Pointers in Contract of Sale > Mercantile Law

Posted on March 22, 2012. Filed under: 2012 Bar Review Materials, Bar Review Materials, Mercantile Law | Tags:
2012, 2012 bar exams, Bar Examination, Bar Tips, Case Digests |
I. NATURE AND FORM OF THE CONTRACT
Sources of the Law on Sales
Sales are governed by the provisions of the Civil Code:
1. Book IV, Title VI, Articles 1458-1637 (Sales)
2. Title I, Arts. 1156-1422 (Obligations and Contracts)
3. Opinions of Commentators
4. Jurisprudence
Concept of Contract of Sale
The contract of sales is an agreement whereby one of the parties (called the seller or
vendor) obligates himself to deliver something to the other (called the buyer or purchaser or
vendee) who, on his part, hinds himself to pay therefore a sum of money or its equivalent
(known as the price).
The transfer of title to property or the agreement to transfer title for a price paid or
promised, not mere physical transfer of the property, is the essence of sale.
Characteristics of a Contract of Sale
1. Consensual

- perfected by mere consent of the parties without further

acts.

2. Bilateral

- both the contracting parties are bound to fulfill correlative

obligations towards each other (the seller to deliver and
transfer ownership of the thing sold, and the buyer to pay
the price).

3. Onerous

- the thing sold is conveyed in consideration of the price and

vice versa.

4. Commutative

- the thing sold is considered the equivalent of the price

paid and vice versa.

5. Aleatory

- in the case of sale of hope, one of the parties or both

reciprocally bind themselves to give or to do something in
consideration of what the other shall give or do upon the
happening of an event which is uncertain, or which is to
occur at an indeterminate time.

6. Nominate

- the contract is given a special name or designation in the

Civil Code.

7. Principal

- the contract does not depend for its existence and validity

upon another contract.

Essential Requisites of a Contract of Sale
1. Consent or meeting of the minds refers to the conformity of the parties to the terms
of the contract, the acceptance by one of the offer made by the other. As a bilateral
contract, the acceptance of payment by a party is an indication of his consent to a contract
of sale, thereby precluding him from rejecting its binding effect [Clarin vs. Rulova, 127
SCRA 512].

There may be a sale against the will of the owner in case of expropriation and the
three different kinds of sale under the law ordinary execution sale, judicial

foreclosure sale, and extra-judicial foreclosure sale.

2. Object or subject matter refers to the determinate thing which is the object of the
contract;

Even a future thing not existing at the time the contract is entered into may be the
object of sale, provided it has a potential or possible existence, that is, it is
reasonably certain to come into existence as the natural increment or usual incident
of something in existence already belonging to the seller, and the tile will vest the
buyer the moment the thing comes into existence (Art. 1461).

Emptio rei speratae

Rei spetae

(sale of thing expected)

- the sale of a thing not yet in existence, - the sale of hope itself that the thing will
subject to the condition that the thing

come into existence, where it is agreed

will exist and on failure of the condition,

that the buyer will pay the price even if

the contract becomes ineffective and

the thing does not eventually exist;

hence, the buyer has not obligation to

pay the price;
- the future thing is certain as to itself

- like the sale of a sweepstake ticket, it is

but uncertain as to its quantity and

not certain that the thing itself (winning a

quality;

prize) will exist, much less it quantity and

quality;

- contract deals with a future thing;

- contract relates to a thing which exists

or is present the hope or expectancy;

- sale is subject to the condition that the

- produces effect even though the thing

thing should exist, so that if it does not, does not come into existence because the
there will be no contract by reason of
the absence of an essential element.

object of the contract is the hope itself,

unless it is a vain hope or expectancy (like
the sale of a falsified sweepstakes ticket

which can never win).

3. Cause or consideration refers to the price certain in money or its equivalent.
Natural Elements those which are deemed to exist in certain contracts, in the absence
of any contrary stipulations, like warranty against eviction;
Accidental Elements those which may be present or absent depending on the
stipulations of the parties, like conditions, interest, penalty, time or place of payment.
Kinds of a Contract of Sale
1. As to presence or absence of conditions
Absolute where the sale is not subject to any condition whatsoever and where the title
passes to the buyer upon delivery of the thing sold.
Conditional where the sale contemplates a contingency and where the contract is subject
to certain conditions, usually in the case of the vendee, for the full payment of the agreed
purchase price.
2. Other kinds
As to the nature of the subject matter real or personal, tangible or intangible
As to the manner of payment cash or installment
As to its validity valid, rescissible, unenforceable, void
Contract of Sale Distinguished from Contract to Sell
Contract of Sale

Contract to Sell

Transfer of

- passes to the buyer upon

- remains with the seller until

title:

delivery of the thing sold.

full payment of the agreed

price.

