Tolledo, Ronald T.

JD-2B
Sales’ Notes

1. Formation of Contract of Sale (1475-1479)

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions of
the law governing the form of contracts.

Nature of Contract

Sale is a consensual contract (perfected by mere consent). Therefore, delivery or payment is not essential
for perfection. The contract of sale is consummated upon delivery and payment.

Requirement for Perfection

a. When parties are face to face, when an offer is accepted without conditions and without
qualifications. (A conditional acceptance is a counter-offer.) If negotiated through a phone, it is
as if the parties are face to face.
b. When contract is thru correspondence or thru telegram, there is perfection when the offeror
receives or has knowledge of the acceptance by the offeree. If the buyer has already accepted,
but the seller does not know yet of the acceptance, the seller may still withdraw.
c. When the sale is made subject to a suspensive condition, perfection is had from the moment the
condition is fulfilled.

Before Perfection

Before perfection of the contract of sale, no mutual rights and obligations exist between the would-be
buyer and the would-be seller. The same thing is true when perfection is conditioned upon something,
and that thing is not performed.

Accepted Bilateral Promise to Buy and Sell

It has been held that in our country, an accepted bilateral promise to buy and sell is in a sense similar to,
but not exactly the same as, a perfected contract of sale.

Formalities for Perfection

Under the Statute of Frauds, the sale of:

a. Real property (regardless of the amount)
b. Personal property – if P500 or more must be in writing to be enforceable (Art. 1403 (2) CC)
If orally made, it cannot be enforced by a judicial action, except if the defense of the Statute of
Frauds is waived. (Art. 1405)
Also in writing should be sales which are to be performed only after more than one year (from
the time the agreement was entered into) – regardless of the price involved.

Perfection in the Case of Advertisements

Advertisements are mere invitations to make an offer (Art. 1325) and, therefore, one cannot compel the
advertiser to sell.

Transfer of Ownership
a. Mere perfection of the contract does not transfer ownership. Ownership of the object sold is
transferred only after delivery (tradition), actual, legal or constructive.

The rule is, therefore, this: After delivery of the object, ownership is transferred.

b. A stipulation that even with delivery there will be no change or transfer of ownership till the
purchase price has been fully paid is valid but the stipulation is not binding on innocent third
persons. Third persons must not be prejudiced.

Sales Tax

Even if the object sold has not yet been delivered, once there has been a meeting of the minds, the sale
is perfected and, therefore, the sales tax is already due. It accrues on perfection, not on the
consummation of the sale.

Effect of Perfection

After perfection the parties must now comply with their mutual obligations. Thus, for example, the buyer
can now compel the seller to deliver to him the object purchased. In the meantime, the buyer has only
the personal, not a real right. Hence, if the seller sells again a parcel of land to a stranger who is in good
faith, the proper remedy of the buyer would be to sue for damages. May he successfully bring an
accion reivindicatoria against the stranger? NO, for he cannot recover ownership over something he had
never owned before.

Art. 1476. In the case of a sale by auction:

(1) Where the goods are put up for sale by auction in lots, each lot is the subject of a separate contract
of sale.
(2) A sale by auction is perfected when the auctioneer announces its perfection by the fall of the
hammer, or in other customary manner. Until such announcement is made, any bidder may
retract his bid; and the auctioneer may withdraw the goods from the sale unless the auction has
been announced to be without reserve.
(3) A right to bid may be reserved expressly by on behalf of the seller, unless otherwise provided by
law or by stipulation.
(4) Where notice has not been given that a sale by auction is subject to a right to bid on behalf of the
seller, it shall not be lawful for the seller to bid himself or to employ or induce any person to bid
at such sale on his behalf or for the auctioneer, to employ or induce any person to bid at such sale
on behalf of the seller or knowingly to take any bid from the seller or any person employed by
him. Any sale contravening this rule may be treated as fraudulent by the buyer.

When Sale by Auction is Perfected

The sale is perfected when the auctioneer announces its perfection by the fall of the hammer or in other
customary manner.
Before the Fall of the Hammer
Before the hammer falls, the bidder may retract his bid. Every bidding is merely an offer and, therefore,
before it is accepted, it may be withdrawn. The assent is signified on the part of the seller by knocking
down the hammer.

Before the hammer falls, the auctioneer may withdraw the goods form the sale unless the auction has
been announced to be without reserve. The bid is merely an offer, not an acceptance of an offer to sell.
Therefore, it can be rejected. What the auctioneer does is withdrawing is merely reject the offer.

When Seller Can Bid

The seller may bid provided such a right to bid was reserved and notice was given that the sale by auction
is subject to a right to bid on behalf of the seller.

When Seller May Employ Others to Bid for Him

The seller may employ others to bid for him provided that he has notified the public that the auction is
subject to the right to bid on behalf of the seller. It may happen that the owner is not himself the
auctioneer. Now then if the auctioneer employs puffers and gives no notice to the public, the sale would
still be fraudulent, whether or not the owner of the goods knew what the auctioneer had done.

Right of Owner to Fix Conditions for the Sale by Auction

The owner of property offered for sale either at public or private auction has the right to prescribe the
manner, conditions, and terms of such sale. He may even provide that all of the purchase price shall be
paid at the time of the sale, or any portion thereof, or that time will be given for the payment. The
conditions are binding upon the purchaser, whether he knew them or not.

Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof.

When Ownership is Transferred

Ownership is not transferred by perfection but by delivery.

This is true even if the sale has been made on credit; payment of the purchase price is NOT essential to
the transfer of ownership, as long as the property sold has been delivered. A contrary stipulation is,
however, VALID (Art. 1478)

Kinds of Delivery

Delivery may be:

a. Actual (Art. 1497)
b. Constructive (Art. 1498-1601), including “any other manner signifying an agreement that the
possession is transferred.”) (Art. 1496)
Art. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he
has fully paid the price.

When Ownership is Not Transferred Despite Delivery

Generally, ownership is transferred upon delivery, but even if delivered, the ownership may still be with
the seller till the full payment of the price is made, if there is a stipulation to this this effect. But, of course,
innocent third parties cannot be prejudiced. This stipulation is common in sales on the installment plan.

Although generally delivery should not be made till after payment, still if it is stipulated that payment
will be made only after a certain period, delivery must be made, even before payment.

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to 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.

Distinction Between the First (Mutual Promise) and the Second Paragraphs (Accepted Unilateral
Promise)

First Paragraph: A promises to buy something and B promises to sell it at an agreed price. (This is a promise
to buy and sell, clearly a bilateral reciprocal contract.) This is as good as a perfected sale. Of course, no
title of dominion is transferred as yet, the parties, being given the right only to demand fulfillment or
damages.

Second Paragraph: Only one makes the promise. This promise is accepted by the other. Hence, A promises
to sell to B accepts the promise, but does not in turn promise to buy. This is an accepted unilateral promise
to sell. It is binding on the promissor only if the promise is supported by a consideration distinct from the
price.

Meaning of Policitacion

This is a unilateral promise to buy or to sell 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.

Bilateral Promise

A bilateral promise to buy and sell a certain thing for a price certain gives to the contracting parties
personal rights in that each has the right to demand from the other the fulfillment of the obligation.

Unilateral Promise
a. The acceptance of a unilateral promise to sell must be plain, clear, and unconditional. Therefore,
if there is a qualified acceptance with terms different from the offer, there is no acceptance, that
is, there is no promise to buy and there is no perfected sale.
b. If an option is granted, how long is the offer bound by his promise? If no period has been
stipulated, the court will fix the term.
c. The right to buy is a right that may be transmitted to others unless it was granted for purely
personal considerations.
 d. An option is a contract granting a person the privilege to buy or not to buy certain objects at any
time within the agreed period at a fixed price. The contract of option is a separate and distinct
contract from the contract which the parties may enter into upon the consummation of the
contract; therefore, an option must have its own cause or consideration.

After the period of conventional redemption has expired, there is no more right to repurchase.
Should the period later on be extended, this would really be an offer to sell, or any option, and,
therefore, there must be a consideration distinct from the repurchase price.

Contract to SELL is NOT an Absolute Sale

A contract or promise to sell, a parcel of land for example, is not a contract of sale. Such a contract to sell
would exist when for instance, land is promised to be sold, and title given only after the down payment
and the monthly installment therefor shall have all been paid. Failure to make the needed payment is
failure to comply with the needed suspensive condition. Hence, promissor was never really obliged to
convey title. Hence also, there would be nothing wrong if he sells the property to another, after an
unsuccessful demand for said price. Therefore also, a clause in such a contract allowing unilateral
automatic rescission by the seller in the even the buyer fails to pay any installment due is VALID.

Heirs of Fausto C. Ignacio vs. Home Bankers Savings and Trust Company
GR 177783, January 23, 2013, 689 SCRA 173

FACTS:

Ignacio mortgage two parcels of land to Home Savings Band and Trust Company as security for
the P500,000.00 loan extended to him by said bank. The bank proceeded to foreclose the REM when
Ignacio defaulted in the payment of his obligation. The bank emerged as the highest bidder in the
foreclosure sale and a Certificate of Sale was issued to said bank and thereafter registered with the
Registry of Deeds. With Ignacio’s failure to redeem the foreclosed properties within one year from such
registration, title to the properties were consolidated in favor of the bank.

Despite the lapsed of the redemption period and consolidation of title in respondent bank, Ignacio
offered to repurchase the properties. While the bank considered petitioner’s offer to repurchase, there
was no repurchase contract executed. According to petitioner, a verbal repurchase/compromise
agreement was actually reached and implemented by the parties.

ISSUE:

Whether a contract for the repurchase of the foreclose properties was perfected between
petitioner and respondent bank.

RULING:

No. Contracts are perfected by mere consent, which is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. The requisite
acceptance of the offer is expressed in Art. 1319 of the Civil Code which states that consent is manifested
by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute
the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes
a counter-offer.

In Palattao v. Court of Appeals, the Court held that if the acceptance of the offer was not absolute,
such acceptance is insufficient to generate consent that would perfect a contract. Thus:

Contracts that are consensual in nature, like a contract of sale, are perfected upon mere meeting
of the minds. Once there is concurrence between the offer and the acceptance upon the subject matter,
consideration, and terms of payment, a contract is produced. The offer must be certain. To convert the
offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must
be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified
acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of the
original offer. Consequently, when something is desired which is not exactly what is proposed in the offer,
such acceptance is not sufficient to generate consent because any modification or variation from the
terms of the offer annuls the offer.

