Module 1 Law On Sales

SALES, AGENCY, LABOR AND OTHER COMMERCIAL LAWS
XCOMLAW - A MODULAR APPROACH
Mr. Jayvee P. Cordova, CPA

Instructor
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Course Description
The course covers sales transactions including its nature, forms, and requisites distinguished
from related contracts; rights and obligations of vendor/vendee and their respective remedies. It
also covers the law on agency; its nature, form, and kinds, modes of extinguishments and rights
and obligations of principal and agent. Also discussed are contracts on credit transactions such
as loan, deposit, guaranty, pledge, real mortgage, antichresis, and chattel mortgage.
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Module 1:
LAW ON SALES
LEARNING OBJECTIVES
After completing this chapter, one will be able to do the following:
 Learning the basic concept about Sales Contract In relation to Obligations and Contracts Law
 Distinguishing Contract of sales from other Special Contracts.
 Identifying the difference between different types of considerations made in a sales contract
 Identifying Rights and obligations of parties in a sales contract and the corresponding remedies
LAW ON SALES: SUMMARY

I. Introduction
A. Governing law
B. History of law on sales
C. Source of law on sales
II. Concept of contract of sale

A. Concept of sale (Art. 1458)
B. Characteristics of contract of sale
C. Essential elements of contract of sale: an overview (Art. 1318)
i. Consent (Art. 1319)
ii. Object (Arts. 1347-1349)
iii. Cause (Art. 1350)
D. Kinds of contract of sale
i. Absolute
ii. Conditional
III. Parties to the contract of sale

A. Persons who may enter into a contract of sale (Art. 1489)
B. Type of incapacity
i. Absolute
ii. Relative
C. Rules applicable to specific sellers
i. Minors (Art. 1327, 1390; Family Code, art. 290)
ii. Husband and wife (Arts. 1409, 1490, 1492)
iii. Persons disqualified to buy specific properties (Art. 1409, 1491, 1492)
iv. Other persons
D. Practice notes: parties to contract of sale
i. Husband or wife
ii. Corporation
IV. Formation and perfection of contract of sale

A. Consent/offer and acceptance
i. In general (Arts. 1319-1326)
a) Offer
- certain (Art. 1319)
- fixing terms of offer (Art. 1321)
- when offer becomes ineffective (Art. 1323)
- period for acceptance (Art. 1324)
- when offer accepted when acceptance made by letter or telegram or offer made through agent
(Arts. 1319, 1322)
- business advertisements (Arts. 1325-1326)
b) Acceptance
- absolute vs. qualified acceptance (Art. 1319)
- express or implied (Art. 1320)
ii. Practice notes: offer and acceptance
- counterpart signing
B. Object or subject matter
i. Thing must be determinate (Arts. 1318[2], 1349, 1458, 1460)
ii. Thing must be licit (Art. 1459)
a) In general
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b) Illicit things (Art. 1409)
iii. Thing must be within the commerce of men (Art. 1347)
iv. Thing must not be impossible (Art. 1348)
v. Thing must be an existing good or a future good (Arts. 1347, 1461, 1462)
a) Sale of things having a potential existence (Arts. 1461)
b) Sale of mere hope of expectancy (Art. 1461)
c) Sale of vain hope or expectancy (Art. 1461)
vi. Sales of specific things
a) Sale of things in litigation (Art. 1381(4))
b) Sale of an undivided interest in a thing (Art. 1463)
c) Sale of undivided share of a specific mass (Art. 1464)
d) Sale of things subject to a resolutory condition (Art. 1465)
vii. Practice notes: object or subject matter of the contract
a) Sale of shares sale of nominee shares, sale at less than fair market value, sale of shares in a
corporation engaged in a partly-nationalized activity, right of first refusal, pre-emptive rights, tag-along rights,
drag-along rights, tax requirements, registration requirements
b) Sale of land - sale of land to aliens, tax requirements, registration requirements, sale of land acquired
by homestead or free patent
c) Sale of assets sale of all or substantially all of the assets, sale in bulk
d) Sale of motor vehicles registration requirements
C. Cause or consideration
i. Price certain (Art. 1469, 1472, 1473, 1474)
a) When price certain (Art. 1469, 1472, 1473)
b) Effect when price not certain (Art. 1474)
ii. Lack of cause or consideration (Art. 1409(3))
iii. Inadequacy of the price (Art. 1470)
a)When price inadequate
b) Effect of inadequate price
- on voluntary sales
- on involuntary sales
iv. Simulated price (Art. 1471)
a) When price simulated
b) Effect of simulated price
vi. Practice notes: cause or consideration
- how payment effected: cash, check, wire transfer, etc.
D. Perfection of contract (Art. 1475)
i. Offer and Acceptance (Arts. 1319-1326)
- stages of a contract of sale
- concept of perfection; perfection in consensual contracts vs. real contracts
- necessity for payment or delivery of thing
- necessity for written agreement
- requirements for offer and acceptance
- how perfection may be proved
- manner of payment as a requirement for perfection
- effect of non-payment on perfected contract
ii. Payment of earnest money as proof of perfection (Art. 1482)
iii. Perfection of sale by auction (Art. 1476)
iv. Expropriation (Art. 1488)
F. Consummation of contract
V. Formalities of contract of sale

A. In General (Arts. 1356, 1483)
i. Verbal
ii. Written
B. Form required for enforceability: Statute of Frauds (Art. 1403, 1405, 1406)
i. concept
ii. purpose
iii. scope
iv. ratification of contract
C. Form required for validity (Art. 1356)
i. Sale of a piece of land or any interest therein is made through an agent (Art. 1874)
D. Form required for convenience of the parties (Art. 1358)
E. Items to note: Electronic Commerce Act
F. Practice notes: formalities of contract of sale
- notarization
- consularization or authentication
VI. Covenants: obligations of the seller

A. Obligations under the Civil Code
i. Take care of thing pending delivery (Art. 1163)
ii. Pay for expenses for the execution and registration of the sale, unless there is stipulation to the contrary (art.
1487)
- practice notes: payment of income tax, stamp tax, local transfer tax, legal fees, Register of Deeds expenses
iii. Transfer ownership (Arts. 1458, 1495)
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a) Owner must have right to transfer ownership (Arts. 1459)
b) When right to transfer ownership must exist (Art. 1459)
c) How effected (Arts. 1477, 1478, 1496)
iv. Deliver the thing with accessions and accessories (Art. 1537)
a) Concept of delivery; intention to deliver
b) Consequence of delivery
c) Delivery and non-payment of the price
d) Ways of effecting delivery (Arts. 1497-1501)
- actual delivery
- constructive (execution of public instrument, traditio symbolica, traditio longa manu, traditio
brevi manu, traditio constitutum possesorium)
e) When seller not bound to deliver (Arts. 1524, 1536, 1198)
f) Incidents of delivery
- Place of delivery (Art. 1521)
- Time of delivery (Arts. 1521)
- Expenses of delivery (Art. 1521)
- Proof of delivery
g) Special rules
- Contract of sale or return (Art. 1502)
- Contract of sale or approval (Art. 1502)
- Delivery to carrier (Arts. 1503, 1523)
B. Practice notes: usual covenants of the seller
i. Pre-closing covenants: (a) access; (b) conduct of operations prior to closing; (c) approvals; (d) notification to
buyer; (e) others
ii. Post-closing covenants: (a) confidentiality; (b) covenant not to compete; (c) anti-poaching covenant; (d)
payment of income tax; (e) others
iii. Affirmative covenants and negative covenants
VII. Covenants: obligations of the buyer

i. Accept delivery (Art. 1582)
a) meaning of acceptance
b) mode of manifesting acceptance (Art. 1585)
- express
- implied
c) delivery by installments (Art.1583)
d) right to examine goods prior to delivery (Art. 1584)
- type of delivery contemplated
- purpose of inspection
- right not absolute
- waiver of right
- how right exercise (time, place, manner, expenses)
- buyers right to reject goods
- Collect on delivery
e) effect of acceptance (Art. 1586)
- acceptance not a bar to action for damages
- notice to seller for breach of promise or warranty
f) when buyers refusal to accept justified/wrongful (Arts. 1587, 1588)
ii. Pay the price (Art. 1582)
a) where and when (Art. 1582)
b) buyers liability to pay interest (Art. 1589)
c) right of vendee to suspend payment of price (Art. 1590)
d) effect of failure to pay price
B. Practice notes: usual covenants of the buyer
i. Pre-closing covenants: (a) approvals; (b) others
ii. Post-closing covenants : (a) payment of stamp tax; (b) obtaining BIR Certificate Authorizing Registration; (c)
others
VIII. Conditions
A. Meaning of condition (Art. 1545)
B. Types of conditions
i. Conditions precedent vs. conditions subsequent
ii. Conditions for perfection vs. conditions for performance
C. Effect of non-fulfillment of condition
D. Practice notes: conditions in contract of sale
i. Usual contractual conditions
a) Conditions precedent: (i) accuracy of representations; (ii) performance of all covenants/no breach; (iii)
consents; (iv) no litigation/suit; (v) delivery of documents; (vi) others
b) Conditions subsequent
ii. Time frame for meeting conditions: drop dead date/long stop date
iii. Result if closing condition not satisfied: (a) no closing; (b) closing delayed; (c) condition waived and closing
occurs; (d) condition changed to post-closing covenant and closing occurs; (e) others
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IX. Representations and warranties
A. Meaning of representations and warranties
B. Type of warranties
i. Express meaning, effect
ii. Implied meaning, effect, nature, when not applicable
C. Categories of representations and warranties
i. Relating to the contract itself
ii. Relating to the subject matter of the contract
iii. Relating to the parties
D. Distinguished from other terms
i. Conditions
ii. Opinion, dealers talk
E. Representations and warranties of the seller
i. Express Art. 1546
a) meaning
b) terminology used
c) time of warranty, form, sellers good faith
ii. Implied
a) implied warranty of title (Art. 1547)
- warranty in case of eviction (Art. 1548-1560)
- meaning of eviction (Art. 1548)
- essential elements of warranty against eviction
- eviction vs. trespass in fact
- requirement of final judgment; duty to appeal (Arts. 1557, 1558, 1559, 1549)
- vendor as party to the suit for eviction (Art. 1559)
- effect of prescription (Art. 1550)
- rights and liabilities in case eviction occurs; rights in case of partial eviction (Arts. 1555, 1556)
- waiver of warranty in case of eviction; kinds; effect; presumption (Arts. 1548, 1553, 1554)
- eviction for nonpayment of taxes (Art. 1551)
- judicial sales (Art. 1552)
- encumbrance with non-apparent burden (Art. 1560)
b) implied warranty against hidden encumbrances and defects (Art. 1547(b), 1561, 1566, 1572-1581)
- requisites for warranty against hidden defects (Arts. 1561, 1566)
- remedies: accion redhibitoria, accion quanti minoris (Arts. 1567, 1570)
- warranty in sales of animals (Arts. 1572- 1581)
c) implied warranty as to fitness or merchantability or merchantable quality (Art. 1562, 1563, 1564, 1565,
1570)
- implied warranty of quality/fitness particular purpose of goods, test, sale under trade name,
usage of trade, sale by sample, remedies (Art. 1562-1564, 1565)
- implied warranty of merchantability/merchantable quality (Art. 1562)
F. Representations of the buyer
G. Practice notes: representations of the seller and the buyer
i. Typical contractual representations of the seller: (a) corporate existence, power and authority, (b) consents, no
violation; (c) financial statements, no undisclosed liability; (d) material adverse change; (e) title; (f) litigation; (g) others
ii. Typical contractual representations of the buyer
iii. When representations made (e.g., time of execution, time of closing, etc.)
iv. Bring-down representations concept, why required
v. Survival of representations
X. Rules on risk of loss and deterioration

A. Theories of risks of loss
i. Theory of tradition vs. theory of perfection
ii. Theory followed by the Spanish Civil Code and the Philippine Civil Code
B. Principle of res perit domino
C. Rules on risk of loss and deterioration
i. Prior to perfection of contract
ii. At time of perfection (Arts. 1409(3), 1493, 1494)
iii. After perfection of contract but before delivery
- Fortuitous event (Art. 1480, 1163-1165, 1262-1263, 1269, 1504, 1537-1538, 1189[1,3])
- Sellers fault (Arts. 1480, 1165, 1262-1263, 1504[2], 1538, 1189)
iv. After delivery (Arts. 1504, 1568, 1569)
D. Practice notes: risk of loss and deterioration
- drafting notes to address issues of loss and deterioration
XI. Actions and remedies for breach of agreement

A. In general (Art. 1594)
i. Actions available to seller
a) payment of price (Art. 1595)
b) damages (Arts. 1596)
c) rescission of contract (Art. 1597)
ii. Actions available to the buyer
a) specific performance (Art. 1598)
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b) damages (Art. 1599)
B. Remedies available
i. Remedies available to the seller
a) lien on the goods (Arts. 1525-1529, 1535)
b) right of stoppage of goods in transitu (Art. 1530-1532, 1535)
c) right of resale (Art. 1533)
d) right of rescission (Art. 1534)
e) rescission in case of loss of immovable property (Art. 1591)
(f) rescission in case of sale of movable property (Art. 1593)
ii. Remedies available to buyer
a) remedies in sale of goods by description and/or sample (Art. 1481)
b) remedies in case of loss of specific goods (Art. 1494)
c) remedies in case of delivery of goods less than the quantity contracted (Art. 1522)
d) remedies in case of a sale of real property by unit of measure (Arts. 1539, 1540, 1541, 1543)
e) remedies in case of sale of real property made of a lump sum (Arts. 1542, 1543)
f) suspension of payments (Art. 1590)
g) remedies in sale of immovable property (Art. 1592)
C. Special Laws
i. The Recto Law (Arts. 1484-1486) re sale of personal property payable in installments
a) Transactions covered and not covered
b) Purpose of the law
c) Remedies available to the vendor
d Election of remedies
ii. The Maceda Law (R.A. No. 6552)
a) Transactions covered and not covered (Sec. 3)
b) Purpose of the law (Sec. 2)
c) Rights granted to the buyer
- at least two years of installments (Sec. 3)
- less than two years of installments (Sec. 4)
- other rights of the buyer (Secs. 5, 6)
d) Cancellation of sale by the seller
- requirements
- period
e) Calculation of installment payments
f) Stipulation to the contrary (Sec. 7)
D. Practice notes: actions and remedies
i. Typical contractual stipulations in case of breach
ii. Breach of covenant
iii. Breach of warranty
XII. Extinguishment of sale

A. In general
B. Causes of extinguishment (Art. 1600)
C. Conventional redemption
i. Concept of conventional redemption (Art. 1601)
ii. Subject matter of conventional redemption
iii. Distinguished from option to buy
iv. Period to redeem (Art. 1606)
a) express agreement
b) no express agreement
c) court judgment: true sale with right to repurchase
iv. Exercise of right to redeem
a) how right exercised (Art. 1616)
- manner of exercise
- amounts that should be paid
- requirement of tender of payment and consignation
b) who exercises right
- vendor, his assigns and heirs
- vendors creditor (Art. 1610)
- co-owners and co-heirs (Arts. 1612, 1613, 1614)
c) from whom to redeem (Arts. 1608, 1615,
- vendee
- vendees assigns (Art. 1608)
- vendees heirs (Art. 1615)
v. Effect of redemption and non-redemption (Art. 1617, 1618, 1607, 1609, 1611)
- consolidation of ownership (Art. 1607)
- subrogation of vendee (Art. 1609)
- redemption of entire property (Art. 1611)
- distribution of fruits (Art. 1617)
- return free from liens and encumbrances (Art. 1618)
D. Legal redemption
i. Concept
ii. When applicable
a) Co-owners (Art. 1620)
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b) Adjoining land-owners of rural land (Art. 1621)
c) Adjoining land-owners of urban land (Art. 1622)
iii. Period to redeem (Art. 1623)
iv. Exercise of right to redeem (Art. 1623)
v. Redemption/pre-emption under special laws
a) land acquired under free patent or homestead (C.A. No. 141, sec. 119)
b) extra-judicial foreclosure of mortgage (Act No. 3135, sec. 6)
c) agricultural land (R.A. No. 3844, sec. 12)
E. Practice notes: termination of contract of sale
i. Grounds for termination
ii. Manner of termination
XIII. Special problems in sales

A. Sale by non-owner (Arts. 559, 1505, 1434)
i. when ownership required
a) perfection
b) consummation
ii. rule on acquisition of ownership by the buyer in case of sale by non-owner; principle behind the rule (nemo dat
quod non habet)
iii. exceptions to the rule
a) estoppel
b) recording laws
c) judicial power and statutory sale
d) merchant store
iv. subsequent acquisition of title (Art. 1434);
iv. rule with respect to immovable property
v. status of contract
B. Sale by owner with voidable title non-owner (Arts. 559, 1506)
i. rule on acquisition by ownership by the buyer; principle behind the rule
ii. Art. 559 in relation to Arts. 1505 and 1506
C. Double sales (Art. 1544)
i. requisites for applicability of Article 1544
ii. rules under Article 1544
a) movables
- possession; how acquired (see Art. 559)
b) immovables
- meaning of registration
- requirement of good faith
- meaning of possession
- meaning of oldest title
iii. applicability of Art. 1544 to unregistered lands
iv. Article 1544 and execution sales
XIV. Sale contract distinguished from other contracts

A Dacion en pago (Art. 1245);
i. concept
ii. distinguished from a contract of sale
B. Contract to sell/contract of conditional sale
i. concept
C. Agency to buy and sell (Art. 1466)
i. concept
D. Contract for a piece of work (Art. 1467)
i. concept
E. Barter and exchange (Arts. 1638-1641, 1468)
i. concept (Art. 1638)
ii. when perfected and consummated
iii. effect if giver not the lawful owner of thing delivered (Art. 1639)
iv. effect of eviction (Art. 1640)
v. test for determining whether transaction is sale or barter (Art. 1468)
F. Equitable mortgage (Arts. 1602-1605)
i. concept
ii. pacto de retro vs. mortgage distinguished
iii. requisites for presumption that the transaction is an equitable mortgage (Arts. 1602, 1604)
iv. badges of equitable mortgage (Art. 1603)
v. effect if contract is an equitable mortgage
vi. remedy of reformation (Art. 1605)
H. Donation (Arts. 725, 1471)
i. concept
I. Lease (Art. 1643)
i. concept
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J. Assignment of credits and incorporeal rights (Arts. 1624-1637)
i. concept
ii. perfection (Art. 1624)
iii. binding effect (Art. 1626)
iii. need for debtors consent; effect of payment by debtor before and after notice (Art. 1626)
iv. effect of assignment of credit on accessory rights (Art. 1627); fruits and expenses (Arts. 1632, 1633)
v. warranties of the assignor of the credit
a) in general (art. 1628)
b) where debtors insolvency guaranteed (Art. 1629)
c) sale of hereditary right (Art. 1630)
d) sale of whole of certain rights, rents or products (Art. 1631)
vi. legal redemption in the sale of credit in litigation (Arts. 1634, 1635)
XV. Documents of title (Art. 1507-1520)

A. Concept (Art. 1507)
B. Function of documents of title
C. Examples of documents of title
D. Classes of documents of title
E. Negotiable documents of title
i. who negotiates (Art. 1512)
ii. how negotiated
a) by delivery (Art. 1508)
b) by indorsement and delivery (Art. 1509)
iii. effect of negotiable documents of title marked non-negotiable (Art. 1510)
iv. effect of negotiation (Art. 1513)
a) rights acquired by the buyer of the negotiable document of title when properly negotiated (Art. 1513)
b) effect where negotiation impaired by breach of duty, etc. (Art. 1518)
c) effect where document of title not properly negotiated (Art. 1514, 1st par., Art. 1515)
v. warranties by seller of the documents of title (Art. 1516-1517)
vi. rights of creditors against the goods (Arts. 1519-1520)
F. Non-negotiable
i. how transferred (Art. 1511)
ii. effect of transfer (Art. 1514)
XVI. Special Laws

A. Presidential Decree No. 957, secs. 23-24
B. Bulk Sales Law (Act No. 3952)
C. Retail Trade Liberalization Act (Republic Act No. 8762), sec. 3 and 5
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LAW ON SALES: IN DEPTH DISCUSSION
I. Introduction
A. Governing law
B. History of law on sales
C. Source of law on sales
II. Concept of contract of sale

A. Concept of sale (Art. 1458)
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate
thing, and the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional. (1445a)
B. Characteristics of contract of sale

C. Essential elements of contract of sale: an overview (Art. 1318)
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261)
i. Consent (Art. 1319)

Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute
the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a
case, is presumed to have been entered into in the place where the offer was made. (1262a)
ii. Object (Arts. 1347-1349)

SECTION 2. - Object of Contracts
Art. 1347. All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights
which are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases expressly authorized by law.
All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract.
(1271a)
Art. 1348. Impossible things or services cannot be the object of contracts. (1272)
Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an
obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the
parties. (1273)
iii. Cause (Art. 1350)
SECTION 3. - Cause of Contracts
Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service
by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere
liberality of the benefactor. (1274)
D. Kinds of contract of sale

i. Absolute
ii. Conditional
III. Parties to the contract of sale

A. Persons who may enter into a contract of sale (Art. 1489)
Art. 1489. All persons who are authorized in this Code to obligate themselves, may enter into a contract of sale, saving the
modifications contained in the following articles.
Where necessaries are those sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price
therefor. Necessaries are those referred to in Article 290. (1457a)
B. Type of incapacity
i. Absolute
ii. Relative
C. Rules applicable to specific sellers
i. Minors (Art. 1327, 1390; Family Code, art. 209)
Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write. (1263a)
Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. (n)
Art. 209. Pursuant to the natural right and duty of parents over the person and property of their unemancipated children, parental
authority and responsibility shall include the caring for and rearing them for civic consciousness and efficiency and the development of
their moral, mental and physical character and well-being. (n)
ii. Husband and wife (Arts. 1409, 1490, 1492)

Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;
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(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
Art. 1490. The husband and the wife cannot sell property to each other, except:
(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation or property under Article 191. (1458a)
Art. 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises and renunciations.
(n)
iv. Persons disqualified to buy specific properties (Art. 1409, 1491, 1492)
Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the
mediation of another:
(1) The guardian, the property of the person or persons who may be under his guardianship;
(2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been
given;
(3) Executors and administrators, the property of the estate under administration;
(4) Public officers and employees, the property of the State or of any subdivision thereof, or of any government-owned or controlled
corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government
experts who, in any manner whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the
administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or
territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers,
with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession.
(6) Any others specially disqualified by law. (1459a)
Art. 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises and renunciations.
(n)
iv. Other persons

D. Practice notes: parties to contract of sale
i. Husband or wife
ii. Corporation
SALES REVIEWER WEEK II-III (update with outline)

IV. Formation and perfection of contract of sale
A. Consent/offer and acceptance

i. In general
a) Form of offer
Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make
an offer.
Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or
lowest bidder, unless the contrary appears.
b) Form of acceptance
ii. Promise to buy and sell
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.
iii. Practice notes: offer and acceptance