Payment of - non-payment of the price is a - full payment is a positive

price:

negative resolutory condition,

suspensive condition, the

and the remedy is to exact

failure of which is not a breach,

fulfillment or to rescind the

casual or serious, of the

contract.

contract but simply an event

that prevents the obligation of
the vendor to convey title from
acquiring binding force.

Ownership

- vendor loses and cannot

of vendor:

recover ownership of the thing until full payment of price.

sold and delivered, actually or
constructively until and unless

- title remains in the vendor

the contract of sale itself is

resolved and set aside.
Sale Distinguished from Dation in Payment:
Sale

Dation in Payment

- no pre-existing credit

- there is pre-existing credit

- gives rise to obligation

- extinguishes obligation

- cause or consideration is the price, or

- cause of consideration is extinguishment

the acquisition of title to the property

of the debt (from the point of view of the

offeror), and the acquisition of the object
offered (from the point of view of the
creditor) in lieu of the original credit

- there is greater freedom in the

- less freedom

determination of the price

- giving of the price may generally end the - the giving of the object in lieu of the
obligation of the buyer

credit may extinguish completely or

partially the credit (depending on the
agreement)

Sale of goods by description

Sale of goods by sample

occurs where the purchaser has not - the parties contracted solely with
seen the article sold and relies on the

reference to the sample, with the

description given him by the vendor, or understanding that the bulk was like it.has seen the goods but the want of
identity is not apparent on inspection.If the bulk of the goods

the vendor warrants that the thing sold

and to be delivered by him shall conform
with the sample in kind, charater, and

delivered does not correspond with the quality.

description, the contract may be
rescinded. (Art. 1481.)
Form of Contract of Sale
Generally, a contract may be entered into in any form provided all the essential requisites
for its validity are present (Art. 1356). It may be in writing, oral, or partly in writing and
party oral. It may even be inferred from the conduct of the parties, since sale is a
consensual contract that is perfected by mere consent.
However, in case the contract of sale should be covered by the Statute of Frauds, the law
requires that the agreement be in writing subscribed by the party charged, or by his agent;
otherwise, the contract cannot be enforced by action [see Art. 1403].

Under the Statute of Frauds (Art. 1403 [2, a, d, e].) of the Civil Code, the following

(a)

contracts must be in writing to be enforceable:

sale of personal property at a price not less than P500;

(b)

sale of real property or an interest therein regardless of the price involved; and

(c) sale of property not to be performed within a year from the date thereof regardless of
the nature of the property and the price involved.

The Statute Frauds specifies three (3) ways in which contracts of sales of goods

(a)

within its terms may be made binding:

the giving of a memorandum;

(b)
acceptance and receipt of part of the goods (or things in action) sold and actual
receipt of the same (Art. 1585); and
(c)

payment or acceptance at the time some part of the purchase price.

The Statute of Frauds is applicable only to executory contracts (where no
performance, i.e., delivery and payment, has as yet been made by both parties), and
not to contracts which are totally consummated or partially performed [Vda. De

Espiritu vs. CFI of Cavite, 47 SCRA 354].

Recto Law (Art. 1484) Remedies of Vendor in Sale of Personal Property Payable
in Installments:
(a)

elect fulfillment upon the vendees failure to pay;

(b)

cancel the sale, if the vendee shall have failed to pay two or more installments;

(c)
foreclose the chattel mortgage, if one has been constituted, if the vendee shall have
failed to pay two or more installments.

These remedies are alternative and are not to be exercised cumulatively or

successively and the election of one is a waiver of the right to resort to the
others [Pacific Commerial Co. vs De la RAma, 62 Phil. 380; Nonato vs. IAC, 140
SCRA 255].

In transactions involving the sale of financing of real estate on installment payments,

including residential condominium apartments, the following are the rights given to
the buyer who has paid at least two (2) years of installments in case he defaults in

the payment of succeeding payments

(a)
to pay without additional interest the unpaid installments due within the total grace
period earned by him fixed at the rate of one-month grace period for every one year of
installment payments made this right shall be exercised by him only once in every five (5)
years of the life of the contract and its extension, if any; and

(b) if the contract is cancelled, the seller shall refund to the buyer the cash surrender
value of the payments on the property equivalent to 50% of the total payments made and,
after 5 years of installments, an additional 5% of every year but not to exceed 90% of the
total payments made. [Sec. 3, RA 6552 or the Realty Installment Buyer Protection Act; see
Layug vs. IAC, 67 SCRA 627].
(c) The buyer has the right to sell his right or assign the same before actual cancellation
of the contract and to pay in advance any unpaid installment anytime without interest and
to have such full payment of the purchase price annotated in the certificate of title covering
the property.
II.

