SALES

Sale, concept

A contract whereby one of the contracting parties (known the seller or vendor), obligates himself to transfer the ownership
of and to deliver a determinate thing, and the other party, (known as the buyer or vendee),obligates himself to pay therefor a price
certain in money or its equivalent. (See Art. 1458)

Elements of a contract of sale

1. Essential elements/requisites - Those without which a contract of sale would not exist.

a. Consent of the contracting parties

b. Subject matter which should be a determinate thing

c. Price certain in money or its equivalent

2. Natural elements - Those inherent in a contract of sale, which in the absence of stipulation excluding them, are deemed to
exist .

3. Warranty against eviction

a. Warranty against hidden defects and encum-brances

3. Accidental elements – They refer to particular stipulations of the parties such as terms, place and time of payment, and
other conditions agreed upon.

Characteristics of a contract of sale

1. Consensual - It is perfected by mere consent of the parties.

2. Principal - It can exist by itself without being dependent upon another contract.
3. Bilateral – The parties are bound by reciprocal obligations.
4. Onerous - Valuable considerations are given by both parties to acquire rights.
5. Commutative - The parties exchange almost equivalent values.
6. Nominate - It has a special name given to it by law,

Sales distinguished from dacion en pago

1. In sale, there is no pre-existing credit, while in dacion en pago, there is a pre-existing credit.
2. A sale creates obligations, while dacion en pago extinguishes obligations.
3. In sale, the cause or consideration is the price, from the seller's point of view; and the delivery of the object, from the
buyer's point of view. In dacion en pago, the cause or consideration is the extinguishment of the obligation, from the
debtor's point of view; and the delivery of the object given in place of the credit, from the creditor's point of view.
4. In sale, there is greater freedom in fixing the price, while in dacion en pago, there is less freedom in fixing the price because
of the amount of the pre-existing credit which the parties seek to extinguish,

Sale distinguished from payment by cession or cession de bienes

1. In sale, there is no pre-existing credit, while in payment by cession, there are pre-existing credits.
2. A sale creates obligations, while payment by cession extinguishes obligations.
3. In sale, the cause or consideration is the price, from the seller's point of view; and the delivery of the object, from the
buyer's point of view. In payment by cession, the cause or consideration is the extinguishment of the obligation, from the
debtor's point of view; and the assignment of the things to be sold, from the creditors' point of view.
4. In sale, there is greater freedom in fixing the price, while in payment by cession, there is less freedom in fixing the price
because of the fixed amount of the pre-existing credits which the parties seek to extinguish.
5. In sale, the ownership of the thing is transferred to the buyer. In payment by cession, the creditors do not become the
owners of the properties assigned to them but are merely given the right to sell such properties and apply the proceeds to
their claims.
Sale distinguished from contract for a piece of work

A contract for the delivery at a certain price of an article which the vendor in the ordinary course of business manufactures or
procures for the general market, whether the same is on hand or not, is a contract of sale.

However, if the goods are to be manufactured specially for the customer and upon his special order, and not for the general
market, it is a contract for a piece of work. (Art. 1467)

Puregoods Corporation, which maintains a professional basketball team, entered into a contract with Avenidas Footwear
Company for the latter to provide a pair of rubber shoes to the former's two imported basketball players, Scottie Duncan and John
Bryant. Avenidas Footwear was instructed to make a pair for any or both of the players in case the company did not manufacture
shoes of their size. No pair was, however, immediately available for both the players. Scottie Duncan, who is 6'3' tall and wears
size 12 rubber shoes, was given a pair the following day from the 200 pairs that Avenidas Footwear was in the process of
manufacturing for its customers at the time the orders were received. John Bryant, who is stands at 7 feet and wears size 18
shoes, was provided three days later,with a pair that was specially made for him since Avenidas Footwear does not make shoes of
his size. What kind of contracts were entered into for the shoes provided to the two basketball players?

Answer: The contract with respect to the shoes provided to Scottie Duncan was one of sale since the pair given to him was
manufactured by Avenidas Footwear in the ordinary course of business. The contract with respect to the pair provided to John
Bryant was for a piece of work since it was specially made for him and upon Puregoods' special order.

Sale distinguished from barter and rule if consideration is partly in money and partly in another thing

In sale, the cause or consideration is in money. In barter, the cause or consideration is another thing.

However, where the consideration is partly in money and partly in another thing, the following rules shall be observed to
determine whether the contract is a sale or barter:

1. The contract shall be one of sale or barter depending upon the manifest intention of the parties.
2. If the intention of the parties does not clearly appear:
a) The contract is one of barter if the value of the thing given as part of the consideration exceeds the monetary
consideration.
b) The contract is one of sale if the monetary consideration is more than or equal to the value of the thing given as
part of the consideration. (Art. 1468)

Examples:

1. S and B entered into a written contract which states that “S, Seller, hereby transfers his ring worth P20,000.00 to B, Buyer,
for B's cell phone worth P12,000.00 and cash of P8,000.00.” What contract was entered into between S and B?

Answer: The contract entered into between S and B is one of sale. It is evident that such was their intention when they
referred to themselves as seller and buyer, respectively, even if the value of the cell phone, the property consideration (P12,000.00)
is more than the monetary consideration of P8,000.00.

2. Suppose the written contract merely states that "S hereby transfers his ring worth P20,000.00 to B, for B’s cell phone worth
P12,000.00 and cash of P8,000.00.” What contract was entered into between S and B?

Answer: The contract is one of barter since the intention of the parties does not clearly appear, and the value of the cell
phone, the property consideration (P12,000.00) is more than the monetary consideration of P8,000.00

3. Suppose the written contract provides that "S hereby transfers his ring worth P20,000.00 to B, for B's cell phone worth
P10,000.00 and cash of P10,000.00.” What contract was entered into between S and B?

Answer: The contract is one of sale. Under Art. 1468, if the intention of the parties does not clearly appear, "it shall be
considered a barter if the value of the thing given as a part of the consideration exceeds the amount of money or its equivalent;
otherwise, it is a sale." "Otherwise", meaning, the monetary consideration is more than or equal to the value of the property
consideration.

Sale distinguished from contract to sell

1. In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell,
ownership is, by agreement, reserved to the vendor and is not to pass to the vendee until full payment of the purchase
price. (Sps. Orden vs. Sps. Aurea, G. R. No. 172733, August 20, 2008.) In a contract to sell, the prospective seller does not
 yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event,
such as, in most cases, the full payment of the purchase price. (David vs. Misamis Occidental II Electric Cooperative, Inc.,
G.R. No. 194785, July 11, 2012) (Note: Based on the foregoing discussions, a contract to sell partakes of the nature of a
contract preparatory to the execution of a contract of sale.)
2. In a contract of sale, non-payment of the price is a negative resolutory condition, i.e., the vendor loses ownership of the
property and cannot recover it until and unless the contract of sales is resolved or rescinded. In a contract to sell, full
payment of the purchase price is a positive suspensive condition, i.e., title remains in the vendor if the vendee does not
comply with condition precedent of making payment at the time specified in the contract. In other words, failure to pay the
price is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. (Sps.
Orden vs. Sps. Aurea, supra; Castillo vs. Reves, G. R. NO. 170917, November 28, 2007; Serrano vs. Caguiat, G. R. No. 139173,
February 28, 2007; Sps. Garcia vs. Court of Appeals, G.R. No. 172036, April 23, 2010)
3. In a contract of sale, the risk of loss is on the buyer. In contract to sell, the risk of loss is on the seller.

Case on Contract to sell

Roque vs. Aguado

G.R.No. 193787, April 7, 2014

Held: Where the seller promises to execute a deed of absolute sale upon the completion by the buyer of the payment of the
purchase price, the contract is only a contract to sell even if their agreement is denominated as a Deed of Conditional Sale. The
treatment stems from the legal characterization of a contract to sell, that is, a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the
subject property exclusively to the prospective buyer upon the fulfillment of the condition agreed upon, such as, the full payment of
the purchase price. Elsewise stated, in a contract to sell, ownership is retained by the vendor and is not to pass to the vendee until
the full payment of the purchase price.

Sale distinguished from agency to sell

1. In sale, title to the goods is transferred to the buyer upon delivery of the thing sold. In agency to sell, title to the goods is
retained by the owner despite the delivery of the goods to the agent.
2. In sale, the buyer is required to pay the price. In agency to sell, the agent is required to turn over to the principal the
price of the goods which he received from the buyer.
3. In sale, the recipient (i.e., the buyer) of the property may do with the property as he pleases. In agency to sell, the
principal retains control of the property. (Sps. Viloria vs. Continental Airlines, Inc., G. R. No. 188288, January 16, 2012,
citing Commissioner of Internal Revenue vs. Constantino, 31 SCRA 779)

Rules on the object of the contract of sale

1. Requisites of object of a contract of sale

a. The thing must be within the commerce of men.
b. The thing must be licit, i.e., it must not be contrary to law, morals, good customs, public order or public policy.
(Art. 1459)
c. The thing must be determinate. A thing is determinate if it is particularly designated or physically segregated
from all others of the same class. The requisite that a thing is determinate is satisfied if at the time the
contract is entered into, the thing is capable of being made determinate without the necessity of a new or
further agreement between the parties. Art. 1460)
2. The vendor must have the right to transfer the ownership of the thing at the time that it is delivered. (Art. 1459) Thus, it is
not necessary that the vendor must be the owner at the time of sale.
3. Things having a potential existence may be the object of a contract of sale. (Art. 1461) Thus, one can sell the young of
animals that thereafter will be born or the future harvest from a farm. However, the thing must come into existence;
otherwise, the sale will not be effective for not having a subject matter.

Distinction between sale of an expected thing (emptio rei speratae) and the sale of the hope itself (emptio spei)

a. Emptio rei speratae is the sale of a future thing; emptio spei deals with a present thing - the hope or expectancy b.In emptio
rei speratae, the thing sold must come into existence; otherwise, the sale will not be effective.

4. In emptio spei, the sale produces effects even if the thing hoped for does not come into existence. However, the sale of vain
hope or expectancy is void, such as the sale of a losing sweepstake ticket already drawn.
The goods which form the subject of a contract of sale may be either:
 a) Existing goods owned or possessed by the seller.

Thus, the sale of bathroom fixtures currently stored in the seller's warehouse is a sale of existing goods.

b) Goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale, called
"future goods", or goods whose acquisition by the seller depends upon a contingency which may or may not
happen. (Art. 1462)

Examples:

1) The garments to be sewn or to be purchased by the seller are goods to be manufactured or acquired by the seller.

2) There may also be a sale of chickens that may be raised in a poultry farm.

3) D promised to give C a specific car if C completes his course in mechanical engineering. C may sell the car to X although the
acquisition by C of the car is subject to a contingency.

5. The sole owner of a thing may sell an undivided interest therein. (Art. 1463) Such sale shall produce the effect of making the
seller and the buyer co-owners of the thing sold.

Example: S is the sole owner of an apartment. He sells 42 undivided interest therein to B. Such sale shall produce the effect
of making S and B co-owners of the property with each party becoming an owner of undivided interest.

6. Sale of fungible goods

Fungible goods refer to interchangeable goods such as grain, oil, etc., that allow one to be replaced by another without loss
of value.

There may be a sale of an undivided share of a specific mass of fungible goods though the seller purports to sell and the buyer
purports to buy a definite number, weight or measure of the goods in the mass, and though the number, weight or measure of the
goods in the mass is undetermined. The following rules shall be observed if the quantity sold is different from the quantity of the
mass:

a. If the quantity, i.e., number, weight or measure, of the mass is more than the quantity sold, the parties shall become co-
owners of the mass. (Art. 1464)

Example: S sells to B 200 sacks of corn from a mass stored in the warehouse of S. The mass, however, actually consists of
300 sacks of corn. Thus, S and B will become co-owners of the whole mass to the extent of 2/3 for B and 1/3 for S

b. If the quantity of the mass is less than the quantity sold, the buyer becomes the owner of the whole mass, with the seller
being bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent appears. (Art.
1464)

Example: S sells to B 300 sacks of yellow corn from a mass stored in the warehouse of S. The mass, however, actually consists of
280 sacks of yellow corn. In this case, B becomes the owner of all the 280 sacks of yellow corn and S is bound to deliver to B an
additional 20 sacks of yellow corn to complete the quantity agreed upon.

7. Things subject to a resolutory condition may be the object of a contract of sale. (Art. 1465)

Example: S sold his lot to B with S being given the right to repurchase the lot within 5 years from the date of sale. The sale
and the right to repurchase were registered in the Register of Deeds where the lot is

located. Two years after the sale, B sold the lot to X. X became the owner of the lot subject to the right of S to repurchase it within
the 5-year period from the time he sold it to B.

Price, concept

Price is the sum stipulated as the equivalent of the thing and also every incident taken into consideration for the fixing of the
same, put to the debit of the vendee, and agreed to by him. (Unson vs. Urquico, 50 Phil. 171).

Rules on price

1. Certainty of price

The price of the thing sold must be certain; otherwise, the sale is void by reason of the absence of meeting of minds between the
parties. The price is considered certain under the following rules:
 a) If the parties have agreed upon a definite amount for the sale.

Example: S sold to B a specific wristwatch. The parties agreed that B would pay P2,500.00 for it. The price is certain because
the parties have agreed on a definite amount for the thing sold. Fixing of the price by one of the contracting parties.

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)

Example: S sold his car to B at a price to be fixed by S ten days after their agreement. On the tenth day, S fixed the amount at
P100,000.00. If B accepts the said price, the sale is perfected as there is a meeting of minds.

If B does not so accept, no sale is perfected.

b) If it be certain with reference to another thing certain. (Art. 1469)

Example: S sells to B a certain ring the price of which is the price of 20 bags of Island cement being sold at a certain store.

c. If the determination of the price is left to the judgment of a specified person or persons. (Art. 1469)

1) If such persons or persons are unable or unwilling to fix the price, the contract shall be inefficacious, unless the parties
subsequently agree upon the price.

2) If the third person or persons acted in bad faith or by mistake, the courts may fix the price.

3) If such third person or persons are prevented from fixing the price or terms by the fault of the seller or buyer, the party
not at fault may have such remedies against the party at fault as are allowed the seller

or buyer, as the case may be. (Art. 1469)

d. If the price fixed is that which the thing sold would have on a definite day, or in a particular exchange or market, or when an
amount is fixed above or below the price on such day, or in such exchange or market, provided said amount is certain. (Art.
1472 )

Example: S sells to B 500 shares of stock of San Miguel-B shares at the price equivalent to the closing price of the shares on
April 24, 2015, at the Philippine Stock Exchange. This is of course on the condition that there will be trading of the said shares on the
day agreed upon; otherwise, the sale is of no effect. Or the parties may agree that the price of the shares will be 20% above or 20%
below the price of the shares in the exchange on

the said day.

Effect if the price cannot be determined

The sale shall be inefficacious. However, if the thing or any part thereof has been delivered to and

appropriated by the buyer, he must pay a reasonable price therefor. What is reasonable price is a question of Tact dependent on the
circumstances of each particular case. (Art. 1474)

2) Gross inadequacy of price

Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in me consent, or that the parties
really intended a donation 01 some other act or contract. (Art. 1470) There is 80s inadequacy of price if a reasonable man will not
agree to dispose of his property. (Vda. De Delfin vs. Dellota, G.R. No. 143697, January 28, 2008, citing Aguilar vs. Ribato and Gonzales
Vila, 40 Phil 570)

Example: S sells to B for P180,000.00 a certain car whose actual value is P300,000.00. The fact that the price is inadequate
does not affect the validity of the contract. However, if S agreed to sell the car at P180,000.00 because B used insidious words or
machinations so that S would sell the car for the said price, then S may seek the annulment of the sale on the ground of vitiated
consent due to fraud.

3) Simulated price

If the price is simulated (i.e., the parties make it appear that a price certain in money is to be paid or has been paid),
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)
 Example: S and B entered into a contract where they made it appear that S sold his car to B for P100,000.00. In reality
however, B did not give S P100,000.00. The sale here is void by reason of the absence of an essential requisite which is the price. The
parties may, however, show that s really donated the car to B, in which case, the contract shall be one of donation, not a sale. Or if
what B gave to S was a particular diamond ring, then the contract shall be one of barter, not a sale.

When a contract of sale is perfected

A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and
upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions of law governing the form of
contracts. (Art. 1475)

Form of a contract of sale

1. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract of sale may be in any of the
following forms:

a) in writing, or
b) by word of mouth, or partly in writing and partly by word of mouth, or
c) may be inferred from the conduct of the parties. (Art. 1483).

2. Under the Statute of Frauds, the sale involving the following must be in writing to be enforceable

a. Sale of real property or of any interest therein (regardless of the price).

b. Sale of goods, chattels or things in action the price of which is P500.00 or more. (Art. 1403) Things in action include credit,
shares of stock and other incorporeal properties.

3. Sale of a piece of land through an agent

The authority of the agent to sell a piece of land must be in writing; otherwise, the sale is void. (Art. 1874)

a. If the authority of the agent to sell a piece of land is not in writing – the sale is void whatever may have been the form it was
entered into, i.e., oral, private instrument or public instrument.

b. If the authority of the agent is in a privato instrument and the sale was:

1) entered into orally the sale 18 unenforceable. (Art. 1403)

2) in a private instrument - the sale is valid.

3) in a public instrument - the sale is valid.

c. If the authority of the agent is in a public instrument and the sale was:

1) entered into orally - the sale is unenforceable. (Art. 1403)

2) in a private instrument - the sale is valid.

3) in a public instrument - the sale is valid.

Note: In order, however, that the sale may be recorded in the Register of Deeds, both the authority of the agent and the sale
must be in a public instrument. (See Art. 1358, paragraphs 1 and 3.)

Rules in case of sale by auction (Art. 1476)

1. Sale by auction in lots

Each lot is the subject of a separate contract of sale.

2. When sale by auction is perfected

When the auctioneer announces its perfection (a) by the fall of the hammer, or (b) in any other manner. a. a. Rights of
parties before perfection

1) Any bidder may retract his bid.

 This is so because a bid is merely an offer and an offer may be withdrawn anytime before acceptance.

2) The auctioneer may withdraw the goods from the sale unless the auction has been announced to be without reserve.

Withdrawal of the goods is equivalent to a rejection of the offer made by any bidder.

a) Auction with reserve

In an auction with reserve the auctioneer is the offeree and has the power of acceptance. As offeree he has
the power to reject all bids Such rejection includes withdrawal of the goods during the bidding process.

b) Auction without reserve In an auction without reserve, the auctioneer is much like an offeror, with the bidders
competing to determine who will win the power of acceptance. After the auctioneer calls for bids on an article or lot, that article or
lot cannot be withdrawn unless no bid

is made within a reasonable time.

b. Rights of parties after perfection

The winning bidder cannot retract his bid nor can the auctioneer withdraw the goods since there is already a perfected
contract. Withdrawal from the contract by either party constitutes a violation of the Principle of Mutuality of Contracts. (See Art.
1308.)

3. Right of seller to bid

The seller may bid at the auction provided the following requisites are present:

a) The right to bid must have been reserved expressly by or on behalf of the seller.
b) His right to bid must not be prohibited by law or stipulation.

For instance, in the exercise by the unpaid seller of his right to resell the goods, he cannot buy the goods directly or indirectly. (See
Art. 1533.)

c) Notice must be given that the sale is subject to a right to bid by or on behalf of the seller.

Effect of employment by the seller of "bų bidders" or "puffers” without notice

“By bidders" or "puffers” refer to persons employed by the seller to bid in his behalf, the purpose of which is to raise the price,
but the said persons are not in themselves bound by their bids.

Any sale whereby the seller employs “by bidders" or “puffers” without notice may be treated as fraudulent by the buyer. (Art.
1574). Thus, the buyer may annul the sale on the ground of vitiated consent due to fraud.

When ownership of the thing sold is transferred

The ownership of the thing sold is transferred upon the actual or constructive delivery thereof. (Art. 1477) The time when
ownership is transferred is important to determine the party who shall bear the loss.

The parties may, however, stipulate, that ownership in the thing sold shall not pass to the purchaser until he has fully paid the
price. (Art. 1478)

Promise to buy and/or sell

1. Bilateral promise - This takes place when one party promises to buy and the other party promises to sell a determinate thing
at an agreed price.

This is reciprocally demandable since this is as good as a perfected contract of sale. For enforceability, however,
observance of the proper form is required, if the object of the sale is a movable with a price of at least P500.00, or real property or
an interest therein, regardless of the price (See Art. 1403.) In other words, the promises should be in writing
 2. Unilateral promise - Here, the promise to buy or to sell a determinate thing at a certain price is made by only one of the
parties. The promise may be accepted or not and shall have the following effects:

a. if not accepted by the promisee (policitacion) – This does not produce any legal effect, If accepted by the promisee –

1) And is supported by a consideration distinct from the price, the promise is binding upon the promisor. (Art. 1479)

2) And it is not supported by any consideration distinct from the price, the promise is not binding upon the promisor. Accordingly,
the promisor can withdraw his promise by informing the promisee of such withdrawal even before the lapse of any option period
given to the promisee. (See Art. 1324 on option contracts.)

A unilateral promise to buy or sell, even if accepted, is only binding if supported by a consideration. In other words, “an
accepted unilateral promise" can only have a binding effect if supported by a consideration, which means that the option can still be
withdrawn, even if accepted, if the same is not supported by any consideration. (Eulogio vs. Sps. Apeles, G.R. No. 167884, January
20, 2009, citing Southwestern Sugar and Molasses Company vs. Atlantic Gulf and Pacific Co., 97 Phil 241)

Examples:

a. B promised in writing to buy and S promised in writing to sell his car for P100,000.00. The promise of each party is
reciprocally demandable.

b. S promised to sell his car to B for P100,000.00 giving B one week to decide whether to buy or not. If B does not accept the
promise, such non-acceptance does not create any obligation on the part of the parties. If B accepts the promise, S will be
bound by the promise if B gives a consideration, say P500.00 because a contract of option is perfected. So S cannot dispose
the property within the period that he gave to B for the exercise of his option. B, may or may not buy the car since he is not
obliged to buy but is merely given the option to buy it.

Query: How much will B pay if he eventually decides to buy the car? P100,000.00 or P99,500.00?

Answer: P100,000.00 because the amount paid by B as option money is not part of the purchase price.

Earnest money and option money, concept and distinctions

Earnest money is the money given as part of the purchase price and as proof of the perfection of the contract. (Dizon vs. Lustre,
02381-R, June 21, 1974) It is also called "arras" or something of value to show that the buyer was really in earnest, and given to the
seller to bind the bargain. (14 Words and Phrases 230)

Option money, on the other hand, is the consideration paid for the purpose of holding one to his promise to buy or sell a
determinate thing for a certain period of time, which consideration is separate and distinct from the purchase price. (Dizon Vs.
Lustre, supra) However, the consideration for an option contract is not always monetary but could consist of other things or
undertakings. If the consideration is not monetary, these must be things or undertakings of value, in view of the onerous nature of
the option contract. Furthermore, when a consideration for an option contract is not monetary, said consideration must be clearly
specified as such in the option contract or clause. (Bible Baptist Church vs. Court of Appeals, G.R. No. 126454, November 26, 2004,
444 SCRA 607, also cited in Eulogio vs. Sps. Apeles, supra)

From the foregoing discussions, earnest money and option money are distinguished as follows:

1. Earnest money is part of the purchase price, while option money is separate and distinct from the purchase price.

2. Earnest money is paid upon the perfection of a contract of sale, while option money is paid for a sale that is yet to be
perfected.
Illustration of earnest money

B is interested in buying the car of S for P100.000.00 payable within 30 days from the date of sale. To show that he is really in
earnest, B gives S P1,000.00 upon the execution of their agreement, which amount S accepts. There is here a perfected contract of
sale between B and S. Accordingly, on the due date for the payment of the price, B will have to pay S the amount of P99,000.00 only.

No perfected sale for prior payment of earnest money without property owner's consent to the sale

First Optima Realty Corp. vs. Securitron

Security Services, Inc.

G.R. No. 199648, January 28, 2015

Facts: ABC Corporation, through Mr. E, its general manager, offered to purchase a certain lot of XYZ Corporation, through
Ms. Y, its executive vice-president. Thereafter, Mr. E personally negotiated with an employee of XYZ, but not with Ms. Y or XYZ's
board of directors. ABC's offer to pay for the property in cash was also declined by Ms. Y who said that prior board approval was
required for the transaction. While negotiations were still going on and before Ms. Y could get the approval of the board of directors
of XYZ, ABC sent a letter and a check for P100,000.00 to XYZ’s receptionist/clerk, instead of Ms. Y's office. The letter indicated that
the check was for the earnest money on the total price of P1,536,000.00. The clerk issued for the check a provisional receipt which
indicated that the transaction was not yet cleared. The check was eventually deposited with and credited to XYZ's bank account in
the course of its daily operations. All these without the knowledge of Ms. Y and the board of directors of XYZ. ABC now demands that
XYZ execute deed of absolute sale in its favor saying there was a perfected sale because of the XYZ's acceptance of the earnest
money. Is ABC correct?

Held: No, ABC is not correct. In a potential sale transaction, the prior payment of earnest money even before the property
owner can agree to sell his property is irregular, and cannot be used to bind the owner to the obligations of a seller under an
otherwise perfected contract of sale. The property owner-prospective seller may not be legally obliged to enter into a sale with a
prospective buyer through the latter's employment of questionable practices which prevent the owner from freely giving his consent
to the transaction; this constitutes a palpable transgression of the prospective seller's right of ownership over the property

Rules on preservation of, injury to or benefit from the thing sold before or after perfection

1. Duty of seller to preserve thing after perfection but before delivery

The seller is obliged to take care of the thing with the diligence of a good father of a family unless the law or the
stipulation of the parties requires another standard of care. (Art. 1163)

2. Right of the buyer to the fruits

The buyer has a right to the fruits of the thing from the time of the perfection of the contract (Art. 1537), unless a contrary
stipulation has been agreed upon or a later date is set by the parties when such right will accrue such as when the obligation to
deliver arises at some future date. However, the buyer shall acquire no real right over the thing and its fruits until the same have
been delivered to him. (Art. 1164)

3. Loss of or injury to the thing

a. Loss before perfection (including deterioration in quality)

1) In case of complete loss, the sale is void because of the absence of the object.

2) In case of partial loss, the buyer may choose between:

 a) Withdrawal from the contract (rescission), and

b) Demanding the remaining part and paying its proportionate price. (Arts. 1493, 1494)

b. Loss after perfection - There are two views on this matter.

1) First view - Buyer bears the risk of loss (Art. 1480), i.e., he must pay the price.