The acceptance must be identical in all respects with that of the offer so as to produce consent or
meeting of the minds. Where a party sets a different purchase price than the amount of the offer, such
acceptance was qualified which can be at most considered as a counter-offer; a perfected contract would
have arisen only if the other party had accepted this counter-offer.

The qualified acceptance of petitioner as a counter-proposal must be accepted by the bank. There
was no evidence of any document or writing showing the conformity of respondent bank’s officers to his
counter-proposal. Thus, the contract of repurchase was not perfected between petitioner and respondent
bank.

Virgilio S. David vs. Misamis occidental II Electric Cooperative, Inc.

GR 194785, July 11, 2012, 676 SCRA 367

FACTS:

Petitioner David owns a company which supplies electrical hardware for rural electric
cooperatives like respondent cooperative. To solve its problem of power shortage, the cooperative
expressed its intention to purchase a 10 MVA power transformer from David. The cooperative’s general
manager met David and the latter agreed to supply the power transformer provided that the cooperative
would secure a board resolution because the item would still have to be imported.

Top officials visited David and a board resolution was presented to David and David in turn
presented his proposal for the acquisition of said transformer. The document was signed under conforme.
David delivered the transformer but the cooperative failed to pay for it. David filed a complaint for specific
performance with damages but the cooperative moved for its dismissal on the ground that there was lack
of cause of action as there was no contract of sale to begin with.

ISSUE:

Whether there was a perfected contract of sale.

RULING:
 Yes. The elements of a contract of sale are, to wit: a) Consent or meeting of the minds, that is,
consent to transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price
certain in money or its equivalent. It is the absence of the first element which distinguishes a contract of
sale from that of a contract to sell.

Since there was a meeting of the minds as to the transfer of ownership of the subject matter,
there was consent on the part of David to transfer ownership of the power transformer to the cooperative
in exchange for the price, thereby complying with the first element. Thus, the said document cannot just
be considered a contract to sell but rather a perfected contract of sale.

Starbright Sales Enterprises, Inc. vs. Philippines Realty Corporation, Msgr. Domingo A. Cirilos, et. al.
GR 177936, January 18, 2012

FACTS:

Ramon Licup wrote Msgr. Domingo A. Cirilos, offering to buy three contiguous parcels of land in
Parañaque that The Holy See and Philippine Realty Corporation (PRC) owned for ₱1,240.00 per square
meter. Licup accepted the responsibility for removing the illegal settlers on the land and enclosed a check
for ₱100,000.00 to "close the transaction. He undertook to pay the balance of the purchase price upon
presentation of the title for transfer and once the property has been cleared of its occupants.

Msgr. Cirilos, representing The Holy See and PRC, signed his name on the conforme portion of the
letter and accepted the check. But the check could not be encashed due to Licup’s stop-order payment.
Licup wrote Msgr. Cirilos on April 26, 1988, requesting that the titles to the land be instead transferred to
petitioner Starbright Sales Enterprises, Inc. (SSE). He enclosed a new check for the same amount. SSE’s
representatives, Mr. and Mrs. Cu, did not sign the letter.

On November 29, 1988 Msgr. Cirilos wrote SSE, requesting it to remove the occupants on the
property and, should it decide not to do this, Msgr. Cirilos would return to it the ₱100,000.00 that he
received. On January 24, 1989 SSE replied with an "updated proposal."2 It would be willing to comply with
Msgr. Cirilos’ condition provided the purchase price is lowered to ₱1,150.00 per square meter.
On January 26, 1989 Msgr. Cirilos wrote back, rejecting the "updated proposal." He said that other buyers
were willing to acquire the property on an "as is, where is" basis at ₱1,400.00 per square meter. He gave
SSE seven days within which to buy the property at ₱1,400.00 per square meter, otherwise, Msgr. Cirilos
would take it that SSE has lost interest in the same. He enclosed a check for ₱100,000.00 in his letter as
refund of what he earlier received.

On February 4, 1989 SSE wrote Msgr. Cirilos that they already had a perfected contract of sale in
the April 17, 1988 letter which he signed and that, consequently, he could no longer impose amendments
such as the removal of the informal settlers at the buyer’s expense and the increase in the purchase price.
SSE claimed that it got no reply from Msgr. Cirilos and that the next thing they knew, the land had been
sold to Tropicana Properties on March 30, 1989. On May 15, 1989 SSE demanded rescission of that sale.
Meanwhile, on August 4, 1989 Tropicana Properties sold the three parcels of land to Standard Realty.
ISSUE:

Whether a perfected contract of sale existed between SSE and the land owners, represented by
Msgr. Cirilos.

RULING:

Yes. Three elements are needed to create a perfected contract: 1) the consent of the contracting
parties; (2) an object certain which is the subject matter of the contract; and (3) the cause of the obligation
which is established. Under the law on sales, a contract of sale is perfected when the seller, obligates
himself, for a price certain, to deliver and to transfer ownership of a thing or right to the buyer, over which
the latter agrees. From that moment, the parties may demand reciprocal performance.

The Supreme Court held that the April 17, 1988 letter between Licup and Msgr. Cirilos, the
representative of the property’s owners, constituted a perfected contract. When Msgr. Cirilos affixed his
signature on that letter, he expressed his conformity to the terms of Licup’s offer appearing on it. There
was meeting of the minds as to the object and consideration of the contract.

