sales odex

7/28/2019 Sales Odex

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I. THE NATURE OF SALE

A. DEFINITION OF SALE (Art. 1458)

Sale is a contract by which one of the contracting parties obligates himself to transfer the ownershipand to deliver

possession, of a determinate thing, and the other to pay therefor a price certain in money or its equivalent. x Cruz v.Fernando, 477 SCRA 173 (2005).

1. Elements of Sale

Elements of sale: (a) consent or meeting of the minds; (b) determinate subject matter; and (c) price certain inmoney or its equivalent.xNavarra v. Planters Dev. Bank, 527 SCRA 562 (2007).

Absence of any essential elements negates a sale xDizon v. CA, 302 SCRA 288 (1999), even when earnestmoney has been paid. Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006).

Sale being a consensual contract, its essential elements must be proven xVillanueva v. CA, 267 SCRA 89 (1997);but once proven, a sales validity is not affected by a previously executed fictitious deed of sale xPealosa v. Santos,363 SCRA 545 (2001); and the burden is on the other party to prove otherwise. xHeirs of Ernesto Biona v. CA, 362SCRA 29 (2001).

2. Stages of Contract of Sale

Policitacion covers period from the time the prospective contracting parties indicate interest in the contract to thetime the contract is perfected. Perfection takes place upon the concurrence of the essential elements, which are the

meeting of the minds of the parties as to the object of the contract and upon the price. Consummation begins when theparties perform their respective undertakings, culminating in the extinguishment thereof. x San Miguel PropertiesPhilippines, Inc. v. Huang, 336 SCRA 737 (2000).

3. Sale Creates Real Obligations To Give (Art. 1165)

4. Essential Characteristics of Sale:

a. Nominate and Principal

A contract of sale is what the law defines it to be, taking into consideration its essential elements, and not whatthe contracting parties call it. xSantos v. Court of Appeals, 337 SCRA 67 (2000).

b. Consensual (Art. 1475)

A contract of sale is not a real, but a consensual contract, and becomes valid and binding upon the meeting ofthe minds of the parties as to the object and the price, that:

Upon its perfection, the parties may reciprocally demand performance. xHeirs of Venancio Bejenting v.Baez, 502 SCRA 531 (2006);

1subject only to the provisions of the law governing the form of contracts.

xCruz v. Fernando, 477 SCRA 173 (2005).

It remains valid even if parties have not affixed their signatures to its written form xGabelo v. CA, 316SCRA 386 (1999), or the manner of payment is breached. xPilipinas Shell Petroleum Corp v.Gobonseng, 496 SCRA 305 (2006).

The binding effect of sale is based on the principle that the obligations arising therefrom have the force of lawbetween the parties. xVeterans Federation of the Philippines v. Court of Appeals, 345 SCRA 348 (2000).

Perfection Distinguished from Demandability Not all contracts of sale become automatically and immediatelyeffective. In sales with assumption of mortgage, there is a condition precedent to the sellers consent and withoutthe approval of the mortgagee, the sale is not perfected. xBian Steel Corp. v. Court of Appeals, 391 SCRA 90(2002).

No Contract Situation versus Void Contract Absence of consent (i.e., complete meeting of minds) negatesthe existence of a perfected sale.xFirme v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003). The contractthen is null and void ab initio, absolutely wanting in civil effects; hence, it does not create, modify, or extinguish thejuridical relation to which it refers.xCabotaje v. Pudunan, 436 SCRA 423 (2004).

When there is no meeting of the minds on price, the contract is not perfected an d does not serve as a bindingjuridical relation between the parties. xManila Metal Container Corp. v. PNB, 511 SCRA 444 (2006), and should bemore accurately denominated as inexistent, as it did not pass the stage of generation to the point of perfection.xNHA v. Grace Baptist Church, 424 SCRA 147 (2004).

c. Bilateral and Reciprocal (Arts. 1169 and 1191)

A contract of sale gives rise to reciprocal obligations, which arise from the same cause with each party being adebtor and creditor of the other, such that the obligation of one is dependent upon the obligation of the other; andthey are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneousfulfillment of the other.xCortes v. Court of Appeals, 494 SCRA 570 (2006).

The power to rescind is implied in reciprocal ones in case one of the obligors should not comply with what isincumbent upon him, and without need of prior demand.xAlmocera v. Ong, 546 SCRA 164 (2008).


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d. Onerous (Gaite v. Fonacier, 2 SCRA 830 [1961]).

e. Commutative (BUT SEE: Arts. 1355 and 1470)

In a contract of sale, there is no requirement that the price be equal to the exact value of the subject matter ofsale; all that is required is that the parties believed that they will receive good value in exchange for what they willgive. Buenaventura v. CA, 416 SCRA 263 (2003).

f. Sale Is Title and Not Mode

Sale is not a mode, but merely a title. A mode is the legal means by which dominion or ownership is created,transferred or destroyed, but title is only the legal basis by which to affect dominion or ownership. Sale by itself does

not transfer or affect ownership; the most that sale does is to create the obligation to transfer ownership. It istradition or delivery, as a consequence of sale, that actually transfers ownership. xSan Lorenzo Dev. Corp. v. CA,449 SCRA 99 (2005), citingVILLANUEVA,PHILIPPINE LAW ON SALES, 1995 ed., at p. 5.

Sellers ownership of the thing sold is not an element of perfection; what the law requires is that seller has theright to transfer ownership at the time the of delivery. xQuijada v. CA, 299 SCRA 695 (1998).

BUT SEE: xTitong v. CA, 287 SCRA 102 (1998), which defined a sale as a contract transferring dominion andother real rights in the thing sold.

B. SALE DISTINGUISHED FROM SIMILAR CONTRACTS

A contract is what the law defines it to be, taking into consideration its essential elements, and the title given to it bythe parties is not as much significant as its substance. The transfer of ownership in exchange for a price paid or promisedis the very essence of a contract of sale. xSantos v. Court of Appeals, 337 SCRA 67 (2000).

In determining the real character of sale, courts look at the intent of the parties, their true aim and purpose in enteringinto the contract, as well as by their conduct, words, actions and deeds prior to, during and immediate ly after executingthe agreement, and not at the nomenclature used to describe it, xLao v. Court of Appeals, 275 SCRA 237 (1997).

1. Donation (Arts. 725 and 1471)

Unlike a donation, sale is a disposition for valuable consideration with no diminution of the estate but merelysubstitution of values, with the property sold replaced by the equivalent monetary consideration; unlike donation, a validsale cannot have the legal effect of depriving the compulsory heirs of their legitimes. xManongsong v. Estimo, 404SCRA 683 (2003).

The rules on double sales under Art. 1544 find no relevance to contracts of donation. xHemedes v. Court ofAppeals, 316 SCRA 347 (1999).

2. Barter (Arts. 1468, 1638 to 1641)

3. Contract for Piece-of-Work (Arts. 1467, 1713 to 1715)

The Crux: Ineluctably, whether the contract be one of sale or one for a piece of work, a transfer of ownership isinvolved and a party necessarily walks away with an object. xCommissioner of Internal Revenue v. CA, 271 SCRA605 (1997), citingVILLANUEVA,LAW ON SALES, pp. 7-9 (1995). In both provisions on warranty of title against hiddendefects applies. xDio v. CA, 359 SCRA 91 (2001).

When a person stipulates for the future sale of articles which he is habitually making, and which at the time arenot made or finished, it is essentially a contract of sale and not a contract for labor x Inchausti & Co. v. Cromwell, 20Phil. 345 (1911); even when he executes production thereof only after an order is placed by customers. Celestino &Co. v. Collector, 99 Phil. 841 (1956).

If the thing is specially done only upon the specific order of another, this is a contract for a piece of work; if thething is manufactured or procured for the general market in the ordinary course of business, it is a contract of sale.Commissioner of Internal Revenue v. Engineering Equipment & Supply Co., 64 SCRA 590 (1975).

To Tolentino, the distinction depends on the intention of parties : if parties intended that at some future date anobject has to be delivered, without considering the work or labor of the party bound to deliver, the contract is one ofsale; but if one of the parties accepts the undertaking on the basis of some plan, taking into account the work he willemploy personally or through another, the contract is for a piece of work. xEngineering & Machinery Corp. v. CA, 252SCRA 156 (1996).

4. Agency to Sell(Art. 1466)

Assumption by agent of the risk pertaining to the cost or price of the subject matter makes the relationship thatof buyer-seller, for the agent does not assume risk with respect to the price or the property subject of the relationship.xKer & Co., Ltd. v. Lingad, 38 SCRA 524 (1971). Consequently: (a) the contractual relationship is not inherently

revocable. Quiroga v. Parsons, 38 Phil. 501 (1918); or (b) the purported agent does not have to account for the profitmargin earned from acquiring the property for the purported principal. Puyat v. Arco Amusement Co., 72 Phil. 402(1941).

One factor that most clearly distinguishes agency from other legal concepts, including sale, is control; one person the agent agrees to act under the control or direction of another the principal. xVictorias Milling Co., Inc. v. CA,333 SCRA 663 (2000).

Commercial broker, commission merchant or indentor is a middleman acting in his own name, and acts as agentfor both seller and buyer to effect a sale between them. Although he is neither seller nor buyer to the contract effectedhe may voluntarily assume warranties of seller. xSchmid and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988).

5. Dacion En Pago (Arts. 1245 and 1934)


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Governed by the law on sales, dation in payment is a transaction that takes place when property is alienated to thecreditor in full satisfaction of a debt in moneyit involves the delivery and transmission of ownership of a thing as anaccepted equivalent of the performance of the obligation.xYuson v. Vitan, 496 SCRA 540 (2007).

In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation wherethe thing offered as an accepted equivalent of the performance of an obligation is considered as the object of thecontract of sale, while the debt is considered as the purchase price. xAquintey v. Tibong511 SCRA 414 (2006).