After perfection but before delivery, the buyer bears the risk of loss of or injury to the thing since any benefit therefrom during the
same period inures to him. Therefore, the loss of the thing through a fortuitous event extinguishes the seller's obligation except in
the following cases:

a) When the seller delays.

b) When the law provides that the seller shall be liable even in case of fortuitous event.

c) When the parties have stipulated that the seller shall be liable even in case of a fortuitous event.

d) When the nature of the seller's obligation requires the assumption of risk. (Art 1262)

2) Second view - Seller bears the risk of loss (Art. 1504), i.e., buyer is not obliged to pay the price.

After perfection, the goods remain at the seller's risk until the ownership of the goods is transferred to the
buyer by actual or constructive delivery. However, not-withstanding that the ownership is not transferred to the buyer, the goods are
the buyer's risk:

a) If there is an agreement to that effect.

b) If ownership of the goods is retained by the seller merely to secure the performance by the buyer of his obligation
under the contract.

c) When actual delivery has been delayed through the fault of the buyer.

Note: The weight of authority is on the second view because it is consistent with the principle of “res perit domino" which means
"(T)he loss of property falls upon the owner.”

Sales by sample; description; and sample and description

1. Sale by sample

The parties contract solely with reference to the sample. The seller warrants that the bulk of the goods delivered
corresponds with the sample shown to the

buyer.

2. Sale by description

The parties contract solely with reference to the description. The seller warrants that the bulk of the goods delivered
corresponds with the description of the goods presented to the buyer.

3. Sale by sample and description

The seller warrants that the bulk of the goods delivered corresponds with both the sample and the description,
and not with only one. (Art. 1481) The buyer shall have reasonable opportunity of comparing the bulk with the description or the
sample. (Art. 1481)
Rescission by buyer

If the goods delivered do not correspond with the sample, description, or sample and description, as the case may be, the
buyer may ask for the rescission of the sale. (Art. 1481)

Remedies of vendor in installment sales of personal property (Recto Law) (Art. 1484), and contracts purporting to be leases of
personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing

1. Exact fulfillment of the obligation, should the vendee fail to pay

This remedy applies regardless of the number of installments defaulted.

2. If the vendee's failure to pay covers two or more installments, he may, at his option, avail himself of the first remedy, or do
either of the following:

a. Cancel the sales

When the sale is cancelled or rescinded, the vendor shall return to the vendee the sums received minus reasonable
rent. However, the parties may stipulate that the installments or rents paid shall not be returned provided the stipulation is
not un conscionable (Art. 1486)

b. Foreclose the chattel mortgage on the thing sold, if one has been constituted. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary is void.

Note: The above remedies are alternative, not cumulative. Accordingly, the availment by the vendor of one remedy will not entitle
him to make use of the others. (Pacific Commercial Co. Vs. Dela Rama, 72 Phil 380)

S sold his only car to B for P100,000.00 payable in 10 equal monthly installments of P10,000.00 each. As security, B executed a
chattel mortgage on the car.

1. After paying the first three installments, B defaulted in the payment of the fourth installment. What remedy or remedies are
available to S?

Answer: S can exact fulfillment of the obligation, i.e., he can demand payment of the installment defaulted only unless
there is an acceleration clause (the whole shall become due upon default of the payment of an installment) or that the default of the
buyer is under such circumstances as to make him lose the right to make use of the period given to him. (Art. 1198)

2. May S cancel the sale or foreclose the chattel mortgage on the car?

Answer: No, because the remedy of cancelling the sale or foreclosing the chattel mortgage constituted on the thing is
available only when the buyer's default covers two or more installments.

3. B defaulted in the payment of fourth and fifth installments and as a result, S foreclosed the chattel mortgage constituted on
the car. At the foreclosure sale, the car

was sold only for a net amount of P50,000.00. Can S recover the deficiency of P20,000.00 from B?

Answer: No. Since S chose the third remedy, he shall have no further action against the buyer for any deficiency. This is true
even if there was an agreement between S and B that S could go after B should the purchase price at the auction sale be
less than the balance of the original purchase price.
 O, the owner of a forklift, leased the same to T. The lease contract provided, among other terms and conditions, the
following: (1) Lease period - two years; (2) monthly rental P2,000.00; (3) T is given the option to buy the forklift at the
end of the term of the lease with the monthly rentals being considered as installments payments. After 8 months, T
defaulted in his payment of rental on the ninth, tenth and eleventh months. Accordingly, o terminated the lease contract
and repossessed the forklift. May 0 recover the rental in arrears from T?

Answer: No. The contract between 0 and T which is a lease of personal property with option to buy is considered a sale of
personal property in installments. Accordingly, Art. 1484 is applicable. Hence, O has no further action against T including the recovery
of the rental in arrears.

When deficiency may be recovered

1. In case of sale on straight-term.

2. If security foreclosed is other than the chattel mortgage constituted on the thing
sold.
3. In the case of sale on execution of judgment in favor of the seller.

S sold his only ring to B for P50,000.00 under the following terms: down payment of P30,000.00; balance payable at month end. As
security, B executed a chattel mortgage on the ring. B defaulted in the payment of the balance. By reason thereof, S foreclosed the
chattel mortgage on the ring. However, only P15,000.00 was realized in the foreclosure sale. Can S still proceed against B to collect the
deficiency of P5,000.00?

Answer: Yes because Art. 1484 does not apply to a sale on straight term which is a sale where the balance is to be paid in
its entirety after the payment of an initial sum. This is an application of the general rule that if the foreclosure sale in chatel mortgage
results in deficiency, the same may be recovered by the creditor. Article 1484 is an exception to such general rule, i.e., no deficiency may
be recovered.

S sold his only car to B for P100,000.00 payable in 10 equal monthly installments of P10,000.00 each. As security, B executed a chattel
mortgage on the car. After paying the first 2 installments, B defaulted in the payment of the third, fourth and fifth installments. As a
consequence, s brought a court action against B to recover the balance. The court rendered judgment in favor of S and against B who
was ordered to pay. Since B had no other property except the car, S moved for the attachment of the car and its sale satisfy the
judgment. At the execution sale, the car was solo only for a net amount of P75,000.00.

1. May s recover the deficiency of P5,000.00?

Answer: Yes, because the prohibition to recover deficiency applies only if the S had the chatel mortgage on the car
foreclosed. The prohibition does not apply if the thing is sold in an execution sale. In the instant case, S had the car sold to satisfy
the judgment.

Sale of Real Property in Installments (R.A. No. 6552, the Maceda Law)

The law is known as the “Realty Installment Buyer Act. Its objective is "to protect buyers of real estate on installment
payments against onerous and oppressive conditions.

1. Transactions covered

Sale or financing of real estate on installment payments, including residential condominium apartments, but excluding
industrial lots, commercial buildings, and sales to tenants under RA No. 3844 as amended by RA No. 6389 (Land Reform Law),
where the buyer has paid at least two years of installments.

2. Rights of the buyer.

Grace period to pay installment in case of default

1) If at least 2 years of installments had been paid at the time of default

a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is fixed at the
rate of one (1) month grace period for every one (1) year of installments paid. This right shall be exercised by the buyer only once in
every five (5) years of the life of the contract and its extensions, if any.
 b) If the contract is cancelled, he shall be entitled to the refund of the cash surrender value of the payments on the property
equivalent to fifty percent (50%) of the total payments made, and after five (5) years of installments, an additional five percent (5%)
every year but not to exceed ninety percent (90%) of the total payments made.

When cancellation shall take place

The actual cancellation shall take place after thirty (30) days from receipt by the buyer of the notice of cancellation or the demand
for rescission of the contract by notarial act and upon full payment of the cash surrender value to the buyer.

Note: Down payments, deposits or options on the contracts shall be included in the computation of the total number of
installments.

2) If less than two (2) years of installments had been paid at the time of default

The buyer shall be given a grace period of not less than sixty (60) days from the date the installment became due to
pay.

When cancellation shall take place

If the buyer fails to pay the installment due upon the expiration of the grace period, the seller may cancel the sale
after thirty (30) days from the receipt by the buyer of the notice of cancellation or the demand for rescission of the
contract by notarial act.

b. Additional rights

1) The buyer shall have the right during the grace period before the cancellation of the contract:

a) To sell his rights to another by notarial act;

b) To assign his rights to another, by notarial act; or

c) To reinstate the contract updating the account.

2) To pay in advance any installment or the full unpaid balance any time without interest.

3) To ask for the annotation of the full payment of the purchase price in the certificate of title covering the property.

B bought from S Realty, Inc. a residential house and lot for P600,000.00. The terms of the contract provided for the following:
down payment of P60,000.00; balance payable in 15 years in installments of P3,000.00 per month. After paying the down
payment and 84 monthly installments, B defaulted in the payment of the 85th and succeeding installments. As a consequence, S
Realty, Inc. cancelled the sale. How much cash surrender value is B entitled to receive?

Answer: B shall be entitled to receive a cash surrender value of P187,200.00 computed as follows: 60%[P60,000.00 + (P3,000 x 84
months)]. Since B has paid more than 5 years of installments, he shall be entitled to a cash surrender value equivalent to 50% plus
5% for the sixth year and another 5% for the seventh year for a total of 60%.

Maceda Law, not applicable to a loan transaction

Sps. Sebastian vs. BPI Family Bank

G.R. No. 160107, October 22, 2014

Facts: Spouses H and W, employees of X Bank, obtained a housing loan from the latter. The loan, which was payable in 108 equal
monthly amortizations through salary deductions, was secured by a real estate mortgage over a certain property. Subsequently, the
spouses were separated from employment and were unable to pay their loan amortizations. Due to the default. X Bank brought suit to
foreclose the real estate mortgage. The spouses raised, among other defenses, that the bank's foreclosure was premature, because
under R.A. No. 6552, otherwise known as the “Maceda Law," they were entitled to a grace period within which to pay the installments
 defaulted, which period had not yet expired. Are the spouses correct?

Held: No, the spouses are not correct. The monthly installments they were liable for was derived from a loan transaction, not a sale
transaction, thereby giving rise to a lender borrower relationship between them and the bank. The "financing of real estate in
installment payments” referred to under the Maceda Law should be construed only as a mode of payment in relation to the seller of the
real estate, and excluded the concept of bank financing that was a type of loan. Here, the real estate was purchased from another
company, not from the bank. Hence, there is no buyer-seller relationship between the spouses and the bank.

Installment sale of subdivision lots and condominiums (P.D. No. 957, otherwise known as The Subdivision and Condominium Buyers'
Protective Decree)

1. Transactions covered, what “sale” or “sell” includes (Sec. 2 (b)]

a. Every disposition, or attempt to dispose, for a valuable consideration, of a subdivision lot, including the building and other
improvements thereon, if any, in a subdivision project or a condominium unit in a condominium project.

b. Contract to sell, contract of purchase and sale, exchange, attempt to sell, option of sale or purchase, a solicitation of a sale, or an
offer to sell, directly or by an agent, or by circular, letter, advertisement or otherwise.

2. Subdivision lot and condominium unit, concept

a. “Subdivision lot” shall mean any of the lots, whether residential, commercial, industrial, or recreational, in a subdivision project.
[Sec. 2 (e)]

b. “Condominium unit” shall mean a part of the condominium project intended for any type of independent use or ownership,
including one or more rooms or spaces located in one or more floors (or part or parts of floors) in a building or buildings and such
accessories as may be appended thereto. (Sec. 2 (h)]

c. Rights of buyer in case of default

The rights of the buyer in the event of his failure to pay the installments due for reasons other than the failure of the owner or
developer to develop the project shall be governed by R.A. No. 6552, otherwise known as the “Realty Installment Buyer Act” or the
Maceda Law. (Sec. 24)

No installment payment made by the buyer shall be forfeited in favor of the owner or developer when the buyer, after due
notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the
subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such
buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests,
with interest thereon at the legal rate. (Sec. 23)

Note: A reading of The Subdivision and Condominium Buyers' Protective Decree indicates an expansion of the application of the
Maceda Law so as to include subdivision lots whether residential, commercial, industrial, or recreational, in a subdivision project.
[Sec. 2 (e)], and condominium units in any condominium project intended for any type of independent use or ownership, including
one or more rooms or spaces located in one or more floors (or part or parts of floors) in a building or buildings and such accessories
as may be appended thereto. [Sec. 2 (h)]

Requisites for cancellation of contract to sell under the Maceda Law

Under the Maceda Law, the actual cancellation of a contract to sell takes place after 30 days from receipt by the buyer of the
notarized notice of cancellation, and upon full payment of the cash surrender value to the buyer. In other words, before the contract to
sell can be validly and effectively cancelled, the seller has (1) to send a notarized notice of cancellation to the buyer and (2) refund the
cash surrender value. Until and unless the seller complies with these twin mandatory requirements, the contract to sell between the
parties remain valid and subsisting. Thus, the buyer has the right to continue occupying the property subject of the contract to sell, and
may “still reinstate the contract by updating the account during the grace period and before the actual cancellation” of the contract.

(Communities Cagayan, Inc. vs. Sps. Nanol, G.R. No. 176791,

November 14, 2012.)

Capacity to buy or sell

1. Who may enter into a contract of sale

As a general rule, all those who may oblige themselves may enter into a contract of sale. (Art. 1489)

2. Kinds of incapacity in a contract of sale

a. Absolute incapacity - This applies to persons who cannot bind themselves and includes minors, insane or demented
persons, and deaf-mutes who do not know how to write. (Art. 1327)

A contract of sale entered into by a person suffering from absolute incapacity is voidable. However, when
necessaries are sold to a minor or other incapacitated person, he must pay a reasonable price therefor. The sale
therefore is valid. Necessaries include everything indispensable for sustenance, dwelling, clothing, medical
attendance, education and transportation. (Art. 194, Family Code)

b. Relative incapacity - This applies to certain persons who, under circumstances, cannot purchase certain property.

The following are cases of relative incapacity:

1) The husband and the wife cannot sell property to each other, except:

a) When a separation of property was agreed upon in the marriage settlements. The term “marriage settlements" is
more familiarly known as “pre-nuptial or ante nuptial agreement.”)

b) When there has been a judicial separation of property. (Art. 1490)

Note: A sale between husband and wife that does not fall under the exceptions is void. 2) Persons prohibited from
acquiring by purchase

a) The guardian, the property of the

person or persons under his guardianship.

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

c) Executors and administrators, the property of the estate under administration.

d) Public officers and employees, the property of the State or 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 applies to judges and government experts who, in any manner whatsoever, take part in the sale.

e) Justices, judges, prosecuting attorneys, clerks of court, and other officers and employees connected with the
administration of justice, the property and rights in litigation or levied upon an execution before the court
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 make
 take part by virtue of their profession. (Art. 1491)

The contracts mentioned above have the following status:

a. For items (a) to (c), the contract is voidable since only private interests are involved.

b. For items (d) and (e), the contract is void since they are imbued with public interest.

Note: It may be observed that the persons above-mentioned occupy positions of trust and confidence.

OBLIGATIONS OF THE VENDOR

Obligations of the vendor

1. To transfer the ownership of the thing sold.

The ownership of the thing sold is acquired by the vendee from the moment the thing is delivered to him. (Art. 1496)

2. To deliver the thing sold.

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 the fruits shall pertain to the vendee from the day on which the contract is
perfected. (Art. 1537)

As a rule, the creditor has a right to the fruits on the thing from the time the obligation to deliver the thi ng arises
(Art. 1164), but in a contract of sale, the fruits si pertain to the buyer from the day on when the cont ract was perfected.
(Art. 1537). The seller and buyer may, however, stipulate that the fruits of the thing sold pertain to the buyer at some
future time such as when the obligation is one with a period.

3. To warrant the thing sold. (Art. 1495)

The vendor is liable for breach of warranty against eviction and warranty against hidden defects or encumbrances.
(Art. 1547)

4, To take care of the thing sold with the diligence of a good father of a family unless the law or the stipulation of the
parties requires another standard of care. (Art. 1163, Art. 1480) In case of loss, deterioration or improvement of the thing
before delivery, the rules under Art. 1189 shall be observed, the vendor being considered the debtor. (Art.

1538)

Delivery or tradition, concept

 It is a mode of acquiring ownership whereby the object of the contract is placed in the control and possession of the
vendce, either actually or constructively.

Delivery, in its natural sense, means something in addition to the delivery of property or title; it means transfer of
possession. In the Law on Sales, delivery, whether actual or constructive contemplate "the absolute giving up of the control and
custody on the part of the vendor, and the assumption of the same by the vendee.” (Equatorial Realty Development, Inc. Vs.
Mayfair Theater, Inc., 370 SCA 56 (2001)]

Kinds of delivery or tradition

1) Actual or real delivery - This is delivery by physically placing the thing sold in the hands of the vendee (in the case of
movables) or physically placing it in his possession and control (in the case of immovables).

2) Constructive or legal delivery

a. By legal formalities - When the sale is made through a public instrument, the execution thereof shall be equivalent to
the delivery of the thing sold. if from the deed the contrary does not appear or cannot be clearly inferred (Art. 1498)
This kind of delivery applies to both movable and immovable property.

The execution of a public instrument only gives rise to a prima facie presumption of delivery.

Such presumption is destroyed when the delivery is not affected because of a legal impediment. Thus, there is no
constructive delivery although there was an execution of a deed of absolute sale which was duly notarized if the thing sold
is in the control of another person. (See Asset Privatization Trust vs. TIJ. Enterprises, G.R. No. 167195, May 8, 2009.) A
person who does not have actual possession of the thing sold cannot transfer constructive possession by the execution
and delivery of a public instrument. (Villamar Vs. Mangaoil, G.R. No. 188661, April 11, 2012) The presumption is also
negated by the failure of the vendee to take actual possession of the land sold despite her assertion that she was the
lawful owner thereof and despite the fact that the sale to her was in a public instrument. (Beatingo vs.Bugasis, G.R. No.
179641, February 9, 2011)

b. Symbolic delivery (traditio simbolica) - Delivery that takes place by delivering the keys of the place or depository
where the movable is stored or kept. (Art. 1498) Also referred to as traditio clavium.

c. Traditio longa manu – Delivery of a movable by mere consent or agreement of the parties if the thing cannot be
transferred to the possession of the vendee at the time of sale. (Art. 1499) Literally, “delivery by the long hand,”;
usually made by pointing at the thing.

d. Traditio brevi manu - Delivery that takes place when the vendee is already in the possession of the thing sold even
before the sale and thereaites, continues in possession thereof in the concept o an owner. (Art. 1499) This applies to
movabica only. Literally, “delivery by the short hand.”

e. Traditio constitutum possessorium - Delivery than takes place when the vendor continues possession of the thing
sold after the sale but another capacity such as that of a lessee depositary. (Art. 1500) This applies to both movable
and immovable property. "delivery by agreement of possessors.”

3. Delivery of incorporeal property (quasi-traditio)

 a. By constructive tradition - Delivery of incorporeal property by the execution of a public document.

b. Placing the titles of ownership in the possession of the vendee (such as delivering the stock certificate covering the
shares of stock sold).

c. Use by the vendee of his rights, with the consent of the vendor, (Art. 1501) (such as when the buyer of a book
copyright prints the book on authority of the seller.)

"Sale or return” and “sale on approval”

1. Sale or return

The ownership of the goods is transferred to the buyer on delivery, but the buyer has the option to revest their
ownership on the seller by returning them within the time fixed in the contract, or if no time has been fixed, within a
reasonable time. (Art 1502)

2. Sale on approval or on trial or on satisfaction

Ownership of the goods remains with the seller despite delivery but shall be transferred to the buyer in the following
cases:

a. When he signifies his approval or acceptance of the goods.

b. When he does an act adopting the transaction.

Thus, the buyer is deemed to have approved of the goods if he starts consuming or using them.

c. If he does not signify his approval or acceptance of the goods but retains the goods without giving notice of rejection
within the time fixed in the contract, or within a reasonable time, and such time has expired. (Art. 1502)

Distinctions between "sale or return" and "sale on approval or on trial or satisfaction"

1. In "sale or return”, ownership of the goods passes to the

buyer upon delivery. In “sale on approval, ownership passes to the buyer upon his acceptance of the goods or the expiration of
the time given to him to signify his acceptance.

2. In “sale or return”, the risk of loss is on the buyer. In "sale on approval", the risk of loss is on the seller.

3. In "sale or return”, the buyer may return the goods even if he is satisfied of its quality. In “sale on approval”, the buyer has
no right to return the goods if he is satisfied of its quality.

Examples:
 1. Sale or return

On May 2, S delivered an electronic calculator to B under a “sale or return" arrangement. S gave B up to May 7 to
return the electronic calculator. On delivery, B became the owner of the calculator. If on or before May 7, B does not return
the calculator, the sale to him will become absolute. If B returns the calculator on or before May 7, ownership thereof is
revested in S.

Suppose that before B could return the calculator, the same is destroyed in a fire, must B still pay its price? The
answer is Yes, because upon delivery, he became the owner of it, so the risk of loss was with him. The same rule applies,
with more reason, if the loss was due to his fault.

2. Sale on approval

On June 3, S delivered a computer to B under a "sale on approval" basis. S gave B up to June 10 to try the computer
and decide to purchase it if it proves satisfactory. If the computer proves satisfactory after than by B and B signifies his
approval to S, the ownership the computer is passed on to B upon his communication, of his approval to S. If B does not
signify his approval of the computer but retains possession of the computer even after June 10, ownership thereof is
likewise passed on to him.

Suppose that before the time given to B has expired and B has not yet signified his approval to S, the computer is
destroyed in a fire, will B be obliged to pay its price? The answer is No because the risk of loss is with S who retained
ownership of the computer despite its delivery to B. However, if the cause of the loss is due to the fault of B, then B must
pay for its price.

Transfer of ownership by delivery of specific goods to carrier or other bailee

General rule: Delivery of specific goods to a carrier or other bailee for the purpose of transmission to the buyer transfers
ownership to the buyer.

Exceptions, i.e., ownership of specific goods is retained by the seller despite delivery to carrier or other bailee in the
following cases:

1. When there is a stipulation to that effect.

2. When by the terms of the bill of lading, the goods are to be delivered to the seller or his agent or to the order of the seller
or his agent.

3. When by the terms of the bill of lading, the goods are to be delivered to the order of the buyer or his agent, but the bill of
lading is retained by the seller or his agent.

4. When the seller draws on the buyer a bill of exchange for the price of the goods and transmits the bill of exchange and the
bill of lading to the buyer to secure acceptance or payment of the bill of exchange, but the buyer dishonors such bill of
exchange. (Art. 1503)

However, if the bill of lading is negotiated to a purchaser for value in good faith, ownership of the goods is passed on
to him. (Art. 1503)
Sale by a person who is not the owner of the thing sold

When goods are sold by a person who is not the owner thereof, the buyer acquires no better title than the seller had,
except in the following cases:

1. When the sale is made under authority or with the consent of the owner.

2. When the owner is precluded by his conduct from denying the seller's authority to sell.

3. When the sale is made under the provisions of any factor's acts, recording laws or any other provisions of law enabling
the apparent owner to dispose of the goods as if he were the true owner thereof. (Art. 1505)

4. When the sale is made under a statutory power of sale or under the order of court of competent jurisdiction. (Art.
1505)

5. When the purchase is made in a merchant's store, or in fairs, or markets. (Art. 1505)

Problems:

1. S stole the ring of O and sells the same to B who does not have any knowledge that the ring was stolen. Did B acquire title
to the ring?

Answer: No, because the title of S is that of a thief and B, the buyer acquires no better title than Shad over it. O may
therefore recover the ring from B without any obligation on his part to reimburse B. Whoever loses a movable or has been
unlawfully deprived thereof may recover it from the person in possession of the same without such possessor being
entitled to reimbursement, except if the acquisition in good faith had been made in a public sale or auction. (Art. 559)

2. Suppose the ring found its way into a jewelry store and it was from that jewelry store that B bought the ring in good faith.
(a) Did B acquire title to the ring? (b) Can O recover the ring from B?

Answers: (a) Yes, because when the purchase is made from a merchant's store, fair or market, title to the thing is
transferred to the buyer notwithstanding that the seller is not the owner thereof. This is so because a contrary ruling
would be in restraint of trade. (b) No, he cannot recover even if he offers to reimburse. The right t o reimburse is available
to the owner only if the acquisition was in a public sale.

3. O authorized S to sell his ring. Thereafter, S sells the ring of O to B. Did B acquire title to the ring?

Answer: Yes, because the sale was made under the authority of the owner.

4. O gave his ring to S for safekeeping. Later, S sold the ring to B in the presence of O but without O's express authority. O did
not make any objection while S was selling the ring to B. Did B acquire title to the ring?

Answer: Yes, because o is precluded by his conduct from denying S's authority to sell the ring.

5. O, the owner of certain parcel of land, sold the same to B in a public instrument. B, however, did not register the sale.
Subsequently, O sold the land to C who was not aware of the previous sale to B and who registered the transfer of the land
to his name with the Register of Deeds. Who has a better right to the land, B or C?

Answer: C has a better right to the land. While O was no longer the owner of the land at the time he sold it to C (since
ownership was transferred to B by the execution of the public instrument), still 0 was the apparent owner in the records
of the Register of Deeds. This enabled him to dispose of it as if he were the true owner thereof (Art. 1505) Also, in the case
of the sale of immovables to different vendees, ownership thereof shall belong to the person who in good faith first
registered the sale in the Registry of Property. (Art. 1544)
When seller's title to the goods is voidable

If the seller's title is voidable but the same has not been avoided at the time of 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)

Example: S, a minor of 17 years, sold his wristwatch for P1,500.00 to B, 30 years old. The guardian of S was not aware of
the sale; hence, no action for annulment has yet been filed.

Subsequently, B sold the wristwatch to T, who acquired it in good faith. Did T acquire title to the wristwatch?

Answer: Yes, because although the title of B was voidable T acquired the wristwatch in good faith, for value, and without
notice that the title of B was defective.

Document of title to goods, concept

“Document of title to goods”includes any document used in the ordinary course of business in the sale or transfer of goods,
as proof of the possession or control of the goods, or authorizing or purporting to authorize the possessor of the document to
transfer or receive, either by indorsement or by delivery, goods represented by the document. (Art. 1636)

Common forms of documents of title

1. Bill of lading - This refers to the written acknowledgment of the receipt of the goods by a carrier, and an agreement to
transport and to deliver the goods at a specified place to a person named therein, or to his order or to bearer. Other
terms used are receipt for transportation, forwarder's receipt, shipping receipt (Continental Co. Ltd. vs. Liberation
Steamship Co., CV-58713, April 29, 1983) It is an instrument in writing, signed by a carrier or his agent, describing the
freight so as to identify it, stating the name of the consignor, the terms of the contract for carriage, and agreeing or
directing that the freight to be delivered to the order or assigns of a specified person at a speci fied place. (Ace
Navigation Co., Inc. vs. FGU Insurance Corp. G.R. No. 171591, June 25, 2012.)

