SALES

416. Buyer made a written offer to Seller regarding the purchase of the latter’s property.
When the first offer of P500,000 was rejected, Buyer made a second offer which is likewise
rejected. Undaunted, Buyer made a third written offer for P600,000 with a check for P100,000 as
earnest money. The last written offer contains the handwritten annotation “received original (9-4-
89)” beside the signature of Seller. Is there a perfected contract of sale between Seller and
Buyer?

No. It is fundamental principle that before a contract of sale can be valid, the following elements
must be present: a) consent of the contracting parties; b) determine subject-matter; and c) price certain in
money or its equivalent. Until the contract of sale is perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation between the parties.

The annotation in the third written offer amounts neither to a written nor an implied acceptance
by Seller of Buyer‟s offer. Such annotation is merely a memorandum of the receipt by Seller of Buyer‟s
offer. The requisites of a valid contract of sale are lacking in said receipt and therefore the sale is neither
valid nor enforceable (Jovan Land v. Court of Appeals, 268 SCRA 160 [1997])

417. Maria gave Clara the exclusive right to sell her brand of maong pants in Davao City,
the price of which is to be paid within 60 days from delivery, and promising to pay Clara a
commission of 20% on all sales. After delivery of the merchandise to Clara but before the latter
could sell any of them, Clara’s store in Davao City was completely burned without her fault,
together with all of Maria’s pants. Must Clara pay Maria for the pants?

Yes. The contact between Maria and Clara is a sale and not an agency to sell. This is so because
the price is payable by Clara within 60 days from delivery even if she is unable to resell it. If Clara were
an agent, she is not bound to pay the price and, under Article 1504 of the Civil Code, the thing perishes
with the owner. Hence, Clara must still pay the price.

418. What is the “mirror doctrine” in the law on sales?

The “mirror doctrine” in the law on sales is a principle in law which states that a purchaser of a
property cannot close his eyes to facts which should put a reasonable man on his guard and claim that he
acted in good faith under the belief that there was no defect on the vendor‟s title. Such refusal to believe
in the strong possibility of a defect on the vendor‟s title will not make him an innocent purchaser for
value (should such title later prove to be defective), if circumstances are such that a reasonably prudent
man would have taken the necessary precaution if in the same situation (Embrado v. Court of Appeals,
233 SCRA 333[1994])

419. Distinguish between a contract of sale and a contract to sell.

 A contract of sale and a contract to sell are distinguished as follows: 1) In a contact of sale, the
non-payment of the purchase price is a resolutory condition, that is, the contract of sale may such
occurrence put an end to a transaction that once upon a time existed; in a contract to sell, the payment in
full of the price is a positive suspensive condition. Hence, if the price is not paid, it is as if the obligation
of the seller to deliver and to transfer ownership never became effective and binding; 2) In a contract of
sale, title over the property generally passes to the buyer upon delivery; in a contract to sell, ownership is
retained by the seller, regardless of delivery and is not to pass until full payment of the price; 3) In a
contract of sale, after delivery has been made, the seller has lost ownership and cannot recover it unless
the contract is resolved or rescinded; in a contract to sell, since the seller retains ownership despite
delivery, he is enforcing, not rescinding, the contract if he seeks to oust the buyer for failure to pay.

420. In a contract to sell, is it necessary for the vendor to refund what the vendee paid
under the contract?

Yes, the partial payment made by the buyer must be returned to him, there being no provision
regarding forfeiture of payments made in any of the documents executed by the parties. Such action is but
just and equitable under the premises. If it were otherwise, there will be unjust enrichment on the part of
the seller at the expense of the buyer. (Orden v. Aurea, G.R. No. 172733 August 20, 2008)

421. What is a sale by sample?

A sale by sample is one where a specimen is exhibited to serve as the standard of quality with the
understanding that the product to be delivered would correspond with the specimen or sample and creates
an implied warranty that the goods would be free from any defect which is not apparent on reasonable
inspection of the sample.

422. What is a sale by description?

A sale by description is one where the buyer has not seen the article sold and relies on the
description given to him by the seller and creates a warranty that the goods will conform to the
description by the seller.

423. What is a “made to order” sale?

A “made to order” sale is one where the goods manufactured and sold are according to the
specifications provided by the buyer as to the measurement, material, design, and qualify of the goods to
be manufactured.

424. After inspecting the furniture on display at Amy’s furniture shop, Beth ordered a
dining set worth P60,000. Beth made known to Amy her specifications of the set as to material,
design, and measurement to which Amy agreed. Before leaving, Beth made a deposit of P10,000 and
another deposit of P20,000 the following week. The following month, Amy delivered the set to Beth.
When Beth saw the delivered item, she rejected it for poor craftsmanship. She then requested a
refund of her deposits. Amy refused. Beth later instituted an action to rescind the sale under Article
1481 of the Civil Code. She contends that the assailed transaction is a sale by sample and not “made
to order.” Is Beth correct?

No. The sale of the dining set in this case is not a sale by sample. Sale by sample does not include
an agreement to manufacture goods to correspond with a pattern. Here the set was manufactured
according to the specifications provided by the buyer. Beth did not order the exact replica of the furniture
displayed in Amy‟s shop but made her own specifications on the material, design and measurement of the
furniture she ordered. Neither is the transaction a sale by description. Beth did not rely on any description
made by Amy when she ordered the furniture. The transaction is actually a perfected contact of sale. For
Beth to be entitled to rescind it, she must prove that there was a breach on Amy‟s part. This she failed to
do. (Mendoza v. David, October 22, 2004)

425. Seller sells to Buyer a parcel of land pursuant to an agreement denominated as

“Conditional Sale of Registered Land.” The sale agreement contains the following stipulations: a)
Buyer shall pay the total price of P2 million; b) Buyer shall pay a down payment of P300,000 upon
the signing of the contract; c) Buyer shall pay the balance of P1.8 million upon presentation by
Seller of a transfer certificate of title in his name and delivery of a registerable document of sale in
Buyer’s favor within 20 months from the signing of the contract; d) the retained balance of the
purchase price would earn interest at 17% interest per annum payable to Seller; and e) Buyer
would have absolute and unconditional possession of the lot as well as the right to introduce
improvements thereon. Is the sale absolute or conditional?

Although denominated as a conditional sale, the contract between the vendor and the vendee is
one of absolute sale. A deed of sale is absolute in nature although denominated as a “conditional sale”
absent a stipulation reserving title in the vendor until payment of the purchase price or a stipulation
allowing the vendor the right to unilaterally rescind the contract in case of non-payment.

In the instant case, ownership of the lot passed to the vendee both by constructive and actual
delivery. Constructive delivery was accomplished upon the execution of the contract without any
reservation of title on the part of the vendor, while actual delivery was made when the vendee took
unconditional possession of the lot and introduced valuable improvements thereon. (Babasa v. Court of
Appeals, 290 SCRA 532 [1998])

426. Vendor sells to Vendee a parcel of land. Upon Vendee’s death, his children assumed
his rights and obligations under the contract and paid in full the selling price of the lot from their
own funds. After full payment of the purchase price, however, Vendor erroneously executed a deed
of absolute sale in Vendee’s name who is already dead, instead of his children who assumed his
rights and obligations in the contract. Due to the error, the Register of Deeds issued a certificate of
title in Vendee’s name instead of his children. The heirs of Vendee subsequently brought an action
for the cancellation or correction of their father’s title and the issuance of a new certificate of title
in their names and to reflect in said title their distributive shares. After due proceedings, the court
dismissed the action on the ground that it pertains more to the partition of Vendee’s estate which
will in effect transfer ownership of title of the property to his children as compulsory heirs. The
court thus declared that Section 108 of P.D. 1529 (which calls for summary proceedings) does not
apply. Is there a valid ground to appeal the court’s ruling?

