LAW on SALES

Sale - contract between two parties one obliges himself to transfer a determinate thing in exchange
for a price.

CHARACTERISTICS OF A SALE:

P - urpose: delivery for transfer of ownership

P - erfection: perfected by mere consent

S - ubject matter: must be of determinate thing

C - ause: Onerous

B-ilateral contract: both parties have their respective undertakings

N-ominate: Has a special designation under law

C-ommutative:reciprocal and equally communicated

ALEATORY: Sale of hope in case there is no prestation equivalence.

1.) SALE VS CONTRACT FOR A PIECE OF WORK - both entails price, and ownership transfer

Sale - article used for the ordinary course of business, the sale is a thing

Contract for a Piece of Work - to be manufactured for a special order, subject is service

(Statute of Frauds, only the sale of personal properties priced more than 500 Pesos is required to be
in writing)

2.) SALE VS DACION EN PAGO - There is delivery of determinate thing, transfer of ownership, governed
by the Law on Sales

Contract of Sale Dacion en Pago

Source of an Obligation Special form of payment - extinguishes an obligation

No requirement for a pre-existing obligation There is a NEED for pre-existing obligation

Cause for the buyer is the determinate thing, Cause for Cause for the debtor is the extinguishment of the debt,
the seller is the exchange of price while cause for the debtor is the delivery of the thing
or transfer of ownership

Sale vs Payment by Cession

Contract of Sale Payment by Cession

No need for a pre-existing obligation There must be a pre existing obligation

Creates an Obligation Extinguishes an Obligation

Cause for the buyer is the delivery of the thing while Cause for the debtor is the extinguishment of the
for the seller is the price exchanged obligation while for the creditor is the assignment
of things to be sold to answer for the damages.

In sale - there is a greater freedom as to fixing the price There is no freedom as to price since the pre-existing
(autonomy as to fixing the price) price of the credit is what both parties aim to
distinguish

The buyer becomes the OWNER of the thing upon The creditors do not become the owners of the
delivery property assigned to them but merely given the right
to sell such property to apply such proceeds for their
claims (no Transfer of Ownership)

Governed by Law on Sales Governed by Law on Obligations on Payment by

Cession or the FRIA

SALE VS BARTER

Under the contract of sale, the cause is CASH while for barter it is A NON CASH ASSET

Note: Contract of sale for personal property with a price of at least 500 or sale of real property
regardless of price - covered by Statute of Frauds while contract of barter as to movables with 500
and up or barter of real property is NOT covered by the Statute of Frauds - BARTER NOT COVERED BY
STATUTE OF FRAUDS Problem: determination as to nature of contract - if the consideration is partly
in money and partly another thing

Provided that, such intention does not clearly appear.

it shall be considered barter if the value of the thing exceeds the money

otherwise sale (if the value of the thing is less or equal to money)

CONTRACT of AGENCY TO SELL VS SALE

both things, objects are delivered to the buyer and the agent

SALE: there is transfer of ownership CTS: ownership does not transfer to agent
in contract of sale, after delivery, risk of loss lies on the buyer. In contract of agency to sell, the agent
does not assume the risk of loss but remains with the principal owner. (CTS the seller still bears the
risk)

Kinds Of Sales as to transfer of ownership

1.) Absolute Sale - this transfers the ownership upon delivery actual or constructive regardless IF NO
PAYMENT has been made yet.

If A sold to M a car in 4 equal installments of 50,000. M, after the first installment payment, lost the car
in his possession. He now bears the RISK OF LOSS. Thus M will be under the burden to pay the
remaining

2.) Conditional Sale - The kind of contract of sale in which it automatically transfers the ownership
from the seller to the buyer. ONLY UPON FULFILLMENT OF THE CONDITION

(usually done upon payment of full price without a need for another agreement to execute a new
contract.) Only upon ultimate fulfilment shall ownership transfer

Contract to Sell vs Conditional Sale

A contract to sell - Compel Execution for the deed of sale.

Conditional Sale - the buyer can COMPEL the seller, to sell him the goods or other form of delivery
which is usually the execution of the deed of sale. (IN SIMPLE TERMS: In conditional sale, the ownership
is transmitted upon fulfillment of the condition, whereas when upon the contract to sell, the fulfillment of
the condition only gives rise to demand another document.)

ELEMENTS AS TO CONTRACT OF SALE

Natural - Those which are deemed part of the contract even if not stipulated or even if parties are
unaware (implied contracts)

Accidental - present only because the parties EXPLICITLY stipulated such.

Essential elements of a contract of sale - needed for validity of the contract of sale to exist.

1.) Consent of contracting parties - the buyer and the seller's consent as to each other.

Incapacity: consent may have been given, but there could be instance that the one who gave it is
INCAPACITATED.

a.) ABSOLUTE INCAPACITY - the party cannot give consent to any and all contract, this could result to
the contract being voidable or VOID.

Minors and those without capacity to act - CAN validly enter into a necessary contract (for as long as
consent not being vitiated) Necessary contracts not vitiated
NECESSARY - important as to sustenance, dwelling, clothing, and medical attendance.

b.) RELATIVE INCAPACITY - the party is prohibited from entering SPECIFIC transactions with
some persons and some specific things.

for instance: Husband and wife cannot sell property as to each other, except

i. when a separation of property was agreed upon marriage or settlement

ii. judicial separation of property

for instance: Persons that cannot acquire by purchase or even through contract of lease, even in
judicial auction in person or in representation of another

"RELATIVE INCAPACITY"

Prohibited from acquiring by purchase Nature of property

Guardians Ward

Agents Property of principal if entrusted to them for

administration or sale, unless consent of the principal
has been given.

Executors or administrators Property of the estate under administration

Public officers and employees (applies to judges and The property of the state or of any subdivisin thereof,
government experts who in any manner take part of or of any GOCC, or institution, the administration of
the sale) which has been entrusted upon them.

Justices, judges, prosecuting attorneys, clerks, The property and rights in litigation or levied upon an
superiors, and inferior courts, and other officers, and execution before the court within whose jurisdiction or
employees connected with the administration of territory they excercise their respective functions. This
justice. prohibition includes the act of acquiring by
assignment, and shall apply to lawyers, with respect to
the property and rights which they may take part by
virtue of their profession.

Any other specially disqualified by Law Example: Aliens are prohibited by the constitution
from acquiring lands in the Philippines except if by
succession or in case of a former natural born Filipno
citizen, who has lost citizenship.

i. The contract of sale is null, void because it is contrary to law.

ii. Barred from the nullity of the sale if private interests (estopped). (if Minor Faked Age, barred
from Annulment)

iii. on the other hands, in cases of letter d and e, they involve public interests, action for declaration of
nullity of the sale do not prosper to public interest)

iv. The enumerated persons in column A will only be PROHIBITED from acquiring those properties
enumerated but they are not barred from selling those properties of their counterpart enumerated
persons (acting as agent)

2.) CAUSE - the WHY of the contract encompassing the prestation/promise to be performed by another
party. For the buyer - delivery of the object. For the seller - payment of the price

RULES AS TO price

A. Price must be certain with reference to another thing certain, the determination thereof be left to the
special person's judgement.

(GR: if the special person is unable to fix the price, the contract shall be rendered ineffective, unless
both parties come to a price)

Remedies in case there is a special person who

1.) Acted in bad faith or mistake - the court will fix the price

2.) Prevented from fixing the price or terms by either fault of the seller or the buyer, the party not in
fault can raise such remedy in fault.

B. Gross Inadequacy of price does not affect the contract of sale, except if there in an indication of a
defective consent, or the parties intended some other contract (donation)

C. The price of securities, grain, liquids, and other things shall be considered certain, when the price fixed
is that which the thing is sold would have on a definite day, particular market value, and when the
amount fixed above or below the price on such day or in such exchange market

D. The fixing of the price may never be left to the discretion of only one contracting party. However if the
price is fixed by one and is accepted by the other = perfected.

NOTE: When the price cannot be determined in accordance with the preceeding rules, or in any other
manner, the contract shall be rendered inefficacious. However if the thing or any part thereof has been
delivered to and appropriated by the buyer - SELLER must pay a reasonable price therefor. What is
called reasonable is a question of fact dependent on the circumstances of each particular case.

