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SALES Extinguishment of the principal carries with

Atty. Irvin Joseph Fabella it automatically the extinguishment of the


Q: What are the obligations created under the contract (3) COMMUTATIVE - exchange values are
of s`ale? almost the same. As long as the seller
A: On the part of the SELLER: believes that what he received is the
(1) To deliver the determinate thing. commutative value of what he gave.
(2) To transfer ownership.
OPPOSITE: ALEATORY the value of the
On the part of the BUYER: thing you received may be lower or greater;
To pay a price certain in money or its Example: lotto ticket
(4) RECIPROCAL and BILATERAL parties are
Q: What kind of obligations are these? bound by the obligation which is dependent
A: Real Obligation - obligation to give upon each other;

In a real obligation, the remedy is specific (5) 5. NOMINATE given specific name under
performance. the law

Q: Can you also file an action for specific performance OPPOSITE: INNOMINATE
in a personal obligation? I give that you give.
A: NO. Nobody can be can be compelled to do a I give that you do.
personal obligation because that would amount I do that you do.
to involuntary servitude which is prohibited I do that you give.
under the Constitution.
Q: What is burdensome in a contract of sale?
However in a contract of sale, aside from A: Payment of valuable consideration
rescission, specific performance is a remedy
because obligations created under this contract OPPOSITE: GRATUITOUS
are real obligations.
Q: What are the legal effects and consequences of a
Q: What are the essential characteristics of a Contract contract being reciprocal?
of Sale? A: (1) When a party fulfilled his obligation
A: (1) CONSENSUAL meeting of the minds on default by the other begins without a need of
the thing and on the price; prior demand;

GENERAL RULE: Perfected upon consent which (2) Power to rescind is implied in reciprocal
is an essential element of sale. obligations;
Even without stipulation, the parties
EXCEPTION: Involuntary sale may rescind the contract.
Basis: Law itself
(2) PRINCIPAL existence does not depend on
other contract; (3) Neither party incurs delay when neither
party performs his obligation;
dependent on other contract; Q: Can there be a valid sale without meeting of the
Example: mortgage minds?
A: YES. Example is foreclosure.

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Q: What are the kinds of contracts according to status? 3. What are the kinds of illicit objects?
A: VALID 4. What are the remedies of a buyer in case the seller
VOIDABLE fails to transfer ownership?
RESCISSIBLE 5. What are the kinds of sale of things with potential
VOID OR INEXISTENT 6. What are the kinds of future goods?
7. What are the kinds of goods based on intention?
Q: When the price is not paid, is the contract void? 8. What are the tests to determine whether one is a
A: NO. sale or an agency to sell?
9. What are the requisites of a valid price?
Q: What are the elements of a contract of sale? 10. What is the status of a contract when the price is
A: ESSENTIAL simulated?
ACCIDENTAL Q: What are the stages of the contract?
A: NEGOTIATION covers the period from the
Q: What are the essential elements of a contract of time two parties indicate their interests in the
sale? contract
concurrence of the essential elements of sale
DETERMINATE SUBJECT; which are meeting of the minds of the parties
as to the object of the contract and upon the
A thing is determinate when it can be price certain in money or its equivalent
particularly designated or physically segregated
from all the others of the same class. CONSUMMATION when the parties perform
their respective undertaking under the contract

Q: Can you have a perfected contract of sale even Q: When is a contract of sale deemed consummated?
without a determinate subject matter? A: Upon delivery and transfer of ownership to
A: YES. The object, even if its not determinate, the buyer and upon payment of the price
if it can be determinable at the time the certain in money or its equivalent.
contract is entered into. (Art. 1460)
Q: What are the kinds of sale based on the nature of
Q: What are the natural elements? the subject matter?
A: Inherent in the contract even without the A: SALE OF REAL PROPERTY
need of stipulation. It will remain in the absence SALE OF PERSONAL PROPERTY
of a contrary stipulation.
(1) WARRANTY AGAINST EVICTION Based on the value of the thing exchanged:
deprivation of the property bought COMMUTATIVE
DEFECTS (1) Sale of Tangible (Real)
(2) Sale of Intangible (Personal)
Q: What are accidental elements? Q: Can you sell a right?
A: It can there be or not, depending on the A: YES. Under Article 1347, all rights which are
stipulation of the parties. not intransmissible may also be the object of
Intransmissible rights rights recognized by law
1. What is the primary purpose of a contract of sale? itself and can be enforced but cannot be
2. What are the requisites of a valid subject matter? transferred. Example is right to vote

