UST Golden Notes 2011 - Sales

SALES SALES Q: What is a sale? A: Sale is a contract where one party (seller) obligates himself to transfer the ownership of and to deliver a determinate thing, while the other party (buyer) obligates himself to pay for said thing a price certain in money or its equivalent. (Tolentino, p.1, 2000 ed.) I. INTRODUCTION A. DEFINITION OF THE CONTRACT OF SALE Q: What is a contract of sale? A: By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. (Art. 1458, NCC) KINDS OF SALES Q: What are the different kinds of sales? A: As to: 1. Nature of the subject matter: a. Sale of real property; b. Sale of personal property 2. Value of the things exchanged: a. Commutative sale; b. Aleatory sale 3. Whether the object is tangible or intangible: a. Sale of property (tangible or corporeal); Note: A tangible object is also called chose in possession

Sale of a right (assignment of a right, or a credit or other intangibles such as copyright, trademark, or good will); Note: An intangible object is a chose in action. Validity or defect of the transaction: a. Valid b. Rescissible c. Voidable d. Unenforceable e. Void Legality of the object: a. Licit object b.

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b. Illicit object Presence or absence of conditions: a. Absolute b. Conditional Wholesale or retail: a. Wholesale b. Retail Proximate inducement for the sale: a. Sale by description b. Sale by sample c. Sale by description and sample When the price is tendered: a. Cash sale b. Sale on installment plan

AS TO PRESENCEOR ABSENCE OF CONDITION ABSOLUTE SALE Q: When is a sale absolute?

A: The sale is absolute where the sale is not subject to any condition whatsoever and where the title passes to the buyer upon delivery of the thing sold. (De Leon, p. 15) Q: When is a deed of sale considered absolute in nature? A: A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. CONDITIONAL SALE Q: When is a sale conditional? A: It is conditional where the sale contemplates a contingency, and in general, where the contract is subject to certain conditions, usually in the case of the vendee, the full payment of the agreed purchase price and in the case of the vendor, the fulfillment of certain warranties. (De Leon, p. 15)

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II U N I V E R S I T Y O F S A N T O T O M A S VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA Facultad de Derecho Civil V ICE C HAIR FOR A DMINISTRATION AND F INANCE : J EANELLE C. L EE VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ

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UST GOLDEN NOTES 2011 Q: Distinguish a conditional sale from an absolute sale A: CONDITIONAL SALE One where the seller is granted the right to unilaterally rescind the contract predicated on the fulfillment or non‐ fulfillment, as the case may be, of the prescribed condition.

Contract executed between the seller and the buyer

ABSOLUTE SALE One where the title to the property is not reserved to the seller or if the seller is not granted the right to rescind the contract based on the fulfillment or non‐fulfillment, as the case may be, of the prescribed condition. Contracts, first the contract to sell (which is conditional or preparatory sale) and second, the final deed of sale or the principal contract which is executed after full payment of the purchase price

Q: What is the effect of the non‐performance of the condition or if the condition did not take place? A: Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition. Unlike in a non‐ fulfillment of a warranty which would constitute a breach of the contract, the non‐happening of the condition, although it may extinguish the obligation upon which it is based, generally does not amount to a breach of a contract of sale. Q: In a sale with assumption of mortgage, is the assumption of mortgage a condition without which there will be no perfected contract of sale? A: Yes. In sales with assumption of mortgage, the assumption of mortgage is a condition to the seller’s consent so that without approval by the mortgagee, no sale is perfected (Ramos v. Court of Appeals, G.R. No. 108294 Sept. 15, 1997)

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B. ESSENTIAL REQUISITES OF A CONTRACT OF SALE Q: What are the elements of a contract of sale? A: ANE 1. Accidental elements – dependent on parties’ stipulations; Examples: a. Conditions b. Interest c. time & place of payment d. penalty 2. Natural elements – those that are inherent even in absence of contrary provision. E.g. warranties 3. Essential elements – for validity: a. Consent b. Determinate subject matter c. Consideration Q: What is the effect and/or consequence of the absence of consent of the owner in a contract of sale of said property? A: The contract of sale is void. One of the essential requirements of a valid contract of sale is the consent of the owner of the property. FORMALITIES REQUIRED Q: Is there a formal requirement for the validity of a contract of sale? A: GR: No form is required. It is a consensual contract. (Pineda, p. 78) XPN: Under Statute of Frauds, the following contracts must be in writing; otherwise, they shall be unenforceable: 1. Sale of personal property at a price not less than P500; 2. Sale of a real property or an interest therein; 3. Sale of property not to be performed within a year from the date thereof; 4. When an applicable statute requires that the contract of sale be in a certain form. (Art. 1403, par.2) Note: Statute of Frauds applies only to executory contracts but not to partially executed contracts. (Pineda, p.81)

CIVIL LAW TEAM: ADVISER: ATTY. ELMER T. RABUYA; SUBJECT HEAD: ALFREDO B. DIMAFELIX II; ASST. SUBJECT HEADS: KAREN FELIZ G. SUPNAD, LAMBERTO L. SANTOS III; MEMBERS: PAUL ELBERT E. AMON, ALSTON ANARNA, OZAN J. FULLEROS, CECILIO M. JIMENO, JR., ISMAEL SARANGAYA, JR.; CONTRIBUTORS: LOISE RAE G. NAVAL, MONICA JUCOM

SALES Q: Are there instances where the Statute of Frauds is not essential for the validity of a contract of sale? A: Yes. 1. When there is a note or memorandum in writing and subscribed to by the party or his agent (contains essential terms of the contract); 2. When there has been partial performance/execution (seller delivers with the intent to transfer title/receives price); 3. When there has been failure to object to presentation of evidence aliunde as to the existence of a contract without being in writing and which is covered by the Statute of Frauds; 4. When sales are effected through electronic commerce. (Villanueva, p. 92) C. STAGES OF A CONTRACT OF SALE Q: What are the 3 stages involved in the formation of a contract of sale? A: 1. Negotiation/ Policitation 2. Perfection 3. Consummation 1. NEGOTIATION/PREPARATORY A. OFFER Q: What are the rules in the conception stage about the offer? A: OFFER IS RULE FLOATED AND IT IS: Offer is floated

Prior to acceptance, may be withdrawn at will by offeror but no authority to modify it

With a period

Must be accepted within the period, otherwise, extinguished at the end of period and may be withdrawn at will by offeror but must not be arbitrary, otherwise, liable for damages

With a condition

Extinguished by happening/ non‐ happening of condition

without period/ condition

Continues to be valid depending upon circumstances of time, place and person

With a counter‐ offer

Original offer is extinguished

B. OPTION CONTRACT Q: What is an option contract? A: A contract granting a privilege in one person, for which he has paid a consideration, which gives him the right to buy certain merchandise or specified property, from another person, at anytime within the agreed period, at a fixed price. Note: Consideration in an option contract may be anything or undertaking of value, unlike in sale where it must be a price certain in money.

Q: What is the nature of an option contract? A: It is a preparatory contract in which one party grants to another, for a fixed period and at a determined price, the privilege to buy or sell, or to decide whether or not to enter into a principal contract. It binds the party who has given the option not to enter into the principal contract with any other person during the period designated, and within that period, to enter into such contract with the one whom the option was granted, if the latter should decide to use the option. It is a separate and distinct contract. Note: If the option is perfected, it does not result in the perfection or consummation of the sale. (Diaz, p.7)

Q: What is the period within which to exercise the option? A: 1. Within the term stipulated 2. If there is no stipulation, the court may fix the term Notes: An action for specific performance to enforce the option to purchase must be filed within 10 years from the time the cause of action accrues. The implied renewal of the lease on a month‐to‐ month basis did not have the effect of extending the life of the option to purchase which expired at the end of the original lease period. The lessor is correct in refusing to sell on the ground that the option had expired. (2001 Bar Question)

Q: How is an option exercised? A: A notice of acceptance must be communicated to offeror even without actual payment as long as payment is delivered in the consummation stage.


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UST GOLDEN NOTES 2011 Q: What is the effect of a separate consideration in an option contract? A: 1. With separate consideration: a. Contract is valid b. Offeror cannot withdraw offer until after expiration of the option c. Is subject to rescission & damages but not specific performance 2. Without separate consideration: a. the option contract is not deemed perfected b. offer may be withdrawn at any time prior to acceptance Note: However, even though the option was not supported by a consideration, the moment it was accepted, contract of sale is perfected. (Art. 1324)

Q: What is the effect of acceptance and withdrawal of the offer? A: If the offer had already been accepted and such acceptance has been communicated to before the withdrawal is communicated, the acceptance creates a perfected contract, even if no consideration was as yet paid for the option. In which case, if the offeror does not perform his obligations under the perfected contract, he shall be liable for all consequences arising from the breach thereof based on any of the available remedies such as specific performance, or rescission with damages in both cases. C. RIGHT OF FIRST REFUSAL Q: What is the right of first refusal? A: It is a right of first priority, all things and conditions being equal; identity of the terms and conditions offered to the optionee and all other prospective buyers, with optionee to enjoy the right of first priority. It creates a promise to enter into a contract of sale and it has no separate consideration. Note: A deed of sale executed in favor of a 3rd party who cannot be deemed a purchaser in good faith, and which is in violation of the right of first refusal granted to the optionee is valid but rescissible. (Arts. 1380, 1381 [1])

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Q: NDC and Firestone entered into a contract of lease wherein it is stipulated that Firestone has the right of first refusal to purchase the leased property "should lessor NDC decide to sell the same”. After the rumor that NDC will transfer the lot to PUP, Firestone instituted an action for specific performance to compel NDC to sell the property in its favor. PUP moved to intervene arguing that the Memorandum issued by then President Aquino ordered the transfer of the whole NDC compound to the Government, which in turn would convey it in favor of PUP. Can Firestone exercise its right of first refusal? A: Yes. It is a settled principle in civil law that when a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a right that the lessor's first offer shall be in his favor. (PUP v. CA, G.R. No. 143513, Nov. 14, 2001) Q: In a 20‐year lease contract over a building, the lessee is expressly granted a right of first refusal should the lessor decide to sell both the land and building. However, the lessor sold the property to a third person who knew about the lease and in fact agreed to respect it. Consequently, the lessee brings an action against both the lessor‐seller and the buyer (a) to rescind the sale and (b) to compel specific performance of his right of first refusal in the sense that the lessor should be ordered to execute a deed of absolute sale in favor of the lessee at the same price. The defendants contend that the plaintiff can neither seek rescission of the sale nor compel specific performance of a "mere" right of first refusal. Decide the case. A: a. The action filed by the lessee, for both rescission of the offending sale and specific performance of the right of first refusal which was violated, should prosper. The ruling in (Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., G.R. No. 106063, Nov. 21, 1996), a case with similar facts, sustains both rights of action because the buyer in the subsequent sale knew the existence of right of first refusal, hence, in bad faith. b. The action to rescind the sale and to compel the right of first refusal will not prosper. (Ang Yu Asuncion v. CA, G.R.


SALES No. 109125, Dec. 2, 1994). The court ruled that the right of first refusal is not founded upon a contract but on a quasi‐ delictual relationship covered by the principles of human relations and unjust enrichment (Art 19, et seq. Civil Code). Hence, the only action that will prosper according to the Supreme Court is an action for damages in a proper forum for the purpose. (1998 Bar Question)

Note: The offer of the person in whose favor the right of first refusal was given must conform with the same terms and conditions as those given to the offeree.

Q: Andres leased his house to Iris for a period of 2 years, at the rate of P25, 000 monthly, payable annually in advance. The contract stipulated that it may be renewed for another 2‐year period upon mutual agreement of the parties. The contract also granted Iris the right of first refusal to purchase the property at any time during the lease, if Andres decides to sell the property at the same price that the property is offered for sale to a third party. Twenty‐three months after execution of the lease contract, Andres sold the house to his mother who is not a third party. Iris filed an action to rescind the sale and to compel Andres to sell the property to her at the same price. Alternatively, she asked the court to extend the lease for another two years on the same terms. Q: Can Iris seek rescission of the sale of the property to Andres’ mother? A: Iris can seek rescission because pursuant to Equatorial Realty Co. v. Mayfair Theater rescission is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract of sale may cause or the protection of some incompatible and preferred right.

Note: It is applicable only to executory contracts and not to contracts which are totally or partially performed.

If a particular form is required under the Statute of Frauds: sale is valid & binding between the parties but not to 3rd persons.

Q: May the right of first refusal be waived? A: Yes. Like other rights, the right of first refusal may be waived or when a party entered into a compromise agreement. (Diaz, p. 55) Q: Differentiate an option contract from a right of first refusal. A: An option contract is a preparatory contract in which one party grants to another, for a fixed period and at a determined price, the privilege to buy or sell, or to decide whether or not to enter into a principal contract. It binds the party who has given the option not to enter into the principal contract with any other person during the period designated, and within that period, to enter into such contract with the one whom the option was granted, if the latter should decide to use the option. It is a separate and distinct contract. In a right of first refusal, while the object may be determinate, the exercise of the right would be dependent not only on the grantor’s eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that are yet to be firmed up. (Diaz, p. 54) OPTION CONTRACT Principal contract; stands on its own Needs separate consideration

Q: Will the alternative prayer for extension of the lease prosper?

Subject matter & price must be valid

A: No, the extension of the lease should be upon the mutual agreement of the parties. (2008 Bar Question) Q: Is it necessary that the right of first refusal be embodied in a written contract? A: Yes, the grant of such right must be clear and express.

Not conditional Not subject to specific performance

RIGHT OF FIRST REFUSAL Accessory; cannot stand on its own Does not need separate consideration There must be subject matter but price not important Conditional Subject to specific performance


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UST GOLDEN NOTES 2011 D. POLICITATION/MUTUAL PROMISE TO BUY AND SELL/ Q: What is policitation? A: Policitation is defined as an unaccepted unilateral promise to buy or sell. This produces no judicial effect and creates no legal bond. This is a mere offer, and has not yet been converted into a contract. It covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected. (Villanueva, p. 6). Q: Is there a legal bond already created in the negotiation stage? A: None. In negotiation (policitation) stage, the offer is floated as well as the acceptance. 2. PERFECTION Q: When is a contract of sale deemed perfected? A: GR: It is deemed perfected at the moment there is meeting of minds upon the thing which is the object of the contract and upon the price. (Art.1475, par.1) XPN: When the sale is subject to a suspensive condition by virtue of law or stipulation. Q: Spouses Raet and Mitra negotiated with Gatus about the possibility of buying his rights to certain units at a subdivision developed by Phil‐ Ville for them to be qualified to obtain loans from GSIS. They paid an amount for which Gatus issued them receipts in her own name. GSIS disapproved their loan application. Phil‐Ville advised them to seek other sources of financing. In the meantime, they were allowed to remain in the subject premises. Is there a perfected and enforceable contract of sale or at least an agreement to sell over the disputed housing units? A: None. There was no contract of sale perfected between the private parties over the said property, there being no meeting of the minds as to terms, especially on the price thereof. At best, only a proposed contract to sell obtained which did not even ripen into a perfected contract due at the first instance to private respondents' inability to secure approval of their GSIS housing loans. As it were, petitioners and private respondents have not hurdled the negotiation phase of a contract, which is the period from the time the prospective contracting parties indicate

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interest on the contract to the time the contract comes into existence the perfection stage upon the concurrence of the essential elements thereof. (Sps. Raet & Sps. Mitra v. CA, G.R. No. 128016, Sept. 17, 1998)

Q: Severino executed two deeds when he sold his property to Henry so that Henry can obtain a loan with Philam Life. He also authorized Henry to file an ejectment suit against the lessees and when the prayer for ejectment was granted, Henry took possession of the property. Severino now claims ownership over the property claiming that the sale is fictitious therefore there was no sale to speak of. Is Severino’s contention correct? A: No. There is a perfected contract of sale due to the second deed of sale in this case. The basic characteristic of an absolutely simulated or fictitious contract is that the apparent contract is not really desired or intended to produce legal effects or alter the juridical situation of the parties in any way. However, in this case, the parties already undertook certain acts which were directed towards fulfillment of their respective covenants under the second deed, indicating that they intended to give effect to their agreement. Further, the fact that Severino executed the two deeds, primarily so that Henry could eject the tenant and enter into a loan/mortgage contract with Philam Life, is a strong indication that he intended to transfer ownership of the property to Henry. For why (Hernando R. Penalosa v. Severino Santos, G.R. No. 133749, Aug. 23, 2001) Q: What is the effect of Severino’s and Henry’s failure to appear before the notary public who notarized the deed? A: None. The non‐appearance of the parties before the notary public who notarized the deed does not necessarily nullify nor render the parties' transaction void ab initio. Article 1358, NCC on the necessity of a public document is only for convenience, not for validity or enforceability. Where a contract is not in the form prescribed by law, the parties can merely compel each other to observe that form, once the contract has been perfected. Note: Contracts are obligatory in whatever form they may have been entered into, provided all essential requisites are present. (Penalosa v. Santos, G.R. No. 133749, Aug. 23, 2001)


SALES Q: When is an auction sale perfected? A: A sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer, or in other customary manner. (Art. 1476, par.2) Q: Does the seller have the right to bid in an auction sale? A: Yes. The seller has the right to bid provided that such right was reserved and notice was given to that effect. (Pineda, p. 53) Q: When is a sale of foreign exchange considered perfected? A: A sale of foreign exchange is considered perfected from the moment the Bangko Sentral ng Pilipinas authorizes the purchase, even if the foreign bank has not yet honored the letter of credit. (Pacific Oxygen and Acetylene Co. v. Central Bank, G.R. No. L‐21881, Mar. 1, 1968) 3. CONSUMMATION Q: How does the consummation stage in a contract of sale take place? A: It takes place by the delivery of the thing together with the payment of the price. Q: A and PDS Development Corp. executed a contract to sell a parcel of land. A died without having completed the installment on the property. His heirs then took over the contract to sell and assumed his obligations by paying the selling price of the lot from their own funds, and completed the payment. To whom should the final Deed of Absolute Sale be executed by PDS? A: Having stepped into the shoes of the deceased with respect to the said contract, and being the ones who continued to pay the installments from their own funds, A’s heirs became the lawful owners of the said lot in whose favor the deed of absolute sale should have been executed by vendor PDS. (Dawson v. Register of Deeds of Quezon City, G.R. No. 120600 Sept. 22, 1998)

D. OBLIGATIONS CREATED OBLIGATIONS OF THE BUYER Q: What are the obligations of the buyer? A: 1. Payment of the price GR: Seller is not bound to deliver unless the purchase price is paid XPN: A period of payment has been fixed 2. Accept delivery of thing sold 3. Pay for expenses of delivery Note: A grace period granted the buyer in case of failure to pay is a right not an obligation. Non‐ payment would still generally require judicial or extrajudicial demand before default can arise.