Yes. Section 108 of P.D. 1529 is clearly available as a remedy to correct the erroneous issuance
of the certificate of title in the name of Vendee. It is undisputed that Vendee died without having
completed the installments on the property. His heirs then took over the contract to sell, assumed his
obligation thereunder by paying the selling price of the lot from their own funds, and completed the
payment. Thus, the ownership of the lot had not been vested in Vendee during his lifetime.
 Indeed, Vendor could not have transferred the title over the lot, through a deed of absolute sale, to
Vendee considering that the latter is already dead. When Vendor executed the deed of sale, the deceased
Vendee had no more civil personality or juridical capacity. His juridical capacity, which is the fitness to
be the subject of legal relations, was lost through death.

Having stepped into the shoes of their father Vendee upon his death with respect to the contract to
sell, and being the ones who continued the installment payments of the selling price from their own funds
until its full payment, the children of Vendee necessarily became the owners of the subject lot in whose
favor the deed of sale should have been executed by Vendor. (Dawson v. Register of Deeds, 295 SCRA
733[1998])

(NOTE: In a contract to sell, the title over the subject property vests in the vendee only upon full
payment of the consideration. Where the installments agreed upon have not been completely paid upon
the death of the original vendee and the certificate of title was erroneously issued in his name, his heirs,
who assumed his obligation and completed the payment, can resort to the summary proceedings under
Section 108 of P.D. 1529 to correct the manifest mistake)

427. Is it necessary that the seller be the owner of the thing sold?

A seller need not be the owner of the thing sold at the time of the perfection of the sale. It is
sufficient only that he is the owner at the time the object is delivered; otherwise, he may be held liable for
breach of warranty against eviction.

(NOTE: Sale of a parcel of land by a non-owner who cannot deliver the thing sold is null and
void under Article 1409 of the Civil Code because it contemplates an impossible service. (Nool v. Court
of Appeals, 276 SCRA 149 [1997])

428. S sells to B a 500-square meter portion of the second floor of a building which is yet to
be constructed. Is there a perfected contract of sale?

Yes. Being consensual in nature, the contract of sale was perfected by mere consent when S and
B agreed on the subject matter and the price. The perfection of the sale is not negated by the fact that the
property subject of the sale was not yet in existence at the time they entered into the contract. This is so
because the ownership by the seller of the thing sold at the time of the perfection of the contract of sale is
not an element of its perfection. A perfected contract of sale cannot be challenged on the ground of non-
ownership on the part of the seller at the time of its perfection. What the law requires is that the seller has
the right to transfer ownership at the time the thing is delivered to the buyer. Perfection per se does not
transfer ownership. What transfers ownership is the actual or constructive delivery of the thing sold to the
buyer. (Arra Realty Corp. v. Guarantee Devt. Corp. and Insurance Agency, September 20, 2004)

429. What is emptio rei sperati? Emptio spei? What is their effect in a contract of sale?

Emptio rei sperati is the sale of an expected thing; while emptio spei is the sale of the hope itself.
(Art. 1461, Civil Code) If the expected thing in emptio rei sperati does not materialize, the sale is not
effective. In emptio spei, it does not matter whether the expected thing materialized or not; what is
important is that the hope itself validly existed.
 (NOTE: While there can be no donation of a future property under Art. 751 of the Civil Code,
there can be a valid sale of a future property)

430. What is meant by “policitacion”?

“Policitacion” is a unilateral promise to buy or to sell a determine thing which is not accepted.
This produces no juridical effect, and creates no legal bond. This is a mere offer, and has not yet been
converted into a contract.

431. S owns a parcel of land which he is selling for P20 million. B, a car dealer, is interested
in buying the property for his car sales company. After several failed negotiations, B gave S an
“earnest-deposit” money of P1 million on condition that he will be given the exclusive option to
purchase the property within 60 days to be refunded in case of failure of the parties to negotiate on
the terms and conditions of the sale of the property. S accepted the “earnest-deposit” money.
Despite several attempts, the parties failed to agree on the terms and conditions of the sale within
the stipulated 60-day period. S thus returned to B the amount of P1 million given as “earnest-
deposit.” B refused to accept the money; instead, he brings an action for specific performance
against S. Will the action prosper?

No. B did not give the amount of P1 million as “earnest money” as provided for by Article 1482
of the Civil Code. He presented the amount merely as a deposit of what would eventually become the
earnest money or down payment should a contract of sale be made by them. The amount was thus given
not as a part of the purchase price and as proof of the perfection of the contract of sale but only as a
guarantee that B would not back out of the sale. B in fact described the amount as “earnest-deposit.”

The P1 million “earnest-deposit” could not have been given as earnest money contemplated in
Article 1482 of the Civil Code because, at the time when S accepted the earnest-deposit money, their
contract had not yet been perfected. This is evident from the conditions attached by B when he paid the
“earnest-deposit” money: 1) that he be given the exclusive option to purchase the property within 60 days
from receipt of the “earnest-deposit” money; and (2) that during the option period, the parties would
negotiate the terms and conditions of the purchase.

The first condition sufficiently shows that a sale was never perfected. Acceptance of this
condition did not give rise to a perfected sale but merely to an option or an accepted unilateral promise on
the part B to buy the property within 60 days from the date of acceptance of the offer. Such option giving
B the exclusive right to buy the property within the period agreed upon is separate and distinct from the
contract of sale which the parties may enter into. Moreover, there is no showing of any consideration for
the option. Lacking any proof of such consideration, the option is unenforceable.

Another proof of the absence of a perfected sale is the second condition that, during the option
period, the parties would negotiate the terms and conditions of the sale. In the present case, the parties
never got past the negotiation stage. (San Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737
[2000])
 432. What is an earnest money? What are its purposes?

An earnest money (arras) has a dual purpose: a) it is considered as part of the purchase price;
and b) as proof of perfection of a contract of sale.

433. In the absence of stipulation, may the seller of real estate keep the earnest money to
answer for damages in the event that the sale fails due to the fault of the prospective buyer?

In the absence of a specific stipulation, the seller is not allowed to keep the earnest money in the
event that the sale fails due to the fault of the prospective buyer. Under Article 1482 of the Civil Code,
whenever earnest money is given in a contract of sale, it shall be considered as part of the purchase price
and as proof of the perfection of the contract. By its very nature, an earnest money is an advance payment
which must be deducted from the purchase price. Hence, the parties could not have intended that the
earnest money or advance payment would be forfeited when the buyer should fail to pay the balance of
the price, especially in the absence of a clear and express agreement thereon. Moreover, to allow the
forfeiture of the earnest money or advance payment in favor of the seller would amount to unjust
enrichment of the seller at the expense of the buyer (Goldenrod, Inc. v. Court of Appeals, 299 SCRA 141
[1998])

434. S owns a parcel of land. Out of friendship, he promised to sell the property to B for P2
million. She tells B that the price is to be paid anytime within a three-year period provided that B
constructs on the property a house of strong materials and pays a nominal monthly rental in the
meantime while the price has not been tendered. B accepted S’s conditions and promised in turn
to pay the price within the three-year period given to him.

B occupied the land and paid nominal rentals thereon. He even constructed a house of
strong materials on the lot. Two years later, while B has not yet paid the purchase price, S conveyed
ownership of the land to his son. Subsequently, prior to the end of the end of the three-year period,
B tendered to S the purchase price. But S refused and told him that the land had already been
conveyed to her son. S’s refusal to honor her commitment prompted M to bring an action for
specific performance. Will the action proper?

No. S‟s promise to sell was not binding upon her in view of the absence of any consideration
distinct from the stipulated price. This is the principle laid down by the second paragraph of Article 1479
of the Civil Code which provides: “An accepted unilateral promise to buy or to sell a determinate thing
for a price certain is binding upon the promissory only if the promise is supported by a consideration
distinct from the price.”

