r o p e r t y o f t h e e s t a t e u n d e r administration;
b4. Public officers and employees, the
property of the State or of any s u b d i v i s i o n t h e r e o f , o r o f a n y government-owned or controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale;
b6. Any others specially disqualified by law.
c1. former natural born citizens
Note: Even if consent is given by one capacitated but such consent is vitiated consent, the contract is merely voidable either by fraud, mistake, intimidation, undue influence and violence. If the party giving consent is in the name of another person, but without the authority of such person or authority of the law, such contract shall be unenforceable. Two kinds of capacity 1. Juridical capacity
It is the fitness to be the subject of legal relations.
If the party has no juridical capacity, the contract is definitely void.
All living natural persons have juridical capacity.
An alleged corporation which has not been registered with the SEC has no juridical capacity.
2. Capacity to act
b5. Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the
It is the power to do acts with legal effects.
Without capacity to act, normally the contract shall be voidable.
Particular restriction with respect to capacity to act is minority or insanity, deaf mutes who does not know how to read and write or persons suffering from 5
civil interdiction.
H o w e v e r, i f s u c h m i n o r a c t u a l l y misrepresented as to his age, he will be bound to such contract, under the principle of estoppel.
items.
Note that when sale of items which are necessary would bind that minor, but not as to the actual contract price but only the reasonable price of those
Object of Subject matter of a contract of sale (determinate thing or right)
considered void? May the seller be held liable for damages? Things having the potential existence may be the object of a valid sale. As long as the the 3 essential requisites of a contract of sale is present, then there is a valid contract of sale. The seller may not be liable for damages because there are excuses for non performance of obligation because it was due to fortuitous event, as such it is excused. If however, the failure to produce palay is through negligence, he is liable. Sale of a lotto ticket is it a valid sale?
1. Thing - Requisites of sales as to things: a. The thing must be within the commerce of men, such as sale of navigable rivers, sale of cadavers, sale of internal organs. 2. Must be licit (not prohibited by law) 3. They must be determinate
Sale of a car and sale of a mitsubishi lancer glx forest black 2007 model.
A thing is considered determinate only when it is particularly designated or physically segregated from all others of the same class.
Sale of a car shall be void, but the sale
of a mitsubishi lancer glx forest black
2007 model is a valid sale because under Art. 1460 (2) of the new civil code provides that the requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made
determinate without the necessity of a
new or further agreement between the
parties. If A and B agreed that A would sell and transfer ownership over a palay that would be harvested in a specific rice field and in a specific season. However, upon the arrival of the period nothing has been harvested. What is the status of the sale? Since nothing has been harvested, would the contract be
If before the draw such is a valid sale of the ticket whether the winning numbers appeared or not. If after the draw, would depend on whether it is a winning or a losing ticket. Sale of a vain hope is a void sale as in the latter case. In an agreement between A and B where A sold a parcel of land to B, with a right to repurchase within 1 year. On the third month,, B sold the same parcel of land to C. On the 11th month, A offered to repurchase the land. Who had the better right between A and C? or, will the sale between B and C be a valid sale noting that the sale is with a right to repurchase? Sale is a consensual contract. As long as there is a meeting of the minds as to the object and as to the price, then there is a valid and perfected sale. This is a valid sale even if the object of the sale is with a right to repurchase. Further, under Art. 1465 Things subject to a resolutory condition may be the object of the contract of sale. Note: It is the ownership of a thing which can be the subject of a resolutory condition and not the thing. Since, A had the right to repurchase, A had the better right. However, when C is a innocent purchaser for value as when there is no annotation at the back of the title of the parcel of land that it is subject to a right to repurchase, and in such case C will have a better right. 6
Sale of a right is otherwise known as? Assignment of a right.
That would be a valid sale even if the currency is not Philippine currency, as the law requires only that it be in money or it may even be its equivalent like promissory notes, or letters of credit.
Is assignment of a right a sale? Not necessarily. If the asssignment is with a valuable consideration, it is a sale, if gratuitous or by dation in payment it is not a sale as it is not for consideration. Examples are sale of a credit or sale of shares of stock are considered considered as rights. Furthermore, the right must not be instransmissible. For a right to be the object of a contract of sale, the same must not be instransmissible. Under the law the only three general reasons why a right may not be transmissble are 1) by nature, 2)by stipulation, 3)law. Rights which are purely personal cannot be a subject of sale by nature are intransmissible, rights where personal qualifications of a person are considered. With respect to stipulations, they may be transmissible by nature but by stipulation they may be considered instransmissible. Sublease of a property may be transmistted to another but by stipulation, it cannot be done and hence instransmissible. In partnership, the rights in a specific property, where the law requires that assignment cannot be done without the consent of all the partners, the assignment of one cannot be done without the consent of all the partners. Is the sale of rights perfected by mere consent? Yes. By mere meeting of the minds, and without the execution of a specific instrument, the sale shall be valid. However, to bind third persons such sale must be recorded in the registry of property. In a deed of sale, where the price stated in the deed was 100 lapad (10,000 yen) = 1 million yen, as such the sale not being in Philippine peso, a valid sale? Can the seller compel the buyer to pay in that currency?
If the contract would be entered into after RA 529 was repealed by RA 8183 in 1996, then the seller can be compelled to pay in a currency other than Philippine peso. Otherwise the seller cannot compel the buyer to pa in japanese currency. Can there be a valid payment in 10,000 1 peso coins? Yes, but the seller cannot be compelled to accept because under Philippine law 1 peso coins only have legal tender power up to 50 pesos. Sale of shares of stocks valued at 5000 but there was no date as to the value of the shares The price must be certain as one of the requirement in order that the sale shall be valid. The date is very material because the value of the shares changes depending on the date. Even if the date has been fixed but the time has not been considered such as the opening and closing with respect to such exchange would affect the validity of the sale. Because if the value upon the opening is 50 pesos but in the closing it is only 39 pesos, then such is not certain when the time is not considered. Who can fix the price of the sale? It is best that the parties shall agree as to the price of the sale, but the parties may agree as to who may fix the price. May the sale be perfected if one of the parties is designated to fix the price? It is valid provided the person designated to fix the price, the price fixed must be accepted by the other party. As to the price, if one of the parties designated fixed it at 1 million but the other party did not accept, there is no perfected 7
contract of sale, because the latter did not accept, there being no meeting of the minds. May a third person be tasked by the original parties to fixed the price? It is void when the third person does not want to fix the price or unable to fix the price. If such third person was able to fix the price but it is too high or it is too low and there is fraud employed, the contract is not void, the remedy of such party is to go to court to fix the price. May a sale be valid if the price of a car is valued at 1 peso? Yes, because under the law gross inadequacy as to the price does not invalidate the contract, except as otherwise provided by law. An example of this exception is that of lesion where such would invalidate the contract of sale under Art. 1381 where the guardian sells the property of the ward and there is lesion of more than 25% of the value of such thing such contract is rescissible. If the buyer should be the guardian Art. 1481 should apply and the contract shall be void. If there is a gross inadequacy and the parties intend another contract, then such would be a simulated sale, and as such the contract shall be void, as when the real purpose of the sale is donation. Is there a need for delivery in order that a contract of sale be perfected?
As a consensual contract there is no need for delivery in order that a contract of sale will be perfected. The only question is here the time when the contract is perfected.
With respect to the auctioneer, he may withdraw as a rule, before the fall of the hammer. Unless the bidding has been announced to be without reserved as far as the auctioneer is concerned. Option contracts In the case of Sanchez vs. Rigos, Rigos offered to sell a parcel of land to Sanchez for a certain price, and Rigos gave Sanchez 2 years within which to decide whether he will buy it or not. In options the optionee or offeree he is not bound to purchase, but he has the option. Therefore Sanchez has the option on whether to buy the land or not. Before the lapse of the 2 year period, Sanchez told Rigos that he is buying the land, but Rigos refused to sell it and said that he was not bound by this agreement because there was no option money given by Sanchez for lack of consideration. But the SC said that since Sanchez the offeree accepted the offer and considered to buy within the period before the offer was withdrawn a perfected contract of sale was created even without the option money given by the offeree. In this case there was no option contract, and this is merely an option agreement whereby what was given is merely an offer on the part of Rigos, therefore before the option was withdrawn regardless whether an option money is given, a perfected contract of sale was created. Assuming there was option money, before the offeree decide to buy the offerror withdraw on the 6th month, but on the 10th month the offeree decided that the offeror now want to buy. Can the offeree compel the seller to sell the offer having been withdrawn before it was accepted? No. The action for specific performance will not prosper because the offeree who decided to buy, when the offerror withdraw the same, there is no more offer to be considered.
Option sale An option sale is perfected upon the fall of the hammer or any other customary manner by which the same may be considered perfected. Before the fall of the hammer, the buyer who made his bid may actually withdraw his bid.
But the offeree can claim for damages because the offerror is bound to give the offeree 2 years within which to decide. He is liable not under a perfected contract of sale but on a perfected contract to offer. 8
Option money distinguished from earnest money Option money is not considered part of the price; earnest money is considered as part of the price but also considered as proof of a perfected contract of sale. Note however, as decided by the SC, when the option money will be treated by the parties as part of the price, the same shall be binding between the parties. Without stipulation, it is not considered part of the price. Option money is a consideration for the option.
As a rule, there is no actual form as provided in Art. 1483 that a contract of sale may be in writing, or by word of mouth, or partly in writing and partly by word of mouth , or may be inferred from the conduct of the parties for as long as the essential requisites are present. But however, when the law itself provides for a particular form then the same must be complied with in order for it to be enforceable, such as the statute of frauds and the cattle registration decree. Statute of Frauds In sale of a parcel of land which is not in writing, is a valid contract but unenforceable.
Earnest money Earnest money may be called by any other name but if it is considered by the parties as part of the price, such would be considered as earnest money. However, even if there is earnest money, it does not mean that there is already a perfected contract of sale. If it is merely a proof of a perfected contract of sale. Even if there is earnest money given, if the contracting parties have not agreed as to the total amount of the purchase price, then there will never be a contract of sale. Even though they have agreed as to the total amount of the price and an earnest money is given, and were able to agree as to the total amount of the price, but not as to the object then there will be no perfected contract of sale. Earnest money is not the only requirement in a perfected contract of sale. There is a perfected sale by the mere meeting of the minds, does it mean that it is already enforceable? Not that upon perfection the parties to such contract, the parties already have the right to compel the parties to perform their respective obligations. But perfection is subject to formalities required by law like the statute of frauds. There may be a meeting of the minds, but the same shall be unenforceable.
If the object of the sale is a movable, the value of the price agreed upon must be considered and not the actual value of the price must be considered. If the price is at least 500 pesos and the same is not in writing, the same is unenforceable. Even if the price is less than 500 pesos the same must be in writing when the same is not to be performed within 1 year. In the case of Paredes vs. Aquino, Paredes here was a prospective buyer and Aquino was the owner of a parcel of land. The negotiation was made through letters and telegrams. Ultimately the owner made a letter signed by him to Paredes stating that he and his wife already agreed to sell the land at the specific price. However, the execution of the sale shall be made upon arrival of Paredes in Palawan, as the latter is from Northern Luzon. When Paredes arrived in Palawan, the seller said that he was no longer interested in selling the land. Hence, Paredes filed an action to compel Aquino to sell the land. Aquino’s defense on the other hand was he Statute of Frauds, since there was no deed of sale, there was no perfected contract of sale. The SC ruled that the contract was no longer covered by the statute of frauds since there was already a letter. Under the law, specifically under Art. 1403 even if the contract does not comply with the statute of frauds, the same shall be enforceable and no longer covered under the operation of the statute of frauds when the same was made through some note or memorandum, be in writing, and subscribed by the party charged, or by his 9
agent. Hence, Aquino can be compelled to execute a final deed of sale.
on their agreement because until such time there is no obligation to deliver which arise.
In a deed of sale there can be 100’s ob obligations of the vendors because of the stipulation. There are only few obligations imposed by law to the vendors, and these are:
Secondly, the buyer cannot compel the buyer to receive the fruits because he shall not acquire real rights over such fruits until the delivery of the thing. The buyer’s remedy is going after the seller.
