LAW ON SALES

Part 1
CHAPTER 1
Nature and form of contract
 Article 1458

By the contract of sale one of the contracting parties

obligates himself to transfer the ownership and to deliver a
determinate thing, and the other to pay therefor a price
certain in money or its equivalent. 
 Stages of a contract of Sale
1. Preparation/Conception/Generation – the period of negotiation
and bargaining.
2. Perfection/Birth of contract – by mere consent/meeting of the
minds; performance may be demanded (specific performance).
Stage when they agreed on the terms of the contract
3. Consummation – the fulfillment or performance of the terms
agreed upon in the contract
 Two kinds of contract of sale
*Absolute – the contract is not subject to any condition and the
title passes to the buyer upon delivery of the thing.

*Conditional – the contract contemplates a contingency, usually

payment of the price
 Elements of a contract of sale
Essential:
*Consent or Meeting of the minds
*Determinate subject matter
*Price certain in money or its equivalent
Natural:
*Warranty against eviction *Warranty against hidden defects
*Warranty against non-apparent and unregistered servitude or
encumbrance *Warranty for merchantability
Accidental:
*Stipulations of the parties: Place, time of delivery and payment;
Terms or condition of payment; Interest of the price
 Gross inadequacy of price, its effect
Gross inadequacy of price by itself will not result in a void
contract. Gross inadequacy of price does not even affect the
validity of a contract of sale, unless it signifies a defect in the
consent or that the parties actually intended a donation or some
other contract. Inadequacy of cause will not invalidate a contract
unless there has been fraud, mistake or undue influence
 WHAT ARE THE
CHARACTERISTICS OF A
CONTRACT OF SALE?
 Characteristics of contract of sale
1. Consensual
- a contract of sale is perfected by mere consent
2. Bilateral
- it give rise to reciprocal obligations
 Characteristics of contract of sale
3. Principal
- can stand by it self
4. Onerous
- the consideration for each part is the delivery of the thing or the
payment of the price.
 Characteristics of contract of sale
5. Commutative
- delivery is considered equivalent of the payment price paid
6. Nominate
- designated name under the civil code of the Philippines
7. Transmissive of ownership
- transfers ownership of the subject matter
WHAT ARE THE REQUISITE
OF A CONTRACT OF SALE?
Consent
• Is manifested as the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract
Object or Subject matter
• It must be existing or possible
• It must be licit
• It must be determinable

The thing and the price are the subject matter

Cause or consideration
• Price certain in money or its equivalent
• Thing in a contract of sale
 Option or Unaccepted Offer
In any case, unaccepted offer, signifies that there’s no contract
yet, an option is possessed by both parties; the offeree may
accept or reject at his option, the offeror has the option of
withdrawing his offer before acceptance.
 Dacion En Pago vs. Contract of Sale
• There is pre-existing credit
• Obligations are extinguished
• The extinguishment of debt in
debtor’s point of view; the object
acquired in lieu of credit in
creditor’s point of view
• The debtor already received the
monetary before the contract is
perfected.
• No pre-existing credit
• Obligations are created
• The cause is price in seller’s point
of view; the thing sold in buyer’s
point of view
• The buyer has still to pay the price
Contract for a piece of work vs. Contract of Sale
Piece of Work Sale
goods are to be manufactured contract for delivery of an article
specially for a customer and upon which the vendor in the ordinary
special order and not for the general course of business manufactures or
market. procures for general market
( whether on hand or not )
 Determinate Thing
A thing is determinate or specific when it is particularly designated or
physically segregated from all others of the same class.
The requisite that a thing be 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
 Emptio Rei Speretae vs. Emptio Spei
• Sale of future thing – No physical
existence yet
• A resolutory condition that thing
will come into existence
• Non-happening of condition will
extinguish the contract
• Remedy: can recover what was
been paid
• Sale of Hope
• Subject to condition that it will
come into existence
• If hope does not come true – No
recovery of Payment/No
Rescission
• Aleatory by nature, nonetheless
valid.
 Kinds of goods qualified to be the subject matter
• Existing goods – those owned or possessed by the seller
• Future goods – those to be manufactured, raised or acquired by the seller
after the perfection of the contract of sale
VOID SUBJECT MATTER
* Contrary to the law
* Simulated/Fictitious
* Outside the commerce of men
* Impossible service
* Intention cannot be ascertained
 Agency to sell vs. Contract of sale
• Agent not obliged to pay for price, merely • Buyer pays for the price of object
obliged to deliver price received from
buyer • Buyer becomes owner of thing
• Principal remains owner even if object • Seller warrants
delivered to him
• Not unilaterally revocable
• Agent assumes no risk/liability as long as
within authority given • Seller receives profit
• May be revoked unilaterally because • Real Contract
fiduciary & even w/o ground
• Agent not allowed to profit
• Personal contract
 Barter vs. Sales
• Look upon the intention • Look upon the intention
• The consideration is the giving of • It is giving of money as payment
a thing • If the intention is not clear - value
• If the intention is not clear - value of thing is equal or less than
of thing is more than amount of amount of money
money
 Requisites for a valid price
• The price must be in money or its equivalent
• It must be certain or ascertainable
• It must be real – not simulated
 When is the price certain?
• The parties have fixed or agreed upon a definite amount
• It’s be certain with reference to another thing certain
• The determination of the price is left to the judgment of a specified person
or persons
 Sale by auction is perfected
It is perfected when the auctioneer announces its perfection by the fall of the
hammer, or in other customary manner . Until such announcement is made,
any bidder may retract his bid; and the auctioneer may withdraw the goods
from the sale unless the auction has been announced to be without reserve.
 Contract to sell vs. Contract of sale
• Governed by genus SALE • Governed by genus SALE
• Ownership passes upon full • Ownership passes because of
payment tradition
• Non payment is suspensive • Non-payment is resolutory
non-payment extinguishes condition which may be basis of
contract to sell breach
• Perfection gives rise to reciprocal • Perfection gives rise to reciprocal
conditional obligation demandable obligation
 OPTION CONTRACT VS. RIGHT OF FIRST REFUSAL

