Sales Reviewer

The Fraternal Order of UTOPIA
Ateneo de Manila University

School of Law
Est. 1964
CHAPTER I
INTRODUCTION
I. Definition of Sales
BUYER 2.) Subject Matter a) transfer ownership
SALE 1.) Meeting of the Minds b) delivery
SELLER 3.) Price c) pay
*It may be absolute or conditional.
Note: The condition should only refer to the obligation to pay the price and NOT:
a. The obligation concerning the subject matter (a&b above)—which is the essence
of a K of sale. (Gaite)
b. The whole contract—in which the case it is K to sell (Villanueva believes that a K
to sell and the K of sale are of the same genus and both covered by Art. 1458.
However, recent rulings in the SC hold that they are different.)
Genius of Villanueva: Gaite gave 2 parameters in order for a condition in K of sale to be

valid:
a. The condition must go into the payment of the price, and NOT the subject matter
because you will be put as under the essence of K of sale.
b. The only time it can exist is when it is clearly stipulated.
II. Elements
1. Consent or meeting of the minds (to transfer of ownership in exchange for price)
2. Determinate subject matter
3. Price certain in money or its equivalent (Coronel)
III. Stages
1. Negotiation
2. Perfection
3. Consummation
Note: Technically, only 2 and 3 are the only lives of a K, since in negotiation there is no K
yet.
IV. Nature of the Contract Created
1. Buyer “to give”

 Price
2. Seller “to give”
 Deliver
 Transfer ownership
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Note: It is important to know that a sale is the obligation to give because being such, a
breach of it can have the remedy of (a) specific performance and (b) rescission. An
obligation “to do” cannot be subject to specific performance, ONLY rescission. Because
specific performance in “to do” may amount to involuntary servitude, which is prohibited in
the Constitution.
V. Characteristics of a K of Sale (it is enough that these characteristics exist at

perfection)
1. Nominate and Principal

 Nominate means it has a particular name by law and governed by specific
provision (Title on Sale)
 Title given to a K is not significant; rather it’s the substance which is.
 Although a K of sale may be attached to another K, the test of being a
principal is whether it can stand on its own and does not depend on another K
for its validity or existence.
2. Consensual
 This is a very important characteristic. Every K has two lives, perfection and
consummation. What perfects a K of sale is mere consent or meeting of the
minds. Performance (e.g. paying the price or delivering the subject matter)
goes into the consummation and is totally irrelevant to perfection.
 As distinguished from:
1. Solemn K – which requires not only consent, but also a particular
form of the K
2. Real K – which requires not only consent, but also delivery
 Upon the perfection of a K of sale, only the 3 obligations (2 for buyer and 1
for the seller) begin to exist. It doesn’t matter if there is no payment made
yet nor transfer of ownership by delivery, nor ownership itself of the subject
matter.
 Being consensual, he who alleges the existence must prove it by competent
evidence, as well as essential element thereof.
3. Bilateral
 As distinguished from unilateral, both parties here are obligated. (Seller:
transfer and deliver; Buyer: pay)
 The importance of this is that the power to rescind un a K of sale is implied
and need not be stipulated in the K.
4. Onerous
 Means that the consideration given is a valuable consideration (as
distinguished from donation where the obligation is gratuitous)
 Test of being onerous: It is objective. Any consideration in the normal
commercial transaction, supports and transaction. In other words, valuable
consideration is one which, from the objective point of view, on its own has
rent values.
5. Commutative
 As distinguished from aleatory, it means that equal value is exchanged for
equal value.
 It refers to consideration as compared to the subject matter, in contrast to
onerous which refers only to consideration.
 Commutativeness is a subjective test. But it must not go into absurdity,
otherwise even if you feel that it is commutative, the substance of the K may
say otherwise. Inadequacy of the price may show vice in consent, in which
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the said sale may be annulled, but such annulment is not for inadequacy of
price, but rather for vitiated consent. Art. 14.
6. Title and Mode

 Title – legal basis by which to affect dominion or ownership
 Mode – legal means by which dominion or ownership is created, transferred,
destroyed, or modified.
 Sale, by its creation, is just a title. It does not even touch dominion. Sale only
provides the legal justification in the future on the part of the buyer to be able
to claim ownership.
 Sale by itself does not transfer or affect ownership; the most a sale does is to
create the obligation to transfer ownership. It is tradition or delivery, as a
consequence of sale that actually transfers ownership.
VI. As Distinguished From
1. Donation
Sale Donation
Consideration Onerous—consideration is price Gratuitous—consideration is
which is valuable liberality
Type Consensual—perfected by mere Solemn—must comply with the
consent formalities by law for perfection
2. Barter
 One of the parties binds himself to give one thing in consideration of the
other’s promise to give another thing.
 Rules to determine whether it’s a K of sale or a barter:
i. It is a barter where the value of the thing given as part of
consideration exceeds the amount of money given or its equivalent.
ii. It is a sale, where the value of the thing given as part of the
consideration equals or is less than the amount of the money given.
 For practical legal purposes, the distinction between a sale or barter are
practically academic since aside from the two separate rules applicable to
barter (Arts. 1639-1640), as to all matter specifically provided for, barter
shall be governed by the provision on sales.
 Instance when knowing the differences is important:
i. Statute of Frauds does not apply to barter
ii. Right to legal redemption to an adjoining owner covers only “resale”
iii. Tax purpose
3. Contract for Piece of Work (POW)
Sale POW
Parties Buyer and seller Principal client and contractor
Subject Matter Service
Obligations a) to pay (buyer) a) to pay (principal)
b) to deliver possession (seller) b) to perform service
c) to transfer ownership (seller) (contractor)
Kind of Obligation To give To do
Breach Can be subject to specific Cannot be subject to specific
performance performance
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 How will you differentiate a sale from a K of POW? (Here you will see the genius of
Villanueva, makes you proud to be a brother…EXCELLENCE)
i. Art. 1467 gives us two sets of distinction:
 Habituality test – manufacturing in ordinary course of
business makes it a sale. When the manufacturer engages in
the same activity in the ordinary course of business and does
not need to apply extra ordinary skills and equipment that
would classify the underlying transaction as a K of sale.
 Timing test – manufacturing upon special order of customers
makes it a K of POW.
ii. In Celestino, the habituality test was upheld. BUT the SC interpreted that
the test in 1467 is not one of timing or habit but a nature of work to be
performed test. It must be of the nature that the products are not
ordinary products of the manufacturer, and they would require the use of
extraordinary skills or equipment to make it a K of POW.
iii. In EEL, the SC held that the habituality test is not controlling. The business
of EEI was a staple undertaking, one that was considered ordinary and
usual in their operations, and yet what they did was a POW. Then they held
that the timing test in 1467 is actually a nature of the object test,
meaning could the company manufacture the product in mass, would it
make business sense to do so.
iv. In CIR, Tolentino talked about the intent test (more important test). If the
parties intend that an object will be delivered without considering the work
or labor of the part bound, it is a sale. But if the basis is the work that will
be employed, it is a POW.
v. With all the tests enumerated, what should be used?
vi. The habituality and timing tests seem to have been abandoned. What is
controlling then is the nature of the object test and the intent test. Both
must be applied.
vii. HOWEVER, what if a seller offers 10,000 inclined erasers to a buyer who
buys them because of the seller’s reputation, and upon agreement, the
seller reaches under the table and offer the erasers, would that be a sale or
a POW? (The tests seems to answer that it is the POW, because it does not
make business sense to manufacture 10,000 erasers and obviously the
intent here is for the seller’s skills.)
viii. Genius: The answer is a Sale. Why? Because a breach of a K of POW looks
at the service, obviously, you cannot pay for service which has already been
done as in this case. So that means that we are back to the timing test in
1467 (only if it is manufactured upon special order, will it become a POW).
We have come into a full circle.
4. Agency to Sell
Sale Agency to Sell

Buyer himself pays for the object’s price. The agent is not obliged to pay the price,
merely to deliver the price received from the
buyer.
Seller warrants No personal liability as long as acting within
his authority and the name of the principal
(however, an agent may bind himself to the
warranties of the seller).
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Not unilaterally irrevocable. Essentially revocable even in the presence of

an irrevocability clause.
Profits belong to the seller. Any profit received must pertain to the
principal, the agent disqualified from
receiving personal profits.
Must comply with the Statute of Frauds to be Valid and enforceable in whatever from it
enforceable. may be entered into.
Nothing that is not written within the 4 Agent must always follow the principal.
corners of the K can bind the parties or can
be the basis for damages.
Essence: Transfer of title, and such transfer Essence: delivery into an agent is not as his
puts the transferee in the attitude or position property, but as property of the principal
of an owner and makes him liable to the who remains the owner and has the right to
transferor as debtor for the agreed price. control the sale and the proceeds.
Characteristics of an Agency
1. Prepatory – meaning it is entered into in order to achieve other ends and other
relationships
a. Types of Prepatory Ks
1. Agency to sell and agency to buy – give rise to a K of sale
2. Distributorship agreement or an agreement to enter into a series of
Ks of sale – in this case, there is no price yet so it is NOT a K of sale
2. Involves a personal obligation – therefore, it is not subject to specific
performance (like distributorship agreement)
3. Fiduciary – based on confidence and trust, so it is not transmissible. (Death
extinguishes the K, except in agency coupled with an interest.)
4. Revocable – because of its fiduciary nature. Any attempt to make it irrevocable is
void. Except in an agency coupled with an interest (when an agency is constituted as
part of the mechanism for mortgage).
Principal in a K of Agency
 These are “essential clauses” contemplated by law, such as if these are present the
name of the K is not controlling.
 The acts of the agent bind the principal, the agent acts beyond his commission.
 Agent has no legal basis to receive anything on his own. Everything an agent
receives must be accounted for and returned to the principal. Agent is never liable
for the price.
 An agent cannot two principals, for this would violate the agency relationship.
 Genius: To determine whether it is a sale or one of agency, look at 2 things: delivery
and transfer of ownership. If these are made to be assumed in whole or in part by
the agent, meaning if he bears the risk with regard to it, he cannot be an agent. An
agent is never liable in whole or in part of the subject matter.
 The price of any stipulation makes the price the liability of the supposed agent or
makes him exposed to the risk of the price (e.g. an increase), then he could not
have been an agent since an agent is not liable for any portion of the price.
5. Dacion en Pago
 A genus of sale and is governed by the law on sales.
 Shows us that a sale is both perfected and consummated. Dacion en pago
represents a perfected and consummated contract of sale.
 Differences
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Sale Dacion en pago