The option money serves as an assurance for the seller that there is a considerable degree of
certainly that the buyer will buy. It also serves as an assurance for the buyer that he can freely make up
his mind without fear that somebody else might buy the thing. Since B did not give option money, S can
dispose of the land without any liability for damages. After all, during the time she conveyed the land to
her son, she had no assurance that B will eventually buy it. (Montilla v. Court of Appeals, 161 SCRA 167)

435. What are some of the basic rules in transactions on sale or return?

The following are some of the basic in rules in transactions on sale or return.
 1) In a transaction on sale or return, the buyer becomes the owner of the thing sold upon delivery,
but he may revest the ownership to the seller by returning the thing within the time fixed in the contract;
or if no time has been fixed, within a reasonable time. (Art. 1501, Civil Code)

2) The buyer can return the thing even if he finds nothing wrong with the quality of the thing
sold. The discretion to return is with the buyer.

3) If the thing is lost in the possession of the buyer, he bears the loss because upon delivery to
him of the thing, he became the owner thereof.

436. What are some of the basic rules in a sale on approval or trial or satisfaction?

The following are some of the basic rules in the sale on approval or trial or satisfaction:

1) In a sale on approval or trial or satisfaction, title remains with the seller, although there has
been delivery, unless the sale becomes absolute.

2) The risk of loss remains with the seller, although there has been delivery, if the sale has not yet
become absolute, except: a) if buyer is at fault; and b) if buyer had expressly agreed to bear the loss.

3) If it is stipulated that a third person must signify approval or satisfaction, such a provision is
valid, but the third person must be in good faith. If refusal to accept is not justified, seller may still sue.

437. Article 1523 of the Civil Code provides that delivery to the carrier is presumed to be
delivery to the buyer. Is the rule absolute?

No, the rule is not absolute. While Article 1523 of the Civil Code provides that delivery to the
carrier is presumed to be delivery to the buyer, such rule would have no application where the sale itself
specifically called for delivery by the seller to the buyer at the latter‟s place of business. (Mobile Oil
Phils., Inc. v. Court of Appeals, 272 SCRA 548 [1997])

438. Pedro sold to Maria, his common-law wife, a parcel of land. Because of the sale, Maria
obtained a certificate of title in her name. Maria later sold the land to Zandro who, at the time, was
not aware of the relationship of Pedro and Maria. Pedro now seeks to recover the lot from Zandro
on the ground that his previous sale of the property to Maria is null and void. Will the action
prosper?

The action will not prosper. Pedro is correct in claiming that the sale to Maria is null and void
because it was a sale between common-law spouses. However, applying Article 1490 of the Civil Code
by analogy, Pedro can no longer recover the land from Zandro because the latter is a buyer in good faith
and for value who had the right to rely on the title of Maria. (Cruz v. court of Appeals, 281 SCRA
491[1997])

439. M executes a real estate mortgage on his property in favor of S to answer for any
deficiency that may result from the foreclosure of the chattel mortgage constituted over the car sold
on installments by S to B. Assuming there is a deficiency after forecolosure of the chattel mortgage
constituted on the car sold, may S foreclose the real estate mortgage constituted on M’s land?
 No, because in such a case, the third person-mortgagor (M), after paying the deficiency through
foreclosure of the real estate mortgage, has the right of a guarantor who can hold the vendee (B) liable for
the payment made, thus indirectly violating the prohibition under the Recto Law. (Art. 1484, par. 3, Civil
Code)

440. Suppose in the preceding problem S assigns the promissory note to N, promising the
latter that should B defaults in his payment and the chattel mortgage is foreclosed resulting in a
deficiency, the assignor (S) shall answer for the deficiency to the assignee N. Is this stipulation
valid?

Yes, because in such a case, it is no longer the vendee, B, who is held liable but the vendor, S.
There is thus no violation of the Recto Law that if the vendor avails himself of the right to foreclose, he is
prohibited from bringing an action against the purchaser for the unpaid balance.

441. Pursuant to its car plan program for its top employees, FedEx acquired a 2008 Toyota
Altis worth P800,000, and gave it to Juan subject to the following conditions: a) in consideration of
a monthly rental of P10,000, the company leases to Juan the vehicle for his use; b) Juan will pay
lease rental thru salary deduction for a period of five years; c) for the duration of the lease
agreement, all expenses and costs of registration, insurance, repair and maintenance, fuel and parts
replacement shall be for the account of Juan; d) at the end of the 5-year period, Juan may purchase
the car from the company and all monthly rentals shall be applied to the payment of the purchase
price of the car; e) in the event of his resignation or dismissal from the service, Juan shall return
the car to the company in good running condition.

FedEx later terminated Juan from the service due to redundancy. At the time of his
separation from the service, Juan was able to make payments on the car in the amount of P300,000
and made no more payments thereafter. As a result, FedEx recovered the car from Juan by virtue
of a writ of replevin issued by the court. What kind of agreement was entered into by Juan and his
former employer?

The agreement between Juan and FedEx was one of sale on installment, not lease. This is so
because of the stipulation in the agreement that all monthly rentals shall be applied to the payment of the
full purchase price of the car. It is clear that the transaction in this case is a lease in name only. The so-
called monthly rentals are in truth monthly amortizations on the price of the car.

The contract being one of sale on installment, Articles 1484 and 1485 of the Civil Code will
apply. Under Article 1484, the vendor in a sale of personal property on the installment plan has three
remedies against the vendee; namely: a) to demand exact fulfillment of the obligation, should the vendee
fail to pay; b) cancel the sale, should the vendee‟s failure to pay cover two or more installments; and c)
foreclose the chattel mortgage on the thing sold, if one has been constituted. Article 1485, on the other
hand, provides that Article 1484 shall be applied to contracts purporting to be leases of personal property
with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing.

Settled is the rule that the remedies under Article 1484 are alternative, not cumulative. The
exercise of one bars the exercise of the others. This limitation applies to contracts purporting to be leases
of personal property with option to buy by virtue of Article 1485.
 In the case at bar, the condition that the lessor has deprived the lessee of the possession or
enjoyment of the thing for the purpose of applying Article 1485 was fulfilled by the recovery of
possession of the car. By virtue of the writ of replevin issued by the court, the deputy sheriff seized the
vehicle, thereby “depriving” Juan of its use. (Elisco Tool Manufacturing Corporation v. Court of Appeals,
301 SCRA 731 [1999])

442. B bought from S a car on installments subject to the following stipulations: 1) B shall
pay a down payment and the balance shall be paid in 24 equal installments; 2) title to the car shall
remain with the seller until the purchase price has been paid in full; and 3) if any two installments
are not paid when due, the whole principal sum shall become due and the sale shall be
automatically rescinded and all sums paid forfeited and considered as rentals.

B paid only for seven installments. Consequently, S brought an action for the rescission of
the sale and for the return of the car. After an ex-parte hearing, S repossessed the car. After trial,
the court rescinded the sale and directed B to pay the outstanding balance of the purchase price of
the car. Is there ground for B to appeal the decision?

Yes. In a sale by installments, the seller has three remedies to choose from in case the buyer fails
to pay any installment when due; 1) exact fulfillment of the obligation; 2) cancel the sale; and 3) foreclose
the chattel mortgage on the thing sold if one has been constituted (Art. 1484, Civil Code). If the seller
chooses one remedy, he cannot avail himself of the other two. In this case, S chose the second remedy
which was to rescind the sale. This is clear from the fact that S had taken possession of the car and it took
into account the value of the car repossessed when the seller made a computation of the outstanding
balance of B. Having done so, the seller is barred from exacting payment from B of the price of the car it
had already repossessed. (Delta Motor Sales v. Niu Kim Duan, 213 SCRA 259)

443. Benjie sold his land to Cris who began to possess it. Darwin, a stranger, sold the same
land, unauthorized by anyone, and in his own name to Enrico, who registered the same in good
faith. Who owns the land, Cris or Enrico?

Cris should be considered as the owner even if he did not register the land, because Enrico, who
registered the same, did not buy the land from its lawful owner, but from a complete stranger totally
unconnected with the land. Article 1544 of the Civil Code cannot therefore apply, it cannot be said that
the land had been sold twice by the same person.

444. Angelo sold his land to Banjo. Later, Angelo sold the same land to Crisanto. Banjo in
turn sold the same to Donato, who took possession of the land. Crisanto, a purchaser in good faith,
registered the land in his name. Who is now the owner of the land, Crisanto or Donato?