Elements ofdation in payment: (a) performance of the prestation in lieu of payment (animo solvendi) which mayconsist in the delivery of a corporeal thing or a real right or a credit against the third person; (b) some differencebetween the prestation due and that which is given in substitution (aliud pro alio); and (c) agreement between thecreditor and debtor that the obligation is immediately extinguished by reason of the performance of a presentation

different from that due. Lo v. KJS Eco-Formwork System Phil., Inc., 413 SCRA 182 (2003).

Fordacion to arise, there must be actual delivery of the property to the creditor by way of extinguishment of thepre-existing debt. xPhilippine Lawin Bus Co. v. CA, 374 SCRA 332 (2002). BUTSEEOBITER:xSSS v. Court of Appeals,553 SCRA 677 (2008).

There is no dation when there is no such transfer of ownership in favor of the creditor, as when the possession isonly by way of security. xPNB v. Pineda, 197 SCRA 1 (1991).

A creditor, especially a bank, which enters into dacion en pago, should know and must accept the legalconsequence thereof, that the pre-existing obligation is totally extinguished. xEstanislao v. East West Banking Corp.,544 SCRA 369 (2008).

6. Lease (Arts. 1484 and 1485)

When rentals in a lease are clearly meant to be installment payments to a sale contract, despite thenomenclature given by the parties, it is a sale by installments and governed by the Recto Law. x Filinvest Credit Corp.v. CA, 178 SCRA 188 (1989).

II. PARTIES TO A CONTRACT OF SALE (Arts. 1489-1492)

1. General Rule: Every person having legal capacity to obligate himself, may validly enter into a contract of sale, whetheras seller or as buyer. (Art. 1489)

2. Minors, Insane and Demented Persons, Deaf-Mutes (Arts. 1327, 1397 and 1399)

A minor cannot be deemed to have given her consent to a contract of sale; consent is among the essentialrequisites of a contract, including one of sale, absent of which there can be no valid contract. [?] x Labagala v.

Santiago, 371 SCRA 360 (2001).

a. Necessaries (Arts. 1489 and 290)

b. xEmancipation (Arts. 399 and 1397; Inutile: Majority age now at 18 years, Arts. 234 and 236, Family Code,amended by R.A. 6809).

c. Protection of the Senile and Elderly (Art. 24) and Illiterates (Art. 1332)

Under Art. 1332, when one of the parties is unable to read, or if the contract is in a language not understood byhim, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have beenfully explained to the former; otherwise, sale is void. [?] xVda. De Ape v. Court of Appeals , 456 SCRA 193 (2005).

While a person is not incompetent to contract merely because of advanced years or by reason of physicalinfirmities, when such age or infirmities have impaired the mental faculties so as to prevent the person from properly,

intelligently or firmly protecting his property rights, then he is undeniably incapacitated, and the sale he entered into isvoid [?]. Paragas v. Heirs of Dominador Balacano, 468 SCRA 717 (2005).

3. Sales By and Between Spouses:

a. Contracts with Third Parties (Arts. 73, 96, and 124, Family Code)

Under Art. 124 of Family Code, sale by husband of a conjugal property without the wifes consent is void, notmerely voidable, since the resulting contract lacks one of the essential elements of full consent. xGuiang v. CA, 291SCRA 372 (1998).

A wife affixing her signature to a Deed of Sale as a witness is deemed to have given her consent. xPelayo v.Perez, 459 SCRA 475 (2005).

As an exception, husband may dispose of conjugal property without wifes consent if such sale is necessary to

answer for conjugal liabilities mentioned in Articles 161 and 162.xAbalos v. Macatangay, Jr., 439 SCRA 64 (2004).

b. Between Spouses (Arts. 133, 1490, 1492; Sec. 87, Family Code)

Sales between spouses who are not governed by a complete separation of property regime are void, not justvoidable. xMedina v. Collector, 1 SCRA 302 (1960).

Sale by husband of conjugal land to his concubine is null and void for being contrary to morals and public policyand subversive of the stability of the family, a basic social institution which public policy cherishes and protects.Calimlim-Canullas v. Fortun, 129 SCRA 675 (1984).

Since under Art. 1490, the spouses cannot validly sell property to one another, then policy consideration and thedictates of morality require that the prohibition should apply also to common-law relationships. cf. Matabuena v.Cervantes, 38 SCRA 284 (1971).


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Nevertheless, when property resold to a third-party buyer in good faith and for value, reconveyance is no longeravailable. xCruz v. CA, 281 SCRA 491 (1997).

The in pari delicto doctrine would apply to the spouses-parties under Art. 1490, since only the heirs and thecreditors can question the sales nullity. xModina v. Court of Appeals, 317 SCRA 696 (1999).

4. Others Relatively Disqualified (Arts. 1491 and 1492)

Contracts entered into in violation of Arts. 1490 and 1492 are not merely voidable, but are null and void. Rubiasv. Batiller, 51 SCRA 120 (1973).

a. Guardians, Agents and Administrators

No more need to comply with xRodriquez v. Mactal, 60 Phil. 13 (1934) which required showing that a third partybought as conduit/nominee of the buyer disqualified under Art. 1491; rather, the presumption now is that suchdisqualified party obtained the property in violation of said article. Philippine Trust Co. v. Roldan, 99 Phil. 392(1956).

Prohibition against agents does not apply if the principal consents to the sale of the property in the hands of theagent.xDistajo v. CA, 339 SCRA 52 (2000).

Hereditary rights are not included in the prohibition insofar as administrator or executor of the estate of thedeceased. xNaval v. Enriquez, 3 Phil. 669 (1904).

b. Attorneys.

Prohibition applies only while litigation is pending. xDirector of Lands v. Ababa, 88 SCRA 513 (1979); even

when the litigation is not adversarial in nature Rubias v. Batiller, 51 SCRA 120 (1973); or when it is a certiorariproceeding that may have no meritxValencia v. Cabanting, 196 SCRA 302 (1991).

Prohibition applies only to a sale to a lawyer of record, and does not cover assignment of the property given injudgment made by a client to an attorney, who has not taken part in the case. xMunicipal Council of Iloilo v.Evangelista, 55 Phil. 290 (1930); nor to a lawyer who acquired property prior to the time he intervened as counsel inthe suit involving such property.xDel Rosario v. Millado, 26 SCRA 700(1969).

Prohibition does not apply: (a) to sale of a land acquired by a client to satisfy a judgment in his favor, to hisattorney as long as the property was not the subject of the litigation. x Daroy v. Abecia, 298 SCRA 172 (1998); or (b)to a contingency fee arrangement which grants the lawyer of record proprietary rights to the property in litigationsince the payment of said fee is not made during the pendency of litigation but only after judgment has beenrendered. Fabillo v. IAC, 195 SCRA 28 (1991).

c. Judges

A judge should restrain himself from participating in the sale of propertiesit is incumbent upon him to advisethe parties to discontinue the transaction if it is contrary to law. Britanico v. Espinosa, 486 SCRA 523 (2006).

A judge who buys property in litigation before his court after the judgment becomes finaldoes not violate Art.1491, but he can be administratively disciplined for violation of the Code of Judicial Ethics. xMacariola v. Asuncion,114 SCRA 77 (1982).

Even when the main cause is a collection of a sum of money, the properties levied are still subject to theprohibition. xGan Tingco v. Pabinguit, 35 Phil. 81 (1916).

III. SUBJECT MATTER OF SALE (Arts. 1459 to 1465)

Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale.

xCommissioner of Internal Revenue v. CA and Ateneo de Manila University, 271 SCRA 605 (1997).The Civil Code provisions defining sales is a catch-all provision which effectively brings within it grasp a whole

gamut of transfers whereby ownership of a th ing is ceded for a consideration. Polytechnic University v. CA, 368 SCRA691 (2001).

Where under an agreement, a party renounces and transfers whatever rights, interests, or claims she has over aparcel of land in favor of another party in consideration o f the latters payment of therein loan, the agreement isessentially a sale, and the rule on delivery effected through a public instrument apply. xCaoibes, Jr. v. Caoibes-Pantoja,496 SCRA 273 (2006).

1.MUST BE EXISTING,FUTURE OR CONTINGENT (ARTS.1347,1348, AND 1462)

a. Emptio Rei Speratae (Arts. 1461 and 1347)

Pending crops which have potential existence may be valid object of sale. xSibal v. Valdez, 50 Phil. 512(1927); and such transaction cannot be considered to effectively be sale of the land or any part thereof. x Pichel v.Alonzo, 111 SCRA 341 (1981).

b. Emptio Spei (Art. 1461)

c. Subject to Resolutory Condition (Art. 1465)

2. Must Be Licit (Arts. 1347, 1459 and 1575)

Under Art. 1347, a sale involving future inheritance is void and cannot be the source of any right nor create anyobligation.xTaedov. Court of Appeals, 252 SCRA 80 (1996).


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Article 1347 does not cover waiver of hereditary rights which is not equivalent to sale, since waiver is a mode ofextinction of ownership in favor of the other persons who are co-heirs. xAcap v. Court of Appeals, 251 SCRA 30(1995).

A mortgagor is not prevented from selling the property, since it is merely encumbrance and effect a loss of hisprincipal attribute as owner to dispose of the property. Law even considers void a stipulation forbidding the ownerfrom alienating mortgaged immovable.xPineda v. CA, 409 SCRA 438 (2003).

3. Must Be Determinate or At Least Determinable (Art. 1460)

When the deed of sale describes a lot adjacent to the land seen, agreed upon and delivered to the buyer, suchland is the one upon which the minds have met, and not that erroneously described in the deed. Atilano v. Atilano,28 SCRA 231 (1969).

a. Generic things may be object of sale (Arts. 1246 and 1409[6])

Subject matter is determinable when by a formula or description agreed upon at perfection there is a way bywhich the courts can delineate independent of the will of the parties. Melliza v. City of Iloilo, 23 SCRA 477(1968).

Where the lot sold is said to adjoin the previously paid lot on three sides thereof, the subject lot is capableof being determined without the need of any new contract, even when the exact area of the adjoining residentiallot is subject to the result of a survey. xSan Andres v. Rodriguez, 332 SCRA 769 (2000).