1. The obligation to transfer ownership 2. The obligation to deliver 3. The obligation to warrant the thing 4. The obligation to take care of the thing sold with the diligence of a good father of the family from the time of perfection upto the time of delivery. 5. The obligations to pay the capital gains tax 6. The obligations to deliver the fruits
Obligation to take care of the thing
Obligations to deliver the fruits A sale of a mango plantation between A and B, A agreed to deliver to B the fruits only after 6 months from the perfection of the sale. Despite the arrival of the period, the seller took him 1 month to deliver the fruits to the buyer. A however, sold the fruits to a third person X in good faith. Can B recover the fruits from X? What are the remedies of the buyer as against the seller? Under the law under Art. 1537, The vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which they were upon the perfection of the contract. All the fruits shall pertain to the vendee from the day on which the contract was perfected. Art. 1537 however should be considered in relation to Art. 1164 which provides that “the creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him”. From the foregoing therefore the vendor actually has rights to the fruits but not from the time of perfection. B is only entitled to the fruits of the thing from the end of the 6 month period base
The premise in this kind of obligation of the seller is a determinate thing. If the thing sold is a generic thing, there is nothing to be taken care of, it will become determinate only upon delivery. One scenario where the seller does not have the obligation to take care of the thing from the time of perfection, when the buyer already was in possession of the thing at the time of perfection. Obligation to pay expenses or capital gains tax Through stipulation, the parties can agree as to who is going to pay the tax. May a person sell something which does not belong to him? (Bar Question) Yes. Ownership over a thing is not a requisite in order for a sale to become valid. But if the seller does not own the thing he may have a problem in performing his obligation to transfer ownership. The problem actually is whether or not the buyer acquire ownership over the thing sold by the person selling who does not own the thing. Thus, only those persons who have the right to sell can transfer ownership. The owner or even if not the owner a person has been given authority by the owner, therefore he will have the right to sell, or the law authorizes a person the power to sell (art. 1505 statutory power to sell) (e.g. the notary public, the pledgee under pledge, under the mortgage law the liquidators have authority to sell, the guardian, receivers etc), those who have the authority of the court (sheriff in an execution sale or foreclosure sale).
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May the buyer actually acquire ownership over the thing sold if the seller has no right to sell? Under Art. 1505 the buyer does not acquire better title than what the seller had. If the seller is neither the owner or does not have authority to sell, the buyer acquires no better title than what the seller had. As an exception, the buyer can acquire better title than what the seller had, even if the seller is not the owner or does not have the right to sell, when: a. by estoppel in pait - by the principle of estoppel a person will be precluded from denying that a person has authority to sell by the owners acts or representations. This estoppel is other wise known as estoppel in pait (equitable kind of estoppel). a. estoppel by deed (technical estoppel)-Art. 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee.
that by operation of law, Y likewise acquired ownership by estoppel by deed. Sale by the nephew of the owner of a parcel of land. Since the nephew could not deliver the land to the buyer, the buyer filed a complaint for estafa. In this criminal case, for the accused to be acquitted, he asked his uncle to testify that he actually had the authority to sell. When the uncle testified in court, the nephew was acquitted because after all, he had the authority to sell. After the acquittal of the nephew and the buyer demanded from the uncle for the delivery, the uncle refused for in reality he said that he did not authorized his nephew. So when a civil case was filed to compel the uncle to deliver and transfer ownership over the thing, will that action prosper? Yes, because the owner cannot be allowed now that his nephew was not authorized when he testified in court that he gave such authority. This is considered as estoppel by record and also considered technical estoppel. Discuss “Sale by an apparent owner”?
a. Estoppel by record (technical estoppel)a. A sale by an apparent owner a. Purchases from a merchant store A and B are co-owners of a parcel of land. A and B sold it to X verbally. X sold the land for 150,000 to Y. Would Y be considered to have acquired ownership over the parcel of land? Under Art. 1434 or otherwise known as estoppel by deed or technical estoppel. When the seller who was not the owner at the time of the sale acquired ownership, automatically ownership passes to the buyer by operation of law. However, under Art. 1434 does not apply because the law requires the delivery of the parcel of land to X the buyer, and under the facts art. 1434 would not apply because 1. there was no showing that there was delivery/payment already due to the verbal nature of the sale hence unenforceable. Hence it could not be said
As provided by factors act, recording laws, and other laws which enable the apparent owner of goods to dispose of them as if he were the real owner. Under the Factors (an old name for agent) Act, even if the agent has no right to sell a specific thing a third person may actually acquire ownership because he can only rely on the power of attorney as written. If for example an agent through a special power of attorney was given the power to purchase a car, however in the verbal instruction the agent was authorized to sell that car only to one of the members of a certain organization. But the agent sold the car to a person other than to a member of the organization as directed by the principal. Would that buyer acquire ownership even if the agent has no right to sell to that buyer? Yes. Under Art 1900 so far as third persons are concerned, they only have to rely on the SPA as written even if the seller agent was not 11
authorized as instructed, the buyer acquire ownership over the thing subject of the sale. The elder brother Miguel Mapalo donated half of his land to his younger brother because the latter was about to get married. Instead of the younger brother asked his elder brother to sign a deed of donation, he asked the latter to sign a deed of sale not only half of the land but the entire parcel of land. He was therefore able to register the property in his name. After 10 years, however, he sold this entire parcel of land to the Narcisos. Obviously, the younger brother is not authorized to sell with respect to the other half, because what was only given is only half of the land. But the Narcisos claimed that they bought the land on an apparent owner because the entire property was registered in the ame of the seller. Did the Narcisos acquired ownership because they bought the entire property from an apparent owner? Not necessarily, because the seller must not only be an apparent owner but buyer must also be a buyer in good faith. The buyers in this case is not in good faith because before they bought the land, they went first to the house of Miguel Magpalo to inquire on whether he (younger brother) would allow his younger brother to sell that parcel of land. Therefore they are in bad faith because they knew and because Miguel also had the right to the half portion of the land when they bought the entire parcel of land. Therefore they did not acquire ownership over the entire parcel of land (Mapalo vs. Mapalo) The owner of a parcel of land covered by a TCT or OCT, mortgaged a parcel of land to the creditor and delivered the TCT or OCT. This mortgagee forged the signature of the owner in a deed of sale. Thus, he was able to register the property in his name with that forged deed. Thereafter, the mortgagee who was a buyer in the forged deed, sold that land to a third person who had no knowledge of the transaction between the mortgagor A and mortgagee B. Did the mortgagee acquired ownership? Did the buyer acquired the property over the parcel of land? When can a buyer said to be in good faith?
The mortgagee did not acquire ownership by virtue of a deed of sale. A forged deed is a void instrument and cannot be the source of a valid title to the buyer. This forged deed however, can be the root of a valid title under the mirror principle when the buyer bought it from the mortgagee in whose name it was registered, and relied on the TCT, then if he acquired the property in good faith, then he had acquired ownership over the parcel of land under Art. 1505 in relation to PD 1529, when the buyer bought a parcel of land relying on the TCT alone and buying it in good faith then he will have a better right than the owner. By the mere fact that the buyer did not know the execution of the time of the deed necessarily mean he is already a buyer in good faith? Not necessarily because the law requires that he had fully paid without knowledge of defect in the title of the seller. He may have acquired knowledge after the execution of the deed of sale but before payment, he can no longer be considered a buyer in good faith. *The owner of a parcel of land entrusted the secretary to take hold of the TCT only for safekeeping. Thus the secretary forged the signature of his boss in a deed of sale. Thus he was able to register the property in his name, and sold this parcel of land to a third person, and such person is considered to be in good faith, then he has acquired ownership over the thing sold even if the seller had nor right to sell. This is because the buyer bought it from an apparent owner who disposed of the thing as if it was really owned by him. *Under the New Civil Code on negotiable documents of title, if goods are covered by a negotiable document of title and there was a negotiation of this document as a consequence of a sale, if the buyer bought the good in good faith and for value, he will be protected under the law, and acquire ownership over the goods even if the seller do not have the right to sell. The seller may have acquired over the document of title through violence, but if it is negotiable document of title especially if it is a bearer 12
instrument, then the buyer may acquire ownership over the goods even if the seller had no right to sell. Sun brothers was the owner of the refrigerator (they are engaged in the business of selling refrigerators) and sold it to Lopez in an installment basis. As stipulated Sun brothers reserved ownership over the refrigerator until full payment. The buyer Lopez paid only 300 and the remaining balance to be paid on a monthly basis. However, Lopez sold the refrigerator to Velasco the very next day in his store to Co Cang Chiu. Sun brothers after learning of the sale, filed an action to recover the refrigerator. Would the action prosper? Did Co Cang Chiu acquired ownership over the refrigerator? Can Sun brothers recover the refrigerator by reimbursing the price paid by Co Cang Chiu? As to Velasco, the rule under Art. 1505 is that the buyer cannot acquire better title than what the seller had. As to Co Cang Chiu, he acquired ownership over the refrigerator because he bought it in a merchant store. Under 1505 last paragraph, if the owner bought the thing in good faith from a merchant store he acquires ownership over the thing. Note, he must have no knowledge of the defect in the title of the goods. As to the issue on whether Sun Brothers recover the refrigerator from Co Cang Chiu by reimbursing the price paid. The SC held that Sun brothers cannot. This is because under Art 1505, the ownership of the buyer who bought that thing in the merchant store and in good faith and for value, is absolute in character. Art. 559 does not apply to this scrnario because Sun Bros. was not unlawfully deprived nor is the thing lost. If the thing was lost or the owner is unlawfully deprived, such owner can recover the same even if it was sol through a public sale or in a merchant store but such owner must reimburse the person who bought in in good faith and for value. (Sun brothers and company vs. Jose Velasco and Co Cang Chu)
Art. 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof may recover it from the person in possession of the same. If the possessor of a movable lost or which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor. (464a)
One painting owned by A was stolen from her. Later on she noticed that the painting was in the room of B, and asked how he acquired the painting, he said that he acquired the same in a gallery auction. Can the owner of the painting from whom the painting was stolen recover the same from B? A gallery auction is not a public sale. Since it is not a public sale, the owner can recover the property even without reimbursement. If it is a public sale, the owner can recover the painting provided the owner reimburses the buyer of the price paid in that sale. A diamond ring was robbed in a bus, and this same diamond ring has become the object of a public sale of a pawnshop. Can the owner recover the ring from the buyer in the public sale initiated by the pawnshop? Yes, if the buyer is in good faith, and so long the owner is willing to reimburse the buyer of the price paid in that sale, he may recover the same. Can the owner recover a thing from the buyer who bought in a merchant store? No. The owner cannot recover the thing from the buyer even if the same was lost or the owner was unlawfully deprived thereof, and even if the owner wishes to reimburse the buyer for the price paid. As a matter of right, the buyer in good faith acquires absolute title over the thing. How is transfer of ownership over a thing effected? It is effected by delivery, actual or constructive. 13
Everytime there is delivery, the buyer acquires ownership upon delivery? Not necessarily. This is not an absolute that upon delivery as a consequence of sale, there is transfer of ownership. There are kinds of sale that despite delivery, the buyer does not acquire ownership. Examples of which are: a. Conditional sale - Here ownership is reserved by the seller, such that despite delivery ownership does not pass to the buyer. The buyer does not acquire ownership upon delivery but rather upon the happening of the condition (usually upon full payment of the price). a. A sale on Trial, sale on satisfaction or sale on approval - Upon delivery, even if there is no actual delivery, there is no transfer of ownership at the time of delivery. The buyer will acquire ownership over the thing sold when the buyer signifies his acceptance or approval over the thing sold. Even If he does not signify his approval ownership may still pass to him if: 1) there is a period agreed upon by the parties with which to decide and upon lapse of the period he had impliedly accepted or 2) even before the lapse of a period, he may be considered as to have impliedly accepted if he did an act wherein he would be considered to have adopted the transaction then ownership would be considered to have pass on the buyer (e.g. even if he has 10 days within which to decide, after two days however from delivery, he sold the car to another) 3) there may be no period the buyer is deemed to have accepted after the lapse of a reasonable time. What is reasonable time will depend on the circumstances surrounding the sale, the purpose of the sale, or the nature of the thing sold. In Sale or Return, ownership passes to the buyer upon delivery? In this kind of sale ownership passes to the buyer upon delivery. However in this kind of sale, the buyer is given the right to reimburse the title back to the seller.