- counterpart signing
B. Object or subject matter: DETERMINATE, LICIT, EXISTING/FUTURE GOODS, OWNER W/ RIGHT TO TRANSFER
OWNERSHIP
i. Thing must be determinate
a) When thing determinate
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a
determinate thing, and the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
Art. 1460. A thing is DETERMINATE when it is particularly designated or physical segregated from all other of the same class.
The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made
determinate without the necessity of a new or further agreement between the parties. (n)
DEFINITION OF DETERMINATE: when it is particularly designated or physical segregated from all other of the same class
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WHEN SATISFIED: If at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a
new or further agreement between the parties
b) Sale of an undivided interest in a thing

Art. 1463. The sole owner of a thing may sell an undivided interest therein.
SALE OF UNDIVIDED INTEREST IN A THING

(1) By sole owner The sole owner of a thing may sell the entire thing; or only a specific portion thereof; or an undivided interest
therein and such interest may be designated as an aliquot part of the whole.
LEGAL EFFECT: To make buyer a co-owner of the thing sold. As co-owner, he acquires full ownership of his part and he may,
therefore, sell it. However, such sale is limited to the portion which may be allotted to him in the division of the thing upon the
termination of the co-ownership.
(2) By co-owner The co-owners can dispose of their shares even without the consent of the other co-owners. The effect of the
alienation shall be limited to the portion which may be allotted to the vendor in the division of the property upon the termination
of the co-ownership.
c) Sale of undivided share of a specific mass

Art. 1464. In the case of fungible goods, there may be a sale of an undivided share of a specific mass, though the seller purports to
sell and the buyer to buy a definite number, weight or measure of the goods in the mass, and though the number, weight or
measure of the goods in the mass is undetermined. By such a sale the buyer becomes owner in common of such a share of the
mass as the number, weight or measure bought bears to the number, weight or measure of the mass. If the mass contains LESS than
the number, weight or measure bought, the buyer becomes the owner of the whole mass and the seller is bound to make good the
deficiency from goods of the same kind and quality, UNLESS a contrary intent appears.
SALE OF AN UNDIVIDED SHARE OF A SPECIFIC MASS

 The Civil Code classifies movable goods into consumable or non consumable thereby discarding the old classification into
fungible and non fungible. This change in classification seems to be in name only as the definition of fungible goods as those
which cannot be used without being consume under the old Civil Code is precisely othat of consumable goods.
 DEFINITION FUNGIBLE: Capable of being consumed; means goods which any unit is equivalent of another unit eg. Oil, gas
 Art. 1464. This right is an incorporeal right; ownership transfers by INTENTION of the parties
 EFFECT OF SALE The owner of a mass of goods may sell only an undivided share thereof, provided the mass is SPECIFIC
or CAPABLE OF BEING MADE DETERMINATE
o By such sale, the buyer becomes CO-OWNER with the seller of the whole mass in the proportion in which the
definition share bought bears to the mass
o The aliquot share of each owner can be determined only by the measurement of the entire mass
 RISK OF LOSS As co-owner, the whole mass is at risk of all the parties interested in it, including the buyer, in proportion to
their various holdings
 APPLICABILITY TO NONFUNGIBLE GOODS It may also be applied to goods not strictly fungible in nature.
o Eg. Barrels of flour, bales of cotton, cattle, sheep
ii. Thing must be licit
Art. 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered.
a) In general
REQUISITES CONCERNING OBJECT:
(1) Things. Aside from being (a) determinate, the law requires that the subject matter must be (b) licit or lawful, that is, it should not
be contrary to law, morals, good customs, public order, public policy and should not be (c) impossible. In other words, like any other
object of a contract, the thing must be within the commerce of men.
(2) Rights. All rights which are not intransmissible or personal may also be the object of sale, like the right of usufruct, the right of
conventional redemption, credit, etc.
EX. Intransmissible by law: Right to vote, right to public office, marital and parental rights, etc.
EX. Personal in character: Right to be a partner in partnership, right to act as an agent of another, right of the bailee to use the
thing loaned in a contract of commodatum
NOT ALLOWED:
- No contract may be entered upon future inheritance EXCEPT in cases expressly authorized by law.
- While services may be the object of a contract, they cannot be the object of a contract of sale.
b) Illicit things
If subject matter of the sale is ILLICIT, the contract is VOID and cannot, therefore, be RATIFIED. In such a case, the rights and
obligations of the parties are determined by applying the following articles of the Civil Code (IN PARI DELICTO RULE):
Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal
offense, both parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted. Moreover, the
provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of
the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not
be bound to comply with his promise.
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules
shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or
demand the performance of the other's undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the
fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any
obligation to comply his promise.
Art. 1409. The following contracts are INEXISTENT and VOID from the beginning:
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iii. Things must be existing goods or future goods (potential existence, mere hope of expectancy, things in litigation, things
subject to a resolutory condition)
Art. 1461. Things having a potential existence may be the object of the contract of sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. The
sale of a vain hope or expectancy is void.
Art. 1462. The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or
goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale, in this Title called "future
goods." There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may
not happen.
GOODS WHICH MAY BE THE OBJECT OF SALE:

(1) Existing goods or goods owned or possessed by the seller;
(2) Future goods or goods to be MANUFACTURED (like the sale of milk bottles to be manufactured with the name of the buyer
pressed in the glass), RAISED (sale of the future harvest of palay from a rice field), or ACQUIRED (sale of a definite parcel of
land the seller expects to buy) AFTER the perfection of the contract of sale
FUTURE GOODS AS OBJECT OF SALE

A sale of future goods, even though the contract is in the form of a present sale, is VALID only as an EXECUTORY contract to
be fulfilled by the acquisition and delivery of the goods specified.
-> Property or goods which at the time of the sale are not owned by the seller but which thereafter are to be acquired by him, cannot
be the subject of an executed sale but may be the subject of a contract for the future sale and delivery thereof even though the
acquisition of the goods depends upon a contingency which may or may not happen. Vendor ASSUMES RISK of acquiring title and
making the conveyance or responding in damages for the vendees loss of his bargain.
(1) Par. 1 does not apply if the goods are to be manufactured especially for the buyer and not readily saleable to others in the
manufacturers regular course of business. The contract, in such case, must be considered as one for a piece of work. (ex.
Buy a table from a person who outsources it from somewhere future good BUT if I buy a table from him who makes it
specifically for me, NOT contract of sale/ future good but CONTRACT for piece of work )
(2) Art. 1462 contemplates a contract of sale of SPECIFIC goods where one of the parties binds himself to transfer the ownership
of and deliver a determinate thing and the other to pay a price certain. Requires that there be A DELIVERY OF GOODS,
actual or constructive, to be applicable. Does not apply to a transaction where there was no such delivery; neither was there
any intention to deliver a determinate thing.
a) Sale of things having a potential existence

The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. The
sale of a vain hope or expectancy is void.
POTENTIAL EXISTENCE: It is reasonably certain to come into existence as the natural increment or usual incident of something in
existence already belonging to the seller, and the title will vest in the buyer the moment the thing comes into existence. (eg. Biik sa
buntis na baboy, wine from a vine, grain a field may grow, milk of a cow, wool from a sheep, what may be cast from a fishermans net,
goodwill of a trade)
-> The thing sold, must be SPECIFIC and IDENTIFIED. They must also be OWNED BY THE VENDOR at the time.
b) Sale of mere hope of expectancy

The efficacy of the sale of a mere hope or expectancy is deemed SUBJECT to the condition that the thing will come into existence.
The sale of a vain hope or expectancy is VOID.
-> Sale refers to an EXPECTED THING which is not yet in existence, and not to the hope or expectancy which already exists, in view
of the condition that the thing will come into existence.
-> VALID even if the thing hope or expected does not come into existence UNLESS the hope or expectancy is VAIN, in which case, the
sale is VOID
-> eg. winnings in a judgement; hope of winning a prize in sweepstakes ticket
SALE OF THING EXPECTED or EMPTIO REI SPERATAE SALE OF HOPE ITSELF or EMPTIO SPEI
Sale of thing not yet in existence subject to the condition that the Sale of the hope itself that the thing will come into existence,
thing will exist and on failure of the condition, the contract where it is agreed that the buyer will pay the price even if the thing
becomes ineffective and hence, the buyer has no obligation to pay does not eventually exist.
the price.
Future thing is certain as to itself but uncertain as to its quantity It is not certain that the thing itself will exist, much less its quantity
and quality. Such sale is subject to the condition that the thing will and quality
come into existence, whatever its quantity or quality
Contract deals with a future thing Contract relates to a thing which exists or is present the hope or
expectancy
Sale is subject to the condition that the thing should exist, so that Produces effect even though the thing does not come into
if it does not, there will be no contract by reason of the absence of existence because the object of the contract is the hope itself,
an essential element unless it is a vain hope or expectancy (like sale of falsified
sweepstake ticket which can never win)
 PRESUMPTION IN CASE OF DOUBT: Presumption is in favor of emptio rei speretae which is in keeping with commutative
character of the contract
o A contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative
obligation but such party anticipates performance by the other from the very start
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o Where in a sale, the obligation of one party can be lawfully subordinated to an uncertain event, so that the other
understands that he assumes that risk of receiving nothing for what he gives as in the case of a sale of hopes or
expectations (emptio spei), it is not in the usual course of business to do so, hence, the contingent character of the
obligation must clearly appear.
c) Sale of things in litigation

Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.
d) Sale of things subject to a resolutory condition

Art. 1465. Things subject to a resolutory condition may be the object of the contract of sale.
RESOLUTORY CONDITION: is an uncertain event upon the happening of which the obligation (or right) subject to it is extinguished.
Hence, the right acquired in virtue of the obligation is also extinguished.
One of the obligations of the vendor is to transfer the ownership of the thing object of the contract. If the resolutory condition
attaching to the object of the contract, which object may include things as well as rights, should happen, then the vendor cannot
transfer the ownership of what he sold since there is no object.
Eg. S sold to B parcel of land with condition that S can repurchase w/n 2 years; B sold land to C before 2 years; S repurchased before
to years; Sale of B to C falls.
iv. Owner must have right to transfer ownership

Art. 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered.
(1) Seller must be OWNER or AUTHORIZED by owner of the thing sold.

-> one cannot transmit or dispose of that which does not belong to him (nemo dat quod non-habet)
-> one can sell only what one owns or is authorized to sell, and the buyer can acquire no more than what the seller can
transfer legally
-> Look at Baviera and missing page
(5) Where real property, subject of unrecorded sale, subsequently mortgaged by seller which mortgage was registered
-> The mortgagees registered mortgage right over the property is inferior to that of the buyers unregistered right. The unrecorded sale
between the buyer and the seller is preferred for the reason that if the seller (original owner) had parted with his ownership of the thing
sold then, he no longer had ownership and free disposal of that thing so as to be able to mortgage it again.
Art. 1463. The sole owner of a thing may sell an undivided interest therein.
-> Look at Baviera and missing page
a) In general
b) When right to transfer ownership must exist
c) Sale by absolute owner
d) Sale by co-owner
e) Sale by agent
f) Sale by trustee
g) Sale by one with voidable title
Art. 1506. Where the seller of goods has a voidable title thereto, but his title has not been avoided at the time of the sale, the buyer
acquires a good title to the goods, provided he buys them in good faith, for value, and without notice of the seller's defect of title.
REQUISITES FOR VALID CONTRACT OF SALE:

 For SELLER
o Voidable title of goods (not VOID because no right from the start)
o Not avoided at time of sale (if annulled, no right anymore)
 For BUYER
o Good faith
o For value
o Without notice of the sellers defect of title
h) Sale by non-owner
Art. 1505. Subject to the provisions of this Title, where goods are sold by a person who is not the owner thereof, and who does not
sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had,
UNLESS the owner of the goods is by his conduct precluded from denying the seller's authority to sell.
Nothing in this Title, however, shall affect:
(1) The provisions of any factors' act, recording laws, or any other provision of law enabling the apparent owner of goods to
dispose of them as if he were the true owner thereof;
(2) The validity of any contract of sale under statutory power of sale or under the order of a court of competent jurisdiction;
(3) Purchases made in a merchant's store, or in fairs, or markets, in accordance with the Code of Commerce and special laws.
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GENERAL RULE: If seller is not owner or has no authority or consent from owner, buyer acquires no better title to goods than the
seller had
EXCEPTION: (Estoppel to deny sellers authority) If by conduct of owner, he is precluded from denying sellers authority
NOT AFFECT: (Look at De Leon and Baviera)
- Factors acts, recording laws
- Judicial sale
- Purchase at merchants store, market or fair
v. Practice notes: object or subject matter of the contract

a) Sale of shares sale of nominee shares, sale at less than fair market value, sale of shares in a corporation
engaged in a partly-nationalized activity, right of first refusal, pre-emptive rights, tag-along rights, drag-along rights, tax
requirements, registration requirements
b) Sale of land - sale of land to aliens, tax requirements, registration requirements, sale of land acquired by
homestead or free patent
c) Sale of assets sale of all or substantially all of the assets, sale in bulk
d) Sale of motor vehicles registration requirements
C. Cause or consideration
i. Price certain
a) When price certain
Art. 1469. In order that the price may be considered certain, it shall be sufficient that it be so with reference to another thing certain,
or that the determination thereof be left to the judgment of a special person or persons.
Should such person or persons be unable or unwilling to fix it, the contract shall be INEFFICACIOUS, UNLESS the parties
subsequently agree upon the price.
If the third person or persons acted in bad faith or by mistake, the COURTS may fix the price.
Where such third person or persons are prevented from fixing the price or terms by fault of the seller or the buyer, the party not
in fault may have such remedies against the party in fault as are allowed the seller or the buyer, as the case may be.
WHEN PRICE CONSIDERED CERTAIN

(1) No sale if price not certain or ascertainable.
-> Price ought to be settled for there can be no sale without a price
-> It must be capable of being ascertained in money or its equivalent
* MONEY: currency; ITS EQUIVALENT: promissory notes, checks and other mercantile instruments generally
accepted as representing money
-> The fact that the exact amount to be paid for the thing sold is not precisely fixed, is no bar to an action to recover such
compensation, provided the contract, by its terms furnishes a basis for ascertaining the amount agreed upon.
(2) Cases when price considered certain
-> Parties have fixed or agreed upon a definite amount
-> It be reference to another thing certain (eg. gas, fixed price nung barrel sa world market pero gas hindi, nagfafluctuate; in
reference sa barrel, price certain pa rin yung sa gas; usu. Example dito yung mga finished product na hindi fixed ang price pero yung
raw material na ginagamit para sa kanila ay fixed)
EFFECT WHERE PRICE FIXED BY THIRD PESON DESIGNATED

GENERAL RULE: The price fixed by a third person designated by the third parties is BINDING upon them
EXCEPTIONS:
(1) When third person acts in BAD FAITH or by MISTAKE as when the third person fixed the price having in mind not the
thing which is the object of the sale, but another analogous or similar thing
-> court can then fix the price
-> Mere error in judgement cannot serve as basis for impugning the price fixed
(2) When the third person disregards specific instructions or the procedure marked out by the parties or the data given him,
thereby fixing an arbitrary price
-> court may fix the price
EFFECT WHERE PRICE NOT FIXED BY THIRD PERSON DESIGNATED

 If reason is that he REFUSES or CANNOT FIX IT (w/out fault of seller or buyer)
o CONTRACT IS INEFFICACIOUS as if no price had been agreed upon EXCEPT if parties agree on price
 If reason is that he is PREVENTED (through fault of seller or buyer)
o Party not in fault may obtain redress against the party in fault: RESCISSION or FULFILLMENT with damages in
either case
o If FULFILLMENT, courts will fix the price
Art. 1472. The price of securities, grain, liquids, and other things shall also be considered CERTAIN, when the price fixed is that
which the thing sold would have on a definite day, or in a particular exchange or market, or when an amount is fixed above or
below the price on such day, or in such exchange or market, provided said amount be certain.
PRICE ON A GIVEN DAY AT PARTICULAR MARKET

- Follows the principle in Article 1469 that a price is considered CERTAIN if it could be determined with reference to another
thing certain
- “Provided said amount be certain”. When an amount is fixed above or below the price on a given day or in a particular
exchange or market, the said amount must be CERTAIN; otherwise, the sale is inefficacious because the price cannot be
determined
- This article is especially applicable to fungible things like securities, grain, liquids, etc. the price of which are subject to
fluctuations of the market
Art. 1473. The fixing of the price can NEVER be left to the discretion of one of the contracting parties. However, if the price fixed by one
of the parties is accepted by the other, the sale is perfected.
FIXING OF PRICE BY ONE OF THE CONTRACTING PARTIES, NOT ALLOWED

Reason: NO CONSENT or meeting of minds
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(1) If consent is essential to a contract of sale, the determination of the price cannot be left to the discretion of one of the
contracting parties; otherwise, it cannot be said that the other consented to a price he did not and could not previously know.
The validity of compliance of the contact cannot be made to depend upon the will of one party.
(2) Moreover, to be JUST, the price must be determined IMPARTIALLY by both parties or left to the judgement of a specified
person or persons.
However. Where the price fixed by one party is accepted by the other, the contract is deemed perfected because in this case, there
exists a true meeting of minds upon the price.
b) Effect when price not certain

Art. 1474. Where the price cannot be determined in accordance with the preceding articles, or in any other manner, the contract is
INEFFICACIOUS. However, if the thing or any part thereof has been delivered to and appropriated by the buyer he must pay a
REASONABLE PRICE therefore. What is a reasonable price is a question of fact dependent on the circumstances of each
particular case.
EFFECT OF FAILURE TO DETERMINE PRICE

(1) Where contract executory. If the price cannot be determined in accordance with NCC 1469 and NCC 1472, or in any other
manner, and the bargain is still executory, the contract is without effect. Price certain is an essential element of the contract of
sale. Consequently, there is no obligation on the part of the vendor to deliver the thing and on the part of the vendee to pay.
(2) Where delivery has been made
ii. Lack of cause or consideration

iii. Inadequacy of the price

Art. 1470. Gross inadequacy of price does not affect a contract of sale, EXCEPT as it may indicate a defect in the consent, or that
the parties really intended a donation or some other act or contract.
a) When price inadequate

GENERAL RULE: Does not affect contract of sale
EXCEPTION: If it may indicate a defect of consent or parties really intended a donation or some other act or contract
b) Effect of inadequate price

- on voluntary sales (sales with contract, etc.)
GENERAL RULE: Mere inadequacy of the price or alleged hardness of the bargain does not affect its validity when both parties are in
a position to form an independent judgment concerning the transaction (if free from invalidating defects)
 A valuable consideration, however small or nominal, if given or stipulated in GOOD FAITH is, in the absence of fraud,
sufficient
 WHEN TO DETERMINE IF PRICE ADEQUATE: Price obtaining at the date of execution of contract not those obtaining a
number of years later
 WHERE LOW PRICE INDICATES DEFECT IN CONSENT
o When fraud, mistake or undue influence is present (contract annulled not bec. of inadequacy but bec. consent is
vitiated)
o Contracts of sale entered into by guardians or representatives of absentees whenever the wards or absentees whom
they represent suffer LESION by more than ¼ of the value of the things which are the object thereof (RESCISSIBLE)
 WHERE LOW PRICE DOES NOT INDICATE DEFECT
o Not proven. Allegation of inadequacy of price must be proven
o When parties agree on a price as the actual consideration, the sale is not simulated and therefore valid despite
inadequacy of price
 WHERE PRICE SO LOW AS TO BE SHOCKING TO CONSCIENCE
o a man in his senses and not under a delusion: Sale may be set aside and declared an equitable mortgage to
secure a loan
o But where the price paid is much higher than the assessed value of property and sale is effected by a father to his
daughter in which filial love must be taken into account, the price is not to be construe as so inadequate
- on involuntary sales (auction sale, judicial sale)

Eg. A judicial or execution sale is one made by a court with respect to the property of a debtor for
the satisfaction of his indebtedness (extrajudicial foreclosure sale, judicial foreclosure sale, ordinary execution sale)
GENERAL RULE: Mere inadequacy of price is not a sufficient ground for the cancellation of an execution sale if there is no showing
that in the event of a resale, a better price can be obtained.
 WHERE SELLER IS GIVEN THE RIGHT TO REPURCHASE (Valid)
o Validity is not affected where the law gives to the owner the right to redeem, as when a sale is made at public
auction, upon the theory that the lesser the price, the easier it is for the owner to effect the redemption
o He may reacquire property or also sell his right to redeem and thus recover the loss he claims he suffered by reason
of the price obtained at the execution sale
EXCEPTION: Where price is so low as to be shocking to the conscience (may be set aside)
iv. Simulated price

Art. 1471. If the price is simulated, the sale is VOID, but the act may be shown to have been in reality a donation, or some other
act or contract.
a) When price simulated

SIMULATION: Occurs when an apparent contract is a declaration of a fictitious will deliberately made by agreement of the parties, in
order to produce, for the purpose of deception, the appearance of a juridical act which does not exist or is different from that which was
really executed
REQUISITES:
 An outward declaration of will different from the will of the parties
 The false appearance must have been intended by mutual agreement
 The purpose is to deceive third persons
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b) Effect of simulated price
GENERAL RULE: Void, if absolute
(1) If contract is not shown to be a donation or any other act or contract transferring ownership because the parties do not intend
to be bound at all: Ownership not transferred, CONTRACT VOID; action does not prescribe
(2) Purchase price not paid although deed of sale states it has been paid: NULL and VOID for lack of consideration
-> Nonpayment of price does not prove simulation, at most it gives the seller the right to sue for collection (however, if it is
stated in the deed that it has already been paid -> Then simulated). In a contract of sale, payment of the price is a resolutory
condition and the remedy of the seller is to exact fulfillment or in case of substantial breach, to rescind the contract
(3) If there is no meeting of the minds of the parties as to the price, because the price stipulated in the contract is simulated, the
contract is VOID. Art. 1471 states that if the price is simulate, SALE IS VOID.
EXCEPTION: Valid, if
(1) When the vendor really intended to transfer the thing gratuitously: Sale is VOID but contract VALID as donation
(2) The fact that the seller continues to pay realty taxes on the land sold even after the execution of the contract does not
necessarily prove ownership, much less simulation of said contract
(3) RELATIVE SIMULATION: When the parties intended to be bound by the contract of sale, except that the deed did not reflect
the actual purchase price. Contract remains VALID and ENFORCEABLE.
-> Subject to REFORMATION in order that the contract may express the true intention of the parties
v. Payment of earnest money

Art. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the
perfection of the contract.
EARNEST MONEY (DOWNPAYMENT): is something of value given by the buyer to the seller to show that the buyer is really in
earnest, and to bind the bargain. It is actually a partial payment of the purchase price and is considered proof of the perfection of the
contract.
 It forms part of the consideration only if the sale is perfected and the sale is consummated upon full payment of the purchase
price.
 Since earnest money constitutes an advance or down payment, it must be deducted from the total price
 By agreement, the amount may be merely a deposit of what would eventually become earnest or downpayment and not as
part of the purchase price or perfection of contract but only as a GUARANTEE that the buyer would not back out. If thats the
case, its not really EARNEST MONEY but proof of the concurrence of all essential elements of contract which establishes
existence of perfected contract. THERE IS NO SALE WHERE THE PARTIES STILL HAVE TO AGREE ON THE
ACCEPTABLE TERMS OF PAYMENT.
 ART. 1454. Delivery of part of the purchase price should not be understood as constituting earnest money to bind the
agreement in the absence of something in the contract showing that such was the intention of the parties
EARNEST MONEY OPTION MONEY (1479, par 2)