Donato is the owner. It is true that Crisanto was in good faith, and it is also true that Crisanto was
the first one to register the land, but Article 1544 of the Civil Code can be applied only if the two buyers
(Crisanto and Donato) had bought the same property from the same person. Article 1544 indeed does not
apply if there are two different sellers, one of whom, when he made the conveyance, had long before
disposed of his rights as owner of the same.

445. Paula, by virtue of a Deed of Sale, sold an unregistered parcel of land to Bernadette.
Upon Paula’s death, her brother, Senando, executed an Extrajudicial settlement of Paula’s estate
wherein he adjudicated exclusively unto himself the lot and simultaneously sold the same to
Carmelita who was unaware of the prior sale.

a) Is the rule on double sale under Article 1544 of the Civil Code applicable to the
problem?

No. Article 1544 of the Civil Code on double sales applies only where the same thing is sold to
different vendees by the same vendor. It does not apply where the same thing is sold to different vendees
by different vendors as in the case at bar.

b) Who between the two buyers is the rightful owner of the lot?

Bernadette is the rightful owner of the property. When Paula sold to Bernadette the property in
question, ownership thereof was transferred to the latter in accordance with Article 1496 of the Civil
Code which provides that the ownership of the thing sold is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying
an agreement that the possession is transferred from the vendor to the vendee. Article 1498, in turn,
provides that when the sale is made through a public instrument, the execution thereof shall be equivalent
to the delivery of the thing which is the object of the contract, if from the deed the contrary does not
appear or cannot be clearly inferred. In the problem presented, the Deed of Sale between Paula and
Bernadette contains nothing contrary to intent to transfer ownership.

When Paula died, she no longer owned the lot and, therefore, her brother Senando could not have
inherited it. The “Extrajudicial Settlement by Sole Heir with Simultaneous Sale” did not thus confer upon
Senando ownership of the lot in question; hence, he could not have conveyed it to Carmelita.

c) Is the issue of Carmelita’s good faith relevant in resolving whether she has a preferential
right to the lot?

The issue of good faith or bad faith is relevant only where the subject of the sale is a registered
land and the purchaser is buying the same from the registered owner whose title to the land is clean. In
such case, the purchaser who relies on the clean title of the registered owner is protected if he is a
purchaser in good faith and for value. (Ong v. Olasiman, 465 SCRA 464 [2006])

446. S sold to B a parcel of land. B was made to believe that the land was an unregistered
land when S sold it to him. Unknown to B, S had earlier obtained a free patent over the property by
virtue of which he was issued a certificate of title. B later sold the land to C who registered the
transaction under Act 3344 which is the law governing registration of instruments affecting
unregistered lands. S also sold the land to D who registered the sale under the Torrens system.
Who now owns the land, C or D?

The controversy involves a double sale. S first sold the lot to B, from whom C, in turn, derived
his right. Then, after the first sale, S sold the same lot to D. The applicable law, therefore, is Article 1544
of the Civil Code which provides that if immovable property is sold to different vendees, “ownership
shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.”

In the instant case, D should be declared as the lawful owner of the lot. If a parcel of land which
is registered under the Torrens system is sold, but the sale is registered not under P.D. 1529 but under Act
No. 3344, such sale is not considered registered as the term is used under Article 1544 of the Civil Code.
Thus, in the case presented, C‟s registration of the sale under Act No. 3344 is not effective for purposes of
Article 1544 of the Civil Code. A registration must be done in the proper registry in order to bind the
land.

Under Act No. 3344, registration of instruments affecting unregistered lands is without prejudice
to a third party with a better right. Thus, under Act 3344, the mere registration of a sale in one‟s favor
does not give him any right over the land if the vendor was not anymore the owner of the land because he
had previously sold the same to somebody else even if the earlier sale was unrecorded.

C cannot argue that he was led into believing that the property was unregistered because a
Torrens title serves as notice to the whole world. He cannot also say that the prior registration of his sale
under Act No. 3344 operates as a constructive notice to D that would negate good faith on D‟s part
because Act No. 3344 itself provides that registration thereunder would not prejudice prior rights in good
faith. (Abrigo vs. de Vera, June 21, 2004)

447. Mariwasa is a company engaged in the sale of selling roofing materials to the public.
Through extensive advertisements in media and in its brochures, the company made
representations respecting the durability and the sturdiness of roofing materials installed in
accordance with its particularly described method. Rey purchased these roofing materials from
Mariwasa. Deliveries were made by Mariwasa and the materials were installed by its employees.
Rey later brought an action against the company for damages caused to his residence when its roof
was blown away by a typhoon. Will the action prosper?

The action will prosper. Mariwasa is liable under Article 1546 of the Civil Code (express
warranty) because the company, as seller to the general public, had made affirmations of fact relating to
its advertised product, the natural tendency of which was to induce the buyers, as in fact it did induce Rey
to purchase the roofing materials, relying thereon.

448. Does the vendee have the right to pay the balance of the purchase price (or the unpaid
installments) in a sale involving realty even after the expiration of the agreed period?

Yes. Under Article 1592 of the Civil Code, even if the contract of sale stipulates that the same
shall be deemed automatically cancelled in case of non-payment of the price at the agreed time, the
vendee may still pay even after the expiration of the period as long as no demand for rescission has been
made, either judicially or by a notarial act. If the seller did not rescind and even accepted late payments,
the seller is deemed to have waived his right to rescind. (Heirs of Pedro Escanlar v. Court of Appeal, 288
SCRA 144 [1998])

However, the provision under Article 1592 does not apply to a contract to sell where payment is a
positive suspensive condition. There is no need for rescission because there can be no rescission of an
obligation which is non-existent. (Pangilinan v. Court of Appeals, 279 SCRA 590 [1997])

(NOTE: The Maceda Law. R.A. 6552, is applicable even to contracts to sell and the buyer is
entitled to a grace period earned by him)
 449. S sold to B a parcel of land payable in installments. The deed of conditional sale
contains the following provisions: a) should the vendee fails to pay three successive monthly
installments, the sale shall be considered automatically rescinded without need of judicial action
and all payments made shall be forfeited in favor of the vendor by way of rental for the use and
occupancy of the property; and b) all improvements introduced by the vendee in the property shall
belong to the vendor without any right of reimbursement.

After five years, B already paid the total amount of P2 million, although he admitted having
failed to pay the latest monthly installments due to a financial problem. B later tried to pay the
unpaid installments but S turned him down. S then sent a letter to B informing the latter that he
was enforcing the provision on automatic rescission and automatic forfeiture stipulated in their
deed of conditional sale. The letter also made a formal demand for B to vacate the property.

a) What is the applicability of the requirement of rescission by suit or by notarial act under
Article 1592 of the Civil Code?

It is well-settled that Article 1592 of the Civil Code requiring demand by suit or by notarial act in
case the vendor of realty wants to rescind applies only to a contract of sale, and not to a sale on
installments or a contract to sell, where title remains with the vendor until full payment of the price. In a
contract to sell, the title over the subject property is transferred to the vendee only upon the full payment
of the stipulated consideration. Unlike in a contract of sale, the title does not pass to the vendee upon the
execution of the agreement or the delivery of the thing sold. In the present case, the deed of
conditional sale is of the same nature as a sale on installments or a contract to sell, which is not covered
by Article 1592.

b) Is S entitled to enforce the automatic forfeiture clause in the Deed of Conditional Sale?

No. The validity of the automatic forfeiture clause in the deed of conditional sale is conceded.
However, S failed to prove the conditions that would warrant the implementation of this clause. It is clear
that S was not justified in refusing to accept the tender of payment made by B. Had he accepted it, B
would have paid his unpaid installments. In other words, there was a deliberate effort on the part of B to
meet his responsibility to pay. The fact is, S refused to accept B‟s payment so he will have a reason to
demand the enforcement of the automatic forfeiture clause. He cannot be rewarded for his own misdeed.

