UNIVERSITY OF THE CORDILLERAS

College of Law

EMERGENCY NOTES IN SALES

Coverage: Article 1458 to Article 1637, Civil Code of the Philippines

What is a Sale?

- An agreement by which the vendor obligates himself to transfer the ownership of

and to deliver a determinate thing to the vendee, who pays the price therefor in an
amount certain in money or its equivalent.

Parties to a Sale

1. Vendor or Seller;
2. Vendee or Buyer.

Characteristics:

1. Consensual – perfected by consent

2. Bilateral – both parties bound to each other
3. Onerous – obligation imposed with a burden
4. Commutative – generally price is equivalent to value of the object
5. Principal – may exist on its own

Elements:

CONSENT, OBJECT, CONSIDERATION

1. Vendor obligated to transfer ownership over a thing to the vendee;

2. Vendor obligated to deliver the thing to the vendee;
3. Thing must be determinate;
4. Vendee obligated to pay the price therefor;
5. Price must be an amount certain in money or its equivalent.

Consideration to a sale:

1. As to the vendee – promise of vendor to deliver the thing sold

2. As to the vendor – payment of the purchase price

o “PRICE” – the cost at which something is obtained in exchange for something

else.
 May be paid in MONEY or its EQUIVALENT (cheque, promissory note
  EXCLUDES goods, merchandise or service

- If goods or merchandise are used to pay:

o BARTER – exchange of goods for other goods or services.

 SALE vs BARTER, in re: consideration consists partly of money and

partly of a thing

 The MANIFEST INTENTION of the parties will be considered.

 If the intention is not apparent:

o Focus on the consideration.

 If the thing is more valuable, the transaction is a

barter
 If the money is more valuable, the transaction is
a sale
 If of equal value, the transaction should be
considered a SALE.

 Rationale – in sale, ownership is not necessary. In barter,

ownership is necessary.

Kinds of Sale

1. Absolute
2. Conditional

Requisites of a Valid Sale

1. Thing must be licit;

o If a thing is ILLICIT:

 May be illicit per se

 May be illicit per accidens

2. Vendor must have the right to transfer the ownership at the time of delivery.
o Ownership is not a requisite
What may be sold?

1. Existing things;
2. Things capable of existing;
3. Future goods (goods to be manufactured, raised or acquired by seller);
4. Hope or expectancy, with the condition that the thing will come into existence;
5. Undivided portion of a whole, even if the whole is owned by one person.

Types of Goods

1. Fungible goods;
2. Non-fungible goods;
3. Consumable goods;
4. Non-consumable;
5. Tangible goods;
6. Intangible goods;
7. Divisible goods;
8. Indivisible goods.

Price of Goods; Elements:

1. Must be agreed to by the parties (even if fixed by one party, for as long as accepted
by the other, sale is valid);

2. Must be reasonably commensurate to the value of the thing;

o INADEQUACY of PRICE

 Does not ipso facto render the sale defective

 Sale is defective if there is a sign of lesion or vitiated consent

o SIMULATED PRICE

 Relative simulation
 Sale is void; donation is valid

o NO PRICE

 Transaction is a donation

o PRICE CANNOT BE FIXED BY ONE OF THE PARTIES

 Must be negotiated upon

 If price is fixed and accepted by vendee
o SALE VALID
Perfection of the Contract of Sale

- The contract of sale is perfected at the moment there is a meeting of the minds
upon:

1. The thing subject of the sale; and

2. The price of the thing.

Effect of Perfection of the Contract of Sale

- The parties may demand reciprocal performance of their respective obligations to

deliver the thing and make payment therefor.

“OFFER” – an invitation given by one person to another for them to enter into a sale
concerning a particular thing

- For there to be a perfected sale, the offer must be validly given by the offerer and
accepted by the offeree.
- The buyer and seller may each be an offerer and an offeree.
- Acceptance must be absolute
- Giving a QUALIFIED ACCEPTANCE (COUNTER-OFFER) is not acceptance of the sale;
this is another offer by the offeree to the offerer who must accept the same in order
for the sale to be perfected.
- For the sale to be perfected, the acceptance of the offer must be communicated to
the offerer.

o Acceptance may be EXPRESS or IMPLIED

 EXPRESS – by direct overt act (letter, communication, etc.)

 In case of an acceptance by letter, acceptance is not deemed

communicated until the acceptance comes into the knowledge
of the offerer (the offerer may be informed of the fact of
acceptance and that the document containing the acceptance is
in the mail.)