Part of the purchase price Money given as distinct consideration for an option contract
Given only where there is already a perfected sale Applies to a sale not yet perfected
 Add to notes 1482 Pg 122
vi. Practice notes: cause or consideration

- how payment effected: cash, check, wire transfer, etc.
D. Perfection of contract; consummation of contract

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the
law governing the form of contracts.
PERFECTION OF CONTRACT (follows the general rule that contracts are perfected by mere consent)
(1) Moment of consent
-> CONSENSUAL: It is perfect at the moment of consent without the necessity of any other circumstances
-> PERFECTED: At the moment of meeting of minds upon THING (subject of contract) and the PRICE
-> reciprocal obligations of the parties arise even when neither has been delivered
a. Contract not invalid merely because no signature of vendee; Essence of contract is conformity of the parties on
TERMS of contract and the ACCEPTANCE by one of the offer
b. Existence of MUTUAL CONSENT (being a state of mind) inferred from the confluence of TWO ACTS
i. An offer certain as to the object of the contract and its consideration
ii. An acceptance of the offer which is absolute in that it refers to the exact object and consideration embodied
in said offer (NO COUNTER OFFER)
c. INCAPACITATED: Not incompetent by mere advanced years but if these have impaired mental faculties so as to
prevent a person from intelligently protecting his property rights, the INCAPACITATED
(2) Conduct of parties: Appropriate conduct may show consent
a. Action of parties may indicate that a binding obligation has been undertaken
b. No perfected sale if conditional and condition is not fulfilled
c. A letter of intent to buy and sell is neither a contract to sell nor a conditional contract of sale
(3) Transfer of ownership
a. Sale by itself does not transfer or affect ownership. It just creates the obligation to transfer ownership.
b. Ownership is not transferred until the delivery of the thing.
c. The parties may however stipulate that the ownership of the thing even if delivered shall not pass to purchaser until
full payment.
(4) Form of contract
GENERAL RULE: Binding regardless of form
EXCEPTION: (must comply with form)
-> Falls within Statute of Frauds
-> Falls within any other applicable statute which requires a certain form for its enforceability of validity
EXAMPLES:
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 Contract of sale in private instrument -> contract binding between parties upon perfection and a party may compel the other to
execute a public instrument embodying the contract
 Sale of real estate -> Legally effective against third persons only from the date of its registration
(5) Consent reluctantly given

 Still voluntary; VALID
(6) Notarized deed of sale states receipt of price

 To overcome a public document solemnly executed before the notary public, the evidence to the contrary must be clear,
strong and convincing. PAROL EVIDENCE not suffice
(7) Applicants qualification to buy still subject to investigation

 Mere application to buy because still subject to revocation
(8) Chattel mortgage of car by mortgagor-buyer prior to transfer of title to his name
 Does not render the said mortgage by the buyers invalid, because the mortgagors were already the owner of the car when the
mortgage was executed
 Registration for transfer merely administrative proceeding which does not bear relation to the contract of sale
(9) Breach of contract by one party

 Injured party may sue fulfillment or rescission with payment of damages in either case
 Violation of reciprocity between the parties brought about by a breach of obligation by one of them
WHEN DEFINITE AGREEMENT ON MANNER OF PAYMENT ESSENTIAL

GENERAL RULE: It is not the act of payment of price that determines the validity of the contract so despite the manner of payment
or even breach of that, a contract is binding
EXCEPTION: (Courts may fix period or periods of payment where there is lack of agreement to the same)
(1) In INSTALLMENTS: Not perfected contract of sale if the parties still have to agree on how and when downpayment and
install payments are to be made
(2) When parties stipulate that in addition to the subject matter and the price, conditions and terms of payment are essential
or material to the contract (usu, terms and conditions are accidental not essential BUT not here)
(3) QUALIFIED ACCEPTANCE
(4) An agreement on the price but a disagreement on the manner of its payment will not result in consent. This lack of
consent is separate and distinct from lack of consideration. An agreement on terms of payment is integral to the element
of a price certain.
EFFECT OF FAILURE TO PAY STIPULATED PRICE
 GENERAL RULE: Validity of contract not vitiated

FAILURE TO PAY CONSIDERATION LACK OF CONSIDERATION
There is a consideration but it has not been paid There is no price OR Price stated as paid never been paid
(simulated)
Results in a right to demand fulfillment or cancellation of the Prevents the existence of a valid contract
obligation under an existing valid contract
VALID, demand fulfillment NULL AND VOID; No effect
 REMEDY OF VENDOR
o Demand specific performance or rescission with damages in either case
o Best evidence of payment of purchase price is official receipt not sales invoices
RIGHT OF OWNER TO FIX HIS OWN PRICE

 Even if unreasonable/small or nominal consideration, it is up to prospective buyer to accept or reject it
E. Items to note
i. Perfection of sale by auction

Art. 1476. In the case of a sale by auction:
(1) Where goods are put up for sale by auction in lots, each lot is the subject of a separate contract of sale.
(2) A sale by auction is PERFECTED when the auctioneer announces its perfection by the fall of the hammer, or in other
customary manner. Until such announcement is made, any bidder may retract his bid; and the auctioneer may withdraw the goods
from the sale unless the auction has been announced to be without reserve.
(3) A right to bid may be reserved expressly by or on behalf of the seller, UNLESS otherwise provided by law or by stipulation.
(4) Where notice has not been given that a sale by auction is subject to a right to bid on behalf of the seller, it shall not be lawful for
the seller to bid himself or to employ or induce any person to bid at such sale on his behalf or for the auctioneer, to employ or induce
any person to bid at such sale on behalf of the seller or knowingly to take any bid from the seller or any person employed by him. Any
sale contravening this rule may be treated as fraudulent by the buyer. (n)
RULES GOVERNING AUCTION SALES

(1) Sales of separate lots by auction are separate sales.
- Where separate lots are subject of separate biddings and are separately knocked down, there is a separate contract in regard
to each lot.
- As soon as the hammer falls on the first lot, the purchaser of that lot has a complete and separate bargain. He need not male
another.
- When the 2nd lot is put up and knocked down to the highest bidder, there is a separate complete contract as to the said lot
whether the bidder who secured the first lot or whether another person happens to be the highest bidder.
- Possible that the parties may subsequently consolidate all the purchases into one transaction as by giving a single note for
the aggregate price
(2) Sale perfected by the fall of the hammer

- In putting up the goods for sale, the seller is merely making an invitation to those present to make offers which they do by
making bids, one of which is ultimately accepted.
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- Each bid is an offer and the contract is perfected only by the fall of the hammer or in other customary manner.
- It follows that the bidder may retract his bid and the auctioneer may withdraw the goods from sale any time before the hammer
falls.
- However, if the sale has been announced to be without reserve, the auctioneer cannot withdraw the goods from sale once a
bid has been made and the highest bidder has a right to enforce his bid.
(3) Right of seller to bid in the auction

- The seller or his agent may bid in an auction sale provided
a. Such right was reserved
b. Notice was given that the sale is subject to a right to bid on behalf of the seller
i. If no notice: UNLAWFUL FOR SELLER
- unlawful to bid either directly or indirectly or for the auctioneer to employ or induce any person to bid on
behalf of the seller
ii. REASON: Prevent puffing or secret bidding by or on behalf of the seller by people who are not themselves
bound
- The employment of a puffer or by bidder to enhance or inflate the price of the goods sold is a FRAUD upon
the purchaser and a sufficient ground for relieving him from his bid and avoiding the sale.
- This is true even if the employment of the puffer by the auctioneer was xxx
c. Right to bid by the seller is not prohibited by law or stipulation
 NOTES: putol pg 84
ii. Expropriation
Art. 1488. The expropriation of property for public use is governed by special laws. (1456)
EXPROPRIATION OF PROPERTY FOR PUBLIC USE
- The procedure for the exercise of the power of eminent domain is provided for in Rule 67 ROC. Expropriation must be decreed by
competent authority and for public use and always upon the payment of just compensation. (Art. 435, par. 1, Civil Code; Art. III, Sec. 9,
CONST.)
- Art. 435. No person shall be deprived of his property except by competent authority and for public use and always upon payment of
just compensation. Should this requirement be not first complied with, the courts shall protect and, in a proper case, restore the owner
in his possession. (349a)
Section 9. Private property shall not be taken for public use without just compensation.
iii. Judicial sales

Art. 1541. The provisions of the two preceding articles shall apply to judicial sales. (n)
Art. 1539. The obligation to deliver the thing sold includes that of placing in the control of the vendee all that is mentioned in the
contract, in conformity with the following rules:
If the sale of real estate should be made with a statement of its area, at the rate of a certain price for a unit of measure or number, the
vendor shall be obliged to deliver to the vendee, if the latter should demand it, all that may have been stated in the contract; but, should
this be not possible, the vendee may choose between a proportional reduction of the price and the rescission of the contract, provided
that, in the latter case, the lack in the area be not less than one-tenth of that stated.
The same shall be done, even when the area is the same, if any part of the immovable is not of the quality specified in the contract.
The rescission, in this case, shall only take place at the will of the vendee, when the inferior value of the thing sold exceeds one-tenth of
the price agreed upon.
Nevertheless, if the vendee would not have bought the immovable had he known of its smaller area of inferior quality, he may rescind
the sale. (1469a)
Art. 1540. If, in the case of the preceding article, there is a greater area or number in the immovable than that stated in the contract, the
vendee may accept the area included in the contract and reject the rest. If he accepts the whole area, he must pay for the same at the
contract rate.
iv. Bilateral promise to buy and sell

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise
to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration
distinct from the price. (1451a)
3 KINDS OF PROMISE TREATED IN THIS ARTICLE

(1) An accepted unilateral promise to sell in which the promisee (acceptor) elects to buy;
(2) An accepted unilateral promise to buy in which the promisee (acceptor) elects to sell; and
(3) A bilateral promise to buy and sell reciprocally accepted in which either of the parties chooses to exact fulfillment
EFFECT OF UNACCEPTED UNILATERAL PROMISE

-> No juridical effect or legal bond
- POLICITACION: Unaccepted imperfect promise or offer
- A period may be given to the offeree within which to accept the offer.
v. Options
MEANING OF OPTION: is a contractual privilege existing in one person for which he has paid a consideration which gives him the right
to buy/sell, for example, a certain merchandise or a certain specified property, from/to another person, if he chooses, at any time within
the agreed period at a fixed price, or under or in compliance with certain terms and conditions.
NATURE OF OPTION CONTRACT

(1) An option is a contract. It is a preparatory contract, separate and distinct from the main contract itself (subject matter of the
option) which the parties may enter into upon the consummation of the option. It merely secures the privilege to buy/sell.
(2) It gives the party granted the OPTION or the right to DECIDE, whether or not to enter into a principal contract, while it BINDS
the party who has given the option, not to enter into a principal contract with any other person DURING the agreed time and
within that period, to ENTER into such contract with the one to whom the option was granted if the latter should decide to use
the option.
- RIGHT OF FIRS REFUSAL: while the object might be made determinate, the exercise of the right would be dependent not
only on the grantors eventual intention to enter into a binding juridical relation with another but also on terms, including the
price, that are yet to be firmed up.
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(3) OPTION v EARNEST: When EARNEST MONEY is given, the buyer is BOUND to PAY the balance, while the WOULD-BE
BUYER who gives OPTION MONEY is not required to buy but may even forfeit it depending on the terms of the option.
- OPTION MONEY BECOME EARNEST MONEY: If the parties so agree, or it may actually be in the nature of earnest money
when considered with the other terms or words used in the contract.
- NOTE: Art. 1482 speaks of a contract of sale, note of earnest given in a contract to sell. Earnest money is considered part of
the purchase price only if the sale is consummated upon full payment of the purchase price.
vi. Contract to sell

CONTRACT OD SALE CONTRACT TO SELL/EXCLUSIVE RIGHT AND
PRIVILEGE TO PURCHASE
Transfer of title Title passes to buyer upon delivery of the thing WITH STIPULATION that ownership in the thing shall not
sold pass to the purchaser until he has fully paid the price:
Ownership is reserved in the seller and is not to pass until
the full payment of the purchase
WITHOUT STIPULATION (especially where the buyer took
possession of the property upon execution of contract): What
the parties contemplated is contract of absolute sale
Payment of Nonpayment of price is a negative resolutory Full payment is positive suspensive condition, the failure of
price condition and remedy of seller is to exact which is not a breach, casual or serious, of the contract but
fulfillment or to rescind the contract simply an event that prevents the obligation of the vendor to
convey title from acquiring binding force.
- Where the seller promises to execute a Deed of absolute
sale upon full payment of the purchase price, the agreement
is only a contract to sell.
Ownership of Vendor has lost and cannot recover the ownership Title remains in the vendor if the vendee does not comply with
vendor of the thing sold and delivered, actually or the condition precedent of making payment at the time
constructively, UNTIL and UNLESS the contract specified in the contract. There is no actual sale UNLESS and
of sale itself is resolved and set aside UNTIL full payment of the price is made
Rescission of If the vendor should eject the vendee for failure to meet the
the contract condition precedent he is enforcing xxx (Kulang)
vi. Assignment of credits and incorporeal rights

Art. 1624. An assignment of creditors and other incorporeal rights shall be perfected in accordance with the provisions of Article
1475. (n)
- 1475: meeting of the minds
Art. 1625. An assignment of a credit, right or action shall produce no effect as against third person, UNLESS it appears in a public
instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property. (1526)
Art. 1626. The debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation.
(1527)
Art. 1627. The assignment of a credit includes all the accessory rights, such as a guaranty, mortgage, pledge or preference. (1528)
Art. 1628. The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale,
UNLESS it should have been sold as doubtful; but NOT for the solvency of the debtor, UNLESS it has been so expressly stipulated
or UNLESS the insolvency was prior to the sale and of common knowledge.
Even in these cases he shall only be liable for the price received and for the expenses specified in No. 1 of Article 1616.
The vendor in bad faith shall always be answerable for the payment of all expenses, and for damages. (1529)
Art. 1629. In case the assignor in good faith should have made himself responsible for the solvency of the debtor, and the
contracting parties should not have agreed upon the duration of the liability, it shall last for one year only, from the time of the
assignment if the period had already expired.
If the credit should be payable within a term or period which has not yet expired, the liability shall cease one year after the maturity.
(1530a)
Art. 1630. One who sells an inheritance without enumerating the things of which it is composed, shall only be answerable for his
character as an heir. (1531)
Art. 1631. One who sells for a lump sum the whole of certain rights, rents, or products, shall comply by answering for the legitimacy
of the whole in general; but he shall not be obliged to warrant each of the various parts of which it may be composed, EXCEPT in
the case of eviction from the whole or the part of greater value. (1532a)
Art. 1632. Should the vendor have profited by some of the fruits or received anything from the inheritance sold, he shall pay the
vendee thereof, if the contrary has not been stipulated. (1533)
Art. 1633. The vendee shall, on his part, reimburse the vendor for all that the latter may have paid for the debts of and charges
on the estate and satisfy the credits he may have against the same, UNLESS there is an agreement to the contrary. (1534)
Art. 1634. When a credit or other incorporeal right in litigation is sold, the debtor shall have a right to extinguish it by reimbursing the
assignee for the price the latter paid therefor, the judicial costs incurred by him, and the interest on the price from the day on which
the same was paid.
A credit or other incorporeal right shall be considered in litigation from the time the complaint concerning the same is answered.
The debtor may exercise his right within thirty days from the date the assignee demands payment from him.
Art. 1635. From the provisions of the preceding article shall be EXCEPTED the assignments or sales made:
(1) To a co-heir or co-owner of the right assigned;
(2) To a creditor in payment of his credit;
(3) To the possessor of a tenement or piece of land which is subject to the right in litigation assigned.
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Art. 1636. In the preceding articles in this Title governing the sale of goods, unless the context or subject matter otherwise requires:
(1) "Document of title to goods" 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 or transfer of goods, as proof of the possession or
control of the goods, or authorizing or purporting to authorize the possessor of the document to transfer or receive, either by
endorsement or by delivery, goods represented by such document.
"Goods" includes all chattels personal but not things in action or money of legal tender in the Philippines. The term includes growing
fruits or crops.
"Order" relating to documents of title means an order by endorsement on the documents.
"Quality of goods" includes their state or condition.
"Specific goods" means goods identified and agreed upon at the time a contract of sale is made.
An antecedent or pre-existing claim, whether for money or not, constitutes "value" where goods or documents of title are taken either in
satisfaction thereof or as security therefor.
(2) A person is insolvent within the meaning of this Title who either has ceased to pay his debts in the ordinary course of business or
cannot pay his debts as they become due, whether insolvency proceedings have been commenced or not.
(3) Goods are in a "deliverable state" within the meaning of this Title when they are in such a state that the buyer would, under the
contract, be bound to take delivery of them. (n)
Art. 1637. The provisions of this Title are subject to the rules laid down by the Mortgage Law and the Land Registration Law with
regard to immovable property. (1537a)
SALES REVIEWER
V. Formalities of contract of sale
A. In General (Arts. 1356, 1483)

Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites
for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of
the parties stated in the following article cannot be exercised. (1278a)
Art. 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract of sale may be made in
writing, or by word of mouth, or partly in writing and partly by word of mouth, or may be inferred from the conduct of the parties.
(n)
FORM OF CONTRACT OF SALE

- The form of a contract refers to the manner in which it is executed or manifested. A contract of sale has no prescribed form. It need
not contain a technical description of the subject property, real or personal. (Naraya v CA)
(1) GENERAL RULE: Contract valid in any form provided all the essential requisites are present. It may be in writing; it may be
oral; it may be partly in writing and partly oral. It may even be inferred from the conduct of parties. Sale is a consensual
contract and is perfected by mere consent.
EXCEPTIONS:
(2) Where form is required in order that a contract may enforceable. In case the contract of sale should be covered by the Statute
of Frauds, the law requires that the agreement (or some note or memorandum thereof) be in writing subscribed by the party
charged, or by his agent; otherwise, the contract cannot be enforced by action (1403[2]).
(3) Where form is required in order that a contract may be valid. Where the applicable statute requires that the contract of sale
be in a certain form for its validity, the required form must be observed in order that the contract may be both valid and
enforceable (Art. 1356)
(4) Where form is required only for the convenience of the parties. In certain cases, a certain form (ie. public instrument) is
required for the convenience of the parties in order that the sale may be registered in the Registry of Deeds to make effective
as against third persons the right acquired under such sale. As between the contracting parties, the form is not indispensable
since they are allowed by law to compel each other to observe that form (1357, 1358[1]). Hence, the fact that the Deed of Sale
of a parcel of land still had to be signed and notarized, and recorded in the Registry of Deeds does not mean that no contract
had already been perfected. A sale of land is valid regardless of the form it may have been entered into as long as the
requisites for a valid contract of sale are present.
On the other hand, the fact that a deed of sale is a notarized document does not necessarily justify the conclusion that the said
sale is a true conveyance to which the parties thereto are irrevocable bound. Though its notarization vests in its favor the presumption
of regularity and due execution (Manzano v Perez), it is not the function of the notary public to validate and make binding an instrument
never intended by the parties to have any binding legal effect upon them.
The intention of the parties still and always is the primary consideration in determining the true nature of the contract. Where
the vendor did not personally appear before the notary public, such fact raises doubt regarding the vendors consent to the sale
notwithstanding that the deed states the contrary.
An invalidly notarized deed of sale must be considered merely as a private document. Even if validly notarized, the deed would
still be classified as a private document if it is merely subscribed and sworn to by way of jurat but was not properly acknowledged.
i. Verbal
ii. Written
B. Form required for enforceability: Statute of Frauds (Art. 1403, 1405, 1406)
Art. 1403. The following contracts are UNENFORCEABLE, unless they are RATIFIED:
(1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted
beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made
shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party
21
charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
contents:
(a) An agreement that by its terms is not to be performed within a year from the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the
buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time
some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the
time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account
the sale is made, it is a sufficient memorandum;
(e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the failure to object to the
presentation of oral evidence to prove the same, or by the acceptance of benefit under them.
Art. 1406. When a contract is enforceable under the Statute of Frauds, and a public document is necessary for its registration in the
Registry of Deeds, the parties may avail themselves of the right under Article 1357.
i. Concept
Under the Statute of Frauds, the following contracts must be in writing; otherwise, they shall be unenforceable by action:
(a) Sale of personal property at a price not less than P500.00
(b) Sale of real property or of an interest therein regardless of the price involved
(c)Sale of property not to be performed within a year from the making thereof regardless of the nature of the property and the
price involved.
SALE OF REAL PROPERTY OR AN INTEREST THEREIN.