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Q: What is the remedy of the seller if the buyer fails to
Only TRANSMISSIBLE RIGHTS can be subject of pay the contract price?
sale. A: Civil Liability - Article 1191


Q: In sale of Real property, notarization is not required RESCISSION OF THE CONTRACT plus DAMAGES
for its validity. Contracts are only binding to the privy, - Rescission is built-in right; no need for
so why bind third person? stipulation for rescission
A: Notarization is required only for convenience
and for other purposes required by law. It - In a reciprocal obligation like in a contract
converts the documents into a public of sale, before rescission may be effected,
document. It removes additional evidentiary one party have already performed/
effort when it is notarized or a public complied with his obligation while the
document. other defaults.

Notarized Deed of Sale of Land is a requirement - The intervention of the court is not needed
to be honored by the RD and subsequently to in rescission. No need for stipulation. Right
transfer ownership. to rescind is implied in reciprocal obligation,
such that, if rescission is proper party may
Q: Sale vs. Dacion En Pago rescind without court intervention.
Creates obligations which Extinguishes obligation Criminal Liability: ESTAFA (if there is deceit)
are to deliver; to transferupon delivery of the object
ownership; to pay a price the obligation is Q: What is the remedy of the buyer if the seller fails to
certain in money or its extinguished partially or deliver the object of the contract?
equivalent completely depending on A: Ask for damages on the ground of BREACH
the value of the property OF WARRANTY AGAINST EVICTION
*Partial value of the One has to perform the obligation incumbent
property exchanged is less upon him to put the other in default.
than the value of the debt ,
then the obligation is only If the buyer does not pay yet, theres no
extinguished in so far as obligation to speak of. Rescission cannot come
the value covers , the into play.
balance remains to be
outstanding Q: What are the requisites of a valid subject matter?
*Complete - value of the A: LICIT
Payment is Either in Always in kind (object
money or its equivalent other than money) POTENTIAL EXISTENCE if it can reasonably
(more leeway in fixing the (bound with the value of come into existence for being the natural
price) the property) increment of something which already exists.

Q: What is the primary purpose of the contract of sale? Example: Future crops, young of an animal
A: To transfer ownership (delivering of the
object transfers ownership) Q: Kinds of Illicit subject matter
A: ILLICIT PER SE by its nature illegal

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ILLICIT PER ACCIDENCE - illegal because of Q: To which kind of sale do these kinds refer to? Which
provisions of law one is a future sale? Which one is present sale?
A: EMPTIO REI SPERATAE - sale of the future
Q: Can you sell something which you do not own? thing; sale of the expected thing
EMPTIO SPEI sale of a present thing because
Transfer of ownership is not required in hope exists already, whether its validated by
perfection. Therefore, you need not be the the existence of the thing is out of the question.
owner at the time of perfection. It is already a sale of a present thing.

Future goods may be objects of contract. Q: How many sales are we talking about here?
(potential existence) A: ONE SALE ONLY.

Q: Can services be the object of sale? Q: If there is a doubt as to whether it is a sale of an

A: NO. expected thing or a sale of a mere hope, in whose
Services are not determinate. There is no favor it should be resolved?
transfer of ownership of services by the person A: EMPTIO REI SPERATAE. That presumption
conducting the service. presupposes just one contract. You do not apply
that presumption to two kinds. Each will just
Q: What if the status of the contract of sale if the thing have their own presumption and therefore,
is not determinate? they will just acquire their own presumption.
ATE ELAINE: Ang alam ko INEFFICACIOUS. Haha. The fact that there is a presumption and it is
resolved in favor one means it is but one sale.
Difference of void and inefficacious:
Inefficacious contract is a perfected contact, It is further explained by the fact that we are
however, it merely failed to produce it effects. not talking about two kinds of sale when we are
talking about validity. We are just talking about
Q: What are the kinds of sale based on potential one sale but the validity depends on intention.
A: EMPTIO SPEI If in that one sale, the parties intend that the
EMPTIO REI SPERATAE object to exists, then it is a sale of an expected
thing. But if the parties did not intend the
Q: What is the basis of validity of both sales? object to exist but is perfectly valid as it is now,
A: INTENTION OF THE PARTIES. then you classify that as a sale of hope. But it
does not create two kinds of two sales.
Q: How is it dependent on intention?
A: If the parties intend that the sale of expected Q: Why is it therefore, that the doubt is resolved in
thing will only be valid if the thing comes into favor of the sale of the expected thing?
existence, then it will only be valid if the thing A: Because the sale of the expected thing is
comes into existence. Otherwise, it will not. consistent with the commutative characteristic
of sale. Exchange is of equivalent value.
On the second kind, if the intention of the Therefore, if you dont know whether the
parties is that it is valid in the sense regardless parties intended it to be a sale of mere hope or
of whether or not the thing comes into an expected thing, you go to the expected thing
existence, then you are not buying the expected because it will give parties the commutative
thing. You are just buying that hope that it will characteristic of sale. They will get something
come into existence. which is almost equivalent to what they parted.