Determinable subject matter of sale are not subject to risk of loss until they are physically segregated orparticularly designated. Yu Tek & Co. v. Gonzales, 29 Phil. 384 (1915).

b. Undivided Interest (Art. 1463) or Undivided Share in a Mass of Fungible Goods (Art. 1464) May result it co-ownership.

4. Quantity of Subject Matter Not Essential for Perfection? (Art. 1349)

Sale of grains is perfected even when the exact quantity or quality is not known, so long as the source of thesubject is certain. NGA v. IAC, 171 SCRA 131 (1989).

Where seller quoted to buyer the items offered for sale, by item number, part number, description and unit price,and the buyer had sent in reply a purchase order without indicating the quantity being order, there was already aperfected contract of sale, even when required letter of credit had not been opened by the buyer. JohannesSchuback & Sons Phil. Trading Corp. v. CA , 227 SCRA 719 (1993).

5. Sellers Obligation to Transfer Title to Buyer (Art. 1459, 1462, and 1505)a. Seller's Ownership Need Not Exist at Perfection:

Sale of copra for future delivery does not make seller liable for estafa for failing to deliver because thecontract is still valid and the obligation was civil and not criminal.xEsguerra v. People, 108 Phil. 1078 (1960).

A perfected contract of sale cannot be challenged on the ground of the sellers non-ownership of the thingsold at the time of the perfection of the contract; it is at delivery that the law requires the seller to have the right totransfer ownership of the thing sold. xAlcantara-Daus v. de Leon, 404 SCRA 74 (2003).

It is essential that seller is owner of the property he is selling. The principal obligation of a seller is to transferthe ownership of the property sold (Art. 1458). This law stems from the principle that nobody can dispose of thatwhich does not belong to him. NEMO DAT QUOD NON HABET. xNoel v. CA, 240 SCRA 78 (1995).

That the sellers are no longer owners of the goods at perfection does not appear to be one of the void

contracts enumerated in Art. 1409 of Civil Code, and under Art. 1402 the Civil Code itself recognizes a salewhere the goods are to be acquired x x x by the seller after the perfection of the contract of sale clearly implyingthat a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to theproperty later on; nevertheless such contract may be deemed to be inoperative and may thus fall, by analogy,under Art. 1409(5): Those which contemplate an impossible service. Nool v. CA, 276 SCRA 149 (1997).

b. Subsequent Acquisition of Title by Non-Owner Seller (Art. 1434) validates the sale and title passes to the sellerby operation of law.

c. Acquisition by the Buyer May Even Depend on Contingency (Art. 1462).

X6.Illegality of Subject Matter (Arts. 1409, 1458, 1461, 1462, and 1575)

a. Special Laws: narcotics (R.A. 6425); wild bird or mammal (Act 2590, Sec. 7); rare wild plants (Act 3983);poisonous plants or fruits (R.A. 1288); dynamited fish (R.A 428); gunpowder and explosives (Act 2255); firearmsand ammunitions (P.D. 9); sale of realty by non-Christians (Sec. 145, Revised Adm. Code, R.A 4252)

b. Following Sales of Land Void:

By Non-Christian if not approved by Provincial Governor per Sec. 145 of Revised Administrative Code. xTac-an v. CA, 129 SCRA 319 (1984).

Friar land without consent of Secretary of Agriculture required under Act No. 1120. xAlonso v. Cebu CountryClub, Inc., 375 SCRA 390 (2002); Liao v. CA, 323 SCRA 430 (2000).

Made in violation of land reform laws declaring tenant-tillers as the full owners of the lands they tilled. xSiacorv. Gigantana, 380 SCRA 306 (2002).

Reclaimed lands are of the public domain and cannot, without congressional fiat, be sold, public or private.Fisheries Dev. Authority v. Court of Appeals, 534 SCRA 490 (2007).


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IV. PRICE AND OTHER CONSIDERATION (Arts. 1469-1474)

Price signifies the sum stipulated as the equivalent of the thing sold and also every incident taken intoconsideration for the fixing of the price put to the debit of the buyer and agreed to by him. xInchausti & Co. v. Cromwell,20 Phil. 345 (1911).

Seller cannot unilaterally increase the price previously agreed upon with the buyer, even when due to increasedconstruction costs. xGSIS v. Court of Appeals, 228 SCRA 183 (1993).

Buyer who opted to purchase the land on installment basis with imposed interest, cannot later unilaterally disavowthe obligation created by the stipulation in the contract which sets the interest at 24% per annum: The rationale behindhaving to pay a higher sum on the installment is to compensate the vendor for waiting a number of years before

receiving the total amount due. The amount of the stated contract price paid in full today is worth much more that aseries of small payments totaling the same amount. x x x To assert that mere prompt payment of the monthlyinstallments should obviate imposition of the stipulated interest is to ignore an economic fact and negate one of themost important principles on which commerce operates.xBortikey v. AFP RSBS, 477 SCRA 511 (2005).

1. Price Must Be Real (Art. 1471)

a. When Price Simulated

(1) Mapalo v. Mapalo, 17 SCRA 114 (1966), versus: When two aged ladies, not versed in English, sign a Deed ofSale on representation by buyer that it was merely to evidence their lending of money, the situation constitutesmore than just fraud and vitiation of consent to give rise to a voidable contract, since there was in fact nointention to enter into a sale, there was no consent at all, and more importantly, there was no consideration orprice agreed upon, which makes the contract void ab initio. Rongavilla v. Court of Appeals, 294 SCRA 289(1998).

(2) Mate v. CA, 290 SCRA 463 (1998), versus: When Deed of Sale was executed to facilitate transfer of propertyto buyer to enable him to construct a commercial building and to sell the property to the children, sucharrangement being merely a subterfuge on the part of buyer, the agreement cannot also be taken as aconsideration and sale is void. Yu Bun Guan v. Ong, 367 SCRA 559 (2001).

(3) Effects When Price Simulated The principle of in pari delictononoritur action, which denies all recovery to theguilty parties inter se, where the price is simulated; the doctrine applies only where the nullity arises from theillegality of the consideration or the purpose of the contract. xModina v. Court of Appeals, 317 SCRA 696(1999).

b. When Price is False (Arts. 1353 and 1354)

When the parties intended to be bound but the deed did not reflect the actual price agreed upon, there is only

a relative simulation of the contract which remains valid and enforceable, but subject to reformation. x Macapgal v.Remorin, 458 SCRA 652 (2005).

When price indicated in deed of absolute sale is undervalued consideration pursuant to intention to avoidpayment of higher capital gains taxes, the price stated is false, but the sale is still valid and binding on the realterms. xHeirs of Spouses Balite v. Lim, 446 SCRA 54 (2004).

c. Non-Payment of Price

Sale being consensual, failure of buyer to pay the price does not make the contract void for lack ofconsideration or simulation, but results in buyers default, for which the seller may exercise his legal remedies.xBalatbat v. CA, 261 SCRA 128 (1996).

In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transactionthat, for a time, existed and discharges the obligations created thereunder. [?] The remedy of an unpaid seller in a

contract of sale is to seek either specific performance or rescission. xHeirs of Pedro Escanlar v. Court of Appeals,281 SCRA 176 (1997).

Badge That Price Is Simulated, Not Just Unpaid: It is a badge of simulated price, which render the sale void,when the price, which appears thereon as paid, has in fact never been paid by the purchaser to the seller. xVda.de Catindig. v. Heirs of Catalina Roque, 74 SCRA 83 (1976).

2. Must Be in Money or Its Equivalent (Arts. 1458 and 1468)

Price must be valuable consideration as mandated by Civil Law, instead of any price mandated in commonlaw. Ong v. Ong, 139 SCRA 133 (1985); Bagnas v. CA, 176 SCRA 159 (1989); Republic v. Phil. ResourcesDev., 102 Phil. 960 (1958).

Consideration for sale can take different forms, such as the prestation or promise of a thing or service byanother, thus:

When deed provides that the consideration was the expected profits from the subdivision project. xTorres v.Court of Appeals, 320 SCRA 428 (1999).

Cancellation of liabilities on the property in favor of the seller. xPolytechnic University v. Court of Appeals,368SCRA691(2001).

Assumption of mortgage constituted on the property sold. xDoles v. Angeles, 492 SCRA 607 (20060.

3. Must Be Certain or Ascertainable at Perfection (Art. 1469)

a. How Price Determined to be Ascertainable

(i) Set by third person appointed at perfection (Art. 1469)


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(ii) Set by the courts (Art. 1469)

(iii) By reference to a definite day, particular exchange or market (Art. 1472)

(iv) By reference to another thing certain, such as to invoices then in existence and clearly identified by theagreement xMcCullough v. Aenlle, 3 Phil. 285 (1904); or known factors or stipulated formula (xMitsui v.Manila, 39 Phil. 624 (1919).

Price is ascertainable if the terms of the contract furnishes the courts a basis or measure for determining theamount agreed upon, without having to refer back to either or both parties. x Villanueva v. Court of Appeals, 267SCRA 89 (1997).

Where the sale involves an asset under a privatization scheme which attaches a peculiar meaning or

signification to the term indicative price as merely constituting a ball -park figure, then the price is not certain.xMoreno, Jr. v. Private Management Office, 507 SCRA 63 (2006).

Consideration is generally agreed upon as whole even if it consists of several parts, and even if it is contained inone or more instruments; otherwise there would be no price certain, and the contract of sale not perfected. xArimasv. Arimas, 55 O.G. 8682.

b. Price Never Set By One or Both Parties (Arts. 1473, 1182), unless the price is separately accepted by the otherparty.

c. Effects of Unascertainability: Sale is inefficacious..

BUT: If Buyer Appropriates the Object, He Must Pay Reasonable Price. (Art. 1474)

There can be no concept of appropriation when it comes to land? Where a church organization hasbeen allowed possession and introduce improvements on the land as part of its application to purchase with theNHA, and thereafter it refused the formal resolution of the NHA Board setting the price and insisted on payingthe lower price allegedly given by the NHA Field Office, there can be no binding contract of sale upon which anaction for specific performance can prosper, not even on fixing the price equal to the fair market value of theproperty.xNHA v. Grace Baptist Church, 424 SCRA 147 (2004).

