REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS

Law on Sales

1. Contract of Sales is a contract whereby one of the contracting parties, known as the seller or vendor,
obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party,
known as the buyer or vendee, obligates himself to pay therefore a price certain in money or its
equivalent.

2. Contracting Parties in a Contract of Sale

a. Seller or Vendor refers to the person who obligates himself to transfer the ownership of and to
deliver a determinate thing.
b. Buyer or Vendee refers to the person who obligates himself to pay therefore a price certain in
money or its equivalent.

3. Essential elements of the contract of sale – These are elements necessary for validity and
perfection of contract of sale.

a. Subject matter which should be a determinate thing

i. Requisites of subject matter of a contract of sale

1. It must be within the commerce of men.

2. It must be not contrary to law, morals, good customs, public order or public
policy.
3. It must be determinate.
4. It must be owned by the vendor at the time of delivery.

ii. Things that may become the subject matter of a contract of sale

1. Existing goods owned or possessed by the seller.

2. Goods to be manufactured, raised or acquired by the seller after the perfection of
the contract of sale or “future goods” subject to the condition that it must
materialize. If the future things do not materialize, the contract of sale will
become inefficacious or void for absence of subject matter which is an essential
element of contract of sale.
3. Goods whose acquisition by the seller depends upon the contingency which may
or may not happen.
4. Things subject to resolutory condition which if happens, the contract of sale will
be extinguished.
5. Hereditary rights
6. Undivided interest in co-owned property which will result to co-ownership on the
part of buyer and seller.

iii. Things not allowed to become the subject matter of a contract of sale making the
contract null and void

1. Those contrary to law, morals or public policy.

2. Those outside the commerce of men.
3. Future inheritance
4. Vain hope

iv. Distinctions between emptio rei speratae and emptio spei

1. Emptio rei speratae is the sale of future thing while emptio spei is a sale of
hope or expectancy.
2. Sale of future harvest is emptio rei speratae while sale of lottery ticket No. 113
is emptio spei.
3. In emptio rei speratae the thing expected will definitely come into existence, but
its quality or quantity unknown; while in emptio spei it is not certain that the thing
will exist much less its quantity or quality.
4. Emptio rei speratae is subject to the condition that the thing should exist, so that
if it does not, there will be no contract of sale by reason of the absence of an
essential element of subject matter while emptio spei produces effects even
though the thing does not come into existence because the subject matter is the
hope itself.

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 b. Price certain in money or its equivalent

i. Requisites of price in a contract of sale

1. It must be certain.
2. It must be real
3. It must not be fictitious.

ii. Instances when the price is certain

1. If the parties have agreed upon a definite amount for the sale.

2. If it be certain with reference to another thing certain.

3. If the determination of the price is left to the judgment of a specified person or

persons.

a. Remedies of the injured party if:

i. The third person is unable or unwilling to fix the price.

1. The contract is inefficacious or null and void requiring
declaration of nullity.

ii. The third person acted in bad faith or by mistake.

1. The injured party may ask the court to fix the reasonable
price.

iii. The third person is prevented from fixing the price or terms by
fault of the seller or the buyer.
1. The injured party may ask for damages.

4. If the price is fixed by the court which price may no longer be changed by the
contracting parties.

5. If the price fixed is that which the thing sold would have on a definite day, or in a
particular exchange or market, or when an amount is fixed above or below the
price on such day, or in such exchange or market, provided said amount is
certain.

6. If the price is fixed by one of the contracting parties and accepted by the other.

iii. Effects of inadequacy of price in a contract of sale

1. It does not affect a contract of sale, except as it may indicate a defect in the
consent which makes the contract voidable requiring annulment of contract.
2. It renders the contract one of donation if that is the real intention of parties. Thus,
it will require reformation of instrument.

iv. Effects of simulated price in a contract of sale

1. If the price is absolutely simulated, the contract of sale is null and void requiring
declaration of nullity.
2. It the price is relatively simulated, the intent of the parties is hidden requiring
reformation of instrument.

c. Consent of the contracting parties on the determinate thing and the price certain in
money

i. Moment of perfection of contract of sale

1. At the moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price.

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 ii. Moment of perfection of contract of sale by auction

1. When the auctioneer announces its perfection by the fall of the hammer or
in any other manner.
a. Rights of auctioneer and highest bidder before the perfection of
contract of sale by auction
i. Before perfection, any bidder may retract his bid.
ii. Before perfection, the auctioneer may generally withdraw the
goods from the sale unless the auction has been announced
without reservation by auctioneer.
b. Rights of auctioneer and highest bidder after the perfection of
contract of sale by auction
i. After perfection, the winning bidder cannot retract his bid.
ii. After perfection, the auctioneer cannot withdraw the goods.
c. Requisites before auctioneer may participate in bidding or auction
i. The right to bid must have been reserved expressly by or on
behalf of the seller.
ii. The right to bid must not be prohibited by law or stipulation.
iii. Notice must be given that the sale is subject to a right to bid by or
on behalf of the seller.
d. By bidders or puffers refer to persons employed by the seller to bid in
his behalf, the purpose of which is to raise the price, but the said persons
are not in themselves bound by their bids. The employment by the seller
of by-bidders or puffers without notice to the other bidders may make the
perfected contract of sale voidable because the consent of the highest
bidder is vitiated by causal fraud.