Therefore, in all instances, that the sale of hope Hope, theres none, because its just a hope. It
is valid per intention. may or may not happen. The other party will
not get anything equivalent to what he parted.

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On the other hand, if the expected thing comes In sale, the buyer pays for the price. The agent
into existence, then he will acquire the object does not pay the price.
and he gets the equivalent of the value of what
he parted. In sale, the warranty is provided by the seller.
There is no warranty provided by the agent. But
Q: What do you mean by goods? the warrant is the warranty coming from the
A: Goods are chattels, personal but does not principal who is also the seller.
include money of legal tender in the Philippines.
In sale, theirs is freedom to negotiate as to
Q: What are the kinds of goods based on intention? terms and conditions. In agency, theres none.
A: FUNGIBLE are goods which by intention of The agent has to conform and comply with the
the parties may be substituted. instructions of the seller.

NON-FUNGIBLE goods which by intention of Q: What are the tests to determine whether one is a
the parties cannot be substituted. contract of sale or a contract of agency to sell?
Q: Classification of goods.
A: FUTURE GOODS If the relationship created is that of a seller-
Kinds: goods that are manufactured; buyer, its a contract of sale. If the relationship
goods that are raised; created is a principal-agent, its a contract of
goods that are acquired; agency to sell.
goods whose acquisition
depends upon a contingency (2) OWNERSHIP
which may or may not happen;
In the contract of the sale, the ownership is
EXISTING GOODS transferred to the buyer. However, in contract
of agency to sell, ownership does not transfer
Q: Example of sale of fungible goods. to the agent.
A: In case of fungible goods, there may be a sale
of an undivided share in the mass although the Q: What is the sale on consignment?
seller purports to sell or the buyer purports to A: Sale on consignment is the sale of goods
buy specific number or measure. through a dealer or agent. The agent on the
other hand, remits what has been sold without
This provision contemplates sale of specific obligation to acquire any liability other than the
mass that is yet to be determined. liability of the agent.

Example: any bulk sale of specific mass Q: What is a contract for a piece-of-work?
A: If the goods are manufactured especially for
The number or measure is undetermined. a customer and upon special order, and is not
readily available for general market, it is a
Example in a warehouse, you have a mass contract for a piece-of-work. Otherwise, it is a
amounted to newly harvested palay or grains, contract of sale.
then a contract of sale may be entered into for
specific weight, number or measure. Even if you Example: Shoemaker who manufactures shoes
dont know how much is that entire bulk is. based on demand. But in the ordinary course of
business, he only produces size 7, 8, and 9
Q: Contract of Sale vs. Agent to Sell nothing beyond that. If someone goes to him
A: In Contract of Sale, the ownership is and ask for a 12, that is a contract for a piece-
transferred to the buyer but in Agency to Sell, of-work because thats not available for general
its not. The agent does own the property. public. It will be specifically manufactured for

