ATTY. MICHAEL S.

MARGARICO
School Year 2015-2016
 SALE

 Is a contract where one party (seller or vendor) obligates

himself to transfer the ownership of and to deliver a
determinate thing, while the other party (buyer or
vendee) obligates himself to pay for said thing a price
certain in money or its equivalent.
 Essential Characteristics of the Contract of Sale:
 (1) Consensual – contract is perfected by mere consent;
 Delivery or payment is not essential for perfection however, the
contract of sale is consummated upon delivery and payment. (Art.
1475)

 (2) Bilateral reciprocal – both parties are bound by obligations

dependent upon each other;

 (3) Onerous – because to acquire rights, valuable considerations

must be given;

 (4) Commutative – the values exchanged are almost equivalent to

each other;

 (5) Principal – for the contract of sale to validly exist , there is no

necessity for it to depend upon the existence of another
contract;

 (6) Nominate – the Code refers to it by a special designation or

name, that is the contract of sale.
 Essential Elements of the Contract of Sale:

 (a) Consent or meeting of the minds;

 (b) Determinate subject matter;

 The object must be determinate, that is specific, but it is not
essential really that at the time of perfection , the object be really
specific. It is sufficient that it be capable of being determinate
without need of any new agreement. Thus, there can be a sale of 20
kilos of sugar of a named quality.

 (c) Price certain in money or its equivalent.

 STAGES OF THE CONTRACT OF SALE:

 (a) Generation or negotiation;

 (b) perfection

 (c) Consummation.
SALES DATION IN PAYMENT
1) There is no pre-existing credit; 1) There is a pre-existing credit;

2) Give rise to obligations; 2) Extinguishes obligations;

3) The cause or consideration here is 3) The cause or consideration here,

the price, from the viewpoint of the from the viewpoint of the person
seller; or the obtaining of the object, offering the dation in payment, is the
from the viewpoint of the buyer; extinguishment of his debt; from the
viewpoint of the creditor, it is the
acquisition of the object offered in
lieu of the original credit;

4) There is greater freedom in the 4) There is less freedom in

determination of the price; determining the price;

5) The giving of the price may 5) The giving of the object in lieu of
generally end the obligation of the the credit may extinguish completely
buyer; or partially the credit(depending on
the agreement.
 Art. 1459. Two Rules pertaining to Right to Transfer
Ownership:

 (a) The object must be licit (lawful or within the

commerce of man)

 (b) Thevendor must have the right to transfer

ownership at the time the object is delivered.
 Transfer of Ownership – Although the seller must be
the owner, he need not be the owner at the time of the
perfection of the contract. It is sufficient that he is the
owner at the time the object is delivered, otherwise he
may be held liable for breach of warranty against
eviction. Be it noted that the contract of sale by itself is
not a mode of acquiring ownership.
CONTRACT OF SALE CONTRACT TO SELL

(a) Failure to pay is a resolutory (a) Failure to pay is a positive

condition which puts an end to the suspensive condition;
transaction;

(b) Title passes to the vendee after (b) Ownership is retained by the
compliance with his obligation; seller;

(c) After delivery, ownership is lost, (c) Delivery does not affect loss of
unless it is rescinded. ownership.
 ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A.
CORONEL, ANNABELLE C. GONZALES (for herself and on behalf of
Florida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL,
FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG
versus.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and
RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as
attorney-in-fact (G.R. No. 103577 October 7, 1996)

 FACTS:

 On January 19, 1985, Romulo Coronel, et al. executed a document

entitled "Receipt of Down Payment“ in favor of Ramona Patricia
Alcaraz involving an inherited house and lot, covered by TCT No.
119627 of the Registry of Deeds of Quezon City, in the total amount
of P1,240,000.00.

 The conditions appurtenant to the sale are the following:

 1. Ramona will make a down payment of P50,000.00 upon execution

of the document aforestated;
 2. The Coronels will cause the transfer in their names of the title of
the property registered in the name of their deceased father upon
receipt of the P50,000.00 Pesos down payment;

 3. Upon the transfer in their names of the subject property, the

Coronels will execute the deed of absolute sale in favor of Ramona
and the latter will pay the former the whole balance of
P1,190,000.00.

 On the same date (January 15, 1985), Concepcion D. Alcaraz,

mother of Ramona, paid the down payment of P50,000.00. On
February 6, 1985, the property originally registered in the name of
the Coronels' father was transferred in their names under TCT
No. 327043. On February 18, 1985, the Coronels sold the property
covered by TCT No. 327043 to Catalina B. Mabanag P1,580,000.00
after the latter has paid P300,000.00. For this reason, Coronels
canceled and rescinded the contract with Ramona by depositing the
down payment paid by Concepcion in the bank in trust for Ramona
Patricia Alcaraz.
 On February 22, 1985, Concepcion, et al., filed a complaint for
specific performance against the Coronels and caused the
annotation of a notice of lis pendens at the back of TCT No. 327403 .

 On April 2, 1985, Catalina caused the annotation of a notice of

adverse claim covering the same property with the Registry of
Deeds of Quezon City. On April 25, 1985, the Coronels executed a
Deed of Absolute Sale over the subject property in favor of Catalina.
On June 5, 1985, a new title over the subject property was issued in
the name of Catalina under TCT No. 351582 .

 The RTC rendered its decision ordering the Coronels to execute in

favor of Alcaraz a deed of absolute sale covering that parcel of land
embraced in and covered by Transfer Certificate of Title No. 327403
(now TCT No. 331582) of the Registry of Deeds for Quezon City,
together with all the improvements existing thereon free from all
liens and encumbrances, and once accomplished, to immediately
deliver the said document of sale to Alcaraz and upon receipt
thereof,, the Alcaraz is ordered to pay the Coronels the whole
balance of the purchase price amounting to P1,190,000.00 in cash.
 Transfer Certificate of Title No. 331582 of the Registry of Deeds for
Quezon City in the name of Mabanag is hereby canceled and
declared to be without force and effect. The Coronels and Mabanag
and all other persons claiming under them are hereby ordered to
vacate the subject property and deliver possession thereof to
Alcaraz.

 The case was appealed by the Coronels before the CA, however, the
CA affirmed the decision of the RTC.
 ISSUE:

 WHETHER OR NOT THE “RECEIPT OF

DOWNPAYMENT” EXECUTED BY
PARTIES IS IN THE NATURE OF A
CONTRACT TO SELL OR A CONDITIONAL
CONTRACT OF SALE.
 RULING:

 It is the position of private respondents that the "Receipt of Down

Payment" embodied a perfected contract of sale, which perforce,
they seek to enforce by means of an action for specific
performance, petitioners on their part insist that what the document
signified was a mere executory contract to sell, subject to certain
suspensive conditions, and because of the absence of Ramona P.
Alcaraz, who left for the United States of America, said contract
could not possibly ripen into a contract absolute sale.

 A Contract to Sell may not be considered as a Contract of Sale

because the first essential element is lacking. In a contract to sell,
the prospective seller explicity reserves the transfer of title to the
prospective buyer, meaning, the prospective seller does not as yet
agree or consent to transfer ownership of the property subject of
the contract to sell until the happening of an event, which for
present purposes we shall take as the full payment of the purchase
price.
 What the seller agrees or obliges himself to do is to fulfill his
promise to sell the subject property when the entire amount of the
purchase price is delivered to him. In other words, the full payment
of the purchase price partakes of a suspensive condition, the non-
fulfillment of which prevents the obligation to sell from arising and
thus, ownership is retained by the prospective seller without further
remedies by the prospective buyer. In Roque vs. Lapuz (96 SCRA
741 [1980]), this Court had occasion to rule:

 Hence, We hold that the contract between the petitioner and the
respondent was a contract to sell where the ownership or title is
retained by the seller and is not to pass until the full payment of the
price, such payment being a positive suspensive condition and failure
of which is not a breach, casual or serious, but simply an event that
prevented the obligation of the vendor to convey title from acquiring
binding force.
 Stated positively, upon the fulfillment of the suspensive condition
which is the full payment of the purchase price, the prospective
seller's obligation to sell the subject property by entering into a
contract of sale with the prospective buyer becomes demandable
as provided in Article 1479 of the Civil Code which states:

 Art. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing
for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.

 A contract to sell may thus be defined as a bilateral contract

whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase price.
 A contract to sell may not even be considered as a conditional
contract of sale where the seller may likewise reserve title to the
property subject of the sale until the fulfillment of a suspensive
condition, because in a conditional contract of sale, the first
element of consent is present, although it is conditioned upon the
happening of a contingent event which may or may not occur. If the
suspensive condition is not fulfilled, the perfection of the contract
of sale is completely abated (cf. Homesite and housing Corp. vs.
Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive
condition is fulfilled, the contract of sale is thereby perfected, such
that if there had already been previous delivery of the property
subject of the sale to the buyer, ownership thereto automatically
transfers to the buyer by operation of law without any further act
having to be performed by the seller.

 It is essential to distinguish between a contract to sell and a

conditional contract of sale specially in cases where the subject
property is sold by the owner not to the party the seller contracted
with, but to a third person, as in the case at bench.
 In a contract to sell, there being no previous sale of the property, a
third person buying such property despite the fulfillment of the
suspensive condition such as the full payment of the purchase
price, for instance, cannot be deemed a buyer in bad faith and the
prospective buyer cannot seek the relief of reconveyance of the
property. There is no double sale in such case. Title to the property
will transfer to the buyer after registration because there is no
defect in the owner-seller's title per se, but the latter, of course, may
be sued for damages by the intending buyer.
 In a conditional contract of sale, however, upon the fulfillment of the
suspensive condition, the sale becomes absolute and this will
definitely affect the seller's title thereto. In fact, if there had been
previous delivery of the subject property, the seller's ownership or
title to the property is automatically transferred to the buyer such
that, the seller will no longer have any title to transfer to any third
person. Applying Article 1544 of the Civil Code, such second buyer
of the property who may have had actual or constructive knowledge
of such defect in the seller's title, or at least was charged with the
obligation to discover such defect, cannot be a registrant in good
faith. Such second buyer cannot defeat the first buyer's title.
 In case a title is issued to the second buyer, the first buyer may
seek reconveyance of the property subject of the sale.

 When the "Receipt of Down Payment" is considered in its entirety, it

becomes more manifest that there was a clear intent on the part of
petitioners to transfer title to the buyer, but since the transfer
certificate of title was still in the name of petitioner's father, they
could not fully effect such transfer although the buyer was then
willing and able to immediately pay the purchase price. Therefore,
petitioners-sellers undertook upon receipt of the down payment
from private respondent Ramona P. Alcaraz, to cause the issuance
of a new certificate of title in their names from that of their father,
after which, they promised to present said title, now in their names,
to the latter and to execute the deed of absolute sale whereupon,
the latter shall, in turn, pay the entire balance of the purchase price.

 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.
 Furthermore, the circumstance which prevented the parties from
entering into an absolute contract of sale pertained to the sellers
themselves (the certificate of title was not in their names) and not
the full payment of the purchase price. Under the established facts
and circumstances of the case, the Court may safely presume that,
had the certificate of title been in the names of petitioners-sellers at
that time, there would have been no reason why an absolute
contract of sale could not have been executed and consummated
right there and then.

 Moreover, unlike in a contract to sell, petitioners in the case at bar

did not merely promise to sell the property to private respondent
upon the fulfillment of the suspensive condition. On the contrary,
having already agreed to sell the subject property, they undertook
to have the certificate of title changed to their names and
immediately thereafter, to execute the written deed of absolute sale.

 Thus, the parties did not merely enter into a contract to sell where
the sellers, after compliance by the buyer with certain terms and
conditions, promised to sell the property to the latter.
 What may be perceived from the respective undertakings of the
parties to the contract is that petitioners 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. It just happened, however, that
the transfer certificate of title was then still in the name of their
father. It was more expedient to first effect the change in the
certificate of title so as to bear their names. That is why they
undertook to cause the issuance of a new transfer of the certificate
of title in their names upon receipt of the down payment in the
amount of P50,000.00. As soon as the new certificate of title is
issued in their names, petitioners 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.
 There is no doubt that unlike in a contract to sell which is most
commonly entered into so as to protect the seller against a buyer
who intends to buy the property in installment by withholding
ownership over the property until the buyer effects full payment
therefor, in the contract entered into in the case at bar, the sellers
were the one who were unable to enter into a contract of absolute
sale by reason of the fact that the certificate of title to the property
was still in the name of their father. It was the sellers in this case
who, as it were, had the impediment which prevented, so to speak,
the execution of an contract of absolute sale.

 What is clearly established by the plain language of the subject

document is that when the said "Receipt of Down Payment" was
prepared and signed by petitioners Romeo A. Coronel, et al., the
parties had agreed to a conditional contract of sale, consummation
of which is subject only to the successful transfer of the certificate
of title from the name of petitioners' father, Constancio P. Coronel,
to their names.
 The Court significantly notes this suspensive condition was, in fact,
fulfilled on February 6, 1985. Thus, on said date, the conditional
contract of sale between petitioners and private respondent
Ramona P. Alcaraz 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 petitioners unequivocally committed themselves to do as
evidenced by the "Receipt of Down Payment."

 Since the condition contemplated by the parties which is the

issuance of a certificate of title in petitioners' names was fulfilled on
February 6, 1985, the respective obligations of the parties under the
contract of sale became mutually demandable, that is, petitioners,
as sellers, were obliged to present the transfer certificate of title
already in their names to private respondent Ramona P. Alcaraz, the
buyer, and to immediately execute the deed of absolute sale, while
the buyer on her part, was obliged to forthwith pay the balance of
the purchase price amounting to P1,190,000.00.
CONTRACT TO SELL CONTRACT OF SALE

(a) Ownership is reserved until the (a) Ownership is reserved upon fulfillment
occurrence of the suspensive condition; of the suspensive condition;

(b) Upon fulfillment of the suspensive (b) Upon fulfillment of the suspensive
condition which is the full payment of the condition, the sale becomes absolute and
purchase price, ownership will not this will definitely affect the seller’s title
automatically transfer to the buyer thereto;
although the property may have been
previously delivered to him;

(c) The prospective seller still has to (c) If there had been previous delivery, the
convey title to the prospective buyer by seller’s ownership or title to the property is
entering into a contract of absolute sale; automatically transferred to the buyer such
that, the seller will no longer have any title
to transfer to any third person;

(d) Provisions on double sale does not (d) Provisions on double sale applies.
apply.
 Sale of a thing having a potential existence (future thing) – VALID
 Ex. Sale of all my rice harvest next year.

 (a) The sale of an expected thing (emptio rei sperati) - VALID

 (b) The sale of the hope itself (emptio spei) - VALID

 If the expected thing in (a) does not materialize, the sale is not
effective. In the second, it does not matter whether the expected
thing materialized or not; what is important is that the hope itself
validly existed. The first deals with a future thing – that which is
expected; the second deals with a present thing – for certainly the
hope or expectancy already exists.

 Ex. (emptio spei) Sale of a valid sweeptstakes ticket. Whether the

ticket wins or not, the sale itself is valid.
EMPTIO REI SPERATAE/SPERATI EMPTIO SPEI

(1) There is a sale of a thing having (1) There is a sale of a hope;

potential existence;

(2) The sale is subject to the condition (2) The sale produces effect even if
that the thing will exist, if it does not, the thing does not come into
there is no contract; existence, unless it is a vain hope;

(3) The uncertainty is with regard the (3) The uncertainty is with regard the
quality and quantity of the thing; existence of the thing;

(4) The object is a future thing. (4) The object is a present thing.
 VAIN HOPE OR EXPECTANCY – If the hope or
expectancy itself is vain, the sale is itself void. Be it
noted that this is not an aleatory contract for while in an
aleatory contract there is an element of chance, here
there is completely NO CHANCE.

 Ex. Sale of a losing ticket for a sweepstakes already run.

 Future Goods which may be the subject of a Contract of
Sale:

 (a) Those which still to be manufactured;

 (b) Still to be raised or future agricultural products;

 (c) Acquired by seller after the perfection of the contract; (Ex.

Land which the seller expects to buy);

 (d) Things whose acquisition depends upon contingency which

may or may not happen. (Ex. Selling of a car which the seller
expected to receive)
 Future inheritance (one where the source of property is
still alive) cannot be the subject of a contract except:
(Art. 1347 par. 2)

 1) In the case of marriage settlements;

 2) In the case of partitions of property inter vivos by

the deceased.
 RULES TO DETERMINE IF THE CONTRACT IS
ONE OF SALE OR A PIECE OF WORK:

 (a) If ordered in the ordinary course of business –

SALE;

 (b) If manufactured specially and not for the market –

PIECE OF WORK CONTRACT.
 CIRvs. Engineering Equipment and Supply
Company and CTA (G.R. No. L-27044 June 30, 1975) &
(G.R. No. L-27452 June 30, 1975)

 The distinction between a contract of sale and one for

work, labor and materials is tested by the inquiry whether
the thing transferred is one not in existence and which
never would have existed but for the order of the party
desiring to acquire it, or a thing which would have existed
and has been the subject of sale to some other persons
even if the order had not been given. If the article ordered
by the purchaser is exactly such as the plaintiff makes
and keeps on hand for sale to anyone, and no change or
modification of it is made at defendant's request, it is a
contract of sale, even though it may be entirely made
after, and in consequence of, the defendants order for it.
 RULES to Determine Whether Contract is One of
Sale or Barter:

 (1) First Rule – INTENT;

 (2) If intent does not clearly appear

 2.1. If the thing is more valuable than money –

BARTER;

 2.2. If 50-50 – SALE;

 2.3. If thing is less valuable than the money – SALE

 Example.

 If I give my car worth P25,000.00 to Jose in consideration of Jose’s

giving to me P10,000 cash and a diamond ring worth P15,000, is the
transaction a sale or a barter?

 ANSWER:

 It depends on the mutual intent of parties. If the intent is not clear,

the transaction is a BARTER because the ring is more valuable than
the P10,000.00.
 CERTAINTY OF THE PRICE

 The price must be certain, otherwise there is no

true consent between the parties. There can be
no sale without a price. If the price is fixed but is
later on remitted or condoned, this is perfectly
all right, for the price would not be fictitious.
The failure to pay the agreed price does not
cancel a sale for lack of consideration, for the
consideration is still there, namely the price.
 Effect of Gross Inadequacy of Price – Sale remains valid even
if the price is very low except if there is vitiated consent. (Applies
only to voluntary sale) Judicial Sale may be set aside by the Court if
the price is so inadequate as to shock the conscience of the Court.

 Simulated Price – The price must not be fictitious. Therefore if

the price is merely simulated, the contract as a sale is void. It may
however be valid as a donation or some other agreement , provided
the requirements of donations or other agreements have been
complied with. If these requirements do not exist, then as a sale, the
contract is absolutely void, not merely voidable.
 EFFECT IF PRICE CANNOT BE DETERMINED:

 (a) If the price cannot really be determined, the sale is VOID for
the buyer cannot fulfill his duty to pay;

 (b) If the buyer has made use of it, he should not be allowed to
enrich himself unjustly at another’s expense. So he must pay a
“reasonable price.” The seller’s price however must be the
one paid if the buyer knew how much the seller was charging
and there was an acceptance of the goods delivered. Here,
there is an implied assent to the price fixed.
 Contract of SALE is a consensual contract
hence, it is perfected by mere consent of
parties. It is consummated upon delivery and
payment.
 Requirements for Perfection of Contract of Sale:

 (a) When parties are to face to face, when an offer is

accepted without conditions and without
qualifications. (A conditional acceptance is a
counter-offer);

 (b) When contract is thru correspondence or thru

telegram, there is perfection when the offeror
receives or has knowledge of the acceptance by the
offeree;

 (c) When a sale is made subject to a suspensive

condition, perfection is had from the moment the
condition is fulfilled.
 Formalities for Perfection: Under the Statutes of
Frauds, the sale of;

 (a) Real property (regardless of the amount must be

in writing) public instrument;

 (b) Personal property – if P500 or more must be in

writing to be enforceable. (either public or private
instrument)
 If the law requires a document or other special form, as in the acts
and contracts enumerated in the following article, the contracting
parties may compel each other to observe that form, once the
contract has been perfected. This right may be exercised
simultaneously with the action upon the contract. (Art. 1357)

 Can be availed of:

 (a) If the Contract is Valid;

 (b) The contract is ENFORCEABLE, that is, it does not violate the
Statute of Frauds.
 In the case of a sale by auction: (Art. 1476)
 (1) Where goods are put up for sale by auction in lots, each lot is
the subject of a separate contract of sale.

 (2) A sale by auction is perfected when the auctioneer announces

its perfection by the fall of the hammer, or in other customary
manner. Until such announcement is made, any bidder may
retract his bid; and the auctioneer may withdraw the goods
from the sale unless the auction has been announced to be
without reserve.

 (3) A right to bid may be reserved expressly by or on behalf of the

seller, unless otherwise provided by law or by stipulation.

 (4) Where notice has not been given that a sale by auction is
subject to a right to bid on behalf of the seller, it shall not be
lawful for the seller to bid himself or to employ or induce any
person to bid at such sale on his behalf or for the auctioneer,
to employ or induce any person to bid at such sale on behalf
of the seller or knowingly to take any bid from the seller or any
person employed by him. Any sale contravening this rule may
be treated as fraudulent by the buyer.
 Transfer of Ownership: Mere perfection of the
contract does not transfer ownership. Ownership of the
object sold is transferred only after delivery (tradition),
actual, legal or constructive. The rule is therefore this:
After delivery of the object, ownership is transferred.
(Art. 1477)
 General Rule: Execution of Public Instrument is
equivalent to constructive delivery.

 Exception:
 When Execution of Public Instrument amounts to
Ineffective delivery:
 (1) If the intention of the parties is that there is no
delivery despite such execution;

 (2) If the vendor have no control or control over the

thing (to be effective, there should be no impediment
to actual transfer of possession; material delivery
should be possible or could have been made). Thus,
there is no delivery if a third person claiming
ownership is in possession.
 What is the concept of Pactum
Reservati Diminii or the Contractual
Reservation of Title?
 ANSWER:

 It is a stipulation where parties agree that

despite delivery, the ownership of the thing
shall remain with the seller until the purchaser
has fully paid the price.
 DISTINGUISH PACTUM RESERVATI
DOMINII AND CONTRACT TO SELL.
Pactum Reservati Dominii Contract to Sell

(a) Is a form of conditional sale; (a)Is a contract preparatory to a

contract of sale;

(b) Delivery of the object of the (b) There is no delivery yet;

contract has been made;

(c) In case of non-payment, an action (c) There can be no action for specific
for specific performance or for performance. It merely prevents the
rescission can be filed by the injured execution of the contract of sale.
party.
 A promise to buy and sell a determinate
thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to
sell a determinate thing for a price certain is
binding upon the promisor if the promise is
supported by a consideration distinct from the
price. (Art. 1479)
 WHAT IS THE CONCEPT OF “THE
RIGHT OF FIRST REFUSAL”?
 ANG YU ASUNCION, ARTHUR GO AND KEH TIONG versus
THE HON. COURT OF APPEALS and BUEN REALTY
DEVELOPMENT CORPORATION (G.R. No. 109125 December 2,
1994)

 FACTS:

 Plaintiffs are tenants or lessees of residential and commercial

spaces owned by Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan
described as Nos. 630-638 Ongpin Street, Binondo, Manila. That on
several occasions before October 9, 1986, Bobby Cu Unjieng, Rose
Cu Unjieng and Jose Tan informed plaintiffs that they are offering to
sell the premises and are giving them priority to acquire the same;
that during the negotiations, Bobby Cu Unjieng offered a price of P6-
million while plaintiffs made a counter offer of P5-million. That
plaintiffs thereafter asked Bobby Cu Unjieng, Rose Cu Unjieng and
Jose Tan to put their offer in writing to which the latter acceded. In
reply to owner's letter, plaintiffs wrote them on October 24, 1986,
asking that they specify the terms and conditions of the offer to sell;
that when plaintiffs did not receive any reply, they sent another letter
dated January 28, 1987 with the same request.
 Since Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan failed to
specify the terms and conditions of the offer to sell and because of
information received that defendants were about to sell the property,
plaintiffs were compelled to file the complaint to compel defendants
to sell the property to them.

 The trial court found that offer to sell of Bobby Cu Unjieng, Rose Cu
Unjieng and Jose Tan was never accepted by the plaintiffs for the
reason that the parties did not agree upon the terms and conditions
of the proposed sale, hence, there was no contract of sale at all.
Nonetheless, the lower court ruled that should the defendants
subsequently offer their property for sale at a price of P11-million or
below, plaintiffs will have the right of first refusal.

 The case was appealed to the CA which affirmed the decision of the
trial court with modification. The aforestated decision gave the
plaintiffs-appellants the right of first refusal not if the property is
sold for a purchase price of Eleven Million pesos or lower but in the
event that the subject property is sold for a price in excess of Eleven
Million pesos.
 The decision of this Court was brought to the Supreme Court by
petition for review on certiorari. The Supreme Court denied the
appeal on May 6, 1991 "for insufficiency in form and substances”.

 On November 15, 1990, while CA-G.R. CV No. 21123 was pending

consideration by this Court, the Cu Unjieng spouses executed a
Deed of Sale transferring the property in question to Buen Realty
and Development Corporation.

 On July 1, 1991, Buen Realty and Devt. Corp. as the new owner of
the subject property wrote a letter to the lessees demanding that the
latter vacate the premises.

 On July 16, 1991, the lessees wrote a reply to Buen Realty and Devt.
Corp. stating that the latter bought the property subject to the notice
of lis pendens regarding Civil Case No. 87-41058 annotated on TCT
No. 105254/T-881 in the name of the Cu Unjiengs.

 The lessees filed a Motion for Execution dated August 27, 1991 of
the Decision in Civil Case No. 87-41058 as modified by the Court of
Appeals in CA-G.R. CV No. 21123.
 The RTC issued the subject order of execution ordering the
execution of the necessary Deed of Sale of the property in litigation
in favor of Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs' right
of first refusal and that a new Transfer Certificate of Title be issued
in favor of the buyer.
 All previous transactions involving the same property
notwithstanding the issuance of another title to Buen Realty
Corporation, is hereby set aside as having been executed in bad
faith.

 On September 27, 1991 the corresponding writ of execution was

issued.
 On 04 December 1991, the CA, on appeal to it by private respondent,
set aside and declared without force and effect the above
questioned orders of the court a quo. In this petition for review on
certiorari, petitioners contend that Buen Realty can be held bound
by the writ of execution by virtue of the notice of lis pendens, carried
over on TCT No. 195816 issued in the name of Buen Realty, at the
time of the latter's purchase of the property on 15 November 1991
from the Cu Unjiengs.
 ISSUE:

 IS THE “RIGHT OF FIRST REFUSAL”

TANTAMOUNT TO A PERFECTED
CONTRACT OF SALE?
 RULING:

 In the law on sales, the so-called "right of first refusal" is an

innovative juridical relation. Needless to point out, it cannot be
deemed a perfected contract of sale under Article 1458 of the Civil
Code. Neither can the right of first refusal, understood in its normal
concept, per se be brought within the purview of an option under the
second paragraph of Article 1479, aforequoted, or possibly of an
offer under Article 1319 of the same Code. An option or an offer
would require, among other things, a clear certainty on both the
object and the cause or consideration of the envisioned contract. In
a right of first refusal, while the object might be made determinate,
the exercise of the right, however, 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
obviously are yet to be later firmed up. Prior thereto, it can at best be
so described as merely belonging to a class of preparatory juridical
relations governed not by contracts (since the essential elements to
establish the vinculum juris would still be indefinite and
inconclusive) but by, among other laws of general application, the
pertinent scattered provisions of the Civil Code on human conduct.
 Even on the premise that such right of first refusal has been decreed
under a final judgment, like here, its breach cannot justify
correspondingly an issuance of a writ of execution under a
judgment that merely recognizes its existence, nor would it sanction
an action for specific performance without thereby negating the
indispensable element of consensuality in the perfection of
contracts. It is not to say, however, that the right of first refusal
would be inconsequential for, such as already intimated above, an
unjustified disregard thereof, given, for instance, the circumstances
expressed in Article 19 of the Civil Code, can warrant a recovery for
damages.

