Sales Reviewer (Midterms)

Oblicon concepts and provisions review

Specific or determinate thing - it is particularly designated or physically segregated from all

others of the same class.

Generic or indeterminate thing - refers only to a class or genus to which it pertains and
cannot be pointed out with particularity.

What are the obligations of a debtor obliged to give a determinate or specific thing?

ANS:
1. To preserve or take care of the thing due with the proper diligence of a good father of
family unless another standard of care is required by law or stipulation by the parties (Art.
1163)
2. To deliver the fruits of the thing (Art. 1164)
3. To deliver all the accessions and accessories of the thing although not mentioned (Art.
1166)
4. To deliver the thing itself.
5. To be liable for damages in case of delay, fraud, negligence or contravention of tenor
thereof (Art. 1170).

What are the obligations of a debtor obliged to give an indeterminate or generic thing?

ANS:
1. To deliver a thing which is neither of superior nor inferior quality, taking into consideration
the purpose and circumstances of the obligation (Art. 1246).
2. To be liable for damages in case of delay, fraud, negligence or contravention of tenor
thereof (Art. 1170)

ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof, are liable for damages.

ART. 1174. Except in cases expressly specified by the law, or when it is otherwise declared
by stipulation, or when the nature of the obligation requires the assumption of risk, no person
shall be responsible for those events which could not be foreseen, or which, though foreseen,
were inevitable.

ART. 1189. When the conditions have been imposed with the intention of suspending the
efficacy of an obligation to give, the following rules shall be observed in case of the
improvement,loss or deterioration of the thing during the pendency of the condition:

(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;

(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is
understood that the thing is lost when it perishes, or goes out of commerce, or disappears
in such a way that its existence is unknown or it cannotbe recovered;

(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne
by the creditor;

(4) If it deteriorates through the fault of the debtor, the creditor may choose between the
rescission of the obligation and its fulfillment, with indemnity for damages in either case;

(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit
of the creditor;

(6) If it is improved at the expense of the debtor, he shall have no other right than that granted
to the usufructuary.
ART. 1305. A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service.

What are the essential requisites of a contract?

ANS:
1. Consent of the contracting parties;
2. Object certain which is the subject matter of the contract; and
3. Cause of the obligation which is established.

What are the requisites of consent?

ANS:
1. Must be manifested by the concurrence of the offer and acceptance;
2. Parties must possess the necessary legal capacity; and
3. Must be intelligent, free, spontaneous, and real.

What are the requisites of a valid object of a contract?

ANS:
1. Must be within the commerce of men;
2. Should be real or possible;
3. Should be licit; and
4. Should be determinate, or at least possible of determination as to its kind.
Note: The genus or kind of the object must be expressed.

What are the requisites of cause?

1. Existing at the time of the celebration of the contract;

2. Licit or lawful; and
3. True.
Main points Sales (General provisions until Warranties)

General Provisions and Stages of the Contract of Sale

Contract of Sale – One of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price
certain money or its equivalent. A contract of sale may be absolute or conditional. (Art. 1458)

What happens first, payment or delivery?

- Both should happen simultaneously, in absence of any stipulation to the contrary. (Concept
of “kaliwaan”)

ESSENTIAL REQUISITES OF A CONTRACT OF SALE

1. consent
2. subject matter
3. price

CHARACTERISTICS OF CONTRACT OF SALE:

1. Nominate - law gave it a name

2. Principal - can stand on its own; unlike accessory contract

3. Bilateral - imposes obligation on both parties

a. obligation of seller – transfer ownership & deliver
b. obligation of buyer – pay for price
Consequence: power to rescind is implied in bilateral contracts

4. Onerous – with valuable consideration

 Consequence: all doubts in construing contract to be resolved in greater reciprocity of
interest

5. Commutative – equal value is exchanged for equal value

 Test: subjective – as long as parties in all honesty that he is receiving equal value then it
complies with test & would not be deemed a donation; but must not be absurd.
 Inadequacy of price or aleatory character not sufficient ground to cancel contract
of sale; inadequacy can show vitiation of consent & sale may be annulled based
on vice but not on inadequacy

6. Consensual – meeting of minds makes a perfect contract of sale but needs delivery
to consummate.

7. Title & not a mode – gives rise to an obligation to transfer; it is delivery w/c actually
transfer ownership; mode which actually transfer ownership.
DISTINGUISHED FROM OTHER CONTRACTS:

1. Donation
- donation is gratuitous; sale is onerous
- donation is formal contract; sale is consensual
- donation is governed by law on donation; sale is governed by law on sales

2. Barter
- in barter, the consideration is the giving of a thing; in sale, it is giving of money as payment
- both are governed by law on sales; both are species of the genus sales
- if consideration consists party in money & partly by thing – look at manifest intention; if
intention is not clear (1468 ):
a. value of thing is equal or less than amount of money – sale
b. value of thing is more than amount of money – barter

3. Contract for piece of work

test in article 1467:

a. contract for delivery of an article which the vendor in the ordinary course of business
manufactures or procures for general market ( whether on hand or not ) – sale

b. goods are to be manufactured specially for a customer and upon special order and not for
the general market – contract for piece of work.

jurisprudence:

a. Timing test – under art 1467; whether the thing transferred would have never existed but
for the order – contract for piece of work (abandoned)

b. Habituality test – contract of sale if manufacturer engages in activity without need to

employ extraordinary skills and equipment; contract for piece of work is sale of service;
contract of sale is sale of things.

c. Nature of the object test – each product’s nature of execution differs from the others;
products are not ordinary products of manufacturer.

main factor in decision of the SC: essence of why parties enter into it:
a. essence is object – contract of sale
b. essence is service – contract for piece of work

4. Agency to sell

- in sale, buyer pays for price of object; in agency to sell, agent not obliged to pay
for price, merely obliged to deliver price received from buyer.