Principal Accessory
Consensual Real
Title Mode
6. Lease
Sale Lease
Dominion is absolutely disposed by the seller Temporary disposition in favor of the lessee
in favor of the buyer upon the payment of with the payment of rentals, but after the
the price. period of lease, the things revert back to the
owner.
CHAPTER II
PARTIES TO A CONTRACT OF SALE
General Rule: Any person who is authorized under the law to oblige himself, may enter
into a contract of sale.
Exceptions:
1. Minors and incapacitated persons
 They do not have capacity to obligate themselves
 Effect of sale: Voidable
 Consequences:
o Capacitated person cannot seek annulment on the basis of the other
party’s incapacity
o The incapacitated person, when properly represented is one who has
legal standing to annul the contract.
 Remedies for a voidable contract:
o Specific performance
o Ratification
o Rescission – can be availed of by both parties; but minors need only to
restitute up to the extent he has been benefited
 Exceptions: necessaries (everything that is indispensable for sustenance and
refers only to things)
 To be a valid contract, it is required that:
o The K was perfected
o There was delivery of the necessaries
o The minor must be the buyer
o Social standing must be considered
2. Sale by Married Couple
 Sale to third party
 Void if done without the consent of the other spouse.
 Sale between spouses
o Void (this applies even in legal redemption, compromises and
renunciation)
o Exception
 When a separation of property was agreed upon in marriage
settlement
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 When there has been a judicial separation of property agreed

upon between them
o Rational
 To prevent defraudation of creditors by transferring property to
another spouse.
 So dominant spouse won’t take advantage of the weaker
spouse.
 Avoid an indirect violation of the prohibition against donation
between spouse.
Note: This also applies between common law spouses.
3. Relative incapacity mandated by law. (This applies even to sale on legal
redemption, compromises and renunciation because what you can’t do directly, you
cannot do directly.)
 Applies to:
o Guardian with respect to the property of the ward
o Agents with respect to the property under his administration (unless
consented)
o Administrator and executor with respect to the property of the estate
o Public officer or employees with respect to the property of the state
o Public officer or employees with respect to property rights under
litigation
o Lawyers with respect to the property of his client who is the subject of
litigation
 Effect of sale: Void because it is against against public policy (Rubias)
 The first 3 cases are ratifiable and the ;last 3 are non-ratifiable
o Ratifiable – by entering into a new K after relationship is ended;
allowed because after the relationship is ended, the remaining evil is a
private one.
o Non-ratifiable – even if prohibited relationship is not there, they
cannot be allowed to agree into a new K because there is still public
interest involving the sale reflecting the public institution itself.
 Philtrust doctrine:
o When a property is sold to a third person and it goes back to the
person prohibited, that transaction is presumed void. But you can
show proof that there was no collusion, making the sale valid. (Lapse
of time is material but not conclusive.)
o Even if the courts allow the sale which is prohibited, it is still void.
o Even if the sale is beneficial to the other party, it is still void because
what is considered is merely the relationship in the K not the existence
of fraud or advantage.
 Naval doctrine: Hereditary rights are vested entirely in the heirs upon the
death of the decedent. They are not among those covered under the
prohibition since with regard to administrators and executors, the property
must be property of the estate.
o Genius rebuttal of the Naval doctrine:
o Although they are vested directly on the heirs and not under the
estate, the value of these rights are inextricably necessary to the value
of the estate under the administration of the administrator. Therefore
if he squanders or destroys the value of the estate, he actually
destroys the value of the rights.
o Hereditary rights are never within the estate being administered
because these are right pertaining directly to the heir. But even if you
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are buying just the “right”, its like buying the property already. You
must not be allowed to do indirectly, what you can’t do directly. The
SC based its decision that a hereditary right is technically not property
itself.
 With regard to lawyer-client relationship, the requisites are:
o Lawyer-client relationship
o Object is property under litigation
o Any kind of litigation whether adversarial or not
o Does not necessarily mean actual litigation
o During the pendency of the case
o This also applies to the case of judges
o The period is from the filing of the complaint until there is absolutely
no judicial proceeding of whatever nature pending with respect to the
property. Even if it is final, executory and unappealable but there is
something pending before the courts even a motion for execution, the
period has not ended.
 Note: Contingency fee arrangements (always subject to the supervision of the
courts):
o Payment based on a certain percentage of the property in litigation—
valid. No property is being assigned here.
o Payment is a portion of the value of the properties—valid. Held to be
so by the SC because the greater good it advances is greater than the
public policy sought to be protected by Art. 1491. This contingency
arrangement is in the nature of a dacion en pago, and is therefore
under the law on sales.
CHAPTER III
SUBJECT MATTER OF THE SALE
Requisites (these must exist at the time of PERFECTION):

1. It must be existing, or it may be future or even contingent
a. Requisites:
i. Must be existing; or
 Present object
 Emptio spei—sale of a mere hope or expectancy (BUT the sale
of a vain hope or expectancy is void.)
 Present object subject to a resolutory condition—upon the
happening of the condition, the parties shall return to each
other what they have received
ii. Must come to existence (TEST: must be of such that it can come about
under the present technological and scientific conditions of man)
 Future thing having a potential of existence
 Emptio rei speretae—future thing subject to a suspsensive
condition (but if thing does NOT come into existence, the K is
extinguished)
b. The absence of this requisite makes the K void under Art. 1409 (3).
Remember that said provision talks about the QUALITY of the object, whether
it has the capability to exist, and not necessarily that it is existing.
2. It must be licit.
a. Licit—legal, when it is not outside the commerce of man and includes all
rights which are not intransmissible.
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b. Absence of this requisite makes the K void under Art. 1409 (1).
3. It must be determinate or at least determinable
a. Determinate—specific or that which has been:
i. physically segregated
ii. Particularly designated
b. Determinable—a generic thing which has:
i. The capacity of being made determinate
ii. Without need of further/new agreement between the parties
 In accordance with the principle of the obligatory force of K’s,
that it is free from the whims and caprices, imagination or lack
of it on the part of the parties
 When both parties can imagine the same type of SM in their
minds, almost the same in all other descriptions even as to a
3rd party, then it satisfies this requirement.
 Quantity is NOT important, ONLY when it is still possible to determine the quantity
without the need of a new K between the parties (National Grains which was fucked
up by Johannes Schuback)
 Seller may NOT be the owner of the thing at the time of perfection. It is only at the
time of delivery that it is essential that the owner owns the thing.
 If a seller is NOT the owner of the thing he sold, the buyer cannot ask for specific
performance because obviously, the seller here cannot perform. The only remedy left
is rescission. BUT when at the time of perfection, the seller sells a subject matter
over which he is not the owner, the subsequent acquisition of title by a seller
validates the sale and title passes to the buyer by operation of law, provided there
has been previous delivery of the subject matter by the seller to the buyer.
Yu Tek doctrine: Justice Trent ruled that there was no K of sale, even though the thing
was obviously determinable. BUT he was speaking in the point of view of the SM (To
understand this, imagine yourself to be a SM, and not one of the parties in the sale). Such
that there can be no K of sale as to any genus of the thing until it is physically segregated
from the rest. In short, there was no sale as to the SM, but there was a sale between the
parties.
Legality of Sale:
1. As to subject matter:
a. Various special laws declare certain sales of things illegal and therefore VOID
(e.g. drugs)
2. Simulation of SM makes the K of sale VOID (when there is no intention whatsoever
to give or receive the SM)
When motive nullifies the sale: Consideration is, as a rule, different from the motive of
the parties, and when the primary motive is illegal, such as when the sale was executed
over a parcel of land to illegally frustrate a person’s right to inheritance and to avoid
payment of estate tax, the sale is void because illegal motive predetermines the purpose of
the K. (Olegario)
CHAPTER IV
PRICE
1. Consideration in a K of sale which plays a secondary role to the SM.

2. Seller cannot unilaterally increase previously agreed purchase price.
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Requisites:
a. It must be real
a. When at the time the minds of the parties met, the seller expected
and intended to receive the price and the buyer intended to pay for
it
b. Must be with valuable consideration (NOT NOMINAL)
 If this is not present, it might be another K (e.g. donation)
 There is a presumption that every K of sale entered into is with
valuable consideration. BUT if the party who’s saying there s no
true consideration, the burden of proof SHIFTS. (Ong and
Bagnas)
 When price is simulated/fictitious, or there is the absence of
an expectation to receive payment by the seller and an
intention to pay on the buyer, the K of sale is VOID, but it
might be another kind of K.
 When there is a false price, or there is a price but it is not the
one agreed to by the parties but another price, the K of sale is
VALID, but subject to reformation.
b. Must be in money or its equivalent
a. “or its equivalent” must mean having the same characteristics as
money
b. If not in money, it’s a VOID K of sale, but it may be another K like
barter or dacion, which is still governed by the law on sales, so it is
as if there is a valid K of sale (this shows that price merely plays a
secondary role).
c. In Republic vs. Phil. Resources Development, the buyer was allowed
to pay in GI sheets. Did the SC do away with requirement no. 2? NO.
The payment of the thing other than money was done at the
consummation of the K of sale. At the time of perfection, it was only
in money.
c. Must be certain or ascertainable
a. Certain—when the amount is designated in pesos and centavos
b. Ascertainable—to be ascertainable, the price must be:
i. Fixed in reference to other things.
ii. Can be mathematically computed using a formula.
iii. Must have been designated to be fixed by a 3 rd party (this is a
suspensive condition, so if the 3rd party refuses to fix the price,
the K is inefficacious).
a. If the 3rd person:
i. Acted in bad faith
ii. Acted by mistake
….the courts can fix the price (this is the only time the
courts can fix the price).
Note: Absence of 1 & 2 makes the K a no contract situation and the absence of 3
makes it inefficacious or it cannot be given effect, unless the party mutually agree on
a new price. But if the other party has already sued the other party, the court cannot
compel the parties to agree to a price.
Note: Also, even if the price has NOT been agreed upon, but the SM has already
been delivered and appropriated, the buyer has to pay a reasonable price, depending
on the circumstances of each case.
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d. Manner of payment
a. Applies only when it is clearly implied in perfection that the money is
NOT present value. The general rule is that it is presumed that the
manner of payment is the present value.
b. Because if you do not agree upon the terms of payment, your minds
have not met because you have not agreed upon the same value.
Inadequacy of price (Erenote vs. Bezone)