 The final judgment in Civil Case No. 87-41058, it must be stressed,

has merely accorded a "right of first refusal" in favor of petitioners.
The consequence of such a declaration entails no more than what
has heretofore been said. In fine, if, as it is here so conveyed to us,
petitioners are aggrieved by the failure of private respondents to
honor the right of first refusal, the remedy is not a writ of execution
on the judgment, since there is none to execute, but an action for
damages in a proper forum for the purpose.
 Furthermore, whether private respondent Buen Realty Development
Corporation, the alleged purchaser of the property, has acted in
good faith or bad faith and whether or not it should, in any case, be
considered bound to respect the registration of the lis pendens in
Civil Case No. 87-41058 are matters that must be independently
addressed in appropriate proceedings. Buen Realty, not having
been impleaded in Civil Case No. 87-41058, cannot be held subject
to the writ of execution issued by respondent Judge, let alone
ousted from the ownership and possession of the property, without
first being duly afforded its day in court.

 We are also unable to agree with petitioners that the Court of

Appeals has erred in holding that the writ of execution varies the
terms of the judgment in Civil Case No. 87-41058, later affirmed in
CA-G.R. CV-21123. The Court of Appeals, in this regard, has
observed:
 Finally, the questioned writ of execution is in variance with the
decision of the trial court as modified by this Court. As already
stated, there was nothing in said decision that decreed the
execution of a deed of sale between the Cu Unjiengs and
respondent lessees, or the fixing of the price of the sale, or the
cancellation of title in the name of petitioner. It is likewise quite
obvious to us that the decision in Civil Case No. 87-41058 could not
have decreed at the time the execution of any deed of sale between
the Cu Unjiengs and petitioners.
 EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO &
BAUERMANN, INC. versus MAYFAIR THEATER, INC. (G.R.
No. 106063 November 21, 1996)

 FACTS:

 Carmelo owned a parcel of land, together with two 2-storey

buildings constructed thereon located at Claro M Recto Avenue,
Manila, and covered by title issued in its name. On June 1, 1967
Carmelo entered into a contract of lease with Mayfair for the latter's
lease of a portion of Carmelo's property particularly described, to
wit:
 A PORTION OF THE SECOND FLOOR of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 1,610 square
meters.
 THE SECOND FLOOR AND MEZZANINE of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 150 square
meters.
 for use by Mayfair as a motion picture theater and for a term of 20
years. Mayfair thereafter constructed on the leased property a
movie house known as "Maxim Theatre."
 2 years later, Mayfair entered into a 2nd contract of lease with
Carmelo for the lease of another portion of Carmelo's property, to
wit:
 A PORTION OF THE 2ND FLOOR of the 2-storey building, situated at C.M.
Recto Avenue, Manila, with a floor area of 1,064 square meters.

 THE 2 STORE SPACES AT THE GROUND FLOOR and MEZZANINE of

the 2-storey building situated at C.M. Recto Avenue, Manila, with a floor
area of 300 square meters and bearing street numbers 1871 and 1875,

 for similar use as a movie theater and for a similar term of 20 years.
Mayfair put up another movie house known as "Miramar Theatre"
on this leased property. Both contracts of lease provides identically
worded par. 8, which reads:
 That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the same.

 In the event, however, that the leased premises is sold to someone

other than the LESSEE, the LESSOR is bound and obligated, as it
hereby binds and obligates itself, to stipulate in the Deed of Sale hereof
that the purchaser shall recognize this lease and be bound by all the
terms and conditions thereof.
 4 years later, on July 30, 1978, Carmelo sold its entire C.M. Recto
Avenue land and building, which included the leased premises
housing the "Maxim" and "Miramar" theatres, to Equatorial by
virtue of a Deed of Absolute Sale, for the total sum of
P11,300,000.00.

 In September 1978, Mayfair instituted the action a quo for specific

performance and annulment of the sale of the leased premises to
Equatorial. In its Answer, Carmelo alleged as special and affirmative
defense (a) that it had informed Mayfair of its desire to sell the
entire C.M. Recto Avenue property and offered the same to Mayfair,
but the latter answered that it was interested only in buying the
areas under lease, which was impossible since the property was
not a condominium; and (b) that the option to purchase invoked by
Mayfair is null and void for lack of consideration. Equatorial, in its
Answer, pleaded as special and affirmative defense that the option
is void for lack of consideration and is unenforceable by reason of
its impossibility of performance because the leased premises could
not be sold separately from the other portions of the land and
building.
 It counterclaimed for cancellation of the contracts of lease, and for
increase of rentals in view of alleged supervening extraordinary
devaluation of the currency. Equatorial likewise cross-claimed
against co-defendant Carmelo for indemnification in respect of
Mayfair's claims.

 The RTC rendered its decision in favor of Carmelo and Equatorial,

however, when appealed before the CA, the same was reversed.
 ISSUE:

 (1) What is the true nature, scope and efficacy

of paragraph 8 stipulated in the two
contracts of lease between Carmelo and
Mayfair in the face of conflicting findings by
the trial court and the Court of Appeals?;
and

 (2) What are the rights and obligations of

Carmelo and Mayfair, as well as Equatorial,
in the aftermath of the sale by Carmelo of
the entire Claro M. Recto property to
Equatorial?
 RULINGS:

 FIRST ISSUE:

 The contractual stipulation provides for a right of first refusal in

favor of Mayfair. It is not an option clause or an option contract. It is
a contract of a right of first refusal.

 In the light of the foregoing disquisition and in view of the wording

of the questioned provision in the two lease contracts involved in
the instant case, the SC holds that no option to purchase in
contemplation of the second paragraph of Article 1479 of the Civil
Code, has been granted to Mayfair under the said lease contracts.

 Respondent CA correctly ruled that the said par. 8 grants the right
of first refusal to Mayfair and is not an option contract. It also
correctly reasoned that as such, the requirement of a separate
consideration for the option, has no applicability in the instant case.

 There is nothing in the identical Par. "8" of the June 1, 1967 and
March 31, 1969 contracts which would bring them into the ambit of
the usual offer or option requiring an independent consideration.
 An option is a contract granting a privilege to buy or sell within an
agreed time and at a determined price. It is a separate and distinct
contract from that which the parties may enter into upon the
consummation of the option. It must be supported by
consideration. In the instant case, the right of first refusal is an
integral part of the contracts of lease. The consideration is built into
the reciprocal obligations of the parties. To rule that a contractual
stipulation such as that found in paragraph 8 of the contracts is
governed by Article 1324 on withdrawal of the offer or Article 1479
on promise to buy and sell would render in effectual or "inutile" the
provisions on right of first refusal so commonly inserted in leases
of real estate nowadays. The CA is correct in stating that Par. 8 was
incorporated into the contracts of lease for the benefit of Mayfair
which wanted to be assured that it shall be given the first crack or
the first option to buy the property at the price which Carmelo is
willing to accept. It is not also correct to say that there is no
consideration in an agreement of right of first refusal. The
stipulation is part and parcel of the entire contract of lease. The
consideration for the lease includes the consideration for the right
of first refusal.
 Thus, Mayfair is in effect stating that it consents to lease the
premises and to pay the price agreed upon provided the lessor also
consents that, should it sell the leased property, then, Mayfair shall
be given the right to match the offered purchase price and to buy
the property at that price. As stated in Vda. De Quirino vs. Palarca,
in reciprocal contract, the obligation or promise of each party is the
consideration for that of the other.

 SECOND ISSUE:

 The different facts and circumstances in this case call for an

amplification of the precedent in Ang Yu Asuncion vs. Court of
Appeals. First and foremost is that the petitioners acted in bad faith
to render Par. 8 "inutile".

 What Carmelo and Mayfair agreed to, by executing the two lease
contracts, was that Mayfair will have the right of first refusal in the
event Carmelo sells the leased premises. It is undisputed that
Carmelo did recognize this right of Mayfair, for it informed the latter
of its intention to sell the said property in 1974.
 There was an exchange of letters evidencing the offer and counter-
offers made by both parties. Carmelo, however, did not pursue the
exercise to its logical end. While it initially recognized Mayfair's
right of first refusal, Carmelo violated such right when without
affording its negotiations with Mayfair the full process to ripen to at
least an interface of a definite offer and a possible corresponding
acceptance within the "30-day exclusive option" time granted
Mayfair, Carmelo abandoned negotiations, kept a low profile for
some time, and then sold, without prior notice to Mayfair, the entire
Claro M Recto property to Equatorial.

 Since Equatorial is a buyer in bad faith, this finding renders the sale
to it of the property in question rescissible. The SC agrees with
respondent CA that the records bear out the fact that Equatorial
was aware of the lease contracts because its lawyers had, prior to
the sale, studied the said contracts. As such, Equatorial cannot
tenably claim to be a purchaser in good faith, and, therefore,
rescission lies.
 Carmelo acted in bad faith when it sold the entire property to
Equatorial without informing Mayfair, a clear violation of Mayfair's
rights. While there was a series of exchanges of letters evidencing
the offer and counter-offers between the parties, Carmelo abandoned
the negotiations without giving Mayfair full opportunity to negotiate
within the 30-day period.

 Accordingly, even as it recognizes the right of first refusal, this Court

should also order that Mayfair be authorized to exercise its right of
first refusal under the contract to include the entirety of the
indivisible property. The boundaries of the property sold should be
the boundaries of the offer under the right of first refusal. As to the
remedy to enforce Mayfair's right, the SC disagrees to a certain
extent with the concluding part of the dissenting opinion of Justice
Vitug. The doctrine enunciated in Ang Yu Asuncion vs. Court of
Appeals should be modified, if not amplified under the peculiar facts
of this case.

 As also earlier emphasized, the contract of sale between Equatorial

and Carmelo is characterized by bad faith, since it was knowingly
entered into in violation of the rights of and to the prejudice of
Mayfair.
 In fact, as correctly observed by the CA, Equatorial admitted that its
lawyers had studied the contract of lease prior to the sale.
Equatorial's knowledge of the stipulations therein should have
cautioned it to look further into the agreement to determine if it
involved stipulations that would prejudice its own interests.

 Since Mayfair has a right of first refusal, it can exercise the right
only if the fraudulent sale is first set aside or rescinded. All of these
matters are now before us and so there should be no piecemeal
determination of this case and leave festering sores to deteriorate
into endless litigation. The facts of the case and considerations of
justice and equity require that we order rescission here and now.
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 may cause or to protect some incompatible
and preferred right by the contract. The sale of the subject real
property by Carmelo to Equatorial should now be rescinded
considering that Mayfair, which had substantial interest over the
subject property, was prejudiced by the sale of the subject property
to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated period.
 The SC has always been against multiplicity of suits where all
remedies according to the facts and the law can be included. Since
Carmelo sold the property for P11,300,000.00 to Equatorial, the price
at which Mayfair could have purchased the property is, therefore,
fixed. It can neither be more nor less. There is no dispute over it. The
damages which Mayfair suffered are in terms of actual injury and lost
opportunities. The fairest solution would be to allow Mayfair to
exercise its right of first refusal at the price which it was entitled to
accept or reject which is P11,300,000.00. This is clear from the
records.
 To follow an alternative solution that Carmelo and Mayfair may
resume negotiations for the sale to the latter of the disputed property
would be unjust and unkind to Mayfair because it is once more
compelled to litigate to enforce its right. It is not proper to give it an
empty or vacuous victory in this case. From the viewpoint of Carmelo,
it is like asking a fish if it would accept the choice of being thrown
back into the river. Why should Carmelo be rewarded for and allowed
to profit from, its wrongdoing? Prices of real estate have skyrocketed.
After having sold the property for P11,300,000.00, why should it be
given another chance to sell it at an increased price?
 Under the Ang Yu Asuncion vs. Court of Appeals decision, the
Court stated that there was nothing to execute because a contract
over the right of first refusal belongs to a class of preparatory
juridical relations governed not by the law on contracts but by the
codal provisions on human relations. This may apply here if the
contract is limited to the buying and selling of the real property.
However, the obligation of Carmelo to first offer the property to
Mayfair is embodied in a contract. It is Paragraph 8 on the right of
first refusal which created the obligation. It should be enforced
according to the law on contracts instead of the panoramic and
indefinite rule on human relations. The latter remedy encourages
multiplicity of suits. There is something to execute and that is for
Carmelo to comply with its obligation to the property under the right
of the first refusal according to the terms at which they should have
been offered then to Mayfair, at the price when that offer should
have been made. Also, Mayfair has to accept the offer. This juridical
relation is not amorphous nor is it merely preparatory. Paragraphs 8
of the two leases can be executed according to their terms.
 What is POLICITACION?
 ANSWER:

 This is a unilateral promise to buy or sell which

is not accepted. This produces no juridical
effect, and creates no legal bond. This is a mere
offer, and has not yet converted into a contract.
 OPTION CONTRACT

 Is an accepted unilateral promise to buy or sell a

determinate thing for a price certain supported by a
consideration distinct from the price. The offeror is
bound to comply with his undertaking but the optionee
has the right but not the obligation to buy or sell. The
optionee can sue for damages only, but he cannot sue
for specific performance on the proposed contract.
 PROBLEM:

 A unilaterally promised to sell to B his house for

P1M within a period of 1 week. B accepted the
promise. On the 5th day, B received a note from A
telling him that he is withdrawing the promise.
Can B hold A liable for damages if he persists on
withdrawing the promise? Why?
 ANSWER:

 No, an accepted unilateral promise to buy

or to sell a determinate thing for a price
certain is binding upon the promissor if
the promise is supported by a
consideration distinct from the price. In
this case no consideration distinct from
the price has been delivered to A; the offer
or promise can be withdrawn anytime.
 PROBLEM 2:

 Assuming that B gave an option money

when he accepted the promise, and on the
5th day, he backed out, can A compel him
to buy the house?
 ANSWER 2:

 No, because the option to buy or not to

buy depends upon B.
 FEDERICO SERRA versus THE HON. COURT OF APPEALS
AND RIZAL COMMERCIAL BANKING CORPORATION. (G.R.
No. 103338 January 4, 1994)

 FACTS:
 Petitioner is the owner of a 374 square meter parcel of land located
at Quezon St., Masbate, Masbate. Sometime in 1975, respondent
bank, in its desire to put up a branch in Masbate, Masbate,
negotiated with petitioner for the purchase of the then unregistered
property. On May 20, 1975, a contract of LEASE WITH OPTION TO
BUY was instead forged by the parties.

 Pertinent portion of contract states that the LESSEE is authorized to

construct as its sole expense a building and such other
improvements on said parcel of land, which it may need in
pursuance of its business and/or operations; provided, that if for
any reason the LESSEE shall fail to exercise its option to buy within
the period of 10 years from the signing of the contract in case the
parcel of land is registered under the TORRENS SYSTEM, said
building and/or improvements, shall become the property of the
 LESSOR after the expiration of the 25-year lease period without the
right of reimbursement on the part of the LESSEE.

 Pursuant to said contract, a building and other improvements were

constructed on the land which housed the branch office of RCBC in
Masbate, Masbate. Within 3 years from the signing of the contract,
petitioner complied with his part of the agreement by having the
property registered and placed under the TORRENS SYSTEM.

 Petitioner alleges that as soon as he had the property registered, he

kept on pursuing the manager of the branch to effect the sale of the
lot as per their agreement. It was not until September 4, 1984,
however, when the respondent bank decided to exercise its option
and informed petitioner, through a letter, of its intention to buy the
property at the agreed price of not greater than P210.00 per square
meter or a total of P78,430.00. But much to the surprise of the
respondent, petitioner replied that he is no longer selling the
property. Hence, on March 14, 1985, a complaint for specific
performance and damages were filed by respondent against
petitioner.
 ISSUE:

 Whether or not the option was

supported by any consideration
distinct from the price.
 RULING:

 Petitioner contends that the doctrines laid down in the cases of

Atkins Kroll v. Cua Hian Tek, Sanchez v. Rigos, and Vda. de Quirino
v. Palarca were misapplied in the present case, because 1) the
option given to the respondent bank was not supported by a
consideration distinct from the price.

 Article 1324 of the Civil Code provides that when an offeror has
allowed the offeree a certain period to accept, the offer maybe
withdrawn at anytime before acceptance by communicating such
withdrawal, except when the option is founded upon consideration,
as something paid or promised. On the other hand, Article 1479 of
the Code provides that an accepted unilateral promise to buy and
sell a determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration distinct
from the price.
 In a unilateral promise to sell, where the debtor fails to withdraw the
promise before the acceptance by the creditor, the transaction
becomes a bilateral contract to sell and to buy, because upon
acceptance by the creditor of the offer to sell by the debtor, there is
already a meeting of the minds of the parties as to the thing which is
determinate and the price which is certain. In which case, the parties
may then reciprocally demand performance. Jurisprudence has
taught us that an optional contract is a privilege existing only in one
party — the buyer. For a separate consideration paid, he is given the
right to decide to purchase or not, a certain merchandise or
property, at any time within the agreed period, at a fixed price. This
being his prerogative, he may not be compelled to exercise the
option to buy before the time
expires.

 On the other hand, what may be regarded as a consideration

separate from the price is discussed in the case of Vda. de Quirino
v. Palarca wherein the facts are almost on all fours with the case at
bar.
 The said case also involved a lease contract with option to buy
where we had occasion to say that "the consideration for the
lessor's obligation to sell the leased premises to the lessee, should
he choose to exercise his option to purchase the same, is the
obligation of the lessee to sell to the lessor the building and/or
improvements constructed and/or made by the former, if he fails to
exercise his option to buy leased premises." In the present case, the
consideration is even more onerous on the part of the lessee since it
entails transferring of the building and/or improvements on the
property to petitioner, should respondent bank fail to exercise its
option within the period stipulated.
 Who bears the Risk of Loss? (Art. 1480)

 (a) If the object has been lost before perfection, the

seller bears the loss;

 (b) If the object was lost after delivery to the buyer,

clearly the buyer bears the loss (res perit domino –
the owner bears the loss)

 (c) If the object is lost after perfection but before

delivery, the buyer bears the loss, as exception to
the rule of res perit domino.
 EXCEPTIONS to the rule that between perfection and delivery, the
buyer bears the loss:

 (1) If the object sold consist of fungible sold for a price fixed
according to weight, number, or measure;
 Fungibles are personal property which may be replaced with
equivalent things.

 Example.

I borrowed a bottle of vinegar from a friend. If I am required to

return the identical bottle of vinegar, the vinegar is non-fungible; If I
can return the same quality and quantity, the vinegar is fungible.
Therefore fungibles are almost the same as consumable goods with
this difference: that while the distinction between consumables and
non-consumables is based on the nature of the thing, the difference
between fungibles and non-fungibles is based on the intention.
Thus, rice is ordinarily consumable, but if I borrowed a sack of rice
for display purposes only, and I promised to return the identical
sack of rice, the rice here is non-fungible.
 (2) If the seller is guilty of fraud, negligence, default, violation of
contractual terms;

 (3) When the object sold is generic because genus does not
perish.
 In the contract of sale of goods by description or by
sample, the contract may be rescinded if the bulk of the
goods delivered do not correspond with the description
or the sample, and if the contract be by sample as well
as description, it is not sufficient that the bulk of goods
correspond with the sample if they do not also
correspond with the description.
The buyer shall have a reasonable opportunity of
comparing the bulk with the description or the sample.
(Art. 1481)
 SALE BY DESCRIPTION
 Where seller sells things as being a certain kind, the buyer merely
relying on the seller’s representations or descriptions. Generally
the buyer has not previously seen the goods, or even if he has seen
them, he believes that the description tallies with the goods he has
seen.

 SALE BY SAMPLE
 Where the seller warrants that the bulk (not the major part or the
majority of the goods but the goods themselves) of the goods shall
correspond with the sample in kind, quality and character. Only the
sample is exhibited. The bulk is not present, and so there is no
opportunity to examine or inspect it.

 SALE BY DESCRIPTION AND SAMPLE

 must satisfy the requirements in both and not in only one.
 Earnest Money – called “arras” is something of value
to show that the buyer was really in earnest, and given
to the seller to bind the bargain.

 Significance of Earnest Money:

 (a) Part of the purchase price;

 (b) As proof of perfection of the contract.

 REMINDER:
 Art. 1484. In a contract of sale of personal property the price of
which is payable in installments, the vendor may exercise any of
the following remedies.

 (1) Exact fulfillment of the obligation, should the vendee fail to

pay;

 (2) Cancel the sale, should the vendee’s failure to pay cover two
or more installments;

 (3) Foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the vendee’s failure to pay cover two
or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of
the price. Any agreement to the contrary shall be void.
 Requisites before Art. 1484 will apply:

 (a) There must be a contract;

 (b) The contract must be one of sale;

 (c) What is sold is personal property;

 (d) The sale must be on installment plan.

 The remedies enumerated are not cumulative. They are
alternative, and if one is exercised, the others cannot be
made use of. Indeed the election of one is a waiver of
the right to resort to others.
 Example.
 B bought a car on installment plan, and as security executed a
chattel mortgage on it. B failed to pay two installments. The seller
foreclosed the mortgage, but the sum he obtained was less than
what B still owed him. It had been previously agreed in the deed of
sale that B would be liable for any deficiency in this matter. May the
seller still sue for the deficiency?

 ANSWER:
 No, for the law says that after foreclosure, the seller-mortgagee
shall have no further action against the purchaser to recover any
unpaid balance of the price. The contrary stipulation in their
contract is VOID.
 Article 1484 cannot be applied;

 (1) To Real Estate Mortgage;

 (2) To Sale of Personal Property on Straight Terms.

 Observe that as a rule the seller pays for the expenses
of:

 (a) The execution (of the deed of sale);

 (b) Its registration unless there is a contrary stipulation

 GENERAL RULE:

 It is required that a case of rescission or cancellation of

the sale requires mutual restitution, that is, all partial
payments of price or rent must be returned:

 Exception:
 It is valid to stipulate that there should be no returning of
the price that has been partially paid or of the rents
given, provided the stipulation is not unconscionable.
 REPUBLIC ACT NO. 6552 (SALE OF REAL PROPERTY IN
INSTALLMENTS:

 In all transactions or contracts involving the sale or financing of

real estate on installment payments, including residential
condominium apartments, where the buyer has paid at least two
years of installments, the buyer is entitled to the following rights in
case he defaults in the payment of succeeding installments:

 (a) To pay, without additional interest, the unpaid installments

due within the total grace period earned by him which is
hereby fixed at the rate of one month grace period for every
one year of installment payments made: Provided, That this
right shall be exercised by the buyer only once in every five
years of the life of the contract and its extensions, if any.
 (b) If the contract is cancelled, the seller shall refund to the buyer
the cash surrender value of the payments on the property
equivalent to 50% of the total payments made, and, after 5
years of installments, an additional 5% every year but not to
exceed 90% of the total payments made: Provided, That the
actual cancellation of the contract shall take place after thirty
days from receipt by the buyer of the notice of cancellation or
the demand for rescission of the contract by a notarial act and
upon full payment of the cash surrender value to the buyer.

 Down payments, deposits or options on the contract shall be

included in the computation of the total number of installment
payments made.
 In case where less than two years of installments were paid, the
seller shall give the buyer a grace period of not less than sixty days
from the date the installment became due.

 If the buyer fails to pay the installments due at the expiration of the
grace period, the seller may cancel the contract after thirty days
from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act. (Sec. 4)
CAPACITY TO BUY AND SELL
 Two Types of Incapacity:

 (a) Absolute Incapacity – When a party cannot bind

himself in any case;

 (b) Relative Incapacity – When certain persons, under

certain circumstances, cannot buy certain property.
 When minors buy, the contract is generally voidable, but
in the case of necessaries, where necessaries are sold
and delivered to a minor or other person without
capacity to act, he must pay a reasonable price therefor.

 Necessaries include everything that is indispensable for

sustenance, dwelling, clothing and medical attendance,
according to the social position of the family. Support
also includes the education of the person entitled to be
supported until he complete his education or training for
some profession, trade, or vocation, even beyond the
age of majority.
 Art. 1490. The husband and the wife cannot sell
property to each other except:

(a) When a separation of property was agreed upon in

the marriage settlements; or

(b) When there has been a judicial separation of

property.
 CRUZ vs. COURT OF APPEALS [ G.R. No. 120122,
November 6, 1997 (281 SCRA 491)]
 Although under Art. 1490 the husband and wife cannot
sell property to one another as a rule which, for policy
consideration and the dictates of morality require that the
prohibition apply to common-law relationships, petitioner
can no longer seek reconveyance of the property to her
as it has already been acquired by respondent Vizconde
in good faith and for value from her own transferee.
 Generally a sale by one spouse to another is VOID.
However, not everybody can assail the validity of the
transaction. Thus, creditors who became such after the
transaction cannot assail its validity for the reason that
they cannot be said to have been prejudiced. But (i)
prior creditors as well as (ii) the heirs of either spouse
may invoke the nullity of the sale.

 Donation is also not allowed. Incidentally, this

prohibition about donating applies also to COMMON
LAW husband and wife on the theory that there can be
an even greater influence; furthermore, if they will be
allowed while those lawfully married will generally
prohibited this would be giving to an illicit relationship.
RELATIVE INCAPACITY TO BUY
 Art. 1491. The following persons cannot acquire by purchase, even
at a public or judicial auction, either in person or through the
mediation of another:

(a) The guardian, the property of the person or person who may
be under his guardianship;

(b) Agents, the property whose administration or sale may have

been entrusted to them, unless the consent of the principal
has been given;

(c) Executors and administrators, the property of the estate under

administration;

(d) Public officers and employees, the property of the State or of

any subdivision thereof, or of any government owned or
controlled corporation or institution, the administration of
which has been entrusted to them; this provision shall apply
to judges and government experts who, in any manner
whatsoever, take part in the sale;
(e) Justices, judges, prosecuting attorneys, clerks of superior and
inferior courts, and other officers and employees connected
with the administration of justice, the property and rights in
litigation or levied upon an execution before the court within
whose jurisdiction or territory they exercise their respective
functions; this prohibition includes the act of acquiring by
assignment and shall apply to lawyers, with respect to the
property and rights which may be the object of any litigation in
which they may take part by virtue of their profession;

NOTE: If the attorney participates in the sale, not as a buyer

but as an agent for the buyer – there is no violation of
the law.

(f) Any others specially disqualified by law.

 The prohibition in Arts. 1491 & 1492 applies in;

 (a) Legal Redemption;

 (b) Compromises;

 (c) Renunciations.
 A lawyer is not allowed to purchase the property
of his client which is in litigation. To do
otherwise would be a breach of professional
conduct and would constitute malpractice.
 Complete loss distinguish from Partial Loss at the time of
perfection: (Art. 1493)

 (a) When the object has been COMPLETELY LOST - Contract

shall be without effect;

 (b) When the object has been PARTLY or PARTIALLY LOST;

b.1. Withdrawal (or rescission);
b.2. Specific performance as to remainder by payment of
proportional price.
OBLIGATIONS OF THE VENDOR
 Obligations of the VENDOR:

(a) To transfer ownership (cannot be waived);

 As a rule in the absence of agreement, ownership is not transferred,
even if sold, unless there has been a delivery.

