Sales: Performance of Parties' Obligation Under the Sale

 

PERFORMANCE OF PARTIES' OBLIGATIONS UNDER THE SALE

OBLIGATIONS OF SELLER

PDDW

1. Obligation to Preserve the Subject Matter

• Article 1163: 

• A seller must take care of the determinate subject matter with the diligence of a good father of a family.

• Even before delivery, the seller is responsible for preserving the item; failure to do so results in liability for breach.

• This is a personal obligation to do rather than a real obligation to give, ensuring the seller can fulfill the main obligation to deliver.

2. Obligation to Deliver the Subject Matter

• Article 1495: 

• The seller must transfer ownership and deliver the thing sold.

• The mode of tradition (delivery), whether actual or constructive, is the means of transferring ownership.

• Cases:

• Kuenzle & Streiff v. Watson & Co.: 

• If the sale contract does not specify otherwise, ownership transfers upon delivery, even without full payment.

• Ocejo, Perez & Co. v. International Banking Corp.: 

• Delivery naturally results in the conveyance of ownership, but the seller retains the right to claim payment.

3. Obligation to Deliver Fruits and Accessories

• Article 1164: 

• The buyer is entitled to the fruits of the subject matter from the time the obligation to deliver arises, but real ownership is acquired only upon delivery.

• Article 1537: 

• The seller must deliver the item in the same condition as when the contract was perfected, along with its accessories and accessions.

• Accessories follow the principal – 

• the buyer's rights extend to fruits and accessories even before delivery, unlike in res perit domino where only the owner benefits.

4. Obligation to Warrant the Subject Matter

• Article 1495: 

• Upon fulfilling the obligation to deliver, the seller must warrant the thing sold.

• The details of seller warranties are discussed further in Chapter 12.

TRADITION AS A CONSEQUENCE OF A VALID SALE

Essence of Tradition

• Equatorial Realty v. Mayfair Theater: 

• Ownership is transferred not merely by contract but by tradition or delivery (Articles 1497-1501, Civil Code).

• Delivery requires mutual agreement between seller and buyer, involving both transfer of title and possession.

• Santos v. Santos: 

• The seller’s intention to deliver and the buyer’s acceptance are crucial, but explicit acknowledgment is not required for legal effect.

• Tradition in a valid sale produces legal consequences automatically, without explicit intention at the point of delivery.

No Valid Transfer if Sale is Void

• A deed of sale alone does not transfer ownership if there is no valid sale behind it (e.g., for accommodation purposes).

• Nemo dat quod non habet principle: 

• A seller cannot transfer what they do not own 

• e.g., void auction sale = no title passed.

Types of Delivery

1. Actual (Physical) Delivery

• Article 1497: 

• Occurs when the thing sold is placed in the control and possession of the buyer.

• Froilan v. Pan Oriental Shipping: 

• Ownership transfers upon actual or constructive delivery, unless otherwise agreed.

• Power Commercial v. CA: 

• The key factor is control, not mere possession (e.g., filing an ejectment case proves ownership).

2. Constructive Delivery

• Article 1496: 

• Any act signifying agreement to transfer possession constitutes delivery.

• Alfredo v. Borras: 

• Seller introducing the buyer as the new owner suffices for delivery.

• Kinds:

ESC-TT-DDD

1. Execution of Public Instrument

2. Symbolic Delivery

3. Constitutum Possessorium

4. Traditio Brevi Manu

5. Traditio Longa Manu

6. Delivery of Incorporeal Property

7. Delivery by Negotiable Document of Title

8.  Delivery Through Carrier

a. Execution of Public Instrument

Constructive Delivery Has the Same Legal Effect as Actual or Physical Delivery

• Article 1498: 

• A notarized deed of sale serves as constructive delivery unless the contract states otherwise.

• Constructive delivery through a public instrument has the same legal consequences as actual delivery.

• Municipality of Victorias v. CA: 

• The execution of a public instrument is equivalent to delivery unless stated otherwise in the deed.

• Functions of a notarized deed:

• Serves as symbolic delivery of the property.

• Provides proof of ownership.

• Sabio v. International Corporate Bank: 

• Ownership transfers even if the buyer is not in actual possession.

• The mere execution of a deed of conveyance in a public instrument transfers ownership.

• Prior physical delivery is not a requirement.

• Ownership and possession are distinct legal concepts.

• Symbolic delivery can transfer ownership despite illegal occupants.

Exception:

• Ten Forty Realty and Dev. Corp. v. Cruz: 

• A deed of sale creates only a presumption of delivery, which can be rebutted if the buyer never gains possession due to legal impediments.

• The ruling was criticized for confusing evidence of sale with constructive delivery, as delivery also requires control over the subject matter.

When Execution of Public Instrument Does Not Produce Effects of Delivery

Constructive Delivery is Ineffective:

1. Express stipulation to the contrary

• Phil. Suburban Dev. v. Auditor:

1. A specific date is fixed for the buyer to take possession.

2. Sale by installments where the title remains with the seller until full payment.

3. The seller reserves the right to use the property until crops are gathered.

4. The seller lacks control over the thing sold at the time of sale.

• Cases: 

• Phil. Suburban Dev. v. Auditor:

• If the execution of the public instrument follows actual delivery, tradition is deemed effected, even if conditions like securing a new title before full payment exist.

• Heirs of Severina San Miguel v. CA:

• Ownership passes only upon full payment or delivery.

• This was clarified by Balatbat v. CA.

• Balatbat v. CA:

• General rule: Ownership passes upon delivery, even if full payment has not been made.

• Exception: If there is an explicit stipulation that ownership does not transfer until full payment.

