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SALES

Article 1591. Immediate rescission in sale of immovables, if the vendor has reasonable
ground to fear the loss of the immovable.
** Vendor however has the alternative of compelling specific performance if the ground to
fear loss does not exist.
Article 1592. Exception to the general rule on rescission in case of sale of immovables.
General Rule on Rescission: The court may fix the period of payment when there is just
cause.
Exception: Court is not allowed to grant a new period. Once there is a judicial demand by
notarial act received by the vendee, the court may not grant him a new term. The reason is that
the vendee already enjoyed the advantage of paying beyond the time originally fixed in the
contract, during the time when no demand for rescission either judicially or extra-judicially has
taken place.
*Art. 1592 Not applicable in:
1. Sales by instalments where parties have laid down the procedure to be followed in the
event the vendee failed to fulfill his obligation
2. A mere promise to sell where the title remains with the vendor until full payment of the
price.
Article 1593. Automatic Rescission of sale of movables. Conditions for applicability:
1. if the vendee upon the expiration of the period fixed for the delivery of the thing
purchased, refused to receive it w/o justifiable cause
2. if he failed to pay the price unless granted a longer period w/in w/c to pay.
Reason why judicial or notarial act not required: Personal things do not generally keep a stable
price in the market, any delay in their disposal may prejudice the vendor.
Actions for breach of contract of sale of goods
Article 1594. Actions available to vendor when there is breach of contract of sale on the part of
the vendee: (PDR)
1. Action for payment of the price of the goods [1595]
2. Action for damages due to wrongful neglect and refusal to accept and pay for the goods
[1596]
3. Action for rescission if buyer has repudiated the contract or has manifested his inability to
perform his obligation [1597]
Actions available to the vendee, in case of breach by the vendor (SDR)
1. Action for specific performance in case of failure of the vendor to deliver the goods [1598]
2. Action for damages for breach of warranty but accepting the goods [1599]
3. Action for rescission for breach of warranty where the vendee may validly refuse acceptance of
the goods, or even if the goods had already been received, he may return them [1599 par. 4]
Article 1595. Action for collection of price, available in the following cases: (OPR)
1. When the ownership of the goods has passed to the buyer and he wrongfully neglects or
refuses to pay for the price according to the terms of the contract
2. When the price is payable irrespective of delivery or transfer of title, on a certain day and the
buyer wrongfully neglects or refuses to pay such price.
Defense of Buyer: He may establish the fact that the seller has at anytime before judgment,
manifested his inability not to comply with the contract

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3. When the goods cannot readily be resold for a reasonable price and the buyer refuses to
receive the goods when offered for delivery except when 1596 par. 4 is applicable (there is notice
of stopping the contract), with notification that the seller is holding them as bailee for the buyer
Article 1596. Damages for non-acceptance of goods.
Measure of damages:
1. As a rule: estimated loss directly and naturally resulting in the ordinary course of events from
the buyers breach (no available market)
2. When there is available market: difference between contract price and market or current price
at the time when the goods ought to have been accepted or if not time has been fixed at the time
of refusal (If there are special circumstances establishing proximate damages of a different
amount than the difference described then liability is based on the proximate damages)
Proximate Damages: refer to damages other than unrealized profits
* Repudiation of the contract or notice of stopping the contract, such as in the case of a
sale where goods are to be manufactured. Buyer here shall be liable for the cost of:
1. labor performed
2. expenses for materials used before receiving the notice of repudiation for stoppage
3. unrealized profits
Article 1597. When seller may rescind contract in case there is no delivery yet
1. When buyer repudiated the contract
2. When the buyer has manifested his inability to perform his obligations
3. When the buyer has committed a breach of the contract
* Notice must be given to the buyer to totally rescind the contract.
Article 1598. Remedy of buyer in Contract to deliver specific goods: Specific Performance
w/o giving the seller option to retain the goods on payment of damages.
Article 1599. Remedies of buyer when seller commits breach of warranty.
1. Recoupmentwhereby the buyer accepts the goods but he sets up against the seller the
reduction or extinction of the purchase price.
2. Action for damageswhereby the buyer may (a) accept the goods but w/ damages or (b)
refuse to accept the goods for the breach of warranty but also with damages.
3. Rescissionwhereby the buyer seeks the cancellation of the sale and as a consequence
there will be restoration on both sides.
**Situations when buyer cannot choose or elect rescission (KNR)
1. If he knows of the breach of warranty when he accepted the goods w/o protest
2. If he fails to notify the seller w/in a reasonable time of the election to rescind
3. If he fails to return or offer to return the goods to the seller in substantially the same condition
as they were at the time the ownership was transferred to him.
Extinguishment of Sales
Art. 1600- Causes for Extinguishing Sales
1. Ordinary Causescauses which extinguish ordinary contracts such as:
a. Payment
b. Loss of the things
c. Novation
d. Merger of rights of creditor and debtor
e. Rescission
f. Fulfillment of resolutory condition