3.) OBJECT - is the subject matter which could be a thing or a right (determinate)

In contract of sale - there must be no service subject matter

Rules as to objects

a. Must be licit or within the commerce of men

b. The SELLER must have a right to transfer ownership thereof at the time it is delivered

c. it must be determinate - satsified upon the entrance to the contract, the thing is capable to be
determinate without the necessity of further agreement between the parties.

d. Incase of fungible goods, there may be a sale of undivided share of a specific mass, even though:

A fungible good is a good of interchangeable nature, individual identity does not matter

the seller purports to sell and the buyer to buy a definite number of weight or measure of the goods in
the mass; the number, weight, or measure of the goods in undetermined

by such a sale, the buyer becomes the OWNER IN COMMON of such share as to number, weight,
measure, of mass. If the mass contains less, than the number, weight, or measure bought by the buyer
- BUYER BECOMES OWNER OF THE WHOLE MASS and the seller is bound to make good for the
deficiency from goods of the same kinds of quality unless a contrary intent appears.

e.) it may either be an existing good, owned or possessed, by the seller or goods to be manufactured,
raised, or acquired, by the seller after the perfection of the contract = future goods

Object depending upon CONTINGENCY - future inheritance - VOID

-emptio rei speratae > sale of a future thing: must come into existence otherwise the sale will not be
effective (wine,milk,butter)

-emptio spei > sale of hope itself, produces effects even if the thing hoped does not come into
existence (lotto ticket)

- Vain hope - sale of a lotto ticket already drawn

f.) The sole owner of the thing may sell and undivided interest

(X owned the land, he may sell 1/2 or 1/4 of it)

g.) Object in sale can be subject to RESOLUTORY CONDITION - legal redemption

PERFECTION AS TO THE CONTRACT OF SALE:

Consensual Contract - the sale is perfected by mere consent

(as to object of contract and upon the price)

Transfer of ownserhsip - the transfer only happens after the delivery of the good (actual or
constructive) XPN: If both parties agree that the ownership will not be passed on until the full payment of
the price (Conditional sale, ownership may only transfer when price is fully paid)

Sale of auction: is PERFECTED upon the auctioneer by FALL of hammer, or in other customary format

Before perfection:

a.) Any bidder may retract his bid

b.) The auctioneer may withdraw goods from sale unless the auction has been announced without
reserve

Object of sale by auction: when goods are put up for sale in an auction in LOTS these lots are subject
to separate contract of SALE

Seller's right to bid:

1.) General Rule: The seller has no right to bid

2.) Requisites for the seller to ACQUIRE right to bid

a.) The right to bid was expressly reserved to him

b.) Notice was given to the bidders AND

c.) it is not prohibited by law or any stipulation.

Note: Any sale made contradicting the facts above shall be treated as fraudulent by the buyer and
thus make the contract VOIDABLE. since consent is vitiated by causal fraud

Puffers: refers to individuals employed by seller to bid on their behalf, the purpose is for the raising of
price, but the said persons are not in themselves bound by their bids.

OPTION CONTRACTS AND AGREEMENTS: a promise to buy and sell a determinate thing for a price
certain is reciprocally demandable

An accepted unilateral promise to buy or sell a determinate thing for a price is binding upon the
promisor if the promise is supported by a consideration distinct from price which is known to be
"option money"

Rules Applicable:

1.) A period agreed upon under an option agreement (whether or not to accept the offer by the seller)
by the offeror and the offeree is not binding upon the offeror unless it is supported by an OPTION
MONEY
2.) Accordingly, the offeror may withdraw his offer any time even before the expiration period without
being liable for damages.

3.) If there is such a separate consideration, the agreement as to the period is covered by an option
CONTRACT (separate contract and offeror cannot withdraw without being held liable). In which the
case, the offeror cannot withdraw, the offer without being liable for damages, for breach of the option
contract

4.) In either cases, if there is acceptance by the offeree which was already communicated, withdrawal
cannot be validly made since there is already a perfected contract of sale and there is no offer
(existing) anymore to be withdrawn, subject to the Statute of frauds as to enforceability.

(GR: if the offer no longer exists, withdrawal is void)

Policitation: refers to a unilateral promise not accepted by the promisee > no effect

Option contract exist if there is OPTION MONEY (Option money deducted from the purchase price)
Option money - does not take full part of the option price

Earnest Money (Arras) - forms part of the Purchase price and is a proof of the perfection of the sale

Sale of goods by description or Sample: The contract may be rescinded (WHY: The bulk of goods that
has been delivered do not correspond with the description OR THE sample)

Sale of goods by description AND sample: it is not sufficient that the bulk of goods correspond with
the sample if they do not also correspond to the description

(the buyer will then have a reasonable opportunity to compare the bulk with the description or the
sample)

Form: No specific form is required as for the perfection of the contract of sale

STATUTE OF FRAUDS (must be in writing to be enforceable)

1.) Those not performed within a year

2.) Sale of real property

3.) Sale of personal property of a price not less than 500

RECTO LAW - Applies to sale of personal properties - payable in installments/ This also applies to
contracts that purports to be LEASED with options to buy, where the lessor deprives the lessee the
enjoyment of the moveables (finance lease) . As such, Recto law - applies only to installment sales
NOT credit sales

Alternative remedies of the seller: REMEDIES ARE ALTERNATIVE NOT CUMULATIVE

1.) EXACT FULFILLMENT OF THE OBLIGATION SHOULD THE VENDEE FAIL TO PAY

> if the unpaid amount covers installment this is the SOLE remedy

Note: for cancellation of the sale and foreclosing mortgage, the vendee must fail to pay TWO OR MORE
installments.

"unpaid balance is reinforced, deficiency is recovered"

2.) CANCEL THE SALE, SHOULD THE VENDEE FAIL TO PAY TWO OR MORE INSTALLMENTS

> this second option entails: mutual restitution of both parties

Seller returns object buyer returns the object - RESCISSION

General rule: The seller is allowed to retain a reasonable amount of the purchase price already paid as
compensation for the use of the thing (rent) or all the amount paid only if there is a forfeiture clause
which entitles him to the purchase price at the time of cancellation (XPN: The retention of all the
portion of the PURCHASE PRICE would be unconscionable) - Forfeiture clause = right of retention as to
all Purchase price.

3.) FORECLOSE THE CHATTEL MORTGAGE - 3rd option that the foreclosed mortage is the mortgage on
the personal property itself, in case of deficiency of the foreclosure sale proceeds, the seller is NOT
entitled to recover any deficiency from remedy

(if what has been foreclosed in the mortage is another security on a different property, the prohibition
to collect the deficiency, will not apply since the foreclosure of a mortgage of a different property falls
under option 1)

MACEDA LAW - falls under Realty installment buyer act, applies to contract of sale concerning
installments. The Maceda Law protects the buyer from failure to pay installments - Similar to Recto
Law the Maceda Law applies only to installment sales and not credit sales Commercial real property is
not covered.

RIGHTS OF THE BUYER:

1.) if the installments already paid are less than two years equivalent (>2 yrs)

a. Grace period - payment without interest within 60 days - can only be applied once every 5 years

b. the buyer may sell or assign his interest

c. Pay the entire balace

2.) After 2 years worth of installment, the buyer will have additional rights
a.) additional 1 month grace period for every year of installment payment after the first 2 years of
installment (3 month or 90 day grace period)

b.) If the seller will excercise his right to rescind, he will be required to ask a CASH SURRENDER VALUE
to the buyer

CASH SURRENDER VALUE: Minimum of 50% of all payment (including downpayment)

Additional 5% per year after the five years installment (55% on 6th year) up to 90% only

VOID Stipulations:

1.) Stipulation as to interest or damages or penalty during the grace period

2.) Forfeiture clause - because there is a requirement to pay cash surrender value - the seller cannot
retain a portion of the purchase price since there is a grace period.

3.) Automatic rescission or cancellation upon default of buyer, because of the requirements to be
complied with by the seller in order to validly rescind the sale

Rescission: will take effect 30 days after

1.) Notice to buyer of intention to rescind

2.) Payment of CSV

Laws governing condominiums and subdividisions

Non-forfeiture of payment - If the owner or the developer, fails to develop the subdivision or
condominium project according to the approved plan and within the limit of complying the same. The
buyer may:

a.) after due notice to owner or developer - suspend the further payments and there shall be no
forfeiture of any payment made - "suspension of payments"

b.) Cancel the sale and reimbursed the total amount paid including amortization interests but
excluding deliquency interests with interest thereon at legal rate

2.) Failure to pay installments - covered by Maceda Law (faults of himself)

OBLIGATIONS OF VENDOR
To take care of the thing, contracted prior to delivery (1)

Loss of the thing pending delivery:

a.) if entirely lost - contract shall be without any effect

b.) if only in part the buyer can

>withdraw from the contract

>demand the remaining part paying the price in proportion to the total sum agreed upon.

c.) The goods without the knowledge of the seller, perished in part or wholly or in material so
deteriorated that the quality as be substantially changed in character, the buyer may at his option
treat the sale

i. avoided

ii. valid if all the existing goods in so much thereof as have not been deteriorated and as binding to the
buyer to pay the agreed price for the goods in which ownership will pass if the, sale was divisible

RISK of loss: The thing perishes with the owner (res perit domino)

General Rule: With the seller the risk is with the seller, if transferred upon the buyer, the buyer holds
the risk of loss. Whoever bears ownership bears the risk of loss

EXCEPTION:

a.) Prior Stipulation

b.) Security title: delivery of 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 to secure
the performance of the buyer of his obligation under the contract, the goods are at the buyer's risk at
time of delivery

c.) Delay in delivery - whoever causes delay bears the risk.