4. Natural elements of the contract of sale – These are elements which are presumed to exist in a
contract of sale unless validly waived by the contracting parties.

a. Warranty against eviction

b. Warranty against hidden defects
c. Warranty against non-apparent and unregistered servitude or encumbrance
d. Warranty for merchantability

5. Accidental elements in the contract of sale – These are elements which do not exist in a contract of
sale unless provided by the contracting parties.

a. Place of delivery and payment

b. Time of delivery and payment
c. Terms or conditions of payment
d. Interest of the price

6. Characteristics of a contract of sale

a. Principal – It can exist by itself without being dependent upon another contract.
b. Consensual – It is perfected by mere consent upon the price certain and determinate thing
except in case of sale of a piece of land by the agent in the name of the principal which is a
formal or solemn contract which requires that the authority of the agent to sell the land must be
in writing for the contract to be valid.
c. Bilateral – The parties are bound by reciprocal obligations.
d. Onerous – Valuable considerations are given by both parties to acquire rights.
e. Commutative – The parties exchange almost equivalent values.
f. Nominate – It has special name given to it by law.

7. Distinctions between contract of sale and dacion en pago

a. In sale, there is no pre-existing credit, while in dacion en pago, there is pre-existing credit.
b. A sale creates obligations while dacion en pago extinguishes obligations.
c. In sale, there is greater freedom in fixing the price, while in dacion en pago, there is less
freedom in fixing the price because of the amount of the pre-existing credit which the parties
seek to extinguish.
d. In sale, the cause or consideration is the price from the seller’s point of view, and the delivery of
the object from the buyer’s view point, while in dacion en pago, the cause or consideration is
the extinguishment of the obligation, from the debtor’s point of view and the delivery of the
object given in place of the credit, from the creditor’s point of view.
Note: Both contract of sale and dacion en pago are governed by Law on Sales.

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 8. Distinctions between contract of sale and payment by cession

a. In sale, there is no pre-existing credit while in payment by cession, there are pre-existing
credits.
b. A sale creates obligations while payment by cession extinguishes obligations.
c. In sale, the cause or consideration is the price from the seller’s point of view, and the delivery of
the object, from the buyer’s point of view while in payment by cession, the cause or
consideration is the extinguishment of the obligation from the debtor’s point of view and the
assignment of the things to be sold from the creditor’s point of view.
d. In sale, there is greater freedom in fixing the price while in payment by cession there is less
freedom in fixing the price because of the fixed amount of the pre-existing credits which the
parties seek to extinguish.
e. In sale, the buyer becomes the owner of the thing transferred upon delivery while in cession,
the creditors do not become the owners of the property assigned to them but are merely given
the right to sell such property and apply the proceeds to their claims.
f. Contract of sale is governed by Law on Sales while payment by cession is governed by
Financial Rehabilitation and Insolvency Act, a special law.

9. Distinctions between contract of sale and contract for a piece of work

a. It is a contact of sale if it is for the delivery at a certain price of an article which the vendor in
the ordinary course of business, manufactures or procures for the general market, whether the
same is on hand or not while it is a contract for a piece of work if the goods are to be
manufactured especially for the customer upon his special order and not for the general market.
b. Contract of sale of movable property with a price of at least P500 or sale of immovable
regardless of price is covered by Statute of Fraud while contract for a piece of work at a price
of P500 is not covered by Statute of Fraud.

10. Distinctions between contract of sale and contract of barter

a. In a contract of sale, the cause is cash while in a contract of barter, the cause is a noncash
asset.
b. Contract of sale of movable property with a price of at least P500 or sale of immovable
regardless of price is covered by Statute of Fraud while contract of barter of movable with
price of at least P500 or barter of immovable regardless of price is not covered by Statute of
Fraud.

11. Rules for determining whether a contract is one of sale or barter if the cause is a combination of
cash and noncash asset.

a. Determine the manifest or evident intention of the parties.

b. If the evident intention of the parties is not present, apply the following rules:
i. The contract is one of barter if the value of the noncash asset given as part of the
consideration exceeds the monetary consideration.
ii. The contract is one of sale if the monetary consideration is more than the value of the
noncash asset given as part of the consideration.
iii. The contract is one of sale if the monetary consideration is equal to the value of the
noncash asset given as part of the consideration.

12. Distinctions between contract of sale and contract to sell

a. In contract of sale, ownership passes to the buyer upon delivery while in contract to sell, the
title to the goods does not pass to the buyer until some future time and oftentimes upon
payment of the price.
b. In contract of sale, the risk of loss or damage to the goods upon delivery is on the buyer, under
the rule “res perit domino”, or the thing perished with the owner; while in contract to sell, the
risk is borne by the seller after delivery based on the same principle that the thing perishes with
the owner.
c. In contract of sale, the non-payment of the price is a resolutory condition while in contract to
sell, the payment in full of the price is a suspensive condition.

Note: The rule on double sale applies only if both contracts are of sale but it is not applicable to contract to
sell.

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 13. Distinctions between contract of sale and agency to sell

a. In sale, ownership passes to the buyer, while in agency to sell, ownership is retained by the
principal.
b. In sale, the buyer pays the seller, while in agency to sell, the buyer pays the agent and the
latter transmits the money to the principal.
c. In sale, the goods are delivered by the seller to the buyer while in agency to sell, it is delivered
by the agent to the final consumer.
d. Contract of sale is governed by law on sales while agency to sell is governed by law on
agency.

14. Principles on sale of an undivided share of a specific mass of fungible goods though the seller
purports to sell and the buyer purports to buy a definite number, weight or measure of the
goods in the mass, and though the number, weight or measure of the goods in the mass is
undetermined.