(b) To deliver (cannot be waived);

* Thing sold is understood as delivered, when it is placed in the
control and possession of the vendee.

(c) To warrant the object sold (this can be waived or modified

since warranty is not an essential element of the contract of
sale);

(d) To preserve the thing from perfection to delivery, otherwise he

can be held liable for damages.
 TRADITION or DELIVERY

 Is a mode of acquiring ownership, as a consequence of

certain contracts such as sale, by virtue of which,
actually or constructively, the object is placed in the
control and possession of the vendee.
 Kinds of Delivery or Tradition

 (1) Actual or real;

 (2) Legal or constructive

 2.1. Legal formalities (Art. 1498)
 2.2. Symbolical tradition or traditio simbolica (such as the
delivery of the key of the place where the movable sold is being
kept);
 2.3. Traditio longa manu (by mere consent or agreement) – if the
movable sold cannot yet be transferred to the possession of the
buyer at the time of the sale.
 2.4. Traditio brevi manu (if the buyer has already the possession
of the object even before the purchase, as when the tenant or
lessee of a car buys the car, that is, his possession as an owner)
 2.5. Traditio constitutum possessorium (opposite of tradition
brevi manu) possession as owner changed, for example as a
lessee.
 Ex. I sold my car but continued to possess it as a lessee of the
purchaser.
 Art. 1498. When the sale is made through a public
instrument, the execution thereof shall be equivalent to
the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear
or cannot clearly be inferred.
With regard to movable property, its delivery may
also be made by the delivery of the keys of the place or
depository where it is stored and kept.
 ZENAIDA M. SANTOS versus CALIXTO SANTOS, ALBERTO
SANTOS, ROSA SANTOS-CARREON and ANTONIO SANTOS (G.R.
No. 133895, October 2, 2001)

 FACTS:

 Petitioner Zenaida M. Santos is the widow of Salvador Santos, a

brother of private respondents Calixto, Alberto, Antonio, all
surnamed Santos and Rosa Santos-Carreon.

 The spouses Jesus and Rosalia Santos owned a parcel of land

registered under TCT No. 27571 with an area of 154 square meters,
located at Sta. Cruz Manila. On it was a four-door apartment
administered by Rosalia who rented them out. The spouses had five
children, Salvador, Calixto, Alberto, Antonio and Rosa.

 On January 19, 1959, Jesus and Rosalia executed a deed of sale of

the properties in favor of their children Salvador and Rosa. TCT No.
27571 became TCT No. 60819.
 Rosa in turn sold her share to Salvador on November 20, 1973
which resulted in the issuance of a new TCT No. 113221. Despite
the transfer of the property to Salvador, Rosalia continued to lease
receive rentals form the apartment units.

 On November 1, 1979, Jesus died. 6 years later Salvador died,

followed by Rosalia who died the following month. Shortly after,
petitioner Zenaida, claiming to be Salvador's heir, demanded the
rent from Antonio Hombrebueno, a tenant of Rosalia. When the
latter refused to pay, Zenaida filed and ejectment suit against him
with the MTC of Manila, which eventually decided in Zenaida's
favor.

 On January 5, 1989, private respondents instituted an action for

reconveyance of property with preliminary injunction against
petitioner in the RTC of Manila, where they alleged that the two
deeds of sale executed on January 19, 1959 and November 20, 1973
were simulated for lack of consideration. They were executed to
accommodate Salvador in generating funds for his business and
providing him with greater business flexibility.
 Zenaida denied the material allegations in the complaint as special
and affirmative defenses, argued that Salvador was the registered
owner of the property, which could only be subjected to
encumbrances or liens annotated on the title; that the respondents'
right to reconveyance was already barred by prescription and
laches; and that the complaint state no cause of action.

 The trial court rendered its decision in favor of the respondents.

The trial court reasoned that notwithstanding the deeds of sale
transferring the property to Salvador, the spouses Rosalia and
Jesus continued to possess the property and to exercise rights of
ownership not only by receiving the monthly rentals, but also by
paying the realty taxes. Also, Rosalia kept the owner's duplicate
copy of the title even after it was already in the name of Salvador.
Further, the spouses had no compelling reason in 1959 to sell the
property and Salvador was not financially capable to purchase it.
The deeds of sale were therefore fictitious. Hence, the action to
assail the same does not prescribe. Petitioner appealed the case
before the CA which affirmed the trial court’s decision.
 ISSUES:

 1. Whether or not the payments of realty taxes and

retention of possession are indications of continued
ownership by the original owners?

 2. Whether or not the sale through a public

instrument is tantamount to delivery of the thing
sold?

 3. Whether or not the the cause of action of Rosalia

Santos and her heirs prescribe?
 RULINGS:

 First Issue:

 It is true that neither tax receipts nor declarations of ownership for

taxation purposes constitute sufficient proof of ownership. They
must be supported by other effective proofs. These requisite proofs
are present in this case. As admitted by petitioner, despite the sale,
Jesus and Rosalia continued to possess and administer the
property and enjoy its fruits by leasing it to third persons. Both
Rosa and Salvador did not exercise any right of ownership over it.
Before the second deed of sale to transfer her ½ share over the
property was executed by Rosa, Salvador still sought the
permission of his mother. Further, after Salvador registered the
property in his name, he surrendered the title to his mother. These
are clear indications that ownership still remained with the original
owners. In Serrano vs. CA, 139 SCRA 179, 189 (1985), we held that
the continued collection of rentals from the tenants by the seller of
realty after execution of alleged deed of sale is contrary to the
notion of ownership.
 Petitioner argues that Salvador, in allowing her mother to use the
property even after the sale, did so out of respect for her and out of
generosity, (a factual matter beyond the province of the SC).
Significantly, in Alcos vs. IAC 162 SCRA 823, 837 (1988), the SC
noted that the buyer's immediate possession and occupation of the
property corroborated the truthfulness and authenticity of the deed
of sale. Conversely, the vendor's continued possession of the
property makes dubious the contract of sale between the parties.

 Second Issue:

 Article 1477 of the Civil Code provides that ownership of the thing
sold is transferred to the vendee upon its actual or constructive
delivery. Article 1498, in turn, provides that when the sale is made
through a public instrument, its execution is equivalent to the
delivery of the thing subject of the contract. Petitioner avers that
applying said provisions to the case, Salvador became the owner of
the subject property by virtue of the two deeds of sale executed in
his favor.
 Nowhere in the Civil Code, however, does it provide that execution
of a deed of sale is a conclusive presumption of delivery of
possession. The Code merely said that the execution shall be
equivalent to delivery. The presumption can be rebutted by clear
and convincing evidence. Presumptive delivery can be negated by
the failure of the vendee to take actual possession of the land sold.

 In Danguilan vs. IAC, 168 SCRA 22, 32 (1988), the SC held that for
the execution of a public instrument to effect tradition, the
purchaser must be placed in control of the thing sold. When there is
no impediment to prevent the thing sold from converting to tenancy
of the purchaser by the sole will of the vendor, symbolic delivery
through the execution of a public instrument is sufficient. But if,
notwithstanding the execution of the instrument, the purchaser
cannot have the enjoyment and material tenancy nor make use of it
himself or through another in his name, then delivery has not been
effected.
 As found by both the trial and appellate courts and amply
supported by the evidence on record, Salvador was never placed in
control of the property. The original sellers retained their control
and possession. Therefore, there was no real transfer of ownership.
 Moreover, in Norkis Distributors, Inc. vs. CA, 193 SCRA 694, 698-
699 (1991), citing the land case of Abuan vs. Garcia, 14 SCRA 759
(1965), the SC held that the critical factor in the different modes of
effecting delivery, which gives legal effect to the act is the actual
intention of the vendor to deliver, and its acceptance by the vendee.
Without that intention, there is no tradition. In the instant case,
although the spouses Jesus and Rosalia executed a deed of sale,
they did not deliver the possession and ownership of the property
to Salvador and Rosa. They agreed to execute a deed of sale merely
to accommodate Salvador to enable him to generate funds for his
business venture.
 Third Issue:

 In Lacsamana vs. CA, 288 SCRA 287, 292 (1998), the SC held that
the right to file an action for reconveyance on the ground that the
certificate of title was obtained by means of a fictitious deed of sale
is virtually an action for the declaration of its nullity, which does not
prescribe. The complaint filed by respondent in the court a quo was
for the reconveyance of the subject property to the estate of Rosalia
since the deeds of sale were simulated and fictitious. The complaint
amounts to a declaration of nullity of a void contract, which is
imprescriptible. Hence, respondents' cause of action has not
prescribed.
 Two kinds of Constructive Delivery

 (1) Legal formalities (1st par.) applies to real and personal

property;
 (2) Traditio simbolica (2nd par.) personal properties.

 Three requirements of constructive delivery:

 (a) The seller must have control over the thing, otherwise how
can he put another in control;

 (b) The buyer must be put under control;

 (c) There must be intention to deliver the thing for purposes of

ownership(not for example, of merely allowing the inspection
or examination of the keys, nor for the purpose of having said
keys repaired.
 Example:
 A buyer in a public instrument of two parcels of land could not take
actual physical possession thereof because a certain individual
claims to be the real owner thereof. Under the terms of the
document, the buyer was being given the actual physical
possession of the lands so that he could use them in a manner
most advantageous to him. Since however, he could not take
possession he alleged that there was no delivery. Hence, he asked
for rescission or resolution of the sale.

 HELD:
 Considering the facts of the case, there really was no delivery and
therefore he can either ask for resolution with return to him of the
purchase price with interest and damages or for specific fulfillment
of obligations. Indeed, the legal fiction that the execution of a public
document is equivalent to delivery, holds true only when there is no
impediment that may prevent the turning over of the property.
 The Civil Code does not provide that the execution of
the deed is a conclusive presumption of the delivery of
possession. What it says is that the execution thereof
shall be equivalent to delivery which means that the
disputable presumption established can be rebutted by
clear and convincing evidence, such as evidence of the
fact that the buyer did not really obtain material
possession of the building. Hence, it may be said that
the execution of the contract is only a presumptive
delivery. (Montenegro vs. Roxas de Gomez, 58 Phil. 723)

 Execution of the deed of sale, in the absence of any

defect, transfers delivery, even if the selling price, in
whole or in part has not yet been paid, for it is not
payment that transfers ownership. (Puatu vs. Mendoza
and David, 64 Phil. 457)
 Delivery of Incorporeal Property:

 (a) By constructive tradition – execution of public

instrument;

 (b) By quasi-tradition – placing of titles of ownership in

the possession of the buyer, or the use by the buyer
of his rights, with seller’s consent.

 NOTE: The delivery of land title deeds is equivalent to

a delivery of the property itself.
 Unknown to the spouses Layumas, TCT No. 8986 was issued over
Lot No. 124-B in the name of Jesus Mascuñana on March 17, 1986.
 On November 17, 1986, the heirs of Mascuñana filed a Complaint for
recovery of possession of Lot No. 124-B and damages with a writ of
preliminary injunction, alleging that they owned the subject lot by
virtue of successional rights from their deceased father.

 On April 8, 1991, the spouses Layumas filed a Motion for Leave to

Intervene, alleging therein that they had a legal interest in Lot No.
124-B-1 as its buyers from Sumilhig, who in turn purchased the
same from Mascuñana. In their answer in intervention, the spouses
Layumas alleged that they were the true owners of the subject
property and that they had wanted to pay the taxes thereon, but the
Land Tax clerk refused to receive their payments on account that the
petitioners had already made such payment. The spouses Layumas
further maintained that the petitioners had no cause of action
against Barte, as they had authorized him to occupy a portion of Lot
No. 124-B-1. The spouses Layumas also averred that the petitioners
were estopped from denying their right of ownership and
possession of the subject lot, as one of them had even offered to
repurchase a portion of Lot No. 124-B via letter.
 ISSUE:

 WHETHER OR NOT THE SALE OF LOT NO.

124-B MADE BY JESUS M. MASCUÑANA
IN FAVOR OF DIOSDADO SUMILHIG A
CONTRACT TO SELL OR CONTRACT OF
SALE.
 The petitioners insist that Sumilhig never acquired title over the
property; he could not have transferred any title to the respondents.
Sumilhig could not have transferred that which he did not own.

 The petitioners’ contention has no factual and legal bases.

 The evidence on record shows that during the lifetime of vendor

Jesus Mascuñana, and even after his death, his heirs, the petitioners
herein, unequivocably declared that Diosdado Sumilhig was the
owner of the property subject of this case, and that the respondents
acquired title over the property, having purchased the same via a
deed of absolute sale from Diosdado Sumilhig. Thus, on December
31, 1961, Jesus Mascuñana and Jose Estabillo executed a Deed of
Exchange and Absolute Sale of Real Estate, in which both parties
declared that they were co-owners of portions of Lot No. 124 abutted
by the property owned by Diosdado Sumilhig.
 In the subdivision plan of Lot No. 124, signed by Ricardo Quilop,
Private Land Surveyor, following his survey of Lot No. 124 on July 9,
1962 for and in behalf of Jesus Mascuñana, et al., it appears that Lot
No. 124-B with an area of 540 square meters belonged to Diosdado
Sumilhig, which is abutted by Lot No. 124-C, owned by Jesus
Mascuñana.

 On October 1, 1985, long after the death of Jesus Mascuñana, one of

his heirs, petitioner Renee Tedrew, through counsel, wrote
respondent Rodolfo Layumas offering to buy the property occupied
by his overseer Aquilino Barte for US$1,000.00.

 It was only after the respondents rejected the proposal of petitioner

Renee Tedrew that the petitioners secured title over the property on
March 17, 1986 in the name of Jesus Mascuñana (already deceased
at the time), canceling TCT No. 967 issued on July 6, 1962 under the
name of Jesus Mascuñana, who appears to be a co-owner of Lot No.
124 with an undivided two-seventh (2/7) portion thereof.
 ON SALE OR RETURN (Art. 1502 par. 1) – When goods are
delivered to the buyer “on sale or return to give the buyer the
option to return the goods instead of paying the price, the
ownership passes to the buyer on delivery, but he may revest the
ownership in the seller by returning or tendering the goods within
the time fixed in the contract, or, if no time has been fixed, within a
reasonable time.

 The buyer has no right to return if he has materially abused the

condition of the thing. The sale in this case becomes absolute.

 If the object deteriorates without the fault of the buyer, the buyer
can still return , provided the reasonable period for returning has
not yet lapsed.

 Ownership is transferred at once.

 SALE ON APPROVAL OR ON TRIAL OR
SATISFACTION (Art. 1502 par. 2) – ownership passes to the
buyer when;

(a) When he signifies his approval or acceptance to the seller or

does any other act adopting the transaction;

(b) If he does not signify his approval or acceptance to the seller,

but retains the goods without giving notice of rejection, then if
a time has been fixed for the return of the goods, on the
expiration of such time, and, if no time has been fixed, on the
expiration of a reasonable time. What is a reasonable time is a
question of fact.
 RULES on Sale on Approval or on Trial or
Satisfaction:

(1)` Ownership remains with the seller, although there has been
delivery, until the sale becomes absolute;

(2) Risk of loss remains with the seller, although there has been
delivery, if the sale has not yet become absolute.
 Exceptions:
 (a) If the buyer is at fault;
 (b) If the buyer has expressly agree to bear loss.

(3) Buyer must give goods a trial except when it is evident that it
cannot perform the work intended;

(4) Period within which buyer must signify his acceptance

commences to run only when all the parts essential for the
operation of the object have been delivered.
 (5) If it is stipulated that a third person must satisfy approval or
satisfaction, the provision is valid, but the third person must be
in good faith. If refusal to accept is not justified, seller may sue;

 (6) Generally the sale and delivery to a buyer who is an expert on

the object purchased is not obviously a sale on approval trial
or satisfaction.
 Reservation of ownership despite delivery - Although
delivery has been made, seller may reserve ownership
till certain conditions are fulfilled. Of course the most
important controlling element is the intention. (Shipment
by common carriers) (Art. 1503)
 Instances when the seller is still the owner
despite delivery;

(1) Express stipulation;

(2) If under the bill of lading the goods are deliverable to seller or
agent or their order (Reason – the buyer cannot get);

(3) If bill of lading , although stating that the goods are to be

delivered to buyer or his agent, is KEPT by the seller or his
agent. (Reason – the buyer also cannot get);

(4) When the buyer although the goods are deliverable to order of
buyer, and although the bill of lading is given to him, does not
honor the bill of exchange sent along with it. But of course
innocent third parties (innocent holders and purchasers for
value) should not be adversely affected.
 Unless otherwise agreed, the goods remain at the seller's risk until
the ownership therein is transferred to the buyer, but when the
ownership therein is transferred to the buyer the goods are at the
buyer's risk whether actual delivery has been made or not, except
that: (Art. 1504)

 (1) Where delivery of the goods has been made to the buyer or to
a bailee for the buyer, in pursuance of the contract and the
ownership in the goods has been retained by the seller merely
to secure performance by the buyer of his obligations under
the contract, the goods are at the buyer's risk from the time of
such delivery;

 (2) Where actual delivery has been delayed through the fault of
either the buyer or seller the goods are at the risk of the party
in fault.
 PROBLEM:

 Kris is the owner of a diamond necklace which was

stolen from her by her former personal assistant. She
attended a party / social gathering organized by her best
friend Ai-Ai. During the party / social gathering, she saw
Ai-Ai wearing the same diamond necklace which was
stolen from her. She demanded from Ai-Ai to return the
diamond necklace which the latter refused as she had
paid P1M to the seller of the said jewelry. Can Kris
demand for the return of the diamond necklace? Why?

 What if Ai-Ai purchase the diamond necklace from a

public sale, will your answer still be the same?
 ANSWER:

 (a) Yes, because Kris was unlawfully deprived of the

diamond necklace after it was stolen from her.
Under the law, one who has lost any movable or has
been unlawfully deprived thereof may recover it
from the person in possession of the same. This is
true even if the possessor bought it from a thief.

 (b) Yes, provided that she would reimburse Ai-Ai the

amount she may have paid to the merchant’s store.
Under the law, if the possessor of the movable lost
or which the owner has unlawfully deprived, has
acquired it in good faith at a public sale, the owner
cannot obtain its return without reimbursing the
price paid therefor.
 The general rule is no one can give what he
does not have – nemo dat quod non habet.
Therefore, even if a person be a bona fide
purchaser, he succeeds only to the rights of the
vendor. If the seller is not the owner, the sale is
null and void.
 GENERAL RULE: The vendee or buyer does not acquire any better
right / title to the object sold if the object was bought from
somebody who is not the owner thereof and who is not authorized
to sell.
 Exceptions:
 (a) Where the true owner is estopped or precluded by his conduct
from denying the vendor’s authority to sell;

 (b) Where the sale is made by the registered or apparent owner in

accordance with recording or registration laws;

 (c) Where the sale is made pursuant to a statutory power of sale

or under the order of a court of competent jurisdiction; and
 Ex. Sale thru public auction.

 (d) Where the purchase is made in a merchant’s store, or in fairs,

or markets, in accordance with the Code of Commerce and
special laws.
 Store – It is any place where goods are kept and sold
by one engaged in buying and selling. Thus, it has been
held that the placing of an order for goods and the
making of payment thereto at a principal office of a
producer of logs does not transform said office into a
store, for it is a necessary element that there must also
be goods or wares stored therein or on display and that
the firm or person maintaining said office is actually
engaged in the business of buying and selling.
 PROBLEM:

 Iqbal in good faith, purchased a diamond ring

from Ging, a friend of his. Ging gave Iqbal a bill
of sale. Later on, Purisima identified the ring as
one he had lost about a year ago. What advice
would you give to Iqbal in reference to
Purisima’s demand that the ring be returned or
surrendered to her?
 ANSWER:

 Iqbal must return without any right of reimbursement.

The law says that one who has lost any movable or has
been unlawfully deprived thereof may recover it from the
person in possession of the same, without such
possessor being entitled to reimbursement, except if the
acquisition in good faith has been at a public sale or
auction, or at a merchant’s store, fair or market.
 The possession of movable property acquired in
good faith is equivalent to a title. Nevertheless,
one who has lost any movable or has been
unlawfully deprived thereof, may recover it from
the person in possession of the same.
 PROBLEM:

 Can a buyer acquire title from a thief who sold

the goods to him?
 ANSWER:

 No, because the owner has been unlawfully deprived of

it. Hence, the true owner can get it back without
reimbursement. If the buyer had acquired the stolen
automobile at a public auction, even if he be in good
faith, the true owner can still get it from him, but this time
he would be entitled to reimbursement.
 Where the seller of goods has a voidable title
thereto, but his title has not been avoided at the
time of the sale, the buyer acquires a good title
to the goods, provided he buys them in good
faith, for value, and without notice of the seller's
defect of title. (Art. 1506)
 Document of title – A document of title in which it is stated that
the goods referred to therein will be delivered to the bearer, or to
the order of any person named in such document is a negotiable
document of title. (Art. 1507)

 Examples:
 (a) A Bill of Lading; a document that serves as evidence of
receipt of goods for shipment issued by a common carrier;

 (b) Dock warrant; a warrant given by dock owners to the owner

of merchandise imported and warehoused on the dock, upon th
faith of the bills of lading, as a recognitionof his title to the goods;

 (c) Quedan; a warehouse recipt that covers sugar;

 (d) Warehouse receipt or order;

 (e) Any other document used as proof of possession or as

authority to transfer the goods represented by the document.
 Functions of Document of Title:

 (1) It is a contract;
 - the underlying contract may be contract of carriage
(bill of lading) or deposit (warehouse receipt)

 (2) Evidence of receipt of goods;

 (3) Represents the goods and therefore operates as

transferable document that carries possession of and
title to the goods.
 NEGOTIABILITY of Document of Title:
 A Document of Title is Negotiable when it is either a
BEARER document of title or an ORDER of document of
title.

 (a) BEARER
 The document of title states that the goods referred to
therein will be delivered to the bearer.

 (b) ORDER
 The document of title states that the goods referred to
therein will be delivered to the order of any person
named in such document.
 NEGOTIABLE DOCUMENT
 The document is negotiable if:

 (a) the goods are deliverable to bearer;

 (b) or if the goods are deliverable to the order of a

certain person.
 Two forms of negotiating a negotiable document
of title:

 (a) Mere delivery; (BEARER)

 (b) Indorsement plus delivery. (ORDER)

 A negotiable document of title may be negotiated by the

indorsement of the person to whose order the goods are
by the terms of the document deliverable. Such
indorsement may be in blank, or to bearer or to a
specified person. If indorsed to a specific person, it may
be again negotiated by the indorsement of such person
in blank , to bearer or to another specified person.
Subsequent negotiations may be made in like manner
(Art. 1509)
 Who may negotiate?
 A negotiable document of title may be negotiated:

 (1) By the owner thereof; or

 (2) By any person to whom the possession or custody of

the document has been entrusted by the owner, if, by
the terms of the document the bailee issuing the
document undertakes to deliver the goods to the order
of the person to whom the possession or custody of the
document has been entrusted, or if at the time of such
entrusting the document is in such form that it may be
negotiated by delivery.
 What is the effect of negotiation?

 Negotiation of the document has the effect of manual

delivery so as to constitute the transferee the owner of
the goods. Negotiation carries with it both title to and
possession of the property.
 DELIVERY OF GOODS

 (1) GOODS
 Includes all chattels personal but not things in action or
money of legal tender in the Philippines. The term
includes growing fruits or crops.

 (2) QUALITY OF GOODS

 Includes their state or condition.

 (3) SPECIFIC GOODS

 Means goods identified and agreed upon at the time a
contract of sale is made.
 RULES when the Quantity is Less than that
Agreed Upon: (Art. 1522)

 (a) The buyer may REJECT;

 (b) Or buyer may Accept what have been delivered, at

the contract rate.
 RULES when the Quantity is MORE than the
Agreement:

 (a) Buyer may reject ALL. He must not be burdened

with the duty of segregation, if he does not so
desire;

 (b) Buyer may accept the goods agreed upon and reject
the rest;

 (c) If he gets all, he must pay for them at the contract

rate.
 RULES when Quality is Different:

 (a) Accept the goods which are in accordance with the

contract;

 (b) And reject the rest: (If the sale is indivisible, the
buyer may reject the whole of the goods.)
 GENERAL RULE: Delivery to carrier is delivery
to buyer, if it is the duty of the seller to send the
goods to the buyer:
 EXCEPTIONS: Delivery to the carrier is NOT delivery to the BUYER.

 1) Where the goods are shipped, and by the bill of lading the
goods are deliverable to the seller or his agent, or to the order
of the seller or his agent, the seller thereby reserves the
ownerhsip of the goods;

 2) Where the goods are shipped, and by the bill of lading the
goods are deliverable to order of the buyer or of his agent, but
the possession of the bill of lading is retained by the seller or
his agent, the seller thereby reserves a right to the possession
of the goods as against the buyer;

 3) Where the agreement of the parties including the bill of lading

contains provisions that indicates that the goods are still at the
sellers risk.
 Kinds of Delivery to Carrier:
 (1) C.I.F. (Cost, Insurance, Freight) – The buyer pays a fixed price,
while the seller pays the insurance and freight up to the place of
destination. In other words, the seller is responsible for the delivery
of the goods, pays for all expenses, such as insurance and freight,
pays for all charges, such as export taxes and other charges or fees,
and be responsible for the goods up to the point of destination. The
buyer on the other hand, who paid a fixed price, shall accept
delivery of the goods at the point of destination, pays all charges,
such as taxes or duties at such point, and be responsible for the
goods one the seller’s responsibility ceases;

 In a C.I.F. contract the place of delivery is presumptively at the buyer’s

place.

 (2) F.O.B. (Free on Board) – the goods are shipped by the seller at
a certain point without any expense to the buyer, but after delivery at
such point all subsequent expenses incident to the transportation
and delivery shall be paid by the buyer. Thus, if the sale is F.O.B. at
the place of shipment, the buyer must pay the freight , if F.O.B. at
the place of destination, the seller must pay the freight.
 PROBLEM:
 S in Manila agrees to ship goods to B in Vigan, “FOB
Vigan, Before the goods reach Vigan, they are destroyed
by a fortuitous event. Who bears the lost?

 ANSWER:
 S bears the lost because ownership (title) does not pass
till the goods reach Vigan. Hence, the seller bears the
loss. If the price has been given him, he must return the
same. If no payment has yet been made, he cannot
successfully demand the price from the buyer.
 Instances when the vendor is not obliged to make any
delivery after the perfection of the contract: (Art. 1524)

 (1) If the vendee has not paid him the price;

 (2) If no period has been agreed in the contract;

 (3) Even if a period has been fixed in the contract – if

the vendee has lost the right to make use of the
period and still refuses to pay.
 The seller of goods is deemed an unpaid seller under the
following circumstances: (Art. 1525)

 (a) When the whole of the price has not been paid or tendered;

 (b) 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 by reason of
the dishonor of the instrument, the insolvency of the buyer or
otherwise.

 The term “seller” includes any person who is in the position of the
seller, such as agent of such seller whom the bill of lading has been
indorsed, or a consignor or agent who has himself, paid, or is
directly responsible for the price.

 If only part of the price has been paid or tendered, the seller is still
an unpaid seller;
 Mere delivery of a negotiable instrument does
not extinguish the obligation of the buyer to pay
because it may be dishonored.
 Remedies / Rights of an unpaid seller: (Art. 1526)

 (a) A lien on the goods or right to retain them for the

price while he is in possession of them;

 (b) In case of the insolvency of the buyer, a right of

stopping the goods in intransitu after he has parted
with the possession of them;

 (c) A right of resale;

 (d) A right to rescind the sale.

