SALES

Definition : a contract whereby one of the parties (called the seller or vendor) obligates himself
to deliver something to the other (called the buyer or vendee) who, on his part, binds himself to
pay therefor a sum of money or its equivalent

Essential requisites:

1. Consent or meeting of minds – parties must have legal capacity to give consent and
obligate themselves
2. Object or subject matter – which must be licit and determinate or at least capable of
being made determinate
3. Cause or consideration- refers to the price certain in money or its equivalent

Two kinds of contract of sale

1. Absolute – the sale is not subject to any condition whatsoever and where title or
ownership passes to the buyer upon delivery of the thing sold
2. Conditional – where the contract is subject to certain conditions, usually the full
payment of the purchase price

Sale as distinguished from :

Dacion en pago (dation in payment) - the conveyance of ownership of a thing as an

accepted equivalent of performance

Cession in payment- the assignment or abandonment of all the properties of the debtor
for the benefit of his creditors in order that the latter may sell the same and apply the proceeds
thereof to the satisfaction of their credits

Contract for a piece of work – the contractor binds himself to execute a piece of work
for the employer, in consideration for a certain price or compensation. The contractor may
either employ his labor or skills, or also furnish the material.

Barter – one of the parties binds himself to give one thing in consideration of the other’s
promise to give another thing

Earnest money versus option money

1. Earnest money is part of the purchase price, while option money is the money given as
distinct consideration for the option contract

2. Earnest money is given only where there is already a sale, while option money applies to
a sale not yet perfected.
 3. When earnest money is given, the buyer is bound to pay the balance, while when the
would-be buyer gives option money, he is not required to buy.

OBLIGATIONS OF THE VENDOR

1. To transfer the ownership of the determinate thing sold;

2. To deliver the thing

a. Ways of effecting delivery

i. Actual delivery

ii. Constructive delivery

1. Execution of public instrument

2. Symbolical tradition

3. Tradition longa manu

4. Tradition brevi manu

5. Tradition constitutum possessorium

3. To warrant against eviction and hidden defects

a. Warranty against eviction

i. The vendee is deprived in whole or in part of the thing purchased

ii. He is so deprived by virtue of a final judgment

iii. The judgment is based on a right prior to the sale or an act imputable to
the vendor

iv. The vendor was summoned in the suit for eviction at the instance of the
vendee

v. There is no waiver on the part of the vendee

b. Warranty against hidden defects

i. The defect must be important or serious

ii. It must be hidden

iii. It must exist at the time of the sale

iv. The vendee must give notice of the defect to the vendor within a
reasonable time
 v. The actions for rescission or reduction of the price must be brought
within the proper period – six (6) months from delivery of the thing sold

4. To take care of the thing, pending delivery, with proper diligence

5. To pay for the expenses for the execution and registration of the deed of sale, unless
there is a stipulation to the contrary

OBLIGATIONS OF THE VENDEE

1. To accept delivery

2. To pay for the price of the thing sold

REMEDIES OF UNPAID SELLER

1. Lien on the goods or right to retain them for the price while he is in possession of
them.

2. In case of insolvency of the buyer, a right of stopping the goods in transit after he
has parted with the possession of them

3. A right of resale

4. A right to rescind the sale

CONVENTIONAL REDEMPTION – right which the vendor reserves to himself, to reacquire the
property sold provided he reimburses the vendee of :

1. the price

2. the expenses of the contract

3. any other legitimate payments made therefor and

4. the necessary and useful expenses made on the thing sold

LEGAL REDEMPTION – 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.

1. Right of legal redemption of co-owner

2. Right of legal redemption of adjacent owners of rural lands

3. Rights of pre-emption and legal redemption of adjacent owners of urban lands

Period to exercise right of redemption – within 30 days from notice in writing by the vendor
INSTALLMENT SALES

PERSONAL PROPERTY – RECTO LAW

Article 1484 incorporates Act No. 4122 better known as "Recto law" or installment sales law, in
which the vendor can exercise the following remedies. 

1. Exact fulfillment, should the buyer failed to pay any installments 

2. Cancel the sale, should the buyer's failure to cover two or more installments 
3. Foreclose the chattel mortgage on the thing sold if one is constituted, should the buyer's
failure to cover two or more installments. 

*The remedies are recognized as alternatives and not cumulative, should the buyer chose to
foreclose the chattel mortgage he/she cannot exercise the other two remedies 

REAL PROPERTY – MACEDA LAW

Maceda Law in the Philippines applies to the purchaser of real property by installment
payments when the purchase becomes cancelled by a delinquency in payment. It provides the
buyer with a right to a refund as a requisite for cancellation of contract due to delinquency
when the buyer has paid at least two years. The refund is 50% of total payments; additional 5%
per year after 5th year.