DBP vs. Ben P. Medrano and Privatization management Office

GR 167004, February 7, 2011, 641 SCRA 559

FACTS:

Respondent Medrano was the President and GM of Paragon where he owned 37,681 shares. In
1980, DBP sought to consolidate its ownership in Paragon. In the one meetings of Paragon EXECOM,
instructed Medrano to contact all minority stockholders to convince them to sell their shares to DBP.
Medrano and those who want to sell their shares made proposals to DBP and the BOD of DBP approved
the sale as evidenced by a resolution subject to some conditions. When Medrano demanded that DBP pay
the value of his shares, which he had already turned over, DBP did no heed his demand. Medrano filed
for damages and specific performance. DBP answered that there was no perfected contract of sale as the
three conditions under the resolution were not fulfilled.

ISSUE:

Whether there was a perfected contract of sale.

RULING:

No. As a rule, a contract is perfected upon the meeting of the minds of the two parties. Under
Article 1475 of the Civil Code, a contract of sale is perfected the moment there is a meeting of the minds
on the thing which is the object of the contract and on the price.

Under the law, a contract is perfected by mere consent, that is, from the moment that there is a
meeting of the offer and the acceptance upon the thing and the cause that constitute the contract. The
law requires that the offer must be certain and the acceptance absolute and unqualified. An acceptance
of an offer may be express and implied; a qualified offer constitutes a counter-offer. Case law holds that
an offer, to be considered certain, must be definite, while an acceptance is considered absolute and
unqualified when it is identical in all respects with that of the offer so as to produce consent or a meeting
of the minds. We have also previously held that the ascertainment of whether there is a meeting of minds
on the offer and acceptance depends on the circumstances surrounding the case.

The offer must be certain and definite with respect to the cause or consideration and object of
the proposed contract, while the acceptance of this offer - express or implied - must be unmistakable,
unqualified, and identical in all respects to the offer. The required concurrence, however, may not always
be immediately clear and may have to be read from the attendant circumstances; in fact, a binding
contract may exist between the parties whose minds have met, although they did not affix their signatures
to any written document.

A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a
rejection of the original offer. A counter-offer is considered in law, a rejection of the original offer and an
attempt to end the negotiation between the parties on a different basis. Consequently, when something
is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to guarantee
consent because any modification or variation from the terms of the offer annuls the offer. The acceptance
must be identical in all respects with that of the offer so as to produce consent or meeting of the minds.

In the present case, Medrano’s offer to sell the shares of the minority stockholders at the price of
65% of the par value was not absolutely and unconditionally accepted by DBP. DBP imposed several
conditions to its acceptance and it is clear that Medrano indeed tried in good faith to comply with the
conditions given by DBP but unfortunately failed to do so. Hence, there was no birth of a perfected
contract of sale between the parties.

Medrano’s failure to comply with the conditions set forth by DBP prevented the perfection of the
contract of sale. Hence, Medrano and DBP remained as prospective-seller and prospective-buyer and not
parties to a contract of sale.

Sps. Tongson, et.al. vs. Emergency pawnshop Bula, Inc. et. al vs. Rachel G. Mandap
GR 167874, January 15, 2010

FACTS:

The respondent offered to purchase from the spouses their 364 square meter parcel of land for
P3,000,000.00. The spouses executed with Napala a MOA after. Respondent’s lawyer prepared a Deed of
Absolute Sale indicating the consideration as only P400,000.00. The petitioner complained and called the
respondent but the latter told her not to worry as he would be the one to pay for the taxes and she would
receive the net amount of P3,000,000.00

Upon signing the Deed of Absolute Sale, Napala paid P200,000 in cash to the Spouses Tongson
and issued a postdated Philippine National Bank (PNB) check in the amount of ₱2,800,000, representing
the remaining balance of the purchase price of the subject property.

When presented for payment, the PNB check was dishonored for the reason "Drawn Against
Insufficient Funds." Despite the Spouses Tongson's repeated demands to either pay the full value of the
check or to return the subject parcel of land, Napala failed to do either.

In their Answer, respondents countered that Napala had already delivered to the Spouses
Tongson the amount of P2,800,000 representing the face value of the PNB check, as evidenced by a receipt
issued by the Spouses Tongson. Respondents pointed out that the Spouses Tongson never returned the
PNB check claiming that it was misplaced. Respondents asserted that the payment they made rendered
the filing of the complaint baseless.

At the pre-trial, Napala admitted, among others, issuing the postdated PNB check in the sum of
P2,800,000. The Spouses Tongson, on the other hand, admitted issuing a receipt which showed that they
received the PNB check from Napala.

ISSUE:

Whether the contract of sale was perfected notwithstanding respondent’s fraud.

RULING:

Yes.

In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and
consummation. Negotiation begins from the time the prospective contracting parties manifest their
interest in the contract and ends at the moment of agreement of the parties. Perfection or birth of the
contract takes place when the parties agree upon the essential elements of the contract. Consummation
occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the
extinguishment thereof.

In this case, the fraud surfaced when respondent issued the worthless check to the Spouses, which
is definitely not during the negotiation and perfection stages of the sale. Rather, the fraud existed in the
consummation stage of the sale when the parties are in the process of performing their respective
obligations under the perfected contract of sale.