CAPACITY TO BUY OR SELL

Persons Who May Enter Into a Contract of Sale

As a general rule, all persons, whether natural or juridical, who can bind themselves, have
the legal capacity to buy and sell.
Persons Who Are Incapacitated to Enter Into a Contract of Sale
1. Absolute Incapacity pertains to persons who cannot bind themselves
(a)

Minor

(b)

Insane or demented persons

(c)

Deaf-mutes who do not know how to read and write

Contracts

entered

into

by

minor

and

other

incapacitated

persons

arevoidable. However, where the necessaries are sold and delivered to him (without
the intervention of the parent or guardian), he must pay a reasonable price
therefor. The contract is therefore valid, but the minor has the right to recover any
excess above a reasonable value paid by him.

Sale of real property by minors who have already passed the ages of puberty and
adolescence and are now in the adult age, when they pretended to have already
reached their majority, while in fact they have not, is valid, and they cannot be
permitted afterwards to excuse themselves from compliance with the obligations
assumed by them or to seek their annulment. This is in accord with the doctrine of

estoppel[Mercado and Mercado vs. Espiritu, 37 Phil. 265].

2. Relative Incapacity where it exists only with reference to certain persons or class of
property (Art. 1490-1491). The prohibition extends to sales by virtue of legal redemption,
compromises, and renunciations.
(a)
Husband and wife to each other except when a separation of property was agreed
upon in the marriage settlements, or when there has been a judicial separation of property
(b)

Guardian as to the property of his ward

(c) Agents as to the property whose administration or sale has been entrusted to them,
unless consent of the principal is given
(d)

Executors or administrators as to the state under their administration

(e)
Public officers and employees as to the property of the State or any subdivision
thereof, or of the government-owned or controlled corporations, the administration of which
is entrusted to them
(f)
Judges and government experts who take part in the sale of the property and rights
under litigation

The prohibition is based on the fiduciary relationship (based on trust), to prevent

fraud and undue and improper influence.

With respect to (b) to (d), the sale shall only be voidable because in such cases only
private interests are affected. The defect can be cured by ratification by the seller.
With respect to (e) and (f), the sale shall be null and void, public interests being

involved therein.
(g) Aliens who are disqualified to purchase private agricultural lands under Art. XII, Secs.
3 and 7 of the Constitution
(h)

Unpaid seller having a right of lien or having estopped the goods in transitu

(i)

Officer holding the execution or his deputy

III.

EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN LOST

Where the thing is entirely lost at the time of perfection, the contract is inexistent
and void because there is no object. There being no contract, there is no necessity
to bring an action for annulment.

Where the thing is only partially lost, the vendee may elect between withdrawing
from the contract and demanding the remaining part, paying its proportionate price.

The thing is lost when it perishes or goes out of commerce or disappears in such a
way that its existence is unknown or it cannot be recovered.
IV.
OBLIGATIONS OF THE VENDOR

Principal Obligations of the Vendor

to transfer the ownership of the determinate thing sold (Art. 1495);

The vendor need not be the owner of the thing at the time of perfection of the
contract; it is sufficient that he has a right to transfer the ownership thereof at the
time it is delivered (Art. 1459).

If the seller promised to deliver at a stipulated period and such period is of the
essence of the contract but did not comply with his obligation on time, he has no

right to demand payment of the price. The vendee-buyer is fact may ask for the
rescission or resolution of the sale.

If the failure of the seller to deliver on time is not due to his fault, as when it was the
buyer who failed to supply the necessary credit for the transportation of the goods,

delay on the part of the seller may be said to be sufficiently excused.

to deliver the thing, with its accessions and accessories, if any, in the condition in which
they were upon the perfection of the contract (Art. 1537);
to warrant against eviction and against hidden defects (Arts. 1495, 1547);
to take care of the thing, pending delivery, with proper diligence (Art. 1163);
to pay for the expenses of the deed of sale, unless there is a stipulation to the contrary (Art.
1487).
Delivery or Tradition
Tradition or delivery is a derivative mode of acquiring ownership by virtue of which one has
the right and intention to alienate a corporeal thing, transmits it by virtue of a just title to
one who accepts the same.

Duty to Deliver at Execution Sale: a judgment debtor is not obliged to deliver right

away; he has one (1) year within which to redeem the property.
Kinds of Delivery or Tradition
1.

Actual or Real (Art. 1497) the thing sold is placed in the control and possession
of the vendee or his agent. This involves the physical delivery of the thing and is
usually done by the passing of a movable thing from hand to hand.

