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Sales Finals Reviewer
Sales Finals Reviewer
Sales Finals Reviewer
Contract of Sale. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing and the other to pay
therefore a price certain in money or its equivalent.
Contract of Sale
Title over the property passes to the buyer
upon delivery unless there is a contrary
agreement
Non-payment of the purchase price is a
negative resolutory condition, meaning the sale
becomes ineffective upon the happening of
such condition
After delivery of the objective, the seller loses
ownership over it. Unless, the contract is set
aside, he cannot recover the object
Contract to Sell
Ownership is retained by the seller whether or
not there is delivery. Ownership passes to the
buyer only upon full payment of the price
The payment in full is a positive suspensive
condition, meaning, if the purchase price is not
paid, the obligation to deliver and to transfer
ownership on the part of the seller does not
become effective
Whether there is delivery or not, the seller
retains the ownership of the object. If the seller,
due to non-payment of the price is ousting the
buyer from the property, he (seller) is not
rescinding the contract of sale but is precisely
enforcing it.
Contract to Sell
No contract to sale only, a preparatory contract
No delivery yet. No sale yet
No
specific
performance/rescissionno
contract yet
Payment will not complete transaction
SALES
Object Must be Licit or Lawful. There are two kinds of illicit things:
a. Illicit per sewhen by its nature it is heinous, immoral or wrongful
b. Illicit per accidenswhen it is prohibited by law
When is a thing determinate?
a. When it is particularly designated or physically segregated from all others of the same
class.
b. The thing is capable of being made determinate, at the time the contract is entered into,
w/o the necessity of a new or further agreement between the parties.
Emptio rei sperataea sale of an expected thing subject to the condition that the thing will come
to existence. If the thing did not come into existence, the contract is not effective and the buyer
has no obligation to pay the price. Presumption is in favor of this kind of sale, because it is more
in keeping with the commutative character of a sale.
Emptio speia sale of a hope or expectancy. The contracting parties intended that contract of
sale to exist at all events, whether or not the expected thing will come into existence such that the
buyer will have to pay the purchase price, such that the contract becomes aleatory in nature.
Emptio rei speratae vs. Emptio spei
Emptio rei speratae
Sale of a thing having a potential existence
The uncertainty is with regard the quantity and
quality but not with regard the existence of the
thing
The contract deals with a future thing
The sale is subject to the condition that the
thing should exist, so that if it does not, there is
no contract for lack of an essential requisite
Emptio spei
Sale of a mere hope or expectancy
The uncertainty is with regard the existence of
the thing
The contract deals with a present thingthe
hope or expectancy
The sale produces effects eventhough the thing
itself does not come into existence, since the
subject matter is the hope itself
SALES
Sale vs. Agency
SALE
The buyer pays for the price of the
goods/property purchased
The buyer becomes the owner of the
goods/property purchased
Buyer cannot return the goods/property when
the sale is defective
The seller warrants the goods/property sold
The seller has full freedom to enter into any
terms or conditions on the contract of sale
AGENCY
The agent does not pay for the price. He
merely accounts for the proceeds of the sale.
The agent does not become the owner of the
goods/property delivered to him for sale.
The agent returns the goods/property if he was
not able to sell the same
The agent does not make any warranty as long
as he acts within his authority and in the name
of the principal
The agent must follow the instructions of the
principal
Contract for a Piece of WorkThe article sold is specially manufactured and upon the special
order of the customer. Article is not sold in the ordinary course of business. (See. Concrete
Aggregates vs. CTA)
Contract for a piece of work
The thing transferred is one not in existence
and w/c never would have existed but for the
order of the party desiring to acquire it
The services dominate the contract eventhough
there is a sale of goods involved
Contract of Sale
The thing transferred is one which would have
existed and would have been the subject of
sale to some other person, even if the order
had not been given
The primary objective of the contract is a sale
of the manufactured item; it is a sale of goods
eventhough the item is manufactured by labor
furnished by the seller and upon previous order
of the customer
Governable by the Statute of Frauds
SALES
SALES
Test to Determine whether a Contract is A contract of Sale or An Option. Whether or not the
agreement could be specifically enforced. If such stipulation could be independently enforced
from the contract, then such stipulation is an option.
EARNEST MONEY vs. OPTION MONEY
Earnest Money
It is part of the purchase price
It is given only when there is already a
perfected sale
When it is given, the buyer is bound to pay the
balance of the agreed purchase price
If the sale does not materialize, the earnest
money paid must be returned, unless a
contrary agreement had been stipulated
Option Money
It is given as a distinct consideration for an
option contract which gives the buyer a specific
period within which to purchase the thing
It is given at a time when the sale had not yet
been perfected. What had been perfected only
is the option contract
Even if option money is paid by the would-bebuyer he is not bound to buy the thing
If the buyer decides not to buy the thing, he
cannot recover the option money he paid as
consideration for the contract of option
SALES
II. 1504 Applicability. Principle of Res Perit Domino. Vendor bears risk of loss until ownership
is transferred by delivery.