 IMPLIED – by omission or by acquiescence.

- The OFFER may be withdrawn

o Only before the offer is accepted;

o Even when already accepted, the acceptance does not reach the offerer. (in
case of letters)
ADVERTISEMENTS

- not offers to buy

- merely invitations to make an offer to sell or to buy

“OPTION” – a choice given by the seller to the buyer wherein the buyer will decide
whether or not to buy the property

OPTION MONEY

- Option Money is given by the buyer to the seller for the latter to allow the buyer to
decide within a certain period whether or not he will buy the property.
- The agreement is called an OPTION CONTRACT
- For the duration of the OPTION CONTRACT, the seller cannot offer the property for
sale to other persons.
- In the event the seller offers the property to other persons, he is in breach of the
OPTION CONTRACT, not the sale because there is yet no perfected sale.
- The option money does not form part of the purchase price and pertains exclusively
to the seller.

EARNEST MONEY

- Earnest money is given by the buyer to the seller for the latter to close the sale in
favor of the buyer.
- The seller will no longer offer the property for sale to third persons
- The sale is already perfected.
- The earnest money will form part of the purchase price once the sale is carried out.
- The period for payment of the purchase price must be agreed upon.
o If the buyer fails to pay the full price, the seller may now offer the property to
other persons.
o The earnest money must be returned to the buyer unless there is a contrary
agreement.

When is Ownership Transferred to the Vendee?

- Ownership is transferred to the vendee upon delivery of the thing

- Or there is a stipulation reserving ownership until full payment

Kinds of Delivery (Tradition)

1. Actual or Real;
2. Legal or Constructive;
a. Symbolic (e.g. delivery of keys)
 b. Traditio Longa Manu (when movable sold cannot yet be delivered to the
possession of the buyer; “pointing” to the thing sold)
c. Traditio Brevi Manu (when movable sold is already in the possession of the
buyer at the time of delivery)
d. Traditio Constitutum Possessorium (change of ownership but former owner
retains possession as lessee)

3. Delivery on sale or return; (Art. 1502. When goods are delivered to the buyer "on
sale or return"to give the buyer an option to return the goods instead of paying the
price, the ownership passes to the buyer of delivery, but he may revest the
ownership in the seller by returning or tendering the goods within the time fixed in
the contract, or, if no time has been fixed, within a reasonable time.)

4. Delivery on Approval or on Trial; (When goods are delivered to the buyer on

approval or on trial or on satisfaction, or other similar terms, the ownership therein
passes to the buyer:

(1) When he signifies his approval or acceptance to the seller or does

any other act adopting the transaction;

(2) If he does not signify his approval or acceptance to the seller, but
retains the goods without giving notice of rejection, then if a time has been
fixed for the return of the goods, on the expiration of such time, and, if no
time has been fixed, on the expiration of a reasonable time. What is a
reasonable time is a question of fact.

Who May Be Parties to a Sale?

- All persons who may be parties to a contract may be parties to a sale

1. Must be of legal age;

2. Must be of sound mind;
3. Must not be afflicted by civil interdiction;
4. Must be a Filipino citizen (in certain contracts of sale, such as sale of real
property)

Who are Prohibited from Buying Property?

1. Husband and Wife, to each other, unless:

a. Property Regime is Complete Separation;

b. Judicial Separation of Property is decreed by the Court.

2. Guardians, with regard to property owned by the ward;

 3. Agents, with regard to the property being entrusted to them, unless with the
consent of the principal;

4. Executors and Administrators, with regard to the property of the estate being
administered by them;

5. Public Officers and Employees, with regard to government property being entrusted
to them;

6. All others specially disqualified by law (E.g. Business owners cannot sell their
properties if creditors will be defrauded; no one may sell properties in fraud of their
creditors, etc.)

Loss of the Thing; Effects:

1. If the thing is completely lost before the sale is perfected, there is no effect. There is
no contract of sale as of yet.
2. If the thing is completely lost at the time the sale is perfected, the contract shall not
have any effect;
3. If the thing is lost in part only, the vendee may choose to:
a. Withdraw from the sale (as in indivisible goods); or
b. Demand the remaining part and pay the proportional price therefor.
4. In case of sale of specific goods:
a. If the goods were lost with the knowledge of the seller or would have
perished in part or has deteriorated in quality as to be substantially changed
in character: sale voided.
b. If the goods were lost without the knowledge of the seller, same as above: the
vendee may, at his option, treat the sale:
i. As voided; or
ii. Valid in all the existing goods or in those remaining, if the sale is
divisible.