Pay for taxes (2)

Warrant (3)

Transfer the right to the buyer (4)

Quick Recall: Obligations of the vendor? (Ask yourself don't look at the answer)

SALE OR RETURN - Where the goods are delivered to the buyer, but the buyer has an option to return
the goods instead of paying the price (ownership may be revested within time fixed or reasonable
period of time) (note: the ownership transfers to the buyer thus the risk of loss transfers to the buyer
upon delivery)

SALE ON APPROVAL OR TRIAL/ON SATISFACTION

there is also delivery of goods but there is no transfer of ownership yet, As such, the seller being still
the owner bears the entire risk loss. only upon aproval, trial and satisfaction will ownership transfer
THE OWNERSHIP WILL ONLY TO PASS TO THE BUYER:

a.) When he signifies approval or acceptance to the seller

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 fixed for the return goods had lapsed, and expiration of reasonable
time have lapsed.

Further Obligation of the vendor

> Pay taxes and incidents of the sale, warrant the thing, transfer ownership

Principle: the seller need not be the owner of the thing for the validty of the contract - the seller need
not be the owner of the thing sold, it could be under his capacity, authorized to do so, (liquidator,
executor, administrator, sheriff, notary) (he has the right to transfer ownerhsip, he need not be the
owner of the thing)

This is different as to pledge and Mortgage. -- under pledge and mortgage the pledger or the
mortgagor must be the absolute owner of the thing mortgaged.

SELLER IS NOT THE OWNER:

General Rule : the buyer acquires no better title to the goods than the seller had.. As such if the true
owner recovers from the seller he will have the same right to recover as that of the buyer

Exception: In all of these exception, the buyer acquires the GOOD TITLE to the object even if the seller
is not the owner

a.) Seller is authorized by the owner - such as an agent

b.) seller had statutory or judicial authority to sell (guardian executor administrator)

c.) ESTOPPEL - By pais - he made the buyer believe he was the owner due to conduct

estoppel by deed - the seller acquires legal right on deed registration - transfers to vendee

( mirror principle, unless the buyer is required under the law to excercise the highest degree of
dilligence (banks and public utility companies)

2.) FACTORS ACT (AGENCY) as far as 3rd persons are concerned they only need to rely on the power of
the attorney as written, they need not inquire into limitations imposed by the principal to the agent
not written,

3.) Goods covered by negotiable instruments.

(If the buyer acted in bad faith, the buyer had no better right than the seller will apply upon the
principle of apparent ownership - he knew seller is not the ultimate owner)
e.) Purchase from a merchant store, marketplace, or fair in good faith and for value

The purpose of this exception is to facillitate commercial transactions so as not to degrade the trust in
sales made through stores.

Right of owner of a moveable to recover a possession - One who lost any moveable or has been
unlawfully deprived thereof can recover from a person who is in possession of the same. If the
possesor of a moveable lost or which the owner has been unlawfully deprived, in good faith, the
owner cannot obtain its return without reimbursing the price paid.

To deliver the determinate thing or specific thing including the fruits, from the moment the obligation
to deliver arises including the accessories and accesions thereof (5)

DELIVERY - is the mode in which ownership will be transferred it is accomplished by placing the thing
in control to the vendee.

MODES OF DELIVERY

A.) Actual delivery - actual and physical transfer of the thing for the buyer

B.) Constructive

1.) traditio longa manu - pinpointing with consent of seller

2.) Constitutom Possesrium - at time of sale, the seller is in possesion and remains in posession lease-
back, lessee, borrower, depositary

3.) Brevi manu - shorthand delivery, the buyer is in posession of the moveable in a concept other than
that of the owner at sale, it remains in posession, now as the owner

The buyer now owns the property in other capacity (owner, lessor)

4.) Symbolic delivery - takes place by delivering the keys of the place or depositiory where the
movable is stored or kept

5.) Execution of a required formality - instrument

C.) Delivery to a common carrier - when the parties so agreed that the seller will deliver to the
common carrier for the ultimate delivery to the buyer

THERE IS ALREADY DELIVERY UPON RECEIPT OF COMMON CARRIER

XPN: ownership is reserved by the seller, such as if it is deliverable to the seller or his agent

Seller reserved the posession - goods are deliverable to the buyer but the possession of the bill of
lading is with the seller (Seller reserved possession, he already delivered it to buyer)
A bill of exchange is drawn by the seller against the buyer and the latter dishonors the same. (transfer
of ownership is not reverted unless negotiable instrument is dishonored)

MODE OF DELIVERY AS TO RIGHTS:

i. execution of a public instrument, bind through formalities required by law

ii. Quasi Traditio

i. when the title of ownership is placed in posession of the vendee (certificates of stock)

by the use of the vendee of his rights, with the vendor's consent but if the right hasn't been transferred to
him yet, with the consent of the owner through a proxy ,he may excercise his rights as a stockholder.

TIME OF DELIVERY

1.) GR: Stipulation, if there has been no stipulation (reasonable time)

PLACE OF DELIVERY:

Stipulation of the parties

If no stipulation usage of trade

If no usage of trade, the seller's place of business

If non, seller's residence

However in case of a contract of sale, of specific goods - which to the knowledge of the parties when
the contract of sale was made werein some other place, then that place is the delivery.

SELLER IS NOT BOUND TO DELIVER -

a.) Under pure obligations and the buyer is not ready to pay

b.) There is a period agreed upon, the obligation to deliver shall be demandable only at that time,
except if the buyer loses his right to make benefit of the period.

RULES ON QUANTITY TO BE DELIVERED:

SALE OF PERSONAL PROPERTY: Delivery of less and more

a.) Delivery of less than the quantity agreed upon:

> reject the delivery

> accept or retain the goods delivered and pay at a proportionate price

(the full contract price if he knew that the seller is not going to perform the contract in full)
(fair price, if without such knowledge)

b.) Delivery is greater than the quantity agreed upon

> accept the goods agreed upon and return the rest

>accept all the goods and pay at the contract rate

c.) Delivery of goods with mixed description not included in the contract, the buyer may

MIXED Description - accept the good reject the bad (if divisible) if indivisible, withdraw

(You cannot pay for the product not agreed upon as an alternative decision)

SALE OF REAL ESTATE PROPERTY (MORE AND LESS THAN THE AGREED PRICE)

A.) At a rate of a certain price for a unit of measure or number (QUANTITY)

Delivery is less than the measure agreed upon

a.) ask for specific performance and demand delivery for the shortage

b.) Ask for proportionate reduction of the price (accion quanti minoris)

c.) rescission incase (the area is lacking is at least 1/10 of the agreed upon, the buyer would have not
entered into the contract had he known of the small area)

The same rule applies if immovables is not of the quality specified (except that rescission is an
available remedy in the event that the inferior value is MORE than 1/10 of the price agreen upon.

Delivery is in excess of the area agreed upon, the buyer may:

a.) Accept the area ageeed upon and reject the rest

b.) Accept the whole area and pay at the contract rate

The same rule applies to judicial sales:

Sale of Real Property for a Lump Sum Price: whatever is the actual area of the land, the buyer is
required to pay the price agreed upon and the seller is bound to deliver the entire area

If the actual is bigger, the seller should not deliver the whole actual area, the buyer may:

a.) reduce the price to be paid, in proprotion to what is lacking in the area or number

b.) rescind the contract of the vendor as to failure of agreeing to the stipulations.
Right of the unpaid seller: This still connotes that the ownership had passed down to the buyer

Unpaid seller: the seller of the goods is deemed to be unpaid when the whole price has not been paid
or tendered.

A bill of exchange, or other negotiable instrument has been received as a conditional payment, and
the condition on which it was received was dishonored due to insolvency of buyer.

1.) Possesory Lien - right to retain good or withold the delivery "essentialy the goods has not yet
departed from the buyer"

Under the grounds of:

a.) The goods have been sold without any stipulation to credit

b.) it was sold on credit but the credit has expired

c. the buyer becomes insolvent.

(Partial Lien: Where an unpaid seller has made part delivery of goods, he may excercise his right of lien
on the remaineder, unless such part delivery has been made under such circumstances to show intent
to waive the lien)

The possessory lien will be lost if:

A. The seller delivers the goods to the carrier without reserving ownership as to goods "no reservation
of right of lien"

B. The buyer or the agent now posseses lawfully the goods "sale consummates"

C. waiver of right to possesory lien

unpaid seller of goods having lien thereon does not lose his lien by reason only that he has obtained
judgement or decree for the price of goods

Sale of the thing by the buyer to third persons:

As a rule the seller does not lose his right to posessory lien or right of stoppage transitu

XPN: If the seller assented to the transfer, if the goods are covered by a negotiable document of title
and it is sold to a purchases for value in good faith by whom the document was negoitated.