Exceptions: a) Where delivery of goods has been made but ownership is retained by
the seller merely to secure performance of buyers obligation
b) Where actual delivery is delayed through fault of the buyer.
Sale of Goods By Description- where a seller sells a thing as being of a certain kind verbally
describing them and the buyer simply relies on the sellers descriptions of the things, not knowing
whether the sellers representations are true or not.
Sale by Sample- Where the seller warrants that the bulk of goods being sold correspond with the
sample or samples exhibited not only in kind but also in quality and character.
Sale by Description and Sample- Where the seller has to satisfy the requirements in sale by
description and sample. There are two-fold warranty here: (a) the goods purchased matched with
the description and (b) the goods also matched in kind, quality and character with that of the
sample or samples exhibited to the buyer or his representative
RECTO LAW (ART. 1484)
Applicability: Sales of Personal Property in Installments and Leases of Personal Property w/
Option to Buy
Remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.
The stipulation that the instalments or rents shall not be returned to the vendee or
lessee shall be valid as long as it is not unconscionable. (1486)
ART. 1489.
Two Kinds of Incapacity:
1. Absolute Incapacity- Party cannot bind himself in any case.
2. Relative Incapacity- Certain Persons under certain circumstances cannot buy certain
property.
** Minors in contract for necessaries must pay reasonable price.
Necessariesthose things which are needed for sustenance, dwelling, clothing and medical
attendance, in keeping with the financial capacity of the family of the incapacitated person.
ART. 1490. Prohibition against Husband and Wife. Exceptions.
Rationale: PID
a. To avoid Prejudice to 3rd Persons
b. To prevent one spouse from unduly influencing the other.
c. To avoid by indirection the violation of the prohibition against donations.
Who may assail illegality?
a. Creditors prior to the sale
b. Heirs of either spouse.
** Either spouse may not assail illegality because they are parties thereto.
SALES
** A spouse designated as agent of the other spouse may sell the latters exclusive property.
ART. 1491. Persons Relatively Incapacitated to Buy. (PAGEJO)
1. Public Officers and employeesProperty Of State.
2. AgentsProperty of Principal unless with consent.
3. GuardianProperty of Ward.
4. Executors and administratorsEstate
5. Justices, Judges, Prosecuting Attorneys, Clerks and employees of courtProperty/Rights
under litigation.
6. Others disqualified by law. (Ex. *aliens who are disqualified to purchase private agricultural
lands; *an unpaid seller having a right of lien or having stopped the goods in transitu, who is
prohibited from buying the goods either directly or indirectly in the resale of the same at a public
or private sale w/c he may make. Art. 1533, par.5)
Rationale: Fiduciary relationship
Status of Sale: Voidable (1-3); Void (4-6)
ART. 1492. 1490 and 1491 Applicable to Legal Redemption, Compromises and
Renunciations.
ART. 1493. Loss of Object Before Sale. Complete and Partial Loss.
Partial Loss Rules:
1. Vendee may withdraw from the contract
2. Demand the remaining part, paying its price in proportion to the total sum agreed upon
ART. 1494. Loss/Substantial Deterioration of Specific Goods without sellers knowledge.
1. Buyer may avoid the sale or
2. May treat sale as valid w/ respect to the existing goods
ART. 1495. Obligations of Vendor. (TDWP)
1. Transfer Ownership (not waivable)
2. Deliver (not waivable)
3. Warrant Object (waivable and may be modified)
4. Preserve Thing from perfection to delivery (Art. 1163)
5. Pay for the execution and registration of the sale unless there is a contrary agreement
**Execution sales do not require the delivery of thing since a one year period of redemption is
available to seller.
ART. 1496. Delivery Transfers Ownership.
ART. 1497. Control and Possession necessary in Delivery.
Exception: Art. 1478. Stipulation as to full payment of price.
Delivery- a mode of acquiring ownership as a consequence of a contract of sale by virtue of
which actually or constructively the object is placed in the control and possession of the vendee.
KINDS OF DELIVERY
1. Actual or Real. (1497)
2. Legal or Constructive
a. Legal Formalities (1498); execution of public instrument.
b. Symbolical Tradition (1498 par 2)- keys delivered.
c. Traditio Longa Manu- by mere consent /agreement. If the movable sold cannot yet be
transferred to the possession of the buyer at the time of the sale. (1499)
SALES
d. Traditio Brevi Manu- if the buyer had already the possession of the object even before the
purchase. (lessee becomes owner)
e. Traditio constitutum possessorium- possession as owner changed. (Owner becomes
lessee)
3. Quasi-Tradition- Delivery of Rights, credits or incorporeal property made by:
a. Execution of public instrument
b. Placing titles of ownership in the hands of a lawyer.
c. Allowing the buyer to make use of the rights (1501)
ART. 1498. Constructive delivery.
