CHAPTER 5 FORMATION OF negotiation and

SALE bargaining, ending at

Phases of a contract of sale: the moment of
perfection;
a) POLICITATION,
negotiation, - the negotiation stage “covers the
period from the time the prospective
preparation,
contracting parties indicate interest
conception or in the contract to the time the
generation stage, contract is perfected.”
which is the period of
b) PERFECTION or “birth” of the c) CONSUMMATION or “death”
contract, which is the point in of the contract, which is process
time when the parties come to of fulfillment or performance of
agree on the terms of the sale; the terms agreed upon in the
contract.
- the perfection stage of the
contract takes place upon the - the stage of consummation
concurrence of the essential begins when the parties perform
elements thereof. their respective undertakings
under the contract culminating in
the extinguishment thereof.
POLICITATION STAGE In essence, the policitation
- it covers the legal concepts of stage is populated of legal
invitation to make offer, offer, creatures which are not
acceptance, right of first contracts of sale as defined
refusal, option contract, under Article 1458 of the CC,
supply agreement, mutual but each of them have, as the
promises to buy and sell main object of their esixtence,
(contract to sell), and even the fervent hope of becoming a
agency to sell or agency to buy. valid and binding sale.
(Equatorial Realty Dev. Vs Mayfair 1. ADVERTISEMENTS AND
Theater) INVITATIONS
Dissenting opinion of Justice Vitug: Art. 1325 & 1326 provide that “unless it
appears otherwise, business
“it would be perilous a journey, first
advertisements of things for sale are not
of all, to try seek out a common path definite offers, but mere invitations to
for such juridical relations as make an offer”, that advertisements for
contracts, options, and rights of first bidders are simply invitations to make
refusal since they differ, proposals, and the advertiser is not
substantially enough, in their bound to accept the highest or lowest
concepts, consequences and legal bidder, unless the contrary appears.
implication.”
GR: they are less than offers and The better view is that even
constitute merely invitations to when the ads contain a certain
make an offer, or mere proposals; offer, it remains legally a mere
direct acceptance of such invitation so long as it is
advertisements does not give rise to
addressed to the public at large,
a valid and binding sale.
and the exception comes in
EXN: “it appears otherwise” in which whenever it expressly provides
case such advertisements constitute that the first absolute acceptance
offers and if certain and accepted shall be binding, or when it is
directly would give rise to a valid addressed to a particular offeree.
and binding sale.
2. OFFERS The offeree, on the other hand, has only the
choice to accept or reject the offer in its
Prior to its acceptance, even when a certain entirety.
offer remains subject to the complete will of
the offeror, it may be withdrawn or destroyed However, he has the choice to indicate further
by the offeror prior to its acceptance and it is negotiations by making a counter-offer, which
not even necessary that the offeree learns of would then replace and repeal the original
the withdrawal. offer. It is considered as the rejection of the
original offer.
The offeror has the right to attach to his offer
any term or condition he desires, and may fix An offer becomes ineffective upon the death,
the time, place and manner of acceptance. civil interdiction, insanity or insolvency of
either offeror or offeree, before the
acceptance is conveyed and received by the
offeror.
3. OPTION CONTRACTS
a) Location of Options ART. 1324 “When the offeror
has allowed the offeree a
ART. 1479 An accepted certain period to accept, the
unilateral promise to buy and offer may be withdrawn at any
sell a determinate thing for a time, except when the option
price certain is binding upon is founded upon a
the promissor if the promise is consideration, as something
supported by a consideration paid or promised.
distinct from the price.
It means when the option is b) Definition and Essence of
founded upon a proper Option Contracts
consideration, the offer may (Enriquez de la Cavada vs. Diaz)
not be withdrawn during the Defined an option as a privilege
option period; it has existing in one person, for which he
essentially become a had paid a consideration, giving him
“contracted offer” bounded by the right, if he chooses, to buy certain
merchandise, or certain specified
the principles of mutuality and
property at a fixed price, from
obligatory force. another person, at any time within
the agreed period.
(Adelfa Properties, Inc vs CA) This case emphasizes that an option is not of
itself a purchase, but merely secures the
privilege to buy; it is not a sale of property but
An option is a continuing offer by which a sale of the right to purchase. It imposes no
the owner stipulates with another that binding obligation on the person holding the
the latter shall have the right to buy the option, aside from the consideration for the
property at a fixed price within a certain offer.
time, or under, or in compliance with,
certain terms and conditions, or which Until acceptance, it is not considered a
gives to the owner of the property the contract of sale but is merely a contract by
which the owner of the property gives the
right to sell or demand a sale and it is
optionee the right or privilege of accepting the
also sometimes called an “unaccepted offer and buying the property on certain
offer”. terms.
(Equatorial Realty Dev. Vs valid and enforceable, must, among
Mayfair Theater) other things, indicate the definite
price at which the person granting
An option is one necessarily the option, is willing to sell.
involving the choice granted to
another for a distinct and separate it is separate and distinct contract
consideration as to whether or not to from that which the parties may
purchase a determinate thing at a enter into upon the consummation
predetermined fixed price. of the option. It must be supported
by consideration.
The deed of option or the option
clause in a contract, in order to be
(Carceller v. CA) contract with any other person
during the period designated,
An option is a preparatory and, within that period, to enter
contract in which one party into such contract with the one to
grants to the other, for a fixed whom the option was granted, if
period and under specified the latter should decide to use
conditions, the power to decide, the option. It is a separate
whether or not to enter into a agreement distinct from the
principal contract. It binds the contract which the parties may
party who has given the option, enter into upon consummation of
not to enter into the principal the option.
c) Obligations of the offeror 2) Not to withdraw the offer or
in a valid option option during the option
period; and
1) Not to offer to any third
party the sale of the object of 3) To hold the subject matter
the option during the option for sale and to transfer it to the
period; offeree in the event that the
offeree exercises his option
during the option period.
d) Elements Of Valid Option including the manner of payment
Contract thereof); and

