2S 2011-2012 Reviewer

TABLE OF CONTENTS
A. Remedies of an Unpaid Seller in Sale of Movables in General .................................................................................. 1 B. Remedies of an Unpaid Seller in Sale of Movables on Installment (Recto Law) .................................................................................. 8 C. Remedies of an Unpaid Seller in Sale of Residential Realty on Installment (Maceda Law) .................................................................................. 11 D. Sale of Immovables .................................................................................. 12 D. Double Sales .................................................................................. 14

Sales and Lease

REMEDIES OF AN UNPAID SELLER (Sale of Movables in General)

Articles 1525 to 1535 ----------------------------------------------------------------------Art 1525. The seller of goods is deemed to be an unpaid seller within the meaning of this Title: (1) When the whole of the price has not been paid or tendered; (2) When a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has been broken by reason of the dishonor of the instrument, the insolvency of the buyer, or otherwise. In Articles 1525 to 1535 the term "seller" includes an agent of the seller to whom the bill of lading has been indorsed, or a consignor or agent who has himself paid, or is directly responsible for the price, or any other person who is in the position of a seller. (n)

----------------------------------------------------------------------When a Seller is deemed an Unpaid Seller (PTN)

A seller is deemed an unpaid seller under the following circumstances: a) When he has not been totally paid the price; b) When there is no full payment tendered to him; - After proper tender has been made, the seller ceases to be an unpaid seller c) When the negotiable instrument has been received as conditional payment, but the condition was not fulfilled. - Bills of exchange or mercantile documents shall produce the effect of payment only when they have been cashed or through the fault of the creditor they have been impaired (Art. 1249). Scope of the term Unpaid Seller (ACO) a) agent of the seller to whom the bill of lading was endorsed, b) the consignor or agent who had paid the price or is responsible for the price, c) any other person who is in the position of a seller
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----------------------------------------------------------------------Art 1526. Subject to the provisions of this Title, notwithstanding that the ownership in the goods may have passed to the buyer, the unpaid seller of goods, as such, has: (1) A lien on the goods or right to retain them for the price while he is in possession of them; (2) In case of the insolvency of the buyer, a right of stopping the goods in transitu after he has parted with the possession of them; (3) A right of resale as limited by this Title; (4) A right to rescind the sale as likewise limited by this Title. Where the ownership in the goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies a right of withholding delivery similar to and coextensive with his rights of lien and stoppage in transit where the ownership has passed to the buyer. (n)

Sales and Lease

d) Rescission - Right to rescind the sale if this right is reserved or the buyer has defaulted in the payment for an unreasonable length of time (Art. 1534) Action for the purchase price, NOT included in Article 1526 - The remedies given to the seller in Article 1526 do not include the right to file an action for the pur chase price. - Also, an action for damages based on the wrongful neglect or refusal of the buyer to accept the goods is not covered. - These two rights are covered by Article 1595 ----------------------------------------------------------------------Art 1527. Subject to the provisions of this Title, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases, namely: (1) Where the goods have been sold without any stipulation as to credit; (2) Where the goods have been sold on credit, but the term of credit has expired; (3) Where the buyer becomes insolvent. The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer. (n) Art 1528. Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder, unless such part delivery has been made under such circumstances as to show an intent to waive the lien or right of retention. (n) Art 1529. The unpaid seller of goods loses his lien thereon: (1) When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the ownership in the goods or the right to the possession thereof; (2) When the buyer or his agent lawfully obtains possession of the goods; (3) By waiver thereof. The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has obtained judgment or decree for the price of the goods. (n)

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Rights of an Unpaid Seller and Remedies, in general (LSRR) Even if the ownership of goods had already passed to the buyer, the unpaid seller as determined in Article 1525, has the following rights: a) Possessory Lien - the right to retain the goods as security for the payment of the price while he remains in possession of them b) Stoppage in transitu - Right of stopping the goods while they are in transit in case of insolvency of the buyer so that the seller can resume possession of the goods. - Insolvency may be existing at the time of or after the transaction c) Resale - Right to resell the goods when the same are of perishable nature - If resale is agreed upon in case of default, or - When the buyer is in default of payment for an unreasonable length of time provided the seller himself does not buy the goods (Article 1533)

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----------------------------------------------------------------------First Right: Possessory Lien When Applicable When the vendee has not paid the vendor or has not tendered the price Possessory Lien vs. Lien on the Price Possessory Lien Seller is entitled to retain possession of the goods as security for the purchase price Lien on the Price After delivery, the seller loses his possessory lien, but retains his lien on the price of the goods

Sales and Lease

Art. 1536. The vendor is not bound to deliver the thing sold in case the vendee should lose the right to make use of the terms as provided in Article 1198. (1467a) Art. 1198. The debtor shall lose every right to make use of the period: (1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; (2) When he does not furnish to the creditor the guaranties or securities which he has promised; (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; (4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; (5) When the debtor attempts to abscond. (1129a) Art. 1524. The vendor shall not be bound to deliver the thing sold, if the vendee has not paid him the price, or if no period for the payment has been fixed in the contract. (1466)