• Ownership does not revert to the seller unless the contract is rescinded under Art. 1191.

• Fortune Tobacco v. NLRC:

• A conditional sale with a provision that ownership transfers only upon full payment does not constitute delivery despite execution of a deed of conditional sale.

2. Seller lacks control over the property at the time of execution

• Addison v. Felix: 

• Symbolic delivery is effective only if the seller has control over the property at the time of execution.

• Delivery requires control, not mere possession.

• If the property is under the control of another party without the buyer’s consent, symbolic delivery is ineffective.

• Exception: If the buyer agrees to assume the burden of taking possession from a third party, the sale is valid despite lack of physical control by the seller.

• Power Commercial & Industrial Corp. v. CA:

• The key factor is control, not possession.

• Execution of a deed is sufficient if there is no contrary stipulation, even if squatters or occupants are present.

• Contradiction: The case stated that “mere consent” does not transfer ownership, but this is inaccurate since Article 1496 allows ownership transfer by agreement.

3. Control must persist for a reasonable period after execution

• Pasagui v. Villablanca:

• The buyer should have a reasonable period to take possession.

• Execution of a public instrument should not unduly burden the buyer.

• The seller must retain control over the object for a reasonable time after executing the instrument.

• If a third party takes possession immediately after execution, delivery is not effected.

• Reinforced by Danguilan v. IAC and Vda. de Sarmiento v. Lesaca.

Special Variation to Addison Doctrine

• Dy, Jr. v. Court of Appeals:

• A brother-buyer purchased a tractor from his brother-seller through a deed of absolute sale.

• At the time of sale, the tractor was mortgaged and in the possession of the mortgagee.

• The mortgagee agreed to the sale but required that delivery to the buyer be made only after the check payment for the mortgage debt cleared.

• Before delivery, a judgment creditor of the seller executed upon the tractor to satisfy the brother-seller’s debt.

• Whether the execution sale valid, considering the tractor had already been sold to the brother-buyer?

• Ownership over mortgaged property remains with the mortgagor (the seller), even though it is encumbered.

• Under Article 1498 of the Civil Code, execution of a public instrument constitutes constructive delivery.

• Under Article 1499, delivery of a movable property can also be made by mere consent of the parties if actual delivery is not possible at the time of sale.

• Actual delivery was not possible because the tractor was with the mortgagee, but constructive delivery was sufficient to transfer ownership.

• Therefore, the brother-buyer was the rightful owner, and the execution by the judgment creditor was invalid.

• Constructive delivery can be effective in transferring ownership even when the seller does not have actual control of the property, as long as there is no legal impediment to transfer ownership.

• The third-party mortgagee's possession did not invalidate the sale.

• Relation to Addison Doctrine:

• Addison held that constructive delivery requires the seller to have control of the property at the time of sale.

• Dy, Jr. modified this by recognizing that title transfer can still occur if the seller has ownership rights and there are no legal restrictions.

• The ruling in Dy, Jr. does not contradict Addison but rather provides a special exception when third-party possession exists.

• If the buyer agrees to take steps to obtain possession from a third party, constructive delivery via a public instrument is valid and ownership transfers.

b. Symbolic Delivery

• Constructive delivery of movables can be done by delivering the keys to the storage or depository where the goods are kept.

• Limitation:

• Symbolic delivery must involve the subject matter of the sale.

• Payment of purchase price does not equate to delivery.

c. Constitutum Possessorium

• Seller retains physical possession of the property but no longer as an owner (e.g., as a lessee).

• Example: 

• A person sells a house but continues to live in it as a tenant.

d. Traditio Brevi Manu

• Opposite of constitutum possessorium.

• Buyer is already in possession before the sale (e.g., as a lessee) and continues possession but as an owner after the sale.

• Example: 

• Heirs of Pedro Escanlar v. CA – Lessees became owners after buying the property.

e. Traditio Longa Manu

• Delivery by mere agreement between the parties.

• Seller points out the property instead of transferring actual physical possession.

• Based on Article 1499: 

• Used when the item cannot be transferred immediately.

f. Delivery of Incorporeal Property

• Incorporeal property (e.g., rights, shares) has no physical form, so delivery is always constructive.

• Recognized methods (Article 1501, Civil Code)

1. Execution of a public instrument (unless the contract states otherwise)

2. Transfer of title documents to the buyer

3. Use and enjoyment of the property with the seller’s consent.

g. Delivery by Negotiable Document of Title

• Buyer who receives a negotiable document of title gets good title (even better than the immediate seller in some cases).

• Buyer who receives only an assigned document gets the transferor’s title, subject to prior agreements.

• Invoices are NOT negotiable documents, so they do not constitute constructive delivery.

h. Delivery Through Carrier

• Applies only to the sale of goods.

• Delivery to the carrier = delivery to the buyer, since the carrier is presumed to be the buyer's agent (Article 1523, Civil Code).

• Exceptions:

• If the contract states otherwise.

• If the seller fails to make a reasonable contract with the carrier, leading to loss/damage, the buyer can reject the delivery or hold the seller liable.

• If the seller knows it is usual to insure the goods but fails to notify the buyer, the risk remains with the seller.

• Types of Sales Based on Shipping Terms

1. F.A.S. (Free Alongside Ship) Sales

• Seller pays for all charges until the goods are placed alongside the vessel.

• Delivery is completed when the goods are alongside the ship.

2. F.O.B. (Free on Board) Sales

• Two types:

1. F.O.B. Shipping Point – Risk shifts to the buyer once goods are delivered to the carrier.

2. F.O.B. Destination – Risk remains with the seller until the goods reach the buyer’s location.

3. C.I.F. (Cost, Insurance, and Freight) Sales

• Seller pays for cost, insurance, and freight.