• Principal contract; stands on its • Accessory; can not stand on its

own own
• Needs separate consideration • Does not need separate
• Subject matter & price must be consideration
valid • There must be subject matter but
• Not conditional price not important

• Not subject to specific • Conditional

performance • Subject to specific performance
 Sale by sample and description
• In the contract of sale of goods by description or by sample, the contract
may be rescinded if the bulk of the goods delivered do not corresponds
with the description or the sample;
• If the contract by sample or description, is not sufficient that the bulk of
goods correspond with the sample if they do not also correspond with the
description;
• The buyer should have a reasonable opportunity of comparing .bulk with
the description or sample.
 Earnest Money vs. Option Money
• Partial payment of the purchase • Not part of the purchase price
price • Proof of the perfection of the
• Considered as proof of the option contract
perfection of the sale • Not deductible
• Deductible on the purchase price • Specific performance only
incase the contract of sale is
consummated
• Injured party may file action for
specific performance or rescission
 Expropriation

 the taking away or depriving of property or proprietary rights. The term

formerly applied to any compulsory deprivation of property, particularly by
a public agency, but now pertains primarily to government takings where
compensation is rendered, as in exercising the right of eminent domain. It is
distinguished from confiscation by the fact that compensation is paid to the
private owner.
CHAPTER 2
Capacity to buy or sell
 Who may enter into a contract of sale?

1. General Rule – All persons, whether natural or juridical, who are

authorized by the Civil Code to oblige themselves may enter into a contract
of sale.
2. Exceptions:
a. Absolute incapacity – It exists in the case of persons who cannot bind
themselves.
b. Relative incapacity – It exists only with reference to certain persons or a
certain class of persons, and they are those mentioned in Articles 1490-1491
 Who may enter into a contract of sale?

3. Minors and other incapacitated persons – They may validly enter into a
contract of sale on necessaries and the price payable in such case shall be
the reasonable price
 Who are the persons specially disqualified to
buy?
1. The husband and wife cannot sell property to each other, except:
a. When separation of property was agreed upon in the marriage settlement,
b. When there has been a judicial separations of property

2. Persons who, because of their position and relation with the person under their
control, are prohibited from acquiring said property, either directly or indirectly
and whether in private or public sale, namely:

(a) Guardians (b) Agents (c) Executors and Administrators

(d) Public Officers and Employees
(e) Judicial Officers and employees and lawyers
(f) Others especially disqualified by law
 Who are the persons specially disqualified to
buy?
3. The seller in an auction sale may not bid unless notice is given reserving
such right (Art. 1476)
4. An unpaid seller cannot buy, directly or indirectly, the goods sold by him,
incase of resale (Art. 1533)
* The prohibitions under no. 1 & 2 are applicable to sales by virtue of legal
redemption (see Chap. 7, Sec. 2), compromises (amicable settlement of a
controversy and renunciations like gratuitous condonation by the creditor of
his right) – see Obligations, Chap. 4, Sec. 3; Art. 1492
 Related terminologies