Q: What are the other obligations of the buyer? A: 1. To take care of the goods without the obligation to return, where the goods are delivered to the buyer and he rightfully refuses to accept; Note: The goods in the buyer’s possession are at the seller’s risk.

2. 3.

To be liable as a depositary if he voluntarily constituted himself as such; To pay interest for the period between delivery of the thing and the payment of the price in the following cases: a. should it have been stipulated; b. should the thing sold and delivered produces fruits or income; or c. should he be in default, from the time of judicial or extra‐judicial demand for the payment of the price.

OBLIGATIONS OF THE SELLER Q: What are the obligations of the seller? A: DDTWTP 1. Deliver the thing sold; 2. Deliver fruits & accessions/accessories accruing from perfection of sale; 3. Transfer the ownership; 4. Warranties; 5. Take care of the thing, pending delivery, with proper diligence; 6. Pay for the expenses of the deed of sale unless there is a stipulation to the contrary


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UST GOLDEN NOTES 2011 2.

E. CHARACTERISTICS OF A CONTRACT OF SALE Q: What are the characteristics of a contract of sale? A: 1. Consensual 2. Bilateral 3. GR: Commutative XPN: Aleatory – In some contracts of sale, what one receives may in time be greater or smaller than what he has given. (Tolentino, p. 2, 2000 ed) 4. Principal 5. Title and not a mode of acquiring ownership 6. Onerous 7. Reciprocal 8. Nominate Q: Is a contract of sale identified as such based on the nomenclature given to the contract by the parties? A: No. Contracts are not defined by the parties but by principles of law. To determine the nature of the contract, the courts are not bound by the name or title given to it by the contracting parties. It is the intention of the parties which controls. (Diaz, Law on Sales as expounded by Jurisprudence, 2006 ed., p.1) Q: What are the factors to be considered in determining the nature of the contract? A: 1. Language of the contract 2. Conduct of parties F. DISTINCTIONS OF THE CONTRACT OF SALE WITH OTHER CONTRACTS Q: Distinguish Sale from the following: 1. Donation. SALE

DONATION

Onerous Consensual

Gratuitous/onerous Formal contract

Law on Sales

Law on Donation

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Barter

SALE BARTER Consideration is giving Consideration is of money as payment giving of a thing If consideration consists party in money & partly by thing–look at manifest intention; If intention is not clear – Art. 1468 Value of thing is more Value of thing is equal than amount of money = or less than amount of Barter money = Sale Both are governed by law on sales

3.

Agency to Sell SALE

Buyer pays for price of object

Buyer becomes owner of thing

Seller warrants Not unilaterally revocable Seller receives profit Real contract

AGENCY TO SELL Agent not obliged to pay for price; must account for the proceeds of the sale. Principal remains the owner even if the object delivered to agent Agent assumes no personal liability as long as within authority given May be revoked unilaterally even w/o ground Agent not allowed to profit Personal contract

4.

Dacion en Pago

SALE

DACION EN PAGO

No pre‐existing credit

Contract where property is alienated to extinguish pre‐ existing credit/debt

Buyer‐seller relationship

Novates creditor‐debtor relationship into seller‐buyer

5.

Lease SALE

Obligation to absolutely transfer ownership of thing Consideration is the price Seller needs to be owner of thing to transfer ownership. Note: Lease with option to buy – really a contract of sale but designated as lease in name.

LEASE Use of thing is for specified period only with obligation to return Consideration is the rental

Lessor need not be owner


SALES G. CONTRACT TO SELL Q: What is a contract to sell? A: It is one form of conditional sale where ownership or title is retained by the seller until the fulfillment of a positive suspensive condition, normally the payment of the purchase price by the buyer in the manner agreed upon. (Gomez v. CA, et. al., G.R. 120747, Sept. 21, 2000) Q: Distinguish a contract to sell from a contract of sale. A: CONTRACT OF SALE CONTRACT TO SELL As regards transfer of ownership Ownership is transferred Ownership is to the buyer upon transferred upon full delivery of the object to payment of the him. purchase price. Note: Vendor has lost Note: Prior to full and cannot recover payment, ownership is ownership until and retained by the seller. unless the contract is resolved or rescinded As to numbers of contracts involved There are two contracts: 1. The contract to sell Note: Conditional or preparatory sale There is only one contract executed 2. The deed of absolute between the seller and sale the buyer. Note: The principal contract is executed after full payment of the purchase price. Payment as a condition Full payment of the price is a positive Non‐payment of the suspensive condition. price is a resolutory Note: Failure to fully condition. Vendor loses pay the price is not a ownership over the breach but an event property and cannot that prevents the recover it until and obligation of the vendor unless the contract is to convey title from resolved or rescinded. becoming effective. Remedies available 1. Specific 1. Resolution 2. Performance 2. Damages 3. Rescission 4. Damages

Q: Having agreed to sell property which they inherited from their father, which was then still in their father’s name, the Coronels executed a

document entitled "Receipt of Down Payment" in favor of Alcaraz for the purchase of their house and lot, with the condition that Ramona will make a down payment upon execution of the document. The Coronels would then cause the transfer of the property in the name of Ramona and will execute a deed of absolute sale in favor of Ramona. Ramona paid the downpayment as agreed. Is there a perfected contract of sale or a mere contract to sell? A: The agreement could not have been a contract to sell because the sellers herein made no express reservation of ownership or title to the subject parcel of land. The Coronels had already agreed to sell the house and lot they inherited from their father, completely willing to transfer full ownership of the subject house and lot to the buyer if the documents were then in order. However, the TCT was then still in the name of their father, that is why they caused the issuance of a new TCT in their names upon receipt of the down payment. As soon as the new TCT is issued in their names, they were committed to immediately execute the deed of absolute sale. Only then will the obligation of the buyer to pay the remainder of the purchase price arise. This suspensive condition was fulfilled. Thus, the conditional contract of sale became obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which they unequivocally committed themselves to do as evidenced by the "Receipt of Down Payment." (Coronel, et al. v. CA, G.R. No. 103577, Oct. 7, 1996) Q: Instead of executing a deed of Absolute Sale in favor of Ramona, the Coronels sold the property to Catalina and unilaterally and extrajudicially rescinded the contract with Ramona. Ramona then filed a complaint for specific performance. Will Ramona’s action prosper? A: Yes. Under Article 1187, the rights and obligations of the parties with respect to the perfected contract of sale became mutually due and demandable as of the time of fulfillment or occurrence of the suspensive condition. Hence, petitioner‐sellers' act of unilaterally and extrajudicially rescinding the contract of sale cannot be justified, there being no express stipulation authorizing the sellers to extrajudicially rescind the contract of sale. (Coronel, et al. v. CA, G.R. No. 103577, Oct. 7, 1996)


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UST GOLDEN NOTES 2011 Q: What are the instances when what is involved is a contract to sell? A: 1. Where subject matter is indeterminate 2. Sale of future goods 3. Stipulation that deed of sale & corresponding certificate of sale would be issued only after full payment II. PARTIES TO A CONTRACT OF SALE Q: Who are the parties to a contract of sale? A: 1. Seller – one who sells and transfers the thing and ownership to the buyer 2. Buyer – one who buys the thing upon payment of the consideration agreed upon A. CAPACITY OF THE PARTIES Q: Who may enter into a contract of sale? A: GR: Any person who has capacity to contract or enter into obligations, may enter into a contract of sale, whether as party‐seller or as party‐buyer. XPN: 1. Minors, insane and demented persons and deaf‐mutes who do not know how to write 2. Persons under a state of drunkenness or during hypnotic spell 3. Husband and wife ‐ sale by and between spouses Note: Contracts of sale entered by such legally incapacitated persons are merely voidable, subject to annulment or ratification. However, the action for annulment cannot be instituted by the person who is capacitated since he is disqualified from alleging the incapacity of the person with whom he contracts. However, status of prohibited sales between spouses is not merely voidable, but null and void.

XPN to XPN: 1. Where necessaries are sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefor. 2. In case of sale between spouses:

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a.

when a separation of property was agreed upon in the marriage settlements; or b. when there has been a judicial separation of property agreed upon between them B. ABSOLUTE INCAPACITY

Q: Who are those absolutely incapacitated to enter into a contract of sale? A: 1. Unemancipated minors(Art. 1327, NCC); 2. Insane or demented persons, and deaf‐ mutes who do not know how to write (Art. 1327, NCC) Q: May a capacitated person file an action for annulment using as basis the incapacity of the incapacitated party? A: No. He is disqualified from alleging the incapacity of the person whom he contracts (Art. 1397, NCC); Q: In a defective contract, where such defect consists in the incapacity of a party, does the incapacitated party have an obligation to make restitution? A: GR: he incapacitated person is not obliged to make any restitution. XPN: insofar as he has been benefited by the thing or price received by him. (Art. 1399, NCC)

C. RELATIVE INCAPACITY Q: Who are those relatively incapacitated to enter into a contract of sale? A: 1. Spouses (Art. 1490, NCC) 2. Agents, Guardians, Executors and Administrators, Public Officers and Employees, Court Officers and Employees, and others specially disqualified by law. (Art. 1491, NCC) Note: Under Art. 1490 of the NCC, spouses cannot sell property to each other, except: a. When a separation of property was agreed in the marriage settlements; or b. When there has been a judicial separation of property agreed upon between them.


SALES Q : What is the status of the following contracts of sale? A: 1. That entered into by minors: a. Merely voidable, subject to annulment or ratification b. Action for annulment cannot be instituted by the person who is capacitated since he is disqualified from alleging the incapacity of the person with whom he contracts (with partial restitution in so far as the minor is benefited) where necessaries are sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price (Art. 1489) 2. Sale by & between spouses (Art. 1490): a. Status of prohibited sales between spouses: GR: Null and void XPN: In case of sale between spouses: i.

ii.

b.

When a separation of property was agreed upon in the marriage settlements; or When there has been a judicial separation of property agreed upon between them

Reasons: i. Prevent defrauding creditors ii. Avoid situation where dominant spouse takes advantage over the weaker spouse iii. Avoid circumvention on prohibition of donation between spouses rd Contract of sale with 3 parties: GR: Under the law on sales, it would seem that a spouse may, without the consent of the other spouse, enter into sales transactions in the regular or normal pursuit of their profession, vocation or trade. (in relation with Art. 73, Family Code)

3.

XPN: Even when the property regime prevailing was the conjugal partnership of gains, the Supreme Court held the sale by the husband of a conjugal property without the consent of the wife is void, not merely voidable under Art. 124 of the Family Code since the resulting contract lack one of the essential elements of full consent. (Guiang v. CA, G.R. No. 125172, June 26, 1998) Between Common Law Spouses ‐ also null and void. In Calimlim‐Canullas v. Fortun, the Court decided that sale between common law spouses is null and void because Art. 1490 prohibits sales between spouses to prevent the exercise of undue influence by one spouse over the other, as well as to protect the institution of marriage. The prohibition applies to a couple living as husband and wife without the benefit of marriage, otherwise, the condition of those incurred guilt would turn out to be better than those in legal union. (Calimlim‐Canullas v. Fortun, et. al., G.R. No. L‐57499, June 22, 1984) But when the registered property has been conveyed subsequently to a third‐ party buyer in good faith and for value, then reconveyance is no longer available to common‐law spouse‐seller, since under the Torrens system every buyer has a right to rely upon the title of his immediate seller. (Cruz v. CA, G.R. No. 120122, Nov. 6, 1997)

Q: Who has the right to assail the validity of the transaction between spouses? A: The following are the only persons who can question the sale between spouses: 1. The heirs of either of the spouses who have been prejudiced; 2. Prior creditors; and 3. The State when it comes to the payment of the proper taxes due on the transactions


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UST GOLDEN NOTES 2011 Q: Who are the persons with relative incapacity to be the vendee in a contract of sale? A: AGE‐COP RELATIVELY INCAPACITATED TO BUY

PROPERTIES INVOLVED Property entrusted to them for administration or sale XPN: When principal gave his consent Property of the ward during period of guardianship

Agents

STATUS OF SALE

Voidable

Note: Contracts entered by guardian in behalf of ward are rescissible if ward suffers lesion by more than ¼ of the value of property.

Guardian

Executors and administrators

Property of the estate under administration

Court officers and employees

Property and rights in litigation or levied upon on execution before the court under their jurisdiction

Others specially disqualified by law Pubic officers and employees

Property of the State entrusted to them for administration

Void

RATIFICATION

Can be ratified after the inhibition has ceased Reason: the only wrong that subsists is the private wrong to the ward, principal or estate; and can be condoned by the private parties themselves

Cannot be ratified Reason: It is a private wrong. (Villanueva, Law on Sales, p. 30‐31)

Note: Prohibitions are applicable to sales in legal redemption, compromises and renunciations. In the case of Rubias v. Batiller (51 SCRA 120), it sought to declare the difference in the nullity between contracts entered into by guardians, agents, administrators and executors, from the contracts entered into by judges, judicial officers, fiscals and lawyers.

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SALES D. SPECIAL DISQUALIFICATIONS Q: Who are those persons specially disqualified by law to enter into contracts of sale? A: ALIEN‐UnOS 1. ALIENs who are disqualified to purchase private agricultural lands (Art. XII Secs. 3 & 7) 2. Unpaid seller having a right of lien or having stopped the goods in transitu, is prohibited from buying the goods either directly or indirectly in the resale of the same at public/private sale which he may make (Art. 1533 [5]; Art. 1476 [4]) 3. The Officer holding the execution or deputy cannot become a purchaser or be interested directly or indirectly on any purchase at an execution. (Sec. 21 Rule 39, Rules of Court) 4. In Sale by auction, seller cannot bid unless notice has been given that such sale is subject to a right to bid in behalf of the seller. (Art. 1476) Q: Atty. Leon G. Maquera acquired his client’s property as payment for his legal services, then sold it and as a consequence obtained an unreasonable high fee for handling his client’s case. Did he validly acquire his client’s property? A: No. Article 1491 (5) of the New Civil Code prohibits lawyer’s acquisition by assignment of the client’s property which is the subject of the litigation handled by the lawyer. Also, under Article 1492, the prohibition extends to sales in legal redemption. (In Re: Suspension from the Practice of Law in the territory of Guam of Atty. Leon G. Maquera, B.M. No. 793, July 30, 2004)


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UST GOLDEN NOTES 2011 III. SUBJECT MATTER OF SALE A. REQUISITES OF A VALID SUBJECT MATTER Q: What are the requisites of a proper object of sale? A: 1. Things a. Determinate or determinable b. Lawful (licit), otherwise contract is void c. Should not be impossible (within the commerce of men) 2. Rights GR: Must be transmissible. XPN: a. Future inheritance b. Service – cannot be the object of sale. They are not determinate things and no transfer of ownership is available but it can be the object of certain contracts such uas contract for a piece of work. (Pineda, Sales, 2002 ed., p. 13) Q: Rodriguez first purchased a portion of a Lot A consisting of 345 square meters located in the middle of Lot B, which has a total area of 854 square meters, from Juan. He then purchased another portion of said lot. As shown in the receipt, the late Juan received P500.00 from Rodriguez as "advance payment for the residential lot adjoining his previously paid lot on three sides excepting on the frontage. Juan’s heirs now contests the validity of the subsequent sale, alleging that the object is not determinate or determinable. Decide. A: Their contention is without merit. There is no dispute that Rodriguez purchased a portion of Lot A consisting of 345 square meters. This portion is located in the middle of B, which has a total area of 854 square meters, and is clearly what was referred to in the receipt as the "previously paid lot." Since the lot subsequently sold to Rodriguez is said to adjoin the "previously paid lot" on three sides thereof, the subject lot is capable of being determined without the need of any new contract. The fact that the exact area of these adjoining residential lots is subject to the result of a survey does not detract from the fact that they are determinate or determinable. Concomitantly, the object of the sale is certain and determinate. (Heirs of San Andres v. Rodriguez, G.R. No. 135634, May 31, 2000)

242

Note: Where land is sold for a lump sum and not so much per unit of measure or number, the boundaries of the land stated in the contract determine the effects and scope of the sale, not the area thereof. The vendors are obligated to deliver all the land included within the boundaries, regardless of whether the real area should be greater or smaller than that recited in the deed. This is particularly true where the area is described as "humigit kumulang," that is, more or less. (Semira v. CA, G.R. No. 76031, Mar. 2, 1994)

Q: Can rights be the objects of sale? A: Yes, if they are transmissible. (Art. 1347) B. PARTICULAR KINDS Q: What may be objects of sale? A: 1. Existing Goods – owned/ possessed by seller at the time of perfection 2. Future Goods – goods to be manufactured, raised, acquired by seller after perfection of the contract or whose acquisition by seller depends upon a contingency (Art. 1462) Note: Sale of future goods is valid only as an executory contract to be fulfilled by the acquisition & delivery of goods specified.