Requirements:
1. Sellers Control.
2. Sellers Control transferred to buyer.
3. Intention to deliver for ownership.
ART. 1499. Traditio Longa and Brevi Manu
ART. 1500. Traditio Constitutum Possessorium.
ART. 1501. Delivery of Incorporeal Property. (Constructive and Quasi-Tradition)
ART. 1502.
Transaction on Sale or Return. Subject to Resolutory Condition.
Difference with Delivery with option to purchase- Ownership is transferred in Sale or
Return
Transaction on Approval or Trial/Satisfaction. Subject to Suspensive Condition.
Rules:
1. Risk of loss to seller until the sale becomes absolute. (Exceptions: Buyer in default; Buyer
agreed to bear the loss)
2. Buyer must give goods a trial except when it is evident that it cannot perform the work
intended.
3. Period of signifying acceptance commences to run only when all the parts essential for
operation has been delivered.
4. A provision that a 3rd person must satisfy approval is valid but he must be in Good faith.
5. Generally the Sale and Delivery to an expert buyer is not a sale on approval/trial.
Sale or Return vs. Sale on Approval
Basis
Sale or Return
Condition
Subject
to
Resolutory
condition
Premise
It depends upon the will of the
buyer
Transfer of ownership
Ownership
passes to
delivery
the
immediately
buyer on
Sale on Approval
Subject
to
suspensive
condition
It depends upon the suitability,
quality or character of the
goods
Ownership
does
not
immediately pass to the buyer.
It passes only upon approval
or satisfaction of the buyer
duly manifested after trial
There is no revesting of
ownership because it is
retained by the seller until the
sale becomes absolute
The risk remains in the seller
while the goods are on trial
SALES
SALES
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SALES
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SALES
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4. Sellers residence.
5. Specific Goods: Place where goods are at the time of contract known to parties.
B. TIME OF DELIVERY OF GOODS
1. Agreement.
2. No time fixed, within a reasonable time.
C. DELIVERY OF GOODS AT THE POSSESSION OF THIRD PERSONS. Seller is relieved if
3rd person acknowledges to be the bailee of the buyer.
D. Demand or tender of delivery effective if made at a reasonable hour.
E. Seller bears the expenses incidental to putting goods in deliverable state.
ART. 1522
A. DELIVERY OF GOODS LESS THAN THE QUANTITY CONTRACTED.
1. Buyer may reject.
2. Buyer may accept by paying:
a. price at the contract rate if he knew that no more were to be delivered
b. fair value (reasonable market value) of the goods if he did not know that the seller is going
to be guilty of breach of contract.
B. DELIVERY OF GOODS MORE THAN QUANTITY CONTRACTED
1. Accept and reject excess.
2. Accept all- Liable for all of them.
C. DELIVERY OF GOODS MIXED WITH OTHERS
1. Accept in accordance with the contract and reject the rest.
2. Accept all.
** If goods are indivisible the buyer may reject the whole of the goods.
** Rules may be controlled by usage or agreement.
ART. 1523. DELIVERY OF GOODS TO THE CARRIER is DELIVERY TO THE BUYERExceptions: 1503 (1) (2) (3) and when Contrary intention appears.
Sellers duty after delivery to carrier.
1. To enter on behalf of buyer into such contract reasonable under the circumstances. (If seller
omits this buyer may decline to treat delivery to carrier, delivery to him, if goods were
lost/damaged)
2. To give notice to buyer regarding necessity to insure goods while in transit if under
circumstances it is usual to insure. (risk during transit is borne by him if he fails)
ART. 1524. NO DUTY TO DELIVER IF VENDEE HAS NOT PAID OR NO PERIOD FOR
PAYMENT FIXED IN THE CONTRACT.
ART. 1525. UNPAID SELLER.
1. When the whole of the price has not been paid or tendered.
2. When a BOE or other Negotiable Instrument has been received as conditional payment but
was dishonored or the buyer became insolvent.
Seller- includes agent of the seller to whom the BOL has been indorsed; or a consignor or agent
who has himself paid or is directly responsible for the price.
SALES
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SALES
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--Notice to be effectual must be given in such time and circumstance that the principal by the
exercise of reasonable diligence may prevent a delivery to the buyer.
--Redelivery necessary according to directions of seller.
--If goods are covered by negotiable document of title carrier or bailee has no obligation to
deliver to seller unless document is cancelled.
ART. 1533. WHEN RESALE IS ALLOWABLE
Where seller has either a right of lien or a right of stoppage in transitu and under the following
cases: PRD
1. Where the goods are perishable in nature
2. Where the right to resell is expressly reserved in case the buyer should make a default
3. Where the buyer delays in the payment of the price for an unreasonable time.
ART. 1534. WHEN THE SELLER MAY RESCIND
1. Where the right to rescind is expressly reserved in case the buyer should make a default
2. Where the buyer delays in the payment of the price for an unreasonable time.
ART. 1535. EFFECT OF SALE OF GOODS SUBJECT TO LIEN OR STOPPAGE IN TRANSITU.