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g. Prescription
2. Special Causesrefer to conventional redemption and legal redemption
CONVENTIONAL REDEMPTION.
Art. 1601. Requisites REV-CR
a. The vendor reserves the right to repurchase the thing sold
b. He shall shoulder the expenses of the contract and other legitimate payments made by
the buyer.
c. He shall pay the value of the necessary and useful expenses made on the thing incurred
by the buyer
d. He shall comply with other stipulations agreed upon.
e. He shall return the price of the sale
Characteristics of Conventional Redemption [EAR RPR]
a. It begins to exist at the time of the perfection of the contract. (It becomes a mere promise
to sell if stipulated upon after the sale had been consummated)
b. It is an accidental stipulation because it is a right created by the parties
c. It is reciprocal when the right to redeem is exercised. (both vendor and vendee has
obligations with each other)
d. It gives rise to a real right when properly registered because it affects third persons.
e. It is potestative as its exercise depends upon the sole will of the vendor.
f. It is a resolutory condition because when it is fulfilled, the ownership of the vendee over
the thing is extinguished
PACTO DE RETRO SALE vs. MORTGAGE
PACTO DE RETRO SALE
Ownership is consolidated in the vendee if
vendor does not repurchase w/in time agreed
upon
No obligation on the part of the vendee to
foreclose
Vendor has no more right to redeem after
expiration of period to redeem

Vendee may alienate property


Vendee becomes automatically the owner in
case of vendors failure to redeem
Vendee is entitled to reimbursement for
necessary and useful expenses

MORTGAGE
Failure of mortgagor to pay his obligations on
time does not deprive him of his interest in the
property
Mortgagee must foreclose if he wants to secure
a perfect title
Mortgagor may redeem before foreclosure and
even after, w/in one year from registration of
the sale in extra-judicial foreclosure. In judicial
foreclosure redemption may be made before
confirmation of the sale by the court.
Mortgagee cannot alienate property
Mortgagee does not automatically become
owner, there must be foreclosure sale first
Mortgagee is not entitled to reimbursement for
improvements he made

Art. 1602Presumption of Equitable Mortgage. (IPERTOD)


1. When the price of a sale with right to repurchase is unusually inadequate
2. When the vendor remains in possession as lessee or otherwise
3. When upon or after the expiration of the right to repurchase another instrument extending
the period of redemption or granting a new period is executed.
4. When the purchaser retains for himself a part of the purchase price
5. When the vendor binds himself to pay the taxes on the thing sold.
6. In any other case where it may be fairly inferred that the real intention of the parties is that
the transaction shall secure the payment of a debt or the performance of any other obligation.
7. When there is doubt as to whether contract is Pacto de retro or an equitable mortgage