1) Consent or the meeting of the 3) Prestation (a consideration

minds upon: separate and distinct from the
purchase price for the option
2) Subject matter (a given).
determinate or determinable
object for a price certain
e) Meaning of “Separate contracting parties to enter into the
Consideration” contract, that the cause or the impelling
reason on the part of the buyers-offerees
in executing the deed of option as
Unlike in a sale where the price is
appearing in the deed itself was the
generally refers to cash or its equivalent,
sellers-offerors’ having agreed to buy the
in a option contract the consideration
original half of the land at P70 per sqm
may be anything or undertaking of value.
which was greatly higher than the actual
reasonable prevailing price, which
(Villamor vs. CA)
consideration was clear from the deed
itself.
It was held that the consideration of the
option is the why of the contracts, the
essential reason which moves the
(Soriano vs. Bautista) entire price of P3,900 should the
option be exercised.
An option to buy attached to a real
estate mortgage was deemed to be The ruling is significant considering
valid stipulation and the that a real estate mortgage itself, being
mortgagor’s promise to sell is merely an accessory contract, does not
supported by the same have its own consideration and is
supported by the same consideration
consideration as that of the
that pertains to the principal contract
mortgage itself, which is distinct
of mutuum. That shows clearly the
from that which would support the wide range of “cause of consideration”
sale, an additional amount having that can validly support an option
been agreed upon to make up the contract.
f) When option is without separate “In an accepted unilateral promise to sell,
consideration since there may be no valid contract without
a cause or consideration, the promissor is not
bound by his promise and may, accordingly,
(Sanchez vs Rigos) withdraw it.”
It was held that without consideration
separate from the purchase price, an option Pending notice of its withdrawal, his accepted
contract would be void as a contract but promise partakes, however, of the nature of
would still constitute a valid offer, so that if an offer to sell which, if accepted, results in a
the option is exercised prior to its withdrawal, perfected contract of sale.
that is equivalent to an offer being accepted
prior to withdrawal and would give rise to a The burden of proof to show that the option
valid and binding sale, thus: contract was supported by a separate
consideration is with the party seeking to
show it.
(Tuazon vs Del Rosario-Suarez) (Vazquez vs CA)
There is in fact practically no difference It reiterated the Sanchez ruling that in an
between a contract option to purchase land option contract, the offeree has the burden of
and an offer or promise to sell it. In both cases proving that the option is supported by a
the purchaser has the right to decide whether separate consideration, it also held that the
he will buy the land, and that right becomes a Sanchez doctrine that the option contract not
contract when it is exercised, or, what supported by a separate consideration is void
amounts to the same thing, when use is made as a contract but valid as a offer and it can only
of the option, or when the offer or promise to apply if the option has been accepted and such
sell the property is accepted in conformity acceptance is communicated to the offeror. It
with the terms and conditions specified in held that not even the annotation of the
such option, offer or promise. option contract on the title to the property can
be considered a proper acceptance of the
option.
g) Option period j) Proper exercise of option

(Villamor vs CA) (Nietes vs CA)