1. Where Goods not covered by negotiable document of title.Seller can give no larger right than
he has. Also with a buyer who sold goods to another.
2. Where Goods covered by negotiable document of titleSellers lien cannot prevail against the
rights of a purchaser for value in GF to whom the document is indorsed.
Article 1536Right to Withhold delivery of thing sold by the vendor in case the vendee lose the
right to make use of the term, as provided in Art. 1198: (IFIVA)
1. When after the obligation has been contracted vendee becomes insolvent, unless he
gives a guaranty or security for the price
2. When he does not furnish to the vendor the guaranties or securities which he has
promised
3. When by his own acts he has impaired said guaranties or securities after their
establishment, and when through fortuitous event they disappear, unless he immediately gives
new ones equally satisfactory
4. When the vendee violates any undertaking, in consideration of which the vendor agreed
to the period
5. When the vendee attempts to abscond
Article 1537Vendor is bound to deliver the thing sold and its accessions and accessories in the
condition in which they were upon the perfection of the contract. All fruits pertain to vendee from
the day on which the contract was perfected.
Article 1538Loss, Deterioration or Improvement of Object before its delivery governed by
Article 1189.
1. If the thing is lost w/o the fault of the seller, the obligation shall be extinguished
2. If the thing is lost through the fault of the seller, he shall be obliged to pay damages; it 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 w/o the fault of the seller, the impairment is to be borne by the
buyer
4. If it deteriorates through the fault of the seller, the buyer may choose b/w rescission or
fulfilment with indemnity in either case
5. If the thing is improved by its nature, or by time, the improvement shall inure to the benefit
of the buyer
6. If it is improved at the expense of the seller, he shall have no other right than that granted
to the usufructuary
SALES
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Article 1539What delivery includes? It includes the placing in the control of the vendee all that
is stated in the contract in conformity with the following rules:
a. Sale OF REAL ESTATE by unit of measure or number: The vendor must deliver all that
may have been stated in the contract. If it is not possible to deliver all, the vendee may choose
between:
LACKING/SMALLER AREA OR NUMBER
1. Proportional reduction of the price or
2. Rescission of the contract provided the lack in area is at least 1/10 of the area stated
in the contract
The above rules are applicable also in case there is no lack in area but the quality is
not the same as specified in the contract. Rescission shall take place only if inferior
value of the thing sold exceeds 1/10 of the price.
But if the vendee would not have bought the immovable had he known of its smaller
area or inferior quality he may rescind the sale.
GREATER AREA OR NUMBER (1540)
Vendee may accept the area stated in the contract and reject the excess OR
Vendee may accept the whole but must pay for the same at the contract rate
No Right of Rescission since the vendee is not prejudiced at all.
The Above Rules (Art. 1539 and 1540 shall be applicable to judicial sales)
b. Sale of REAL ESTATE by lump sum(1542): There should be no increase or decrease of
the price, although there be a greater or lesser area or number than that stated in the contract.
Rule applicable to Sale of two or more immovables for a single price.
What if the area or number of the immovable is stated together with its boundaries?
Then the vendor is bound to deliver all that is included w/in the BOUNDARIES,
although the same exceeds the area or number specified in the contract. The
BOUNDARIES prevail because it contains the real and true area of the land.
What if the vendor cannot deliver all that is included w/in the designated
boundaries? Vendee has the option to:
a. Reduce the price in proportion to the deficiency in the area OR
b. Rescind the contract for breach of stipulations.
PRESCRIPTION OF ACTIONS for rescission or exaction of proportionate reduction of the
purchase price against the vendor under Art. 1539 and 1542: Six Months from the day of
delivery. [1543]
DOUBLE SALE (1544)
General Rule: FIRST IN TIME, PRIORITY IN RIGHT
Applicability of General Rule: Only when the requisites in Article 1544 are not present
Requisites for DOUBLE SALE to EXIST (VOCS)
1. Two or more sales transactions must constitute valid sales
2. Two or more sales transactions must pertain to the same object or subject matter
3. Two or more buyers at odds over the rightful ownership of the subject matter must each
represent conflicting interests
4. Two or more buyers must each have brought from the very same seller
Rules of Preference of Ownership
SALES
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Movable or Personal Property: Owner is the one who is in first possession in good faith.
Immovable
1. First to register in good faith
2. No inscription, first to possess in good faith
3. No inscription and no possession in good faithPerson who presents oldest title in good
faith
What is REGISTRATION? It is any entry made in the books of the Registry, including both
registration in its ordinary and strict sense, and cancellation, annotation, and even the marginal
notes. It is the entry which records solemnly and permanently the right of ownership and other
real rights.