4. Manner of Payment of Price ESSENTIAL

A definite agreement on the manner of payment of price is an essential element in the formation of a binding andenforceable contract sale; without it the sale is void and an action for specific performance must fail. Navarra v.Planters Dev. Bank, 527 SCRA 562 (2007).

When the manner of payment of the price is discussed after acceptance, then such acceptance did not producea binding and enforceable contract of sale. xNavarro v. Sugar Producer's Corp ., 1 SCRA 1180 (1961).

Where there is no other basis for the payment of the subsequent amortizations in a Deed of Conditional Sale, thereasonable conclusion one can reach is that the subsequent payments shall be made in the same amount as the firstpayment. [?] xDBP v. Court of Appeals, 344 SCRA 492 (2000).

5. Inadequacy of Price Does Not Affect Ordinary Sale (Arts. 1355 and 1470)

Mere inadequacy of the price does not affect the validity of the sale when both parties are in a position to form anindependent judgment concerning the transaction, unless fraud, mistake, or undue influence indicative of a defect inconsent is present. The contract may be annulled for vitiated consent and not due to the inadequacy of price. x Bautistav. Court of Appeals, 436 SCRA 141 (2004).

Absent any evidence of the fair market value of a land as of the time of its sale, it cannot be concluded that the priceat which it was sold was inadequate. xAcabal v. Acabal, 454 SCRA 897 (2005).

a. Gross Inadequacy of Price May Avoid Judicial Sale:

(i) Only when it is shocking to the conscience of man. xPascua v. Simeon, 161 SCRA 1 (1988); and

(ii) There is showing that, in the event of a resale, a better price can be obtained. x Cu Bie v. Court of Appeals, 15SCRA 307 (1965).

UNLESS: There is right of redemption, in which case the proper remedy is to redeem .xDe Leon v. Salvador, 36SCRA 567 (1970).

But: By way of extraordinary circumstances perceived, when in a judicial sale the right of redemption has been lost,where the inadequacy of the price is purely shocking to the conscience, such that the mind revolts at it andsuch that a reasonable man would neither directly or indirectly be likely to consent to it, the same will be seaside. xCometa v. Court of Appeals, 351 SCRA 294 (2001).

There is gross inadequacy in price if a reasonable man will not agree to dispose of his property . Dorado Vda.De Delfin v. Dellota, 542 SCRA 397 (2008).

When judicial sale is voided without fault of purchaser, the latter is entitled return of price with simple interest,together with all sums paid out by him in improvements introduced on the property, taxes, and other expenses.xSeven Brothers Shipping Corp. v. Court of Appeals, 246 SCRA 33 (1995).

b. Lesion of more than 1/4 of value of thing makes sale rescissible unless approved by court . (Art. 1386).

c. Gross inadequacy of price may raise the presumption of equitable mortgage. (Art. 1602).

V. FORMATION OF CONTRACT OF SALE (Arts. 1475-1488)

A.POLICITACIONSTAGE (Art. 1479)


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Policitation stage covers the doctrine of freedom of contract which signifies or implies the right to choose withwhom to contract. A property owner is free to offer his property for sale to any interested person, and is not dutybound to sell the same to the occupant thereof, absent any prior agreement vesting the occupants the right of firstpriority to buy. xGabelo v. Court of Appeals, 316 SCRA 386 (1999).

A negotiation is formally initiated by an offer, which, however, must be certain. At any time prior to the perfectionof the contract, either negotiating party may stop the negotiation. At this stage, the offer may be withdrawn; thewithdrawal is effective immediately after its manifestation. To convert the offer into a contract, the acceptance must beabsolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional and without varianceof any sort from the proposal. Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006).

An unaccepted unilateral promise (offer to buy or to sell) prior to acceptance, does not give rise to any obligation

or right. xRaroque v. Marquez, 37 O.G. 1911.

Where the offer is given with a stated time for its acceptance, the offer is terminated at the expiration of that time.xVillegas v. Court of Appeals, 499 SCRA 276 (2006).

1. Option Contract

An option is a preparatory contract in which one party grants to the other, for a fixed period and under specifiedconditions, the power to decide, whether or not to enter into a principal contract. It binds the party who has given theoption, not to enter into the principal contract with any other person during the period designated, and, within thatperiod, to enter into such contract with the one to whom the option was granted, if the latter should decide to use theoption. It is a separate agreement distinct from the contract of sale which the parties may enter into upon theconsummation of the option. Carceller v. Court of Appeals, 302 SCRA 718 (1999).

An option imposes no binding obligation on the person holding the option aside from the consideration for theoffer. Until accepted, it is not treated as a sale. Tayag v. Lacson, 426 SCRA 282 (2004).

Tenants, not being the registered owners, cannot grant an option on the land, much less any exclusive right tobuy the property under the Latin saying nem dat quod non habet. xTayag v. Lacson, 426 SCRA 282 (2004).

a. Meaning of Separate Consideration (Arts. 1479 and 1324)

A unilateral promise to sell, in order to be binding upon the promissor, must be for a price certain andsupported by a consideration separate from such price.xSalame v. Court of Appeals, 239 SCRA 356 (1995).

The separate consideration in an option may be anything of value, unlike in sale where it must be the pricecertain in money or its equivalent. Villamor v. Court of Appeals, 202 SCRA 607 (1991), such when the option isattached to a real estate mortgagexSoriano v. Bautista, 6 SCRA 946 (1962).

Although no consideration is expressly mentioned in an option contract, it is presumed that it exists and may

be proved, and once proven, the option is binding. xMontinola v. Cojuangco, 78 Phil. 481 (1947).

b. No Separate Consideration: Void as Option, Valid as a Certain Offer Sanchez v. Rigos, 45 SCRA 368 (1972).

BUTLATELY: xYao Ka Sin Trading v. CA, 209 SCRA 763 (1991); xMontilla v. CA, 161 SCRA 855 (1988);xNatinov. IAC, 197 SCRA 323 (1991); andxDiamante v. CA, 206 SCRA 52 (1992).

c. There Must Be Acceptance of Option Offer. Vazquez v. CA, 199 SCRA 102 (1991).

d. Proper Exercise of Option Contract. Nietes v. CA, 46 SCRA 654 (1972).

An option attached to a lease when not exercised within the option period is extinguished and cannot bedeemed to have been included in the implied renewal ( tacita reconduccion) of the lease. xDizon v. CA, 302 SCRA288 (1999).

Proper exercise of an option gives rise to the reciprocal obligations of sale x Heirs of Luis Bacus v. Court ofAppeals, 371 SCRA 295 (2001), which must be enforced with ten (10) years as provided under Art. 1144. x Dizonv. Court of Appeals, 302 SCRA 288 (1999).

There must be virtual exercise of option with the option period. Carceller v. Court of Appeals, 302 SCRA718 (1999).

2. Right of First Refusal

A right of first refusal cannot be the subject of specific performance, but breach would allow a recovery ofdamages.xGuerrero v. Yigo, 96 Phil. 37 (1954).

Rights of first refusal only constitute innovative juridical relations, but do not rise to the level of contractualcommitment since with the absence of agreement on price certain, they are not subject to contractual enforcement.Ang Yu Asuncion v. Court of Appeals, 238 SCRA 602 (1994).

Right of first refusal contained in a lease, when breached by promissor allows enforcement by the promisee byway of rescission of the sale entered into with the third party, pursuant to Arts. 1381(3) and 1385 of Civil Code.xGuzman, Bocaling & Co. v. Bonnevie, 206 SCRA 668 (1992); Equatorial Realty Dev., Inc. v. Mayfair Theater, Inc. ,264 SCRA 483 (1996); Paranaque Kings Enterprises, Inc. v. CA, 268 SCRA 727, 741 (1997).

In a right of first refusal, while the object might be made determinate, the exercise of the right would bedependent not only on the grantors eventual intention to enter into a binding juridical relation with another but also onterms, including the price, that are yet to be firmed up . . . . the offer may be withdrawn anytime by communicatingthe withdrawal to the other party. Vasquez v. Ayala Corp., 443 SCRA 231 (2004).

A right of first refusal clause simply means that should the lessor decide to sell the leased property during theterm of the lease, such sale should first be offered to the lessee; and the series of negotiations that transpire betweenthe lessor and the lessee on the basis of such preference is deemed a compliance of such clause even when no final


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purchase agreement is perfected between the parties. The lessor was then at liberty to offer the sale to a third partywho paid a higher price, and there is no violation of the right of the lessee. Riviera Filipina, Inv. v. Court of Appeals,380 SCRA 245 (2002).

A right of first refusal in a lease in favor of the lessee cannot be availed of by the sublessee. xSadhwani v. Courtof Appeals, 281 SCRA 75 (1997).

4. Mutual Promises to Buy and Sell(Art. 1479): True Contract to Sell

Mutual promises to buy and sell a certain thing for a certain price gives each of the contracting parties a right todemand from the other the fulfillment of the obligation. xBorromeo v. Franco, 5 Phil. 49 (1905).

Even in this case the certainty of the price must also exist, otherwise, there is no valid and enforceable contractto sell. xTan Tiah v. Yu Jose, 67 Phil. 739 (1939).

An accepted bilateral promise to buy and sell is in a sense similar to, but not exactly the same, as a perfectedcontract of sale because there is already a meeting of minds upon the thing which is the object of the contract andupon the price. But a contract of sale is consummated only upon delivery and payment, whereas in a bilateralpromise to buy and sell gives the contracting parties rights in personam, such that each has the right to demand fromthe other the fulfillment of their respective undertakings. Macion v. Guiani, 225 SCRA 102 (1993).

The cause of action under a mutual promise to buy and sell is 10 years. xVillamor v. Court of Appeals, 202SCRA 607 (1991).

B. PERFECTION STAGE (Arts. 1475, 1319, 1325 and 1326)

Sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and

upon the price. From that moment, the parties may reciprocally demand performance subject to the law governing theform of contracts. xMarnelego v. Banco Filipino Savings and Mortgage Bank, 480 SCRA 399 (2006).