In any event, the rescission of the contract and the forfeiture of the payments already made could
not be effected because the case falls squarely under R.A. 6552, otherwise known as the Maceda Law.
Pursuant to Section 3 of said Law, B was entitled to a one-month grace period for every year of
installments paid, which means that he was entitled to a grace period when S turned down his offer to pay
his unpaid installments.

450. The records show that in 1968, A leased to B a building for 20 years with a provision in
the lease contract granting B a right of first refusal. In 1975, A sold the property to C who knew
about the lease and agreed to respect it. The sale was later rescinded on complaint of B. As
ordained in the judgment, A was ordered to return to C the purchase price and to allow B to buy
the property for the same amount. The decision became final and executory in 1997.

a) Is C entitled to collect back rentals from B from 1975 until 1997? Stated otherwise, has
C acquired ownership of the property during said period?

No. Rent is a civil fruit that belongs to the owner of the property producing it by right of
accession. Consequently and ordinarily, the rentals that fell due from the time of the perfection of the sale
to C until its rescission by final judgment should belong to the owner of the property during that period.
C never acquired ownership of the property during said period.

By a 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 thereof a price certain in money or its equivalent.”
(Art. 1458, Civil Code) Ownership of the thing sold is a real right, which the buyer acquires only upon
delivery of the thing to him “in any of the ways specified in Articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from the vendor to the vendee.” (Art. 1496,
Civil Code). This right is transferred not merely by contract, but also by tradition or delivery. And there
is said to be delivery of the vendee” when the thing sold “is placed in the control and possession of the
vendee.” Thus, it has been held that while the execution of a public instrument of sale is recognized by
law as equivalent to the delivery of the thing sold, such constructive or symbolic delivery, being merely
presumptive, is deemed negated by the failure of the vendee to take actual possession of the land sold.

In the Law on Sales, delivery may either be actual or constructive, but both forms of delivery
contemplate “the absolute giving up of the control and custody of the property on the part of the vendor,
and the assumption of the same by the vendee.”

From the peculiar facts of this case, it is clear that C never took actual control and possession of
the property sold, in view of B‟s timely objection to the sale and the continued actual possession of the
property. The objection took the form of a court action impugning the sale which was rescinded by a
judgment rendered by the court. It has been held that the execution of a contract of sale as a form of
constructive delivery is a legal fiction. It holds true only when there is no impediment that may prevent
the passing of the property from the hands of the vendor into those of the vendee. When there is such
impediment, “fiction yields to reality – the delivery has not been effected.”

Hence, B‟s opposition to the transfer of the property by way of sale to C was a legally sufficient
impediment that effectively prevented the passing of the property into the latter‟s hands.

The execution of a public instrument gives rise, therefore, only to a prima facie presumption of
delivery. Such presumption is destroyed when the instrument itself expresses or implies that delivery was
not intended; or when y other means it is shown that such delivery was not effected, because a third
person was actually in possession of the thing. In the latter case, the sale cannot be considered
consummated.

b) Is not a rescissible contract valid until rescinded?

 At bottom, it may be conceded that, theoretically, a rescissible contract is valid until rescinded.
However, this general principle is not decisive to the issue of whether ever acquired the right to collect
rentals. What is decisive is the civil law rule that ownership is acquired, not by mere agreement, but by
tradition or delivery. Under the factual environment of this controversy, C was never put in actual and
effective control or possession of the property because of B‟s timely objection. In short, the sale to C
may have been valid from inception, but it was judicially rescinded before it could be consummated. C
never acquired ownership, not because the sale was void, but because the sale was not consummated by a
legally effective delivery of the property sold. (Equatorial Realty Devt., Inc. v. Mayfair Theater, Inc., 370
SCRA 56 [2001])

451. Seller sells to Buyer a parcel of land under a notarized deed of sale. On the same day
and along with the execution of the deed of sale, the parties executed a separate instrument,
denominated as “Right of Repurchase” granting Seller the right to repurchase the lot within ten
years. Seller later offered to redeem but Buyer refused. Is Seller entitled to compel Buyer to resell
the lot on the basis of the “Right to Repurchase”?

No. The transaction between the parties was not a sale with right to repurchase, hence, Seller
cannot avail of the right of conventional redemption. The right of repurchase is not a right granted the
vendor by the vendee in a subsequent instrument, but is a right reserved by the vendor in the same
instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is
executed, the vendor can no longer reserve the right to repurchase, but some other right like an option to
buy (Vasquez v. Court of Appeals, 198 SCRA 102 [1991])

452. Samson sold to Delilah a house and lot for P5 million. Although Delilah paid only P4.5
million -- the balance to be paid within six months -- title to the property was transferred to Delilah
who immediately took possession thereof. After six months, Delilah was still unable to pay the
balance. After weeks of negotiations, Samson and Delilah executed a deed of sale with right to
repurchase within one year, with a stipulation that should Delilah, as seller, fail to redeem the
property, absolute title should be vested in Samson, as buyer. The consideration for the sale was P 1
million. Despite the execution of the deed, however, Delilah remained in possession of the property.
When the period of redemption lapsed with Delilah failing to redeem the property, Samson files an
action to consolidate his ownership over the property. Will the action prosper?

The action will not prosper. The contract between Samson, as buyer and Delilah, as seller, was
not a sale with right to repurchase but an equitable mortgage. Under Article 1602 of the Civil Code, a
contract is presumed to be an equitable mortgage when, among others, the price of a sale with right to
repurchase is unusually inadequate and when the vendor remains in possession as a lessee or otherwise.
In this case, Samson paid only P1 million for a property which is worth P5 million just six months earlier.
Also, Delilah, the vendor, remained in possession of the property. The contract being an equitable
mortgage, ownership cannot be consolidated in Samson upon failure of Delilah to redeem the property
since such would be a pactum commissorium. The mortgagee, Samson, should first foreclose the
mortgage if he wishes to secure a title to the mortgaged property. (Ching Sen Ben v. Court of Appeals,
314 SCRA 762 [1990])
 453. What is the effect of partial payment of the price and the entry into the land by the
buyer in a case of oral sale of land?

A vendee in an oral contract of sale of land who made partial payment thereof, took possession of
the land, and made valuable improvements thereon, is entitled to bring as suit to clear his title against the
vendor who had refused to transfer title to him. It is not necessary that the vendee has an absolute title, an
equitable title being sufficient to clothe him with personality to bring an action to quiet title. For, while
the action is denominated as one for specific performance, it is in effect an action to quiet title. (Pingol, et
al. v. Court of Appeals, 226 SCRA 118 [1993])

454. Seller and Buyer enter into an “Option to Purchase,” whereby Seller promised to sell
to Buyer a piece of land within two years. Buyer offered to pay on several occasions, but Seller
refused. Buyer files an action for specific performance. Seller contends that the option is only a
unilateral promise to sell and is unsupported by consideration distinct from the price, thus, void. Is
Seller’s contention correct?

Seller‟s contention is not correct. Once a unilateral promise to sell, even if unsupported by any
consideration is accepted, it results in a perfected contract of sale. Article 1324 of the Civil Code applies.

455. Husband and Wife mortgaged to a bank a parcel of land. When the couple failed to
pay their loan, the bank foreclosed the mortgage, bought the property at public auction, and
consolidated its ownership over the property when the couple failed to redeem. Meanwhile, the
couple sold the property to A upon the condition that the couple may redeem the property at
anytime when they the money. The sale was made after the bank had already consolidated its title
on the land. When A came to know about the foreclosure sale, he subsequently bought the land
from the bank resulting in the issuance of a certificate of title in his name. The problem arose when
the couple asked A to resell the property to them. Is A liable to resell the property to them?

No. A contract to repurchase arising out of a contract of sale where the seller did not have any
title to the property “sold” is not valid. Since nothing was sold, there is also nothing to repurchase. One
“repurchases” only what he had previously sold. In other words, the right to repurchase presupposes a
valid contract of sale between the same parties. Undisputedly, A acquired title to the property from the
bank, and not from H and W. The subsequent agreement between the spouses and A is actually an
accepted unilateral promise to sell. Article 1479 of the Civil Code provides that “an accepted unilateral
promise to buy or sell a determinate thing for a price certain is binding upon the promissor if the promise
is supported by a consideration distinct from the price. In the present case, the alleged written contract of
repurchase (between A and the couple) is bereft of any consideration distinct from the price. As an
independent contract, it cannot bind A.