 (a) A lien on the goods or right to retain them for
the price while he is in possession of them;

 Right is available when: (Art. 1527)

 (1) Where the goods have been sold without any stipulation as to
credit;
 (2) Where the goods have been sold on credit, but the term of
credit has expired; and
 (3) Where the buyer becomes insolvent.

 The seller may exercise his right of lien or retention

notwithstanding that he is in possession of the goods as agent or
bailee for the buyer.

 Seller has possessory lien.

 Example:

 S sold B a specific car. No term of credit was

given. S can possess a possessory lien till he is
paid.
 PARTIAL LIEN:

 Where the unpaid seller has made aprt delivery of the

goods, he may exercise his right of lien on the
remainder, unless such part delivery has been made
under such circumstances as to show an intent to waive
the lien or right of retention.
 Unpaid seller loses his right of lien or retention
in the following cases:

 (a) When he delivers the goods to a carrier or other

bailee for the purpose of transmission to the buyer
without reserving the ownership in the goods or the
right to possession thereof;

 (b) When the buyer or his agent lawfully obtains

possession of the goods; and

 (c) By waiver thereof.

 PROBLEM:

 An unpaid seller still in possession of the goods

sold brought an action to get the purchase
price. Does he lose his lien?
 ANSWER:

 No, for bringing of the action is not one of the

ways of losing the possessory lien.
 PROBLEM:
 An unpaid seller, who possessed the goods thru a
warehouseman, delivered to the buyer a negotiable
warehouse receipt. Does the unpaid seller still have a
possessory lien?

 ANSWER:
 No more, for the negotiable warehouse receipt
automatically transferred both title and right of
possession to the goods in the buyer.
 (b) In case of the insolvency of the buyer, a right
of stopping the goods in intransitu after he has
parted with the possession of them;

 Right of stoppage in transitu – refers to the right of the unpaid

seller to resume possession of the goods at anytime while they are
in transit by virtue of which he will be entitled to the same rights in
regard to the goods as he would have had if he had never parted
with the possession.

 Available when:

 (a) seller has already parted with the possession of the goods;

 (b) the buyer of goods is insolvent;

 (c) goods are still in transit.

 Right of stoppage in transitu may be exercised
thru;

 (a) obtaining actual possession of the goods;

 (b) or by giving notice of his claim to the carrier or

other bailee in whose possession the goods are;

 b.1. Notice to the person in actual possession of the goods;

 b.2. Notice to his principal.

 Effects of the Exercise of the Right:

 1) The goods are no longer in transitu;

 2) The contract of carriage ends; instead the carrier

now becomes a mere bailee, and will be liable as
such;

 3) The carrier should not deliver anymore to the buyer

or the latter’s agent, otherwise he will clearly be
liable for damages;

 4) The carrier must redeliver to, or according to the

directions of the seller.
 Effect if Buyer has already sold the Goods before the
Unpaid Seller exercised his right of lien or his right of
stoppage in transitu:

 Generally, the unpaid seller’s right of LIEN or STOPPAGE IN

TRANSITU remains even if the buyer has sold or otherwise disposed
of the goods;

 Exceptions:
 (a) When the seller has given consent thereto;

 (b) When the purchaser or the buyer is a purchaser for value in

good faith of a negotiable document of title.
  (c) A right of resale (Right to Resell);

 Available to the unpaid seller in the following instances:

 1) The goods are of perishable nature;

 Goods are perishable if they are of a nature that they deteriorate rapidly.

 2) The seller has expressly reserved the right of resale in case

the buyer should make a default;

 3) The buyer has been in default in the payment of the price for
an unreasonable time.

It is however, essential before the resale can be made that the

unpaid seller should have a right of lien or should have stopped the
goods in transitu.
 Effect of Resale:
 The buyer (buyer in the resale) acquires a good title
against the original buyers. The unpaid seller, on the
other hand , shall not be held liable to the original buyer
upon the contract of sale or for any profit made by
reason of the resale. As a matter of fact, under the law
he may recover from the latter damages for any loss
occasioned by the breach of contract of sale.

 Resale is effected thru:
 Resale may be made either by public or private sale.
However, the unpaid seller , who is bound to exercise
reasonable care and judgment in making the resale,
cannot directly or indirectly buy the goods.
 Is it essential that notice of such resale
be given to the original buyer?
 ANSWER:

 It is not essential to the validity of a resale that notice of

an intention to resell the goods be given by the seller to
the original buyer. But where the right to resell is not
based on the perishable nature of the goods or upon
express provision of the contract of sale, the giving or
failure to give such notice shall be relevant in any issue
involving the question whether the buyer had been in
default for an unreasonable time before the resale was
made. (Art. 1533)
 Note that deficiency in the price may be obtained as
damages. This happens when the resale price is lower
than the original selling price. Indeed the resale is
similar to a foreclosure of a lien held to secure the
payment of the purchase price. One the other hand, any
excess in the price goes to the seller.
  (d) A right to rescind the sale.

 Where the ownership of the goods has not passed to the buyer, the
unpaid seller has, in addition to his other remedies, a right of
withholding delivery similar to and co-existent with his rights of lien
and stoppage in intransitu where ownership has passed to the
buyer.

 Right to rescind is available to the unpaid seller in the

following instances:

 (a) The unpaid seller expressly reserved the right to do so in case

the buyer should make default;

 (b) The buyer has been in default in the payment of the price for
an unreasonable time.
 Effect of Rescission:

 Once the unpaid seller has rescinded the transfer of title

and resumed ownership in the goods , he shall not
thereafter be liable to the buyer upon the contract of
sale. As a matter of fact, under the law, he may recover
from the buyer damages for any loss occasioned by the
breach of contract. (Art. 1534).
 Is it essential that notice of such
rescission should be given to the buyer?
 ANSWER:

 Although the law requires that the intention to rescind

must be manifest by some overt act, it is not essential
that such overt act should be communicated to the
buyer. However, the giving or failure to give notice to the
buyer of the intention to rescind shall be relevant in any
issue involving the question whether the buyer has been
in default for an unreasonable time before the right of
rescission was asserted.
 When Seller is not Bound to Deliver because Buyer has
Lost the Right of the Term: (refer to Art. 1198)

 (a) When after the obligation has been contracted, he becomes

insolvent, unless he gives a guaranty or security for the debts;

 (b) When he does not furnish to the creditor the guaranties which
he has promised;

 (c) When by his own acts he has impaired said guaranties or

securities after their establishment, and when through a
fortuitous event they disappear, unless he immediately gives
new ones equally satisfactory;

 (d) When the debtor violates any undertaking, in consideration of

which the creditor agreed to the period;

 (e) The debtor attempts to abscond.

 The vendor is bound to deliver the thing sold and its
accessions and accessories in the condition in which
they were upon the perfection of the contract.
All the fruits shall pertain to the vendee from the
day on when the contract was perfected. (Art. 1537)

 Example of accessions – Fruits

 Example of accessories – In the sale of a car, the jack is

considered an accessory.
 SALE AND DELIVERY OF REAL PROPERTY:

 SALE PER UNIT

 If the sale of real estate (including judicial sale) should be
made with a statement of its area, at the rate of a certain
price for a unit of measure or number, the vendor shall be
obliged to deliver to the vendee, if the latter should
demand it, all that may have been stated in the contract.

 If the SELLER delivers LESS than the area stipulated in

the contract, the VENDEE may choose between:

(a) proportional reduction of the price and

(b) the rescission of the contract, provided that, in the

latter case , the lack in the area be not less than one-
tenth of that stated.
 SALE OF INFERIOR QUALITY:
 The same remedies are available, even when the area is
the same, if any part of the immovable is not of the
quality specified in the contract.

 RESCISSION OF SALE:
 (a) When the inferior value of the thing sold exceeds one
–tenth (1/10) of the price agreed upon;

 (b) If the vendee would not have bought the immovable

had be known of its smaller area or inferior quality.
 Example.

 If A buys from B a piece of land supposed to contain 1000 sq. m. at

the rate of P1,000 per sq. m., but the land was actually 800 sq. m.,
the additional 200 sq. m. must be given to A should A demand
them. If this cannot be done, A may pay only P800,000.00 (for the
800 sq. m.) or rescind the contract.

 If in the above example, there are only 950 sq. m. can A ask for
rescission?

 ANSWER:
 As a rule no, because the lack is only 50 sq. m. (The lack must at
least be 1/10 of the area stated). However, if A would not have
bought the land has he known of its smaller area, he may rescind
the sale.
SALE OF GREATER AREA:

 Where there is a greater area or number in the

immovable than that stated in the contract, the vendee
may accept the area included in the contract and reject
the rest. If he accepts the whole area, he must pay for
the same at the contract price. (Art. 1540)
 Example.
 A buys from B a piece of land supposed to contain 1000
sq. m. at the rate of P1,000 a sq. m. But the land really
contains 1500 sq. m. What can A do?

 Answer:
 A may accept 1000 sq. m. and reject the extra 500, in
which case he will pay only P1 million. However, A is
also allowed to accept all of the 1500 sq. m., but he must
pay P1.5 million. A is not allowed to rescind the
contract, for such a remedy is not allowed.
 RULES ON LUMP SUM SALE:

 In the sale of real estate, made for a lump sum and not at the rate of
a certain sum for a unit of measure or number, there shall be no
increase or decrease of the price, although there be a greater or less
area or number than that stated in the contract.

 The same rule shall be applies;

 (a) When two or more immovables are sold for a single price;

 (b) Besides mentioning the boundaries , which is indispensable in

every conveyance of real estate, its area or number should be
designated in the contract, the vendor shall be bound to deliver
all that is included within said boundaries, even when it
exceeds the area or number specified in the contract.
 Remedies of the VENDEE / BUYER:

 (a) Reduction in the price, in proportion to what is

lacking in the area or number;

 (b) Rescission because the vendee does not accede to

the failure to deliver what has been stipulated.
 Problem.

 A buys a piece of land from B at the lump sum

of P1 million. In the contract, the area is stated
to be 1000 sq. m. The boundaries are of course
mentioned in the contract. Now then it was
discovered that the land within the boundaries
really contains 1500 sq. m. Is B bound to deliver
the extra 500 sq. m.?
 Answer:

 Yes. Furthermore, the price should not be increased.

This is so because B should deliver all which are
included in the boundaries. If B does not deliver the
remaining 500, A has the right –
 Either rescind the contract for the seller’s failure to
deliver what has been stipulated, or;
 To pay a reduced proportional price, namely 2/3 of the
original price. This is so because he really gets only 2/3
of the land included within the boundaries (1000 sq. m.
out of 1500 sq. m.)
 Example:
 A buys a piece of land a cuerpo cierto (for a lump sum).
The contract states a certain number of square meters
but the land included in the boundaries happen to be
LESS.
 Is A entitled to rescind?

 Answer: No.

 Is A entitled to pay a reduced price?

 Answer: No.
 RULES OF PREFERENCE IN CASE OF DOUBLE SALE: (Art.
1544)

 As to movables – The ownership shall be transferred to the

person who may have first taken possession thereof in good faith;

 As to immovables; The ownership shall be transferred:

 (a) To the person acquiring it who in good faith first recorded it in
the Registry of Deeds;(First Registrant)

 (b) In the absence thereof, to the person who in good faith was
first in possession;(First Possessor)

 (c) In the absence thereof, to the person who presents the oldest
title, provided there is good faith. (With Oldest Title)

 Possession is either actual or constructive since the law makes no

distinction.
 Example:

 A sold land to B. Subsequently A sold the same

land to C who in good faith registered it in his
name. Who should be considered the owner?

 Answer:
 C in view of the registration in good faith.
Other RULES ON DOUBLE SALE:

(1) Registration in GOOD FAITH of an immovable property is

satisfied if there is registration of an adverse claim or a notice
of lis pendens;

(2) Knowledge gained by the first buyer of the second sale cannot
defeat the first buyer's rights except when the second buyer
registers in good faith the second sale ahead of the first. Thus,
the first buyer will NOT loose priority if he registers the first
sale ahead of the second sale with the first buyer knowing the
existence of the second sale;

(3) In execution sales of unregistered lands, the buyer merely

steps into the shoes of the judgment debtor. Thus, if the
judgment debtor already sold his property before the same
property was levied upon, the buyer at the auction sale shall
not acquire the property.
 Gabriel vs. Spouses Mabanta et. al. (G.R. No. 142403, March 26,
2003)
 In cases of double sale of immovables, what finds relevance and
materiality is not whether or not the second buyer was a buyer in
good faith but whether or not said second buyer registers such
second sale in good faith, that is, without knowledge of any defect in
the title of the property sold. In Salvoro vs. Tanega (G.R. No. L-
32988, December 29, 1978, 87 SCRA 349), we had the occasion to
rule that:

 "If a vendee in a double sale registers the sale after he has acquired
knowledge that there was a previous sale of the same property to a third
party or that another person claims said property in a previous sale, the
registration will constitute a registration in bad faith and will not confer
upon him any right."

 Mere registration of title is not enough, good faith must concur with
the registration. To be entitled to priority, the second purchaser
must not only establish prior recording of his deed, but must have
acted in good faith, without knowledge of the existence of another
alienation by the vendor to the other.
 EMILLA M. URACA, CONCORDIA D. CHING and ONG SENG,
represented by ENEDINO H. FERRER versus COURT OF APPEALS,
JACINTO VELEZ, JR., CARMEN VELEZ TING, AVENUE
MERCHANDISING, INC., FELIX TING AND ALFREDO GO (G.R. No.
115158, September 5, 1997)

 The 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.
Jurisprudence teaches us that "(t)he governing principle is primus tempore,
potior jure (first in time, stronger in right). 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. Such knowledge of the first buyer does not
bar her from availing of her rights under the law, among them, to register
first her purchase as against the second buyer. But in converso, 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. This is the price exacted by Article 1544 of the
Civil Code for the second buyer being able to displace the first buyer; that
before the second buyer can obtain priority over the first, he must show that
he acted in good faith throughout (i.e, in ignorance of the first sale and of the
first buyer's rights) — from the time of acquisition until the title is transferred
to him by registration or failing registration, by delivery of possession."
 CARMELITA FUDOT versus CATTLEYA LAND, INC.,
VELASCO, JR., JJ. (G.R. No. 171008, September 13, 2007)

 FACTS:

 Respondent Cattleya Land, Inc. purchased the nine lots through a

Deed of Conditional Sale on 6 November 1992, from Spouses
Troadio and Asuncion Tecson. Subsequently, on 30 August 1993,
respondent and the Tecsons executed a Deed of Absolute Sale over
the same properties. The Deed of Conditional Sale and the Deed of
Absolute Sale were registered with the Register of Deeds on 06
November 1992 and 04 October 1993, respectively. The Register of
Deeds refused to actually annotate the deed of sale on the titles
because of the existing notice of attachment in connection with
Civil Case No. 3399 pending before the Regional Trial Court of
Bohol. The attachment was eventually cancelled by virtue of a
compromise agreement between the Tecsons and their attaching
creditor which was brokered by respondent.
 Titles to six (6) of the nine (9) lots were issued, but the Register of
Deeds refused to issue titles to the remaining three (3) lots ,
because the titles covering the same were still unaccounted for.
 On 23 January 1995, petitioner presented for registration before the
ROD the owner’s copy of the title of the subject property, together
with the deed of sale purportedly executed by the Tecsons in favor
of petitioner on 19 December 1986. On the following day,
respondent sent a letter of protest/opposition to petitioner’s
application. Much to its surprise, respondent learned that the ROD
had already registered the deed of sale in favor of petitioner and
issued a new title in her name.

 On 5 May 1995, respondent filed its Complaint for Quieting Of Title

&/Or Recovery Of Ownership, Cancellation Of Title With Damages
before the RTC of Tagbilaran City. On 26 June 1995, Asuncion filed
a complaint-in-intervention, claiming that she never signed any
deed of sale covering any part of their conjugal property in favor of
petitioner. She averred that her signature in petitioner’s deed of
sale was forged thus, said deed should be declared null and void.
She also claimed that she has discovered only recently that there
was an amorous relationship between her husband and petitioner.
 ISSUES:

 (a) BETWEEN 2 BUYERS OF REGISTERED LAND, WHO HAS THE

BETTER RIGHT - IS IT THE FIRST BUYER WHO WAS GIVEN
THE OWNER’S DUPLICATE TCT TOGETHER WITH A DEED OF
SALE IN 1986, OR THE SECOND BUYER IN 1992 WITH ONLY A
DEED OF SALE.

 (b) IS A BUYER OF REGISTERED LAND WHO DID NOT DEMAND

OR REQUIRE THE DELIVERY OF THE OWNER’S DUPLICATE
TCT A BUYER IN GOOD FAITH.

 (c) IN SUBSEQUENT REGISTRATION OF REGISTERED LANDS,

AS BY SALE, WHICH LAW SHALL GOVERN, ARTICLE 1544 OF
CIVIL CODE OR P.D. 1529 OR TORRENS SYSTEM.
 RULINGS:

 Petitioner avers that she was the first buyer in good faith and even
had in her possession the owner’s copy of the title so much so that
she was able to register the deed of sale in her favor and caused the
issuance of a new title in her name. She argues that the presentation
and surrender of the deed of sale and the owner’s copy carried with
it the "conclusive authority of Asuncion Tecson" which cannot be
overturned by the latter’s oral deposition.

 Petitioner claims that respondent did not demand nor require

delivery of the owner’s duplicate title from the spouses Tecson,
neither did it investigate the circumstances surrounding the absence
of the title. These indicate respondent’s knowledge of a defect in the
title of the spouses and, thus, petitioner concludes that respondent
was not a buyer in good faith.

 Finally, petitioner insists that the applicable law in this case is P.D.
No. 1529, a special law dealing precisely with the registration of
registered lands or any subsequent sale thereof, and not Article 1544
of the Civil Code which deals with immovable property not covered
by the Torrens System.
 Petitioner’s arguments, which rest on the assumption that there
was a double sale, must fail.

 In the first place, there is no double sale to speak of. Art. 1544 of the
Civil Code, which provides the rule on double sale, applies only to a
situation where the same property is validly sold to different
vendees. In this case, there is only one sale to advert to, that
between the spouses Tecson and respondent.

 In Remalante v. Tibe, (No. L-59514, 25 February 1988, 158 SCRA

138) the SC ruled that the Civil Law provision on double sale is not
applicable where there is only one valid sale, the previous sale
having been found to be fraudulent. Likewise, in Espiritu and
Apostol v. Valerio, [119 Phil. 69 (1963)] where the same parcel of
land was purportedly sold to two different parties, the SC held that
despite the fact that one deed of sale was registered ahead of the
other, Art. 1544 of the Civil Code will not apply where said deed is
found to be a forgery, the result of this being that the right of the
other vendee should prevail.
 The trial court declared that the sale between the spouses Tecson
and petitioner is invalid, as it bears the forged signature of
Asuncion. Said finding is based on the unrebutted testimony of
Asuncion and the trial court’s visual analysis and comparison of
the signatures in her Complaint-in-Intervention and the purported
deed of sale. This finding was upheld by the CA, as it ruled that the
purported sale in petitioner’s favor is null and void, taking into
account Asuncion’s unrefuted deposition. In particular, the CA
noted petitioner’s failure to attend the taking of the oral deposition
and to give written interrogatories. In short, she did not take the
necessary steps to rebut Asuncion’s definitive assertion.

 The congruence of the wills of the spouses is essential for the valid
disposition of conjugal property. Thus, under Article 166 of the Civil
Code which was still in effect on 19 December 1986 when the deed
of sale was purportedly executed, the husband cannot generally
alienate or encumber any real property of the conjugal partnership
without the wife’s consent.
 Petitioner argues she has a better right over the property in
question, as the holder of and the first one to present, the owner’s
copy of the title for the issuance of a new TCT. The SC however is
not persuaded.

 The act of registration does not validate petitioner’s otherwise void

contract. Registration is a mere ministerial act by which a deed,
contract, or instrument is sought to be inscribed in the records of
the Office of the Register of Deeds and annotated at the back of the
certificate of title covering the land subject of the deed, contract, or
instrument. While it operates as a notice of the deed, contract, or
instrument to others, it does not add to its validity nor converts an
invalid instrument into a valid one as between the parties, nor
amounts to a declaration by the state that the instrument is a valid
and subsisting interest in the land. The registration of petitioner’s
void deed is not an impediment to a declaration by the courts of its
invalidity.
 Even assuming that there was double sale in this case, petitioner
would still not prevail. The pertinent portion of Art. 1544 provides:
Art. 1544. x x x.
Should it be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recorded it in the Registry of
Property.

 In interpreting this provision, the SC declared that the governing

principle is primus tempore, potior jure (first in time, stronger in
right). 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 aforequoted provision of the Civil Code. Such
knowledge of the first buyer does not bar him from availing of his
rights under the law, among them to register first his purchase as
against the second buyer. However, 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. It is thus essential, to merit the
protection of Art. 1544, second paragraph, that the second realty
buyer must act in good faith in registering his deed of sale.
 The SC agreed with the trial court and the CA that respondent was a
buyer in good faith, having purchased the nine (9) lots, including
the subject lot, without any notice of a previous sale, but only a
notice of attachment relative to a pending civil case. In fact, in its
desire to finally have the title to the properties transferred in its
name, it persuaded the parties in the said case to settle the same so
that the notice of attachment could be cancelled.

 Finally, anent petitioner’s claim that P.D. No. 1529 applies to

registered lands or any subsequent sale thereof, while Art. 1544 of
the Civil Code applies only to immovable property not covered by
the Torrens System, suffice it to say that this quandary has already
been answered by an eminent former member of this Court, Justice
Jose Vitug, who explained that the registration contemplated under
Art. 1544 has been held to refer to registration under P.D. No. 1529.
 Is the principle of “Automatic
Registration” applicable to the first
vendee in a double sale?
 ANSWER:

 No, so long as there is still no registration in good faith by a

subsequent vendee, a registration made by the first vendee of his
deed of sale regardless of whether he was unaware or aware of the
existence of a second sale is ALWAYS in good faith. This is so
because knowledge gained by him of the second sale cannot defeat
his right except as provided by the Civil Code and that is where the
second vendee first registers in good faith the second sale ahead of
the first. The principle of “automatic registration” cannot, therefore
be applied to the first vendee. Knowledge gained by him of the
existence of a second sale cannot be considered as the equivalent
of registration in good faith by the second vendee.

 Under Art. 1544 of the CC, the only way by which the first vendee
may be displaced by the second vendee is when the second vendee
first registers the second sale in good faith ahead of the first. There
can be no other way. And from the very nature of his position as
second vendee, the law requires that as far as he is concerned,
there must always be in good faith throughout. He must not only be
a purchaser in good faith; he must also be a registrant in good faith.
 This is the price exacted by Art. 1544 of the CC in order that there
will be a displacement of the first vendee by the second vendee.
The latter must show continuing good faith and innocence or lack
of knowledge of the first sale until his contract ripens into full
ownership through the registration as provided by law. (Separate
opinion of Justice Teehankee in Carbonell vs.CA, 69 SCRA 99)
 CONSOLIDATED RURAL BANK (CAGAYAN VALLEY), INC.
versus THE HONORABLE COURT OF APPEALS and HEIRS
OF TEODORO DELA CRUZ (G.R. No. 132161, January 17, 2005)

 FACTS:

 Rizal, Anselmo, Gregorio, Filomeno and Domingo, all surnamed

Madrid, were the registered owners of Lot No. 7036-A, situated in
San Mateo, Isabela per TCT No. T-8121 issued by the Register of
Deeds of Isabela in September 1956.

 On 23 and 24 October 1956, Lot No. 7036-A was subdivided into

several lots. One of the resulting subdivision lots was Lot No. 7036-
A-7 with an area of 5,958 square meters.

 On 15 August 1957, Rizal Madrid sold part of his share identified as
Lot No. 7036-A-7, to Aleja Gamiao and Felisa Dayag by virtue of a
Deed of Sale, to which his brothers Anselmo, Gregorio, Filomeno
and Domingo offered no objection as evidenced by their Joint
Affidavit dated 14 August 1957.
 The deed of sale was not registered with the ROD of Isabela.
However, Gamiao and Dayag declared the property for taxation
purposes in their names on March 1964 under Tax Declaration No.
7981.

 On 28 May 1964, Gamiao and Dayag sold the southern half of Lot
No. 7036-A-7, denominated as Lot No. 7036-A-7-B, to Teodoro dela
Cruz, and the northern half, identified as Lot No. 7036-A-7-A, to
Restituto Hernandez. Thereupon, Teodoro dela Cruz and Restituto
Hernandez took possession of and cultivated the portions of the
property respectively sold to them.

 Later, on 28 December 1986, Restituto Hernandez donated the

northern half to his daughter, Evangeline Hernandez-del Rosario.
The children of Teodoro dela Cruz continued possession of the
southern half after their father’s death on 7 June 1970.

 In a Deed of Sale dated 15 June 1976, the Madrid brothers conveyed

all their rights and interests over Lot No. 7036-A-7 to Pacifico
Marquez which the former confirmed on 28 February 1983. The deed
of sale was registered with the Office of the Register of Deeds of
Isabela on 2 March 1982.
 Subsequently, Marquez subdivided Lot No. 7036-A-7 into eight (8)
lots, namely: Lot Nos. 7036-A-7-A to 7036-A-7-H, for which TCT Nos.
T-149375 to T-149382 were issued to him on 29 March 1984. On the
same date, Marquez and his spouse, Mercedita Mariana, mortgaged
Lots Nos. 7036-A-7-A to 7036-A-7-D to the Consolidated Rural Bank,
Inc. of Cagayan Valley or CRB to secure a loan. These deeds of real
estate mortgage were registered with the Office of the Register of
Deeds on 2 April 1984.

 On 6 February 1985, Marquez mortgaged Lot No. 7036-A-7-E likewise

to the Rural Bank of Cauayan (RBC). As Marquez defaulted in the
payment of his loan, CRB caused the foreclosure of the mortgages in
its favor and the lots were sold to it as the highest bidder on 25 April
1986.
 On 31 October 1985, Marquez sold Lot No. 7036-A-7-G to Romeo
Calixto (Calixto). Claiming to be null and void the issuance of TCT
Nos. T-149375 to T-149382; the foreclosure sale of Lot Nos. 7036-A-7-
A to 7036-A-7-D; the mortgage to RBC; and the sale to Calixto, the
Heirs-now respondents herein-represented by Edronel dela Cruz,
filed a case for reconveyance and damages the southern portion of
Lot No. 7036-A against Marquez, Calixto, RBC and CRB in December
1986.
 Evangeline del Rosario, the successor-in-interest of Restituto
Hernandez, filed with leave of court a Complaint in Intervention
wherein she claimed the northern portion of Lot No. 7036-A-7.

 In the Answer to the Amended Complaint, Marquez, as defendant,

alleged that apart from being the first registrant, he was a buyer in
good faith and for value. He also argued that the sale executed by
Rizal Madrid to Gamiao and Dayag was not binding upon him, it
being unregistered. For his part, Calixto manifested that he had no
interest in the subject property as he ceased to be the owner
thereof, the same having been reacquired by defendant Marquez.

 CRB, as defendant, and co-defendant RBC insisted that they were

mortgagees in good faith and that they had the right to rely on the
titles of Marquez which were free from any lien or encumbrance.