Mutual consent being a state of mind, its existence may only be inferred from the confluence of two acts of theparties: an offer certain as to the object of the contract and its consideration, and an acceptance of the offer which isabsolute in that it refers to the exact object and consideration embodied in said offer. xVillanueva v. PNB, 510 SCRA275 (2006).

If a material element of a contemplated contract is left for future negotiations, the same is too indefinite to beenforceable. For a contract to be enforceable, its terms must be certain and explicit, not vague or indefinite. xBostonBank of the Phil. v. Manalo, 482 SCRA 108 (2006).

So long as there is any uncertainty or indefiniteness, or future negotiations or consideration yet to be had betweenthe parties, there is no contract at all. xMoreno, Jr. v. Private Management Office, 507 SCRA 63 (2006).

1. Absolute Acceptance of a Certain Offer (Art. 1475)

A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of theoriginal offer. The acceptance must be identical in all respects with that of the offer so as to produce consent ormeeting of minds. Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006).

Placing the word Noted and signing such note at the bottom of the written offer cannot be considered anacceptance that would give rise to a valid contract of sale. xDBP v. Ong, 460 SCRA 170 (2005).

If sale subject to suspensive condition: No perfected sale of a lot where the award thereof was expressly madesubject to approval by the higher authorities and there eventually was no acceptance manifested by the supposedawardee. xPeople's Homesite & Housing Corp. v. CA, 133 SCRA 777 (1984).

2. When Deviation Allowed: Villonco v. Bormaheco, 65 SCRA 352 (1975).

3. Sale by Auction (Arts. 1476, 1403(2)(d), 1326)

The terms and conditions provided by the owner of property to be sold at auction are binding upon all bidders,whether they knew of such conditions or not. xLeoquinco v. Postal Savings Bank, 47 Phil. 772 (1925).

A auction sale is perfected by the fall of the hammer or in other customary manner and it does not matter thatanother was allowed to match the bid of the highest bidder. xProvince of Cebu v. Heirs of Rufina Morales , 546SCRA 315 (2008).

4. Earnest Money (Art. 1482)

Earnest money given by the buyer shall be considered as part of the price and as proof of the perfection of thecontract. It constitutes an advance payment to be deducted from the total price. xEscueta v. Lim, 512 SCRA 411(2007).

Absent proof of the concurrence of all the essential elements of a contract of sale, the giving of earnest moneycannot establish the existence of a perfected contract of sale. Manila Metal Container Corp. v. PNB, 511 SCRA 444(2006).

Article 1482 does not apply when earnest money given in a contract to sell xSerrano v. Caguiat, 517 SCRA 57(2007), especially where by stipulation the buyer has the right to walk away from the transaction, with no obligation topay the balance, although he will forfeit the earnest money. xChua v. Court of Appeals, 401 SCRA 54 (2003).

When there is no provision for forfeiture of earnest money in the event the sale fails to materialize, then with therescission it becomes incumbent upon seller to return the earnest money as legal consequence of mutual restitution.xGoldenrod, Inc. v. Court of Appeals, 299 SCRA 141 (1998).

5. Difference Between Earnest Money and Option Money. Oesmer v. Paraiso Dev. Corp., 514 SCRA 228 (2007).


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6. Sale Deemed Perfected Where Offer Was Made. (Art. 1319)

C. FORMAL REQUIREMENTS OF SALES (Arts. 1357, 1358, 1406 and 1483)

1. Form Not Important for Validity of Sale

Sale of land under private instrument is valid.xGallar v. Husain, 20 SCRA 186 (1967).

Articles 1357 and 1358, in relation to Art. 1403(2), require that the sale of real property must be in writing for it tobe enforceable, it need not be notarized for there is nothing in those provisions which require that it must be executedin a public document to be valid. xMartinez v. CA, 358 SCRA 38 (2001);

but both its due execution and its

authenticity must be proven, pursuant to Sec. 20, Rule 132 of the Rules of Court. xTigno v. Aquino, 444 SCRA 61

(2003).

a. Other Rulings on Deeds of Sale:

Seller may agree to a deed of absolute sale before full payment of the purchase price. xPan Pacific IndustrialSales Co., Inc. v. CA, 482 SCRA 164 (2006).

Assuming that the buyers failed to pay the full price stated in the Deed of Sale, such partial failure would notrender the sale void. Bravo-Guerrero v. Bravo, 465 SCRA 244 (2005).

That marital consent was executed prior to the Deed of Absolute Sale does not indicate that it is a phoney.Pan Pacific Industrial Sales Co., Inc. v. CA, 482 SCRA 164 (2006).

A Deed of Sale when acknowledged before a notary public, enjoys the presumption of regularity and dueexecution. To overthrow that presumption, sufficient, clear and convincing evidence is required, otherwise thedocument should be upheld. xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).

Notarization of Deeds of Sale by one who was not a notary public does not affect the validity thereof; saiddocuments were merely converted into private documents. xR.F. Navarro & Co. Inc. v. Vailoces, 361 SCRA139 (2001).

Notarization of a deed of sale does not guarantee its validity nor is it conclusive of the true agreement of theparties thereto, because it is not the function of the notary public to validate an instrument that was neverintended by the parties to have any binding legal effect. xSalonga v. Concepcion, 470 SCRA 291 (2005).

Buyers immediate taking of possession of subject property corroborates the truthfulness and authenticity ofthe deed of sale. xAlcos v. IAC,162 SCRA 823 (1988). Conversely, the sellers continued possession of theproperty makes dubious the contract of sale between them. xSantos v. Santos, 366 SCRA 395 (2001).

Any substantial difference between the terms of the Contract to Sell and the concomitant Deed of AbsoluteSale (such as difference in subject matter, and difference in price and/or the terms thereof), does not make thetransaction between the seller and the buyer void, for it is truism that the execution of the Deed of Absolute

Sale effectively rendered the previous Contract to Sell ineffective and cancelled [through the process ofnovation].xLumbres v. Talbrad, Jr., 516 SCRA 575 (2007).

b. Value of Business Forms to Prove Sale:

Business forms, e.g., order slip, delivery charge invoice and the like, which are issued by the seller in theordinary course of the business are not always fully accomplished to contain all the necessary informationdescribing in detail the whole business transactionmore often than not they are accomplished perfunctorilywithout proper regard to any legal repercussion for such neglect such that despite their being often incomplete,said business forms are commonly recognized in ordinary commercial transactions as valid between the partiesand at the very least they serve as an acknowledgment that a business transaction has in fact transpired.xDonato C. Cruz Trading Corp. v. CA, 347 SCRA 13 (2000).

These documents are not mere scraps of paper bereft of probative value but vital pieces of evidence of

commercial transactions. They are written memorials of the details of the consummation of contracts. x Lagon v.Hooven Comalco Industries, Inc., 349 SCRA 363 (2001).

2. WHEN FORM IMPORTANT IN SALE

a. To Bind Third Parties

Article 1358 which requires the embodiment of certain contracts in a public instrument is only for convenience,and registration of the instrument only adversely affects third parties. Formal requirements are, therefore, for thebenefit of third parties; and non-compliance therewith does not adversely affect the validity of the contract nor thecontractual rights and obligations of the parties thereunder. Fule v. CA, 286 SCRA 698 (1998); Dalion v. CA,182 SCRA 872 (1990).

Non-registration of a contract of sale does not affect its validity and binding effect as between the contractingparties themselves.xUniversal Robina Sugar Milling Corp. v. Heirs of Angel Teves , 389 SCRA 316 (2002).

While sale of land appearing in a private deed is binding between the parties, it cannot be considered bindingon third persons, if it is not embodied in a public instrument and recorded in the Registry of Deeds. Secuya v.Vda. De Selma, 326 SCRA 244 (2000).

b. For Enforceability Between the Parties: STATUTE OF FRAUDS (Arts. 1403 and 1405)

The term Statute of Frauds is descriptive of the statutes which require certain classes of contracts, such asagreements for the sale of real property, to be in writing, the purpose being to prevent fraud and perjury in theenforcement of obligations depending for their evidence on the unassisted memory of witnesses by requiringcertain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.


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Presupposes Valid Contract of SaleThe application of the Statute of Frauds presupposes the existence of aperfected contract. When the records show that there was no perfected contract of sale, there is no basis for theapplication of the Statute of Frauds.xFirme v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003).

(1) Coverage:

(i) Sale of Real Property A sale of realty cannot be proven by means of witnesses, but must necessarily beevidenced by a written instrument, duly subscribed by the party charged, or by secondary evidence of thecontents of such document. No other evidence can be received except the documentary evidence referredto. xGorospe v. Ilayat, 29 Phil. 21 (1914).

(ii) Agency to Sell or to Buy As contrasted from sale, an agency to sell does not belong to any of the three

categories of contracts covered by Arts. 1357 and 1358 and not one enumerated under the Statutes ofFrauds in Art. 1403. xLim v. Court of Appeals, 254 SCRA 170 (1996).

(iii) Rights of First RefusalA right of first refusal is not covered by the statute of frauds. Furthermore, Art.1403(2)(e) of Civil Code presupposes the existence of a perfected, albeit unwritten, contract of sale; aright of first refusal, such as the one involved in the instant case, is not by any means a perfected contractof sale of real property.xRosencor Dev. Corp. v. Inquing, 354 SCRA 119 (2001).

(iv) Equitable Mortgage Statute does not stand in the way of treating an absolute deed as a mortgage, whensuch was the parties intention, although the agreement for redemption or defeasance is proved by parolevidence. xCuyugan v. Santos, 34 Phil. 100 (1916).

(v) Right to Repurchase The deed of sale and the verbal agreement allowing the right of repurchase shouldbe considered as an integral whole; the deed of sale is itself the note or memorandum evidencing thecontract. xMactan Cebu International Airport Authority v. Court of Appeals, 263 SCRA 736 (1996).

(2) Memorandum (Yuviengco v. Dacuycuy, 104 SCRA 668 [1981]; Limketkai Sons Milling, Inc. v. CA, 250 SCRA523 [1995]; BUT SEE255 SCRA 6).