Clearly, respondents committed a substantial breach of their reciprocal obligation, entitling the
Spouses to the rescission of the sales contract. (Art. 1191)

ECE Realty and Development Inc., v. Rachel Mandap

GR 196182, September 1, 2014, 734 SCRA 76

FACTS:

Petitioner is a corporation engaged in the building and development of condominium units. It

started a condominium project in Pasay City. However, printed advertisements indicated that the said
project was to be built in Makati. The respondent agreed to buy a unit from the above project by paying
a reservation fee and thereafter, down payment and monthly installments. Respondent and petitioner’s
representatives executed a contract to sell. In said contract, it was indicated that the condo project is
located in Pasay City.

More than 2 years after, petitioner through her lawyer, wrote a letter demanding the return of
all payments made on the ground that she discovered that the condo project was being built in Pasay and
not in Makati as indicated in its printed advertisements. Her letter was not answered so petitioner filed a
complaint in the HLURB seeking the annulment of her contract with petitioner, return of her payments
and damages.
 HLURB dismissed the complaint on lack of fraud on the part of the corporation. The CA reversed
the HLURB’s decision and found the corporation to be guilty of fraud.

ISSUE:

Whether the petitioner is guilty of fraud sufficient to nullify the contract.

RULING:

No. The misrepresentation made by petitioner in its advertisements does not constitute causal
fraud which would have been a valid basis in annulling the Contract to Sell between petitioner and
respondent.

The respondent failed to prove that the location of the said project was the causal consideration
or the principal inducement which led her into buying her unit in the said condominium project. The Court
finds no cogent reason to depart from the foregoing findings and conclusion of the HLURB. Indeed,
evidence shows that respondent proceeded to sign the Contract to Sell despite information contained
therein that the condominium is located in Pasay City. This only means that she still agreed to buy the
subject property regardless of the fact that it is located in a place different from what she was originally
informed.

The rule that one who signs a contract is presumed to know its contents has been applied even
to contract of illiterate persons on the ground that if such persons are unable to read, they are negligent
if they fail to have the contract read to them. If a person cannot read the instrument, it is as much his duty
to procure some reliable persons to read and explain it to him, before he signs it, as it would be to read it
before he signed it if he were able to do so and his failure to obtain a reading and explanation of it is such
gross negligence as will estop him from avoiding it on the ground that he was ignorant of its contents.

In any case, even assuming that petitioner’s misrepresentation consists of fraud which could bea
ground for annulling their Contract to Sell, respondent's act of affixing her signature to the said Contract,
after having acquired knowledge of the property's actual location, can be construed as an implied
ratification thereof.
Helen E. Cabling vs Joselin Tan Lumapas
GR 196950, June 18, 2014, 726 SCRA 628

FACTS:

The petitioner was the highest bidder in an extrajudicial foreclosure sale over a parcel of land. The
final deed of sale was issued by the Sheriff and the title was duly transferred to the petitioner.

The petitioner then filed and was granted a writ of possession with the RTC and notice to vacate.
Respondent claims that the property had been previously sold to her by the property’s previous registered
owner and the judgment debtor/mortgagor in the extrajudicial foreclosure sale, pursuant to a Deed of
Conditional Sale.
ISSUE:

Whether there is a transfer of title to the buyer in a contract of conditional sale.

RULING:

No.

The execution of a contract of conditional sale does not immediately transfer title to the property
to be sold from seller to buyer. In such contract, ownership or title to the property is retained by the seller
until the fulfillment of a positive suspensive condition which is normally the payment of the purchase
price in the manner agreed upon.

In the present case, the Deed of Conditional Sale between the respondent (buyer) and the subject
property’s registered owner (seller) expressly reserved to the latter ownership over the property until full
payment of the purchase price, despite the delivery of the subject property to the respondent.

2. Obligation to Preserve the Object of Sale (1480)

Art. 1480. Any injury to or benefit from the thing sold, after the contract has been perfected, from
the moment of the perfection of the contract to the time of delivery, shall be governed by Articles
1163 to 1166, and 1262.

This rule shall apply to the sale of fungible things, made independently and for a single price, or
without consideration of their weight, number, or measure.

Should fungible things be sold for a price fixed according to weight, number, or measure, the risk
shall not be imputed to the vendee until they have been weighed, counted, or measured, and
delivered, unless the latter has incurred in delay.

Who Bears the Risk of Loss

a. If the object has been lost before perfection, the seller, being the owner, bears the loss.
b. If the object was loss after delivery to the buyer, clearly the buyer bears the loss. Res perit domino
– the owner bears the loss.
c. If the object is lost after perfection but before delivery, the buyer bears the loss, as exception to
the rule of res perit domino.

Meaning of Fungibles

Fungibles are personal property which may be replaced with equivalent things.

3. Sale by Sample or by Description (1481)

Art. 1481. In the contract of goods by description or by sample, the contract may be rescinded if the
bulk of the goods delivered do not correspond with the description or the sample, and if the
contract be by sample as well as by description, it is not sufficient that the bulk of goods correspond
with the sample if they do not also correspond with the description.
 The buyer shall have a reasonable opportunity of comparing the bulk with the description or the
sample.