CASES WHERE ARTICLE 1544 CANNOT BE INVOKED
1. When the earlier transaction is a pacto de retro sale of an unregistered land and the
subsequent conveyance is a donation of the land in favor of another by the vendor a retro. The
vendee a retro has the better right over the donee. The donor had nothing more to donate
because of failure to repurchase the property.
2. Where one of the deeds of sale is a forgery.
3. Where one sale is absolute and the other is a pacto de retro where the period to redeem has
not yet expired.
4. Where one of the sales is subject to a suspensive condition which condition was not complied
with and the other is an absolute sale. Even if the conditional sale was made prior to the
absolute sale.
5. Where one transaction is a sale and the other a mortgage
6. Where one claim is based on prescription and the other is on sale
7. Where the subject land is not registered under PD 1529
8. In a contract to sell, there being no previous sale of the property.
Article 1544 applicable to Double Donations as provided by Art. 744.
CONDITIONS AND WARRANTIES
Article 1545.
What are the options of a party to a contract of sale subject to a condition, when such
condition was not fulfilled by the other party?
a. Refuse to proceed with the contract OR
b. Waive performance of the condition and proceed with the contract
What if the condition agreed upon is in the nature of a promise that it should happen? Then
the non-fulfillment of such condition is considered a breach of warranty.
Article 1546. WARRANTY.
--It is a collateral undertaking in a sale of either real or personal property, express or implied,
that if the property sold does not possess certain incidents or qualities, the purchaser may either
consider the sale void or claim damages for breach of warranty.
Express Warrantyany affirmation of fact or any promise by the seller relating to the thing if
the natural tendency of such affirmation or promise is to induce the buyer to purchase the same
and if the buyer purchases the thing relying thereon.
Affirmation of the value of the thing or statement of the sellers opinion is not warranty,
unless the seller made such affirmation or statement as an expert and it was relied upon
by the buyer.
SALES
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Implied WarrantyIt is inherent in a contract of sale and presumed to exist although nothing
has been mentioned about it.
Implied Warranties in Contracts of Sale (1547)
1. Implied warranty as to the right of the seller to sell at the time when ownership has to pass.
(Warranty against eviction)
2. Implied warranty against hidden defects or faults or charge or encumbrances unknown to the
buyer
3. Implied warranty as to fitness and merchantability
4. Warranty against encumbrances or non-apparent servitudes (1560)
Cases where implied warranty is not applicable
1. Sale made by a sheriff, auctioneer, mortgagee, pledge or other person professing to sell by
virtue of authority in fact or law (1547) (The judgment debtor is responsible here for eviction)
2. Sale under as is and where isthis carries no warranty as to the quality or workable
condition of the goods and the buyer takes them as they are. However, such condition does not
include those that could not be discovered by a physical examination of the goods sold.
3. Sale of second hand articles does not carry any warranty as to the condition, adaptation,
fitness or suitability for purposes for which they have been purchased.
4. Sale of property sold at public auction for tax delinquency. There is no warranty on the part of
the State as to the title of the owner.
WARRANTY AGAINST EVICTIONThe seller guarantees that he has the 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.
EvictionA judicial process by virtue of which the vendee is deprived of the ownership of the
whole or part of the thing he purchased by final judgment or by an act imputable to the vendor.
Elements (DVJ-SW)
1. Vendee is deprived in whole or in part of the thing purchased
2. The deprivation is by virtue of a final judgment (1557)
3. The judgment is based on a prior right 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 (1558)
5. No waiver of warranty by the vendee
Failure of the vendee to appeal does not relieve vendor from responsibility [1549]
Effect of Prescription/Adverse Possession (1550)
1. Prescription consummated before saleVendee can claim warranty against eviction
(deprivation is based on right prior to sale)
2. Prescription consummated after saleVendee cannot claim warranty against eviction
If Property is sold for non-payment of taxes due and not made known to the vendee
before the sale, vendor is liable for eviction (1551)
Judgment debtor is responsible for eviction in judicial sales unless otherwise decreed in
judgment (1552)
Any stipulation exempting vendor from responsibility for eviction is void if he acted in
bad faith (1553)
SALES
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1. Conscientethe waiver is voluntarily made by the vendee w/o the knowledge and assumption
of the risks of eviction. (Vendor shall only be liable to pay the value w/c the thing sold had at the
time of the eviction)
2. Intencionadathe waiver is made by the vendee w/ knowledge of the risk of eviction and
assumption of its consequences. (Vendor here shall not be liable)
Rights of Vendee in case of eviction (1555)
To demand to the vendor the following (VICED)
1. Value which the thing sold had at the time of eviction, be it greater or less than the price of
the sale.
2. Income or fruits, if vendee was ordered to deliver them to the party who won the suit
against him
3. Costs of the suit which caused the eviction, and those suit brought against the vendor for
warranty
4. Expenses of the contract, if the vendee paid them
5. Damages and interests and ornamental expenses, if the sale was made in bad faith.
* Rescission is not a remedy in case of Total eviction because rescission contemplates that the
one demanding it is able to return whatever he has received under the contract. Since the vendee
can no longer restore the subject-matter of the sale to the vendor, rescission cannot be carried
out.