2.) Stoppage in transitu - right to stop the goods while in transit

Requisites: Seller parted with the posession of goods

b. the goods are already in transit. c. The buyer is insolvent

Goods in Transit

a. From the time they are delivered to land, water or air carrier, or other bailee for the purpose of
transmission to the buyer, until the buyer or his agent takes the delivery from the carrier.

b. If the goods are rejected by the buyer, and the carrier or bailee continues to take posession of
them, and even if the seller refused to receive them back

Goods no longer in transit

a. if the buyer or his agent in behalf obtain the goods before their arrival at appointed
destination

> If after the arrival at the appointed destination, the carrier or other bailee, acknowledges to the
buyer or his agent that he holds the goods on his behalf and continues to be in posession thereof as
the bailee for the buyer or his agent. It is immaterial that further destination for the goods be
indicated by the buyer.

> If the carrier or bailee wrongfully refuses to deliver the goods to the buyer or agent

If part delivery of goods has been made to the buyer, or his agent, in behalf, the remainder of the
goods may be stopped in transitu, unless such part of the delivery has been under such circumstances
as to show agreement with the buyer to give up posession of the whole good. (You can have the right
to stop unless your actions approve transfer)

How is right of stoppage in transit exercised?

a.) taking the actual posession of goods

b.) giving notice of his claim to the carrier or bailee who is in posession of goods as a consequence:

i. The carrier or bailee must redeliver the goods back to the seller

ii. the expenses of such delivery is borne by the seller (since he has the ownership)

iii. If however, a negotiable document representing that the goods issued by the carrier or the bailee,
he shall not be obliged to deliver or justified in not delivering the goods There will be no stoppage in
transit for a negotiable document until the negotiable document shall be dishonored or CANCELLED
first.

3.) RESALE

Grounds: a.) Goods are perishable

b.) The buyer defaulted on the goods within unreasonable time

c.) The seller has reserved his right for resale

(Note: to excercise resale, the unpaid seller must first have the right of lien and the right of stoppage)

In case the resale proceeds are

LESS: than original price, the seller can recover the remaining from the original buyer

MORE: than the original price, the seller is entitled to the profit

Importance of NOTICE: Notice is needed except in cases of resale where the goods are perishable

NOTICE IS NEEDED FOR the buyer including (failure to issue notice does not affect the validity of
resale)

a. The intention of the seller for resale, which is due to the buyer having unreasonable time of
default

b. date, time, and place of resale to be considered a resale is done in good faith to entitle the seller to
any deficiency.

(The seller cannot be the buyer of the resale, directly or indirectly/ may it be public or private)

UNCONSCIONABLE

4.) Rescission - Grounds for rescission:

a.) When the right to rescind is expressly reserved by the seller

b. When the buyer defaulted in the payment of price for an unreasonable time

(GR: to excercise the right to RESCIND the seller must have the right on possessory lien and right of
stoppage in transit)

Upon breach of contract - the seller can recover damages from the buyer

Moreover, notice is not necessary for rescission but the same is relevant to determine the default
within unreasonable time by the buyer.

Stoppage in Transit and Posessory Lien are mutually exclusive rights - cannot be excercised together
(under posessory lien the goods are held, while in stoppage in transit the goods are at the courier)

Insolvency of the buyer - it is a ground only for possesory lien but it is a requisite only attributable
to STOPPAGE IN TRANSIT.
DOUBLE SALE

Requisites for applicability of double sale

1.) Single property

2.) Two contract of sale

3.) Two different buyers whose rights are conflicting

4.) The buyers have acquired the same property from the same buyer (one buyer)

MOVABLE PROPERTY: If the same moveable property is sold to the vendor, two or more vendees, the
one who has the better right over the thing shall be the possesor in good faith.

One who registered it first in good faith

IMMOVABLES: if the same immoveable property is sold by the vendor to two or more vendees, the one
who has the better right over the thing shall be.

1.) The one to first register in good faith

2.) The one to first take posession in good faith

3.) The one with the oldest title

Good faith - pertain as to time of registration or posession not at the time there was perfection of the
sale (Knowledge of the second sale does not make the first buyer NOT in GOOD FAITH) - the act of
registering is merely an act to protect such right.

In order for the rules on double sale to appl y it must be both valid or the least -- voidable,

CONDITIONS AND WARRANTIES

Conditions: when the obligation of either party to a contract of sale is subject to any condition which
is not performed

such party can: (RWT)

1.) Refuse to proceed with the contract "rescission"

2.) Waive the performance of the condition

3.) Treat the non performance as a breach of warranty and ask for damages

Warranties - these are affirmations of fact or any promise by the seller relating to the thing is an
express warranty if the natural tendency of such affirmation or promise is to induce the buyer to
purchase the same and if the buyer purchased such due to reliance.
Opinion of the seller - This is not understood to be a warranty unless the seller made such affirmation
or statment as an expert and it was relied upon

Express warranty - is an affirmation of fact or promise, inducing the buyer to buy a certain good.
However those relating under the opinions of the sellers are NOT considered warranties unless they
are made by experts and the buyers relied.

WARRANTIES UNDER THE CONSUMER PROTECTION ACT

Applicability: Consumer products are goods which are for primary personal family and household
or agricultural purpose - they include but are not limited to goods, drugs, cosmetics and devices

Requirement: Any seller or manufacturer who gives an express warranty for consumer product must
do the following

1.) Set the terms of warranty clearly and readably (clearly identified himself as the warrantor)

2.) Identify the party to whom the warranty was extended

3.) State the products or the parts covered

4.) State what the warrantor will do in the event of a defect, malfunction, or failure to conform to
the written warranty and at whose expense

5.) State what the consumer must do to avail the warranty of rights

6.) Stipulate the warranty period

Period of warranty -all written warranties or guarantees must be operative AT MOMENT OF SALE

1.) The parties may stipulate the period within which the express warranty shall be enforceable. If
the implied warranty on merchantability accompanies an express warranty, both will be of
equal durations.

2.) Any other implied warranty shall endure not less than 60 days but also not more than one year
following the sale to new customers.

Implied warranties

Warranty against eviction - the seller has the right to sell the thing at the time the ownership is to pass.
The buyer then shall have enjoy the legal and peaceful posession of the thing. (someone else has a
better right)

a.) the vendee is deprived of the whole or part of the thing purchased

b.) By virtue of final judgement

c.) the vendor is summoned in the suit for eviction at the instance of the vendee (if the vendee fais to
summon the seller, upon the court the seler will not be liable for eviction)

d. Such judgement is based on

i. a right prior to sale - The 3rd person's right is existing prior to sale

ii. an act imputable to vendor - due to the vendor selling the property twice

RULES APPLICABLE:

a.) Warranty applied without agreement to such effect

b. The vendee need not appeal from the decision in order that the vendor may become liable for
eviction

c. When the adverse posession had been commenced before the sale, but the prescriptive period is
completed after the transfer, the vendor is not liable for eviction

d. if the property is sold for non-payment of taxes due and not made known to the vendee, the
vendor is liable for warranty against eviction

e. the judgement debtor is also responsible for eviction in judicial sales, unless otherwise decreed
by the court

f. the defendant vendee shall ask, within the time fixed by the court for answering the complaint
that the vendor be made a co-defendant

EXTENT OF LIABILITY (depends who is acting in bad faith)

The seller is acting in bad faith

V-alue of thing sold at the time of eviction

I-ncome or fruits to the party who won suit

C - osts of the suit which caused eviction, in a proper case those of the suit brought against vendor

E - xpenses of the contract if the vendee paid them

D - amages and interests and ornamental expenses

The seller is in good faith ( depends whether there is a waiver executed by the vendee)

a.) If there is no waiver the liability of the vendor is VICE no Damages

b.) If there is a waiver, then the liability of the seller depends on whether the vendee is aware of the
risk of eviction
2 types of waivers

Waiver consciente - the buyer is not aware of the risk or without knowledge of the defect in title of
the seller; SELLER IS LIABLE FOR THE VALUE

Waiver intencionada - buyer is aware of the risk and defect; Seller is no longer liable

Partial Loss: Should the vendee lose only a part of the thing sold but the same is important, in relation
to whole (laptop and charger) he may demand rescission of the contract; but with the obligation to
return the thing without other encumbrances that those which he had acquired, instead of enforcing
the vendor's liability for eviction.