Right to Retain Goods for Security a) The unpaid sellers lien implies that he has a right to retain possession of the goods until payment or tender of the whole price, unless he agreed to sell on credit. - When there is no period stipulated as to the credit, generally, the seller is entitled to payment at the very time he transfers the possession of the goods to the buyer b) If the unpaid seller agrees to sell on credit, he may refuse to deliver them if the term of the credit had expired and the price has not been paid. - The vendor is not obliged to deliver or to make delivery in case the vendee loses the right to make use of the term provided in Article 1198 in relation to Article 1536 - When the vendee fails to fulfil his obligation until the term of the credit has expired and the price becomes due, he loses his right to seek delivery of the goods, following Article 1524. - For the sellers protection, the vendor may exercise possessory lien over the goods which are still in his possession or control c) If the unpaid seller agrees to sell on credit, he may refuse to deliver them if the buyer becomes insolvent

- The vendees insolvency does not dissolve the bargain; it merely revives the sellers possessory lien over the goods. The buyers insolvency after the obligation has been contracted is one of the causes for losing his right to make use of the period fixed in the obligation (See Article 1198 par. 1 above) Sellers Lien not affected by his being an agent or bailee for the buyer - When title to the property has passed to the buyer, but possession remains in the hands of the vendor, the latter is necessarily holding the goods for the buyer. He acts as an agent or bailee for the buyer. - For his protection, the vendor is entitled to possess the same until he has been fully paid or a tender of the price has been made Loss of Possessory Lien The unpaid seller loses his lien when: 1. He delivers the goods to the carrier or other bailee, consigning them to the buyer under a straight or nonnegotiable bill of lading, or 2. When the goods were delivered to the buyer, or 3. When he waived his lien.

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Effect on the Lien of Partial Delivery or Judgment for the Price The lien is NOT lost on the remainder of the goods when only partial delivery was made, unless such was intended to operate as symbolical delivery of the whole. The lien is not lost by the mere fact that the seller had already obtained judgment for the price. Example: When partial delivery was intended to be a symbolical delivery of the whole of the goods, there is a waiver of the lien. Unpaid Seller has a superior right of preference over an attachment lien - A lien based on a writ of attachment is inferior to that of an unpaid sellers right of preference under Article 2241 par. 3
Art. 2241. With reference to specific movable property of the debtor, the following claims or liens shall be preferred: x x x (3) Claims for the unpaid price of movables sold, on said movables, so long as they are in the possession of the debtor, up to the value of the same; and if the movable has been resold by the debtor and the price is still unpaid, the lien may be enforced on the price; this right is not lost by the immobilization of the thing by destination, provided it has not lost its form, substance and identity; neither is the right lost by the sale of the thing together with other property for a lump sum, when the price thereof can be determined proportionally; x x x

Sales and Lease

(1) From the time when they are delivered to a carrier by land, water, or air, or other bailee for the purpose of transmission to the buyer, until the buyer, or his agent in that behalf, takes delivery of them from such carrier or other bailee; (2) If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even if the seller has refused to receive them back. Goods are no longer in transit within the meaning of the preceding article: (1) If the buyer, or his agent in that behalf, obtains delivery of the goods before their arrival at the appointed destination; (2) If, after the arrival of the goods 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 in possession of them as bailee for the buyer or his agent; and it is immaterial that further destination for the goods may have been indicated by the buyer; (3) If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf. If the goods are delivered to a ship, freight train, truck, or airplane chartered by the buyer, it is a question depending on the circumstances of the particular case, whether they are in the possession of the carrier as such or as agent of the buyer. If part delivery of the goods has been made to the buyer, or his agent in that behalf, the remainder of the goods may be stopped in transitu, unless such part delivery has been under such circumstances as to show an agreement with the buyer to give up possession of the whole of the goods. (n) Art. 1532. The unpaid seller may exercise his right of stoppage in transitu either by obtaining actual possession of the goods or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such notice may be given either to the person in actual possession of the goods or to his principal. In the latter case the notice, to be effectual, must be given at such time and under such circumstances that the principal, by the exercise of reasonable diligence, may prevent a delivery to the buyer. When notice of stoppage in transitu is given by the seller to the carrier, or other bailee in possession of the goods, he must redeliver the goods to, or according to the directions of, the seller. The expenses of such delivery must be borne by the seller. If, however, a negotiable document of title representing the goods has been issued by the carrier or other bailee, he shall not obliged to deliver or justified in delivering the goods to the seller unless such document is first surrendered for cancellation. (n)

Revival of the Lien The unpaid sellers lien is revived if the goods are returned by the buyer in wrongful repudiation of the contract. ----------------------------------------------------------------------Art. 1530. Subject to the provisions of this Title, when the buyer of goods is or becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transitu, that is to say, he may resume possession of the goods at any time while they are in transit, and he will then become entitled to the same rights in regard to the goods as he would have had if he had never parted with the possession. (n) Art. 1531. Goods are in transit within the meaning of the preceding article:

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Art. 1535. Subject to the provisions of this Title, the unpaid seller's right of lien or stoppage in transitu is not affected by any sale, or other disposition of the goods which the buyer may have made, unless the seller has assented thereto. If, however, a negotiable document of title has been issued for goods, no seller's lien or right of stoppage in transitu shall defeat the right of any purchaser for value in good faith to whom such document has been negotiated, whether such negotiation be prior or subsequent to the notification to the carrier, or other bailee who issued such document, of the seller's claim to a lien or right of stoppage in transitu. (n)

Sales and Lease

b) Giving notice of his claim to the carrier or other bailee in whose possession the goods are. - The right is not impaired even if the insolvency of the buyer has been existing at the time of the perfection of the sale as long as the seller was not aware of it. - After exercising the right of stoppage in transitu, the seller becomes entitled to the same rights to the goods as if he had never parted with the possession of the goods. He may exercise his rights of lien, resale and rescission of the transfer of title. Concept of Insolvency A person is insolvent if he has ceased to pay his debts as they become due, whether or not insolvency proceedings have been commenced or not (Art. 1636, par.2). When goods are considered in transit a) Goods are considered to be in transit from the time they are delivered to a carrier or other bailee by the seller for the purpose of transmission to the buyer, until the buyer or his agent takes delivery of them from the carrier or other bailee. - To terminate the transit by delivery to a middleman, it must be delivery to keep, not to transport. b) Goods are still considered to be in transit even if they reached their ultimate destination when the buyer rejects them and they remain in the possession of the carrier or other bailee. When goods are considered no longer in transit a) The buyer or his agent intercepted the shipment before it reaches its original or appointed destination - There is premature delivery b) The carrier, upon arrival of the goods at the ultimate destination, enters into a new contract with the buyer or his agent. - The carrier acknowledges to the buyer or his agent that he is holding the goods in the buyers behalf;

----------------------------------------------------------------------Second Right: Stoppage in Transitu

In General The right of stoppage in transitu is the right of the seller who sold his goods on credit, to retake or repossess them while they are in transit, that is, while they are in the possession of a carrier or other middleman who received them for delivery to the buyer, by reason of the discovery of the insolvency of the buyer. It is an old common law remedy which is an extension of the lien for the price and entitles the unpaid seller to resume possession of the goods while they are in transit before the goods come in possession of the vendee if the later is or becomes insolvent. Requisites for the Exercise of the Right of Stoppage in Transitu a) The sale of goods must be on credit. b) The goods left the possession of the seller and are on their way to the buyer. If they were received already by the buyer, the sellers right to repossess ceases. Seller is reduced to the status of an ordinary creditor. c) The seller is an unpaid seller. d) The buyer is found to be insolvent. Manner of Implementation The unpaid seller may exercise his right by: a) Obtaining actual possession of the goods, or

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c) The goods arrived at the ultimate destination but the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent. - The seller cannot extend the exercise of his right of stoppage in transitu by the refusal of the carrier to deliver the goods to the buyer. Hence, the goods are no longer in transit. Illustrative Cases a) From the issuance of the bill of lading, the goods are considered in transit (Cebu United Enterprises vs. Gallofin, 106 Phil. 491) b) The relation of the carrier to the goods endures from the shipment of the goods until their arrival at the destination, and continues after their arrival at the point of destination until they are ready to be delivered to the usual place of delivery (Kui Pai & Co. vs. Dollar Steamship Line, 52 Phil. 863) c) The taking of the goods in transit by an unauthorized agent of the buyer does not terminate the sellers right of stoppage in transitu (Kingman & Co. vs. Denison, 84 Mech. 608) d) If the buyer unjustifiably refuses to receive the goods, the goods are considered in transit (Tufts vs. Sylvester, 79 Mech. 213) Effect of Partial Delivery on Exercise or Right of Stoppage in Transitu GENERAL RULE: If there was partial delivery of the goods to the buyer, the remainder of the goods may be stopped in transitu. EXCEPTION: Such part delivery has been made under such circumstances as to show an agreement with the buyer to give up possession of the whole. Where the buyer has taken some portion of the whole mass which was then susceptible of possession, there is constructive possession of the whole. f) Sale of goods in transit: the unpaid sellers right of lien or stoppage in transitu is not affected by any sale or other disposition of the goods which the buyer may have made unless the seller has assented thereto.