1. Does not make the K void, EXCEPT:
a. Gross inadequacy to the point of being nominal (there is therefore no real
price).
b. Judicial sales
i. Requisites:
 Inadequacy must be so gross to the point of being
unconscionable
 There must be proof that had the thing been resold, there
would be a better price.
ii. Exception: when there is a right of redemption.
2. In sales a retro, gross inadequacy of price raises a presumption of equitable
mortgage.
CHAPTER V
FORMATION OF CONTRACT OF SALE
I. Policitacion of Preparatory Stage
 Heirarchy of species in policitacion
1. Invitations
 An advertisement is an invitation to make an offer “unless it appears
otherwise,” which would make it an offer.
2. Offer/Acceptance
 It creates no relationship until it is accepted.
 Kinds:
a. General – an offer to sell or an offer to buy direct ed to
everybody
b. Specific – an offer made to a particular person and cannot be
taken advantage of or availed of by any other person other
than the offeree
 Characteristics (it is important to remember this shit!)
a. It is within complete control of the offeror
b. It cannot exist indefinitely
c. An offer with a period expires after the period
d. An offer with a condition ceases to exist when the condition
happens
e. An offer can ONLY be accepted absolutely and is indivisible
f. A modification is a counter-offer and destroys the first offer
3. Right of First Refusal

a. Under Ang Yu:
School of Law
Est. 1964
 A transaction covering a specific property wherein a lessee is

given an option to purchase the leased property in the event
the lessor should desire to sell the same
 It is similar to an option contract because it has a SM and
consent. But different because it lacks price and separate
consideration. Furthermore, in an option contract, the
prospective buyer has the option. In right of first refusal, the
person who has the right cannot exercise it at will. He must
wait for the future sale.
 It is always conditional. The condition being sale of the property
in the future.
 It is not even a contract, therefore not subject to specific
performance and a breach of the right may only amount to
recovery of damages under Art 19.
b. Under Equatorial and Paranaque:
 However, if the right of the first refusal is embedded to a
contract of lease, they become enforceable and therefore,
subject to specific performance.
 Even though there is no price, upon breach of the right (when it
is sold to a 3rd person), the price will be based on the price it
was sold.
 The lessee will have the right to specific performance and ask
for rescission of the sale. Provided there is a ground for
rescission which is bad faith on the part of the buyer (if the
buyer was in good faith, he will be protected)
NOTE: Paranaque further held that a buyer cannot be in good faith when
there is a right of first refusal in a property because everybody who buys the
property must examine it first.
4. Option Contracts
 A unilateral promise that grants to the optionee the privilege or right
to purchase the SM at a certain price within a period, for a separate
consideration.
 An option is not a Contract to Sell. It is only half a K to sell because it
is either a unilateral obligation to sell or a unilateral obligation to
purchase.
 The consideration in an option contract must be separate and distinct
from the purchase price. It can be anything of value.
 Nietes Doctrine: An option contract is exercised by mere notice3 to the
seller. Tender and consignation by the optionee is not needed.
 2 Kinds of Option Contracts (the SM and price must have all the
requisites):
a. Valid option contract
i. Supported by a consideration separate and distinct from
the price
ii. If it is accepted prior to the time it was withdrawn, it will
give rise to a valid K of sale
b. Void option contract
i. There is lack of separate consideration
ii. Although it is void as an option contract, it is valid as an
offer (Sanchez doctrine)
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Est. 1964
NOTE: However, in Montilla and Diamante, the SC held that an option

contract without a separate consideration creates no contract.
 Principle of Double Acceptance in order that a void option contract will
give rise to a sale:
 1st acceptance – this is needed to give rise to a void contract
while it is valid as an offer
 2nd acceptance – giving rise to the contract of sale since the offer
was accepted
 Pre-Ang Yu doctrine: When an option K is supported by a separate
consideration, and is accepted as an option, the moment the option is
exercised within the period, it gives rise to a K of sale. If the offeror
withdraws the offer within the period, it will give rise to damages for
breach of K.
 Post-Ang Yu doctrine (plus the stupid cases of Equitable, Paranaque
Kings): An offeror can withdraw the offer anytime within the option period
regardless of the fact if there is a separate consideration or not. If it is
with consideration it will give rise to damages under breach of K. If there
is no consideration, it will give rise to tort under Art. 19 because there was
no valid option K.
 Therefore, Ang Yu actually reduces the option K to mean nothing because
a valid option contract and a void option contract ahs been placed in the
same category which can be destroyed at the will of the offeror.
NOTE: Although Ang Yu fucked up option contracts, it’s all obiter.
5. Mutual promise to buy and sell

 This is a Contract to Sell
II. Perfection :Offer and Acceptance
Perfection of a K of Sale
 Upon the meeting of the minds as to a valid SM and price which has all the requisites
 The offer must be certain and the acceptance absolute:
1. Certain offer – Price and SM with all the requisites
2. Absolute acceptance:
a. Absolute “absolute” – offer is accepted without any qualification or
counter-offers
b. Non-absolute (Villonco doctrine):
i. Do minimis – the change in acceptance is so insignificant that
there is substantial absolute acceptance (e.g. Offer is pay in
2,000 days but acceptance is 1,999 days); or
ii. Nature of change - the change does NOT go into the SM or
consideration (e.g. Offer is that payment should be done with
the buyer in long pants but the acceptance is that buyer will
pay in shorts)
NOTE: However, if the offer was pay and then cut your hair, and the acceptance did not
include cutting the fair, this already goes into consideration and constitutes a counter-offer
 When there is a suspensive condition, there is no perfected K of sale until the

condition is fulfilled, In Romero, the SC held that an injured party can waive the
School of Law
Est. 1964
condition and ask for specific performance or sue for rescission and refuse to
proceed if the condition is imposed on the performance of an obligation.
 In sale by auction, only when the auctioneer announces by the fall of the hammer
or in customary manner is the sale perfected.
Earnest Money
1. Part if the purchase price which is proof of the perfection of the contract
2. However, in Spouses Doromal, the SC held that the proof is rebuttable and evidence
can be shown that the parties intended to treat “earnest money” differently.
Genius Villanueva: This is because under Roman Law, earnest money served as liquidated
damages such that withdrawing from the sale means forfeiture of the earnest money now is
still acceptable. This is why Doromal provides that earnest money is not a conclusive proof
of the perfection of the contract, because the parties might intend it to be earnest money
under the concept of Roman Law.
Differences between earnest money and option money:
Earnest Money Option Money

Part of the purchase price Given as a distinct consideration
Given already while there is a sale (but take Applies to a sale not yet perfected
note of Spouses Doromal)
When given, buyer is bound to pay the balance When given, buyer is not required to buy
III. Form of Sales
General Rule: Form is not important for the validity of sale.
Exceptions:
1. Power to sell a piece of land or interest therein must be in writing, otherwise the sale
thereof by the agent (even if the sale itself is written) is void
2. Sale of large cattle must be in writing
3. Sale of land by non-Christians is void if not approved by the Provincial governor
Statute of Frauds
General Rule: Form is important for enforceability
Coverage:
1. A sale agreement which by its terms is not to be performed within a year from the
making thereof
2. An agreement for the sale of foods, chattels, or things in action, at a price not less
than P500
3. The sale of real property or of an interest therein
Exceptions to the Coverage

1. Note or memorandum (it may be contained in 2 or more documents)
 Requisites for a note or memorandum
a. In writing
b. Must contain the signature of the contracting party against whom the
contract is sought to be enforced
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Est. 1964
c. Must describe the SM and Price which has all requisites

NOTE: In an auction sale, even if the 2nd requisite is not met, if the auctioneer
enters the sale in the entry book, the sale is taken out of the provisions of the
Statute of Frauds
2. Partial performance
 The partial performance must either go to the SM or the price (not the
consideration!!!)
 Tender of payment is not considered partial performance because there is no
involvement of the party against whom the sale is to be enforced (this is an
important element for partial performance to be valid)
 However, tender of payment, accompanied by other acts such as building of
improvements, possession and payment of taxes, may be considered partial
performance (Ortega doctrine)
 Claudel Doctrine: If the rights of the 3 rd parties are involved, partial execution
is not good enough for the sale to be taken out of the Statute of Frauds.
There must be a memorandum. Why? Because there is no complicity on the
part of 3rd parties who were not involved in the original transaction.
NOTE: Claudel applies only to movables where possession is presumed
ownership unlike in immovables where title is the basis.
3. Waiver
 This refers exclusively to the failure of the party to object to oral testimony
presented in court.
 The cross-examination on the contract is deemed a waiver
NOTE: In case the transaction falls under the exceptions, parol or oral evidence may
be introduced to prove the existence of the contract.
CHAPTER VI
PERFORMANCE OR CONSUMMATION OF THE CONTRACT OF SALE
I. Obligations of the Buyer and the Seller
Consummation: the state where either parties begin to perform their respective
obligations. On the part of the seller, to deliver the thing and transfer ownership. On the
part of the buyer, to pay the price.
NOTE: Always remember that in this stage, it is necessary that there is already a VALID
contract of sale. In other words, if you have not mustered what constitutes a valid contract
of sale, you’ll get lost.
A. Obligations of the Seller
1. To take care of the SM with proper diligence of a good father of the family
 Unless another standard of care is required
 Applied only when the SM is determinate
2. To deliver the fruits and accessories
 But until actual delivery, the buyer only has a personal right to the fruits
(meaning the seller can sell the fruits and the one buying the fruits has a
better right)
 Applied only when the SM is determinate
3. Deliver the SM (Tradicion)
 Twin effects of tradition:
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Est. 1964
a. transfer of ownership
b. seller is deemed to have fulfilled his obligations
Note: tradicion is a mode only when there is an underlying valid K of sale
Two Types of Delivery
a. actual or physical - thing sold is placed in the control and possession of the buyer
b. constructive - seller transfers ownership without transferring physical possession
(achieved by mere consent of the parties)
i. execution of public instrument
ii. symbolic delivery - delivery of a thing which is a representation of the SM
(both parties must agree that the thing is a representation of the SM)
iii. constitutum possesorium - when at the time of perfection, the seller had
possession of the SM in the concept of an owner and pursuant to the sale,
hold physical possession thereof no longer in the concept of an owner
iv. tradition brevi manu - before the K of sale, the would-be buyer was already in
the possession of the would be SM, and pursuant to the sale, he would not
hold possession in the concept of an owner
v. tradition longa manu – delivery by agreement such as when the seller points
the property
vi. delivery by negotiable documents of title
vii. seller allows buyer to exercise rights on the property
Requisites of a valid constructive delivery (specially in public instruments)