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that person. But if it is within the items in goods is more than the cash, without the intent
general market, say, 7, 8 or 9, even if its not of the parties, it is considered as BARTER.
available at that time, even if he will
manufacture it because its already out of stock, Whereas, if the value of the cash is equal to
it remains to be a contract of sale because the value of the goods or if the cash is more than
fact remains that 7, 8 or 9 are available for the the value of the goods, then that is a considered
general market. But if you are asking for a 2 or a as a CONTRACT OF SALE, without intention. But
12, which is naturally not available, and you are if theres intention, regardless of the valuation,
producing it or manufacturing it upon special it is always considered as CONTRACT OF SALE,
order for the customer, that is a contract for a or if the intention is of that BARTER.
Q: What are the requisites of a valid price?
Q: What is barter? A: It must be CERTAIN or at least
A: There is barter if the properties exchanged ASCERTAINABLE.
are a combination of money and object. It must be REAL.
It must be in MONEY or its EQUIVALENT.
Q: Is it always the case that the value of the thing is It must not be UNCONSCIONABLE or it must not
greater than value of the money? The property to be be GROSSLY INFERIOR TO THE VALUE OF THE
bought is a car, in the amount of P1M and the THING.
consideration to be given is a combination of jewelry
worth of P600k plus cash of P400K. What do we have Q: What is a real price?
there? A: The price is real when at the time of the
A: If the consideration of the contract consists perfection of the contract, there is every
partly in money and partly in another thing, the intention on the part of the buyer to pay and
transaction shall be characterized by the every expectation in the part of the seller to
manifest intention of the parties. receive payment.

FIRST RULE: Determination of the intention of Q: When do you consider a price certain?
the parties. A: (1) If it is CLEAR and UNEQUIVOCAL.

When the name of the contract given by the (2) If it is not clear and unequivocal, it is still
parties is different from their manifest considered certain when it is reference to
intention, the latter shall prevail. another thing certain.

SECOND RULE: If the intention of the parties (3) If the determination is left upon the
could not be determined, then, consider the judgment of a specified person/s.
value of the thing given as a part of the
consideration. Q: Can the parties designate or specify either of them
to fix the price?
Without intention of the parties, it would be A: YES.
BARTER. It is CONTRACT OF SALE if the value of
the money is greater than or equal to the value Q: Lets assume that the parties designated a third
of the property. party to fix the price. If this third party fixes the price,
do you need consent for that price?
Q: If the value of the jewelry is P500K and the money A: NO.
is P500K, without intent, what kind of contract is that?
A: CONTRACT OF SALE. If the designated party is a THIRD PARTY, the
price fixed is considered certain and no
If the value of the property is greater than the subsequent consent is needed, unless there is a
value of the money, for example, the property ground to impugn it.
is P600K and the cash is P400K, the value of the

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Q: If the designated party is either of the contracting
parties, do you need subsequent consent? Q: What is inadequacy of price?
A: YES. One of them should consent to the A: Insufficiency to satisfy the real value of the
price. The code itself requires a subsequent object.
consent. If one of the contracting parties was
designated to fix the price, there is no similar Q: Will gross inadequacy of price affect the validity of
requirement if it is a third party. the contract of sale?
Q: If a third party fixes the price but the parties do not
want to take, what is your remedy? EXCEPTIONS: (1) Donation it is replace by a
either by fixing it with an equivocal price or by (2) Consent is vitiated voidable contract
designating another third person to fix it for (3) The price is shocking to conscience of the
them or by designating either of them, subject court;
to consent by the other contracting party as to (4) Lesion on the property of the ward (1/4)
the price fixed.
If the gross inadequacy of price shocks the
Q: What are the grounds to impugn the price? conscience of the court, the court will reduce
A: BAD FAITH the price.
VIOLATION OF THE STANDARDS or Q: Is that an absolute rule? That when it is shocking to
INSTRUCTIONS SET BY THE PARTIES the conscience of the court, then it affects the contract
of sale?
The grounds to impugn are grounds against
third person not against either party. A: NO. Except when there is a right of
redemption. Even if it is unconscionably low,
Q: When do you go to court to impugn the price fixed
the court will not touch it because it actually
by either of the contracting parties?
A: Only when there is a disagreement as to the gives lieu way to the party to redeem it.
price fixed. Your cause of action is DISPUTE. If
Q: When do you consider a price to be grossly
one of the parties agrees and the other does
not, the remedy is GO TO COURT. inadequate?