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Equitable Mortgageone which lacks the proper formalities, form of words or other requisites
prescribed by law for a mortgage, but however shows the intention of the contracting parties to
make the property subject of the contract as security for a debt and contains nothing impossible
or contrary to law.
Consequences of Declaration of Pacto de Retro Sale as an Equitable Mortgage (PTFR)
1. The repurchase price paid by the vendor is considered the principal of the loan.
2. Title remains in the vendor or if the title has already been transferred to the vendee, the same
must be revested into the vendor by a deed of reconveyance.
3. Any money fruits or other benefits received thereafter by the vendee are considered interests
on the loan.
4. If the vendor does not redeem on time the remedy of the vendee is to foreclose the mortgage.
Art. 1603In case of doubt, a contract purporting to be a sale with right to repurchase shall be
construed as an equitable mortgage.
Rationale: Least transmission of rights.
*Although in conflict with Art. 1378, where it provides that if the contract is onerous, the
doubt shall be settled in favor of the greatest reciprocity of interests, Art. 1603 is the exception.
This is justified by the condemnation of pactum commissorium (which is a stipulation that creditor
automatically becomes owner of a property upon non-payment by the debtor)
Art. 1604Art. 1602 also applicable to contract purporting to be an absolute sale
Art. 1605Vendor may ask for reformation of instrument in cases referred to in 1602 & 1604
Art. 1606Time to redeem in conventional redemption
1. If there is a period agreed upon then this shall be observed, but this should not exceed
10 years
2. If there is no period agreed upon, the redemption shall be exercised within 4 years from
the date of contract.
3. If an action was brought by the seller claiming that the contract was an equitable
mortgage but later on proven that it was Pacto de retro Sale, he is given 30 days from the time
final judgment was rendered to repurchase.
Art. 1607Judicial Order is required for the registration of the consolidation of ownership of a
real property in the vendee by failure of the vendor to redeem.
Rationale: To accord the vendor the maximum safeguards for the protection of his legal
rights under the true agreement of the parties.
Art. 1608The vendor may exercise his right of redemption against every possessor
whose right is derived from the vendee, even if the second contract does not mention of the right
of redemption.
Art. 1609Vendee is subrogated to the vendors rights and actions
As owner, vendee may:
a. transfer his rights to a 3rd person
b. mortgage the property
c. enjoy the fruits thereof
d. recover the property against every possessor
e. perform other acts of ownership
Art. 1610Creditors of the vendor must exhaust first all the other properties of vendor
before they could exercise the right of redemption against the vendee.
Art. 1611Applicability.
1. The vendee entered a Pacto de Retro Sale of a part of an undivided immovable.

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2. The vendee later acquired the whole of the property.


3. The vendor in the Pacto de Retro Sale of a part wishes to exercise his right of redemption
over the part.
If the abovementioned are present the vendee may compel the vendor in the Pacto de Retro Sale
of a part to redeem the whole property.
Rationale: Co-ownership is not favored, because the co-owners are reluctant to make
improvements on the property due to the state of instability in its ownership.
Art. 1612Joint Pacto de Retro Sale by Co-Owners or Co-Heirs of an Undivided
Immovable.
Each Co-Owner/Co-Heir can exercise right of redemption with respect to their share
Art. 1613In the case referred to in Art. 1612, vendee may demand that all the vendors or
co-heirs come to an agreement upon the repurchase of the whole thing, if they failed to do so
vendee cannot be compelled to accept partial redemption.
Art. 1614Separate Sales of Shares of Co-owners of an undivided immovable.
Each vendor may exercise their right of redemption independently and the vendee
cannot compel any of them to redeem the whole property
Art. 1615If the vendee dies and property is left to several heirs, the action for redemption
can only be brought to each of them independently with respect to their share, whether or not the
property is still undivided or already partitioned.
Art. 1616Obligations of the Vendor a Retro if he desires to redeem
a. Return to the vendee the price of the sale
b. He shall shoulder the expenses of the contract and other legitimate payments made by
the buyer.
c. He shall pay the value of the necessary and useful expenses made on the thing incurred
by the buyer
Art. 1617Rule in case there is no agreement on the sharing of the fruits of the property.
1. If there are fruits at the time of the sale and the vendee paid them, he shall be reimbursed
by the vendor.
2. Where there are no fruits at the time of the sale but there are existing at the time of
redemption, the vendee shall be entitled to the fruits gathered for one year reckoned from the last
anniversary of the date of the effectivity of the contract of sale.
Art. 1618The vendor who recovers the thing shall receive it free from all charges or
mortgages constituted by the vendee, but shall respect the lease contract constituted on the
property in good faith and in accordance with the customs of the place.
LEGAL REDEMPTION (1619)
--is the right to be subrogated upon the same terms and conditions stipulated in the contract, in
the place of one who acquires a thing by purchase or dation in payment, or by any other
transaction whereby ownership is transmitted by onerous title.
Art. 1620A co-owner of a thing may exercise the right of redemption when the shares of all the
other co-owners or any of them are sold to a 3 rd person. If the price of alienation is grossly
excessive, redemptioner shall pay only a reasonable price.
--If two or more co-owners desire to exercise right of redemption they may only do so in
proportion to their share.
Art. 1621Redemption by adjacent owner of rural lands. Requisites: (RATSO)
1. The adjacent lands involved must be rural land.