2. Dock warrant - A warrant given by a dock owner" owner of the goods imported and warehoused on the a upon the
faith of the bill of lading, as a recognition title to the goods of the owner of such goods.

3. Warehouse receipt or order - This a written acknowledgement by a warehouseman of the receipt of the goods are
placed in his possession. This is also a contract between the owner of the goods and the warehouseman whereby the
latter agrees to store the goods former to pay the compensation for such storage.

[Quedans are warehouse receipts. (Philippine National Bank vs. Umberto de Poli, G.R. No. L-19026, April 3, 1923.)]
Classes of documents of title

1. Negotiable documents of title

A negotiable document of title is one in which it is stated that the goods will be delivered to bearer, or to the order of
any person named in such document. (Art. 1507) Examples:

a. Bearer document of title - “Deliver the goods to bearer

b. Order document of title – “Deliver the goods to the order of Dionisio Diamante" or "Deliver the goods to Dionisio
Diamante or his order”

2. Non-negotiable documents of title

A non-negotiable document of title is one in which it is stated that the goods are to be delivered to a specified
person.

Example: “Deliver the goods to Dionisio Diamante”

How negotiable document of title negotiated

1. By delivery

a) If by the terms of the document of title, the carrier, warehouseman or other bailee issuing it undertakes to deliver the
goods to bearer. (Art. 1508)

Example:

D deposits his goods in the warehouse of W. W issues a warehouse receipt which provides that the goods are
“Deliverable to bearer.” D may negotiate the warehouse receipt to another by mere delivery.

Effect of special indorsement of a document of title which states that the goods are deliverable to bearer

A document of title which is a bearer document of title on its face becomes an order document of title if
specially indorsed. Consequently, it may be further negotiated by the indorsee only by indorsement completed by
delivery. (Art. 1508)

This is a feature of a negotiable document of title that distinguishes it from a negotiable instrument payable to
bearer. A negotiable instrument payable to bearer remains a bearer instrument even if specially indorsed.

b) If by the terms of the document of title, the carrier, warehouseman or other bailee issuing it undertakes to deliver the
goods to the order of a specified person and such person or a subsequent indorsee of the document has indorsed it
in blank or to bearer. Example:

D deposits his goods in the warehouse of W. W issues a warehouse receipt which provides that the goods are
“Deliverable to order of D.” If D indorses the warehouse receipt in blank, i.e., he just writes his signature and nothing
else, or he writes “Deliver to bearer” and signs his name, and delivers the warehouse receipt to A, A may negotiate
the instrument by mere delivery.

2. By indorsement plus delivery.

 If by the terms of the document of title, the goods are to be delivered to the order of a specified person, the document
of title may be negotiated by him only by indorsement coupled with delivery. (Art. 1509). Such indorsement may take any
of the following forms:

a. Blank indorsement - This consists of the signature of the indorser without specifying the name of the indorsee. In
this case, the document may be further negotiated by mere delivery.

b. To bearer - Where the indorsement states that the goods are deliverable to bearer. The document may be further
negotiated by mere delivery.

c. Special indorsement - Where the name of the indorsee is specified. The document may be negotiated further through
the indorsee's indorsement plus delivery.

Example: D indorses the warehouse receipt as follows: “Deliver to A. (Sgd.) D”.

Effect if negotiable document of title is marked "non negotiable"

A negotiable document of title even if marked "non negotiable” remains to be negotiable. (Art. 1510)

Delivery of an order document of title without indorsement

The delivery of an order document of title without any indorsement does not constitute negotiation, but a mere assigment
by the holder to the purchaser or donee. (Art. 1511)

Transfer of a non-negotiable document of title

A non-negotiable document of title cannot be negotiated. It can only be transferred or assigned. Its indorsement does not
constitute negotiation and gives the transferee no additional rights. (See Art. 1511.)

Who may negotiate negotiable document of title (Art. 1512)

1. By the owner thereof.

Example:

D deposited 100 sacks of rice in the warehouse of W. W issues to him a warehouse receipt which states that "The
goods are to be delivered to the order of D”. D as owner of the warehouse receipt, may negotiate it to another.

2. By the person to whom the possession or custody of the document has been entrusted by the owner in the following
cases:

a. If, by the terms of the document, the bailee issuing

the document, undertakes to deliver the goods to the person to whom the possession or custody of the document has
been entrusted.

Example:
 D deposited 100 sacks of rice in the warehouse of W. W issues to him a warehouse receipt which states that
“(T)he goods are to be delivered to the order of D or to the person to whom this document has been entrusted by D”.
Thereafter, D entrusted the document to X. X may negotiate the document to another person.

b. If, at the time of such entrusting the document, it is in such form that it may be negotiated by delivery.

Example:

D deposited 100 sacks of rice in the warehouse of W. W issues to him a warehouse receipt which states that
"(T)he goods are to be delivered to bearer." Thereafter, D entrusted the document to X. X may negotiate the document
to another person.

Rights acquired by a person to whom a negotiable document of title is negotiated (Art. 1513)

1. The title of the person negotiating the document, over the goods covered by the document.

2. The title of the depositor or shipper over the goods covered by the document

3. The direct obligation of the bailee issuing the document to hold possession of the goods for him according to the terms of
the document as fully as if such bailee had contracted directly with him.

Rights of the transferee of a document of title

1. Non-negotiable document of title

The transferee of a non-negotiable document of title acquires the following rights:

a. As against the transferor, the title to the goods,

subject to the terms of any agreement with the transferor.

b. The right to notify the bailee (warehouseman or carrier) of the transfer to him of the document of title.

Effect of notification

Upon notification to the bailee of the transfer to him of the document, the transferee acquires the direct obligation of
the bailee to hold possession of the goods for him according to the terms of the document.

Effect of lack of notification

Before notification, the title of the transferee to the goods and right to acquire the obligation of the bailee may be
defeated by the following:

1) The levy of an attachment or execution upon the goods by the creditor of the transferor.

2) A notification to such bailee by the transferor or a subsequent purchaser from the transferor of a subsequent sale of
the goods by the transferor.
Example:

D deposited his goods on June 1 with w warehouseman, who issued a non-negotiable warehouse receipt for the goods to
D. On June 2. D assigned the warehouse receipt to A. On June 5, A assigned the warehouse receipt to H. Neither A nor H notified
W of the transfer of the document to H. On June 7, A sold the goods covered by the warehouse receipt to X who immediately
informed W of the sale to him of the goods. Who has a better right to the goods? H or X?

Answer: X has a better right to the goods because the notification he made to W of the sale made to him by A defeated H's
title to the goods and right to acquire the direct obligation of W to hold possession of the goods in favor of H even if the transfer
of the document took place ahead of the sale of the goods by A to X. Upon the transfer of the warehouse receipt to him, H
should have immediately notified W.

2. Negotiable document of title

The transferee to whom a negotiable document of title has been transferred but not negotiated acquires the
following rights:

a. As against the transferor, the title to the goods, subject to the terms of any agreement with the transferor. (Art. 1514)

b. The right to notify bailee (warehouseman or carrier) of the transfer to him of the document of title. (Art. 1514)

Effect of notification

Upon notification to the bailee of the transfer to him of the document, the transferee acquires the direct obligation of
the bailee to hold possession of the goods for him according to the terms of the document. (Art. 1514)

Effect of lack of notification

Before notification, the title of the transferee to the goods and right to acquire the obligation of the bailee may be
defeated by the following:

1) The levy of an attachment or execution

upon the goods by the creditor of the transferor.

2) A notification to such bailee by the transferor or a subsequent purchaser from the transferor of a subsequent sale of
the goods by the transferor. (Art. 1514) c.

c. The right to compel the transferor to indorse the document unless a contrary intention appears. (Art. 1515)

Effect of indorsement

1) The negotiation takes effect upon the indorsement.

2) Upon indorsement, the transferee acquires the direct obligation of the bailee to hold possession of the goods. No
further notification by the transferee to the bailee is required upon such indorsement completed by delivery (Arts.
1513, 1514) for the transferee to acquire such direct obligation.

Example:

On July 1, D deposited his goods with W, warehouseman, who issued to Da warehouse receipt which states that the goods
are to be delivered to the order of D. Thereafter, D indorsed the warehouse receipt to A

a. Assume that on July 5, A delivered the warehouse

receipt without any indorsement to H, a purchaser for value. On July 7, A notified W that he had sold the goods to X. At the time
of such notification, W had not yet learned of the transfer of the document made by A to H. Who has a better right to the goods?
H or X?

Answer: X has a better right. If a negotiable document of title is not negotiated but is merely transferred, the
transferee does not acquire the direct obligation of the bailee at the time of transfer. In the above case, H should have
notified W of the transfer of the warehouse receipt to him ahead of the notification to W of the sale made by A to X. If a
negotiable document of title is merely transferred and not negotiated, if shall be treated as if it were non-negotiable.

b. Suppose that on July 5, A instead indorsed the warehouse receipt to H, a purchaser for value. On July 7, A notified W
that he had sold the goods to X. At the time of such notification, W had not ver learned of the indorsement of the warehouse
receipt made by A to H. Who has a better right to the goods? H or X?

Answer: H has a better right. This is so because upon the indorsement of the warehouse receipt to him, H
acquired the direct obligation of w to hold the goods for him as if he had contracted directly with W. If the transfer
was by negotiation, there is no need for the transferee to notify the bailee which, in this case, is the warehouseman.

Warranties of a person transferring or negotiating a document of title (Art. 1516)

A person who for value negotiates or transfers a document of title by indorsement or delivery, including one who assigns
for value a claim secured by a document of title unless a contrary intention appears, warrants the following:

1. That the document is genuine.

Thus, if the transferee cannot obtain the goods from the warehouseman because the warehouse receipt is forged, he
can hold liable the person transferring or negotiating the document to him.

2. That he has a legal right to negotiate or transfer it.

Example: D deposited goods with W who issued to D a warehouse receipt stating that the goods are deliverable to
bearer. D entrusted the warehouse receipt to A for safekeeping. However, A negotiated the warehouse receipt to H. Later,
W refused to deliver to on the ground that his title is defective. H can hold A liable because he warranted that he had a
legal right to negotiate the warehouse receipt.

3. That he has knowledge of no fact which would impair the validity or worth of the document.

Thus, a transferor is not liable if at the time he transferred the document, he had no knowledge that the same was
already worthless because goods represented by it had been lost.

4. That he has a right to transfer the title to the goods and that the goods are merchantable or fit for a particular purpose,
whenever such warranties would have been implied if the contract of the parties had been to transfer without a
document of title the goods represented thereby.

These refer to the warranty against eviction and warranty against hidden defects.

Effect of failure of bailee or previous indorsers to fulfill their obligations

The indorser shall not be liable for any failure on the part of the bailee who issued the document or previous indorsers to
fulfill their respective obligations. (Art. 1517)

Problems
 D, depositor; W, warehouseman. An order negotiable warehouse receipt was issued for the goods. Thereafter, D indorsed
the receipt to A, A to B, and B to H, holder.

1. When H presented the receipt to W, W failed to deliver the

goods to him because they were lost through his negligence. Is D, A or B liable to H for the failure of W to deliver the goods?

Answer: No, because an indorser is not liable for the failure of the bailee to fulfill his obligation. (Art. 1517)

2. Supposing that the receipt presented by H to W was forged for which reason W refused to deliver the goods to H, will D, A
or B be liable to H?

Answer: Yes, because an indorser warrants that the document of title is genuine. (Art. 1516)

3. Supposing that D stole the goods of T and deposited them in W's warehouse, may H obtain delivery of the goods from W
assuming that H is a holder for value and without notice?

Answer: No, because H acquired only whatever rights D had over the goods, which was the same right acquired by
the indorsers subsequent to D. (Art. 1513) A depositor who has no title to the goods cannot confer title to them by
depositing them with a warehouseman or other bailee and obtaining a receipt therefor notwithstanding that the
purchaser of the goods is an innocent purchaser for value.

4. Refer to No. 3. Will D, A or B be liable to H by reason of the non-delivery of the goods to H?

Answer: Yes, because an indorser warrants that he has the right to transfer the title to the goods. (Art. 1515, par. 4)

Non-impairment of the validity of negotiation although it was made in breach of duty, etc. (Art. 1518)

The validity of the negotiation, if the person to whom the document is negotiated or a person to whom the document is
subsequently negotiated was a purchaser for value in good faith and without notice, is not impaired by the following:

1. That the negotiation was made in breach of duty of the

person negotiating.

2. That the owner of the document was deprived of the possession of the same by loss, theft, fraud, accident, mistake,
duress or conversion.

Example:

S delivers his goods to C, a common carrier, for shipment. C issues to Sa bill of lading for the goods which states that they
are to be delivered to bearer. However, the bill of lading is stolen by T who thereafter negotiates it by mere delivery to H, a
nurchaser for value in good faith and without notice of TS defective title. Is the negotiation of T to H valid?

Answer: Yes, because the validity of the negotiation is not impaired by the fact that the owner of the document was
deprived thereof by theft. (Art. 1518) Accordingly, H can obtain possession of the goods.

Attachment or surrender of goods covered by a document of title

1. Negotiable document of title (Art. 1519)

 a. As a general rule, the goods covered by a negotiable document of title cannot be attached or levied upon,
except:

1) When the document is surrendered to the bailee; or

2) The negotiation of the document is enjoined.

b. The bailee cannot be compelled to surrender the goods, except:

1) When the document is surrendered to him, or

2) The document is impounded by the Court.

2. Non-negotiable document of title

The goods covered by a non-negotiable document of title may be attached or levied upon in execution although the
document is not surrendered to the bailee.

Remedy of creditor of debtor-owner of goods covered by a negotiable document of title

The creditor can ask the courts for an order attaching the document of title or enjoining the delivery of the goods to the
debtor-owner. (Art. 1520)

Time and place of delivery of thing sold

1. Place of delivery

a. Place, stipulated.

b. If there is no stipulation, place fixed by usage or

trade.

c. In the absence of both, the seller's place of business if he has one; if none, the seller's place of residence. However, in
the case of sale of specific goods, which to the knowledge of the parties when the contract was made were in some
other place, that place shall be the place of delivery. (Art. 1521)

2. Time for delivery of goods

a. Time stipulated.

b. If there is no stipulation, delivery must be made within a reasonable time from the execution of th e contract. (Art.
1521)

3. Goods in the possession of a third person

The seller has not fulfilled his obligation to deliver the goods unless such third person acknowledges to the buyer
that he holds the goods on the buyer's behalf. (Art. 1521)
 4. Demand or tender of delivery

It must be made at a reasonable hour to be effectual. (Art. 1521)

5. Expenses of delivery

The seller bears the expenses of and incidental to putting the goods into a deliverable state, unless otherwise
stipulated. (Art. 1521)

When vendor is not bound to deliver the thing sold

1. If the vendee has not paid him the price. (Art. 1524)

2. If no period for the payment of the price has been fixed in the contract. (Art. 1524)

3. If a period has been fixed for the payment of the price, the vendor is bound to deliver the thing sold. However, he is not
bound to deliver if the vendee loses the right to make use of the period (Art. 1536) as follows:

a. When the vendee becomes insolvent, unless he gives a guaranty or security for the payment of the price.

b. When the vendee fails to furnish the guaranties of securities that he has promised.

c. When the guaranties or securities have been impaired through his own acts or when through fortuitous event they
disappear, unless immediately gives new ones equally satisfactory.

d. When the vendee violates any undertaking in consideration of which the vendor agreed to the period.

e. When the vendee attempts to abscond. (Art. 1198)

Rights of the buyer when quantity or quality of goods delivered is different from that which the seller contracted to
sell (Art. 1522)

1. When the quantity delivered is less than that which the

parties had agreed upon, the buyer may;

a. Reject the goods.

This is based on the rule the creditor cannot be compelled to accept partial payment.

b. Accept the goods.

However, if he accepts the goods knowing that the seller is not going to perform the contract in full, he must pay
for them at the contract rate. If the buyer has used or disposed of the goods 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.

Example:

B ordered 500 cans of sardines from S at P8.00 per can. On due date, however, S could deliver only 450 cans. The
rights of B shall be as follows:
 a. B may reject the 450 cans.

b. B may accept the 450 cans. If he accepts the 450 cans believing that S could no longer deliver the balance of 50 cans,
then he only has to pay the 450 cans received at the contract rate of at P8.00 per can or a total of P3,600.00. If he
accepts the 450 cans believing that S would still deliver the deficiency and he has disposed of the 450 cans received,
then he only has to pay the fair value of the goods, which amount may be lower, but not greater, than the contract
rate.

2. When the quantity delivered is more than that which the parties agreed upon, the buyer may:

a. Accept the goods agreed upon and reject the rest.

Thus, if in the example in No. 1, S delivered 520, B may accept only 500 cans and reject the excess of 20 cans.

b. Accept the whole of the goods delivered and pay for them at the contract rate.

Thus, B may accept all the 520 cans and pay for them at the contract rate at P8.00 per can.

c. Reject the whole of the goods if they are indivisible.

Example: B ordered a container of orange concentrate weighing 20 gallons from S. S delivered a sealed container
weighing 25 gallons. B may reject the whole 25 gallons because although 5 gallons can be removed from the container
being delivered, still the whole container is indivisible because punching a hole on it to extract the extra 5 gallons will
destroy the integrity of the product.

3. When the seller delivers the goods agreed upon but are mixed with goods of different description, the buyer may;

a. Accept the goods agreed upon and reject the rest, 11

the sale is divisible.

b. Reject the whole of the goods, if the sale is

indivisible.

Examples:

a. B ordered 10 sacks of rice from S. S delivered

sacks of rice and 2 sacks of corn. B may reject as because the quantity of rice being delivered is incomplete, while the 2 sacks of
corn are o different description.

b. If S delivered 10 sacks of rice and 2 sacks of corn, B may accept the 10 sacks of rice and reject the 2 sacks of corn.

c. If S delivered 12 sacks with each sack containing a mixture of rice and corn, B may reject the whole delivery even if the
ratio of rice to corn is 10:2 in each sack.

Unpaid seller, concept

An unpaid seller is one who has not been paid or tendered the whole of the price or who has received a bill of exchange or
other negotiable instrument as conditional payment and the condition under which it was received has been broken by reason
of the dishonor of the instrument, the insolvency of the buyer, or otherwise. (Art. 1525)
Rights of an unpaid seller

1. Possessory lien, or a lien on the goods or right to retain

them while he is in possession of them. (Art. 1526)

a. When available

This right is available to the seller and notwithstanding that he may be in possession of the goods as agent or
bailee for the buyer in the following instances:

1) Where the goods have been sold without

any stipulation as to credit.

2) Where the goods have been sold on credit,

but the credit term has expired.

3) Where the buyer is insolvent. (Art. 1527)

b. Lien where there is partial delivery

Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder,
unless such part delivery has been made under such circumstances as to show an intent to waive the lien or right of
retention. (Art. 1528)

c. When lien is lost

The unpaid seller loses his lien on the goods in the following cases:

1) When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without
reserving the ownership in the goods or the right to the possession thereof.

2) When the buyer or his agent lawfully obtains possession of the goods.

3) By waiver thereof. (Art. 1529)

Note: The unpaid seller having a lien on the goods does not lose his lien by reason only that he has obtained judgment or
decree for the price of the goods. (Art. 1529)

2. Right of stoppage in transitu

This right involves the right of the unpaid seller to resume possession of the goods at any time while they are in
transit, and he will then become entitled to the goods as he would have had if he had never parted with the possession.
(Art. 1530)

a. When right available

This right is available after the unpaid seller has parted with the possession of the goods and the buyer is or
becomes insolvent. (Art. 1530)
 b. How exercised

The unpaid seller may exercise this right:

1) By obtaining actual possession of the goods.

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

This notice may be given either to the person in actual possession of the goods or to his principal. If given
to the principal, the notice to be effectual, must be given at such time and under such circumstances that the
principal, by the exercise of reasonable diligence, may prevent delivery to the buyer.

When notice is given to the carrier or other bailee for the buyer, he must redeliver the goods to, or
according to the instructions of, the seller, with the seller bearing the expenses of delivery. However, if a
negotiable document of title representing the goods has been issued, the carrier or other bailee shall not be
obliged or justified in delivering the goods to the seller unless such document is first surrendered to him. (Art.
1532)

c. Effects of exercise of right of stoppage in transitu

1) The goods are no longer in transit.

2) The contract of carriage ceases; the carrier shall be liable as depositary or other

bailee.

3) The carrier must redeliver the goods to, or according to the instructions of, the seller. (Art. 1532)

However, if a negotiable document of title has been issued for the goods, the carrier will not be bound to
deliver the goods unless the document of title is first surrendered to him for cancellation. (Art. 1532)

d. When goods are in transit

1) From the time they are delivered to the carrier or other bailee for the purpose of transmission to the buyer, until the
buyer or his agent, takes delivery of them from such carrier or other bailee.

2) If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even if the
seller has refused to received them back. (Art. 1531)

e. When goods no longer in transit 1)

1) If the buyer obtains delivery of the goods before arrival at the appointed destination.

2) If the carrier or other bailee acknowledges to the buyer or his agent, that he is holding the goods in his behalf, after
arrival of the goods at their appointed destination.

3) If the carrier or other bailee wrongfully refuses to deliver the goods to buyer or his agent. (Art. 1531)

3. Right of resale

a. When right available

This right is available to an unpaid seller when the following requisites are present:
 1) The buyer has defaulted in the payment of the price.

2) The seller has the right of lien or has stopped the goods in transitu.

3) Title to the goods has passed on to the buyer.

4) The grounds must be any of the following:

a) The goods are of a perishable nature.

b) The seller has expressly reserved the right to resell the goods in case the buyer should make default.

c) The buyer has been in default for an unreasonable time. (Art. 1533)

b. How resale is made

The seller may resell the goods in a public or private sale. He is bound to exercise reasonable ca re and judgment
in making the resale. He cannot, directly or indirectly, buy the goods. (Art 1533)

c. Effects of resale

1) The seller shall not be liable to the original buyer upon the contract of sale or for a profit made by such resale.

2) He may recover damages from the buyer 10 any loss occasioned by the breach o contract of sale.

3) The new buyer acquires a good title against the original buyer. (Art. 1533)

d. Importance of notice to the original buyer

Notice need not be given to the original buyer of the intention to resell the goods for t he validity of the resale.
However, if the basis of the resale is not the perishable nature of the goods or upon an express provision in a contract
of sale, the giving or failure to give notice shall be relevant in any issue involving the question whether the buyer has
been in default for an unreasonable time before the resale was made.

It is not likewise essential to the validity of the resale that notice of the time and place of such resale should be
given by the seller to the original buyer. (Art. 1533)

4. Right to rescind the sale

a. When available

This right is available to an unpaid seller when the following requisites are present:

1) The buyer has defaulted in the payment of the price.

2) The seller has the right of lien or has stopped the goods in transitu.

3) Title to the goods has passed on to the buyer.

4) The grounds must be any of the following:

a) The seller has expressly reserved the right to rescind the sale in case the buyer should make default.

b) The buyer has been in default in the payment of the price for an unreasonable time.
 b. How rescission is made

1) By giving notice to the buyer of the intention to rescind.

2) By doing an overt act manifesting the intention to rescind.

It is not necessary that such overt act be communicated to the buyer, but the giving or failure to give notice
shall be relevant in any issue involving the question whether the buyer has been in default for an unreasonable
time before the right of rescission was asserted. (Art. 1534)

c. Effects of rescission

1) The seller shall not be liable to the buyer upon the contract of sale.

2) He may recover from the buyer damages for any loss occasioned by the breach of contract of sale.

3) The seller resumes ownership of the goods.

4)

Effect on possessory lien or right of stoppage in transitu if buyer has sold or disposed of the goods

The seller's possessory lien or right of stoppage in transitu is not affected by any sale or disposition of the goods made by
the buyer except in the following cases:

1. When the seller has assented to the sale by the buyer.

2. When a negotiable document of title representing the goods has been negotiated to a purchaser for value in good faith.
(Art. 1535)

Sale of real estate with a statement of its area at the rate of a certain price per unit of measure or number

The vendor shall deliver the area mentioned in the contract of sale. However, if the actual area is more or less than the
area specified in the contract, or if a part of the immovable is not of the quality specified therein, the following rules shall be
observed:

1. If the actual area is less than that stated in the contract

(Art. 1539) - The buyer may:

a. Ask for a proportionate reduction in the price if the lack in area is less than one-tenth of that stated in the contrac t, unless
the vendee would not have bought the thing had he known of its smaller area, in which case, he may opt to rescind the
sale.

b. Rescind the sale if the lack in area is not less than one-tenth of that stated.

2. If the actual area is more than that stated in the contract (Art. 1540) – The buyer may:

a. Accept the area stated in the contract and reject the rest.

b. Accept the whole area and pay for them at the contract rate.

3. If the area is the same but a part of the immovable is not of the quality specified in the contract (Art. 1539) – The
buyer may:
 a. Ask for a proportionate reduction of the price if the inferior value of the thing does not exceed one tenth of the price
agreed upon, unless the buyer would not have bought the thing had he known of its inferior quality, in which case, he
may opt to rescind the sale.

b. Rescind the sale if the inferior value of the thing exceeds one-tenth of the price agreed upon.

Illustration:

S sold to B a lot consisting of 1,500 square meters at the rate of P1,000.00 per square meter.

1. Suppose the actual area being delivered is only 1.400 square meters, what are the rights of B?

a. B may ask for a proportionate reduction in the

price since the lack in area is less than one-tenth of that stated in the contract (One-tenth of 1,500 square meters is 150; while
the lack in area is 100) Thus, B has to pay only 1,400 square meters at P1,000.00 per square meter or a total of P1,400,000.00

b. B may ask for rescission if he would not have bought the lot had he known of its smaller area.

2. Suppose the area being delivered by S is only 1,300 square meters, what is the right of B?

B may ask for the rescission of the contract because the lack in area consisting of 200 square meters is not less than
one-tenth of the area agreed upon.

3. Suppose the area being delivered by S is 1,600 square meters, what are the rights of B?

a. B may accept the area being delivered (1,600

square meters) and pay for them at the contract rate.

b. B may accept only 1,500 square meters and reject the rest.

4. Assume the area being delivered is the same as that stated in the contract, i.e., 1,500 square meters.

a. Suppose 200 square meters should be priced only

at P950.00 per square meter because of inferior quality, what are B's rights?