PERFECTION OF THE CONTRACT OF SALE

- A contract of sale is perfected as soon as there is a meeting of the minds as to the

object and the price.

OBLIGATIONS OF THE VENDOR

1. To deliver the thing;

2. To transfer ownership of the thing;
3. To warrant the thing.
“To Deliver” – to place the CONTROL and POSSESSION of the thing in the hands of the
vendee.

WHAT TO DELIVER

1. The thing itself;

2. All accessories;
3. All accessions.
- All things to be delivered must be delivered in the condition they were in at the time
of perfection of the contract.
- All fruits pertain to the vendee after perfection of the contract.

KINDS OF FRUITS

1. Natural fruits;
2. Civil fruits;
3. Industrial fruits.

Risk of Loss:

- generally on the part of the seller until ownership is transferred to the buyer;
- in case the thing is by its nature, in need of insurance, the seller must communicate
the same to the buyer who must arrange for its insurance, otherwise the thing
remains at the risk of the seller.

Effect of sale by a seller who does not own the property

1. If authorized by owner – sale valid;

2. If not authorized by owner – sale valid but only to the extent of the right of the
seller; the buyer does not acquire a better title than that of the seller. (except when
the owner is estopped.)

Seller with a Voidable Title

- When title has not been avoided, buyer acquires good title to the goods, provided:

o Buyer purchases in good faith;

o Buyer purchases for value;
o Buyer has no notice of the seller’s defect of title.

SALE OF GOODS – DISCREPANCY IN QUANTITY

1. Goods delivered are less than what was agreed:

a. Buyer may reject and require the correct quantity;
 b. Buyer accepts knowing that seller will not deliver in full – buyer must pay the
contract price (estoppel)
c. Buyer accepts not knowing that seller will not deliver in full – buyer only
pays for the quantity received at a proportionally-reduced price.

2. Goods delivered are more than what was agreed:

a. Buyer may accept the goods and reject the rest;
b. Buyer may accept the entire quantity and pay a proportional increase (in re:
unjust enrichment)

3. Goods received are mixed with other goods:

a. Buyer may accept only the goods under contract and reject the rest; (in re:
#1)

4. If the thing is indivisible, the buyer may reject the entire quantity.

DELIVERY MADE VIA COURIER

- Art. 1523. Where, in pursuance of a contract of sale, the seller is authorized or

required to send the goods to the buyer, delivery of the goods to a carrier, whether
named by the buyer or not, for the purpose of transmission to the buyer is deemed
to be a delivery of the goods to the buyer.

- The seller must make the necessary arrangements with the courier with regard to
the nature of the things to be shipped, otherwise the buyer may reject delivery or
hold the seller liable for damages if the goods were damage or lost in the course of
transit.

- Exceptions:

1. If the seller reserves ownership of the goods until delivered to the buyer;
2. If the seller reserves ownership of the goods until the buyer has complied with a
condition;

WHEN DELIVERY MUST BE MADE

- The seller shall not be bound to deliver the thing if the contract price has not been
paid in full, or if no period of payment has been agreed to in the contract.

UNPAID SELLER, IN RE: PAYMENT OF PRICE IN ONE PAYMENT ONLY

- The whole of the price has not been paid or tendered;

 - Payment made by bill of exchange or other negotiable instrument and the same is
dishonoured.

NON-PAYMENT OF PURCHASE PRICE BY INSTALMENT

RECTO LAW

- Embodied in Article 1484 to Article 1486 of the Civil Code of the Philippines
- Covers non-payment of purchases of personal property payable in instalments

- Mechanics:

o Failure to pay two or more agreed instalments; remedies of the unpaid seller:
 Exact fulfilment of the obligation (demand for specific performance;
compel the buyer to pay by judicial action); OR
 Cancellation of the sale by an action for rescission; OR
 Foreclose the chattel mortgage, if any was constituted.

o Remedies are ALTERNATIVE, not cumulative. Availment of one remedy

forfeits other remedies.