 The RTC Branch 19 of Cauayan, Isabela handed down a decision in

favor of the defendants. The CA rendered its assailed Decision
reversing the RTC’s judgment
ISSUE:

IS THERE A DOUBLE SALE IN

THE INSTANT CASE?
 RULING:

 Like the lower court, the appellate court resolved the present
controversy by applying the rule on double sale provided in Article
1544 of the Civil Code. They, however, arrived at different
conclusions. The RTC made CRB and the other defendants win,
while the Court of Appeals decided the case in favor of the Heirs.

 Article 1544 is not applicable in the present case. It contemplates a

case of double or multiple sales by a single vendor. More
specifically, it covers a situation where a single vendor sold one
and the same immovable property to two or more buyers.
According to a noted civil law author, 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 of sale are made by two
different persons, one of them not being the owner of the property
sold. And even if the sale was made by the same person, if the
second sale was made when such person was no longer the owner
of the property, because it had been acquired by the first purchaser
in full dominion, the second purchaser cannot acquire any right.
 In the case at bar, the subject property was not transferred to several
purchasers by a single vendor. In the first deed of sale, the vendors
were Gamiao and Dayag whose right to the subject property
originated from their acquisition thereof from Rizal Madrid with the
conformity of all the other Madrid brothers in 1957, followed by their
declaration of the property in its entirety for taxation purposes in
their names. On the other hand, the vendors in the other or later deed
were the Madrid brothers but at that time they were no longer the
owners since they had long before disposed of the property in favor
of Gamiao and Dayag.

 In a situation where not all the requisites are present which would
warrant the application of Art. 1544, the principle of prior tempore,
potior jure or simply "he who is first in time is preferred in right,”
should apply. The only essential requisite of this rule is priority in
time; in other words, the only one who can invoke this is the first
vendee. Undisputedly, he is a purchaser in good faith because at the
time he bought the real property, there was still no sale to a second
vendee. In the instant case, the sale to the Heirs by Gamiao and
Dayag, who first bought it from Rizal Madrid, was anterior to the sale
by the Madrid brothers to Marquez. The Heirs also had possessed
the subject property first in time.
 Thus, applying the principle, the Heirs, without a scintilla of doubt,
have a superior right to the subject property.

 Moreover, it is an established principle that no one can give what

one does not have nemo dat quod non habet. Accordingly, one can
sell only what one owns or is authorized to sell, and the buyer can
acquire no more than what the seller can transfer legally. In this
case, since the Madrid brothers were no longer the owners of the
subject property at the time of the sale to Marquez, the latter did not
acquire any right to it.

 In any event, assuming arguendo that Article 1544 applies to the

present case, the claim of Marquez still cannot prevail over the right
of the Heirs since according to the evidence he was not a purchaser
and registrant in good faith.

 Prior registration of the subject property does not by itself confer

ownership or a better right over the property. Article 1544 requires
that before the second buyer can obtain priority over the first, he
must show that he acted in good faith throughout from the time of
acquisition until the title is transferred to him by registration or
failing registration, by delivery of possession.
 In the instant case, the actions of Marquez have not satisfied the
requirement of good faith from the time of the purchase of the
subject property to the time of registration. Found by the CA,
Marquez knew at the time of the sale that the subject property was
being claimed or "taken" by the Heirs. This was a detail which could
indicate a defect in the vendor’s title which he failed to inquire into.
Marquez also admitted that he did not take possession of the
property and at the time he testified he did not even know who was
in possession.

 One who purchases real property which is in actual possession of

others should, at least, make some inquiry concerning the rights of
those in possession. The actual possession by people other than
the vendor should, at least, put the purchaser upon inquiry. He can
scarcely, in the absence of such inquiry, be regarded as a bona fide
purchaser as against such possessions. The rule of caveat emptor
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.
 For failure to exercise the measure of precaution which may be
required of a prudent man in a like situation, he cannot be called a
purchaser in good faith.

 As this Court explained in the case of Spouses Mathay v. Court of

Appeals [356 Phil. 870 (1998)]:
 Although it is a recognized principle that a person dealing on a registered
land need not go beyond its certificate of title, it is also a firmly settled rule
that where there are circumstances which would put a party on guard and
prompt him to investigate or inspect the property being sold to him, such as
the presence of occupants/tenants thereon, it is, of course, expected from
the purchaser of a valued piece of land to inquire first into the status or
nature of possession of the occupants, i.e., whether or not the occupants
possess the land en concepto de dueño, in concept of owner. As is the
common practice in the real estate industry, an ocular inspection of the
premises involved is a safeguard a cautious and prudent purchaser usually
takes. Should he find out that the land he intends to buy is occupied by
anybody else other than the seller who, as in this case, is not in actual
possession, it would then be incumbent upon the purchaser to verify the
extent of the occupant’s possessory rights. The failure of a prospective
buyer to take such precautionary steps would mean negligence on his part
and would thereby preclude him from claiming or invoking the rights of a
"purchaser in good faith.
 This rule equally applies to mortgagees of real property. In the case
of Crisostomo v. Court of Appeals,[274 Phil. 1134 (1991)] the Court
held:
 It is a well-settled rule that a purchaser or mortgagee cannot close his
eyes to facts which should put a reasonable man upon his guard, and
then claim that he acted in good faith under the belief that there was no
defect in the title of the vendor or mortgagor. His mere refusal to believe
that such defect exists, or his willful closing of his eyes to the
possibility of the existence of a defect in the vendor’s or mortgagor’s
title, will not make him an innocent purchaser or mortgagee for value, if
it afterwards develops that the title was in fact defective, and it appears
that he had such notice of the defects as would have led to its discovery
had he acted with the measure of a prudent man in a like situation.

 Banks, their business being impressed with public interest, are

expected to exercise more care and prudence than private
individuals in their dealings, even those involving registered lands.
Hence, for merely relying on the certificates of title and for its failure
to ascertain the status of the mortgaged properties as is the
standard procedure in its operations, the SC agreed with the CA
that CRB is a mortgagee in bad faith.
 In this connection, Marquez’s obstention of title to the property and
the subsequent transfer thereof to CRB cannot help the latter’s
cause. In a situation where a party has actual knowledge of the
claimant’s actual, open and notorious possession of the disputed
property at the time of registration, as in this case, the actual notice
and knowledge are equivalent to registration, because to hold
otherwise would be to tolerate fraud and the Torrens system cannot
be used to shield fraud.

 While certificates of title are indefeasible, unassailable and binding

against the whole world, they merely confirm or record title already
existing and vested. They cannot be used to protect a usurper from
the true owner, nor can they be used for the perpetration of fraud;
neither do they permit one to enrich himself at the expense of
others.
CONDITIONS AND WARRANTIES
 Presence of Conditions and Warranties:

 (a) Conditions may be waived;

 (b) Conditions may be considered as

warranties.
 WARRANTIES
 Warranties may be express or implied. Implied
warranties are natural elements of a contract of
sale.
 Express Warranty
 It is 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. It includes all warranties derived from
the language of the contract, so long as the language is
express. Thus, the warranty may take the form of an
affirmation, a promise or a representation.
 Implied Warranties in a Contract of Sale: (Art.1547)

 (1) An implied warranty on the part of the seller that he has a right
to sell the thing at the time when the ownership is to pass, and
that the buyer shall from that time have and enjoy the legal
peaceful possession of the thing; and (Warranty Against
Eviction)

 (2) An implied warranty that the thing shall be free from any
hidden defects, or any charge or encumbrance not declared or
known to the buyer.((Warranty Against Hidden Defects)

 These warranties , however, do not mean that a sheriff, auctioneer,

mortgagee, pledge, or other person professing to sell by virtue of
authority in fact or in law, can be held liable for the sale of a thing in
which a third person has a legal or equitable interest.
What is a Warranty in Case of
Eviction / Against Eviction?
 Warranty in Case of Eviction

 Is an implied warranty in contracts of sale, by virtue of

which if the vendee is deprived of the whole or a part of
thing purchased by a final judgment based on a right
prior to the sale or an act imputable to the vendor, such
vendor shall answer for the eviction even though
nothing has been said in the contract on the subject.
The contracting parties, however, may increase,
diminish, or suppress this legal obligation of the vendor.

 The warranty in case of eviction is a natural element in

the contract of sale, hence, the vendor answers for
eviction even if the contract be silent on this point.
 Requisites of Warranty In case of Eviction;

 (a) Deprivation of the vendee of the whole or part of the

thing purchased;

 (b) The deprivation must be by virtue of a final

judgment;

 (c) The deprivation must be based on a right prior to

the sale or an act imputable to the vendor;

 (d) The vendor must be summoned in the suit for

eviction at the instance of the vendee.
 Effect of Stipulation Waiving Liability for
Eviction:

 1) If seller was in good faith – the exemption is valid,

but without prejudice to Art. 1554;

 2) If seller was in bad faith – the stipulation is VOID.

 Waiver by the Buyer:(Art. 1554)

 1) Without knowledge of risk of eviction (waiver

consciente);
 Effect: value at time of eviction should be returned.

 2) With knowledge of risk or eviction (waiver

intencionado)
 Effect: Nothing need be returned because this is
aleatory in nature and buyer assumes the
risk.
 Example.

 A has land, the taxes on which he has not paid. A sells it

to B. Later the land is sold at a public auction for non-
payment of real property taxes and B is evicted. A is
responsible, but only if B did not know at the time of the
sale that A had not paid the taxes thereon.

 In general, it is only the buyer in good faith who may sue

for the breach of warranty against eviction. If he knew of
possible dangers, chances are that he assumed the risk
of eviction.
 What seller must give in case of Eviction: (Art. 1555)

 1) Return of the value which the thing sold had at the time of the
eviction be it greater or less 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 them;

 3) The cost of the suit which caused the eviction and in a proper
case, those of the suit brought against the vendor for the
warranty;

 4) The expenses of the contract, if the vendee has paid them;

 5) The damages and interests and ornamental expenses, if the

sale was made in bad faith.
 PROBLEM:

 Seller was notified but did not appear. The

buyer won in the suit filed by a third
person. Can the buyer recover expenses:
 ANSWER:

 No because there was really no breach of

warranty.
 Why is rescission not a remedy in case of total
eviction?

 ANSWER:

 The remedy of rescission contemplates that one
demanding it is able to return whatever he has received
under the contract; and when this cannot be done,
rescission cannot be carried out.
 Rules in case of partial Eviction: (Art.1556)

 Remedies are:

 (a) Rescission;

 (b) Enforcement of Warranty;

 (c) Damages.
WARRANTY AGAINST HIDDEN DEFECTS OR
ENCUMBRANCES UPON THE THING SOLD
 Requisites to Recover Because of Hidden
defects:

 a) The defect must be hidden (not known or could not

have been known);

 b) The defect must exist at the time the sale was made;

 c) The defect must ordinarily have been excluded from

the contract;

 d) The defect must be important (renders thing UNFIT

or considerably decreased FITNESS);

 e) The action must be instituted within the statute of

limitations.
 In a sale of goods, there is an implied warranty or condition as to
the quality or fitness of the goods, as follows: (Art. 1562)

 (1) Where the buyer, expressly or by implication, makes known to

the seller the particular purpose for which the goods are
acquired, and it appears that the buyer relies on the seller's
skill or judgment (whether he be the grower or manufacturer
or not), there is an implied warranty that the goods shall be
reasonably fit for such purpose;

 (2) Where the goods are brought by description from a seller who
deals in goods of that description (whether he be the grower
or manufacturer or not), there is an implied warranty that the
goods shall be of merchantable quality.

 Merchantable Quality:
 Fit for the general purpose of a thing, and not necessarily the
particular purpose for which it has been acquired.
 IS THE KNOWLEDGE OF THE VENDOR WITH
RESPECT TO THE HIDDEN DEFECT(S)
MATERIAL OR ESSENTIAL IN THE
ENFORCEMENT OF THE WARRANTY?
ANSWER:

Art. 1566. The vendor is responsible to the vendee

for any hidden faults or defects in the thing sold, even
though he was not aware thereof.

This provision shall not apply if the contrary has

been stipulated and the vendor was not aware of the
hidden faults or defects in the thing sold.
 Why is the seller responsible for hidden defects even if
he is in good faith?

 ANSWER:
 Because he has to repair the damage done. The object
of the law is reparation not punishment.
 Remedies in case of Hidden Defects:

 (a) Withdrawing or rescission (accion redhibitoria) plus

damages;

 (b) Proportionate reduction (accion quanti minores o

estimatoria) – reduction in the price plus damages.
OBLIGATIONS OF THE VENDEE
 Principal obligations of the Buyer:

 (1) Accept delivery;

 (2) Pay the price.

 If the seller delivered but no time has been fixed for the payment of
the price, the seller may require payment to be made anytime after
delivery. The buyer here has the duty to pay the price immediately
upon demand.

 General Rule: No delivery by installments: Exception: if there is an
express provision.
 Generally, the buyer is entitled to examine the goods
prior to delivery.

 Exceptions:

 (a) When there is a stipulation to the contrary;

 (b) When the goods are delivered C.O.D. (Collect on

Delivery) – unless there is an agreement or a usage
of trade permitting such examination.
 When There is acceptance of Goods:

 (a) Express acceptance;

 (b) When buyer does an act which only an owner can

do;

 (c) Failure to return after reasonable lapse of time.

 PROBLEM:
 Buyer accepted the goods despite delay. Buyer also
promised later on to pay. Subsequently, buyer asked for
damages on account of delay.

 HELD:
 Buyer is estopped because of the acceptance without
reservation at the time of acceptance;
 Effect if Buyer Justifiably Refuses to Accept the
delivery:

 1) Buyer has no duty to return the goods to the seller;

 2) Mere notification to seller of refusal will suffice;

 3) But buyer may make himself a voluntary depository

– in which case he must safely take care of them in
the meantime.
 Effect if Buyer Unjustifiably Refuses to accept
the Delivery:

 GENERAL RULE: Buyer becomes the owner:

 EXCEPTION:
 When there is a contrary stipulation or when the seller
reserves the ownership as a sort of security for the
payment of the price.
 When Buyer has to Pay for Interest on the Price:
(Art.1589)

 a) Should it have been stipulated; (No demand is

needed)

 b) Should the thing sold and delivered produce fruits

or income;

 c) Should he be in default, from the time of judicial or

extrajudicial demand for the payment of the price.
 When may the Vendee suspend payment of the price:
(Art.1590)

 1) Should he be disturbed in the possession or ownership of the

thing sold; or

 2) Should he have reasonable grounds to fear such disturbance

by a vindicatory action (action to recover) or by a foreclosure
of mortgage.

 The right however does not exist in the following cases:

 a) Should there be a stipulation to that effect;

 b) Should the vendor give a security for the return of the price;

 c) Should the vendor have caused the disturbance or danger to

cease; or

 d) Should the disturbance consist only of a mere act of trespass.

 PROBLEM:

 S sold and delivered to B a parcel of land for P10,000

payable within 30 days from the date of the contract.
Soon after the sale, X claims ownership over the land by
virtue of a prescriptive title. May B suspend the payment
of the price? Why?

 If, in order to avoid trouble, B pays off X to settle the

latter’s claim to the land, may B recover the amount paid
as against S upon S’s warranty in case of eviction?
 ANSWER:

 Yes, B may suspend the payment of the price because

of a reasonable fear that an action reivindicatoria will be
brought against him. It is not necessary that the
vindicatory action has already been brought: reasonable
fear thereof is sufficient.

 Should B and X come to an amicable settlement, B

cannot recover from S because there really was no
eviction. B was indeed not deprived of the thing
purchased.
 Art. 1592. In the sale of immovable property, even
though it may have been stipulated that upon failure to
pay the price at the time agreed upon the rescission of
the contract shall of right take place, the vendee may
pay, even after the expiration of the period, as long as
no demand for rescission of the contract has been made
upon him either judicially or by a notarial act. After the
demand, the court may not grant him a new term.

 This is only applicable to a sale of real property, not to a contract to

sell real property or to promise to sell real property, where title
remains with the vendor until fulfillment of a positive suspensive
condition, such as the full payment of the price.
 PROBLEM:

 Last February 1, 2016, 1, A sold to B a piece of land,

payment and delivery to be made on February 15, 2016.
It was stipulated that should payment not be made on
February 15, 2016, the contract would automatically be
rescinded. On February 20, 2016, can B still pay?
 ANSWER:

 Yes, as long as there has been no judicial or notarial

demand for the rescission of the contract. But if, for
example on February 18, 2016, A made a notarial
demand for such rescission then B will not allowed to
pay anymore, and the court may not grant him a new
term.
 Art. 1593. With respect to movable property, the
rescission of the sale shall of right take place in the
interest of the vendor, if the vendee, upon the expiration
of the period fixed for the delivery of the thing, should
not have appeared to receive it, or having appeared he
should not have tendered the price at the time, unless a
longer period has been stipulated for its payment.

 Example:

 The seller and the buyer agreed that payment and delivery would
be made on July 15, at the buyer’s house. If the buyer does not
appear on said day, or having appeared, he should not have
tendered the price at the same time, then the sale can be
considered as automatically rescinded.
 ACTIONS FOR BREACH OF
CONTRACT OF SALE OF GOODS
 Actions available to the seller of the goods in
case the buyer wrongfully refuses to accept the
goods sold:

 (a) Maintain an action for damages because of the non-

acceptance; (Damages are equivalent to
estimated loss directly and naturally resulting in the
ordinary course of events from the buyer’s breach
of contract.)

 (b) Hold the goods as bailee for the buyer and bring an
action for the price;

 (c) Ask for the resolution (rescission) of the contract

for failure of the buyer to fulfill his obligations.
 Where the goods have not been delivered to the buyer,
and the buyer has repudiated the contract of sale, or has
manifested his inability to perform his obligations
thereunder, or has committed a breach thereof, the
seller may totally rescind the contract of sale by giving
notice of his election so to do to the buyer. (Art. 1597)

 NOTE: Automatic rescission requires thereof notice to

the buyer.
 Remedies of the Buyer in case of breach of
warranty by the seller; (Art. 1599)

 (a) Accept or keep the goods and set up against the seller, the
breach of warranty by way of recoupment in diminution or
extinction of the price;

 (b) Accept or keep the goods and maintain an action against the
seller for damages for the breach of warranty;

 (c) Refuse to accept the goods, and maintain an action against

the seller for damages for the breach of warranty;

 (d) Rescind the contract of sale and refuse to receive the goods
or if the goods have already been received, return them or
offer to return them to the seller and recover the price or any
part thereof which has been paid.
 If the buyer has selected any of the remedies and has
been granted the same, no other remedy can be given.
Except for 2nd par. of Art, 1191.
“ The injured party may choose between fulfillment
and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission
even after he has chosen fulfillment if the latter should
become impossible.”
 FirstUnited Constructors Corporation vs. Bayanihan
Automotive Corp. (G.R. No. 164985, January 15, 2014)

 It was improper for petitioners to set up their claim for repair

expenses and other spare parts of the dump truck against their
remaining balance on the price of the prime mover and the transit
mixer they owed to respondent. Recoupment must arise out of the
contract or transaction upon which the plaintiff’s claim is founded.
To be entitled to recoupment, therefore, the claim must arise from
the same transaction, i.e., the purchase of the prime mover and the
transit mixer and not to a previous contract involving the purchase
of the dump truck. That there was a series of purchases made by
petitioners could not be considered as a single transaction, for the
records show that the earlier purchase of the six dump trucks was a
separate and distinct transaction from the subsequent purchase of
the Hino Prime Mover and the Isuzu Transit Mixer. Consequently, the
breakdown of one of the dump trucks did not grant to petitioners the
right to stop and withhold payment of their remaining balance on the
last two purchases.
EXTINGUISHMENT OF SALE
 Sales are extinguished:

 (a) By same cause as in other obligations (ex.

Novation, dation in payment etc.)

 (b) By conventional or legal redemption.

 Conventional Redemption

 Takes place when the vendor reserves the right to repurchase the
thing sold with the obligation to reimburse to the vendee the price
of the sale, the expenses of the contract, other legitimate payments
made by reason of the sale, as well as necessary and useful
expenses made on the thing sold.

 Also called right to redeem. It occurs in sales with a pacto de retro.

There can be no conventional redemption unless it has been
stipulated in the contract.
 How exercised?

 The Seller must:

 (1) Give his express intention to repurchase;

 (2) Payment or valid tender of the redemption price

consisting of the following;
 2.1. the price of the sale;
 2.2. the expenses of the contract, and any other
legitimate payments made by reason of the sale;
and
 2.3. the necessary and useful expenses made on the
thing sold.
 Conventional redemption presumed to be an equitable
mortgage (Art. 1602)

 (a) When the price of a sale with a right to repurchase is

unusually inadequate;

 (b) When the vendor remains in possession as lessee or

otherwise;

 (c) When upon or after the expiration of the right to repurchase

another instrument extending the period of redemption or
granting a new period is executed;

 (d) When the purchaser retains for himself a part of the purchase
price;

 (e) When the vendor binds himself to pay the taxes on the thing
sold;
 (f) In any other case where it may be fairly inferred that the real
intention of the parties is that the transaction shall secure the
payment of a debt or the performance of any other obligation;
and

 (g) When there is doubt as to whether the contract is a contract of

sale with right of repurchase or an equitable mortgage.

 In any of the foregoing case, any money, fruits, or other benefits to

be received by the vendee as rent or otherwise shall be considered
as interest which shall be subject to the usury laws.
 Equitable Mortgage
 One which although lacking in some formality, form or
words, or other requisites demanded by a statute
nevertheless reveals the intention of the parties to
charge a real property as security for a debt, and
contains nothing impossible or contrary to law.

 In case of doubt, a contract purporting to be a sale with

right to repurchase shall be construed as an equitable
mortgage. (Art. 1603).
 Rules on the period of redemption of property
sold with right of repurchase: (Art. 1606)

 (a) No time agreed upon – 4 years from the date of the contract;

 (b) Time agreed upon – period cannot exceed 10 years. Period in

excess of 10 years shall be considered void. However, the
nullity of the stipulation to repurchase on account of the
period fixed for its existence exceeding that permitted by the
law, certainly does not affect or vitiate the validity of the sale.

 However, the vendor may still exercise the right to repurchase

within 30 days from the time the final judgment was rendered in a
civil action on the basis that the contract was a true sale with right
to repurchase.
 If the contract between the parties is a deed of sale with
right of repurchase, once the seller a retro fails to
redeem within the stipulated period, ownership thereof
becomes vested or consolidated by operation of law on
the buyer. There is no need of hearing . The judicial
hearing contemplated by Art. 1607 of the Civil Code
refers not to the consolidation itself but to the
registration of consolidation.
 If several persons, jointly and in the same
contract, should sell an undivided immovable
with a right of repurchase, none of them may
exercise this right for more than his respective
share.
 The same rule shall apply if the person who sold
an immovable alone has left several heirs, in
which case each of the latter may only redeem
the part which he may have acquired.(Art. 1612)
 In the case of the preceding article, the vendee
may demand of all the vendors or co-heirs that
they come to an agreement upon the
repurchase of the whole thing sold; and should
they fail to do so, the vendee cannot be
compelled to consent to a partial redemption.
(Art. 1613)
 Each one of the co-owners of an undivided
immovable who may have sold his share
separately, may independently exercise the
right of repurchase as regards his own share,
and the vendee cannot compel him to redeem
the whole property. (Art. 1614)
Example:

 A,B, and C are co-owners of an undivided house. A sold

with right to repurchase his share to W. Later W
acquires B’s and C’s rights. Now A wants to redeem his
share. W refuses and asks A to redeem the whole
property. Is A allowed to redeem only his share?

ANSWER:
 YES, since in this case, the selling had been made
separately.
 Obligations of the vendor a retro when he
exercises his right of repurchase: (Art. 1616)

 (a) To return to the vendee the price of the sale;

 (b) To pay expenses of the contract and other

legitimate payments made by reason of the sale;
and

 (c) To pay all necessary and useful expenses made on

the thing sold.

 Note that the article uses the term “price”, hence this
refers to the price paid to the seller by the buyer, NOT
the VALUE of the thing at the time of repurchase.
 The expenses for the execution and registration of the sale shall be
borne by the vendor, unless there is a stipulation to the contrary.
This is the general rule. If however, said expenses had been made
by the buyer a retro, said expenses must be reimbursed.

 Necessary and Useful Expenses – these must be

reimbursed for the buyer a retro is considered in the same category
as a possessor in good faith. The vendor a retro is given no option
to require the vendee a retro to remove the useful improvements on
the land subject of the sale a retro. The vendor must pay the useful
improvements introduced by the vendee a retro, otherwise the latter
may RETAIN possession of the land until reimbursement is made.

 No reimbursement on land taxes. Not considered as expenses on

the property.
 LEGAL REDEMPTION (Art. 1619)
 Definition: is the right to be subrogated upon the same
terms and conditions stipulated in the contract, in the
place of one who acquires a thing by purchase or
dation in payment, or by any other transaction whereby
ownership is transmitted by onerous title.

 Legal redemption does not cover donation or

succession.
 Different instances of Legal Redemption:

 (1) Redemption by the other co-owners, or by any or some of

them, should a co-owner sell his undivided share to a third
person. If two or more co-owners desire to exercise the right ,
they may only do so in proportion to the share they may
respectively have in the thing owned in common; (Art. 1620)

 Art. 1620 to apply the share must have been sold to a 3rd person.
Hence, if the purchaser is also a co-owner, there is no legal
redemption;

 If a sale is made after partition, the right of legal redemption by a

co-owner cannot be invoked, there being no more co-ownership.

 (2) Redemption by the other co-heir, or by any or some of them

should a co-heir sell his hereditary right to a stranger; (Art.
1088)
 (3) Redemption by an owner of adjoining land should the owner
of a piece of rural land, the area of which does not exceed one
hectare , alienate it to a 3rd person. If two or more adjoining
owners desire to exercise the right at the same time , the
owner of smaller area shall be preferred; and should both
lands have the same area, the one who first requested the
redemption. (Art. 1621);

 For the right however to be exercised against the stranger, the

stranger must already have RURAL land (not an adjacent rural one).
This is because the stranger who has no rural land at all, the right to
redeem cannot be exercised against him. Evidently, the law grants
everyone an opportunity to have rural land.

 The legal right of redemption of rural land refers to land that will be
used for agricultural, not residential purposes.
 (4) Redemption by an owner of adjoining land should the owner
of a piece of urban land , which is so small and so situated
that a major portion thereof cannot be used for any practical
purpose within a reasonable time and which said owner had
bought merely for speculation, resell it to a 3rd person. If the
resale has not yet been perfected, an owner of adjoining land
shall have a right of pre-emption; in other words, his right to
buy the property is preferred to that of 3rd persons. If two or
more adjoining owners desire to exercise the right of pre-
emption or redemption, as the case may be , the owner whose
intended use of the land appears best justified shall be
preferred; (Art. 1622)

 (5) Redemption by a debtor should the credit or other incorporeal

right in litigation be sold by the creditor to a 3rd person. (Art.
1634);
 (6) If a realty owner is delinquent in his payment of taxes on the
real property, and it is sold, he has the right to redeem said
property.

 The one year period of redemption commences to run not from the
date of the auction or tax sale but from the day the sale is registered
in the office of the Registry of Deeds, so that the delinquent
registered owners or third parties interested in the redemption may
know that the delinquent property had been sold.
 Art. 1623. The right of legal pre-emption or redemption shall not be
exercised except within 30 days from the notice in writing by the
prospective vendor, or by the vendor, 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 vendor that he has given written
notice thereof to all possible redemptioners.
 The right of redemption of co-owners excludes that of the adjoining
owners.