2 or more things sold: the same rule shall apply to partial loss (partial loss/ 2 or more thing sold/
lump sum)

a.) If they have been sold in lump sum

b.) or separate prices for each and the vendee would have not bought without the other

WARRANTY AGAINST HIDDEN DEFECTS - The thing should be free from hidden faults or defects

Hidden defects: It would render the thing unfit for its intended use; or even diminish its fitness for such
use to such extent that, had the vendee been aware thereof he would have not acquired it or would have
given a lower price for it

Vendor is not liable if

1.) The defects are patent (visible)

2.) Even if not visible, the vendee who is an expert, by reason of his trade or profession would have
known

Warranty as to fitness of Goods - there is an implied warranty for goods fit for use

a.) the buyer, expressly or impliedly makes known to the seller a particular purpose for which the
goods were acquired.

b.) the buyer depended on the expertise and judgement of the seller (may he be a grower or
manufacturer or not)

In case of contract of sale of a specific article under patent or trade; there is no patent as to the
fitness of goods unless there has been a stipulation to the contrary.

Warranty of merchantable quality: There is an implied warranty that the goods are of
MERCHANTABLE QUALITY
a.) Goods were brought under description

b.) the seller deals with the goods in description (whether or not he is a grower or manufacturer)

In case of a contract of sale in sample, if the seller is a dealer in goods and in kind there is AN IMPLIED
WARRANTY that the goods shall be free from any defect that renders such unmerchantable, which
would not be apparent on reasonable examination of the sample.

Other rules:

a.) the vendor is responsible for the vendee for any hidden faults or defects, even though he was not
aware thereof; unless stipulation to the contrary

b.) An implied warranty or condition as to the quality or fitness for a particular purpose may be
annexed by usage of trade.

Remedies of the buyer/vendee

a.) Accion redhibitoria: Withdraw from the contract + damages

b.) Accion quanti minoris - proportion reduction to price + damages

Loss of the thing with hidden defect (liability of the seller)

a.) if the cause was the defect itself the seller is liable for (PEID)

[Link] ii. expense iii. interest (in good faith) [Link](in bad faith)

If the cause was due to fortuitous event or through the fault of the buyer, the seller is liable to refund
the price less value of the time loss, plus damages (if bad faith)

-the above rules applies likewise to judicial sales, except the judgement debtor is not liable for
damages)

Prescriptive period for remedies: 6 months from delivery

No warranty for hidden defects

1.) sale on second hand

2.) junk shop item

3.) sale in auction

Redhibitory defect in animals - a hidden defect in an animal that even in case of a professional
inspection, should be of such nature that expert knowledge is insufficient to discover such.
But if the veterinarian through ignorance and bad faith, failed to discover such. Or disclose it; he
shall be LIABLE.

Sale of more than 1 animal: GR-The redhibitory defect of one shall give only rise to its redhibition and
not of others: except if the vendee would have not purchased the sound animal without the defective
one, which is presumed to be yoked, teamed, paired, even if separate prices has been fixed for each
one of the [Link] warranty: animals sold in auctions, livestock, fairs (public)

VOID SALES

a.) animals with contagious disease - Animal outside the commerce of men

b.) If the use or service for which they were acquired for in the contract are UNFIT

Remedies and prescriptive periods:

Remedies of the vendee as to redhibitory defect is same with warranty against hidden defects; but he
must make use thereof within a period fixed for redhibitory action or 40 (FORTY) 40 days

Liability of the vendor: in case the animal died

Requisites for liability: ALL MUST BE MET

a.) disease existed at time of sale

b.) the disease which caused the death, existed in the time of the contract

c.) animal died within 3 days after the purchase.

Other rules

a.) If the sale will be rescinded, the animal shall be returned in the condition in which it was delivered
or sold, the vendee being answerable for any injury due to his negligence not arising from
redhibitory fault or defect

b.) sale of large cattle is covered by special laws

WARRANTY AGAINST NON APPARENT ENCUMBRANCES

- an encumbrance is a burden imposed upon immovable for the benefit of another immovable
belonging to a different owner (known to be non-apparent if existence has no indication)

Warranty against non-apparent encumbrace arises when ( 1 year action)

> not mentioned in the agreement

> not recorded within registry of deeds

Remedies of the buyer within 1 year

a.) rescission - from the date of deed execution

b.) damages - discovery

IMPLIED WARRANTIES - is not applicable to sherrifs, auctioneer, mortgagee, or pledgee or other

persons professing to sell by virtue of authority in fact or law, for a sale of something that which a
third person has legal or equitable interest.

OTHER REMEDIES OF SELLER IN CASE OF BREACH OF WARRANTY:

1.) accept or keep the goods and set up against the seller breach of warranty - diminution,
recoupment, extintion of price.

2.) accept or keep goods and maintain action against seller for DAMAGES as to warranty breach

3.) refuse to accept goods and maintain an action against the seller for damages.

4.) rescind (cancel) the sale, refuse to receive goods, or if the goods were already received, return
them, or offer the return back to them and recover the price and any part thereof.

OBLIGATIONS OF THE VENDEE

1.) Pay the price

a.) at the time and place stipulated, or if not pay at the time and place of delivery of the thing sold.

b.) the vendee shall be liable for interest for the period between the delivery of the thing and payment
of the price in the following cases:

i. It should have been so stipulated

ii. Should the thing sold and delivered produce fruits and income

iii. should he be in default, from the time of judicial or extrajudicial demand for the payment of price.

Suspension of payments: If the vendee is disturbed in the possession or ownership of the thing
acquired, or should he have reasonable grounds to fear such disturbance (vindicatory action,
foreclosure mortgage) the vendee can SUSPEND payments until the vendor has caused the
disturbance or danger to cease unless:

a.) the seller gives security for the return of the price in proper case

b.) it has been stipulated, not withstanding any contingency, the vendee is bound to make the
payment
c.) it was a mere act of trespass

Vendors' remedy for rescission: the vendor may immediately sue for rescission

i. the vendee has not yet paid after the delivery is made

ii. the subject matter is immovable (real Property)

iii. there is reasonable fear of loss of the property and its price

Note: however under reciprocal obligation still applies, where rescission can be had even without
reasonable fear of loss if the vendee fails to pay upon delivery.

However still, even though it may have been stipulated that upon the failure to pay price at the time
agreed upon the rescission of the contract may be had, the vendee may pay, even after the expiration
of the period, as long as no demand for rescission has been made (judicially or notarial act), after the
demand, the court may grant him a new term.

(simple terms: if the vendee can still pay beyond due date, no rescssion)

2.) Accept the delivery

Delivery by installment: the buyer is not BOUND to accept delivery by installment

If it was however agreed upon, delivery done in installments and payment separately done

a.) The seller makes defective deliveries in respect to one or more installment

b. buyer neglects or refuses without just cause to take delivery and pay for installments

Breach of contract - so material to justify the injured party in refusing to proceed further and sue
for damages for breach of entire contract, or severably give rise to a claim for compensation but
not a right to treat the whole contract as broken.

the buyer is DEEMED to accept the delivery if

a.) He intimates to the seller, that he has accepted the thing

b.) He does not act inconsistently with the ownership of the seller

c.) after the lapse of reasonable time, he retains good without intimating to the seller his rejection
with them.

Note: If the buyer with his obligation notified the seller of the BREACH of promise of warranty; after
the delivery is made: GR: the seller is not discharged for damages of breach of warranty
EXCEPT:

a.) There is an expression/implied agreement to the contrary

b.) the buyer fails to give notice to the seller of the breach reasonable time after the buyer knows
or ought to know of such

Notify the seller in case of refusal: Unless otherwise agreed upon, where goods are delivered to the
buyer, and he refuses to accept them, having rights to do so, he is not bound to return them to the
seller, but it is sufficient to notify the seller of his refusal to accept them

if the buyer voluntarily constitutes himself as a depository thereof, he shall be liable as such:

Right to examine

GR: the buyer is not demmed to have accepted them unless he has had REASONABLE opportunity to
examine for the purpose of ascertaining whether they are in conformity with the contract.