It was held that when the option contract does It held that in an option to buy, the party in
not contain a period, it cannot be presumed whose favor the option contract exist may
that the exercise thereof can be made validly and effectively exercise his right by
indefinitely, otherwise, it would render merely advising the debtor of the decision to
uncertain the status of the subject matter. buy and expressing his readiness to pay the
stipulated price, provided that the same is
Under Article 1144, actions upon written available and actually delivered to the offeror
contract must be brought within 10 years and upon execution and delivery by him of the
thereafter, the right of option would corresponding deed of sale.
prescribe.
In other words, notice of the exercise of the In other words, the acceptance or exercise of
option need not e coupled with actual the option must still be made within the
payment of the price, so long as this is option period to give rise to a valid and
delivered to the owner of the property upon binding sale, and it is only then that the
performance of his part of the agreement. principle of substantial compliance would
have relevance.
(Carceller vs CA)
Significant here was the court’s ruling that in
In essence, it is recognized that notice within valid option contract, the refusal of the offeror
the option period of clear intention to to comply with the demand by the offeree to
purchase the property, with request for comply with the option may be enforced by an
leeway within which to be able to raise the action for specific performance.
funds to close the deal is a valid or at least
substantial exercise of the option.
(Ang Yu Asuncion vs CA) period, before the offeror breaches his
obligation and withdraws the offer, an
In an option contract, the granting of a acceptance by the offeree would give
consideration separate and distinct rise to a valid and binding sale and that
from the purchase price of the an acceptance within the option
intended sale, does not guarantee to period after the offeror shall have
the offeree the absolute right to unlawfully withdrawn the offer would
exercise the option, anytime during not give rise to a sale thus “the
the option period. optionee has the right but not the
obligation to buy.”
The separate consideration merely
guarantees that within the option
If the offeror withdraws the offer prior 4) Right of First Refusal
to the time the offeree shall have - a promise on the part of the owner
exercised the option or accepted the that if he decides to sell the property
offer, his acceptance could not give any time in the future, he would first
rise to a valid and binding sale. negotiate its sale to the promissee.

To the offeror, whether he has (Equatorial Realty Dev. Vs Mayfair

received consideration or not for the Theater)
grant of the option, he could in either
case withdraw the offer prior to the It held that in a contract of lease which
time the optionee shall have exercised gave the lessee a 30-day exclusive
the option. option to purchase the leased property
in the event the lessor should desire to which it may be attached to; the
sell the same, such contractual consideration for the lease includes
stipulation which does not provide for the consideration for the right of first
a price certain nor the terms of refusal.
payment, actually grants a right for
first refusal and is not an option clause Limited Application:
or an option contract.
The Equatorial Realty ruling applies
There need not be separate only to rights of first refusal attached
consideration in a right of first refusal to a valid principal contract, like a
since such stipulation is part and contract of lease. It has no application
parcel of the entire contract of lease to and the Ang Yu Asuncion ruling would
still apply to the rights of first refusal of negotiations that transpire between
constituted as separate contracts, the lessor and the lessee on the basis
which anyway would be considered of such preference is deemed a
under the doctrines applicable to compliance of such clause even when
option contracts. no final purchase agreement is
perfected between the parties.
The ordinary language of a right of
first refusal clause simply means that
should the lessor-promissor decide to
sell the leased property during the
term of the lease, such sale should first
be offered to the lessee and the series
(Polytechnic University of the In a right of first refusal, while the
Phils vs Golden Horizon Realty object might be made
Corp) determinate the exercise of the
right, however, would be
A right of first refusal is a depended not only on the
contractual grant, not for the sale grantor’s eventual intention to
of a property but of the first enter into a binding juridical
priority to buy the property in relation with another but also on
the event the owner sells the terms, including the price that
same. obviously are yet to be later
firmed up.
When deviation allowed: When a sale is made subject to a suspensive
condition, there is already a contract upon the
(Villonco vs Bormaheco) meeting of the minds, since the principles of
mutuality and obligatory force come into play,
The court held that there was a perfected sale but because the condition has not happened,
that arose from the exchange of the contract itself and its underlying
correspondences, even if literally, there was a obligations are not yet demandable.
correction or modification contained in the
acceptance, the changes were not substantial, In case of non-happening of the condition,
but merely clarificatory. then the contract is extinguished as though
the contract has never been entered into, as
Acceptance subject to Suspension the consequence of the retroactive effect of
Condition: the non-happening of a suspensive condition.
EARNEST MONEY (Villonco vs Bormaheco)