3.

4.

Sale of Undivided Interest or Share a. Sole owner may sell an undivided interest. (Art. 1463) Ex. A fraction or percentage of such property b. Sale of an undivided share in a specific mass of fungible goods makes the buyer a co‐ owner of the entire mass in proportion to the amount he bought. (Art. 1464) c. A co‐owner cannot sell more than his share (Yturralde v. CA) Sale of Things in Litigation a. Sale of things under litigation is rescissible if entered into by the defendant , without the approval of the litigants or the court (Art. 1381) b. No rescission is allowed where the thing is legally in the rd possession of a 3 person


SALES

5.

6.

who did not acted in bad faith. Things subject to Resolutory Condition. Ex. Things acquired under legal or conventional right of redemption, or subject to reserva troncal. (Art. 1465) Indeterminate Quantity of Subject Matter a. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract provided it is possible to determine the same, without need of a new contract. (Art. 1349)

IV. OBLIGATION OF THE SELLER TO TRANSFER OWNERSHIP Q: Should the seller be the owner at the time of perfection of the contract? A: GR: No. Seller must have the right to transfer ownership at the time of delivery or consummation stage. He need not be the owner at the time of perfection of the contract. XPN: Foreclosure sale wherein the mortgagor should be the absolute owner. Q: EJ was subjected to a buy‐bust operation where police officers posed to buy 500 pesos worth of “S”. She was then charged with a violation of the Dangerous Drugs Act for trafficking drugs. EJ uses as defense her lack of possession of the object of the sale. Would her contention free her from liability? A: No. Though she was not in possession of the object of sale, Article 1459 merely requires that the vendor must have the right to transfer ownership of the object sold at the time of delivery. In the case at bar, though Beth is not the owner, she had the right to dispose of the prohibited drug. Ownership was thereafter acquired upon her delivery to the men in the alley after her payment of the price. (People v. Ganguso, G.R. No. 115430, Nov. 23, 1995)

A. SALE BY A PERSON WHO DOES NOT OWN THE THING SOLD Q: What is the status of a sale by a person who does not own the thing subject of the sale? A: It depends upon the stage of the sale. 1. When seller is not owner at perfection stage – the sale is valid. Ownership of the subject matter by the seller at this stage is not an essential requirement for the validity of sale. It is necessary at the time of delivery. Hence, a valid contract of sale can cover subject matter that is not yet existing or even a thing having only a potential existence at the time of perfection; or even a thing subject to a resolutory condition. Note: If the seller later acquires title thereto and delivers it, title passes by operation of law.

2.

When seller is not owner at consummation stage a. Old view – the contract of sale is valid, but the transfer of title is void. (Mindanao‐Academy, Inc. v. Yap, G.R. No. L‐17681, Feb. 26, 1965) b. New view – the sale by a non‐ owner of the subject property is void instead of treating the tradition/delivery aspect as having no effect on transferring ownership to the buyer. (DBP v. CA, G.R. No. 110053, Oct. 16, 1995)

Note: Nemo dat quod non habet – you cannot give what you do not have, properly applicable to the consummation of a sale.

Q: What is the legal effect of sale by a non‐ owner? A: GR: The buyer requires no better title to the goods than the seller had; caveat emptor (buyer beware). XPN: 1. Estoppel – when the owner of the goods is by his conduct precluded from denying the seller’s authority to sell 2. When the contrary is provided for in recording laws


243


4.

5.

6.

7.

When the sale is made under statutory power of sale or under the order of a court of competent jurisdiction When the sale is made in a merchant’s store in accordance with the Code of Commerce and special laws When a person who is not the owner sells and delivers a thing, and subsequently acquired title thereto When the seller has a voidable title which has not been avoided at the time of the sale Sale by co‐owner of the whole property or a definite portion thereof Special rights of unpaid seller

8. Q: What are the instances when the Civil Code recognizes sale of things not actually or already owned by the seller at the time of sale? A: 1. Sale of a thing having potential existence (Art.1461, NCC) 2. Sale of future goods (Art. 1462, NCC) 3. Contract for the delivery at a certain price of an article, which the seller in the ordinary course of business manufactures/ procures for the general market, whether the same is on hand at the time or not (Art. 1467, NCC) B. SALE BY A PERON HAVING A VOIDABLE TITLE

Q: What is the effect of a sale made by the seller with voidable title over the object? A: 1. Perfection stage: valid – buyer acquires title of goods 2. Consummation stage: valid – If the title has not yet been avoided at the time of sale and the buyer must buy the goods under the following conditions: a. In good faith b. For value c. Without notice of seller’s defect of title EMPTIO REI SPERATAE Sale of thing having potential existence Uncertainty is w/ regard to quantity & quality Contract deals w/ future thing Sale is valid only if the expected thing will exist.

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EMPTIO SPEI Sale of mere hope or expectancy Uncertainty is w/ regard to existence of thing Contract deals w/ present thing – hope or expectancy Sale is valid even though expected thing does not come into

existence as long as the hope itself validly existed. (eg. lotto) Note: The presumption is Emptio Rei Speratae

Q: Jose, as co‐owner, sold the entire land in favor of his minor daughter, Ida. Alleging that Jose had fraudulently registered it in his name alone, his sisters, sued him for recovery of 2/3 share of the property. Ida did not pay for the land. Is the sale valid? A: No. Jose did not have the right to transfer ownership of the entire property to petitioner since 2/3 thereof belonged to his sisters. Also, Ida could not have given her consent to the contract, being a minor at the time. Consent of the contracting parties is among the essential requisites of a contract, including one of sale, absent which there can be no valid contract. Moreover, Ida admittedly did not pay any centavo for the property, which makes the sale void. Article 1471 of the Civil Code provides: If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or some other act or contract. (Labagala v. Santiago, G.R. No. 132305, Dec. 4, 2001) V. PRICE A. MEANING OF PRICE Q: What is a price? A: Price signifies the sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the fixing of the price put to the debit of the buyer and agreed to by him. (Villanueva, p. 52) B. REQUISITES FOR A VALID PRICE Q: What are the requisites of price? A: Must be: 1. Real 2. In money or its equivalent 3. Certain or ascertainable at the time of the perfection of the contract C. HOW PRICE IS DETERMINED Q: When is price certain? A: 1. If there is a stipulation 2. If it be with reference to another thing certain


SALES 3. 4.

If the determination of the price is left to the judgment of specified person(s) By reference to certain fact(s) as referred to in Art. 1472 (Art. 1469)

Note: If the price is based on estimates, it is uncertain.

D. GROSS INADEQUACY OF THE PRICE Q: What is the effect of gross inadequacy of price? A: GR: It does not affect the validity of the sale if it is fixed in good faith and without fraud XPN: CoRDS 1. If Consent is vitiated (may be annulled or presumed to be equitable mortgage) 2. If the parties intended a Donation or some other act/ contract 3. If the price is so low as to be “Shocking to the conscience” 4. If in the event of Resale, a better price can be obtained Note: GR: The validity of the sale is not necessarily affected where the law gives the owner the right to redeem because the lesser the price, the easier it is for the owner to effect redemption. XPN: While there is no dispute that mere inadequacy of the price per se will not set aside a judicial sale of real property, nevertheless, where the inadequacy of the price is purely shocking to the conscience, such that the mind revolts at it and such that a reasonable man would neither directly or indirectly be likely to consent to it, the same will be set aside. (Cometa v. CA 351 SCRA 294)

Q: What is the effect if the price is simulated? A: GR: Contract of sale is void. XPN: The act may be shown to have been in reality a donation or some other act or contract. Q: What is considered reasonable price? A: Generally the market price at the time and place fixed by the contract or by law for the delivery of the goods.

Q: What is the effect on the contract of sale in case of a breach in the agreed manner of payment? A: None. It is not the act of payment of price that determines the validity of a contract of sale. Payment of the price has nothing to do with the perfection of the contract, as it goes into the performance of the contract. Failure to pay the consideration is different from lack of consideration. Failure to pay such results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract. On the other hand, lack of consideration prevents the existence of a valid contract. (Sps. Bernardo Buenaventura and Consolacion Joaqui v. CA, GR No. 126376, Nov. 20, 2003) Q: Is payment of the purchase price essential to transfer ownership? A: Unless the contract contains a stipulation that ownership of the thing sold shall not pass to the purchaser until he has fully paid the price, ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. (Diaz, p. 48) E. WHEN NO PRICE IS AGREED UPON BY THE PARTIES Q: What is the effect of failure to determine the price? A: 1. Where contract is executory – ineffective 2. Where the thing has been delivered to and appropriated by the buyer – the buyer must pay a reasonable price therefore Note: The fixing of the price cannot be left to the discretion of one of the parties. However, if the price fixed by one of the parties is accepted by the other, the sale is perfected.


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UST GOLDEN NOTES 2011 F. MANNER OF PAYMENT Q: What is the effect of a breach of the agreed manner of payment to the contract of sale? A: None. A contract of sale being a consensual contract, it becomes binding and valid upon the meeting of the minds as to price. 1. If there is such meeting of the minds as to price, the contract of sale is valid, despite the manner of payment, or even the breach of that manner of payment. 2. If the real price is not stated in the contract, then the contract of sale is valid but subject to reformation. 3. If there is no meeting of the minds as to the price because the price stipulated in the contract is simulated, then the contract is void, in accordance with Article 1471 of the Civil Code. (Sps. Buenaventura v. CA, G.R. No. 126376, Nov. 20, 2003)

Q: Distinguish the failure to pay the consideration from lack of consideration. A:

Note: A definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. (Co v. CA, G.R. No. 123908, Feb. 9, 1998)

Q: In an action for specific performance with damages, X alleged that there was an agreement to purchase the lot of Y. As regards the manner of payment, however, Y’s receipts contradicted the testimony of X. The receipts failed to state the total purchase price or prove that full payment was made. For this reason, it was contended that there was no meeting of their minds and there was no perfected contract of sale. Decide. A: The question to be determined should not be whether there was an agreed price, but what that agreed price was. The sellers could not render invalid a perfected contract of sale by merely contradicting the buyer’s obligation regarding the price, and subsequently raising the lack of agreement as to the price. (David v. Tiongson, G.R. No. 108169, Aug. 25, 1999)

Q: What is the effect of failure to determine the price? A: 1. Where contract is executory – ineffective 2. Where the thing has been delivered to and appropriated by the buyer – the buyer must pay a reasonable price therefore

246

FAILURE TO PAY LACK OF CONSIDERATION CONSIDERATION As to validity of contract of sale It is not the act of payment of price that determines the validity of a contract of sale. Lack of consideration prevents the Note: Payment of the price existence of a valid has nothing to do with the contract. perfection of the contract. Instead, it goes into the performance of the contract. As to resultant right Failure to pay the The contract of sale is consideration results in a null and void and right to demand the produces no effect fulfillment or cancellation whatsoever of the obligation under an existing valid contract.

G. EARNEST MONEY VIS‐A‐VIS OPTION MONEYY OPTION MONEY

Note: The fixing of the price cannot be left to the discretion of one of the parties. However, if the price fixed by one of the parties is accepted by the other, the sale is perfected.

Q: What is an option money? A: The distinct consideration in case of an option contract. It does not form part of the purchase price hence, it cannot be recovered if the buyer did not continue with the sale. Q: When is payment considered option money? A: Payment is considered option money when it is given as a separate and distinct consideration from the purchase price. Consideration in an option contract may be anything or undertaking of value.


SALES EARNEST MONEY Q: What is an earnest money or “arras”? A: This is the money given to the seller by the prospective buyer to show that the latter is truly interested in buying the property, and its aim is to bind the bargain. (Pineda, p. 75) Q: What is the effect of giving an earnest money? A: It forms part of the purchase price which may be deducted from the total price. It also serves as a proof of the perfection of the contract of sale. The rule is no more than a disputable presumption and prevails only in the absence of contrary or rebuttable evidence. (PNB v CA, 262 SCRA 464, 1996) Note: Option money may become earnest money if the parties so agree.

Q: When is payment considered an earnest money? A: When the payment constitutes as part of the purchase price. Hence, in case when the sale did not happen, it must be returned to the prospective buyer. Q: Distinguish option money from earnest money. A: OPTION MONEY Money given as distinct consideration for an option contract Applies to a sale not yet perfected Prospective buyer is not required to buy. If buyer does not decide to buy, it cannot be recovered.

EARNEST MONEY Forms part of the purchase price Given only when there is already a sale When given, the buyer is bound to pay the balance. If sale did not materialize, it must be returned. (Villanueva, p. 87, Pineda, p.77)

Simeon suddenly has a change of heart, claiming that the deal is disadvantageous to him as he has found out that the property can fetch three times the agreed purchase price. Bert seeks specific performance but Simeon contends that he has merely given Bert an option to buy and nothing more and offers to return the option money which Bert refuses to accept. 1. Will Bert's action for specific performance prosper? Explain. 2. May Simeon justify his refusal to proceed with the sale by the fact that the deal is financially disadvantageous to him? Explain. A: 1. Bert's action for specific performance will prosper because there was a binding agreement of sale, not just an option contract. The sale was perfected upon acceptance by Simeon of 10% of the agreed price. This amount is in reality an earnest money which, under Art. 1482, "shall be considered as part of the price and as proof of the perfection of the contract." (Topacio v. CA, G.R. No. 102606, July 3, 1992; Villongco Realty v. Bormaheco, G.R. No. L‐26872, July 25, 1975). 2. Simeon cannot justify his refusal to proceed with the sale by the fact that the deal is financially disadvantageous to him. Having made a bad bargain is not a legal ground for pulling out of a binding contract of sale, in the absence of some actionable wrong by the other party (Vales v. Villa, G.R. No. 10028, Dec. 16, 1916), and no such wrong has been committed by Bert. (2002 Bar Question) VI. FORMATION OF CONTRACT OF SALE Note: see Introduction, Stages of Contract of Sale pp. 230‐234

Q: Bert offers to buy Simeon's property under the following terms and conditions: P1 million purchase price, 10% option money, the balance payable in cash upon the clearance of the property of all illegal occupants. The option money is promptly paid and Simeon clears the property of all illegal occupants in no time at all. However, when Bert tenders payment of the balance and asks for the deed of absolute sale, ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II U N I V E R S I T Y O F S A N T O T O M A S VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA Facultad de Derecho Civil V ICE C HAIR FOR A DMINISTRATION AND F INANCE : J EANELLE C. L EE VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ

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UST GOLDEN NOTES 2011 VII. TRANSFER OF OWNERSHIP A. MANNER OF TRANSFER Q: What is the effect of delivery? A: GR: Title /ownership is transferred XPN: Contrary is stipulated as in the case of: 1. Pactum reservatii in domini – agreement that ownership will remain with seller until full payment of price (Contract to sell); 2. Sale on acceptance/approval; 3. Sale on return; 4. There is implied reservation of ownership; Note: Seller bears expenses of delivery.