(1) A sale of a piece of land or interest therein when made through an agent is void unless the agents authority is in writing. (Art.
1874)
(2) For the sale of real property to be effective against third persons, the sale must be registered in the Registry of Deeds (or
Property) of the province or city where the property is located. The sale must be in a public document (eg. acknowledged
before a notary public or any public officer authorized by law to administer oath) for otherwise, the registration will be refused.
(3) The real purpose of registration of a contract of sale being to give notice to third persons and to protect the buyer against
claims of third persons arising from subsequent alienations by the vendor, it is certainly not necessary to give efficacy to the
deed of sale, as between the parties to the contract and their privies because actual notice is equivalent of registration. It is
settled that registration is not a mode of acquiring ownership.
(4) The sale of land in a private instrument is VALID and BINDING upon the parties, for the time-honored rule is that even a
verbal contract of sale of real estate produces legal effects between the parties, since sale is a consensual contract and is
perfected by mere consent.
(5) The fact that the notarization of a deed of sale of real property is false is of no consequence, for it need not be notarized; it is
enough that it be in writing.
MODE OF SATISFACTION OF THE STATUTE OF FRAUDS

The statute specifies 3 ways in which contracts of sales of goods within its terms may be binding, namely:
(1) The giving of a memorandum;
(2) Acceptance and receipt of part of the goods (or things in action) sold and actual receipt of the same (art. 1585)
(3) Payment or acceptance at the time some part of the purchase price
The requirement of a memorandum is obviously suitable either for a contract to sell or a sale. The other 2 modes of satisfaction
seem more naturally to apply to sales than to executory contracts.
The Statute of Frauds applies not only to goods but to things in action as well. Thus, an assignment of credit at a price not less
than P500.00 is within the operation of the Statute.
ii. Purpose
The purpose of the Statute of Frauds is to prevent fraud and perjury in the enforcement of obligations depending for their evidence
upon the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidence in writing.
(Claudel v CA)
iii. Scope
The Statute of Frauds refers to specific kinds of transactions and cannot apply to any other transaction that is not enumerated
therein. The application of the Statute presupposes the existence of a perfected contract. A right of first refusal is not among those
listed as unenforceable under the statute.
At best, it is a contractual grant not of the sale of the property involved, but of the right of first refusal over the property sought
to be sold. Hence, a right of first refusal need not be written to be enforceable and may be proven by oral evidence. (Rosencor v
Inquing)
STATUTE OF FRAUDS APPLICABLE ONLY TO EXECUTORY CONTRACTS

The Statute of Frauds is applicable only to executory contracts (where no performance, ie. delivery and payment has as yet
been made by both parties) and not to contracts which are totally (consummated) or partially performed.
It does not forbid oral evidence to prove a completed, executed or partially consummated sale.
REASON: The reason is that the partial performance like the writing, furnishes reliable evidence of the intention of the parties or the
existence of the contract.
A contrary rule would result in injustice or unfairness to the party who has performed his obligation, and would promote fraud
and bad faith on the part of the party who has not performed his obligation, for it would enable him to keep the benefits already derived
by him from the transaction and at the same time, evade the responsibilities or liabilities assumed or contracted by him.
CIRCUMSTANCES INDICATING PARTIAL PERFORMANCE. Where there is partial performance of a parol contract of sale of realty,
the principle excluding evidence of such contract does not apply.
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Other circumstances indicating partial performance of an oral contract of sale of realty are relinquishment of rights, continued
possession by a purchaser who is already in possession, building or improvements, tender of payment, rendition of services, payment
of taxes, surveying of the land at the vendees expense and acceptance of initial payment.
APPLICATION PRESUPPOSES EXISTENCE OF A PERFECTED CONTRACT. The application of the Statute of Frauds presupposes
the existence of a perfected contract and requires only that a note or memorandum subscribed by the party charged or by his agent be
executed in order to compel judicial enforcement. Where there is no perfected contract, there is no basis for the application of the
Statute.
iv. Ratification of contract
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are RATIFIED by the failure to object to the
presentation of oral evidence to prove the same, or by the acceptance of benefit under them.
PROCEDURE: Contracts infringing the Statute of Frauds are ratified when the defense fails to object to the introduction of parol
evidence, or asks questions on cross-examination, which elicits evidence proving the existence of a perfected contract of sale.
(Limketkai v CA)
PAROL EVIDENCE RULE (1989 REVISED RULES ON EVIDENCE)

SEC. 9. Evidence of written agreements. When the terms of an agreement have been reduced to writing, it is considered as
containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such
terms other than the contents of the written agreement.(GENERAL RULE)
However, a party may present evidence to modify, explain or add to the terms of the written agreement if he puts in issue in
his pleading: (EXCEPTIONS)
(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the written
agreement.
The term agreement includes wills. (7a)
C. Form required for validity (Art. 1356)

Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their
validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that
a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in
the following article cannot be exercised. (1278a)
i. Sale of a piece of land or any interest therein is made through an agent (Art. 1874)
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void. (n)
D. Form required for convenience of the parties (Art. 1358)

Art. 1358. The following must appear in a PUBLIC DOCUMENT:
(1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest therein a governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public
document, or should prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing in a public document.
All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of
goods, chattels or things in action are governed by Articles, 1403, No. 2 and 1405. (1280a)
E. Items to note: Electronic Commerce Act

TO NOTE
R.A. 8792 - AN ACT PROVIDING AND USE OF ELECTRONIC COMMERCIAL AND NON-COMMERCIAL TRANSACTIONS,
PENALTIES FOR UNLAWFUL USE THEREOF, AND OTHER PURPOSES (June 14, 2000)
LEGAL RECOGNITION OF ELECTRONIC DATA MESSAGES AND ELECTRONIC DOCUMENTS

(1) Validity and enforceability (Information not denied V/E solely on the ground that it is in the form of an electronic data message
or electronic document, purporting to give rise to such legal effect Sec. 6)
- Electronic documents shall have the legal effect, validity or enforceability as any other document or legal writing.
o A requirement under law that information is in writing is SATISFIED if the information is in the form of an
electronic data message or electronic document
o A requirement under law for a person to provide information in writing to another person is satisfied by the
provision of the information in an electronic data message or electronic document
o A requirement under law for a person to provide information to another person in a specified non-electronic form
is satisfied by the provision of the information in an electronic data message or electronic document if the
information is provided in the same or substantially the same form
o Nothing limits the operation of any requirement under law for information to be posted or displayed in specified
manner, time or location; or for any information or document to be communicated by a specified method unless
and until a functional equivalent shall have been developed, installed and implemented
(2) Incorporation by reference
- Information shall not be denied validity or enforceability solely on the ground that it is not contained in an electronic data
message or electronic document but is merely incorporated by reference in that electronic data message.
(3) Writing
- Where the law requires a document to be in writing, or obliges the parties to conform to a writing, or provides
consequences in the event information is not presented or retained in its original form, an electronic document is sufficient
if the latter:
o maintains its integrity and reliability; and
o can be authenticated so as to be usable for subsequent reference, in that:
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 i. it has remained complete and unaltered, apart from the addition of any endorsement and any
authorized change, or any change which arises in the normal course of communication, storage and
display; and
 ii. it is reliable in the light of the purpose for which it was generated and in the light of all relevant
circumstances.
(4) Original
- Where the law requires that a document be presented or retained in its original form, that requirement is met by an
electronic document or electronic data message if-
o i. There exists a reliable assurance as to the integrity of the electronic document or electronic data message from
the time when it was first generated in its final from and such integrity is shown by evidence aliunde (different
evidence than document itself); and
o ii. The document or message is capable of being displayed to the person to whom it is to be presented:
o For the purpose of (i) above:
 (a) the criteria for assessing integrity shall be whether the information has remained complete and
unaltered, apart from the addition of any endorsement and any change which arises in the normal
course of communication, storage and display ; and
 (b) the standard of reliability required shall be assessed in the light of purposed for which the
information was generated and in the light of all the relevant circumstances.
- An electronic data message or electronic document meeting and complying with the requirements of Sec. 6 or 7 of RA
8792 shall be the best evidence of the agreement and transaction contained therein.
(5) Solemn contracts

- No provision of R.A. 8792 shall apply to vary any and all requirements of existing laws on formalities required in the
execution of documents for their validity.
- Hence, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a
contract is proved in a certain way, that requirement is absolute and indispensable.
LEGAL RECOGNITION OF ELECTRONIC SIGNATURES

- An electronic signature relating to an electronic document or data message shall be equivalent to the signature of a person on a
written document if the signature:
(1) Is an electronic signature is defined in Sec. 6(g) of the Rules
(2) is proved by showing that a prescribed procedure, not alterable by the parties interested in the electronic document or data
message, existed under which:
(a) A method is used to identify the party sought to be bound and to indicate said partys access to the electronic document of
electronic data message necessary for his consent or approval through the electronic signature;
(b) Said method is reliable and appropriate for the purpose for which the electronic document or electronic data message was
generated or communicated, in light of all circumstances, including any relevant agreement;
(c) It is necessary for the party sought to be bound, in order to proceed further with the transaction, to have executed or
provided the electronic signature; and
(d) The other party is authorized and enabled to verify the electronic signature and to make the decision to proceed with the
transaction authenticated by the same.
The parties may agree to adopt supplementary or alternative procedures provided that the requirement of paragraph (b) are
complied with
COMMUNICATION OF ELECTRONIC DATA MESSAGES AND ELECTRONIC DOCUMENTS

(1) Formality and validity of electronic contracts
- Offer and acceptance and other requirements for formality and validity may be expressed in electronic or can be proved
electronic
- Except if stipulated
(2) Consummation of electronic transactions with banks
- Electronic transactions through banks is CONSUMMATED under IRR of BSP upon actual dispensing of cash or the debit
of one account and the corresponding credit to another, whether such transaction is initiated by the depositor or by an
authorized collecting party (applies to ATM transactions)
- All electronic transactions involving banks, quasi-banks, trust entities and other institutions under supervision of BSP shall
be covered by IRR issued by BSP
(3) Recognition by parties of electronic data message
- Electronic declaration of will or other statement between originator and addressee will not denied legal effect, validity or
enforceablity
F. Practice notes: formalities of contract of sale

- notarization
- consularization or authentication
VI. Covenants: obligations of the seller
PRINCIPAL OBLIGATIONS OF THE VENDOR

(1) to transfer the ownership of the determinate thing sold;
(2) to deliver the thing, with its accessions and accessories, if any, in the condition in which they were upon the perfection of the
contract
(3) to warrant against eviction and against hidden defects
(4) to take care of the thing, pending delivery, with proper diligence
(5) to pay for the expenses of the deed of sale, unless there is a stipulation to the contrary
i. Take care of thing pending delivery (Art. 1163)

Art. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a
family, UNLESS the law or the stipulation of the parties requires another standard of care. (1094a)
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ii. Pay for expenses for the execution and registration of the sale, unless there is stipulation to the contrary
(art. 1487)
Art. 1487. The expenses for the execution and registration of the sale shall be borne by the vendor, unless there is a stipulation to the
contrary. (1455a)
EXPENSES FOR EXECUTION AND REGISTRATION

- Vendor has duty to pay not only the expenses for the execution of the sale but also for the registration of the same in the absence of
any agreement between the parties to the contrary (ie. execute and deliver the deed of absolute sale and certificate of title)
- Expenses incurred SUBSEQUENT to the transfer of the title are to be borne by the buyer, UNLESS caused by the fault of the seller
(ie. subsequent expenses: payment for notarizing the deed and obtaining a new certificate title)
- practice notes: payment of income tax, stamp tax, local transfer tax, legal fees, Register of Deeds expenses
iii. Transfer ownership (Arts. 1458, 1495)

Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership and to deliver a
determinate thing, and the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale.
(1461a)
NOTES:
(1) Ownership by vendor at time of perfection of contract not essential.
 It is sufficient that he has a right to transfer the ownership thereof at the time it is delivered.
 The obligation to transfer ownership and to deliver is really implied in every contract of sale
 One who sells something he does not YET own is bound by the sale when he acquires it later.
 When a property belonging to a person is unlawfully taken by another, the former has the right of action against the latter
for the recovery of the property. Such right may be transferred by the sale or assignment of the property and the
transferee can maintain such action against the wrongdoer.
(2) Transfer not essential to perfection of contract
 But if the seller does not deliver at the time stipulated, the buyer may ask for the rescission of the contract or fulfillment
with the right to damages in either case.
(3) No obligation to make delivery during period of redemption.
 The purchaser in execution sales, however, is not entitled to immediate possession of the property sold. The effective
conveyance of the land is accomplished by the deed which is issued only after the period of redemption has expired.
 In cases of extrajudicial foreclosure sale, the mortgagor may redeem the real property sold within 1 year from the date
of registration of the sale. In judicial foreclosure of real estate mortgage, the general rule is that the mortgagor cannot
exercise his right of redemption after the sale is confirmed by the court.
(4) Right of vendee to transfer of certificate of title
 Corresponding obligation to transfer not only possession and employment of land but also the certificate of title
(5) Right of buyer to recover the price paid
 Can recover
o Upon representation that he has certain authority to transfer property, when in fact he has no title or authority,
then there is no consideration for the payment.
o Where contract is set aside by reason of the mutual material mistake of the parties as to the identity or quantity
of the land sold
o Vendor refuses or fails to deliver the title, purchases is entitled to the interest on the money paid from the time of
payment
a) Owner must have right to transfer ownership (Arts. 1459)

Art. 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered. (n)
NOTES:
(1) Seller must be OWNER or AUTHORIZED by owner of the thing sold.
-> one cannot transmit or dispose of that which does not belong to him (nemo dat quod non-habet)
-> one can sell only what one owns or is authorized to sell, and the buyer can acquire no more than what the seller can
transfer legally
(3) Where property sold registered in name of seller who employer fraud in securing his title
-> GENERALLY: A forged or fraudulent deed is a nullity and conveys no title,
-> HOWEVER: There are instances when such a document may become the root of a valid title
 Where the certificate of title was already transferred from the name of the true owner to the forger and while it remained that
way, the land was subsequently sold to an innocent purchaser for value (buyer not required to explore further than Torrens
title)
 RECOURSE: True owner of the property is to bring an action for damages against those who caused or employed the fraud,
and if the latter are insolvent, an action against the Treasurer of the Philippines may be file for recovery of damages against
the Assurance Fund
(4) Where property sold in violation of a right of first refusal of another person
-> DOCTRINE: Contract of sale entered into in violation of a right of first refusal of another person, while valid, is RESCISSIBLE
-> A right of first refusal is neither amorphous nor merely preparatory and can be executed according to its terms
-> BASIS OF RIGHT OF F. R. IN CONTRACTS OF SALE: Current offer of the seller to sell or the offer to purchase of the prospective
buyer.
-> Only after the grantee fails to exercise his right under the same terms and within the period contemplated can the owner validly offer
to sell the property to a third person, again, under the same terms as offered to the grantee
-> HOWEVER: When there is no showing of BAD FAITH on the part of the vendee, the contract of sale may not be rescinded and the
remedy of the person with the right of first refusal is an action for damages against the vendor
(5) Where real property, subject of unrecorded sale, subsequently mortgaged by seller which mortgage was registered
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-> The mortgagees registered mortgage right over the property is inferior to that of the buyers unregistered right. The unrecorded sale
between the buyer and the seller is preferred for the reason that if the seller (original owner) had parted with his ownership of the thing
sold then, he no longer had ownership and free disposal of that thing so as to be able to mortgage it again.
b) When right to transfer ownership must exist (Art. 1459)

Art. 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered. (n)
NOTES:
(2) RIGHT MUST EXIST AT TIME OF DELIVERY
-> Not required that the vendor must have the right to transfer ownership of the property at the time of perfection
-> Perfection per se does not transfer ownership; it occurs upon actual or constructive delivery
-> Sale, being a consensual contract, is perfected by mere consent and ownership of seller is not an element for its perfection
-> It is sufficient that the seller has the right to transfer the ownership at the time it was delivered
-> Seller is deemed only to impliedly warrant that he has a right to sell the thing at the time when the ownership is to pass
REASON:
 Since future goods or goods whose acquisition by the seller depends upon a contingency may be the subject matter of sale, it
would be inconsistent for the article to require that the thing sold must be owned by the seller at the time of sale inasmuch as it
is not possible for a person to own a thing or right not in existence
c) How effected (Arts. 1477, 1478, 1496)

Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. (n)
Art. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price. (n)
Art. 1496. The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways
specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the
vendor to the vendee. (n)
GENERAL RULE: Ownership of thing transferred by delivery NOT BY MERE PAYMENT

(1) Necessity of delivery: Delivery is essential in contract of sale. Without it, the purchaser may not enjoy the thing sold to him. It is
only after delivery that purchaser acquires real right or ownership over it. Contract consummated by delivery of the thing sold
and of the purchase money
(2) Purchase on credit: Ownership passes upon delivery even if on credit
EXCEPTIONS:
(1) Contrary stipulation
 Art. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the
price. (n)
 Parties may stipulate that ownership of property sold may pass ONLY when purchaser has fully paid the price
o Pactum reservati dominii or contractual reservation of title common in sales on installment. It is a stipulation of parties
in which non payment of the price, after the thing is delivered, prevents transfer of ownership
o A contract which contains this kind of stipulation is a contract to sell; agreement may be implied
 In case of loss, seller is not liable
 Only binding to contracting parties, assigns and heir but not upon third persons without notice
 REASON: Security for the benefit of vendor who has not been fully paid
 If there is doubt: SUSPENSIVE PERIOD>SUSPENSIVE CONDITION for the payment of the stipulated price
because doubt should be resolved in favor of the greatest reciprocity of interests
 Parties may ALSO stipulate that ownership of property sold may pass EVEN when purchaser has not fully paid the price
(2) Contract to sell: Ownership remains with seller and not pass until full payment
 Payment is positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that
prevents the obligation of the vendor to convey title from acquiring binding force
 Nonpayment not resolutory condition
 Stipulations in contract for the reservation of ownership of the thing sold until full payment of its purchase price and for the loss
or destruction of the thing being for the account of the buyer are valid and can exist in conjunction with the other
(3) Contract of insurance
 A perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest over the goods
sufficient to be the subject of insurance
iv. Deliver the thing with accessions and accessories (Art. 1537)
Art. 1537. The vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which they were
upon the perfection of the contract.
All the fruits shall pertain to the vendee from the day on which the contract was perfected. (1468a)
CONDITION OF THING TO BE DELIVERED

-> Vendor is obliged to preserve the thing pending delivery because the thing sold and its accessions and the accessories must be in
the condition in which they were upon the perfection of the contract
-> Sellers duty to deliver the thing sold in a condition suitable for its enjoyment by the buyer for the purposes contemplated
-> While a sale of a determinate thing includes all its accessions and accessories even though they may not have been mentioned, a
sale of the latter is not sufficient to convey title or right to the former
DEFINITIONS
 ACCESSIONS: are fruits of a thing; or additions to, or improvements upon, a thing such as the young of animals, house or trees on
a land
 ACCESSORIES: anything attached to a principal thing for its completion, ornament or better use such as a picture frame, key of
house
a) Concept of delivery; intention to deliver

Concept: TRADITION is a derivative mode of acquiring ownership by virtue of which one who has the right and intention to alienate a
corporeal thing, transmits it by virtue of a just title to one who accepts the same
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Presence of intention to deliver and to accept a transfer of possession: Delivery should be coupled with the INTENTION of delivering
the thing sold. The act without the intention is insufficient; there is no tradition. Ie. Issuance of a sales invoice does not prove transfer of
ownership of the thing sold to the buyer, an invoice being nothing more than a detailed statement of the nature, quantity and cost of the
thing sold, and considered not a bill of sale
b) Consequence of delivery
(1) Transfer of ownership
-> Ownership is not transferred by mere contract but by delivery
-> Critical factor is actual intention of creditor to deliver and its acceptance by the vendee
-> Contracts only constitute titles or rights to transfer or acquire ownership, while delivery or tradition is method of accomplishing the
same, the title and the method of acquiring it being different in our law. But not if stolen
(2) Liability in case of loss

-> If place in vendees control or his agent, the delivery is complete and vendee cannot avoid liability in case of loss
(3) Right of vendor to claim payment

-> Delivery produces natural effects,, the principal of which being the transfer of ownership without prejudice to the right off the vendor
to claim payment of the price
-> Where buyer has not become the owner for lack of delivery, his action is not accion reivindicatoria but one against the vendor for
specific performance or rescission with damages
(4) Consummation of contract

-> Delivery with payment marks consummation of contract of sale. Perfection is when meeting of minds between parties takes place.
(5) Enjoyment of the thing sold

-> Delivery is also necessary
c) Delivery and non-payment of the price

Nonpayment of purchase price: Payment of purchase price not essential to the transfer of ownership, as long as the property sold has
been delivered. Nonpayment only creates a right to demand payment or to rescind the contract, or to criminal prosecution in the case of
bouncing checks.
d) Ways of effecting delivery (Arts. 1497-1501)

Art. 1497. The thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee. (1462a)
(ACTUAL DELIVERY)
Art. 1498. When the sale is made through a public instrument, the EXECUTION thereof shall be equivalent to the delivery of the
thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.
With regard to movable property, its delivery may also be made by the DELIVERY of the keys of the place or depository where it is
stored or kept. (1463a)
Art. 1499. The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties, if
the thing sold cannot be transferred to the possession of the vendee at the time of the sale, or if the latter already had it in his
possession for any other reason. (1463a)
Art. 1500. There may also be tradition constitutum possessorium. (n)
Art. 1501. With respect to incorporeal property, the provisions of the first paragraph of article 1498 shall govern. In any other case
wherein said provisions are not applicable, the placing of the titles of ownership in the possession of the vendee or the use by the
vendee of his rights, with the vendor's consent, shall be understood as a delivery. (1464)
NOTES:
Effected in ff ways:
(1) by actual or real delivery
(2) by constructive or legal delivery
(3) by delivery in any other manner signifying an agreement that the possession is transferred to the vendee
- In all different modes of delivery, the critical factor is the actual intention of the vendor to deliver, and its acceptance by the vendee.
The act, without the intention, is insufficient
- Although transfer of ownership is the primary purpose of sale, delivery remains an indispensable requisite as our law does not admit
the doctrine of transfer of ownership of property by mere consent.
- The delivery must be made to the vendee or his authorized representative. Where the vendee did not name any person to whom the
delivery shall be made in his behalf, the vendor is bound to deliver exclusively to him.
- actual delivery
(1) When deemed made There is actual delivery when the thing sold is place in the control and possession of the vendee or
his agent. This involves the physical delivery of the thing and isusually done by the passing of a movable thing from hand to hand
(2) Not always essential to passing of title
-> Parties may agree when and on what conditions the ownership in the subject of the contract shall pass to the buyer. Ie. Pass after
full payment
- constructive (execution of public instrument, traditio symbolica, traditio longa manu, traditio brevi
manu, traditio constitutum possesorium)
Ways of effecting constructive delivery

(1) Equivalent to actual delivery Constructive delivery is a general term comprehending all those acts which, although not
conferring physical possession of the thing, have been held by construction of law to be equivalent to acts of real delivery.
Effected by:
a. By the execution of a public instrument (1498)
 Possession is transferred to buyer by notarized deed of conveyance (applies to movable and immovable)
o As a specie of constructive delivery, the execution of a public document is also a form of symbolic
delivery
o Possession + ownership is transferred
27
o As it is equivalent to delivery, prior physical possession is not required. Key word is control not
possession
 Delivery presumptive only
o if from the deed the contrary does not appear or cannot clearly be inferred.
o Prior physical delivery or possession is not required
o Can be rebutted by evidence to the contrary
o Presumption is destroyed when delivery is not effected because of a legal impediment
 Not intention; stipulation
 Failure to take material possession
 Sale of thing not subject to control of vendor (must be in control for delivery to be effected)
 Sale of registered land (modified by Property Registration Decree; must be registered but as between buyer and
seller, transfer of ownership takes effect)
 Possession of a part as constructive possession of whole
b. By symbolical tradition or traditio symbolica

i. Parties make use of a token symbol to represent thing delivered
ii. Ie. Key, delivery orders
c. By traditio longa manu
i. The delivery of movable property may likewise be made by the mere consent or agreement of the
contracting parties
 Vendor merely points
 Qualified by if the thing sold cannot be transferred to the possession of the vendee at the time of
the sale
d. By traditio brevi manu
i. The delivery of movable property may likewise be made xxx if the latter already had it in his possession for
any other reason.
 Lessor sells thing to lessee
e. By traditio constitutum possessorium
i. Opposite of traditio brevi manu
 Vendor continues in possession of the property sold not as owner but in some other capacity
 Ie. vendor stays as a tenant of vendee
f. By quasi-delivery or quasi-traditio
i. Tradition made only with corporeal
ii. Incorporeal
 Execution of public instrument
 When that mode is not applicable, by placing titles of ownership in possession of vendee
 Allowing vendee to use his rights as new owner with consent of vendor
a. Delivery of negotiable document of title
(2) Contrary may be stipulated May stipulate that transfer of ownership only after full payment or fulfillment of conditions
e) When seller not bound to deliver (Arts. 1536, 1198)

Art. 1536. The vendor is not bound to deliver the thing sold in case the vendee should lose the right to make use of the terms as
provided in Article 1198. (1467a)
Art. 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities which he has promised;
(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous
event they disappear, UNLESS he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period;
(5) When the debtor attempts to abscond. (1129a)
NOTES:
The vendor is not bound to deliver the thing sold in case the vendee should lose the right to make use of the term stipulated in the
following cases:
(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt;
- Insolvency does not contemplate a judicially declared insolvency or suspension of payments because the debtor
cannot give a guaranty or security in such a case
(2) When he does not furnish to the creditor the guaranties or securities which he has promised;
(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a
fortuitous event they disappear, UNLESS he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period;
(5) When the debtor attempts to abscond. (1129a)
f) Incidents of delivery (Place, Time, Manner, Condition, Installments)