2.

Legal or Constructive (Arts. 1498-1501) through the execution of a public

instrument
Legal formalities applies to real and personal properties, where the delivery is made
through the execution of a public document;
Traditio simbolica to effect delivery, the parties make use of a token symbol to represent
the thing delivered;
Traditio longa manu movable property is delivered by mere consent by the contracting
parties if the thing sold cannot be transferred to the possession of the vendee at the time of
the sale;
Traditio brevi manu the vendee already has the possession of the thing sold by virtue of
another title as when the lessor sells the thing leased to the lessee;
Constitotum possessorium the vendor continues in possession of the property sold not as
owner but in some other capacity (e.g., as tenant of the vendee).
3. Quasi-Traditio (Art. 1501) delivery of rights, credits or incorporeal real property,
made by placing the titles of ownership in the hands of the vendee or lawyer, by execution
of a public instrument, or by allowing the vendee to use his rights as new owner with the
consent of the vendor.
Requisites in constructive delivery before ownership may be transferred:
(a) Seller must have control over the thing; otherwise, can he put another in control?

(b)

Buyer must be put under control;

(c)

There must be the intention to deliver the thing for purposes of ownership.

Rules of constructive delivery:

1. If a seller has an actual possession, he cannot transfer ownership by constructive
delivery.
2. There can be no constructive delivery by means of a public instrument if there is a
stipulation to the contrary.
3. The execution of a deed or contract is only presumptive delivery.
An Unpaid Seller is one who has not been pair or rendered the whole price or who has
received a bill of exchange or other negotiable instrument as conditional payment and the
condition on which it was received has been broken by reason of the dishonor of the
instrument.
Rights of an unpaid seller:
1. A lien on the goods or right to retain them for the price while in his possession
2. A right of stopping the goods in transitu in case of insolvency of the buyer; requisites:
(a)

the seller must be unpaid;

(b)

the buyer must be insolvent;

(c)

the goods must be in transit;

(d) the seller must either actually take possession of the goods sold or give notice of his
claim to the carrier or other person in possession;
(e) the seller must surrender the negotiable document of title, if any, issued by the carrier
or bailee; and
(f)
the seller must bear the expenses of delivery of the goods after the exercise of the
right.
3. A right of resale
4. A right to rescind the sale
Rules in case of loss, deterioration, or improvement of thing before delivery
1. If the thing is lost without the fault of the debtor, the obligation shall be
extinguished.
2. If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages, if is understood that the thing is lost when it perishes, or goes out of

commerce, or disappears in such a way that its existence is unknown or it cannot

be recovered.
3. When the thing deteriorates without the fault of the debtor, the impairment is to be
borne by the creditor.
4. If it deteriorates through the fault of the debtor, the creditor may choose between
the rescission of the obligation and its fulfillment, with indemnity for damages in
either case.
5. If the thing is improved by its nature, or by time, the improvement shall inure to
the benefit of the creditor.
6. If it is improved at the expense of the debtor, he shall have no other right than that
granted to the usufructuary.
Rules as to preference of ownership in case of double sale
1. If the property sold is movable, the ownership shall be acquired by the vendee who
first takes possession in good faith [Villa Rey Transit, Inc. vs Ferrer, 25 SCRA 861].
2. If the property sold is immovable, the ownership shall belong to:
(a)
the vendee who first registers the sale in good faith in the Registry of Deeds has
preferred right over another vendee who has not registered his title even if the latter is in
actual possession of the immovable property governed by the principle prius tempore,
patior jure (first in time, stronger in right) knowledge by the first buyer of the second
sale cannot defeat the first buyers right except when the second first registers in good faith
the second sale;
(b)
and

in the absence of registration, the vendee who first takes possession in good faith;

(c)
in the absence of both registration and possession, the vendee who presents the
oldest title (who first bought the property) in good faith.

Article 1544 has no application to lands not registered with the Torrens system.
V. CONDITION AND WARRANTIES

Condition means an uncertain event or contingency on the happening of which the

obligation (or right) of the contract depends.
Warranty is a statement or representation made by the seller of goods, contemporaneously
and as a part of the contract of sale, having reference to the character, quality, or title of
the goods, and by which he promises or undertakes to insure that certain facts are or shall
be as he then represents them.
If the obligation of either party is subject to any condition and such condition is not fulfilled,
such party may either (1) refuse to proceed with the contract, or (2) proceed with the
contract, waiving the performance of the condition.
If the condition is in the nature of a promise that it should happen, the non-performance of
such condition may be treated by the other party as a breach of warranty.