Sale by Description of By Sample

a. Sale by description – where seller sells things as being of a certain kind, the buyer merely relying
on the seller’s representations or descriptions. Generally, the buyer has not previously seen the
goods, or even if he has seen them, he believes (sometimes erroneously) that the description
tallies with the goods he has seen.

b. Sale by Sample – where the seller warrants that the bulk (not the major part or the majority of
the goods but the goods themselves) of the goods shall correspond with the sample in kind,
quality and character. Only the sample is exhibited. The bulk is not present, and so there is no
opportunity to examine or inspect it.

c. Sale by Description and Sample – must satisfy the requirements in both, and not in only one.

Effect of Mere Exhibition of Sample

The mere exhibition of sample does not necessarily make it a sale by sample. This exhibition must
have been the sole basis or inducement of the sale. A sale by sample may still be had even if the same
sample was shown only in connection with a sale to the first purchaser. There can be sale by sample
even if the sale is “as is”.

Teresita B. Mendoza vs. Beth David

GR 147575, October 22, 2004, 441 SCRA 172

FACTS:

Mendoza alleged that she ordered three sets of furniture from David worth P185,650.00 and paid
an initial deposit of P40,650.00. Mendoza and David agreed on the specifications of the dining set, sofa
set and tea set including the material and quality. On 18 February 1997, Mendoza cancelled some of the
furniture she ordered and David agreed to the cancellation. On 12 April 1997, Mendoza paid an additional
deposit of P40,000.

When David delivered the dining set to Mendoza on 17 April 1997, Mendoza rejected the set
because of inferior material and poor quality. Mendoza likewise rejected the sala set and the tea set for
the same reason. When Mendoza requested a refund of her total deposit of P80,650, David refused.
Mendoza then sent David a letter dated 27 May 1997 demanding the refund of her deposit but David
ignored the demand letter. The parties failed to arrive at an amicable settlement. Thus, Mendoza filed a
complaint for collection of money with damages.

In her Answer, David admitted that she and Mendoza agreed on the material and quality of the
furniture Mendoza ordered since that was the normal practice for "made to order" furniture. David stated
that on 17 April 1997, she delivered some of the furniture which was received by Mendoza's father.
However, Mendoza could not pay the balance of the price and requested payment on installment which
David rejected. As a result of Mendoza's non-payment, David reclaimed the furniture already delivered
and informed Mendoza she could get the furniture upon payment of the balance of P105,000. In the
meantime, David stored the furniture in her warehouse. When David received Mendoza's demand letter,
she refused to comply with Mendoza's request for a refund of the deposit since all the three sets of
furniture Mendoza ordered were already finished and delivered on the agreed date. David only retrieved
the furniture due to non-payment of the balance.

ISSUE:

Whether the transaction between the parties was one of sale by description or sample.

RULING:

The transaction in this case was a “made to order” agreement.

There is nothing in the records which would show that the intent of the parties was for a sale by
sample or description. Whether a sale is by sample or description depends upon the facts disclosing the
intention of the parties. Other than Mendoza's bare allegations that the transaction was a sale by sample
or description, Mendoza failed to produce evidence to substantiate her claim.

The sale of furniture in this case is not a sale by sample. The term sale by sample does not include
an agreement to manufacture goods to correspond with the pattern. In this case, the three sets of
furniture were manufactured according to the specifications provided by the buyer. Mendoza did not
order the exact replica of the furniture displayed in David's shop but made her own specifications on the
measurement, material and quality of the furniture she ordered.

There is a sale by sample when a small quantity is exhibited by the seller as a fair specimen of the
bulk, which is not present and there is no opportunity to inspect or examine the same. To constitute a
sale by sample, it must appear that the parties treated the sample as the standard of quality and that they
contracted with reference to the sample with the understanding that the product to be delivered would
correspond with the sample. In a contract of sale by sample, there is an implied warranty that the goods
shall be free from any defect which is not apparent on reasonable examination of the sample and which
would render the goods unmerchantable.

Neither is the transaction a sale by description. Mendoza did not rely on any description made by
David when she ordered the furniture. Mendoza inspected the furniture displayed in David's furniture
shop and made her own specifications on the three sets of furniture she ordered.

There is a sale of goods by description where "a seller sells things as being of a particular kind, the
buyer not knowing whether the seller's representations are true or false, but relying on them as true; or
as otherwise stated, where the buyer has not seen the article sold and relies on the description given to
him by the seller, or has seen the goods, but the want of identity is not apparent on inspection.” A seller's
description of the goods which is made part of the basis of the transaction creates a warranty that the
goods will conform to that description. Where the goods are bought by description from a seller who
deals in the goods of that description, there is an implied warranty that the goods are of merchantable
quality.
4. Earnest Money (1482)

Art. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part
of the price and as proof of the perfection of the contract.

Earnest Money, called “arras,” is something of value to show that the buyer was really in earnest,
and given to the seller to bind the bargain.

Significance of Earnest Money

Under the Civil Code, earnest money is considered:

a. Part of purchase price (Hence, from the total price must be deducted the arras; the balance
is all that has to be paid.)
b. As proof of the perfection of the contract.

When Arras Must Be Returned

If the merchandise cannot be delivered, the arras must be returned. Of course, this right may be
renounced since neither the law nor public policy is violated.