Q: Can you designate a person to fix the subject A: At the PERFECTION OF THE CONTRACT.
Q: What is a simulated contract?
A: NO. The essence is different from the third
A: Simulated contract happens when the parties
party fixing a price. In fixing of the price, if a third
either do not intend to be bound by the
person is designated to fix the price and the third
agreement or that their true agreement or
person fixes the prices, regardless of fortuitous event,
intention is concealed. Not necessarily
the price is fixed. Therefore, the contract is perfected.
Since money is generic, you can pay the price.
Therefore from that definition, we classify simulation
That it not the same in case of subject matter. The
Q: What are these?
subject matter requires that it should be specific to
A: Absolute simulation thats where the
perfect a contract of sale. For price, it has to be certain
parties do not intend to be bound by their
to perfect the contract of sale. In subject matter, if a
third party fixes the subject matter beyond the capacity
of the contracting parties to comply, then in effect, it is
Relative simulation where parties conceal
not a specific subject matter. No perfected contract of
their true agreement.
sale. In case of fortuitous event, the subject matter is
lost, you dont have a subject matter anymore.

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Q: If the price of the contract is simulated, what is the A: Yes. So the contract of sale remains to be
status of the contract? void regardless whether it is absolutely or
A: There must be a real price. If it is not the relatively simulated. But the contract may be
intention of the parties because their intention validated as long as it is either by donation or
is concealed, how can you say that there is a some other contract or whatever is intended by
real price? the parties.

A real price is something that the parties really Q: What is the status of the contract of sale?
intend to exchange. If youre saying that in a A: VOID for being simulated. But the contract
contract of sale, a relative simulated contract of can be reformed based on the intention. If it is
sale, it is not the intention of the party to really relatively simulated, it can be validated as a
pay that price, then theres no real price to donation or some other contract.
speak of. If we dont have a real price, then we
dont have a valid price for a contract of sale. Q: When do you consider a price certain?
A: If it is clear and unequivocal. If it is not clear
Q: What made you think that this may qualify as still a and unequivocal price, it can still qualify as a
valid contract of sale? certain price. To make it certain, there are rules
A: In Sales, there are specific requirements that to follow:
may not be squarely applicable or squarely (1) It is determinable by making reference to
under the provisions of the Obligations and another thing which is certain; or
Contracts. (2) Determination is left to the judgment of a
specified person or persons;
Relative Simulation in the context of the (3) It is certain with reference to certain fact or
requirements of a contract of sale, and we facts;
know that since there is no intention to pay that
real price, we dont have a real price, and if we Q: Give me an example of price made certain by
dont have a real price, we dont have a valid making reference to another thing which is certain.
price, and if we dont have a valid price, then A: You are selling your house for a price
we dont have a valid contract of sale. equivalent to the selling price of that house
across my house.
Q: Do we still have a valid contract of sale?
A: NO MORE. And therefore, there is a Your price becomes certain as well because that
justification for the law not to qualify simulation price is certain.
into absolute or relative. You have to specify also the other thing that
you want to make reference of with respect to
The law in itself is very clear. If it is simulated in your price.
effect... If there is no real price, then we fail to
meet one of the essential elements of a valid Q: Example of a price made certain with reference to
contract of sale, therefore, there is no certain fact or facts.
perfection. A: A particular exchange of market.
In sale of shares, you can fix your price by
However, some are confused by subsequent actually making reference to its price that it will
paragraph in that same provision which have on a particular day on a particular
provides that if the price is simulated, the exchange or market. And you can also set either
contract is void, but it may be considered as a that actual price. It may higher or lower for than
donation or some other contract to which what will be fixed on that day. The point is,
something is a qualification may be a relatively there may be movement in the prices but you
simulated contract is valid. are making it certain by fixing it, depending on
your agreement, either higher or lower or the
Q: Is that correct? actual price that it will have on that particular