Sales and Lease

1) Where a negotiable document of title has been issued for the goods, no sellers lien or right of stoppage in transitu cannot defeat the rights of any purchaser for value in good faith to whom such document has been negotiated. 2.) Where the document of title is a straight bill of lading, the sellers right of stoppage will not be cut off as the transferee acquires no greater or added rights than his transferor. Duty of the Carrier or Other Bailee; Redelivery GENERAL RULE: When notice of stoppage in transit is given to the carrier, the latter must redeliver the goods to, or according to the directions of, the seller. EXCEPTION: When a negotiable document of title representing the goods has been issued by the carrier, the latter shall not be obliged to deliver the goods. EXCEPTION TO THE EXCEPTION: When such document is first surrendered for cancellation. Otherwise, the carrier or other bailee may be made liable for damages. ----------------------------------------------------------------------Art. 1533. Where the goods are of perishable nature, or where the seller expressly reserves the right of resale in case the buyer should make default, or where the buyer has been in default in the payment of the price for an unreasonable time, an unpaid seller having a right of lien or having stopped the goods in transitu may resell the goods. He shall not thereafter be liable to the original buyer upon the contract of sale or for any profit made by such resale, but may recover from the buyer damages for any loss occasioned by the breach of the contract of sale. Where a resale is made, as authorized in this article, the buyer acquires a good title as against the original buyer. It is not essential to the validity of resale that notice of an intention to resell the goods be given by the seller to the original buyer. But where the right to resell is not based on the perishable nature of the goods or upon an express provision of the contract of sale, the giving or failure to give such notice shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the resale was made.

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It is not essential to the validity of a resale that notice of the time and place of such resale should be given by the seller to the original buyer. The seller is bound to exercise reasonable care and judgment in making a resale, and subject to this requirement may make a resale either by public or private sale. He cannot, however, directly or indirectly buy the goods. (n)

Sales and Lease

which he resells for a higher price and still be able to collect damages from the original buyer - It is enough that the (re)sale is effected in good faith in accordance with customs of the place or established business methods with no attempt to take advantage of the buyer - In case he sells them at a loss, he is entitled to recover the difference from the original buyer. It is not essential to the validity of a resale that previous notice of an intention to resell or notice of the time and place or resale be given to the original buyer. - Damages recoverable: Whether the action is for damages or to recover loss from a resale, the purpose is to compensate the seller for loss for breach of contract. Thus, if the purchaser fails to take delivery and pay the price, the vendor, without need of first rescinding the contract judicially, is entitled to resell, and if obliged to sell for less than the contract price, the buyer is liable for the difference. - Due diligence must be exercised to secure the highest price obtainable in the best available market. The burden of showing it was exercised is on the vendor. ----------------------------------------------------------------------Art. 1534. An unpaid seller having the right of lien or having stopped the goods in transitu, may rescind the transfer of title and resume the ownership in the goods, where he expressly reserved the right to do so in case the buyer should make default, or where the buyer has been in default in the payment of the price for an unreasonable time. The seller shall not thereafter be liable to the buyer upon the contract of sale, but may recover from the buyer damages for any loss occasioned by the breach of the contract. The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested by notice to the buyer or by some other overt act an intention to rescind. It is not necessary that such overt act should be communicated to the buyer, but the giving or failure to give notice to the buyer of the intention to rescind shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the right of rescission was asserted. (n)

----------------------------------------------------------------------Third Right: Resale

When Right of Resale may be exercised The right to resell the goods may only be exercised under the following cases: a) When the goods are of perishable nature - Goods are perishable when they quickly decay and lose their value if not put to their intended use within a short period of time b) Where the seller expressly reserves the right of resale in case the buyer should default in payment c) Where the buyer has been in default for an unreasonable length of time although there was no reservation When applicable The article is applicable only if the title to the goods has already passed to the buyer. Otherwise, the goods cannot be resold. Effects of Resale a) The new buyer acquires a good title as against the original buyer. b) The seller is not liable to the original buyer for any profit earned in the resale, and may recover damages occasioned by the buyers breach of the contract of sale Scope and Limitations of Right of Resale - The resale may be in a public or private sale, but the seller is prohibited from buying the goods directly or indirectly. - The prohibition lies because the seller gains double benefits at the expense of the buyer which is unjust and unfair i.e. seller gets back the goods or things

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Fourth Right: Rescission Requisites for the Exercise of the Right of Rescission a) unpaid seller has right of lien over the goods, or b) he has stopped the goods in transitu, and c) in either case, the parties have reserved for the seller the right to rescind in case of default on the part of the buyer, or in the absence of such reservation, the buyer has been in default in his payment for an unreasonable length of time NOTE: The transfer of title shall not be held to have been rescinded by the unpaid seller until he manifests by notice to the buyer or by some overt act an intention to rescind. This is different from the right of resale where notice to the original buyer is not required. Effects of Rescission A rescission of the contract would accomplish the following results: (1) Termination of the original contract (2) Return of the title to the undelivered portion of the goods to the seller (3) Release of the buyer from his obligation to take and pay for the balance of the goods (4) The unpaid seller would be free to pursue its remedies on quantum meruit to recover what it had delivered to the buyer (Merchants Refrigerating Co. v Benjamin Titman Corp.) - The unpaid seller is not allowed to file a suit for the price of the goods because he is already given the right to recover damages from the buyer by reason of the latters breach of the contract of sale. - After rescinding the transfer of title, the seller may still recover damages from the buyer for breach of contract.