A car was sold at 150,000, 75,000 was paid at the execution of the deed of sale, the balance payable on a monthly basis. The car was delivered to the buyer. However, before he could pay the balance, the car was destroyed, can the buyer still be compelled to pay the balance? He can still be compelled to pay the balance. This is because upon delivery of the car to the buyer, there being no retention or reservation of ownership by the seller, ownership passes to the buyer. Under Art 1504, res perit domino rule, the owner bears the loss. In sale on approval, who bears the loss? The seller and not the buyer even if there is no delivery, because the owner is still the seller. Under the res perit domino rule, the owner bears the loss. A set of AMJUR was sold to Tabora on installment basis. On the day these books were delivered to the office of Atty. Tabora, the entire block where the office of the latter is located was burned together with the AMJUR. Atty Tabora refused to pay the balance despite demand by lawyer’s co. Lawyer’s co therefore filed a case. Two defenses were raised 1) res perit domino rule because there is a stipulation in the contract that the seller shall retain ownership over the books until full payment, and if lawyers co was the owner then it should bear the loss. Is the argument correct? No. If there was a stipulation in the contract that ownership shall be retained by lawyers co until full payment was made, there was also a stipulation that the risk of loss shall pertain to the buyer at the time the books were delivered whatever the cause of the loss. This is an exception to the res perit domino rule. Assuming there was no stipulation that the risk of loss shall pertain to the buyer upon delivery, may the buyer still be held to answer for the loss? Under Art. 1504, when the owner reserved the title to the property only to secure the payment 14
of the price of the buyer, then by law, risk of loss shall only pertain to the buyer. This is known as a security title. Therefore, even if the buyer did not acquire title upon delivery, he bears the loss. Whenever there is delay in the delivery of the thing sold, who bears the loss? It depends who may be at fault for the delay in the delivery. It may be the seller or the buyer. If for example, there is a stipulation that the buyer must retrieve the goods on the warehouse of the seller on a specific date. On that date agreed upon, the seller demanded the buyer to get the goods at the warehouse. Despite such, the buyer failed to obtain the goods. The next day, the warehouse was burned. Who then shall bear the loss? Here the seller was still the owner, however, the buyer was already in delay in retrieving the goods, hence, under Art. 1504, the buyer bears the loss, as an exception to the res perit domino rule. If the seller is the one at fault, who bears the loss? The premise here, the ownership should have been passed to the buyer but the goods are still with the seller (this could happen by constructive delivery but physical possession is still with the seller), even so, the seller shall bear the loss because he was the one at fault for the delay in the delivery of the thing sold despite demand by the buyer. An owner of a registered land sold the land to B. B did not register the sale. A few days thereafter, A sold again the same parcel of land to C, who this time registered the sale. Who between B and C have a better right to this parcel of land?
If the thing sold is a movable, the first person who took possession over the thing shall have a better right. If the thing sold is an immovable, the buyer who first register in good faith will have the better right, if there was no registration, then the person who first took possession, if no one is in possession then it will be the buyer with the oldest title in good faith. Good faith here does not pertain to knowledge of a defect of title of the second buyer since he is the first buyer, good faith here means he has no knowledge of the defect on the title of the seller. If a thing is sold to two or more persons, what will be the effect of: 1) the first buyer was the first to register with knowledge of the second sale; 2) the second buyer was the first to register with knowledge of the first sale. Who will have a better right in these to scenarios? 1. In the first scenario, his knowledge of the second sale does not make him a registrant in bad faith. Knowledge should pertain to one which is prior sale in order to make one a registrant in bad faith. Hence, here he has a better right. 2. As to the second scenario, he is considered a registrant in bad faith because of his prior knowledge of a former sale. Hence, he will not have a better right. If a person bought the thing without knowledge of the prior sale and registered the same, would that mean he is a registrant in good faith? Not necessarily. This is because he may have acquired knowledge prior to the registration. but after buying. What is required by law is not a buyer in good faith, but a registrant in good faith.
It depends on whether or not C register the sale in good faith.
Bautista vs. Sioson
Note: In Art. 1544 pertaining to double sales, as to which rule to apply would depend on the nature of the thing sold whether it is immovable or a a movable. If it is a sale of a movable.
The owner sold a registered parcel of land to B who did not register, neither did he took physical possession. After the sale they executed a lease agreement in which the 15
buyer is now the lessor and that the seller became the lessee. Hence, the seller continued to be in possession of the land not as a concept of an owner but of a lessee. After the sale and the contract of lease, A sold this parcel of land to C, who also did not register the same, and this time C took physical possession. Who between B and C had a better right? B would have a better right because when B executed a lease contract with A, B is in contemplation of law in possession of the property, which is legal possession, he obviously is therefore a possessor in good faith, the first who took possession in good faith. Though C had physical possession over the property, he is considered to be the one second in possession. B therefore was considered to have a better right. Note: Legal possession is sufficient to determine as to who have a better right between two persons. Carumba vs. CA Sale of a parcel of land to B who took possession of the land. However, this seller a judgment debtor to one of his creditor. Because of a judgment in favor of a creditor C, the parcel of land had become the subject of an execution sale. Then the buyer became C who registered the sale. Who will have a better right between B and C and C had no knowledge of the first sale? B would have a better right because this parcel of land was registered under the Torrens System. Art.1544 does not apply to unregistered lands. Only those lands which are registered under the Torrens System can be covered by the provisions of Art. 1544. It could be noticed that C had registered the land, but the same is not covered under the torrens system because, there is another system of registration of unregistered lands. There is a different book covered by this kind of registration, hence, Art 1544 would not apply.
Therefore, if ARt. 1544 would not apply, B would have a better right because there was actual delivery to him. Therfore, under the general rule, upon delivery, ownership passes to the buyer. When ownership had passed to the buyer when the property was sold in the execution sale, the buyer would not get anything from the execution sale because he merely steps into the shoes of the judgment debtor. Since the judgment debtor had no ownership over the land at the time of sale, the he did not acquire ownership by virtue of that sale. Note: To determine that the land is under the torrens system, the ownership is proven by TCT’s or OCT’s, otherwise if proof of ownership are mere tax declarations, it will not be considered as registered land. Obligation to deliver to object of the sale In this obligation one must distinguish first the subject matter of the sale whether it is a thing or a right. Ownership passes upon meeting of the minds as a consequence of sale? False, there must be delivery. As to delivery of things as a consequence of sale known as tradition, there are two modes recognized by law, what are these?
1. Actual - Material delivery or real delivery
To have a valid actual delivery the thing
must be subject to possession and control of the vendee.
If the thing sold was delivered to a third
person, there may still be actual d e l i v e r y w h e n s u c h t h i r d p e r s o n h a s authority to receive from the vendee. As such he becomes an agent of the vendee, thus, there is actual delivery. 2. Constructive delivery a. By the execution of a public instrument (if the contrary intention does not appear on the document) by the mere execution of the 16
public instrument, that is already equivalent to delivery. Hence, ownership passes to the buyer. a. Delivery of Keys (Tradicion Symbolica) a. By mere consent or agreement of the parties provided at the time of the sale; possession of the goods cannot be transferred to the buyer (e.g. when the thing was the subject matter of the lease, because before expiration of the lease the thing cannot be transferred to the buyer). a. Tradicion Brevi Manu - Here, the buyer was already in possession the property, but there is a change as to the status of possession such as that of a lessee, depositary or agent to possession in the concept of an owner. a. Tradicion Constitutum Possesorium - Here the seller would still continue to be in possession of the thing after the sale but no longer in the concept of an owner but in another capacity. The original owner here, X & Y whose properties are fixtures in a salon, while Z & D was a judgment creditor of X & Y. Because of judgment rendered by a court in favor of Z, the sheriff levied upon the properties of X and Y which was still in the latter’s physical possession. This execution sale was questioned by A & B on the premise that these goods were already sold to them prior to the levy. Hence, if these goods were sold to them prior to the levy, ownership already passed to A & B, and as such there is nothing more to be levied upon. But the debtor was very much in physical possession. May A & B be considered as owners of the land despite them not being in actual physical possession of the good sold, and make them to have a better right over the judgment creditors over an execution sale? Even if there was no physical possession and there was no actual delivery, there may be a constructive delivery by the execution of a public instrument. Unfortunately in this case, the deed of sale was merely in a private instrument.
In order for the ownership to pass, it had to be in a public instrument (constructive delivery). If for example the seller and the buyer pursuant to their agreement delivered the goods to a common carrier, upon delivery of the goods to a common carrier, would that result in transfer of ownership immediately? If delivery to the common carrier is delivery to the buyer, then ownership passes to the buyer upon delivery to the common carrier. Such is a general rule, the exceptions are: 1. if there was stipulation that ownership will not pass to the buyer until full payment. 2. Even if the deed of sale does not provide for such stipulation, the seller may have obtained a bill of lading which provides that the goods are deliverable to the seller himself or his agent. Thus despite delivery of the goods to the ship, there is no transfer of ownership because it would still be the seller who would have the right to obtain the goods from the common carrier.
Kinds of Delivery of Incorporeal properties (Quasi Tradicion) What are the three modes of deliveries as to rights? 1. Execution of a public instrument; (from the delivery of certificates, ownership passes) 2. Use by the vendee of his rights with the vendors consent (e.g. in sales of shares of stock, the vendee may not always necessarily have the right to exercise the stockholders rights over the share, the buyer can only exercise such right with the consent of the vendor). In a sale of 1000 pairs of shoes, as agreed upon by the parties. The seller delivered 1200 pairs of shoes instead of only 1000. May the buyer refused to accept everything?
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Under the law, he would only have the right to reject the excess, but he can be compelled to accept the 1000. Assuming if what was agreed upon was 1000, and the seller delivered only 800, can buyer be compelled to receive the 800? No, because under the law, partial performance is non performance. As a rule, a creditor cannot accept partial performance of the obligation, except when there is a stipulation that partial deliveries is allowed, or when the obligation pertains to one which is partly liquidated and partly unliquidated, obligation to different term and conditions. The buyer accepted only 800 at 1000 per pair of shoes, it so happened the seller can no longer deliver the balance of 200, since what was previously stipulated was 1000 pair of shoes. How much can the buyer be compelled to pay? It depends on whether the buyer was aware that the seller could no longer the balance or when he accepted he was not aware that the seller could no longer deliver the balance. If he was aware that the seller can no longer deliver the balance, then he can be compelled to pay at the contract rate. In this case, 800,000. If he had no knowledge or awareness that the seller can no longer deliver the balance when he accepted, then under the law the buyer can only be compelled to pay the fair value of this thing. An obligation to deliver 1000 cavans of a specific rice (milagrosa). However, the seller delivered 1200 cavans of both milagrosa and combodian rice. May the buyer have the right to reject everything? Yes he would have the right to reject everything if the goods are deemed indivisible. Meaning in each sack of rice, cambodian rice and milagrosa rice are mixed. However, if in each sack it is clear from each that it is milagrosa or combadian then, that would not be considered as indivisible, and he
can only be compelled the part which is milagrosa, and reject the combodian rice. Sale of a parcel of land and the price agreed upon is 1 million at 100 sq. m., the actual area delivered was only 95 square meters, what are the remedies of the buyer? 1. Specific performance if it is possible for the seller to deliver the balance such when the adjacent land is still owned by the seller; or 2. proportional reduction of the price is with a specific amount given to a specific measure. If the sale is a lump sum sale, then any deficiency in the area, there is no right to proportional reduction of the price. Further, even if there is an increase in the area delivered, there will also be no additional increase in the price. 3. Rescission - As a rule it will not be a remedy base on the facts. Because rescission will only be a remedy if the area lacking is more than 10% of the area agreed upon. But even if the area lacking is not more than 10%, rescission will be a remedy if the buyer can prove that he would not have bought the land had he known that it was less than 100 sq. m. Note: Rescission and proportional reduction if the property delivered is of inferior quality. If by agreement the parties intend to sell a rice field, but it turned out that 20% of the land is not actually a rice field and cannot be planted by palay. The remedy of the buyer is to make a proportional reduction of the price if he still would want the land or rescission would be a remedy if the area which is inferior is more than 10% of the total area of the land. Place of Delivery Generally, ownership passes at the place of delivery. Where should the thing or goods be delivered? The seller delivered the goods to the place of business of the buyer and the buyer refused to accept the goods. From that moment does it mean that the buyer is already in delay because he refused to accept the goods? It depends on whether there is a stipulation as to the place of delivery or not. If there was such a stipulation, and the
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place agreed upon was not the place of business of the buyer, of course he would have the right to refused to accept the delivery of the goods in his place of business. In other words, with respect to the place of delivery the first thing that should be considered is the: 1. 2. 3. 4. 5.
stipulation place fixed by usage or trade place of business of the seller seller’s place of residence If the thing is not in the place of business seller nor buyer, known both to the parties, but in some other place. The place of delivery shall be where the thing is located at the time of perfection of the contract.
Places fixed by usage or trade If there is no stipulation as to the place of delivery, the law provides that, it will be the place fixed by the usage or trade. Shipping Arrangements; place of delivery 1. F.O.B. (Free On Board) Arrangement (Point of Destination) If there is no place stipulated as to the place of delivery and the goods are to be shipped on an FOB basis, the place of delivery shall be the place ownership is deemed to pass. In an FOB arrangement, the parties should have agreed to a specific port whether it is the port of origin or it could be the port of destination. In an FOB port of origin, the place of delivery shall be considered to be the port of origin. It would be the port of origin because FOB mean Free On Board, and Free On Board means that the moment the goods arrived at the port of origin, the seller will be free from any expense on transportation of the goods to the buyer. From the port of origin, it will be the buyer who will shoulder the expenses for the transportation. It would appear since the buyer who shoulder the expenses, it is the buyer who is the owner of the goods as it reached the port of origin. If he is already the owner under this FOB arrangement therefore, the place of delivery shall be the port of Manila.
