SALES

Elements of a Contract of Sale

1. Consent
2. SM
Upon perfection: determinable (Capable of being made determinate
without further agreement between the parties. (Generic-
determinable SM is not subject to loss.)

Upon consummation, determinate (Requires physical segregation or

particular designation.

* If intention is not clear:

1. Object is more valuable: Barter

2. Object is equivalent to Cash: Sale
3. Cash is greater than object: Sale

Sale vs. Barter

BARTER SALE

Thing for thing. Thing for money

Special Rules: Special Rules:

1.If the thing received in 1. Statute of Frauds
barter is found not to be the 2. Right of legal redemption
other party’s, cannot be to adjoining owners of urban
compelled to deliver what he land.
promised.
2. If he lost by eviction, the
thing received in barter, he

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may recover what he gave in
exchange, with damages. (As
long as it did not fall in the
hands of a third person in
GF.)

Contract of Sale vs. Contract to Sell

Contract to Sell Contract of Sale

Upon perfection, must have a If the specific right granted
stipulation that the SM to the seller to extra-
remains with the seller until judicially rescind the contract
full payment of the price. in case of default is missing.
There is specific right
granted to the seller to extra-
judicially rescind the
contract in case of default.
There is a stipulation that
upon payment of full price,
the seller executes a deed of
sale in favor of the buyer.
Upon consummation: Upon consummation:
Title do not pass upon Title passes upon delivery.
delivery (only upon payment (Non-payment is a
of full purchase price.) substantial breach.)
Payment of full purchase
price is a suspensive
condition.
Remedies: Remedies:
Ownership is retained, so the Need to rescind the contract
contract is automatically to recover ownership.
extinguished. There can be forfeiture of
Only action is for recovery payments already made by

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of possession.
Return payments made.
But there can be decision
based on equity if there were
sufficient payments already
made.
the buyer to the seller as long
as it is provided for in the
contract and it’s not
unconscionable.

Parties to a Contract of Sale

Who has capacity to enter into a contract of sale?

1. Anyone with capacity to enter into a normal contract.

2. For minors, follow usual rules.

GR: Both must be capacitated.

XPN: As to necessaries, valid even contracted by incapacitated or
minor.

Status of a contract of sale of necessaries to minor?

Necessaries – dwelling, food, medicine, etc.

One cannot institute annulment. If perfected and delivered, it is a

valid contract. If just perfected, voidable.

Special disqualifications:

1. Husband and wife (XPN: When there is separation of property

regine or judicial separation of property (marriage settlement)

2. Agents over principal’s property (XPN: When the principal

consented. This is the only relationship that can be validated by the
principal by consent.)

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3. Guardian over ward’s property (even if ward consented.)

4. Executor or administrator over estate property (XPN: When

the administration had already ceased.) TN: Short gap of time
between termination of administration and sale is a badge of fraud.

5. Public officers and employees over property of the State,

subdivision, or GOCC entrusted to them.

6. Officers of the court over property under litigation or levy in

the court they function in. – applies to assignment or conveyance.

7. Lawyers over property and rights under litigation. (XPN:

Contingency fees – Transfer of property only happens after
favorable judgment.) (XPN to the XPN: If the lawyer exercised
undue influence, the court may nullify the sale.)

Subject Matter of a Contract of Sale

1. Possible subject matter – it may not exist at the moment but it can
definitely exists.
* Seller need not be the owner of the thing sold. Ownership is
required only at the time of delivery. Payment of price does not
transfer ownership.

2. Licit

Examples of illicit SM:

a. Sale of intransmissible rights
b. Sale of future inheritance. (No valid contract re: future
inheritance.)

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3. Determinate or at least determinable (as to its kind)

Determinate – particularly designated or physically segregated

already.

Determinable – upon perfection of the contract, the thins is capable

of being made determinate, without necessity for a new agreement
between the parties.
Ex: Contract refers to an existing document.

Emptio rae speratae – sale of future goods. (Based on a suspensive

condition that the thing will come into existence.)

Emtio spae – sale of a vain hope or expectancy. VOID

Price

Requisites of a valid price

1. Real – When the buyer has every intention to pay and seller has
every intention to receive.
(TN of absolutely or relatively simulated contracts)
If price indicated is false but not simulate – contract is valid.