There will be no right to examine if:

1.) There is an agreement that the buyer cannot examine the goods sold

2.) When there is a stipulation that the goods shall not be delivered to the buyer until he has had paid
the price

3.) When the goods are marked (collect on delivery)

VENDORS REMEDIES FOR VENDEE's BREACH OF CONTRACT

1.) Rescission is an available remedy w/respect to moveable property, if the vendee upon expiration
of the period fixed for the delivery of the thing

a.) The vendee did not appear to receive it (default), in delay

b.) Appeared but did not tendered the price, unless a longer period has been stipulated for the
payment

2.) Action for damages - buyer neglects or refuses to accept and pay for goods

3.) Rescission - no delivery yet

a.) buyer repudiated the sale

b.) buyer manifested his inability to perform his obligation to pay the price

c.) if the buyer breached

VENDEE's remedy for non-delivery

1.) bring action for specific performance, plus damages

2. action for rescission + damages

3.) action for damages

Extinguishing a SALE

1.) Cancellation of the sale of personal property in installments

2.) Rescission of a sale in a residential realty in installment after the Maceda LAW

3.) Resale of goods by unpaid seller

4.) Rescission of sale by unpaid seller

5.) Rescission of the sale of immovable property with a price per unit of measure in case of a
delinquent area of at least 1/10 or when the buyer would not have entered into the contract knowing
of the deficiency or of deficient quality of more than 1/10

6.) Rescission of the lump sum sale of immovable where the seller delivered an area less than the
actual

7.) Rescission by the buyer in case of partial eviction

8.) Rescission - breach of warranty against hidden defects

9.) Rescission by the buyer with non apparent encumbrance

11.) Rescission by the buyer of the sale of land with lacking area or of poor quality

12.) By redemption (conventional or legal)

Conventional redemption - right of repurchase, it takes place when the seller reserve this right, the
obligation is to return the price, and expenses and others agreed upon.

(also known as pacto de retro sale, I sell you something with a right of buying it back)

Ownership: transfers to the vendee-a-retro upon delivery. Howeve, this ownership is NOT absolute,
only conditional. The vendor a retro may be able to excercise right to repurchase. The ownership of
vendee-is subject to resolutory condition

Amount paid at time of excercise

> purchase price

> necessary expense of the contract (fencing the land)

> other legitimate payment

RULES ON FRUITS

At time of sale Redemption Effect

Visible growing fruits there were fruits If the purchaser paid for the fruits
existing at time of sale, he will be
entitled to reimbursement or pro-
rata of fruits existing at time of
redemption. If the buyer did not
pay for the fruits existing, no
liability for reimbursement

No fruits some exist The fruits will be pro-rated

between the vendor-a-retro and
the vendee, giving the latter a part
corresponding to the time he
posessed the land in the last year,
counted from the anniverary as to
the date of sale.

Sale with right to repurhcase: Equitable mortgage (presumed)

1. the price of the sale with right to repurchase is unusually inadequate

2.) vendor remain in posession as lessee (Constitutom Posessosirum)

3.) Upon expiration another instrument extends the period of redemption

4.) Purchaser retains for himself part of the purchase price

5.) vendor binds himself to pay for the taxes

6.) In any other case where it may be fairly inferred that the real intention of the parties is the
transaction that will secure the payment of debt or the performance of any other obligation

remedy: reformation of instrument to clarify pacto de retro or absolute sale

in case of doubt: pacto de retro sale

Period to excercise right to repurchase:

1.) agreed upon (not more than 10 years)

2.) no agreement 4 years from date of contract

3.) the vendor may still excercise right to repurchase within thirty days from the final judgement
was rendered in a civil action on the basis that the contract was a true sale with a right to
repurchase. ( 30 days grace priod)

No redemption or repurchase shall be made when:

1.) In cases of real property, consolidation of ownership in the vendee by virtue of failure to register in
property deeds by vendor without judicial order, after the vendor was duly heard

2.) In cases of personal properties where consolidation is rendered by OPERATION OF LAW

(Consolidation of ownership it means: the ownership of the vendee becomes absolute and the
resolutory condition is removed) - Basta law na ma consolidate ka right ka vendee sa property
moveable or immovable - resolutory condition ends

Vendor with right of repurchase:

1.) the vendor may bring his action against the possessor whose right is derived from the vendee, even
if in the second contract there has been no mention of the right to repurchase without prejudice to
Mortgage Law and Land registraton law as to 3rd persons

2.) The vendee, is subrogated to the vendor's right and action

3.) The creditor of the vendor cannot make use of the right of redemption against the vendee until
they have exhausted the property of the vendor.

MULTIPLE PARTIES

1.) Sale of an undivided immovable: vendee eventually acquires the whole may compel the vendor to
redeem the property

2.) Several persons jointly and in the same contract

they sold an undivided immovable with a right to repurchase

a,) Seller - can redeem his share

b. buyer - compel the redemption of the entire property, cannot be compelled to agree as to partial
redemption

( A and B are co owners, sold their respective shares in Deed of Sale - with right of repurchase. In this
case, A can only redeem his share, but X cannot be compelled to a partial redemption; B is required to
redeem. Then if B does not want to redeem A cannot validly exercise his right of redemption for his
own share alone)

Same rule applies to Co-Heirs

Note: If the vendee himself has multiple heir, the action for redemption should be to each for their
own respective shares.

2.) Co owners sold separately - each can excercise his own right of redemption and cannot be
compelled to redeem whole property ( can be exercised individually)

LEGAL REDEMPTION - right to be subrogated upon the same terms and condtions stipulated within
the contract, in place of one who acquires the thing by purchase or dacion en pago.

(for as long as transmission is done by onerous title)

Subject could be a moveable or an immovaveable property

Amount to be paid upon legal redemption - purchase price, unless the price is alienated to be grossly
excessive, in this case the redemptioner will PAY A REASONABLE ONE

Should there be multiple redemptioners: they may only do so in proportion to their respective
shares (joint)

Note: if there are co -owners the right of redemption of the co owners excludes the adjoining or
adjacent land owners (superior over adjoining or adjacent)

2.) Owners of adjoining lands - will acquire right of redemption in case of transfers of land

Requisite:

a.) Subject is rural land

b.) Land must not exceed one hectare

c.,) Redemptioner is the owner of the land adjoining the subject rural land

d.) The adjacent land are not separated by brooks, drains, ravines, roads and other apparent servitude
for the benefit of other estates

e,) The grantee/buyer owns the rural land

Multiple redemptioners: In case of two or more adjoining redemptioners

a. the owner of the adjoining land is preferred

b. should both land have the same area; the one who first requested redemption
REDEMPTION OF URBAN LAND

-the subject is an urban land

-the area of the land is so small and situated that a major portion thereof cannot be used for any
practical purpose within a reasonable time, having been bought for speculation

-the owner of the land must be an adjoining or adjacent land owner

Upon pre emption vs redemption

a.) Pre emption is the right to be excercised by an adjoining land owner if the sale is not perfected yet.

b.) If the sale is perfected, the right exercisable is redemption

Multiple persons exercising right of redemption/pre emption of urban land:

the one whose intended use is best justified (urban land) preferred

Period to excercise (30 days from notice in writing by prospective vendor) or vendor. The deed of sale
shall not be recorded in registry unless accompanied by affidavid that the owner has given written
notice to all possible redemptioners.

Subject Matter Amount Multiple Redemptioners

Co owners Real/Personal Property Purchase price unless it is All pro rate (Joint)
grossly excessive, in
which pay a reasonable
one

Adjacent Rural owners Rural Land complying Purchase Price Smaller lot area, if the
with the essential same area first to redeem
requisites

Adjacent urban Owners Urban Land complying Purchase Price One whose use is best
with the above requisites justified

Assignment of Credit - a contract whereby a person transfer his credit (right of action against 3rd
person) to a another person, for a consideration of money/equivalent. (it is a consensual contract
perfected by consent, can be entered in oral written or private or public instrument)

Formality of Assignment of credit to bind 3rd persons

1.) For assignment of PP - must be in public instrument

2.) For assignment of RP - must be recorded in registry of property deeds

Warranties by the vendor in good faith upon assignment of credit

Existence of the credit at time of sale = Legality of credit at time of sale

Exceptional cases where the assignor is still liable for the insolvence of the debtor of the credit

1.) When the assignor EXPRESSLY warrants the solvency of the debtor ( 1 year from maturity date of
credit or the date of assignment whichever is LATER)

2.) When the assignor acted in bad faith because the insolvency of the debtor of the credit is of
public knowledge when he assigned the credit

Assignment of credit (sale of Non-negotiable Negotiation of negotiable instrument by a general

Promissory Note) indorser (negotiable promissory note)

Transferee: assignee Transferee: holder

Transferor: assignor Transferor: general indorser

Assignee - subect to personal defenses available to Holder - free from personal defense
prior parties

The assignor does not (unless express) warrant the General Indorser - guarantees the solvency of the
solvency of the maker maker for as long as notice of dishonor is given

LAW ON CREDIT TRANSACTIONS: (FAF)

Requisites as for a contract of pledge/mortgage (must be complied at the time the contract was
entered upon)

> secured for a fulfillment of a principal obligation - an accessory obligation.

> the pledgor or the mortgagor must be the absolute owner of the thing mortgaged
> That the persons constituting the pledge or mortgage have free disposal of their property/or legal
authority - Unlike in sales the pledgor or mortgagor must have free disposal of their own property will
full and legal authority

Accessory contract - a pledge or a mortgage is an accesory contract - cannot exist without a principal
obligation

TYPES OF OBLIGATIONS A PLEDGE OR A MORTGAGE MAY SECURE:

1.) Pure Obligations

2.) Conditional Obligations (resolutory or suspensive)

3.) Obligations with a term (suspensive or resolutory)

4.) Natural Obligations

5.) Rescissible Contracts

6.) Voidable Contracts

7.) Unenforceable contract (GR: not applicable for void obligations and contracts)

Right to foreclose- may be alienated upon payment of creditor

THIRD PERSONS: Parties who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property.