Implied warranty as to sellers title (Art. 1548) that the seller guarantees that he has a
right to sell the thing sold and to transfer ownership to the buyer who shall not be disturbed
in his legal and peaceful possession thereof.
Implied warranty against hidden defects or unknown encumbrance (Art. 1562) that the
seller guarantees that the thing sold is reasonably fit for the known particular purpose for
which it was acquired by the buyer or, where it was bought by description, that it is of
merchantable quality.
Essential elements of warranty against eviction
1. the vendee is deprived in whole or in part of the thing purchased;
2. the vendee is so deprived by virtue of a final judgment ;
3. the judgment is based on a right prior to the sale or an act imputable to the
vendor;
4. the vendor was summoned in the suit for eviction at the instance of the vendee;
and
5. there is no waiver on the part of the vendee.
Kinds of waiver of eviction
1. Consciente the waiver is voluntarily made by the vendee without the knowledge
and assumption of the risks of eviction. If the waiver was only conscious, the
vendor shall pay only the value which the thing sold had at the time of eviction
this is a case of solution indebiti the effect is to deprive the purchaser of the
benefits mentioned in Nos. 2, 3, 4 and 5 of Article 1555.
2. Intencionada the waiver is made by the vendee with knowledge of the risks of
eviction and assumption of its consequence. The vendor is exempted from the
obligation to answer for eviction, provided he did not act in bad faith [Andaya vs.
Manansala, 107 Phil. 1151].
Rights of the vendee against the vendor in case eviction occurs (Art. 1555)
1. return of the value of the thing sold at the time of eviction;
2. income or fruits if he has been ordered to deliver them to the party who won the
suit against him;
3. costs of the suit;
4. expenses of the contract;
5. damages and interests and ornamental expenses if the sale was made in bad faith.
Redhibition

Redhibitory action

Redhibitory

vice

or

defect
- the avoidance of a sale - an action instituted to

- a defect in the article sold

on account of some vice

against which defect the

avoid a sale on account of

or defect in the thing sold,some vice or defect in the

seller is bound to

which renders its use

thing sold which renders its warrant. The vice or defect

impossible, or so

use impossible, or so

must constitute an

inconvenient and

inconvenient and imperfect

imperfection, a defect in its

imperfect that it must be that it must be supposed

nature, of certain

supposed that the buyer

importance; and a minor

that the buyer would not

would not have purchased have purchased it had he

defect does not five rise to

it had he known of the

known of the vice. The

redhibition. The mere

vice.

object is the rescission of the absence of a certain quality

contract. If the object is to

in the thing sold which the

procure the return of a part vendee thought it to contain

of the purchase price paid by is not necessarily a
the vendee, the remedy is

redhibitory defect. One

known as accion

thing is that is positively

minoris orestimatoris.
Doctrines of caveat venditor and caveat emptor
Caveat venditor

suffers from certain defects.

Caveat emptor
(Let the buyer beware)

(Let the seller beware)

- the vendor is liable to the vendee for

- applies in sheriffs sale, sales of animals,

any hidden faults or defects in the thing and tax sales, for there is no warranty of
sold, even though he was not aware

title or quality on the part of the seller in

thereof (Art. 1566).- Based on the

such sales.

principle that a sound price warrants a

- Also applies in double sales of property

sound article.

where the issue is who between two

vendees has a better right to the property
.
- Requires the purchaser to be aware of
the supposed title of the vendor and one
who buys without checking the vendors
title takes all the risks and losses
consequent to such failure [Solvoso vs.

Tanega, 87 SCRA 349].

Alternative remedies of the buyer to enforce warranty (Art. 1567):
1. Accion redhibitoria to withdraw from the contract
2. Accion quanti minoris demand a proportionate reduction of the price, with a right
to damages in either case
Effect of loss of thing sold on account of hidden defects (Art. 1568)
If the vendor was aware of the hidden

(a)

defects in consequence of which the

b)

the expenses of the price paid

the contract; and

thing sold was lost, he shall bear the

(c)

damages.

loss because he acted in bad faith. In

such case, the vendee has the right to
recover:
If the vendor was not aware of them, he (a)

the price paid

shall be obliged only to return:

(b)

interest thereon; and

(c)

expenses of the contract if paid by

the vendee. He is not made liable for

damages because he is not guilty of bad
VI.

faith.
OBLIGATIONS OF THE VENDEE

The vendee is obliged to (1) accept delivery; and (2) pay the price of the thing sold.