Sales and Lease

Illustrative cases a) A replevin suit filed by the seller against the buyer is a manifestation of an intention to rescind the sale (Bay State Milling Co. Susman) b) The offer of the property by the seller to a third person is also a manifestation of an intention to rescind (J.I. Case Threshing Mach. Co. vs. Bargabos)

REMEDIES OF AN UNPAID SELLER (Sale of Movables on Installment)

Articles 1484 to 1486 ----------------------------------------------------------------------Art. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. (1454-A-a) Art. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing. (1454-A-a) Art. 1486. In the case referred to in two preceding articles, a stipulation that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances. (n)

----------------------------------------------------------------------Remedies of Unpaid Seller of Movables on Installment (ECF) 1. Exact fulfillment should the buyer fail to pay - also known as specific performance

2. Cancel the sale if buyer fails to pay 2 or more installments - also known as rescission

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3. Foreclose on chattel mortgage if buyer fails to pay 2 or more installments Applicability - The remedies apply only to sales of personal property in installments. - Sale on Installment is defined as payment by several partial payments in small amounts - The remedies do not apply to sales of personal property in straight terms, where after the payment of an initial sum, the entirety of the balance is paid at the specific time. Nature of the Remedies - The three remedies are alternative, not cumulative. If the creditor avails himself of one remedy, he cannot avail himself of the other two. - The election of one remedy is a waiver of the right to resort to the other remedies. - However, if the remedy first chosen was not completed or not fully exercised as when there was voluntary desistance, the vendor may avail himself of another remedy. The Recto Law - The Installment Sales Law (Act No. 4122) or Recto Law amended Article 1454 of the Civil Code of 1189. The New Civil Code included this amendment. The original wordings of the Recto Law which introduced Article 1454-A in the Old Civil Code used the term unpaid balance owing instead of the present wording limiting it to unpaid balance of the price. - The reason behind the Recto law is this: to remedy abuses committed in connection with the foreclosure of chattel mortgages and to prevent the mortgagees from seizing the mortgaged property, buying it at a foreclosure sale for a low price and then bringing a suit for a deficiency judgment against the mortgagor. Two Levels of Barring Effect a) On the choice of remedies, and b) On the non-recovery of the unpaid balance of the price when it comes to the remedies of rescission and foreclosure. NOTE: In other words, not only are the remedies alternative. Once either rescission or foreclosure is

Sales and Lease

A. Specific Performance

chosen, no deficiency judgment may be obtained by the vendor in his favor.

GENERAL RULE: When the seller has chosen specific performance, he can no longer seek for rescission nor foreclosure of the chattel mortgage constituted on the thing sold. EXCEPTION: Even if he has chosen SP but the same has become impossible, the seller may still choose rescission (Art. 1191)
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)

Specific Performance, when deemed chosen - When the vendor files an action in court for recovery - Generally, mere sending of letters of demand to the buyer does not constitute election of this remedy Effects of Electing Specific Performance a. Vendor is barred from choosing either rescission or foreclosure (subject to the exception in Art. 1191) b. Action for Specific Performance does NOT bar recovery of deficiency (Industrial Finance Corp. vs. Ramirez) c. A judgment in an action for specific performance may be executed on all personal and real properties of the buyer which are not exempt from execution and which are sufficient to satisfy such judgment - A mortgage creditor may recover judgment on the mortgage debt and cause an execution on the mortgaged property and may cause an attachment to

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be issued and levied upon such property, upon beginning his civil action - In attaching the mortgaged chattel, the debtor still has the ability to retain the property attached by giving a counterbond and thereby discharging the attachment. This is not so in the case of foreclosure (Southern Motors vs. Moscoso, 2 SCRA 168 (1961) B. Rescission GENERAL RULE: When the remedy of rescission is chosen, there is correlative obligation on the part of the vendor to restitute the vendee for whatever amount the latter has paid EXCEPTION: When there is a stipulation that installments paid are forfeited. Such stipulation is valid as long as the same may not be unconscionable under the circumstances. Rescission, when deemed chosen (NPA) a) Notice of rescission is sent b) Takes possession of subject matter of sale c) Files action for rescission There must be an unequivocal desire on the part of the seller to rescind the contract (Vda. De Quiambao vs. Manila Motor Co., Inc., 3 SCRA 445 (1961)) Effects of Electing Rescission a. Article 1484 provides that the barring effect on the recovery of balance is applicable only when the remedy of foreclosure is chosen, the same is implicit from the nature of the remedy which is mutual restitution (Nonato vs. IAC, 140 SCRA 255)
Art. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. In this case, indemnity for damages may be demanded from the person causing the loss. (1295)