Automatic appropriation is prohibited - Pactum Commisorium *void

Indivisibility of the contract - a contract of pledge or mortgage is indivisible even though the debt
may be divided among succesors in the interest of the debtor or creditor.

therefore:

> the debtor's heir who has paid a part of the debt cannot ask for proportionate extinguishment of
the pledge or mortgage for as long as the entire debt is satisfied

> neither can the creditor's heir who received his share upon the debt return the thing pledged or
mortgaged, to the prejudice of other heirs who has not yet paid

GR: indivisibility of the pledge or mortgage is not affected if the creditors or debtors are solidarily liable.

XPN: if there are several things pledged or mortgaged, each one of them guarantees a determinate
portion of the credit.
The debtor in this case shall have a right to extinguish the pledge or mortgage for as long as it is in
portion for the debt it was specially answerable for.

PLEDGE - is a contract a debtor delivers to creditor or third person a moveable object "personal
property"

The pledge must represent an incorporeal right - for the purpose of securing the fulfillment of the
obligation. With the understanding that upon fulfillment, the same is returned along with its fruits and
it accessions

Delivery: must be essentially delivered to the creditor's or third person's posession

Pledge could be voluntary/conventional (agreement) or it could be Legal (operation of Law)

Pledge Characteristics RAUSIN

Real - perfected upon delivery

Accessory - cannot exist without principal

Unilateral - creates a sole obligation for the creditor to return

Subsidiary - obligation to return incurs upon fulfillment of principal

Indivisible - creates a lien on the whole property

Nominate - has special name designated by law

CAUSE OR CONSIDERATION:

The pledgor - principal obligation "The pledgor aims to extinguish the principal obligation and the
creditor must return the thing upon fulfillment"

Pledgor (not debtor) - compensation stipulated or mere liberality

OBJECT

1.) Moveables and Incorporeal right (evidenced by negotiable instrument, bills of lading, stocks,
bonds, if negotiable must be indorsed)
Must be: within commerce of man, if the pledge earns fruits, income, dividends, or interest - the
creditor must compensate what he received with those owing to him, if none owes to him in so far as
the amount due, he shall apply to principal.

(if the pledged security owned dividend; the creditor can apply it to interest owing to him, of none,
apply to principal) - The creditor can apply fruits/dividends to Debt First to interest then to principal

2.) Unless there is a stipulation to the contrary, the pledge shall extend to interest and earnings of the
right pledged

> In case the interest being earned by the promissory note given by way of pledge-- forms part of what
secures the obligation to deliver

3.) In case of pledged animals, the offspring is belonging to the owner who pledged unless there is
stipulation - Offspring belongs to owner, pledge of animals.

5.) Unless the pledged thing is expropriated the debtor is still the OWNER

6.) The creditor may bring action pertaining to the owner of the thing pledged to recover from it or
defend against 3rd persons

Deposit of the thing pledged with 3rd person:

1.) On part of the pledgee - if there is stipulation granting such right

2.) On part of pledgor

a. through negligence, willful act of the pledgee, the thing pledged is in danger of being lost or
impaired

b. if the pledgee uses or misuses the thing

FEAR OF DESTRUCTION, LOSS, or IMPAIRMENT w/o pledgees fault

1.) The pledgor can demand the return of the thing and offer another of the same kind not of an
inferior quality

2.) The pledgee may cause the same to be sold at public - proceeds shall be used as security for principal
obligation the same manner for the thing originally pledged

(the pledgee is bound to advise the pledgor, without delay, if there is any danger to the thing pledged)

THERE IS NO FORM FOR CONTRACTOF PLEDGE (no prescribed document form)

For it to affect third persons:

1.) Public instrument (description and date)

Alienation (sale) of the thing pledged - is allowed through the consent of the pledgee

result: The ownership transfers to vendee, but pledgee retains posession

Creditor-pledgee

1.) take care of the thing with DGFF

2.) Has the right to reimbursement of expense for preservation as to loss and deterioration

3.) pledgee is liable for the acts of his agents and employees to the thing pledged

4.) If the creditor is deceived as to substance and quality of the thing pledged - he may demand
immediate payment or ask for another thing to be pledged.

USE OF THE THING PLEDGED: cannot be used w/o consent of owner

XPN: If consented by owner, and preservation requires such use for sole purpose of use

(use or misuse will render the owner to ask for the thing pledged to be judicially or extrajudicially
disposed)

PLEDGOR

> the pledgor knowing may damage tapos gipledge is liable for damages

> The debtor cannot ask for return of the thing pledged against the will of the creditor unless he has
already paid the debt and the interest

EXTINGUISHMENT OF PLEDGE

can be by any mode of extinguising the obligation or extinguishing the principal obligation:

but also:

1.) The thing pledged is returned - If the thing pledged is returned by the pledgee, to the pledgor or
owner; the pledge is extinguised. Any stipulation to the contrary shall be void

Presumption: if subsequent to perfection of pledge, the pledged thing is now with the owner it is a
prima facie evidence that it was returned by the pledgee. The same if the pledged is in the hands
of third persons who received it from pledgor

2.) Renunciation or abandonment of right - a statement in writing by the pledgee that he renounces
the pledge is sufficient to extinguish the pledge. In result the pledgee becomes a mere depositary,

Foreclosure sale:
1.) the creditor to whom the credit has not been satisfied in due time may proceed before a Notary
public to the sale of the thing pledged

2.) This sale MUST be made at PUBLIC AUCTION

3.) With notification to the debtor/ owner of the thing pledged in a proper case, stating that the thing
pledged will be sold.

Creditor's right of appropriation

1.) if at first auction the thing was not sold, the second one with the same formalities can be held

2.) upon second auction no sale, he may appropriate the thing pledged (he must give acquittance for
his entire claim)

Pledgors right to bid: at public auction the pledgor or owner may bid, he shall moreover have a better
right if he offer the same terms as the highest bidder

The pledgee may also bid but his offer in invalid if he is the only bidder

All bids must pay purchase price at once, if other bids are accepted the pledgee is deemed to receive
the purchase price as far as pledgor or owner is concerned.

Sale of thing; proceeds thereof - "Foreclosure sale of a pledge"

> if the price is more than the amount the debtor cannot entitle himself to excess unless otherwise
stated

> if the price is less than the amount the creditor cannot recover the deficiency, not withstanding
any stipulation to the conrary

(the sale of the thing pledged will extinguish the obligation, whether or not the proceeds of the sale
are equal as to amount of the principal obligation, interest and expense)

Creditor as the object of the contract pledged - if a credit has been pledged and it becomes due before the pledge
was redeemed, the pledgee may collect and receive the amount due, he shall apply it to payment and deliver surplus to
pledgor) Note: IF THERE IS FORECLOSURE, the creditor-pledgee will be entitled to the excess

Third part pledgor

Rights same as guarantor:

a.) Indemnified for the total amount of debt, including interest, expense, damages

b.) subrogated all rights of the debtor (pov: of creditor)

c.) he is not prejudiced by any waiver of defense by the principal obligor

The third part pledgor be released from liability:

1.) if the creditor voluntarily accepts the immovable or other property in payment of debt even if the
creditor loses the same by eviction

2.) Exentsion of time granted to debtor without 3rd part pledgor's consent

3.) If through the same act of creditor, the pledgor cannot be subrogated to rights, mortgages, and
preferences of creditor

4.) if the thing pledged is deteriorated from the fault of the pledgee-creditor

VOID STIPULATIONS:

1.) a stipulation which provides that the pledge is not extinguished by the return of the thing pledged

2.) automatic appropritation of the thing pledged in default of debtor

3.) recovery of deficiency in case of proceeds of sale less than the amount of the obligation

After the public auction - the pledgee shall advise pledgor of the results and any third person who has
any right to the thing pledged may satisfy the principal obligation as soon as it becomes due and
demandable

>if two or more things are pledged; the pledgee may choose which of the following he chooses to be
sold, unless there is a stipulation to the contrary. He may demand sale of only as many of the things
necessary.

4.) With regards to pawnshops and other establishments, which are engaged in making loans secured
by pledges, the special laws and regulations concerning them shall be observed

LEGAL PLEDGE - the right to retain of the thing pledged until he receives payment.