I. If the quantity, number, weight or measure, of the mass is more than the quantity sold, the parties
shall become co-owners of the mass.
II. If the quantity of the mass is less than the quantity sold, the buyer becomes the owner of the whole
mass, with the seller being bound to make good the deficiency from goods of the same kind and
quality, unless a contrary intent appears.

15. Distinction between Bilateral promise to buy and sell and Unilateral promise to buy or sell

a. Bilateral promise to buy and sell is as good as perfected contract of sale while unilateral
promise to buy or sell accepted by the promissee is binding only if supported by option
money.
b. Policitacion refers to unilateral promise not accepted by the promisee, therefore, it does not
produce any effect.

16. Distinctions between option money and earnest money or arras

a. Option money is proof of perfection of contract of option while earnest money is proof of
perfection of contract of sale.
b. Option money is not part of the purchase price while earnest money is part of the purchase
price.
c. Option money is intended to reserve the property within the promised period while earnest
money is intended as down payment on the contract of sale.

17. Moment of obtaining personal rights by the buyer over the fruits of the determine thing sold in a
contract of sale

a. From the moment of perfection of contract of sale

18. Effect of the complete loss of the object of the contract of sale before the perfection of the
contract or at the moment of perfection of contract of sale

a. The contract of sale is null and void for absence of essential element of subject matter.

19. Remedies of the buyer in case of the partial loss of the object of the contract of sale at the time
of the perfection of the contract of sale

I. Withdrawal from the contract or rescission.

II. Demanding the remaining part and paying its proportionate price.

20. Party who shall bear the risk of the complete loss of the object of the contract of sale after
perfection of contract of sale but before delivery of the subject matter

a. Seller based on the concept of Res perit domino which means that the thing perishes with the
owner
b. Buyer on the basis of Provision of the Civil Code.

21. Effects of the complete loss of the object of the contract of sale after perfection of contract of
sale and after delivery of the subject matter

a. The buyer shall suffer the risk of loss.

b. The buyer must pay the price.

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 22. Contracts covered by Recto Law

a. Installments sales of personal property

b. Contracts purporting to be leases of personal property with option to buy, when the lessor has
deprived the lessee of the possession or enjoyment of the thing

23. Remedies of vendor or lessor in Recto Law

a. Sole remedy if the vendee or lessee fails to pay a single installment

i. Exact fulfillment of the obligation with right to recovery for deficiency.

b. Alternative remedies if the vendee or lessee fails to pay two or more installments
i. Exact fulfillment of the obligation with right to recovery for deficiency.
ii. Cancel the sale should the vendee fails to pay two or more installments resulting to
mutual restitution. However, the vendor may retain the installments already received if
there is agreement to that effect provided such agreement is not unconscionable.
iii. Foreclose the chattel mortgage on the thing sold, if one has been constituted without
right to recover any deficiency. Any stipulation for recovery of deficiency is null and void.

24. Rights of the Buyer in Sale of residential property in installments governed by RA 6552 or
Maceda Law

a. Right to a grace period from the date the installment became due with no interest which
can be exercised only once every five (5) years.

i. For buyer who has paid at less than two years of installments, the minimum grace period
is 60 days.
ii. For buyer who has paid more than two years of installments, the grace period is one
month for every year of installment paid. (One month per year of installment paid)

b. Right to additional 30 days but with interest, after the expiration of the initial grace period,
before the seller can cancel the contract by notarial act.

c. Right to cash surrender value in case of cancellation by seller.

i. For buyer who has paid less than two years of installments, he is not entitled to any cash
surrender value.
ii. For buyer who has paid two to five years of installments, he is entitled to 50% cash
surrender value.
iii. For buyer who has paid more than five years of installments, he entitled to an additional
five per cent every year aside from the initial 50% but not to exceed ninety per cent of
the total payments made.

25. Rights of Buyer of Subdivision or condominium unit under PD 957 also known as Subdivision
and Condominium buyer's Protective Decree

a. In case of noncompliance by the developer with the plan, the buyer may suspend payment of
the price and ask for the cancellation of contract with corresponding demand for the return of
the price he has paid.
b. The developer shall pay the real property tax before transfer of ownership to buyer.
c. The developer can only collect fees for registration of sale from the buyer.

26. Persons incapacitated to enter into a contract of sale

a. Those suffering from absolute incapacity

i. Minor
ii. Insane
iii. Demented
iv. Deaf-mute who do not know how to write

1. If only one party is incapacitated, the contract of sale is voidable.

2. If both parties are incapacitated, the contract of sale is unenforceable.

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 b. Those suffering from relative incapacity

i. Husband and wife

1. As a general rule, the contract of sale between husband and wife is null and void.

ii. Exceptional instances when husband and wife may validly sell to each other

1. If there is prenuptial or ante-nuptial agreement of complete separation of property

2. If there is judicial separation of property by reason of legal separation

27. Persons who are prohibited from acquiring by purchase, even at public or judicial auction, sales
in legal redemption, compromises or renunciation
a. The guardian, the property of the person or persons under his guardianship.
b. Agents, the property whose administration or sale may have been entrusted to them, unless the
consent of the principal has been given.
c. Executors and administrators, the property of the estate under administration.
d. Public officers and employees, the property of the State or GOCC under their administration.
e. Justices, judges, prosecuting attorneys, clerks of court and other officers and employees
connected with the administration of justice, the property and rights in litigation.
Note: The contract of sale is null and void because it is contrary to law.