CONDOMINIUM ACT – Republic Act 4726

Condominium - is an interest in real property consisting of a separate interest in a unit in

residential, industrial or commercial building and an undivided interest in common directly or
indirectly, in the land on which it is located and in other common areas of the building.

A condominium may include, additionally, a separate interest in other portions of such real
property. Title to the common areas, including the land, or the appurtenant interests in such
areas, may be held by a corporation specially formed for the purpose (hereinafter known as the
“condominium corporation”) in which the holders of separate interest shall automatically be
members or shareholders, to the exclusion of others, in proportion to the appurtenant interest
of their respective units in the common areas.

The Condominium Act provides that in case the common areas are held by the owners of
separate units as co-owners, no condominium unit therein shall be conveyed or transferred to
persons other than Filipino citizens or corporations at least sixty percent (60%) of the capital
stock of which belong to Filipino citizens except in the case of hereditary succession. In cases
where the common areas in a condominium unit are owned by a corporation, any transfer of
interest that would increase alien interest thereby exceeding the limits set by law is prohibited.
PLEDGE

Definition : a contract by virtue of which the debtor delivers to the creditor or to a third person
a movable, or instrument evidencing incorporeal rights for the purpose of securing the
fulfillment of a principal obligation.

Essential requisites:

1. Constituted to secure fulfillment of a principal obligation

2. Pledgor is absolute owner

3. Pledgor has free disposal of property or has legal authority

4. Thing pledged may be alienated – the creditor does not automatically become the
owner if at the time stipulated the obligation is still unfulfilled

Pactum Commissorium – a stipulation whereby the thing pledged or mortgaged shall

automatically become the property of the creditor in the event of non-payment of the debt
within the term fixed

Rights of the pledgee

1. To retain thing pledged until full payment of the obligation

2. To compensate earnings of pledge with debt

3. To cause sale of thing pledged if in danger of destruction or impairment and keep the
proceeds of the sale as security

4. To demand substitute or immediate payment

5. To cause the sale of the thing pledged at a public auction if debt remains unpaid

6. To appropriate the thing pledged if after first and second auction, the thing is not sold

7. To bid at public sale

Obligations of the pledgee

1. To take due care of the thing pledged

2. Not to deposit thing pledged with another

3. Not to use thing pledged

Rights of the pledgor

1. To ask that thing pledged be deposited judicially or extra judicially

a. If the creditor uses the thing without authority

 b. If he misuses the thing in any other way

c. If the thing is in danger of being lost or impared because of the negligence of the
pledgee

2. To demand return of the thing pledged and to substitute the same if the thing pledged
is in danger of destruction or impairment

3. To bid at public sale

Modes of extinguishment

1. By return of the thing pledged

2. By renunciation or abandonment of the pledge

3. Other causes (prescription, loss of the thing, compensation, novation)

REAL/CHATTEL MORTGAGE

Definition: a contract whereby the debtor secures to the creditor the fulfillment of a principal
obligation

Subject matter of mortgage

1. Real mortgage– immovable property

2. Chattel mortgage-movable property

Essential requisites:

1. Constituted to secure fulfillment of a principal obligation

2. Mortgagor is absolute owner

3. Mortgagor has free disposal of property or has legal authority

4. Property mortgaged may be alienated – the creditor does not automatically become the
owner if at the time stipulated the obligation is still unfulfilled

5. It appears in public instrument and duly recorded in the Registry of Property

Conveyance of mortgaged property to third person-Creditor may demand from the possessor
the payment only of the part of the credit secured by said property.

A stipulation forbidding the owner from alienating the immovable mortgaged shall be void.

Foreclosure – the remedy available to the mortgagee by which he subjects the mortgaged
property to the satisfaction of the obligation through the sale of the property at public auction.
Kinds of foreclosure

1. Judicial-bringing an action in the proper court

2. Extrajudicial-insertion of a stipulation in the contract giving the mortgagee the power,

upon default, to foreclose the mortgage by an extrajudicial sale of mortgaged property

Proceeds of the sale shall be applied as follows:

1. Costs of the sale

2. Amount due to the mortgagee

3. Claims of persons holding subsequent mortgages in the order of priority

4. Balance, if any, shall be paid to the mortgagor

PLEDGE AND MORTGAGE DISTINGUISHED

1. Pledge is constituted on movables, while mortgage, on immovables

2. In pledge, the property is delivered to the pledgee, while in mortgage, the delivery is not
necessary

3. Pledge is not valid against third persons unless a description of the thing pledged and
the date of the pledge appear on a public instrument. While mortgage is not valid
against third persons if not registered.