Is it possible in a CIF arrangement or in an FOB arrangement, the place of delivery shall be the port of destination? These delivery arrangements only make rules of presumption. It must give way to the real intention of the parties as to the place of delivery, without expressly stipulating as to the place of delivery. The intention of the parties as to the place of delivery shall be determined by the place and manner of the payment of the price. Where the price is paid, that is determinative of the place of delivery. Under Art. 1582, as to the place of payment, if there is no place agreed upon where payment should be made, the place of payment should be made to the place of delivery. In one case, it was stipulated in the contract that the seller can demand the payment of the price, upon the arrival of the goods at the port of destination in a CIF arrangement. The SC ruled that the place of delivery is the port of destination because it is only at that port that the seller can demand on the payment of the price. They have agreed on a CIF arrangement (port of destination) for the purpose of fixing of the price, because generally, CIF means port of origin, however out of the price, it will be the port of destination, and payment shall include the cost, the insurance and the freight. The place of delivery being the port of destination, ownership passes in the port of destination. Effectively the freight shall be shouldered by the buyer, but that amount will be taken to the price fixed by the seller. In another case, the parties agreed in an FOB arrangement, but it was stipulated in the contract that the seller can demand the payment of the price by presenting the bill of lading to the buyer. The bill of lading can be presented at the port of origin to the buyer because a bill of lading can be taken from the common carrier at the port of origin. Despite of an FOB arrange, the place of delivery is the port of origin. FOB port of destination is arranged in this case because the buyer would want to have the seller to shoulder all the expenses for the transportation of the goods up to the port of destination. Obligations of the Seller; Warranty
In FOB port of destination arrangement, the seller would have to shoulder the expenses for the transportation of the goods, upto and until the arrival of the goods at the port of destination. Hence, delivery passes at the port of destination. 2. C.I.F. (costs, insurance,freight) Arrangement (Point of Origin) In a CIF arrangement, the place of delivery is considered to be the port of origin because, the price paid by the buyer would already include the costs, insurance, and freight. The buyer pays for the freight, it appears therefore that ownership passes at the port of origin, hence, delivery is made at the port of origin.
Does Philippine law adopt the common law principle of caveat emptor (buyer beware)? As a rule, Philippine Law does not adopt the common law principle of buyer beware because of the implied warranties. Even in the absence of stipulation, this warranties are deemed attached to the contract, and the buyer may hold the seller liable for breach of warranty. However, it is only a general rule. There are instances where there can be no implied warranty. Examples, where there is no implied warranties are:
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1. In sale of animals in fair (no warranty against hidden defects) (but with warranty against eviction or title) 2. public auctions (no warranty against hidden defects) (but with warranty against eviction or title) 3. as is where is sales (no warranty as to the fitness of the thing, but there is still warranty against eviction) 4. sale of second hand items When would and affirmation of fact or promise of a vendor be the basis in holding the seller liable for breach of an express warranty? The law requires that an affirmation of fact or promise of the seller must relate to the thing itself. In other words, it must relate to the character of the thing, or to the quality of the thing, or its title. Secondly, it is required that such affirmation of fact must have the natural tendency to induce a person to purchase the thing; Thirdly, the buyer purchase the thing relying on the affirmation of fact or promise made by the seller. If the seller told the buyer that this is the best fertilizer in this world, would that be the basis in holding the seller liable if it would came out that there are other brands of fertilizer that are much better than what was sold to this buyer? That cannot be the basis in holding the seller liable because, that will be treated merely as an opinion. Unless such opinion is made by an expert, such statement cannot be the basis in holding the seller liable under this express warranty. In a sale of a car, the seller told the buyer that even only with one liter of gasoline, you can drive this car for 50 km. Is this an express warranty? This is an example of an express warranty, and failure of the car to consume gas at 1km/50km may hold the seller liable for breach of his express warranty. Does it mean that the word guarantee is used, means there is an express warranty? No. Such word if it does not go into the character of the thing, the quality of the thing or its title, such would not pertain to an express warranty. In December 1985, Salvador and the Star Semi Conductor Company, executed a deed of conditional sale wherein the former agreed to sell his 2000 sq. m. lot in Cainta, Rizal to the latter for the price of 1million, payable 100,000 down. The balance 60 days after the squatters in the property have been removed. If the squatters have not been removed after 6 mos., the
100,000 down payment shall be returned by the vendor to the vendee. Salvador filed ejectment suits against the squatters but despite of the decision of the Court in his favor, the squatters would still would not leave. In August 1986, Salvador offered to return the 100,000 down to the vendee on the ground that he was unable to remove the squatters to the property. SSC refused to accept the money and demanded that Salvador execute a deed of absolute sale of its property in its favor, in which time it will pay the balance of its price. The value of the land had doubled at that time, Salvador consigned the 100k in court and filed an action for rescission of the deed of conditional sale, plus damages. Will the action prosper? Under the facts, Salvador is not an aggrieved party, hence he will not have any remedy under the law. In fact, he was the one who failed to evict the squatters. The payment of the balance as agreed upon is made to depend upon the removal of the squatters within 6 mos. Clearly, if not, impliedly from the facts, that is an obligation of the seller, and such is the condition for the payment. Since such condition did not happen, wherein the squatters failed to flee, would such condition for the payment of the balance would not arise. Under Art. 1545, it is the buyer who is given options under the law, due to the non happening of the conditions due to the fault of the seller. The options of the seller are: 1) Not to proceed with the sale because the condition did not happen; 2) Waive the happening of the condition and proceed with the sale. In this case the second option was chosen by the buyer. 3) Treat the non happening of the condition as a breach of warranty, which can be the basis of holding the seller liable for damages. Implied Warranties 1. Warranty against eviction 2. Warranty against hidden defects 3. Warranty of quality (Warranty of fitness for a particular purpose) Is warranty against hidden defects include warranty of fitness for a particular purpose? No because, in an implied warranty of fitness for a particular purpose, the thing may not have any hidden defect. As to 1 million buyers they will be fine, but, as to 1 person as to him, it may not be fit for his purpose. 1. Warranty against eviction What is included in warranty against eviction? 1. That the seller has the right to sell at the time ownership is to pass; and 2. that the buyer will have and enjoy the legal and peaceful possession.
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May the buyer hold the seller liable for breach of warranty against eviction if the buyer was deprived of enjoyment and peaceful possession, even if he was not deprived of ownership? Yes. Because there can be a judgment in favor of a third person who would have the right to the possession of the thing but he is not the owner. One such person is a lessee. Once the court consider a lease contract as a valid and binding lease, even as against the buyer, the buyer can be deprived of the possession but he is not deprived of ownership. Thus, this could be a breach of warranty against eviction because then, he would warrant that the buyer would have a legal and peaceful possession of the thing. What requisites provided by law in order to hold the seller liable for breach of warranty against eviction by the buyer? 1. There must be a final judgment depriving the buyer of the thing in whole or in part; 2. The seller must be notified (or summoned or considered as party defendant) 3. The reason why the buyer was deprived of the thing must be based on a right of a third person existing even prior to the sale or even if such right of the third person after such sale that must be baed on act imputable to the vendor.
In double sales where the first buyer was deprived of the thing because of a right of a second buyer which is imputable to the vendor, such when the buyer was deprived if such thing because of an execution sale due to failure of the seller to pay real property tax if the tax accrued before the sale. If the buyer was deprived of the thing based on the judgment of the court that a third person acquired the property by acquisitive prescription, can the seller be held liable for breach of warranty against eviction? It depends on whether the prescribe period had already been completed at the time of the sale or not. For example, if this is based on the 10 year acquisitive prescription with color of title, if the occupant in whose favor the court decided who acquired the property resulting in the deprivation of the buyer of such property was already in possession for 7 years at the time of the sale, but the buyer never even bothered to examine the parcel of land. When he arrived after 12 years there is a judgment in favor of the occupant because the occupant was able to complete the 10 year period prescribe by law without interruption. Here, the buyer cannot hold the seller liable. This is no longer the fault of the seller when the occupant was able to complete the period. If the buyer only wrote a letter demanding the occupant to vacate the premises that would have interrupted the running of the prescriptive period. It is the fault of the buyer why he is deprived of this land. If the seller would be liable under this warranty against eviction, what are the possible liabilities of the seller?
Will a mere letter of a third person claiming a right over a property, which letter was received by the buyer, can the buyer hold the seller liable?
Under the law, value of the thing at the time of eviction not the price, including the fruits, costs, income and expenses and damages and interest.
Of course not. The law requires that there must be final judgment depriving the buyer of the thing in whole or in part.
A person can only be held liable for damages if he is in bad faith. A seller may be held liable for damages in relation to this warranty against eviction if he was in bad faith.
In case there is a judgment, and such judgment was in favor of a third person against the buyer, is it required for the buyer to appeal in order to hold the seller liable?
When would the seller be considered to be in bad faith? If the seller knew of the defect of his title at the time of the sale, therefore he is a seller in bad faith?
No such appeal is required on the part of the buyer. But if the seller does not want to be liable, then he should appeal. A scenario where the buyer was deprived of the thing based on a right of a third person existing even prior to the sale? One example is in double sales where the second buyer was deprived of a thing because of a right of a first buyer, having the thing first registered in his name in good faith. A scenario where a buyer was deprived of a thing after the sale which is imputable to the vendor?
Not necessarily, he may have known of the defect in his title, but he had informed the buyer. Even if he knew of the defect in his title and he did not inform the buyer of such defect, he need not be in bad faith because probably the buyer was already aware of the defect of his title. If the seller executed a waiver even in case of eviction, where such buyer agree that he will not hold the seller liable for the deprivation of such thing, can the seller be held liable? Yes, if the seller is in bad faith, because under the law, such waiver is void, and therefore the seller can be held liable.
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If the buyer executed a waiver, and the seller acted in good faith, may the seller be held liable? Yes, the seller may be held liable when the waiver is known as waiver consciente. It is a waiver consciente when the buyer executed a waiver not knowing the defect of the title of the seller, at the same time the seller does not likewise knew of such defect. The seller is liable for only the value of the thing at the time of eviction, excluding the other liabilities. If the waiver is an intencionada waiver, with full knowledge of the possibility of eviction. In other words, he knows the defect in the title of the seller when he bought and when he executed the waiver. Of course the buyer can no longer hold the seller liable for breach of warranty against eviction. If there is no waiver, and the buyer was deprived, will the seller be held liable?
Damages will only be granted if the seller is in bad faith. He is in bad faith when the seller did not inform the buyer of the defect. 2. If the thing was lost due to the defect itself The liability will be greater if the cause of the loss was due to the defect itself, than when the cause of the loss was due to the fault of the buyer or to a fortuitous event. In case of defect the seller has to return the price in good faith or in bad faith. Damages will only be granted if the seller is in bad faith. He is in bad faith when the seller did not inform the buyer of the defect.
Of, course, the only difference is the extent of the liability of the seller whether he is in good faith or bad faith. If seller is in bad faith, he will be even liable for damages in case of eviction.
Note: Damages and interest cannot concur in case of loss due to the defect. When the seller is in bad faith (vendor was aware of the defect) damages is granted, if in good faith (vendor was not aware of the defect) interest shall be granted.
Warranty against hidden faults or defects
In warranty against eviction, interest and damages concur.
What are the requirements in order for the seller to be held liable for breach of warranty against hidden defects?
If the thing was lost or destroyed due to a fortuitous event, fault of the vendee, or due to the defect itself, how can the buyer prove that the thing had hidden defects, when the thing was lost?
1. The defect must be hidden and not patent. 2. The defect must have already existed at the time of the sale.
It is a matter of proof. The buyer might have allowed an expert to examine the thing before the loss of the thing. He has a proof of the defect of the thing before its loss.
If the buyer discovered the defect on the thing bought 10 days after the sale, the seller will be liable for breach of warranty against hidden defects?
Even if the thing with hidden defects was lost or destroyed, is it possible that the seller will not be liable for a single centavo, even without a waiver?
Not necessarily because the defect may be patent, hence the seller cannot be held liable. Secondly, the defect may exist at the time after the sale, therefore the seller cannot be held liable for breach of warranty against hidden defects. In case the seller is held liable for breach of warranty against hidden defects, what are the possible liability of the seller?