28. Obligations of the vendor or seller

a. To transfer the ownership of the thing sold at the time the subject matter should be delivered.
b. To deliver the determinate thing sold including the accessions and accessories in the condition
in which they were upon the perfection of the contract.
c. To warrant the thing sold against eviction, hidden defects and non-apparent and unregistered
encumbrances.
d. To take care of the thing sold with the diligence of a good father of a family unless the law or the
stipulation of the parties requires another standard of care.

29. Obligation of the vendee or buyer

a. To pay the price certain in money or its equivalent on the date agreed upon.

30. Delivery is a mode of acquiring ownership whereby the object of the contract is placed in the control
and possession of the vendee. It is the act that transfers ownership from seller to buyer in a contract of
sale. However, the contracting parties may agree that ownership will be transferred from the seller to
the buyer by any other acts such as full payment of the price.

31. Types of Delivery

a. Actual delivery
b. Constructive delivery

32. Examples of constructive deliveries

a. By legal formalities – When the same is made through a public document, the execution
thereof shall be equivalent to the delivery of the thing sold. It applies to both movable and
immovable property.

b. Symbolic delivery (traditio simbolica or traditio clavium) – This is delivery that takes place
by delivering the keys of the place or depository where the movable is stored or kept.

c. Traditio longa manu – It is the delivery of a movable by mere consent or agreement of the
parties if the thing cannot be transferred to the possession of the vendee at the time of sale.

d. Traditio brevi manu – It is a delivery that takes place when the vendee is already in the
possession of the thing sold even before the sale and thereafter continues in possession thereof
in the concept of an owner. It applies to movables only.

e. Traditio constitutum possessorium – It is a delivery that takes place when the vendor
continues in possession of the thing sold after the sale but in another capacity such as that of a
lessee or depositary. It applies to both movable and immovable property.

f. Constructive deliveries of intangible assets or incorporeal rights

i. By constructive traditio such as execution of public document.
ii. By placing the titles or certificate of ownership in the possession of the vendee such as
delivering the stock certificate covering the shares of stock sold.
iii. Through the use by the vendee of his rights with consent of the vendor such as when the
seller authorizes the buyer of shares of stock to vote during the stockholder’s meeting.

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 33. Distinctions between Sale or return vs. Sale on trial or approval
a. In sale or return, ownership is transferred to the buyer upon delivery while in sale on trial,
delivery does not transfer ownership to the buyer but instead ownership is transferred to the
buyer under any of the following instances: (a) when the buyer signifies his approval or
acceptance of the goods; (b) when the buyer does an act adopting the transaction; or (c)when
the buyer does not signify his approval or acceptance of the goods but retains the goods without
giving notice of rejection within the time fixed in the contract or within reasonable time, and such
time has expired.

34. Delivery to the common carrier (FOB Shipping Point) - The law presumes that the contract of sale
is FOB Shipping Point which means that delivery to the carrier means delivery to the buyer.

35. As a general rule, a non-owner cannot transfer ownership to his buyer. However, these are the
exceptional instances when the sale of a non-owner transfers ownership to the buyer:
a. When the sale is made with authority or consent of the owner.
b. When the owner is precluded by his conduct from denying the seller’s authority to sell.
c. When the sale is made under the provisions of any factor’s acts, recording laws or any other
provisions of law enabling the apparent owner to dispose of the goods as if he were the true
owner thereof.
d. When the sale is made under a statutory power of sale or under the order of court of competent
jurisdiction.
e. When the purchase is made in a merchant’s store, or in fairs, or markets.

36. Places wherein the things sold should be delivered

a. Place stipulated in the contract.
b. In case there is no stipulation, place fixed by usage or trade.
c. In the absence of a and b, the seller’s place of business if he has one; if none, the seller’s place
of residence.
d. In the case of specific goods, the place where the goods are located at the time of perfection of
contract of sale.

37. Time for delivery of the subject matter of a contract of sale

a. At the time agreed upon.
b. In the absence of time agreed upon, within reasonable time from the execution of the contract.

38. As a general rule, it is the obligation of the vendor to deliver the thing sold to the buyer after
perfection of contract of sale. However, the following are the instances when a vendor is not
bound to deliver the thing sold after perfection of contract of sale:

a. If the vendee has not paid him the price.

b. If no period for payment of the price has been fixed in the contract.
c. If the vendee loses the right to make use of the period.

39. Unpaid seller is one who has not been paid or tendered the whole of the price or who has received a
bill of exchange or other negotiable instruments as conditional payment and the condition under which
it was received has been broken by reason of the dishonor of the instrument, the insolvency of the
buyer, or otherwise. It includes an agent of the seller to whom the bill of lading has been indorsed, or a
consignor or agent who has himself paid, or is directly responsible for the price, or any other person
who is in the position of a seller

40. Rights of an unpaid seller

a. Right to possessory lien on the goods or right to retain them while he is in possession of
them
i. Grounds for right of possessory lien
1. Where the goods have been sold without any stipulation as to credit.
2. Where the goods have been sold on credit, but the credit term has expired.
3. Where the buyer is insolvent.
ii. Instances when right of possessory lien is no longer available to the unpaid seller
1. When the seller delivers the goods to a carrier or other bailee for the purpose of
transmission to the buyer without reserving the ownership in the goods or the
right to the possession thereof.
2. When the buyer or his agent lawfully obtains possession of the goods.
3. By waiver of the possessory lien.
iii. Note: When the unpaid seller obtains judgment or decree for the price of the goods, he
does not lose his possessory lien or his right to retain them while he is in possession of
them.