Since the inferior value of P50.00 (P1,000.00 - 950.00) does not exceed one-tenth of the price agreed upon
which is P100.00 (P1,000.00 x 1/10):

1) B may ask for a proportionate reduction in the price by paying only P1,490,000.00 (1,300 x P1,000.00) + (200 x
P950.00), or

2) He may ask for rescission if he would not have bought the lot had he known that a part thereof is of inferior
value.

b. Suppose 200 square meters should be priced only at P800.00 per square meter because of inferior quality, what are B's
rights?

In this case the inferior value (P200.00) exceeds 1/10 of the value agreed upon; hence, B may ask for the
rescission of the contract.

Sale of real estate for a lump sum and not at the rate of a certain sum for a unit of measure or number (Art 1542)
1. Area to be delivered

The vendor is bound to deliver all that it is included within the boundaries stated in the contract although there be
greater or less area or number than that stated in the contract.

2. The price to be paid by vendee

The vendee shall pay the lump sum stipulated with no increase or decrease in the price although there be greater or
less area or number than that stated in the contract.

3. Buyer's remedies if the vendor does not deliver the area within the boundaries stated in the contract

a. Buyer may ask for a proportionate reduction in the price, ore b. Rescind the contract.

Illustration:

B bought from S a lot for a lump sum of P1,500,000.00. Aside from mentioning the boundaries of the lot, the deed of sale
also states the area at 1,500 square meters.

1. Suppose the area contained within the boundaries is

actually 1,400 square meters, then all that S has to deliver is 1,400 square meters. B will have to pay the same amount of
P1,500,000.00, i.e, there is no proportionate reduction in the price.

2. Suppose the area contained within the boundaries is actually 1,600 square meters, then S will have to deliver such area
with no increase in the price that B must pay. If S wants to deliver only 1, 500 square meters, B has the right:

a. To rescind the contract, or

b. Ask for a proportionate reduction in the price. hence, he has to pay only P1,406,250.00 (1,500/1,600 square meters x
P1,500,000.00).

Rules of preference in case of double sale

1. Movable property

Ownership shall be transferred to the person who first took possession of the property in good faith, (i.e. first
possessor in good faith)

The possession referred to here may either be actual or constructive.

Examples:

a. S sold his computer to B who told S that he would obtain delivery of the computer after 3 days. Before the third day, S sold
that same computer to X who immediately took physical possession of the computer. X was not aware of the previous sale
to B. Neither was B aware of the sale made to X because the sale to X had not yet taken place a t the time that he (B)
purchased the computer. Who has a better right to the computer? B or X?

Answer: X because he first took possession of the computer in good faith

b. S sold his ring to B in a public instrument. However, B informed S that he would obtain actual delivery of the ring after 3
days. The day after the sale to B, S sold the same ring to X in a private instrument. X immediately took actual possession of
 the ring. X was not aware of the previous sale to B. Neither was B aware of the sale to X at the time that he (B) purchased
the ring since the sale to X had not yet taken place. Who has a better right to the ring B or X?

Answer: B because although he did not take actual possession of the ring, the sale to him was in a public
instrument the execution of which resulted in the constructive delivery of the ring to him.

2. Immovable property

a. Ownership shall belong to the person who in good

faith first registered the sale in the Registry of Property (i.e., first registrant in good faith).

b. If there was no registration, ownership shall belong to the person who first took possession thereof in good faith (i.e.,
first possessor in good faith).

The possession referred to here is either actual or constructive.

c. In the absence of both registration and possession, ownership shall belong to the person who presents the oldest title
in good faith. (Art. 1544)

In all of the above cases, good faith is essential, being the basic premise of preferential rights granted to the person
claiming ownership of the immovable. (Tanglao vs. Parungao, G. R. No. 166913, October 5, 2007; Payongayong vs. Court of
Appeals, 430 SCRA 210 (2004)] Example:

On May 1, S sold his lot to X. The deed of sale was in a private instrument. On May 3, S sold the same lot to Y in a
public instrument.

On May 5, S sold again the said lot to Z in a public instrument. Z immediately registered the sale with Register of Deeds. X, Y
and Z did not know of the sale made to the other two and none of them took physical possession of the lot.

a. Who has a better right to the lot?

Answer: Z because he was the first to register the sale in good faith.

Suppose Z did not register the sale or he registered the sale but he was in bad faith (meaning, he was aware of one or both
of the previous sales), who has a better right to the lot?

Answer: Y will have a better right because he was the first to take possession in good faith. Since the sale to him was in a public
instrument, the lot was deemed constructively delivered to him.

b. Suppose all the sales were in a private instrument and all buyers are in good faith, who has a better right to the lot?

Answer: Since no one registered the sale or took possession of the lot, X shall be the owner because he has the
oldest title.

Knowledge gained by first buyer of the second sale does not defeat his rights

The governing principle in double sale is priore tempore potior jure (first in time, stronger in right.). Knowledge gained
by the first buyer of the second sale cannot defeat the first buyer's rights, except where the second buyer registers in good faith
the second sale ahead of the first. Such knowledge of the first buver does not bar him from availing himself of his rights under
the law, among them to register first his purchase as against the second buyer . However, knowledge gained by the second
buyer of the first sale defeats his rights even if he is first to register the second s ale, since such knowledge taints his prior
registration with bad faith. It is thus essential, to merit the protection of Art. 1 544, second paragraph, that the second realty
buyer must act in good faith in registering the deed of sale. (Fudot vs. Cattleya Land, Inc., G, R. No. 171008, September 13,
2007)
 (Note: The Supreme Court, in the foregoing case, reiterated the rule that the principle of automatic registration does not
apply to the first buyer when he gains knowledge of the second sale. In other words, the first buyer, who was in good faith at
the time the sale was made to him, remains in good faith notwithstanding his knowledge of the second sale. For the second
buyer, in order that he may invoke Art. 1544, he must possess good faith from the time of sale in his favor until the registration
of the same.) (See Pagaduan vs. Spouses Estanislao, G.R. No. 176308, May 8, 2009.)

Presence of occupants and improvements on immovable

B1 bought a lot from S Realty for P1,400,000.00 giving a down payment of P600,000.00. Balance was to be paid within ,
year from execution of contract under an agreement that could apply for a loan to pay the balance. In the meantime, introduced
permanent improvements on the property con of a building and concrete parameter fence. Bi failed to pay balance because S
Realty refused to deliver the title to property which was required in B1's application for a loan: Realty then sold the lot to B2
who forcibly opened the steel gate and the building doors and entered the premises. B2 thereafter registered the sale. Who
shall be preferred? B1 or B2?

Answer: B1l shall be preferred. At the time of the second sale, there were already improvements on, and occupants (other
than the seller) of, the property in question. These facts should have put B2 on his guard. He cannot therefore be regarded as a
buyer in good faith and cannot have any right over the property. (See Tanglao vs. Parungao, supra.)

Conditions and Warranties

Conditions in a contract of sale

If the obligation of a party is subject to a condition which is not fulfilled, the other party may choose to do any of the
following:

1. Refuse to proceed with the contract.

He may also treat the non-performance of the condition as a breach of warranty.

2. Waive the performance of the condition. (Art. 1545)

Kinds of warranties

1. Express warranties

Express warranty refers to any affirmation of fact or any promise by the seller relating to the thing whose natural
tendency is to induce the buyer to purchase the same, and if the buyer purchases the thing relying on such affirmation or
promise. (Art. 1546)

Statement of seller's opinion

This shall not be construed as a warranty unless made by an expert and it was relied upon by the buyer. (Art. 1546)

2. Implied warranties

Implied warranties are those that are inherent in contracts of sale and accompany them unless they are suppressed
by the parties. They are of two kinds:
a. Warranty against eviction - This refers to the implied warranty on the part of the seller that he has the right to sell the
thing at the time when. ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful
possession of the thing.

b. Warranty against hidden defects - This refers to the implied warranty that the thing shall be free from any hidden faults or
defects, or any charge or encumbrance not declared or known to the buyer. (Art. 1547)

Persons not liable for breach of warranty

1. Sheriff

2. Auctioneer

3. Mortgagee

4. Pledgee

5. Other persons professing to sell by virtue of authority in fact or law. (Art. 1546)

Warranty in Case of Eviction

Warranty in case of eviction

1. Eviction, concept

Eviction is the deprivation of the vendee of the whole or a part of the thing sold by virtue of a final judgment based
on a right prior to the sale or an act imputable to the vendor. (Art. 1548)

2. Requisites in order that the seller's warranty against eviction may be enforced

a. The purchaser has been deprived of the whole or part of the thing sold.

b. The eviction is by final judgment.

The vendee need not appeal from the decision or judgment in order that the vendor may become liable for eviction.
(Art. 1549)

c. The deprivation is based on a right prior to the sale or an act imputable to the vendor. (Art. 1548)

d. The vendor must have been notified of the suit for eviction at the instance of the vendee. (Art. 1558)

The defendant vendee shall ask, within the period fixed in the Rules of Court for answering the complaint, that
the vendor be made a co defendant. (Art. 1559) This will enable the vendor to defend his title (City of Manila vs. Lack,
19 Phil 324) and show that the suit for eviction against the buyer is unjust (Javier vs. Rodriguez, 40 OG No. 5, p.
1006) (See also Ang vs. Court of Appeals, G. R.No. 177874, September 29, 2008.)

Example:

S sold his lot to B in a private instrument. B took immediate actual possession of the lot. Two days later, S sold the
same lot in a public instrument to X who recorded the sale with the Register of Deeds. Neither one was aware of the sale
made to the other. When X visited the lot to take actual possession of it, he saw that B was occupying the same and
 learned from B that S had sold the lot to B earlier. Accordingly, X filed a complaint for eviction against B. Upon receipt of
the summons and the complaint, B notified S of the suit brought against him. After hearing, the court rendered judgment
evicting B from the lot. B can hold S liable for breach of warranty against eviction because all the elements for liability for
breach of warranty against eviction are present.

3. Other instances when seller is liable for breach of warranty against eviction

a. Sale of the property for non-payment of taxes

If the property is sold for non-payment of taxes due and not made known to the vendee before the sale, the
vendor is liable for eviction. (Art. 1551)

b. Judicial sales

The judgment debtor is liable for eviction unless otherwise decreed in the judgment. (Art. 1551)

4. Vendor's liability in case of eviction

a. If there is a stipulation exempting the vendor from

the obligation to answer for eviction

1) Vendor acted in bad faith, i.e., he had knowledge at the time of sale of the existence of a fact that may give rise to
eviction, the waiver is void - Vendor shall be liable for the following:

a) Value of the thing at the time of eviction.

b) Income or fruits, if the vendee has been ordered to deliver them to the party who won the suit against him.

c) Cost of suit which caused the eviction, and, in a proper case, those of the suit brought against the vendor for the
warranty.

d) Expenses of the contract, if the vendee has paid them, and

e) Damages and interests, and ornamental expenses, if the sale was made in bad faith. (Arts. 1553, 1555)

2) Vendor acted in good faith - Vendor's liability shall be as follows:

a)If vendee made the waiver without knowledge of the risks of eviction (waiver consciente), the vendor shall
pay only the value of the thing sold at the time of eviction.

b) If vendee made the waiver with knowledge of the risks of eviction and assumed the consequences
(waiver intencionada), the vendor shall not be liable.

b. Where no warranty has been agreed upon or there was no stipulation exempting the vendor from liability

1) Vendor acted in bad faith - Vendor's liability shall be the same as items (a) to (e) in 4(a)(1) above.

2) Vendor acted in good faith - Vendor's liability shall be the same as items (a) to (d) in 4(a)(1) above, i.e., there is no
liability for damages and interest.

5. Vendee's remedies in case of partial eviction

If the vendee loses, by reason of eviction, a part of the thing sold of such importance, in relation to the whole, that he
would not have bought it without said part, he may demand:

a. Rescission of the contract; or

 b. Enforcement of the vendor's liability for eviction.

The above rule shall be observed when two or more things have been jointly sold for a lump sum, or for a separate
price for each of them, if it should clearly appear that the vendee would not have purchased one without the other. (Ar t.
1556)

Rules on easement or servitude

1. Easement or servitude, concept

Easement or servitude is an encumbrance imposed upon an immovable for the benefit of another immovable
belonging to a different owner. (Art. 613)

Example: A and B are owners of adjoining lots. The only way by which B can have access to his lot from the road is to
pass through A's lot so he enters into an agreement with A for A to give him a right of way. The right of way is an easement
or servitude imposed upon the lot of A for the benefit of the lot belonging to B.

2. Kinds of easement or servitude

a. Apparent easement - One that is made known and continually kept in view by external signs that reveal its use and
enjoyment. (Art. 615)

b. Non-apparent easement - One which shows no external indication of its existence. (Art. 615)

3. Requisites for vendor's liability should the immovable sold be encumbered with easement or servitude a.

a. The easement must be non-apparent.

b. It must not have been mentioned in the agreement.

c. It must be of such nature that it must be presumed that the vendee would not have acquired the immovable had he
been aware thereof. (Art. 1560)

4. Vendee's remedies should the immovable sold be encumbered with any non-apparent easement or servitude

a. Within one year from the execution of the deed of sale, the vendee may ask for:

1) Rescission, or

2) Damages.

b. After one year from the execution of the deed of sale, the vendee may ask for:

Damages, within a period a period of one year from the discovery of the easement or servitude. (Art. 1560)

5. When vendor not liable for easement or servitude

a. When the easement is apparent.

 b. When the non-apparent easement or servitude is

recorded in the Registry of Property, unless there is an express warranty that the thing is free from all burdens and
encumbrances. (Art. 1560)

c. When the vendee had knowledge at the time of the sale of the existence of the easement or servitud, though it was
non-apparent. (10 Manresa 222) such as when it was mentioned in the agreement. (Art. 1560)

Warranty Against Hidden Defects of or Encumbrances upon the Thing Sold

Warranty against hidden defects

1. Requisites for enforcement of vendor's liability against hidden defects.

a. The defect must exist at the time of sale. (Art. 1561)

b. The defect must be hidden, i.e., not patent or visible. (Art. 1561)

The vendor, however, shall not be liable for defects that are not visible if the vendee is an expert who, by reason
of his trade or profession, should have known them. (Art. 1561)

c. The defect must render the thing unfit for the use for which it is intended or diminishes its fitness for such use to
such an extent, that had the vendee been aware thereof, he would not have acquired it or would have given a lower
price for it. (Art. 1561)

d. The action to enforce it must be made within the period provided by law.

2. Warranties included

a. Implied warranty of fitness for a particular purpose

1) Requisites

a) The buyer makes known to the seller the particular purpose for which the goods are acquired.

b) The buyer has relied upon the seller's skill or judgment. (Art. 1562)

2) Sale of goods under their patent or trade name

There is no warranty as to the fitness of such goods for a particular purpose, unless otherwise stipulated. (Art.

1563)

3) Usage of trade

An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage
of

trade. (Art. 1564)

 b. Implied warranty of merchantable quality

This is an implied warranty that the goods are fit for the general purpose of the thing, and not necessarily for the
purpose of the buyer. This warranty is present when the goods are bought by description from a seller who deals in goods
of such description (whether he is the grower or not.) (Art. 1562)

c. Implied warranty of merchantability

In sale by sample, if the seller is a dealer in goods of that kind, there is an implied warranty that the goods shall be
free from any defect rendering them unmerchantable which would not be apparent upon reasonable examination of the
sample. (Art. 1565)

3. Responsibility for hidden defects

General rule: The vendor shall be liable to the vendee for any hidden faults or defects in the thing sold, even though
he was not aware thereof.

Exception: The vendor shall not be liable if the is a stipulation exempting him from such defects and was not aware
thereof. (Art. 1566)

4. Remedies of vendee in case of breach (in the warrants under Arts. 1561, 1562, 1564. 1565 and 1566) The buyer may
choose between:

a. Withdrawing from the contract or rescission redhibitoria), and

b. Demanding a proportionate reduction in the price (accion quanti minoris), with damages in either case. (Art. 1567)

Rules in case of loss of the thing with hidden defects

1. The cause of the loss is the defect -

a. If the vendor was aware of the defect, he shall be obliged:

1) To return the price;

2) To refund the expenses of the contract; and

3) To pay damages. (Art. 1568)

b. If the vendor was not aware of the defect, he shall be obliged: 1) To return the price;

To pay the interest thereon; and 3) To refund the expenses of the contract.

(Art. 1568)

3. The cause of loss is a fortuitous event or the fault of the vendee -

a. If the vendor was aware of the defect, he shall be obliged:

1) To return the price paid less the value of the thing at the time of loss; and

2) To pay damages. (Art. 1569)

 b. If the vendor was not aware of the defect, he shall

be obliged:

To return the price paid less the value of the thing at the time of loss. (Art. 1569)

Period of filing action

The action to withdraw from the contract (accion redhibitoria) or reduction of the price with damages (accion quanti
minoris) (Arts. 1561 to 1567); and all other actions to enforce the seller's liability for hidden defects when the thing is lost
(Arts. 1568 and 1569) and in judicial sales (Art. 1570), is six (6) moms from the delivery of the thing sold. (Art. 1571)

Rules in sale of animals with defects or disease

1. Sale of animals with redhibitory defects

a. Redhibitory defect, concept; liability of veteran. arian

Redhibitory defect is a defect of such nature that expert knowledge, even after a professional inspection has
been made, is not sufficient to discover it.

If the veterinarian, through ignorance or bad faith should fail to discover or disclose it, h e shall be liable for
damages. (Art. 1576)

b. Remedies of vendee in case of sale of animals with redhibitory defects

General rule: If two or more animals are sold together, whether for a lump sum or for a separate price for each
of them, the redhibitory defect of one shall only give rise to its redhibition. Accordingly, the vendee may only ask for:

1) The rescission of the sale of the defective

animal (accion redhibitoria), or

2) Ask for a proportionate reduction in its price (accion quanti minoris). (Arts. 1572, 1567, 1580)

Exception: The redhibitory defect of one shall give rise to the redhibition of all the animals sold, including the sound
ones, if the vendee would not have bought the sound animals without us defective one. This intention by the vendee
presumed when a team, yoke, pair, or se bought, even if a separate price has been fixed each one of the animals composing
the same. In 1572) Accordingly, the vendee may ask for u rescission of the whole contract.

Note: The above rule and exception apply in like manner to the sale of other things. (Art. 1573)

Example:

B bought 6 horses from S. A few days after the sale, one of the horses was found to have a redhibitory
defect. Here, B can only ask for the rescission of the sale of the horse with such defect or for a proportionate
reduction in its price.

However, if B bought the 6 horses as a team, such as for his horse-drawn carriage, B may seek the
rescission of the sale of all the horses because he would not have bought the sound horses without the defective
horse.

c. When must redhibitory action be filed

 The redhibitory action must be filed within forty (40) days from the date of delivery to the vendee. This
action can only be exercised with respect to faults and defects which are determined by law or local customs.
(Art. 1577)

d. Effect of the rescission of the sale of an animal with redhibitory defect

The animal shall be returned in the condition in which it was sold and delivered, the vendee being
answerable for any injury due to his negligence, and not arising from the redhibitory fault or defect. (Art. 1579)

2. When sale of animals is void

a. When the animals are suffering from contagious diseases.

b. When the animals are found to be unfit for the use or service for which they were acquired as stated in the contract.
(Art. 1575)

3. Vendor's liability in case the animal sold dies of disease

The vendor shall be liable for the death of the animal sold, whether the defect is redhibitory or not, if the following
requirements are present:

a. The disease existed at the time of sale;

b. The disease is the cause of death of the animal, and

c. The animal dies within three (3) days from time of purchase. (Art. 1578)

4. Sale without warranty against hidden defects of animals

There is no warranty against hidden defects of animals sold at fairs or at public auctions, or of livestock sold as
condemned. (Art. 1574)

Consumer product warranties under R. A. No. 7394, otherwise known as the "Consumer Act" approved on April 13, 1992 and
published in the Official Gazette on June 15, 1992

In addition to the Civil Code provisions on sale with warranties, the following provisions shall govern the sale of
consumer products with warranty:

1. Terms of express warranty - Any seller or manufacturer who gives an express warranty shall:

a. Set forth the terms of warranty in clear and readily understandable language and clearly identify himself as the
warrantor;

b. Identify the party to whom the warranty is extended;

c. State the products covered;

d. State what the warrantor will do in the event of a defect, malfunction or failure to the written warranty and at whose
expense;

e. State what the consumer must do to avail (himself) of the rights which accrue to the warranty; and

f. Stipulate the period within which, after notice of defect, malfunction or failure to conform to the warranty, the
warrantor will perform any obligation under the warranty. (Sec. 68 (a)]
 2. When express warranty operative

All written warranties or guarantees issued by a manufacturer, producer or importer shall be operative from the
moment of sale. (Sec. 68. (b)]

3. Persons liable

a. Manufacturer.

b. Distributor.

c. Retailer.

The retailer shall be liable only subsidiarily, i.e., when the manufacturer and distributor fail to honor the warranty. In
such case, the retailer shall shoulder the expenses and costs necessary to honor the warranty. He may, however, proceed
against the manufacturer and distributor. (Sec. 68 (b) (3)]

4. Minimum standards for warranties

For the warrantor of a consumer product to meet the minimum standards for warranty, he shall:

a. Remedy such consumer product within a reasonable time and without charge in case of defect, malfunction or failure
to conform to such written warranty.

b. Permit the consumer to elect whether to ask for a refund or replacement without charge of such product or part, as the
case may be, where after reasonable number of attempts to remedy the defect or malfunction, the product continues to have
the defect or to malfunction. [Sec. 68 (d)]

5. When warrantor not required to perform warranty

The warrantor will not be required to perform the duties mentioned in No. 4 above, if he can show that the defect.
malfunction or failure to conform to a written warranty was caused by damage due to unreasonable use thereof. [Sec. 68
(d)]

6. Duration of warranty

a. Period stipulated by the seller and consumer when the express warranty shall be enforceable. If the implied warranty
on merchantability accompanies an express warranty, both will be of equal duration.

b. Any other implied warranty shall endure not less than sixty (60) days nor more than one (1) year following the sale.
(Sec. 68 (e)]

7. Remedies for breach of warranty (Sec. 68 (f)]

a. Express warranty

The consumer may elect either of the following:

1) Repair of the product, in whole or in part

The warranty work must be made to. conform to the express warranty within thirty (30) days by either the
warrantor or his representative, which period may be extended by conditions beyond the control of the warrantor or
his representative.

2) Refund of the purchase price

 The amount directly attributable to the use of the consumer prior to discovery of the non-conformity shall be
deducted.

b. Implied warranty

The consumer may:

1) Retain in the goods and recover damages, or

2) Reject the goods, cancel the contract and recover from the seller so much of the purchase price as has been paid,
including damages.

OBLIGATIONS OF THE VENDEE

Obligations of the vendee

1. To accept the delivery of the thing sold. (Art. 1582)

a. When buyer deemed to have accepted the goods

1) When he intimates to the seller that he is accepting them.

2) When he does any act in relation to the goods which is inconsistent with the ownership of the seller. •

Thus, the buyer is deemed to have accepted the goods if he begins to consume them or give them to others,
or if he has performed additional work on them.

3) When he retains the goods after the lapse of a reasonable time without intimating to the s eller that he has
rejected them. (Art. 1585)

b. Delivery of goods in installments

As a general rule, the buyer is not bound to accept delivery of the goods in installments, unless otherwise
agreed. (Art. 1583) This is consistent with the rule that payment or performance must be complete. (Art. 1233)

If there is a stipulation and the seller makes defective deliveries in respect of one or more installments, or the
buyer neglects or refuses without just cause to take delivery of or pay one or more installments, the injured party
may. depending upon the circumstances of the case:

1) Refuse to proceed further with the contract and sue for damages for breach of the entire contract; or

2) Claim compensation but not damages, if

the breach is severable. (Art. 1583)

c. Right of buyer to examine goods before accepting them

General rule: The buyer has the right to examine the goods before accepting them.

Exceptions, i.e., such right is not available in the following cases:

1) When there is an agreement to that effect

 2) When there is a stipulation that the goods shall not be delivered to the buyer until he has paid the price such as when
the good are marked with the words “collect on delivery” – unless there is an agreement or usage of trade permitting
such examination. (Art. 1584)

d. Effect of acceptance of goods on seller's liability for breach of warranty

General rule: The seller is not discharged from liability in damages or other remedy for breach of warranty by the
acceptance of the goods.

Exceptions. i.e., the seller is discharged from such liability in the following cases:

1) If there is an agreement, whether express or implied.

2) If the buyer fails to give notice to the seller of any breach of warranty within a reasonable time after the buyer
knows or ought to know of such breach. (Art. 1586)

e. Effect when buyer refuses to accept delivery

1) If refusal to accept delivery is justified (such as when the quantity is not complete or the go ods being delivered are
different from those stipulated).

a) Buyer has no duty to return goods to the seller unless otherwise agreed. (Art. 1587)

b) Title to the goods does not pass on to him. (Art. 1588)

c)He shall not be obliged to pay the price.

d) If he constitutes himself as depositary of the goods, he shall be liable as such. (Art. 1587)

Obligation of the buyer

It is sufficient that the buyer notifies the seller that he refuses to accept the goods (Art. 1587) so
that the seller can take action on them.

2. If refusal to accept delivery is not justified.

a. Title to the goods passes to the buyer from the moment the goods are placed at his disposal, (Art. 1588)
except in the following:

(1) When there is a stipulation to the contrary. (Art. 1588)

(2) When the seller has reserved the ownership of the goods as a security for the payment of the price.
(Arts. 1523 and 1503)

b) He shall be obliged to pay the price.

2. To pay the price of the thing. (Art. 1582)

a. Time and place of payment of the price

1). At the time and place stipulated.

2). Time and place of delivery of the thing, in the absence of stipulation. (Art. 1582)
 b. When interest will be paid on the price

The buyer shall pay interest for the period between the delivery of the thing and the payment of the price, in the
following cases:

1) If there is a stipulation.

If interest was stipulated but the rate was not indicated, the rate shall be the legal rate of 6%. (Effective July 1, 2013,
the legal rate shall be 6% per Circular No. 799 of the Monetary Board.)

2) If the thing sold produces fruits or income.

3) If he is in default, from the time of judicial or extrajudicial demand for the payment of the price. (Art. 1589)

c. Suspension of payment of the price by vendee

1) Grounds

a) Disturbance in the vendee's possession or ownership of the thing purchased.