2. Must be in money or its equivalent.

Note: There can be post-perfection agreements like dacion en pago
to give something else other than money.
3. Certain or ascertainable at the time of perfection.
Certain – if it is in a definite amount.
Ascertainable – if reference can be made to another thing certain or
judgment of another person.

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When third party refuses or cannot fix the price or when the
price cannot be determined through the thing certain

The contract is inefficacious because of failure of the happening of

suspensive condition.

When courts can fix the price

1. Third party in BF
2. In case of mistake

Effect of deficiency of price

- will not affect validity of the sale contract, but may indicate
vitiated consent or that it is a donation contract.

Contract to Sell vs. Option Contract

1. In contract to sell, there is promise to buy and sell a determinate

thing for a price certain. While in option contract, it is the contracted
offer, securing the privilege to buy, so the other party cannot enter
into a contract with another.

2. Both contracts are subject to specific performance.

3. Both are perfected contracts, but not the Contract of Sale per se.

Requisites for an Option Contract to be valid

1. Agreed time.
2. Determined price.
3. Separate consideration. (Need not be in cash. It can be a
mortgage, buying the lands in half a property, etc. as long as it’s an
undertaking of value.

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How is the option exercised

Merely advising the offering party. Ne need to pay stipulated price

of the sale yet upon exercise of option.

* When there is option money, the seller must respect the option
period. Otherwise, liable for damages but not compelled to sell the
property in view of the option contract.

Right of First Refusal – A promise on the part of the owner that he

will sell it first to the promise should he decide to sell the thing.
Must be in writing otherwise, unenforceable.

If RFR is not honored, damages only. Specific performance is not

applicable.

Earnest Money
- part of the purchase price.
- given only when there is already a sale.

In case of sale or return:

Upon delivery, ownership is transferred to buyer.

In case of Sale on Trial sans approval:

Upon delivery, ownership is not transferred unless buyer approves
or after lapse of 7 days.

Transfer of ownership/performance of sale contract

Tradition – when the thing sold is placed in the control and

possession of the vendee. (With intent to deliver)

Types:

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1. Actual Delivery
2. Constructive Delivery – Any manner signifying transfer of
possession.
a. Constitutum Possessorium – sold as owner, continue to possess as
lessee. (Sold the thing, but continue possessing the same but not
anymore as an owner but as lessee.)
b. Traditio Brevi Manu – bought as lessee, and becomes owner.
(Buyer in possession of the thing sold)
c. Tradition Longa Manu – Delivery by agreement. (Pointing to a
thing)
3. Symbolic Delivery – Ex: Delivery of keys of a car.
4. Traditio Instrumental – Execution of public instrument which is
equivalent to delivery of the thing, unless the contrary can be
inferred.

XPN to this rule:

1. Contrary stipulation in the instrument

2. Seller did not control the SM at the time of execution of the
instrument (XPN to the XPN: when there is express agreement that
the buyer will take steps to obtain material possession of the thing
from a third person.
3. Seller did not have control or ability to transfer physical
possession of the property for a reasonable length of time after
execution of the public instrument.

Delivery by carrier

GR: Delivery to carrier is delivery to buyer.

XPN:
1. Free Alongside Ship Sales – delivery when goods placed
alongside vessel.

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2. Free on Board Sales – FOB “shipping point” – delivery to carrier
is delivery to buyer. (Buyer must pay freight)
FOB “destination” – delivered to the buyer only upon reaching
destination.
3. Costs, Freight, Insurance Sales – The buyer pays the fixed price
while seller pays insurance and freight up to the point of destination.

When does delivery not transfer title

1. On sale or return
Buyer has option to return instead of paying the price.
Delivery vest ownership but the buyer may return the goods within
the time stipulated/reasonable time.

2. Sale on acceptance (or on approval or on trial)

Delivery will transfer only, until
Buyer signifies approval
Buyer does not signify approval but retains goods without notice of
rejection.
3. Reservation of ownership
4. Sale is not valid
5. Seller is not owner.
XPNS:
1. True owner is estopped.
2. Sale made by registered or apparent owner according to
registration laws.
3. Sale pursuant to statutory power of sale or under order of court.

Double Sale

GR for double sales (registered immovables)

- The Torrens systems prevails in setting priorities.