a. there must be no stipulation that the execution of a public instrument will not
produce the effect of delivery
b. at the time of the execution of the public instrument, the SM was subject to the
control of the seller (Addison doctrine)
c. such capacity, although existing at the time of the execution, must continue within a
reasonable time (Villablanca doctrine)
Exception to the Addison and Villablanca doctrines:

 When the public instrument was executed and there was no actual physical
possession, constructive delivery would still be ineffective if from the nature of the
contract, the buyer knew that there were adverse claims/occupants in the property
eh accepted the responsibility to set them out (Power doctrine)
Delivery through Carrier

1. FAS – Free Alongside Ship
 Seller pays all charges and is subject to risk until the goods are placed
alongside the vessel
2. FOB – Free on Board
a. shipping point – delivery of the goods to the carrier, inside the vessel, is
equivalent to delivery of the buyer
b. destination – only when vessel has arrived at the points of destination and
actual signals to the buyer that the goods are there that there is deemed to
be delivery to the buyer
3. CIF – Cost, Insurance Freight
 The amount quoted by the seller and agreed to by the buyer covers not only
the cost of the merchandise but also insurance and freight
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Est. 1964
a. majority school of thought – the carrier is an agent of the buyer (like FOB
shipping point)
b. minority school of thought – the seller covers all the insurance and freight
making the carrier his agent (like FOB destination)
NOTE: These classifications are bullshit. Let me explain. They provide for very weak
presumptions. The moment there is anything to the contrary to indicate the real intention of
the parties, be it oral or written, then that intention governs regardless of the classification
they placed on the transaction (General Foods Doctrine)
Types of Tradicion Concepts When it Comes to Immovables:

REMEMBER: In every sale of an automobile, it is essential for validity that there be a
description (metes and bounds of the area must be given)
1. Sale per unit of measure – sale of real estate made with a statement of its area,
at the rate of a certain price for a unit measure (e.g. P3000 per square meter)
a. Effect: If it turns out that the area delivered is less, there is substantial
breach. Remedies would be specific performance or rescission (But lack of
area must not be less than 1/10 or else it would be considered substantial
compliance
2. Lump sum sale – not at a rate of a certain sum for a unit of measure (e.g. P20M for
that lot)
a. Effect: If it turns out that the area is less, there is not a ground for rescission
since the only obligation is to delivery everything within the boundary
Sta. Ana Doctrine: Just because a statement of the measurement of the area is given,
with the corresponding price, does NOT mean that it is a sale per unit of measure. The
default rule is that it is a lump sum sale ONLY when it is expressly provided that the sale is
at a certain price per unit of measure is it such kind of a sale.
Two Special Species of Sale in Movables

1. Sale on Return
 There is already a sale but it is subject to a resolutory condition
 This is an exception to the general rule that once tradicion is effected,
ownership is transferred
2. Sale on Approval
 This is an exception to the general rule that once tradicion is effected,
ownership is transferred
NOTE: To be construed as a sale on return or sale on approval, there must be a clear
agreement to such effect. It must be in writing and cannot be proved by parole evidence
(Industrial Doctrine).
B. Obligations of the Buyer
1. Pay the price

2. Accept delivery of the thing sold
 If the buyer refuses to accept delivery, the seller only has to place the SM at
the disposition of the buyer. Even if the latter has no possession and control,
tradition is completed and the risk of loss is on the buyer. Acceptance by the
buyer is NOT an integral part of delivery.
II. Double Sales
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Est. 1964
A. Movables
 Ownership shall be confirmed to the person who takes 1 st possession in good
faith
B. Immovables
 Ownership shall be confirmed in accordance with the following hierarchy:
1. to the person who 1st registered under PD 1529 (Torrens System)

2. To the person who is 1st in time and has priority in right provide the following
requisites concur (Radiowealth and Carumba):
3. In accordance with Art. 1544 of the NCC:
4. 1st in time, priority in right
NOTE: The rules on Double Sales do not apply if one of the contracts is a contract to sell. In
a contract to sell, the condition goes into the essence of the contract, such that if it doesn’t
happen, the contract is extinguished. In a contract of conditional sale, to which the rule on
double sales apply, the condition attaches to the obligations, and the non-happening of
which constitutes a breach which may be a ground for recession.
Genius of Villanueva: Theoretically, recession is the only remedy in case there is a breach
of the conditions of a conditional contract of sale. This is because specific performance
cannot be availed of since the obligation has been extinguished. However, if the non-
happening of the condition is due to the seller’s fault, then the condition is deemed fulfilled
and specific performance can be a remedy.
CHAPTER VII
DOCUMENTS OF TITLE
Documents of Title: includes any bill of lading, dock warrant, quedan or warehouse
receipt or order for the delivery of goods, or any other document used in the ordinary
course of business in the sale of 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 b endorsement or by delivery, goods represented by such
document.
 A type of constructive delivery
 It must always be in writing
 The SM is always fungible
Two Functions
a. the document itself is a representation of possession and description which are
covered thereby
b. it is the medium by which the goods described therein are delivered
Two Types
1. Negotiable – containing the words of negotiability and written words like non-
negotiable does not destroy its being negotiable
2. Non-negotiable
Basic Rule: Protect the purchaser in good faith for value. Even if the negotiation is a
violation of the ownership of the principal owner, a purchaser in good faith is always
protected.
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Est. 1964
Effects of Negotiation of a Negotiable DT

a. acquisition of such title to the goods as the person negotiating the document to him,
had or had ability to convey a purchaser in good faith for value
b. acquisition of such title to the goods as a person to whose order the goods were to
be delivered by the terms of the document had or had ability to convey to a
purchaser in good faith and for value
c. acquisition of the direct obligation of the bailee issuing the document to hold
possession of the goods for him according to terms of the document as fully as if
such bailee had contracted with him
Effects of transfer or assignment of a non-negotiable DT
The assignee acquires thereby as against he transferor:

a. title to the goods, subject to the terms of any agreement with the transferor
b. the right to notify the bailee who issued the document of the transfer thereof, and
thereby to acquire the direct obligation of such bailee to hold possession of the goods
for him according to the terms of the document
Warranties on negotiation or assignment:

a. referring to the DT itself
i. DT is genuine
ii. Right to negotiate or transfer the DT
iii. That there is knowledge of any defect which would impair the validity or
worth of the document
b. referring to the goods
i. the goods exist
ii. they are of merchantable quality
Note: Other than the breach of these warranties, there is NO cause of action to recover
on the seller.
Rules on Levy/Garnishment of Goods Covered by DT
NEGOTIABLE NON-NEGOTIABLE
Judgment creditors of the original Judgment creditors of the original owner can levy or
owner cannot actually levy or execute execute upon the goods since possession and
upon the goods since ownership and ownership of the DT does NOT necessarily bring
possession of the document itself is title over the goods. It is the notification of the
equivalent to the holder having actual bailee of the assignment that it is the operative act
ownership and possession. that will transfer the goods, not allowing the levy.
CHAPTER VIII
SALE BY A NON-OWNER OR BY OEN HAVING A VOIDABLE TITLE
WARNING: In the following discussion, note the difference between the time of perfection
(where the seller may not be the owner) and consummation.
General Rule: 1505, which states that where the goods are sold by a person who is not the
owner thereof, the buyer acquires no better title to the goods than the seller had. In other
words, NO title, NO transfer. (The SC even held that a transfer by someone who does not
own the SM is void.
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Est. 1964
Exceptions:
1. When the owner is estopped by his conduct from denying the seller’s authority to
sell.
2. When the contrary is provided for in recording laws (PD 1529)
 This applies only to registered lands
 Chain of Title Theory: there must be 2 links in order for this exception to
apply. The 1st link is the 1st sale, where the buyer still has the opportunity to
look behind the title of the seller. The 2 nd link is the 2nd sale, where no
amount of looking behind the title will a defect be seen since the name of the
title corresponds to the person selling.
3. 1434: When the person who is not the owner of a thing sells or alienates or delivers
it, and later the seller or grantor acquires title thereto, such title passes by the
operation of law to the buyer or grantee
4. When the sale is made under statutory power of sale or under the order of a court of
competent jurisdiction
 Because the seller in these cases is NOT the owner.
5. When the sale is made in a merchant’s store
 Requisites to be a merchant store:
a. there must be goods stored therein and in display
b. the store is actually engaged in buying and selling
6. 1506: Requirements in order that the sale is valid as to the buyer
a. seller must have voidable title at the time of execution
b. title has not been avoided
c. buyer in good faith and for value
d. there must have been tradition
7. Special right of resale
 Even when the title to the goods has already been transferred to the buyer,
the unpaid seller can enter into another sale and deliver the goods to a 3 rd
person even if the former already lost ownership
 This will be elaborated under remedies
Article 559: Possession of movable property acquired in good faith is equivalent to title.
But one who has lost or been unlawfully deprived of a movable may recover it from the
person in possession of the same.
 This rule is in accordance with the general rule in 1505 that when there is no title,
there is no title.
 But if the possessor acquired the movable in a public sale, the owner cannot obtain
its return without reimbursing the price.
 If the buyer acquired the movable from a merchant’s store, the owner cannot
recover anymore even if he was unlawfully deprived or it was lost.
 Unlawfully deprived – does NOT apply if the owner voluntarily participates in a sale
and was the victim of fraud (EDCA Doctrine). What it means is the taking without the
owner’s consent or participation (e.g. theft and robbery)
Rules on Sale by a Co-Owner