MACEDA LAW

- Embodied in Republic Act No. 6552

- Applies to sales of real property payable in instalments
- Does not apply to sales of industrial lots, commercial properties and lands under
agrarian reform

- Mechanics:

o Buyer paid less than TWO YEARS’ worth of instalments

 Grace period of not less than 60 days is granted by the seller

 If payment resumed within grace period, contract is resumed
 If no payment given within grace period, contract is cancelled.
 No entitlement to refund under law. Refund may be allowed by the
seller at his option and liberality.

o Buyer paid at least TWO YEARS’ worth of instalments

 Grace period of one month for every year of successful payment

 If payment resumed within grace period, contract is resumed
 If no payment given within grace period, contract is cancelled.
 Cash surrender value (a.k.a. “refund”)
 o 50% of total payments made with an additional 5% for
every year of successful payment for every five years of
successful payment, but not to exceed 90%

REMEDIES OF AN UNPAID SELLER

1. Lien on the goods for the amount owed by the buyer;

2. Right to retain goods in the equivalent amount owed by the buyer;
3. Right of stoppage in transitu;
4. Right of resale; (right is immediately available if the goods are perishable to
minimize losses on the part of the seller, who has the right to recover damages from
the non-paying buyer for breach of the contract.)
5. Right to rescind the sale;
6. Right to withhold delivery;
7. Right to retain possession until payment made (in re: warehouse receipt, bill of
lading, etc.)

SELLER’S LIEN

- Lien is not affected in case of sale or disposal by buyer of goods, unless the seller
assented to the sale or disposition.

STOPPAGE IN TRANSITU; HOW MADE

1. Taking physical possession of the goods while in transit;

2. Issuing notice to the carrier of the seller’s claim;
- Carrier shall be bound to deliver the goods at the place designated by the seller;
- If the goods are covered by a negotiable document of title, carrier may refuse
delivery to seller until said document is surrendered for cancellation.

RIGHT OF RESALE – NOTICE TO BUYER

1. Notice is not needed where goods are perishable;

2. Notice is required where goods are not perishable.
- Notice need not state the time, date or place of sale.
- Sale may be by public or private sale. Seller cannot buy the goods himself, whether
directly or indirectly.

WHEN SELLER RESUMES OWNERSHIP OF THE GOODS IN CASE OF NON-PAYMENT BY THE

BUYER

- Such resumption of ownership must be stipulated in the contract of sale, otherwise

seller cannot resume ownership.
WHEN GOODS ARE IN TRANSIT

1. From the time the goods are delivered to a carrier for transmission to the buyer
until the time the buyer or his agent takes delivery of the thing;
2. When goods are rejected by the buyer and the carrier retains possession.

WHEN GOODS ARE NO LONGER IN TRANSIT

1. When buyer or his agent takes delivery before the arrival of goods at the appointed
destination;
2. After arrival of the goods at the appointed destination, the buyer acknowledges that
the carrier holds the goods in behalf of the buyer;
3. If the carrier wrongfully refuses to deliver the goods to the buyer.

OBLIGATION TO DELIVER THE EXACT AMOUNT

- The seller shall deliver the exact amount purchased by the buyer.
- In case of a lesser quantity:
o If the reduction is more than 1/10 of the total, the buyer may choose:
 Reduction in price; or
 Rescission of sale.

SALE OF REAL PROPERTY

- If sale is made on the basis of a price per unit area, seller must deliver the exact
specified area;
- If sale is made on the basis of a price for the whole, seller must deliver the whole
even if the area be subsequently lesser or more than the stated area;
- If sale is made on the basis of boundaries, the seller must deliver all that is within
the boundaries;
- If the buyer would not have bought the property had he known of its lesser area, the
buyer may rescind the sale.

DOUBLE SALE

1. Personal property – the buyer who first takes possession of the thing in good faith
shall be the owner;

2. Real property – the buyer who first causes its registration in good faith shall be the
owner.
CONDITIONS AND WARRANTIES

1. Warranty against eviction – an assurance by the vendor that the vendee will not be
deprived of the whole or a part of the thing purchased.

2. Warranty against hidden defects – an assurance by the vendor that the thing sold is
fit for the purpose for which it was intended.

3. Warranty against encumbrance – an assurance by the vendor that the thing sold is
not encumbered or otherwise burdened by any obligation in favor of third parties.

OBLIGATIONS OF THE VENDEE

1. To accept delivery; and

2. To pay the price of the thing at the time and place stipulated on the contract.

Delivery by instalment

- Vendee not bound to accept delivery by instalment;

- Unless otherwise agreed.

Examination of the Thing Sold

- Where the vendee has not had any opportunity to inspect the thing sold, he may
withhold acceptance of the thing until he has reasonably examined if the thing is in
conformity with the terms of the contract.