It was held that even when the sale

Art. 1482 Whenever is subject to a condition, the
acceptance of the earnest money
earnest money is given in would prove that the sale is
a sale, it shall be conditionally consummated or
considered as part of the partly executed subject to the
fulfillment of the condition, the non-
price and as proof of the fulfillment of which would be a
perfection of the contract. negative resolutory condition.
The court took into consideration that even
with the payment of the earnest money, that
2) EM is given only where there is
would not by itself give rise to a valid and
binding sale, considering that it is not clear already a sale, OM applies to a sale
that there was already a definite agreement as not yet perfected; and
to the price.
3) When EM is given, the buyer is
Earnest Money vs Option Money bound to pay the balance, while
(Adelfa Properties Inc vs CA) when would-be buyer gives OM, he
is not required to buy, but may even
1) EM is part of the purchase price, forfeit it depending on the terms of
OM is the money given as a distinct the option.
consideration for an option contract;
FORM OF SALES Requirement for Public
Instrument for Immovables:
Art. 1483 A contract of sale may be
(Dalion vs CA)
made in writing, or by word of
mouth, or partly in writing and The necessity of public document are for
purposes of convenience not for the valid or
partly by word of mouth, or may be enforceability.
inferred from the conduct of the
parties. A public document is necessary for its
registration in the ROD, the parties may avail
themselves of the right and remedy to compel
In other words, sale being a the other party to observe such form and such
consensual contract, no form is remedy may be exercised simultaneously
really required for its validity. with the action upon the contract.
Function of the Deed of Sale: When form of sale affects its validity:

The deed of sale operates as a formal or GR: No form is required for its validity
symbolic delivery of the property sold
EXN:
and authorizes the buyer to use the
a) Power to sell a piece of land or interest
document as proof of ownership.
therein must be in writing, otherwise, the sale
by the agent would be void;
To make it a public document, a deed of
sale must be properly subscribed and b) Sale of large cattle must be in writing and
registered with the municipal treasurer who
acknowledged before a notary public
shall issue a certificate of transfer;
and when so acknowledged, a deed of
sale enjoys presumption of regularity c) Sale of land by non-Muslim hill tribe
cultural minorities all throughout the Phils is
and due execution.
void if not approved by the NCIP.
CHAPTER 6 CONSUMMATION OF family, unless the law or the
SALE stipulation of the parties requires
another standard of care.
OBLIGATIONS OF THE SELLER
Upon perfection and even prior to
1) To preserve the SUBJECT delivery, the seller is obliged to take
MATTER care of the subject matter with the
diligence of a good father of a family
Art. 1163 Every person obliged to otherwise he becomes liable to the
give a determinate thing is also buyer for breach of such obligation
obliged to take care of it with the as when the thing deteriorates or is
proper diligence of a good father of a lost through the seller’s fault.
2) To deliver the Subject Matter (Cebu Winland Dev. Corp vs Ong Siao Hua)