1. Necessaries – things which are needed for sustenance, dwelling, clothing

and medical attendance, in keeping with the financial capacity of the family
of the incapacitated person.
2. Compromise – a contract whereby the parties, by reciprocal concessions,
avoid a litigation or put an end to one already commenced.
 CHAPTER 3
Effects of the contract when the thing sold has been lost
 Rules regarding risk of loss
Effect of the complete loss of the object of the contract of sale before the
perfection of the contract or at the moment of perfection of contract of
sale
> The contract of sale is null and void for absence of essential element of
subject matter.
Remedies of the buyer in case of the partial loss of the object of the
contract of sale at the time of the perfection of the contract of sale
> Withdrawal from the contract or rescission.
> Demanding the remaining part and paying its proportionate price.
 Rules regarding risk of loss
Party who shall bear the risk of the complete loss of the object of the
contract of sale after perfection of contract of sale but before delivery of
the subject matter
> Buyer on the basis of Provision of the Civil Code – exception to the rule of
“Res Perit Domino” that means the owner bears the loss
Effects of the complete loss of the object of the contract of sale after
perfection of contract of sale and after delivery of the subject matter
> The buyer shall suffer the risk of loss. Also, buyer must pay the price.
 Rules regarding risk of loss
If actual delivery has been delayed through the fault of either the buyer or
the seller, the goods are at the risk of the party at fault.
CHAPTER 4
Obligation of the vendor
 Obligation of the Vendor/Seller
• To transfer the ownership of the thing sold at the time the subject matter should be
delivered.
• To deliver the determinate thing sold including the accessions and accessories in the
condition in which they were upon the perfection of the contract.
• To warrant the thing sold against eviction, hidden defects and non-apparent and
unregistered encumbrances.
• 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.
• To pay for the expenses of the deed of sale, unless there is a stipulation to the
contrary (Art. 1487)
 DELIVERY OF THE THING

• Transfer ownership (tradicion) – twin obligation:  

• transfer title(ownership) – SELLER must be owner of
thing at the time of consummation to validly transfer
title
• delivery of the thing
 Different kinds of delivery

• Actual - when thing sold is placed in the control & possession of the buyer

• Constructive delivery
 DIFFERENT FORMS OF CONSTRUCTIVE DELIVERY

• Traditio Longa Manu - Delivery of thing by mere agreement; when

SELLER points to the property without need of actually delivering
• Traditio Brevi Manu - Before contract of sale, the buyer was already in
possession of the subject matter of sale (From Tenant to Owner)
• Symbolic delivery - As to movables (Delivery of the keys to a car)
• Constitutum possessarium - at the time of perfection of contract, seller
continues to hold possession merely as a holder (From Owner to Tenant)
 DIFFERENT FORMS OF CONSTRUCTIVE DELIVERY

• Legal formalities – When the same is made through a public document,

the execution thereof shall be equivalent to the delivery of the thing sold.
It applies to both movable and immovable property.
• Constructive deliveries of intangible assets or incorporeal rights
• By constructive traditio such as execution of public document
• By placing the titles of ownership in the possession of the vendee such as delivering the
stock certificate covering the shares of stock sold.
• Through the use by the vendee of his rights with consent of the vendor such as when the
seller authorizes the buyer of shares of stock to vote during the stockholder’s meeting.
 Sale or return vs. Sale on trial or approval
• Sale subject to a resolutory
condition
• Depends entirely on the will of the
buyer
• Ownership of the goods passes to
the buyer on delivery and
subsequent return of the goods
revert ownership in the seller
• Risk of loss or injury rests upon
the buyer
• Subject to a suspensive condition
• Depends on the character or
quality of the goods
• Ownership remains in the seller
until the buyer signifies his
approval or acceptance to the
seller
• Risk remains with the seller
 Document of title to goods
Is 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 such document. Example documents are Bill of Lading, Dock Warrant,
Warehouse Receipts
 Classes of documents of title
1. Negotiable document of titles – Those by the term of which the bailee
undertakes to deliver the goods to the bearer and those by the terms of
which the bailee undertakes to deliver the goods to the order of a
specified person ( Art. 1508)
2. Non-negotiable documents of titles – Those by the terms of which the
goods covered are deliverable to a specific person
Warranties of one who negotiates or transfer a document of title
Unless a contrary intention appears, they are:
1. That the document is genuine
2. That he/she has the legal right to negotiate or transfer it
3. That he/she has knowledge of no fact which would impair the validity or
worth of the document
4. That he/she has the right to transfer the title of 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 of the goods represented thereby (Art. 1516)
  
Places wherein the things sold should be delivered
• Place stipulated in the contract.
• In case there is no stipulation, place fixed by usage or trade.
• In the absence of a and b, the seller’s place of business if he has
one; if none, the seller’s place of residence.
• In the case of specific goods, the place where the goods are located
at the time of perfection of contract of sale.
Time for delivery of the subject matter of a contract of sale

• At the time agreed upon.