For the memorandum to take the sale out of the coverage of the Statute of Frauds, it must contain all theessential terms of the contract of sale.xTorcuator v. Bernabe, 459 SCRA 439 (2005), even when scattered intovarious correspondences which can be brought together xCity of Cebu v. Heirs of Candido Rubi, 306 SCRA408 (1999).

EXCEPTION: Electronic Documents under the E-COMMERCEACT (R.A.8792)

(3) Partial Execution (Art. 1405) Ortega v. Leonardo, 103 Phil. 870 (1958); Claudel v. Court of Appeals, 199SCRA 113 (1991).

Delivery of the deed to buyers agent, with no intention to part with the title until the purchase price is paid,

does not take the case out of the Statute of Frauds. xBaretto v. Manila Railroad Co., 46 Phil. 964 (1924).The Statute of Frauds does not apply to contracts either partially or totally performed. In addition, a contract

that violates the Statute of Frauds is ratified by the acceptance of benefits under the contract, such as theacceptance of the purchase price and using the proceeds to pay outstanding l oans. Alfredo v. Borras, 404SCRA 145 (2003).

(4) Waiver (Art. 1405) Cross-examination on the contract is deemed a waiver of the defense of the Statute.xLimketkai Sons Milling, Inc. v. CA, 250 SCRA 523 (1995)

(5) Rulings on Receipts and Other Documentary Evidence of Sale

Since a contract of sale is perfected by mere consent, then when the dealer of motor vehicles accepts adeposit of P50,0000 and pulls out a unit from the assembler for that purpose, it was in breach of contract whenit sold the car subsequently to another buyer. xXentrex Automotive, Inc. v. Court of Appeals, 291 SCRA 66

(1998).

Sales invoices are not evidence of payment of the price, but evidence of the receipt of the goods; sincethe best evidence to prove payment is the official receipt. El Oro Engravers Corp. v. Court of Appeals , 546SCRA 42 (2008).A receipt which is merely an acknowledgment of the sum received, without any indicationtherein of the total purchase price of the land or of the monthly installments to be paid, cannot be the basis ofvalid sale. xLeabres v. CA, 146 SCRA 158 (1986).

In itself, the absence of receipts, or any proof of consideration, would not be conclusive of the inexistenceof a sale since consideration is always presumed. xTigno v. Aquino, 444 SCRA 61 (2003).

Receipts proves payment which takes the sale out of the Statute of Frauds. Toyota Shaw, Inc. v. Court ofAppeals, 244 SCRA 320 (1995).

c. For Validity: Sale of Realty Through Agent, Authority Must Be in Writing (Art. 1874)

When sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be inwriting; otherwise, the sale shall be void, even when:

Agent is the son of the owner. xDelos Reyes v. CA, 313 SCRA 632 (1999)

There is partial payment of the price received by the supposed agent. xDizon v. CA, 396 SCRA 154 (2003).

In the case of a corporate owner of realty. xCity-Lite Realty Corp. v. CA, 325 SCRA 385 (2000).

When the Contract to Sell was signed by the co-owners themselves as witnesses, the written authority for theiragent mandated under Article 1874 of the Civil Code is no longer required. xOesmer v. Paraiso Dev. Corp., 514SCRA 228, 237 (2007).

c. Sale of Large Cattle (Art. 15851; Sec. 529, Revised Adm. Code)


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XD.SIMULATED SALES

Characteristic of simulation is that the apparent contract is not really desired or intended to produce legal effect or inany way alter the parties juridical situation, or that the parties have no intention to be bound by the contract. Therequisites are: (a) an outward declaration of will different from the will of the parties; (b) false appearance must havebeen intended by mutual agreement; and (c) purpose is to deceive third persons. x Manila Banking Corp. v. Silverio, 466SCRA 438 (2005).

1.Badges and Non-badges of Simulation:

Non-payment of the stipulated consideration, absence of any attempt by the buyers to assert their alleged rightsover the subject property. xVillaflor v. CA, 280 SCRA 297 (1997).

Failure of alleged buyers to collect rentals from alleged seller. xSantiago v. CA, 278 SCRA 98 (1997); but notwhen there appears a legitimate lessor-lessee relationship between the vendee and the vendor. xUnion Bank v.Ong, 491 SCRA 581 (2006).

Although the agreement did not provide for the absolute transfer ownership of the land to buyer, that did notamount to simulation, since delivery of certificate of ownership and execution of deed of absolute sale wereexpressly stipulated as suspensive conditions, which gave rise to the corresponding obligation on part of buyerto pay the last installments. xVillaflor v. CA, 280 SCRA 297 (1997).

Bare assertions that the signature appearing on the Deeds of Sale is not that of her husband is not enough toallege simulation, since forgery is not presumed; it must be proven by clear, positive and convincing evidence.xR.F. Navarro & Co. v. Vailoces, 361 SCRA 139 (2001).

Simulation of contract and gross inadequacy of price are distinct legal concepts, with different effects the

concept of a simulated sale is incompatible with inadequacy of price. When the parties to an alleged contract donot really intend to be bound by it, the contract is simulated and void. Gross inadequacy of price by itself will notresult in a void contract, and it does not even affect the validity of a contract of sale, unless it signifies a defectin the consent or that the parties actually intended a donation or some other contract. xBravo-Guerrero v. Bravo,465 SCRA 244 (2005).

2.When Motive Nullifies the Sale

In sale, consideration is, as a rule, different from the motive of parties, and when the primary motive is illegal,such as when the sale was executed over a land to illegally frustrate a person's right to inheritance and to avoidpayment of estate tax, the sale is void because illegal motive predetermined purpose of the contract. xOlegario v.CA, 238 SCRA 96 (1994).

Where the parties to a contract of sale agreed to a consideration, but the amount reflected in the final Deed of

Sale was lower, their motivation being to pay lower taxes on the transaction, the contract of sale remains valid andenforceable upon the terms of the real consideration. Although illegal, the motives neither determine nor take theplace of the consideration. xHeirs of Spouses Balite v. Lim, 446 SCRA 54 (2004).

3. Remedies Allowed When Sale Simulated

When a contract of sale is void, the right to set up its nullity or non-existence is available to third persons whoseinterests are directly affected thereby. Likewise, the remedy ofaccion pauliana is available when the subject matter isa conveyance, otherwise valid, undertaken in fraud of creditors. xManila Banking Corp. v. Silverio, 466 SCRA 438(2005).

The rescissory action to set aside contracts in fraud of creditors is accion pauliana, essentially a subsidiaryremedy accorded under Article 1383 which the party suffering damage can avail of only when he has no other legalmeans to obtain reparation for the same. In such action, it must be shown that both contracting parties have actedmaliciously so as to prejudice the creditors who were prevented from collecting their claims. Rescission if generallyunavailing should a third person, acting in good faith, is in lawful possession of the property since he is protect by lawagainst a suit for rescission by the registration of the transfer to him in the registry. xUnion Bank v. Ong, 491 SCRA581 (2006).

4. Effect When Sale Declared Void:

The action for the declaration of the contracts nullity is imprescriptiblean action for reconveyance of property ona void contract of sale does not prescribe. Fil-Estate Golf and Dev., Inc. v. Navarro, 526 SCRA 51 (2007).

Possessor is entitled to keep the fruits during the period for which the buyer held the property in good faith. xDBPv. CA, 316 SCRA 650 (1999).

Then restoration of what has been given is in order, since the relationship between parties in any contract even ifsubsequently voided must always be characterized and punctuated by good faith and fair dealing. xDe los

Reyes v. CA, 313 SCRA 632 (1999); xHeirs of Ignacia Aguilar-Reyes v. Mijares, 410 SCRA 97 (2003).Alien who purchases land in the name of his Filipina lover, has no standing to seek legal remedies to either

recover the property or the purchase price paid, since the transaction is void ab initio for being in violation of theconstitutional prohibition.xFrenzel v. Catito, 406 SCRA 55 (2003).

VI. CONSUMMATION (Arts. 1493-1506) ANDPERFORMANCE OF CONTRACT (Arts. 1536-1544, 1582-1590)

A. OBLIGATIONS OF SELLER

1. Preserve Subject Matter (Art. 1163)

2. Deliver with Fruits and Accessories (Arts. 1164, 1166, 1495, 1537)


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3.DELIVER THE SUBJECT MATTER (Art. 1477)

a. Legal Premises for Doctrines on Tradition

When the sale is void or fictitious, no valid title over the subject matter can be conveyed to the buyer evenwith delivery. Nemo potest nisi quod de jure potest No man can do anything except what he can dolawfully. xTraders Royal Bank v. CA, 269 SCRA 15 (1997).

When seller had no ownership over the subject matter at the time of delivery, no valid title can pass in favorof the buyer. Nemo dat quod non habetNo man can give that which he does not have. xTsai v. CA, 366SCRA 324 (2001).

Although tax declaration is not evidence of title, nevertheless when at the time of delivery there is no proofthat the seller had ownership and as in fact the tax declaration to the subject property was in the name ofanother person, then there was no transfer of ownership by delivery. xHeirs of Severina San Miguel v. Court ofAppeals, 364 SCRA 523 (2001).

b. General Doctrines on Tradition, Whether Actual or Constructive:

It may be stipulated that ownership in the thing shall not pass to buyer until he has fully paid price (Art.1478).

In the absence of such stipulation to the contrary, tradition produces its natural effects in law, most importantof which being conveyance of ownership, without prejudice to right of the seller to claim payment of the price.xFroilan v. Pan Oriental Shipping Co., 12 SCRA 276 (1964).

Delivery contemplates the absolute giving up of the control and custody of the property on the part of thevendor, and the assumption of the same by the vendee. Non nudis pactis sed traditione dominia rerumtransferantur. And there is said to be delivery if and when the thing sold is placed in the control and possessionof the vendee. xEquatorial Realty Dev. Inc. v. Mayfair Theater, Inc., 370 SCRA 56 (2001).

Since delivery of subject matter of sale is an obligation on the part of the seller, the acceptance thereof by thebuyer is nota condition for the completeness of delivery. xLa Fuerza v. CA, 23 SCRA 1217 (1968).