Delivery as used in the Law on Sales refers to

Art. 1495 The seller is bound to the concurrent transfer of two things: (1)
transfer the ownership and deliver POSSESSION and (2) OWNERSHIP.
the thing which is the object of the
In the same vein, if the vendee is placed in
sale to the buyer.
actual possession of the property, but by
agreement of the parties ownership of the
The means by which the seller can same is retained by the vendor until the
transfer the ownership of the subject vendee has fully paid the price, the mere
transfer of the possession of the property
matter is by the mode of tradition or
subject of the sale is not delivery
delivery, whether actual or contemplated in the Law on Sales.
constructive.
3) To deliver the fruits and subject matter is intended for delivery to
accessories the buyer, necessarily the accessories
and fruits must then on be held for the
In a sale involving a determinate subjectaccount of the buyer.
matter, even prior to the delivery and
transfer of ownership thereof to the 4) To warrant the subject matter
buyer, the buyer already has certain
rights enforceable against the seller Art. 1495 provides that with the
pertaining to the subject matter.
fulfillment of the primary obligation
This is in accordance to the principle that
to deliver the subject matter, the
the accessories always follow the seller is then obliged to warrant the
principal and since from perfection the thing which is the object of the sale.
TRADITION placed in the control and possession of
the buyer.
There is said to be delivery or tradition
when the thing sold is placed in the 2) Constructive delivery
control and possession of the vendee.
The essence of constructive delivery is
Types of delivery: the existence of an agreement between
seller and buyer that the latter is
1) Actual delivery understood to have control of the subject
matter of sale.
Art. 1497 provides that there is actual or
physical delivery when the thing sold is
Art. 1498 When the sale is made presumption of delivery. Such
through a public instrument, the presumption is destroyed when the
execution thereof shall be equivalentdelivery is not effected because of
to the delivery of the subject matterlegal impediment negated by the
of sale, if from the deed the contrary
failure of the vendee o take actual
does not appear or cannot clearly be possession of the land sold,
inferred. Hence, constructive delivery
(Ten Forty Realty and Dev Corp vs through the execution of a public
Cruz) instrument does not produce the
The execution of a public instrument consequences of tradition unless it is
gives rise only to a prima facie subsequently coupled with actual
delivery of the subject matter.
Therefore, without the other SYMBOLIC DELIVERY
requisites mandated by jurisprudence
(control at the time of delivery and Art. 1498, as to movables, constructive
passage of reasonable time), the mere delivery may also be made by the
execution of a public instrument does delivery of the keys of the place where
not create a conclusive presumption of the movable is stored or kept.
delivery, which presumption can be
CONSTITUTUM POSSESSORIUM
rebutted by clear and convincing
evidence, such as when the buyer
This mode of constructive delivery takes
failed to take actual possession or
effect when at the time of the perfection
there was continued enjoyment by the of the sale, the seller held possession of
seller of possession. the subject matter in the concept of an
owner and pursuant to the contract, the lessee and pursuant to the sale he would
seller continues to hold physical now hold possession in the concept of an
possession thereof no longer in the owner.
concept of an owner, but as a lessee or
any other form of possession other than TRADITIO LONGA MANU
in the concept of an owner.
Constructive delivery of a thing effected
TRADITIO BREVI MANU (opposite of by mere agreement. Such as when the
possessorium) seller points the property subject matter
of the sale, and buyer agrees that from
Where before the sale, the would-be that time on he is the owner thereof,
buyer was already in possession of the without need of actually delivering
would-be subject matter of the sale, as a physical possession thereof.
Delivery of Incorporeal Property and is subject to risk until the goods
(QUASI-TRADITIO) are placed alongside the vessel.
Hence, delivery of the goods
An incorporeal property having no alongside the vessel completes the
physical existence, its delivery can effect of tradition.
only be effected by constructive
delivery. 2) F.O.B. Sales (Free on board) – the
seller shall bear all expenses until
Delivery Through Carrier the goods are delivered, depending
on whether the goods are to be
1) F.A.S. Sales (Free along side delivered at the point of shipment or
ship) – the seller pays all charges at the point of destination.
FOB shipping point arrangement – over the subject matter of the sale
delivery of the goods to the carrier is will be borne by the seller.
equivalent to delivery to the buyer,
and at that point of risk of loss 3) C.I.F. Sales (costs, insurance and
pertains to the buyer. freight) – signify that the price fixed
covers not only the costs of the
FOB destination agreement – only goods but the expense of freight and
when the vessel has arrived at the insurance to be paid by the seller.
point of destination would there be
delivery to the buyer and prior to
that point in time, the risk of loss
EFFECTS AND COMPLETENESS OF Since delivery of the subject matter
DELIVERY of the sale is an obligation on the
part of the seller, the acceptance
Two principles: thereof by the buyer is not a
condition for the completeness of
1) Delivery must be made pursuant the delivery.
to a valid sale; and
Even with such refusal of
2) Delivery must be effected when acceptance, delivery will produce
seller has ownership over the legal effects.
subject matter of sale so delivered.
(Nemo dat quod non habet)
RULES ON EFFECTS OF DELIVERY is not full, he must pay for them at
FOR MOVABLES the contract rate (per unit)

ARTICLE 1522 b) Where the seller delivers to the

buyer a quantity of goods LARGER
a) Where the seller delivers to the than what he contracted to sell
buyer a quantity of goods LESS - may accept the goods covered and
THAN what he contracted to sell reject the rest
- the buyer may reject - if he accepts the whole, he must pay
- if he accepts or retains the goods for them at the contract rate
delivered, knowing that the contract - if indivisible, he may reject the
whole
c) Where the seller delivers to the SALE BY DESCRIPTION AND/OR
buyer the goods contracted but SAMPLE
MIXED with goods of different
description Art. 1481 “sale of goods by description or
sample” the sale may be rescinded if the
- he may accept the contracted and bulk of the goods delivered do not
correspond with the description or the
reject the rest
sample, that if the contract be by sample
- if indivisible, may reject the whole as well as by description, it is not
sufficient that the bulk of goods
correspond with the sample if they do
not also correspond with the
description.
(Mendoza vs David) ON SALE OR RETURN