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 b. Right of stoppage in transit refers to the right of the unpaid seller to resume possession of the
goods at any time while they are in transit, and he will them become entitled to the goods as he
would have had if he had never parted with the possession.

i. Ground for right of stoppage in transit

1. Where the buyer is insolvent.

ii. Manners of exercising the right of stoppage in transit

1. By obtaining actual possession of the goods; or

2. By giving notice of his claim to the carrier or other bailee in whose possession
the goods are

iii. Effects of the exercise of right of stoppage in transit

1. The goods are no longer in transit.

2. The contract of carriage ceases and the carrier shall be liable as depositary or
other bailee.
3. The carrier must deliver the goods to or according to the instructions of the seller.

iv. Instances when goods are still in transit

1. From the time they are delivered to the carrier or other bailee for the purpose of
transmission to the buyer, until the buyer or his agent, takes delivery of them
from such carrier or other bailee.
2. If the goods are rejected by the buyer, and the carrier or other bailee continues in
possession of them, even if the seller has refused to receive them back.

v. Instances when goods are no longer in transit

1. If the buyer obtains delivery of the goods before arrival at the appointed
destination.
2. If the carrier or other bailee acknowledges to the buyer or his agent, that he is
holding the goods in his behalf, after arrival of the goods at their appointed
destination.
3. If the carrier or other bailee wrongfully refuses to deliver the goods to buyer or his
agent.

c. Right of resale

i. Grounds for right of resale

1. The goods are of perishable nature.

2. The seller has expressly reserved the right to resell the goods in case the buyer
should make default.
3. The buyer has been in default for an unreasonable time.
a. Note: It is not essential to the validity of resale that notice of an intention
to resell the goods be given by the seller to the original buyer. But if the
ground of sale is the buyer has been in default for an unreasonable time,
then, giving notice of intention to original buyer becomes relevant to
determine the unreasonableness of the default.

ii. Place of Resale

1. Public sale; or
2. Private sale

iii. Effects of Resale

1. The seller shall not be liable to the original buyer for the delivery of the goods.
2. The seller may recover damages from the original buyer for any loss occasioned
by the breach of the contract of sale.
3. The new buyer acquires a good title against the original buyer.

iv. Note: The unpaid seller is prohibited from participating as a bidder, directly or indirectly,
in the public sale or private sale of the goods.

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 d. Right to rescind the sale

i. Grounds for right to rescind the sale

1. The seller has expressly reserved the right to rescind the sale in case the buyer
should make default.
2. The buyer has been in default in the payment of the price for an unreasonable
time.

ii. Effects of rescission of sale

1. The seller shall not be liable to the buyer upon the contract of sale.
2. The seller may recover from the buyer damages for any loss occasioned by the
breach of contract of sale.
3. The seller resumes ownership of the goods.

41. Remedies of buyer in sale of real estate with a statement of its area at the rate of a certain price
per unit of measure or number if the vendor delivers the following area:

a. Excess area
i. Accept the whole area and pay for the contract rate; or
ii. Accept the agreed area and reject the excess

b. Lacking area
i. Lacking of Less than 10% of Actual Area
1. Action quanti minoris or proportionate reduction of price; or
2. Action for cancellation but only if the lacking area of less than 10% of Actual Area
is very important
ii. Lacking of 10% or more of Actual Area
1. Action quanti minoris or proportionate reduction of price; or
2. Action for cancellation whether or not the lacking area of 10% or more of Actual
Area is very important

c. Poor quality
i. Poor Quality of 10% or less of Actual Area
1. Action quanti minoris or proportionate reduction of price
2. Action for cancellation but only if the poor quality of not more than 10% of Actual
Area is very important
ii. Poor Quality of more than 10% of Actual Area
1. Action quanti minoris or proportionate reduction of price; or
2. Action for cancellation whether or not the poor quality of more than 10% of Actual
Area is very important

Note: Prescriptive period of the action – It shall be filed within 6 months from the date of delivery.

42. Rights of buyer and seller in sale real estate for a lump sum and not at the rate of a certain sum
for a unit of measure or number
a. In sale of real estate for a lump sum and not at the rate of a certain sum for a unit of measure or
number, the vendor is bound to deliver all that it is included within the boundaries stated in the
contract although there be greater or less area or number than that stated in the contract.
b. The buyer has the obligation to pay the lump sum stipulated in the contract with no increase or
decrease in the price although there be greater or less area or number than that stated in the
contract unless the lacking or excess area is already unconscionable.

43. Preferred buyer in double sale of personal property

a. Actual or constructive possessor in good faith

b. Buyer with the oldest title

44. Preferred buyer in double sale of titled real property

a. Registrant of the sale in good faith

b. Actual or constructive possessor in good faith
c. Buyer with the oldest title

45. Preferred buyer in double sale of untitled real property

a. Buyer with the oldest title

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 46. Natural elements or implied warranties in a contract of sale

a. Warranty against eviction

b. Warranty against hidden defects
c. Warranty against undeclared charge or encumbrance or unregistered encumbrances/servitude
d. Warranty for merchantability

47. Eviction refers to the deprivation of the vendee of the whole or a part of the thing sold by virtue of a
final judgment based on a right prior to the sale or an act imputable to the vendor.

48. Requisites in order that the seller’s warranty against eviction may be enforced

a. There must be a final judgment depriving the vendee of the whole or part of the thing sold.
b. The vendee must not appeal from the decision or judgment depriving him of the thing sold.
c. The deprivation is based on a right prior to the sale or an act imputable to the vendor.
d. The vendor must have been notified of the suit for eviction at the instance of the vendee.

