THE LAW ON SALES, AGENCY, AND CREDIT TRANSACTIONS • Remedies available to a vendor in sale of personal property payable in

DE LEON & DE LEON installments o Elect fulfillment upon the vendee’s failure to pay o Cancel
2010 the sale, if the vendee shall have failed to pay two or more installments
o Foreclose the chattel mortgage, if one has been constituted, if
Part 1: Sales the vendee shall have paid to pay two or more installments 
Characteristics of a contract of sale:
Chapter 1 – Nature and Form of Contract o Consnsual – perfected by mere consent without further act
o Bilateral – because both contracting parties are bound to fulfill
I. Definitions obligations reciprocally towards each other
o Onerous - thing sold is conveyed in consideration of price and
• Contract of Sale – a contract whereby one of the parties (called the vice versa
seller or vendor) obligates himself to deliver something to the other o Commutative - thing sold is considered the equivalent of the
(called the buyer or purchaser or vendee) who, on his part, binds himself price paid and vice versa
to pay therefore a sum of money or its equivalent o Nominate – it is given a designation in the Civil Code, namely
• Natural Elements – those which are deemed to exist in certain
contracts, in the absence of any contrary stipulations like warranty “Sale” o Principal – does not depend for its existence and
against eviction or hidden defects validity upon another contract
• Sale by description – occurs where a seller sells things as being of a
particular kind, the buyer not knowing whether the seller’s • Contracts of sale that must be in writing to be enforceable by court
representations are true or false. o Note: If the bulk of the goods action (Under Statute of Frauds): o Sale of personal property at a price
delivered do not correspond with the description, the contract may be not less than P500 o Sale of real property or an interest therein
rescinded regardless of the price involved
• Fungible goods – goods of which any unit is, from its nature or by o Sale of property not to be performed within a year from the date
mercantile usage, treated as the equivalent of any other unit such as thereof regardless of the nature of the property and the price
grain, oil, wine, gasoline, etc. involved
• Conditional Sale – sale contemplates a contingency and in general • Distinctions between a Contract of Sale and a Contract of Agency
where the contract is subject to certain conditions, usually the full Contract of Sale Contract of Agency
payment of the purchase price Buyer receives the goods as owner Agent receives the goods as the
o Note: The delivery of the thing sold does not transfer ownership goods of the principal who retains his
until the condition is fulfilled ownership over them
Buyer has to pay the price Agent has simply to account for the
II. Discussions: proceeds of the sale he may make
• Difference between Earnest Money and Option Money on the principal’s behalf
Buyer, as a general rule, cannot Agent can return the object in case
Earnest Money Option Money return the object sold he is unable to sell the same to a
Part of Purchase Price Money given as distinct consideration for third person
the option contract Seller warrants the thing sold Agent makes no warranty for which
Given only where there is a sale Applies to a sale not yet perfected he assumes personal liability as long
When earnest money is given, buyer is Would-be-buyer is not required to buy as he acts within his authority and in
bound to pay the balance when he gives option money the name of the seller
 Buyer can deal with the thing sold as The agent in dealing with the thing
he pleases received, must act and is bound
according to the instructions of his
principal
Chapter 2 – Capacity to Buy or Sell
I. Definitions
• Necessaries – things which are needed for sustenance, dwelling,
clodting and medical attendance, in keeping with the financial capacity
of the family of the incapacitated person.
• Compromise - a contract whereby the parties, by reciprocal
concessions, avoid a litigation or put an end to one already commenced

II. Discussions o It must be of such nature that expert knowledge is not sufficient
• Relative incapacity of husband and wife to discover it
o Husband and wife are prohibited by the above article from o If veterinarian acts in bad faith (through ignorance or failure of selling property to each other
disclosure), he shall be liable for damages
• People who may enter into a contract of sale *Article only applies tosale of animals
o As a general rule, all persons, whether natural or juridicial, who  Implied Warranty of Fitness – seller guarantees that the thing sold
is can bind themselves by contract have also legal capacity to reasonably fit for the known particular purpose for which it was acquired
buy and sell by the buyer
o If bought by description, it should be reasonably fit on its
Chapter 3 – Effect of the Contract When The Thing Sold Has Been Lost merchantable quality
 Eviction – judicial process whereby the vendee is deprived of the whole
I. Definitions or part of the thing purchased by virtue of a final judgement based on a
• Specific goods – goods identified and agreed upon at the time a right prior to the sale or an act imputable to the vendor
contract of sale is made  Caveat venditor – doctrine that states that the vendor is liable to the
• Divisible contract – its consideration is made up of several parts vendee for any hidden faults or defects in the thing sold, even though h was not aware
thereof.