Q: Spouses Bernal purchased a jeepney from Union Motor to be paid in installments. They then executed a promissory note and a deed of chattel mortgage in favor of Union Motor which in turn assigned the same with Jardine Finance. To effectuate the sale as well as the assignment of the promissory note and chattel mortgage, the spouses were required to sign documents, one of which was a sales invoice. Although the Spouses have not yet physically possessed the vehicle, Union Motor’s agent required them to sign the receipt as a condition for the delivery of the vehicle. It was discovered that the said agent stole the vehicle even prior to its delivery to the spouses. Was there a transfer of ownership of the subject vehicle? A: No. The issuance of a sales invoice does not prove transfer of ownership of the thing sold to the buyer; an invoice is nothing more than a detailed statement of the nature, quantity and cost of the thing sold and has been considered not a bill of sale. The registration certificate signed by the spouses does not conclusively prove that constructive delivery was made nor that ownership has been transferred to the respondent spouses. Like the receipt and the invoice, the signing of the said documents was qualified by the fact that it was a requirement of Union Motor for the sale and financing contract to be approved. In all forms of delivery, it is necessary that the act of delivery, whether constructive or actual, should be coupled with the intention of delivering the thing. The act, without the intention, is insufficient. Inasmuch as there was neither physical nor constructive delivery of a determinate thing, (in

248

this case, the subject motor vehicle) the thing sold remained at the seller’s risk. The Union Motor should therefore bear the loss of the subject motor vehicle after its agent allegedly stole the same. (Union Motor Corp. v. CA, G.R. No. 117187, July 20, 2001) Q: How may the buyer accept the delivery of the thing sold? A: 1. Express – he intimates to seller that he has accepted 2. Implied a. Buyer does not act inconsistent with ownership of seller after delivery b. Retains without intimating to seller that he has rejected Q: What is the effect if the buyer refuses to accept despite delivery of the object of the sale? A: Delivery is completed. Since delivery of the subject matter of the sale is an obligation on the part of the seller, the acceptance thereof by the buyer is not a condition for the completeness of the delivery. (Villanueva, p. 117) Note: Thus, even with such refusal of acceptance, delivery (actual/constructive), will produce its legal effects. (e.g. transferring the risk of loss of the subject matter to the buyer who has become the owner thereof) (Villanueva, p. 117) Under Art. 1588, when the buyer’s refusal to accept the goods is without just cause, the title thereto passes to him from the moment they are placed at his disposal. (Villanueva, p. 117)

Q: Is payment of the purchase price essential to transfer ownership? A: Unless the contract contains a stipulation that ownership of the thing sold shall not pass to the purchaser until he has fully paid the price, ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. (Diaz, p. 48) Q: What are the effects of a sale of goods on installment? A: 1. Goods must be delivered in full except when stipulated


SALES 2.

When not examined by the buyer – it is not accepted until examined or at least had reasonable time to examine

Q: When may the buyer suspend payment of the price? A: GR: 1. If he is disturbed in the possession or ownership of the thing bought 2. If he has well‐grounded fear that his possession or ownership would be disturbed by a vindicatory action or foreclosure of mortgage. Note: These grounds are not exclusive. It can only be exercised if the price or any part thereof has not yet been paid and the contract is not yet consummated. (Art. 1590) If the disturbance is caused by the existence of non‐ apparent servitude, the remedy is rescission.

XPN: 1. Seller gives security for the return of the price in a proper case; 2. A stipulation that notwithstanding any such contingency, the buyer must make payment; 3. Disturbance or danger is caused by the seller; 4. If the disturbance is a mere act of trespass; 5. Upon full payment of the price. B. WHEN DELIVERY DOES NOT TRANSFER TITLE Q: When does delivery does not transfer title? A: 1. Sale on Trial, Approval, or Satisfaction 2. When there is an EXPRESS RESERVATION a. If it was stipulated that ownership shall not pass to the purchaser until he has fully paid the price (Art. 1478) 3. When there is an IMPLIED RESERVATION a. a. When goods are shipped, but the bill of lading states that goods are deliverable to the seller or his agent, or to the order of the seller or his agent b. b. When the bill of lading is retained by the seller or his agent

c.

c. when the seller of the goods draws on the buyer for the price and transmits the bill of exchange and the bill of lading to the buyer , and the latter does not honor the bill of exchange by returning the bill of lading to the seller 4. When sale is not VALID 5. When the seller is not the owner of the goods XPNs: a. Estoppel: when the owner is precluded from denying the sellers authority to sell b. Registered land bought in good faith: Ratio: Buyer need not go beyond the Torrens title c. Order of Courts in a Statutory Sale d. When the goods are purchased in a Merchant’s store, Fair or Market (Art. 1505) SALE ON TRIAL, APPROVAL OR SATISFACTION Q: What is sale on trial, approval or satisfaction? A: It is a contract in the nature of an option to purchase if the goods prove to be satisfactory, the approval of the buyer being a condition precedent. Q: What are the rules in case of sale on trial, approval or satisfaction? A: Title

Risk of Loss

Remains with seller GR: Borne by seller XPN: 1. Buyer is at fault 2. Buyer agreed to bear the loss

As to trial

GR: Buyer must give goods a trial XPN: Buyer need not do so if it is evident that it cannot perform the work.

When period within which buyer must signify his acceptance runs

It runs only when all the parts essential for the operation of the object has been delivered


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UST GOLDEN NOTES 2011 Validity of stipulation that a 3rd person must satisfy approval or satisfaction If the sale is made to a buyer who is an expert on the object purchased

b.

Allowing buyer to make use of rights 4. Tradition by operation of law – Execution of a public instrument is equivalent to delivery. But to be effective, it is necessary that the seller have such control over the thing sold that, at the moment of sale, its material delivery could have been made. GR: There is presumption of delivery XPN: a. Contrary stipulation; b. When at the time of execution, subject matter was not subject to the control of seller; c. Seller has no capacity to deliver at time of execution; d. Such capacity should subsist for a reasonable time after execution of instrument.

rd

Valid, provided the 3 person is in good fath

Generally, it cannot be considered a sale on approval

C. KINDS OF DELIVERY Q: What are the different kinds of delivery? A: 1. Actual – thing sold is placed under the control and possession of buyer/agent; 2. Constructive – does not confer physical possession of the thing, but by construction of law, is equivalent to acts of real delivery. Requisites: a. The seller must have control over the thing b. The buyer must be put under control c. There must be intention to deliver the thing for purposes of ownership i. Tradicion Symbolica – delivery of certain symbols representing the thing ii. Tradicion Instrumental – delivery of the instrument of conveyance. iii. Traditio Longa Manu – Delivery of thing by mere agreement; when seller points to the property without need of actually delivering iv. Tradicion Brevi Manu – Before contract of sale, the would‐be buyer was already in possession of the would‐be subject matter of sale v. Constitutum Possessorium – at the time of perfection of contract, seller continues to have possession merely as a holder 3. Quasi‐tradition – delivery of rights, credits or incorporeal property, made by: a. Placing titles of ownership in the hands of the buyer;

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Note: Delivery should be coupled with intention of delivering the thing, and acceptance on the part of the buyer to give legal effect of the act. Without such intention, there is no such tradition.

Q: Susan invested in commodity futures trading in OCP, which involves the buying or selling of a specified quantity and grade of a commodity at a future date at a price established at the floor of the exchange. As per terms of the trading contract, customer's orders shall be directly transmitted by OCP as broker to its principal, Frankwell Enterprises, which in turn must place the customer's orders with the Tokyo Exchange. In this case, however, there is no evidence of such transmission. When Susan withdrew her investment, she was not able to recover the entire amount. She thus filed a complaint and the trial court ruled in her favor, saying that the contract is a species of gambling and therefore void. Is the court’s ruling correct? A: Yes. A trading contract is a contract for the sale of products for future delivery, in which either seller or buyer may elect to make or demand delivery of goods agreed to be bought and sold, but where no such delivery is actually made. In this case, no actual delivery of goods and commodity was intended and ever made by the parties. In the realities of the transaction, the parties merely speculated on the rise and fall in the price of the goods/commodity subject matter of the transaction. If Susan’s speculation was correct, she would be the winner and OCP, the loser, so OCP would have to pay her the "margin".


SALES But if she was wrong in her speculation then she would emerge as the loser and OCP, the winner. OCP would then keep the money or collect the difference from her. This is clearly a form of gambling provided for with unmistakable certainty under Article 2018. (Onapal Phils. Commodities, Inc. vs. CA and Susan Chua, G.R. No. 90707, Feb. 1, 1993) Note: Futures Commission Merchant/Broker refers to a corporation or partnership, which must be registered and licensed as a Futures Commission Merchant/Broker and is engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery on or subject to the rules of the contract market and that, in connection with such solicitation or acceptance of orders, accepts any money, securities or property (or extends credit in lieu thereof) to margin, guarantee or secure any trade or contract that results or may result therefrom.

Q: Given that actual possession, control and enjoyment is a main attribute of ownership, is symbolic delivery by mere execution of the deed of conveyance sufficient to convey ownership over property? A: Yes, possession is also transferred along with ownership thereof by virtue of the deed of conveyance. The mere execution of the deed of conveyance in a public document is equivalent to the delivery of the property, prior physical delivery or possession is not legally required. The deed operates as a formal or symbolic delivery of the property sold and authorizes the buyer or transferee to use the document as proof of ownership. Nothing more is required. (Sps. Sabio v. International Corporate Bank, Inc. et. at. G.R. No. 132709, Sept. 4, 2001) Q: Can delivery be effected through a carrier? A: GR: Yes, if the seller is authorized. Delivery to carrier is delivery to the buyer. XPN: 1. A contrary intention appears 2. Implied reservation of ownership under Art. 1503, pars 1, 2, 3. Q: What are the kinds of delivery to carrier? A: 1. FAS (Free Along Side) – when goods are delivered alongside the ship, there is already delivery to the buyer

2.

3.

4.

FOB (Free On Board) – when goods are delivered at the point of shipment, delivery to carrier by placing the goods on vessel is delivery to buyer CIF (Cost, Insurance, Freight) – a. When buyer pays for services of carrier, delivery to carrier is delivery to buyer, carrier as agent of buyer; b. When buyer pays seller the price – from the moment the vessel is at the port of destination, there is already delivery to buyer COD (Collect On Delivery) – the carrier acts for the seller in collecting the purchase price, which the buyer must pay to obtain possession of the goods.

Q: What are the seller’s duties after delivery to the carrier? A: 1. To enter on behalf of the buyer into such contract reasonable under the circumstances; 2. To give notice to the buyer regarding necessity of insuring the goods. Q: Where is the place of delivery? A: 1. That agreed upon 2. Place determined by usage of trade 3. Seller’s place of business 4. Seller’s residence 5. In case of specific goods, where they can be found Q: When should the object be delivered? A: 1. Stipulated time 2. If there is none, at a reasonable hour. Q: What are the effects of a sale of goods on installment? A: 1. Goods must be delivered in full except when stipulated 2. When not examined by the buyer – it is not accepted until examined or at least had reasonable time to examine


251

UST GOLDEN NOTES 2011 Q: When is the seller not bound to deliver the thing sold? A: 1. If the buyer has not paid the price; 2. No period for payment has been fixed in the contract; 3. A period for payment has been fixed in the contract but the buyer has lost the right to make use of the time. D. DOUBLE SALE Q: When is there a double sale? A: There is double sale when the same object of the sale is sold to different vendees. Note: Requisites: 1. Same subject matter 2. Same immediate seller 3. Two or more different buyers 4. Both sales are valid

Q: What is the rule on double sale? A: First in time, priority in right Note: Rule on Double Sale regarding immovables: GR: Apply Art.1544 XPN: Sale of registered lands – apply Torrens System

Q: What are the rules according to Article 1544 of the Civil Code? A: c. Movable – Owner who is first to possess in good faith d. Immovable – d. First to register in good faith e. No inscription, first to possess in good faith f. No inscription & no possession in good faith – Person who presents oldest title in good faith E. PROPERTY REGISTRATION DECREE Q: Ten Forty Realty purchased from Galino a parcel of land. However, the Deed of Sale was not recorded in the Registry of Deeds. Subsequently, Galino sold the same property to Cruz who immediately took possession of the said property. Who has a better right between Ten Forty and Cruz? A: In the absence of the required registration, the law gives preferential right to the buyer who in good faith is first in possession. The subject

252

property had not been delivered to Ten Forty; hence, it did not acquire possession either materially or symbolically. As between the two buyers, therefore, respondent was first in actual possession of the property. (Ten Forty Realty & Dev’t. Corp. v. Cruz, G.R. No. 151212, Sept. 10, 2003) Q: Explain the principle of prius tempore, potior jure. A: Knowledge by the first buyer of the second sale cannot defeat the first buyer’s rights except when the second buyer first registers in good faith the second sale. Conversely, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since such knowledge taints his registration with bad faith to merit the nd protection of Art. 1544 (2 par.), the second realty buyer must act in good faith in registering his deed of sale. (Diaz, p. 125) Note: Where one sale is absolute and the other is a pacto de retro transaction where the period to redeem has not yet expired, Art. 1544 will not apply. (Pineda, p. 223)

Q: Juliet offered to sell her house and lot, together with all the furniture and appliances therein, to Dehlma. Before agreeing to purchase the property, Dehlma went to the Register of Deeds to verify Juliet’s title. She discovered that while the property was registered in Juliet’s name under the Land Registration Act, as amended by the Property Registration Decree, it was mortgaged to Elaine to secure a debt of P80, 000. Wanting to buy the property, Dehlma told Juliet to redeem the property from Elaine, and gave her an advance payment to be used for purposes of releasing the mortgage on the property. When the mortgage was released, Juliet executed a Deed of Absolute Sale over the property which was duly registered with the Registry of Deeds, and a new TCT was issued in Dehlma’s name. Dehlma immediately took possession over the house and lot and the movables therein. Thereafter, Dehlma went to the Assessor’s Office to get a new tax declaration under her name. She was surprised to find out that the property was already declared for tax purposes in the name of XYZ Bank which had foreclosed the mortgage on the property before it was sold to her. XYZ Bank was also the purchaser in the foreclosure sale of the property. At that time, the property was still unregistered but XYZ Bank registered the Sheriff’s Deed of Conveyance in the day book of the Register of Deeds under Act 3344 and obtained a tax declaration in its name.


SALES Was Dehlma a purchaser in good faith? A: Yes, Dehlma is a purchaser in good faith. She learned about the XYZ tax declaration and foreclosure sale only after the sale to her was registered. She relied on the certificate of title of her predecessor‐in‐interest. Under the Torrens System, a buyer of registered lands is not required by law to inquire further than what the Torrens certificate indicates on its face. If a person proceeds to but it relying on the title, that person is considered a buyer in good faith. The “priority in time” rule could not be invoked by XYZ Bank because the foreclosure sale of the land in favour of the bank was recorded under Act 3344, the law governing transactions affecting unregistered land, and thus, does not bind the land. Q: Who as between Dehlma and XYZ Bank has a better right to the house and lot? A: Between Dehlma and the bank, the former has a better right to the house and lot. Q: Who owns the movables inside the house? A: Unless there is a contrary stipulation in the absolute deed of sale, Dehlma owns the movables covered by the Deed of Sale and her ownership is perfected by the execution and delivery of public document of sale. The delivery of the absolute deed of sale is a symbolical delivery of the house and lot, including the contents of the house. This is an obligation to deliver a specific thing, which includes the delivery of the specific thing itself and all of its accessions and accessories even though they may not have been mentioned (Art. 1166, CC). (2008 Bar Question) Q: Does prior registration by the second buyer of a property subject of a double sale confer ownership or preferred right in his favor over that of the first buyer? A: Prior registration of the disputed property by the second buyer does not by itself confer ownership or a better right over the property. Article 1544 requires that such registration must be coupled with good faith. Knowledge gained by the first buyer of the second sale cannot defeat the first buyer's rights except where the second buyer registers in good faith the second sale ahead of the first, as provided by the Civil Code.

Knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register the second sale, since such knowledge taints his prior registration with bad faith (Art. 1544) (Uraca, et. al v. CA, G.R. No. 115158, Sept. 5, 1997) VIII. RISK OF LOSS Q: When is a thing considered lost? A: It is understood that the thing is lost when it: 1. perishes, or 2. goes out of commerce, or 3. disappears in such a way that its existence is unknown or cannot be nd recovered. (Art. 1189, 2 par.) Q: What is deterioration? A: Deterioration is the lowering of the value or character of a thing. It normally occurs by reason of ordinary wear and tear. (Pineda, Credit, p. 20) Q: Who bears the risk of loss or deterioration? A: BEFORE PERFECTION

AT PERFECTION

AFTER PERFECTION BUT BEFORE DELIVERY

AFTER DELIVERY

Res perit domino – Seller is the owner so seller bears risk of loss Res perit domino Contract shall be without any effect – the seller bears the loss since the buyer is relieved of his obligation under the contract Two Views: Paras: Buyer, except: 1. when object sold consists of fungible goods for a price fixed 2. when seller is guilty of fraud, negligence, default, or violation of contractual terms; or 3. when object sold is generic. Tolentino: Seller; Deterioration & fruits – Buyer bears loss Res perit domino Buyer becomes the owner so buyer bears risk of loss Delivery extinguish ownership vis‐ a‐vis the seller & creates a new one in favor of the buyer


253

UST GOLDEN NOTES 2011 Q: What is the effect of the loss of the thing subject of the contract at the time of sale? A: 1. Total loss – contract is void & inexistent 2. Partial loss – buyer may elect between withdrawing from the contract or demanding the remaining part, paying its proportionate price E. When Ownership is Transferred See Transfer of Ownership. p. 247 IX. DOCUMENTS OF TITLE Q: What is a Document of Title? A: A document used in the ordinary course of business in the sale or transfer of goods , as proof of the possession or control of the goods , or authorizing or purporting to authorize the possessor of the document to transfer or receive , either by endorsement or by delivery , goods represented by such document (Art. 1636). Q: What is the purpose of the Documents of Title? A: 1. Evidence of possession or control of goods described therein 2. Medium of transferring title and possession over the goods described therein without having to effect actual delivery (Villanueva, 2009 ed.) 3. The custody of a negotiable warehouse receipts issued to the order of the owner, or to bearer, is a representation of title upon which bona fide purchasers for value are entitled to rely , despite breaches of t rust or violations of agreement on the part of the apparent owner (Siy Cong Bieng v. HSBC, 56 Phil 598) Negotiable Documents of Title Q: What is a Negotiable Document of Title? A: A document of title which states that the goods referred therein will be delivered to the bearer, or to the order of any person named in such document (Art. 1509, NCC).