- in sale, buyer becomes owner of thing; in agency; principal remains owner even
if object delivered to him

- in sale, seller warrants; in agency, agent assumes no risk/liability as long as

within authority given

- in sale, not unilaterally revocable; in agency, may be revoked unilaterally

because fiduciary & even w/o ground

- in sale, seller receives profit; in agency, agent not allowed to profit

Agency is a personal contract; sale is real contract ( to give ) – rescission not available in
agency
5. Dacion en pago

- dacion: contract where property is alienated to satisfy/extinguish obligation to

pay debt

- in dacion: novates creditor-debtor relationship into seller-buyer

- in dacion: delivery is required ( real contract )

6. Lease

- in sale: obligation to absolutely transfer ownership of thing; in lease: use of thing

is for specified period only with obligation to return

- in sale: consideration is price; in lease: consideration is rent

- in sale: seller needs to be owner of thing to transfer ownership; in lease: lessor

need not be owner

- lease with option to buy: really a contract of sale but designated as lease in name.

What are the distinctions between Contract of Sale and Contract to Sell?

ANS:
The distinction are:

As to effect of perfection of contract

Contract of Sale: Gives rise to reciprocal demandable obligations: 1.) On seller - to transfer
ownership and deliver possession of the thing, and 2.) On buyer - to pay a price certain
Contract to Sell:

As to transfer of ownership
Contract of Sale: Title passes to the buyer upon delivery of the thing sold (Art. 1496).
Contract to Sell: Ownership will pass only upon full payment of the price (Art. 1478).

As to effect of non-payment of price

Contract of Sale: Failure to pay is a negative resolutory condition, which puts an end to the
transaction (Art. 1179).
Contract to Sell: It is not a breach of the contract but simply an event that prevents the
obligation of the vendor to convey title from acquiring a binding force.

As to remedy in case of non-payment of price

Contract of Sale: 1.) Specific performance, and 2.) Rescission (Art. 1191)
Contract to Sell: Action to recover possession - if the buyer refuses to surrender the thing to
the seller

As to ownership of vendor
Contract of Sale: Vendor has lost and cannot recover the ownership until and unless the
contract of sale itself is resolved and set aside
Contract to Sell: Title remains in the vendor if the vendee does not comply with the condition
precedent.

As to execution of sale document

Contract of Sale: Vendee becomes the owner of the property upon delivery of the thing sold
Contract to Sell: Vendor still need to execute another instrument conveying the property to the
vendee (e.g., deed of absolute sale).
What are the distinctions between Conditional Contract of Sale and Contract to Sell?

ANS:
The distinction are:

As to execution of deed of sale

Conditional Contract of Sale: Upon the perfection of the contract.
Contract to Sell: Upon the fulfillment of the condition stipulated in the contract.

As to presence of consent
Conditional Contract of Sale: Consent is present.
Contract to Sell: Consent will only be present upon the fulfillment of the condition stipulated in
the contract.

As to when title passes

Conditional Contract of Sale: Parties may stipulate to reserve the title to the owner until the
price is paid.
Contract to Sell: The title is reserved to the owner even after the fulfillment of the condition,
the title passes upon the execution of the deed of sale.

Article 1187. The effects of a conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation.

Applying Article 1187, in a conditional contract of sale, the ownership shall retroact from the
fulfillment of the condition to the point of perfection of the contract.

What are the distinctions between Absolute Contract of Sale and Conditional Contract
of Sale?

As to when the title passes

Absolute Contract of Sale: Title passes to the buyer upon delivery.
Conditional Contract of Sale: There is a stipulation reserving the title to the seller until the
fulfillment of the condition even if there is delivery.

As to right to rescind the contract

Absolute Contract of Sale: Both parties have the right to rescind the contract.
Conditional Contract of Sale: There is a stipulation that the seller may unilaterally rescind the
contract in case of non-fulfillment of the condition.
STAGES IN LIFE OF CONTRACT OF SALE:
1. negotiation
2. perfection – by mere consent; performance may be demanded ( specific performance )
3. consummation

When is a contract of sale deemed perfected?

ANS:

In a contract of sale, its perfection is consummated at the moment there is a meeting of the
minds upon the thing that is the object of the contract and upon the price. Consent is
manifested by the meeting of the offer and the acceptance of the thing and the cause, which
are to constitute the contract.

Can there be a perfected contract of sale even if, at the time of the perfection, the seller
is not the owner of the thing sold?

ANS:

Yes, there is a perfected contract of sale as long as the seller is the owner at the time of
delivery (Art. 1459). Otherwise, he may be held liable for breach of warranty against eviction
(Art.1548).

Note: When a person who is not the owner of a thing sells or alienates and delivers it, and
later the seller or grantor acquires title there, such title passes by operation of law to the buyer
or grantee (Art. 1434).

Article 1459. The thing must be licit and the vendor must have a right to transfer the
ownership thereof at the time it is delivered.

Article 1505. Subject to the provisions of this Title, where goods are sold by a person who is
not the owner thereof, and who does not sell them under authority or with the consent of the
owner, the buyer acquires no better title to the goods than the seller had, unless the owner of
the goods is by his conduct precluded from denying the seller's authority to sell.
Nothing in this Title, however, shall affect:

(1) The provisions of any factors' act, recording laws, or any other provision of law enabling
the apparent owner of goods to dispose of them as if he were the true owner thereof;
(2) The validity of any contract of sale under statutory power of sale or under the order of a
court of competent jurisdiction;
(3) Purchases made in a merchant's store, or in fairs, or markets, in accordance with the
Code of Commerce and special laws. (n)

Article 1506.
Where the seller of goods has a voidable title thereto, but his title has not been avoided at the
time of the sale, the buyer acquires a good title to the goods, provided he buys them in
good faith, for value, and without notice of the seller's defect of title. (n)

Article 559. The possession of movable property acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may
recover it from the person in possession of the same.

If the possessor of a movable lost or which the owner has been unlawfully deprived, has
acquired it in good faith at a public sale, the owner cannot obtain its return without
reimbursing the price paid therefor. (464a).
What right does a buyer acquire in case of sale made by non-owner?

ANS:

In sale made by the non-onwer, the buyer acquires no better title to the goods than the seller
had (Art. 1505). No one can giv what he does not have - nemo dat quoad non habet.
Therefore, even if a person be a bona fide purchaser, he succeds only to the right of the
vendore.