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- When the property is covered by two different titles, the earlier one
prevails.
- When one buyer bought the land as registered under Act 3344, (old
registration law) and another bought the land as registered under the
Torrens title PD 1529, the latter prevails.

In case of a subsequent judicial sale when there was already a

prior unregistered sale

1. If the land was registered, the judicial sale prevails because the
rule “First-registrant wins” applies. And in this case, the ordinary
sale was unregistered while the judicial sale is otherwise.

2. If the land was unregistered, the unregistered sale prevails

because there are no rights to step into for the second buyer.

Rule on movables
First person to take possession of it in GF wins. (no need to register
for movables)

Rules for unregistered immovables

1. First person who registers the land in the Registry of Property in

GF
2. If neither, the first person who possessed it in GF
3. If neither, the person who presents older title in GF

When does this rule apply?

1. When there are two valid sales.
2. Same SM
3. From the same person
4. With conflicting interests.

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Risk of Loss

GR: 1. Generic things do not perish.

2. The 6 rules on loss, deterioration and improvement with or
without fault (Art 1189, NCC)

Loss prior to perfection – The seller obviously bears the loss.

Loss at the time of perfection but before delivery of the thing

1. If entirely lost, then the contract is extinguished.

2. If partially lost, the buyer may either rescind the contract or
demand delivery with reduction price.

Loss occurred when ownership is transferred

Follow res perit domino. The goods remain at the seller’s risk until
ownership is transferred to the buyer. When the ownership of the
goods has been transferred to the buyer, then the risk transfers to
him.

XPNS:

1. If the possession has been transferred to the buyer or the latter’s

bailee, but the ownership remained with the seller as a security,
(trust receipts) then risk has passed to the buyer.
2. If delivery has been delayed due to the buyer’s or seller’s fault,
then the party at fault bears the risk.

Delay in delivery – goods are at the risk of party in delay.

If acceptance is by telegram, the perfection of contract is upon

receipt of the telegram by the seller.

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Remedies of an unpaid seller

Unpaid Seller
1. When whole price has not been paid or tendered.
2. Negotiable instrument received as conditional payment and the
condition was broken due to dishonor, insolvency, etc.

Ordinary remedies of an unpaid seller

1. If ownership has been transferred to the buyer, SPECIFIC

PERFORMANCE for price.
2. If ownership has not yet been transferred to the buyer, it can be
resold for a reasonable price. The seller can also offer to deliver to
the buyer.
* If the buyer refuses to receive the goods, the seller becomes a
bailee for the buyer.
* The seller can ask for SPECIFIC PERFORMANCE for the price.
3. If the price payable on a certain day, the seller can ask for
SPECIFIC PERFORMANCE for the price regardless of delivery.
(The buyer can launch as a DEFENSE the seller’s INCAPABILITY
TO PERFORM HIS OBLIGATION.)

Special Remedies for an Unpaid Seller (Special in the sense that

these are self-help remedies and can be done as lnog as there is no
physical intrusion.)

1. Possessory lien over the goods (Right of possessory lien) –

right of possession of thing until paid.

a. When ownership has been transferred: Seller has lien on the

goods or right to retain goods if he still possesses them.

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b. When ownership has not been transferred: Seller has right to
withhold delivery.

c. Buyer’s disposition of the goods does not terminate lien.

XPNS:
1. If seller assents
2. What was sold was a negotiable instrument held by a possessor in
GF

2. Stoppage in transitu – Right to stop goods in transit.

Buyer’s disposition of the goods does not affect stoppage.

XPNS:
1. If seller assents.
2. What was sold was a negotiable instrument held by a possessor in
GF

Goods are in transit when:

1. Carrier/bailee has them before buyer takes delivery of the goods.

2. Goods rejected by buyer and carrier/bailee continues in
possession.
BUT if the goods are being carried on behalf of the buyer already or
the carrier wrongfully refuses to delvier goods to the buyer, they are
deemed NOT IN TRANSIT.

3. Special Right of Resale

This right applies when:

a. Goods are perishable in nature.
b. When there is unreasonable delay.
c. When there is stipulation.

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* Excess of resale belong to the seller whereas deficiency of resale is
shouldered by the first buyer.

4. Special right to Rescind

This right may be exercised when:

1. There is express reservation of right to rescind.

2. Default for unreasonable time (unreasonable delay)

NB: In special remedies 3 and 4, it is required that prior exercise of

possessory lien over the goods or stoppage in transitu.