General Rule:
 If he sells the entire – the sale is void, but valid as to his spiritual share
 If he sells a definite portion – the sale is void, but valid as to his spiritual share (if
indeed the buyer would have still bought such share had he known that the definite
portion sold would not be acquired by him
Exceptions:
1. it does not apply when the SM is indivisible by nature or intent (Mindanao Doctrine)
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Est. 1964
2. when the sale of a particular portion of a thing owned in common is with the consent
of the co-owners (Pamplona Doctrine)
3. A co-owner who sells one of the 2 lands owned in common with another and how
does not turn ½ of the proceeds of the sale to the other co-owner, the latter may by
law and equity lay exclusive claim to the remaining parcel of land (Imperial Doctrine)
CHAPTER IX
LOSS, DETERIORATION, FRUITS AND OTHER BENEFITS
Application
1. applies only when the SM is determinate
2. applies to both movables and immovables
History
Civil Law Common Law

Ownership is transferred by tradicion Ownership is transferred by the perfection of
the contract
Risk of loss is borne by the buyer upon Res perit domino – the owner bears the loss
perfection
The Bocobo Commission adopted the Res Perit Domino rule and at the same time, retained
the civil law concept that ownership is transferred by tradition. The result is a fuck-up.
Effects
1. before perfection – risk of loss shall be borne by the would-be seller since he owns
the thing
2. at the time of perfection – if the thing is lost, the contract shall be “without any
effect” and therefore the seller bears the risk of loss
3. after perfection but before delivery –
a. Loss
Tolentino and Baviera Paras and Padilla

Loss is with the seller because his estate has Loss is with the buyer since even
become less due to the loss. Buyer does not have to though the SM is lost, he is still
pay because a sale is reciprocal by nature and the obliged to pay the price. His obligation
seller cannot comply with his obligation anymore. to pay was not extinguished.
The contract has become inefficacious.
Villanueva: The Tolentino & Baviera stance is more logical.
b. Deterioration, fruits & improvements – risk of deterioration and benefits

of fruits and improvements shall be borne by the buyer. Although the seller
has ownership, the benefits and improvements are for the benefit of the
buyer. (So, in effect, the res perit domino rule applies only in loss and not in
deterioration, fruits and improvements._
NOTE: Just remember this simple formula by the Genius Villanueva: the risk of loss,
deterioration and improvement shall always be for the account of the person who has both
title and beneficial interest over the SM. When the title and beneficial interest do not merge
in the same party, the risk of loss, deterioration and improvement will be for the account of
the person who has beneficial interest.
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Est. 1964
4. after delivery – risk is borne by the buyer who owns the thing
Except:
a. when the delivery of the goods has been made to the buyer and the
ownership has been retained by the seller merely to secure the performance
by the buyer of his obligations in the contract (even if the buyer does not own
the thing, the risk of loss is still hers)
b. actual delivery had been delayed through either party’s fault (risk of loss is
with the party at fault)
CHAPTER X
REMEDIES OF PARTIES FOR BREACH OF CONTRACT OF SALE
I. In case of Movables
A. Remedies of the Seller
1. Specific performance and rescission

2. Special remedies of an unpaid seller
Definition of an “Unpaid Seller”

a. When the whole of the rice has not been paid or tendered
b. When a bill of exchange or other negotiable instrument has been received as
conditional payment, and the condition on which it was received has been
received has been broken by reason of dishonor of the instrument, the
insolvency of the buyer or otherwise.
Note: This includes an agent of the seller.
Rights of the Unpaid Seller
a. applies even if the seller has lost ownership (there has been constructive delivery)
b. applies even if the buyer has entered into a 2 nd sale
c. the first 2 remedies must be first availed of before the next 2 remedies can apply:
i. possessory lien
 Requisites:
1. where the goods have been sold without any stipulation as to
credit
2. where the goods have been sold on credit, but the term of
credit has expired
3. where the buyer has become insolvent
 Instances when unpaid loses his possessory lien
1. 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. the buyer or his agent lawfully obtains possession of the goods
3. by waiver thereof
Note: there is no need to notify the buyer and the right may be
exercised even if the unpaid seller is an agent or bailee
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Est. 1964
ii. stoppage in transitu – allowed only if the buyer becomes insolvent which
must be proved (insolvent - buyer is unable to pay his debts as they fall due)
 When are goods “in transit”?
1. from the time they are delivered to a carrier or other bailee for
the purpose of transmission to the buyer, until the buyer or his
agent in that behalf, takes delivery of them from such carrier or
bailee
2. if the goods are rejected by the buyer, the carrier or other
bailee continues in possession of them, even if the seller has
refused to receive them back
 When are goods not “in transit”?
1. if the buyer or his agent obtains delivery of the goods before
their arrival at the destination
2. if after arrival of the goods, the carrier or other bailee
acknowledges to the buyer or his agent that he holds the goods
on his behalf and continues in possession of them as bailee of
the buyer or his agent; and it is immaterial that further
destination for the goods may have been indicated by the buyer
3. if the carrier of other bailee wrongfully refuses to deliver the
goods to the buyer or his agent
 How is the right exercised?
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:
a. at the point of notice, the carrier has no choice but to
hold the goods for the disposition of the seller
b. if the notice was given to the carrier’s principal, enough
time must be given for the principal to inform the carrier
 When are the rights inapplicable?
1. when the goods are NOT in transit
2. when there is a waiver of the right
iii. special right to resell

 Requisites for the right to apply
1. the goods are of perishable nature
2. where the seller expressly reserves the right of resale in case
the buyer should make default
3. where the buyer has been in default in the payment of the price
for an unreasonable time
 Effects
1. destruction of ownership of the 1st buyer even without court
intervention
2. even an innocent 3rd person will not be protected if the 1st
buyer sells the goods to such 3rd person
3. the unpaid seller can sell the goods to another even if he is not
the owner of the goods
4. any deficiency in the 2nd sale will be paid by the 1st buyer
 Unpaid seller cannot directly or indirectly buy the goods (1533)
Note: Giving of notice is not essential for the validity of the resale. It is
relevant only in an issue involving the question of whether the buyer had
been in default for an unreasonable time before the resale was made.
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Est. 1964
iv. special right to rescind

 Requisites for application
1. it was expressly reserved in case the buyer should make
default, or
2. the buyer has been in default in the payment for an
unreasonable time
 Effects
1. destruction of ownership of the 1st buyer even without court
intervention
2. even an innocent 3rd person will not be protected if the 1 st
buyer sells the goods to such 3rd person
3. seller may recover from the buyer any loss caused by the
breached contract
 Difference between ordinary rescission and special right to
rescind: Generally, ordinary rescission needs court intervention. The
special right to rescind does NOT need court intervention.
Note: Giving of notice is not essential for the validity of the resale. It is
relevant only in an issue involving the question of whether the buyer had
been in default for an unreasonable time before the resale was made.
(However, in view of the UP case, notice must be given every time there is
rescission.)
B. Remedies of the Buyer

2. Furthermore, the buyer may suspend payments in anticipation of breach unless the
seller gives security for the return of the price in a proper case
C. Recto Law and Art. 1484
1. Rationale: to remedy the abuses committed in connection with the foreclosure of

chattel mortgages and was meant to prevent mortgagees from seizing the
mortgaged property, buying it at a foreclosure sale for a low price, and then brining
suit against the mortgagor for a deficiency judgment
2. Coverage
a. sale of personal property payable on installments
b. levy doctrine: to be under Art. 1484, there must be 2 or more installments
c. The SC in Zayas applied the Recto Law in financing. However, the peculiar
circumstances in Zayas was that there was an original sale contract and the
credit was merely assigned to the financing company. In other words,
financing per se is not covered by the Recto Law. There must be an
underlying contract of sale.
3. Remedies
Note: The vertical barring effect states that once a remedy is chosen among the
3 enumerated here and it takes effect, the seller cannot choose another remedy
a. Specific performance
 When deemed chosen: Filing of an action for specific performance in
court
 Horizontal barring effect: NONE. You can recover the whole unpaid
balance. (This is true even if the action instituted has the same effect
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Est. 1964
as foreclosure, as wherein a mortgage property has been attached and

sold, since it is NOT technically a foreclosure.)
 Choosing specific performance vertically bars the other remedies
EXCEPT if after choosing specific performance the same has become
impossible, rescission may be availed of.
b. Rescission
 When deemed chosen
1. filing an action for rescission in court
2. taking actual possession or filing replevin coupled with a
manifest intention of rescission.
 Horizontal barring effect
1. Seller cannot seek further action on the purchase price (since
he already has possession of the SM and rescission by its
nature involves mutual restitution returning any amount
previously paid, unless there is a stipulation that the
installments paid shall not be returned which is valid insofar as
it is not unconscionable under the circumstances.
2. Furthermore, damages may be awarded to the extent of the
loss
c. Foreclosure
 When deemed chosen: upon actual sale; before that, the seller can
still collect the installments due (specific performance)
 Horizontal barring effect: once foreclosure is chosen, the seller
cannot anymore recover any unpaid balance of the price (that is the
essence of the Recto Law)
 “Unpaid balance of the price”: is all encompassing and includes not
only the purchase price but stipulations in the contract for damages,
interests and attorney’s fees (Eustaquio Doctrine)
 Eustaquio Doctrine: does not apply to a perverse buyer-mortgagor
or one who refuses to surrender the chattel to the seller to allow the
latter to foreclose. In such a case, the seller is allowed to recover
expenses and attorney’s fees incurred in trying to obtain possession.
(Ridad Doctrine).
 Cruz Doctrine: It is not true that after foreclosure, Art. 1484
prohibits further action only ‘against the purchaser.’ It applies also
against recovering the deficiency (e.g. by foreclosing on the other
mortgages made by the buyer) from 3rd parties.
 Borbon Doctrine: This is a situation which is the reverse in Cruz. To
circumvent Cruz, what if foreclosing on the other mortgages is
instituted? This CANNOT be done. The reason is not because of the
barring effect in 1484, but because of the principal in credit
transactions that seeking specific performance is deemed a wavier of
the foreclosure of the chattel mortgage.
II. In case of Immovables
A. Remedies of the Seller