Exceptions:

1. Owner is estopped or precluded by his conduct (Art. 1505);

2. Sale made by the registered or apparent owner in accordance with registration laws (Art.
1505);
3. Sales sanctioned by judicial or statutory authority (Art. 1505);
4. Purchases in a merchant’s store, fairs or markets where the thing must be on display to
make it part of the goods for sale to bar recovery by the true owner (Art. 1505);
5. When a person who is not the owner sells and delivers a thing, and subsequently acquires
title thereto, the title passes by operation of law to the buyer (Art. 1434);
6. When the seller has a voidable title which has not been avoided at the time of the sale (Art.
1506);
7. Sale by co-owner of whole property or a definite portion thereof; and
8. Special rights of unpaid seller (Arts. 1526-1533)

What is the effect if the seller of goods has a voidable title thereto but his title has not
been avoided at the time of the sale?

ANS:

Where the seller of the goods has a voidable title thereto, but his title has not yet been
avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys
them in good faith, for value, and without notice of the seller’s defect of title (Art. 1506).

Is possession equivalent to title as to movable properties?

ANS:

Yes, the possession of movable property acquired in good faith is equivalent to a title
(Art.559).

The exceptions are when:

1. Owner lost the movable; or
2. Owner has been unlawfully deprived of the movable.

Note: In these cases, the possessor cannot retain the thing as against the owner, who may
recover it without paying any indemnity, except when the possessor acquired it in a public
sale.

In case of sale by installments, will the payments previously made be returned to the
payer?
- It depends. When the object is in possession of the payee (seller), the payments shall be
returned subject to governing provisions of the law as regards sales by installments. But,
when the object is in possession of the payer (buyer), the payments previously made will
serve as a rent.

What is the effect of a promise to buy and sell a determinate thing?

ANS:
A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from the
price (Art. 1479).

What is policitacion?

ANS:

Policitacion is an unaccepted unilateral promise to buy or sell (Art. 1479). This produces no
juridical effect and creates no legal bond. This is a mere offer, and has not yet been
converted into a contract.

What happens to a unilateral promise to sell if it not withdrawn by the offeror before
acceptance?

ANS:

It becomes a bilateral contract to sell and to buy, because upon acceptance bu the creditor of
the offer to sell by the debtor, there is already a meeting of the minds of the parties as to the
thing which is determinate and the price which is certain. In which case, the parties may then
reciprocally demand performance.

May an offer to sell be withdrawn?

ANS:

Yes. When the offeror has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when
the option is founded upon a consideration, as something paid or promised (Art. 1324).

What are the formal requisites for the validity of a contract of sale?

Subject to the provisions of the Statute of Frauds and of any other applicable statute, a
contract of sale may be made in writing, or by word of mouth, or partly in writing and partly in
word by word of mouth, or may be inferred from the conduct of the parties (Art. 1483).

What is an example of sales contract that needs to be in writing to be valid?

ANS:

Article 1874 of the Civil Code requires for the validity of a sale involving land that the agent
should have an authorization in writing, without which the resulting sale entered into in behalf
of the principal would be void.

Note: If the authorization is not in writing, only the sale is void, not the contract of agency.

What actions with regard to sale must be in writing in order to be enforceable?

ANS:

1.) Sale of personal property at a price not less P500.

2.) Sale of real property or an interest therein;
3.) Sale of property not to be performed within one year from date thereof; and
4.) When an applicable statute requires that the contract of sale be in a certain form (Art.
1403, par. 2)

Note: The requisite of a written contract is only for enforceability. A sale of land not in writing
for example is still valid but not binding to third persons.
Contract for a piece of work is not governed by Statute of Frauds.

DELIVERY OF THE THING

- Transfer ownership (tradicion) – twin obligation:

1. transfer title(ownership) – Seller must be owner of thing at the time of

consummation to validly transfer title

2. delivery of the thing

- Different kinds of delivery:
1. Actual
- when thing when thing sold is placed in the control & possession of the buyer
2. Constructive

What are the kinds of constructive delivery?

ANS:

The kinds of constructive delivery are:

1. Execution of Public Instrument - When the sale is made through a public instrument, the
execution thereof shall be equivalent to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear or cannot clearly be inferred (Art.
1498).

2. Traditio Symbolica - With regard to movable property, its delivery may be made by the
delivery of they keys of the place or depositary where it is stored or kept (Art. 1498).

3. Traditio Brevi Manu - The delivery of movable property may be made by the mere
consent or agreement of the contracting parties of the thing sold cannot be transferred to the
possession of the vendee at the time of the sale (I.e., by mere pointing) (Art. 1499).

4. Traditio Brevi Manu - The delivery of movable property may likewise be made by the
mere consent or agreement of the contracting parties if the vendee already had it in his
possession for any other reason (Art. 1499).

5. Constitutum Possessorium - At the time of perfection, the seller held possession of the
subject matter in the concept of owner, and pursuant to the contract, the seller continues to
hold physical possession other than the concept of owner (Art. 1500).

6. Quasi-tradition - Delivery of rights, credits or incorporeal property, made by:

A. Execution og a public instrument; or
B. Placing titles of ownership in the hands of the buyer; or
C. Allowing buyer to make use of rights (Art. 1501).

When is title not transferred despite delivery?

ANS:

Title is not transferred despite delivery when in case of:

1. Sale by non-owner - the contract is valid because it has passed perfection stage; the
transfer of title is void.

Note: The rationale is nemo dat quod habet (nobody can dispose of that which does not
belong to him).

2. Pactum reservati dominii (contractual reservation of title) - express reservation of

ownership (Art. 1478);
3. Contract to sell;

4. Sale on Acceptance / Trial / Approval / Satisfaction (Art. 1502)

- Ownership passes to the buyer only when:
A. He signifies his approval or acceptance to the seller or does any act adopting the
transaction; or
B. He does not signify his approval or acceptance to the seller but retains the goods without
giving notice of rejection, then if a time has been fixed for the return of the goods, on the
expiration of such time, if no time has been fixed, on the expiration of reasonable time.

Note: In “Sale or Return,” the ownership passes to the buyer upon delivery, but he may
revest the ownership in the seller by returning the goods within the time fixed in the contract,
or, if there is no time fixed, within a reasonable time (Art. 1502).