II. Discussions
• When a thing is considered lost II. Discussions
o When it perishes or goes out of commerce  Sale by a person not the owner
 “perishes” – material deterioration or complete change o Where the owner of the goods is, by his conduct, precluded in the nature of the thing from
denying the seller’s authority to sell.
o Dissappears in such a way that its existence is unknown or it o Where the law enables the apparent owner to dispose of the cannot be recovered goods
as if he were the true owner thereof
• Effect of loss of thing at the time of sale o Where the sale is sanctioned by statutory or judicial authority
o Lost totally: o Where the sale is made at merchant’s stores, fairs or markets
 Contract is inexistent and void because there is no o Where the seller has a voidable title which has not been object avoided at the time of the
sale o Lost partially: o Where seller subsequently acquires title.
 Vendee may:  Ways of effecting delivery
• Withdraw from the contract or o By actual or real delivery
• Demand the remaining part, paying its o By constructive or legal delivery
proportionate price  Execution of a public instrument or document
 Symbolic delivery

Chapter 4 – Obligations of the Vendor Traditio Longa Menu

 Takes place by mere consent or agreement
I. Definitions of the contracting parties as when the vendor
• Unpaid Seller of Goods – one who has not been paid or tendered the merely points to the thing sold which shall whole price thereafter be at the control/disposal
of the
• Traditio Brevi Manu – mode of legal delivery which happens when the vendee.
vendee has already the possession of the thing sold by virtue of another o Only qualifies if the thing sold title as when the lessor sells the thing leased to the lessee
cannot be delivered to the vendee
• Sale or Return – A contract by which property is sold but the buyer at time of sale
 Traditio Brevi Manu
(who becomes the owner of the property on delivery), has the option to return the same to the seller instead of paying the price.
 Quasi-Traditio
 Traditio Constitutum Posessorium o Option to ‘sale or return’ rests on the buyer
• Tradition – a derivative mode of acquiring ownership by virtue of which o By delivery in any other manner signifying an agreement that one who has the right and
intention to alienate a corporeal thing, the possession is transferred to the vendee transmits it by virtue of a just title to one who accepts the same  Requisites for the
exercise of right of stoppage in transit
Seller must be unpaid
• Redhibitory defect – a defect in the article sold against which defect o
the seller is bound to warrant o Buyer must be insolvent o Defect must be hidden; and o Goods must be
in transit
o Seller must either actually take possession of the goods sold or Sale subject to a resolutory Subject to a suspensive
give notice of his claim to the carrier or other person in condition condition
possession Depends entirely on the will of Depends on the character or
o Seller must surrender the negotiable instrument of title, if any, the buyer quality of the goods
issued by the carrier or bailee Ownership of the goods passes Ownership remains in the seller
o Seller must bear the expenses of delivery of the goods after the to the buyer on deliveryand until the buyer signifies his
exercise of the right subsequent return of the goods approval or acceptance to the
revert ownership in the seller seller
• Implied warranties in sale o Implied warranty as to seller’s title Risk of loss or injury rests upon Risk remains with the seller
 Seller guarantees that he has a right to the the sell the the buyer
thing sold and transfer ownership
o Implied warranty against hidden defects or unknown • Place of delivery of goods sold (with no agreement) o Place of
encumbrances delivery is that determined by usage of trade o When there is also
 Seller guarantees that the thing sold is free from any no prevalent usage, the place of
hidden defects delivery is the seller’s place of business
o Implied warranty as to fitness or
merchantability  “Sale or return” distinguished from “Sale on • Principal Obligations of the Vendor o To transfer ownership
Trial” of the determinate thing sold o To deliver the thing
Sale or Return Sale on Trial
 o To warrant against eviction and hidden defects o To take care of the thing,
pending delivery, with proper diligence
o To pay for the expenses for the execution and registration of the deed of
sale, unless there is stipulation to the contrary
• Risk of loss by fortuitous event after perfection but before delivery o
Borne by the buyer (as an exception to the rule of res perit
domino)