In the absence of an express stipulation to the contrary, payment of purchase price of the goods is not acondition precedent to the transfer of title to the buyer, but title passes by the delivery of the goods. x Phil.Suburban Dev. Corp. v. Auditor General, 63 SCRA 397 (1975).

Failure of the buyer to make good the price does not, in law, cause the ownership to revest to the sellerunless the bilateral contract of sale is first rescinded or resolved pursuant to Art. 1191. xBalatbat v. CA, 261SCRA 128 (1996).

c. Physical Delivery (Art. 1497)

It is not necessary that seller himself delivers title to the buyer because the thing sold is understood asdelivered when it is placed in control and possession of buyer. Thus, when sellers themselves introduced thetenant to the buyer as the new owners of the land, and from that time on the buyer acted as landlord thereof,there was delivery that transferred title to the buyer. xAlfredo v. Borras, 404 SCRA 145 (2003).

d. Constructive Delivery: EXECUTION OF A PUBLIC INSTRUMENT (Art. 1498)

Where deed of sale or any agreement analogous to a deed of sale, is made through a public instrument, itsexecution is equivalent to the delivery of the property. Caoibes, Jr. v. Caoibes-Pantoja, 496 SCRA 273 (2006).

Under Art. 1498, the mere execution of the deed of conveyance in a public instrument is equivalent to thedelivery of the property, and that prior physical delivery or possession is not legally required, since ownership and

possession are two entirely different legal concepts. Notwithstanding the presence of illegal occupants on thesubject property, transfer of ownership by symbolic delivery under Art. 1498 can still be effected through theexecution of the deed of conveyance. xSabio v. International Corporate Bank, 364 SCRA 385 (2001).

There is nothing in Article 1498 that provides that execution of a deed of sale is a conclusive presumption ofdelivery of possession; presumptive delivery can be negated by the failure of the vendee to take actualpossession of the land or the continued enjoyment of possession by the vendor. Santos v. Santos, 366 SCRA395 (2001).

(i) As to Movables (Arts. 1498-1499, 1513-1514; Dy, Jr. v. CA, 198 SCRA 826).

Where it is stipulated that deliveries must be made to the buyer or his duly authorized representative namedin the contracts, the seller is under obligation to deliver in accordance with such instructions.. x Lagon v. HoovenComalco Industries, Inc., 349 SCRA 363 (2001).

Execution by supposed buyers of a chattel mortgage over subject vehicle in favor of the financing companydoes not mean that ownership had been transferred to them, for delivery must be on the part of the seller. x UnionMotor Corp. v. CA, 361 SCRA 506 (2001).

Neither issuance of an invoice, which is not a document of title xP.T. Cerna Corp. v. CA, 221 SCRA 19(1993), nor of the registration certificate of vehicle xUnion Motor Corp. v. CA, 361 SCRA 506 (2001), wouldconstitute constructive delivery.

(ii) As to Immovables (Art. 1498)

Issuance of an acknowledgment receipt of partial payment, when it is not a public instrument does notconvey title. xSan Lorenzo Dev. Corp. v. Court of Appeals, 449 SCRA 99 (2005).

In case of immovables, when sale is made through a public instrument, the execution thereof shall beequivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not


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appear or cannot clearly be inferred xMunicipality of Victorias v. CA, 149 SCRA 31 (1987); and that prior physicaldelivery or possession is not legally required since execution of the deed is deemed equivalent to delivery. xManuel R. Dulay Enterprises, Inc. v. Court of Appeals, 225 SCRA 678 (1993), Provided That:

(a) The thing sold is subject to the control of the seller Addison v. Felix, 38 Phil. 404 (1918); and

(b) Such control should remain within a reasonable period after the execution of the instrument Danguilanv. IAC, 168 SCRA 22 (1988); Pasagui v. Villablanca, 68 SCRA 18 (1975).

EXCEPT:When buyer assumes the risks of ownership and possession. Power Commercial and Industrial Corp.v. CA, 274 SCRA 597 (1997).

Execution of Deed of Conditional Sale with provision that final deed of sale to be executed upon full

payment does not transfer ownership of the subject matter. xFortune Tobacco Corp. v. NLRC, 200 SCRA 766(1991).

(1) Registration of Title is Separate Mode from Execution of Public Instrument The recording of the sale withthe proper Registry of Deeds and the transfer of the certificate of title in the name of the buyer arenecessary only to bind third parties to the transfer of ownership. As between the seller and the buyer, thetransfer of ownership takes effect upon the execution of a public instrument conveying the real estate. Chua v. Court of Appeals, 401 SCRA 54 (2003).

BUTSEE: Under Art. 1495, seller is obliged to transfer title over the property and deliver the same to thevendee. Vive Eagle Land, Inc. v. Court of Appeals, 444 SCRA 445 (2004).

(2) Customary Steps in Selling Immovables Customarily, in the absence of a contrary agreement, thesubmission by an individual seller to the buyer of the following papers would complete a sale of real estate:(1) owners duplicate copy of the Torrens title; (2) signed deed of absolute sale; (3 ) tax declaration; and (4)latest realty tax receipt. They buyer can retain the amount for the capital gains tax and pay it upon authorityof the seller, or the seller can pay the tax, depending on the agreement of the parties. Chua v. Court ofAppeals, 401 SCRA 54 (2003).

(iii) As to Incorporeal Property (Arts. 1498 and 1501).

e. Constitutum Possessorium (Art. 1500) A provision in the deed of sale granting to seller a right to lease the subjectmatter of the sale is valid: the possession is deemed to be constituted in the vendee by virtue of this mode oftradition. xAmigo v. Teves, 96 Phil. 252 (1954).

f. Traditio Brevi Manu Prior to the sale, petitioners were in possession of the subject property as lessees. Upon sale tothem of the rights, interests and participation as to the portion pro indiviso, they remained in possession, not in theconcept of lessees anymore but as owners now through symbolic delivery known as traditio brevi manu. xHeirs of

Pedro Escanlar v. CA, 281 SCRA 176 (1997).

4. Transfer Ownership to Vendee Upon Delivery (Arts. 1477, 1478, and 1496)

a. When Buyer Refuses to Accept (Art. 1588)

b. In Case of Express or Implied Reservation (Arts. 1478 and 1503)

5. Taking-Out Insurance Coverage (Art. 1523)

6. Time and Place of Delivery (Art. 1521).

7. Expenses of Execution and Registration (Art. 1487), and of Putting Goods in Deliverable Estate (Art. 1521).

Unless otherwise stipulated: (a) under Art. 1487 the expenses for the registration of the sale should be shouldered

by the vendor xVive Eagle Land, Inc. v. Court of Appeals, 444 SCRA 445 (2004); and (b) duty to withhold taxes dueon the sale is imposed on seller. xEquitable Realty Development Inc. v. Mayfair Theater, Inc., 332 SCRA 139 (2000).

Buyer has more interest in having the capital gains tax paid immediately since this is a pre-requisite to theissuance of a new Torrens title in his name. Nevertheless, as far as the government is concerned, the capital gainstax remains a liability of the seller since it is a tax on the sellers gain from the sale of the real estate. Payment of thecapital gains tax, however, is not a pre-requisite to the transfer of ownership to the buyer. The transfer of ownershiptakes effect upon the signing and notarization of the deed of absolute sale. xChua v. Court of Appeals, 401 SCRA 54(2003).

A judgment on a contract of sale that decrees sellers obligations to execute and deliver the deed of absolutesale and the certificate of title, does not necessarily include within its terms the obligation to pay for the expenses innotarizing a deed of sale and in obtaining new certificate of title. xJose Clavano, Inc. v. HLRB, 378 SCRA 172(2002).

B.SPECIAL RULES ON COMPLETENESS OF DELIVERY

1. In Case of Movables (Art. 1522 and 1537, 1480)

When the contract does not provide for the measuring or weighing of a sold specific mass, and the price agreedupon was not based on such measurement, then [t]he subject matter of the sale is, therefore, a determinate object,the mass, and not the actual number of units or tons contained therein, so that all that is required of seller was todeliver in good faith to his buyer all of those found in the mass, notwithstanding that the quantity delivered is lessthan the amount estimated in the contract. xGaite v. Fonacier, 2 SCRA 831 (1961).

a. Rules on Delivery to Carrier (Art. 1523)

(i) FAS Sales The seller pays all charges and is subject to risk until the goods are placed alongside thevessel. xA. Soriano Y Cia. v. Collector, 97 Phil. 505 (1955).


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(ii) FOB SalesIn mercantile contracts of American origin, F.O.B. stand for the words Free on Board, i.e.,that the seller shall bear all expenses until the goods are delivered according as to whether the goods areto be delivered F.O.B. at the point of shipment or at the point of destination determines the time whenproperty passes. Behn Meyer & Co. v. Yangco, 38 Phil. 602, 606 (1918).

(iii) CIF Sales General Foods v. NACOCO, 100 Phil. 337 (1956).

C.I.F. found in British contracts stand for costs, insurance, and freight; they signify that the price fixedcovers not only the costs of the goods, but the expense of freight and insurance to be paid by the seller. BehnMeyer & Co. v. Yangco, 38 Phil. 602, 606 (1918).

Under an arrangement c.i.f. Pacific Coast (destination), the vendor is to pay not only the cost of the

goods, but also the freight and insurance expenses, and, as it was judicially interpreted, this is taken to indicatethat the delivery is to be made at the port of destination. Pacific Vegetable Oil Corp. v. Singzon, SupremeCourt Advance Decisions, 29 April 1955.

b. Sale on Approval, Trial or Satisfaction (Art. 1502)

In a sale or return, the ownership passes to the buyer on delivery pursuant to a perfected contract of sale;and the subsequent return of the goods reverts ownership back to the seller. In such case, tradition as a modeof acquiring ownership must be in consequence of a contract. xVallarta v. Court of Appeals, 150 SCRA 336(1987).