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A: It is perfected as long as the acceptance is
Q: If we fail to make the price certain, what is the either received or reached the knowledge of
status of the contract? the offeror.
produce effect. It cannot be considered as VOID Q: What if there is a withdrawal either of the offer or
because the contract is perfected. Remember, the acceptance? When it is considered a valid
the contract is perfected from the moment withdrawal?
there is a certain price or at least the price is A: It can be withdrawn before the knowledge of
ascertainable. That perfected contract of sale is offer or acceptance.
however CONDITIONAL because your price is
merely ASCERTAINABLE. You cannot have a void Q: When does withdrawal becomes effective in
and perfect contract at the same time. To avoid correspondence? Is it also through receipt of the
inconsistency, the Code used the word withdrawal or knowledge of the withdrawal?
Q: If we have an inefficacious contract of sale, what absolute offer, therefore, there can never be an
are the remaining obligations by the parties? acceptance for an offer which in itself not
A: FIRST: If the subject matter was not absolute. No perfected contract of sale.
A: It is effective not upon the knowledge of
SECOND: If the subject matter has been withdrawal or the receipt of withdrawal rather
delivered but no theres no appropriation yet from the mailing itself of the correspondence,
on the part of the buyer. saying that the withdrawal has been made.
The seller may demand for its return. Manifestation of the act to withdraw by
The cause of action will be unjust correspondence MAILING.
enrichment. (Quasi-contract)
Q: What are the contracts of sale that has to be in
THIRD: If theres already appropriation. writing?
The buyer will pay for the reasonable A: (1) Sale of real properties, regardless of the
price. value;
Fair Market Value (2) Sale of personal properties, it has to be in
writing if the value of the property is P500.00 or
Q: When is a contract perfected? more;
A: From the moment of the meeting of the (3) Regardless of whether the amount of the
minds upon the thing which is the object of the property or the nature of the property, if the
contract and upon the price certain. contact is to be enforced after more than a
year, it has to be in writing;
Q: If you are in a face to face negotiation, when do you
consider a contract to be perfected? Q: If you accept an offer of an advertiser, is there a
A: There must be a definite offer and definite perfected contract of sale?
acceptance. A: NO. The advertisement is not an offer but
merely an invitation to offer.
There must be
ABSOLUTE/UNQUALIFIED/UNCONDITIONAL You have to be accepted by the advertiser
acceptance. before you can perfect a contract of sale.

If it is a conditional acceptance, it becomes a Q: When is sale by auction perfected?

COUNTER-OFFER. A: A sale by auction is perfected when the
auctioneer announces its perfection by the fall
Q: In case of correspondence, when is the contract of the hammer, or in other customary manner.
deemed perfected?

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Q: Can the auctioneer withdraw an item on sale? the thing shall not pass to the purchaser until
A: Yes, if the auctioneer has the right to reserve. he has fully paid the price.
Reservation reserving it to be withdrawn any
time prior to the acceptance or fall of the Q: Classification of Constructive Delivery.
hammer. (1) SYMBOLICA delivery of certain symbols or
things representing the thing being
If there is no announcement that the auctioneer delivered (ex. Keys or titles)
can withdraw the item any time, the moment it
is offered for sale and there are already bidders, (2) INSTRUMENTAL delivery of the
the auctioneer has no other choice but to instrument of conveyance to the grantee by
accept them. the grantor (deeds)

Q: What do you mean by puffer? (3) TRADICION BREVI MANU when the
A: Puffer is an agent or any person hired by a grantees continuous possession over the
seller or auctioneer in an auction sale who bids thing delivered but now under a title of
on behalf of the seller but not bound by the ownership
(4) TRADICION LONGA MANU pointing of the
It is not intended for fraud. thing (movable) within the sight by the
grantor to the grantee by which at the time
Q: Can there always be a puffer? of the transaction, the thing could not be
A: NO. placed yet at the hands of the buyer

Q: When can you only have a puffer? (5) TRADICION CONSTITUTUM POSSESSORIUM
A: (1) If there is a notice that there are puffers; owners continuous possession of the
(2) If the right to bid on behalf of the seller is property he had sold to another person
reserved and that reservation is announced to and his present possession is no longer that
all the bidders. of an owner, but under capacity like that of
a lessee, pledge or depository
PURPOSE: bidders will be forewarned that there
are people from this gathering that may jack (6) BY OPERATION OF LAW delivery of the
the price up so that they may have bigger things by operation of law such as intestate
returns. succession where inheritance is transferred
Q: If puffers are hired and the price becomes to the heir upon the descendant
extravagant, can the sale be void?
A: YES on the ground of FRAUD if the winning (7) QUASI-TRADICION delivery of the
bidder was not informed of the presence of the incorporeal property like rights and credits
Q: Can the seller enforce its right in an option
Q: Who administers the auction? contract?
A: SHERIFF. (for judicial auction) A: NO.