When the loss was due to a fortuitous event or fault of the vendee, and the vendor was not aware of the defect. In this scenario the liability of the seller is only to return the price less value. But when the value is greater than the price, the seller would no longer return the price less value hence no liability. The value may be greater than the price when the seller sold the thing less than its value or the thing was sold at its value but there was appreciation of the value. Lesion does not affect the validity of the sale.
1. If the thing was lost or destroyed due to a fortuitous event or it was lost or destroyed due to the fault of the buyer, may the seller still be held liable?
Included in this warrant against hidden defects, would pertain to any charge or non-apparent encumbrance not declared or known to the buyer.
Yes the seller will still be held liable because the thing had hidden defects. If the cause of the loss was due to the fault of the buyer or to a fortuitous event, the liability of the seller is to return the price less value at the time of the loss whether the seller is on good faith or bad faith.
1. In relation to a sale of a parcel of land, and such is subject to a right of way, will the seller be liable in relation to breach of warranty? Not necessarily. Maybe it was known to the buyer or it was declared to the buyer. Even if it is not declared and not known to the buyer but the encumbrance is
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apparent, hence the seller cannot be held liable for breach of warranty. Even if not known or was declared to the buyer or the encumbrance is non apparent, the seller may be liable when the encumbrance is registered. The sale of a parcel of land was entered into January 2, 2009. The buyer filed an action for breach of warranty against hidden defects pertaining to any charge or non apparent encumbrance unknown to the buyer, because of a right of way only last friday, will the action prosper? It depends on what kind of action. If the action is an action for rescission, it will not prosper because the law requires that the action for rescission should be filed within 1 year from the date of the contract. It is more than 1 year. If this is an action for damages, it MAY prosper depending on when the buyer discovered the encumbrance. The law requires that an action for damages may be filed within 1 year from discovery of the encumbrance. When it is within such period, then the action will prosper. Sale of Animals with defects or diseases (redhibitory defects) A redhibitory defect cannot be discovered despite an examination by an expert.
Are there no implied warranties in judicial sales? False. There can be implied warranties in judicial sales. 1. There seems to be a provision where certain persons such as mortgagees, pledgees, auctioneers, and sheriffs, cannot be held liable for breach of warranty. Since a sheriff is the seller in a judicial sale, and under the law he cannot be held liable, it is concluded that there are no implied warranties in judicial sale. Such view is incorrect, it does not follow that the sheriff cannot be held liable. It does not mean that when the sheriff cannot be held liable, it does not follow that no one can be held liable. The judgment debtor can be held liable, unless the contrary was decreed in the judgment. 2. In judicial sale, normally these are second hand items, hence, there is no warranty as to hidden defects? False, because the sheriff can levy brand new properties, such when the seller was in the business of selling brand new items. In this latter case, the judgment debtor may be held liable for breach of warranty against hidden defects. Under Art. 1570, the law provides as to the rules involving warranty against hidden defects they were made expressly applicable to judicial sales. Rights and obligations of the vendee What are the rights of the vendee?
If a buyer bought 7 dogs and one of them turned out to have a redhibitory defect, will an action for redhibition be a remedy not only as to the animal with the defect but also as to the other animals? As a rule, no. Redhibition would only pertain to defective animals, unless the buyer can prove that he would not have bought the others had he known of the defect of one. The burden of proof in proving that the buyer would not have bought the dogs had he known of the defect of one is the buyer, but under certain circumstances the law would presume that the buyer would not have bought the others had he known of the defect of one. This would happen when he bought the animals in pairs, as a team or as a group. If the animal bought died 5 days after the sale, can the buyer still demand for the return of the price? The seller can no longer be held liable for breach of warranty because the law requires that the animal should die within 3 days. The disease must be existing at the time of sale. The seller can however, be obliged to return if the death although it happened more than 3 days after the sale, was caused by a contagious disease. Under the law, this contract is void, hence the seller can be compelled to return the price paid by the buyer.
1. Right to the Fruits By means of a public instrument, Mr. Nagbibili sold his mango plantation to Abentorero effective immediately. The parties agreed that the delivery will be effected 6 mos. from execution of the deed of sale. When the said period arrived Abenturero demanded the thing, but Nagbibili dili dallied. It was only a month afterwards when Nagbibili finally delivered the land to Abenturero. In the three weeks before delivery, Nagbibili sold and deliver the entire produce of the Mango plantation to Mr. Commerciante. Mr. Commerciante known nothing of the contract between Nagbibili and Abenturero. Abenturero now seeks to recover from Commerciante either the full value of the mangoes or a similar amount and quality of the mangoes sold. Does abenturero have the right to the fruits against Commerciante? Under the law particularly Art. 1567, the buyer shall have the right to the fruits of the thing from the time of the perfection of the sale. In relation to Art. 1164, the creditor shall be entitled to the fruits of the thing from the time the obligation to deliver it arises. In their agreement the obligation to deliver will arise only after 6 mos. therefore the buyer will not be entitled to the fruits during the 6 mo. period. Though under the facts, Abenturero already had the right to the fruits, Abenturero does not have the right to recover against Commerciante because under Art. 1164, he will not have any real right
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over the thing until the actual delivery of the thing to him. The only remedy of Abenturero is only against Nagbibili since, Commerciante had no knowledge of such sale between Nagbibili and Abenturero. What if during the 6 month period, Nagbibili harvested the fruits and sold it to Commerciante, can Abentuero recover these fruits or the value thereof? Abenturero does not have the right to the fruits because Abenturero shall only have the right to the fruits of the thing from the time the obligation to deliver it arises. Under the facts, it was harvested before the 6 month period and during such time Nagbibili is under no obligation to deliver the fruits.
sometimes the employees of the seller will leave the place immediately. After 1 hour the buyer called the seller informing him that he is rejecting the goods, and told the seller to obtain the goods in the place of the buyer. But before the seller could obtain the goods from the buyer’s place, all the goods were destroyed. Can the buyer be held liable for the price of these goods? It depends on the reason for the refusal to accept. If there is no just cause for the refusal, under the law ownership is deemed to pass to the buyer, hence, the owner bears the loss. As such, he can be compelled to pay the price. If there is a good and valid reason, probably the goods were defective, such that he had to reject the goods, the law expressly provides that ownership will not pass to him and he cannot be compelled to pay the price.
2. Right of examination If the goods were delivered by the seller to the place of business of the buyer, and the goods were received by the buyer, does it mean that ownership already passed upon receipt of the goods? Not necessarily. Receiving is different from accepting. In order that ownership is to pass, the law requires that the buyer must have accepted the goods. Receiving is only preliminary to accepting, in fact receiving is necessary for him to exercise a right which is the right of examination or inspection before he accepts. As to when he will be deemed to have accepted, when he intimates his acceptance to the seller or when he did an act inconsistent with the ownership of the seller, after the lapse of a reasonable time. Is it possible that the vendee upon receiving, he already accepted? Yes, when the vendee had waived the right of examination by express stipulation, or by certain arrangements that may be agreed upon by the parties wherein there will be no right of examination preliminary to acceptance. E.g. In sale of coal from the location of the site of the mining company, it will be delivered to Calaca plant in Batangas, when the coal was received by Napocor, it is deemed accepted. There will be no examination preliminary to acceptance. However, there will be an examination after receiving not for the purpose of determining whether it will be accepted or not, but the purpose will only be for the fixing of the price, and ascertain the quality of the coal. Are COD sales have right of examination? None because upon delivery, the buyer pays, and the buyer is deemed to have accepted.
Pursuant to a sale, the seller delivered the rice field 2 years ago, but the payment was only made today. Can the seller demand to pay interest on the price? Ordinarily, the buyer cannot be held liable for the interest on the price. Unless there is an express stipulation to the contrary, interest cannot be demanded. As an exception, the seller can validly demand interest only if there was such a stipulation to pay interest. Even if there is no such stipulation to pay interest, the buyer may be held liable to pay interest if the thing is fruit bearing. Under the facts, the land sold is a rice field, hence, it is fruit bearing. And as such, the buyer can be compelled to pay interest on the price. Even if there is no stipulation and even if the thing is not fruit bearing, he may be held liable for interest in the price because the buyer is already in delay after judicial or extrajudicial demand is made by the seller. It must be noted, under 1164, there is no need for demand, when one of the parties had complied with his obligation, delay by the other begins. Under this scenario this presupposes that there is a period within which to pay and the period had already prescribed, and in such case there has to be a judicial or extrajudicial demand.
3. Maceda Law RA 6552 - Right of the vendee The Realty Installment Buyer Act - This law is intended to protect ordinary buyers. This law can only be invoked when the object of the sale is a realty. Clearly, this cannot be invoked if the object of the sale is a personal property or a movable property. If it is an immovable property, is it covered by the Maceda Law?
If the goods were delivered to the place of business of the buyer which goods were received by the buyer but
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Not necessarily. What is covered by the Maceda Law are realties. Not every immovable is covered by the Maceda Law. If it is a realty is it covered by the Maceda Law? Not necessarily. It must be a residential realty, and not commercial or industrial realty. A sale on installment is a sale on credit? If a sale on installment is a sale on credit, a sale on credit is covered by the Maceda Law? A sale on installment is a sale on credit, but a sale on credit need not necessarily mean it is covered by the Maceda Law, because a sale on credit need not be on installment basis. A sale of a condominium unit where 1/3 of the price will be paid upon signing of the contract, but the balance will be paid within a year. Such is not covered by the Maceda Law because that is not a sale on installment basis. This is a sale on credit on a straight term basis.
In a sale on installment payable in 20 years or 30 years, a buyer was able to religiously pay his monthly ammortization for 10 years, what if on the 11th year the buyer for one reason or another, he was no longer able to pay. What will be the effect? Is the maceda law be invoked if the buyer was able to pay installments for at least two years? False. Even if the buyer was not able to pay installments for a full two years, the buyer can have rights under the law. If he already paid for two years, he would have better rights. What are the rights of the buyer if he only paid for less than 2 years? He is given a minimum of 60 day grace period which can be increased at the option of the seller but no less than 60. In this grace period, the rights of the buyer are: 1) He can update his accounts 2) Pay the arrears without being held liable for penalties, surcharges, interests, he can pay the entire balance during this grace period. 3) Sell his interest under this contract 4)Assign his interest or rights under this contract. If the buyer was able to pay installments for at least two years, what are the rights of the buyer? The buyer will be entitled to a portion of the amounts paid, known as the Cash Surrender Value in a minimum of 50% for 2 years of all payments made. After another 5 years or if he paid for a total of 7 years, entitled to another 5% which means 55%, and every year thereafter, additional 5%, but not to exceed 90%.
Priscilla purchased a condominium unit in Makati City from the Cityland Corporation for a price of 10 million payable 3 million down and the balance thereon shall be paid in 60 equal monthly installments. They executed a deed of conditional sale in which it is stipulated that should the vendee fail to pay 3 successive monthly installments, the sale shall be deemed automatically rescinded without the necessity of judicial action and the actual payments made by the vendee shall be forfeited in favor of the vendor by way of rental for the use and occupancy of the unit and liquidated damages. For 46 months Priscilla paid monthly installments religiously, but on the 47th and 48th month she failed to pay. On the 49th month she tried to pay the installment due, but the vendor refused to receive the payments tendered by her. The following month the vendor sent her a notice that he was rescinding the deed of conditional sale pursuant to the stipulation of automatic rescission and demanded that she vacate the premises. She replied that the contract cannot be rescinded without judicial demand or notarial act pursuant to Art. 1592 of the Civil Code. Can the vendor rescind the contract? No, because the object of sale is a residential unit and under the Maceda Law, there are two stipulations that are declared void by this law. One of the stipulation is the stipulation providing for the automatic rescission of the contract. Another void stipulation under the Maceda Law is known as the forfeiture clause. In other words, the buyer is entitled to the Cash Surrender Value even if there is a forfeiture clause. Such clause is a void clause under the Maceda Law. The vendor cannot rescind because under this Maceda Law, the buyer had already paid for at least two years. The buyer is entitled to a grace period which is 1 month for every year. Under the facts Priscilla had already paid for 46 months, and thus having completed paying 3 years she is entitled to a 3 months grace period equivalent to 90 days. On the 49th installment offered to pay, she dafaulted on the 47th and 48th month hence, there is 60 days within which she did not pay which was well within the 90 day grace period. Had she not offered to pay on the 49th month, rescission may be a remedy on the part of the seller. Hence, rescission cannot be a remedy on the part of the seller. If rescission is a remedy, the seller is obliged to return the cash surrender value to the buyer. There can be no valid rescission without the return of this cash surrender value. If the price is to be paid in 15 years and buyer failed to pay on the 5th month of the first year, how long is the grace period? He has a grace period of 60 days. Thereafter he was able to pay the 5th, 6th, 7th, and in fact he was able to pay installments up to the 5th year. On the 5th month of the 5th year, he defaulted again. How long is the grace period?