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b. Rescission seeks to cancel the contract and to waive further claim on the purchase price c. The vendor may recover damages for breach of contract d. Mutual Restitution C. Foreclosure Foreclosure, when deemed chosen - At the time of the actual sale of the subject property at public auction pursuant to the foreclosure proceedings commenced (Manila Motor Co., Inc. vs. Fernandez, 99 Phil. 782 (1956)) - If the car was surrendered but the mortgage was not foreclosed, the obligation to pay the balance is NOT extinguished Payments made Before Actual Foreclosure Prior to the actual foreclosure of the and actual sale of the mortgaged chattel, the seller has every right to receive payments on the unpaid balance of the price from the buyer (Northern Motors, Inc. vs. Sapinoso, 33 SCRA 356) Effects of Electing Foreclosure a. Barring effect on recovery of unpaid balance; exception: mortgagor refuses to deliver property to effect foreclosure, recover also expenses incurred in attorneys fees, etc. under the Perverse BuyerMortgagor Doctrine (Borbon II vs. Servicewide Specialists, Inc., 72 SCAD 111, G.R. No. 106418) b. Barring effect on other securities given by third persons for the payment of the price - If the guarantor should be compelled to pay the balance of the purchase price, the guarantor will in turn be entitled to recover what she has paid from the debtor vendee (Cruz vs. Filipinas Investment and Finance Corp., 23 SCRA 791) c. Barring effect on other securities via extrajudicial action - Further action being barred under 1484 must include extrajudicial proceedings by virtue of which the seller may be enabled to exact recovery of the supposed unsatisfied balance of the purchase price from the purchaser or his privy

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- Whether the seller mortgagee forecloses the chattel mortgage before enforcement of the additional mortgages OR the seller-mortgagee first seeks the enforcement of the additional mortgages prior to the foreclosure of the chattel mortgage, the seller must be held to have lost by waiver of non-choice of his lien on the chattel mortgage of the personal property sold by and mortgaged back to him (Borbon II vs. Servicewide Specialists, Inc., 72 SCAD 111, G.R. No. 106418 in relation to the Cruz case and Ridad vs. Filipinas Investment and Finance Corp., 120 SCRA 246) Meaning of unpaid balance - Refers to the deficiency judgment to which the mortgagee may be entitled where, after the mortgaged chattel is sold at a public auction, the proceeds obtained therefrom are insufficient to cover the full amount of the secured obligation which in the case at bar as shown by the note and by the mortgage deed, include interest on the principal, attorneys fees, expenses of collection and costs (Macondray & Co., Inc. vs. Eustaquio, 64 Phil. 446) - Covers only the purchase price, and cannot cover stipulations in the contract for damages, interests and attorneys fees (Dean Cesar Villanuevas dissent to the decision in Macondray case)
Barring Effect on Contracts of Lease with Option to Purchase - The issue is whether the taking back of possession or enjoyment of the property leased as treated by Art. 1485 is a rescission or a foreclosure - If it is deemed a rescission, then the lessor-seller may be able to collect damages as may be warranted by the circumstances - If it is deemed a foreclosure, then although the sellerlessor may forfeit in his favour all rentals previously paid, if such has been stipulated, he can no longer collect any further amounts against the buyer-lessee, even damages - In the Filipinas Credit Corp. case, it appears the Court sees the taking back of possession or enjoyment of the leased movable by the seller-lessor would amount to BOTH rescission and foreclosure (Dean Villanueva)

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- In H.E. Heacock Company vs. Buntal Manufacturing Co., 66 Phil 245, the Court treated it as a rescission Rationale Behind Article 1485 - These contracts may really be sales of personal property in instalments. Without 1485, Article 1484 may easily be circumvented by scheming sellers of personal property in instalments who may resort to leases of personal property with option to buy instead of chattel mortgage - Through the set-up, the vendor, by retaining ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the same, without going through the process of foreclosure (Filinvest Credit Corp. vs. CA) Applicability of Recto Law in Financing Transactions - Article 1484 applies to a person or entity which has financed the purchase on instalments of a movable, where the seller subsequently assigns the loan documents to the financing person or entity (Zayas, Jr. Vs. Luneta Motor Company, 77 SCRA 152) - The nature of the transaction as a sale of movables on installment basis remains. Being an assignee confers to him no better rights than the assignor under the same transaction. To rule otherwise would amount to a circumvention of the law (ibid.).

THE MACEDA LAW (R.A. No. 6552)

Realty Installment Buyer Protection Act R.A. No. 6552 provides for certain protection to particular buyers of real estate payable on installments. Transactions Covered Maceda Law does not cover all sales of realty on installments, but primarily residential real estate. However, it expressly covers all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments. Covers: a. Contract of sale b. Contract to sell c. Financing transactions Transactions Excluded from Coverage a. Sales covering industrial lots b. Sales covering commercial buildings (and commercial lots by implication)