For extrajudicial sale: NOTARY PUBLIC Q: What right does the seller have under the option
Q: When do you transfer ownership? A: NONE.
A: Ownership is transferred upon the delivery of
the thing whether actual or constructive. Q: Who can enforce fulfillment in an option contract?
EXCEPTION: Pactum Reservatii Domini
reservation by the parties that the ownership of Q: How can the buyer enforce its right in an option

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A: If he accepted the offer within the period If the contract has been perfected and the
given. object has been delivered, the loss will be borne
by the buyer who is now the new owner.
Q: What if there is no stipulated period, when can the
buyer enforce its right? Is the seller forever bound to Q: The issue is whether who will take the risk of loss
wait for the buyer to make the decision? after perfection and prior to the delivery if the object
A: If there is no stipulated period, time will be is loss?
fixed by the court so that the seller will not be A: SELLER. Since the thing is still in his
forever obligated to wait. possession and that the buyer, prior to the
delivery, has no real right over the thing.
If there is a stipulated period, then the right or
the privilege of the buyer is bound by that time, Q: But has the buyer have right at all?
such that if he exercises his right within the A: YES. Right to the fruits.
stipulated period, then the seller has no option
but to comply. Q: If that is the case, should the buyer also bear some
portion of the risk of loss in case of loss of the object
Q: Now, if the buyer, on the other hand, exercises his prior to the delivery but after perfection of the
right after the stipulated period, assuming that the contract? Who shall bear the risk of loss?
seller has not yet sold the property, can the seller be A: SELLER. Under the principle or Res Perit
compelled to sell? Domini which means owner bears the risk of
A: NO MORE. Because the obligation ends if the loss.
time has already lapsed, even if there is a
consideration for that purpose. There is only a Q: What if the situation is the thing is lost due to
right of exact fulfillment of the obligation if the fortuitous event, prior to the delivery but after
time has not expired. perfection?
A: If the thing is lost through a fortuitous event
Q: What is the right of the buyer, if during the time without the fault of the seller/debtor, the obligation of
stipulated, the seller doesnt want to comply? Can the the seller to deliver the object is extinguished.
buyer compel the seller?
A: NO. Option to buy is an obligation to do, not Q: Should the buyer still have to pay?
to give, therefore, the seller cannot be A: NO.
compelled through specific performance. It may
result to an involuntary servitude. The proper Q: Can the seller file an action to compel the buyer to
remedy is to file an action for damages on the pay?
ground of breach of contract. A: NO.

Q: What is the object of an option contract? Q: Will the extinguishment of the obligation to deliver
A: The object of the contract which is property to be on the part of the seller carries the extinguishment of
bought. Time is not the subject matter. the obligation of the buyer to pay?
A: YES. Under the law on sales, the general
Option is a privilege given to a person to buy, principle is that owner bears the loss.
not to buy or sell, because the seller has no
right under this circumstance except the One of the essential characteristics of a contract
promise to buy. The only party who can enforce of sale when it comes to enforcement of the
its right under option contract is the buyer. obligation is that it is reciprocally demandable.

Q: When the obligation is lost prior to the delivery, The parties have corresponding obligations,
who shall bear the loss? where the obligation of one is dependent upon
A: Seller. The obligation has not yet delivered the other, such that, without the performance
the thing to the buyer. of either party, the other one cannot be
compelled to perform.
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- If the sale does not materialize, the
Q: Even if the obligation of the buyer is not earnest money must be returned,
extinguished, can you compel the buyer to pay? unless a contrary agreement had been
A: NO. Because the seller has not performed stipulated.
and will not be able to perform his obligation
and therefore, the buyer cannot be put in Q: Can the parties stipulate that they can retain
default. whatever they have received, taking into
consideration the concept of unjust enrichment?
If that is the case, just reconciling this concept A: YES.
in the Obligations and Contracts, you cannot
compel the buyer to pay; in essence, it also GENERAL RULE: If the sale does not materialize,
carries with extinguishment of the obligation. then the earnest money delivered to the seller
must be returned.
Under the law on Sales, since the buyer does
not own yet the object, then he cannot bear the EXCEPTION: Unless there is a contrary
risk loss of the object. The seller must bear the stipulation.
risk of loss of the object.
Q: What are the remedies of the seller in case of sale
The buyer cannot be compelled to pay after the of personal property payable in installments?
extinguishment of the obligation because it will A: (1) Exact fulfillment of the obligation, should
violate the principle of unjust enrichment. the vendee fail to pay;

The seller cannot unjustly enrich at the expense (2) To cancel the sale, should the vendees
of the buyer. If the obligation of the party is failure to pay cover two or more installments;
extinguished, with more reason, he cannot
benefit from it by even getting payment from (3) Foreclose the chattel mortgage on the thing
the buyer. sold, if one has been instituted, should the
vendees failure to pay cover two or more
Q: What is an earnest money? installments.
A: An earnest money is a consideration, an
advance payment and is considered part of the In this case, he shall have no further action
consideration. It proves perfection of the against the purchaser to recover any unpaid
contract. balance of the price.