To constitute a sale by sample, it Art. 1502, when goods are delivered

must appear that the parties to the buyer “on sale or return” to
give the buyer an option to return
treated the sample as the
the goods instead of paying the price,
standard of quality and that they the ownership passes to the buyer
contracted with reference to the on delivery, but he may revest the
sample with the understanding ownership in the seller by returning
that the product to be delivered or tendering the goods within the
would correspond with the time fixed in the contract, or, if no
sample. time fixed, within a reasonable time.
SALE ON APPROVAL, TRIAL, RULES ON EFFECTS OF DELIVERY
SATISFACTION OR ACCEPTANCE FOR IMMOVABLES
(Vallarta vs CA)
When the sale of a movable is “sale (Del Prado vs Caballero)
on acceptance”, no ownership could In sales involving real estate, the
have been transferred to the buyer parties may choose between two
although he took possession thereof, types of pricing agreement:
because “Delivery or tradition as a
mode of acquiring ownership must A unit price contract – wherein the
be in consequence of a contract”, and purchase price is determined by way
in that case there was as yet no of reference to a stated rate per unit
contract when delivery was effected. area (ex P1000 per sqm)
Lump sum contract – which states (Cebu Winland Dev Corp vs Ong
full purchase price for an Siao Hua)
immovable, the area of which may be
declared based on the estimate or When the parties agreed on a sale at
where both the area and boundaries a rate of certain price per unit of
are stated (ex P1M for 1,000 sqm). measure and not lump sum, the
buyer is entitled to the relief
The particular mode of sale chosen afforded to him under Art. 1539 that
by the parties also determines the is, either a proportional reduction of
completeness of the delivery when the price or the rescission of the sale.
the subject matter is an immovable.
Sold per unit or number: On the other hand, under Art.
1540, if there is greater area or
(Rudolf Lietz Inc vs CA) number in the immovable than
that stated in the contract, the
In a sale of immovable per unit of buyer may accept the area
measure, the statement of the included in the contract and
area of the immovable is not reject the rest; if he accepts the
conclusive and the price may be whole area, he must pay for the
reduced or increased depending same at the contract rate.
on the area actually delivered.
Sold per Lump sum: stated in the contract, admits of
exception because the sale of
(Asiain vs Jalandoni) land under description “more or
(Balantakbo v CA) less” or similar words in
(Roble vs Arbasa) designating quantity covers “only
a reasonable excess or
The court held that the rule in Art deficiency”.
1542 that there shall be no
increase or decrease of the price
although there be a greater or
lesser area or number than that
Lump sum sale vs Sale by Unit (Chua vs CA)
of Measure or number
It was held that registration of the
(Santa Ana v Hernandez) title of the buyer over the purchased
real estate is not an ingredient
necessary for tradition to have full
If the price per unit of measure or effect.
number is not expressly
provided for in the contract, the There is difference between transfer
rules of lump sum sale shall of the certificate of title in the name
prevail in the sale of real of the byer and the transfer of
property. ownership to the buyer. The buyer
may become the owner of the real (Jose Clavano v HLRB)
property even if the certificate of
title is still registered in the name of It was held that the judgment on a
the seller. sale that decrees the obligations of
the seller to execute and deliver the
As between the seller and the buyer, deed of absolute sale and the
ownership is transferred not by the certificate of title, does not
issuance of a new certificate of title necessarily include within its terms
in the name of the buyer but by the the obligation on the part of the
execution of the instrument of sale in seller to pay for the expenses in
a public document. notarizing the deed of sale and in
obtaining new certificate of title.
DOUBLE SALES person acquiring it who in good
faith first recorded it in the
Art. 1544. If the same thing
Registry of Property.
should have been sold to
different vendees, the ownership
Should there be no inscription,
shall be transferred to the person
the ownership shall pertain to
who may have first taken
the person who in good faith was
possession thereof in good faith,
first in the possession; and, in the
if it should be movable property.
absence thereof, to the person
Should it be immovable property, who presents the oldest title,
the ownership shall belong to the provided there is good faith.
Same thing sold to different buyers, 1) who in good faith first recorded
the ownership shall be awarded to: the sale in the Registry of Property

a) When subject matter is 2) should there be no inscription, to

movable – the buyer who may have the person who in good faith was
first taken possession thereof in first in the possession of the subject
good faith matter

b) When subject matter is 3) In the absence thereof, to the

immovable, to the buyer: person who presents the oldest title,
provided there is good faith.
(Hemedes v CA)
i) the conflicting sales are all valid
The rules on double sales under and demandable sales, pursuant to
Article 1544 find no relevance in which tradition was or could be
an ordinary donation. effected; and
(Consolidated Rural Bank Inc vs ii) the seller who effected multiple
CA) sales to various buyers over the
Consequently, the various rules on same subject matter actually had
double sales operate under the same ownership to convey.
premises that tradition can be made
operative, that is:
When it comes to movable When it comes to
properties immovable properties