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c. Sales to tenants under agrarian reform laws Enumeration is not exclusive. Rights Granted to Buyer under the Maceda Law A. If the buyer has paid at least two years of installments: 1. To pay, without additional interest, the unpaid installments due within the total grace period earned by him. Grace period is fixed at the rate of one (1) month grace period for every one (1) year of installment payments to be exercised only once in every five (5) years of the life of the contract and its extensions; down payments, deposits or options on the contract shall be included in the computation of the total number of installments made. 2. If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to 50% of the total payments made and, after five (5) years of instalments, an additional 5% every year but not to exceed 90% of the total payments made. Actual cancellation shall take place after 30 days from receipt by the buyer of the notice of cancellation or demand for rescission by a notarial act and upon full payment of the cash surrender value to buyer. 3. The right to sell his rights or assign the same to another person or to reinstate the contract by updating the account during the grace period and before actual cancellation of the contract. 4. The right to pay in advance any installment or the full unpaid balance of the purchase price any time without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property. B. If the buyer has paid less than two years of installments: 1. Buyer shall be entitled to a grace period of sixty (60) days from the date the installment became due. If the buyer fails to pay the installments due to the expiration of the grace period, the seller may cancel the contract after

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thirty (30) days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by notarial act. 2. The right to sell his rights or assign the same to another person or to reinstate the contract by updating the account during the grace period and before actual cancellation of the contract. 3. The right to pay in advance any installment or the full unpaid balance of the purchase price any time without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property.

SALE OF IMMOVABLES
Rules on Effects of Delivery for Immovables A. Where Immovable Sold per Unit or Number If the sale of real estate should be made with a statement of its area, at the rate of a certain price for a unit of measure or number, the seller is bound to deliver the entire land sold in accordance with the terms of the contract. Art. 1539. The obligation to deliver the thing sold includes that of placing in the control of the vendee all that is mentioned in the contract, in conformity with the following rules: If the sale of real estate should be made with a statement of its area, at the rate of a certain price for a unit of measure or number, the vendor shall be obliged to deliver to the vendee, if the latter should demand it, all that may have been stated in the contract; but, should this be not possible, the vendee may choose between a proportional reduction of the price and the rescission of the contract, provided that, in the latter case, the lack in the area be not less than one-tenth of that stated. The same shall be done, even when the area is the same, if any part of the immovable is not of the quality specified in the contract. The rescission, in this case, shall only take place at the will of the vendee, when the inferior value of the thing sold exceeds one-tenth of the price agreed

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upon. Nevertheless, if the vendee would not have bought the immovable had he known of its smaller area of inferior quality, he may rescind the sale. Art. 1540. If, in the case of the preceding article, there is greater area or number in the immovable than that stated in the contract, the vendee may accept the area included in the contract and reject the rest. If he accepts the whole area, he must pay for the same at the contract rate. Where the entire area stipulated could not be delivered, or where the entire area of the immovable is greater than that stipulated, the following rules shall apply: Actual Area or Number Actual Area or Number of the Immovable of the Immovable Less Greater than that than that Stipulated Stipulated Fulfillment Vendee may demand Vendee may accept the proportionate reduction area included in the of the price. contract and reject the excess OR accept the whole area but he must pay for the same at the contract rate. Rescission Vendee may rescind the Rescission is not sale in any of the allowed. following cases: 1. The lack in area of the immovable is at least 1/10th than that stipulated; 2. The deficiency in the quality specified in the contract exceeds 1/10th of the price agreed upon; 3. If the vendee would not have bought the immovable had he known of its smaller area or inferior quality irrespective of the

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extent or the lack in area or quality Reason for the rules: In sale by unit of measure or number, the cause of the contract with respect to the vendee is the number of such units or the thing purchased as determined by the stipulated number of units. The preceding rules shall also apply to judicial sales (Art. 1541) B. Where Immovables Sold for a Lump Sum In the sale of real estate made for lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price, although there be greater or lesser area than that stated in the contract (Art. 1452, par. 1) Reason: In sale by lump sum, the cause of the contract, from the point of view of the buyer, is the acquisition of the thing sold independent and irrespective of its number or measure. Exception: Where the deficiency is so material as to go to the essence of the contract the provisions of Article 1452 will not apply. The sale of land under description more or less or similar words in designating the quantity covers only a reasonable excess or deficiency. The vendee does not thereby ipso facto take all the risks of quantity in the land (Asiain v. Jalandoni) Exception to the exception: Where the buyer expressly assumes the risk on the actual area of the land bought (Garcia v. Velasco)

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Art. 1542, par. 2. The same rule shall be applied when to or more immovables are sold for a single price; but if, besides mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or number should be designated in the contract, the vendor shall be bound to deliver all that is included within said boundaries, even when it exceeds the area or number specified in the contract; and should he not be able to do so, he shall suffer a reduction in the price, in proportion to what is lacking in the area or number; unless the contract is rescinded because the vendee does not accede to the failure to deliver what has been stipulated. Where the area or number is stated together with the boundaries, and the vendor cannot deliver to the vendee all that is included within the boundaries mentioned in the contract, the vendee has the option to reduce the price in proportion to the deficiency or rescind the contract. If the price per unit of measure or number is not expressly provided for in the contract of sale, the rules of lump sum sale shall prevail in the sale of real property (Santa Ana v. Hernandez) S sold to B a parcel of land for the lump sum of PhP 1,000,000.00. The contract states that the area is 500 square meters. Subsequently, it was ascertained that the area included within the boundaries is really 750 square meters. B demands that the whole 750 square meters be delivered to him by S without him (B) paying additional price. Can S refuse to do so? Answer: S is cannot refuse. S is bound to deliver all the 750 square meters which are included within the said boundaries without increase in price. However, if S does not deliver the whole 750 square meters, B has the right to rescind the contract or pay a proportionately reduced price. X sold to Z a parcel of land for the lump sum of PhP 300,000.00. The contract states that the lot contains 120 square meters. On the date of the execution of the final deed of sale, Z refused to pat the agreed price claiming that the land was actually just 112 square meters, or less than that stated in the