- Place of delivery (Art. 1521)
Art. 1521. Whether it is for the buyer to take possession of the goods or of the seller to send them to the buyer is a question
depending in each case on the contract, express or implied, between the parties. Apart from any such contract, express or implied,
or usage of trade to the contrary, the place of delivery is the seller's place of business if he has one, and if not his residence; but in case
of a contract of sale of specific goods, which to the knowledge of the parties when the contract or the sale was made were in some
other place, then that place is the place of delivery.
Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the
seller is bound to send them within a reasonable time.
Where the goods at the time of sale are in the possession of a third person, the seller has not fulfilled his obligation to
deliver to the buyer UNLESS and UNTIL such third person acknowledges to the buyer that he holds the goods on the buyer's
behalf.
Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a reasonable hour
is a question of fact.
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Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must be borne by the
seller. (n)
NOTES:
GENERAL RULE: Agreement between the parties; Express or implied
OTHERS:
1. Usage of trade
2. Sellers place of the business if he has none
3. Sellers residence
EXCEPTION: Sale of specific goods: Place of delivery is the place where the goods were according to the parties knowledge when the
contract of sale was made
DEMAND: Demand or tender of delivery shall be made at a reasonable hour
EXPENSES OF DELIVERY:
- Actual or incidental must be borne by seller
- EXCEPT: if otherwise agreed
IF IN THE POSSESSION OF THIRD PERSONS
- No delivery UNLESS 3rd person acknowledges to the buyer that he holds the goods on the latters behalf
ADD PA
- Time of delivery (Arts. 1524, 1521)
Art. 1524. The vendor shall not be bound to deliver the thing sold, if the vendee has not paid him the price, or if no period for the
payment has been fixed in the contract. (1466)
- Vendor not bound to deliver the thing sold if the vendor has not paid the price or if no period for payment was fixed,
UNLESS sold on credit
DURATION: Agreement; If none: REASONABLE TIME

- What constitutes reasonable time for delivery is to determine by circumstances attending the particular transaction, such
as the character of the goods, the purpose for which they are intended, the ability of the seller to produce the goods if they
are to be manufactured, the facilities available for transportation and the distance the goods must be carried, and the
usual course of business in the particular trade
WHEN TIME IS OF THE ESSENCE
- Whenever the intention of the parties is clear that performance of its terms shall be accomplished exactly at the stipulated
day.
- Implied from the nature of the contract itself or of the subject matter or of the circumstance under which the contract is made
- Condition of thing delivered (Art. 1537)
Art. 1537. The vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which they were
upon the perfection of the contract.
All the fruits shall pertain to the vendee from the day on which the contract was perfected. (1468a)
NO NOTES PA TO
SALES REVIEWER
g) Special rules
- Contract of sale or return (Art. 1502)
Art. 1502. When goods are delivered to the buyer "on sale or return" to give the buyer an option to return the goods instead of paying
the price, the ownership passes to the buyer of delivery, but he may revest the ownership in the seller by returning or tendering the
goods within the time fixed in the contract, or, if no time has been fixed, within a reasonable time. (n)
When goods are delivered to the buyer on approval or on trial or on satisfaction, or other similar terms, the ownership therein
passes to the buyer:
(1) When he signifies his approval or acceptance to the seller or does any other act adopting the transaction;
(2) If he does not signify his approval or acceptance to the seller, but retains the goods without giving notice of rejection, then if
a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a
reasonable time. What is a reasonable time is a question of fact. (n)
NOTES: ADD
- Contract of sale or approval (Art. 1502)
Art. 1502. When goods are delivered to the buyer "on sale or return" to give the buyer an option to return the goods instead of paying
the price, the ownership passes to the buyer of delivery, but he may revest the ownership in the seller by returning or tendering the
goods within the time fixed in the contract, or, if no time has been fixed, within a reasonable time. (n)
When goods are delivered to the buyer on approval or on trial or on satisfaction, or other similar terms, the ownership therein
passes to the buyer:
(1) When he signifies his approval or acceptance to the seller or does any other act adopting the transaction;
(2) If he does not signify his approval or acceptance to the seller, but retains the goods without giving notice of rejection, then if
a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a
reasonable time. What is a reasonable time is a question of fact. (n)
NOTES: ADD
- Delivery to carrier (Art. 1523)

Art. 1503. When there is a contract of sale of specific goods, the seller may, by the terms of the contract, reserve the right of
possession or ownership in the goods until certain conditions have been fulfilled. The right of possession or ownership may be
thus reserved notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the
buyer.
Where goods are shipped, and by the BILL OF LADING the goods are deliverable to the seller or his agent, OR to the
order of the seller or of his agent, the seller thereby RESERVES the ownership in the goods. But, if except for the form of the bill
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of lading, the ownership would have passed to the buyer on shipment of the goods, the seller's property in the goods shall be deemed
to be only for the purpose of securing performance by the buyer of his obligations under the contract.
Where goods are shipped, and by the bill of lading the goods are deliverable to order of the buyer or of his agent, BUT
possession of the bill of lading is retained by the seller or his agent, the seller thereby reserves a right to the possession of the goods
as against the buyer.
Where the seller of goods draws on the buyer for the price and transmits the bill of exchange and bill of lading together to the
buyer to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading if he does not honor
the bill of exchange, and if he wrongfully retains the bill of lading he acquires no added right thereby. If, however, the bill of lading
provides that the goods are deliverable to the buyer or to the order of the buyer, or is indorsed in blank, or to the buyer by the
consignee named therein, one who purchases in good faith, for value, the bill of lading, or goods from the buyer will obtain the
ownership in the goods, although the bill of exchange has not been honored, provided that such purchaser has received delivery of
the bill of lading indorsed by the consignee named therein, or of the goods, without notice of the facts making the transfer
wrongful. (n)
Art. 1523. Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of
the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is deemed to be a delivery of
the goods to the buyer, EXCEPT in the case provided for in Article 1503, first, second and third paragraphs, or UNLESS a contrary
intent appears.
UNLESS otherwise authorized by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may
be reasonable, having regard to the nature of the goods and the other circumstances of the case. If the seller omit so to do, and the
goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself,
or may hold the seller responsible in damages.
UNLESS otherwise agreed, where goods are sent by the seller to the buyer under circumstances in which the seller knows or
ought to know that it is usual to insure, the seller must give such notice to the buyer as may enable him to insure them during
their transit, and, if the seller fails to do so, the goods shall be deemed to be at his risk during such transit. (n)
NOTES:
When Ownership not transferred upon delivery’
GENERAL RULE: Ownership passes to buyer upon delivery to carrier
EXCEPTIONS:
- Contrary intention appears by the terms of the contract, as where the seller is required to deliver the goods to the buyer at the
point of destination
- Cases provided in 2nd and 3rd paragraphs of Art. 1523
o Seller omits to contract with carrier on behalf of buyer and goods were lost or damaged
o Seller did not notify buyer as to enable the latter to insure goods during transit when the former knows or ought to
know that it is usual to insure
- Cases provided in the 1st, 2nd and 3rd paragraph of Art. 1503
o By the terms of the contract, seller reserves right of possession or ownership
 By the form of the bill of lading, the seller reserved title, with intent to remain the owner for all purposes, and
not merely for the sole purpose of securing payment
o When goods are lost or damaged in the course of transit and the seller did not make contract with the carrier on
behalf of the buyer as may be reasonable, having regard to the nature of the goods and the other circumstances of
the case
o When goods are lost or damaged in the course of transit and the seller did not give notice to the buyer as may
enable him to insure them during their transit when the seller knows or ought to know that it is usual to insure
Delivery to Carrier: Transfer of ownership where goods sold delivered to carrier

GENERAL RULE: Delivery of goods to the carrier is delivery to the buyer
- PROVIDED: Seller is authorized or required under the contract to transmit the goods to the buyer through a common
carrier
- EFFECTS: Title passed to the buyer at the point of shipment
o RISK OF LOSS falls upon buyer
o RATIONALE: If a seller consigns goods to another specified person, it indicates an intention to deliver to the
carrier as bailee for the person named and if such shipment was authorized by that person as a buyer, the
ownership vests in him
o On the other hand, if reserved by seller, as in he directs carrier to redeliver the goods at their destination to the
seller himself, or to his order, it indicates and intention that carrier shall be bailee for the seller and the
ownership will remain in the latter
Where Seller or his agent is consignee

(1) Carrier becomes bailee for seller
a. Bill of lading, goods are deliverable to seller or his agent or to the order of seller or his agent
b. Shows reservation of ownership
c. Applicable even goods shipped in buyers vessel
(2) Rights of seller
a. Retain goods until buyer performs obligation under contract
b. In violation of contract, dispose of goods to third persons
i. Liable for damages to buyer but second purchaser from selller acquires a better right
Where Sellers Title is only for purpose of security

(1) Form of bill of lading not conclusive
a. That goods are deliverable to order of seller does not necessarily negate passing of title to goods upon delivery to
carrier
(2) Where ownership would have passed but for the form of bill of lading
a. When the object of the seller in reserving ownership is simply to secure himself in regard to performance by buyer of
latters obligation
b. By shipping the goods, the seller has definitely lost all use of them to the buyer
c. If the shipper could be perfectly sure that the buyer would fulfill his obligation, it can hardly be doubted that he would
have made a straight consignment to the latetr
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Significance where title held merely as security
(1) Risk of loss on buyer
a. Beneficial owner (Buyer) bears risk of loss not the holder of security (seller) even though legal title remains in seller
b. REASON: Such bargain is a sale to the buyer and a mortgage back by him of the goods to secure the price. The title
does not pass to the buyer until he receives the order bill of lading properly indorsed
(2) Buyers right of action based on ownership
a. May bring an action based on ownership in making tender of the price
EFFECT OF RETENTION: Lien by the seller after property passed to buyer
ADD PA
Effect of Form of Bill of Lading
 The seller may, by the form of the bill of lading, consign the goods to himself or to his agent and thus prevent title from passing to
the buyer until the latter pays the price
o In this case, the seller is PRESUMED to have reserved ownership over the goods, notwithstanding the delivery of the
goods to the common carrier
 He may consign the goods to the order of the buyer or the latters agent, but by retaining the negotiable bill of lading, he thereby
prevents the buyer from obtaining the goods from the carrier until the price is paid
o The seller is PRESUMED to have retained merely POSSESSION over the goods, hence, title passed to the buyer at the
point of shipment.
 When the seller forwards the bill of lading together with the draft drawn on the buyer for the price
o PRESUMED INTENTION of the seller is not to part with ownership over the goods until the draft is honored by the
buyer
 HOWEVER, the form in which the bill of lading is taken as indicative of title to the goods is NOT CONCLUSIVE and is
REBUTTABLE.
o Where the contract provided that notwithstanding the fact that the goods are shipped to the seller s order, the
goods are at the risk of the buyer from and after delivery to the carrier, the consignment of the goods to the order of
the seller shows that the title reserved by the seller was only for the purpose of security, and the beneficial interest in the
goods passed to the buyer at the point of shipment.
o Although the goods were shipped and consigned to the buyer under a straight bill of lading, but the circumstances show
that the parties intention was for the title not to pass to the buyer until the latter received the goods at the
destination point
o Agreement that if the steamer did not arrive, no payments were to be made, thus showing that the risk of the voyage was
on the seller, and that the title was not transferred to the buyer upon delivery to the carrier
DEFINITION OF SHIPPING TERMS

(1) C.O.D. collect on delivery
- If goods are marked COD, the carrier acts for the seller in collecting the purchase price
- The buyer must pay for the goods before he can obtain possession
- COD terms do not prevent title from passing to the buyer on delivery to the carrier where they are solely intended as security for the
purchase price
(2) F.O.B. free on board

- Goods are to be delivered free of expense to the buyer to the point where they are FOB
- GENERAL: Point of FOB, either the point of shipment or the point of destination, determines when ownership passes
- Title presumably passes when the goods are delivered FOB
(3) C.I.F. cost, insurance and freight

- Price fixed covers not only the cost of goods but the expense of freight and insurance to be paid by the seller up to the point of
destination. Title passes to the buyer at the moment of delivery to the point especially named
Presumption arising form payment of freight

- FOB and CIF make rules of presumption which yield of proof of contrary intention
- BUYER PAY FREIGHT: Goods become his at the point of shipment
- SELLER PAY FREIGHT: Duty of seller is to have goods transported to their ultimate destination and that title to property
does not pass until the goods have reached their destination
B. Practice notes: usual covenants of the seller

i. Pre-closing covenants:
(a) conduct of operations prior to closing;
(b) actions relating to closing;
(c) notification to buyer;
(d) others
ii. Post-closing covenants:
(a) confidentiality;
(b) covenant not to compete;
(c) anti-poaching covenant;
(d) payment of income tax;
(e) others
VII. Covenants: obligations of the buyer

A. Obligations under the Civil Code (accept delivery, pay the price)
PRINCIPAL OBLIGATIONS OF VENDEE

1. To accept the delivery of the things sold
2. To pay the price of the thing sold at the time and place stipulated in the contract
3. To bear the expenses for the execution and registration of the sale and putting the goods in a deliverable state, if such is the
stipulation
i. Accept delivery (Art. 1582, 1583)
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Art. 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at the time and place stipulated in the
contract.
If the time and place should not have been stipulated, the payment must be made at the time and place of the delivery of
the thing sold. (1500a)
NOTES:
(1) Vendor not required to deliver thing sold until price is paid nor the vendee to pay the price before thing is delivered in the
absence of an agreement to the contrary
(2) If stipulated, then vendee is bound to accept the delivery and to pay the price at the time and place designated
(3) IF there is no stipulation, pay at time and place of delivery
(4) Absence of stipulation as to place, at wherever the thing might be at the moment the contract was perfected
(5) If only time of delivery was stipulated, vendee is required to pay even before the thing is delivered to him; if only time for
payment is stipulated, vendee is entitled to delivery even before the price is paid
Art. 1583. Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by installments.
Where there is a contract of sale of goods to be delivered by stated installments, which are to be separately paid for, and the
SELLER makes defective deliveries in respect of one or more instalments, or the BUYER neglects or refuses without just cause
to take delivery of or pay for one more instalments, it DEPENDS in each case on the terms of the contract and the circumstances
of the case, whether the breach of contract is so material as to justify the injured party in refusing to proceed further and suing for
damages for breach of the entire contract, or whether the breach is severable, giving rise to a claim for compensation but not to a
right to treat the whole contract as broken. (n)
NOTES:
GENERAL RULE: Buyer not bound to accept delivery of goods by installments (even pay price)
- Entitled to delivery and accept delivery at the same time
EXCEPT: Agreement of parties
(1) Separate price fixed for each installment: Breach depends on terms of contract if severable or not
- SEVERABILITY: Whether the breach is so material as to justify the aggrieved party in refusing to proceed further with the entire
contract or so material that the breach is severable, giving rise to merely a claim for damages
(a) Breach of 1 installment Affects whole contract: Sue for damages for entire contract;
(b) Where breach severable: Rise to a claim for compensation for the particular breach but not the whole contract
- Substantial v Casual
a) mode of manifesting acceptance (Art. 1585)

Art. 1585. The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, OR when
the goods have been delivered to him, and he does any act in relation to them which is inconsistent with the ownership of the
seller, OR when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them.
(n)
MODES OF MANIFESTING ACCEPTANCE

(1) Express acceptance: Intimates verbally or in writing his acceptance
(2) Implied acceptance:
a. Act inconsistent with sellers ownership
i. Sells or attempts to sell
ii. Uses them
iii. Makes alteration in a manner proper only for owner
b. Buyer, after laps of reasonable time, retain goods without intimating rejection
DELIVERY ACCEPTANCE
- Act of vendor; his obligation - Act of vendee, his obligation
- Vendee nothing to do with act of delivery - Acceptance not condition to complete delivery
- Seller must deliver even without acceptance yet
- Acceptance of buyer may precede actual delivery. Receipt before acceptance, acceptance before receipt is possible.
b) right to examine goods prior to delivery (Art. 1584)

Art. 1584. Where goods are delivered to the buyer, which he has not previously examined, he is not deemed to have accepted
them UNLESS and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in
conformity with the contract if there is no stipulation to the contrary.
Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, to afford the
buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the
contract.
Where goods are delivered to a carrier by the seller, in accordance with an order from or agreement with the buyer, upon
the terms that the goods shall not be delivered by the carrier to the buyer until he has paid the price, whether such terms are
indicated by marking the goods with the words "collect on delivery," or otherwise, the buyer is not entitled to examine the goods
BEFORE the payment of the price, in the absence of agreement or usage of trade permitting such examination. (n)
NOTES:
Acceptance is assent to become owner of the specific goods when delivery of them is offered to buyer.
(1) Actual delivery contemplated: Condition precedent to the transfer of ownership
(2) Goods delivered COD/not COD
a. NOT COD
i. Right to examine is condition precedent to paying the price after ownership has passed
ii. NOT ABSOLUTE: on request
iii. Within reasonable time
b. COD
i. Waiver may be made before payment;
ii. Buyer still entitled to examine goods after delivery and payment of price
iii. Right of examination is condition subsequent after transfer of ownership
c) effect of acceptance (Art. 1586)

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Art. 1586. In the absence of express or implied agreement of the parties, acceptance of the goods by the buyer shall not discharge
the seller from liability in damages or other legal remedy for breach of any promise or warranty in the contract of sale. But, if, after
acceptance of the goods, the buyer fails to give notice to the seller of the breach in any promise of (or) warranty within a reasonable
time after the buyer knows, or ought to know of such breach, the seller shall not be liable therefor. (n)
PURPOSE: Protect seller against belated claims

of must be read as or
d) when buyers refusal to accept justified/wrongful (Arts. 1587, 1588)

Art. 1587. Unless otherwise agreed, where goods are delivered to the buyer, and he refuses to accept them, having the right so to
do, he is not bound to return them to the seller, but it is sufficient if he notifies the seller that he refuses to accept them. If he
voluntarily constitutes himself a depositary thereof, he shall be liable as such. (n) -> JUSTIFIED
Art. 1588. If there is no stipulation as specified in the first paragraph of article 1523, when the buyer's refusal to accept the goods is
without just cause, the title thereto passes to him from the moment they are placed at his disposal. (n)
ii. Pay the price (Art. 1582)
a) where and when (Art. 1582)

Art. 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at the time and place stipulated in the
contract.
If the time and place should not have been stipulated, the payment must be made at the time and place of the delivery of the thing
sold. (1500a)
b) buyers liability to pay interest (Art. 1589)

Art. 1589. The vendee shall owe interest for the period between the delivery of the thing and the payment of the price, in the
following three cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce fruits or income;
(3) Should he be in default, from the time of judicial or extrajudicial demand for the payment of the price. (1501a)
c) right of vendee to suspend payment of price (Art. 1590)

Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable
grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may SUSPEND the payment of the
price until the vendor has caused the disturbance or danger to cease, UNLESS the latter gives security for the return of the price in a
proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A
mere act of trespass shall not authorize the suspension of the payment of the price. (1502a)
d) effect of failure to pay price
B. Practice notes: usual covenants of the buyer

i. Pre-closing covenants:
(a) approvals;
(b) others
ii. Post-closing covenants :

(a) payment of stamp tax;
(b) obtaining BIR Certificate Authorizing Registration;
(c) others
VIII. Conditions
A. Meaning of conditions
B. Types of conditions
i. Conditions precedent (Art. 1545)
Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party
may refuse to proceed with the contract or he may waive performance of the condition. If the other party has promised that the
condition should happen or be performed, such first mentioned party may also treat the nonperformance of the condition as a
breach of warranty.
Where the ownership in the thing has not passed, the buyer may treat the fulfillment by the seller of his obligation to deliver
the same as described and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the
buyer to perform his promise to accept and pay for the thing. (n)
ii. Conditions subsequent
C. Practice notes: conditions in contract of sale

i. Usual contractual conditions
a) Conditions precedent:
(i) accuracy of representations;
(ii) performance of all covenants/no breach;
(iii) consents;
(iv) no litigation/suit;
(v) delivery of documents;
(vi) others
b) Conditions subsequent
ii. Time frame for meeting conditions: drop dead date/long stop date
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iii. Result if closing condition not satisfied:
(a) no closing;
(b) closing delayed;
(c) condition waived and closing occurs;
(d) condition changed to post-closing covenant and closing occurs;
(e) others
IX. Representations and warranties