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None. Under this law, the buyer can only avail of the grace period once in every 5 years of installments.
the seller must still have possessory lien or he must have exercised the right of stoppage in transitu.
Remedies
Possessory Lien
What are the remedies of the unpaid seller?
This possessory Lien is the right to withhold delivery or the right to retain. Nowhere in the Code will one find possessory lien. But the popular name is possessory lien, to distinguish this lien of the seller from another lien of the seller in a scenario where the goods have already been delivered to the buyer. Under the rules on preference on the concurrence and preference of credits, as to a thing which was the object of a sale, which was already delivered to a buyer who thereafter became insolvent, the seller has preference as to the unpaid price over the thing.
1. 2. 3. 4. 5. 6. 7.
Possessory Lien Right of Stoppage in Transitu Right to Rescind Right of Resale Damages Specific Performance Recto Law
If the buyer paid 90% of the price can the seller still invoke these remedies? Yes, as long as the price has not be fully paid, the seller is still an unpaid seller. Even if the buyer paid a check for the full amount, the seller may still have the right to invoke these remedies if the check was dishonored, not due to the fault of the seller. May a person who is not a party to the sale be able to invoke any of these remedies? Yes because the law provides that the word seller would include certain third persons, such as assignees or heirs of the seller, or an agent to whom a bill of lading was endorsed. May these remedies be invoked if theses remedies already passed to the buyer? Yes, by express provision of the law. How can the seller have the right to retain or possessory lien if ownership already passed? Possession by the seller may be retained because of constructive delivery. With constructive delivery, ownership may already be with the buyer, but possession may still be with the seller, or the seller was merely constituted as a depositary. Ownership already passed but the seller still has the right to withhold the delivery of the goods. Are these remedies alternative or can be invoke all at the same time? As to two remedies, they cannot exist at the same time, and these are possessory lien and stoppage in transitu because a requirement for the right of stoppage in transitu to arise is that the seller must have already parted possession, and possession is a requirement in possessory lien. But if the seller properly exercised the right of stoppage in transitu,the implication is that the seller will be reverted back to its possessory lien. However, as to the two other remedies of right of resale and right of rescission, the law even expressly requires that
Is insolvency required in order for this right to withhold can be exercised? No. It is not necessary or required, but it is one of the grounds for the seller to withhold the delivery of the goods. Even if the buyer is not insolvent but there is no stipulation as to credit, the buyer still did not pay, the seller has the right to retain the goods. Even if there was stipulation as to credit such that the buyer was given a period, but despite the lapse of the period the buyer still did not pay, the seller can still retain the goods. If the goods were delivered by the seller to a common carrier, pursuant to their stipulation in the contract for ultimate delivery to the buyer, does it mean that the seller has lost its lien over the goods? As a rule, delivery to a common carrier is delivery to the buyer. But even if the goods were delivered to the common carrier, the seller may not have lost his lien. Therefore his remedy is possessory lien and not stoppage in transitu. This would happen if he reserved ownership over the thing. What is provided under the law will include reservation of ownership. There is something wrong with the view that possessory lien may be invoked when the seller reserved ownership, because it does not matter whether the seller reserved ownership or not in relation to possessory lien. Even if ownership had already passed he may still have the right to retain the goods. If there is a reservation of possession, there will be no problem since the seller would have the right to obtain the goods from the common carrier, he did not lose his possessory. Stoppage in Transitu As to stoppage in transitu, once the seller had already parted possession and the goods are already in transit and the as another requisite the buyer is already insolvent. Take note that the insolvency of the buyer need not happen at the time of the perfection of the contract. Even if the
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insolvency occurred while the goods were already in transit. that can be the basis of the exercise of this right. There is no question as to taking actual possession over the goods. But the other manner of exercising the right is by giving notice to the common carrier as to the exercise of the right. The problem here would be in the scenario where even with notice given by the seller as to his exercise of the right. However, the common carrier refused to deliver the goods back to the seller or to the place of the place specified by the seller, it does not necessarily mean that the common carrier would be liable because another requirement in order for the common carrier to be obliged to return the goods back to the seller under a certain situation is that the document of title which covers the goods must be surrendered first to the common carrier. This is a protection to common carriers because if goods are covered by negotiable document of title a third person who is not the seller may have a better right over the goods. This is in relation to the alienation made by the buyer to a third person. In a scenario where the seller has possessory lien or he just exercised his right to stoppage in transitu, what if the buyer sold the goods to a third person, can that third person compel the seller to deliver the goods to the buyer? Will the alienation of the goods to a third person, will the seller lose his lien? As a rule, the seller will not lose his possessory lien. As an exception, the seller will lose his lien when the seller assented to this alienation. Secondly, when the goods are covered by a negotiable document of title like a negotiable bill of lading and the buyer sold this goods to a third person in good faith and for value, which means he had no knowledge of the defect on the title of his seller. Thirdly, this negotiable document of title must have been negotiated to this third person. With these, the seller would lose his lien. The third person will have a better right over the goods. A negotiable instrument being a bearer instrument , he can easily negotiate by delivery. Even if it is an order instrument, and it is deliverable to the order of the buyer, he can endorse such document to another buyer. Again, the unpaid seller will lose this lien when all these requisites are present. If an action for specific performance was filed instead of invoking the other remedies or together with the other remedies, in the judgment of the court, the judgment was in favor of the seller, and if the judgment becomes final and executory ordering the buyer to pay the price, may the seller now lose his lien, and therefore the buyer can demand for the delivery of the goods to him so that he will thereafter pay the price? No. Even if there is such a judgment in favor of the seller, he will not lose his lien. Just because there is a judgment in favor of the seller, there is no guarantee at all that the buyer will be able to pay or the buyer will in fact pay. Right of Resale
It is required that the seller must still have possessory lien for the seller to exercise the right of resale. Is insolvency required? No, but it may be one of the scenarios where the seller will have the right to resell. One of the grounds for the exercise of the right is because the buyer has been in default for an unreasonable length of time. Another ground, is that this right is expressly reserved to the seller, and another ground is that the goods are perishable. In relation to this remedy, the law would mention two notices coming from the vendor to the vendee. The first notice is the intention of the vendor to resell. The second notice is as to the date, the time and to the place of the resale. Are the notices necessary for the validity of the resale? These notices are not necessary for the validity of the resale. Its relevance, as to the first notice pertaining to the intention to resell will only be relevant if the ground for the resale is because the buyer had been in default for an unreasonable length of time. If there is such notice especially if the notice was sent by a lawyer, it will be seen when the notice was sent, when it as received by the buyer, therefore, it would tell that the buyer had been in default for an unreasonable length of time. As to the two other grounds of express reservation and goods are perishable, as to the first notice will find not relevance. As to the second notice of the date, time and place of resale. This has something to do when the resale was done in good faith or not. So what if the sale is in good faith or in bad faith? When would it be considered on good faith or in bad faith? The effect of this, has something to do with the right to recover the deficiency after the resale. For example, the unpaid amount or the total contact price of 100k, but the net proceeds of the resale is 60k, hence the deficiency of 40k. Can the seller recover this deficiency from the buyer? Yes, if the sale is a goods faith sale. Such notice is important because if the buyer was given notice at the date, time and place of resale, he would have been present or he could have attended the resale, and he would have known if indeed the highest bid was only 60k. Whereas if there is no notice, there is a good possibility that the seller may have even sold the same property to himself. Under the law he could not sell the property to himself directly or indirectly. Hence he could not connive to a third person to buy the goods for a less value so he can recover the deficiency from the buyer. Such would be a bad faith sale, and the seller could no longer have the right to recover the deficiency. But if indeed there was a good faith sale, and there was actual bidding and there are person who bid, but the highest bidder is 60, the buyer can be compelled to pay the deficiency. When the net proceeds is greater than the payable amount, who is entitled to the excess amount?
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Under the law it is the seller. The seller shall not be responsible for the buyer for whatever profit he may obtain out of the resale. If the buyer partially paid, but the seller resold it at a price higher than the amount payable, can the buyer demand for the amount paid? No. The law is clear that the seller shall not be responsible for any profit he may obtain out of the resale. If ownership had already passed to the buyer, in the exercise of the right of resale, should the seller rescind the first contract, or the title of the first buyer for him to be able to resell? No need for rescission because the effect of the resale would terminate the ownership of the first buyer by operation of law. Such ownership can be vested upon the second buyer upon the delivery of the goods to the second buyer. Rescission What are the grounds for rescission? 1. The buyer has been in default for an unreasonable length of time 2. The right is expressly reserved to the seller;
The Recto law is considered as a protection to buyers despite the fact that the law gives the seller remedies, and not to buyers. In the sense that these remedies are alternative in character, it is meant to protect buyers because once the seller invoke any of these remedies, he can no longer invoke the other remedies. Sale of a specific car worth 5 million, payable in 10 equal annual payments. The buyer failed to pay the third installment. Can the seller invoke any of the three remedies? No, because only one installment was unpaid. For the two other remedies to be available to the seller, the buyer must have failed to pay two or more installments. If there is only one installment left unpaid, the only remedy by the seller is exact fulfillment. Despite demand, the buyer failed to pay the third installment, within a month the seller filed an action to recover a sum of money. In this action how much will be recovered by the seller? Since the buyer was able to pay only 2 installments equivalent to 1 million, therefore there is yet a balance of 4 million, the seller cannot recover the whole 4 million. What the seller can recover is only the due amount left unpaid, which is the third installment in the amount of 500 thousand. Is it possible for the seller to recover the entire balance?
Recto Law If the buyer fails to pay 2 or more installments remedies are provided to the seller. In the first place, the Recto Law is considered related to the Maceda Law, that’s why the examiner might require you to distinguish one from the other, hence: Maceda Law
Recto Law
Contract of Sale
Contract of Sale
Sale on Installment
Sale on Installment
Passed to protect buyers
Passed to protect buyers,
Object of sale is a Realty for Residential purpose
Object of the sale is a personal property or movable property. Remedies: Exact fulfillment Cancellation of the Sale Foreclosure of Mortgage
Yes, if there is a clause in the contract of sale known as an acceleration clause stating that even if the buyer only failed to pay only one installment, the entire balance will become due and demandable. Assuming the buyer failed to pay the third installment and the 7th installment, may the seller invoke any of the three remedies? No. If the seller defaulted on the third and on the 7th installment, the premise here is that the seller was able to pay the third, fourth, fifth and the sixth installment. Since he defaulted on the 7th, there is only one unpaid installment. The law requires that the buyer must have failed to pay two or more installments (consecutive installments). The law did not mention that the buyer failed to pay twice. In a scenario, buyer failed to pay several installments, such as the third and the 4th? May the seller invoke any of the three remedies? Yes. If the seller in the above scenario chose cancellation of the sale, with cancellation of the sale, what is the effect as to the right and obligation of the parties?
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Since this is a form of rescission, the effect would be mutual restitution. The buyer will have to return the car to the seller, and with mutual restitution the seller would normally return all the amounts paid, but under this law, the seller is not required to return all the amounts paid. The law allows the seller to retain a reasonable amount which will be considered as compensation for the use of the thing.
proceeds will be applied to the indebtedness which is prohibited under the Recto Law.
May the seller retain all the amounts paid by the buyer?
2. Return of goods by the buyer to the seller in Sale or Return or Sale on Trial (Art. 1502).
Yes, if there is a forfeiture clause. This is one big difference in the Maceda Law. In the Maceda Law, forfeiture clause is void.
3. Seller stopping the goods in transit (Art. 1532).
Even if there is a forfeiture clause, is it possible that the seller, may not have the right to retain all the amounts paid?