The one who possesses in They be governed by a system

good faith should be preferred of registration upon which the
against another who merely public policy may be able to
interposes a claim, even clearly determine who owns a
though the latter be also in particular property and what
good faith. claims and liens pertain
thereto.
(Fule vs CA) with formal requirements for
the benefit of third parties.
The SC holds that the
execution of a private Thus, under Art 1544, the
document or the transfer of buyer in good faith who is able
physical possession over real to effect registration of his
property binds only the purchase is preferred.
immediate parties thereto, but
that there must be compliance
Registered land (Naawan Community Rural Bank)
- it is a well-known rule in this
The court emphasizes that the legal
jurisdiction that persons dealing
priority of registration of sale under PD
with registered land have the legal 1529 cannot overcome by an earlier
right to rely on the fact of the registration under Act No 3344 which is
Torrens certificate of title and to not effective form of registration under
dispense with the need to inquire Art. 1544.
further, except when the party
concerned has actual knowledge of Unregistered land
facts and circumstances that would - first to register in good faith would be
impel a reasonably cautious man to wholly inapplicable to unregistered land.
make such injury.
ESSENTIAL ELEMENTS FOR d) brought from the very same seller.
APPLICABILITY OF ART. 1544
(Cheng vs Genato)
a) Two or more sales transactions must
constitute VALID SALES; The rules on double sales are not applicable to
a contract to sell because of the circumstances
b) SAME SUBJECT MATTER; that must concur in order for the provisions
on double sales to apply, namely that there
must be valid sales transactions, and buyers
c) Two or more buyers at odds over the must be at odds over the rightful ownership of
rightful ownership of the subject matter the subject matter who must have brought
must each represent CONFLICTING from the very same seller, are lacking in a
INTERESTS; and contract to sell.
The governing principle here second buyer first registers in
is prius tempore, potior jure good faith the second sale
(first in time, stronger in ahead of the first.
right).
Such knowledge of the first
Knowledge gained by the first buyer does not bar her from
buyer of the second sale availing of her rights under the
cannot defeat the first buyer’s law, among them, to register
rights except only as provided first her purchase as against
by the CC and that is where the the second buyer.
But in converso knowledge innocence or lack of
gained by the second buyer of knowledge of the first sale
the first sale defeats his rights until his contract ripens into
even if he is first to register the full ownership through prior
second sale, since knowledge registration as provided by
taints his prior registration law.
with bad faith.

The second buyer must show

continuing good faith and
The act of registration must be “Purchaser in good faith”
coupled with good faith, that is,
the registrant must have no One who buys the property of
knowledge of the defect or lack of another without notice that some
title of his vendor or must not other person has a right to or
have been aware of facts which interest in such property and
should have put him upon such pays a full and fair price for the
inquiry and investigation as same at the time of such purchase
might be necessary to acquaint or before he has notice of the
him with defects in the title of his claim or interest of some other
vendor. person in the property.
OBLIGATIONS OF THE BUYER

1) Pay the price 2) Accept delivery of thing

bought
- mere sending of a letter by the
buyer expressing his intention to - the buyer is bound to accept the
pay without the accompanying delivery of the thing bought at
payment is not considered a valid the time and place stipulated in
tender of payment. the contract.
CHAPTER 7 DOCUMENTS OF 2 functions:
TITLE
a) As evidence of the possession
- proof of possession or control of or control of the goods described
the goods, or authorizing or therein; and
purporting to authorize the
possessor thereof to transfer or b) As the medium of transferring
receive, either by endorsement title and possession over the
or by delivery, goods goods described therein, without
represented by such document. having to effect actual delivery
thereof.
(Siy Cong Bieng vs Hongkong & (Philippine Trust Co vs National
Shanghai Bank) Bank)