Rights of Action of Vendee in case of Partial Eviction (1556)
1. Enforce the vendors liability for warranty against eviction OR
2. Demand the rescission of the contract of sale w/ obligation to return the thing w/o other
encumbrances than those w/c it had when acquired
Applicability: A part of the thing sold of such importance was lost because of eviction,
that the vendee would not have bought it w/o said part.
Same rules apply to a case where two or more things are jointly sold for a lump sum or
for separate price for each, when the vendee would not have bought one w/o the other.
Warranty against encumbrances or non-apparent servitudes (1560)
Requisites:
1. Immovable sold is encumbered with non-apparent burden or servitude not mentioned in the
agreement
2. Nature of non-apparent servitude or burden is such that it must be presumed that the buyer
would not have acquired it had he been aware thereof.
Remedies of the vendee
1. Rescission of the contract OR
2. Indemnity
Warranty is not applicable if non-apparent servitude is recorded in the Registry of
Property, unless there is an express warranty that the thing is free from all burdens and
encumbrances.
Prescription of actions for rescission of damages: W/in 1 year from the execution of
contract
If what was chosen was rescission but was not filed w/in 1 year, vendee may still sue for
damages w/in one year from the discovery of burden or servitude.
SALES
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SALES
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Loss of Thing Sold w/ Hidden defects through fortuitous event or vendees fault (1569)
* Vendee may demand price paid less value of the thing at the time of loss plus damages if
vendor acted in bad faith.
Warranties against hidden defects, merchantability and fitness are applicable to judicial
sales but judgment debtor is not liable for damages, because the latter is only forced to
sell and therefore did not take part in the conduct of the sale and determination of price
which precludes possibility of bad faith (1570)
Prescription of Actions: 6 Months from delivery of thing (1571)
Joint Sale of two or more animals (1572)
Where one suffers redhibitory defect this shall not affect others
Exception: If the buyer would not have purchased the sound animals w/o the defective
ones. In such case, sale may be rescinded.
Presumption of Exception: If a team, yoke or pair or set is bought even if a separate price
has been fixed for each
The following rules shall be applicable to joint sale of two or more things (1573)
* There is no warranty against hidden defects of animals sold at fairs or at public auctions or of
livestock sold as condemned.(1574) Rationale: Animals are not bought because of their quality or
capacity for work; and in such circumstance defects are clearly known to buyer.
When is Sale of Animals Void? (1575)
1. When suffering from contagious diseases
2. If use or service for which they are acquired has been stated in the contract and they are found
to be unfit
Remedy: Declaration of Nullity of Contract
Redhibitory defect of Animalssuch defect that even in case of professional inspection it is of
such nature that even expert knowledge is not sufficient to discover it.(1576)
Prescription of Redhibitory Actions in defective animals40 days from delivery(1577)
Vendor is liable if animal should die w/in 3 days after its purchase, if cause of death
existed at time of contract (1578)
Animal should be returned in the condition in which it was sold and delivered if sale was
rescinded. Vendee is answerable for any injury due to his negligence and not arising
from redhibitory defect (1579)
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General Rule on Rescission: The court may fix the period of payment when there is just
cause.
Exception: Court is not allowed to grant a new period. Once there is a judicial demand by
notarial act received by the vendee, the court may not grant him a new term. The reason is that
the vendee already enjoyed the advantage of paying beyond the time originally fixed in the
contract, during the time when no demand for rescission either judicially or extra-judicially has
taken place.
*Art. 1592 Not applicable in:
1. Sales by instalments where parties have laid down the procedure to be followed in the
event the vendee failed to fulfill his obligation
2. A mere promise to sell where the title remains with the vendor until full payment of the
price.
Article 1593. Automatic Rescission of sale of movables. Conditions for applicability:
1. if the vendee upon the expiration of the period fixed for the delivery of the thing
purchased, refused to receive it w/o justifiable cause
2. if he failed to pay the price unless granted a longer period w/in w/c to pay.
Reason why judicial or notarial act not required: Personal things do not generally keep a stable
price in the market, any delay in their disposal may prejudice the vendor.
Actions for breach of contract of sale of goods
Article 1594. Actions available to vendor when there is breach of contract of sale on the part of
the vendee: (PDR)
1. Action for payment of the price of the goods [1595]
2. Action for damages due to wrongful neglect and refusal to accept and pay for the goods
[1596]
3. Action for rescission if buyer has repudiated the contract or has manifested his inability to
perform his obligation [1597]
Actions available to the vendee, in case of breach by the vendor (SDR)
1. Action for specific performance in case of failure of the vendor to deliver the goods [1598]
2. Action for damages for breach of warranty but accepting the goods [1599]
3. Action for rescission for breach of warranty where the vendee may validly refuse acceptance of
the goods, or even if the goods had already been received, he may return them [1599 par. 4]
Article 1595. Action for collection of price, available in the following cases: (OPR)
1. When the ownership of the goods has passed to the buyer and he wrongfully neglects or
refuses to pay for the price according to the terms of the contract
2. When the price is payable irrespective of delivery or transfer of title, on a certain day and the
buyer wrongfully neglects or refuses to pay such price.