• Two interpretations exist:

1. First School of Thought:

• Delivery to the carrier = delivery to the buyer.

• Since the buyer ultimately pays for freight and insurance, the carrier is the buyer’s agent.

• Buyer has insurable interest over the goods.

2. Second School of Thought:

• Delivery is only completed at the destination.

• Seller bears the risk of loss during transit.

• Behn, Meyer & Co. v. Yangco – Delivery was at the port of destination since the price included cost, insurance, and freight.

• Pacific Vegetable Oil Corp. v. Singzon – Seller bore the risk of loss until arrival at the destination.

• General Foods v. NACOCO – Delivery to the carrier was considered delivery to the buyer, unless modified by express stipulation.

• Shipping terms create presumptions, but courts look at contract stipulations to determine the real intent.

• Risk transfer depends on:

• Agreed shipping terms (F.O.B., C.I.F., etc.).

• Stipulations in the contract (e.g., if payment is based on “net landed weight,” risk remains with the seller).

• Courts favor contract interpretation over standard rules when determining the transfer of risk and ownership.

EFFECTS AND COMPLETENESS OF DELIVERY

For tradition (delivery) to legally transfer ownership and fulfill the seller’s obligation, two principles must apply:

1. Delivery must be pursuant to a valid sale.

2. Delivery must be made by a seller who has ownership of the goods.

a. Delivery Must Be Made Pursuant to a Valid Sale

• Delivery takes effect only in the consummation stage of a valid sale.

• If the sale is fictitious or void (e.g., no consideration), no title is transferred.

• Nemo potest nisi quod de jure potest

• No man can do anything except what he can do lawfully.

b. Delivery Must Be Made By a Seller Who Owns the Goods

• The seller must have ownership at the time of delivery.

• If the seller does not own the goods, no valid transfer occurs.

• Nemo dat quod non habet

• No one can give what they do not have.

c. To Whom Delivery Must Be Made

• If a contract specifies a recipient (e.g., buyer or authorized representative), the seller must deliver only to that person.

• Lagoon v. Hooven Comalco Industries, Inc.:

• The seller cannot unilaterally change the recipient without the buyer’s authorization.

d. When the Buyer Refuses to Accept

• The buyer’s acceptance is not required for delivery to be legally complete.

• Effects of Buyer’s Refusal:

• Ownership still transfers to the buyer.

• Risk of loss shifts to the buyer.

• Article 1588:

• If refusal is without just cause, ownership passes once goods are placed at the buyer’s disposal.

• However, the seller must take reasonable steps to avoid loss or damage to the goods to avoid liability.

1. Rules on Delivery of Goods (Article 1522, Civil Code)

1. If the seller delivers less than the contracted quantity:

• The buyer may reject the delivery.

• If the buyer accepts or retains the goods, knowing the seller won’t deliver the full amount, he must pay at the contract rate.

2. If the buyer has already used or disposed of the goods before knowing the seller won’t complete the contract:

• The buyer is liable only for the fair value of the goods received.

3. If the seller delivers more than the contracted quantity:

• The buyer may accept the correct amount and reject the excess.

• If the subject matter is indivisible, the buyer may reject the entire delivery.

4. If the goods are mixed with different items:

• The buyer may accept the correct goods and reject the rest.

• If indivisible, the buyer may reject the entire lot.

a. When Goods Are Held by a Third Party

• The seller must obtain acknowledgment from the third party that the goods are now held for the buyer.

• Without this acknowledgment, delivery is incomplete.

b. Reservation of Ownership

• Even if goods are delivered, ownership does not transfer if there is an express reservation, such as:

• Ownership is retained until full payment.

• Certain conditions must be fulfilled before ownership passes.

• Instances of Implied Reservation (Article 1503, Civil Code):

1. Goods shipped with a bill of lading deliverable to the seller → Ownership is reserved.

2. Goods shipped with a bill of lading deliverable to the buyer, but seller retains possession of the bill → Seller retains control.

3. Seller transmits the bill of exchange and bill of lading to secure payment → Buyer must return the bill if they don’t pay.

c. Obligation to Deliver Accessories and Accessions

• Seller must deliver all accessories and accessions in the same condition as at the time of contract perfection.

d. Sale in Mass of Movables

• Sale in mass (Article 1522): Includes a group of goods sold together.

• Sale of a specific mass (Article 1480): Deals with fungible goods (e.g., grains, minerals) sold in bulk.

• Gaite v. Fonacier (Sale of iron ore)

• If there is no agreement on measuring or weighing, the seller must deliver the entire mass, even if it is less than estimated.

e. Sale by Description and/or Sample

• If goods do not match the sample or description, the buyer may rescind the sale.

• If sold by both sample and description, goods must match both to be valid.

• Buyer must be given a reasonable opportunity to inspect the goods.

• Mendoza v. David: 

• Sale by sample occurs when the seller shows a small quantity as a fair specimen.

• Engel v. Mariano Velasco & Co.: 

• Buyer cannot refuse goods due to minor deviations if they accept after notice.

• Pacific Commercial Co. v. Ermita Market & Cold Stores: 

• If goods match the contract description, the buyer must pay even if the goods don’t serve the buyer’s intended purpose (unless that purpose was made known to the seller).

f. On Sale or Return (Article 1502)

• Ownership passes to the buyer upon delivery.