254

Q: Who may negotiate a Negotiable Document of Title? A: 1. Owner 2. Person to whom the possession pr custody of the document has been entrusted by the owner a. If bailee undertakes to deliver the goods to such person b. If document is in such form that it may be negotiated by delivery. Non‐Negotiable Documents of Title Q: What are Non‐negotiable documents of title? A: 1. They are delivered only to a specified person 2. Carrier will not deliver the goods to any holder of the document or to whom such document may have been endorsed by the consignee 3. Must present the deed of sale or donation in his favour Q: What are the warranties of seller of documents of title? A: 1. Genuiness of the Document 2. Legal right to negotiate or transfer 3. No knowledge of fact which would impair the validity or worth of the document 4. Right to transfer Title to the goods and merchantability or fitness for a particular purpose, whenever such warranties would have been implied had the contract transfer the goods without a document. Rules Regarding Levy and Garnishment of Goods Q: What does a person to whom a non‐ negotiable instrument has been transferred but not negotiated, acquire as against the transferor? A: He acquires: 1. Title to the goods, subject to the terms of any agreement with the transferor; 2. Right to notify the bailee who issued the document of the transfer thereof,


SALES and thereby to acquire the direct obligation of such bailee to hold possession of the goods for him according to the terms of the document. Q: How may the transferor’s creditor defeat the aforementioned rights of the transferee? A: Prior to the notification to such bailee by the transferor or transferee of a non‐negotiable document of title, the title of the transferee to the goods and the right to acquire the obligation of such bailee may be defeated by the transferor’s creditor by the levy of an attachment or execution upon the goods. (Art. 1514, NCC) Q: If the goods are delivered to a bailee by the owner or by a person whose act in conveying the title to them to a purchaser in good faith for value and a negotiable instrument was issued for them, can the said goods be attached, garnished or levied upon? A: GR: No, the goods cannot be attached, garnished or levied upon while they are in the bailee’s possession. XPN: 1. When the document is first surrendered; or 2. When its negotiation is enjoined. Note: The bailee shall in no case be compelled to deliver the actual possession of the goods until the document is: 1. Surrendered to him; or 2. Impounded by the court. (Art. 1519, NCC)

Q: What are the rights of a creditor whose debtor is the owner of a negotiable document of title? A: He is entitled to such aid from courts of appropriate jurisdiction by: 1. injunction; 2. attaching such document; 3. as regards property which cannot be readily attached or levied upon by ordinary legal process ‐ satisfying the claim by means allowed by law or equity. (Art. 1520, NCC)

X. REMEDIES OF AN UNPAID SELLER A. DEFINITION OF UNPAID SELLER Q: Who is an unpaid seller? A: The seller of goods is deemed to be an unpaid seller either: 1. when the whole of the price has not been paid or tendered; or 2. when a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has been broken by reason of the dishonor of the instrument, the insolvency of the buyer, or otherwise. Note: It includes an agent of the seller to whom the bill of lading has been indorsed, or consignor or agent who has himself paid, or is directly responsible for the price, or any other person who is in the position of a seller.

B. REMEDIES OF UNPAID SELLER Q: What are the remedies of an Unpaid Seller? A: I. Ordinary 1. Action for Price Exercised when: a. ownership has passed to buyer; b. price is payable on a day certain c. goods cannot readily be resold for reasonable price and Art. 1596 is inapplicable 2. Action for Damages – In case of wrongful neglect or refusal by the buyer to accept or pay for the thing sold II. Special 1. Possessory Lien – Seller not bound to deliver if buyer has not paid him the price. It is exercisable only in following circumstances: a. goods sold without stipulation as to credit b. goods sold on credit but term of credit has expired c. buyer becomes insolvent Note: When part of goods delivered, may still exercise right on goods undelivered


255


Stoppage in Transitu Requisites: I‐SENT‐U a. Insolvent buyer b. Seller must Surrender the negotiable document of title, if any c. Seller must bear the Expenses of delivery of the goods after the exercise of the right. d. Seller must either actually take possession of the goods sold or give Notice of his claim to the carrier or other person in possession e. Goods must be in Transit f. Unpaid seller

3.

Special Right to Resell the Goods Exercised when: a. Goods are perishable, b. Stipulated the right of resale in case of default, or c. Buyer in default for unreasonable time

4.

Special Right to Rescind Requisites: a. Expressly stipulated OR buyer is in default for unreasonable time b. Notice needed to be given by seller to buyer

Note: Ownership of goods already with buyer but seller may still rescind; ownership is destroyed even without court intervention but in ordinary sale, need to go to court.

Q: What are the instances when possessory lien is lost? A: 1. Seller delivers without reserving ownership in goods or right to possess them 2. Buyer or agent lawfully obtains possession of goods 3. Waiver Note: Seller loses lien when he parts with goods (but still, stoppage in transitu can be exercised)

Q: What is the right of stoppage in transitu? A: The seller may resume possession of the goods at any time while they are in transit, and he will then become entitled to the same rights in regard to the goods as he would have had if he had never parted with the possession. (Art. 1530, NCC)

256

Q: When are goods considered to be in transit? A: 1. After delivery to a carrier or other bailee and before the buyer or his agent takes delivery of them; and 2. If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them. (Art. 1531, par. 1) Q: When are goods deemed to be no longer in transit? A: 1. After delivery to the buyer or his agent 2. If the buyer/agent obtains possession of the goods at a point before the destination originally fixed; 3. If the carrier or the bailee acknowledges that he holds the goods in behalf of the buyer/ his agent; 4. If the carrier or bailee wrongfully refuses to deliver the goods to the buyer or his agent. (Villanueva, p. 181) XI. PERFORMANCE OF CONTRACT A. SALE OF PERSONAL PROPERTY. RULES ON SALE OF PERSONAL PROPERTY. INSTALLMENT SALES LAW Q: What is the Installment Sales Law? A: Commonly known as the Recto Law. It is embodied in Art. 1484 of the NCC which provides for the remedies of a seller in the contracts of sale of personal property by installments. Note: Art. 1484 of the NCC incorporates the provisions of Act No. 4122 passed by the Philippine Legislature on Dec. 9, 1939, known as the "Installment Sales Law" or the "Recto Law," which then amended Art. 1454 of the Civil Code of 1889.

Q: To what does the Recto Law apply? A: This law covers contracts of sale of personal property by installments (Act No. 4122). It is also 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. (PCI Leasing and Finance Inc. v. Giraffe‐ X Creative Imaging, Inc., G.R. No. 142618, July 12, 2007)


SALES Q: What are the alternative remedies in case of sale of personal property in installments? A: 1. Specific Performance: Exact fulfillment should the buyer fail to pay GR: If availed of, the unpaid seller cannot anymore choose other remedies; XPN: if after choosing, it has become impossible, rescission may be pursued 2. Rescission: Cancel the sale if buyer fails to pay 2 or more installments Deemed chosen when: a. Notice of rescission is sent b. Takes possession of subject matter of sale c. Files action for rescission 3. Foreclosure: Foreclose on chattel mortgage if buyer fails to pay 2 or more installments GR: Actual foreclosure is necessary to bar recovery of balance Extent of barring effect: purchase price XPN: Mortgagor refuses to deliver property to effect foreclosure; expenses incurred in attorneys fees, etc. Q: When the lessor of the property chose to deprive the lessee of the subject personal property, can the former recover any unpaid rentals from the latter? A: In choosing, through replevin, to deprive the respondent of possession of the leased equipment, the petitioner waived its right to bring an action to recover unpaid rentals on the said leased items. B. SALE OF REAL PROPERTY. RULES ON SALE OF REAL PROPERTY REALTY INSTALLMENT BUYER ACT Q: What is the Realty Installment Buyer Act? A: Commonly known as the “Maceda Law.” It is embodied in R.A. 6552 which provides for certain protection to particular buyers of real estate

payable on installments. The law declares as "public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions. Note: The purpose of the law is to protect buyers in installment against oppressive conditions. Q: What are the transactions/sale covered by the Maceda Law? A: The law involves the sale of immovables on installment (Maceda Law, R.A. 6552). 1. Coverage: Residential Real Estate (Villanueva, p. 431) 2. Exclude: a. Industrial lots b. Commercial buildings (and commercial lots by implication) c. Sale to tenants under agrarian laws Q: What are the rights granted to buyers? A: 1. Buyer paid at least 2 years installment a. Pay w/o interest the balance within grace period of 1 month for every year of installment payment. Grace period to be exercised once every 5 years. b. When no payment – cancelled; buyer entitled to 50% of what he has paid + 5% for every year but not exceeding 90% of payments made Note: Cancellation to be effected 30 days from notice & upon payment of cash surrender value.

2.

Buyer paid less than 2 years installment a. Grace period is not less than 60 days from due date b. Cancellation if failure to pay w/in 60 days grace c. 30 days notice before final cancellation Note: buyer can still pay w/in the 30 days period with interest.

Q: What are the other rights granted to a buyer? A: 1. Sell or assign rights to another 2. Reinstate contract by updating within 30 days before and cancellation 3. Deed of Sale to be done by notarial act


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UST GOLDEN NOTES 2011 4. 5.

Pay full installment in advance the balance of price anytime w/o interest Have full payment annotated in certificate of title

Note: Applies to contracts even before the law was enacted. Stipulation to the contrary is void

Q: What are the so‐called “Maceda” and “Recto” laws in connection with sales on installments? Give the most important features on each law. A: The Maceda Law (R.A. 6552) is applicable to sales of immovable property on installments. The most important features 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 installment payments made, to pay the unpaid installments without interest. If the contract 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 2 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. (Rillo v. CA, G.R. No. 125347 June 19, 1997) The Recto Law (Art.1484) refers to sale of movables payable in installments and limiting the right of seller, in case of default by the buyer, to one of three remedies: 1. Exact fulfillment; 2. Cancel the sale of two or more installments have not been paid; 3. Foreclose the chattel mortgage on the things sold, also in case of default of two or more installments, with no further action against the purchaser. (1999 Bar Question) Q: Bernie bought on installment a residential subdivision lot from DEVLAND. After having faithfully paid the installments for 48 months,

258

Bernie discovered that DEVLAND had failed to develop the subdivision in accordance with the approved plans and specifications within the time frame in the plan. He thus wrote a letter to DEVLAND informing it that he was stopping payment. Consequently, DEVLAND cancelled the sale and wrote Bernie, informing him that his payments are forfeited in its favor. 1. Was the action of DEVLAND proper? Explain. 2. Discuss the rights of Bernie under the circumstances. 3. Supposing DEVLAND had fully developed the subdivision but Bernie failed to pay further installments after 4 years due to business reverses. Discuss the rights and obligations of the parties. A: 1. Assuming that the land is a residential subdivision project under P.D. No. 957 (The Subdivision and Condominium Buyers Protective Decree), DEVLAND's action is not proper because under Section 23 of said Decree, no installment payment shall be forfeited to the owner or developer when the buyer, after due notice, desists from further payment due to the failure of the owner‐developer to develop the subdivision according to the approved plans and within the time limit for complying with the same. 2. Under the same Section of the Decree, Bernie may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests at the legal rate. He may also ask the Housing and Land Use Regulatory Board to apply penal sanctions against DEVLAND consisting of payment of administrative fine of not more than P20.000.00 and/or imprisonment for not more than 20 years. 3. Under R.A. No. 6552 (Maceda Law), DEVLAND has the right to cancel the contract but it has to refund Bernie the cash surrender value of the payments on the property equivalent to 50% of the total payments made. (2005 Bar Question)


SALES XII. WARRANTIES Q: What is a warranty? A: A statement or representation made by the seller of goods, as part of the contract of sale, having reference to the character, quality, or title, of the goods, and by which he promises or undertakes to insure that certain facts are or shall be as he then represents. Note: May either be express or implied.

Q: What is the effect of a breach of warranty? A: Buyer may: 1. Refuse to proceed with the contract; or 2. Proceed with the contract; waive the condition. Note: If the condition is in the nature that it should happen, the non‐performance may be treated as a breach of warranty.

Q: What are the kinds of warranties? Distinguish. A: i. Express ii. Implied

B. IMPLIED WARRANTIES Q: What are implied warranties? A: Warranties deemed included in all contracts of sale by operation of law. (Art. 1547) 1. Warranty that seller has right to sell – refers to consummation stage. Not applicable to sheriff, auctioneer, mortgagee, pledge 2. Warranty against eviction Requisites: JPENS a. Buyer is Evicted in whole or in part from the subject matter of sale b. Final Judgment c. Basis of eviction is a right Prior to sale or act imputable to seller d. Seller has been Summoned in the suit for eviction at the instance of buyer; or made 3rd party defendant through 3rd party complaint brought by buyer e. No waiver on the part of the buyer Note: For eviction – disturbance in law is required and not just trespass in fact.

3.

Warranty against encumbrances (non‐ apparent)

A. EXPRESS WARRANTIES Q: What are express warranties? A: Any affirmation of fact or any promise by the seller relating to the thing if the natural tendency of such affirmation or promise is to induce the buyer to purchase the same, and if the buyer purchases the thing relying thereon. (Art. 1546) Q: What are the requisites of express warranties? A: AIR 1. It must be an Affirmation of fact relating to the subject matter of sale 2. Natural tendency is to Induce buyer to purchase subject matter 3. Buyer purchases the subject matter Relying thereon Q: What is the liability of the seller for breach of express warranties? A: The seller is liable for damages. (Villanueva, p. 249)

Requisites: a. immovable sold is encumbered with non‐apparent burden or servitude not mentioned in the agreement b. nature of non‐apparent servitude or burden is such that it must be presumed that the buyer would not have acquired it had he been aware thereof XPN: warranty not applicable when non‐apparent burden or servitude is recorded in the Registry of Property – unless there is expressed warranty that the thing is free from all burdens & encumbrances 4.

Warranty against Hidden Defects Requisites: HENNAS a. Defect is important or Serious i. The thing sold is unfit for the use which it is intended ii. Diminishes its fitness for such use or to such an extent that


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b. c. d. e.

f.

the buyer would not have acquired it had he been aware thereof Defect is Hidden Defect Exists at the time of the sale Buyer gives Notice of the defect to the seller within reasonable time Action for rescission or reduction of the price is brought within the proper period i. 6 months – from delivery of the thing sold ii. Within 40 days – from the delivery in case of animals There must be No waiver of warranty on the part of the buyer.

Q: When is implied warranty not applicable? A: ASAP 1. “As is and where is” sale 2. Sale of second hand articles 3. Sale by virtue of authority in fact or law 4. Sale at public auction for tax delinquency C. EFFECTS OF WAIVER OF IMPLIED WARRANTIES Q: What are the effects of waiver of an implied warranty? A: 1. Seller in bad faith & there is waiver against eviction –void 2. When buyer w/o knowledge of a particular risk, made general renunciation of warranty – is not a waiver but merely limits liability of seller in case of eviction 3. When buyer with knowledge of risk of eviction assumed its consequences & made a waiver – seller not liable (applicable only to waiver of warranty against eviction) WARRANTY AGAINST EVICTION Q: What is a warranty against eviction? A: In a contract of sale, unless a contrary intention appears, there is an implied warranty on the part of the seller that when the ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful possession st of the thing. (Art. 1547, 1 paragraph)

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Q: What is covered by a warranty against eviction? A: It covers eviction by a final judgment based on a right prior to the sale or an act imputable to the vendor, the vendee is deprived of the whole or of a part of the thing purchased. The vendor shall answer for the eviction even though nothing has been said in the contract on the subject. (Art. 1548, NCC) Q: What is the effect of a breach of warranty against eviction? A: The buyer shall have the right to demand the seller: 1. The return of the value which the thing sold had at the time of the eviction, be it greater or lesser than the price of the sale 2. The income or fruits, if he has been ordered to deliver them to the party who won the suit against him 3. The costs of suit which caused the eviction, and, in a proper case, those of suit brought against the vendor for the waranty 4. The expenses of contract if buyer has paid them 5. The damages and interests and ornamental expenses if sale was made in bad faith. Note: Vendor is liable for any hidden defect even if he is not aware. (Caveat Venditor) Purchaser must be aware of the title of the vendor. (Caveat Emptor)

Q: What are the rights of buyer in case of partial eviction? A: 1. Restitution (with obligation to return the thing w/o other encumbrances than those which it had when he acquired it) 2. Enforcement of warranty against eviction (Paras, p. 153 and Art. 1556) WARRANTY AGAINST HIDDEN DEFECT Q: What is a hidden defect? A: A hidden defect is one which is unknown or could not have been known to the buyer. (Diaz, p. 145)


SALES Note: Seller does not warrant patent defect; Caveat emptor (buyer beware)

Q: What is a redhibitory defect? A: It is a defect in the article sold against which defect the seller is bound to warrant. The vice must constitute an imperfection, a defect in its nature, of certain importance; and a minor defect does not give rise to redhibition. (De Leon, Comments and Cases on Sales and Lease, 2005 ed, p. 318) Q: What is a redhibitory defect on animals? A: If the hidden defect of animals, even in case a professional inspection has been made, should be of such a nature that expert knowledge is not sufficient to discover it, the defect shall be considered as redhibitory. Q: When is the sale of animal void? A: The sale is void if animal is: 1. Suffering from contagious diseases; 2. Unfit for the use or service for which they were purchased as indicated in the contract Q: When is a vendor responsible for hidden defects? A: If the hidden defects which the thing sold may have: 1. Render it unfit for the use for which it is intended, or 2. Diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it. (Art. 1561) Q: Up to what extent does the seller warrant against hidden defects? A: The seller is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof. Q: When is the seller not answerable for the defects of the thing sold? A: 1. For patent defects or those which are visible, or 2. Even for those which are not visible if the buyer is an expert who, by reason of his trade or profession, should have known them (Art. 1561), or

3.