Defense of Buyer: He may establish the fact that the seller has at anytime before judgment,
manifested his inability not to comply with the contract
3. When the goods cannot readily be resold for a reasonable price and the buyer refuses to
receive the goods when offered for delivery except when 1596 par. 4 is applicable (there is notice
of stopping the contract), with notification that the seller is holding them as bailee for the buyer
Article 1596. Damages for non-acceptance of goods.
Measure of damages:
1. As a rule: estimated loss directly and naturally resulting in the ordinary course of events from
the buyers breach (no available market)
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2. When there is available market: difference between contract price and market or current price
at the time when the goods ought to have been accepted or if not time has been fixed at the time
of refusal (If there are special circumstances establishing proximate damages of a different
amount than the difference described then liability is based on the proximate damages)
Proximate Damages: refer to damages other than unrealized profits
* Repudiation of the contract or notice of stopping the contract, such as in the case of a
sale where goods are to be manufactured. Buyer here shall be liable for the cost of:
1. labor performed
2. expenses for materials used before receiving the notice of repudiation for stoppage
3. unrealized profits
Article 1597. When seller may rescind contract in case there is no delivery yet
1. When buyer repudiated the contract
2. When the buyer has manifested his inability to perform his obligations
3. When the buyer has committed a breach of the contract
* Notice must be given to the buyer to totally rescind the contract.
Article 1598. Remedy of buyer in Contract to deliver specific goods: Specific Performance
w/o giving the seller option to retain the goods on payment of damages.
Article 1599. Remedies of buyer when seller commits breach of warranty.
1. Recoupmentwhereby the buyer accepts the goods but he sets up against the seller the
reduction or extinction of the purchase price.
2. Action for damageswhereby the buyer may (a) accept the goods but w/ damages or (b)
refuse to accept the goods for the breach of warranty but also with damages.
3. Rescissionwhereby the buyer seeks the cancellation of the sale and as a consequence
there will be restoration on both sides.
**Situations when buyer cannot choose or elect rescission (KNR)
1. If he knows of the breach of warranty when he accepted the goods w/o protest
2. If he fails to notify the seller w/in a reasonable time of the election to rescind
3. If he fails to return or offer to return the goods to the seller in substantially the same condition
as they were at the time the ownership was transferred to him.
Extinguishment of Sales
Art. 1600- Causes for Extinguishing Sales
1. Ordinary Causescauses which extinguish ordinary contracts such as:
a. Payment
b. Loss of the things
c. Novation
d. Merger of rights of creditor and debtor
e. Rescission
f. Fulfillment of resolutory condition
g. Prescription
2. Special Causesrefer to conventional redemption and legal redemption
CONVENTIONAL REDEMPTION.
Art. 1601. Requisites REV-CR
a. The vendor reserves the right to repurchase the thing sold
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b. He shall shoulder the expenses of the contract and other legitimate payments made by
the buyer.
c. He shall pay the value of the necessary and useful expenses made on the thing incurred
by the buyer
d. He shall comply with other stipulations agreed upon.
e. He shall return the price of the sale
Characteristics of Conventional Redemption [EAR RPR]
a. It begins to exist at the time of the perfection of the contract. (It becomes a mere promise
to sell if stipulated upon after the sale had been consummated)
b. It is an accidental stipulation because it is a right created by the parties
c. It is reciprocal when the right to redeem is exercised. (both vendor and vendee has
obligations with each other)
d. It gives rise to a real right when properly registered because it affects third persons.
e. It is potestative as its exercise depends upon the sole will of the vendor.
f. It is a resolutory condition because when it is fulfilled, the ownership of the vendee over
the thing is extinguished
PACTO DE RETRO SALE vs. MORTGAGE
PACTO DE RETRO SALE
Ownership is consolidated in the vendee if
vendor does not repurchase w/in time agreed
upon
No obligation on the part of the vendee to
foreclose
Vendor has no more right to redeem after
expiration of period to redeem
MORTGAGE
Failure of mortgagor to pay his obligations on
time does not deprive him of his interest in the
property
Mortgagee must foreclose if he wants to secure
a perfect title
Mortgagor may redeem before foreclosure and
even after, w/in one year from registration of
the sale in extra-judicial foreclosure. In judicial
foreclosure redemption may be made before
confirmation of the sale by the court.
Mortgagee cannot alienate property
Mortgagee does not automatically become
owner, there must be foreclosure sale first
Mortgagee is not entitled to reimbursement for
improvements he made
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3. Any money fruits or other benefits received thereafter by the vendee are considered interests
on the loan.