Moreover, the right of repurchase is not a right granted the vendor by the vendee in a subsequent
instrument, but is a right to be reserved by the vendor in the same instrument of sale as one of the
stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can no longer
reserve the right to repurchase, and any right thereafter granted the vendor by the vendee in a separate
instrument is not a right of repurchase but some other right like the option to buy in the instant case.
(Nool v. Court of Appeals, 267 SCRA 149 [1997])
 456. In an action for Reformation of Instrument, P alleges that his contract with D
denominated as “Deed of Sale with Right to Repurchase” is in reality an equitable mortgage. After
trial in due course, the court declared the transaction to be a true pacto de retro sale, not an
equitable mortgage. After exhausting all appellate remedies, P now claims that since the transaction
is declared as a true pacto de retro sale, he is still entitled to repurchase the property pursuant to the
third paragraph of Article 1606 of the Civil Code which provides that “the vendor may still exercise
the right to repurchase within thirty days from the time final judgment was rendered in a civil
action on the basis that the contract was a true sale with right to repurchase.”

May the vendor in a sale judicially declared as a pacto de retro sale exercise the right of
repurchase under Article 1606, third paragraph, of the Civil Code, after he has taken the earlier
position that the same is an equitable mortgage?

No. At the outset, it must be stressed that it has been the consistent claim of P that his transaction
with D was an equitable mortgage and not a pacto de retro sale with option to buy. Even after the lower
court declared the transaction to be a pacto de retro sale, P still maintained that the transaction was an
equitable mortgage. Seeing the chance to turn the decision in his favor, however, P abandoned his theory
that the transaction was an equitable mortgage and adopted the finding of the courts that it was in fact a
pacto de retro sale. P now insists that he is entitled to exercise the right to repurchase pursuant to the
third paragraph of Article 1606 of the Civil Code, which provides: “however, the vendor may still
exercise the right to repurchase within thirty days from the time final judgment was rendered in a civil
action on the basis that the contract was a true with right to repurchase.” Under the undisputed facts of
this case, this cannot be done.

In the parallel case of vda. De Macoy v. Court of Appeals, 206 SCRA 244 [1992], the petitioners
therein raised the defense that the contract was not a sale with right to repurchase but an equitable
mortgage. They further argued as an alternative defense that even assuming the transaction to be a pacto
de retro sale, they can nevertheless repurchase the property by virtue of Article 1606, third paragraph, of
the Civil Code. The Supreme Court held in vda. De Macoy that said provision was inapplicable, thus:

“The application of the third paragraph of Article 1606 is predicated upon the
bona fides of the vendor a retro. It must appear that there was a belief on his part,
founded on facts attendant upon the execution of the sale with pacto de reto, honestly and
sincerely entertained, that the agreement was in reality a mortgage, one not intended to
affect the title to the property ostensibly sold, but merely to give it as security for a loan
or other obligation. In that event, if the matter of the real nature of the contract is
submitted for judicial resolution, the application of the rule is proper; that the vendor a
retro be allowed to repurchase the property sold within 30 days from rendition of final
judgment declaring the contract to be a true sale with right to repurchase. Conversely, if it
should appear that the parties‟ agreement was really one of sale -- transferring
ownership to the vendee, but accompanied by a reservation to the vendor of the right to
repurchase the property -- and there are no circumstances that may reasonably be
accepted as generating some honest doubt as to the parties‟ intention, the proviso is
inapplicable. The reason is quite obvious. If the rule were otherwise, it would be within
the power of every vendor a retro to set at naught a pacto de retro sale, or resurrect an
 expired right of repurchase, by simply instituting an action to reform the contract --
known to him in truth as a sale with pacto de retro -- into an equitable mortgage. As
postulated by the petitioner, „to allow herein private respondent to repurchase the
property by applying said paragraph x x x to the case at bar despite the fact that the
stipulated redemption period had already long expired when they instituted the present
action, would in effect alter or modify the stipulation in the contract as to the definite and
specific limitation of the period for repurchase hereby not simply increasing but in reality
resuscitating the expired right to repurchase‟ x x x and likewise the already terminated
and extinguished obligation to resell by herein petitioner. The rule would thus be made a
tool to spawn, protect and even reward fraud and bad faith, a situation surely never
contemplated or intended by the law.”

In the case at bar, the subject transaction was truly a pacto de retro sale; and that none of the
circumstances under Article 1602 of the Civil Code exists to warrant a conclusion that the transaction was
an equitable mortgage. If P really believed that the transaction was indeed an equitable mortgage, as a
sign of good faith, he should have, at the very least, consigned with the trial court the amount representing
his alleged loan, on or before the expiration of the right to repurchase. Clearly, therefore, the declaration
of the transaction as a pacto de retro sale will not, under the circumstances, entitle P to the right of
repurchase set forth under the third paragraph of Article 1606 of the Civil Code. (Abilla and Dizon v.
Gobonseng, Jr. and Ong, 374 SCRA 51 [2002])

457. What is the applicability of the Maceda and Recto laws in the law on sales? Give the
most important features of each law.

The Maceda Law or R.A. 6552 is applicable only to the sale of immovable property on
installments. The most important features of this law are:

1) After having paid installments for at least two years, the buyer is entitled to a mandatory grace
period of one month for every year of installments paid, to pay the unpaid installments without interest.

If the contact is cancelled, the seller shall refund to the buyer the cash surrender value equivalent
to fifty percent (50%) of the total payments made, and after five years of installments, an additional five
percent (5%) every year but not to exceed ninety percent (90%) of the total payments made.

2) In case the installments paid were less than two years, the seller shall give the buyer a grace
period of not less than 60 days. If the buyer fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after 30 days from receipt by the buyer of the notice of
cancellation or demand for rescission by notarial act.

The Recto Law enunciated under Article 1484 of the Civil Code refers to the sale of movables
payable in installments and limiting the right of the seller, in case of default by the buyer, to one of three
remedies:

a) Exact fulfillment;
 b) Cancel the sale if two or more installments have not been paid; and

c) Foreclose the chattel mortgage on the thing sold, also in case of default of two or more
installments, with no further action against the purchaser.

458. Buyer bought on installment a residential subdivision lot from Seller, but after the 5th
year, was unable to make further installments. Can Seller cancel the sale unilaterally, or must he go
to court to obtain rescission? Is Buyer entitlted to a refund?

Yes, the seller can cancel the sale unilaterally. He need not go to court to obtain rescission,
provided that the actual cancellation of the contract of sale shall take place after thirty days from receipt
by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and
upon full payment of the cash surrender value to the buyer. (Sec. 3 (b), R.A. No. 8552)

Buyer shall be entield to the cash surrender value which is fifty percent (50%) of the total
payment made buy him to the seller. (Ibid.)

459. Ali leased to Ben a parcel of land. Their lease agreement includes a stipulation granting
Ben the “first option or priority” to purchase the leased property in case Ali decides to sell it. Ben
subsequently assigned all his rights and interests in the leased property to Cocoy. The assignment is
with the conformity of Ali. Ali later sold the leased property to Ding for P7 million. When Cocoy
complained, Ali had the property reconveyed to him by Ding for the same amount of P7 million. Ali
then offered the property to Cocoy for P9 million. Cocoy counter-offered for P7 million which was
the same amount paid by Ding in the first sale. Because Cocoy turned down the P7 million offer, Ali
then sold the property again to Ding for P7 million. Cocoy now sues Ali and Ding for breach of his
contract right of “first option to buy.” Will the action prosper?