Legal Pledge examples

1.) A possesor in good faith can retain such thing with all encessary expenses he must do till he will be
reimbursed

2.) He who has executed a work upon a movable will have a right to retain such until the pledge is paid

3.) The depositary may retain the thing disposed: until the time there is payment of what has ebeen
due from him

DISITINCTIONS:

1.) Under legal pledge there must be a demand of one month for foreclosure, no demand exists for
such conventional foreclosure.
2.) deficiency in the foreclosure of sale can never be recovered but in deficiency in public sale in legal
pledge there can be recovery

3.) the excess in foreclosure in the contract of pledge will go to the pledgee in absence of the
stipulation, but the excess in public sale in legal pledge goes to the debtor.

REAL ESTATE MORTGAGE:

The object of a reale state mortgage shall only include the following:

1.) Immovables

2.) Alienable real rights in accordance with laws, in accordance of what the law provide under
immovables

Moveables - are subject of the chattel mortgage

Characteristics as to the real estate mortgage:

1.) Accessory: it cannot exist without the principal

2.) Indivisible - a real estate mortgage creates a lein on whole

3.) Inseparable - subjects the property to the possesor, upon fulfillment of the obligation whose
security it was constituted.

4.) Real Right - it creates a lien on the property mortgaged which may be enforceable even against
third parties in good faith ifit is registered.

5.) Consensual contract - perfected by mere consent

6.) Nominate contract - it has a name given to it under the laws.

Types of real estate mortgage (immovables)

1.) Conventional - agreement of parties

2.) Legal - one expressed by the requirement and provision of the law

3.) Equitable real estate mortgage - is one which though lacks formality, but certain fact imposes the
intention of the parties to charge real property as a security for a debt and contain nothing contrary to
law. The remedy of the injured party is REFORMATION OF AN INSTRUMENT

There is no prescribed form for the real estate mortgage

To affect third persons:

1.) there must be a public instrument - and must be recorded in the registry property of deeds

The creditor mortgagee has no other right than to demand the execution and the recording of the
document in which the mortgage is formalized.

Object: the mortgage extends to natural accessions, improvements, fruits, rent, and income not yet
received when the obligation comes due, and to amount of the indemnity granted or owing to the
proprietor from the insurers of the property mortgaged in virtue of expropriation for public use, with
declarations, and contents by law, whether the estate remains in possession or passes such to third
person.

Principal obligations covered: GR: this only covers what is discussed in the deed even if less that
amount of loan XPN: if there is a stipulation to cover future advancements (dragnet clause)

Mortgage credit is transferrable: the mortgage credit may be alienated or assigned to third person in
whole or in part for as long as the prescribed formalities are followed in law

Pactum de non-alienado - the onwer is allowed to alienate the immovable property mortgaged. A
stipulation prohibiting/forbidding such right is called pactum de non-alienado and will be considered
a void stipulation.

Third party transferee: buyers or transferees of the property mortgaged are not affected by an
unregistered mortgage. However, if the mortgage is registered

a.) Bound as to foreclosure of sale on immovable property (as for such he will be acquire the excess in
case of foreclosure)

b.) Not bound to answer the deficiency

c.) Unless there is novation in person of the debtor (the third person will be bound to deficiency)

Foreclosure: in case of non payment of the principal obligation the creditor-mortgagee can foreclose
the mortgage for either judicial or extrajudicial means

Rules as to foreclosure of extrajudicial and judicial sales:

Extrajudicial Sales: Not required for notice of foreclosure

Judicial Sales: Posting of 3 in public places, 20 days prior to the foreclosure of sale.

Proceeds

> than the paid amount = mortgagor will be entitled to excess

< than the paid amount = mortgagor will be entitled to recover deficiency
Generic treatment: mortgage is a separate contract and merely stands as a means to recover the
unpaid amount. that is why the excess is returned to the mortgagor, and the debtor remains liable
thereto.

redemption: exists only in Real estate mortgage foreclosures. the period to redeem shall depend on
the foreclosure

1.) Extrajudicial

a.) general rule = 1 year from the date of foreclosure

b.) exception: under the general banking law, 3 months from sale or registration of the certificate of
sale whichever is earlier

Whenever

i. debtor is the juridical person

ii. creditor is the bank

2.) Judicial - although the rules of the court provide the equity of the redemption is 90 days to 120
days, it has been held that the equity of redemption exists as long as there is no confirmation of sale
by the court.

VOID STIPULATIONS:

1.) A stipulation which provides for tipo or upset of price in foreclosure sales of mortgaged property. A
tipo or upset price is the maximum limit as to the selling price in the public sale of a mortgaged
property. (there is no limit in public auction for bidder)

2.) Stipulation allowing automatic appropriation by the mortgagee of the thing mortgaged in case of
default

3.) A stipulation preventing the mortgagor from disposing or selling his property.

Chattel Mortgae - pertains to personal properties recorded in the chattel mortgage register

(if the moveable object, instead of being recorded in the mortgage register, is the delivered to the
creditor immediately or upon the hands of a third party, the contract is pledge not a chattel mortgage)

CHARACTERISTICS:

1.) Accesory: it canno exist wihtout the principal

2.) indivisible: creates lien on the whole or all of the properties mortgaged, which liean continues until
the obligation is secured or fully paid.
3.) Inseparable - subjects property to posessor until it is fully paid

4.) Formal - perfected by registration ( not a real contract)

5.) Nominate - name given by law

Affidavit of good faith: states that both parties swear that the mortgage is made solely for the purpose
of securing the obligations specified in the conditions thereof, and for no other purpose, at the same
time, it is valid and just and not one entered into for purposes of fraud,. (its absence does not affect
the validity of the contract, makes it non binding as to third persons who acted in good faith)

In absence, both parties are in pari delicto (no available remedies as to each other)

To be binding as to third parties (must be registered in chattel mortgage registry) MARINA - as for
vessels; in cases of vehicles and must be reported to LTO

Coverage: debts existing at the time the contract was entered into and indicated in the affidavit of
good faith. As a rule, an amendment of the affidavit shall be necessary to cover subsequent
obligations.

Disposal of the product upon pendency of mortgage: criminal act

All foreclosure of chattel mortgages are done EXTRAJUDICIALLY

Notice: 10 days prior to foreclosure sale 10 copies posted in public places

Proceeds from foreclosure of chattel mortgage

> than unpaid amount = excess belongs to mortgagor

< than unpaid amount

a.) The creditor is entitled to deficiency XPN governed by Maceda law, no collection must be done on
unpaid amount.

There is NO right of redemption under chattel mortgage

Civil code provisions as to chattel mortgae are superseeded by personal property security act

PLEDGE REAL ESTATE MORTGAGE CHATTEL MORTGAGE

Personal Property susceptible real property but extends to personal property registered
including incorporeal rights natural accessions, improvements,
growing fruits, rents, and income
not yet received when the
obligations comes due and to the
amount of indemnity from
 expropriation - may include after
acquired properties as per
stipulation

Perfected by delivery and must be Consensual - covered by statute of Formal contract- perfected by
on public instrument to bind third frauds registration of chattel mortgage
parties
Must be in Public instrument to Affidavit of good faith to bind third
bind third parties persons - Chattel Mortgage Registry
or MARINA LTO for vessels

Transfererred to pledgee retained by mortgagor Retained by mortgagor

return of the thing pledged by

pledgee to pledgor extinguishes
the contract of pledge

Covers what is existing in time of Generally covers only which is Shall be debts existing at time the
pledge stated in the deed even if less than contract was entered into as stated
amount of loan except if there are in affidavit of good faith, as a rule,
stipulations as to cover future amendment of affidavit is needed
advancements to cover subsequent obligations

Disposal during pendency is valid Valid - any stipulation to the Disposal of the object during
as long as with consent of the contract is void pendency is a criminal act
creditor/pledgee in posession if the
ownership is transferred to buyer.

Redemption - done by notary Extrajudicial or Judicial Extrajudicial Only

public in public auction - always
extrajudicial - no intervention of
courts

Notice for foreclosure - required Extrajudical - not required Required 10 days prior to sale with
stating amount due posting of 10 public places before
Judicial - posting in 3 public places auction
In a legal pledge, a demand for the 20 days prior to sale and
amount is rquired 30 days from publication of notice in a
such demand may there be newspaper of general circulation
foreclosure thereof

Creditor is entitled to excess Creditor is not entitled to excess Creditor is not entitled to excess
EXCEPT: if there is a stipulation to
the contrary

The creditor is not entitled to Creditor can recover deficiency GR: creditor is entitled to deficiency
recover deficiency except if the mortgagor is a third except under recto law
person (unless a stipulation making
 him liable)

No right of redemption EXTRAJUDICIAL FORECLOSURES There is no right of redemptiontat

exist in a foreclosure of chattel
1 year from date of foreclosure mortgage.
except if

CR: is bank DR: juridical person

3 months from the registration or

sale whichever is later

JUDICIAL - equity of redemption is

valid only until confirmation by
sale.