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2. The rural land alienated and to be redeemed must not exceed one hectare in area
3. The alienation must be made in favor of a third person, not in favor of another adjacent owner
4. The two lands involved must not be separated by brooks, drains, ravines, roads and other
servitudes for the benefit of other estates.
5. The vendee or grantee must already be an owner of a rural land. If he does not own any,
redemption is not allowed.
If two or more adjoining owners desire to exercise the right of redemption at the same time, the
one with a smaller area shall be preferred. If both have same area, the one who first requested.
Art. 1622Applicability: Piece of Urban Land which is so small and so situated that a major
portion cannot be used for any practical purpose w/in a reasonable time, having bought merely
for speculation and is about to resold.
*Speculationmeans buying or selling with expectation of profiting by a rise and fall in price.
Rights recognized by Article 1622.
1. Right of Pre-emptionthe right of an adjacent owner to purchase the property before it
is sold to a third person or before the projected sale to a 3rd person is consummated.
2. Right of Redemptionthe right of an adjacent owner to redeem the property after the
sale had been perfected and consummated.
Pre-emption
Arises before sale
No Rescission because no sale as yet exists
The action is directed against the prospective
seller

Redemption
Arises after sale
There can be rescission of the original sale
Action is directed against the buyer

* Preference when two or more owners of adjoining lands wish to exercise the right of
redemption or pre-emption: To the owner whose intended use is best justified.
Art. 1623Period of Legal Pre-emption or Redemption.
Must be exercised within 30 days from the notice in writing by the prospective
vendor.
The deed of sale executed by the vendor is not registered if not accompanied by an
affidavit that he has given the required written notice.
The right of redemption of co-owners is superior to the right of adjoining owners.
Instances of Legal Redemption under the Civil Code (CHURC)
1. Sale of a co-owner of his share to a stranger (1620)
2. Sale of an heir of his hereditary rights to a stranger (1088)
3. Sale of adjacent small urban lands bought merely for speculation (1622)
4. Sale of adjacent rural land not exceeding one hectare (1621)
5. When a credit or other incorporeal right in litigation is sold (1634)
Instances of Legal Redemption under special laws (THEJA)
1. Redemption in tax sales
2. Redemption of homesteads
3. A right of redemption in cases of extra-judicial foreclosures
4. An equity of redemption in cases of judicial foreclosures
5. Redemption by an agricultural tenant of land sold by the landowner
ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL RIGHTS

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Assignment of Creditan agreement whereby credits, rights or actions pertaining to a person


(called assignor) are transferred by him to another (called assignee) either onerously or
gratuitously who acquires the power to enforce the same against the debtors.
Nature of Assignment of Credits and other incorporeal rights: Has all the elements of a contract of
sale: (1) consent (2) Object which is the credit, right , action assigned and (3) consideration which
is the price paid for the assignment, or liberality of the assignor if the assignment is gratuitous.