Thus, the vendee may suspend payment if a complaint for eviction was brought against him.

b) Reasonable grounds to fear such disturbance, by a vindicatory action or foreclosure of mortgage. (Art. 1590)

Thus, the vendee may suspend payment if he receives a demand letter which threatens the filing of a complaint
for the recovery of the thing sold or for foreclosure of the mortgage constituted on the thing.

2) Duration of suspension of payment

Until the vendor has caused the disturbance or danger to cease. (Art. 1590)

3) When right to suspend payment not available.

a) If the vendor gives security for the return of the price.

b) If it has been stipulated that the vendee shall pay the price notwithstanding the existence of the aforementioned
disturbance or danger.

c)If the disturbance is a mere act of trespass. (Art. 1590)

Thus, the mere entry and presence of squatters will not justify suspension of the payment of the price by the
buyer.

d. Rescission by vendor

1) Immovables

a) When vendor is entitled to sue for immediate rescission

The vendor may immediately sue for rescission of the sale if there are reasonable grounds to fear:

(1) the loss of the immovable property sold, and

(2) its price. (Art. 1591)

Example: S sold his lot to B for P50,000.00. While the lot had been delivered to B, B was to pay the price after 2
months. If the lot was in danger of being eroded because B was cutting all the trees planted thereon and B was squandering his
money in gambling, S may sue for the immediate rescission of the sale.

If one or both grounds do not exist, the vendor may choose between:

(1) fulfillment of the contract, with damages, and

(2) rescission of the contract, with damages. (Art. 1191)

b) Pactum commissorium
 This is an agreement between the vendor and the vendee in the sale of an immovable that rescission of the contract shall of
right take place if the vendee fails to pay the price at the time agreed upon. (Art. 1592)

This agreement is not valid. Accordingly, the vendee may pay even after the expiration of the

period as long as no demand for rescission has been made upon him either judicially or by notarial act. After the demand, the court
may not grant him a new term. (Art. 1592)

In the case of sale of real property which is payable in installments and the buyer has paid at least two years of installments.
the provisions of the Realty Installment Buyer Act are

Applicable.

2) Movables

a) Grounds for immediate rescission

Rescission of the sale of a movable shall of right take place in the interest of the vendor, i.e., at his option, if at the time
fixed for the delivery of the thing, the vendee:

(1)does not appear to receive the thing, or

(2)having appeared, does not pay the price, unless a longer period is stipulated for its payment. (Art. 1593)

ACTIONS FOR BREACH OF CONTRACT OF SALE OF GOODS

Actions by the seller

1. Maintain an action for the price of the goods if the buyer

wrongfully neglects or refuses to pay. (Art. 1595)

2. Maintain an action for damages if the buyer wrongfully neglects or refuses to accept and pay for the goods. (Art. 1596)

3. Rescind the contract if the buyer has repudiated the sale, or manifested his inability to perform his obligation, or as committed
a breach of contract, where the goods have not been delivered to buyer. (Art. 1597)

Actions by the buyer

1. Bring an action for specific performance, if the seller has broken the contract to deliver specific or ascertained goods. (Art. 1598)

2. In case of breach of warranty by the seller, the buyer may, at his election:

a. Accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment or diminution or
extinction of the price.

b. Accept or keep the goods and maintain an action against the seller for damages for breach of warranty.

c. Refuse to accept the goods, and maintain an action against the seller for damages for breach of warranty.

d. Rescind the sale and refuse to receive the goods or if the goods have already been received, return them or offer to return
them to the seller and recover the price or any part thereof which has been paid. (Art. 1599)

EXTINGUISHMENT OF SALE

How sales are extinguished

Sales are extinguished:

1. By the same causes as all other obligations.

2. By the various causes of extinguishment in Title VI (Sales) such as:

a. Cancellation of sale of personal property payable in installments. (Art. 1484)

b. Resale of the goods by the unpaid seller. (Art 1532)

 c. Rescission of the sale by the unpaid seller. (Art. 1534)

d. Rescission by the buyer in case of partial eviction. (Art. 1556)

e. Rescission by the buyer in case of breach of warranty against hidden defects. (Art. 1567)

f. Rescission by the buyer of sale of animals with redihibitory defects. (Art. 1580)

3. By redemption, whether conventional or legal

Conventional redemption

1. Concept

Conventional redemption takes place when the vendor reserved the right to repurchase the thing sold, with the
obligation:

a. return to the vendee:

1) the price of sale,

2)the expenses of the contract, and any other legitimate payments made by reason of the sale, and

3) the necessary and useful expenses made on the thing sold; and

b. to comply with other stipulations which may have been agreed upon. (Arts. 1601, 1616)

Liability with respect to fruits existing at the time of redemption

a. If there were visible or growing fruits at the time of sale

There will be no reimbursement for or prorating of the fruits at the time of redemption if no indemnity was paid by the purchaser
at the time the sale was executed. .

b.If there were no fruits at the time of sale

The fruits at the time of redemption will be prorated between the redemptioner and the vendee, giving the vendee the part
corresponding to the time he possessed the land in the last year, counted from the anniversary of the date of sale. (Art. 1617)

Condition of the property at the time of redemption

a. The vendor shall receive the property free from all charges constituted by the vendee.

b. He shall respect the leases which the vendee may have executed in good faith, and in accordance with the custom of the place
where the land is situated. (Art. 1618)

Right of vendee to subrogation

In sale with right to repurchase, the vendee is subrogated to the vendor's rights and actions. (Art. 1609)

2. Period of redemption

a. When no period is fixed

If the right of redemption was agreed upon but there was no stipulation as to the period within which the right shall be
exercised, the period of redemption shall be four (4) years from the date of the contract.

b. When a period is fixed by the parties

1) If the period does not exceed ten years - such as when the right to repurchase shall be exercised within five (5) years,
then the period shall be five (5) years from the date of the contract.

2) If the period exceeds ten (10) years, then the period shall be ten (10) years from the date of the contract, the
stipulation as to the excess being null and void. (Montiero vs. Salgado, 27 Phil 631)

c. Where the period agreed upon is indefinite, such as when the repurchase may be made "at any time”, the repurchase may
be exercised within ten(10) years from the date of the contract. (Soriano VS. Abalos, et. al., G.R. No. L-1525, July 27, 1949).
 d. In case there was a civil action between the parties. the vendor may still exercise the right to repurchase within thirty (30)
days from the time final judgment was rendered in a civil action on the basis that the contract was a true sale with a right to
repurchase. (Art. 1606)

3. Effect of failure to exercise right of repurchase

Ownership is consolidated in the vendee. However, in case of real property, a judicial order, after the vendor has been
duly heard, is required for the purpose of recording the consolidation in the Registry of Property. (Art. 1607)

4. Against whom right to repurchase available

a. The vendee a retro (original vendee).

If the original vendee dies leaving several heirs, the vendor can exercise his right to repurchase against each of them for
his own share, whether the thing be undivided, or it has been partitioned among them.

However, if the inheritance has been divided, and the thing sold has been awarded to one of the heirs, the action for
redemption may be instituted against him for the whole. (Art. 1615)

b. Every possessor whose right is derived from the vendee a retro (original vendee), even if no mention is made in the second
contract of the right to repurchase, provided the right has been recorded in the Register of Deeds, or even if the right is not
registered, but the possessor has knowledge of the existence of the right. (Art. 1608, Mortgage Law, Land Registration Law)

Examples:

S sold his lot to B with a right to repurchase the said lot within 5 years.

a. S may repurchase the lot from B, the original vendee, within the 5 year period.

b. Assume that B dies before S could repurchase the lot. B is survived by his sons X, Y and Z. S may exercise his right to
repurchase against X, Y and Z only to the extent of 1/3 undivided interest of each on the lot.

If the lot has been divided, S may exercise his right to repurchase against X, Y and Z only to the extent of the part that
had been given to each one of them in the partition.

If X inherited the whole lot (Y and Z having been given other properties from the estate), then may exercise his right to
repurchase against a alone.

c. Assume that B sold the property to C. S may exercise his right to repurchase against C provided the sale with right to
repurchase was registered or C was aware that the sale was with a right to repurchase when he purchased the property
from B.

5. Who may avail themselves of the right to repurchase

a. The vendor a retro

1) A co-owner of an undivided immovable which is essentially indivisible who sells his share with a right to
repurchase to a third person who subsequently acquires the whole thereof, may be compelled by the latter to redeem the whole
property, if the former wishes to make use of the right of redemption. (Arts. 498 and 1611)

2) If several persons, jointly and in the same contract, should sell an undivided immovable with a right of repurchase,
none of them may exercise this right for more than his respective share. (Art. 1612)

If the person who sold an immovable alone has left several heirs, each heir may redeem only the part which he may have acquired.
(Art. 1612)

The vendee may demand that the co-owners or co-heirs come to agreement upon the repurchase of the whole
thing, and if they fail to do so, the vendee cannot be compelled to consent to a partial redemption. (Art. 1613)

3) Each one of the co-owners of an undivided immovable who may have sold his share separately, may independently
exercise the right of repurchase as regards his own share and the vendee cannot compel him to redeem the whole property. (Art.
1614)

c. Creditors of the vendor.

 However, they cannot make use of the right of redemption against the vendee, until after they have exhausted the
property of the vendor. (Art. 1610)

Examples:

a. S sold his lot to B reserving his right to repurchase the same within 5 years. S himself may repurchase the lot from B.

b. A, B and C are co-owners of a lot. The lot is situated on a hillside and of a shape that subdividing it among the owners
would render the lot unproductive, hence, essentially indivisible. A sells his 1/3 undivided interest to X with right to repurchase the
same in 5 years. Shortly thereafter, B and C also sell their respective undivided interests to X without a right to repurchase. When A
exercises his right to repurchase, X may compel him to redeem not only his share but also those of B and C, i.e., the whole property.

c. A, B and C are co-owners of a lot. They sell the lot to X with right to repurchase in the same contract. In this case, each
one may repurchase only to the extent of his 1/3 undivided interest. X, however, may demand that A, B and C come to an agreement
to redeem the whole property, and if they fail to do so, X cannot be compelled to consent to a partial redemption.

The same rule applies if S was the original seller who sold the lot with right to repurchase and he dies with A, B and C as
heirs.

d. A, B and C are co-owners of a lot. A sells his undivided interest of 1/3 on the lot with right to repurchase to X. Sometime
later, B also sells his 1/3 undivided interest to X with right to repurchase. Thereafter, C also sells his 1/3 undivided interest to X with
right to repurchase. A, B and C may each exercise his right to repurchase only with respect to his share and no one of them can be
compelled by X to redeem the whole property

Legal redemption

1. Concept

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 donation in payment, or by any other transaction whereby the ownership is
transmitted by onerous title. (Art. 1619) Thus, this right is not available if the transfer of ownership is by gratuitous title.

2. Instances of legal redemption

a. Legal redemption by co-owner

A co-owner of a thing may exercise the right of redemption in case the shares of all the other co owners or of any
of them, are sold to a third person. (Such is the rule in order to reduce the number of co-owners since co-ownership is not favored
upon).

If two or more co-owners desire to exercise the right of redemption, they may only do so in proportion to the share
they may respectively have in the thing owned in common. (Art. 1620)

Example: A, B and C are co-owners of a lot. A sells his 1/3 undivided interest in the property to X B or C may
redeem the share of A from X. If both of them desire the redeem the share of A, each can redeem only 1/6 of the property; i.e., they
halve the share of A.

b. Legal redemption by adjoining owner of rural land

If a piece of rural land not exceeding one hectare is alienated, the adjoining owner shall have the right of legal
redemption unless the grantee does not own any rural land.

Rule if two or more adjoining owners desire to exercise the right of redemption:

1) The owner of the adjoining land of smaller area shall be preferred.

2) If both lands have the same area, the one who first requested the redemption, shall be

preferred. (Art. 1621) When right not available

If adjacent lands are separated by brooks, drains, ravines, roads and other apparent servitudes for the benefit of other estates. (Art.
1621)

c. Legal redemption by adjoining owner of urban land

If a small piece of urban land which was bought for speculation has been resold, the owner of the adjoining
land has a right of redemption at a reasonable price.

Right of pre-emption by adjoining owner

If such small piece of urban land is about to be resold, the adjoining owner shall have the right of pre-emption at a reasonable
price, i.e., the adjoining owner shall be given the right to buy the property before it is offered to others.

Rule if two or more adjoining co-owners wish to exercise the right of redemption or pre-emption

Preference shall be given to the owner whose intended use of the land in question

appears best justified. (Art. 1622)

Note: The right of redemption of co-owners excludes that of adjoining owners. (Art. 1623)

3. Period of pre-emption or redemption

a. Pre-emption - Within 30 days from written notice by prospective vendor.

b. Redemption - Within 30 days from written notice by vendor

4. Recording of sale in the Registry of Property

The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor
that he has given written notice of the sale to all possible redemptioners. (Art. 1623)

Equitable mortgage

1. Concept

An equitable mortgage is one which, although lacking in some formality, or form or words, or other requisites demanded
by statute, nevertheless reveals the intention of the parties to charge real property as

security for a debt, and contains nothing impossible or contrary to law. Its essential elements are:

a. The parties enter into what appears to be a contract of sale.

b. Their intention is to secure an existing debt by way of mortgage. (Vda. De Delfin vs. Dellota, G. R. No. 143697, January 28,
2008

2. Contracts presumed to be an equitable mortgage

A contract of sale with a right to repurchase and other contracts purporting to be an absolute sale, shall be presumed
to be an equitable mortgage, in any of the following cases:

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

b. When the vendor remains in possession as lessee or otherwise.

c. When the period for the exercise of the right to repurchase is extended.

d. When the purchaser retains for himself a part of the purchase price.

e. When the vendor binds himself to pay the taxes on the thing sold.

f. When the real intention of the parties is that the transaction shall secure the payment of a debt or
the performance of any other obligation. (Art. 1602)

In any of the above cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be
considered as interest which shall be subject to the usury laws. (Art. 1602)

3. Rule in case of doubt

A contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage. (Art. 1603)

4. Right to reformation

The apparent vendor may ask for the reformation of the instrument in the contracts presumed to be an equitable
mortgage. (Art. 1605)

ASSIGNMENT OF CREDIT AND OTHER INCORPOREAL RIGHTS

Assignment of credits, concept

Assignment of credits is a contrast whereby a person Cassionor) transfers his credit, right or action against a third person to
another person (assignee) for a consideration which is certain in money or its equivalent.

An assignment of credit not only entitles the assignee to the credit itself, but also gives him the power to enforce against
the debtor of the assignor (Sps. Serfino vs. Far East Bank and Trust Co., Inc., G.R. No. 171845, October 10, 2012)

Example: D owes C P5.000.00. C assigns his credit right to T for a consideration with notice to D. C is the assiga the
assignee. D will have to make his payment to T and now to C.

Nature of assignment of credits and other incorporeal rights

It partakes of the nature of a contract of sale; hence, 1 2 perfected at the moment there is a meeting of minds upon credit
or right which is the object of the contract and upon the price. (See Arts. 1475, 1624.)

Assignment of credit may also constitute exchange, donation or dation in payment (dacion en pago). In case of dation in
payment, the assignment of credit operates as a mode of extinguishing the obligation; the delivery and transmission of ownership of
a thing in this case, the credit due from a third person) by the debtor to the creditor is accepted as the equivalent of the performance
of the obligation. (Sps. Serfino vs. Far East Bank and Trust Co., supra)

Form of assignment of credits

1. Between the parties

It may be in any form. It may be oral or written, or partly oral and partly written.

2. For binding effect against third persons

a. If personal property is involved - public Instrument.

b. If real property is involved - public instrument recorded in the Registry of Property (Art. 1625) Effect of payment by
debtor to creditor

1. Before knowledge of the assignment

The debtor is released from his obligation if he s his creditor without his knowledge that his debt has been assigned. (Art.
1626)

2. After knowledge of the assignment

The debtor is not released from his obligation to pay the assignee.
Note: An assignment does not require the consent of the debtor. However, actual notice must be given to him of the assignment
so that he could make his payment to the assignee. This notice is a form of protection in favor of the assignee.

Accessory rights included in the assignment (Art. 16A27)

1. Guaranty

2. Mortgage

3. Pledge

4. Preference

This inclusion of accessory rights in the assignment is based on the rule that the accessory follows the principal. (See Art.
1537.) However, the parties may stipulate that the accessory rights shall be excluded from the assignment.

Example: D obtained a loan from C amounting to P200,000.00. The loan is secured by a mortgage of D's lot. If C assigns his
credit right to X, the mortgage right is also considered assigned unless C and X agree otherwise. Thus, if D defaults in his payment of
the loan, X can ask for the foreclosure of the mortgage where the property will be sold and the proceeds applied in payment of the
loan.

Case

Spouses Noynay vs. Citihomes

G.R. No. 204160, September 22, 2014

Facts: Band S entered into a contract to sell covering a particular house and lot. B gave a down payment on the price and
promised to pay the balance in 120 equal monthly installments. Thereafter, S assigned all his rights under the contract to sell to X
Bank, with S delivering to the latter the contract to sell, transfer certificate of title to property which was in the name of S, and other
pertinent documents. After paying more than two years installments, B defaulted. As a result, S cancelled the contract to sell
pursuant to the Maceda Law. Did S have such right to cancel the sale?

Held: No, S did not have the right to cancel the contract to sell because such right was transferred to X Bank when he
assigned the account of B. By reason of the assignment, X Bank was deemed subrogated to the rights and obligations of S. Warranties
of assignor (Art. 1628)

1. The legality and existence of the credit at the time of sale.

However, there is no such warranty if the credit was sold as doubtful.

Example: Dowes C P10,000.00. The debt is evidenced by a promissory note. Thereafter, C assigns his credit right to X. If
X cannot collect later from D because the note was issued for an illegal gambling debt, C will be liable to X because he warranted that
the credit was legal when he assigned it to X

If X cannot collect from D because it turned out that the debt had prescribed, C shall also be liable to X because he
warranted that the credit existed.

Assume that the credit right is in litigation. Here, the credit is doubtful because whether D is liable or not to C depends upon the
outcome of the case. Accordingly, if X later on cannot collect from D because the court adjudges him not liable to C, X cannot hold C
liable.

2. As regards the debtor's solvency, he does not warrant the same, except:

a. When there is a stipulation.

b. When the insolvency already existed prior to the sale and of public knowledge.
Example:

D obtained a loan of P50,000.00 from C. Thereafter, C assigned his credit right to X. On due date, X demanded payment from D
but D could not pay because he is insolvent. In this case, X cannot not go after C except in the said two cases.

Liability of the assignor when warranties are violated

1. If he was in good faith - He shall be liable for the following:

a. Price received

b. Expenses of the contract.

c. Other legitimate payments by reason of the assignment. (Arts. 1628, 1616)

2. If he was in bad faith - He shall be liable for the following:

a. Price received

b. Expenses of the contract.

c. Other legitimate expenses by reason of the assignment.

d. Damages. (Arts. 1628, 1616)

Duration of assignor's warranty of the debtor's solvency if assignor was in good faith

1. The period stipulated.

2. If no period was stipulated –

a. If the assignment was made before maturity – 1 year from maturity.

b. If the year from maturity. If the assignment was made after maturity - 1 year from the time of the assignment:

(Therefore, the one-year period shall be counted from the date of maturity or the date of the assignment, whichever
comes later.)

Sale of present inheritance

1. Warranty of person selling an existing or present inheritance

He shall only be answerable for his character as heir but not of the things composing the inheritance, unless such things
were enumerated. (Art. 1630) This is known as the warranty of heirship.

Example: A, B and C are heirs of X. Pending the partition of the estate of X, A sold his share in the inheritance to Y for
P200,000.00. After partition, A received only P180,000.00. In this case, A will not be liable to Y for the difference because what he
warranted was that he was an heir of X.

If A sold his inheritance to Y and listed down that he would be receiving a car, a house and lot, furniture and fixtures, but
later on he did not receive the car in the partition, then he shall be liable to Y for violation of his warranty.

If A received nothing from X because he was not an heir in the first place, then A will likewise be liable to Y for violation of
his warranty.

2. Liabilities of vendor of inheritance sold

If the vendor has profited from the fruits or received anything from the inheritance sold (except as to the price thereof),
he shall be obligated to pay them to the vendee unless the contrary has been stipulated. (Art.

1632)

3. Liabilities of vendee of inheritance

 The vendee must reimburse the vendor for the debts and charges on the estate paid by the vendor, unless there is a
stipulation to the contrary. (Art. 1633)

Vendor's warranty for lump sum sale of the whole of certain rights, rents or products (Art. 1631)

The vendor warrants the legitimacy of the whole in general, and shall not be obliged to warrant each of the various parts of
which it may be composed, except when he is evicted: 1. From the whole of the thing; 2. From a part of the greater value.

Example: S sold his receivables from more than 50 customers to B for P1,000,000.00. B was deprived of the amount of
P20,000.00 representing an alleged receivable from D. Here, S shall not be liable because the warranty of S is on the legitimacy of the
whole of the receivables. If B, however, is deprived of the whole amount of the receivables or more than 50% thereof, shall be liable
to B.

Sale of credit or other incorporeal right in litigation (Art. 1634)

1. When right considered in litigation

The credit or other incorporeal right shall be considered in litigation from the time the complaint concerning the
same is answered.

2. Right of legal redemption of debtor when credit or other incorporeal right in litigation is sold

The debtor shall have the right to extinguish the same by reimbursing the assignee the following:

a. Price paid by the assignee for the right purchased.

b. The judicial costs incurred by him.

c. Interest on the price from the day on which the same was paid.

3. Period within which debtor may be exercise the right

Within 30 days from the date the assignee demands payment from him.

4. Purpose of the legal redemption

a. To enable the debtor to pay less than the value of the credit.

b. To prevent speculation on the part of the assignee.

c. To put an end to the litigation.

Example: D borrowed P50,000.00 from C. When D did not pay the debt upon demand by C, C filed a complaint against him to
collect the debt. D answered the complaint. The credit right is considered in litigation. Suppose C sold the credit right to X for
P40,000.00. D may exercise his right of legal redemption (within 30 days from demand by X) by paying X the amount of P40,000.00
plus judicial costs incurred by X and the interest on the P40,000.00 from the day that the same was paid by X to C

5. Exceptions to legal redemption by debtor (Art. 1635)

The debtor's right of legal redemption shall not be available when the assignment of the right in litigation is made:

a. To a co-heir or co-owner of the right assigned.

The prohibition is intended to do away with co-ownership. If redemption by the debtor is allowed, the number of co-
owners will again increase.

Example: D owes X and Y. X and Y sue D for collection. D files his answer to the complaint. While the case is pending, X sells
his share of the credit to Y. D cannot redeem the share of X from Y.

b. To a creditor in payment of his credit.

 Redemption is not allowed because the assignment is meant as a payment to the assignee. There is therefore no
speculation on the part of the assignee whose only desire is to be paid.

Example: Dowes X P100,000.00. For failure to pay, X sues D. D files his answer. While the case is pending, X assigns his
credit right to Y whom he owes P80,000.00. D cannot redeem against Y.

c. To the possessor of a tenement or piece of land which is subject to the right in litigation assigned.

Redemption is not likewise allowed since the intention of the assignee in taking the credit is to preserve the property and
not to speculate.

Example: D obtained a loan from c. To secure the debt, D mortgaged his lot. Later, D sold his lot to X. When D could not
pay, C sued D. While the case was pending, C assigned his credit right to X. D has no right of legal redemption

against X.

SALES - DIAGNOSTIC EXERCISES

TEST I - MULTIPLE CHOICE. Select the best answer by writing the letter of your choice.

1. A contract whereby one of the contracting parties obligates on himself to transfer the ownership of and to deli
determinate thing and the other to pay therefore certain in money or its equivalent is a contract of:
a. barter.
b. sale.
c. dacion en pago.
 d. mortgage

2. The following are the essential elements of a contract of sale, except:

a. consent of the contracting parties.
b. subject matter which should be determinate.
C. price which is certain in money or its equivalent.
d. warranty against eviction and against hidden defects.

3. The following are the characteristics of a contract of sale, except:

a. principal, which means that a contract of sale can stand by itself.
b. real, which requires the delivery of the object of the contract of sale for its perfection.
C. onerous, where rights are acquired in exchange or a valuable consideration.
d. bilateral, which means that both parties are boute reciprocally to each other.

4. One of the following characteristics of dacion en pago also a characteristic of a contract of sale. Which is it?
a. There is a pre-existing credit.
b. Obligations are extinguished.
c. There is less freedom in fixing the price.
d. Ownership of the object is transferred to the other party

5. The following are characteristics of a contract of sale except for one which refers to payment by cession. Which
characteristic refers to payment by cession?
a. There is no pre-existing credit.
b. The cause or consideration is the price. c.
c. There is more freedom in fixing the price.
d. Assignee of the property acquires the right to sell the thing but not the ownership thereof.

6. The following items pertain to either a contract of sale or a contract to sell.

I. Ownership of the thing sold is transferred upon delivery.
II. Ownership of the thing is transferred to the buyer at some future time.
III. The risk of loss in on the buyer.
IV. The risk of loss is on the seller.

Based on the above data, which of the following is correct?

a. Items I and III pertain to a contract to sell.
b. Items II and III pertain to a contract to sell.
C. Items II and IV pertain to a contract of sale.
d. Items I and III pertain to a contract of sale.

7. One of the following is not a requisite of the object of a contract of sale. Which is it?
a. It must be within the commerce of men.
b. It must be licit.
c. It must be determinate or determinable.
d. Vendor must have the right to transfer the ownership of the thing at the time of sale.

8. The following items pertain to either emptio rei speratae or emptio spei.
I. The sale of a future thing.
II. The sale of hope or expectancy.
III. The sale of a present thing.
IV. The thing sold must come into existence,

Based on the above information, which of the following is correct?

a. Items I and II pertain to emptio rei speratae.
b. Items II and III pertain to emptio spei.
C. Items II and III pertain to emptio rei speratae.
d. Items III and IV pertain to emptio spei

9. Santiago sells to Bermejo 500 sacks of rice at P1,000.00 per sack from the stock then stored in the warehouse of
Santiago. Unknown to the parties, the warehouse contains only 480 sacks of rice. What is the status of the contract
between Santiago and Bermejo?
a. The sale is void since the quantity available is less than the quantity sold.
 b. The sale is valid up to 480 sacks of rice but void as to the deficiency of 20 sacks of rice.
c. The entire sale is valid up to 500 sacks of rice. Bermejo becomes the owner of the whole stock available and
Santiago must deliver the deficiency of 20 sacks of rice.
d. The sale is valid up to 480 sacks of rice but rescissible as to the deficiency of 20 sacks of rice by reason of
damage suffered by Bermejo.