49. Other Instances of Eviction which makes the seller liable for breach of warranty

a. If the property is sold for non-payment of taxes due and not made known to the vendee before
the sale.
b. In case of judicial sales unless otherwise decreed in the judgment.

50. Two types of Buyer’s waiver of warranty against eviction

a. Waiver Consciente is a type of waiver made by the buyer when he acted in good faith
because he has no knowledge of risk of eviction. The seller is still liable for eviction.
b. Waiver Intentionada is a type of waiver made by the buyer when acted in bad faith because
he has knowledge of risk of eviction. The seller is no longer liable for eviction.

51. Status of Waiver of warranty against eviction

a. Stipulation exempting a vendor from the obligation to answer for eviction is valid if he acted in
good faith.
b. Stipulation exempting a vendor from the obligation to answer for eviction is void if he acted in
bad faith.

52. Liabilities of Vendor in case of Breach of Contract of Sale by reason of eviction

a. Extent of Liability of Vendor who acted in bad faith

i. Value of the thing at the time of eviction.
ii. Income or fruits of the thing.
iii. Cost of suit caused by eviction.
iv. Expenses of the contract if the vendee has paid them.
v. Damages, interests and ornamental expenses.

b. Extent of Liability of Vendor acted in good faith

i. Value of the thing at the time of eviction.
ii. Income or fruits of the thing.
iii. Cost of suit caused by eviction.
iv. Expenses of the contract if the vendee has paid them.

53. Remedies of buyer for breach of warranty against hidden encumbrance or non-apparent
servitude in contract of sale of immovable

a. Within one year from the date of contract

i. Action for damages; or
ii. Action for rescission

b. Within one year from the discovery of servitude after the lapse of the one year period
from the date of contract
i. Action for damages only

Note: Prescriptive period – One year from the date of contract or discovery of servitude

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 54. Other implied warranties of seller
a. Where the buyer, expressly or by implication, makes known to the seller the particular purpose
for which the goods are acquired, and it appears that the buyer relies on the seller's skill or
judgment (whether he be the grower or manufacturer or not), there is an implied warranty that
the goods shall be reasonably fit for such purpose. (warranty for particular purpose)
b. Where the goods are brought by description from a seller who deals in goods of that description
(whether he be the grower or manufacturer or not), there is an implied warranty that the goods
shall be of merchantable quality. (warranty for merchantable quality)
c. In the case of a contract of sale by sample, if the seller is a dealer in goods of that kind, there is
an implied warranty that the goods shall be free from any defect rendering them
unmerchantable which would not be apparent on reasonable examination of the sample.
(warranty for merchantability)

55. Remedies of buyer in case of breach of warranty committed by the seller

a. Accept or keep the goods and set up against the seller the breach of warranty by way of
recoupment or diminution or extinction of the price.
b. Accept or keep the goods and maintain an action against the seller for damages for breach of
warranty.
c. Refuse to accept the goods, and maintain an action against the seller for damages for breach of
warranty.
d. Rescind the sale and refuse to receive the goods or if the goods have already received, return
them or offer to return them to the seller and recover the price of any part thereof which has
been paid.

56. Requisites for enforcement of vendor’s liability against hidden defects

a. The defect must exist at the time of sale.
b. The defect must be hidden.
c. The defect must render the thing unfit for the use for which it is intended or diminishes its fitness
for such use to such an extent that had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it.
d. The action to enforce it must be made within the period provided by law.

57. Nature of Liability of Seller in sale of property with Hidden Defects

a. The seller is liable for selling object with hidden defect regardless of the awareness of the
presence of defect
b. The seller is liable for selling object with hidden defect regardless of the reason of the loss of the
thing sold.

58. Remedies of Buyer of Breach of Implied Warranties for Merchantability or Hidden Defect

a. Accion redhibitoria is one of the two remedies of the vendee in case of breach of warranties
against hidden defects, of merchantability, of merchantable quality or fitness for a particular
purpose. It refers to the withdrawal from the contract or rescission.

b. Accion quanti minoris is one of the two remedies of the vendee in case of breach of
warranties against hidden defects, of merchantability, of merchantable quality or fitness for a
particular purpose. It refers to demanding a proportionate reduction in the price.

59. Prescriptive period of action based on breach of warranty against hidden defect
a. 6 months from the date of delivery

60. Extent of Liability of Seller in case of loss of thing sold with Hidden Defects
a. The seller acted in bad faith and the cause of loss is the hidden defect
i. Return the price, refund the expenses of the contract and pay damages
b. The seller acted in good faith and the cause of loss is the hidden defect
i. Return the price, refund the expenses of the contract and pay interests of the price
c. The seller acted in bad faith and the cause of loss is the fault of buyer or fortuitous event
i. Return the price paid less the value of the thing at the time of loss and to pay damages.
d. The seller acted in good faith and the cause of loss is the fault of buyer or fortuitous
event
i. Return the price paid less the value of the thing at the time of loss

61. Status of Waiver of warranty against hidden defect

a. Stipulation exempting a vendor from the obligation to answer for hidden defect is valid if he
acted in good faith.

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 b. Stipulation exempting a vendor from the obligation to answer for hidden defect is void if he
acted in bad faith.
62. Redhibitory defect refers to a defect in an animal and it is of such nature that expert knowledge, even
after a professional inspection has been made, is not sufficient to discover it.