Chapter 5 – Obligations of the Vendee
I. Definitions
• Acceptance of the goods – assent to become owner of the
specific goods when delivery of them is offered to the buyer
• Wrongful refusal of buyer to accept – when buyer refuses to
accept the goods without just cause
o Risk of loss is borne by him from the moment they are
placed in his disposal
II. Discussions
• Implied acceptance by the vendee of the goods sold o After delivery
of goods: When buyer does any act inconsistent with the seller’s
ownership (as when he sells or attempts to sell the goods, uses or
makes alteration in them in a manner proper only for an owner)
o After the lapse of reasonable time: When buyer retains the
goods without intimating his rejection
• When vendee can suspend payment of price o If he is disturbed in
the possession or ownership of the thing bought
o If he has a well-grounded fear that his possession or
ownership would be disturbed by a vindicatory action or
foreclosure of mortgage
Chapter 6 – Actions for Breach of Contract of Sale of Goods
I. Definitions
• Goods – includes all chattels personal but not things in action or
money of legal tender in the Philippines. This term also includes
growing fruits or crops
• Recoupment – accept the goods and set up the seller’s breach to
reduce or extinguish the price
II. Discussions
 Actions available to the buyer in case of breach of warranty by the
seller of the goods: o Recoupment:
 Accept the goods and set up the seller’s breach
to reduce or extinguish price
o Action or counterclaim for damages:
 Accept the goods and maintain an action for
damages
 Refuse to accept the goods and maintain an
action for damages for the breach of the
warranty
o Rescission:
 Rescind the contract of sale by returning or
offering the return of the goods and recover
the price
 Cases where rescission by the buyer is not allowed although the
seller has committed a breach of warranty:
o If the buyer accepted the goods knowing of the breach
of warranty without protest
o If the buyer fails to notify the seller within a reasonable
time of his election to rescind
o If the buyer fails to return or offer to return the goods
in substantially as good condition as they were in at
the time of the transfer of ownership to him
 Situations where the seller is given the right to bring an action for
damages against the buyer o If the buyer, without lawful cause,
neglects or refuses to accept and pay for the goods he agreed
to buy
(damages for non-acceptance) o In an executory
contract, where the ownership in the goods has not
passed, and the seller cannot maintain an action to the
price, seller’s remedy will be also an action for damages
o If the goods are not yet identified at the time of the
contract or subsequently, the seller’s right is
necessarily confined to an action for damages
 Situations where the seller of specific goods is given the right to
be paid notwithstanding that delivery to the buyer has not been
effected:
o When the price is payable on a certain day, and the
buyer wrongfully neglects or refuses to pay such
price, irrespective of delivery or transfer of title
o When the buyer wrongfully refuses to accept delivery

Chapter 7 – Extinguishment of Sale
I. Definitions
• Legal Redemption – is 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
transaction whereby ownership is transmitted by onerous title
• Equitable Mortgage – is one which, although it lacks the proper
formalities of a mortgage, shows the intention of the parties to make
the property subject of the contract as a security for the fulfillment of
an obligation
• Conventional Redemption – is the right which the vendor reserves
to himself, to reacquire the property sold provided he reimburses the
vendee of the price, the expenses of the contract, any other
legitimate payments made therefor and the necessary and useful
expenses made on the thing sold and fulfills other stipulations which
may have been agreed upon
II. Discussions
• Requisites for the right of legal redemption of a co-owner to exist o
There must be co-ownership
o There must be alienation of all or of any of the shares of
the other co-owners
o Sale must be to a third person or stranger o Sale must the
before partition
o Right must be exercised within the period provided in
Article 1623 o Vendee must be reimbursed for
the price of the sale
• Cases when the contract shall be presumed to be an equitable
mortgage: o When the price of a sale with right to repurchase is
unusually inadequate
o When the vendor remains in possession as lesee or
otherwise
o When upon or after the expiration of the right to
repurchase another instrument extending the period of