It is different from option money. Any agreement to the contrary shall be void.

OPTION MONEY separate and distinct Q: When do you exercise exact fulfillment or specific
consideration from the purchase price; performance?
- Even if option money is paid by the A: When there is a default in one installment.
would-be buyer, he is not bound to buy
the thing; If there is failure to pay two or more
- If the buyer decides not to buy the installments, not necessarily consecutive, the
thing, he cannot recover the option remedy would be cancellation of sale or
money he paid as consideration for the foreclosure of mortgage.
contract of option;
Q: X entered into a contract of sale of a car with Y in
EARNEST MONEY part of the purchase price; the amount of P1M, downpayment of P500K and the
- When it is given, the buyer is bound to remaining balance is payable in ten equal monthly
pay the balance of the agreed purchase installments. Now, to ensure the payment of that
price; obligation, Y collateralized the car owned by his
parents. He unfortunately failed to pay two monthly

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installments, what are the remedies of X in this there is non-payment of one month. You are
circumstance? Can you foreclose that car? still within the range of your remedies.
not the proper remedy because the law provides that Q: Instead of a collateral owned by the parents, the
foreclosure on the chattel mortgage constituted on the collateral is now the object of the sale. Therefore,
subject of the sale. upon non-payment of two or more installments, all the
three remedies are now available for you. Instead of
The subject of the sale is the car you bought. availing the third remedy, what you did is you filed for
Chattel mortgage should be constituted on that an action for specific performance. Judgment was
car so that you can avail the third remedy. rendered in favor of the buyer and therefore, a writ of
execution was granted in favor of the buyer. Part of
If that is not available because you have not the writ and in enforcement of the writ, the buyer
constituted that chattel mortgage on the object foreclosed the mortgage. Can he do that?
of the sale, then your option is only cancellation A: YES.
of the sale.
Q: In case of deficiency, can he demand for deficiency
Q: Since in the example, the proper remedy is judgment?
cancellation, the seller went on to cancel the sale. A: YES.
What is the necessary effect of cancellation and or
rescission? Q: Let us assume that the buyer availed the third
A: MUTUAL RESTITUTION. Whatever is remedy. Upon foreclosure, the amount is deficient and
delivered shall be returned. The car should be he asked for a deficiency judgment.
returned to the seller and the money should be A: NOT ANYMORE.
returned to the buyer.
Q: What is the difference between the first where you
Q: Can the parties stipulate that the installment can ask for deficiency judgment in a foreclosure and
cannot be returned? here, where you are also asking for a deficiency
A: YES. judgment in the foreclosure?
A: In the first case, what is availed by the seller is
In case of cancellation of sale and there is a specific performance. In the second case, it is
stipulation not to return the installment, that is foreclosure that was availed.
perfectly acceptable and to be enforced by the
parties. Q: If you availed the specific performance, can you
Non-return of the installment can be stipulated A: YES because that is separate from the
by the parties as long as the amount is not foreclosure as a remedy under this provision. When you
unconscionable. ask for specific performance and when a judgment is
given in your favor, you have all the rights under the law
But even if there is a stipulation of the parties, to enforce it which includes the right to foreclose
the installment cannot be returned if the whatever is available for foreclosure not necessarily on
amount is unconscionable. the object itself. It just so happens that in the example,
what can be foreclosed is also the object.
Q: There was cancellation under the circumstance and
when the car was returned, it has so deteriorated that Q: Now, can you get for a deficiency of payment?
the value is already way below its the value at the A: YES because again, deficiency is a
time it was delivered. Can the seller demand for the consequence of the deed of execution. It would
deficiency? have been a different story if what is available is
the third remedy, because you will then be
A: YES. The remedies are alternative. Specific restricted by the restrictions of deficiency there.
performance is also available because here,

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