If the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold. (Art. 1566)

Q: What is the effect of a breach of warranty against hidden defects? A: It would depend on whether the seller had knowledge of such defect and whether there has been a waiver of the warranty. 1. If the thing should be lost in consequence of the hidden faults, and seller was aware of them – he shall: a. bear the loss, b. return the price and c. refund the expenses of the contract with damages 2. If the thing is lost and seller was not aware of the hidden faults – he shall: a. return the price and interest b. reimburse the expenses of the contract which the buyer might have paid, but not for damages. (Villanueva, Law on Sales,2004 ed, pp. 548‐549) Q: What are the remedies of the buyer in case of sale of things with hidden defects? A: The vendee may elect between: 1. Withdrawing from the contract, or 2. Demanding a proportionate reduction of the price, with damages in either case. Q: Is there a waiver of warranty against hidden defects when the lessee inspected the premises and pushed through with the contract? A: Yes. Under Arts. 1561 and 1653 of the Civil Code, the lessor is responsible for warranty against hidden defects, but he is not answerable for patent defects or those, which are visible. Jon de Ysasi admitted on cross‐examination that he inspected the premises three or four times before signing the lease contract. During his inspection, he noticed the rotten plywood on the ceiling, which in his opinion was caused by leaking water or termites. Yet, he decided to go through with the lease agreement. Hence, respondents cannot be held liable for the alleged warranty against hidden defects. (Jon and Marissa De Ysasi v. Arturo and Estela Arceo, G.R. No. 136586, Nov. 22, 2001)


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UST GOLDEN NOTES 2011 IMPLIED WARRANTIES IN CASE OF SALE OF GOODS Q: What are the specific implied warranties in sale of goods? A: 1. Warranty of fitness GR: No implied warranty XPN: a. Buyer manifests to the seller the particular purpose for which the goods are required; and b. Buyer relies upon the seller’s skill or judgment 2. Warranty of merchantability – That goods are reasonably fit for the general purpose for which they are sold. CAVEAT EMPTOR Q: What does the principle of caveat emptor mean? A: It literally means, ‘Let the buyer beware’. The rule requires the purchaser to be aware of the supposed title of the vendor and one who buys without checking the vendor’s title takes all the risks and losses consequent to such failure. (Agcaoili, p. 184) Q: In what particular sale transactions does caveat emptor apply? A: 1. Sales of animals (Art. 1574) 2. Double sales (Art. 1544) 3. In sheriff’s sales (Art. 1570) 4. Tax sales (Art. 1547, last paragraph) Note: In the above sales, there is no warranty of title or quality on the part of the seller. The purchaser who buys without checking the title of the vendor is assuming all risks of eviction. In sheriff’s sales, the sheriff does not guarantee the title to real property and it is not incumbent upon him to place the buyer in possession of such property. (Pineda sales, p. 275)

Q: Is caveat emptor applicable in sales of registered land? A: No. The purchaser of a registered land under the Torrens system is merely charged with notice of the burdens and claims on the property which

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are inscribed on the face of certificate of title. (Pineda sales, p. 275) Q: Does caveat emptor apply in judicial sales? A: Yes. The purchaser in a judicial sale acquires no higher or better title or right than that of the judgment debtor. If it happens that the judgment debtor has no right, interest, or lien on and to the property sold, the purchaser acquires none. (Pineda sales, p. 280)

D. REMEDIES IN CASE OF BREACH OF WARRANTY Q: What are the remedies of the buyer in case of breach of warranty? A: 1. Accept goods & set up breach of warranty by way of recoupment in diminution or extinction or the price. 2. Accept goods & maintain action against seller for damages 3. Refuse to accept goods & maintain action against seller for damages 4. Rescind contract of sale & refuse to receive goods/return them when already received. Q: Are the remedies of the buyer in case of breach of warranty absolute? A: No. The vendee's remedies against a vendor with respect to the warranties against hidden defects of or encumbrances upon the thing sold are not limited to those prescribed in Article 1567 where the vendee, in the case of Arts. 1561, 1562, 1564, 1565 and 1566, may elect either to withdraw from the contract or demand a proportionate reduction of the price, with damages in either case. The vendee may also ask for the annulment of the contract upon proof of error or fraud, in which case the ordinary rule on obligations shall be applicable. Under the law on obligations, responsibility arising from fraud is demandable in all obligations and any waiver of an action for future fraud is void. Responsibility arising from negligence is also demandable in any obligation, but such liability may be regulated by the courts, according to the circumstances. The vendor could likewise be liable for quasi‐ delict under Article 2176 of the Civil Code, and an action based thereon may be brought by the vendee. While it may be true that the pre‐existing contract between the parties may, as a general


SALES rule, bar the applicability of the law on quasi‐ delict, the liability may itself be deemed to arise from quasi‐delict, i.e., the acts which breaks the contract may also be a quasi‐delict. (Coca‐Cola Bottlers Philippines, Inc. v. CA, G.R. No. 110295, Oct. 18, 1993) Q: What are the instances when the buyer cannot rescind the sale in case there is a breach of warranty? A: 1. If he knew of the breach of warranty 2. If he fails to return or offer to return goods to seller in substantially as good condition as they were at time ownership was transferred 3. If he fails to notify the seller within a reasonable time of his election to rescind E. CONDITION VIS‐À‐VIS WARRANTY Q: What is the effect of non‐fulfillment of a condition? A: If imposed on the perfection of contract – prevents the juridical relation itself from coming into existence The other party may: 1. Refuse to proceed with the contract 2. Proceed w/ contract, waiving the performance of the condition Q: What is the difference between a condition and a warranty? A: CONDITION Purports to the existence of obligation Must be stipulated to form part of the obligation May attach itself to obligation of seller to deliver possession & transfer

WARRANTY Purports to the performance of obligation Need not be stipulated; may form part of obligation by provision of law Relates to the subject matter itself or to obligation of the seller as to the subject matter of the sale

XIII. BREACH OF CONTRACT A. REMEDIES OF THE SELLER Note: see Recto and Maceda Law (XI. Performance of Contract) p. 258

B. REMEDIES OF THE BUYER Q: What are the remedies of the buyer? A: I. Immovables in general 1. Disturbed in possession or with reasonable grounds to fear disturbance – Suspend payment 2. In case of subdivision or condo projects – If real estate developer fails to comply with obligation according to approved plan: a. Rescind b. Suspend payment until seller complies II. Movables 1. Failure of seller to deliver – Action for specific performance without giving the seller the option of retaining the goods on payments of damages 2. Breach of seller’s warranty – The buyer may, at his election, avail of the following remedies: a. Accept goods & set up breach of warranty by way of recoupment in diminution or extinction or the price. b. Accept goods & maintain action against seller for damages c. Refuse to Accept goods & maintain action against seller for damages d. Rescind contract of sale & refuse to receive goods/return them when already received. Note: When the buyer has claimed and been granted a remedy in any of these ways, no other remedy can thereafter be granted, without prejudice to the buyer’s right to rescind, even if previously he has chosen specific performance when fulfillment has become impossible. (Villanueva, p. 389 in relation with Art. 1191, NCC)

3.

Disturbed in possession or with reasonable grounds to fear disturbance – Suspend payment


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UST GOLDEN NOTES 2011 XIV. EXTINGUISHMENT OF SALE A. CAUSES OF EXTINGUISHMENT Q: What are the causes for extinguishment of sale? A: A contract of sale is extinguished by: 1. Same causes as all other obligations, namely: a. Payment or performance b. Loss of the thing due c. Condonation or remission of the debt d. Confusion or merger of the rights of creditor and debtor e. Compensation f. Novation g. Annulment h. Rescission i. Fulfillment of resolutory condition j. prescription 2. Causes stated in the preceding articles; 3. Conventional Redemption; or 4. Legal redemption B. REDEMPTION Q: What is redemption? A: It is a mode of extinguishment wherein the seller has the right to redeem or repurchase the thing sold upon return of the price paid. Q: What are the kinds of redemption? A: 1. Legal 2. Conventional Q: Should the right to redeem be incorporated in every contract of sale? A: The right of the vendor to redeem/ repurchase must appear in the same instrument. However, parties may stipulate on the right of repurchase in a separate document but in this case, it is valid only between the parties and not against third persons. (Pineda, p. 333)

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Q: What is the difference between pre‐emption and redemption? A: PRE‐EMPTION Arises before sale Rescission inapplicable Action is directed against prospective seller

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

B. PERIOD OF REDEMPTION Q: What is the period of redemption? A: 1. No period agreed upon – 4 years from date of contract 2. When there is agreement – should not exceed 10 years; but if it exceeded, valid only for the first 10 years. 3. When period to redeem has expired & there has been a previous suit on the nature of the contract – seller still has 30 days from final judgment on the basis that contract was a sale with pacto de retro: Rationale: no redemption due to erroneous belief that it is equitable mortgage which can be extinguished by paying the loan. 4. When period has expired & seller allowed the period of redemption to expire – seller is at fault for not having exercised his rights so should not be granted a new period Note: Tender of payment is sufficient but it is not in itself a payment that relieves the seller from his liability to pay the redemption price.

Q: When does period of redemption begin to run? A: 1. Right of legal pre‐emption or redemption shall be exercised within 30 days from written notice by the buyer – deed of sale not to be recorded in Registry of Property unless accompanied by affidavit that buyer has given notice to redemptioners 2. When there is actual knowledge, no need to give written notice; period of redemption begins to run from actual knowledge


SALES D. EXERCISE OF THE RIGHT TO REDEEM Q: Is written notice mandatory for the right of redemption to commence? A: Yes, the notice must be in writing stating the execution of the sale and its particulars. It may be made in a private or public document. (Pineda, p. 400) Q: Is there a prescribed form for an offer to redeem? A: There is no prescribed form for an offer to redeem to be properly effected. Hence, it can either be through a formal tender with consignation of the redemption price within the prescribed period. What is paramount is the availment of the fixed and definite period within which to exercise the right of legal redemption. Note: Art. 1623 does not prescribe any distinctive method for notifying the redemptioner.

Q: Is tender of payment necessary for redemption to take effect? A: Tender of payment is not necessary; offer to redeem is enough. Q: What is the effect of failure to redeem? A: There must be judicial order before ownership of real property is consolidated to the buyer a retro. TRUST DE SON TORT Q: What is a trust de son tort? A: It is a trust created by the purchase or redemption of property by one other than the person lawfully entitled to do so and in fraud of the other. Q: Do constructive trusts arise only out of fraud or duress? A: No. A constructive trust, otherwise known as a trust ex maleficio, a trust ex delicto, a trust de son tort, an involuntary trust, or an implied trust, is a trust by operation of law which arises contrary to intention and in invitum, against one who, by fraud, actual or constructive, by duress or abuse of confidence, by commission of wrong, or by any form of unconscionable conduct, artifice, concealment, or questionable means, or who in any way against equity and good conscience, either has obtained or holds the legal right to

property which he ought not, in equity and good conscience, hold and enjoy. It has been broadly ruled that a breach of confidence, although in business or social relations, rendering an acquisition or retention of property by one person unconscionable against another, raises a constructive trust. It is raised by equity in respect of property, which has been acquired by fraud, or where, although acquired originally without fraud, it is against equity that it should be retained by the person holding it. (Arlegui v. CA G.R. No. 126437, Mar. 6, 2002) Note: "A constructive trust is substantially an appropriate remedy against unjust enrichment. It is raised by equity in respect of property, which has been acquired by fraud, or where, although acquired originally without fraud, it is against equity that it should be retained by the person holding it." (76 Am. Jur. 2d, Sec. 222, p. 447 cited in Arlegui v. CA G.R. No. 126437, Mar. 6, 2002)

D. CONVENTIONAL REDEMPTION Q: What is conventional redemption? A: Seller reserved the right to repurchase thing sold coupled with obligation to return price of the sale, expenses of contract & other legitimate payments and the necessary & useful expenses made on the thing sold Note: Right to repurchase must be reserved at the time of perfection of sale. (Pineda, p. 333)

E. LEGAL REDEMPTION Q: What is legal redemption? A: Also referred to as “retracto legal”, it is the right to be subrogated upon the same terms and conditions stipulated in the contract, in the place of one who acquires the thing by purchase or by dation in payment or by other transaction whereby ownership is transmitted by onerous title. Q: What are the instances of legal redemption? A: 1. Sale of a co‐owner of his share to a stranger (Art. 1620) 2. When a credit or other incorporeal right in litigation is sold (Art. 1634) 3. Sale of an heir of his hereditary rights to a stranger (Art. 1088) 4. Sale of adjacent rural lands not exceeding 1 hectare (Art. 1621)


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Sale of adjacent small urban lands bought merely for speculation (Art. 1622)

Q: Are there other instances when the right of legal redemption is also granted? A: 1. Redemption of homesteads 2. Redemption in tax sales 3. Redemption by judgment debtor 4. Redemption in extrajudicial foreclosure 5. Redemption in judicial foreclosure of mortgage Q: When does legal redemption period begin to run? A: The right of legal redemption shall not be exercised except within 30 days from the notice in writing by the prospective seller, or seller, as the case may be. The deed of sale shall not be recorded in the Registry of Property unless accompanied by an affidavit of the seller that he has given written notice thereof to all possible redemptioners. (Art. 1623, NCC) C. EQUITABLE MORTGAGE Q: What is an equitable mortgage? A: One which lacks the proper formalities, form or words or other requisites prescribed by law for a mortgage, but shows the intention of the parties to make the property subject of the contract as security for a debt and contains nothing impossible or contrary to law Q: What are the essential requisites of equitable mortgage? A: 1. Parties entered into a contract of sale 2. Their intention was to secure an existing debt by way of a mortgage. Q: What is the rule on the presumption of an equitable mortgage? A: A sale with conventional redemption is deemed to be an equitable mortgage in any of the following cases: (Art. 1602) AIR‐STAR 1. Price of the sale with right to repurchase is unusually Inadequate 2. Seller Remains in possession as lessee or otherwise 3. Upon or after the expiration of the right to repurchase Another instrument

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4. 5. 6.

7.

extending the period of redemption or granting a new period is executed Purchaser Retains for himself a part of the purchase price Seller binds himself to pay the Taxes on the thing sold In any other case where the real intention of the parties is that the transaction shall Secure the payment of a debt or the performance of any other obligation. Art. 1602 shall also apply to a contract purporting to be an Absolute sale. (Art. 1604)

Note: In case of doubt in determining whether it is equitable mortgage or sale a retro (with right of repurchase); it shall be construed as equitable mortgage. Remedy is reformation. An equitable mortgage is one which although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law.