5. Unpaid seller rescinding the contract of sale (Art. 1534)
Yes, if to do so would be considered as unconscionable. To determine if it is unconscionable would depend on the circumstances of the case or of the sale and the amount involve and the parties. To secure the fulfillment of the buyers obligation on the car sold, the buyer mortgage his blue diamond. Thereafter the buyer failed to pay the third and the fourth installments. The seller can now invoke any of these remedies, but when the seller invoke foreclosure of the mortgage and the net proceeds of the foreclosure sale is less than the balance, hence there is deficiency, can the seller recover the deficiency from the buyer? Yes, because the Recto Law does not apply to this scenario because the thing bought was not the same thing which was mortgaged. For the Recto Law to apply, what is bought, is the same thing which is mortgaged. A bought a truck from B payable in installment secured by a chattel mortgage executed by A on the truck. As additional security A’s brother C, executed a real estate mortgage in favor of B. A defaulted in the payment of several installments. Consequently B filed an action for replevin, repossessed the truck and foreclosed the chattel mortgage. Can B proceed the other properties of A and the real estate mortgage executed by C, to recover the deficiency if any after the chattel mortgage foreclosure sale? No. B cannot procced against the other properties because under the Recto Law, since under the facts the sale is covered being a sale of a movable on installment, would not allow the recovery of the deficiencies of foreclosure. Going after the other properties is a form of recovery of deficiency. In the same manner, the foreclosure of the real estate mortgage is also a form of recovery of the deficiency, because the real estate property will be sold and the net
Modes of Extinguishment of Sale 1. Cancellation of Sale of personal property payable in installment (Art. 1484).
4. Unpaid seller reselling the goods (Art. 1533).
6. Rescission of sale when the thing delivered was lacking in area or of inferior quality. 7. Rescission of sale when there is a breach of warranty; 8. Rescission of the sale of animals with redhibitory defect; 9. Payment 10. Novation 11. Loss of the thing 12. Resale What is the extra special mode of extinguishment of sale? Redemption either conventional or legal. What are the kinds of redemption? 1. Conventional - There is right to repurchase expressly reserved in the contract and this right may only arise in 1 kind of contract. This is a sale with a right to repurchase or pacto de retro sale. 2. Legal - Those which may be exercised by co-owners or by owners of adjacent lots. Conventional If there was no stipulation as to the right of redemption then no right of redemption. In the exercise of this right, how much would have to be offered by the seller a retro in order to redeem the property? Would the price paid by the buyer be sufficient in order to repurchase the same? Not necessarily. Under the law, the amount which has to be offered by the seller a retro (vendor) in the exercise of the right of redemption are: 1) price paid; 2) the expenses incurred by the vendee (buyer a retro) for the execution of
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the contract 3) necessary and useful expenses incurred by the buyer (buyer a retro). Fruits at the time of sale In a mango plantation, there may be fruits at the time of redemption.The value of the fruits is 100k. Can the seller (buyer a retro) be compelled to pay for the value of the fruits?
a. The period is 4 years. Under the law, if there is a right of redemption but the parties failed to provide for such a period, the law itself says that the right may be exercised only within 4 years. However, if the parties stipulated as to the period within which the right may be exercised, the law provides that such cannot exceed 10 years, and if it exceeds 10 years, the same will be reduced. b. To file an action for the consolidation of title.
It will depend on whether there are fruits at the time of the sale. If there were fruits at the time of the sale, the seller (seller a retro) will only be obliged to pay the fruits at the time of redemption if at the time of the sale, the buyer (buyer a retro) paid for the price of the value of the fruits. But if at the time of the sale, there were fruits but the buyer (buyer a retro) did not pay for the value of the fruits, then the seller should not likewise be compelled to pay for the value of the fruits at the time of redemption. No fruits at the time of sale, but there are fruits at the time of redemption If a COS was entered into in January 2001 and there were no fruits at the time of the sale. However, at the time of redemption in April 1, 2005 there were fruits. The value of which is 100k. How much can the seller be compelled to pay fro these fruits? Under the law the seller (seller a retro) can be compelled to pay for the value of the fruits giving the buyer (buyer a retro) the part corresponding to the time he possessed the land in the last year, counted from the anniversary of the date of the sale. Under the facts, the anniversary date is every January 1st. The anniversary date (the last year) is January 1, 2005. From January 1, 2005 to April 1, 2005, the buyer was already in possession for 3 months out of 12 mos. of the entire year, meaning it is 1/4 of the entire year. Therefore the buyer a retro (seller) is compelled to pay 1/4 of the of the 100k value of the fruits which is 25,000.
In a sale with right to repurchase, ownership passes upon the expiration of the right to repurchase? No, ownership passes to the buyer upon delivery. The implication however of the expiration to the right to repurchase, is that ownership by the buyer becomes absolute. What will be the effect of the expiration of the period to repurchase without the seller exercising such right? Or even if he did exercise, it was not a valid exercise of a right? In the above scenarios, what is the effect on the ownership of the buyer? Buyers right of ownership over the thing becomes absolute. During the period he has ownership, but this ownership is subject to a resolutory condition which is the valid exercise of the right to repurchase. And upon repurchase, ownership by the buyer (buyer a retro) shall be terminated. Upon the lapse of the period without the seller having exercised his right to repurchase the ownership of the buyer becomes absolute regardless of whether the subject of the sale is an immovable or a movable property? Yes, ownership becomes absolute, and it does not matter whether the object of sale is an immovable or a personal property. Is an action for consolidation of title required in order that the buyer acquire ownership over the object of the sale or at lease acquire absolute ownership?
Period of Conventional Redemption A sold a land to B for 10k with a right to repurchase expressly agreed upon between the parties. Because they were friends, they did not provide for a period within which the seller may exercise the right to repurchase. But again, there was a reservation of the right to repurchase, but the parties failed to fix the period. a. When should the seller a retro exercise the right to repurchase? b. If the seller failed to repurchase within the period agreed upon or the period prescribed by law, what will be your advice to the buyer in order to protect the buyer more?
No. This action is only necessary if he would want the property to be registered in his name. This action is in order to protect the buyer so that the seller cannot sell the property to another person.
Assuming you are a lawyer, a client asked you to examine a document which is denominated as a DOS with a right to repurchase and that client was the buyer a retro (buyer). However, upon examination of the terms and conditions of the contract, it appears that the right has long expired. Thus, the client asked, may I still be able to recover this parcel of land which is the subject matter of this contract?
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Consider the possibility that the client may recover. Ask the client of the circumstances surrounding the execution of that document. Ask him “Why did you execute this DOS?” If the answer is “kasi po atty. nagka utang ako sa kanya 150k tapos sabi nya instead of executing a mortgage agreement, DOS with a right to repurchase”. Anyway, from the DOS with a right to repurchase, he may appear to be protected. Kasi if he owes that person 1M and if he is given in the debt a period of 1 year within which to pay in the DOS with a right to repurchase, he would also have 1 year within which to repurchase. Diba parang pareho lang? But instead of mortgage he was asked to sign a DOS. If that is the case, clearly you can conclude that this is not an honest to goodness sale with a right to repurchase. You can treat this transaction merely as an equitable mortgage. Hence, he may still be able to recover what was the subject matter of that transaction. Why would the creditor (buyer) ask his debtor (seller) to sign a DOS with a right to repurchase instead of a mortgage to secure the fulfillment of his obligation? To ensure that the property will be owned by him automatically upon the expiration of the period within which to repurchase and the seller a retro failed to exercise the right to repurchase which will not happen in a mortgage. There is a principle in mortgage known as pactum commissorium. Upon the default of the debtor the mortgagee, cannot validly appropriate the thing for himself. Ownership will not automatically pass by mere default of the principal debtor because pactum commissorium is void because the remedy of the creditor is to have the property sold in a foreclosure sale not to appropriate the thing. So to avoid those requirements sa mortgage, ang gagawin ng seller/ creditor is to have the debtor sign a DOS with a right to repurchase because the moment the debtor failed to repurchase within the period, absolute ownership goes to the creditor who is in that sale the buyer (creditor) a retro. Wala na syang kailangan gawin.
Are these presumptions conclusive? No, this is merely a disputable presumption. In fact, the SC would sustain the validity of a sale with a right to repurchase despite the gross inadequacy of price because somehow it would be advantageous to the seller a retro. In the exercise of the right to repurchase, it is more advantageous if the price is small because he can easily come up with that amount and repurchase the thing. What if there was a stipulation in the COS that the seller will shoulder the capital gains tax? Would the presumption that this is an equitable mortgage will arise? No, the presumption will only arise if the seller bound himself to pay the tax on the thing not the capital gains tax. That would be the real property tax. Note: Presumptions under 1602 would arise regardless of whether the sale is denominated as a sale with a right to repurchase or a DOS. It doesn’t matter. Even if it is a DOS if there is doubt as to whether or not it is an equitable mortgage. It has to be resolved as an equitable mortgage. What is the remedy of the seller a retro? Reformation because the contract as written did not reflect the real intention of the parties. The real intention is to secure the fulfillment of the obligation of the vendor a retro (debtor). B. Legal Redemption Who has the right to redeem? A: 2 groups 1. Co-owners
If the instrument is a DOS with a right to repurchase it may actually be considered as an equitable mortgage by just examining the terms and conditions of that contract. There are certain instances when the law itself provides for a presumption that this is an equitable mortgage under 1602.
2. Owners of adjacent lots (object is lot) - consider if rural or urban land
What are those instances where a DOS may actually be disputably presumed to be as an equitable mortgage?
It does not matter.
1. 2.
The price is grossly inadequate. If the vendor a retro would continue to be in the possession of the thing after the sale, which is unusual because if indeed this is a sale then the vendee should be in possession after the sale.
Co-owners Co-owners of what thing, movable or immovable?
A, B, C, D co-owners of land. D donated his interest in the land to X. would A, B, C, have the right to redeem? No, in legal redemption, the alienation by a co-owner must be by onerous title (sale, dacion en pago, barter). This act (donation) is gratuitous act. Hence, no right of redemption.
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What if B sold his interest in the land to D. would A and C have the right to redeem? No, because for A and C to have the right to reddem, the alienation should be in favor of a 3rd person. What if B sold his interest in the land to X. A, D, C, wanted to redeem. May they be able to exercise the right of redemption? All of them? Yes. All of them. Is this the same rule in adjacent lots? No, in adjacent lots, there can be so many owners depending on how it is big. The owner with the smallest land area would have the right to redeem. What if the owners of adjacent lots would have equal area? The first one who manifested his desire to redeem. As to Co - owners
cannot agree on the portion of the share of B which will be redeemed by both of them - what would be the final sharing? C will have 2/3, A will have 1/3 because they will have the right to redeem in proportion to their share in that property. Note: they may stipulate as to the sharing. What if in the DOS executed between B and X, the price stated in DOS was 3M. Hence, A and C can be compelled to redeem by paying 3M? Not necessarily, under the law, if the price stated in this sale is unconscionable, the redemptioners can only be compelled to pay the reasonable value. Ang posibleng value could only be 1M pero ang nakalagay sa DOS 3M. Is it possible that X did not pay 3M? Yes. Why would they do that? The reason for that is to pre-empt A and C from exercising the right of redemption. To discourage them from redeeming the property kasi kung mura yan they can easily exercise the right of redemption. The law protects the redemptioners - if the price is unconscionable - they may pay reasonable value.
Land owned by spouses was sold by them to their three sons in 3 different deeds of sale. In each DOS the specific area was already described. After the execution of the DOS, these children would actually harvest only their respective area. They wanted to have their respective share registered in their own name. They filed a petition for the cancellation of the title of their parents for that property to be divided, they submitted their individual DOS. But the petition was denied by the register of Deeds because they failed to submit a subdivision plan. The RD cancelled the TCT in the name of the parents issued another TCT in the name of the 3 children in one TCT. One of the children sold the land to a 3rd person. Can the 2 other brothers redeem as co-owners?
What if the value is 3M but DOS stated 1M but X actually paid 3M (1M was stated to reduce tax liability). How much can A and C be compelled to pay?
No, because under the facts, they are no longer coowners because before hand their parents sold to them the property in three separate deeds of sale. Although a single TCT was issued to them, is not conclusive as to the rights of the parties to a certain property such as in the case as co-owners. At its face they are co-owners but in reality there has already been a partition of the property. In fact, a property may be registered in a person who is not the owner because somebody forged the signature of the real owner. Thus, the requirement of the law that the co-owner would have the right to redeem is not present therefore, there would be no right of redemption.
Owners of Adjacent Lots Make a distinction between a sale of an urban land and sale of rural land.
A, B, C co-owners. A’s share ¼. B’s share ¼. C’s share ½. B sold his interest in the land to X. However, A and C both wanted to redeem. (As coowners they may have the right to redeem). If they
Doromal vs CA Held: The co-owners can only be compelled to pay the price stated in the deed of sale. The trial court sustained the claim of the buyer that they be reimbursed the actual amount paid because according to the trial court that would be immoral to pay only the amount stated in the contract. SC said it was more immoral when the parties pay only a small amount where in fact the real amount paid is a much higher amount. Because the only purpose of this is to defraud the government.
Sale of Urban land Requisites: 1.
The land is so small and purchased only for speculation
If that is the case, then the adjacent lot owners would have the right not only of the right of redemption but also of right of pre-emption. (Article 1622) In rural there is no right of pre-emption meaning even before the perfection of the sale, the adjacent lot owners would already have the right to redeem by way
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of pre-emption, 30 days from notice of such intention to sell.
buyer. How would he know the terms and conditions of the sale if he is not given a copy of the DOS. So he must have a copy.