4. If the vendor does not redeem on time the remedy of the vendee is to foreclose the mortgage.
Art. 1603In case of doubt, a contract purporting to be a sale with right to repurchase shall be
construed as an equitable mortgage.
Rationale: Least transmission of rights.
*Although in conflict with Art. 1378, where it provides that if the contract is onerous, the
doubt shall be settled in favor of the greatest reciprocity of interests, Art. 1603 is the exception.
This is justified by the condemnation of pactum commissorium (which is a stipulation that creditor
automatically becomes owner of a property upon non-payment by the debtor)
Art. 1604Art. 1602 also applicable to contract purporting to be an absolute sale
Art. 1605Vendor may ask for reformation of instrument in cases referred to in 1602 & 1604
Art. 1606Time to redeem in conventional redemption
1. If there is a period agreed upon then this shall be observed, but this should not exceed
10 years
2. If there is no period agreed upon, the redemption shall be exercised within 4 years from
the date of contract.
3. If an action was brought by the seller claiming that the contract was an equitable
mortgage but later on proven that it was Pacto de retro Sale, he is given 30 days from the time
final judgment was rendered to repurchase.
Art. 1607Judicial Order is required for the registration of the consolidation of ownership of a
real property in the vendee by failure of the vendor to redeem.
Rationale: To accord the vendor the maximum safeguards for the protection of his legal
rights under the true agreement of the parties.
Art. 1608The vendor may exercise his right of redemption against every possessor
whose right is derived from the vendee, even if the second contract does not mention of the right
of redemption.
Art. 1609Vendee is subrogated to the vendors rights and actions
As owner, vendee may:
a. transfer his rights to a 3rd person
b. mortgage the property
c. enjoy the fruits thereof
d. recover the property against every possessor
e. perform other acts of ownership
Art. 1610Creditors of the vendor must exhaust first all the other properties of vendor
before they could exercise the right of redemption against the vendee.
Art. 1611Applicability.
1. The vendee entered a Pacto de Retro Sale of a part of an undivided immovable.
2. The vendee later acquired the whole of the property.
3. The vendor in the Pacto de Retro Sale of a part wishes to exercise his right of redemption
over the part.
If the abovementioned are present the vendee may compel the vendor in the Pacto de Retro Sale
of a part to redeem the whole property.
Rationale: Co-ownership is not favored, because the co-owners are reluctant to make
improvements on the property due to the state of instability in its ownership.
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If two or more adjoining owners desire to exercise the right of redemption at the same time, the
one with a smaller area shall be preferred. If both have same area, the one who first requested.
Art. 1622Applicability: Piece of Urban Land which is so small and so situated that a major
portion cannot be used for any practical purpose w/in a reasonable time, having bought merely
for speculation and is about to resold.
*Speculationmeans buying or selling with expectation of profiting by a rise and fall in price.
Rights recognized by Article 1622.
1. Right of Pre-emptionthe right of an adjacent owner to purchase the property before it
is sold to a third person or before the projected sale to a 3rd person is consummated.
2. Right of Redemptionthe right of an adjacent owner to redeem the property after the
sale had been perfected and consummated.
Pre-emption
Arises before sale
No Rescission because no sale as yet exists
The action is directed against the prospective
seller
Redemption
Arises after sale
There can be rescission of the original sale
Action is directed against the buyer
* Preference when two or more owners of adjoining lands wish to exercise the right of
redemption or pre-emption: To the owner whose intended use is best justified.
Art. 1623Period of Legal Pre-emption or Redemption.
Must be exercised within 30 days from the notice in writing by the prospective
vendor.
The deed of sale executed by the vendor is not registered if not accompanied by an
affidavit that he has given the required written notice.
The right of redemption of co-owners is superior to the right of adjoining owners.
Instances of Legal Redemption under the Civil Code (CHURC)
1. Sale of a co-owner of his share to a stranger (1620)
2. Sale of an heir of his hereditary rights to a stranger (1088)
3. Sale of adjacent small urban lands bought merely for speculation (1622)
4. Sale of adjacent rural land not exceeding one hectare (1621)
5. When a credit or other incorporeal right in litigation is sold (1634)
Instances of Legal Redemption under special laws (THEJA)
1. Redemption in tax sales
2. Redemption of homesteads
3. A right of redemption in cases of extra-judicial foreclosures
4. An equity of redemption in cases of judicial foreclosures
5. Redemption by an agricultural tenant of land sold by the landowner
ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL RIGHTS
Assignment of Creditan agreement whereby credits, rights or actions pertaining to a person
(called assignor) are transferred by him to another (called assignee) either onerously or
gratuitously who acquires the power to enforce the same against the debtors.
Nature of Assignment of Credits and other incorporeal rights: Has all the elements of a contract of
sale: (1) consent (2) Object which is the credit, right , action assigned and (3) consideration which
is the price paid for the assignment, or liberality of the assignor if the assignment is gratuitous.
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