Distinction between Contract of Sale and Assignment of Credits


Basis
Contract of Sale
Assignment of Credits
Object
Property
Credit, incorporeal rights or
rights of action
Manner of Delivery of Object
It need not be through public It must be through a public
instrument
instrument (1625)
Subject obligated
The whole world
A definite third person
Ownership when transferred
Transfer of ownership need Ownership is transferred upon
not be upon delivery of the delivery of the documents
thing. The parties may agree evidencing the credit or
that ownership be transferred incorporeal rights
only after full payment (1478)
Consideration
It is always a requisite
It is not always a requisite.
Action may be maintained by
the assignee based on his title
even
if
there
is
no
consideration.
Distinction between Dation in Payment and Assignment of Credits
Basis
Dation in Payment
Assignment of Credits
Nature
It is an alienation of property of The alienation of credits or
a debtor in satisfaction of a rights, need not be in
debt in money
satisfaction of debtors debt
Object
Determinate property
Credits, incorporeal rights or
rights of action
Effect
Obligation is extinguished
Obligation is not extinguished
Consent of debtor is not necessary for the assignment. He is therefore released from
the obligation if he pays the creditor before having knowledge of the assignment (1626)
Scope of Assignment: All accessory rights, such as guaranty, mortgage, pledge or
preference (1627)
Art. 1628 What the Assignor of the Credit Warrants? (ELS)
1. The existence of the credit at the time of the assignment
2. The legality of the credit unless he sold the thing as doubtful, meaning, he is not sure of the
validity of his acquisition of the thing sold which fact he has disclosed to the assignee
3. The solvency of the debtor, if expressly stipulated or if the insolvency of the debtor was prior to
the sale and of common knowledge
Scope of Liability in case of breach of warranty
1. In good faith: Assignor shall pay (a) consideration of price which he received from the
assignee; (b) expenses of the contract (c) other legitimate expenses occasioned by the
assignment
2. In bad faith: Same liabilities as in above but with damages

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Art. 1629 Duration of the Liability of the Assignor in Good Faith (in case there is no
agreement)
1. One year from the date of the assignment of the credit if the period of payment of the credit has
already expired
2. One year after maturity of the credit if the period of payment has not yet expired
Art. 1630 Sale of Inheritance (Hereditary Rights) without specification of things.
--Seller shall only be answerable for his character as an heir. He warrants the fact of his heirship
in the estate of the decedent. If it turns out that he is not an heir, then he is liable for the breach of
warranty.
Sale of Hereditary Rightspresumes the existence of a contract or deed of sale between the
parties
Waiver of Hereditary Rightsa mode of extinction of ownership, where there is intentional
relinquishment of a known right with knowledge of its existence and intention to relinquish it in
favor of other persons who are co-heirs in the succession
Lump-Sum Purchase of the whole of certain rights, rents or products (1631)
Vendor warrants the legitimacy of the whole of the rights, rents or products but not the
various parts of which the whole is composed of.
Exception: If the vendee is evicted from the whole or the part of the greater value (more
than half) of the credits in which case warranty stays.
Art. 1632If vendor profited from the fruits or received anything from the inheritance sold he
must restore it by paying the vendee, unless there is a contrary stipulation.
Art. 1633Charges and debts on the estate paid by the vendor must be reimbursed by the
vendee, unless there is a contrary stipulation.
Assignment of Credit or right in Litigation. (1634)
debtor is given the right to extinguish the obligation by reimbursing the assignee: (PIJ)
a. The price paid for the credit or right
b. Interest on the said price from the time the day it was paid
c. Judicial costs incurred by the assignee
When is credit or right in litigation? From the time the complaint concerning the same is
answered.
Prescriptive Period: 30 days from the date the assignee demands payment from debtor
Exceptions to the Right of Extinguishment by the debtor (1635)
Assignments or sales made to: (CCP)
a. A co-heir or co-owner of the right assigned
b. A creditor in payment of his credit
c. The possessor of a tenement or piece of land which is subject to the right in litigation
assigned.