Yes. Cocoy‟s complaint sufficiently alleges an actionable contractual breach on the part of the
defendants Ali and Ding. It was stipulated in the contract of lease between Ali and Cocoy that the latter
was granted the “first option or priority” to purchase the leased properties in case Ali decides to sell it.
To comply with this obligation, the sale of the property for the amount of P7 million (the price for which
the property was finally sold to Ding) should have been first offered to Cocoy.

The basis of the right of first refusal must be the current offer to sell of the seller or offer to
purchase of any prospective buyer. Only after the grantee fails to exercise said right could the owner
validily offer to sell the property to a third person under the same terms as offered to the grantee.
(Paranaque Kings Enterprise, Inc. v. Court of Appeals, 268 SCRA 727 [1997])

460. Dr. Go is the owner of a residential lot in Quezon City. In 1981, he constructed, at a
cost of P3 million, a residential house on the lot. Five years later, the market value of the lot already
ranged from P2,000 to P5,000 per square meter, while the house was worth about P10 million. In
1987, Dr. Go borrowed P2.5 million from Engr. Bersamin to finance his congressional campaign.
Dr. Go was required to sign, as a sort of collateral, a deed of sale whereby he purportedly sold to
Engr. Bersamin his house and lot. Despite the “deed of sale,” Dr. Go remained in possession of the
property.
 Without the knowledge of Dr. Go, Engr. Bersamin caused the cancellation of the certificate
of title on the lot and had a new Torrens title issued in his name. After the election, Engr. Bersamin
sold the lot and the improvement thereon to Atty. Pe for P2.75 million. When Dr. Go discovered
the sale of his house and lot, he immediately brought an action for reformation of the deed of sale
he executed with Engr. Bersamin to the end that the true intention of the parties therein be
expressed. Dr. Go also sought the reconveyance of the ownership of the property to him.

a) Will the action prosper?

Yes. The deed of sale signed by Dr. Go in Engr. Bersamin‟s favor is in reality a mere equitable
mortgage and not an absolute sale in view of the following circumstances:

First, the consideration of the sale of P2.75 million is grossly and unusually inadequate. The price
alone of Dr. Go‟s house in 1987 is P10 million, while that of the lot commanded a price of from P2,000
to P5,000 per square meter when the deed of sale was executed.

Second, despite the alleged deed of sale, Dr. Go has remained in actual and physical possession of
the property up to the time when it was sold to Atty. Pe.

Third, Dr. Go was driven to obtain the loan from Engr. Bersamin “due to an urgent necessity of
obtaining funds,” and he signed the deed of sale knowing that it did not express their true intention.

b) Is Atty. Pe a buyer in good faith?

No. He was not a buyer in good faith simply because he paid the consideration of the sale to
Engr. Bersamin. Rather, he was a buyer in bad faith because he was fully aware that his seller, Engr.
Bersamin, was not in possession of the property at the time when he purchased it. Atty. Pe did not
deliberately look beyond the title of his seller. Ordinary and simple prudence dictated that he should have
verified the nature of ownership of the seller beyond the title, considering the amount involved (P2.75
million), the extent of the property, and knowing that the seller was not in possession of the property sold,
and thus, could not have delivered the actual and physical possession thereof. (Uy v. Court of Appeals,
359 SRCA 263 [2001])

461. Ramon is the owner of a parcel of land. In order to secure a loan, he mortgaged a
portion thereof to a bank which foreclosed the mortgage upon failure of Ramon to pay the loan.
Title was later acquired by the bank which then sold the land to Pablo. Ramon, on the other hand,
sold the unmortgaged portion to Juan. Can Pablo claim the right of legal redemption?

The exercise of the right of legal redemption presupposes the existence of co-ownership at the
time the conveyance is made by a co-owner and when it is demanded by the other co-owners. Considering
that Pablo was not a co-owner of Ramon of the portion sold at the time of the conveyance to Juan, the
right of legal redemption cannot be exercised. (Uy v. Court of Appeals, 246 SCRA 703 [1995])

462. Nagtitinda sold to Nagbibili a house and lot for P5 million. Of the stipulated purchase
price, Nagbibili paid only P4 million but promised to pay the balance of P1 million within six
months. Without the balance having been paid, title was transferred to Nagbibili who immediately
took possession of the property. When Nagbibili failed to pay the balance within six months, he and
Nagtitinda executed a deed of sale with right to repurchase, with a stipulation that should Nagbibili
fail to redeem the property within one year, absolute title shall be vested in Nagtitinda. The
consideration for the latter sale was P1 million. Despite the sale, however, Nagbibili remained in
possession of the property. When the period of redemption lapsed, Nagbibili failing to redeem the
property, Nagtitinda then brought an action to consolidate ownership over the property.

What remedy does Nagbibili have to prevent Nagtitinda from consolidating ownership over
the property?

Nagbibili’s remedy is to file an action for reformation of the instrument purporting to be a deed of
sale with right to repurchase. (Art. 1605, Civil Code) The contract between Nagbibili and Nagtitinda was
not a sale with a right of repurchase but an equitable mortgage. Under Article 1602 of the Civil Code, a
contract is presumed to be an equitable mortgage when, among others, the price of a sale with right to
repurchase is unusually inadequate and when the vendor remains in possession as a lessee or otherwise. In
this case, Nagtitinda paid only P1 million for a property which was worth P5 million just six months
earlier. Also, Nagbibili, the vendor, remained in possession of the property. The contract being an
equitable mortgage, ownership cannot be consolidated in Nagtitinda upon failure of Nagbibili to redeem
the property since such would be a pactum commissorium. The mortgagee, Nagtitinda, should first
foreclose the mortgage if he wishes to secure a title to the mortgaged property.

463. Erap sold to Gloria a parcel of land. In their instrument of sale, Erap was granted the
right to repurchase the property within six months from execution of the sale. When Erap failed to
repurchase the property within the stipulated period, Gloria immediately filed a petition for
consolidation of ownership over the property. The court rendered judgment allowing consolidation
of ownership of the property in favor of Gloria, but gave Erap 30 days from receipt of the decision
within which to redeem the property pursuant to Articles 1606 and 1607 of the Civil Code.

a) Is there an ambiguity in the decision of the court?

There is no ambiguity at all in the decision of the court that warrants clarification. If at all, the
ambiguity is merely ostensible. At first blush, the disposal portion of the decision declaring the
consolidation of ownership of the property in Gloria, on one hand, and granting Erap 30 days to
repurchase the property, on the other hand, appears inconsistent. However, the dispositive portion also
makes reference to Article 1606 of the Civil Code, the third paragraph of which provides that “the vendor
may still exercise the right to repurchase within thirty days from the time final judgment was rendered in
a civil action on the basis that the contract was a true sale with right to repurchase.” Taken together, it
becomes obvious that the consolidation of the property in Gloria‟s name is subject to the suspensive
condition of Erap‟s failure to repurchase within the 30-day period.

b) Is it error for the court to grant Erap the right to repurchase the property within 30 days
from receipt of the decision?

Yes. By express provision, Article 1606 of the Civil Code grants the vendor a retro 30 days “from
the time final judgment was rendered,” not from the defendant‟s receipt of the decision. The Supreme
Court has construed “final judgment” to mean one that has become final and executory. (Agan v. Heirs of
Nueva, 418 SCRA 421 [2003])
 (NOTE: In Agan, the Supreme Court agreed with the finding of the trial court that the contract
entered into by the parties was one of sale with a right to repurchase, and not one of equitable mortgage.
This ruling should not be confused with the ruling in Felicen, Sr. v. Orias, et.al., 156 SCRA 586 [1987]
where the Supreme Court refused to apply the 3rd paragraph of Article 1606 of the Civil Code because the
vendor a retro acted in bad faith when he assailed the pacto de retro sale. In Agan, the trial court made
no finding that the vendor a retro acted in bad faith when he raised the defense that the pacto de retro
sale was an equitable mortgage)

464. Malou is on the verge of being prosecuted for violation of B.P. 22 because of the rubber
checks that she issued to Riza amounting to P4.4 million. To stave off her impending prosecution,
Malou solicited the help of her relative, Zinia. In particular, she requested Zinia to cede to Riza her
lot as settlement of the value of the rubber checks. After much discussion, Zinia agreed to execute a
fictitious deed of sale in Riza’s favor with right to repurchase covering the lot subject to the
following conditions: a) the amount to be stated in the document is P4.4 million with interest
thereon at 5% per month; b) the property will be repurchased within six months; c) although it
would appear in the document that Zinia is the vendor, it would be Malou who will provide the
money for the redemption of the property; and d) title to the property will be delivered to Riza
but the sale will not be recorded in the Register of Deeds.