5. Implied Reservation of Ownership:

A. Where goods are shipped, and by the bill of lading the goods are deliverable to the seller
or his agent, or to the order of seller or his agent - seller reserves ownership in the goods (Art.
1503)

B. Where goods are shipped, and by the bill of lading the goods are deliverable to the order of
the buyer or his agent, but the possession of the bill of lading is retained by the seller or his
agent - seller reserves a right to the possession of the goods (Art. 1503)

C. Where the seller of goods draws on the buyer for the price and transmits the bill of
exchange and bill of lading together to the buyer to secure acceptance or payment of the bill
of exchange, and the buyer does not honor the bill of exchange (Here, the seller is the drawer
and the buyer is the drawee). If the buyer, as drawee, does not honor the bill of exchange, he
shall return the bill of lading. If he retains the same, he acquires no added right thereby (Art.
1503)

(Comment: Yang implied reservation of ownership, mukhang di ata lalabas yan. For bar exam
review nalang yan.)

In what condition is the vendor bound to deliver the thing sold?

ANS:

The vendor is bound to deliver the thing sold and its accessions and accessories in the
condition in which they were upon the perfection of the contract. All fruits shall pertain to the
vendee from the day the contract was perfected (Art. 1537).

What are the remedies of a buyer if the seller delivers to him a quantity if goods less
than what he contracted to sell?

ANS:

The buyer may:

1. Reject them;
2. If the buyer accepts or retains the goods so delivered, knowing that the seller is not going
to perform the contract in full, he must pay for them at the contract rate; or
3. If however, the buyer has used or disposed of the goods delivered before he knows that
the seller is not going to perform his contract in full, the buyer shall not be liable for more than
the fair value to him of the goods so received (Art. 1522).

What are the remedies of the buyer if the seller delivers to him a quantity of goods
larger than what he contracted to sell?

ANS:
The remedies are:
1. The buyer may accept the goods which are in accordance with the contract and reject the
rest; or
2. If the subject matter is indivisible, the buyer may reject the whole of the goods (Art. 1522).

RISK OF LOSS

What is the effect of loss or destruction of a generic thing?

ANS:

In an obligation to deliver a generic things, the loss or destruction of anything f the same kind
does not extinguish the obligation (Art. 1263). The exceptions are:

1.) In case of sale of fungible things, made independently and for a single price, or without
consideration of their weight number, or measure (Art. 1480, par.2)

2.) In case of fungible things be sold for a price fixed according to weight, number, or
measure, when they have been weighed, counted, or measured and delivered;

3.) When the vendee has incurred in delay (Art. 1480, par. 3);

4.) Where the delivery of the goods has been made to the buyer or to a bailee for the buyer,
in pursuance of the contract, and the ownership in the goods has been retained by the seller
merely to secure performance by the buyer if his obligations under the contract, the goods are
at the buyer’s risk from the time of such delivery (Art. 1504, par. 1); and

5.) Where actual delivery has been delayed through the fault of either the buyer or seller, the
goods are at the risk of the party at fault (Art. 1504, par. 2).

Note: In such cases, the loss shall be at the vendee’s risk and the obligation is deemed
extinguished.

Who bears the risk of loss when loss occurs before perfection?

ANS:

The seller bears the risk of loss. Res perit domino applies. The seller still owns the thing
because there is no delivery or transfer of ownership yet.

Who bears the risk of loss when loss occurs upon perfection?

ANS:

The party who own it at the time of perfection bears the risk of loss. Res perit domino applies.

What is the general rule if the object if the contract has been entirely lost?

ANS:

The contract shall be without any effect (Art. 1493, par.1).

What is the effect if the object of the contract has been partially lost?

ANS:

The vendee may choose between:

1.) Withdrawing from the contract; or
2.) Demanding the remaining part of the object, paying its price in proportion to the total sum
agreed upon (Art. 1493, par. 2)

What is the effect when specific goods, without the knowledge if the seller have perished?

ANS:

Where the parties purport a sale of specified goods, and the goods without the knowledge of
the seller have perished in part or have wholly or in a material part deteriorated in quality as to
be substantially changed in character, the buyer may at his option treat the sale:

1.) As avoided; or
2.) As valid in all of the existing goods or in so much thereof as have not deteriorated, and as
binding the buyer to pay the agreed price for the goods in which the ownership will pass, if the
sale was divisible (Art. 1494).

Who bears the risk of loss when it occurs after perfection but before delivery?

ANS:

It is governed by the stipulations in the contract. In absence of a stipulation, there are two
conflicting views, which are:
1.) Res perit creditori or buyer bears the risk of loss (according to Paras, Vitug, Padilla, and
De Leon); and
2.) Res perit domino or seller bears the risk of loss (according to Tolentino, Jurado, Baviera,
and Villanueva).

Who bears the risk of loss in case of deterioration?

ANS:

When the thing deteriorates without the fault of the debtor, the impairment is to be borne by
the creditor (Art. 1189, par. 3).

Who bears the risk of loss when ownership is transferred?

ANS:

Res perit domino applies. The buyer is the owner; hence the buyer bears the risk of loss.

OBLIGATIONS OF THE VENDOR

What are the obligations of the vendor?

ANS:

The obligations of the vendor are:

1. ) Transfer ownership
2. ) Deliver the thing sold
3. ) Deliver the fruits and accessories
4. ) Make warranties
5. ) Take care of the thing, pending delivery, with proper diligence
6. ) Pay for the expenses for the execution and registration of the sale unless there is
stipulation to the contrary
7. ) Accord the buyer the right to examine the goods;
8. ) Enter into a contract with the carrier on behalf of the buyer as may be reasonable under
the circumstances; and
9. ) Notify the buyer regarding the necessity to insure goods if it is usual to insure them.
Parties to a Contract of Sale

GENERAL RULE: All parties with capacity to contract can enter into a valid contract of sale
1. Natural
2. Judicial - corporation/partnership/associations/Cooperatives

EXCEPTION TO GENERAL RULE:

1. Minors
- status of contract: voidable only, therefore may be ratified
- remedy is action for annulment (with partial restitution in so far as the minor is benefited)

2. Sale by and between spouses

a. Contract with 3rd parties

- status of contract is valid

b. Sale between parties

- Status not provided for by law but void according to case law
Exceptions:
i. separation of property agreed (marriage settlement)
ii. judicial separation of property

c. Common Law Spouses (Paramours)