• The buyer may revest ownership to the seller by returning the goods:

• Within the time fixed in the contract; or

• If no time is fixed, within a reasonable time.

g. Sale on Approval, Trial, Satisfaction, or Acceptance (Article 1502)

• Ownership passes to the buyer only when:

1. The buyer signifies approval or acceptance or performs an act adopting the sale.

2. The buyer retains the goods without rejecting them:

• If a return deadline is set → Ownership transfers after the deadline.

• If no deadline is set → Ownership transfers after a reasonable time.

• Vallarta v. CA:

• If a sale is on “acceptance”, ownership does not transfer upon possession.

• Delivery alone is not sufficient to transfer ownership unless a valid contract is in place.

h. Form of Special Sales

• Industrial Textile Manufacturing Co. v. LPJ Enterprises, Inc.

• A sale must clearly specify whether it is a “sale or return” or “sale on approval”.

• Such an agreement must be in writing.

• Parol (verbal) evidence is not allowed to prove such terms if they are absent from the contract.

• The buyer cannot accept part and reject the rest in an “on approval” sale.

i. Written Proof of Delivery

• Lao v. CA:

• Delivery is typically proven by a written acknowledgment such as a delivery receipt.

• A bill of lading is NOT a substitute for a delivery receipt:

• It only acknowledges that the carrier received the goods for transport, NOT that the buyer received them.

• A factory consignment invoice is NOT proof of delivery:

• It only states the nature, quantity, and cost of goods, but does not confirm actual receipt by the buyer.

j. Time and Place of Delivery

• If not otherwise agreed, delivery follows these rules:

• Who takes possession?

• The obligation to take or send the goods depends on the contract (express or implied).

• Default Place of Delivery

• Seller’s place of business, or if none, his residence.

• If specific goods were in a known location at the time of the contract → That location is the place of delivery.

• Time of Delivery

• If the seller must send the goods but no time is fixed → Delivery must be made within a reasonable time.

• Delivery at an unreasonable hour may be deemed ineffectual.

• What constitutes a reasonable hour is a question of fact.

• Seller Bears the Cost of Delivery

• Unless otherwise agreed, the seller pays for expenses required to put the goods in a deliverable state.

k. Conditions of Goods Delivered

• Lara's Gifts & Decors v. Midtown Industrial Sales

• Best evidence of sale: Sales invoices signed by the buyer or its authorized staff.

• If an invoice states that the goods were received in good order and condition, this prevails over mere claims that the goods were substandard.

 2. Rules on Effects of Delivery for Immovables

Pricing Methods in Sales of Immovables

• Unit Price Contract

• Price is based on a stated rate per unit area (e.g., ₱1,000 per sqm).

• Unit price sale → Governed by Article 1539, allowing price adjustment or rescission.

• Lump Sum Contract

• Price is fixed for the whole property, regardless of exact area.

• Lump sum sale → Governed by Article 1542, with no price adjustments unless excess/deficiency is unreasonable.

Rules When Immovables Sold Per Unit or Number (Article 1539, Civil Code)

1. Seller must deliver the full area stated in the contract (if possible).

2. If full delivery is impossible → Buyer may choose:

• Proportional price reduction, or

• Rescission of the sale (if the shortage is at least 1/10 of the stated area).

3. Applies even if the area is correct but lacks agreed quality → 

• Rescission possible if inferiority exceeds 1/10 of price.

4. Buyer can still rescind if the area/quality was a crucial factor in the purchase decision.

• Rudolf Lietz, Inc. v. CA

• Area not conclusive; price may increase or decrease based on actual area.

• Article 1540

• If the delivered area exceeds the stated contract area:

• Buyer may accept only the stated area.

• If buyer accepts excess → Must pay at contract rate.

• Rules apply to judicial sales as well.

Rules When Immovables Sold for a Lump Sum (Article 1542, Civil Code)

1. No price increase/decrease, even if actual area differs from contract.

2. Applies even if multiple immovables are sold for a single price.

3. If boundaries are specified, seller must deliver everything within them.

• If unable to do so → Price is reduced proportionally.

• Exception: If the excess/deficiency is unreasonable, price adjustment applies.

• Roble v. Arbasa: 644 sqm deficiency deemed unreasonable despite "more or less" clause.

• Esguerra v. Trinidad: Boundaries control, not exact area; "more or less" applies only to reasonable discrepancies.

Exceptions to Article 1542

• Buyer assumes risk of area discrepancies → No remedy.

• If sale was fraudulent, Article 1542 does not apply → Buyer can seek annulment.

• Sale of condominium units

• Lump-sum purchase does not include common areas.

• Substantial discrepancy in actual vs. advertised area (e.g., 21.68% deficiency) is material misrepresentation.

Lump Sum Sale vs. Sale by Unit of Measure or Number

• Santa Ana v. Hernandez

• If the contract does not specify a price per unit of measure, it is treated as a lump sum sale.

• The buyer is entitled to occupy all portions within the boundaries, even if it exceeds the stated area.

• If the sale is by unit of measure, it must be expressly stated in the contract.

Where Immovables Sold in Mass

• A judicial sale of separate lots in mass will not be set aside unless:

• A larger sum could have been obtained by selling in parcels.

• A smaller sale would have been enough to satisfy the debt.

Expenses of Delivery and Registration on Real Estate

• Chua v. Court of Appeals (2003)

• Registration is not required for ownership transfer between the seller and buyer.

• Ownership transfers upon execution and notarization of the sale.

• Registration is only necessary to bind third parties.

• The seller remains responsible for capital gains tax since it is a tax on their gain.

• Jose Clavano, Inc. v. HLRB

• A judgment ordering the seller to deliver the deed and certificate of title does not automatically mean the seller must pay for notarization and new title issuance.