In a saleon approval (also called sale on acceptance, sale on trial or sale on satisfaction), the deliveryof the object does not transfer ownership to the buyer since the delivery was not for purposes of transferringownership, since the prestation to effect a meeting of the minds to give rise to a valid contract is incumbent onthe buiyer.xVallarta v. Court of Appeals, 150 SCRA 336 (1987).

For a sale to be a sale or return or a sale on approval, there must be a clear agreement to either of sucheffect, otherwise, the provisions of Art. 1502 of Civil Code governing such sales cannot be invoked by eitherparty to the contract.xIndustrial Textile Manufacturing Co. v. LPJ Enterprises, Inc. , 217 SCRA 322 (1993).

c. Sale by Description and/or Sample (Art. 1481)

There is a sale by sample when a small quantity is exhibited by the seller as a fair specimen of the bulk,which is not present and there is no opportunity to inspect or examine the same; and the parties treated thesample as the standard of quality and that they contracted with reference to the sample with the understandingthat the product to be delivered would correspondent with the sample. x Mendoza v. David, 441 SCRA 172 (004)

Even in sales by description and/or sample, buyer will not be released from his obligation to accept and payfor the goods by deviations on the part of the seller from the exact terms of the contract, if buyer had acquiesced

to such deviations after due notice thereof. xEngel v. Mariano Velasco & Co., 47 Phil. 115 (1924).When the machine delivered is in accordance with the description stated in the sales contract, the buyer

cannot refuse to pay the balance of the purchase price and the cost of installation if it proves that the machinecannot be used satisfactorily for the purposes for which he bought it when such purpose was not made known tothe seller. xPacific Commercial Co. v. Ermita Market & Cold Stores, 56 Phil. 617 (1932).

d. Buyer's Right to Inspect Before Acceptance (Arts. 1481 and 1584) Except when carrier delivers COD.

2. In Case of Immovables

a. Where Sold Per Unit or Number (Arts. 1539 and 1540)

In a unit price sale, the statement of the area of immovable is not conclusive and the price may be reduced orincreased depending on the area actually delivered. If the vendor delivers less than the area agreed upon, the

vendee may oblige the vendor to deliver all that is stated in the contract or demand for the proportionate reductionof the purchase price if delivery is not possible. If the vendor delivers more than the area stated in the contract, thevendee has the option to accept only the amount agreed upon or to accept the whole area, provided he pays forthe additional area at the contract rate. Rudolf Lietz, Inc. v. Court of Appeals, 478 SCRA 451 (2005).

b. Where Sold for a Lump Sum [A cuerpo cierto orpor precio alzado] (Art. 1542)

In a lump sum sale, when the land delivered to the buyer is exactly as that described in the deed and coveredwithin the boundaries designated, the difference in actual area (34 versus 10 hectares) will not authorize the buyerto rescind the contract because the seller has complied with delivering the subject matter agreed upon. x Teran v.Villanueva, 56 Phil. 677 (1932); this is the rule when evidence shows that the parties never gave importance tothe area of the land in fixing the price (97 versus 60 hectares). xAzarraga v. Gay, 52 Phil. 599 (1928).

EXCEPT: A buyer of land, when sold in gross or with the description more or less or similar words in designating

quantity covers only a reasonable excess of deficiency. In the case at bar an area of 644 square metersmore is not reasonable excess or deficiency, to be deemed included in the deed of sale. xRoble v.Arbasa, 362 SCRA 69 (2001);Rudolf Lietz, Inc. v. Court of Appeals, 478 SCRA 451 (2005).

EXCEPT TO EXCEPTION: When buyer, who has been occupying the land for two years as lessee, actually is deemedto take risk on the actual size of the property bought at lump sum. xGarcia v. Velasco, 72 Phil. 248(1941).

C.DOUBLE SALES (Arts. 1544 and 1165)

1. Priority of Torrens System of Registration The rules on double sales under Art. 1544 do not overcome the rulesprovided under the Property Registration Decree (P.D. 1459), such as:

(a) When two different titles are issued over the same registered land, the buyer who claims under a title that wasfirst issued shall be preferred. xLiao v. Court of Appeals, 323 SCRA 430 (2000);


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(b) Invoking the rules on double sales and priority in time under Art. 1544 would be misplaced by a first buyer whobought the land not within the Torrens system but under Act No. 3344, as against the second buyer who boughtthe same property when it was already registered under the Torrens system, because:

of the well-known rule in this jurisdiction that persons dealing with registered land have the legal rightto rely on the fact of the Torrens Certificate of Title and to dispense with the need to inquire further,except when the party concerned has actual knowledge of facts and circumstances that would impela reasonably cautious man to make such inquiry; and

the Torrens system rule that formal registration proceedings undertaken on the property and thesubsequent issuance of a title over the land had under the Torrens system had the legal effect ofcleansing title on the property of all liens and claims which were not annotated therein.

Naawan Community Rural Bank, Inc. v. Court of Appeals, 395 SCRA 43 (2003).

BUTSEE: Naval v. Court of Appeals, 483 SCRA 102 (2006).

2. Tests Applicable under Article 1544:

Caveat emptor requires the buyer to be aware of the supposed title of the seller and he who buys withoutchecking the seller's title takes all the risks and losses consequent to such failure. x Caram, Jr. v. Laureta, 103SCRA 7 (1981).

The provision on double sale presumes title or ownership to pass to first buyer, exception being: (a) when thesecond buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription byeither of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of thefirst buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer to him to the

prejudice of the first buyer. xCoronel v. CA, 263 SCRA 15 (1996).

In spite of the three levels of tests provided under Art. 1544, the Court seems to recognize only registration ingood faith by the second buyer and does not characterize the meaning of the last two test of possession and oldesttitle. Carillo v. Court of Appeals, 503 SCRA 66 (2006).

a.MAIN RULE:PRIORTEMPORE,PRIORJURE.Carbonell v. CA, 69 SCRA 99 (1976).

3. Requisites for Double Sale:

a. There Must Be Two Different Valid Sales:Article 1544 do not apply where:

There is only one valid sale, while the other sale over the same property is void. Fudot v. Cattleya Land, Inc.,533 SCRA 350 (2007); or

Where one of the contract is a contract to sell. San Lorenzo Dev. Corp. v. Court of Appeals , 449 SCRA 99(2005).

(1) Doctrine on Conditional Sales/Contracts to Sell and Adverse Claims: Mendoza v. Kalaw, 42 Phil. 236 (1921);Adalin v. CA, 280 SCRA 536 (1997).

The rules on double sales under Art. 1544 are not applicable to contract to sell, because of thecircumstances that must concur in order for the provisions to Art. 1544 on double sales to apply, namely thatthere must be a valid sales transactions, and buyers must be at odds over the rightful ownership of the subjectmatter who must have bought from the very same seller, are lacking in a contract to sell for neither a transfer ofownership nor a sales transaction has been consummated, and such contract is binding only upon thefulfillment or non-fulfillment of an event. Nevertheless, the governing principle of Art. 1544 should apply, mainlythe governing principle ofprimus tempore,portior jure(first in time, stronger in right). Cheng v. Genato, 300SCRA 722 (1998).

b. Exact Same Subject Matter

Article 1544 applies where the same thing is sold to different buyers by the same seller. xOng v. Oalsiman,485 SCRA 464 (2006); and therefore does not apply where there was a sale to one party of the land itself whilethe other contract was a mere promise to sell the land or at most an actual assignment of the rights torepurchase the same land. xDischoso v. Roxas, 5 SCRA 781 (1962).

c. Exact Same Seller for Both Sales

Article 1544 applies where the same thing is soldto different vendees by the same vendor. It does not applywhere the same thing is sold to different vendees by different vendors.or even to the same buyer but bydifferent sellers. Salera v. Rodaje, 530 SCRA 432, 438 (2007).

For Article 1544 to apply, it is necessary that the conveyance must have been made by a party who has an

existing right in the thing and the power to dispose of it. It cannot be invoked where the two different contracts ofsale are made by two different persons, one of them not being the owner of the property sold. And even if thesale was made by the same person, if the second sale was made when such person was no longer the ownerof the property, because it had been acquired by the first purchaser in full dominion, the second purchasercannot acquire any right. Consolidated Rural Bank (Cagayan Valley), Inc. v. Court of Appeals , 448 SCRA 347(2005), citing C.VILLANUEVA,PHILIPPINE LAW ON SALES 100 (1995).

3. Registration in Good Faith as First Priority

a. Meaning ofRegistration

The annotation of adverse claim can qualify as the registration mandated under the rules on double sale.Carbonnel v. Court of Appeals, 69 SCRA 99 (1976).


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Registration means any entry made in the books of the registry, including both registration in its ordinary andstrict sense, and cancellation, annotation, and even marginal notes. It is the entry made in the registry whichrecords solemnly and permanently the right of ownership and other real rights. xCheng v. Genato, 300 SCRA 722(1998).

Declaration of purchase for taxation purposes does not comply with the required registration, and the factalone does not even itself constitute evidence of ownership. xBayoca v. Nogales, 340 SCRA 154 (2000).

Registration of the Extra-judicial Partition which merely mentions the sale is not the registration covered underArt. 1544 and cannot prevail over the registration of the pacto de retro sale. xVda. de Alcantara v. CA, 252 SCRA457 (1996).

There can be no constructive notice to the second buyer through registration under Act 3344 if the property isregistered under the Torrens system.xAmodia Vda. De Melencion v. Court of Appeals, 534 SCRA 62, 82 (2007).

b. Registration Must Always Be in Good Faith In cases of double sales of immovables, what finds relevance andmateriality is not whether or not the second buyer was a buyer in good faith or that he was first to register, butwhether or not said second buyer registers such second sale in good faith, that is, without knowledge of anydefect in the title of the property sold. xMartinez v. CA, 358 SCRA 38 (2001); this is so because the defense ofindefeasibility of a Torrens title does not extend to a transferee who takes the certificate of title in bad faith.xOccea v. Esponilla, 431 SCRA 116 (2004).

c. Knowledge of First Buyer of the Second Sale Does Not Amount to Registration in favor of the Second Buyer

Knowledge gained by the first buyer of the second sale cannot defeat the first buyer's rights exc