- Status of contract: Void (per case law)

3. Others per specific provisions of law (Art. 1491)
a. Guardian with regards to property of ward during period of guardianship
b. Agent with regards to property of principal
c. Executor/administrator with regards to the estate of the deceased
d. Public officers with regards to the property of the estate

LEGAL STATUS OF CONTRACT:

1. VOID (PER CASE LAW) – guardian/ executor/public officers / officers of the court
2. VOIDABLE (PER CIVIL CODE) – agent; and if with consent, VALID

Article 1491. The following persons cannot acquire by purchase, even at a public or judicial
auction, either in person or through the mediation of another:

(1) The guardian, the property of the person or persons who may be under his guardianship;

(2) Agents, the property whose administration or sale may have been entrusted to them,
unless the consent of the principal has been given;

(3) Executors and administrators, the property of the estate under administration;

(4) Public officers and employees, the property of the State or of any subdivision thereof, or of
any government-owned or controlled corporation, or institution, the administration of which
has been entrusted to them; this provision shall apply to judges and government experts who,
in any manner whatsoever, take part in the sale;

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other
officers and employees connected with the administration of justice, the property and rights in
litigation or levied upon an execution before the court within whose jurisdiction or territory they
exercise their respective functions; this prohibition includes the act of acquiring by assignment
and shall apply to lawyers, with respect to the property and rights which may be the object of
any litigation in which they may take part by virtue of their profession;

(6) Any others specially disqualified by law. (1459a)

Rubias v. Batiller: For those under 1, 2, and 3, the ratification or second contract would then
be valid from its execution; however, it does not retroact to the date of the first contract. For
those under 4 and 5, they are void and inexistent from the beginning; hence, not subject to
ratification.

When is incapacity absolute?

ANS:

Incapacity is absolute in case of persons who cannot bind themselves, as in the case of
minors, insane and demented persons, imbeciles, deaf-mutes who do not know how to write,
prodigals and those subject to civil interdiction. As their personality is restricted, they have no
capacity to purchase and sell by themselves personally, but only through their legal
representatives (Art. 1327).

When is incapacity relative?

ANS:

Incapacity is relative when certain persons, under certain circumstances cannot buy certain
property.
Subject Matter of Sale

To reiterate, the following are the requisites of a valid object of a contract?

ANS:
5. Must be within the commerce of men;
6. Should be real or possible;
7. Should be licit; and
8. Should be determinate, or at least possible of determination as to its kind.
Note: The genus or kind of the object must be expressed.

What are the distinctions between Emptio Rei Speratae and Emptio Spei?

ANS:
The distinctions between Emptio Rei Speratae and Emptio Spei are:

Emptio Rei Speratae: The sale of a thing with potential existence, subject to a suspensive
condition that the thing will come into existence. If the subject matter does not come into
existence, the contract is deemed extinguished as soon as the time expires or if it has
become indubitable that the event will not take place.

Emptio Spei: Sale of a mere hope or expectancy (e.g., sale of sweepstake ticket for P100
where the buyer purchases the ticket with the hope that upon the draw the ticket would win
him a million pesos. The object of the sale is not the prize, but rather the ticket or the chance
to win).
Price

CHARACTERISTICS OF VALID PRICE

1. Must be real
2. Must be in money or its equivalent
3. Must be certain or determinable at the time of the perfection of the contract
4. Manner of payment agreed upon

REAL

1. When price stated is one intended by parties

- If fictitious: no intention with respect to price - Void
- If False/simulated: what appears in contract is not the true price

a. Valid if there is true consideration

b. Void but if none (because it is fictitious)

2. Valuable
- When not valuable – Void
- When contract is onerous, presumed to have valuable consideration
- Nominal consideration w/c is common law concept does not apply (P1.00)
- Gross inadequacy of price in ordinary sale does not render contract void unless it
is shocking to conscience of man.

Gross inadequacy of price

Under Art. 1470, gross inadequacy of price does not affect a contract of sale.

Exceptions (i.e., gross inadequacy will render the sale invalid):

1. May be an indication of a defect in the consent
2. May indicate that parties intended a donation or some other act or contract
3. Price is purely shocking to the conscience

CERTAIN

Who/What determines the price?

- 1.) parties, 2.) 3rd person or by reference, and 3.) court

1. Sufficient that it is fixed with reference to another thing certain

- That thing will 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 be certain
- Is no price was still fixed, sale in inefficacious.

2. Determination be left to judgment of specified person/s

- If contract states that price is to be determined by 3rd party, contract is already
perfected (there is just a suspensive condition – actual fixing of price)
- 3 rd party fixes price in bad faith or mistake – court remedy can be made
- 3 rd party is unable or unwilling to fix price – parties have no cause of action (inefficacious)

When price can not be determined in accordance with any of the preceding rules,
contract of sale in inefficacious (Art. 1474)

MANNER OF PAYMENT MUST BE AGREED UPON

- Integral part of concept of price
- Must be certain or at least ascertainable
What is the effect if the price is simulated?

ANS:

If the price is simulated, the sale is void, but the act may be shown to have been in reality a
donation, or some other act or contract (Art. 1471).

May the fixing of the price be left to the discretion of the parties?

ANS:

The fixing of the price can never be left to the discretion of one of the contracting parties.
However, if the price fixed by one of the parties is accepted by the other, the sale is perfected
(Art. 1473). (Same principle in the case of Robern Dev. Corp. V. People’s Landless Assoc.)

May a contract of sale subsist despite the lack of price?

ANS:

Yes, provided that it is supported by consideration depsite the lack of price. Consideration,
more properly denominated as cause, can take different forms, such as the prestation or
promise of a thing or service by anotehr. (Same principle in the case of Ong v. Ong)

What is the effect if there is no price agreed upon?

ANS:

Where the price cannot be determined in accordance with articles 1469-1473 of the New Civil
Code, or in any other manner, the contract is inefficacious. However, if the thing or any part
thereof has been delivered to and appropriated by the buyer he must pay a reasonable price
therefore. What is reasonable price is a question of fact dependent on the circumstances of
each particular case (Art. 1474).