Warranties

Express warranties – those provided in the contract.

Implied warranties

1. Implied warranty by seller that he has a right to sell the thing at

the time ownership is to pass and that the buyer from that time will
have legal and peaceful possession of the thing.

2. Implied warranty that the thing is free from any hidden faults or
defects, or any undeclared charges/encumbrances. (BUT this cannot
hold liable a pledge, mortgagee, sheriff, auctioneer, with authority
under the fact or law, for the sale of a thing where a third person has
legal or equitable interest.

Buyers Remedies for Breach of Warranty

1. Accept the goods but recoup price or have it reduced.

2. Accept the goods and file for damages.

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3. Refuse to accept the goods and file for damages.
4. Resolve Contract of Sale and refuse to accept the goods OR have
mutual restitution, if applicable.

When can the buyer not rescind?

1. If he knew of breach of warranty but accepted goods without
protest.
2. Failed to notify the seller within reasonable time.
3. If buyer fails to return the goods or offer to return them.

* Fruits of the thing sold belong to the buyer from the time of
perfection of the contract. (This is an exception to the rule on
obligations.)

Warranty in case of eviction – It is an implied warranty wherein if

the vendee is deprived of the whole or part of a thing purchased by
FJ based on a right prior to the sale by the vendor, the vendor is
answerable for the eviction.

Requisites:

1. Deprivation of the vendee of the whole/part of the thing bought.

2. By virtue of final judgment
3. Based on a right prior to the sale or an act imputable to the
vendor.
4. Vendee must be summoned in the suit for eviction at the vendee’s
instance.

In case of warranty against eviction, the vendee can demand

from the vendor: *Value of the property at the time of eviction.

1. Return value of the thing when sold.

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2. Income or fruits if he has been ordered to deliver them to the
party who won the suit.
3. Cost of suit which caused eviction (or suit brought against
vendor)
4. Expenses of the contract if vendee paid.
5. Damages and interests, and ornamental expenses. (If sale was in
BF)

Actions in warranty against hidden defects:

1. Rescission of Sale
2. Proportionate reduction of price.

Accion redhibitoria – Actions instituted by the vendee against the

vendor to avoid a sale on account of some vice or defect in the thing
which renders it unfit for the use intended.

Accion quanti minoris – Action to procure return of a part of the

purchase price paid by the vendee to the vendor due to the defect.

Prescriptive period is 6 months from date of delivery XPN:

redhibitory actions based on faults/defects of animals which is 40
days from date of delivery.

Breach of Contract

Remedies of the seller for breach of contract of sale of movables

1. If ownership has been transferred to the buyer, specific

performance for price.
2. If ownership has not yet been transferred to the buyer, it can be
resold for a reasonable price. The seller can also offer to deliver to
the buyer.

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- If the buyer refuses to receive the goods, the seller becomes a
bailee for the buyer.

- The seller can ask for specific performance for the price.

3. If the price is payable on a certain day, the seller can ask for
specific performance for the price regardless of delivery,
- The buyer can launch as a defense the seller’s incapability to
perform his obligation.

Remedies for sale of movable on installment (RECTO LAW) (3

Options)

1. Exact fulfillment of the obligation, if buyer fails to pay an

installment. (Recovery of deficiency is allowed.)

2. Cancel the sale, if buyer fails to pay 2 or more installments.

3. Foreclose Chattel Mortgage on the things, if buyer fails to pay 2

or more installments.

Remedies of seller for sale of immovables (If not recovered by

Maceda Law)

1. For anticipatory breach

If the seller has reasonable fear of breach or loss may immediately
sue for rescission of sale.

2. For failure to pay the price.

It does not bar the transfer of ownership or nullify the sale contract.
But he can rescind it through judicial or notarial demand.

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There has to be a demand for rescission first, to grant the buyer of
every opportunity to comply with the obligation, otherwise, the
buyer can still pay what is due.

MACEDA LAW

A. Maceda Law applies in the following:

1. Sale in installment, and

2. When the immovable is residential real estate or condo unit (not
commercial, industrial, or agrarian reform land) and
3. Either a Contract to Sell (notice of cancellation) or
Contract of Sale (Rescission)

* Applies also to financing transactions.