• Vive Eagle Land, Inc. v. Court of Appeals

• Under Article 1487 of the Civil Code, the seller must shoulder the registration expenses unless the contract states otherwise.

• Under Article 1495, the seller is obligated to transfer title and deliver possession.

• Kings Properties Corp. v. Galido

• Constructive delivery happens when the notarized deed of sale and the original certificate of title are handed to the buyer.

• Spouses Salitico v. Heirs of Felix (2019)

• If a buyer has taken possession of an inherited property, the seller-heir cannot refuse to deliver the title.

OBLIGATIONS OF BUYER

PA

1. Obligation to Pay the Price

• The buyer must pay the price at the time and place stipulated in the contract.

• Mere intention to pay (e.g., sending a letter) without actual payment is not valid tender of payment.

• Payment must be made to the seller or an authorized representative under Article 1240 of the Civil Code.

• Under Article 1589, the buyer must pay interest if:

• It is stipulated in the contract.

• The object produces fruits or income before payment.

• The buyer is in default, from the time of judicial or extrajudicial demand.

• Villaflor v. Court of Appeals:

• Non-payment does not prove simulation (fraud).

• The seller may sue for collection or, in case of substantial breach, may rescind the contract under Article 1191 of the Civil Code.

2. Obligation to Accept Delivery of the Goods

• The buyer must accept delivery at the time and place agreed upon.

• If no stipulation, payment and delivery occur simultaneously.

• Acceptance of goods occurs when the buyer:

• Expressly or implicitly acknowledges ownership of the goods.

• Retains the goods for a reasonable time without rejection.

a. Opportunity to Inspect Goods

• The buyer has a right to inspect goods before acceptance, unless agreed otherwise.

• Cash on Delivery (COD):

• If goods are marked "Collect on Delivery", the buyer cannot inspect before payment unless otherwise agreed.

b. Goods Sold Deliverable by Installments

• The buyer is not required to accept goods by installments unless agreed.

• If defective installments are delivered, or the buyer wrongfully refuses to accept an installment:

• The entire contract may be rescinded, or

• The breach may be severable, allowing only a claim for damages.

c. Effect of Acceptance on Seller’s Warranty

• Acceptance does not waive the seller’s liability for breach of warranty unless agreed.

• If the buyer fails to notify the seller of the defect within a reasonable time, the seller is excused from liability.

d. Refusal to Accept Goods

• If the buyer has valid grounds to refuse delivery, he is not required to return the goods but must notify the seller.

• If the buyer voluntarily keeps the goods, he assumes responsibility as a depository.

• If the buyer refuses without just cause, ownership still transfers once the goods are placed at his disposal.

• Payment must be made as agreed; non-payment does not automatically cancel the sale.

• Acceptance of goods can be express or implied.

• Buyers have a right to inspect goods, but not under COD terms.

• Acceptance does not waive warranty rights, but late notification may.

• Wrongful refusal does not prevent ownership transfer.

LAW ON DOUBLE SALES

Rules on Double Sales and the Role of Tradition

• Article 1544 of the Civil Code provides rules on double sales for both movables and immovables.

• These rules apply at the consummation stage of the sale, focusing on tradition (delivery) and ownership transfer.

• Prerequisites for Double Sale Rules to Apply:

1. All conflicting sales must be valid and demandable.

2. The seller must have been the owner when multiple sales were made.

Article 1544: Priority Rules in Double Sales

• If the same property is sold to different buyers, ownership is determined as follows:

A. Movable Property

• Ownership goes to the buyer who first takes possession in good faith.

• Legal Basis:

• Article 559 of the Civil Code: 

• Possession of a movable in good faith is equivalent to title.

• Odrada v. Lazaro: 

• In double sales of motor vehicles, ownership belongs to the first possessor in good faith.

B. Immovable Property

• Three-pronged test for determining ownership:

1. Buyer who first registers the sale in good faith in the Registry of Property.

2. If no registration, the buyer who first takes possession in good faith is preferred.

3. If neither registration nor possession applies, ownership goes to the buyer with the oldest title in good faith (prius tempore, potior jure).

• Importance of Land Registration:

• Registration, not mere execution of a sale, binds third parties.

• Private agreements on land only bind the contracting parties unless properly registered.

• Principle of Nemo Dat Quod Non Habet: 

• A seller cannot transfer what he no longer owns.

• Hierarchy of Preference in Immovable Sales:

• Registration in good faith → 

• First possession in good faith → 

• Oldest title in good faith.

Two Divergent Systems in Land Registration

• Two Paths in Land Registration

• Registered Land

• covered by the Torrens system

• governed by P.D. No. 1529 (Property Registration Decree).

• Unregistered Land 

• not under the Torrens system)

• transactions recorded under P.D. No. 1529 (previously under Act No. 3344).

a. The Case for Registered Land

• Registration in Good Faith as the Operative Act Doctrine (Sec. 51, P.D. 1529)

• No voluntary instrument (e.g., sale, mortgage, lease) binds the land until registered.

• Registration is the operative act to affect land as to third persons.

• Registration gives the Register of Deeds the authority to record the transaction.

• Abrigo v. De Vera:

• Reinforces that Article 1544 (on double sales) aligns with Sec. 51, P.D. 1529.

• Relationship Between Sec. 51, P.D. 1529 & Article 1544 (Double Sales Rule)

• Article 1544 (Double Sales Doctrine) applies only to registered sales where buyers claim ownership over the same property.

• P.D. 1529's registration principle has broader applicability—it covers all forms of voluntary transactions (e.g., leases, mortgages, options).

• Rules under P.D. 1529 take precedence over Article 1544 in cases involving registered land.