10. Somera sells to Buenviaje at P50 per gallon 300 gallons of gasoline stored in his truck's tank which, unknown to the
parties, contains 500 gallons gasoline. What is the status of the contract of sale between Somera and Bermejo?
a. The sale is void because the quantity available is more than the quantity sold.
b. The sale is valid up to 500 gallons of gasoline. Buenviaje must pay for the additional 200 gallons of gasoline.
c. The sale is valid up to 300 gallons of gasoline. Buenviaje becomes the owner of 3/5 of the whole stock, while
Somera becomes the owner of 210 thereof.
d. The sale is rescissible because Somera will sure lesion of more than 14 of the value of the whole stock.

11. San Manuel Corporation, which maintains a professional basketball team, entered into a contract with Armstrong
Rubber Company for the latter to provide a pair of rubber shoes to the former's two imported basketball players,
Charles Jordan and Michael Barkley. Armstrong Rubber Company was instructed to make a pair for either or both
players in case the company did not manufacture shoes of their size. No pair was, however, immediately available for
both the players. Charles Jordan, who is 6'5' tall and wears size 12 rubber shoes, was given a pair the following day
from the 300 pairs that Armstrong was in the process of manufacturing for its customers at the time the orders were
received. Michael Barkley, who is 7' tall and wears size 18 shoes, was provided three days later, with a pair that was
specially made for him since Armstrong does not make shoes of his size. What kind of contracts were entered into for
the shoes provided to the two basketball players?
a. The contract for the pair of shoes provided to Charles Jordan is a contract for a piece of work, while that for
Michael Barkley is a contract of sale.
b. The contract for the pair of shoes provided to Charles Jordan is a contract of sale, while that for Michael
Barkley is a contract for a piece of work.
C. Both contracts are contracts of sale.
d. Both contracts are contracts for a piece of work.

12. S and B entered into a contract whereby S transferred to B a specific car for the price of P200,000.00, while B gave to S
P90,000.00 in cash and a diamond ring worth P110,000.00. The heading of the written contract signed by the parties
reads "Contract of Sale".
a. The contract is void because the intention of the parties is void since the value of the diamond ring is more
than the monetary consideration given.
b. The contract is a valid contract of sale as intended by the parties regardless of whether the monetary
consideration is more or less than the value of the property consideration.
c. The contract is a valid contract of barter since the value of the property given is more than the monetary
consideration. The intention of the parties is immaterial.
d. The contract is partly a contract of barter one partly a contract of sale.

13. The price in a contract of sale is certain, except:

a. when the parties have fixed or agreed upon a definite amount.
b. if the price is certain with reference to another thing certain.
c. if the fixing of the price is left to the discretion of one of the contracting parties and the price fixed is not
accepted by the other party.
d. if the price fixed is that which the thing sold would have on a definite day or in a particular exchange or
market.

14. On January 1, s orally sold to B a specific ring for P450.00. The parties agreed that S shall deliver the ring to B on
January 5, while B shall pay the price on January 7?
a. The contract is perfected on January 5, when the ring is delivered by S to B.
b. The contract is perfected on January 1, when the parties had a meeting of minds on the object and the price.
C. The contract is perfected on January 7, when the price is paid, since both parties would by then have
performed their obligations in the contract.
d. There is no perfected contract because the sale we made orally.

15. A sum of money paid, or a thing delivered upon making of a contract for the sale of goods, to bind bargain, the delivery
and acceptance of which makes final assent of both parties to the contract.
a. Option money
b. Earnest money
 c. Reservation money
d. Down payment
.
16. S orally offered to sell a certain diamond ring to B for P50,000.00. B accepted the offer and to prove tha t he was in
earnest, he gave S P1,000.00. The parties agreed that the delivery of the ring and the payment of the price would be
made 30 days later. On due date:
a. S may collect from B P50,000.00.
b. S may collect from B P49,000.00.
c. S cannot enforce payment because the contract was not reduced to writing.
d. S cannot enforce payment because there was no contract of sale yet.

17. On June 1, 2015, S sold to B 50 units of machines which were scheduled to arrive from Japan the following day on
board the vessel “MT Nippon Maru”. The sale was evidenced by an invoice identifying each machine by serial number.
Each machine was priced at P10,000.00. Unknown to the parties, 30 units were damaged beyond repair by seawater
on May 31, 2015. Based on the foregoing, which of the following statements is incorrect?
a. B may rescind the whole contract.
b. B may demand delivery of the remaining 20 units and pay the price therefor.
c. S may require payment of the whole shipment from B since S was not aware of the damage caused on the
machines at the time of sale.
d. S has no option to rescind the whole contract or require payment of the remaining 20 units.

18. It refers to the delivery of the thing sold from hand to hand in case of movables, or the taking of possession with
respect to immovables, in the presence and with the consent of the vendor.
a. Actual or real delivery.
b. Traditio constitutum possessorium.
c. Traditio longa manu.
d. Traditio brevi manu.

19. On May 1, 2015, S sold to B through a private instrument 20 sacks of corn stored in the only warehouse of S. On May
10, 2015, S delivered the keys to the warehouse to B. The delivery made by S to B is known as:
a. constructive delivery by legal formalities.
b. symbolic delivery by traditio clavium.
c. traditio longa manu.
d. traditio brevi manu.

20. Delivery of incorporeal property may be made through of the following means, except:
a. execution of a public document.
b. placing the titles of ownership in the possession the vendee.
c. use by the vendee of his rights, with the debtowe consent.
d. execution of private instrument.

21. One of the following statements on the transfer of ownership of the thing in “sale on trial" is incorrect Which is it?
a. Ownership of the thing is transferred to the vendee when he signifies his approval or acceptance to the
vendor.
b. Ownership of the thing is transferred to the vendee when he does an act adopting the transaction.
c. Ownership of the thing is transferred to the vendee if the time fixed for the return of the thing has expired and
the vendee retains the thing without giving notice of rejection or acceptance to the vendor.
d. Ownership of the thing is transferred to the vendee upon delivery.

22. On March 1, 2015, S sold and delivered to B a television on set for P10,000.00 "on sale or return” giving B up March 16,
2015 within which to return the televisi011 or pay the price. On March 10, 2015, the television was burned through no
fault of B. Based on the foregoing which of the following statements is incorrect?
a. B must pay the price of the television set.
b. S must bear the loss since the time for the loss of the television set had not yet expired.
c. The ownership of the television set was transferred to B upon delivery to him.
d. B must bear the loss of the television set.

23. In one of the following cases, delivery of the goods to a carrier for the purpose of transmission to the buyer transfers
ownership to the latter. Which one is it?
a. When by the terms of the bill of lading, the goods are to be delivered to the seller or his agent.
 b. When by the terms of the bill of lading, the goods are to be delivered to the order of the buyer or his agent but
the seller retains the bill of lading.
c. When the seller draws a bill of exchange on the buyer for the price of the goods and transmits such bill of
exchange and the bill of lading to the buyer to secure acceptance or payment of the bill of exchange and the
buyer dishonors the bill of exchange.
d. When the owner does not reserve the right of possession or ownership of the thing sold upon delivery to the
carrier.

24. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of
the following remedies, except to:
a. exact fulfillment of the obligation, should the vendee fail to pay any number of installments.
b. cancel the sale, should the vendee's failure to pay cover two or more installments.
c. This foreclose the chattel mortgage on the property if the vendee's failure to pay cover two or more
installments and recover any deficiency after the foreclosure sale if they have stipulated it.
d. Foreclose the chattel mortgage on the property if the vendee's failure to pay cover two or more installments
but he may no longer recover any deficiency after the foreclosure sale.

25. Baldomero bought a residential house and lot from Sta. Ana Realty for P250,000.00 giving a down payment of
P10,000.00 and promising to pay the balance of P240,000.00 in 20 years in monthly installments of P1,000.00. After
paying 72 installments, Baldomero defaulted in the payment in the 73rd installment and subsequent ones. Despite the
grace period he had earned, he was not able to make any further payments.
Accordingly, Sta. Ana Realty cancelled the sale. How much cash surrender value is Baldomero receive?
a. P45,100.00
b. P39,600.00.
c. P36,000.00
d. P41,000.00.

26. S stole a ring belonging to 0. Subsequently, the ring offered for sale at a 'public auction where X, who w : aware that the
ring was stolen, bought it. A few week later, O saw the ring and recognized it as his. Based on the foregoing
information, which of the following statements is correct?
a. O may recover the ring from X without reimbursing X since O was unlawfully deprived of the ring.
b. O may recover the ring from X but he has to reimburse X since X acquired title to the ring.
c. O may no longer recover the ring even if he is willing to reimburse X
d. X did not acquire title to the ring since the auctioneer had no valid title thereto.

27. 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 title to the goods. Such acquisition of title has the following requisites, except the:
a. buyer must have bought the goods in good faith.
b. buyer must have bought them for value.
c. buyer bought them without notice of the seller’s defect of title.
d. party from whom the seller obtained the goods must ratify the sale.

28. An unpaid seller has the following rights, except:

a. lien on the goods or the right to retain the price while he is in possession of them.
b. in case of insolvency of the buyer, a right of stopping the goods in transitu after he has p with the possession
of them.
c. a right of repurchase.
d. a right to rescind.

29. An unpaid seller loses his lien on the goods in the following cases, except:
a. when he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without
reserving the right of ownership in the goods.
b. when the buyer or his agent lawfully obtains possession of the goods
c. when the seller waives his possessory lien.
d. when he has obtained judgment for the price of the goods.

30. Three of the following are the requisites in order that an unpaid seller may exercise his right of stoppage of transitu.
Which one is not?
a. The seller is unpaid.
b. The seller has not parted with the possession of the goods.
c. The goods are in transit.
 d. The buyer is or becomes insolvent.

31. Goods are still in transit:

a. if the buyer or his agent obtains delivery of the goods before their arrival at the appointed destination.
b. when the carrier acknowledges possession of the goods as bailee for the buyer after the arrival of the goods at
the place of destination.
c. if the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent.
d. if the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even if
the seller has refused to received them back.
32. An unpaid seller's right to resell the goods is available in the following cases, except:
a. if the goods are of a perishable nature.
b. when the seller reserved the right to resell the goods.
c. when the buyer has defaulted in the payment of the price for an unreasonable time.
d. when the seller has lost his lien on the goods

33. Barrameda bought a piece of land from Sarmiento to lump sum of P120,000.00. Aside from mention in boundaries in
the contract which is required in the sale of real estate, the contract also states that the piece of la consists o f 1,000
square meters. Before delivery, Sarmiento discovered that the piece of land actuals contains 1,200 square meters.
a. Sarmiento must deliver all the 1,200 Square meters; Barrameda must pay P120,000.00 plus additional
amount for the excess of 200 square meters.
b. Sarmiento is required to deliver only 1,000 square meters; Barrameda must pay the contract price of
P120,000.00
c. Sarmiento must deliver all the 1,200 square meters; Barrameda has to pay only P120,000.00.
d. Neither party is required to perform the obligation because of mistake.

34. Sison sold a registered piece of land to Bautista on May 1, 2015 in a public instrument. On May 3, 2 015, Sison sold in a
private instrument the same piece of land to Cruz, who took physical possession of the land. Neither buyer was aware
of the sale made to the other.
a. The land belongs to Bautista.
b. The land belongs to Cruz.
c. The land still belongs to Sison, because both sales are void.
d. The land should be divided equally between Bautista and Cruz to give effect to both sales.

35. Refer No. 34. Assume that on May 5, 2015, Sison sold land in a public instrument to Domingo who was aware of the
two previous sales. Domingo then registered the sales with the Register of Deeds.
a. The land belongs to Bautista.
b. The land belongs to Cruz.
c. The land belongs to Domingo.
d. The land will be equally divided among the buyers.

36. On June 1, 2015, Sanchez sold to Borlaza in a private instrument a certain computer. Two days later, Sanchez orally
sold the same computer to Contreras who immediately took possession of the computer. Neither party was aware of
the sale made to the other.
a. The computer belongs to Borlaza.
b. The computer belongs to Contreras...
c. The computer will be co-owned by Borlaza and Contreras to give effect to both sales.
d. Both sales are void. Accordingly, Sison will still be the owner.

37. This refers to the implied warranty on the part of the seller that he has the right to sell the thing at the time when
ownership is to pass, and that the buyer from that time shall have and enjoy legal and peaceful possession of the
thing.
a. Warranty against hidden defects.
b. Warranty against eviction.
c. Warranty of ownership.
d. Warranty of possession.

38. Three of the following are the requisites in order that the vendee may enforce the vendor's liability in case eviction.
Which one is not?
a. There must be a final judgment depriving the vendee of a part or the whole of the thing sold.
b. The vendee must have appealed from such judgment rendered against him.
c. The deprivation of the vendee is based on a right prior to the sale or an act imputable to the vendor.
 d. The vendor is notified of the suit at the instance of the vendee.

39. This refers to an encumbrance imposed upon an immovable for the benefit of another immovable belonging to a
different owner.
a. Easement or servitude
b. Real estate mortgage
c. Pledge
d. Chattel mortgage

40. Three of the following are the requisites in order that the buyer may enforce the seller's liability for hidden defect.
Which one is not?
a. The defects of the thing sold must not be patent or visible.
b. The defects render the thing unfit for the user which it is intended, or which diminish its fitness for such use
to such an extent that had the buyer been aware thereof, he would not have bought it.
c. The defects must be existing at the time of sale.
d. The defects must be capable of determination by an expert.

41. Alessandra purchased from Rose Tan's Department Store two pieces of imported identical bathrobe, one of which was
embroidered with “HIS” and the other with “HERS” which she planned to give to his friends Jules and Assunta as a
wedding present. She inspected the items very carefully with the assistance of the store clerk before paying for them.
While she was wrapping them shortly after she arrived home, she noticed that the hem of the ‘HERS” bathrobe had
disintegrated because it was loosely sewn, which damage was not apparent because of the many colors of the apparel.
a. Alessandra can rescind the sale of both pieces of bathrobe.
b. Alessandra can rescind only the sale of the bathrobe marked “HERS”
c. Alessandra cannot rescind because she should have inspected the item well when she bought it.
d. Alessandra must pay for both pieces of bathrobe.

42. The vendor shall be liable for the death of the animal sold when the following requisites are present, except:
a. the disease existed at the time of sale.
b. the disease is the cause of the death of the animal.
c. the disease must be redhibitory.
d. the animal dies within 3 days from the time of purchase.

43. The justified refusal of the buyer to accept the goods produces the following effects, except:
a. buyer has no duty to return the goods, unless otherwise stipulated.
b. title to the goods does not pass on to him.
c. buyer shall not be obliged to pay the price.
d. buyer is obliged to constitute himself as depositary until he returns the goods.

44. In three of the following cases, the buyer is not entitled to suspend the payment of the price. Which one will give him
the right to suspend payment?
a. Disturbance in the possession or ownership of the thing purchased.
b. The seller gives him security for the return of the price.
c. It has been stipulated that the buyer shall pay the price notwithstanding any disturbance.
d. The disturbance is a mere act of trespass.

45. A contract of sale with a right to repurchase and other contracts including a contract purporting to be an absolute sale
shall be presumed to be an equitable mortgage in the following cases, except when the,
a. price of sale with right to repurchase to repurchase is unusually inadequate.
b. vendor remains in possession of the thing sold.
c. period to repurchase the property is extended.
d. vendee binds himself to pay the taxes due

46. An owner of a rural land has the right of legal redemption of an adjoining rural land sold if the following requisites are
present, except when the:
a. adjoining rural land is not separated by any apparent servitudes for the benefit of other estates.
b. land sold does not exceed one hectare.
c. grantee owns another rural land.
d. grantee owns an urban land.
47. This refers to the right of an adjoining owner of an urban land to be given preference to the purchase of a small piece
of urban land which is held for speculation before it is offered for sale to others.
a. Right of subrogation.
b. Right of redemption.
c. Right of pre-emption.
d. Right of repurchase.

48. A, B, and C, are co-owners of an undivided parcel of land. On May 1, A sold his share to X; on June 1, B sold his share
also to X; and on July 1, C sold his share also to X. Each sale was with a right to repurchase.
a. X may compel A, B and C to come to an agreement to repurchase the whole land.
b. Each co-owner may exercise his right of redemption on the whole property including the share of the other
two co-owners.
c. Each co-owner may exercise his right of redemption only with respect to his share.
d. Any two of the three co-owners may redeem the property proportionately.

49. R, S and T are co-owners of an undivided parcel of land. R sold his 1/3 interest to T in a deed of absolute sale. Which is
correct?
a. S may exercise the right of redemption on the interest sold by R to T.
b. S cannot exercise the right of redemption.
c. The sale made by R to T is voidable.
d. S may redeem only 1/2 of the interest sold by R to T.

50. T steals the goods of O and deposits them in the warehouse of W. W issues to Ta warehouse receipt which by its terms
indicates that goods are to be delivered to the order of T. T, thereafter, negotiates the receipt to H who purchases the
document in good faith and for value.
a. I may obtain delivery of the goods from W because H was an innocent purchaser for value.
b. H can obtain delivery of the goods from W because the issuance of the warehouse receipt to 1 conferred a
valid title to him over the goods.
c. H can obtain delivery of the goods from W because the acquisition by H of the warehouse receipt in good faith
cured the defect in T's title.
d. H cannot obtain delivery of the goods because he acquired whatever title T had over such goods, which is the
title of a thief.

51. O delivered certain goods to C, a common carrier, which issued to O a bill of lading stating that the goods are to be
delivered to bearer. Without O's fault, the bill of lading was stolen by T who thereafter negotiated the document by
mere delivery to H, a purchaser for value and without notice of the defect in the title of T.
a. The negotiation of the bill of lading by T to H is not valid because of T's defective title.
b. The negotiation of the bill of lading by T to H is valid. T's defective title does not have any effect on the validity
of the negotiation.
c. H may not obtain delivery of the goods from C because H acquired whatever title T had over the document.
d. H acquired title to the document but not to the goods.

52. D obtained from C a loan amounting to P50,000.00, the same being secured by a mortgage on D's lot. Thereafter, C
assigned his credit right to T with notice to D. Based on the foregoing facts, which of the following statements is
incorrect?
a. T cannot collect from D if D does not give his consent to the assignment.
b. T can collect from D. D's consent to the assignment is not required.
c. T can collect from D and if D cannot pay, T can foreclose the mortgage on the lot.
d. The notice to D of the assignment is sufficient. D must make his payment to T and no longer to C.

53. A kind of mortgage which, although lacking some formality, form of words, or requisites prescribed by law, shows the
intention of the parties to charge real property as security for debt and contains nothing impossible or contrary to law
is known as:
a. legal mortgage.
b. equitable mortgage.
c. conventional mortgage.
d. voluntary mortgage.

54. If a movable property is sold separately to two or more different vendees, ownership shall belong to the person:
a. who in good faith first paid the purchase price in full.
b. who in good faith first recorded the sale in the Registry of Property.“
 c. who in good faith presents the oldest title.
d. who in good faith first took possession of the property.

55. A contract of sale is perfected upon:

a. compliance with the requirements of the law as to form.
b. delivery of the object of the contract.
c. the meeting of the minds on the thing which is the object of the contract and upon the price.
d. demand.

56. It is a contract by virtue of the terms of which the parties thereto promise and obligate themselves to enter into
another contract at a future time, upon the happening of certain events, or the fulfillment of certain conditions.
a. Contract of adhesion
b. Contract of option
c. Contract of sale
d. Auto-contract

57. A contract of sale is not a:

a. principal contract.
b. nominate contract.
c. consensual contract.
d. real contract.

58. The following may not be valid objects of a contract of sale, except:
a. objects outside the commerce of men.
b. Illicit things.
c. future goods.
d. impossible service.

59. This is a kind of constructive delivery where the vendor remains in possession of the property sold, such as by virtue
of a lease agreement with the vendee.
a. traditio longa manu.
b. y traditio brevi manu.
c. traditio constitutum possessorium.
d. delivery to common carrier.

60. When the goods are delivered to the buyer, the ownership thereof passes to the buyer in:
a. sale on approval.
b. sale or return.
c. sale on trial.
d. contract to sell.
61. S promised to sell his car to B for P200,000.00 giving B 30 days to decide. B accepted the promise of S and informed S
that he (B) would make known his decision before the lapse of 30 days. He also gave S P2,000.00 as consideration so
that S would hold on to his promise. The contract entered into between S and B and the consideration given by B to S
are known as:
a. Option contract and option money, respectively.
b. Contract of sale and earnest money, respectively.
c. Contract of sale and down payment, respectively.
d. Contract to sell and reservation money, respectively.

62. Refer to No. 61.

a. S may withdraw his offer to sell before the lapse of 30 days by informing B.
b. S may not withdraw his offer before the lapse of 30 days.
c. S may withdraw the offer by returning the amount of P2,000.00 that was paid to him by B.
d. S may withdraw his offer even before the lapse of 30 days if a favorable price, i.e., more than P200,000.00, is
offered to him by another prospective buyer.

63. The Recto Law applies to which of the following examples of sale?

a. Sale of a car on straight term.

b. Sale of house and lot on installment.
c. Sale of car on installment where the buyer constituted a mortgage on his truck,
 d. Sale of a piano on installments where the buyer constituted a chattel mortgage on the piano.

64. S sold to B a lot through a deed of absolute sale duly acknowledged before a notary public. Three days later. Š sold the
same lot to X, also through a deed of sale dulv acknowledged before a notary public. X had the sale registered with the
Register of Deeds. Neither B nor y was aware of the sale made by S to the other and neither took physical possession of
the lot. Who is the present owner of the lot?
a. B, because he was the first purchaser in good faith.
b. X, because he registered the sale in good faith.
c. Neither B nor X.
d. S, as long as he does not surrender physical possession of the lot.

65. B purchased from S a laptop computer worth P100,000.00. The terms of sale provide for a down payment of
P20,000.00 with the balance payable in 8 equal monthly installments To secure the balance, S required B to execute a
chattel mortgage on the laptop computer and a real mortgage on B's lot. B complied with all the requirements but
defaulted in the payment of the third and fourth installments. These remedies are available to S except one. Which is
it?
a. Cancel the sale.
b. Exact fulfillment of the obligation.
C. Foreclose the real mortgage and thereafter recover any deficiency from B.
d. Foreclose the chattel mortgage and thereafter foreclose the real mortgage in case of deficiency.

66. S and B entered into a contract whereby S transferred to B a specific piano for the price of P80,000.00, while B gave to
S cash of P30,000.00 and a diamond ring worth
P50,000.00. What kind of contract was entered into between Sand B?
a. A contract of barter.
b. A contract of sale.
c. The contract is partly a contract of barter and partly a contract of sale.
d. The contract is an innominate contract because the intention of the parties cannot be determined.

67. One of the distinctions between option money and earnest money is that earnest money is:
a. the consideration paid for the purpose of holding one to his promise to buy or sell a determinate thing for a
certain period of time.
b. not part of the purchase price.
c. proof of the perfection of the contract of sale.
d. paid before the perfection of the contract of sale.

68. This refers to the warranty of the seller that he has the right to sell the thing at the time when ownership is to pass,
and which can be enforced if the buyer is deprived of the property sold by a final judgment in court.
a. Warranty against hidden defects.
b. Warranty of merchantable quality.
c. Warranty against eviction.
d. Warranty of possession.

69. P, who was in Hong Kong, made an overseas call to A, his friend, to sell P's lot in Quezon City immediately as P needed
cash. Accordingly, A sold the lot to B. The deed of sale was in a public document. The sale of P's lot is:
a. valid.
b. rescissible.
c. unenforceable.
d. void.

70. One of the distinctions between a contract of sale and a contract for a piece work is that a contract for a piece of work:
a. is not governed by the Statute of Frauds.
b. refers to a contract for the delivery goods which are manufactured in the ordinary course of business
although the same are not available.
c. has for its parties the vendor and the vendee.
d. has for its consideration the price of the thing.
71. A and B are co-owners of a rural lot not exceeding 1 hectare. The lot is surrounded on its four sides as follows: on the
North, by the road; on the East, by the lot of X consisting of 2 hectares; on the South, by the lot of Y consisting of 2 12
hectares; and on the West, by Z's lot consisting of 2 34 hectares. A sells his undivided interest in the agricultural lot to
T, who owns several hectares of rural land in the area. Who has the right of legal redemption over the undivided
interest in the lot sold by A to T?
 a. B
b. X
c. Y
d. Z

72. It is an affirmation of fact or any promise by the seller relating to the thing which has a natural tendency to induce the
buyer to purchase the same, relying on such promise or affirmation.
a. Condition
b. False representation
c. Warranty
d. Seller's talk

73. In one of the following cases, the ownership of the thing object of the contract is transferred to the other party upon
delivery.
a. Contract to sell.
b. Agency to sell.
c. Sale or return.
d. Sale on approval.

74. Under the “Realty Installment Buyer Act”, the buyer of real estate on installment payments may pay an installment
defaulted without additional interest if he has paid at least two years of installments. The law is applicable
sales/transactions involving:
a. industrial lots.
b. commercial buildings.
c. residential lots.
d. sales to tenants under the Land Reform Law.

75. S. the owner of a rent-a-car business, leased one of his cars to B for one month. On the day of the expiration of the
lease and while B was still in physical possession of the car, B offered to buy the car from S for P200,000 .00. Believing
the price to be a good one, S readily accepted B's offer and then and there executed a deed of absolute sale in favor of B
who immediately paid the price in cash. Thereafter, B drove away from the place of S.
a. The delivery of the car by S to B is by constitutum possessorium.
b. The delivery of the car by S to B is by traditio longa manu.
c. The delivery of the car by S to B is by traditio brevi manu.
d. There was no delivery because B should have turned over the physical possession of the car to S upon the
expiration of the lease so that S could make the proper delivery to him upon the execution of the contract of
sale.

76. B called on S at the shoe factory of S for the latter to make a pair of shoes which B would be needing in the play
“Romeo and Juliet.” B provided S with the description of the pair of shoes that he wanted since s did not manufacture
the kind of shoes that B needed. S quoted a price of P1,000.00 which В agreed to pay upon delivery to him of th e pair
of shoes. Since S and B had been neighbors for a long time, their agreement was sealed with a handshake.
a. The contract between S and B becomes enforceable if S had already completed making the pair of shoes.
b. The contract between S and B becomes enforceable if B had already paid the amount agreed upon for the
work.
c. The contract between S and B is enforceable even if it is still executory.
d. The contract cannot be enforced by either part because it was not in writing.