B. If buyer has paid at least 2 years of installments:

1. Grace period of 1 month (for every 1 year of installment

payments to pay (without interest)
- Can only be availed once every 5 years.

*Stipulation that there is no grace period or there is payment of

interest is invalid.

2. If the seller cancels the contract, he must refund to the buyer the
cash surrended value of payments already made: (50% + 5% for
every year beyond 5 years of installments (not exceeding 90% total)

After expiration of grace period, the seller gives:

1. Cash surrender value

2. Notarial demand for rescission

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3. And there is lapse of 30 days from receipt of notarial demand.

C. If the buyer has paid less than 2 years of installments:

1. Grace period: Only 60 days from date the installment became due.
2. After grace period, the seller may either cancel the contract
(Contract to Sell) by giving notarial notice of rescission (Contract of
Sale). There is another 30 day period before the cancellation or
rescission takes effect.

*Cash surrender value does not apply in this situation. The buyer
does not get it back.

Remedies of the buyer in a sale of movables

1. Specific Performance
2. Recall four actions for breach of warranty
a. Accept goods but recoup/reduce price
b. Accept goods, with damages
c. Refuse goods, with damages
d. Resolve contract
3. Suspension of payments in anticipation of breach.
- If buyer has a reasonable fear of disturbance, vindicatory action, or
foreclosure.

Remedies of the buyer in a sale of immovables

1. Suspension of payment if there is reasonable fear of disturbance

or danger.
- Unless the seller gives security for return of price.

2. Subdivision or condominium projects (PD 957)

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- No forfeiture of payments where there is failure to develop
condominium projects or subdivisions and then the buyer stopped
payment.
- Buyer can ask for refund of what he paid – notice and demand can
be simultaneous.

Extinguishment of Sale

Causes to extinguish a contract of sale

1. Ordinary causes to extinguish obligation

2. Breach
3. Conventional or legal redemption

Convention redemption (Sale pacto de retro) – sale with right to

repurchase property, as agreed.

When the seller expressly reserves the right to repurchase the thing
sold. It must be reserved by the seller in the same instrument of sale.

Period of redemption:

1. 4 years if no period is agreed upon

2. If agreed upon, not to exceed 10 years
3. 30 days from judgment of the court, if there is judgment declaring
a contract one with conventional right to redeem and not something
else. (Ex: Equitable Mortgage)

-Title not immediately transferred to buyer. Buyer should file an

action to consolidate ownership/title after lapse of period to
repurchase.

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What must be returned to the buyer by the seller?

1. Price
2. Expenses of the contract
3. Necessary and useful improvements/expenses

When a contract is presumed to be an Equitable Mortgage

1. Price of sale with right to repurchase is unusually inadequate

2. The seller remains in possession of the property as lessee or
otherwise.
3. The period of redemption is extended in another instrument.
4. The buyer retains for himself a part of the purchase price.
5. The seller binds himself to pay for the taxes of the ting sold.
6. Any other similar cases.

Rule in case of doubt

1. A sale purporting to be pacto de retro (with conventional

redemption) is deemed an Equitable Mortgage. (There is less
transmission of rights)

3. Same with absolute sales, but the real intent is to secure an

obligation.

Legal Redemption – mechanism of law to minimize co-ownership

among:

1. Co-heirs
a. Selling to a stranger prior to partition.
b. Can redeem within 1 month from receipt of notice of sale to
stranger.
c. Applies only to hereditary rights (co-heirs)

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2. Co-owners
a. Selling to a stranger of a co-owner’s share.
b. If two or more co-owners decide to redeem, they acquire in
proportion to their exiting shares.

3. Adjoining owners of
a. Rural land
- Sale of land which does not exceed 1 hectare
- Not applicable to lands separated by servitude.
- If two or more are requesting redemption, prefer the one with the
smaller lot. If equal, prefer the first requestor to redeem.
- Purpose: To maximize use of rural lands.

Legal Redemption starts to run

1. Within 30 days from receipt of notice in writing by the

prospective seller or seller.
2. Written notice is indispensable even if the redeemer gains
knowledge of the sale some other way.
XPNS:
a. Suit in court to eject or collect rentals from co-owners.
b. Laches by redeemers.
c. The co-owner himself acted as middleman or intermediary in
the sale to the third party.

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