• Cases:

1. Liao v. Court of Appeals

• When two certificates of title exist over the same land, priority is given to the first issued certificate, not the first registered sale under Article 1544.

2. Naawan Community Rural Bank, Inc. v. Court of Appeals

• First buyer who purchased under Act No. 3344 (unregistered land) cannot claim priority over a second buyer who registered under the Torrens system.

• The issuance of a Torrens title cleanses the property of liens and unregistered claims.

3. Abrigo v. De Vera

• Reinforced that registration under Act No. 3344 does not carry the same legal weight as registration under P.D. 1529.

4. Ruiz v. Court of Appeals

• A duly registered levy on attachment (creditor's claim) takes priority over a prior but unregistered sale of registered land.

b.  The Case for Unregistered Land

• Without Prejudice to a Third Party with a Better Right Doctrine (Sec. 113, P.D. 1529)

• Recording in the Register of Deeds does not validate the sale against someone with a better right.

• Registration of unregistered land is "without prejudice to a third party with a better right."

• First-to-register in good faith rule (Article 1544) does not apply to unregistered land.

• Determining the "Third Party with a Better Right"

• Defined as more than just the first buyer; may include those with acquisitive prescription or actual possession.

• Lichauco v. Berenguer, Hanopol v. Pilapil: 

• Better right includes possession or prescription, not just an earlier deed.

• Hanopol: 

• Buyer who possessed the land had a better right than the first buyer without possession.

• Legal Effect of Registration under Act No. 3344

• Cannot override an earlier sale, but can serve as constructive notice to a second buyer.

• Carumba v. CA: 

• Article 1544 does not apply to public auction of unregistered land; purchaser only acquires the debtor's interest at the time of levy.

• Radiowealth Finance v. Palileo: 

• In the Torrens system, registration is the operative act; prior unregistered sale cannot defeat a later judicial sale registered in good faith.

• Judicial Sales vs. Conventional Sales

• Espiritu v. Valerio: 

• Buyer who registers first under Act No. 3344 has a better right in a double sale scenario.

• Dischoso v. Roxas: 

• Article 1544 would apply to double sales of unregistered land, except when dealing with different property interests (e.g., land vs. right to repurchase).

• Rules on double sales under Article 1544 apply to unregistered land only if they do not conflict with higher laws (e.g., Act No. 3344, P.D. 1529).

Global Rules on Double Sales for Immovables

1. Highest Priority: Registration in Good Faith under P.D. 1529

• The primary rule for resolving double sales of immovables.

• Absolute priority is given to the buyer who registers in good faith under the Torrens system.

• Not applicable to unregistered land.

2. Second Priority: Auction Sale Buyer under the Rules of Court

• Applies to unregistered land when conflicting sales occur.

• Based on the principle that a buyer at an auction sale takes the risk.

• Dagupan Trading Co. v. Macam:

• A prior unregistered sale takes precedence over a subsequent execution sale.

• Registration after execution sale was deemed a technicality.

• Naval v. Court of Appeals:

• Both sales involved unregistered land; first buyer registered under Act No. 3344.

• Second buyer later obtained a Torrens title but was deemed in bad faith.

• Registration under Act No. 3344 creates constructive notice to subsequent buyers.

3. Third Priority: Article 1544 Rules on Double Sales

• Comes after P.D. 1529 and auction sale rules.

• Conflicting Interpretations:

• Some decisions apply the "first to register in good faith" rule only to registered land.

• Others have applied it to unregistered land in favor of the first buyer.

• Distinctions:

• P.D. 1529: Covers all types of transactions, including liens and encumbrances.

• Article 1544: Strictly applies to valid and demandable double sales at the consummation stage.

4. "First in Time, Priority in Right"

• An overarching rule but not the primary statutory rule.

• Applied only after exhausting tests under Article 1544.

• Occupies the lowest priority in a global rule on double sales.

Essential Elements for the Applicability of Article 1544

• For Article 1544 to apply in cases of double sales, the following requisites must be present:

1. Valid Sales 

• The two (or more) sales transactions must constitute valid sales:

2. Same Subject Matter

• The two (or more) sales transactions must pertain to exactly the same subject matter.

3. Conflicting Interests

• The two (or more) buyers at odds over the rightful ownership of the subject matter must each represent conflicting interests; and

4. Same Seller

• The two (or more) buyers at odds over the rightful ownership of the subject matter must each have bought from the very same seller.

a. Nature of the Multiple Sales Involved

• Article 1544 applies only if both sales are valid or, at minimum, voidable.

• If one sale is void (e.g., due to a forged signature), Article 1544 does not apply.

• Caram, Jr. v. Laureta:

• The Supreme Court incorrectly considered a sale registered in bad faith as void, but later cases clarified that both sales must be valid for Article 1544 to apply.

• A second sale that fails to comply with the registration requirement does not become void, but ownership transfer may be challenged.

• De Leon v. Ong:

• A second sale cannot be void solely because of a prior sale; both must be valid for Article 1544 to apply.

b. Applicability to Auction Sales

• Article 1544 applies to public auction sales.

• Gopiao v. Metrobank: 

• Affirmed that Article 1544 applies even if one sale was a public auction and the other a private sale.

• If the first transaction is a private sale and the second is an auction sale, Article 1544 still applies in determining ownership priority.

• Expresscredit Financing Corp. v. Velasco:

• A prior private sale was upheld over a foreclosure sale due to bad faith of the mortgagee.

• Good or bad faith of the second buyer in an auction sale can be relevant in resolving ownership disputes.

c. Applicability to Contracts to Sell and Adverse Claims

• Contracts to Sell are not covered by Article 1544 because ownership is not transferred until a suspensive condition is met (e.g., full payment).