The SC held that the warehouse The endorsement and delivery of a

receipt represents the goods but the negotiable quedan prior to the filing
entrusting of the receipt is more of the petition for insolvency,
than the mere delivery of the goods. operates as the transfer of
It is a representation that the one to possession and ownership of the
whom the possession of the receipt goods referred to therein, and had
has been so entrusted has the title to the effect of divorcing the property
the goods. covered from the estate of the
insolvent.
Through the document of title, Who can negotiate?
the seller is allowed, by fiction of
law, to deal with the goods a) the owner thereof;
described therein as though he
had physically delivered them to b) Any person to whom the
the buyer and the buyer may take possession or custody of te
the document of title as though document has been entrusted by
he had actually taken possession the owner.
and control over the goods
described therein.
How negotiation properly - even when originally the document
effected? of title was issued “to the order” of a
specified person, where such person
a) By delivery alone or a subsequent endorsee of the
document has endorsed it in blank
- where by the terms of the or to the bearer.
document the carrier,
warehouseman or other bailee Any holder may endorse the same to
issuing the same undertakes to himself or to any specified person,
deliver the goods “to bearer”; and and in such case the document shall
thereafter be negotiated only by the
endorsement of such endorsee.
b) By endorsement and Such endorsement may be in
delivery blank, to bearer or to a specified
person.
- a negotiable document of title
may be negotiated only by If endorsed to a specified person,
endorsement of the person to it may again be negotiated by the
whose order the goods are endorsement of such person in
deliverable, coupled with a blank, to bearer or to another
delivery thereof. specified person.
Even when the owner loses the recover it from the person in
negotiable document of title to a possession of the same”, the same
thief, and it is deliverable to bearer, cannot apply to a holder in due
the latter may validly impart title course of a negotiable document of
thereto a holder in due course, who title because the enumerated
is essentially a buyer in good faith instances in Art 1518 includes
and for value. specifically “loss, theft, fraud,
accident and conversion”.
It is important that although Art 559
provides that an owner “who has The only real defense that can
lost any movable or has been validly be raised against the holder
unlawfully deprived thereof, may in due course of a negotiable
document of title would be forgery ASSIGNMENT OF NON-
of the endorsement of the owner, NEGOTIABLE DOCUMENT OF
when such endorsement isTITLE
necessary to effect negotiation. Since a non-negotiable document of
title constitutes an incorporeal right,
(Siy Long Bieng v HSBC) its sale constitutes actually an
assignment which under Art 1624 is
Under the principe that as between perfected y mere consent, but which
two innocent persons, he who made under Art 1625 would require its
the loss possible should bear the appearance in a public instrument
loss. otherwise, it shall produce no effect
as against third persons.
EFFECTS OF TRANSFER BY b) The right to notify the bailee who
ASSIGNMENT issued the document of the transfer
thereof, and thereby to acquire the
A person to whom a non-negotiable direct obligation of such bailee to
document of title has been duly hold possession of the goods for him
assigned acquires thereby, as according to the terms of the
against the transferor: document.

a) Title to the goods, subject to the NEGOTIABLE DOCUMENT OF

terms of any agreement with the TITLE (warehouseman only honors
transferor; and as a general rule)
WRIT OF ATTACHMENT endorsement or delivery, including
(can be honored if non-negotiable, one who assigns for value a claim
prior to notification the non- secured by a document of title,
negotiable document of title will be unless contrary intention appears,
defeated by the writ of attachment) warrants that:

WARRANTIES ON NEGOTIATION a) Document is GENUINE;

AND ASSIGNMENT OF
DOCUMENTS OF TITLE b) He has a LEGAL RIGHT to
negotiate or transfer it;
A person who for value negotiates or
transfers a document of title by
c) He has NO KNOWLEDGE OF ANY without a document of title the
FACT which would impair the goods represented thereby.
validity or worth of the document;
The warranties of one who
d) He has a RIGHT TO TRANSFER the negotiates a negotiable document of
title to the goods; and title and one who assigns a non-
negotiable document of title are the
e) The goods are MERCHANTABLE same.
or fit for a particular purpose,
whenever such warranties would
have been implied if the contract of
the parties had been to transfer
WHEN GOODS COVERED BY NON- If the owner had lost the goods or been
NEGOTIABLE DOCUMENT unlawfully deprived thereof:

When the owner had neither lost nor been The owner may recover against the
unlawfully deprived of the goods: assignee-buyer, even when the latter is
in good faith and bought for value
– the assignee-buyer’s title to the goods because Art 559 expressly does not give
is preferred even against the owner who to the assignee-buyer any original title.
can no longer recover the goods.
If the assignee-seller had no title to the
- the possession of the movable property goods sold, the assignee-buyer takes no
acquired in good faith is equivalent to title to the goods under the principle of
title. nemo dat quod non habet.
WHEN GOODS COVERED BY If the owner had lost or been unlawfully
NEGOTIABLE DOCUMENT deprived of the goods:

If the owner had neither lost nor been The owner may recover against the
unlawfully deprived of the goods: bailee, and therefore against the holder-
buyer, even when the latter is a holder in
Then the holder-buyer acquires valid due course with respect to the
ownership of such goods because his negotiable document of title, and a
possession in good faith and for value, possessor in good faith and for value
which by itself would constitute as an with respect to the goods.
original source of ownership.
RULES ON LEVY/GARNISHMENT OF GOODS 2) When negotiable document of title
COVERED BY DOCUMENTS OF TITLE
In such case, a creditor whose debtor is
1) When non-negotiable document of title
the owner of a negotiable document of
In the case of a non-negotiable document of title may seek aid from the courts by
title, possession and ownership of the injunction and otherwise in attaching
document of title (by assignment) does not such document or in satisfying the claim
necessarily bring with it possession or title by means thereof as is allowed at law or
over the goods covered thereby; it is the in equity in regard to property which
notification of the bailee of the assignment cannot readily be attached or levied
that is the operative act that will transfer title upon by ordinary legal process.
and/or possession of the goods in favor of the
transferee-assignee.