What is reasonable price?

Reasonable price is generally the market price at the time and place fixed by the contract or
by law for the delivery of the goods.

Must the manner if payment be agreed upon?

ANS:

Yes. Before a valid and binding contract of sale can exist, the manner of payment of the
purchase price must first be established since the agreement on the manner of payment goes
into the price such that a disagreement on the manner of payment is tantamount to a failure to
agree on the price. (Same principle in the case of Toyota Shaw v. CA)

What is an earnest money?

ANS:

It is something of value given by the buyer to the seller to show that the buyer is really in
earnest, and to bind the bargain. It is considered as part of the purchase price and as proof of
perfection of contract (Art. 1482).

What is an option contract?

ANS:
An option contract is one granting a privilege in favor of one person, for which he has paid a
consideration, giving him the right to buy certain merchandise or certain specified property at
any time within the agreed period at a fixed price.

What are the distinctions between earnest money and option money?

ANS:

As to effect of non-payment
Earnest money: An action for specific performance or for rescission can be files by the injured
party.
Option money: There can be an action for specific performance.

As to consideration
Earnest money: Part of the purchase price (Art. 1482)
Option money: Money is given as a distinct consideration for an option contract.

As to obligation of the buyer upon payment of consideration

Earnest money: When given, the buyer is bound to pay the balance.
Option money: The would-be-buyer is not required to buy

As to perfection of sale
Earnest money: There is already a sale.
Option money: Applies to a sale not yet perfected.

What is the right of first refusal?

ANS:

It is the right given by the contract to a prospective buyer a priority option to purchase the
thing that will be sold by the owner (Equitorial Realty v. Mayfair).

Note: There should be identity of the terms and conditions offered to the optionee and all
other prospective buyers, where the optionee enjoys the right of first priority.

What are the distinctions between Option Contract and Right of First Refusal?

ANS:

The distinctions are as follows:

As to definition

Option contract: A separate and distinct contract from that which the parties may enter into
upon the consummation of the option and must be supported by a consideration.

Right of first refusal: An integral part of the contract of lease, the consideration of which is
built into the reciprocal obligations of the parties.

As to when exercised

Option contract: The party who has an option may validly and effectively exercise his right by
merely notifying the owner of the former’s decision to buy and expressing his readiness to pay
the stipulated price.

Right of first refusal: In a right of first refusal, while the object might be made determinate, the
exercise of the right of first refusal would be dependent not only on the owner’s eventual
intention to enter into a binding juridical relation with another but also on terms, including the
price, that are yet to be firmed up.
Types of Sales and Rules on Double Sales

Sale of Undivided Share

Co-owner may sale his undivided share even without the consent of the other co-owners.
However, he may only transfer ownership to buyer corresponding to the portion of his share.

Sale by Auction

Each “lot” is the subject of a separate contract of sale

Before perfection, a bidder may retract his bid

When can the auctioneer withdraw the goods before perfection ?

- During the bidding process, the auctioneer can withdraw the goods as long as such auction
is with reserve. In such a case, the auctioneer acts as the offeror and has the power of
acceptance and impliedly the power to reject the bids. Included in the power to reject is the
withdrawal of the goods from the auction anytime during the bidding process before perfection
In an auction w/o reserve, once the auctioneer calls for a bid, he or she cant withdraw the
goods, unless there was no bid made within a reasonable time.

How is a sale by auction perfected?

- By the mere fall of the hammer or in any other manner, which includes the drop of the gavel,
shouting of the word sold while pointing to the highest bidder or the announcement of the
highest bidder w/o the fall of the hammer. Once perfected, bidder may no longer retract his
bid.

Can the seller have the right to bid?

- Yes, provided the following are conditions are present:
a. right to bid must be expressly reserved by or on behalf of the seller
b. right to bid must not be prohibited by law or stipulation
c. notice must be given that the sale is subject to a right to bid by or on behalf of the seller.
*any sale whereby the seller employs “by bidders” or “puffers” w/o notice may be treated as
fraudulent by the buyer. Thus the buyer may annul the sale on ground of vitiated consent due
to fraud

“Caveat Emptor” means buyer beware is applicable in a sale by auction.

Sale by Sample

Parties treated the sample as the standard of quality and they contracted solely with
reference to the sample and seller warrants that the bulk of goods delivered correspond to the
sample or description
*If the goods delivered do not correspond with the sample or description then the buyer may
ask for recission of the sale.

Sale by Description

The seller sells things as being of a particular kind, the buyer not knowing whether the seller’s
representations are true or false, but still relying on them as true and is the basis for the
transaction
*Sale in this kind may still happen regardless of whether the buyer has seen the goods or not,
as long as the buyer buys them only on the basis of the description made by the seller.

Similarity between sale by sample and description:

It creates an obligation on the part of the seller to deliver the agreed goods in accordance with
the terms. There is an implied condition that the goods shall correspond with the sample or
description
Conditions that must be present in a sale by sample or description:
a. the goods correspond with the sample or with the description
b. the buyer must have a reasonable opportunity of comparing the bulk with the sample or
description
c. the goods shall be free from any defect which is not apparent on reasonable examination of
the sample and which would render the goods unmerchantable.

Sale in a Form of Electronic Document

Electronic Commerce Act RA 8792

Sec. 7. Legal Recognition of Electronic Documents - Electronic documents shall have the
legal effect, validity or enforceability as any other document or legal writing, and

(a) Where the law requires a document to be in writing, that requirement is met by an
electronic document if the said electronic document maintains its integrity and reliability and
can be authenticated so as to be usable for subsequent reference, in that -
i) The electronic document has remained complete and unaltered, apart from the
addition of any endorsement and any authorized change, or any change which arises
in the normal course of communication, storage and display; and
ii) The electronic document is reliable in the light of the purpose for which it was
generated and in the light of all relevant circumstances.

(b) Paragraph (a) applies whether the requirement therein is in the form of an obligation or
whether the law simply provides consequences for the document not being presented or
retained in its original form. (c)Where the law requires that a document be presented or
retained in its original form, that requirement is met by an electronic document if -
i) There exists a reliable assurance as to the integrity of the document from the time
when it was first generated in its final form; and
ii) That document is capable of being displayed to the person to whom it is to be
presented: Provided, That no provision of this Act shall apply to vary any and all
requirements of existing laws on formalities required in the execution of documents
for their validity.