The following rules must be borne in mind:

1. In contract of sale, the vendor is not required to deliver the thing sold until the
price is paid nor the vendee pay the price before the thing is delivered in the absence
of an agreement to the contrary [La Font vs. Pascacio, 5 Phil. 591].
2. If stipulated, then the vendee is bound to accept delivery and to pay the price at
the time and place designated.
3. If there is no stipulation as to the time and place of payment and delivery, the
vendee is bound to pay at the time and place of delivery.
4. In the absence also of stipulation, as to the place of delivery, it shall be made
wherever the thing might be at the moment the contract was perfected (Art. 1251).
5. If only the time for delivery of the thing sold has been fixed in the contract, the
vendee is required to pay even before the thing is delivered to him; if only the time
for payment of the price has been fixed, the vendee is entitled to delivery even
before the price is paid by him (Art. 1524).
Instances when the vendee may suspend the payment of the price:
a) should he be disturbed in the possession or ownership of the thing sold;
b) should he have reasonable grounds to fear such disturbance by a vindicatory action or by
a foreclosure of mortgage;
These rights do not exist in the following cases:
(a) should there be a stipulation to that effect; or
(b)

should the vendor give security for the return of the price; or

(c)

should the vendor have caused the disturbance or danger to cease; or

(d)

should the disturbance consist only of a mere act or trespass.

VII.

ACTIONS FOR THE BREACH OF CONTRACT OF SALE OF GOODS

Goods include all chattels personal but not things in action or money of legal tender in the
Philippines. The term includes growing fruits or crops.
Actions available for breach of the contract of sale of goods:
Action by the seller for payment of the price (Art. 1595)
Action by the seller for damages for non-acceptance of the goods (Art. 1596)
Action by the seller for rescission of the contract for breach thereof (Art. 1597)
Action by the buyer for specific performance (Art. 1598)
Action by the buyer for rescission or damages for breach of warranty (Art. 1599)
Remedies allowed to the buyer when the seller has been guilty of a breach of
promise or warranty (Art. 1599):
1

Recoupment - accept the goods and set up the sellers breach to reduce or
extinguish the price.The theory of recoupment is that the sellers damages are
cut down to an amount which will compensate him for the value of what he has
given.

Set-off or Counterclaim for damages - accept the goods and maintain an

action for damages for the breach of the warranty. Both sides of the contract are
enforced in the same litigation. The buyer (defendant) does not seek to avoid his
obligation under the contract but seeks to enforce the sellers (plaintiffs)
obligation and to deduct it from his liability for the price for breach of warranty.

Action for damages refuse to accept the goods and maintain an action for
damages for the breach of the warranty.

Rescission - rescind the contract of sale by returning or offering the return of

the goods, and recover the price or any part thereof which has been paid. This
remedy is not available in the following cases:
(a)

if the buyer accepted the goods knowing of the breach of warranty without

protest;
(b)

if he fails to notify the seller within a reasonable time of his election to

rescind; and
(c)

if he fails to return or offer to return the goods in substantially as good

condition as they were in at the time of the transfer of ownership to him. But
where the injury to the goods was caused by the very defect against which the
seller warranted, the buyer may still rescind the sale.
VIII.
EXTINGUISHMENT OF SALE
Classification of modes or causes of extinguishing the contract of sale:

Common those causes which are also the means of extinguishing all other contracts like
payment, loss of the thing, condonation, etc. (Art. 1231).
Special those causes which are recognized by the law on sales (those covered by Arts.
1484, 1532, 1539, 1540, 1542, 1556, 1560, 1567, and 1591).
Extra-special conventional redemption and legal redemption.
Conventional Redemption

Legal Redemption

(Arts. 1601-1618)

(Arts. 1619-1623)

It is the right which the vendor reserves

It is the right to be subrogated, upon the

to himself, to reacquire the property sold same terms and conditions stipulated in
provided her returns to the vendee the

the contract, in the place of one who

price of the sale, the expenses of the

acquires a thing by purchase or dation in

contract, any other legitimate payments

payment, or by any other transaction

made therefore and the necessary and

whereby ownership is transmitted by

useful expenses made on the thing sold,

onerous title.

and fulfills other stipulations which may

have been agreed upon.
Nature:
(a)

Nature: (a)

identical with conventional

it is purely contractual because it is redemption, except for the source of the

a right created, not by mandate of the

right conventional redemption arises

law, but by virtue of an express

from the voluntary agreement of the

contract[Ordoez vs. Villaroman, 78 Phil. parties; legal redemption proceeds from

116];
(b)

law;
it is an accidental stipulation and,

(b)

it is not predicated on proprietary

therefore, its nullity cannot affect the sale right but on a bare statutory privilege to
of itself since the latter might be entered be exercised only by the person named in
into without said stipulation [Alojado vs.