77. Which of the following contracts of sale is void?

a. Oral sale of a piece of land made through an agent whose authority is in a public instrument.
b. Sale of a piece of land in a public instrument made through an agent whose authority was given orally by the
principal.
c. Sale of a piece of land in a private instrument made through an agent whose authority is in a public
instrument.
d. Sale of a piece of land in a public instrument made through an agent whose authority is in a private
instrument.

78. D deposited his goods in the warehouse of W who issued to D a warehouse receipt stating that the goo ds are to be
delivered to bearer. Thereafter, A obtained possession of the warehouse receipt from D in exchange for what A claimed
to be a bar of gold, which, however, was discovered by D to be fake. D demanded the return of the warehouse receipt
 from A but the same had already been negotiated by A to H who purchased the document for value, in good faith and
without notice that D was deprived possession thereof by fraud. The negotiation by A to H is:
a. voidable.
b. valid.
c. void.
d. rescissible.

79. B purchased a pair of leather shoes from the store of s. Shortly after leaving the store, B decided to return and
requested S, the owner, to place a protective rubber covering on the sole of each shoe. Since the job required at least
30 minutes to complete, B left the store of shop at the neighboring stores. When he returned to store of S after 30
minutes, the pair of shoes was now to be found. It turned out that C, a sales clerk, had the pair of shoes that B bought
to X, another customer.
a. X acquired ownership of the pair of shoes earlier bought by B.
b. X did not acquire ownership of the pair of shoes earlier bought by B.
c. B remained the owner of the pair of shoes that he had bought despite its sale to X.
d. S reacquired ownership of the pair of shoes when it was brought to him for additional work.

80. S sold 500 shares of stock of San Manuel Corporation to B at P50.00 per share. The transfer of the ownership of the
shares of stock may be made through any of the following means, except:
a. execution of the sale in a public instrument.
b. the giving by S to B of the power to vote in the stockholders' meeting of San Manuel Corporation and its actual
exercise thereof by B.
c. the indorsement by S of the stock certificate covering the 500 shares of stock and its placing it in the
possession of B.
d. the issuance by S of the official receipt for the full payment of the purchase price of the shares by B.

81. Which of the following documents of title requires indorsement and delivery for its negotiation?
a. A warehouse receipt which states that the goods are to be delivered to bearer.
b. A bill of lading which states that the goods are to be delivered to the order of a specified person, but such
person indorsed it in blank.
c. A warehouse receipt which states that the goods are to be delivered to bearer but the bearer indorsed it to a
specified person.
d. A bill of lading which states that the goods are to be delivered to a specified person.

82. S and B executed a deed of absolute sale involving a parcel of land supposedly containing 2,000 square meters . B paid
a lump sum of P2,200,000.00 for the purchase. Based on the foregoing facts, which of the following statements is
correct?
a. If the parcel of land is actually 2,200 square meters in area, S has to deliver only 2,000 square meters
thereof and B must pay P2,200,000.00 as agreed upon.
b. If the parcel of land is actually 1,800 square meters in area, S must deliver only 1,800 square meters and B
has to pay only the price equivalent to 1,800 square meters.
c. If the parcel of land actually contains 2,200 square meters, S must deliver all of 2,200 square meters with B
still paying the amount of P2,200,000.00.
d. If the parcel of land actually contains 2,200 square meters, S must deliver all of 2,200 square meters but B
must pay a proportionate amount for the additional 200 square meters in addition to the price of
P2,200,000.00.

83. S sold a specific parcel of land separately to the following persons: on July 1, 2015, to X, in a public document; on July
-5, 2015 in a private document to Y, who took physical possession of the land; and on July 9, 2015, to Z, who
registered the sale with the Register of Deeds. Neither X, Y nor Z was aware of the sale made to the other two buyers.
Who is the owner of the parcel of land?
a. X, because he was the first purchaser.
b. Y, because he took physical possession.
C. Z, because he registered the sale.
d. S, because the multiple sales he made rendered each sale a void contract.

84. In which of the following cases is the seller not obliged to make any payment to the buyer for breach of warranty
against eviction?
a. When such warranty has not been agreed upon.
b. When there was no stipulation exempting the seller from liability.
 c. When there was a stipulation exempting the seller (who was in good faith) from breach of warranty and the
waiver was made by the buyer without knowledge of the risks of eviction.
d. When there was a stipulation exempting the seller (who was in good faith) from breach of warranty and the
waiver was made by the buyer with knowledge of the risks of eviction.

85. Mother Lilly purchased from Santiago Farms four horses with different colors: a white, a gray, a black, and a brown,
which Mother Lilly intended to use in a movie to be starred in by four movie actors each one of whom represents
one of the colors. Each horse was certified to be fit by the veterinarian who was hired by the parties to examine
them. Mother Lilly paid a separate price for each of the horses. During the filming of the movie, the brown horse was
always sick and could not function as the three others. It was subsequently discovered that it was suffering from an
incurable heart ailment.
a. Mother Lilly may ask for the rescission of the sale of the brown horse only since she paid a separate price
for each of the horses.
b. Mother Lilly may ask for the rescission of the sale of all the horses.
c. Mother Lilly may not ask for rescission of the sale of any horse because she freely entered into the contract
of sale.
d. Mother Lilly is bound by the sale of all the four horses and must honor such contract because the
veterinarian certified that all horses were fit

86. The buyer is obliged to pay interest for the period between the delivery of the thing sold and the payment of t he
price in the following cases, except if:
a. there is a stipulation to pay interest.
b. there is no such stipulation, but the thing sold produces fruits or income.
c. the buyer is in default, from the time of judicial or extra-judicial demand for the payment of the price.
d. none of the foregoing.

87. Earnest money possesses three of the following characteristics. Which is the exception?
a. It is part of the purchase price.
b. It is proof of the perfection of the contract of sale.
c. It is paid at the time of the perfection of the contract of sale.
d. It is paid as a consideration for the purpose of holding one to his promise to buy or sell a determinate thing
for a certain period.

88. S sold his farm lot to B with S reserving his right to repurchase the property within five years from the date of the
sale. Based on the foregoing facts, which of the following statements is incorrect?
a. The sale is subject to a suspensive condition.
b. B may validly sell the lot to a third person against whom S may exercise the right to repurchase provided the
right is registered.
c. B is subrogated to the rights and actions of S.
d. B's ownership of the lot becomes irrevocable if s fails to exercise his right to repurchase within the period
stated.

89. D borrowed P50,000.00 from C. The obligation is secured by a mortgage of D's house and lot. Thereafter, C assigned
his credit right to T. Based on the foregoing facts, which of the following statements is incorrect?
a. The consent of D to the assignment is not required in order that T may collect from D.
b. The assignment of the credit right did not carry with it the assignment of the mortgage.
c. If D pays C before D was notified of the assignment, D is released from liability.
d. The assignment, to bind third persons, must be in a public instrument and recorded with the Registry of
Property.

90. A contract of sale possesses three of the following characteristics. Which is the exception?
a. Bilateral, since the parties are bound by reciprocal prestations.
b. Commutative, because the parties give almost equivalent values.
c. Onerous, since there is an exchange of valuable consideration.
d. Real, because the object of sale must be delivered for the perfection of the contract.

91. S sold his lot to B reserving his right to repurchase the same within 5 years from the date of the execution of their
agreement. The sale together with the right to repurchase was registered with the Register of Deeds. Two years after
the execution of the sale, B sold the same lot to X who was not aware that S reserved his right to repurchase the lot.
a. The sale by S to B is subiect to a suspensive condition.
b. The sale by S to B is subject to a resolutory condition.
 c. The sale by S to B is subject to a condition which is neither suspensive or resolutory,
d. The sale by S to B is absolute without any condition.

92. Refer to Item 91.

a. S may repurchase the lot from X within the five year period although X was not aware of the reservation of
the right to repurchase.
b. S may not repurchase the lot because X was not aware of the reservation of the right.
c. S may repurchase the lot from X if X was aware of such reservation.
d. The sale by B to X is void because the acquisition of the lot by B from S is subject to a contingency.

93. B wanted to buy the car of S for P100,000.00 and to show that he was in earnest, he gave to S P2,000.00 which S
accepted. There was no written instrument signed by S and B to incorporate their agreement. Based on the
foregoing, which of the following statements does not pertain to the contract?
a. B, thereafter, needs to pay P98,000.00.
b. The giving of earnest money binds S and B to a contract of sale.
c. B, thereafter, must pay C the amount of P100,000.00
d. The contract between S and B is enforceabia Torceable although there was no written agreement
between them.

94. When the buyer is justified in refusing to accept the goods being delivered to him and has relayed such refusal to the
seller, such refusal produces the following effects, except:
a. buyer has no duty to return the goods unless stipulated.
b. title to the goods does not pass to the buyer.
c. buyer is not obliged to pay the price.
d. buyer automatically becomes a depositary of the goods

95. The unpaid seller, in addition to his right to retain the goods while he is in possession of them, has the following
rights, except the right:
a. of stoppage in transitu.
b. to resell the goods.
c. to rescind the sale.
d. to bid when the goods are resold.

96. One of the following is a natural element of a contract of sale.

a. The price of the goods.
b. The goods sold.
c. The stipulation to pay interest on the purchase price of the goods.
d. The seller's warranty against hidden defects.

97. On January 1, 2015, Santos offered to sell his only diamond ring for P50,000.00 cash to Bersola who was interesied
in buying the same. Santos told Bersola that he was giving the latter up to January 31, 2015 to decide whether to buy
the ring or not. Bersola agreed to the option and gave Santos option money of 9500 10. On January 18, 2015, Santos
found another buyer who was willing to pay P70,000.00 cash. Santos personally visited Bersola to inform him that
he was withdrawing his offer unless Bersola agreed to buy the ring for P70,000.00
a. Santos may validly withdraw the offer without being held liable for breach of contract since it
would be unfair to him if he would receive only P50,000.00 as the price of his ring when another person is
willing to buy it at a higher amount.
b. Bersola is bound to pay P70,000.00 if he were to avail himself of his option to buy the ring.
c. Santos cannot withdraw the offer because the option is founded upon a consideration of P500.00.
d. Bersola needs to pay only P49,500.00 if he decides to buy the ring since the option money of P500.00 that
he paid forms part of the purchase price.

98. S and B executed a deed of absolute sale duly acknowledged before a notary public whereby S conveyed his car to B
for P100,000.00. B, however, informed that he would be going away on a business trip and that he would be taking
the car from the place of S when he returned after two weeks. Three days after the sale of the car to B, S sold the
same car to X through a deer of absolute sale which was also acknowledged before a notary public. X then drove the
car away from the place of S and had the sale recorded with the Land Transportation Office which issued to him a
certificate of registration of the car in his name. Neither B nor X was aware of the sale made to the other until B
returned from his business trip.
a. Preference shall be given to B since the car was first sold to him.
b. X did not acquire title to the car because S was no longer the owner when the sale was made to him.
 c. X acquired title to the car because S appeared to be the owner in the record of the Land Transportation
Office.
d. S remained the owner of the car because the sale made to one buyer nullified the sale to the other.

99. D gives his ring worth P25,000.00 to C in consideration of C's giving of P10,000.00 and a bracelet worth P15,000.00
to D. Based on the foregoing facts, which of the following statements is incorrect?
a. The transaction between D and C is a sale if they intended it to be a contract of sale.
b. The transaction between D and C is a barter if the intended it to be a contract of barter,
c. The transaction is barter regardless of the intention of the parties because the bracelet more value than
P10,000.00.
d. The transaction is barter if the intention of the parties cannot be determined.

100. S, the proprietor of a rent-a-car enterprise, sold his business and his fleet of 10 cars to B for a lump sum o f
P3,000,000.00. S physically delivered the permits and other papers for the operation of the business and the vehicles
to B at the latter's office except for one car which the parties agreed shall be leased b y S for one month while he was
winding up his affairs in the Philippines as he was then leaving for abroad. In the meantime, the contract of sale and
the contract of lease, though already signed by the parties, have not been acknowledged before a notary public, and
hence, were still private instruments.
a. The ownership of the car leased by S remained with S.
b. The ownership of the car leased by S has been transferred to B although there was no physical delivery
thereof to B.
c. The execution of the private instrument for the sale of the business and the cars likewise transferred the
ownership to B of the car leased by S.
d. Both the contract of sale and the contract of lease must be acknowledged before a notary public by the
parties before the ownership of the car leased by S is transferred to B.

101. King Gems Company, a jewelry manufacturer, shipped five dozen necklaces to Queen Jewelry Store. The shipment
was made under a written agreement allowing Queen Jewelry Store to return the necklaces within a period of one
month from delivery. Based on the foregoing facts, which of the following statements is incorrect?
a. Title to the necklaces passed to Queen upon delivery.
b. If Queen does not return the necklaces within one month, the sale to it becomes absolute.
c. If the necklaces are destroyed by fire without the fault of Queen, Queen need not pay the price thereof.
d. If the necklaces are destroyed through the fault of Queen, Queen must pay the price thereof to King Gems
Company.

102. On January 3, 2015, D deposited his goods with W, warehouseman, who issued a warehouse receipt which states
that the goods are to be delivered "to the order of D”. On January 5, 2015, D indorsed the receipt to A. On January 8,
2015, however, D sold the goods represented by the receipt to X who informed W immediately of the sale to him of
the goods by D. At that time, W was not aware that D had indorsed the receipt to A.
a. A acquired title to the goods as represented by the receipt at the time such receipt was indorsed to him
b. X acquired title to the goods because at the time of the sale to him, W, the warehouseman was not yet aware
that D had indorsed the receipt to A.
c. D retained ownership of the goods because he cannot indorse the receipt to one person and sell the goods
to another.
d. W will be bound to deliver the goods to X.

103. One of the following statements pertaining to a sale by auction is incorrect. Which is it?
a. A sale by public auction is perfected when the auctioneer announces its perfection by the fall of the hammer,
or in any other manner.
b. Before perfection, any bidder may retract his bid.
c. Before perfection, the auctioneer may withdraw the goods unless the auction was announced to be without
reserve.
d. The seller may validly participate in the bidding without prior notice to the bidders.

104. S sold a specific laptop computer to B for P120,000.00 with B giving a down payment of P10,000.00 and promising
to pay the balance in 11 equal monthly installments. B likewise executed a chattel mortgage on
the computer and a real mortgage on his lot to secure payment of the balance of the purchase price. After paying the
first two installments, B defaulted payment of next three installments. S may avail himself any of the following
remedies except to:
a. exact fulfillment of the obligation.
b. cancel the sale.
 c. foreclose the chattel mortgage and recover a deficiency during the foreclosure sale if there is agreement to
that effect.
d. foreclose the real mortgage and recover the deficiency during the foreclosure sale even if there is no
agreement to that effect.

105. B bought from Century Properties, Inc. a 1,000 square meter lot located beside the Manila International Airport on
which he intended to construct a warehouse condominium. The terms of the sale provided for the payment of the
contract price of P300,000.00 in 60 equal monthly installments of P5,000.00 each. After having paid 36 installments,
B defaulted in the payment of the succeeding installments. As a consequence, Century cancelled the sale. B now
wants to claim the return of the cash surrender value of the payments he had made pursuant to the “Realty
Installment Buyer Act”, otherwise known as the Maceda Law.
a. B is entitled to a cash surrender value of 50% of P180,000.00, or P90,000.00 under the Maceda Law.
b. B is entitled to a cash surrender value of 55% Ol P180,000.00, or P99,000.00 under the Maceda Law.
c. B is entitled to a cash surrender value of 90% 0 P180,000.00, or P162,000.00 under the Maceda Law.
d. B cannot invoke the Maceda Law for the return of any of the payments he had made for the lot
he purchased.

106. S shipped FOB Manila, perishable goods word P50,000.00 to B who is based in Cebu. B remitted check amounting to
P50,000.00 for the price of the goods. While the carrier was on its way to Cebu, S was informed by his bank that the
check issued by B was dishonored 101 insufficient funds. On further inquiry, he learned that had become insolvent.
Accordingly, S obtained physical possession of the goods from the carrier. After notifying B, S resold the goods.

Case A - If the goods are resold for P52,000.00, the profit of P2,000.00 belongs to B since title had already passed to
him.
Case B - If the proceeds of sale, net of incidental expenses, amounted to P47,000.00, S can recover the loss of
P3,000.00 from B.
a. Both Cases are true.
b. Both Cases are false.
c. Case A is true; Case B is false.
d. Case A is false; Case B is true.

107. B visited a store selling lamps, light bulbs and similar items. He informed the seller that he was buying 2 units of a
50-watt "Phillips” bulb. Though he intended to use the 2 bulbs for the headlight of his car, he did not inform the
seller of his purpose. Thereafter, he installed the 2 units of "Phillips” bulb on his car but they did not function. Based
on the foregoing, which of the following statements is incorrect?
a. The seller is liable for breach of warranty of fitness for a particular purpose.
b. The seller is not liable for breach of warranty of fitness for a particular purpose because the buyer did not
rely on the seller's skill or judgment.
c. The seller is not liable to B since the seller's warranty is only for merchantability, or that the bulb is fit for
the general purpose for which it was intended.
d. There is no warranty of fitness for a particular purpose since the bulb was sold to B under its trade name.

108. It refers to the right which the vendor reserves to him to repurchase the thing sold, with the obligation reimburse
the vendee of the price, the expenses of contract, any other legitimate payments made therefor and the necessary
and useful expenses made on the thing sold.
a. Conventional redemption.
b. Legal redemption.
c. Equity of redemption.
d. Right of pre-emption.

109. Palmares ordered from Superstar Sportswear Company, a sportswear manufacturer, 2 dozens of jackets and jogging
pants styled and designed by Palmares for the use of his basketball team. This was not the type of sportswear
normally manufactured by Superstar. The price agreed upon by the parties was P72,000.00. After the articles were
manufactured, Palmares refused to accept them and claimed that he was not liable since the contract did no t comply
with the Statute of Frauds.
a. Palmares is liable although the contract was not in writing
b. The contract is a contract of sale.
c. The contract is a contract to sell.
d. There was no contract at all because no writing was executed by the parties.
110. B received at his office a brand-new computer printer. The printer was delivered to B after the latter filled up a
coupon which he cut out from a magazine where Supreme Machines Company placed an advertisement allowing a
“Free Trial for 7 days” of the printer to prospective customers. After trying the printer shortly after its delivery to
him, B placed it on a table located just beside a glass window. B forgot all about the printer until two weeks later. By
that time, the plastic parts of the printer had been deformed because of its long exposure to sunlight such that the
printer would no longer function.
a. The ownership of the printer was transferred to b upon its delivery to him.
b. B must pay for the price of the computer.
c. B is not liable for the damage because it was caused by a fortuitous event.
d. Supreme Machines Company must shoulder the damage because it retained ownership of the printer
despite the delivery.

111. Salvosa shipped FOB Manila goods worth P20,000.00 to Bordelo who is based in Davao City. While the carrier was
on a stopover in Cebu City, Salvosa was informed by his bank that the check issued by Bordelo was dishonored by
reason of insufficiency of funds. He also learned from the Credit Bureau that Bordelo had become insolvent.
Accordingly, Salvosa notified the carrier that he was taking possession of the goods. The right availed of by Salvosa in
the situation is known as the right of:
a. stoppage in transitu.
b. subrogation.
c. attachment.
d. garnishment.

112. Refer to No. 111. After obtaining actual possession of the goods, Salvosa offered them for sale at public auction.
Based on the foregoing facts, which of the following statements is incorrect pertaining to the sale of the goods?
a. Salvosa may bid at the public auction provided there is notice of his participation.
b. The buyer of the goods at the public auction acquires title to the goods as against Bordelo.
c. If the goods are sold at P19,000.00 net of cost of selling and other expenses, Salvosa may recover the
amount of P1,000.00 from Bordelo.
d. If the goods are sold at P22,000.00 net of cost of selling and other expenses, the profit of P2,000.00 belongs
to Salvosa.

113. Brothers Antonio, Benito, Carmelo and Donato are co-owners of an agricultural lot which they inherited from their
parents. Antonio sold his undivided share in the property to Teodulfo. Either Benito, Carmelo and Donato may
purchase Antonio's share in the property from Teodulfo by virtue of their right of:
a. legal redemption.
b. pre-emption.
c. conventional redemption.
d. consolidation.

114. D, owner of certain goods, deposited the goods with W. a warehouseman, who issued to Da warehouse receipt which
states that “The goods are to be delivered to the order of D.” D may negotiate the warehouse receipt by any of the
following means, except by:
a. mere delivery.
b. special indorsement completed by delivery.
c. blank indorsement completed by delivery.
d. indorsement to bearer completed by delivery. .

115. S delivered a diamond ring to B for B's necklace worth P10,000.00 and cash of P15,000.00 which B is scheduled to
deliver one week after their agreement. The contract between Sand B was not in writing. The contract between S and
B is:
a. an enforceable contract of barter.
b. an enforceable contract of sale.
c. an enforceable contract that is partly a sale and partly a barter.
d. a sale but it is unenforceable not being in writing and the cash to be paid by B is at least P500.00.

116. These contracts are presented to you for evaluation:

I. A contract for the delivery of an article which is manufactured in the ordinary course of business, but the
article was not available at the time of the contract was executed.
II. A contract for the delivery of an article to be manufactured especially for the customer and upon his
special order.
In your evaluation of the said contracts:
 a. Both contracts refer to a contract of sale.
b. Both contracts refer to a contract for a piece of work.
c. I refers to a contract of sale; II refers to a contract for a piece of work.
d. I refers to a contract for a piece of work; Il refers to a contract of sale.

117. These statements are presented to you:

I. The sale of a thing having a potential existence is not effective if the thing does not come into existence.
II. The sale of hope or expectancy produces effects even if the thing hoped for does not come into existence.
In your evaluation of the foregoing statements:
a. Both are true.
b. Both are false.
c. Only Statement I is true.
d. Only Statement II is true.

118. The following terms are presented to you:

I. Contract to sell.
II. Sale or return.
III. Sale on trial.
IV. Agency to sell.
Upon the delivery of the goods by the owner thereof to the other party, ownership is not transferred in:
a. I, II and III.
b. I, III and IV
c. I, II and IV.
d. II, III and IV.

119. The following are characteristics of certain contracts:

I. Nominate
II. Real
III. Aleatory
IV. Commutative
A contract for the sale of a sweepstakes ticket is considered as:
a. I and II.
B. I and IV.
c. I and III.
d. III and IV.

120. These statements are presented to you for evaluation:

I. Option money is part of the purchase price.
II. Earnest money is proof of the perfection of the contract of sale.
In your evaluation of the said statements:
a. Both are true.
b. Both are false.
c. Only I is true.
d. Only II is true.
121. S sold a computer to B for P120,000.00 under the following terms: P20,000.00 down; balance payable in 10 equal
monthly installments with an acceleration clause. To secure payment of the balance, B executed a chattel mortgage on
the computer and a real mortgage on his lot. After paying the first ne first two installments, B defaulted in the
payment of the third, fourth and fifth installments. S wants to recover in full the balance of P80,000.00 even in case of
deficiency so he consults you on which of the following courses of action to take to achieve that purpose:
I. Exact fulfillment of the balance by suing B and have the computer sold for the execution of the
judgment against B.,
II. Foreclose the chattel mortgage on the computer.
III. Foreclose the real mortgage on the lot.

Based on your evaluation of the foregoing data, the course of action that you will likely recommend to S to achieve his purpose
is:
a. Either I or II.
b. Either II or III.
C. Either I or III.
d. Any of I, II or III.
122. On January 5, Samonte, who was going abroad as an immigrant, offered to sell his car for P150,000.00 to Baldriga. He
informed Baldriga, however, that he wanted to rent the car for P1,000.00 per day up to January 15 as soon as t he sale
is executed since his flight was not scheduled until January 16. Baldriga accepted both
offers, and accordingly, he and Samonte executed a contract of sale and a contract of lease simultaneously on the same
day, January 5. All the while, Samonte remained in physical possession of the car until January 10 when the car was
stolen without his fault. The car was never recovered.
a. Samonte must bear the loss by returning the sum of P150,000.00 since Baldriga did not become the owner
not having obtained physical possession thereof.
b. Baldriga must bear the loss because he acquired ownership of the car despite its lack of physical delivery to
him.
c. Both Samonte and Baldriga must share equally in the loss.
d. Samonte must bear the loss by returning P150,000.00 less P5,000.00, the rental of the car for 5 days, in
partial compensation.

123. S, who is based in Manila, shipped FOB Cebu goods worth P50,000.00 to B. While the goods were on their way to Cebu,
S was informed by his bank that the check remitted by B was dishonored for insufficient funds. Accordingly, S notified
the carrier not to proceed with the delivery and that he was taking possession of the goods. Based on the foregoing
facts, which remedy is available to S?
a. Resale of the goods.
b. Rescission of the sale.
c. Either resale or rescission of the goods, at the option of S.
d. Neither resale nor rescission.

124. Before perfection in a sale by auction:

I. Any bidder may withdraw his bid.
II. The auctioneer may withdraw the goods from the sale unless the auction has been announced to be without
reserve.

The statement is true for:

a. Both I and II.
b. Neither I nor II.
c. I only.
d. II only.

125. The following contracts of sale are presented to you:

I. S sold a certain ring to B. It turned out that the ring was stolen from 0, its true owner.
II. S, a jewelry store sold a certain ring to B. The ring however, actually belongs to o who had lost it a
few days earlier.
III. S, a pawnshop, sold at a public auction a certain ring with B as the winning bidder. O, however, is the true
owner of the ring but the pawnshop thought it was owned by X, a defaulting borrower of the pawnshop.

In your evaluation of the above sales, B acquired title to the ring in:
a. I and II.
b. II and III.
c. I and III.
d. none of the three contracts.

126. Refer to No. 125. O may recover the ring from B without the need of reimbursement in:
a. I only .
b. II only.
c. III only.
d. All three contracts.

127. S sold a brand-new electric typewriter to B for P20,000.00 on a credit term of 30 day s. The agreement between the
parties provides that B may return the typewriter within the same period. Ten days after delivery to B, burglars
entered the office of B and carted away various valuables including the typewriter he bought from S.
a. B must pay the price of the typewriter to S.
b. B is not obliged to pay the price of the typewriter because the loss thereof was without his fault.
c. S must shoulder the loss because B's ownership of the typewriter was not absolute since he had the option to
return it within 30 days.
d. The loss must be shared equally by S and B in fairness to both.
128. The following statements are presented to you:
I. A bearer document of title if it is specially indorsed can be negotiated thereafter only by indorsement
completed by delivery.
II. A bearer negotiable instrument if it is specially indorsed can be negotiated thereafter only by indorsement
completed by delivery.
In your evaluation of the foregoing statements:
a. Both statements are true.
b. Both statements are false.
C. Only I is true.
d. Only II is true.