 When the right of redemption is exercised the offer to redeem must

be in legal tender. Thus, if a check is offered, it is as if no tender
had been made.
 Assignment of Credits and Rights

 It is the process of transferring gratuitously or

onerously the right of the assignor to the
assignee, who would then be allowed to
proceed against the debtor.
 Effectivity of Assignment against 3rd persons:

 (a) If personal property is involved – a public instrument is

needed to make the assignment effective against 3rd persons.

 (b) If real property is involved – registration in the Registry of

Property would be needed.

 A mortgage that is assigned is valid between the parties even if the

assignment is not registered, because registration is only essential
to prejudice 3rd parties;


 A gratuitous assignment is a DONATION

and must therefore comply with the
formalities of a donation.

 Assignment is effective as to the debtor

only from the time he has knowledge of it.
 Warranties in the Assignment of Credits:

 (a) Objective – the credit itself (its existence and legality)

 (b) Subjective – the person of the debtor (his solvency)

 Example.
 A owes B. B assigns the credit to C. B is in good faith.
 A is insolvent. Is B liable?

 ANSWER:
 No. Unless it was so expressly stipulated;
 Or unless the insolvency was prior to the sale and of common
knowledge
 Duration of the Warranty for the Debtor’s
Solvency: (Art. 1629)

 (a) Time agreed upon;

 (b) If no time was agreed upon;

 One year from ASSIGNMENT – if the debt was already
due;
 One year from MATURITY if debt was not yet due.
BARTER OR EXCHANGE
 BARTER OR EXCHANGE

 Definition: A contract by virtue of which one of parties binds

himself to give one thing in consideration of the other’s promise to
give another thing.

 If there is no acceptance of the offer there is no perfected contract

of barter.

 Effect if giver was not the Owner of the thing delivered: The
aggrieved person is freed from his own duty to deliver. Moreover,
he can claim damages.
 Effect of Eviction in Case of Barter:

 (a) The loser may choose recovery of what he has

given; or

 (b) Claim damages.

 However, he can only make use of the right to recover

the thing which he has delivered while the same remains
in the possession of the other party, and without
prejudice to the rights acquired in good faith in the
meantime by a third person.
LEASE
 LEASE

 Is defined as a consensual, bilateral, onerous and

commutative contract by virtue of which one person
binds himself to grant temporarily the use of a thing or
to render some service to another who undertakes to
pay some rent, compensation or price.
 Kinds of Lease:

 (a) Lease of things (whether real or personal

property);

 (b) Lease of services (this includes household

service, contract of labor and common carriers);

 (c) Lease of work (This properly should be termed as

a contract for a piece of work, instead of lease of
work)
 (a) Lease of things

 - is a consensual, bilateral, onerous and commutative

contract by which a person temporarily grants the use
or enjoyment of certain property to another who
undertakes to pay rent or a price certain therefor, said
contract to last for a period which is either definite or
indefinite, but in no case should exceed 99 years.
 Characteristics:

 1. It is consensual (there must be meeting of the minds);

 2. It is a principal contract (not dependent on any other contract);

 3. It is nominate (for it is known by a specific name);

 4. Purpose is to allow enjoyment or use of a thing (the person to

enjoy is the lessee, the person allowing the enjoyment by another is
the lessor);

 5. The subject matter must be within the commerce of man;

 6. The purpose to which the thing will be devoted should not be

immoral;
 7. The contract is onerous (there must be rent or a price certain)
 Note:
 7.1. The rent must not be fictitious or nominal, otherwise,
there is a possibility that the contract is one, of
commodatum (which is essentially gratuitous);
 7.2. The rent must be capable of determination (since the
law says “price certain”);
 7.3. The rent may be in the form of products, fruits,
construction – the important thing is that what is given
should have value.

 8. The period is temporary (not perpetual, hence the longest

period is 99 years)

 9. The period is either definite or indefinite;

 10. The lessor need not be the owner. (since ownership is not
being transferred);
 (b) Lease of services & (c) Lease of work

 Definition of lease of work & services: one of the parties

binds himself to execute a piece of work or to render to
the other some service for a price certain, but the
relation of principal and agent does not exist between
them.
 Distinguished from Contract for a piece of work:
 The object of lease of service is the work performed by
the lessor while in contract of for a piece of work, the
object is the end result.

 Distinguished from Agency:

 An agent represents the principal while in lease of
service, the lessor of the service is not a representative
of the lessee. The purpose of the agency is
representation while the purpose in lease of service is
for employment.
 RENT
 Is the compensation either in money, provisions, chattels, or labor,
received by the lessor from the lessee. In rural leases, the rent is
usually in the form of a percentage of the fruits. This is the contract
of aparceria or land tenancy shares.

 General Rule: Consumable goods cannot be the subject matter of a

contract of lease of things:
 Exceptions:

 (a) if they are merely to be exhibited;

 (b) if they are accessory to an industrial establishment.

 Pagurayan vs. Reyes [G.R. No. 154577, July 23, 2008 (559 SCRA 379)]
 A contract of lease is a consensual, bilateral, onerous and commutative
contract by which the owner temporarily grants the use of his property to
another who undertakes to pay the rent. Being a consensual contract, it is
perfected at the moment there is a meeting of the minds on the thing and the
cause and consideration which are to constitute the contract. Without the
agreement of both parties, no contract of lease can be said to have been
created or established. Nobody can force an owner to lease out his property
if he is not willing.

 Respondent Reyes maintains that he never entered into a contract of lease

with petitioners. The only proof presented by petitioners of the alleged lease
was Reyes’ acceptance of rentals from them but respondent Reyes insists
that he was entitled to receive those rentals as the owner of the properties.

 We agree with respondent Reyes. Under Section 34, Rule 39 of the old Rules
of Court, respondent Reyes, as the purchaser in the execution sale, was
allowed to receive the rentals if the purchased properties were occupied by
tenants. Moreover, as the owner of the properties after the expiration of the
redemption period, he was entitled to their fruits.

 Petitioners never held the properties adversely to (but in fact derived their
rights from) the judgment debtors, the Sorianos. Since they were the lessees
of the judgment debtors against whom the writs of possession and
demolition could unquestionably be enforced, the said writs could (and can)
be enforced against them as well.
LEASE OF RURAL AND URBAN
LANDS
 Rural Lands:
 Regardless of site, if the principal purpose is to obtain
products from the soil, the lease is of rural lands. Hence
as used here rural lands are those where the lessee
principally is interested in soil products;

 Urban Lands:
 Lands leased principally for purposes of residence are
called urban lands.
Example.

 If a professor rents as a summer

resort a small house in a farm, is this
a rural or urban lease?
Answer:

 Clearly, this would be an urban lease even

if the house is situated on the farm.
 Lease may be made orally, but if the lease of
real property is for more than 1 year, it must be
in writing under the Statute of Frauds.
 Lopez vs. Cosme-Umale [G.R. No. 171891, February 24, 2009(580
SCRA 190)]

 It is well settled that where a contract of lease is verbal and on a

monthly basis, the lease is one with a definite period which expires
after the last day of any given thirty-day period. In the recent case of
Leo Wee v. De Castro where the lease contract between the parties
did not stipulate a fixed period, we ruled:

 The rentals being paid monthly, the period of such lease is deemed
terminated at the end of each month. Thus, respondents have every
right to demand the ejectment of petitioners at the end of each
month, the contract having expired by operation of law. Without a
lease contract, petitioner has no right of possession to the subject
property and must vacate the same. Respondents, thus, should be
allowed to resort to an action for ejectment before the MTC to
recover possession of the subject property from petitioner.

 Corollarily, petitioner’s ejectment, in this case, is only the reasonable

consequence of his unrelenting refusal to comply with the
respondents’ demand for the payment of rental increase agreed upon
by both parties. Verily, the lessor’s right to rescind the contract of
lease for non-payment of the demanded increased rental was
recognized by this Court in Chua v. Victorio:
 The right of rescission is statutorily recognized in reciprocal
obligations, such as contracts of lease. x x x under Article 1659 of
the Civil Code, the aggrieved party may, at his option, ask for (1) the
rescission of the contract; (2) rescission and indemnification for
damages; or (3) only indemnification for damages, allowing the
contract to remain in force. Payment of the rent is one of a lessee’s
statutory obligations, and, upon non-payment by petitioners of the
increased rental in September 1994, the lessor acquired the right to
avail of any of the three remedies outlined above.
 Obligations of the Lessor: (Art.1654)

 1) To deliver the thing which is the object of the

contract in such a condition as to render it fit for the
use intended;

 2) To make on the same during the lease all the

necessary repairs in order to keep it suitable for the
use to which it has been devoted, unless there is a
stipulation to the contrary;

 3) To maintain the lessee in the peaceful and

adequate enjoyment of the lease for the entire
duration of the contract.
 4) To be responsible for warranty against eviction. The
lessor is not answerable for mere acts of trespass.
The lessee has a direct action against the
trespasser;

 5) To be responsible for warranty against hidden

defects;

 6) Not to alter the form of the thing in such a way as to

impair the use to which the thing is devoted under
the terms of the lease
 The duty to maintain the lessee in the peaceful and adequate
enjoyment of the lease for the duration of the contract is merely a
warranty that the lessee shall not be disturbed in his legal, and not
physical, possession. In the early case of Goldstein v. Roces, [34
Phil. 562 (1916)]. the Court, citing the commentaries of Manresa,
pointed out that the obligation to maintain the lessee in the peaceful
and adequate enjoyment of the leased property seeks to protect the
lessee not only from acts of third persons but also from the acts of
the lessor, thus:
The lessor must see that the enjoyment is not interrupted or
disturbed, either by others' acts [save in the case provided for
in the article 1560 (now Article 1664)], or by his own. By his
own acts, because, being the person principally obligated by
the contract, he would openly violate it if, in going back on his
agreement, he should attempt to render ineffective in practice
the right in the thing he had granted to the lessee; and by
others' acts, because he must guarantee the right he created,
for he is obliged to give warranty in the manner we have set
forth in our commentary on article 1553, and, in this sense, it
is incumbent upon him to protect the lessee in the latter's
peaceful enjoyment.
 When the act of trespass is done by third persons, it must be
distinguished whether it is trespass in fact or in law because the
lessor is not liable for a trespass in fact or a mere act of trespass by
a third person. In the Goldstein case, trespass in fact was
distinguished from legal trespass, thus: "if the act of trespass is not
accompanied or preceded by anything which reveals a juridical
intention on the part of the trespasser, in such wise that the lessee
can only distinguish the material fact, stripped of all legal form or
reasons, we understand it to be trespass in fact only (de mero
hecho)." Further, the obligation under Article 1654(3) arises only
when acts, termed as legal trespass (perturbacion de derecho),
disturb, dispute, object to, or place difficulties in the way of the
lessee's peaceful enjoyment of the premises that in some manner
cast doubt upon the right of the lessor by virtue of which the lessor
himself executed the lease. (BONIFACIO NAKPIL versus
MANILA TOWERS DEVELOPMENT CORPORATION, G.R. No.
160867, September 20, 2006)
 Maunlad Homes Inc. vs. Union Bank of the Philippines [G.R.
No. 179898, December 23, 2008 (575 SCRA 336)]
 It is wrong for the CA to rule that petitioners are not entitled to collect
rental payments because they are no longer the owner of the
commercial complex. It is not essential under our law on lease that
the lessor be the owner of the leased property. A mere lessee may be
a lessor under a sub-lease contract. Even a mere possessor may
enter into a contract of lease as lessor.

 Records disclose that petitioners never ceased to be the possessor

of the commercial complex, although there was a contract to sell the
said property. They continued to possess the disputed property
before, during, and after the execution of the contract to sell. In fact,
petitioners were the ones who entered into the lease contracts with
the tenants of the commercial complex.

 Records further show that respondents entered into a contract to sell

with petitioners before consolidating ownership over the disputed
property after foreclosure. The contract to sell was essentially a buy-
back agreement on installment. By virtue of the contract to sell,
petitioners continued to collect rental payments from the tenants of
the commercial complex. Respondents did not dispute this right.
 It was an error for the appellate court to make a definitive conclusion
that petitioner has no right to collect rental payments from the
tenants of the commercial complex. Respondents are estopped from
asserting otherwise because they allowed petitioners to collect said
rental payments after the execution of the contract to sell. Under the
terms of the contract to sell, We find no prohibition against the
collection of rental payments by petitioners. It may fairly be
assumed, unless contradicted at trial, that petitioners have the right
to collect and receive rental payments from the tenants of the
commercial complex.
 Obligations of the Lessee: (Art. 1657)

 1) To pay the price of the lease according to the terms

stipulated;

 2) To use the thing leased as a diligent father of a

family, devoting to the use stipulated; and in the
absence of stipulation, to that which may be
inferred from the nature of the thing leased,
according to the custom of the place;
 Lessee is liable for deterioration caused by himself;
members of his household and guests & visitors.

 3) To pay the expenses for the deed of lease.

 4) To notify the owner of the need for urgent repairs;

 5) To tolerate the works of the lessor for urgent repairs;

 6) To notify the lessor of every usurpation or untoward

act of a third person;

 7) To return the thing leased at the termination of the

lease just he received it except for ordinary wear and
tear;

 8) To be liable for loss or deterioration due to his own

fault or negligence;

 9) To be liable for any deterioration caused by the

members of his househld and by guests and
visitors.
 If the lessor refuses to accept the rentals, the
remedy of the lessee is to make a proper tender
of payment and consignation in order to
extinguish the debt. Failure to comply with the
requirements is a ground for ejectment.
Delayed consignation or deposit will not
extinguish the obligation of the lessee. (Alfonso
vs. CA, G.R. No. 76824, December 20, 1988)
 Remedies in case of non-compliance of
obligations:

 a) The aggrieved party may ask for rescission only;

 b) The aggrieved party may ask for rescission with

indemnification for damages; or

 c) Indemnification and allowing the contract to remain in force.

 A lease does not have to be recorded in the Registry of Property to

be binding between the parties. The registration is useful only for
the purposes of notifying the strangers to the transaction.
 Right of Lessee to Sublease: A lessee may generally sublease
the property in the absence of express stipulation;

 Liability of Sublessee towards Lessor: Although the

sublessee is not a party to the contract of lease, the sublessee is
still directly liable to the lessor for acts appertaining to the USE and
PRESERVATION of the property.

 The sublessee is subsidiarily liable to the lessor for any rent due
from the lessee. However, the sublessee shall not be responsible
beyond the amount of rent due him, in accordance with the terms of
the sublease, at the time of the extrajudicial demand by the lessor.
Payments of rent in advance by the sublessee shall be deemed not
have been made, so far as the lessor’s claim is concerned, unless
said payments were effected in virtue of the custom of the place.
(Art. 1652)
 Example.
 If the sublesee misuses the property, the lessor may directly bring
an action against him (ACCION DIRECTA) This is true
nothwithstanding the fact that the sublessee is not a party to the
lease contract.

 Example.
 A sublessee did not use the thing leased properly, so the lessor
brought an action against him directly. Defense was that the
sublessor should have joined as a defendant.

 Answer.
 There was no need of the joinder because under the law the
sublessee is directly responsible.
 If the thing leased is totally destroyed by a fortuitous
event, the lease is extinguished. If the destruction is
partial, the lessee may choose between a proportional
reduction of the rent and a rescission of the lease. (Art.
1655)
 A sublessee can invoke no right superior to that of his
sublessor. The sublessee’s right, if any, is to demand
reparation for damages to his sublessor, should the
latter be at fault. The sublessee can only assert such
right of possession as could have granted to him by the
sublessor, his right of possession entirely upon the
latter. Considering that the lessor and the real owner of
the property manifested objections to the improvements
introduced by the petitioners and the subsequent
termination of the lease contract between the lessor and
the lessee/sub-lessor, the sublessees are not in a
position to assert any right to remain in the land. (Shin
vs. CA., G.R. No. 113627, February 6, 2001)
 PROBLEM.

 In a lease contract for 5 years, fire caused by lightning

completely destroyed the house leased at the end of 3
years. Is the lessee responsible for the remaining 2
years rent? Can he demand that the lessor reconstruct
the house?
 ANSWER.

 No, because the lease is extinguished. He cannot

demand that the house be reconstructed.
 PROBLEM:

 A was leasing a house owned by B. The house was

partially destroyed by a fortuitous event. The lessor B
wanted the rentals reduced, but A insisted on rescinding
the lease. Who should prevail?
 ANSWER.

 A, the lessee, should prevail, because it is he who is

given the option. However, he prevails only if the partial
destruction affects substantially or significantly his stay
on the premises.
 When lessee May suspend the payment of rent:

 (a) If lessor fails to make the necessary repairs – right

begins from the time the lessee made a demand and
the same remain unheeded;

 (b) If lessor fails to maintain the lessee in peaceful and

adequate enjoyment of the property leased. – In
case of eviction, from the time the final judgment
for eviction becomes effective.
 Art. 1669. If the lease was made for a determinate time, it
ceases upon the day fixed. Without need of a demand.
 Demand is needed only for non-payment of rent.
 Tacit Renewal of a Contract of Lease (Tacita
Reconduccion) or Implied Renewal of Lease – refers to
the new contract of lease which is impliedly created or
established if at the end of the old contract the lessee
should continue enjoying the thing leased for 15 days
with the acquiescence of the lessor, provided that a
notice to the contrary had not been previously given by
either party. That there should have been no express
contract entered into by lessor and lessee after the old
contract had ended.
 Grounds for which the lessor may judicially eject
the lessee:

 (a) When the period agreed upon, or that which is fixed for the
duration of the lease has expired;

 (b) Lack of payment of the rent stipulated;

 (c) Violation of any of the conditions agreed upon in the contract;

 (d) When the lessee devotes the thing leased to any use or
service not stipulated which causes deterioration thereof ; or if
he does not observe the requirement of a diligent father of a
family as regards the use of the thing leased.
 LL AND COMPANY DEVELOPMENT AND AGRO-INDUSTRIAL
CORPORATION HUANG CHAO CHUN AND YANG TUNG FA (G.R. No.
142378 , March 7, 2002)
 FACTS:

 The case originated from an unlawful detainer case filed by

petitioner. Respondents Huang Chao Chun and Yang Tung Fa
allegedly violated their amended lease contract over a 1,112 square
meter lot it owns, designated as Lot No. 1-A-1, when they did not pay
the monthly rentals thereon in the total amount of P4,322,900.00. It
also alleged that the amended lease contract already expired on
September 16, 1996, but respondents refused to surrender
possession thereof plus the improvements made thereon, and pay
the rental arrearages despite repeated demands. The MTC ruled that
the contract entered into by the parties may be extended by the
lessees for reasons of justice and equity, citing as its legal bases the
case of 'Legarda Koh v. Ongsiaco' (36 Phil. [185]) and 'Cruz v.
Alberto' (39 Phil. 991). It also ruled that the corporation's failure to
pay the monthly rentals as they fell due was justified by the fact that
petitioner 'refused to honor the basis of the rental increase as stated
in their Lease Agreement."
 The RTC affirmed the Decision of the MeTC dismissing the unlawful
detainer case. The RTC likewise agreed that the Contract of Lease
entered into by the parties could be extended unilaterally by the
lessees for another five years or until September 16, 2001, on the
basis of justice and equity.

 The CA affirmed in toto the RTC's dismissal of the unlawful detainer

case and extension of the lease period for another five years
 ISSUES:

 Whether the court could still extend the term of

the lease, after its expiration. Is expiration of the
lease a proper ground in a case of unlawful
detainer?

 Whether non-payment of rentals is a ground to

eject, in an unlawful detainer. Is refusal of the
lessor to accept or collect rentals a valid reason
for non-payment of rentals?
 RULINGS:

 ISSUE NO. 1:

 The Contract of Lease provided for a fixed period of five (5) years --
"specifically" from September 16, 1991 to September 15, 1996.
Because the lease period was for a determinate time, it ceased, by
express provision of Article 1669 of the Civil Code, "on the day
fixed, without need of a demand.” The 5-year period expired on
September 15, 1996, whereas the Complaint for ejectment was filed
on October 6, 1996. Because there was no longer any lease that
could be extended, the MeTC, in effect, made a new contract for the
parties, a power it did not have. Early on, in Bacolod-Murcia Milling
v. Banco Nacional Filipino (74 Phil. 675, July 17 1944) the SC said
that a court could not supply material stipulations to a contract, as
follows:
 "It is not the province of the court to alter a contract by construction or
to make a new contract for the parties; its duty is confined to the
interpretation of the one which they have made for themselves, without
regard to its wisdom or folly, as the court cannot supply material
stipulations or read into contract words which it does not contain."
 Furthermore, the extension of a lease contract must be made before
the term of the agreement expires, not after. Upon the lapse of the
stipulated period, courts cannot belatedly extend or make a new
lease for the parties, even on the basis of equity. Because the Lease
Contract ended on September 15, 1996, without the parties reaching
any agreement for renewal, respondents can be ejected from the
premises.

 Respondents and the lower courts argue that the Contract of Lease
provided for an automatic renewal of the lease period. The SC
however, disagrees citing Koh v. Ongsiaco and Cruz v. Alberto (39
Phil 991, August 7, 1919) the MeTC -- upheld by the RTC and the CA
-- ruled that the stipulation in the Contract of Lease providing an
option to renew should be construed in favor of and for the benefit
of the lessee. This ruling has however, been expressly reversed in
Fernandez v. CA, (166 SCRA 577, October 18, 1988) from which the
SC quoted:
 "It is also important to bear in mind that in a reciprocal contract like
a lease, the period of the lease must be deemed to have been
agreed upon for the benefit of both parties, absent language
showing that the term was deliberately set for the benefit of the
lessee or lessor alone. We are not aware of any presumption in law
that the term of a lease is designed for the benefit of the lessee
alone. Koh and Cruz in effect rested upon such a presumption. But
that presumption cannot reasonably be indulged in casually in an
era of rapid economic change, marked by, among other things,
volatile costs of living and fluctuations in the value of the domestic
currency. The longer the period the more clearly unreasonable such
a presumption would be. In an age like that we live in, very specific
language is necessary to show an intent to grant a unilateral faculty
to extend or renew a contract of lease to the lessee alone, or to the
lessor alone for that matter. We hold that the above-quoted rulings
in Koh v. Ongsiaco and Cruz v. Alberto should be and are
overruled."
 Thus, the period of the lease contract is deemed to have been set
for the benefit of both parties. Its renewal may be authorized only
upon their mutual agreement or at their joint will. Its continuance,
effectivity or fulfillment cannot be made to depend exclusively upon
the free and uncontrolled choice of just one party. While the lessee
has the option to continue or to stop paying the rentals, the lessor
cannot be completely deprived of any say on the matter. Absent any
contrary stipulation in a reciprocal contract, the period of lease is
deemed to be for the benefit of both parties.

 In the instant case, there was nothing in the aforesaid stipulation or

in the actuation of the parties that showed that they intended an
automatic renewal or extension of the term of the contract. First,
demonstrating petitioner's disinterest in renewing the contract was
its letter dated August 23, 1996, demanding that respondents vacate
the premises for failure to pay rentals since 1993. As a rule, the
owner-lessor has the prerogative to terminate the lease upon its
expiration. Second, in the present case, the disagreement of the
parties over the increased rental rate and private respondents'
failure to pay it precluded the possibility of a mutual renewal.
 Third, the fact that the lessor allowed the lessee to introduce
improvements on the property was indicative, not of the former's
intention to extend the contract automatically, but merely of its
obedience to its express terms allowing the improvements. After all,
at the expiration of the lease, those improvements were to "become
its property.“

 As to the contention that it is not fair to eject respondents from the

premises after only 5 years, considering the value of the
improvements they introduced therein, suffice it to say that they did
so with the knowledge of the risk -- the contract had plainly
provided for a 5-year lease period.

 Parties are free to enter into any contractual stipulation, provided it

is not illegal or contrary to public morals. When such agreement,
freely and voluntarily entered into, turns out to be disadvantageous
to a party, the courts cannot rescue it without crossing the
constitutional right to contract. They are not authorized to extricate
parties from the necessary consequences of their acts, and the fact
that the contractual stipulations may turn out to be financially
disadvantageous will not relieve the latter of their obligations.
 ISSUE NO. 2:

 Petitioner further argues that respondents should be ejected for

nonpayment of the new rental rates. On the other hand, the latter
counter that they did not agree to these new rates. True, mere
failure to pay rentals does not make possession unlawful, but when
a valid demand to vacate the premises is made by the lessor, the
lessee's continued withholding of possession becomes unlawful.
Well-settled is the rule that the failure of the owners/lessors to
collect or their refusal to accept the rentals is not a valid defense.

 Respondents justify their nonpayment of rentals on the ground that

petitioners refused to accept their payments. Article 1256 of the
Civil Code, however, provides that "if the creditor to whom tender of
payment has been made refuses without just cause to accept it, the
debtor shall be released from responsibility by the consignation of
the thing or sum." This provision is more explicit under the Rental
Reform Act of 2002.
 Based on the foregoing, respondents should have deposited in a
bank or with judicial authorities the rent based on the previous rate.
In the instant case, respondents failed to pay the rent from October
1993 to March 1998 or 4 years and 3 months. Article 1658 of the Civil
Code provides only two instances in which the lessee may suspend
payment of rent; namely, in case the lessor fails to make the
necessary repairs or to maintain the lessee in peaceful and adequate
enjoyment of the property leased. None of these is present in the
case at bar.

 Moreover, the mere subsequent payment of rentals by the lessee

and the receipt thereof by the lessor does not, absent any other
circumstance that may dictate a contrary conclusion, legitimize the
unlawful character of the possession. The lessor may still pursue
the demand for ejectment.

 On the other hand, the SC cannot authorize a unilateral increase in

the rental rate, considering that (1) the option to renew is reciprocal
and, thus, the terms and conditions thereof -- including the rental
rate -- must likewise be reciprocal; and (2) the contracted clause
authorizing an increase -- "upon presentation of the increased real
estate tax to lessees" -- has not been complied with by petitioner.
 Instances where a purchaser of the thing leased cannot
terminate the lease (Art. 1676, 1677)

 a) Where the lease is recorded in the Registry of Property;

 b) Where there is a stipulation in the contract of sale that the

purchaser shall respect the lease;

 c) Where the purchaser knows of the existence of lease;

 d) Where the sale is fictitious;

 e) Where the sale is made with right to repurchase until the

period of redemption has expired.
 Art. 1678. If the lessee makes, in good faith, useful
improvement which are suitable to the use for which the lease is
intended, without altering the form or substance of the property
leased, the lessor upon termination of the lease shall pay the lessee
½ of the value of the improvements at that time. Should the lessor
refuse to reimburse said amount, the lessee may remove the
improvements even though the principal thing may suffer damage
thereby. He shall not, however, cause any more impairment upon
the property leased than is necessary.
With regard to ornamental expenses, the lessee shall not be
entitled to any reimbursement, but he may remove the ornamental
objects, provided no damage is caused to the principal thing, and
the lessor does not choose to retain them by paying their value at
the time the lease is extinguished.
 General Rule if Duration of Lease is Not Fixed:

 a) If there is a fixed period the lease will be for the said

period;

 b) If there is no fixed period, apply the following rules;

 b.1. If rent is paid daily, lease is from day to day;

 b.2. If rent is paid weekly, lease is from week to week;

 b.3. If rent is paid monthly, lease is from month to month;

 b.4. If rent is paid yearly, lease is from year to year.