A. Meaning of representations and warranties
B. Type of warranties
i. Express meaning, effect
ii. Implied meaning, effect, nature, when not applicable
C. Categories of representations and warranties
i. Relating to the contract itself
ii. Relating to the subject matter of the contract
iii. Relating to the parties
D. Distinguished from other terms
i. Conditions
ii. Opinion, dealers talk
E. Representations and warranties of the seller
i. Express Art. 1546
Art. 1546. Any affirmation of fact or any promise by the seller relating to the thing is an express warranty if the natural tendency of such
affirmation or promise is to induce the buyer to purchase the same, and if the buyer purchase the thing relying thereon. No affirmation
of the value of the thing, nor any statement purporting to be a statement of the seller's opinion only, shall be construed as a warranty,
unless the seller made such affirmation or statement as an expert and it was relied upon by the buyer. (n)
a) meaning
b) terminology used
c) time of warranty, form, sellers good faith
ii. Implied
a) implied warranty of title (Art. 1547)
Art. 1547. In a contract of sale, unless a contrary intention appears, there is:
(1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the ownership is to pass, and that
the buyer shall from that time have and enjoy the legal and peaceful possession of the thing;
(2) An implied warranty that the thing shall be free from any hidden faults or defects, or any charge or encumbrance not declared or
known to the buyer.
This Article shall not, however, be held to render liable a sheriff, auctioneer, mortgagee, pledgee, or other person professing to sell by
virtue of authority in fact or law, for the sale of a thing in which a third person has a legal or equitable interest. (n)
- warranty in case of eviction (Art. 1548-1560)
Art. 1548. Eviction shall take place whenever by a final judgment based on a right prior to the sale or an act imputable to the vendor,
the vendee is deprived of the whole or of a part of the thing purchased.
The vendor shall answer for the eviction even though nothing has been said in the contract on the subject.
The contracting parties, however, may increase, diminish, or suppress this legal obligation of the vendor. (1475a)
Art. 1549. The vendee need not appeal from the decision in order that the vendor may become liable for eviction. (n)
Art. 1550. When adverse possession had been commenced before the sale but the prescriptive period is completed after the transfer,
the vendor shall not be liable for eviction. (n)
Art. 1551. If the property is sold for nonpayment of taxes due and not made known to the vendee before the sale, the vendor is liable
for eviction. (n)
Art. 1552. The judgment debtor is also responsible for eviction in judicial sales, unless it is otherwise decreed in the judgment. (n)
Art. 1553. Any stipulation exempting the vendor from the obligation to answer for eviction shall be void, if he acted in bad faith. (1476)
Art. 1554. If the vendee has renounced the right to warranty in case of eviction, and eviction should take place, the vendor shall only
pay the value which the thing sold had at the time of the eviction. Should the vendee have made the waiver with knowledge of the risks
of eviction and assumed its consequences, the vendor shall not be liable. (1477)
Art. 1555. When the warranty has been agreed upon or nothing has been stipulated on this point, in case eviction occurs, the vendee
shall have the right to demand of the vendor:
(1) The return of the value which the thing sold had at the time of the eviction, be it greater or less than the price of the sale;
(2) The income or fruits, if he has been ordered to deliver them to the party who won the suit against him;
(3) The costs of the suit which caused the eviction, and, in a proper case, those of the suit brought against the vendor for the warranty;
(4) The expenses of the contract, if the vendee has paid them;
(5) The damages and interests, and ornamental expenses, if the sale was made in bad faith. (1478)
Art. 1556. Should the vendee lose, by reason of the eviction, a part of the thing sold of such importance, in relation to the whole, that
he would not have bought it without said part, he may demand the rescission of the contract; but with the obligation to return the thing
without other encumbrances that those which it had when he acquired it.
He may exercise this right of action, instead of enforcing the vendor's liability for eviction.
The same rule shall be observed when two or more things have been jointly sold for a lump sum, or for a separate price for each of
them, if it should clearly appear that the vendee would not have purchased one without the other. (1479a)
Art. 1557. The warranty cannot be enforced until a final judgment has been rendered, whereby the vendee loses the thing acquired or
a part thereof. (1480)
Art. 1558. The vendor shall not be obliged to make good the proper warranty, unless he is summoned in the suit for eviction at the
instance of the vendee. (1481a)
Art. 1559. The defendant vendee shall ask, within the time fixed in the Rules of Court for answering the complaint, that the vendor be
made a co-defendant. (1482a)
Art. 1560. If the immovable sold should be encumbered with any non-apparent burden or servitude, not mentioned in the agreement, of
such a nature that it must be presumed that the vendee would not have acquired it had he been aware thereof, he may ask for the
rescission of the contract, unless he should prefer the appropriate indemnity. Neither right can be exercised 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.
Within one year, to be computed from the execution of the deed, the vendee may bring the action for rescission, or sue for damages.
One year having elapsed, he may only bring an action for damages within an equal period, to be counted from the date on which he
discovered the burden or servitude. (1483a)
- meaning of eviction (Art. 1548)
34
- essential elements of warranty against eviction
- eviction vs. trespass in fact
- requirement of final judgment; duty to appeal (Arts. 1557, 1558, 1559, 1549)
Art. 1557. The warranty cannot be enforced until a final judgment has been rendered, whereby the vendee loses the thing acquired or
a part thereof. (1480)
Art. 1558. The vendor shall not be obliged to make good the proper warranty, unless he is summoned in the suit for eviction at the
instance of the vendee. (1481a)
Art. 1549. The vendee need not appeal from the decision in order that the vendor may become liable for eviction. (n)
- vendor as party to the suit for eviction (Art. 1559)
- effect of prescription (Art. 1550)
Art. 1550. When adverse possession had been commenced before the sale but the prescriptive period is completed after the transfer,
the vendor shall not be liable for eviction. (n)
- rights and liabilities in case eviction occurs; rights in case of partial eviction (Arts. 1555, 1556)
Art. 1555. When the warranty has been agreed upon or nothing has been stipulated on this point, in case eviction occurs, the vendee
shall have the right to demand of the vendor:
(1) The return of the value which the thing sold had at the time of the eviction, be it greater or less than the price of the sale;
(2) The income or fruits, if he has been ordered to deliver them to the party who won the suit against him;
(3) The costs of the suit which caused the eviction, and, in a proper case, those of the suit brought against the vendor for the warranty;
(4) The expenses of the contract, if the vendee has paid them;
(5) The damages and interests, and ornamental expenses, if the sale was made in bad faith. (1478)
Art. 1556. Should the vendee lose, by reason of the eviction, a part of the thing sold of such importance, in relation to the whole, that
he would not have bought it without said part, he may demand the rescission of the contract; but with the obligation to return the thing
without other encumbrances that those which it had when he acquired it.
He may exercise this right of action, instead of enforcing the vendor's liability for eviction.
The same rule shall be observed when two or more things have been jointly sold for a lump sum, or for a separate price for each of
them, if it should clearly appear that the vendee would not have purchased one without the other. (1479a)
- waiver of warranty in case of eviction; kinds; effect; presumption (Arts. 1548, 1553, 1554)
Art. 1553. Any stipulation exempting the vendor from the obligation to answer for eviction shall be void, if he acted in bad faith. (1476)
Art. 1554. If the vendee has renounced the right to warranty in case of eviction, and eviction should take place, the vendor shall only
pay the value which the thing sold had at the time of the eviction. Should the vendee have made the waiver with knowledge of the risks
of eviction and assumed its consequences, the vendor shall not be liable. (1477)
- eviction for nonpayment of taxes (Art. 1551)
Art. 1551. If the property is sold for nonpayment of taxes due and not made known to the vendee before the sale, the vendor is liable
for eviction. (n)
Art. 1552. The judgment debtor is also responsible for eviction in judicial sales, unless it is otherwise decreed in the judgment. (n)
- encumbrance with non-apparent burden (Art. 1560)
Art. 1560. If the immovable sold should be encumbered with any non-apparent burden or servitude, not mentioned in the agreement, of
such a nature that it must be presumed that the vendee would not have acquired it had he been aware thereof, he may ask for the
rescission of the contract, unless he should prefer the appropriate indemnity. Neither right can be exercised 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.
Within one year, to be computed from the execution of the deed, the vendee may bring the action for rescission, or sue for damages.
One year having elapsed, he may only bring an action for damages within an equal period, to be counted from the date on which he
discovered the burden or servitude. (1483a)
b) implied warranty against hidden encumbrances and defects (Art. 1547(b), 1561, 1566, 1572-1581)
Art. 1547. In a contract of sale, unless a contrary intention appears, there is:
(1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the ownership is to pass, and that
the buyer shall from that time have and enjoy the legal and peaceful possession of the thing;
(2) An implied warranty that the thing shall be free from any hidden faults or defects, or any charge or encumbrance not declared or
known to the buyer.
This Article shall not, however, be held to render liable a sheriff, auctioneer, mortgagee, pledgee, or other person professing to sell by
virtue of authority in fact or law, for the sale of a thing in which a third person has a legal or equitable interest. (n)
Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it
unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been
aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent
defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or
profession, should have known them. (1484a)
Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware
thereof.
This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the
thing sold. (1485)
Art. 1572. If two or more animals are sold together, whether for a lump sum or for a separate price for each of them, the redhibitory
defect of one shall only give rise to its redhibition, and not that of the others; unless it should appear that the vendee would not have
purchased the sound animal or animals without the defective one.
The latter case shall be presumed when a team, yoke pair, or set is bought, even if a separate price has been fixed for each one of the
animals composing the same. (1491)
35
Art. 1573. The provisions of the preceding article with respect to the sale of animals shall in like manner be applicable to the sale of
other things. (1492)
Art. 1574. There is no warranty against hidden defects of animals sold at fairs or at public auctions, or of live stock sold as condemned.
(1493a)
Art. 1575. The sale of animals suffering from contagious diseases shall be void.
A contract of sale of animals shall also be void if the use or service for which they are acquired has been stated in the contract, and
they are found to be unfit therefor. (1494a)
Art. 1576. If the hidden defect of animals, even in case a professional inspection has been made, should be of such a nature that
expert knowledge is not sufficient to discover it, the defect shall be considered as redhibitory.
But if the veterinarian, through ignorance or bad faith should fail to discover or disclose it, he shall be liable for damages. (1495)
Art. 1577. The redhibitory action, based on the faults or defects of animals, must be brought within forty days from the date of their
delivery to the vendee.
This action can only be exercised with respect to faults and defects which are determined by law or by local customs. (1496a)
Art. 1578. If the animal should die within three days after its purchase, the vendor shall be liable if the disease which cause the death
existed at the time of the contract. (1497a)
Art. 1579. If the sale be rescinded, the animal shall be returned in the condition in which it was sold and delivered, the vendee being
answerable for any injury due to his negligence, and not arising from the redhibitory fault or defect. (1498)
Art. 1580. In the sale of animals with redhibitory defects, the vendee shall also enjoy the right mentioned in article 1567; but he must
make use thereof within the same period which has been fixed for the exercise of the redhibitory action. (1499)
Art. 1581. The form of sale of large cattle shall be governed by special laws. (n)
- requisites for warranty against hidden defects (Arts. 1561, 1566)
Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it
unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been
aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent
defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or
profession, should have known them. (1484a)
Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware
thereof.
This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the
thing sold. (1485)
Art. 1567. In the cases of Articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between withdrawing from the contract and
demanding a proportionate reduction of the price, with damages in either case. (1486a)
Art. 1570. The preceding articles of this Subsection shall be applicable to judicial sales, except that the judgment debtor shall not be
liable for damages. (1489a)
- warranty in sales of animals (Arts. 1572- 1581)
Art. 1572. If two or more animals are sold together, whether for a lump sum or for a separate price for each of them, the redhibitory
defect of one shall only give rise to its redhibition, and not that of the others; unless it should appear that the vendee would not have
purchased the sound animal or animals without the defective one.
The latter case shall be presumed when a team, yoke pair, or set is bought, even if a separate price has been fixed for each one of the
animals composing the same. (1491)
Art. 1573. The provisions of the preceding article with respect to the sale of animals shall in like manner be applicable to the sale of
other things. (1492)
Art. 1574. There is no warranty against hidden defects of animals sold at fairs or at public auctions, or of live stock sold as condemned.
(1493a)
Art. 1575. The sale of animals suffering from contagious diseases shall be void.
A contract of sale of animals shall also be void if the use or service for which they are acquired has been stated in the contract, and
they are found to be unfit therefor. (1494a)
Art. 1576. If the hidden defect of animals, even in case a professional inspection has been made, should be of such a nature that
expert knowledge is not sufficient to discover it, the defect shall be considered as redhibitory.
But if the veterinarian, through ignorance or bad faith should fail to discover or disclose it, he shall be liable for damages. (1495)
Art. 1577. The redhibitory action, based on the faults or defects of animals, must be brought within forty days from the date of their
delivery to the vendee.
This action can only be exercised with respect to faults and defects which are determined by law or by local customs. (1496a)
Art. 1578. If the animal should die within three days after its purchase, the vendor shall be liable if the disease which cause the death
existed at the time of the contract. (1497a)
Art. 1579. If the sale be rescinded, the animal shall be returned in the condition in which it was sold and delivered, the vendee being
answerable for any injury due to his negligence, and not arising from the redhibitory fault or defect. (1498)
Art. 1580. In the sale of animals with redhibitory defects, the vendee shall also enjoy the right mentioned in article 1567; but he must
make use thereof within the same period which has been fixed for the exercise of the redhibitory action. (1499)
Art. 1581. The form of sale of large cattle shall be governed by special laws. (n)

Art. 1570. The preceding articles of this Subsection shall be applicable
c) implied warranty as to fitness or merchantability or merchantable quality (Art. 1562, 1563, 1564, 1565, 1570)
Art. 1562. In a sale of goods, there is an implied warranty or condition as to the quality or fitness of the goods, as follows:
(1) Where the buyer, expressly or by implication, 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 (whether he be the grower or manufacturer or not), there is an
implied warranty that the goods shall be reasonably fit for such purpose;
(2) Where the goods are brought by description from a seller who deals in goods of that description (whether he be the grower or
manufacturer or not), there is an implied warranty that the goods shall be of merchantable quality. (n)
Art. 1563. In the case of contract of sale of a specified article under its patent or other trade name, there is no warranty as to its fitness
for any particular purpose, unless there is a stipulation to the contrary. (n)
Art. 1564. An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage of trade.
(n)
Art. 1565. In the case of a contract of sale by sample, if the seller is a dealer in goods of that kind, there is an implied warranty that the
goods shall be free from any defect rendering them unmerchantable which would not be apparent on reasonable examination of the
sample. (n)
Art. 1570. The preceding articles of this Subsection shall be applicable
- implied warranty of quality/fitness particular purpose of goods, test, sale under trade name, usage of
trade, sale by sample, remedies (Art. 1562-1564, 1565)
36
Art. 1563. In the case of contract of sale of a specified article under its patent or other trade name, there is no warranty as to its fitness
for any particular purpose, unless there is a stipulation to the contrary. (n)
Art. 1564. An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage of trade.
(n)
Art. 1565. In the case of a contract of sale by sample, if the seller is a dealer in goods of that kind, there is an implied warranty that the
goods shall be free from any defect rendering them unmerchantable which would not be apparent on reasonable examination of the
sample. (n)
- implied warranty of merchantability/merchantable quality (Art. 1562)
Art. 1567. In the cases of Articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between withdrawing from the contract and
demanding a proportionate reduction of the price, with damages in either case. (1486a)
Art. 1570. The preceding articles of this Subsection shall be applicable to judicial sales, except that the judgment debtor shall not be
liable for damages. (1489a)
F. Representations of the buyer

G. Practice notes: representations of the seller and the buyer
i. Typical contractual representations of the seller: (a) corporate existence, power and authority, (b) consents, no violation; (c)
financial statements, no undisclosed liability; (d) material adverse change; (e) title; (f) litigation; (g) others
ii. Typical contractual representations of the buyer
iii. When representations made (e.g., time of execution, time of closing, etc.)
iv. Bring-down representations concept, why required
v. Survival of representations
X. Rules on risk of loss and deterioration

A. Theories of risks of loss
i. Theory of tradition vs. theory of perfection
ii. Theory followed by the Spanish Civil Code and the Philippine Civil Code
B. Principle of res perit domino
C. Rules on risk of loss and deterioration

i. Prior to perfection of contract
ii. At time of perfection (Arts. 1409(3), 1493, 1494)

Art. 1493. If at the time the contract of sale is perfected, the thing which is the object of the contract has been entirely lost, the contract
shall be without any effect.
But if the thing should have been lost in part only, the vendee may choose between withdrawing from the contract and demanding
the remaining part, paying its price in proportion to the total sum agreed upon. (1460a)
Art. 1494. Where the parties purport a sale of specific goods, and the goods without the knowledge of the seller have perished in part
or have wholly or in a material part so deteriorated in quality as to be substantially changed in character, the buyer may at his option
treat the sale:
(1) As avoided; or
(2) As valid in all of the existing goods OR in so much thereof as have not deteriorated, and as binding the buyer to pay the agreed
price for the goods in which the ownership will pass, if the sale was divisible. (n)
NOTES:
GENERAL RULE: If at the time the sale of a specific thing is perfected, the thing had been entirely lost, the contract shall be ineffective.
(No object, no contract)
 The loss must have occurred before the contract was entered into, without the knowledge of both parties.
 If PARTIAL LOSS: Vendee has option of withdrawing from the contract or buying the remainder at a proportionate price.
 If DETERIORATED MATERIALLY IN QUALITY: Vendee has same option
 These rules presuppose that the risk of loss or deterioration had not yet passed to the buyer.
iii. After perfection of contract but before delivery

- Fortuitous event (Art. 1480, 1163-1165, 1262-1263, 1269, 1504, 1537-1538, 1189[1,3])
Art. 1480. Any injury to or benefit from the thing sold, AFTER the contract has been perfected, from the moment of the PERFECTION
of the contract to the time of DELIVERY, shall be governed by Articles 1163 to 1165, and 1262.
This rule shall apply to the sale of fungible things, made independently and for a single price, or without consideration of their weight,
number, or measure.
Should fungible things be sold for a price fixed according to weight, number, or measure, the RISK shall NOT be imputed to the
vendee UNTIL they have been weighed, counted, or measured and delivered, UNLESS the latter has incurred in delay.
Art. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a
family, UNLESS the law or the stipulation of the parties requires another standard of care. (1094a)
Art. 1164. The CREDITOR has a right to the fruits of the thing from the time the obligation to DELIVER it arises. However, he shall
acquire NO REAL RIGHT over it UNTIL the same has been DELIVERED to him. (1095)
Art. 1165. When what is to be delivered is a DETERMINATE thing, the creditor, in addition to the right granted him by Article 1170,
MAY COMPEL the DEBTOR to make the delivery.
If the thing is INDETERMINATE OR GENERIC, he may ask that the obligation be COMPLIED with at the expense of the debtor.
37
If the obligor DELAYS, or has promised to DELIVER THE SAME THING to two or more persons who do not have the same interest, he
shall be responsible for any fortuitous event UNTIL he has effected the delivery. (1096)
Art. 1262. An obligation which consists in the delivery of a DETERMINATE thing shall be EXTINGUISHED if it should be LOST OR
DESTROYED without the fault of the debtor, and BEFORE he has incurred in delay.
When by law or stipulation, the obligor is LIABLE even for fortuitous events, the LOSS of the thing does not extinguish the
obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption
of risk. (1182a)
Art. 1263. In an obligation to deliver a GENERIC thing, the LOSS or DESTRUCTION of anything of the SAME KIND does not
extinguish the obligation. (n)
Art. 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of action which the
debtor may have against third persons by reason of the loss. (1186)
Art. 1504. UNLESS otherwise agreed, the goods remain at the seller's risk UNTIL the ownership therein is transferred to the buyer,
but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or
not, EXCEPT that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the
ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the
contract, the goods are at the buyer's risk from the time of such delivery;
(2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party in fault.
(n)
Art. 1537. The vendor is bound to deliver the THING sold and its ACCESSIONS AND ACCESSORIES in the condition in which they
were upon the perfection of the contract.
All the FRUITS shall pertain to the vendee from the day on which the contract was perfected. (1468a)
Art. 1538. In case of loss, deterioration or improvement of the thing BEFORE its delivery, the rules in Article 1189 shall be
observed, the vendor being considered the debtor. (n)
Art. 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the
following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition:
(1) If the thing is LOST without the fault of the debtor, the obligation shall be EXTINGUISHED;
(3) When the thing DETERIORATES without the fault of the debtor, the impairment is to be borne by the creditor;
NOTES:
 GENERAL RULE: Owner bears the risk of loss, in the absence of stipulation to the contrary. Delivery is required to transfer
ownership to the buyer. Therefore, buyer does not bear the risk of loss UNTIL DELIVERY.
 Inasmuch as the contract gave rise to reciprocal obligations, the extinguishment of the obligation to deliver by virtue of a fortuitous
event, necessarily carried with it the extinguishment of the obligation of the vendee to pay the price by virtue of Art. 1189. Although
this article refers to conditions imposed with the intention of suspending the efficacy of the obligation to give, it was made
applicable to sales by Art. 1538.
- Sellers fault (Arts. 1480, 1165, 1262-1263, 1504[2], 1538, 1189)

Art. 1480. Any injury to or benefit from the thing sold, after the contract has been perfected, from the moment of the perfection of the
contract to the time of delivery, shall be governed by Articles 1163 to 1165, and 1262.
This rule shall apply to the sale of fungible things, made independently and for a single price, or without consideration of their weight,
number, or measure.
Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall not be imputed to the vendee
until they have been weighed, counted, or measured and delivered, unless the latter has incurred in delay. (1452a)
Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 1170, may
compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be
responsible for any fortuitous event until he has effected the delivery. (1096)
Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed
without the fault of the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and
he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk. (1182a)
Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the
obligation. (n)
Art. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but
when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or
not, except that: (2) Where actual delivery has been DELAYED through the fault of either the buyer or seller the goods are at the risk
of the party in fault. (n)
Art. 1538. In case of loss, deterioration or improvement of the thing before its delivery, the rules in Article 1189 shall be observed, the
vendor being considered the debtor. (n)
Art. 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following
rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it
perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment,
with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. (1122)
iv. After delivery (Arts. 1504, 1568, 1569)

Art. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but
when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not,
except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the
ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the
contract, the goods are at the buyer's risk from the time of such delivery;
38
(2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party in
fault. (n)
Art. 1568. If the thing sold should be LOST in consequence of the hidden faults, and the VENDOR WAS AWARE of them, he shall
bear the loss, and shall be obliged to return the price and refund the expenses of the contract, with damages. If he was NOT
AWARE of them, he shall only return the price and interest thereon, and reimburse the expenses of the contract which the vendee
might have paid. (1487a)
Art. 1569. If the thing sold had any HIDDEN FAULT at the time of the sale, and should thereafter be lost by a fortuitous event or
through the fault of the vendee, the latter may demand of the vendor the price which he paid, LESS the value which the thing had
when it was lost.
If the vendor acted in BAD FAITH, he shall pay damages to the vendee. (1488a)
NOTES:
GENERAL RULE: Risk of loss of the goods shall be borne by the owner, UNLESS the contrary is agreed upon. Inasmuch as delivery
transfers ownership, the risk of loss shall be borne by the buyer ONLY AFTER the goods have been delivered to him or his bailee.
EXCEPTIONS:
 Stipulation to the contrary
o Nothwithstanding that title remained with seller, it can be validly agreed that the risk of loss shall be borne by the
buyer
 Security title
o If title retained by seller only to secure payment of the price, the risk of loss is on the buyer from the time of such
delivery, as the beneficial owner
o Aimed at conditional sales where the goods were delivered to the buyer and used by him, but title was retained by
seller, instead of accepting a mortgage on the goods sold.
o BENEFICIAL INTEREST is in the buyer and the risk should be on him
 Delay
o If actual delivery is DELAYED through the fault of buyer or seller, the goods are at the risk of the party in fault.
D. Practice notes: risk of loss and deterioration

- drafting notes to address issues of loss and deterioration
XI. Actions and remedies for breach of agreement

A. In general (Art. 1594)
Art. 1594. Actions for breach of the contract of sale of goods shall be governed particularly by the provisions of this Chapter, and as
to matters not specifically provided for herein, by other applicable provisions of this Title. (n)
i. Actions available to SELLER

a) payment of price (Art. 1595)
Art. 1595. Where, under a contract of sale, the ownership of the goods has passed to the buyer and he wrongfully neglects or refuses
to pay for the goods according to the terms of the contract of sale, the seller may maintain an action against him for the price of the
goods.
Where, under a contract of sale, the price is payable on a certain day, irrespective of delivery or of transfer of title and the buyer
wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price although the ownership in the goods
has not passed. But it shall be a defense to such an action that the seller at any time before the judgment in such action has manifested
an inability to perform the contract of sale on his part or an intention not to perform it.
Although the ownership in the goods has not passed, if they cannot readily be resold for a reasonable price, and if the provisions of
article 1596, fourth paragraph, are not applicable, the seller may offer to deliver the goods to the buyer, and, if the buyer refuses to
receive them, may notify the buyer that the goods are thereafter held by the seller as bailee for the buyer. Thereafter the seller may
treat the goods as the buyer's and may maintain an action for the price. (n)
b) damages (Arts. 1596)

Art. 1596. Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against
him for damages for nonacceptance.
The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from the buyer's breach
of contract.
Where there is an available market for the goods in question, the measure of damages is, in the absence of special circumstances
showing proximate damage of a different amount, the difference between the contract price and the market or current price at the time
or times when the goods ought to have been accepted, or, if no time was fixed for acceptance, then at the time of the refusal to accept.
If, while labor or expense of material amount is necessary on the part of the seller to enable him to fulfill his obligations under the
contract of sale, the buyer repudiates the contract or notifies the seller to proceed no further therewith, the buyer shall be liable to the
seller for labor performed or expenses made before receiving notice of the buyer's repudiation or countermand. The profit the seller
would have made if the contract or the sale had been fully performed shall be considered in awarding the damages. (n)
c) rescission of contract (Art. 1597)

Art. 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated the contract of sale, or has manifested
his inability to perform his obligations thereunder, or has committed a breach thereof, the seller may totally rescind the contract of sale
by giving notice of his election so to do to the buyer. (n)
ii. Actions available to the BUYER

a) specific performance (Art. 1598)
Art. 1598. Where the seller has broken a contract to deliver specific or ascertained goods, a court may, on the application of the buyer,
direct that the contract shall be performed specifically, without giving the seller the option of retaining the goods on payment of
damages. The judgment or decree may be unconditional, or upon such terms and conditions as to damages, payment of the price and
otherwise, as the court may deem just. (n)
b) damages (Art. 1599)