5. Form for a Contract of Sale (1483)

Art. 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a
contract of sale may be made in writing, or by word of mouth, or partly in writing and partly by
word of mouth, or may be inferred from the conduct of the parties.

General Rule:

A contract may be entered into any for provided all the essential requisites for its validity are present
(Art. 1356) Sale is a consensual contract and is perfected by mere consent (Art. 1475)

Where form is required in order that a contract may be enforceable.

In case the contract of sale should be covered by the Statute of Frauds, the law requires that the
agreement (or some note or memorandum thereof) be in writing subscribed buy the party charged, or
by his agent; otherwise, the contract cannot be enforced by action. (Art. 1403 [2]).

Under the Statute of Frauds (Art. 1403[2, a, d, e].) of the Civil Code, the following contracts must be in
writing; otherwise, they shall be unenforceable by action:

a. Sale of personal property at a price not less than P500.00;

b. Sale of real property or an interest therein regardless of the price involved; and
c. Sale of property not to be performed within a year from the date thereof regardless of the nature of
the property and the price involved.

Where form is required in order that a contract may be valid.

Where the “applicable statute” requires that the contract of sale be in a certain form for its validity, the
required form must be observed in order that the contract may be both valid and enforceable. (Art. 1356)

Where form is required only for the convenience of the parties.

In certain cases, a certain form (e.g., public instrument) is required for the convenience of the parties in
order that the sale may be registered in the Registry of Deeds to make effective as against third persons
the right acquired under such sale. As between the contracting parties, the form is not indispensable since
they are allowed by law to compel each other to observe that form. (Arts. 1357, 1358[1])

Statute of Frauds applicable only to executory contracts.

The Statute of Frauds is applicable only to executory contracts (where no performance, i.e., delivery and
payment, has as yet been made by both parties) and not to contracts which are totally (consummated) or
partially performed.

If Sale is Made Thru Agent

The sale of a piece of land or interest therein when made thru an agent is void (not merely unenforceable)
unless the agent’s authority is in writing. (Art. 1874). This is true even if the sale itself is in a public
instrument, or even registered. “Interest therein” refers to easement or usufruct, for example.

Effect if Notary Public is Not Authorized

If the deed of sale of land is notarized by a notary public whose authority had expired, the sale would still
be valid, since for validity of the sale, a public instrument is not even essential.

Lagrimas de Jesus Zamora v. Sps. Miranda, et. al

687 SCRA 13

FACTS:

Petitioner alleged that the respondent Miranda sold to her the property in question for the sum
of P50,000.00.

The sole evidence relied upon by petitioner to prove her claim of ownership over the subject
property is a receipt which states that she received the amount of P50,000.00 from her as payment for
the subject property.

ISSUE:

Whether the receipt, evidencing sale of real property, being a private document, be a basis of
petitioner’s claim over the subject property?

RULING:

Yes.
 Article 1358 of the Civil Code provides that acts and contracts which have for their object the
transmission of real rights over immovable property or the sale of real property must appear in a public
document. If the law requires a document or other special form, the contracting parties may compel each
other to observe that form, once the contract has been perfected.

In Fule v. Court of Appealsll the Court held that Article 1358 of the Civil Code, which requires the
embodiment of certain contracts in a public instrument, is only for convenience, and registration of the
instrument only adversely affects third parties. Formal requirements are, therefore, for the benefit of
third parties. Non-compliance therewith does not adversely affect the validity of the contract nor the
contractual rights and obligations of the parties thereunder.

6. Recto Law: Sale of Movables on Installment (1484-1486)

Art. 1484. In a contract of sale of personal property, the price of which is payable in installments,
the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee’s failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee’s failure to pay cover two or more installments. In this case, he shall have no further action
against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary
shall be void.

Requisites Before Art. 1484 May Be Applied

a. There must be a contract

b. The contract must be one of sale (absolute sale, not pacto de retro transaction, where
redemption is effected in installments)
c. What is sold is personal property (sale of real property in installments is governed by RA 6652
– the Maceda Law – which took effect on the date of its approval, Sept. 14, 1972)
d. The sale must be on the installment plan (an installment – is any part or portion of the buying
price, including the down payment)

If the sale is for case or on straight terms (here after an initial payment, the balance is paid in
its totality at the time specified, say, two months or three months later – this is also considered
a cash sale) Art. 1484 does not apply.

Purpose of the Rules For Sale of Personal Property on the Installment Plan

To prevent abuse in the foreclosure of chattel mortgages by selling at a low price and then suing for
the deficiency, is the precise purpose of the article. Otherwise, the buyer would find himself without
the property, and still indebted. Parenthetically, the increase in price in a sale on installments (or a
conditional sale) over the cash price cannot be considered interest, much less usurious interest. A
conditional sale based on the installment plan is not a loan, if the sale is made in good faith, and not
a mere pretext to cover a usurious loan.

Alternative Remedies
The remedies enumerated are not cumulative. They are alternative, and if one is exercised, the others
cannot be made use of. Indeed, the election of one is a waiver of the right to resort to others. But for
this doctrine to apply, the remedy must already have been fully exercised. If after retaking possession
of the chattel, the seller desists from the foreclosure, he can still avail himself of another remedy.