2. An anticipatory breach entitles him to rescission
School of Law
Est. 1964
3. Failure of the buyer to pay the purchase price entitles the seller to rescind the
contract of sale upon judicial or notarial demand (1529). But the SC in some cases
refused to allow rescission even if proper on equity grounds.
B. Remedies of the Buyer

2. Suspension of payment because of disturbance or reasonable grounds to fear such
disturbance
3. In case of subdivision and condominium projects, the developer may not forfeit
previous payments if the buyer desists from paying installments due to the failure of
the developer to develop the subdivision or condominium. The notice of demand for
refund and notice of intent not to remit further payments can be made at the same
time.
C. Maceda Law
1. Rationale: protects buyer of real estate on installment payments against onerous

and oppressive conditions
2. Coverage: (both contracts of sale and contracts to sell)
a. Residential real estate
b. Residential condominium units
Note: By express provision of law, the Maceda Law not only covers rates but also
financing. Also, the meaning of installments in the Levy doctrine applies also here.
3. Items not covered:
a. Commercial real estate
b. Industrial real estate
c. Non-residential condominium units
d. Agricultural lands
Note: Art. 1529, 1191 and the law on suspensive conditions govern the first 3. CARP
governs the last.
Rights under the Maceda Law
At least 2 years Installment Period Less than 2 Years Installment Period

Statutory Grace Period: Statutory Grace Period:
 To pay without additional interest, the  To pay without additional interest, the
unpaid installments with a grace period unpaid installments with a grace period
of 30 days for every 1 year of of 60 days from the date of the
installment paid. installment became due.
 Right to make use of the grace period
can only be exercised every 5 years of
the contracts life and its extension.
Jurisprudential Grace Period: Jurisprudential Grace Period:
 The seller could cancel the contract only  The seller could cancel the contract only
after 30 days after receipt of the notarial after 30 days after receipt of the
notice of cancellation or rescission by the notarial notice of cancellation or
buyer. Within the 30 days, buyer may rescission by the buyer. Within the 30
still pay. (But in this case, interest and days, buyer may still pay. (But in this
penalties may be included unlike in the case, interest and penalties may be
statutory grace period.) included unlike in the statutory grace
period.)
School of Law
Est. 1964
If the contract is cancelled, seller shall

refund 50% of the total payments made
after 5 years of installment, an additional
5% every year but not to exceed 90% of
total payments.
Note: It is only after the refund is the

cancellation or rescission complete. Unlike
when it is less than 2 years where the
cancellation or rescission is complete upon
the lapse of the jurisprudential 30-day grace
period.
 Any stipulation contrary to the Maceda Law is null and void.

 The notice of rescission or cancellation may be by notarial act, meaning it need not
be judicial. (However, note that the McLaughlin implies that the notarial act is not
needed if it is a “notice of cancellation”).
 In determining whether it is more or less than 2 years, the number of years is not
controlling. What determines the period is the application of payments, whether they
cover 2 years or not.
CHAPTER XI
RESCISSION: CONTRACT OF SALE VS. CONTRACT TO SELL
WARNING: The following discussion is a poor attempt to synthesize the sales on rescission.
Proceed at your own risk.
Rescission
 A remedy by the party in reciprocal obligations where there is a breach on the part of
the other party
 This does not cover the rescission which pertains to rescissible contracts where lesion
is the main consideration
 The breach of contract which falls under rescission must be “substantial breach”
because of the doctrine that substantial compliance is deemed to be full compliance
 The effect of rescission is mutual restitution (but stipulations which say that
installments paid shall not be returned is valid insofar as they may not be
unconscionable under the circumstances)
 Only the injured party (which may be a 3 rd person) may demand for rescission
Distinction between a contract of sale and a contract to sell
Contract of Sale Contract to Sell

Perfection gives rise to reciprocal Perfection only give rise to reciprocal suspensive
demandable obligations conditional obligations (non-demandable until
the condition happens). Consequently, the non-
happening of the condition extinguishes the
obligation.
Delivery transfers ownership. Even after the happening of the suspensive
condition (which is full payment of the price)
ownership is still not transferred, until a contract
of sale is entered into and there is delivery.
School of Law
Est. 1964
Non-payment of the price by the buyer Non-happening of the suspensive condition,

or the non-delivery of the SM by the which is payment of the price, prevents the
seller would constitute resolutory obligation to sell n the part of the seller from
conditions and may be a basis for materializing at all.
rescission.
Rescission can be availed of only in case Principle of substantial breach has no application
of substantial breach. since the non-happening of the condition,
substantial or not, ipso jure prevents the
obligation from arising.
NOTE: Remember this concept, it will be

relevant in the following discussion.
Provision granting a party a right to Rescission is irrelevant. Non-happening of the
rescind will be superfluous since by law, condition of full payment prevents the sale from
it is inherent in this contract. materializing, so there is nothing to rescind.
 Under the law and jurisprudence, a contract which contains a stipulation that
ownership is reserved in the seller and not to pass to the buyer until full payment of
the purchase price is a contract to sell.
 Also, the SC in Dignos, held that in a contract to sell, there must be a right granted
to the seller to extra-judicially rescind or cancel the contract in case of default.
Absence of such a stipulation makes the contract one of sale.
Note: However, in some cases, the SC held that the contract is a contract to sell even in the
absence of such stipulation.
Rules on rescission and what law governs

1. 1191 is the general rule in rescission
2. 1191 does NOT apply to contracts to sell. No positive action is required in a contract
to sell because the non-happening of the condition destroys the contract. Therefore,
there is nothing to rescind.
3. Also the following are NOT under 1191:
a. movables under the Recto Law since such law governs
b. immovables
4. Immovables are governed generally by 1529 which states that “in the sale of
immovable properties, even though it may have been stipulated that upon failure to
pay the price at the time agreed upon the rescission of the contract shall of right
take place, the vendee may pay even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by
notarial act. After the demand, the court may not grant him a new term.”
5. However, those immovables covered under the Maceda Law are governed by such
laws. Furthermore, the Maceda Law also covers Contract to Sell and allows rescission
to such contracts (which is a complete turn-around of the general rules in 1-4 above)
Rules on rescission and substantial breach

1. The general rule is that rescission is proper when there is substantial breach
2. Since 1191 and 1529 does NOT apply to a contract to sell, even if there is substantial
breach in a contract to sell, rescission is not proper because the non-happening of
the condition of full-payment prevents the sale from materializing. There is no
contract to rescind at all.
3. However, the SC in cases falling under the Maceda Law (where being a contract of
sale and a contract to sell fall under the same law), applied substantial compliance
School of Law
Est. 1964
principles to contracts to sell. This is because the Maceda Law promotes a higher
value. (So take not of the coverage of the Maceda Law.)
4. We can conclude therefore that only those contracts to sell which fall under the
Maceda Law may be rescinded and where substantial compliance principles are
applicable.
Rules on rescission and when it takes effect

1. it is generally judicial and requires court action except when it is extra-judicial (the
contract contains the stipulation: in case of default by 1 party, the other party may
rescind by mere written notice (without need of going to court)
2. those under 1529 (take note of this provision’s coverage above) require that there
be a demand for rescission either by judicial or notarial act)
3. since rescission is not applicable to contracts to sell, logically, notice need not be
given when the contract is a contract to sell
4. under the Maceda Law, for rescission to take place, there need only be the expiration
of the 30-day grace period after notarial notice of rescission or cancellation has been
given to the buyer (but take note that the case value refund must be paid for
rescission to take effect when installments have been paid for more than 2 years)
5. Furthermore, since under the Maceda Law, contracts to sell may be rescinded (which
is against rule number 3), the SC in UP and Palay held that even in contracts to sell,
a minimum requirement for rescission is notice to the buyer (this refers to situations
where rescission is allowed in contracts to sell like those under the Maceda Law)
Note: The rationale why notice is required even in contracts to sell may be seen in 1545,
since the law grants the seller the option to waive the breach, and still accept payments,
then notice must be given to the buyer that the seller is not waiving.
Note: What complicated matters is that the SC used the principles of justice and equity to
make rescission applicable to contracts to sell, even though by their nature, rescission is not
a remedy in those types of contracts. Also, the Maceda Law was made applicable to both
contracts of sale and to sell, which produced a number of mix-up principles.
CHAPTER XII
CONDITIONS AND WARRANTIES
Reason: Why they are lumped together:

1. to provide how each behaves differently in sales
2. to distinguish it from warranties
Distinguish:
Conditions Warranties
When a condition is imposed in the Non-fulfillment of a warranty constitutes a
perfection of the contracts, failure to comply breach and damages may be awarded
means a failure of the contract to
materialize. When the condition is imposed
on the performance of the contract, the
injured party may either refuse to proceed
with the sale or waive the condition. Non-
happening of the condition is not a breach,
so there can be no damages.
School of Law
Est. 1964
Applies to a buyer and seller Applies only to the seller because it pertains
to the SM
Goes into the root of the existence of the Goes into the performance of the obligation
obligation
Must be stipulated May form part of the contract by express
provision of the law
Applicable to other contracts Applies only to sales contracts
 The only time a condition amounts to a breach is when there is an express promise
that the condition will happen. The condition becomes a warranty and damages may
be awarded in case of breach.
 It is important to discuss warranties because rescission on the part of the buyer can
ONLY happen if there is a breach of the seller’s warranties.
Kinds of Warranties
1. EXPRESS (it is essential to look at the wordings to determine the extent of the
warranty)
a. It must be an affirmation of fact or any promise by the seller relating to the
thing, SM of the sale
b. The natural tendency of such affirmation or promise is to induce the buyer to
purchase the same; and
c. The buyer purchases the thing relying thereon
Note: A statement of opinion (seller’s talk) is not a warranty, UNLESS The seller is an
expert and such was relied upon by the buyer.
2. IMPLIED
 Every contract has these warranties and the 3 requisites in express
warranties need not be present
 By express stipulation, an agent of the seller may bind himself to such
warranties
a. Warranty that the seller has a right to sell and transfer ownership
 Applies only in the consummation stage
 It is an essential warranty and CANNOT be waived
 It goes into the obligation to transfer ownership
b. Warranty against eviction

 Goes into the obligation to deliver possession
 Warrants that the buyer shall enjoy legal and peaceful possession of
the SM
 Requisites to say that there is a breach of the warranty:
i. buyer is dispossessed of the property in whole or in part
ii. by final judgment
iii. based on a cause of action prior to the sale or an act imputable
to the seller
iv. seller must be made either a co-defendant or a 3rd party
defendant
Note: However, even if all the requisites are present, but there is
acquisitive prescription prior to the sale and is completed after the
transfer, the seller shall not be liable for eviction. This is because the
buyer did not do anything to prevent the prescription.
 Waiver of the warranty:
School of Law
Est. 1964
i. Seller in bad faith (aware of the claims) – any waiver is VOID

ii. Seller in good faith (no knowledge of the risk)
- General: seller shall ONLY pay the value of the thing sold at
eviction (NO DAMAGES)
- Specific: if buyer knew of the specific risk, the seller will not
be liable, but only as to that specific risk
Genius of Villanueva: In effect therefore, there is no such thing as
waiver of this warranty. A general waiver is no waiver at all because
the seller still has to pay. In a specific waiver, there is nothing to
waive because when you know that a problem exists and you still buy,
there’s nothing to waive.
 This warranty applies to judicial sales
c. Warranty against non-apparent servitudes

 Applies only:
i. with the servient estate
ii. the immovable sold is encumbered with any non-apparent
burden or servitude not mentioned in the agreement
iii. the nature of the servitude is such that it must be presumed
that the buyer would not have acquired it had he been aware
thereof
 When not applicable: if the non-apparent burden 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
 Prescriptive Period (depends on the ground):
i. action for rescission or sue for damages – 1 year from
execution of the deed
ii. action for damages – 1 year from the knowledge of burden or
servitude
d. Warranty against hidden defects

 Applies only when:
i. the thing is new
ii. it is an intangible
iii. the defect is hidden
iv. the defect should go to the utility of the thing or it will render
the SM unfit for the purpose it was purchased
v. had the buyer been aware of the defect, he would not have
purchased
 Effect: Buyer may elect between withdrawing from the contract and
demanding a proportionate reduction of the price with damages in
either case
 Loss of the thing
i. if due to the defect
- seller was aware: seller shall bear the loss, return the price,
refund expenses for the contract and damages
- seller was not aware: same liability except NO damages
ii. if NOT due to the defect
- seller was aware: buyer may demand the price he paid less
the value which the thing had when it was lost plus
damages
- seller was not aware: same liability except no damages
School of Law
Est. 1964
 waiver of the warranty

i. seller is in bad faith – still liable, the waiver is void
ii. seller is in good faith – loss will not make the seller liable
 Prescriptive period: 6 months from the delivery of the thing sold
 This applies only to judicial sales
e. Redhibitory defects on animals

 Applies only to movables
 Redhibitory defect of such nature that expert knowledge is not
sufficient to discover it
 General Rule: defect in one animal does not affect the other even if
they were bought as a team UNLESS it appears that the buyer would
not have bought if there was a defective one
 This warranty does NOT apply to animals sold at fairs or public actions
or livestock sold as condemned
 Void sale of animals:
i. those suffering from contagious diseases
ii. if the use or service which they acquired has been stated an
they were found to be unfit
 Prescriptive period: 40 days from the date of delivery to the buyer
Specific Implied Warranties in the Sale of Goods

1. Warranty
a. Where buyer makes known to the seller the particular purpose for which the
goods are acquired and it appears that the buyer relies on the seller’s skill or
judgment
b. Where the goods are brought by description from a seller who deals in goods
of that description
Note: In case of breach and in the absence of special circumstances showing
proximate damage of a greater amount, the measure of damage is the difference
between the value of the goods at the time of delivery and the value they would
have had if they had answered to the warranty
2. Sale of Goods by Sample
a. There is an implied warranty that the goods shall be free from defect
rendering them unmerchantable which would not be apparent on reasonable
examination of the sample.
CHAPTER XIII
EXTINGUISHMENT OF SALE
Preliminaries
 The same grounds for extinguishment of obligations apply to sale. However,
payment or performance does not extinguish a contract of sale itself since the
relationship between the buyer and seller remains
 Redemption is a mode of extinguishment to a contract of sale
Kinds of Redemption
1. Conventional
2. Legal
Conventional Redemption
School of Law
Est. 1964
Definition: When the seller reserved for himself the right to repurchase the thing sold with
the obligation to return the price of the sale, the expenses of the contract, any other
legitimate payments made by reason of the sale, and the necessary and useful expenses
made on the thing sold. In short, a right of repurchase or a sale a retro.
Distinguished from an Option Contract
Option Contract Right of Repurchase

A principal contract Not even a contract, it cannot exist apart from a main
contract of sale
Needs a separate consideration The question of consideration is irrelevant since there
is not even a contract
Seeks to establish a contract of sale Seeks to destroy a contact of sale in existence
Exercisable by notice of exercise Exercisable by tender of payment or consignation
Period may be anytime Maximum period cannot exceed 10 years
When does a sale a retro exist?

1. only at the time of perfection
a. if at a point other than perfection, it is an option
2. it must be by express stipulation
Can the existence of a sale a retro be proved by parole evidence?

 The SC held that even though a sale a retro is part of the sale, there is no
requirement that it must be in a memo. (Remember: all that is required in a memo
is SM and price with all the requisites plus the signature of the party upon which the
sale is sought to be enforced.) The existence of the memo allows the introduction of
parol evidence to prove the existence of the sale a retro.
 Also, parol evidence may be used if no objection was made to its presentation in
trial.
Period of Redemption
1. no period agreed upon – 4 years from the date of the contract
2. if there is a period agreed upon – that period, but it must not exceed 10 years
3. if the period is void for exceeding 10 years – period is 10 years
How Redemption Effected

1. returning to the buyer the price of the sale
2. paying the expenses of the contract, and any other legitimate payments made by
reason of the sale
3. paying the necessary and useful expenses made on the thing sold
Note: ONLY tender of payment is sufficient. If the buyer is nowhere to be found, the money
must be consigned to the court.
Effect When No Redemption is Made

1. buyer a retro acquires full ownership ipso jure
2. nothing stops the period of redemption from running (not even non-payment of the
rice by the buyer!), EXCEPT
a. the pendency of the action brought in good faith and relating to the validity of
a sale a retro (Ong Doctrine)
School of Law
Est. 1964
b. Art. 1606, which grants a 30-day redemption period after judgment in a case
where the issue is: whether a contract is a sale a retro or an equitable
mortgage
Note: if the issue is whether a contract is a sale a retro or an absolute sale, then
there is no 30-day redemption period
Equitable Mortgages in Relation to a Sale a Retro

 Definition: One which although lacking in some formality, or form of words, or
other requisites demanded by a 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.
 Requisites:
i. that the parties entered into the contract denominated as a contract of sale;
and
ii. their intention was to secure an existing debt by way of mortgage
 Distinguish:
Equitable Mortgages Sale a Retro

Ancillary to a contract of loan Not an ancillary to any contract
Remedy of non-payment of the loan is If the right of repurchase is not exercised,
foreclosure the buyer becomes the owner ipso jure
Why is this in sales? The practice nowadays is that instead of equitable mortgage, the
parties enter into a sale a retro (which in fact is an equitable mortgage in disguise), such
that upon failure to pay the loan, foreclosure proceedings need not be instituted. In
mortgages, there is a public policy that failure to pay the loan does not automatically
transfer ownership to the mortgagee (pactum commisorium). To circumvent this, lenders
enter into an equitable mortgage disguised as a sale a retro. That is why a sale a retro is
construed to be a true equitable mortgage, the expiration of the purported period of
redemption does NOT ipso jure transfer ownership to the purported buyer. There must be a
foreclosure proceeding. Furthermore, if there is a subsequent sale to an innocent 3 rd person,
the latter will not be protected since there was voidable title on the person who sold to him
(But take note of the Chain of Title theory). In case of doubt, a sale a retro is treated as an
equitable mortgage.
Legal Redemption
Definition: The right to be subrogate 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.
Instances of Legal Redemption

1. among co-heirs – in sale of hereditary rights
2. among co-owners – in sale of the indivisible co-owner’s share
3. among adjoining owners
a. in rural land
b. in urban land
4. sale of credit in litigation – debtor is given the right to extinguish the assignment
of credit by reimbursing the assignee for the price the latter paid, the judicial costs,
and interest.
5. other cases by law
a. redemption by homestead
School of Law
Est. 1964
b. redemption of sales tax

c. redemption by judgment debtor
d. redemption in extra-judicial foreclosure
e. redemption in judicial foreclosure
Period in which to exercise the right