129. S sold to B a specific car for P200,000.00. The terms of the sale provide the following down payment of P40,000.00;
balance payable in 8 equal monthly installments of P20,000.00 each, with a real estate mortgage to be executed by B
on his lot to secure the said balance. After paying 3 installments, B defaulted in the payment of 3 more installments.
Based on the foregoing facts, the following remedies were presented to B:
I. Exact fulfillment of the obligation.
II. Cancel the sale.
III. Foreclose the real mortgage on the lot and recover any deficiency in the foreclosure sale.

If you were B, the remedy that you may avail yourself of is:
a. either I or II.
b. either II or III.
C. either I or III.
d. any of the three remedies presented.

130. An unpaid seller may avail himself of the following remedies, except the right to:
a. retain the goods while he is in possession of them.
b. resume possession of the goods at any time while they are in transit.
c. buy the goods at any public sale if he decides to resell them.
d. rescind the sale.

131. S sold his lot to X on April 1, 2015. The deed of sale duly acknowledged by the parties before a notary pubi However , X
did not take physical possession of the On April 10, 2015, S sold the same lot to Y under ar of sale which was still to be
notarized. Y immediately physical possession of the lot. Y was not aware of previous sale to X. When X visited the
property, he found Y already building a structure thereon. It was also then that he discovered that S had sold the same
lot to Y.
a. The lot belongs to X.
b. The lot belongs to Y.
c. The lot will be co-owned by X and Y in fairness to both of them since they were in good faith.
d. The lot still belongs to S until it can be determined who between X and Y is the owner of the lot.

132. A contract of sale is perfected upon the:

a. full payment of the purchase price by the buyer.
b. delivery of the object of the contract to the buyer.
c. meeting of minds between seller and the buyer on the object and the price.
d. acknowledgment of the deed of sale by the seller and the buyer before a notary public.

133. These statements are presented to you:

I. It is part of the purchase price.
II. It is paid before the contract of sale is perfected.
III. When given, it entitles the party making the payment to hold the recipient from offering the object of the
contract to other persons within the period agreed upon.
IV. It is proof the perfection of the contract of sale.
Based on your evaluation of the foregoing statements, which of the following is true?
a. I and III refer to option money.
b. II and III refer to option money.
C. II and IV refer to earnest money.
d. III and IV refer to option money.

134. Orlando is the owner of an agricultural lot consisting 9,000 square meters (or .9 hectare). The lot is surrounded
 on the North by Nonato's lot consisting of 7,000 square meters; on the East, by Espino's lot consisting of 6,500 square
meters; on the South, by Serrano's lot consisting of 8,500 square meters; and on the West, by the road, across which
was Wagan's lot consisting of 6,300 square meters. Orlando donates the lot to Benito, his brother, who is the owner of
several rural lots in the area. Of the adjoining owners, only Serrano expressed to Benito his desire to redeem the lot.
The right of legal redemption is available to:
a. Serrano because it was only he who offered to redeem the lot.
b. Wagan because he is the owner of the smallest adjoining lot.
c. Espino because he is the owner of the smallest lot that is nearest to the lot of Benito.
d. None of the adjoining owners may avail himself of the right of legal redemption including Nonato.

135. Barrameda visited the furniture store of Farrales to buy window frames for his house which was undergoing
construction. Not finding any window frame of his liking, he made a sketch of the design he wanted and asked Farrales
if he could make four pieces of the specification for delivery after one week. Farrales answered that he c ould at the
price of P2,000.00 per frame. The window frames ordered by Barrameda was of such odd shape and design that when
completed and installed, Barrameda's house would be the only one in the community that had windows of such type.
Barrameda left the sketch with Farrales who did not ask any down payment since he had previously transacted w ith
Barrameda and knew him. During all the time that Barrameda and Farrales were dealing with each other, Arnulfo, the
assistant of Farrales, was present. When the window frames were finished, Farrales proceeded to the house of
Barrameda to deliver them but Barrameda refused to accept them saying that he had changed his mind, and that at
any rate, the contract was unenforceable, not being in writing.
a. The contract is enforceable because the sketch made by Barrameda was sufficient to bind him.
b. The contract is enforceable because Arnulfo can testify in court to prove its existence.
c. The contract is enforceable even if no writing was executed by the parties.
d. The contract is unenforceable because no writing was subscribed by the parties.

136. Refer to the preceding number. What contract was entered into between Barrameda and Farrales?
a. Contract of sale.
b. Contract for a piece of work.
C. Contract to sell.
d. An innominate contract.

137. A contract for a piece of work is different from a contract of sale in that in a contract for a piece of work:
a. the Statute of Frauds does not apply.
b. the article object of the contract is manufactured or procured in the ordinary course of business.
c. there is usually a stock which is kept on hand and made available to anyone.
d. if the article is not available, there is no change or modification of it when it is ordered by the customer.

138. Which of the following statements is common to both sale or return and sale on trial?
a. Ownership of the thing is transferred upon delivery to the buyer.
b. Ownership of the thing is transferred to the buyer at some future time.
c. Ownership of the thing may be reverted to the seller should the buyer return it within the time agreed upon.
d. In case the thing is lost through a fortuitous event after the lapse of the time to keep or return it and the buyer
was still in possession of it, the risk of loss is with the buyer.

139. The full payment of the price is condition in:

a. contract to sell.
b. contract of sale.
c. sale or return.
d. sale on trial.

140. The non-payment of the price is a negative resolutory condition in:

a. contract to sell.
b. contract of sale.
c. contract of agency to sell.
d. sale on approval.

141. When there is a stipulation exempting the vendor from the obligation to answer for eviction and the vendee made the
waiver with knowledge of the risks of eviction and assumed the consequences, such waiver is known as:
a. waiver intencionada.
b. waiver consciente.
C. forfeiture of rights.
 d. surrender of rights.

142. In case of eviction, the vendor shall be liable to the vendee only for the value of the thing sold at the time of eviction in
which of the following cases?
a. When there is waiver intencionada
b. When there is waiver consciente
c. When the vendor was in bad faith and there was no stipulation exempting the vendor from liability in case of
eviction.
D. When the vendor was in bad faith and there was stipulation exempting the vendor from liability in case of
eviction.

143. S and B entered into a contract for the sale of the car of S to B for P100,000.00. In reality, however, B did not give any
amount to S because the latter intended to donate the car to B. In this case:
a. The contract between S and B is void because the price is simulated.
b. The contract between S and B is a valid contract of donation.
c. The contract between S and B is a void contract of donation.
d. The contract between S and B is a valid contract of sale.

144. On July 1, Serena sold to Berbola through a private instrument a specific piano for P20,000.00. Simultaneous with the
sale, the parties agreed that Serena would lease the piano for one week in preparation for a concert after which
Berbola could physically get the piano. Before the week was over, Serena sold the same piano, also in a private
instrument and for P25,000.00, to Jezebel who immediately loaded the piano in her van. Neither Berbola nor Jezebel
was aware of the sale made to the other. Who is the owner of the piano?
a. Berbola
b. Jezebel
c. Berbola and Jezebel, as co-owners.
d. Serena who retained ownership because of Berbola and Jezebel's conflicting rights.

145. B bought two carabaos, one male and one female, from S. He paid P2,000.00 and P3,000.00, respectively, for the
animals which he intended to use for breeding. Later, the female carabao was found unfit for breeding because of a
redhibitory defect.
a. B can rescind the sale of the female carabao only because he paid a separate price for it.
b. B can rescind the sale of both animals because he would not have bought the male carabao without the female
carabao.
c. B cannot rescind the sale of either animal under the “let the buyer beware” rule.
d. B can rescind the sale of both animals only if he had paid a single price for both them.

146. What may the consideration consist of in an op contract in order to bind the offerer?
a. Monetary.
b. Other things or undertakings.
c. Either (a) or (b).
d. May not be a valuable consideration, i.e., may gratuitous.

147. The following statements pertaining to sale by auction are presented to you:
I. The auctioneer may not withdraw the goods from the auction sale if the sale was announced to be without
reserve.
II. The auctioneer may withdraw the goods from the auction sale if the sale was announced to be with reserve.
In your evaluation of the foregoing statements:
a. Both statements are true.
b. Both statements are false.
c. Only Statement I is true.
d. Only Statement II is true.

148. Under the Maceda Law, in determining the number of installments paid by the buyer, the following payments are
included, except:
a. down payments.
b. deposits.
c. option money.
d. none of the foregoing.
149. Necessaries include everything indispensable for sustenance, clothing and medical attendance, and which of the
following?
a. Dwelling
b. Education
c. Transportation
d. All of the foregoing.

150. While her parents were away on a visit to the province, M, 17 years old, entered into a contract for the purchase of
textbooks prescribed in his course and an expensive evening gown. Which sale to M is/are considered valid and
binding, i.e., not voidable?
a. The sale of the textbooks.
b. The sale of the evening gown.
c. Both (a) and (b).
d. Neither (a) nor (b) because a minor is incapable of giving consent.

151. B bought a refrigerator from S for P20,000.00 which is payable in 20 installments at P1,000.00 per month. After
paying 6 installments, B defaulted in the payment of the seventh and eight installments. Should S decide to exact
fulfillment of the obligation, how much, as a rule, may S collect from B?
a. The total amount of installments defaulted, i.e.. P2,000.00.
b. The remaining balance of P14,000.00.
c. Either (a) or (b) at the option of S.
d. Neither (a) nor (b) because S has to wait for the sale of the property to third persons.

152. A, B and C were the co-owners of a lot in the ratio of 1:2:1. A died. He was succeeded to the property by S, his son and
heir. Who may redeem the lot of A from S?
a. B, because as the owner of a bigger portion, he enjoys preference in the exercise of the right of legal
redemption.
b. C, so that he and B will have an equal share in the lot.
c. B and C, in proportion to the share of each in the lot.
d. Neither B nor C may exercise the right of legal redemption.

153. When is the vendor bound to deliver the thing sold?

a. If the vendee has not paid him the price.
b. If no period for the payment of the price has be fixed in the contract.
c. If the buyer has been given the benefit of period.
d. None of the foregoing.

154. These statements concerning the double sale of a immovable are presented to you:
I. The first buyer who was in good faith at the time the sale was made to him, remains in good notwithstanding
that he subsequently knowledge of the second sale.
II. In order that the second buyer mayo preference, he must possess good faith from the time of sale in his favor
until the registration of the same.
In your evaluation of the foregoing statements:
a. Both statements are true.
b. Both statements are false
c. Only Statement I is true.
d. Only Statement II is true.

155. A credit right is considered to be in litigation:

a. as soon as a complaint is filed by the creditor against the debtor.
b. when the debtor has filed his answer to the complaint.
c. when the case is scheduled for pre-trial conference between the parties.
d. when the trial has started.

156. Dowed C P100,000.00. The debt is evidenced by a promissory note and secured by a mortgage of D's lot: Before due
date, C assigned his credit right to T by executing a deed of assignment but without the parties informing D. On due
date, T went to D to collect the debt at which time D learned of the assignment.
a. I cannot collect from D because the latter was not informed of the assignment at the time it was made.
b. T can collect from D but if D cannot pay, T cannot foreclose the mortgage on the lot.
c. T can collect from D but if D cannot pay, T can foreclose the mortgage which is deemed assigned together with
the credit right.
 d. T can only go after C, the assignor, since the assignment was without D's knowledge

157. What does the assignor of a credit warrant?

a. The legality and existence of the credit.
b. The solvency of the debtor.
c. Both (a) and (b).
d. Neither (a) nor (b).

158. The right of pre-emption differs from the right of redemption in that in pre-emption: ,
a. the action is directed against the buyer.
b. the action is directed against the seller.
c. the right arises after the sale.
d. there can be a rescission of the original sale.

159. The following are certain modes of acquisition of property:

I. Purchase
II. Dacion en pago
III. Succession
IV. Donation
Legal redemption is available when the transferee acquired the property through:

a. I or II.
b. III or IV.
c. I or III.
d. II or IV.

160. A sale between husband and wife is valid in which of the following cases?
a. When a separation of property has been agreed upon in the marriage settlements or when there has been a
judicial separation of property.
b. When price of the sale is a moderate amount.
c. When the object of the sale is a necessary such food or clothing.
d. When the spouses are living separately.
Test II- MATCHING TYPE. Indicate your answers by writing the letter representing the statement or phrase that best describes,
defines or explains the numbered items.
Terms
1.Barter 26. Pactum commissorium
2.Piece of work 27. Conventional redemption
3. Price 28. Vendor
4. By-bidders/puffers 29. Relative incapacity
5. Policitacion 30. Waiver consciente
6. Symbolic delivery 31. Emptio spei
7. Traditio constitutum possessorium 32. Legal formalities
8. Unpaid seller 33. Necessaries
9. Warranty against eviction 34. Stoppage in transitu
10. Accion redhibitoria 35. Order document of title
11. Legal redemption 36. Right of pre-emption
12. Equitable mortgage 37. Warehouse receipt
13. Document of title 38. Vendee
14. Bill of lading 39. Sale on trial
15. Sale or return 40. Absolute incapacity
16. Dacion en pago 41. Payment by cession
17. Fungible goods 42. Future goods
18. Straight sale 43. Bearer document of title
19. Emptio rei speratae 44. Waiver intencionada
20. Earnest money 45. Traditio brevi manu
21. Traditio longa manu 46. Assignment of credit
22. Possessory lien 47. Bailee
23. Eviction 48. Redhibitory defect
24. Easement or servitude 49. Auction
25. Accion quanti minoris 50. Option money

Statements
A. Ownership of a thing is transferred to the creditor to settle a monetary obligation.
B. Lacks formalities but nevertheless shows the real intention of the parties to create a specific property to secure the
performance of an obligation.
C. They refer to interchangeable goods such as grain, oil, etc., that allow one to be replaced by another without loss of
value.
D. Proof of the perfection of a contract of sale.
E. Includes a warehouseman, carrier or other person who receives the possession or custody of the thing delivered.
F. Even professional inspection is not sufficient to discover it.
G. Exercised by the seller by obtaining actual possession of the goods or by giving notice to the carrier or other bailee
having actual possession of the goods.
H. It is made by the buyer with knowledge of the risk of eviction; hence, the seller will not have any liability if the buyer
is evicted.
I. Ownership is transferred to buyer upon delivery but he has the option to revert such ownership to the seller.
J. Ownership of the thing sold is retained by the seller despite delivery to the buyer, but the latter agrees to pay the price
if he finds the thing satisfactory.
K. Delivery that takes place when the buyer who was in possession of the thing sold at the time of sale continues in
possession of the same as an owner.
L. Negotiated by indorsement.
M. Sale of property to the highest bidder.
N. The party in a contract of sale who is obligated to transfer the ownership of and to deliver a determinate thing.
O. The consideration paid for the purpose of holding one to his promise to buy or sell a determinate thing for a certain
period of time, which consideration is separate and distinct from the purchase price.
P. Applies to persons who, under certain circumstances, cannot purchase certain property.
Q. The person obligated to pay the price of the thing purchased.
R. Delivery of a movable by mere agreement of the parties if the thing cannot be transferred to the vendee at the time of
sale.
S. Negotiated by mere delivery.
T. It is made by the buyer without knowledge of the risk eviction.
U. The consideration of the contract is another thing.
V. Applies to persons who cannot bind themselves in contract including a contract of sale.
W. A document used as proof of the possession or control of the goods or authorizing or purporting to authorize the
possessor of the document to transfer or receive, either by indorsement or by delivery, the goods represented by such
document.
X. Right given to an adjoining owner of an urban land to purchase the same ahead of others if such land is held for
speculation.
Y. Delivery through the execution of a public document.
Z. The deprivation by final judgment of the vendee of the whole or a part of the thing sold based on a right prior to the
sale or an act imputable to the vendor.
AA. Refer to goods to be manufactured, raised or acquired by the seller.
BB. The sale of hope or expectancy.
CC. Includes one who has received as conditional payment for the goods a negotiable instrument, but the condition has
been broken by reason of the dishonor of the instrument or the insolvency of the buyer.
DD. Include everything indispensable for sustenance, dwelling, clothing, medical attendance, education and
transportation. EE. The balance is payable in its entirety after the payment of an initial sum.
FF. A contract for the delivery at a certain price of an article to be manufactured specially for the customer and upon his
special order, and not for the general market.
GG. The sum stipulated as the equivalent of the thing sold.
HH. The right to be subrogated upon the same terms and conditions stipulated in the contract, in the place of one who
acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by
onerous title.
II. Seller's undertaking that the buyer shall enjoy legal and peaceful possession of the thing sold.
JJ. A stipulation in a contract of sale involving an immovable that the sale is automatically rescinded upon failure of the
buyer to pay the price.
KK. Delivery of the keys of the place where a movable is kept or stored.
LL. Contract for the storage of goods for a compensation,
MM. Buyer's remedy which involves the proportionate reduction in the price of the thing purchased.
NN. A unilateral promise to buy or sell a thing which is not accepted by the promissee.
1. An unpaid seller's right to retain the goods for the price while he is in possession of them.
PP. Remedy of buyer to withdraw from the sale and ask for damages.
QQ. An encumbrance imposed upon an immovable for the benefit of another immovable belonging to a different owner.
RR. A person employed by the seller or auctioneer to raise the price in an auction sale.
SS. A document issued by a common carrier acknowledging the receipt of the goods and agreeing to transport and
deliver them to a specified place.
TT. Right of seller to repurchase the thing sold and the exercise of which was reserved by the seller at the time of sale.
UU. Delivery that takes place when the seller continues in possession of the thing sold after the sale but as
lessee, depositary or otherwise.
VV. The creditors are given the right to sell the debtor's properties and apply the proceeds to their respective claims.
WW. It has for its purpose the transfer to another person of the right to collect the debt.
XX. Sale of an expected thing.
YY. None of the foregoing.

TEST III - TRUE OR FALSE. Write the word “TRUE” if the statement is true, and the word 'FALSE” if the statement is false.
1. Warranty against eviction is inherent in a contract of sale; hence, it is an essential element thereof.
2. Dacion en pago partakes of the nature of a sale; hence, there is more freedom in fixing the price of the thing conveyed.
3. A contract for a piece of work must comply with the Statute of Frauds. Accordingly, it must be in writing to be
enforceable I f the price is P500.00 or more.
4. A sales contract requires the delivery of the thing sold for its perfection.
5. If the consideration received for a thing is another thing and a monetary consideration and the intention of the parties
does not clearly appear, the contract will be considered a contract of barter if the value of the property consideration
is greater than the monetary consideration.
6. In a contract to sell, the full payment of the price is a suspensive condition which upon fulfillment will require the
execution of a contract of sale
7. It is not necessary that the vendor of a thing must be the owner thereof at the time of sale as long as he can transfer its
ownership to the buyer upon delivery
8. The sale of hope or expectancy is valid even if the thing hoped for does not come into existence.
9. If the sale of a piece of land is made through an agent, the authority of the agent must be in writing for the sale to be
valid.
10. In a sale by auction, any bidder may retract his bid before the sale is perfected.
11. If a “by-bidder" or "puffer” is employed by a seller without notice in sale by auction, the sale may be treated as
fraudulent by the buyer
12. The ownership of the thing sold is transferred upon the perfection of the contract of sale.
13. A unilateral promise to buy or sell a determinate thing at a certain price is binding upon the promissor if the promise
is supported by a consideration distinct from the price.
14. Earnest money is part of the purchase price of a thing; hence, deductible from the total selling price.
15. In sale of personal property payable in installments, the seller may exact fulfillment of the buyer's obligation when the
buyer defaults in the payment of one or more installments.
16. In sale of real property where the buyer has defaulted after paying at least 2 years installments, he shall be entitled to
pay, without additional interest, the unpaid installments due within the grace period earned by him.
17. The purchase by a guardian of the property of the person under his guardianship is valid.
18. The buyer shall be entitled to the fruits of the thing sold from the time of the perfection of the contract.
19. The delivery of incorporeal property may be made through the exercise by the vendee of his rights with the consent
of
the vendor.
20. If goods are sold on “sale or return”, the risk of loss of the thing sold remains with the seller after its delivery to the
buyer.
21. In “sale on approval", the buyer becomes the owner of the thing upon delivery, but he may revert such ownership
to the seller by returning it.
22. The delivery of specific goods to a carrier or other bailee for the purpose of transmission to the buyer
generally transfers ownership of the goods to the buyer.
23. When a thing is purchased from a merchant's store, fair or market, the buyer acquires title to the thing although the
seller may have stolen it or acquired it from a thief.
24. A warehouse receipt is also a contract between the warehouseman and the depositor of the goods.
25. A bearer document of title becomes an order document of title if it is specially indorsed.
26. The delivery of an order document of title without any indorsement does not constitute negotiation.
27. A negotiable document of title becomes non-negotiable if it is stamped with the mark “non-negotiable”.
28. If the goods sold are in the possession of a third person, the seller is deemed to have delivered the g oods to the buyer
if the third person acknowledges to the buyer that he holds the goods in the buyer's behalf.
29. If a period has been fixed for the payment of the price which has not yet arrived, the seller in the meantime is
bound to deliver the thing sold.
30. An unpaid seller exercising his right to resell the goods may buy the goods either directly or indirectly.
31. When an unpaid seller exercises his right of stoppage in transitu, the contract of carriage ceases, the carrier *
becoming liable as a depositary
32. If real estate is sold for a lump sum, the vendor is bound to deliver all that is included within the boundaries stated in
the contract although the actual area is greater than that stated in the contract.
33. If the same immovable is sold to two or more persons who are all in good faith, ownership shall belong to the buyer
who first paid its price.
34. In order that the buyer may enforce the seller's liability for breach of warranty against eviction, the judgment
depriving the buyer of the thing must first be appealed by the buyer.
35. The vendor's liability for breach of warranty against eviction may be validly waived by the vendee. However, the
vendor will still be liable if the waiver was made by the vendee without knowledge of the risks of eviction.
36. As a rule, the vendor shall not be liable for a non-apparent easement that is recorded in the Registry of Property.
37. The vendor shall be liable generally for any defect on the thing sold even if he was not aware thereof,
38. When animals are sold as a pair, the vendee may ask for the rescission of the sale of both animals although only one of
them suffers from a redhibitory defect.
39. The sale of animals suffering from contagious diseases is voidable.
40. There is no warranty against hidden defects of animals sold at fairs or at public auctions, or of animals sold as
condemned.
41. Acceptance of the goods by the buyer generally discharges the seller from his liability for any breach of warranty.
42. If the buyer is justified in refusing to accept the goods, he shall be obliged to hold the goods as depositary.
43. The buyer is obliged to pay interest on the price of the goods for the period between the delivery of the goods and the
payment of the price if the thing sold produces fruits or income.
44. The buyer may suspend the payment of the price of the thing purchased by reason of trespass on the thing.
45. A stipulation that the sale of an immovable is automatically rescinded upon the default of the buyer in the payment of
the price is valid.
46. In conventional redemption, the creditors of the vendor may make use of the right of redemption against the vendee
although they have not exhausted the properties of the vendor.
47. In case of doubt, a contract purporting to be a sale with a right to repurchase shall be construed as an equitable
mortgage.
48. For an assignment of credit to be binding against third persons if a movable property is involved, the same must be in
a public instrument and recorded in the Registry of Property.
49. A debtor who has paid his creditor before he learns of the assignment of his debt shall be released from his liability to
the assignee.
50. The debtor's consent is required for the validity of the assignment of the credit made by his creditor to another
person.

ANSWERS TO DIAGNOSTIC EXERCISES

SALES
TEST I - MULTIPLE CHOICE
1. B 17. C 33. C 49. B 65. D
2. D 18. A 34. A 50. D 66. A
3. B 19. B 35. C 51. B 67. C
4. D 20. D 36. B 52. A 68. C
5. D 21. D 37. B 53. B 69. D
6. D 22. B 38. B 54. D 70. A
7. D 23. D 39. A 55. C 71. A
8. B 24. C 40. D 56. B 72. C
9. C 25. A 41. A 57. D 73. C
10. C 26. B 42. C 58. C 74. C
11. B 27. D 43. D 59. C 75. C
12. B 28. C 44. A 60. B 76. C
13. C 29. D 45. D 61. A 77. B
14. B 30. B 46. D 62. B 78. B
15. B 31. D 47. C 63. D 79. A
16. B 32. D 48. C 64. B 80. D
81. C 102. A 123. D 144. A
82. C 103. D 124. A 145. B
83. C 104. C 125. B 146. C
84. D 105. A 126. A 147. A
85. B 106. D 127. A 148. D
86. D 107. A 128. C 149. D
87. D 108. A 129. D 150. A
88. A 109. A 130. C 151. A
89. B 110. B 131. A 152. D
90. D 111. A 132. C 153. C
91. B 112. A 133. B 154. A
92. A 113. A 134. D 155. B
93. C 114. A 135. C 156. C
94. D 115. B 136. B 157. A
95. D 116. C 137. A 158. B
96. D 117. A 138. D 159. A
97. C 118. B 139. A 160. A
98. C 119. C 140. B
99. C 120. D 141. A
100. B 121. C 142. B
101. C 122. B 143. B

TEST II -MATCHING TYPE

1. U 11. HH 21. R 31. BB 43. S
2. FF 12. B 22. OO 32. Y 44. H
3. GG 13. W 23. Z 33. DD 45. K
4. RR 14. SS 24. QQ 34. G 46. WW
5. NN 15. I 25. MM 35. L 47. E
6. KK 16. A 26. JJ 36. X 48. F
7. UU 17. C. 27. TT 39. J 49. M
8. CC 18. EE 28. N 40. V 50. O
9. II 19. XX 29. P 41. VV
10. PP 20. D 30. T 42. AA

TEST III - TRUE OR FALSE

1. FALSE 3. FALSE 5. TRUE 7. TRUE 9. TRUE
2. FALSE 4. FALSE 6 TRUE 8. TRUE 10. TRUE
11. TRUE
12, FALSE
13. TRUE
14. TRUE
15. TRUE
16. TRUE
17. FALSE
18. TRUE
19. TRUE
20, FALSE
21. FALSE
22. TRUE
23. TRUE
24. TRUE
25. TRUE
26. TRUE
27. FALSE
28. TRUE
29. TRUE
30. FALSE
31. TRUE
32. TRUE
33. FALSE
34. FALSE
35. TRUE
36. TRUE
37. TRUE
38. TRUE
39, FALSE
40. TRUE
41. FALSE
42. FALSE
43. TRUE
44. FALSE
45. FALSE
46. FALSE
47. TRUE
48. FAL SE
49. TRUE
50. FALSE