Cancellation Requires Mutual Restitution

It is clear that when the remedy of cancellation is availed of, there must be a mutual restitution of
whatever had been received by either party, e.g., when the seller of a car on installment asks for
cancellation of the sale, the car must be returned to him, and he in turn must give back all installment
he has received, including the down payment.

Instance When Art. 1484 Cannot Be Applied

a. Art. 1484 does not apply to real estate mortgage. The reason is that the real estate mortgage
may be foreclosed only in conformity with special provisions. Moreover, while in Art. 1484 the
creditor is given the option to seize the Art. 1484 object of the transaction, this is not so in the
case of a real estate mortgage.
b. Art. 1484 does not apply to the sale of personal property on straight terms, a sale on straight
terms being one in which the balance, after the payment of the initial sum should be paid in its
totality at the time specified. Therefore, in a sale on straight terms, the mortgage-seller will still
be entitled to recover the unpaid balance.

Art. 1485. The preceding article 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.

Reason for Rule on Leases of Personal Property with Option to Buy

This may really be considered a sale of personal property in installments. Therefore, the purpose of
Art. 1485 is to prevent an indirect violation of Art. 1484.

Meaning of the Clause “when the lessor has deprived the lessee of the possession or enjoyment of
the thing”

This means that for failure to pay, the “lessor” is apparently exercising the right of an unpaid seller,
and has taken possession of the property. This is so even if the property had been given up in
obedience to the “lessor’s” extrajudicial demand, such surrender not really being voluntary.

When “Lease” Construed as “Sale”

Even if the word “lease” is employed, when a sale on installment is evidently intended, it must be
construed as a sale.

Art. 1486. In the cases referred to in the two preceding articles, a stipulation that the installments
or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may
not be unconscionable under the circumstances.
 Non-Return of Installments Paid

a. As a general rule, it is required that a case of rescission or cancellation of the sale requires mutual
restitution, that is, all partial payments of price or “rents” must be returned.
b. However, by way of exception, it is valid to stipulate that there should be NO returning of the
price that has been partially paid or of the “rents” given, provided the stipulation is not
unconscionable.

The Maceda Law

To help especially the low-income lot buyers, the legislature enacted RA 6552 –– “The Realty
Installment Buyer Protection Act,” or more popularly known as the Maceda Law –– which came into
effect on Sept. 1972, delineating the rights and remedies of lot buyers and protect them from one-
sided and pernicious contract stipulations. The Act’s declared public policy is to protect buyers or
real estate or installment basis against onerous and oppressive conditions. More specifically, the Act
provided for the rights of the buyer in case of default in the payment of succeeding installments,
where he has already paid at least two years of installment. (Sec. 3, RA 6552).

The Act seeks to address the acute housing shortage problem in our country that has prompted
thousands of middle- and lower-class buyers of houses, lots, and condominium units to enter into all
sorts of contracts with private housing developers involving installment schemes. Lot buyers, mostly
low-income earners eager to acquire a lot upon which to build their homes, readily affix their
signatures on these contracts, without an opportunity to question the onerous provisions therein as
the contract is offered to them on a “take it or leave it” basis.

Most of these contracts of adhesion, drawn exclusively by the developers, entrap innocent buyers by
requiring cash deposits for reservation agreements which oftentimes include, in fine print, onerous
default clauses where all the installment payments made will be forfeited upon failure to pay any
installment due even if the buyers had made payments for several years. Real estate developers, thus,
enjoy an unnecessary advantage over lot buyers who they often exploit with iniquitous results. They
get to forfeit all the installment payments of defaulting buyers and resell the same lot to another
buyer with the same exigent conditions.

7. Who shall bear the expenses for the Execution and Registration of Sale? (1487)

Art. 1487. The expenses for the execution and registration of the sale shall be borne by the
vendor, unless there is a stipulation to the contrary.

Who Pays for Expenses in Execution and Registration

As a rule, the seller pays for the expenses of:

a. The execution of the deed of sale;

b. Its registration.

There can, however, be a contrary stipulation.

8. Expropriation of Property (1488)

Art. 1488. The expropriation of property for public use is governed by special laws.

Nature of Expropriation

Expropriation is involuntary in nature, that is, the owner may be compelled to surrender the
property after all the essential requisites have been complied with. Therefore, generally,
expropriation does not result in a sale.

Exception: the Supreme Court held that the acquisition by the government of private properties thru
the exercise of eminent domain, said properties being justly compensated, is a sale or exchange within
the meaning of the income tax laws and profits derived therefrom are taxable as capital gain; and this
is so although the acquisition was against the will of the owner of the property and there was no
meeting of the minds between the parties.

When Transaction is One of Sale

if the property owner voluntarily sells the property to the government, this would be a sale, and not
an example of expropriation.

“Eminent Domain” Distinguished From “Expropriation”

Eminent domain refers to the right given to the state whereas expropriation usually refers to the
process.

Essential Requisites for Expropriation

a. Taking by competent authority
b. Observance of due process of law
c. Taking for public use
d. Payment of just compensation

Just compensation is the market value (the price which the property will bring when it is offered for
sale by one who desires but is not obliged to sell it, and is bought by one who is under no necessity of
having it) PLUS the consequential damages, if any, MINUS the consequential benefits, if any. BUT the
benefits may be set off only against the consequential damages, and not against the basic value of
the property taken.