the statute the statute does not make

Lim Siongco, 51 Phil. 339];

actual ownership at the time of sale or

(c)

redemption a condition precedent, the

it is a real right when registered,

because it binds third persons [Mortera

right following the person and not the

vs. Martinez, 14 Phil. 541];

property[Magno vs. Viola and Sotto, 61

(d)

Phil. 80];

it is a resolutory condition because

when exercised, the right of ownership

(c)

acquired by the vendee is

privilegecreated partly for reason of public

extinguished[Aquino vs. Deal, 63 Phil.

policy and partly for the benefit and

582];

convenience of the redemptioner to afford

(e)

it is in the nature of a mere

it is potestative because it depends him a way out of what might be a

upon the will of the vendor;

disagreeable or inconvenient association

(f)

it is a power or privilege, not an

into which he has been thrust it is

obligation, that the vendor has reserved

intended to minimize co-ownership [Basa

for himself [Ocampo vs. Potenciano, CA

vs. Aguilar, 117 SCRA 128; Tan vs. CA,

48 OG 2230];

172 SCRA 660].

(g)

it is reserved at the moment of the

perfection of the contract for if the right to Instances of Legal Redemption:

repurchase is agreed upon afterwards,
there is only a promise to sell which

(a)

Under the Civil Code, those found in

produces different rights and effects and

Arts. 1620-1622, 1634, and 1088;

is governed by Art. 1479 [Diamante vs.

CA, 206 SCRA 52];

(b)

Under special laws:

(h)

(1)

redemption by owner of real

the person entitled to exercise the

right of redemption necessarily is

property sold for delinquent taxes period

theowner of the property sold and not any is within 1 year from date of sale;
third party [Gallar vs. Husain, 20 SCRA

(2)

186];

homestead sold under the Public Land Act

(i)

it gives rise to reciprocal

repurchase by homesteader of

period is 5 years [Tupas vs. Damasco,

obligationthat of returning the price of

132 SCRA 593];

sale and other expenses, on the part of

(3)

the vendor, and that of delivering the

redemptioner or real property sold on

property and executing a deed of sale

execution period is 12 months;

therefore, on the part of the

(4)

vendee [Pandaquilla vs. Gaza, 12 Phil.

mortgaged property has been judicially

663].

foreclosed and sold period is 90 days but

redemption by judgment debtor or

redemption by mortgagor after

before confirmation of sale by the court

(in all cases of extra-judicial foreclosure
sale, the mortgagor may redeem the
property within 1 year from the date of
registration of the sale);
(5)

redemption by an agricultural lessee

of landholding sold by the landowner

period is 180 days from notice in writing
which shall be served by the vendee on all
lessees affected by DAR upon the
registration of the sale.
An equitable mortgage is one which lacks the proper formalities, form of words, or other
requisites prescribed by law for a mortgage, but shows the intention of the parties to make
the property subject of the contract as security for a debt and contains nothing impossible
or contrary to law [Cachola vs. CA, 208 SCRA 496].

Dacion en pago is the transmission of the ownership of a thing by the debtor to the
creditor as the accepted equivalent of the performance of an obligation.
Pacto de retro

Mortgage

Ownership is transferred but the ownershipOwnership is not transferred but the

is subject to the condition that the sellerproperty is merely subject to a charge or
might

recover

the

ownership

within

alien as security for the compliance of a

certain period of time.

principal obligation, usually a loan.

If the seller does not repurchase the The mortgagor does not lose his interest in
property upon the very day named in thethe property if he fails to pay the debt at its
contract, he loses all interest thereon.

maturity.

There is no obligation resting upon theIt is the duty of the mortgagee to foreclose
purchaser to foreclose; neither does the the mortgage if he wishes to secure a
vendor have any right to redeem theperfect title thereto, and after the maturity
property after the maturity of the debt.

of the debt secured by the mortgage and

before foreclosure, the mortgagor has a
right to redeem [Basilio vs. Encarnacion, 5

Phil. 360].
Instances when conventional redemption is presumed to
mortgage:

be an equitable

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

2. when the vendor remains in possession as lessee or otherwise;
3. when upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
4. when the purchaser retains for himself a part of the purchase price;
5. when the vendor binds himself to pay the taxes on the thing sold;
6. in any other case where it may be fairly inferred the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any
other obligation; and
7. when there is a doubt as to whether the contract is a contract of sale with right or
repurchase or an equitable mortgage.
Requisites before legal redemption can be exercised:
1

There must be a sale or assignment of credit. The concept of sale must be

understood in its restricted sense.

The right cannot be exercised if the

transaction is exchange or donation.

2

There must be a pending litigation at the time of the assignment. The complaint
by the assignor must have been filed and answered by the creditor before the
sale of the credit.