For evidentiary purposes, an electronic document shall be the functional equivalent of a

written document under existing laws.

This Act does not modify any statutory rule relating to the admissibility of electronic data
messages or electronic documents, except the rules relating to authentication and best
evidence.

Sec. 8. Legal Recognition of Electronic Signatures - An electronic signature on the

electronic documents shall be equivalent to the signature of a person on a written document if
the signature is an electronic signature and proved by showing that a prescribed procedure,
not alterable by the parties interested in the electronic document, existed under which -

a) A method is used to identify the party sought to be bound and to indicate said party’s
access to the electronic document necessary for his consent or approval through the
electronic signature; b) Said method is reliable and appropriate for the purpose for which the
electronic document was generated or communicated, in the light of all circumstances,
including any relevant agreement; c) It is necessary for the party sought to be bound, in order
to proceed further with the transaction, to have executed or provided the electronic signature;
and d) The other party is authorized and enabled to verify the electronic signature and to
make the decision to proceed with the transaction authenticated by the same.
Sale or return

Buyer becomes the owner of the goods upon delivery and he or she has the right to revest
ownership back to the seller when he returns the goods within the specified time or within the
reasonable time

Sale on approval

Seller is still the owner despite delivery to the buyer except when:
1. buyer accepts
2. buyer does an act impliedly accepting (ex. If it was actually used or consumed)
3. buyer does not signify his approval but fails to return within a reasonable time the goods.

SALE OR RETURN SALE ON APPROVAL

Ownership passes to Ownership passes upon
buyer upon delivery acceptance by the buyer
risk of loss is on the Risk of loss is on the
buyer seller
Buyer may return the Cant return the goods if
goods even if satisfied of he is satisfied with its
its quality quality

Sale by Lump Sum

There shall be no increase or decrease of the price although there be a greater or lesser are
or number than that stated in the contract. However, the discrepancy must not be substantial.

The words “more or less” covers a reasonable excess or deficiency.

Sale of Real Property

Rules: If the sale of real estate should be made with a statement of its area at the rate of a
certain price for a unit if measure or number:

1. The vendor shall be obliged to deliver to the vendee, if the latter should demand it, all that
may been stated in the contract; or
2. Should it be not possible, the vendee may choose between:
A. Proportional reduction of the price; and
B. Rescission of the contract, provided that the lack in the area is not less tahn one-tenth
(1/10) of that stated (Art. 1539).

What are the rules if any of the immovable is not of the quality specified in the contract?

ANS:

The same rules above will apply if any part of the immovable is not of the quality specified in
the contract, even when the area is the same. The rescission in this case shall only take place
at the will of the vendee when the inferior value of the thing sold exceeds one-tenth (1/10) of
the price agreed upon (Art. 1539).

Note: If the vendee would not have bought the immovable had he known of its smaller area or
inferior quality, he may rescind the sale (Art. 1539).

When shall the action prescribe arising from the sale of real estate mentioned in Art. 1539?

ANS:

Said actions shall prescribe in six (6) months, counted from the day of the delivery (Art. 1543).
DOUBLE SALES

What are the requisites for double sales?

ANS:

The requisites are:

1. Two or more transactions must constitute valid sales;

2. They must pertain to exactly the same object or subject matter;
3. They must be bought from the same or immediate seller; and
4. Two or more buyers whoa re at odds over the rightful ownership of the subject matter must
represent conflicting interests

What are the rules of preference in double sales?

ANS:

The rules of preference are:

1. Personal Property - first possesor in good faith
2. Real Property
a) First registrant in good faith; second buyer must register the document in good faith;
otherwise, he does not have a better right; if none, then
b) First possessor in good faith; if none, then
c) Person with oldest title in good faith

Spouses Pudadera v. Magallanes:

In case of a double sale of immovables, ownership shall belong to "(1) the first registrant in
good faith; (2) then, the first possessor in good faith; and (3) finally, the buyer who in good
faith presents the oldest title."30 However, mere registration is not enough to confer
ownership. The law requires that the second buyer must have acquired and registered the
immovable property in good faith.

In order for the second buyer to displace the first buyer, the following must be shown:
(1) the second buyer must show that he acted in good faith (i.e.,  in ignorance of the first sale
and of the first buyer’s rights) from the time of acquisition until title is transferred to him by
registration or failing registration, by delivery of possession; and
(2) the second buyer must show continuing good faith and innocence or lack of knowledge of
the first sale until his contract ripens into full ownership through prior registration as provided
by law.

However, this rule shall not apply when the party has actual knowledge of facts and
circumstances that would impel a reasonably cautious man to make such inquiry or when the
purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to
induce a reasonably prudent man to inquire into the status of the title of the property in
litigation.

Who is a purchaser in good faith?

ANS:

A purchaser on good faith is one who:

1. Buys the property without notice that some other person has a right to, or interest in, such
property; and
2. Pays a full and fair price for the same at the time of such purchase or before he has notice
of the claim or interest of some other person in the property.

Who has the burden of proving the status of a buyer in good faith?
ANS:

One asserting the status of a buyer in good faith and for value has the burden of proving such
status, which goes beyond a mere invocation of the ordinary presumption of good faith.

What is the effect of sale of an unregistered land?

ANS:

Under Act 3344, registration of instruments affecting unregistered lands is “without prejudice
to a third party with a better right”, which means that mere registration does not give the buyer
any right over the land if the seller was not anyomore the owener of the land having
previously sold to somebody else even if the earlier sale was unrecorded.
Conditions and Warranties

What is a condition?

ANS:

It is an uncertain event or contingency in the happening of which the obligation of the contract
depends.

Note: It includes both future, and past and unknown events.

What is a warranty?

ANS:

It is a statement or representation made by the seller of goods, contemporaneously and as

part of the contract of sale, having reference to the character, quality, or title of the goods, and
by which he promises or undertakes to ensure that certain facts are or shall be as he then
represents them.

What are the kinds of warranties?