redemption or granting a new period is executed
o When the purchaser retains for himself a part of the
purchase price
o When the vendor binds himself to pay the taxes on the
thing sold
o In any other case where it may be fairly inferred that the
real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any
other obligation
• Obligations of a vendor a retro in case of redemption o The
vendor must return to the vendee:
 Price of the sale (not the value of the thing)
 Expenses of contract and other legitimate
expenses
• Necessary expenses – those incurred for
the preservation of the thing
• Useful expenses – those which increase
the value of the thing or create
improvements thereon
Chapter 8 – Assignment of Credits and Other Incorporeal Rights
I. Definitions
• Assignment of credit – a contract by which one person transfers
to another his rights and actions against a third person (debtor) in
consideration of a price certain in money or its equivalent
II. Discussions
• Warranties of the assignor of credit o The assignor of credit only
warrants the existence and legality of the credit at the perfection of
the contract
o There is no warranty as to solvency of the debtor unless
expressly stipulated or unless the insolvency was already
existing (and of public knowledge) at the time of the
assignment
• Liabilities of the assignor of credit o The liability of the assignor in
good faith is limited only to the price received and to the expenses
of the contract, and any other legitimate payments by reason of the
assignment
o The assignor in bad faith is liable not only for the payment
of the price and all expenses, but also for damages.
• Nature of assignment of credit o It is really a sale
 Subject matter: credit or right assigned
  Consideration: Price paid for the credit or right
 Consent: The agreement of the parties to the
assignment at the agreed price
Chapter 9 – General Provisions
Chapter 11 – The Bulk Sales Law
I. Definitions
• Legal tender – is that currency which a debtor can legally compel a
creditor to accept in payment of a debt in money when tendered by
the debtor in the right amount
• Thing or chose in action – is any claim or right which may be
pleaded in a suit at law, such as claim of reparation for a tort or right
guaranteed under certain types of contracts
II. Discussions
• Objects included in the phrase “document of title to goods”
according to Art. 1636:
Any o Bill of Lading; o Dock Warrant; o Warehouse receipt
or; o Order for the delivery of goods or; o Any other document
used in the ordinary course of business as proof of the
possession and control of the goods
• A person is deemed insolvent when:
o A person who was ceased to pay his debt in the ordinary
course of business
• Goods are in a deliverable state when:
o They are in such a state that the buyer would, under the
contract, be bound to take delivery of them
Chapter 10 – Barter or Exchange
I. Definitions
• Barter – one of the parties binds himself to give one thing in
consideration of the other’s promise to give another thing.
II. Discussions
• Similarities to Sale and Barter o Barter is similar to sale with the
only difference is that instead of paying a price in money, another
thing is given
in lieu thereof
• Perfection and Consummation of the Contract of Barter o Perfected
from the moment there is a meeting of minds upon the things
promised by each party in consideration of the other
o It is consummated from the time of mutual delivery by the
contracting parties of things they promised
I. Definitions
• Fixtures – merchandise usually possessed and annexed to the
premises occupied by merchants to enable them better to store,
handle, and display their wares
• Merchandise – must be construed to mean such things as are
usually bought and sold in trade by merchants
II. Discussions
 When sale or transfer in bulk o Sale,
transfer, mortgage or assignment of
 A stock of goods, wares, and merchandise
otherwise than in the ordinary course of trade
and the regular prosecution of the business
 All or substantially all, of the business or
trade
 All or substantially all, of the fixtures and
equipment used in the business of the
vendor, mortgagor, transferor, or assignor
• Purpose of the Law o Designed to prevent defrauding of
creditors by the secret sale in bulk of all or substantially all of a
merchant’s stock of goods
• Scheme of the law o That such Bulk Sales are fraudulent and
void as to creditors of the vendor, or presumptively so, unless
specified formalities are observed such as
 Demanding and giving list of creditors
 Giving of actual or constructive notice to such
creditors
 Making of an inventory