To assure Zinia that Malou will redeem the properties, Malou issued to Zinia two post-
dated checks. One check was for P4.4 million supposedly for the selling price of the property and
the other was for P420,000 corresponding to the interest for six months. With Zinia’s consent,
Malou then prepared the “Deed of Sale with Right to Repurchase” and after it was notarized, it
was given to Riza together with the title of the property. As agreed upon, Riza did not register the
transaction with the Register of Deeds.

When Zinia presented the two checks for payment, they were dishonored for having been
drawn against a closed account. When Malou was nowhere to be found, Zinia immediately filed an
action to annul the sale pacto de retro. She contends that the sale is void for lack of consideration
because no money changed hands when she signed it and the checks which were issued for the
redemption of the properties have been dishonored for having been drawn against a closed account.
Is the pacto de retro sale without a valuable consideration?

The pacto de retro sale has a valuable consideration. In preparing and executing the deed of sale
with right of repurchase and in delivering to Riza the land title, Zinia actually accommodated Malou so
she would not be charged criminally by Riza. It is plain therefore that consideration existed at the time of
the execution of the deed of sale with right of repurchase. It is not only Zinia‟s kindness to Malou, being a
relative, but also his receipt of P420,000 from her as interest for the P4.4 million, which impelled her to
execute such contract. While it is true that the checks were dishonored, there is absolutely no basis for
Zinia to file a complaint against Riza to annul the pacto de retro sale on the ground of lack consideration.
Zinia‟s cause of action is to file a criminal action against Malou but not a civil action against Riza to
annul the sale.

Moreover, Zinia cannot seek refuge in the equitable maxim that “where one or two innocent
persons must suffer, that person who gave occasion for the damages caused must bear the consequences.”
This is so because she was not an innocent person. As a matter of fact, she gave occasion for the damage
caused by virtue of the deed of sale with right to repurchase which she prepared and signed. (Mate v.
Court of Appeals, 290 SCRA 463 [1998])

465. Maria and her daughters, Angela, Benita and Carlota are co-owners of an apartment
building. Without the knowledge of her other co-owners, Maria sold her 1/4 share in the building to
her brother, Dodong. The following month, Angela received from her uncle, Dodong, a letter
informing her about the sale, with a demand that the rental corresponding to his 1/4 share on the
subject property be remitted to him. The letter was sent with an attached copy of the Deed of Sale.
Six months later, Angela brought an action against Dodong for redemption of the portion sold to
him. She contends that the 30-day period for redemption under Article 1623 of the Civil Code has
not begun to run against her since her mother never informed her about the sale.

Is Dodong’s letter to Angela sufficient compliance with the notice requirement under
Article 1623 of the Civil Code? Is Angela still entitled to redeem the portion sold?

No. Article 1623 of the Civil Code clearly and expressly provides that the 30-day period of
exercising the rights of pre-emption or redemption are to be counted from notice in writing by the
vendor or prospective vendor not from any other person. The reasons for requiring that notice should be
given by the vendor, and not by the vendee, are easily discernible. The vendor of an undivided interest is
in the best position to know who are his co-owners that under the law must be notified of the sale. Also,
the notice by the seller removes all doubts as to the fact of the sale, its perfection, and its validity, the
notice being a reaffirmation thereof, so that the party notified need not entertain doubt that the seller may
still contest the alienation. This assurance would not exist if the notice should be given by the vendee.

In the case at bar, Angela has not been furnished any written notice of the sale or a copy thereof
by Maria, the vendor. Angela‟s right to exercise the legal right of pre-emption or redemption, given to a
co-owner when any one of the other co-owners sells his share in the thing owned in common to a third
person, as provided for in Article 1623 of the Civil Code, has not yet accrued. (Francisco v. Boiser, 332
SCRA 792 [2000])

466. Pedro is the registered owner of Lot No. 1 which is an agricultural land. Adjacent to
Pedro’s lot is Lot No. 2 with an area of 3,500 square meters owned by Quintin. Unknown to Pedro,
Quintin sold Lot No. 2 to Rustico for the sum of P150,000. Pedro learned of the sale only when
Quintin sold to him Lot No. 2 which is also adjacent to Lot No 1. Forthwith, Pedro sent a letter to
Rustico signifying his intention to redeem the lot. Thereafter, he sent another letter to Rustico
tendering payment of the price he paid to Quintin for Lot No. 2.

a) Is Pedro entitled to redeem the lot?

Yes, because no written notice of the sale was given by Quintin to Pedro which is required under
Article 1623 of the Civil Code. Whenever a piece of rural land not exceeding one hectare is alienated, the
law grants to the adjoining owners a right of redemption, except when the grantee or buyer does not own
any other rural land. (Art. 1621, Civil Code) In order that the right may arise, the land sought to be
redeemed and the adjacent property belonging to the person exercising the right of redemption must both
be rural lands. If both are urban lands, the right cannot be invoked. (Primary Structures Corp. v. Valencia,
409 SCRA 371 [2003])
 b) Suppose Pedro had actual notice of the sale, is he still entitled to redeem the lots?

Yes. In Verdad v. Court of Appeals, 256 SCRA 593 [1996], the Supreme Court succinctly stated
that “the written notice of sale is mandatory. This court has long established the rule that notwithstanding
actual knowledge of a co-owner, the latter is still entitled to a written notice from the selling co-owner in
order to remove all uncertainties about the sale, its terms and conditions, as well as its efficacy and
status.”

467. Damian is engaged in the manufacture and sale of t-shirts, while Urbano is engaged in
the manufacture and sale of plastic toys. Damian and Urbano entered into a contract whereby the
latter would manufacture for the former 20,000 pieces of vinyl frogs at P7.00 per piece in
accordance with the sample approved by Damian. These vinyl frogs were to be attached to the
shirts that Damian would manufacture and sell. Within a month, Urbano delivered to Damian the
20,000 pieces of vinyl frogs which Damian paid in full. One year later, Damian returned to Urbano
9,000 pieces of vinyl frogs for being defective. Damian then demanded from Urbano a refund of the
purchase price for the returned goods. Urbano refused. Is Damian entitled to a refund?

No. The contract between Damian and Urbano stipulated that Urbano would manufacture upon
order of Damian 20,000 pieces of vinyl frogs according to the samples specified and approved by
Damian. Urbano did not ordinarily manufacture these products, but only upon order of Damian and at the
price agreed upon. Clearly, the contract between Urbano and Damian was a contract for a piece of work.
But whether the agreement between Urbano and Damian was one of a contract of sale or a piece of work,
the provisions on warranty against hidden defects in a contact of sale (Article 1561, Civil Code) shall also
apply to a contract for a piece of work.

Article 1567 of the Civil Code provides for the remedies available to the vendee in case of hidden
defects, namely: he may elect between withdrawing from the contract or demanding a proportionate
reduction of the price, with damages in either case.

By returning the 9,000 pieces of vinyl products to Urbano and asking for a return of their
purchase price, Damian was in effect “withdrawing from the contract” as provided in Article 1567 of the
Civil Code. The prescriptive period for this kind of action is six months from the delivery of the thing
sold, pursuant to Article 1571 also of the civil Code.

There is no dispute that Urbano delivered the vinyl products to Damian. It is also settled that the
action to recover the purchase price of the goods Damian returned to Urbano was filed more than nine
months from the date of delivery. Damian having filed the action three months after the six- month period
for filling of an action for breach of warranty against hidden defects stated in Article 1571, the action had
prescribed. (Dino v. Court of Appeals, 359 SCRA 91 [2001])