Q: Does inadequacy of price constitute proof sufficient to declare a contract as one of equitable mortgage? A: Mere inadequacy of the price is not sufficient. The price must be grossly inadequate, or purely shocking to the conscience. (Diaz, p. 186) Q: X transferred three parcels of land in favor of Y. The transaction was embodied in two Deeds of Absolute Sale for the price of P240, 000. The titles of said lots were transferred to Y. However, X failed to vacate and turn over the purchased lots. This prompted Y to file an ejectment suit against X. X claimed that the transactions entered between them were not actually sales, but an equitable mortgage. Does the transaction involve an absolute sale or an equitable mortgage of real property? A: It is an absolute sale. Decisive for the proper determination of the true nature of the transaction between the parties is the intent of the parties. There is no conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage. To determine whether a deed absolute in form is a mortgage in reality, the court is not limited to the written memorials of the transaction. This is so because the decisive factor in evaluating such agreement is the intention of


SALES the parties, as shown not necessarily by the terminology used in the contract but by all the surrounding circumstances, such as the relative situations of the parties at that time; the attitudes, acts, conduct, and declarations of the parties; the negotiations between them leading to the deed; and generally, all pertinent facts having a tendency to fix and determine the real nature of their design and understanding. As such, documentary and parol evidence may be submitted and admitted to prove the intention of the parties. (Sps Austria v. Sps Gonzales, G.R. No. 147321, Jan. 21, 2004) Q: Ceballos was able to borrow from Mercado certain sum of money and as security, she executed a Deed of Real Estate Mortgage over the subject property. The said mortgage was not registered. Ceballos defaulted. Thereafter, a Deed of Absolute Sale was executed by Ceballos and her husband whereby the mortgaged property was sold to Mercado for the price of P16, 500.00. Ceballos offered to redeem the property from Mercado for the price of P30, 000.00 but the latter's wife refused since the same was already transferred in their names by virtue of the Deed of Absolute Sale. As a consequence, Ceballos filed the case contending that the Contract should be declared as an equitable mortgage. Is the contention of Ceballos correct? A: No. The instances when a contract, regardless of its nomenclature, may be presumed to be an equitable mortgage are enumerated in Art. 1602 of the Civil Code. Here, none of those circumstances were present. The original transaction was a loan. Ceballos failed to pay the loan; consequently, the parties entered into another agreement — the assailed, duly notarized Deed of Absolute Sale, which superseded the loan document. Ceballos had the burden of proving that she did not intend to sell the property and that Mercado did not intend to buy it; and that the new agreement did not embody the true intention of the parties. (Ceballos v. Intestate Estate of the Late Emigdio Mercado, G.R. No. 155856, May 28, 2004) Q: Eulalia was engaged in the business of buying and selling large cattle. In order to secure the financial capital she advanced for her employees (biyaheros) she required them to surrender TCT of their properties and to execute the corresponding Deeds of Sale in her favor. Domeng Bandong was not required to post any security but when Eulalia discovered that he incurred shortage in cattle procurement

operation, he was required to execute a deed of sale over a parcel of land in favor of Eulalia. She sold the property to her grandniece Jocelyn who thereafter instituted an action for ejectment against the Spouses Bandong. To assert their right, Spouses Bandong filed an action for annulment of sale against Eulalia and Jocelyn alleging that there was no sale intended but only equitable mortgage for the purpose of securing the shortage incurred by Domeng in the amount of P70, 000.00 while employed as “biyahero” by Eulalia. Was the deed of sale between Domeng and Eulalia a contract of sale or an equitable mortgage? A: It is an equitable mortgage. In executing the said deed of sale, Domeng and Eulalia never intended the transfer of ownership of the subject property but to burden the same with an encumbrance to secure the indebtedness incurred by Domeng on the occasion of his employment with Eulalia. The agreement between Dominador and Eulalia was not avoided in its entirety so as to prevent it from producing any legal effect at all. Instead, the said transaction is an equitable mortgage, thereby merely altering the relationship of the parties from seller and buyer, to mortgagor and mortgagee, while the subject property is not transferred but subjected to a lien in favor of the latter. (Sps. Raymundo, et al. v. Sps. Bandong, G.R. No. 171250, Jul. 4, 2007) G. DISTINGUISHED FROM OPTION TO BUY Q: On May 19, 1951, the spouses‐sellers executed a public instrument of absolute sale in favor of the buyer for a consideration which is sufficiently adequate. A few days thereafter, the buyers executed in favor of the sellers an option to buy within one year, the property subject of the absolute sale, which option was extended for a month. Prior to the expiration of said one‐ year period, the buyer sold said property to a third person. If the spouses‐sellers would file an action for reformation of instrument where they seek reformation of the absolute sale into one of equitable mortgage, will said action prosper? A: No, it will not prosper. If a seller has been granted merely an option to buy (not a right to repurchase) within a certain period, and the price paid by the buyer is adequate, the sale is absolute and cannot be construed nor presumed to be one of equitable mortgage, even if the period within which to exercise the option has been extended.


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UST GOLDEN NOTES 2011 (Villarica, et. al. v. CA, G.R. L‐19196, Nov. 29, 1968) Note: SC held that in this case, there was no sale a retro and that the right of repurchase is not a right granted the seller by the buyer in a separate instrument. Such right is reserved by the vendor in the same instrument of the sale as one of the stipulations in the contract. Also, once the instrument of absolute sale is executed, the seller can no longer reserve the right of repurchase and any right thereafter granted the seller by the buyer cannot be a right of repurchase but some other rights, like that of an option to buy. XV. LAW ON SALE OF SUBDIVISION AND CONDOMINIUM (PD 957) SCOPE OF APPLICATION Q: Are sales or dispositions of subdivision lots or condominium units prior to the effectivity of the decree exempt from compliance with the requirements stated therein? A: No. It shall be incumbent upon the owner or developer of the subdivision or condominium project to complete compliance with his or its obligations as provided in the decree within two years from the date of effectivity of the Decree, unless otherwise extended by the Authority or unless an adequate performance bond is filed. Note: Failure of the owner or developer to comply with the obligations under this and the preceding provisions shall constitute a violation punishable under Sections 38 and 39 of the Decree.

DEFINITION OF TERMS Q: How is “sale” or “sell” defined under the Decree? A: Shall include: 1.

2. 3. 4. 5. 6.

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Every disposition, or attempt to dispose, for a valuable consideration, of a subdivision lot, including the building and other improvements thereof, if any, in a subdivision project or a condominium unit in a condominium project; contract to sell; contract of purchase and sale; exchange; attempt to sell; option of sale or purchase;

7. 8.

9.

solicitation of a sale; offer to sell, directly or by an agent, or by a circular, letter, advertisement or otherwise; and a. privilege given to a member of a cooperative, corporation, partnership, or any association and/or b. the issuance of a certificate or receipt evidencing or giving the right of participation in, or right to, any land in consideration of payment of the membership fee or dues. (Deemed sale)

Q: How are the terms “buy” and “purchase” defined under the Decree? A: Shall include any contract to buy, purchase, or otherwise acquire for a valuable consideration a subdivision lot, including the building and other improvements, if any, in a subdivision project or a condominium unit in a condominium project. Q: What is a subdivision project? A: A tract or a parcel of land registered under Act No. 496 which is partitioned primarily for residential purposes into individual lots with or without improvements thereon, and offered to the public for sale, in cash or in installment terms. Note: It shall include all residential, commercial, industrial and recreational areas as well as open spaces and other community and public areas in the project.

Q: What is a subdivision lot? A: Any of the lots, whether residential, commercial, industrial, or recreational, in a subdivision project. Q: What is a complex subdivision plan? A: A subdivision plan of a registered land wherein a street, passageway or open space is delineated on the plan. Q: What is a condominium project? A: The entire parcel of real property divided or to be divided primarily for residential purposes into condominium units, including all structures thereon. Q: What is a condominium unit? A: A part of the condominium project intended for any type of independent use or ownership, including one or more rooms or spaces located in one or more floors (or part of parts of floors) in a


SALES building or buildings and such accessories as may be appended thereto. Q: Define the following terms: 3. 1.

2.

3.

4.

5.

Owner. A: Registered owner of the land subject of a subdivision or a condominium project. Developer. A: person who develops or improves the subdivision project or condominium project for and in behalf of the owner thereof. Dealer. A: any person directly engaged as principal in the business of buying, selling or exchanging real estate whether on a full‐time or part‐time basis. Broker. A: any person who, for commission or other compensation, undertakes to sell or negotiate the sale of a real estate belonging to another. Salesman. A: person regularly employed by a broker to perform, for and in his behalf, any or all functions of a real estate broker.

REGISTRATION AND LICENSE TO SELL Q: Upon what agency is exclusive jurisdiction to regulate real estate trade and business vested?

4.

5.

the building or buildings included in the condominium project in accordance with the National Building Code (R.A. No. 6541). The subdivision plan, as so approved, shall then be submitted to the Director of Lands for approval. In case of complex subdivision plans, court approval shall no longer be required. The condominium plan as likewise so approved, shall be submitted to the Register of Deeds of the province or city in which the property lies and the same shall be acted upon subject to the conditions and in accordance with the procedure prescribed in Section 4 of the Condominium Act (R.A. No. 4726).

Q: Part of the required documentary attachments to the application is a certificate of title to the property which is free from all liens and encumbrances. Does this bar an owner of mortgaged property from engaging in subdivision or condominium project while the mortgage is in force? A: No. In case any subdivision lot or condominium unit is mortgaged, it is sufficient if the instrument of mortgage contains a stipulation that the mortgagee shall release the mortgage on any subdivision lot or condominium unit as soon as the full purchase price for the same is paid by the buyer. Q: When is a subdivision or condominium project deemed to be registered? A: Upon completion of the publication requirement

A: National Housing Authority Q: What must a registered owner of a parcel of land do if he wishes to convert said property into a subdivision or condominium project? A: He shall: 1.

2.

Submit his subdivision plan to the Authority which shall act upon and approve the same, upon a finding that the plan complies with the Subdivision Standards' and Regulations enforceable at the time the plan is submitted. If the conversion desired involves a condominium project, the same procedure shall be followed except that, in addition, the NHA shall act upon and approve the plan with respect to

Note: The fact of such registration shall be evidenced by a registration certificate to be issued to the applicant‐owner or dealer. Re: Publication requirement: This is complied with when the NHA has caused to be published a notice of the filing of the registration statement, at the expense of the applicant‐owner or dealer, in two newspapers general circulation, one published in English and another in Pilipino, once a week for two consecutive weeks, reciting that a registration statement for the sale of subdivision lots or condominium units has been filed in the National Housing Authority;


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UST GOLDEN NOTES 2011 to work a fraud upon prospective buyers.

Q: After issuance of the registration certificate, may the owner or dealer already sell subdivision lots or condominium units? A: No. He must first obtain a license to sell the project within two weeks from the registration of such project. Q: What is the purpose of the requirement of posting of a performance bonds before a license to sell may be issued? A: It is to guarantee the construction and maintenance of the roads, gutters, drainage, sewerage, water system, lighting systems, and full development of the subdivision project or the condominium project and the compliance by the owner or dealer with the applicable laws and rules and regulations.

Q: When may a license to sell or registration of a subdivision or condominium project be revoked? A: The Authority may, motu proprio or upon verified complaint filed by a buyer of a subdivision lot or condominium unit, revoke the registration of any subdivision project or condominium project and the license to sell any subdivision lot or condominium unit in said project by issuing an order to this effect, with his findings in respect thereto, if upon examination into the affairs of the owner or dealer during a hearing, it shall appear there is satisfactory evidence that the said owner or dealer: 1. 2.

Q: Is a license to sell and performance bond required in all subdivision and condominium projects? A: No. The following transactions are exempt from said requirements: 1.

2.

3.

Sale of a subdivision lot resulting from the partition of land among co‐owners and co‐heirs. Sale or transfer of a subdivision lot by the original purchaser thereof and any subsequent sale of the same lot. Sale of a subdivision lot or a condominium unit by or for the account of a mortgagee in the ordinary course of business when necessary to liquidate a bona fide debt.

Q: When may a license to sell be suspended? A: 1.

2.

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Upon verified complaint by a buyer of a subdivision lot or a condominium unit in any interested party, the Authority may, in its discretion, immediately suspend the owner's or dealer's license to sell pending investigation and hearing of the case. The NHA may motu proprio suspend the license to sell if, in its opinion, any information in the registration statement filed by the owner or dealer is or has become misleading, incorrect, inadequate or incomplete or the sale or offering for a sale of the subdivision or condominium project may work or tend

3. 4.

5. 6.

is insolvent; or has violated any of the provisions of this Decree or any applicable rule or regulation of the Authority, or any undertaking of his/its performance bond; or has been or is engaged or is about to engage in fraudulent transactions; or has made any misrepresentation in any prospectus, brochure, circular or other literature about the subdivision project or condominium project that has been distributed to prospective buyers; or is of bad business repute; or does not conduct his business in accordance with law or sound business principles.

Note: Where the owner or dealer is a partnership or corporation or an unincorporated association, it shall be sufficient cause for cancellation of its registration certificate and its license to sell, if any member of such partnership or any officer or director of such corporation or association has been guilty of any act or omission which would be cause for refusing or revoking the registration of an individual dealer, broker or salesman. DEALERS, BROKERS AMD SALESMEN Q: What is the duration of the registration of dealers, brokers and salesmen? A: On the thirty‐first day of December of each year. However, in the case of salesmen, their registration shall also cease upon termination of their employment with a dealer or broker.


SALES Note: Renewal of registration for the succeeding year shall be granted upon written application therefore made not less than thirty nor more than sixty days before the first day of the ensuing year and upon payment of the prescribed fee, without the necessity of filing further statements or information, unless specifically required by the Authority.

2.

All applications filed beyond said period shall be treated as original applications.

Q: When can there be refusal or revocation of registration as dealers, brokers or salesmen? A: Such registration may be refused or revoked by the NHA if, after reasonable notice and hearing, it shall determine that such applicant or registrant has:

must be presented in such manner that will not tend to mislead or deceive the public. The owner or developer shall answerable and liable for the facilities, improvements, infrastructures or other forms of development represented or promised in brochures, advertisements and other sales propaganda disseminated by the owner or developer or his agents and the same shall form part of the sales warranties enforceable against said owner or developer, jointly and severally.

Note: Failure to comply with these warranties shall also be punishable in accordance with the penalties provided for in this Decree.

violated any provision of this Decree or any rule or regulation made hereunder; or made a material false statement in his application for registration; or been guilty of a fraudulent act in connection with any sale of a subdivision lot or condominium unit; or demonstrated his unworthiness to transact the business of dealer, broker, or salesman, as the case may be.

Q: Within what period must the owner or developer construct and provide the facilities, improvements, infrastructures and other forms of development, including water supply and lighting facilities, which are offered and indicated in the approved subdivision or condominium plans, brochures, prospectus, printed matters, letters or in any form of advertisement?

Note: In case of charges against a salesman, notice thereof shall also be given the broker or dealer employing such salesman.

GR: Within one year from the date of the issuance of the license for the subdivision or condominium project

Pending hearing of the case, the Authority shall have the power to order the suspension of the dealer's, broker's, of salesman's registration; provided, that such order shall state the cause for the suspension.

XPN: Such other period of time as may be fixed by the Authority.

1.

2. 3.

4.

The suspension or revocation of the registration of a dealer or broker shall carry with it all the suspension or revocation of the registration of all his salesmen. WARRANTIES OF THE OWNER OR DEVELOPER Q: In making advertisements, does the owner or developer make warranties relative to such? A: Yes. 1.

Advertisements that may be made through newspaper, radio, television, leaflets, circulars or any other form about the subdivision or the condominium or its operations or activities must reflect the real facts and

A:

ALTERATION IN APPROVED SUBDIVISION PLAN Q: What is the rule if the owner desires to make alterations in the approved subdivision plan? A: GR: No owner or developer shall change or alter the roads, open spaces, infrastructures, facilities for public use and/or other form of subdivision development as contained in the approved subdivision plan and/or represented in its advertisements XPN: If he has obtained the permission of the Authority and the written conformity or consent of the duly organized homeowners association, or in the absence of the latter, by the majority of the lot buyers in the subdivision.


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RIGHTS AND REMEDIES OF A BUYER Q: May payment made by a buyer be forfeited in favor of the owner or developer in case the buyer desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plan within the time limit provided for such? What is the buyer’s remedy in this case? A: No, such forfeiture is not allowed. Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests, with interest thereon at the legal rate. Q: Does a defaulting buyer have any right under the Decree? A: Yes. The rights of the buyer in the event of this failure to pay the installments due for reasons other than the failure of the owner or developer to develop the project shall be governed by Republic Act No. 6552. Where the transaction or contract was entered into prior to the effectivity of Republic Act No. 6552 on August 26, 1972, the defaulting buyer shall be entitled to the corresponding refund based on the installments paid after the effectivity of the law in the absence of any provision in the contract to the contrary. Q: What is the owner or developer’s obligation in case the lot bought and fully‐paid by the buyer is mortgaged? A: In the event a mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer, the owner or developer shall redeem the mortgage or the corresponding portion thereof within six months from such issuance in order that the title over any fully paid lot or unit may be secured and delivered to the buyer in accordance herewith. Q: May the parties waive compliance with the decree? A: No. Any condition, stipulation, or provision in contract of sale whereby any person waives compliance with any provision of the Decree or of any rule or regulation issued thereunder shall be void.

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Q: When can Development?

there

be

a

Take‐Over

A: The NHA may take over or cause the development and completion of the subdivision or condominium project at the expenses of the owner or developer, jointly and severally, in cases where the owner or developer has refused or failed to develop or complete the development of the project as provided for in the Decree. Note: The Authority may, after such take‐over, demand, collect and receive from the buyers the installment payments due on the lots, which shall be utilized for the development of the subdivision.

XVI. THE CONDOMINIUM ACT (RA 4726) PRELIMINARIES Q: What is a condominium? A: It is an interest in real property consisting of separate interest in a unit in a residential, industrial or commercial building and an undivided interest in common, directly or indirectly, in the land on which it is located and in other common areas of the building. Note: It may include, in addition, a separate interest in other portions of such real property.