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contract. Z claimed a proportional reduction of the price or else he would not buy. Is Z correct? Answer: Z is not correct. The fact that the specified parcel of land bought by Z is not as large as he thought does not relieve him from the obligation of paying its price. In sale of land by lump sum, the boundaries of the land as stated in the contract are the determining factor and not its area. If Z intended to buy by the meters, he should have so stated in the contract. The actions based on Articles 1539 and 1542 for either rescission of the contract or proportionate reduction of price must be brought within six months counted from the day of delivery (Art. 1453)

DOUBLE SALES
Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person, who in good faith was first in possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. Main rule: Primus tempore, potior jure or first in time, priority in right. Primary rule: Provisions under Article 1544 Rules as to Preference of Ownership in Case of Double Sale (Art. 1544) A. Property involved is movable: The ownership shall be acquired by the vendee who first takes possession in good faith. B. Property involved is immovable: 1. The ownership shall be acquired by the vendee who first registers in the sale in

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the Registry of Deeds in good faith; if there is no registration 2. The ownership shall be acquired by the vendee who first takes possession in good faith; if there is no registration and possession 3. Ownership is acquired by the vendee who presents the oldest title or who first bought the property Article 1544 has no application to lands not registered under the Torrens System.
Buyer in good faith (innocent purchaser for value) one who buys property of another, without notice that some other person has a right to, or interest in, such property and pays a full and fair price for the same at the time of such purchase, or before he has notice of the claims or interest of some other person in the property ( Sps. Mathay v. Court of Appeals) Legal presumption of good faith cannot be invoked. He who asserts the status of a purchaser in good faith and for value has the burden of proving such assertion. Registration any entry made in the books in the registry, including registration in its ordinary and strict sense, and cancellation, annotation, and even marginal notes. It is the entry made in the registry which records solemnly and permanently the right of ownership and other real rights; covers the annotation or inscription of a contract, transaction or legal process in the Register of Deeds covering a property. Possession possession is the holding of a thing or the enjoyment of a right (Art. 523); possession under Article 1544 covers both actual and constructive possession. Possessor in good faith he who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it (Art. 526, par. 1)

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consummation stage. Hence, Article 1544 can operate only from the premise that tradition was effected as a consequence of a valid sale. b. The two or more sales transactions must pertain to exactly the same subject matter; Where one buyer bought the parcel of land, and the other buyer bought the right to redeem the same parcel of land, Article 1544 is not applicable because the subject matter of the second sale is not the land itself but the right to redeem. c. The two or more buyers at odds over the rightful ownership of the subject matter must each represent conflicting interests; and d. The two or more buyers at odds over the rightful ownership of the subject matter must each have bought from the very same seller. S sold a parcel of land to B1 under a private instrument. The sale was not yet registered with the Register of Deeds. Subsequently S sold the same parcel of land to B2 who immediately took possession of it. The sale was not yet registered. B1 received information that S sold the same parcel of land to B2. B1 registered an adverse claim on the title of the land with the Register of Deeds. Subsequently, B2 registered his sale. Question: Who between B1 and B2 has a better right over the property? Answer: B1 has a better right and hence ownership should pertain to him. It should be noted that B1 bought the property from S in good faith because at the time of the first sale the title was still in Ss name and that B1 was not aware and he could not have been aware of any sale to B2. B1s good faith subsisted and continued to exist when he recorded his adverse claim and his good faith did not cease when he found out of the second sale to B2. B1s recording of adverse claim should be deemed to have been done in good faith while B2s subsequent registration of the sale was in bad faith. The good faith of the first buyer subsists despite his subsequent acquisition of knowledge of the second or subsequent sale. Whereas the second buyer, before he registers his sale, would become a buyer in

Requisites of Double Sales The following requisites must concur for the applicability of Article 1544: a. The two or more sales transactions must constitute valid sales; For Article 1544 test to apply, both sales involved in the dispute must be valid, or at least voidable. Reason: Rules under Article 1544 are applications of rules of delivery at

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bad faith by his subsequent acquisition of knowledge of the first sale. The first buyer has priority rights over subsequent buyers of the same property.

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Written and Edited by Jose Angelo David and Ariel Maghirang, 2S 2011-2012 Sources: Baviera, A., De Leon, H., Pineda, E. and Villanueva, C.