Art. 1599. Where there is a breach of warranty by the seller, the buyer may, at his election:
(1) Accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment in diminution or extinction of
the price;
(2) Accept or keep the goods and maintain an action against the seller for damages for the breach of warranty;
(3) Refuse to accept the goods, and maintain an action against the seller for damages for the breach of warranty;
39
(4) Rescind the contract of sale and refuse to receive the goods or if the goods have already been received, return them or offer to
return them to the seller and recover the price or any part thereof which has been paid.
When the buyer has claimed and been granted a remedy in anyone of these ways, no other remedy can thereafter be granted, without
prejudice to the provisions of the second paragraph of Article 1191.
Where the goods have been delivered to the buyer, he cannot rescind the sale if he knew of the breach of warranty when he accepted
the goods without protest, or if he fails to notify the seller within a reasonable time of the election to rescind, or if he fails to return or to
offer to return the goods to the seller in substantially as good condition as they were in at the time the ownership was transferred to the
buyer. But if deterioration or injury of the goods is due to the breach or warranty, such deterioration or injury shall not prevent the buyer
from returning or offering to return the goods to the seller and rescinding the sale.
Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to be liable for the price upon returning or offering to
return the goods. If the price or any part thereof has already been paid, the seller shall be liable to repay so much thereof as has been
paid, concurrently with the return of the goods, or immediately after an offer to return the goods in exchange for repayment of the price.
Where the buyer is entitled to rescind the sale and elects to do so, if the seller refuses to accept an offer of the buyer to return the
goods, the buyer shall thereafter be deemed to hold the goods as bailee for the seller, but subject to a lien to secure payment of any
portion of the price which has been paid, and with the remedies for the enforcement of such lien allowed to an unpaid seller by Article
1526.
(5) In the case of breach of warranty of quality, such loss, in the absence of special circumstances showing proximate damage of a
greater amount, is the difference between the value of the goods at the time of delivery to the buyer and the value they would have had
if they had answered to the warranty. (n)
B. Remedies available
i. Remedies available to the SELLER
a) lien on the goods (Arts. 1525-1529, 1535)
Art. 1525. The seller of goods is deemed to be an unpaid seller within the meaning of this Title:
(1) When the whole of the price has not been paid or tendered;
(2) 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 broken by reason of the dishonor of the instrument, the insolvency of the buyer, or otherwise.
In Articles 1525 to 1535 the term "seller" includes an agent of the seller to whom the bill of lading has been indorsed, or a consignor or
agent who has himself paid, or is directly responsible for the price, or any other person who is in the position of a seller. (n)
Art. 1526. Subject to the provisions of this Title, notwithstanding that the ownership in the goods may have passed to the buyer, the
unpaid seller of goods, as such, has:
(1) A lien on the goods or right to retain them for the price while he is in possession of them;
(2) In case of the insolvency of the buyer, a right of stopping the goods in transitu after he has parted with the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise limited by this Title.
Where the ownership in the goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies a right of
withholding delivery similar to and coextensive with his rights of lien and stoppage in transitu where the ownership has passed to the
buyer. (n)
Art. 1527. Subject to the provisions of this Title, the unpaid seller of goods who is in possession of them is entitled to retain possession
of them until payment or tender of the price in the following cases, namely:
(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 becomes insolvent.
The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer. (n)
Art. 1528. Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder, unless such
part delivery has been made under such circumstances as to show an intent to waive the lien or right of retention. (n)
Art. 1529. The unpaid seller of goods loses his lien thereon:
(1) When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the ownership
in the goods or the right to the possession thereof;
(2) When the buyer or his agent lawfully obtains possession of the goods;
(3) By waiver thereof.
The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has obtained judgment or decree for the
price of the goods. (n)
Art. 1535. Subject to the provisions of this Title, the unpaid seller's right of lien or stoppage in transitu is not affected by any sale, or
other disposition of the goods which the buyer may have made, unless the seller has assented thereto.
If, however, a negotiable document of title has been issued for goods, no seller's lien or right of stoppage in transitu shall defeat the
right of any purchaser for value in good faith to whom such document has been negotiated, whether such negotiation be prior or
subsequent to the notification to the carrier, or other bailee who issued such document, of the seller's claim to a lien or right of stoppage
in transitu. (n)
b) right of stoppage of goods in transitu (Art. 1530-1532, 1535)

Art. 1530. Subject to the provisions of this Title, when the buyer of goods is or becomes insolvent, the unpaid seller who has parted
with the possession of the goods has the right of stopping them in transitu, that is to say, he may resume possession of the goods at
any time while they are in transit, and he will then become entitled to the same rights in regard to the goods as he would have had if he
had never parted with the possession. (n)
Art. 1531. Goods are in transit within the meaning of the preceding article:
(1) From the time when they are delivered to a carrier by land, water, or air, 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 other bailee;
(2) If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even if the seller has refused
to receive them back.
Goods are no longer in transit within the meaning of the preceding article:
(1) If the buyer, or his agent in that behalf, obtains delivery of the goods before their arrival at the appointed destination;
(2) If, after the arrival of the goods at the appointed destination, 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 for 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 or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf.
If the goods are delivered to a ship, freight train, truck, or airplane chartered by the buyer, it is a question depending on the
circumstances of the particular case, whether they are in the possession of the carrier as such or as agent of the buyer.
If part delivery of the goods has been made to the buyer, or his agent in that behalf, the remainder of the goods may be stopped in
transitu, unless such part delivery has been under such circumstances as to show an agreement with the buyer to give up possession
of the whole of the goods. (n)
Art. 1532. The unpaid seller may exercise his right of stoppage in transitu either by obtaining actual possession of the goods or by
giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such notice may be given either to the
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person in actual possession of the goods or to his principal. In the latter case the notice, to be effectual, must be given at such time and
under such circumstances that the principal, by the exercise of reasonable diligence, may prevent a delivery to the buyer.
When notice of stoppage in transitu is given by the seller to the carrier, or other bailee in possession of the goods, he must redeliver the
goods to, or according to the directions of, the seller. The expenses of such delivery must be borne by the seller. If, however, a
negotiable document of title representing the goods has been issued by the carrier or other bailee, he shall not obliged to deliver or
justified in delivering the goods to the seller unless such document is first surrendered for cancellation. (n)
Art. 1535. Subject to the provisions of this Title, the unpaid seller's right of lien or stoppage in transitu is not affected by any sale, or
other disposition of the goods which the buyer may have made, unless the seller has assented thereto.
If, however, a negotiable document of title has been issued for goods, no seller's lien or right of stoppage in transitu shall defeat the
right of any purchaser for value in good faith to whom such document has been negotiated, whether such negotiation be prior or
subsequent to the notification to the carrier, or other bailee who issued such document, of the seller's claim to a lien or right of stoppage
in transitu. (n)
c) right of resale (Art. 1533)

Art. 1533. Where the goods are of perishable nature, or where the seller expressly reserves the right of resale in case the buyer should
make default, or where the buyer has been in default in the payment of the price for an unreasonable time, an unpaid seller having a
right of lien or having stopped the goods in transitu may resell the goods. He shall not thereafter be liable to the original buyer upon the
contract of sale or for any profit made by such resale, but may recover from the buyer damages for any loss occasioned by the breach
of the contract of sale.
Where a resale is made, as authorized in this article, the buyer acquires a good title as against the original buyer.
It is not essential to the validity of resale that notice of an intention to resell the goods be given by the seller to the original buyer. But
where the right to resell is not based on the perishable nature of the goods or upon an express provision of the contract of sale, the
giving or failure to give such notice shall be relevant in any issue involving the question whether the buyer had been in default for an
unreasonable time before the resale was made.
It is not essential to the validity of a resale that notice of the time and place of such resale should be given by the seller to the original
buyer.
The seller is bound to exercise reasonable care and judgment in making a resale, and subject to this requirement may make a resale
either by public or private sale. He cannot, however, directly or indirectly buy the goods. (n)
d) right of rescission (Art. 1534)

Art. 1534. An unpaid seller having the right of lien or having stopped the goods in transitu, may rescind the transfer of title and resume
the ownership in the goods, where he expressly reserved the right to do so in case the buyer should make default, or where the buyer
has been in default in the payment of the price for an unreasonable time. The seller shall not thereafter be liable to the buyer upon the
contract of sale, but may recover from the buyer damages for any loss occasioned by the breach of the contract.
The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested by notice to the buyer or by
some other overt act an intention to rescind. It is not necessary that such overt act should be communicated to the buyer, but the giving
or failure to give notice to the buyer of the intention to rescind shall be relevant in any issue involving the question whether the buyer
had been in default for an unreasonable time before the right of rescission was asserted. (n)
e) rescission in case of loss of immovable property (Art. 1591)
Art. 1591. Should the vendor have reasonable grounds to fear the loss of immovable property sold and its price, he may immediately
sue for the rescission of the sale.
Should such ground not exist, the provisions of Article 1191 shall be observed. (1503)
f) rescission in case of sale of movable property (Art. 1593)

Art. 1593. With respect to movable property, the rescission of the sale shall of right take place in the interest of the vendor, if the
vendee, upon the expiration of the period fixed for the delivery of the thing, should not have appeared to receive it, or, having appeared,
he should not have tendered the price at the same time, unless a longer period has been stipulated for its payment. (1505)
ii. Remedies available to BUYER

a) remedies in sale of goods by description and/or sample (Art. 1481)
Art. 1481. In the contract of sale of goods by description or by sample, the contract may be rescinded if the bulk of the goods delivered
do not correspond with the description or the sample, and if the contract be by sample as well as description, it is not sufficient that the
bulk of goods correspond with the sample if they do not also correspond with the description.
The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample. (n)
b) remedies in case of loss of specific goods (Art. 1494)

Art. 1494. Where the parties purport a sale of specific goods, and the goods without the knowledge of the seller have perished in part
or have wholly or in a material part so deteriorated in quality as to be substantially changed in character, the buyer may at his option
treat the sale:
(1) As avoided; or
(2) As valid in all of the existing goods or in so much thereof as have not deteriorated, and as binding the buyer to pay the agreed price
for the goods in which the ownership will pass, if the sale was divisible. (n)
c) remedies in case of delivery of goods less than the quantity contracted (Art. 1522)
Art. 1522. Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them, but if
the buyer accepts or retains the goods so delivered, knowing that the seller is not going to perform the contract in full, he must pay for
them at the contract rate. If, however, the buyer has used or disposed of the goods delivered before he knows that the seller is not
going to perform his contract in full, the buyer shall not be liable for more than the fair value to him of the goods so received.
Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods included in
the contract and reject the rest. If the buyer accepts the whole of the goods so delivered he must pay for them at the contract rate.
Where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a different description not included in the
contract, the buyer may accept the goods which are in accordance with the contract and reject the rest.
In the preceding two paragraphs, if the subject matter is indivisible, the buyer may reject the whole of the goods.
The provisions of this article are subject to any usage of trade, special agreement, or course of dealing between the parties. (n)
d) remedies in case of a sale of real property by unit of measure (Arts. 1539, 1540, 1541, 1543)
Art. 1539. The obligation to deliver the thing sold includes that of placing in the control of the vendee all that is mentioned in the
contract, in conformity with the following rules:
If the sale of real estate should be made with a statement of its area, at the rate of a certain price for a unit of measure or number, the
vendor shall be obliged to deliver to the vendee, if the latter should demand it, all that may have been stated in the contract; but, should
41
this be not possible, the vendee may choose between a proportional reduction of the price and the rescission of the contract, provided
that, in the latter case, the lack in the area be not less than one-tenth of that stated.
The same shall be done, even when the area is the same, if any part of the immovable is not of the quality specified in the contract.
The rescission, in this case, shall only take place at the will of the vendee, when the inferior value of the thing sold exceeds one-tenth of
the price agreed upon.
Nevertheless, if the vendee would not have bought the immovable had he known of its smaller area of inferior quality, he may rescind
the sale. (1469a)
Art. 1540. If, in the case of the preceding article, there is a greater area or number in the immovable than that stated in the contract, the
vendee may accept the area included in the contract and reject the rest. If he accepts the whole area, he must pay for the same at the
contract rate. (1470a)
Art. 1541. The provisions of the two preceding articles shall apply to judicial sales. (n)
Art. 1543. The actions arising from Articles 1539 and 1542 shall prescribe in six months, counted from the day of delivery. (1472a)
d) remedies in case of sale of real property made of a lump sum (Arts. 1542, 1543)
Art. 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there
shall be no increase or decrease of the price, although there be a greater or less area or number than that stated in the contract.
The same rule shall be applied when two or more immovables as sold for a single price; but if, besides mentioning the boundaries,
which is indispensable in every conveyance of real estate, its area or number should be designated in the contract, the vendor shall be
bound to deliver all that is included within said boundaries, even when it exceeds the area or number specified in the contract; and,
should he not be able to do so, he shall suffer a reduction in the price, in proportion to what is lacking in the area or number, unless the
contract is rescinded because the vendee does not accede to the failure to deliver what has been stipulated. (1471)
Art. 1543. The actions arising from Articles 1539 and 1542 shall prescribe in six months, counted from the day of delivery. (1472a)
f) suspension of payments (Art. 1590)
Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds
to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor
has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has
been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass
shall not authorize the suspension of the payment of the price. (1502a)
g) remedies in sale of immovable property (Art. 1592)
Art. 1592. In the sale of immovable property, 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 a notarial act. After the demand, the court
may not grant him a new term. (1504a)
C. Special Laws
i. The Recto Law (Arts. 1484-1486) re sale of personal property payable in installments
Art. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the
following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void. (1454-A-a)
Art. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the
lessor has deprived the lessee of the possession or enjoyment of the thing. (1454-A-a)
Art. 1486. In the case referred to in two preceding articles, a stipulation that the installments or rents paid shall not be returned to the
vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances. (n)
a) Transactions covered and not covered
b) Purpose of the law
c) Remedies available to the vendor
d) Election of remedies
ii. The Maceda Law (R.A. No. 6552)

a) Transactions covered and not covered (Sec. 3)
Section 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential
condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-
eight hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two
years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him which is hereby fixed at
the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the
buyer only once in every five years of the life of the contract and its extensions, if any.
(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent
to fifty per cent of the total payments made, and, after five years of installments, an additional five per cent every year but not to exceed
ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from
receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of
the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments
made.
b) Purpose of the law (Sec. 2)
Section 2. It is hereby declared a public policy to protect buyers of real estate on installment payments against onerous and oppressive
conditions.
c) Rights granted to the buyer
- at least two years of installments (Sec. 3)
Section 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential
condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-
eight hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two
years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him which is hereby fixed at
the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the
buyer only once in every five years of the life of the contract and its extensions, if any.
(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent
to fifty per cent of the total payments made, and, after five years of installments, an additional five per cent every year but not to exceed
42
ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from
receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of
the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments
made.
- less than two years of installments (Sec. 4)

Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than
sixty days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days
from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.
- other rights of the buyer (Secs. 5, 6)
Section 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same to another person or to reinstate
the contract by updating the account during the grace period and before actual cancellation of the contract. The deed of sale or
assignment shall be done by notarial act.
Section 6. The buyer shall have the right to pay in advance any installment or the full unpaid balance of the purchase price any time
without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property.
d) Cancellation of sale by the seller

- requirements
- period
e) Calculation of installment payments
f) Stipulation to the contrary (Sec. 7)
Section 7. Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3, 4, 5 and 6, shall be null and
void.
D. Practice notes: actions and remedies

i. Typical contractual stipulations in case of breach
ii. Breach of covenant
iii. Breach of warranty
XII. Extinguishment of sale

A. In general
B. Causes of extinguishment (Art. 1600)
Art. 1600. Sales are extinguished by the same causes as all other obligations, by those stated in the preceding articles of this Title, and
by conventional or legal redemption. (1506)
C. Conventional redemption
i. Concept of conventional redemption (Art. 1601)
Art. 1601. Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation
to comply with the provisions of Article 1616 and other stipulations which may have been agreed upon. (1507)
ii. Subject matter of conventional redemption
iii. Distinguished from option to buy
iv. Period to redeem (Art. 1606)
Art. 1606. The right referred to in Article 1601, in the absence of an express agreement, shall last four years from the date of the
contract.
Should there be an agreement, the period cannot exceed ten years.
However, the vendor may still exercise the right to repurchase within thirty days from the time final judgment was rendered in a civil
action on the basis that the contract was a true sale with right to repurchase. (1508a)
a) express agreement
b) no express agreement
c) court judgment: true sale with right to repurchase
iv. Exercise of right to redeem

a) how right exercised (Art. 1616)
Art. 1616. The vendor cannot avail himself of the right of repurchase without returning to the vendee the price of the sale, and in
addition:
(1) The expenses of the contract, and any other legitimate payments made by reason of the sale;
(2) The necessary and useful expenses made on the thing sold. (1518)
- manner of exercise
- amounts that should be paid
- requirement of tender of payment and consignation
b) who exercises right
- vendor, his assigns and heirs
- vendors creditor (Art. 1610)
Art. 1610. The creditors of the vendor cannot make use of the right of redemption against the vendee, until after they have exhausted
the property of the vendor. (1512)
- co-owners and co-heirs (Arts. 1612, 1613, 1614)
Art. 1612. If several persons, jointly and in the same contract, should sell an undivided immovable with a right of repurchase, none of
them may exercise this right for more than his respective share.
The same rule shall apply if the person who sold an immovable alone has left several heirs, in which case each of the latter may only
redeem the part which he may have acquired. (1514)
Art. 1613. In the case of the preceding article, the vendee may demand of all the vendors or co-heirs that they come to an agreement
upon the purchase of the whole thing sold; and should they fail to do so, the vendee cannot be compelled to consent to a partial
redemption. (1515)
Art. 1614. Each one of the co-owners of an undivided immovable who may have sold his share separately, may independently exercise
the right of repurchase as regards his own share, and the vendee cannot compel him to redeem the whole property. (1516)
c) from whom to redeem (Arts. 1608, 1615)

- vendee
- vendees assigns (Art. 1608)
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Art. 1608. The vendor may bring his action against every possessor whose right is derived from the vendee, even if in the second
contract no mention should have been made of the right to repurchase, without prejudice to the provisions of the Mortgage Law and the
Land Registration Law with respect to third persons. (1510)
- vendees heirs (Art. 1615)

Art. 1615. If the vendee should leave several heirs, the action for redemption cannot be brought against each of them except for his
own share, whether the thing be undivided, or it has been partitioned among them.
But if the inheritance has been divided, and the thing sold has been awarded to one of the heirs, the action for redemption may be
instituted against him for the whole. (1517)
v. Effect of redemption and non-redemption (Art. 1617, 1618, 1607, 1609, 1611)
- consolidation of ownership (Art. 1607)
Art. 1607. In case of real property, the consolidation of ownership in the vendee by virtue of the failure of the vendor to comply with the
provisions of article 1616 shall not be recorded in the Registry of Property without a judicial order, after the vendor has been duly heard.
(n)
- subrogation of vendee (Art. 1609)
Art. 1609. The vendee is subrogated to the vendor's rights and actions. (1511)
- redemption of entire property (Art. 1611)
Art. 1611. In a sale with a right to repurchase, the vendee of a part of an undivided immovable who acquires the whole thereof in the
case of article 498, may compel the vendor to redeem the whole property, if the latter wishes to make use of the right of redemption.
(1513)
- distribution of fruits (Art. 1617)
Art. 1617. If at the time of the execution of the sale there should be on the land, visible or growing fruits, there shall be no
reimbursement for or prorating of those existing at the time of redemption, if no indemnity was paid by the purchaser when the sale was
executed.
Should there have been no fruits at the time of the sale and some exist at the time of redemption, they shall be prorated between the
redemptioner and the vendee, giving the latter the part corresponding to the time he possessed the land in the last year, counted from
the anniversary of the date of the sale. (1519a)
- return free from liens and encumbrances (Art. 1618)
Art. 1618. The vendor who recovers the thing sold shall receive it free from all charges or mortgages constituted by the vendee, but he
shall respect the leases which the latter may have executed in good faith, and in accordance with the custom of the place where the
land is situated. (1520)
D. Legal redemption
i. Concept
ii. When applicable
a) Co-owners (Art. 1620)
Art. 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all the other co-owners or of any of them,
are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall pay only a reasonable one.
Should two or more co-owners desire to exercise the right of redemption, they may only do so in proportion to the share they may
respectively have in the thing owned in common. (1522a)
b) Adjoining land-owners of rural land (Art. 1621)
Art. 1621. The owners of adjoining lands shall also have the right of redemption when a piece of rural land, the area of which does not
exceed one hectare, is alienated, unless the grantee does not own any rural land.
This right is not applicable to adjacent lands which are separated by brooks, drains, ravines, roads and other apparent servitudes for
the benefit of other estates.
If two or more adjoining owners desire to exercise the right of redemption at the same time, the owner of the adjoining land of smaller
area shall be preferred; and should both lands have the same area, the one who first requested the redemption. (1523a)
c) Adjoining land-owners of urban land (Art. 1622)

Art. 1622. Whenever a piece of urban land which is so small and so situated that a major portion thereof cannot be used for any
practical purpose within a reasonable time, having been bought merely for speculation, is about to be re-sold, the owner of any
adjoining land has a right of pre-emption at a reasonable price.
If the re-sale has been perfected, the owner of the adjoining land shall have a right of redemption, also at a reasonable price.
When two or more owners of adjoining lands wish to exercise the right of pre-emption or redemption, the owner whose intended use of
the land in question appears best justified shall be preferred. (n)
iii. Period to redeem (Art. 1623)
Art. 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing by the
prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be recorded in the Registry of Property, unless
accompanied by an affidavit of the vendor that he has given written notice thereof to all possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners. (1524a)
iv. Exercise of right to redeem (Art. 1623)
Art. 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing by the
prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be recorded in the Registry of Property, unless
accompanied by an affidavit of the vendor that he has given written notice thereof to all possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners. (1524a)
v. Redemption/pre-emption under special laws

a) land acquired under free patent or homestead (C.A. No. 141, sec. 119)
Sec. 119. Every conveyance of land acquired under the free patent or homestead provisions, when proper, shall be subject to
repurchase by the applicant, his widow, or legal heirs, within a period of five years from the date of the conveyance.
b) extra-judicial foreclosure of mortgage (Act No. 3135, sec. 6)
Sec. 6. In all cases in which an extrajudicial sale is made under the special power herein before referred to, the debtor, his successors
in interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the
mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after
the date of the sale; and such redemption shall be governed by the provisions of Sections 464 to 466, inclusive of the Code of Civil
Procedure, in so far as these are not inconsistent with the provisions of this Act.
c) agricultural land (R.A. No. 3844, sec. 12)
Section 12. Lessee's Right of Redemption - In case the landholding is sold to a third person without the knowledge of the agricultural
lessee, the latter shall have the right to redeem the same at a reasonable price and consideration: Provided, That the entire landholding
sold must be redeemed: Provided, further, That where these are two or more agricultural lessees, each shall be entitled to said right of
44
redemption only to the extent of the area actually cultivated by him. The right of redemption under this Section may be exercised within
two years from the registration of the sale, and shall have priority over any other right of legal redemption.
E. Practice notes: termination of contract of sale

i. Grounds for termination
ii. Manner of termination
XIII. Special problems in sales