• In the absence of time agreed upon, within reasonable time from the
execution of the contract.
 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 instruments
as conditional payment and the condition under which it was
received has been broken by reason of the dishonor of the
instrument (Art. 1525)
• It includes an agent of the seller to whom the bill of lading has been
indorsed, or a consignor or agent who has himself paid, or is
directly responsible for the price, or any other person who is in the
position of a seller
 Rights of unpaid seller
a. Right to possessory lien on the goods or right to retain them while he is in
possession of them
i. Grounds for right of possessory lien
> Where the goods have been sold without any stipulation as to credit.
> Where the goods have been sold on credit, but the credit term has
expired.
> Where the buyer is insolvent.
ii. Instances when right of possessory lien is no longer available to the
unpaid seller
 Rights of unpaid seller
a. Right to possessory lien on the goods or right to retain them while he is in
possession of them
ii. Instances when right of possessory lien is no longer available to the unpaid seller
> When the seller 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.
> When the buyer or his agent lawfully obtains possession of the goods.
> By waiver of the possessory lien.
iii. Note: When the unpaid seller obtains judgment or decree for the price of the goods,
he does not lose his possessory lien or his right to retain them while he is in possession
of them.
 Rights of unpaid seller
b. Right of stoppage in transit refers to the right of the unpaid seller to resume possession of the goods at
any time while they are in transit, and he will them become entitled to the goods as he would have had if he
had never parted with the possession.
i. Ground for right of stoppage in transit – Where the buyer is insolvent
ii. Manners of exercising the right of stoppage in transit
> By obtaining actual possession of the goods; or
> By giving notice of his claim to the carrier or other bailee in whose possession the goods are
iii. Effects of the exercise of right of stoppage in transit
> The goods are no longer in transit.
> The contract of carriage ceases and the carrier shall be liable as depositary or other bailee.
> The carrier must deliver the goods to or according to the instructions of the seller.
 Rights of unpaid seller
b. Right of stoppage in transit refers to the right of the unpaid seller to resume possession of the goods at
any time while they are in transit, and he will them become entitled to the goods as he would have had if he
had never parted with the possession.
iv. Instances when goods are still in transit
>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.
> 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 receive them back.
v. Instances when goods are no longer in transit
> If the buyer obtains delivery of the goods before arrival at the appointed destination.
> 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.
> If the carrier or other bailee wrongfully refuses to deliver the goods to buyer or his agent.
 Rights of unpaid seller
c. Right of resale
i. Grounds for right of resale
1. The goods are of perishable nature. 
2. The seller has expressly reserved the right to resell the goods in case the buyer should
make default.
3. The buyer has been in default for an unreasonable time.
Note: It is not essential to the validity of resale that notice of an intention to resell the
goods be given by the seller to the original buyer. But if the ground of sale is the buyer has
been in default for an unreasonable time, then, giving notice of intention to original buyer
becomes relevant to determine the unreasonableness of the default.
 Rights of unpaid seller
c. Right of resale
ii. Public sale
> Public sale; or
> Private sale
iii. Effects of Resale
> The seller shall not be liable to the original buyer for the delivery of the goods.
> The seller may recover damages from the original buyer for any loss occasioned
by the breach of the contract of sale.
> The new buyer acquires a good title against the original buyer.
iii. Note: The unpaid seller is prohibited from participating as a bidder, directly or
indirectly, in the public sale or private sale of the goods.
 Rights of unpaid seller
d. Right to rescind the sale
Grounds for right to rescind the sale
> The seller has expressly reserved the right to rescind the sale in case the buyer should
make default.
> The buyer has been in default in the payment of the price for an unreasonable time.
Effects of rescission of sale
>The seller shall not be liable to the buyer upon the contract of sale.
  >The seller may recover from the buyer damages for any loss occasioned by the breach
of contract of sale.
> The seller resumes ownership of the goods.
STOP !!