When is Delivery Deemed Accepted?

1. When the buyer informs the seller that he has accepted them;

2. When, without informing the seller that he has accepted them, performs acts in
relation to the thing consistent with acts of an owner;

3. When he retains the thing after a lapse of reasonable time without informing the
seller that he has accepted the thing.

- When thing is rightfully rejected by the buyer, he has no obligation to return the
thing. The seller must make arrangements for its return, unless the contrary is
agreed.
- If the thing is wrongfully rejected by the buyer, he is deemed to have accepted
delivery.
Fear of Eviction – when payment may be made:

- When the vendee has been disturbed in his possession of the thing, he may require
the vendor to remove the disturbance before he makes payment.
- When the vendee has reasonable grounds to fear that he will be disturbed in
possession, he may suspend the payment of the price until the vendor has caused
the disturbance or danger to cease.
- A mere trespass does not justify the suspension of payment.

Warranty against Hidden Defects

- The buyer must not be reasonably capable of determining the defect

- Liability of the vendor depends on the knowledge, familiarity or background of the
buyer.
o If the buyer can reasonably determine a hidden defect, a subsequent
purchase of the thing will release the vendor from liability in case of hidden
defect.

Caveat Venditor – “Let the seller beware”

- Vendor is liable for hidden defects even if he does not know about the hidden defect

Caveat Emptor – “Let the buyer beware”

- Requires the buyer to be aware of the title of the seller; failure to be wary thereof
results in the buyer bearing the loss (e.g. stolen property)

BREACH OF WARRANTY; Remedies of the Buyer (ALL WITH DAMAGES)

1. Accion redhibitoria – action seeking withdrawal from the contract;

2. Accion quanti minors or estimatoria – action for a proportional reduction in price.

BREACH OF CONTRACT OF SALE OF GOODS

Principle: when delivery has been made to the buyer, he has the obligation to pay for the
goods.

Remedies:

1. When delivery has been made and accepted and buyer wrongfully neglects or
refuses to make payment, the seller may sue the buyer for collection of payment.

2. When it has been agreed that payment is to be made on a certain date regardless of
the time of delivery, non-payment on that date entitles the seller to sue for
collection, notwithstanding that ownership has not yet passed to the buyer.
 3. Where the buyer wrongfully refuses to accept the goods, seller may sue for damages
for non-acceptance.

4. Where the seller wrongfully neglects or refuses to make delivery, the buyer may sue
for specific performance of the obligation to make delivery.

5. Where there is breach of warranty by the seller:

a. Accept the goods and demand recoupment or extinction of the price

(proportional reduction of price)
b. Accept the goods and sue the seller for breach of warranty (goods may be
retained because the buyer is the owner of the goods)
c. Refuse the goods and sue the seller for breach of warranty (buyer may
demand delivery of another thing with damages, or demand return of the
price paid with damages)
d. Rescind the sale and make mutual restitution

- For the seller to be liable for breach of warranty, the buyer must not be aware of any
defect, eviction or encumbrance.

EXTINGUISHMENT OF SALE

1. Loss of the thing;

2. Rescission of the sale;
3. Breach of contract of sale;
4. Conventional redemption;
5. Legal redemption.

Conventional Redemption – sale with right to repurchase

- Pacto de retro
- Lasts for 4 years, may be extended but not to exceed 10 years

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.

- “RIGHT OF REDEMPTION” – right to purchase the property from the grantee at a

reasonable price.
- “RIGHT OF PRE-EMPTION” – right to make a first offer to purchase the property
before sale to a third person.

- “RIGHT OF FIRST REFUSAL” – right to be offered the property for sale before
offering the same to a third person.

1. Co-owner – may redeem the shares sold to a third person.

2. Owners of adjoining lands – may redeem the property sold to another person if the
property does not exceed ONE HECTARE, unless the grantee does not own any rural
land.
a. Concerns only RURAL LAND;
b. If two or more adjoining lot owners claim redemption, the one with the
smallest area of land shall be preferred OR if of the same area, the one who
requests redemption first shall be preferred.
c. Not applicable in case of co-ownership of the property.

3. Owners of adjoining properties of URBAN LAND – if the area is so small and so

situated that it serves no other practical purpose, the adjoining owner has the right
of pre-emption to the sale.
a. If already sold, adjoining owner shall have the right of redemption.
b. In case of two or more adjoining owners, the one with the best use justifiable
shall be preferred.
c. Not applicable in case of co-ownership of the property.