The debtor must pay the assignee (a) the price paid by him, (b) the judicial costs

incurred by him, and (c) the interests on the price from the date of payment.
4

The right must be exercised by the debtor within 30 days from the date the
assignee demands (judicially or extra-judicially) payment from him.
Redemption

1
2

Pre-emption

The sale to a third person has alreadyThe sale to a third person has not yet
been perfected

been perfected

Has a much broader scope

Narrower in scope may be exercised

only where there is a prospective resale
of a small piece of urban land originally
bought by the prospective vendor
merely for speculation

Directed against the third person whoDirected against the prospective vendor
bought the property

who is about to resell the property

Effect is to extinguish a contract that hasEffect is to prevent the birth or

already

been

perfected

or

evenperfection of a contract

consummated
IX. ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL RIGHTS
Assignment of credit a contract by which the owner of a credit transfers to another his
rights and actions against a third person in consideration of a price certain in money or its
equivalent (Art. 1458).
Assignment of credit and other incorporeal rights are consensual, bilateral, onerous, and
commutative or aleatory contracts. The assignment involves no transfer of ownership but
merely effects the transfer of rights which the assignor has at the time to the
assignee [Casabuena vs. CA, 286 SCRA 594].
It may be done gratuitously, but if done onerously, it is really a sale. Thus, the subject
matter is the credit or right assigned; the consideration is the price paid for the credit or
right; and the consent is the agreement of the parties to the assignment of the credit or
right at the agreed price.
Renunciation the abandonment of a right without a transfer to another.
Agency involves representation, not transmission wherein the agent acts for the principal.
Substitution the change of a new debtor for the previous debtor with the credit remaining
in the same creditor.
Subrogation the change in the person of the creditor with the credit being extinguished.
Binding effects of assignment:
1

As between the parties, the assignment is valid although it appears only in a

private document so long as the law does not require a specific form for its
validity.

To affect third persons, the assignment must appear in a public instrument, and
in case it involves real property, it is indispensable that it be recorded in the
Registry of Deeds [Lopez vs. Alvarez, 9 Phil. 28].

The assignee merely steps into the shoes of the assignor, the former acquiring
the credit subject to defenses (fraud, prescription, etc.) available to the debtor
against the assignor. The assignee is deemed subrogated to the rights as well as
to the obligations of the seller.

He cannot acquire greater rights than those

pertaining to the assignor. [Koa vs CA, 219 SCRA 541].

X. BARTER OR EXCHANGE
Barter a contract whereby one person transfers the ownership of non-fungible things to
another with the obligation on the part of the latter to give things of the same kind,
quantity, and quality.
The contract is perfected from the moment there is a meeting of the minds upon the things
promised by each party in consideration of the other. It is consummated from the time of
mutual delivery by the contracting parties of things they promised.
Effect where the giver is not the lawful owner of the thing delivered: the aggrieved party
cannot be compelled to deliver the thing he has promised. He is entitled to claim damages
(Art. 1639). [Biagtan vs. Viuda de Oller, 62 Phil. 933].
Remedy in case of eviction: the injured party is given the option to recover the property he
has given in exchange with damages or only claim an indemnity for damages. The right to
recover is, however, subject to the rights of innocent third persons (Art. 1640).
XI. THE BULK SALES LAW
Purpose of the law (Act No. 3952) is to prevent the defrauding of creditors by the secret
sale or disposal or mortgage in bulk of all or substantially all of a merchants stock of goods.
The general scheme is to declare such bulk sales fraudulent and void as to creditors of the
vendor, or presumptively so, unless specified formalities are observed, such as the
demanding and the giving of a list of creditors, the giving of actual and constructive notice
to such creditors, by record or otherwise, and the making of an inventory.
A sale and transfer in bulk under the Bulk Sales Law is any sale, transfer, mortgage, or
assignment
(a) of a stock of goods, wares, merchandise, provisions, or materials otherwise than in
the ordinary course of trade and the regular prosecution of the business; or
(b) of all or substantially all, of the business or trade; or
(c) of all or substantially all, of the fixtures and equipment used in the business of the
vendor, mortgagor transferor, or assignor.
Acts punished by the law:
1. knowingly or willfully making or delivering a statement as required by the Act which
does not include the names of all the creditors of the vendor, etc. with the correct
amount due and to become due or which contains any false or untrue statement;
and

2. transferring title to a any stock of goods, wares, merchandise, provisions or

materials sold in bulk without consideration of for a nominal consideration only.
OReference:
1. De Leon, Comments and Cases on Sales;
2. Paras, Civil Code of the Philippines Annotated, Book V;
3. Jurado, Civil Law Reviewer.