 30 days which will ONLY begin to run when the following requisites concur:
o There is a written notice (which may be in any form)
o Given by the seller
 Note: these are strict requirements such that not even registration in
the Register of Deeds will do the trick
o The written notice by the seller must pertain to a perfected contract of sale
(Spouses Doromal Doctrine)
 Note: this is a stupid doctrine because the law also talks of a would-be
seller which implies an unperfected contract of sale
Exceptions (that the running of the period is only upon written notice by the seller):
1. when there is laches (Alonzo and Pilapil Doctrine)
2. if the co-owner himself was the agent to effect the sale to a 3 rd party thereby having
knowledge thereof (Distrito Doctrine)
Note: The exceptions do not reverse the strict requirements of written notice by the seller.
Its just that under the special circumstances in those cases, they were exempted (Alonzo
Doctrine).
CHAPTER XIV
ASSIGNMENT
Assignment
 the sale of credits and other incorporeal rights
 Distinguished from sale because of the SM. In sale, the SM is tangible. In assignment
it is intangible. Otherwise both are the same.
 Like sale, assignment includes all accession and accessories.
 It needs constructive delivery to transfer ownership.
Binding Effect
 To bind 3rd persons, an assignment must be in a public instrument. Furthermore, if it
covers real rights, there must be registration in the Registry of Deeds.
 Without public instrument, the assignment would still be valid but enforceable only
as between the assignor and assignee and their successors-in-interest.
 An assignment of a document of title does NOT bind the bailee unless specific notice
of transfer is given.
Effect of Assignment of Credit

 If debtor pays the creditor without knowledge of the assignment, payment shall
releases the former from further obligations.
 If assignment is made w/o the debtor’s knowledge, debtor may set up against the
assignee the compensation which would pertain to him against the assignor of all
credits prior to the assignment and also later ones until he has knowledge of the
assignment.
School of Law
Est. 1964
 If the debtor consented to the assignment, compensation cannot be set up unless

the assignor was notified by the debtor at the time he gave his consent, that he
reserved his right to compensation.
 If there is communication of the assignment by the creditor, and the debtor did not
consent, the latter may still set up the compensation of debts previous to the
assignment but not subsequent ones.
Warranties
 Warranty against hidden defects is NOT applicable
 There is a warranty of the existence of the credit at the time of the sale EXCEPT if it
has been expressly sold as a doubtful account
 There is NO warranty regarding the solvency of the debtor except:
o There is a stipulation to that effect
o The insolvency of the debtor was prior to the assignment and of common
knowledge
Note: Either way, the warranty shall cease 1 year after the maturity of the credit.
Effect of Assignment of Credit in Litigation

 The debtor shall have a right to extinguish it by reimbursing the assignee for the
price the latter paid, the judicial costs, and the interest on the price from the day on
which the credit was paid
 Such right can be exercised by the debtor within 30 days from the demand by the
assignee for payment
 The right does not exist in the following:
a. assignment of creditor or incorporeal right to the co-heir or co-owner of the
rights assigned
b. assignment to a creditor in payment for his credit; and
c. assignment to the possessor of a tenement of piece of land which is subject to
the right in litigation assigned
Note: “in litigation” means from the time a complaint concerning the credit is answered
CHAPTER XV
THE BULK SALES LAW
Rationale: To prevent a situation where merchants would cheat their creditors by hurriedly
selling their business and vanish into thin air, with the creditors left holding the bag while
the buyer in good faith and for value is protected
Coverage (applies only to merchandising concerns)

1. any disposition or encumbrance of a stock of goods, wares, merchandize provisions
or materials otherwise than in the ordinary course of trade and the regular
prosecution of the STMAer
2. any disposition or encumbrance of all or substantially all of the business or trade
theretofore conducted by the STMAer
3. any disposition or encumbrance of all or substantially all of the fixtures and
equipments used in the business of the STMAer
Note: As long as the transcription fails within any of the 3 transactions, it is a Bulk Sale.
Intention of the seller, and good or bad faith is irrelevant.
Exceptions
School of Law
Est. 1964
1. if the STMAer delivers a written waiver of the provisions of the law from creditors as
shown by verified statements
2. doesn’t apply to executors, administrators, receivers, assignees in insolvency, or
public officers, acting under process
Obligations of the Seller when the transaction is a Bulk Sale

1. prepare an inventory of amount of indebtedness and list of creditors 10 days before
the sale
2. send notice to the creditors 10 days before the sale
3. at the STMA, submit to the STMAer a sworn statement of creditors
4. immediately thereafter, apply the proceeds to the creditors
5. within 10 days after the STMA, submit to the DTI
6. going through STMA must not be nominal
Effect of failure of doing the obligations (in accordance with the order above)]
1. no criminal and civil consequences
2. void transaction and criminal sanction
a. The transaction is void here not because of the Bulk Sales Law but of
Common Law Principle that if the price of a sale is nominal, it is not real,
making the contract void.
Obligations of the Buyer: There is no obligation and generally no criminal liability.

However, since non-compliance of the BSL may lead to declaring the sale fraudulent and
void, he is not entitled to the goods delivered to him.
CHAPTER XVI
RETAIL TRADE LIBERALIZATION ACT OF 2000
Retail Trade Law

1. habitual selling of merchandise, commodities, or goods
2. to the general public
3. for consumption
a. By jurisprudence, “for consumption” des not include sale to industrial and
commercial establishments. In effect, the SC says that not only should you
look at the nature of the goods, but also the purpose for which the goods
were brought. (Balmaceda, Goodyear and BF Goodrich)
b. However in Marsman, the SC looked at the nature of the goods and the
nature of the buyer. Such that diesel, not being a consumer item, is not a
consumer good. (It is an auxiliary good because it is a factor in the
production of other goods and satisfy wants only indirectly.)
Note: Absent one of the elements takes the sale out of the Retail Trade Law.
Exempted Transaction
1. sales by a manufacturer, processor, laborer, or worker to the general public of the
products manufactured, processed or produced by him is his capital does not exceed
P100,000
2. sales by a farmer or agriculturist selling the products of his farm regardless of capital
3. sales in restaurant operations by a hotel owner or inn-keeper irrespective of the
amount of capital, provided that the restaurant is incidental to the hotel business
School of Law
Est. 1964
4. sales to the general public, through a single outlet owned by a manufacturer or

products manufactured, processed or assembled in the Philippines, irrespective of
capitalization
5. sales to industrial and commercial users or consumers who use the products bought
by them to render service to the general public and/or produce or manufacture
goods which are in turn sold by them; and
6. sales to the government and/or its agencies and government-owned and controlled
corporations
Categories of Retail Trade Enterprises

A. Less than $2.5M
B. $2.5M-$7.5M; store not less than $30K
C. Above $7.5M; store not less than $830K
D. High-end or luxury products with a capital of $250K per store
When Aliens May Invest in Retail Trade

1. under category A, beginning 26 March 2002
2. under category B, C, D
Grandfather Rule
 Since the old RTL, prohibited non-100% owned corporations or partnership from
engaging in retail trade, how would you determine citizenship of shares of the selling
corporation when they are held by another entity?
 The rule is that shares belonging to corporations or parties at least 60% of the
capital is owned by Filipinos, is Filipino. But if it is less, then only the number of
shares corresponding to such percentage shall be Filipino.
Application of Anti Dummy Law

 ADL penalizes Filipinos who permit aliens to use them as nominees or dummies to
enjoy privileges reserved for Filipinos or Filipino corporations.
 Aliens are prohibited from employment in retail trade or establishments engaging in
such EXCEPT when:
a. it is highly technical
b. no Filipino can do it
c. with the President’s consent
Note: Later PD 175 allowed the election of aliens as members of the Board of Directors, in
partially nationalized activities in proportion to their allowable participation in the capital of
such activities.
There in the presence of God, I knew how my love
and I could be freed from the powers of darkness
- Mina
[For Titania]

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The Fraternal Order of UTOPIA

Ateneo de Manila University

BUYER 2.) Subject Matter a) transfer ownership

SALE 1.) Meeting of the Minds b) delivery

SELLER 3.) Price c) pay

*It may be absolute or conditional.

Genius of Villanueva: Gaite gave 2 parameters in order for a condition in K of sale to be

IV. Nature of the Contract Created

1. Buyer “to give”

SALES REVIEWER -1-

V. Characteristics of a K of Sale (it is enough that these characteristics exist at

1. Nominate and Principal

SALES REVIEWER -2-

6. Title and Mode

VI. As Distinguished From

3. Contract for Piece of Work (POW)

SALES REVIEWER -3-

Sale Agency to Sell

SALES REVIEWER -4-

Not unilaterally irrevocable. Essentially revocable even in the presence of

SALES REVIEWER -5-

Sale Dacion en pago

SALES REVIEWER -6-

 When there has been a judicial separation of property agreed

SALES REVIEWER -7-

Requisites (these must exist at the time of PERFECTION):

SALES REVIEWER -8-

1. Consideration in a K of sale which plays a secondary role to the SM.

SALES REVIEWER -9-

Inadequacy of price (Erenote vs. Bezone)

I. Policitacion of Preparatory Stage

 Heirarchy of species in policitacion

3. Right of First Refusal

 A transaction covering a specific property wherein a lessee is

NOTE: However, in Montilla and Diamante, the SC held that an option

NOTE: Although Ang Yu fucked up option contracts, it’s all obiter.

5. Mutual promise to buy and sell

II. Perfection :Offer and Acceptance

 When there is a suspensive condition, there is no perfected K of sale until the

Differences between earnest money and option money:

Earnest Money Option Money

III. Form of Sales

General Rule: Form is not important for the validity of sale.

General Rule: Form is important for enforceability

Exceptions to the Coverage

c. Must describe the SM and Price which has all requisites

I. Obligations of the Buyer and the Seller

A. Obligations of the Seller

Two Types of Delivery

Requisites of a valid constructive delivery (specially in public instruments)

Exception to the Addison and Villablanca doctrines:

Delivery through Carrier

Types of Tradicion Concepts When it Comes to Immovables:

Two Special Species of Sale in Movables

B. Obligations of the Buyer

1. Pay the price

II. Double Sales

1. to the person who 1st registered under PD 1529 (Torrens System)