ANS:

The kinds of warranties are:

1. Express warranty - imposed by the parties. It can be:
a) Warranty relating to the contract or the transaction
b) Warranty relating to the object of the contract
c) Warranty relating to the party of the contract
2. Implied warranty - imposed by law

What is an express warranty?

ANS:

It is an affirmation of fact or any promise by the seller relating to the thing, the natural
tendency of which is to induce the buyer to purchase the thing and the buyer thus induced,
purchased the same.

What are the requisites of an express warranty?

ANS:

An express warranty:
1. Must be an affirmation of fact or any promise by the seller relating to the subject matter of
the sale;
2. The natural tendency of such affirmation or promise is to induce the buyer to purchase the
thing; and
3. The buyer purchases the thing relying on such affirmation or promise (Art. 1546).

What is an implied warranty?

ANS:

An implied warranty is that which the law derives from the nature of the transaction r the
relative situation or circumstances of the parties, irrespective of any intentions of the seller to
create it.
What are the kinds of implied warranties?

ANS:

The kinds of implied warranties are as follows:

1. Implied warranty as to seller’s title (Art. 1548)
2. Implied warranty against hidden defects or unknown encumbrance (Art. 1561)
3. Implied warranty as to the legality and existence of assigned credit
4. Implied warranty as to fitness or merchantable quality (Art. 1562).

When is an implied warranty inapplicable?

ANS:

Implied warranty is inapplicable in the following instances:

1. “As is and where is” sale or when the vendor makes ni warranty as to the quality or
workable condition of the goods. In this case, the vendee takes them in the condition in which
they are found and from the place where they are located;
2. Sale of second-hand articles;
3. Sale by virtue of authority in fact or law.

Moles v. IAC:

It is generally held that in the sale of a designated and specific article sold as secondhand,
there is no implied warranty as to its quality or fitness for the purpose intended, at least where
it is subject to inspection at the time of the sale. On the other hand, there is also authority to
the effect that in a sale of a secondhand articles there may be, under some circumstances, an
implied warranty of fitness for the ordinary purpose of the article sold or for the particular
purpose of the buyer.

In the instant case, a certification to the effect that the linotype machine bought by petitioner
was in A-1 condition was issued by private respondent in favor of the former. This cannot but
be considered as an express warranty.

To which does the warranty of the seller “that he has right to sell” refer?

ANS:

It refers only to the transfer of ownership at the point ig consummation and not to any
representation as to ownership and the capacity to transfer the same at the point of
perfection.

What are the requisites to recover under a warranty against eviction?

ANS:

The requisites are:

1. Vendee is deprived, in whole or in part, of the thing purchased;
2. Deprivation is by virtue of a final judgment (Art. 1557);
3. Judgment is based on a right prior to the sale or an act imputable to the vendor;
4. Vendor was summoned in the suit for eviction at the instance of the vendee to:
a) Enable the seller to prove his claim;
b) Avoid multiplicity of suits; and
c) Satisfy due process (Art. 1558).
5. No waiver of warranty by the vendee.

Note: A seller cannot waive a warranty if he has knowledge of such defect as it signifies
fraud. Under Article 1171 of the New Civil Code, any waiver of an action for future fraud is
void.
What are the requisites for warranty against non-apparent burden or servitudes?

ANS:

The requisites are:

1. Immovable sold is encumbered with non-apparent burden or servitude not mentioned in the
agreement; and
2. Nature of non-apparent servitude or burden is such that it must be presumed that the buyer
would not have acquired it had he been aware thereof (Art. 1560).

What are the requisites for warranty against hidden defects?

ANS:

The requisites are:

1. Defect is serious or important such that:
a) The hidden defect should render the subject matter unfit fir the use for which it is
intended; or
b) The hidden defect should diminish the thing’s fitness such that the buyer would not
have acquired it or would have given a lower price for it had he been aware of it,
2. Defect is hidden;
3. Exists at the time of the sale;
4. Vendee must give notice of the defect to the vendor within a reasonable time (Art. 1586);
and

Note: Remedies must be brought within the period of six (6) months from delivery of the thing,
or 40 days from the date of delivery in case of animals.

5. No waiver of the warranty.

What are the requisites for breach of warranty in sale of goods to apply?

ANS:

The requisites are:

1. That the buyer sustained injury because of the product;
2. That the injury occurred because the product was defective or unreasonably unsafe; and
3. The defect existed when the product left the hands of the seller.

What are the kinds of waivers?

ANS:

The kinds of waivers are:

1. Waiver Consciente - voluntarily made by the vendee without the knowledge and
assumption of the risks of eviction. Vendor shall pay only the value which the thing sold had
at the time of eviction; and
2. Waiver Intencionada - made by the vendee with knowledge of the risks of eviction and
assumption of its consequences, in which case the vendor is not liable provided he did not act
in bad faith.

What are the buyer’s options in case of breach of warranty by the seller?

ANS:

The buyer may, at his election:

1. Accept or keep the goods and set up against the seller, the breach of warranty by ways of
recoupment in diminution or extinction of the price;

2. Accept or keep the goods and maintain an action against the seller for damages for the
breach of warranty;
3. Refuse to accept the goods, and maintain an action against the seller for damages for the
breach of warranty;

4. Rescind the contract of sale and refuse them or offer to return them to the seller and
recover the price or any part thereof which has been paid;

Note: When the buyer has claimed and been granted a remedy in any of the
abovementioned, no other remedy can thereafter be granted granted without prejudice to the
provisions of the second paragraph of Article 1191 of the New Civil Code.

Article 1191 par. 2. The injured party may choose between the fulfillment and the rescission
of the obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.

5. In the case of breach of warranty of quality, such loss, in the absence of special
circumstances showing proximate damage of a greater amount, is the difference between the
value of the goods at the time of delivery to the buyer and the value they would have had if
they had answered to the warranty (Art. 1599).

When is the buyer not entitled to rescind the sale?

ANS:

Should the goods have been delivered t the buyer, he cannot rescind the sale in any of the
following instances:

1. If he knew of the breach of warranty when he accepted the goods without protest;
2. If he fails to notify the seller within a reasonable time of the election to rescind; or
3. If he fails to return or to offer to return the goods to the seller in substantially as good
condition as they were in at the time the ownership was transferred to the buyer (Art. 1599).