 CONTRACT FOR A PIECE OF WORK

 It is a contract whereby a contractor binds himself to

execute a piece of work for the employer, in
consideration of a certain price or compensation. The
contractor may either employ only his labor or skill or
furnish the material. (Art. 1713)
Contract for a Piece of Work Lease of Services

(a)The object is the resultant work or (a) The object is the service
object;

(b) The risk is born by the worker (b) The risk is generally borne by the
before the delivery. employer, not by the laborer unless
the latter is guilty of fault or
negligence.
 Duties of contractor Who Furnishes Both work
and the Material:

 (a) To deliver;

 (b) To transfer ownership;

 (c) To warrant against eviction and hidden defects.

 Remedies of Employer in Case of DEFECTS:

 1) Ask contractor to remove the defect or to execute another

work;

 2) If contractor fails or refuses, employer can ask ANOTHER at

the first’s expense. If a building is involved, expenses for
correction and completion may be recovered.

 Effect When Employer Accepts the Work: Contractor is generally

relieved of liability;
 Exceptions:
 (a) The defect is hidden and the employer is not by his special
knowledge, expected to recognize the same; and

 (b) The employer expressly reserves his right against the

contractor by reason of the defect.
 Liability for Collapse of a Building: (Art. 1723)

 (a) The collapse of the building must be within 15 years from the
completion of the structure;

 (b) The prescriptive period is 10 years following the collapse.

 (c) Solidary liability of both the contractor with the engineer and
the architect (if both supervises the construction)

 (d) Applies only to a collapse or a ruin, not a minor defects.

COMMON CARRIERS
 CONTRACT OF TRANSPORTATION
 There is a contract of transportation where a person obligates
himself to transport persons or property from one place to another
for a consideration.

 PARTIES:
 (a) Contract of Carriage of Passengers:
 a.1. common carrier;
 a.2. the passenger.

 (b) Contract of Carriage of Goods:

 b.1. the shipper;
 b.2 the carrier.
 COMMON CARRIERS
 A person, corporation, form or association engaged in
the business of carrying or transporting passengers or
goods or both, by land, water or air, for compensation,
offering their services to the public. (Art. 1732)

 Degree of Care – EXTRAORDINARY DILIGENCE.

 TEST TO DETERMINE WHETHER A PARTY IS A COMMON
CARRIER OF GOODS:

 1. He must engaged in the business of carrying goods for others

as a public employment, and must hold himself out as ready to
engage in the transporatation of goods for person generally as
a business and not as a causal occupation;

 2. He must undertake to carry goods of the kind to which his

business is confined;

 3. He must undertake to carry by the method by which his

business is conducted and over his established roads; and

 4. The transporation must be for hire.

 OBLIGATIONS OF THE CARRIER:

 1. To accept passengers and goods without discrimination;

 2. To seasonably transport and deliver the goods or bring the

passenger to destination;

 3. To deliver the goods to the proper person; and

 4. To exercise extraordinary diligence in the performance of its

duties.
 REGISTERED OWNER RULE:
 The person who is the registered owner of a vehicle is
liable for any damage caused by the negligent operation
of the vehicle although the same was already sold or
conveyed to another person at the time of the accident.
The registered owner is liable to the injured party subject
to his right of recourse against the transferee or the
buyer.
 Common carriers are responsible for the loss, destruction or
deterioration of the goods, unless the same is due to any of the
following causes only: (Art. 1734)

 (1) Flood, storm, earthquake, lightning, or other natural disaster

or calamity;

 (2) Act of the public enemy in war, whether international or civil;

 (3) Act or omission of the shipper or owner of the goods;

 (4) The character of the goods or defects in the package or in the

containers;

 (5) Order or act of competent public authority.

 Burden of proof lies with the owner of the vessel if it
seeks exemption from responsibility;
 GENERAL RULE: Carrier is presumed at fault except for
Art 1734.

 Continuing liability (transport of goods)

 (a) Goods are temporarily unloaded; or
 (b) Stored in transit.
 Art. 1740. If the common carrier negligently incurs in delay in
transporting the goods, a natural disaster shall not free such carrier
from responsibility.

 The contributory fault of the shipper or owner reduces the carrier’s

liability. The carrier’s negligence must of course be the proximate
cause.

 Art. 1749. A stipulation that the common carrier’s liability is limited

to the value of the goods appearing in the bill of lading, unless the
shipper or owner declares a greater value is binding.

 Art. 1750. A contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction, or deterioration of the
goods is valid, if it is reasonable and just under the circumstances,
and has been fairly and freely agreed upon.
 SAFETY OF PASSENGERS

 Art. 1755. A common carrier is bound to carry the passengers

safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with due regard for all
the circumstances.

 Passenger – is one who has entered into a contract of carriage,

express or implied, with a carrier;
 (a) a newsboy allowed to peddle on a train or bus;

 (b) concessionaires doing business aboard a train, such as

concessionaires of the dining room or news-stand;

 (c) One who has boarded the wrong train or bus;

 (d) One who with the consent of the carrier’s employees rides in a
dangerous or unusual place in the vehicle, such as the roof, or
the running board; and

 (e) One who upon arriving at the place of destination, is asleep

but is not awakened by the carrier’s employees.
 Presumption of negligence on the part of the
common carrier which can only be rebutted by:

 (a) That a fortuitous event was the proximate cause;

 (b) That the carrier had observed the required

extraordinary diligence.
 PROBLEM:
 A bus or jeepney driver kills a passenger because of a
personal grudge, is the common carrier liable?

 ANSWER.
 Yes.
 Liability of Carrier for Death of or Injuries to Passengers
Due to negligence or willful acts:
 (a) The employees may have acted beyond the scope of their
authority;
 (b) Or they acted in violation of the orders of the common
carriers.

 Art. 1757. The responsibility of common carrier for the safety of

passengers cannot be dispensed with or lessened by stipulation, by
the posting of notices, by statements on the tickets or otherwise.

 Art. 1758. When a passenger is carried gratuitously, a stipulation

limiting the common carrier’s liability for negligence is valid, but not
for willful acts or gross negligence. The reduction of fare does not
justify any limitation of the common carrier’s liability.
PARTNERSHIP
 PARTNERSHIP

 By the contract of partnership, two or more persons

bind themselves to contribute money, property, or
industry to a common fund, with the intention of
dividing the profits among themselves. Two or more
persons may also form a partnership for the exercise of
a profession. (Art. 1767)
 Requisites of a Contract of Partnership:

 1) There must be a valid contract;

 2) There must be a contribution of money, property, or industry

to a common fund;

 3) The partnership must be organized for gain or profit;

 4) The partnership should have a lawful object or purpose, and

must be established for the common benefit or interest of the
partners.
 Different kinds of partnership:

 1) Universal Partnership – May refer to all the present property or

to all the profits. A partnership of all present property is that in
which the parties contribute all property which actually
belongs to them to a common fund, with the intention of
dividing the same among themselves, as well as all the profits
which they may acquire therewith. A universal partnership of
profits comprises all that the partners may acquire by their
industry or work during the existence of the partnership;

 2) Particular partnership – Is that which has for its object

determinate things, their use of fruits, or a specific
undertaking, or the exercise of a profession or vocation. (Art.
1783)
 Different Kinds of Partners:

 As to liability
 1. General Partners – those who can be held liable for partnership
obligations even to the extent of their property;
 2. Limited partners – those who cannot be held liable for
partnership obligations.

 As to contribution
 1. Capitalist partners – those who contribute money or property to
the common fund;
 2. Industrial partners – those who contribute only their skill or
industry to the common fund.
PARTNERSHIP CORPORATION

Its existence commences only from the

issuance of a Certificate of Registration of
Created by mere agreement of parties.
the SEC or in proper cases, passage of a
special law.

Even two persons may form a partnership. Needs at least 5 incorporators.

Powers are subject only to what may be Powers are more restricted because of its
agreed upon by the partners. limited personality.

There is mutual agency in partnership and Stockholders are not agents of the
eahc general partner can represent and corporation in the absence of express
bind the partnership. authority.

Interest in the partnership cannot be Corporate shares are freely transferable

transferred without the express consent of without the consent of other stockholders
the other partners. (unless otherwise stipulated).

There is no right of succession in

partnership as death of a genral partner Subject to right of succession.
dissolves the partnership.
 Distribution of profits and losses:
 If there is an agreement – The profits and losses shall be distributed
in conformity with such agreement. If the agreement is only with
respect to the profits, the share of the partners in the losses shall
be in the same proportion as their share in the profits. (Art. 1797)
 If there is no agreement:
 Profits:
 a) Capitalist partners – The share of a capitalist partner shall be
in proportion to what he may have contributed to the
common fund;
 b) Industrial Partners – The share of an industrial partner shall be
that which is just and equitable under the circumstances.
 Losses
 a) Capitalist partners – The share of a capitalist partner shall be
in proportion to what he may have contributed to the common
fund;
 b) Industrial partners – An industrial partner shall not be liable
for the losses.
 Art. 1789. An industrial partner cannot engage in business for
himself, unless the partnership expressly permits him to do so; and
if he should do so, the capitalist partners may either exclude him
from the firm or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to damages in
either case.

 Art. 1808. The capitalist partners cannot engage for their own
account in any operation which is of the kind of business in which
the partnership is engaged, unless there is a stipulation to the
contrary.
Any capitalist partner violating this prohibition shall bring to
the common funds any profits accruing to him from his
transactions, and shall personally bear all the losses.
What is the Principle of Delectus
Personae?
 Principle of delectus personae
 Refers to the rule which is inherent in every partnership
that no one can become a member of the partnership
association without the consent of all the partners.
Consequently, even if a partner will associate another
person in his share in the partnership, the associate
shall not be admitted into the partnership without the
consent of all the partners, even if the partner having an
associate, should be a manager. (Art. 1804)
 Any partner may demand for a formal accounting of
partnership affairs in the following instances:

 1. If he is wrongfully excluded from the partnership business or

possession of its property by his co-partners;

 2. If the right exist under the terms of the agreement;

 3. If a partner has derived profits from any transaction connected

with the formation, conduct, or liquidation of the partnership
or from any use by him of its property; or

 4. Whenever other circumstances render it just and reasonable.

(Art. 1809, 1807)
 Property rights of a Partner:

 (a) His rights in specific partnership property;

 (b) His interest in the partnership; - means his share of

the profits and surplus

 (c) His right to participate in the management.

 Causes of dissolution of a partnership:

 1. Without violation of the agreement between partners:

 1.1. By the termination of the definite term or particular undertaking
specified in the agreement;
 1.2. By the express will of any partner, who must act in good faith, when
no definite term or particular undertaking is specified;
 1.3. By the express will of all the partners who have not assigned their
interests or suffered them to be charged for their separate debts
either before or after the termination of any specified term or
particular undertaking;
 1.4. By the expulsion of any partner from the business bona fide in
accordance with such a power conferred by the agreement between
the partners;

 2. In contravention of the agreement between the partners, where

the circumstances do not permit a dissolution under any other
provision of this article, by the express will of any partner
anytime;
 3. By any event which makes unlawful for the business of the
partnership to be carried on or for the members to carry it on
in partnership;

 4. When a specific thing, which a partner had promised to

contribute to the partnership, perishes before the delivery, in
any case by the loss of the thing, when the partner who
contributed it having reserved the ownership thereof, has only
transferred to the partnership the use or enjoyment of the
same; but the partnership shall not be dissolved by the loss of
the thing when it occurs after the partnership has acquired
ownership thereof;

 5. By the death of any partner;

 6. By insolvency of any partner or of the partnership;

 7. By civil interdiction of any partner;

 8. By the decree of court under the following;
 8.1. A partner has been declared insane in any judicial proceeding or is
shown to be of unsound mind;

 8.2. A partner becomes in any other way incapable of performing his

part of the partnership contract;

 8.3. A partner has been guilty of such conduct as tends to affect

prejudicially the carrying on of the business;

 8.4. A partner willfully or persistently commits breach of the partnership

agreement, or otherwise so conducts himself in matters relating to
the partnership business that is not reasonably practicable to carry
on the business in partnership with him;

 8.5. The business of the partnership can only be carried on at a loss;

 8.6. Other circumstances render a dissolution equitable.

AGENCY
 AGENCY
 A person binds himself to render some service or to do something
in representation or on behalf of another, with the consent or
authority of the latter. (Art. 1868)

 Essential Elements of Contract of Agency:

 a) There is consent, express or implied, of the parties to
establish the relationship of agency;

 b) The object is the execution of a juridical act in relation to a

third person;

 c) The agent acts as a representative and not for himself;

 d) The agent acts within the scope of his authority.

Contract of Agency Contract of Lease of Services

(a) The principle of representation is (a) No principle of representation

applied; because the basis of the contract
is employment;

(b) Contract may be extinguished by (b) Contract may be extinguished thru

the will of the principal; the concurrence of both parties;

(c) The agent exercise discretionary (c) The employee exercises

powers / authority in order to attain ministerial functions only;
the end for which he was appointed;

(d) It is a preparatory contract; (d) It is a principal contract;

(e) Usually involves 3 persons; the (e) Usually involves only two persons.
principal, the agent, and a stranger.
Contract of Agency Independent Contractor

(a) The agent acts under the control (a) The independent contractor is
of the principal (principle of authorized to do the work
representation); according to his own method,
without being subject to the other
party’s control except in so far as
the result of the work is
concerned;

(b) The agent of the agent may be (b) The employees of the contractor
controlled by the principal; are not the employees of the
employer;

(c) Agent can bind the principal; (c) Independent contractor generally
cannot bind the person with whom he
contracts by his acts;

(d) The negligence of the agent is (d) The negligence of the independent
imputable to the principal. contractor is generally not imputable
to his employer.
 Can there be a perfected contract of agency if the acceptance by
the agent is merely implied? YES
 Art. 1870. Acceptance by the agent may also be express or implied
from his acts which carry out the agency, or from his silence or
inaction according to the circumstances.

 Art. 1871. Between persons who are present, the acceptance may
be implied if the principal delivers his power of attorney to the agent
and the latter receives it without objection.

 Distinguish between general agency and special agency.

 GENERAL AGENCY – refers to the type of agency which comprises
all of the business of the principal;
 SPECIAL AGENCY – refers to the type of agency which comprises
one or more specific transactions.
 PROBLEMS:

 a. Suppose that an agent holds a special power to sell

a certain property, is he also empowered by
implication to mortgage the property?

 b. Suppose that the special power to sell does not

specify the manner or terms of payment, may the
agent sell the property on credit?
 ANSWERS:

 a. No, the agent is not empowered to mortgage the

property. Art. 1879, a special power to sell excludes
the power to mortgage; and a special power to
mortgage does not include the power to sell.
Consequently, if an agent holding a special power
of attorney to sell, mortgages the property, the
contract would be unenforceable;

 b. No the agent may not sell the property on credit.

This does not mean, however, that the sale is not
valid; it is perfectly valid, but the principal may
demand from the agent payment in cash, in which
case, the latter, once he has delivered the cash to
the former, would be entitled to any interest or
benefit which may result from the sale.
 Fundamental Obligations of an Agent:

 a. Carry out the agency;

 b. Act within the scope of his authority;

 c. Act on behalf of the principal.

 Art. 1892. The agent may appoint a substitute if the
principal has not prohibited him from doing so; but he
shall be responsible for the acts of the substitute:
(a) When he was not given the power to appoint one;

(b) When he was given such power, but without

designating the person, and the person appointed
was notoriously incompetent or insolvent.

All acts of the substitute appointed against the

prohibition of the principal shall be void.
Obligations of the Principal
 The principal must comply with all the
obligations which the agent may have
contracted within the cope of his authority. As
for obligation wherein the agent exceeded his
power, the principal is not bound except when
he ratifies it expressly or tacitly. (Art. 1910)
 Unenforceable Contract:
 The contract entered into if the agent exceeded
his authority is unenforceable as far as the
rpincipal is concerned.

 Exception: If the principal ratified the contract.

 Causes for the extinguishment of a contract of
agency:(Art. 1919)
 (a) By its revocation;

 (b) By the withdrawal of the agent;

 (c) By the death, civil interdiction, insanity or

insolvency of the principal or of the agent;

 (d) By the dissolution of the firm ot corporation which

entrusted or accepted the agency;

 (e) By the accomplishment of the object or purpose of

the agency;

 (f) By the expiration of the period for which the agency

was constituted.
 Anything done by the agent, without knowledge
of the death of the principal or any of other
cause which extinguishes the agency, is valid
and shall be fully effective with respect to third
persons who may have contracted with him in
good faith. (Art. 1931)
LOAN
 Definition:

 By the contract of loan, one of the parties delivers to

another, either something not consumable so that the
latter may use the same for a certain time and return it,
in which case the contract is called commodatum; or
money or other consumable thing, upon the condition
that the same amount of the same kind and quality shall
be paid, in which case the contract is simply called a
loan or mutuum. (Art. 1933)
 The two kinds of loans:

(a) Mutuum or simple loan, (ownership

passes to the borrower, but of course
he must pay later) and

(b) Commodatum.
MUTUUM COMMODATUM
a. Equivalent amount to be returned a. Same thing to be returned (subject
(subject matter is fungible) matter is non-fungible);

b. May be gratuitous or onerous (with b. Essentially gratuitous (If there is a

interest) compensation it cease to be
commodatum);

c. Ownership goes to borrower or bailee. c. Ownership retained by lender or bailor;

d. Refers to personal property only; d. May involve real and personal property;

e. Referred to as loan or consumption; e. Referred to as loan for use or temporary

possession;

f. Borrower, because of his ownership, f. Lender, because of his ownership, bears

bears risk of loss; risk of loss;
g. Can be generally obliged to pay only at g. While generally obliged to return object
the end of period; at the end of the period, still in some
cases the return can be demanded even
before the end of the period;

h. Not personal in character. h. Personal in character.

 Consumable and Non-consumable distinguished:

 Consumable – a movable which cannot be used in a manner

appropriate to its nature without its being consumed;
 Non-consumable – A movable which can be used in a manner
appropriate to its nature without its being consumed.

 Fungible and Non-fungible distinguished:

 Fungible – If the intention is to allow a substitution of the thing

given;
 Non-fungible – If the intention is to compel a return of the identical
thing given.
 Art. 1954. A contract whereby one person transfers the
ownership of non-fungible things to another with the
obligation on the part of the latter to give things of the
same kind, quantity and quality be considered a barter.

- Here the non-fungible does not really mean non-

fungible but non-consumable. If the thing were
really non-fungible the identical thing must be
returned. Here an equivalent thing is returned.
 PROBLEM:

 A got a fountain pen from B and he (A) became

the owner thereof, with the obligation of giving
another pen of the same kind and quality. This
shall be considered a barter. It is not
commodatum nor a muttum.
 In Commodatum the Bailee is liable for the loss of the thing even if
it should be through a fortuitous event. (Art. 1942)
 (a) If he devotes the thing to any purpose different from that
which it has been loaned;

 (b) If he keeps it longer than the period stipulated, or after the

accomplishment of the use for which the commodatum was
been constituted;

 (c) If the thing loaned has been delivered with appraisal of its
value, unless there is a stipulation exempting the bailee from
responsibility in case of a fortuitous event;

 (d) If he lends or leases the thing to a third person, who is not a

member of his household;

 (e) If being able to save either the thing borrowed or his own
thing, he chose to save the latter.
 Solidary Liability:
 When there are two or more bailees to whom a
thing is loaned in the same contract, they are
liable solidarily
 BANK DEPOSIT:
 A bank deposit is governed by the provisions on simple
loan. When a savings account or a checking account is
opened, a creditor-debtor relationship ensues with the
depositor as the creditor and the bank as debtor.

 Effects:
 (a) The bank can make use as its own the money deposited. Said
amount is not being held in trust for the depositor;
 (b) Third persons who may have a right to the money deposited
cannot hold the bank responsible unless there is a court order
or garnishment;
 (c) The officers of the bank cannot be held liable for estafa if they
authorized the use of the money deposited by hte depositor;
 (d) Bank deposits are not preferred credits.
 (e) The bank has the right to compensation. It can set-off the
deposits with the indebtedness of the depositor that are due
and demandable.
 PROBLEM:

 D borrowed from C P2,000 on Oct. 15, 1981. The contract

is not evidenced by any writing. It was however, verbally
agreed that the former shall pay the obligation after the
expiration of two years and that the rate of interest shall
be 21% per annum. On Oct. 15, 1983, when the
obligation became due and demandable, C demanded
from D for the payment of the obligation plus
accumulated interests. D did not pay. Two years later,
on Oct. 15, 1985, C filed a complaint against D for the
recovery of the amount of P2,000 plus interest at 21%
per annum to be computed from Oct. 15,1981. Will the
action prosper?
 ANSWER:

 Principal amount of P2,000 can be recovered however,

the interest of 21% cannot be recovered “Art. 1956. No
interest shall be due unless it has been expressly
stipulated in writing.
 PRECARIUM:

 Is a contract of commodatum where the bailor has the

right to demand the return of the thing which is the
object of the contract at will. This takes place in the
following cases:

 (a) If neither the duration of the contract nor the use to

which the thing loaned should be devoted has been
stipulated; or
 (b) If the use of the thing should be merely tolerated.
(Art. 1947)
 MUTUUM OR SIMPLE
COMMODATUM VOLUNTARY DEPOSIT
LOAN
The purpose is the use of the
thing.
The purpose is for the borrower
NOTE: Use of the fruits is not The purpose is safekeeping.
to consume what was borrowed.
included unless expressly
provided for.

Real Contract - perfected upon

Real Contract Real Contract
delivery.

(1) Extrajudicial Deposit -

Movable and Immovable Things Movables only;
Involves Movables.
may be borrowed. (2) Judicial Deposit - Movable
and Immovable.
Essentially Gratuitous
NOTE: If onerous or May be Gratuitous or Onerous
May be Gratuitous or Onerous.
compensation is paid, then the (Ex. if interest is payable)
contract may be lease.
The object is generally non-
consumable.
The object is money or other Consumable or non-consumable
Exception: If the purpose is not fungible things. although for safekeeping.
for consumption but for
exhibition.
 MUTUUM OR SIMPLE VOLUNTARY
COMMODATUM
LOAN DEPOSIT

Bailor / Lender retains

The bailee / borrower becomes Depositor retains ownership of
ownership of the thing
the owner of the thing delivered. the thing delivered.
delivered.

The bailee / borrower becomes

There is an obligation to return the owner; hence, there is no The Depositary must return the
the same thing. obligation to return the same same thing.
thing.
If gratuitous deposit -Death of
the depositor or the depositary
Death of the lender or the extinguishes the deposit.
borrower extinguishes Death of the lender does not
Commodatum because it is extinguish the loan. If for compensation - Death of
purely PERSONAL in character. the depositor and or the
depositary does not extinguish
the deposit.

Generally, the bailor bears the The bailee-borrower bears the Generally, the depositor bears
loss of the thing due to loss of the thing delivered. Res the loss of the thing due to
fortuitous event. Perit Domino fortuitous event.

The depositor need not be the

The lender must be the owner owner of the thing deposited.
The bailor / lender need not be
or at least capable of However, the depositary cannot
the owner of the thing loaned.
transferring ownership. be the owner of the thing
deposited.
 MUTUUM OR SIMPLE VOLUNTARY
COMMODATUM
LOAN DEPOSIT

Generally, the lender must wait

for the expiration of the period
agreed upon of the
accomplishment of the use for The lender - bailor must wait for
The depositor can demand the
which the commodatum has the expiration of the period
return of the thing anytime.
been constituted. agreed upon.
Exception: (1) In case of Urgent
Need; (2) In Precarium.
DEPOSIT
 DEPOSIT

 Definition:
 Is that which constituted from the moment a person
receives a thing belonging to another with the obligation
of safely keeping it and of returning the same (Art. 1962)

 A deposit being a real contract, is perfected by delivery,

but an agreement to constitute a deposit is merely
consensual and is therefore binding upon mere consent.
 Characteristics of the Contract of Deposit:

 (a) It is a real contract perfected by delivery.

 (b) The principal purpose is the safekeeping of the thing

delivered. (Thus, if the safekeeping is merely secondary, the
contract is not a deposit but some other contract like one of
lease or commodatum.);

 (c) The depositary cannot use the thing deposited, except with
the express permission of the depositor;

 (d) Only movable things can be the object of a deposit;

 (e) It is a gratuitous contract, except when there is an agreement

to the contrary or unless the depositary is engaged in the
storing of goods;

 (f) The contract is either unilateral or bilateral, according to

whether it is gratuitous or compensated.
 Kinds of Deposit:

 (a) Judicial – when it is constituted by virtue of a court

order for the attachment or seizure of property in
litigation;

 (b) Extra-judicial – when it is not constituted by virtue

of a court order; two of of extrajudicial deposit;
b.1. Voluntary – Effected by the will of the
depositor;

b.2. Necessary – Is that which is effected in

compliance with a legal obligation, or on the
occasion of any calamity, or by travelers in hotels
or inns with regard to their effects.
 Form of Contract of Deposit:

 (a) Oral;

 (b) Written

 In either case, however, there must be a

delivery.
 Obligations of a Depositary:

 (a) Safekeeping;

 (b) The return of the thing.

 When the depositary has permission to use the
thing deposited, the contract loses the concept of a
deposit and becomes a loan or commodatum, except
where safekeeping is still the principal purpose of the
contract.
The permission shall not be presumed, and its
existence must be proven. (Art. 1978)

 PROBLEM:
 A deposit a sum of money with B who later was
authorized to use the same. The contract becomes one
of loan.
 The depositary is liable for the loss of the thing
deposited through a fortuitous event: (Art. 1979)

 (a) If it so stipulated;

 (b) If he uses the thing without the depositor’s

permission;

 (c) If he delays its return;

 (d) If he allows others to use it, even though he himself

may have been authorized to use the same.
 When Deposit Of Money is Really a Loan:

 (a) Where money, consisting of coins of legal tender, is

deposited with a person, and the latter is authorized
by the depositor to use and dispose the same, the
agreement thus entered into between the depositor
and the depositary is not a contract of deposit but a
loan;

 (b) Evidence showing that interest had been offered as

compensation for the use of money deposited leads
one to the conclusion that the contracts, although
denominated by the parties as deposit is really one
of loan.
ALEATORY CONTRACTS
 ALEATORY CONTRACTS

 Definition:
 One of the parties or both reciprocally bind themselves
to give or to do something in consideration of what the
other shall give or do upon the happening of an event
which is uncertain, or which is to occur at an
indeterminate time.

 The element of risk is present;

 Kinds of Aleatory Contracts:

 (1) Insurance;

 (2) Gambling;

 (3) Life Annuity

ALEATORY CONTRACT CONTRACT WITH SUSPENSIVE
CONDITION

Whether or not the event happens the If condition does not happen, the
contract remains, only the effects and obligation never becomes effective.
extent of profit and losses are
determined.
A game of chance
 Is that which depends more on chance or
hazard than on skill or ability. In case of doubt, a
game is deemed to be one of chance.
 PROBLEM

 A became indebted to B as a result of losses

incurred in a game of “tumbo”. The debt is
evidenced by a promissory note. In case A is
unable to pay, can B institute an action against
him for payment.
 ANSWER:

 No, there can be no action that can be

maintained by the winner for the collection of
what he has won in a game of chance.
 The aleatory contract of life annuity binds the
debtor to pay an annual pension or income during the
life of one or more determinate persons in consideration
of a capital consisting of money or other property,
whose ownership is transferred to him at once with the
burden of the income. (Art. 2021)

Example.
 Jose gave Mariano a parcel of land with the condition
that the latter will give Jose an annual pension or
income as long as Jose lives. Jose is both the annuitant
(giver of the capital) and the beneficiary. Ownership of
the land is immediately transferred to Mariano with the
burden of the pension.
COMPROMISES AND
ARBITRATIONS
Compromise

 Is a contract whereby parties, by making

reciprocal concessions, avoid a litigation or put
an end to one already commenced. (Art. 2028)
There can be no compromise upon the following:

 (a) Criminal liability of the accused in a criminal action;

 (b) The civil status of persons;

 (c) The validity of marriage or a legal separation;

 (d) Any ground of legal separation;

 (e) Future support;

 (f) The jurisdiction of courts;

 (g) Future legitime. (Arts. 2034 & 2035)

Effect of Compromise
 A compromise has upon the parties the effect and authority of res
judicata; but there shall be no execution except in compliance with
a judicial compromise.