But in rural lands and alienation is by onerous title. Another requisite: the land which was the object the sale must not be greater than 1 hectare.
Double Sales
Also, for the owners to have the right of redemption, the buyer from whom the property will be redeemed must have another rural land. Another requisite - the land sold and the land of redemptioner must not be separated by brooks, rivers in order that these lot owners would have the right to redeem. BE: Sisters A and B co-owners of land. B sold her interest in the land to X a 3rd person. X sent a notice to the sister of the seller, the other co-owner informing her of such sale and giving her copy of the DOS. Despite notice, A did nothing. After that, X requested for the annotation of the sale in the title of that property in the RD. RD sent another notice to A. A did not do anything. After so many months, X wanted the property to be partitioned. A then give notice to X that she is exercising the right to redeem. Does A have the right to redeem? Right of redemption must be exercise within 30 days from what? A: The co-owner still has the right to redeem. Under 1623, the 30-day period would start to run only from the time the co-owner received from the vendor. Sino nagbigay ng notice from the facts? Una, yung vendee pangalawa yung RD. so hindi yung vendor amd nagbigay. So 30-day period has not started to run. Hence, he still has the right to redeem. Atty. Uribe: Under the facts, she received 2 notices, not only written notices but also copies of the DOS. Under the principle of estoppel, she cannot claim that she still has 30 days. In fact, in a decision of SC involving a sale of a co-owner share which sale was facilitated by the other co-owner. But the latter claimed he can still redeem because he did not receive notice. SC said sya ang nag-facilitate ng sale so why he could not be given notice, hence he had knowledge of the sale. This is still consistent in the case of Doromal. If you consider the provision literally it says “30 days from the time of notice in writing is given by the vendor to the co-owner”. Ang nakalagay sa batas, notice in writing. Hence, apparently even a letter written by the vendor would suffice and hence the 30 day period would start to run? SC said: No, the co-owner should be given a copy of the DOS and it is only from that moment that the 30day period will start to run. This is a good ruling - not any ordinary notice but a copy of the DOS because in redemption, the redemptioner is supposed to be subrogated under the same terms and conditions as the
If the same thing should have been sold to different vendees, to whom shall ownership be transferred? Is it possible that ownership have been transferred to both buyers? It is possible that both buyers may have acquired ownership but only one of them would have a better right. The real question in double sales is who has the better right. What is the rule when there is a sale of a movable property to two or more persons, who has a better right? The first person who took possession in good faith. If no one took possession of the movable, it is the buyer who has the oldest title, and in good faith. What is the rule when there is a sale of an immovable to two or more persons, who has a better right? 1. The first who registered the deed of sale in good faith; 2. The first who took possession in good faith 3. The buyer who has the oldest title in good faith. JV, owner of a parcel of land sold it to PP. But the land was not registered, one year later, JV sold the same parcel of land to RR, who succeeded to register the deed and to obtain a TCT over the property in his own name. Who has the better right over the parcel of land? RR may have a better right, when RR registered the sale in good faith. Under the facts, RR was able to register the deed in his own name, there was no mention that he had no knowledge of the prior sale at the time of registration. How to determine good faith between first and second buyer? As to the first buyer, it is the fact that he has no knowledge of the defect on the title of the seller. As to the second buyer, it is the fact that he has no knowledge of the title of the first buyer. June 15, 1995, Jesus sold a parcel of land to Jaime. On June 30 1995, he sold the same land to Jose. Who has the better right if the first sale is registered ahead of the second sale, with knowledge of the latter and the second sale was registered ahead of the first sale with knowledge of the latter? As to the first sale, first sale was registered ahead of the second even with knowledge of the second sale, the registration is valid. Even though the first buyer acquired knowledge of the second sale, he may register the deed of
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sale after the second sale. Since he was the first buyer who registered the sale, knowing the second sale does not make the first buyer a buyer in bad faith. As to the second sale, though the deed of sale was registered first, but with knowledge of the first sale, then the registration was in bad faith. If the second buyer had no knowledge of the prior sale when he signed the deed of sale, but when he is about to register the deed of sale, he acquired knowledge of the first sale, would that make him a buyer in bad faith? What is required under Art. 1544 is registration in good faith. At the time of perfection, signing or payment, he may still have no knowledge of the prior sale but at the time of registration he may already have knowledge, hence, he cannot be considered a registrant in good faith. He may not have a better right over the first buyer. Bautista vs. Sioson The owner sold a registered parcel of land to B who did not register, neither did he took physical possession. After the sale they executed a lease agreement in which the buyer is now the lessor and that the seller became the lessee. Hence, the seller continued to be in possession of the land not as a concept of an owner but of a lessee. After the sale and the contract of lease, A sold this parcel of land to C, who also did not register the same, and this time C took physical possession. Who between B and C had a better right? B would have a better right because when B executed a lease contract with A, B is in contemplation of law in possession of the property, which is legal possession, he obviously is therefore a possessor in good faith, the first who took possession in good faith. Though C had physical possession over the property, he is considered to be the one second in possession. B therefore was considered to have a better right.
registered under the Torrens System can be covered by the provisions of Art. 1544. It could be noticed that C had registered the land, but the same is not covered under the torrens system because, there is another system of registration of unregistered lands. There is a different book covered by this kind of registration, hence, Art 1544 would not apply. Therefore, if ARt. 1544 would not apply, B would have a better right because there was actual delivery to him. Therfore, under the general rule, upon delivery, ownership passes to the buyer. When ownership had passed to the buyer when the property was sold in the execution sale, the buyer would not get anything from the execution sale because he merely steps into the shoes of the judgment debtor. Since the judgment debtor had no ownership over the land at the time of sale, the he did not acquire ownership by virtue of that sale. Note: To determine that the land is under the torrens system, the ownership is proven by TCT’s or OCT’s, otherwise if proof of ownership are mere tax declarations, it will not be considered as registered land.
Loss of the thing which is the subject of a contract of Sale If the thing sold or the object of the sale is lost or destroyed, who will bear the loss, or who may be held liable for the loss? Can the buyer still be compelled to pay the price despite the loss of the thing which was the object of the sale? The first thing that must be considered is the cause of the loss because even if the seller or the buyer is still the owner, if the loss was due to the fault of one of the parties, he would either be the one to bear the loss or he can be held liable for the loss.
Note: Legal possession is sufficient to determine as to who have a better right between two persons.
For example if the seller was at fault resulting in the loss of the thing and he was still the owner, he will bear the loss. But if at the time of the loss, the buyer was the owner, and the seller was at fault, the seller will be liable for the loss of the thing because he was at fault.
Carumba vs. CA
Loss due to fortuitous event
Sale of a parcel of land to B who took possession of the land. However, this seller a judgment debtor to one of his creditor. Because of a judgment in favor of a creditor C, the parcel of land had become the subject of an execution sale. Then the buyer became C who registered the sale. Who will have a better right between B and C and C had no knowledge of the first sale?
The common scenario in the bar exams is that the thing is lost due to a fortuitous event, without the fault of the buyer or the seller, who bears the loss or who can be held liable for the loss?
B would have a better right because this parcel of land was registered under the Torrens System. Art.1544 does not apply to unregistered lands. Only those lands which are
Another scenario which must be considered is when did the loss happen? This question will be relevant if the loss happen after the perfection. Because if the loss of the thing happened before the perfection, if the loss was due to a fortuitous event? It will be the seller who shall bear the loss, if the seller is the owner. In such case, there will be no perfected contract of sale at
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all because there was no object to talk about. After the perfection of the sale, who bears the loss?
delivery of the car to X. The owner B therefore had to bear the loss.
As a rule, the owner bears the loss. This is not applicable in sale of fungible goods, because in such sale, under Art. 1480, if these goods are sold at the price fixed according to weight, number or measure and these goods had already been weighed, counted or measured, the risk of loss will already be with the vendee even before there is transfer of ownership. Such is not correct, because such law is relied upon the old civil code. The New Civil Code under Art. 1480 last paragraph is an amended version of Art 1452 of the Old Civil Code. In the amended version it was provided that Should fungible things be sold for a price fixed according to weight, number or measure, the risk shall not be imputed to the vendee until they have been weighed, counted or measured, and delivered, unless the latter has incurred in delay. With delivery, ownership passes to the buyer and therefore, it is the vendee who shall bear the risk of loss. Therefore, there is seem to be no exception, as far as fungible goods are concerned.
Under what circumstance would a party to a contract of sale who was not the owner at the time of the loss be the one to bear the loss?
D sold a second hand car to E for 350k, the agreement between D and E was that half of the purchase price shall be paid upon delivery of the car to E and the balance of 175k shall be paid in 5 equal monthly installments of 15k each. The car was delivered to E and D paid the amount of 175k to E. Less than one month thereafter, the car was stolen from E’s garage with no fault on E’s part and was never recovered. Is D legally bound to pay the balance of 175k? Whether or not E would be legally bound to pay will depend on who will bear the loss. Since the car was stolen, would the buyer bear the loss? Or would the seller be the one to bear the loss? If E would have to bear the loss, he would still be compelled to pay the balance. From the facts, there was already delivery, there is nothing under the facts that will show ownership was reserved. Therefore upon delivery, ownership passes to E the buyer. Under the facts, there was no fault on the part of the seller. Hence, the buyer bears the loss. Therefore, E can be compelled to pay such balance. S, an American resident of Manila, about to leave on a vacation, sold his car to B, for 2000 USD. The payment to be made 10 days after delivery to X, a third party depositary agreed upon who shall deliver the car to B upon receipt by X of the purchase price. It was stipulated that ownership be retained by S until delivery of the car to X. 5 days after delivery of the car to X, it was destroyed by fire which gutted the house of X, without the fault of either X or B. Is buyer B legally obligated to pay the purchase price? From the agreement of the parties, ownership is retained by S until the delivery of the car. However, under the facts the loss happened after the delivery of the car, therefore it is clear that ownership had already passed to B after
1. If there is a stipulation (take note of Tabora Case). 2. When ownership is retained by the seller in order to secure payment of the price for the goods sold (Art. 1504). 3. When the seller is in possession but the buyer is at fault because of the delay in retrieving the goods. 4. When the seller is in posession, but ownership had already passed to the buyer by constructive delivery, but the seller will bear the loss due to the seller’s fault. A set of AMJUR was sold to Tabora on installment basis. On the day these books were delivered to the office of Atty. Tabora, the entire block where the office of the latter is located was burned together with the AMJUR. Atty Tabora refused to pay the balance despite demand by lawyer’s co. Lawyer’s co therefore filed a case. Two defenses were raised 1) res perit domino rule because there is a stipulation in the contract that the seller shall retain ownership over the books until full payment, and if lawyers co was the owner then it should bear the loss. Is the argument correct? No. If there was a stipulation in the contract that ownership shall be retained by lawyers co until full payment was made, there was also a stipulation that the risk of loss shall pertain to the buyer at the time the books were delivered whatever the cause of the loss. This is an exception to the res perit domino rule. Assuming there was no stipulation that the risk of loss shall pertain to the buyer upon delivery, may the buyer still be held to answer for the loss? Under Art. 1504, when the owner reserved the title to the property only to secure the payment of the price of the buyer, then by law, risk of loss shall only pertain to the buyer. This is known as a security title. Therefore, even if the buyer did not acquire title upon delivery, he bears the loss. If the object of the sale is in possession of the seller, and the same was lost due to fortuitous event, who will bear the loss? The seller? Not necessarily. It will be the party who was at fault resulting in the delay in the delivery of the goods. It may be the buyer or the seller. As agreed upon by the parties, the buyer should have obtained the goods from the seller yesterday. However, due to the fault of the buyer, he failed to get the goods
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from the sellers place. Today all these goods were lost or destroyed due to a fortuitous event. Who will bear the loss? Ordinarily, the buyer who would obtain possession from the seller. At that time there is yet no delivery because the goods are still with the seller. The owner is still the seller but the owner will not bear the loss because the delay in the delivery was due to the fault of the buyer. In another scenario, the goods are still with the seller, but it will be the seller who would bear the loss even if the buyer was already the owner. How could the buyer already be the owner if the seller is still in possession of the goods. The answer would be by reason of constructive delivery. Philippine law recognizes not only physical or actual but also constructive delivery. One example of constructive delivery, is the execution of a public document or instrument, ownership passed to the buyer but possession is still with the seller. If it was the seller who was at fault resulting in the delay in the delivery of the goods, of course the buyer will not bear the loss even if he was the owner already at the time of the loss.
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