INSOLVENCY AND CORPORATE REHABILITATION

Insolvency - refers to the inability to pay one’s debts as they fall due.

Rehabilitation- pertains to the process of recovery and reorganization, and is especially

applicable to a juridical entity, such as a corporation.

APPLICABLE PHILIPPINE LAWS

The Insolvency Law (Act No. 1956)

Act 1956 deals with three situations:

(1)suspension of payments, for a debtor who possesses sufficient property to cover all his debts
but foresees the impossibility of meeting them when they respectively fall due;

(2)voluntary insolvency, for a debtor applying to be discharged from his debts and liabilities
(amounting to the then sizeable amount of 1000 pesos); and
(3)involuntary insolvency, or an adjudication of insolvency made on petition of three or more
creditors of an insolvent debtor. Under this Act, the judicial courts had jurisdiction over such
proceedings.

Despite debate in interpreting and applying the provisions of Act No. 1956, it remained largely
untouched for nearly sixty years.

In 1976, Presidential Decree 902-A, was issued by President Ferdinand E. Marcos with the
intention of creating a more inviting climate for investment, both domestic and foreign, the
Decree introduced several changes to the rules governing insolvency.

 expressly established the concept of rehabilitation, which applies only to

corporations, and is wholly different from insolvency, because it allows the
corporation to recover and be able to continue its business as a going concern.

In November 1999, the SEC promulgated its Rules on Corporate Recovery.

In July 2000, the Philippine Congress promulgated the Securities Regulation Code (Republic Act
No. 8799) which transferred SEC’s jurisdiction over corporate rehabilitation proceedings,
among other cases, back to the regular courts.

In January 2009, the SC Rules of Procedure on Corporate Rehabilitation (SC A.M. No. 00-8-10-
SC) took effect.

HOW CORPORATE REHABILITATION WORKS

Generally

Under the New Rules, there are three types of rehabilitation proceedings:

(1)debtor-initiated

(2)creditor-initiated, and

(3)pre-negotiated rehabilitation.

At present, there are 65 trial courts specially designated by the Supreme Court as ‘commercial
courts’ and hear such petitions. Proceedings are to be summary and non-adversarial, thus
certain pleadings are prohibited.

The Rehabilitation Receiver and the Management Committee

Aside from the debtor, its creditor/s, and the rehabilitation Court, there are other parties
involved in the proceeding.
The Rehabilitation Receiver is a person appointed by the Court to closely oversee and monitor
the operations of the debtor, ensure that the value of the debtor’s property is reasonably
maintained during the pendency of the proceedings, and to implement the rehabilitation plan
once approved.

The receiver, however, shall not take over the management and control of the debtor. Instead,
he may recommend the appointment of a Management Committee when there is (1) imminent
danger of waste or dissipation, loss, wastage, or destruction of assets or (2) paralyzation of
business operations (of the debtor) which may be prejudicial to the interest of minority
stockholders, parties-litigants, or the general public.

The Stay Order

If the Court finds the petition to be sufficient in form and substance, it shall, not later than five
(5) working days from its filing, issue a “Stay Order”, whose effects include:

1. staying enforcement of all claims,

o whether for money or otherwise

o whether such enforcement is by court action or otherwise, against the debtor, its
guarantors and persons not solidarily liable with the debtor,

2. prohibiting the debtor from selling or disposing its properties except in the ordinary
course of business

3. prohibiting the debtor from making any payment of its liabilities except

o For supply of goods and services in the ordinary course of business

o For administrative expenses incurred after the issuance of the stay order

o For payment of new loans or other forms of credit accommodations obtained for
the rehabilitation with prior court approval

The Rehabilitation Plan

A rehabilitation plan shall be drawn up and shall include the desired business targets or goals
and the duration and coverage of the rehabilitation, the terms and conditions of such
rehabilitation, and the means for the execution of the rehabilitation plan, i.e., debt to equity
conversion, restructuring of the debts, dacion en pago, or sale exchange or any disposition of
assets or of the interest of the shareholders.

Once approved, the rehabilitation plan shall be binding upon the debtor and all persons who
may be affected thereby, including the creditors, whether or not such persons have
participated in the proceedings or opposed the plan or whether or not their claims have been
scheduled. However, the plan may be revoked, upon motion, on the ground that it was secured
through fraud.

Termination of Proceedings

The court shall, upon motion or upon recommendation of the rehabilitation receiver, terminate
the proceeding when, among other instances, the petition is dismissed, the debtor fails to
submit a rehabilitation plan or the same is disapproved, or after the successful implementation
of an approved rehabilitation plan.