Contract of Arbitration
 Is one whereby two or more persons agree to stand by and accept
the decision of another or others with respect to their controversy
over their respective rights. The nature, incidents and
consequences of this contract is governed by the same rules
applicable to compromises (Art. 2043)
GUARANTY
GUARANTY
 Is a contract by virtue of which a person called the
guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter
should fails to do so.

SURETYSHIP
 Is a contract by virtue of which a person binds himself
solidarily with the principal debtor to fulfill the
obligation. (Art. 2047)
 Characteristics of a Contract of Guaranty:
 (1) It is a contract between the guarantor and the
creditor;

 (2) Generally, there must be a meeting of the minds

between said parties;

 (3) It is consensual, nominate, accessory and unilateral

in that only the guarantor is obligated to the creditor
and not vice versa;

 (4) As to form, the contract of guaranty is governed by

the Statute of Frauds, being a special promise to
answer for the debt, default, or miscarriage of
another. Hence, an oral promise of guaranty is not
enforceable.
GUARANTY SURETYSHIP

a. Liability of the guarantor is a. Liability of the surety is primary;

subsidiary;

b. Guarantor assumes liability by b. Surety assumes liability as a

virtue of an independent agreement to regular party to the undertaking or
pay the obligation if the principal contract;
debtor fails to do so;

c. Liability of the guarantor is c. Liability of the surety is original;

collateral;

d. A guarantor is the insurer of the d. Surety is the insurer of the debt;

solvency of the debtor;

e. A guarantor can avail himself of e. A surety cannot.

excussion /exhaustion and of division
if the creditor proceeds against him
for payment of the obligation.
 If a creditor wants to hold the guarantor liable, he must
do the following;
 (a) Exhaust all the properties of the debtor unless the
guarantor is not entitled to the benefit under Art.
2059;

 (b) Resort to all legal remedies against the debtor;

 (c) Prove that the debtor is still unable to pay;

 (d) Notify the guarantor of the debtor’s inability to pay,

otherwise if the guarantor is prejudiced by lack of
notice he cannot be made to pay, unless of course
there is a waiver on the part of the guarantor.
Benefit of excussion / exhaustion in favor of the
guarantor.

 Refers to the right by which such guarantor cannot be

compelled to pay the creditor unless the latter has
exhausted all the property of the principal debtor, and
has resorted to all of the legal remedies against such
debtor. (Art. 2058);
 Excussion / Exhaustion shall not take place in the
following instances: (Art. 2059)

 (1) If the guarantor has expressly renounced it;

 (2) If he has bound himself solidarily with the debtor;

 (3) In case of insolvency of the debtor;

 (4) When he has absconded, or cannot be sued within the

Philippines unless he has left a manager or representative;

 (5) If it may be presumed that an execution on the property of the

principal debtor would not result in the satisfaction of the
obligation;

 (6) In the case of a judicial bondsman; and

 (7) When the guarantor has constituted in favor of the creditor a

pledge or mortgage as additional security.
Benefit of division in favor of guarantors
 Should there be several guarantors of only one debtor
and for the same debt, the obligation to answer for the
same is divided among all. The creditor cannot claim
from the guarantors except the shares which they are
respectively bound to pay, unless solidarity has been
expressly stipulated.

 The benefit of division against the co-guarantors ceases

in the same cases and for the same reasons as the
benefit of excussion against the principal debtor. (Art.
2065)
 Rights of the guarantor who pays for a debtor:

 (1) Reimbursement or indemnification: comprising of;

1.1. Total amount of the debt;

1.2. The legal interest thereon from the time the payment was made
known to the debtor, even though it did not earn interest for the
creditor;

1.3. The expenses incurred by the guarantor after having notified

the debtor that payment had been demanded from him;

1.4. Damages, if they are due (Art. 2066)

 (2) Subrogation – The guarantor who pays is subrogated by virtue

thereof to all the rights which the creditor had against the debtor.
However, if the guarantor has compromised with the creditor, he
cannot demand from the debtor more than what he has really paid.
When and how is a guaranty extinguished:

 (1) The obligation of the guarantor is extinguished at the same

time as that of the debtor, and for the same causes as all other
obligations;

 (2) If the creditor voluntarily accepts an immovable or other

property in payment of the debt, even if he should afterwards
lose the same through eviction, the guarantor is released; (Art.
2077)

 (3) A release made by the creditor in favor of one of the

guarantor, without the consent of the others, benefits all to the
extent of the share of the guarantor to whom it has been
granted; (Art. 2078);

 (4) An extension granted to the debtor by the creditor without the

consent of the guarantor extinguishes the guaranty. The mere
failure on the part of the creditor to demand payment after the
debt has become due does not of itself constitute any
extension of time referred to herein (Art. 2079);
 (5) The guarantors, even though they be solidary, are released
from their obligation whenever by some act of the creditor
they cannot be subrogated to the rights, mortgages, and
preferences of the latter (Art. 2080).
PLEDGE
PLEDGE
 It is an accessory, real and unilateral contract by virtue
of which the debtor or a third person delivers to the
creditor or to a third person movable property as
security for the performance of the principal obligation,
upon the fulfillment of which the thing pledged, with all
accessions and accessories, shall be returned to the
debtor or to the third person.
 Essential Requisites of PLEDGE:

 (1) It must be constituted to secure the performance of a principal

obligation;

 (2) The pledgor must be the absolute owner of the thing pledge;

 (3) The pledgor should have the free disposal of the thing
pledged, and in the absence thereof, he should be legally
authorized for the purpose;

 (4) When the principal obligation becomes due, the thing pledged
may be alienated for the payment of such obligation;

 (5) The thing pledged must be placed in the possession of the

creditor or of the third person by common agreement.
Pactum Commissorium
 Is a pact or agreement in a contract of pledge, mortgage
or antichresis by virtue of which if the debtor cannot
fulfill his obligation, the creditor can appropriate or
dispose of the thing given by way of pledge, mortgage
or antichresis. Such agreement is prohibited by law.
(Art. 2088) The only exception is in the case of contract
of pledge, but even then, certain conditions should be
complied with. In pledge, if the debtor is unable to pay
his obligation, the creditor has the right to have the
thing pledged sold at public auction for the payment of
his credit. If the thing is not sold, a second public
auction should be held. If still it is not sold, then he may
appropriate the thing. (Art. 2112)
Example:
 A borrowed from B a sum of money. A offered his
house by way of mortgage. It was expressly stipulated in
the contract that upon non-payment of the debt on time,
the house would belong to B. Is the stipulation valid?

ANSWER:
 No such stipulation (pacto comisorio) is null and void.
This forfeiture clause has traditionally not been allowed
because it is contrary to good morals and public policy.
Effects of the sale of the thing pledged:
 The sale of the thing pledged shall extinguish the
principal obligation, whether or not the proceeds of the
sale are equal to the amount of the principal obligation,
interest and expenses in a proper case. If the price of
the sale is more than said amount, the debtor shall not
be entitled to the excess, unless it is otherwise agreed. If
the price of the sale is less, neither shall the creditor be
entitled to recover the deficiency, notwithstanding any
stipulation to the contrary. (Art. 2115)
 When Debtor Can demand the return of the Thing
Pledged:

 (a) When he has paid the debt, interest, and expenses

in the proper case;

 (b) In an obligation with a term, there can be no

demand of the property pledged till after the term
had arrived.
REAL ESTATE MORTGAGE
REAL ESTATE MORTGAGE
 It is an accessory contract whereby the debtor
guarantees the performance of the principal obligation
by subjecting real property or real rights as security in
case of non-performance of such obligation within the
period agreed upon.
Requisites: (REAL ESTATE MORTGAGE)

 1) It must be constituted to secure the performance of the

principal obligation;

 2) The mortgagor must be the absolute owner of the property

mortgaged;

 3) The mortgagor should have the free disposal of the property

mortgaged, and in the absence thereof, he should be legally
authorized for the purpose;

 4) When the principal obligation becomes due, the property

mortgaged may be alienated for the payment of such
obligation;

 5) The subject matter of the contract must be an immovable

property or alienable rights upon immovables.
Characteristics of a Real Mortgage:

 (a) It is a real right;

 (b) It is an accessory contract;

 (c) It is indivisible;

 (d) It is inseparable;

 (e) It is real property;

 (f) It is a limitation on ownership;

 (g) It can secure all kinds of obligations;

 (h) The property cannot be appropriated;

 (i) The mortgage is a lien.

REAL ESTATE MORTGAGE PLEDGE

a. Constituted on real property; a. Constituted on personal property;

b. As a rule, the mortgagor retains the b. Pledgor must deliver the property
property; to the creditor, or, by common
consent to a 3rd person;

c. Not valid against 3rd persons if not c. Not valid against 3rd persons
registered. unless a description of thing pledged
and the date of pledge appeared in a
public instrument.
 A mortgagee usually does not possess the land
mortgaged. However, even if he does possess it say, by
agreement, he cannot acquire the property by
prescription, for his possession is not in the concept of
an owner. And even if the obligation is not paid at
maturity, the mortgagee cannot appropriate the property
for himself. Any stipulation to the contrary is prohibited.
ANTICHRESIS
ANTICHRESIS
 Is a contract by virtue of which the creditor acquires the right to
receive the fruits of an immovable of his debtor with the obligation
to apply them to the payment of the interest, if owing and thereafter
to the principal of his credit. (Art. 2132);

Characteristics:

 (a) Is an accessory contract and gives a real right;

 (b) It is a formal contract because it must be in writing otherwise

it is void.
ANTICHRESIS SALE WITH RIGHT OF
REPURCHASE
a. Is an accessory contract; a. Is a principal and independent
contract;

b. There is no transfer of the title over b. There is transfer of the title over
the property from the debtor to the the property from the vendor a retro
creditor; to the vendee a retro although
conditional;

c. If the debtor fails to pay his debt, c. As soon as there is consolidation

the creditor cannot appropriate the of title in the vendee as retro, he may
property nor dispose of it; dispose of it as an absolute owner;

d. If the debtor fails to pay within the d. If the vendor a retro does not
time agreed upon, the creditor does redeem the property within the time
not acquire the ownership of the agreed upon, the vendee a retro
property. irrevocably acquires absolute
ownership thereof.
ANTICHRESIS PLEDGE

a. Consensual contract; a. Real contract;

b. Subject matter is a real property; b. Subject matter is a personal

property;

c. Requirement that the contract must c. The requirement that the contract
be in writing is essential for validity; must be in a public instrument is
merely for purposes of binding 3rd
persons;

d. The foreclosure in case of non- d. The sale in case of non-payment of

payment of the debt is as a rule the debt is always extrajudicial.
judicial although the parties may
agree to make it extrajudicial.
ANTICHRESIS REAL ESTATE MORTGAGE
a. The creditor acquires the right to a. The creditor does not acquire such
receive the fruits of the property, but right;
with obligation to apply them to the
payment of the interest and thereafter
to the principal of his credit;
b. Creditor as a rule is in possession b. The debtor is always in possession
of the property; of the property mortgaged;
c. The requirement that the contract c. The requirement that the contract
must be in writing is essential for the must be registered in the Registry of
validity of the contract; Property is merely for the purpose of
binding 3rd persons;
d. There is an obligation of the d. Such obligation is not imposed
creditor to pay taxes and charges upon the creditor;
upon the property as well as
expenses necessary for its
preservation and repair;
e. Foreclosure in case of non- e. Foreclosure may be judicial or
payment of the debt is as a rule extrajudicial at the option of the
judicial although parties may agree to creditor.
make it extrajudicial.
CHATTEL MORTGAGE
CHATTEL MORTGAGE
 Means personal property is recorded in the Chattel
Mortgage Register as a security for the performance of
an obligation. If the movable, instead of being recorded,
is delivered to the creditor or a third person, the contract
is pledge and not a chattel mortgage.
CHATTEL MORTGAGE PLEDGE

a. Is a consensual contract; a. Is a real contract;

b. Possession of the thing mortgaged b. Possession of the thing pledged is

remains with the debtor; vested with the creditor;

c. Requirement that the contract must c. The requirement that the contract
be recorded in the Chattel Mortgage must be in a public instrument is
Register is essential for validity; merely for purpose of binding third
persons;

d. If the price of the sale in case of d. Creditor is not entitled to recover

foreclosure is less than the amount of such deficiency.
the principal obligation, the creditor is
entitled to recover deficiency from the
debtor.
QUASI-CONTRACTS
QUASI-CONTRACTS
 As those juridical relations arising from lawful, voluntary
and unilateral acts of persons based on principle that no
one shall unjustly enriched or benefited at the expense
of another. (Art. 2142)
Two kinds of Nominate Quasi Contracts:
 (a) Negotiorum Gestio – Refers to the juridical relation which
arises when a person voluntarily take charge of the agency or
management of the business or property of another, without any
power from the latter, as a consequence of which, he is obliged to
continue the same until the termination of the affair and its
incidents, or to require the person concerned to substitute him, if
the owner is in position to do so;

Requisites:
 1. The gestor must voluntarily assume the agency or
management of the business or property of another;

 2. The business or property must be either neglected or

abandoned;

 3. The agency or management must not be authorized by the

owner either expressly or impliedly;

 4. The assumption of the agency or management must be in

good faith.
 (b) Solution Indebiti – refers to juridical relation which arises
whenever a person unduly delivers a thing through mistake to
another who has no right to demand it;

 Requisites:
 1. There must be payment or delivery made by one person to
another;

 2. The person who made the payment or delivery was under no

obligation to do so;

 3. The payment or delivery was made by reason of a mistake.

QUASI-DELICTS
QUASI-DELICTS OR TORT
 As the fault or negligence of a person, who by his act or omission,
connected or unconnected with but independent from any
contractual relation, causes damage to another person.

Requisites:
 (a) There must be an act or omission;

 (b) Such act or omission causes damage to another;

 (c) Such act or omission is caused by fault or negligence;

 (d) There is no pre-existing contractual relation between the

parties.
 Persons liable for damages arising from quasi-delicts: (Art.
2180)

 (a) The father and in case of his death or incapacity, the mother
with respect to damages caused by the minor children who
live in their company;
 The mother is liable only if the father is dead or incapacitated.

 (b) Guardians with respect to damages caused by the minors or

incapacitated persons who are under their authority and who
live in their company;

 (c) The owners and managers of an establishment or enterprise,

with respect to damages caused by their employees in the
service of the branches in which the latter are employed or on
the occasion of their functions;
 The term “employers” and owners and managers of
an establishment or enterprise used in Article 2180 of
the Civil Code do not include the manager of a
corporation. It may be gathered from the context of
Article 2180 that the term “manager” (“director” in the
Spanish version) is used in the sense of “employer”. No
tortuous or quasi – delictual liability can be fastened on
the manager of the corporation owning the truck in
connection with the vehicular accident because he
himself may be regarded as an employee or depiendente
of his employer (the corporation). [Philippine Rabbit Bus
LInes Inc. vs. Phil.-American Forwarders Inc. et. al., G.R.
No. L – 25142, March 25, 1975 (63 SCRA 231)]
 (d) Employers with respect to damages caused by their
employees and household helpers acting within the scope of
their assigned tasks, even though the former are not engaged
in any business or industry;
Requisites:
 1. That the act was committed by employees and household helpers;
 2. That the said act was committed while they were acting within their
assigned task;
 3. That damage was caused as a result of said act.

 (e) The State, when it acts through a special agent but not when
the damages caused by the official to whom the task done
properly pertains;

 Special Agent – those specially commissioned to carry out the acts

complained of outside of such agent’s regular duties.
 Two kinds of liabilities of the State:
 (1)State liability for the acts of the special agents. Here, the State is
engaged in public or government functions, through a special agent;

 (2) State liability for the acts or omissions imputed to a public official
charged with some administrative or technical office. Here, the
State’s agent is commissioned to perform non-governmental
functions, hence, the state assumes the role of an ordinary employer
and will be held liable as such for its agent’s torts.

 (f) Lastly, teachers and heads of establishments of arts and

trades with respect to damages caused by their pupils and
students or apprentices, so long as they remain in their
custody.

 For establishments of arts and trades, the students and apprentices

usually handle machineries, instruments or substances which in
the hands of untrained or ignorant persons may cause damage to
fellow students or third persons if they are not properly supervised.
The law therefore imposes upon the said teachers the duty to
exercise supervision over them in order to prevent damage;
COMMON DEFENSE:
 If they can prove that they observed all the diligence of a good
father of a family to prevent damage, they shall not be responsible
for damages.

Proximate Cause
 Defined as that cause which in natural and continuous sequence,
unbroken by any efficient intervention cause, produces the injury
and without which the result would not have occurred;

 Example.
 If the passenger boxes the driver of the bus who subsequently
loses control of the vehicle, the proximate cause is the act of the
passenger.
 PERSONS FOR
PERSONS
WHOSE ACTS NATURE OF
VICARIOUSLY POSSIBLE DEFENSES
LIABILITY IS LIABILITY
LIABLE
IMPUTED

(1) The child is not living

Acts of their children in their company;
Parents up to 21 years who live Direct and Primary (2) Exercise diligence of
in their company a good father of a family
to prevent damage.

Minors or incapacitated
Exercise diligence of a
Guardians for persons persons who are under
Direct and Primary good father of the family
under their care. their authority and live
to prevent damage.
in their company

A child who is (a) a

Minor; (b) under their
supervision, instruction (1) The activity is not an
Direct, Principally and
or custody; (c) over authorized activity;
School, Administrators, Solidarily Liable.
which they exercise
Teachers and special parental NOTE: The parents, (2) The child is not under
Individual, Entity or authority. guardians or person their supervision,
Institution Engage in exercising substitute instruction or custody;
Child Care. NOTE: The
parental authority are (3) Exercise of due
responsibility appplies
subsidiarily liable. diligence.
to authorized activities
inside and outside the
school.
 PERSONS FOR
PERSONS
WHOSE ACTS NATURE OF POSSIBLE
VICARIOUSLY
LIABILITY IS LIABILITY DEFENSES
LIABLE
IMPUTED

Pupils, students or (1) The student is not in

Teachers and Heads of apprentices so long as their custody;
Direct, primary and
Estabslishments of Arts they remain in custody -
solidary (2) Exercise due
and Trade if they are no longer
minors. diligence.

(1) The employee is not

performing his
Employers Employees and functions or is acting
household helpers - in beyond the scope of his
NOTE: It is not the service or on Direct, primary and
necessary that they function;
occassion of their solidary
engaged in any functions or the scope (2) Exercise of due
business or industry of their task diligence in the
selection or supervision
of the employee.

The person who directly

Special Agents - one
caused the loss is not a
who receives a fixed
special agent - the
The State order, foreign to the Direct and Primary
official was performing
exercise of the duties of
the task that properly
the official.
pertains to him
 PERSONS FOR
PERSONS
WHOSE ACTS NATURE OF POSSIBLE
VICARIOUSLY
LIABILITY IS LIABILITY DEFENSES
LIABLE
IMPUTED

Subordinates that he
A Head of Department has authorized by
He did not give the
of the Government or written order Direct and Primary
Written Order
superior public officer pertaining to specific
act or conduct
What is Doctrine of Contributory
Negligence?
 ANSWER:

 If the negligence of the plaintiff cooperated with the

negligence of the defendant in bringing about the
accident causing the injury complained of, such
negligence of the plaintiff would be an absolute bar to
recovery. If the negligence of the plaintiff was merely
contributory to his injury, the immediate and proximate
cause of the accident causing the injury being the
defendant’s negligence, such negligence would not be a
bar to recovery, but the amount of recovery shall be
mitigated by the courts.
What is Doctrine of Imputed
Negligence?
 ANSWER:

 Refers to the rule whereby negligence of a

certain person in transaction or act which gave
rise to the injury complained of is imputable or
chargeable against the person for whom he was
acting or against his associates.
What is Doctrine of Last Clear
Chance ?
 ANSWER:

 Doctrine of Discovered Peril or the Humanitarian

Doctrine. Means where both parties are negligent in
such a way that it would be impossible to determine
whose negligence was the proximate cause of the
accident, the party who has the last clear chance or
opportunity to avoid the accident by the use of proper
care but failed to do so is considered in law solely
responsible for the consequences of the accident;
(Picart vs. Smith)

What is Doctrine of Res Ipsa
Loquitor?
 ANSWER:

 Where a thing is shown to be under the management of the

defendant or of his servants, and the accident is such as is in the
ordinary course of events does not happen if those who have the
management had used proper care, it affords reasonable evidence,
in the absence of explanation by the defendants, that the accident
arose from want of care;

Requisites:
 a. The accident must be of a kind which ordinarily does not
happen in the absence of someone’s negligence;

 b. It must be caused by an agency or instrumentality within the

exclusive control of the defendant;

 c. It must not be due to any voluntarily action or contribution on

the part of the plaintiff.
 Article 2184 covers 3 situations:

SITUATION LIABILITY

1. The owner is inside the motor 1. Here the owner is solidarily liable
vehicle at the time of the with his driver;
accident. He could have, by the
use of diligence, prevented the
misfortune but did not do so;

2. The driver was found guilty of 2. Here, the driver is disputably

reckless driving or violating traffic presumed negligent;
regulations at least twice within the
next preceding two months before
the accident;

3. The owner was not in the motor 3. Here, Art. 2180 applies.
vehicle at the time of the accident;
DAMAGES
DAMAGES
 As a sum of money which law awards or imposes as
pecuniary compensation, recompense, or satisfaction
for an injury done or a wrong sustained as a
consequence of the breach of some duty or the violation
of some right.

 Damage refers to the amount of money awarded by the

court to compensate for the loss or injury suffered.
Injury refers to the legal wrong to be redressed.
 Different Kinds of Damages recoverable under the Civil
Code:

 1) Actual or compensatory damages

 Compensation awarded to a person for such pecuniary loss
suffered by him as he has duly proved;
 Dano Emergente – Value of the loss suffered.
 Lucro Cesante – Refers to profits which the oblige failed to obtain.
 Award of actual or compensatory damages bars the award of
nominal and exemplary damages.

 2) Moral Damages
 Compensation awarded to a person for physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation and similar injury.
 Moral damages may be recovered in the following and analogous
cases:
 a. A criminal offense resulting to physical injuries;
 b. Quasi-delicts causing physical injuries;
 c. Seduction, rape or other lascivious acts;
 d. Adultery or concubinage;
 e. Illegal or arbitrary detention or arrest;
 f. Illegal search;
 g. Libel, slander or any other form of defamation;
 h. Malicious prosecution;
 i. Acts mention in Article 309;
 j. Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30,
32, 34 and 35;

The parents of the female seduced, abducted, raped or

abused, referred to in © may also recover moral damages.
The spouse, descendants, ascendants and brothers and
sisters may bring the action mentioned in (i) in the order named.
 3) Nominal Damages
 An amount awarded to a person in order that his right, which had
been violated or invaded, maybe vindicated or recognized;
 Grant of nominal damages is a bar to recovery of actual, moral,
temperate or moderate damages.

 4) Temperate Damages
 The compensation which is more than nominal but less than
compensatory damages, awarded to a person when the court finds
that he has suffered some pecuniary loss, but its amount cannot,
from the nature of the case, be proved with certainty;

 5) Liquidated Damages
 That agreed upon by the parties to a contract, to be paid in case of
breach thereof
 6) Exemplary Damages or corrective damages
 That imposed by way of example or correction for the public good,
in addition to the moral, temperate, liquidated or compensatory
damages.

 Exemplary Damages may be imposed under the following

instances:

 a) In criminal offenses, when the crime was committed with one

or more aggravating circumstances;

 b) In quasi-delicts, they may be imposed if the defendant acted

with gross negligence;

 c) In contracts and quasi-contracts, they may be imposed if

defendant acted in a wanton, fraudulent, reckless, oppressive
or malevolent manner.
 Factors considered to Determine Damages in case of
Death:
 1) Loss of the earning capacity of the deceased;

 2) The earning capacity of the deceased, his obligation to

support dependents and the moral damages suffered by his
kin are also considered;

 3) If the financial capacity of the carrier enables it to pay more, a

greater sum should be given;

 4) Life expectancy of the deceased;

 5) The rate of inflation that depleted the value of the judgment

was considered in imposing legal rate of interest on the
indemnity due the deceased.
 In the absence of stipulation, attorney’s fees and expenses of
litigation, other than judicial costs cannot be recovered except;

 1. When exemplary damages are awarded;

 2. When defendant’s acts or omission has compelled the plaintiff

to litigate with 3rd persons or to incur expenses to protect his
interest;

 3. In criminal cases of malicious prosecution against the

plaintiff;

 4. In case of a clearly unfounded civil action or proceeding

against the plaintiff;

 5. Where the defendant acted in gross and evident bad faith in

refusing to satisfy plaintiff’s plainly valid, just and demandable
claim.

 6. In actions for legal support;

 7. In actions for the recovery of wages of household helpers,
laborers and skilled workers

 8. In actions for indemnity under workmen’s compensation and

employer’s liability;

 9. In a separate civil action to recover civil liability arising from

crime;

 10. When at least double judicial costs are awarded;

 11. In any other case where the court deems it just and equitable
that attorney’s fees and expenses of litigation be recovered.
 CONCURRENCE AND
PREFERENCE OF CREDITS
 With reference to specific movable property of the debtor, the
following claims or liens shall be preferred:
 1. Duties, taxes and fees due thereon to the State or any
subdivision thereof;

 2. Claims arising from misappropriation, breach of trust, or

malfeasance by public officials committed in the performance
of their duties, on the movables, money or securities obtained
by them;

 3. Claims for the unpaid price of movables sold, on said

movables, so long as they are in possession of the debtor, up
to the same value of the same; and if the movable has been
resold by the debtor and the price is still unpaid, the lien may
be enforced on the price; this right is not lost by the
immobilization of the thing by destination, provided it has not
lost its form, substance and identity; neither is the right lost
by the sale of the thing together with other property for a lump
sum, when the price thereof can be determined
proportionately;
 4. Credits guaranteed with a pledge so long as the things
pledged are in the hands of the creditor, or those guaranteed
by a chattel mortgage, upon the things pledged or mortgaged
up to the value thereof;

 5. Credits for the making, repair, safekeeping or preservation of

personal property, on the movable thus made, repaired, kept
or possessed;

 6. Claims for laborer’s wages, on the goods manufactured or the

work done;

 7. For expenses of salvage, upon the goods salvaged;

 8. Credits between the landlord and the tenant, arising from the
contract of tenancy on shares, on the share of each in the
fruits or harvest;

 9. Credits for transportation, upon the goods carried, for the

price of the contract and incidental expenses, until their
delivery and for thirty days thereafter;
 10. Credits for lodging and supplies usually furnished to travelers
by hotels keepers, on the movables belonging to the guest as
long as such movables are in the hotel, but not for the money
loaned to the guests;

 11. Credits for seeds, and expenses for cultivation and harvest
advanced to the debtor, upon the fruits harvested;

 12. Credits for rent for one year, upon the personal property of the
lessee existing on the immovable leased and on the fruits of
the same, but not on money or instruments of credit;

 13. Claims in favor of the depositor if the depositary has

wrongfully sold the thing deposited upon the price of the sale.