• Mendoza v. Kalaw:

• Ruled that a conditional sale (not yet fully consummated) does not constitute a sale under Article 1544.

• Adalin v. CA:

• The Supreme Court ruled that a conditional sale still prevails over a subsequent absolute sale if the second buyer was in bad faith.

• Carbonell v. CA:

• The Court ruled that an adverse claim annotation can be equivalent to registration under Article 1544, giving priority to the first buyer.

• Coronel v. CA:

• The Court held that Article 1544 does not apply where the first contract is a mere "contract to sell."

• Cheng v. Genato:

• The Supreme Court ruled that the principle of primus tempore, portior jure (first in time, stronger in right) applies, giving priority to the first contract to sell if the suspensive condition is met before the second sale.

• This ruling suggests that a contract to sell, once fulfilled, can be treated similarly to a perfected sale under Article 1544.

d. There Must Be "Sameness" of Subject Matter

• Article 1544 does not apply if the two sales involve different subject matters.

• Example: 

• One buyer purchased land, while another bought the right to redeem the land. These are different subject matters.

e. The Sales Must Involve the Same Seller

• Article 1544 applies only when the same seller sells the same property to different buyers.

• If Buyer 1 purchased from an intermediary (not the original seller), and Buyer 2 purchased directly from the original seller, Article 1544 does not apply.

• Consolidated Rural Bank v. CA:

• Double sales require a single vendor selling the same property multiple times.

• Badilla v. Bragat: 

• Applied Article 1544 despite a chain of sales from different sellers.

• Heirs of Ciriaco Bayog-Ang v. Quiñones: 

• No double sale when the second transaction is not a sale.

• Manlan v. Beltran: 

• Article 1544 does not apply if multiple vendors are involved.

• Spouses German v. Spouses Santuyo: 

• Double sales apply only when the same seller sells to multiple buyers.

f. Article 1544 Is Not a Contest Between Two Equal Buyers

• It may seem like a race between buyers, but Buyer 1 has inherent priority.

• Carbonell v. CA:

• Buyer 1 had no knowledge of Buyer 2 at the time of purchase, so his purchase was in good faith.

• Buyer 2, even if initially in good faith, becomes a buyer in bad faith once aware of Buyer 1.

• Buyer 1's good faith persists even if he later learns of Buyer 2.

• Prius tempore, potior jure (first in time, stronger in right).

• Buyer 2 can only prevail if:

1. He registers the sale first without knowing of Buyer 1.

2. He takes possession first without knowing of Buyer 1.

• Caram, Jr. v. Laureta: 

• Buyer 1 doesn’t need to act—Buyer 2’s knowledge alone defeats his claim.

• Coronel v. CA: 

• Buyer 2 must both register and act in good faith to defeat Buyer 1.

• Uraca v. CA: 

• Buyer 2 must prove continuous good faith until ownership is fully transferred.

• Bayoca v. Nogales: 

• Second buyer must register in good faith, not merely buy in good faith.

• Escueta v. Lim: 

• A second buyer with knowledge of the first sale cannot be in good faith.

• Kings Properties v. Galido: 

• Buyer 1 always has priority despite later knowledge of Buyer 2.

• Buyer 1 inherently holds priority unless Buyer 2 fulfills strict conditions of prior registration or possession without knowledge of Buyer 1.

g. Peculiar Developments in the Law on Double Sales

• Erosion of the Carbonell Doctrine

• The Carbonell doctrine has been indirectly eroded by the obiter ruling in San Lorenzo Dev. Corp. v. Court of Appeals.

• The ruling treats Article 1544 as an "actual race" between two buyers in a level playing field.

• Registration must be done in good faith—the registrant must not be aware of any defect in the seller’s title.

• Annotation of lis pendens by the first buyer is ineffective if done after knowing of the second sale.

• Lis pendens is not equivalent to registration under Article 1544.

h. Who Is a Purchaser in Good Faith?

1. Tests in Article 1544 Must Be Done in Good Faith

• Occena v. Esponilla: 

• Good faith is essential in double sales.

• A second buyer must register in good faith, meaning they must have no knowledge of defects in the seller's title.

• Indefeasibility of a Torrens title does not protect a transferee who acquired it in bad faith.

2. Burden of Proof

• Mathay v. Court of Appeals:

• The buyer must prove they are in good faith and for value.

• Mere presumption of good faith is not enough.

• Santiago v. CA and Ten Forty Realty v. Cruz:

• Good faith is presumed unless there is direct evidence of bad faith.

3. Requisite of Full Payment

• Agricultural and Home Extension Dev. Group v. CA: 

• A purchaser in good faith must:

1. Have no notice of another’s claim.

2. Pay a full and fair price before learning of any competing claim.

• Supreme Court consistently requires full payment as part of good faith.

• A second buyer who registers first must act with equity—i.e., they must be an innocent purchaser for value and in good faith.

4. Obligation to Investigate Known Facts

• Mathay v. CA: 

• Lack of actual knowledge of defects in the seller's title is not enough.

• A buyer must investigate when there are red flags, such as:

• The presence of occupants.

• Lack of seller’s possession.

• Aguirre v. CA:

• A buyer cannot ignore warning signs and later claim good faith.

5. Special Rule for Real Estate Market Players

• Expresscredit Financing Corp. v. Velasco: 

• Professionals in real estate cannot merely rely on titles; they must investigate the property's actual condition.

• If a mortgagee ends up buying foreclosed land, they must exercise greater diligence.

• Ty v. Queen’s Row Subdivision, Inc.:

• If banks/financial institutions exercise extraordinary diligence and still find no defects, they can be protected as innocent purchasers for value.