Q: What comprises a real right in condominium? A: The real right in condominium may be ownership or any other interest in real property recognized by law, on property in the Civil Code and other pertinent laws. Q: What is a condominium unit? A: It is a part of the condominium project intended for any type of independent use or ownership, including one or more rooms or spaces located in one or more floors (or part or parts of floors) in a building or buildings and such accessories as may be appended thereto. Q: What is a condominium project? A: It is the entire parcel of real property divided or to be divided in condominiums, including all structures thereon,


SALES Q: What are common areas? A: The entire project excepting all units separately granted or held or reserved. Q: What is meant by “to divide” real property? A: To divide the ownership thereof or other interest therein by conveying one or more condominiums therein but less than the whole thereof. Q: What is the rule as regards acquisition of ownership over common areas? A: Transfer or conveyance of a unit or apartment, office or store or other space therein shall include the transfer or conveyance of the undivided interests in the common areas or, in a proper case, the membership or shareholdings in the condominium corporation Q: Are there any restrictions as regards ownership of condominium units provided under the Condominium Act? A: 1. As regards individuals: GR: None. XPN: where the common areas in the condominium project are owned by the owners of separate units as co‐owners thereof, no condominium unit therein shall be conveyed or transferred to persons other than: 1. Filipino citizens, or 2. Corporations at least sixty percent of the capital stock of which belong to Filipino citizens XPN to the XPN: in cases of hereditary succession. 2. As regards corporations: Where the common areas in a condominium project are held by a corporation, no transfer or conveyance of a unit shall be valid if the concomitant transfer of the appurtenant membership or stockholding in the corporation will cause the alien interest in such corporation to exceed the limits imposed by existing laws. Note: Whenever the common areas in a condominium project are held by a condominium corporation, such

corporation shall constitute management body of the project.

the

Q: What are the incidents of a condominium grant? A: Unless otherwise expressly provided in the enabling or master deed or the declaration of restrictions, the incidents of a condominium grant are as follows: 1. The boundary of the unit granted are the interior surfaces of the perimeter walls, floors, ceilings, windows and doors thereof. Note: The following are not part of the unit bearing walls, columns, floors, roofs, foundations and other common structural elements of the building: a. lobbies, stairways, hallways, and other areas of common use, b. elevator equipment and shafts, central heating, c. central refrigeration and central air‐conditioning equipment, d. reservoirs, tanks, pumps and other central services and facilities, e. pipes, ducts, flues, chutes, conduits, wires and other utility installations, wherever located, except the outlets thereof when located within the unit.

2.

There shall pass with the unit, as an appurtenance thereof, an exclusive easement for the use of the air space encompassed by the boundaries of the unit as it exists at any particular time and as the unit may lawfully be altered or reconstructed from time to time. Note: Such easement shall be automatically terminated in any air space upon destruction of the unit as to render it untenantable.

3.

4.

Common areas are held in common by the holders of units, in equal shares, one for each unit, unless otherwise provided. A non‐exclusive easement for ingress, egress and support through the common areas is appurtenant to each


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5.

6.

7.

unit and the common areas are subject to such easements. Each condominium owner shall have the exclusive right to paint, repaint, tile, wax, paper or otherwise refinish and decorate the inner surfaces of the walls, ceilings, floors, windows and doors bounding his own unit. Each condominium owner shall have the exclusive right to mortgage, pledge or encumber his condominium and to have the same appraised independently of the other condominiums but any obligation incurred by such condominium owner is personal to him. GR: Each condominium owner has also the absolute right to sell or dispose of his condominium. XPN: If the master deed contains a requirement that the property be first offered to the condominium owners within a reasonable period of time before the same is offered to outside parties;

Q: May common areas be divided through judicial partition? A: GR: Common areas shall remain undivided, and there shall be no judicial partition thereof. XPN: Where several persons own condominiums in a condominium project, an action may be brought by one or more such persons for partition thereof by sale of the entire project, as if the owners of all of the condominiums in such project were co‐ owners of the entire project in the same proportion as their interests in the common areas: Note: However, a partition shall be made only upon a showing that: 1. three years after damage or destruction to the project which renders material part thereof unit for its use prior thereto, the project has not been rebuilt or repaired substantially to its state prior to its damage or destruction, or

274

2.

3.

4.

5.

damage or destruction to the project has rendered one‐half or more of the units therein untenantable and that condominium owners holding in aggregate more than thirty percent interest in the common areas are opposed to repair or restoration of the project; or the project has been in existence in excess of fifty years, that it is obsolete and uneconomic, and that condominium owners holding in aggregate more than fifty percent interest in the common areas are opposed to repair or restoration or remodeling or modernizing of the project; or the project or a material part thereof has been condemned or expropriated and that the project is no longer viable, or that the condominium owners holding in aggregate more than seventy percent interest in the common areas are opposed to continuation of the condominium regime after expropriation or condemnation of a material portion thereof; or the conditions for such partition by sale set forth in the declaration of restrictions, duly registered in accordance with the terms of the Act, have been met.

Q: What is the rule regarding issuance of certificate of title where the enabling or master deed provides that the land included within a condominium project are to be owned in common by the condominium owners therein? A: The Register of Deeds may, at the request of all the condominium owners and upon surrender of all their "condominium owner's" copies, cancel the certificates of title of the property and issue a new one in the name of said condominium owners as pro‐indiviso co‐owners thereof. Q: How are deeds, declarations or plans for a condominium project construed? A: 1. Liberally, to facilitate the operation of the project


SALES 2.

Provisions shall be presumed to be independent and severable.

DECLARATION OF RESTRICTIONS Q: When should a declaration of restrictions be registered and what is the effect of such? A: The owner of a project shall, prior to the conveyance of any condominium therein, register a declaration of restrictions relating to such project. Such restrictions shall constitute a lien upon each condominium in the project, and shall insure to and bind all condominium owners in the project. Note: Such liens, unless otherwise provided, may be enforced by any condominium owner in the project or by the management body of such project. Q: What should a declaration of restrictions provide? A: The declaration of restrictions shall provide for the management of the project by anyone of the following management bodies: 1. a condominium corporation, 2. an association of the condominium owners, 3. a board of governors elected by condominium owners, or 4. a management agent elected by the owners or by the board named in the declaration. 5. voting majorities, 6. quorums, 7. notices, 8. meeting date, and 9. other rules governing such body or bodies. Q: What may a declaration of restrictions provide? A: Such declaration of restrictions, among other things, may also provide: 1. As to any such management body; a. For the powers thereof, including power to enforce the provisions of the declarations of restrictions; b. For maintenance of insurance policies, insuring condominium owners against loss by fire, casualty, liability, workmen's compensation and other insurable

c.

d.

e.

f.

g. h.

i.

2.

3. 4.

risks, and for bonding of the members of any management body; Provisions for maintenance, utility, gardening and other services benefiting the common areas, for the employment of personnel necessary for the operation of the building, and legal, accounting and other professional and technical services; For purchase of materials, supplies and the like needed by the common areas; For payment of taxes and special assessments which would be a lien upon the entire project or common areas, and for discharge of any lien or encumbrance levied against the entire project or the common areas; For reconstruction of any portion or portions of any damage to or destruction of the project; The manner for delegation of its powers; For entry by its officers and agents into any unit when necessary in connection with the maintenance or construction for which such body is responsible; For a power of attorney to the management body to sell the entire project for the benefit of all of the owners thereof when partition of the project may be authorized under Section 8 of the Condominium Act, which said power shall be binding upon all of the condominium owners regardless of whether they assume the obligations of the restrictions or not.

The manner and procedure for amending such restrictions: Provided, That the vote of not less than a majority in interest of the owners is obtained. For independent audit of the accounts of the management body; For reasonable assessments to meet authorized expenditures, each condominium unit to be assessed separately for its share of such expenses in proportion (unless otherwise provided) to its owners fractional interest in any common areas;


275


6.

For the subordination of the liens securing such assessments to other liens either generally or specifically described; For conditions, other than those provided for in Sections 8 and 13 of the Act, upon which partition of the project and dissolution of the condominium corporation may be made.

Note: Such right to partition or dissolution may be conditioned upon: a. failure of the condominium owners to rebuild within a certain period; b. specified inadequacy of insurance proceeds; c. specified percentage of damage to the building; d. a decision of an arbitrator; or e. upon any other reasonable condition.

Q: What is the duty of the Register of Deeds as regards this declaration of restrictions? A: The Register of Deeds shall enter and annotate the declaration of restrictions upon the certificate of title covering the land included within the project, if the land is patented or registered under the Land Registration or Cadastral Acts. POWERS OF AND RESTRICTIONS UPON MANAGEMENT BODY Q: What are the restrictions imposed by the law upon corporations which is also the management body of the condominium project? A: The restrictions are as follows: 1. The corporate purposes of such a corporation shall be limited to the: a. holding of the common areas, either in ownership or any other interest in real property recognized by law, b. management of the project, and c. to such other purposes as may be necessary, incidental or convenient to the accomplishment of said purposes. 2. The articles of incorporation or by‐laws of the corporation shall not contain any provision contrary to or inconsistent with the: a. provisions of the Act; b. enabling or master deed; or c. declaration of restrictions of the project.

276

Q: May the management body may acquire and hold, for the benefit of the condominium owners, tangible and intangible personal property and dispose of the same by sale or otherwise? A: Yes, unless otherwise provided for by the declaration of restrictions. Note: The beneficial interest in such personal property shall be owned by the condominium owners in the same proportion as their respective interests in the common areas. A transfer of a condominium shall transfer to the transferee ownership of the transferor's beneficial interest in such personal property.

CONDOMINIUM CORPORATIONS Q: What is a condominium corporation? A: A corporation specially formed for the purpose, in which the holders of separate interest shall automatically be members or shareholders, to the exclusion of others, in proportion to the appurtenant interest of their respective units in the common areas. Note: As regards title to the common areas, including the land, or the appurtenant interests in such areas, these may be held by a condominium corporation.

Q: What is the term of a condominium corporation? A: Co‐terminus with the duration of the condominium project, the provisions of the Corporation Law to the contrary notwithstanding. Membership Q: What are the rules regarding membership in a condominium corporation? A: Membership in a condominium corporation, regardless of whether it is a stock or non‐stock corporation, shall not be transferable separately from the condominium unit of which it is an appurtenance. Note: When a member or stockholder ceases to own a unit in the project in which the condominium corporation owns or holds the common areas, he shall automatically cease to be a member or stockholder of the condominium corporation.


SALES Q: May a condominium corporation sell, exchange, lease or otherwise dispose of the common areas owned or held by it in the condominium project? A: GR: During its existence, it cannot do so. XPN: If authorized by the affirmative vote of all the stockholders or members. Q: Is the so called appraisal right under the Corporation Code available to stockholders or members of a condominium corporation? A: GR: Not available. The law provides that “the by‐laws of a condominium corporation shall provide that a stockholder or member shall not be entitled to demand payment of his shares or interest in those cases where such right is granted under the Corporation Law xxx” XPN: If said stockholder or member consents to sell his separate interest in the project to the corporation or to any purchaser of the corporation's choice who shall also buy from the corporation the dissenting member or stockholder's interest. Note: In case of disagreement as to price, the procedure set forth in the appropriate provision of the Corporation Law for valuation of shares shall be followed. The corporation shall have two years within which to pay for the shares or furnish a purchaser of its choice from the time of award. All expenses incurred in the liquidation of the interest of the dissenting member or stockholder shall be borne by him.

Dissolution and Liquidation Q: What is the effect of involuntary dissolution of a condominium corporation for any of the causes provided by law? A: 1. The common areas owned or held by the corporation shall, by way of liquidation, be transferred pro‐indiviso and in proportion to their interest in the corporation to the members or stockholders thereof, subject to the

superior rights of the corporation creditors. Note: Such transfer or conveyance shall be deemed to be a full liquidation of the interest of such members or stockholders in the corporation.

2.

After such transfer or conveyance, the provisions of this Act governing undivided co‐ownership of, or undivided interest in, the common areas in condominium projects shall fully apply.

Q: When may voluntary dissolution of a condominium corporation be allowed? A: A condominium corporation may be voluntarily dissolved only: 1. when the enabling or the master deed of the project in which the condominium corporation owns or holds the common area is revoked; and 2. upon a showing that: a. three years after damage or destruction to the project in which the corporation owns or holds the common areas, which damage or destruction renders a material part thereof unfit for its use prior thereto, the project has not been rebuilt or repaired substantially to its state prior to its damage or destruction; or b. damage or destruction to the project has rendered one‐half or more of the units therein untenantable and that more than thirty percent of the members of the corporation, if non‐stock, or the shareholders representing more than thirty percent of the capital stock entitled to vote, if a stock corporation, are opposed to the repair or reconstruction of the project, or c. the project has been in existence in excess of fifty years, that it is obsolete and uneconomical, and that more than fifty percent of the members of the corporation, if non‐stock, or the stockholders representing more than fifty percent of the capital stock entitled to vote, if a stock corporation, are opposed to the


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UST GOLDEN NOTES 2011 repair or restoration or remodeling or modernizing of the project; or d.

e.

the project or a material part thereof has been condemned or expropriated and that the project is no longer viable, or that the members holding in aggregate more than seventy percent interest in the corporation, if non‐ stock, or the stockholders representing more than seventy percent of the capital stock entitled to vote, if a stock corporation, are opposed to the continuation of the condominium regime after expropriation or condemnation of a material portion thereof; or the conditions for such a dissolution set forth in the declaration of restrictions of the project in which the corporation owns or holds the common areas, have been met.

Note: action for voluntary dissolution is that under Rule 104 of the Rules of Court.

Q: May the members or stockholders of a condominium corporation dissolve such corporation? A: Yes, by the affirmative vote of all the stockholders or members thereof at a general or special meeting duly called for the purpose: Provided, that all the requirements of Section 62 of the Corporation Law are complied with. Q: What is the consequence of voluntary dissolution of a condominium corporation? A: GR: The corporation shall be deemed to hold a power of attorney from all the members or stockholders to sell and dispose of their separate interests in the project. XPN: Unless otherwise provided for in the declaration of restrictions Q: How is a condominium corporation liquidated? A: Liquidation of the corporation shall be effected by a sale of the entire project as if the corporation owned the whole thereof, subject to the rights of

278

the corporate and of individual condominium creditors. Q: What should the Court do if, in an action for partition of a condominium project or for the dissolution of condominium corporation on the ground that the project or a material part thereof has been condemned or expropriated, the Court finds that the conditions provided for in the Condominium Act or in the declaration of restrictions have not been met? A: The Court may decree a reorganization of the project, declaring which portion or portions of the project shall continue as a condominium project, the owners thereof, and the respective rights of said remaining owners and the just compensation, if any, that a condominium owner may be entitled to due to deprivation of his property. Note: Upon receipt of a copy of the decree, the Register of Deeds shall enter and annotate the same on the pertinent certificate of title.

Assessment, Notice thereof and Lien Created Q: If real property has been divided into condominiums, how will it be assessed for taxation purposes? A: Each condominium separately owned shall be separately assessed, for purposes of real property taxation and other tax purposes to the owners thereof and the tax on each such condominium shall constitute a lien solely thereon. Q: Who should pay for an assessment upon any condominium made in accordance with a duly registered declaration of restrictions? A: It is an obligation of the owner thereof at the time the assessment is made. Q: What are the rules as regards the notice of assessment? A: The notice: 1. is to be registered with the Register of Deeds of the city or province where such condominium project is located. 2. shall state the following: a. amount of such assessment and such other charges thereon as may be authorized by the declaration of restrictions, b. a description of the condominium unit against which same has been assessed, and


SALES c.

3.

the name of the registered owner thereof. Such notice shall be signed by an authorized representative of the management body or as otherwise provided in the declaration of restrictions.

Q: What is the effect if the management body causes a notice of assessment to be registered with the register of deeds? A: The amount of any such assessment plus any other charges thereon, such as interest, costs (including attorney's fees) and penalties, as such may be provided for in the declaration of restrictions, shall be and become a lien upon the condominium assessed. Note: Effect of payment: Upon payment of said assessment and charges or other satisfaction thereof, the management body shall cause to be registered a release of the lien.

Q: What are the rules as regards the lien created in case of unpaid assessments, etc? A: GR: Such lien shall be superior to all other liens registered subsequent to the registration of said notice of assessment XPNs: 1. real property tax liens are superior; 2. when declaration of restrictions provide for the subordination thereof to any other liens and encumbrances. Q: What is the rule as regards enforcement of the lien? A: Such liens may be enforced in the same manner provided for by law for the judicial or extra‐judicial foreclosure of mortgages of real property. Q: Can the management body bid in the foreclosure sale based on the lien for unpaid assessments? A: GR: No, the management body shall have power to bid at foreclosure sale. XPN: Unless otherwise provided for in the declaration of restrictions, Note: The condominium owner shall have the same right of redemption as in cases of judicial or extra‐judicial foreclosure of mortgages.

Q: What are the rules as regards labor performed or services or materials furnished? A: 1. If with the consent of or at the request of a condominium owner or his agent or his contractor or subcontractor: GR: it shall not be the basis of a lien against the condominium of any other condominium owner XPN: such other owners have expressly consented to or requested the performance of such labor or furnishing of such materials or services. Note: Such express consent shall be deemed to have been given by the owner of any condominium in the case of emergency repairs of his condominium unit.

2.

If performed or furnished for the common areas and if duly authorized by the management body provided for in a declaration of restrictions governing the property: shall be deemed to be performed or furnished with the express consent of each condominium owner. Q: How may an owner of any condominium remove his condominium from a lien against two or more condominiums or any part thereof? A: By payment to the holder of the lien of the fraction of the total sum secured by such lien which is attributable to his condominium unit.


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