63. Alternative remedies for redhibitory defect of an animal sold together with other animals not as
a pair

a. Accion redhibitoria or Cancellation of sale over the defective animal; or

b. Accion quanti minoris or Proportional Reduction of Price over the defective animal

64. Remedy for redibitory defects of two animals sold together as a pair

a. Accion redhibitoria or Cancellation of the contract of sale

65. Prescriptive period of action based on breach of warranty of animal with redhibitory defect

a. 40 days from the date of delivery

66. Sale of animals without warranty for hidden defects

a. Sale of animals at fairs

b. Sale of animal at public auctions
c. Sale of live stocks as condemned

67. Status of sale of animal suffering from contagious disease

a. Null and void for being contrary to law and public policy

68. Requisites in order for the vendor to be liable in case the animal dies of disease

a. The disease exists at the time of sale.

b. The disease is the cause of death of the animal.
c. The animal dies within 3 days from time of purchase.

69. Instances when the buyer’s deemed to have accepted the delivered goods

a. When he intimates to the seller that he is accepting them.

b. When he does an act in relation to the goods which is inconsistent with the ownership of the
seller.
c. When he retains the goods after the lapse of a reasonable time without intimating to the seller
that he has rejected them.

70. As a general rule, the buyer may inspect the goods. However, the following are the exceptional
instances when the buyer cannot examine the goods

a. When there is an agreement to that effect.

b. When there is stipulation that the goods shall not be delivered to the buyer until he has paid the
price.
c. When the goods are marked with the words collect on delivery.

71. Effects when the buyer refuses to accept delivery and the refusal is justified such as when the
quantity is not complete or the goods being delivered are different from that stipulated

a. Buyer has no duty to return goods to the seller unless otherwise agreed.
b. The buyer shall not be obliged to pay the price.
c. If the buyer constitutes himself as depositary of the goods, he shall be liable as such.

72. Effects when the buyer refuses to accept delivery and the refusal is unjustified

a. Title to the goods passes to the buyer from the moment the goods are placed at his disposal.
b. The buyer shall be obliged to pay the price.

73. The time and place of payment of the price of the contract of sale

a. At the time and place stipulated

b. At the time and place of delivery of the thing.

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 74. Instances wherein the buyer shall pay interest for the period between the delivery of the thing
and the payment of the price
a. If there is stipulation for payment of interest and if the rate is not provided, it should be 12%
before July 1,2013 and 6% afterwards.
b. If the thing sold produces fruits or income.
c. If the buyer is in default, from the time of judicial or extrajudicial demand for the payment of the
purchase price.

75. Grounds for the suspension of the payment of the price by the vendee
a. Disturbance in the vendee’s possession or ownership of the thing purchased.
b. Reasonable grounds to fear such disturbance, by a vindicatory action or foreclosure of
mortgage.
c. Loss of the thing due to the fault of the vendor.

76. Instances wherein the right to suspend payment by the vendee is not available
a. If the vendor gives security for the return of the price.
b. If it has been stipulated that the vendee shall pay the price notwithstanding the existence of
disturbance or danger.
c. If the disturbance is a mere act of trespass.

77. Remedy of vendor to sue for immediate rescission of the contract of sale of immovable

a. If there are reasonable grounds to fear the loss of the immovable property sold and its price.

78. Alternative remedies of vendor in case there is reasonable ground to fear the loss of the
immovable property or its price

a. Fulfillment of the contract with damages or

b. Rescission of the contract with damages.

79. Effects if the buyer failed to pay the price of the contract of sales of immovable at maturity date

a. The contract of sale is not automatically cancelled.

b. The buyer may still pay the price provided notarial or judicial demand for rescission has not yet
been made by the seller.

80. Grounds for immediate rescission of the sale of a movable at vendor’s option
I. If at the time of the delivery of the thing, the vendee does not appear to receive the thing.
II. If at the time of the delivery of the thing, the vendee having appeared, does not pay the price,
unless a longer period is stipulated for its payment.

81. Remedies or Actions by the seller for breach of contract of sale of goods committed by buyer
a. Assuming the goods have already been delivered, maintain an action for the price of the goods
if the buyer wrongfully neglects or refuses to pay.
b. Maintain an action for damages if the buyer wrongfully neglects or refuses to accept and pay for
the goods.
c. Rescind the contract if the buyer has repudiated the sale or manifested his inability to perform
his obligation or has committed a breach of contract, where the goods have not been delivered
to buyer.

82. Proper Action or remedy by the buyer if the seller has broken the contract to deliver specific or
ascertained goods by not delivering the goods
a. Bring an action for specific performance plus damages.
b. Action for rescission plus damages.
c. Action for damages.

83. Modes for extinguishment of contract of sale:

a. No-Co-Me-Re-Pa-Lo-Pre-Re-Ful-An
b. Cancellation of sale of personal property payable in installments
c. Resale of the goods by the unpaid seller
d. Rescission of the sale by the unpaid seller
e. Rescission by the buyer in case of partial eviction
f. Rescission by the buyer in case of breach of warranty against hidden defects
g. Rescission by the buyer of sale of animals with redhibitory defects
h. Rescission by the buyer of sale of land with non-apparent servitude or encumbrance
i. Rescission by the buyer of sale of land with lacking area or area with poor quality

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 j. By redemption, whether conventional redemption or legal redemption

84. Types of Redemption in a Contract of Sale

a. Conventional redemption is a type of redemption that occurs when the vendor reserved the
right to repurchase the thing sold with the obligation to return to the vendee the price of the sale,
expenses of the contract and necessary and useful expenses made on the thing sold and to
comply with other stipulations which may have been agreed upon.