6. Land in Adverse Possession

• Martinez v. CA: 

• Buyers who ignore signs of occupation cannot later claim good faith.

• Heirs of Trinidad de Leon Vda. de Roxas v. CA: 

• A buyer must go beyond the title if someone else possesses the land.

• A buyer of land occupied by others must investigate their rights—failure to do so precludes a claim of good faith.

7. Annotation of Lis Pendens

• General Rule: 

• Annotation of lis pendens does not automatically place a buyer in bad faith; it serves only as notice to third parties of pending litigation.

• Exception: 

• If one of the disputing buyers annotates lis pendens, it may affect the second buyer’s claim of good faith.

• Limketkai Sons Milling, Inc. v. CA:

• Contrary Ruling: A buyer who ignores an existing notice of lis pendens on the title cannot be considered an innocent purchaser.

• Agricultural and Home Extension Dev. Group v. CA:

• An adverse claim (with a weaker legal effect than lis pendens) is deemed equivalent to registration and places subsequent buyers in bad faith.

• Pudadera v. Magallanes:

• Recent Ruling: If lis pendens was already ordered canceled before the sale, the buyer cannot be in bad faith.

8. Annotation of Adverse Claim

• Balatbat v. CA:

• Registration of an adverse claim places any subsequent buyer in bad faith.

• Diligence Required: A prudent buyer should:

1. Check for existing annotations.

2. Verify possession of the property.

3. Demand the owner's duplicate title.

• Limketkai Sons Milling, Inc. v. CA:

• If an adverse claim (valid for only 30 days) puts a buyer in bad faith, lis pendens should logically have the same effect.

• Tio v. Abayata:

• Exception: Buyers in foreclosure sales may still be deemed in good faith if they relied on the bank’s documentation and were informed that adverse occupants were mere squatters.

9. Existence of Relationship

• Pilapil v. CA:

• Constructive Knowledge: Buyers closely related to the seller (e.g., children) are presumed to know about prior sales and cannot claim good faith.

• Aguirre v. CA:

• Community Knowledge: A buyer living in the same area as the seller and aware of family disputes over the property is presumed to have knowledge of prior claims.

10. Stipulations in the Deed Showing Bad Faith

• Limketkai Sons Milling, Inc. v. CA:

• Risk Allocation Clause: If the deed of sale contains a stipulation making the buyer solely responsible for losses if the title is defective, it suggests bad faith.

11. When Dealing with a Non-registered Owner

• R.R. Paredes v. Caliling:

• Higher Due Diligence Requirement: Buyers from non-registered owners must go beyond the certificate of title and investigate the seller’s capacity to transfer the property.

Registration

• "Registration" refers to any entry made in the books of the registry, including ordinary registration, cancellation, annotation, and marginal notes.

• Annotation of an adverse claim or lis pendens can have the same effect as formal registration.

• However, jurisprudence has not always considered the registration of lis pendens as equivalent to the required registration under Article 1544.

• Registration of an Extrajudicial Partition mentioning a sale does not satisfy the registration requirement under Article 1544.

• A declaration of purchase for taxation purposes does not constitute valid registration.

Requisites of First to Register

1. Prior Registration by the Second Buyer Must Be in Good Faith

• Mere prior registration does not automatically confer ownership.

• The second buyer must register in good faith—meaning he must have no knowledge of the prior sale at the time of acquisition.

• If the second buyer registers with knowledge of the first sale, his registration is tainted with bad faith and does not confer superior rights.

• Uraca v. Court of Appeals: 

• A first buyer's knowledge of a second sale does not defeat their rights unless the second buyer registers in good faith.

• Esquivias v. Court of Appeals: 

• If the second buyer registers but already knew of the first sale, his bad faith prevents him from prevailing over the first buyer.

2. The Need for the Second Buyer to Perform a Positive Act (Register First in Good Faith)

• Article 1544 requires the second buyer to actively register their sale in good faith to claim preference.

• Carbonell Doctrine (Fudot v. Cattleya Land, Inc.):

• The first buyer’s knowledge of the second sale does not defeat their rights unless the second buyer registers first and in good faith.

• Knowledge of the first sale by the second buyer defeats his rights, even if he registers first.

First to Possess in Good Faith

• When no valid registration occurs, the law favors the first buyer who takes possession in good faith.

• Ten Forty Realty and Dev. Corp. v. Cruz: 

• In the absence of registration, the buyer who first possesses in good faith prevails.

• Parameters for Possession in Good Faith

1. Possession includes both material and symbolic possession.

2. Good faith is presumed unless proven otherwise.

3. Buyers must investigate if the property is in the possession of others.

4. Burden of proof is on the party alleging bad faith.

1. Registration in Good Faith Always Preempts Possession in Good Faith

• Santiago v. Court of Appeals: 

• The buyer who registers first in good faith prevails, even over a first possessor.

• Tanedo v. Court of Appeals:

• Even if a buyer possesses first in good faith, the buyer who registers first in good faith has the superior right.

• Balatbat v. Court of Appeals:

• Between two buyers, the one who registers first in good faith wins, even if the other buyer took possession first.

2. Possession under Article 1544 Includes Material and Symbolic Possession

• Navera v. Court of Appeals:

• When both sales are unregistered, possession through a public instrument (symbolic delivery) can confer a superior right over mere material possession.

When Article 1544 Does Not Apply

• If not all requisites of double sale are present, the general rule of “first in time, priority in right” applies.

• If neither registration nor possession is in good faith, the first buyer chronologically should prevail.

• This follows the principle of "first in time, priority in right", which states that the first perfected and demandable sale takes precedence.