i. Period for exercise of right of redemption in conventional redemption or pacto de

retro sale of immovable property
1. If a period is not stated in the contract, it will be 4 years.
2. If a period less than 10 years is stated, follow the stated period.
3. If a period more than 10 years is stated, it will be 10 years because that is the
maximum period.
4. If there is a pending case before the court to determine whether the contract is
one pacto de retro sale or equitable mortgage, it will be 30 days from the
decision of the court declaring it to be pacto de retro sale.

ii. Rules in case of exercising conventional redemption in Pacto de retro sale

1. A co-owner of an undivided immovable which is essentially indivisible who sells
his share with a right to repurchase to a third person who subsequently acquires
the whole thereof, may be compelled by the latter to redeem the whole property,
if the former wishes to make use of the right of redemption.
2. If several persons, jointly and in the same contract, should sell an undivided
immovable with a right of repurchase, none of them may exercise this right for
more than his respective share.
3. If the person who sold an immovable alone has left several heirs, each heir may
redeem only the part which he may have acquired.
4. In cases of 1 and 2, the vendee may demand that the co-owners or co-heirs
come to an agreement upon the repurchase of the whole thing, and if they fail to
do so, the vendee cannot be compelled to consent to a partial redemption.
5. Each one of the co-owners of an undivided immovable who may have sold his
share separately, may independently exercise the right of repurchase as regards
his own share and the vendee cannot compel him to redeem the whole property.

b. Legal Redemption is a type of redemption in a contract of sale that is available only in

exceptional cases provided by law. It refers to the right of a third person to repurchase a real
property sold by another person in exceptional cases provided by law. It is defined as the right
to be subrogated upon the same terms and conditions stipulated in the contract, in the place of
one who acquires a thing by purchase, or dation in payment, or by any other transaction
whereby the ownership is transmitted by onerous title.

i. Instances of Legal Redemption or Redemption by operation of Law

1. By a co-owner. A co-owner of a thing may exercise the right of redemption in

case the shares of all the other co-owners or of any of them, are sold to a third
person. All co-owners may exercise on the basis of their proportionate share.

2. By an adjoining rural lot owner. If a piece of rural land not exceeding one
hectare is alienated to a person who is not landless, the adjoining rural owner
shall have the right of legal redemption unless the grantee does not own any
rural land. Order of Preference:
a. Adjoining rural owner with smallest area
b. Adjoining rural owner who first exercised the right

3. By adjoining urban lot owner. If a small piece of urban land which was bought
for speculation has been resold, the owner of the adjoining land has a right of
redemption at a reasonable price.
a. The adjacent urban land owner whose intended use of the land in
question appears best justified shall be preferred.
Note: It is only the adjoining urban lot owner who has the right of legal pre-
emption which is the right to be given the first opportunity before being offered to
other person.
Note: A co-owner has better right over adjoining rural or urban lot owner in the
exercise of right of legal redemption.

ii. Period for the exercise of right of legal redemption

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 1. 30 days from the notice given by the vendor or prospective vendor
85. Instances wherein a contract of sale with a right to repurchase and other contract purporting to
be an absolute sale shall be presumed to be an equitable mortgage thereby requiring
reformation of instrument

a. When the price of a sale with a right to repurchase is unusually inadequate.

b. When the vendor remains in possession as lessee or otherwise
c. When the period for the exercise of the right of repurchase is extended.
d. When the purchaser retains for himself part of the purchase price.
e. When the vendor binds himself to pay the real property taxes on the thing sold.
f. When the real intention of the parties is that the transaction shall secure the payment of a debt
or the performance of any other obligation.

86. Remedy of injured party in equitable mortgage

a. Action for reformation of instrument

87. Assignment of credit is a contract whereby a person transfers his credit, right or action against a third
person to another person for a consideration which is certain in money or its equivalent. It is perfected
by mere consent.

88. Nature of Assignment of Credit

a. It is a consensual contract perfected by mere consent.

89. Formality of Assignment of Credit to bind or to affect third persons

a. For assignment of credit involving personal property, it must be in a public instrument.

b. For assignment of credit involving real property, it must be recorded in the Registry of Property.

90. Warranties of the vendor in good faith or assignor in assignment of credits

a. Existence of the credit at the time of sale

b. Legality of the credit at the time of sale

91. Exceptional instances when the vendor or assignor of credit is liable for the insolvency of the
debtor of the credit

a. When the assignor expressly warrants the solvency of the debtor of the credit.
i. Prescriptive period of warranty for solvency of debtor in assignment of credit
1. 1 year from the maturity date of credit or date of assignment whichever is later

b. When the assignor acted in bad faith because the insolvency of the debtor of the credit is of
public knowledge when he assigned the credit.

92. Difference between Assignment of Credit (Sale of Nonnegotiable Promissory Note) by Assignor
and Negotiation of Negotiable Instruments by a General Indorser

a. Assignment is applicable to non-negotiable promissory note while negotiation is applicable to

negotiable promissory note.
b. The transferee in assignment is called an assignee while the transferee in negotiation is
called a holder.
c. The transferor in assignment is called an assignor while the transferor in negotiation is called
a general indorser if there is indorsement.
d. The assignee in assignment is subject to personal defenses available to prior parties while the
holder in due course in negotiation holds the instrument free from personal defenses available
to prior parties.
e. The assignor does not warrant the solvency of maker unless expressly stated while the
general indorser guarantees the solvency of maker as long as notice of dishonor will be given
to him.

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