A) Sale by non-owner (Arts. 559, 1505, 1434)
Art. 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any
movable or has been unlawfully deprived thereof may recover it from the person in possession of the same.
If the possessor of a movable lost or which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the
owner cannot obtain its return without reimbursing the price paid therefor. (464a)
Art. 1505. Subject to the provisions of this Title, where goods are sold by a person who is not the owner thereof, and who does not
sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had,
UNLESS the owner of the goods is by his conduct precluded from denying the seller's authority to sell.
Nothing in this Title, however, shall affect:
(1) The provisions of any factors' act, recording laws, or any other provision of law enabling the apparent owner of goods to dispose of
them as if he were the true owner thereof;
(2) The validity of any contract of sale under statutory power of sale or under the order of a court of competent jurisdiction;
(3) Purchases made in a merchant's store, or in fairs, or markets, in accordance with the Code of Commerce and special laws. (n)
Art. 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title
thereto, such title passes by operation of law to the buyer or grantee.
i. when ownership required
a) perfection
b) consummation
ii. rule on acquisition of ownership by the buyer; principle behind the rule (nemo dat quod non habet)
GENERAL RULE: No one can transfer a better title than what he has over the property sold; Only owner of goods or one authorized by
owner to sell can transfer title thereto to the buyer (1505)
-> Even owner of a lost movable or of which he has been unlawfully deprived, may recover it even from a purchaser in good faith (559)
-> A derivative right cannot exist higher than its source
HOWEVER: If he should subsequently acquire ownership thereof, his conveyance is deemed valid and his title passes by operation of
law to his buyer (1434)
 PRINCIPLE: Estoppel by Deed
iii. exceptions to the rule

(1) ESTOPPEL (Where owner , by his conduct, precluded from denying)
-> If owner is precluded by his conduct from denying the sellers authority to sell, the buyer may acquire a better title, although the
seller had neither the title nor the authority to sell the goods (1505, 216)
-> Where true owner of property holds out another or allows another to appear as the owner or one with full authority to dispose of the
property and innocent third parties are misled into dealing with such apparent owner or agent, such 3 rd parties will be protected. ex.
When he knowingly permits his property to sold at judicial sale as property of judgement debtor without asserting his title
(2) FACTORS ACT, RECORDING LAWS (Where law enables the apparent owner to dispose of the goods as if he were the true owner
thereof)
-> No law as Factors Act. Law referred here are found in Civil Code on Agency: One deals with an agency at his own risk
-> Taken from Uniform Sales Act
a. Factors Acts are designed to protect third persons who deal with an agent believing him to be owner of goods
b. Recording laws are laws relating to goods which would enable the registered owner to dispose of them as if he were the true
owner. Examples of recording laws which may have a bearing on the validity of a sale made by a person who is not the owner
or agent of the owner: PD 1529 (Property Registration Decree), RA 4136 (Land Transportation and Traffic Code), Revised
Admin. Code as to sale of large cattle and vessels.
c. Any other provision of law: Act 2031 (Negotiable Instruments Law), Act 2137 (Warehouse Receipts Law)
d. Ie. stolen car bought by a person then impounded. Land Transportation Commission has not right to impound such as only
that for proper enforcement of lien upon motor vehicles of unpaid fees for registration, re-registration is proper
e. Ie. Real property: A forged document of sale may become root of valid title if certificate of title has already been transferred
from name of true owner to forger
f. REMEDY: Damages
(3) Judicial Power and Statutory Sale (VALIDITY OF SALE UNDER STATUTORY POWER OR OF COURT ORDER TO SELL )
-> VALID: Sale of sheriff, public officer authorized by law of goods under execution or foreclosure
-> HOWEVER: See 559; All the fruits shall pertain to the vendee from the day on which the contract was perfected. (1468a)
 It does not follow that if goods sold did not belong to the judgement debtor or pledgor or mortgagor that the innocent purchaser
at such sale acquired a better title, for he steps merely into the shoes of the judgement debtor, pledgor or mortagor. The owner
can recover from the purchaser by reimbursing him the price paid therefor
 Ordinary execution sale
 Judicial foreclosure sale
 Extrajudicial foreclosure sale
 Government, however, does not warrant tile to properties sold by the sheriff at public auction or judicial sales. (judgment
debtor shall not be liable for damages)
(4) PURCHASE AT MERCHANTS STORE, MARKET OR FAIR

-> Imperfect or void title ripening into a valid one as a result of some intervening due causes
-> Buyer cannot be reasonably expected to look behind the title of every article when he buys at a store
-> Taken by Code Commission from Spanish Code of Commerce and added to Uniform Sales Act
(5) SALE BY OWNER WITH VOIDABLE TITLE NOT AVOIDED (1506)
(6) SELLER SUBSEQUENTLY ACQUIRES TITLE

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-> Subsequent acquisition validates previous conveyance
-> Seller acquires title upon delivery; Nonpayment may not transfer title only if stipulated
iv. Subsequent acquisition of title (Art. 1434);

Art. 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title
thereto, such title passes by operation of law to the buyer or grantee.
iv. Rule with respect to immovable property

v. Status of contract
B) Sale by owner with voidable title non-owner (Arts. 559, 1506)

- rule on acquisition by ownership by the buyer; principle behind the rule
Art. 1506. Where the seller of goods has a voidable title thereto, but his title has not been avoided at the time of the sale, the buyer
acquires a good title to the goods, provided he buys them in good faith, for value, and without notice of the seller's defect of title. (n)
Art. 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any
movable or has been unlawfully deprived thereof may recover it from the person in possession of the same.
NOTES:
> So long as still with first buyer with voidable title, original seller can recover BUT NOT if sold to an innocent purchaser for value
REQUISITES FOR BUYER TO ACQUIRE TITLE

 He buys them before the title of the seller has been avoided
 In good faith for value
 Without notice of the sellers defect of title
REASON:
 Where loss has happened which must fall on one of 2 innocent persons, it should be borne by him who is the occasion of the loss
 The advantage to trade and stability of title justifies the diminution of the privilege of infants and lunatics
i. rule on acquisition by ownership by the buyer; principle behind the rule
ii. Art. 559 in relation to Arts. 1505 and 1506
C) Double sales (Art. 1544)

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may
have first taken possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the
Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in
the absence thereof, to the person who presents the oldest title, provided there is good faith. (1473)
i. requisites for applicability of Article 1544
ii. rules under Article 1544
a) movables
- possession; how acquired (see Art. 559)
Art. 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost
any movable or has been unlawfully deprived thereof may recover it from the person in possession of the same.
b) immovables
- meaning of registration
- requirement of good faith
- meaning of possession
- meaning of oldest title
iii. applicability of Art. 1544 to unregistered lands
iv. Article 1544 and execution sales
XIV. Sale contract distinguished from other contracts

A. Dacion en pago (Art. 1245);
Art. 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the
law of sales. (n)
i. concept
B. Contract to sell/contract of conditional sale

i. concept
C. Agency to buy and sell (Art. 1466)

Art. 1466. In construing a contract containing provisions characteristic of both the contract of sale and of the contract of agency to sell,
the essential clauses of the whole instrument shall be considered. (n)
i. concept
D. Contract for a piece of work (Art. 1467)

Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business
manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods
are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece
of work. (n)
46
i. concept
E. Barter and exchange (Arts. 1638-1641, 1468)

Art. 1638. By the contract of barter or exchange one of the parties binds himself to give one thing in consideration of the other's
promise to give another thing. (1538a)
Art. 1639. If one of the contracting parties, having received the thing promised him in barter, should prove that it did not belong to the
person who gave it, he cannot be compelled to deliver that which he offered in exchange, but he shall be entitled to damages. (1539a)
Art. 1640. One who loses by eviction the thing received in barter may recover that which he gave in exchange with a right to damages,
or he may only demand an indemnity for damages. However, he can only make use of the right to recover the thing which he has
delivered while the same remains in the possession of the other party, and without prejudice to the rights acquired in good faith in the
meantime by a third person. (1540a)
Art. 1641. As to all matters not specifically provided for in this Title, barter shall be governed by the provisions of the preceding Title
relating to sales. (1541a)
Art. 1468. If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be
characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered a barter if the
value of the thing given as a part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale. (1446a)
i. concept (Art. 1638)

Art. 1638. By the contract of barter or exchange one of the parties binds himself to give one thing in consideration of the other's
promise to give another thing. (1538a)
ii. when perfected and consummated
iii. effect if giver not the lawful owner of thing delivered (Art. 1639)
Art. 1639. If one of the contracting parties, having received the thing promised him in barter, should prove that it did not belong to the
person who gave it, he cannot be compelled to deliver that which he offered in exchange, but he shall be entitled to damages. (1539a)
iv. effect of eviction (Art. 1640)
Art. 1640. One who loses by eviction the thing received in barter may recover that which he gave in exchange with a right to damages,
or he may only demand an indemnity for damages. However, he can only make use of the right to recover the thing which he has
delivered while the same remains in the possession of the other party, and without prejudice to the rights acquired in good faith in the
meantime by a third person. (1540a)
v. test for determining whether transaction is sale or barter (Art. 1468)
Art. 1468. If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be
characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered a barter if the
value of the thing given as a part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale. (1446a)
F. Equitable mortgage (Arts. 1602-1605)

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a
new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment
of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered
as interest which shall be subject to the usury laws. (n)
Art. 1603. In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage. (n)
Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. (n)
Art. 1605. In the cases referred to in Articles 1602 and 1604, the apparent vendor may ask for the reformation of the instrument. (n)
i. concept
ii. pacto de retro vs. mortgage distinguished
iii. requisites for presumption that the transaction is an equitable mortgage (Arts. 1602, 1604)
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a
new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment
of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered
as interest which shall be subject to the usury laws. (n)
Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. (n)
iv. badges of equitable mortgage (Art. 1603)

Art. 1603. In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage. (n)
v. effect if contract is an equitable mortgage
vi. remedy of reformation (Art. 1605)
Art. 1605. In the cases referred to in Articles 1602 and 1604, the apparent vendor may ask for the reformation of the instrument. (n)
H. Donation (Arts. 725, 1471)

Art. 725. Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it.
(618a)
Art. 1471. If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or some other act or
contract. (n)
i. concept
47
I. Lease (Art. 1643)
Art. 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain,
and for a period which may be definite or indefinite. However, no lease for more than ninety-nine years shall be valid. (1543a)
i. concept
J. Assignment of credits and incorporeal rights (Arts. 1624-1637)

Art. 1624. An assignment of creditors and other incorporeal rights shall be perfected in accordance with the provisions of Article 1475.
(n)
Art. 1625. An assignment of a credit, right or action shall produce no effect as against third person, unless it appears in a public
instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property. (1526)
Art. 1626. The debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation. (1527)
Art. 1627. The assignment of a credit includes all the accessory rights, such as a guaranty, mortgage, pledge or preference. (1528)
Art. 1628. The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless it
should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or unless the
insolvency was prior to the sale and of common knowledge.
Art. 1629. In case the assignor in good faith should have made himself responsible for the solvency of the debtor, and the contracting
parties should not have agreed upon the duration of the liability, it shall last for one year only, from the time of the assignment if the
period had already expired.
(1530a)
Art. 1631. One who sells for a lump sum the whole of certain rights, rents, or products, shall comply by answering for the legitimacy of
the whole in general; but he shall not be obliged to warrant each of the various parts of which it may be composed, except in the case
of eviction from the whole or the part of greater value. (1532a)
Art. 1632. Should the vendor have profited by some of the fruits or received anything from the inheritance sold, he shall pay the vendee
thereof, if the contrary has not been stipulated. (1533)
Art. 1633. The vendee shall, on his part, reimburse the vendor for all that the latter may have paid for the debts of and charges on the
estate and satisfy the credits he may have against the same, unless there is an agreement to the contrary. (1534)
assignee for the price the latter paid therefor, the judicial costs incurred by him, and the interest on the price from the day on which the
same was paid.
The debtor may exercise his right within thirty days from the date the assignee demands payment from him. (1535)
Art. 1635. From the provisions of the preceding article shall be excepted the assignments or sales made:
(3) To the possessor of a tenement or piece of land which is subject to the right in litigation assigned. (1536)
Art. 1636. In the preceding articles in this Title governing the sale of goods, unless the context or subject matter otherwise requires:
(1) "Document of title to goods" 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 or transfer of goods, as proof of the possession or
control of the goods, or authorizing or purporting to authorize the possessor of the document to transfer or receive, either by
endorsement or by delivery, goods represented by such document.
"Goods" includes all chattels personal but not things in action or money of legal tender in the Philippines. The term includes growing
fruits or crops.
"Order" relating to documents of title means an order by endorsement on the documents.
"Quality of goods" includes their state or condition.
"Specific goods" means goods identified and agreed upon at the time a contract of sale is made.
An antecedent or pre-existing claim, whether for money or not, constitutes "value" where goods or documents of title are taken either in
satisfaction thereof or as security therefor.
(2) A person is insolvent within the meaning of this Title who either has ceased to pay his debts in the ordinary course of business or
cannot pay his debts as they become due, whether insolvency proceedings have been commenced or not.
(3) Goods are in a "deliverable state" within the meaning of this Title when they are in such a state that the buyer would, under the
contract, be bound to take delivery of them. (n)
Art. 1637. The provisions of this Title are subject to the rules laid down by the Mortgage Law and the Land Registration Law with
regard to immovable property. (1537a)
i. concept
ii. perfection (Art. 1624)
Art. 1624. An assignment of creditors and other incorporeal rights shall be perfected in accordance with the provisions of Article 1475.
(n)
iii. binding effect (Art. 1626)
iii. need for debtors consent; effect of payment by debtor before and after notice (Art. 1626)
iv. effect of assignment of credit on accessory rights (Art. 1627); fruits and expenses (Arts. 1632, 1633)
Art. 1632. Should the vendor have profited by some of the fruits or received anything from the inheritance sold, he shall pay the vendee
thereof, if the contrary has not been stipulated. (1533)
Art. 1633. The vendee shall, on his part, reimburse the vendor for all that the latter may have paid for the debts of and charges on the
estate and satisfy the credits he may have against the same, unless there is an agreement to the contrary. (1534)
v. warranties of the assignor of the credit

a) in general (art. 1628)
Art. 1628. The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless it
should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or unless the
insolvency was prior to the sale and of common knowledge.
48
b) where debtors insolvency guaranteed (Art. 1629)
Art. 1629. In case the assignor in good faith should have made himself responsible for the solvency of the debtor, and the contracting
parties should not have agreed upon the duration of the liability, it shall last for one year only, from the time of the assignment if the
period had already expired.
(1530a)
c) sale of hereditary right (Art. 1630)
d) sale of whole of certain rights, rents or products (Art. 1631)
Art. 1631. One who sells for a lump sum the whole of certain rights, rents, or products, shall comply by answering for the legitimacy of
the whole in general; but he shall not be obliged to warrant each of the various parts of which it may be composed, except in the case
of eviction from the whole or the part of greater value. (1532a)
vi. legal redemption in the sale of credit in litigation (Arts. 1634, 1635)
assignee for the price the latter paid therefor, the judicial costs incurred by him, and the interest on the price from the day on which the
same was paid.
The debtor may exercise his right within thirty days from the date the assignee demands payment from him. (1535)
Art. 1635. From the provisions of the preceding article shall be excepted the assignments or sales made:
(3) To the possessor of a tenement or piece of land which is subject to the right in litigation assigned. (1536)
XV. Documents of title (Art. 1507-1520)
A. Concept (Art. 1507)

Art. 1507. A document of title in which it is stated that the goods referred to therein will be delivered to the bearer, or to the order of any
person named in such document is a negotiable document of title. (n)
B. Function of documents of title
C. Examples of documents of title
D. Classes of documents of title
E. Negotiable documents of title
i. who negotiates (Art. 1512)
Art. 1512. A negotiable document of title may be negotiated:
(1) By the owner therefor; or
(2) By any person to whom the possession or custody of the document has been entrusted by the owner, if, by the terms of the
document the bailee issuing the document undertakes to deliver the goods to the order of the person to whom the possession or
custody of the document has been entrusted, or if at the time of such entrusting the document is in such form that it may be negotiated
by delivery. (n)
ii. how negotiated
a) by delivery (Art. 1508)
Art. 1508. A negotiable document of title may be negotiated by delivery:
(1) Where by the terms of the document the carrier, warehouseman or other bailee issuing the same undertakes to deliver the goods to
the bearer; or
(2) Where by the terms of the document the carrier, warehouseman or other bailee issuing the same undertakes to deliver the goods to
the order of a specified person, and such person or a subsequent endorsee of the document has indorsed it in blank or to the bearer.
Where by the terms of a negotiable document of title the goods are deliverable to bearer or where a negotiable document of title has
been indorsed in blank or to bearer, any holder may indorse the same to himself or to any specified person, and in such case the
document shall thereafter be negotiated only by the endorsement of such endorsee. (n)
b) by indorsement and delivery (Art. 1509)
Art. 1509. A negotiable document of title may be negotiated by the endorsement of the person to whose order the goods are by the
terms of the document deliverable. Such endorsement may be in blank, to bearer or to a specified person. If indorsed to a specified
person, it may be again negotiated by the endorsement of such person in blank, to bearer or to another specified person. Subsequent
negotiations may be made in like manner. (n)
iii. effect of negotiable documents of title marked non-negotiable (Art. 1510)
Art. 1510. If a document of title which contains an undertaking by a carrier, warehouseman or other bailee to deliver the goods to
bearer, to a specified person or order of a specified person or which contains words of like import, has placed upon it the words "not
negotiable," "non-negotiable" or the like, such document may nevertheless be negotiated by the holder and is a negotiable document of
title within the meaning of this Title. But nothing in this Title contained shall be construed as limiting or defining the effect upon the
obligations of the carrier, warehouseman, or other bailee issuing a document of title or placing thereon the words "not negotiable,"
"non-negotiable," or the like. (n)
iv. effect of negotiation (Art. 1513)

Art. 1513. A person to whom a negotiable document of title has been duly negotiated acquires thereby:
(1) Such title to the goods as the person negotiating the document to him had or had ability to convey to a purchaser in good faith for
value and also such title to the goods as the 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 for value; and
(2) The direct obligation of the bailee issuing the document to hold possession of the goods for him according to the terms of the
document as fully as if such bailee had contracted directly with him. (n)
a) rights acquired by the buyer of the negotiable document of title when properly negotiated (Art. 1513)
Art. 1513. A person to whom a negotiable document of title has been duly negotiated acquires thereby:
(1) Such title to the goods as the person negotiating the document to him had or had ability to convey to a purchaser in good faith for
value and also such title to the goods as the 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 for value; and
(2) The direct obligation of the bailee issuing the document to hold possession of the goods for him according to the terms of the
document as fully as if such bailee had contracted directly with him. (n)
b) effect where negotiation impaired by breach of duty, etc. (Art. 1518)
49
Art. 1518. The validity of the negotiation of a negotiable document of title is not impaired by the fact that the negotiation was a breach
of duty on the part of the person making the negotiation, or by the fact that the owner of the document was deprived of the possession
of the same by loss, theft, fraud, accident, mistake, duress, or conversion, if the person to whom the document was negotiated or a
person to whom the document was subsequently negotiated paid value therefor in good faith without notice of the breach of duty, or
loss, theft, fraud, accident, mistake, duress or conversion. (n)
c) effect where document of title not properly negotiated (Art. 1514, 1st par., Art. 1515)
Art. 1514. A person to whom a document of title has been transferred, but not negotiated, acquires thereby, as against the transferor,
the title to the goods, subject to the terms of any agreement with the transferor.
If the document is non-negotiable, such person also acquires 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.
Prior to the notification to such bailee by the transferor or transferee of a non-negotiable document of title, the title of the transferee to
the goods and the right to acquire the obligation of such bailee may be defeated by the levy of an attachment of execution upon the
goods by a creditor of the transferor, or by a notification to such bailee by the transferor or a subsequent purchaser from the transfer of
a subsequent sale of the goods by the transferor. (n)
Art. 1515. Where a negotiable document of title is transferred for value by delivery, and the endorsement of the transferor is essential
for negotiation, the transferee acquires a right against the transferor to compel him to endorse the document unless a contrary intention
appears. The negotiation shall take effect as of the time when the endorsement is actually made. (n)
v. warranties by seller of the documents of title (Art. 1516-1517)

Art. 1516. A person who for value negotiates or transfers a document of title by endorsement or delivery, including one who assigns for
value a claim secured by a document of title unless a contrary intention appears, warrants:
(1) That the document is genuine;
(2) That he has a legal right to negotiate or transfer it;
(3) That he has knowledge of no fact which would impair the validity or worth of the document; and
(4) That he has a right to transfer the title to the goods and that the goods are merchantable or fit for a particular purpose, whenever
such warranties would have been implied if the contract of the parties had been to transfer without a document of title the goods
represented thereby. (n)
Art. 1517. The endorsement of a document of title shall not make the endorser liable for any failure on the part of the bailee who issued
the document or previous endorsers thereof to fulfill their respective obligations. (n)
vi. rights of creditors against the goods (Arts. 1519-1520)

Art. 1519. If goods are delivered to a bailee by the owner or by a person whose act in conveying the title to them to a purchaser in good
faith for value would bind the owner and a negotiable document of title is issued for them they cannot thereafter, while in possession of
such bailee, be attached by garnishment or otherwise or be levied under an execution unless the document be first surrendered to the
bailee or its negotiation enjoined. The bailee shall in no case be compelled to deliver up the actual possession of the goods until the
document is surrendered to him or impounded by the court. (n)
Art. 1520. A creditor whose debtor is the owner of a negotiable document of title shall be entitled to such aid from courts of appropriate
jurisdiction by injunction and otherwise in attaching such document or in satisfying the claim by means thereof as is allowed at law or in
equity in regard to property which cannot readily be attached or levied upon by ordinary legal process. (n)
F. Non-negotiable
i. how transferred (Art. 1511)
Art. 1511. A document of title which is not in such form that it can be negotiated by delivery may be transferred by the holder by
delivery to a purchaser or donee. A non-negotiable document cannot be negotiated and the endorsement of such a document gives the
transferee no additional right. (n)
ii. effect of transfer (Art. 1514)
Art. 1514. A person to whom a document of title has been transferred, but not negotiated, acquires thereby, as against the transferor,
the title to the goods, subject to the terms of any agreement with the transferor.
If the document is non-negotiable, such person also acquires 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.
Prior to the notification to such bailee by the transferor or transferee of a non-negotiable document of title, the title of the transferee to
the goods and the right to acquire the obligation of such bailee may be defeated by the levy of an attachment of execution upon the
goods by a creditor of the transferor, or by a notification to such bailee by the transferor or a subsequent purchaser from the transfer of
a subsequent sale of the goods by the transferor. (n)
XVI. Special Laws

A. Presidential Decree No. 957, secs. 23-24
PRESIDENTIAL DECREE No. 957 July 12, 1976: REGULATING THE SALE OF SUBDIVISION LOTS AND CONDOMINIUMS,
PROVIDING PENALTIES FOR VIOLATIONS THEREOF
Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision or condominium project for the lot or
unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or
developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project
according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the
total amount paid including amortization interests but excluding delinquency interests, with interest thereon at the legal rate.
Section 24. Failure to pay installments. The rights of the buyer in the event of this failure to pay the installments due for reasons other
than the failure of the owner or developer to develop the project shall be governed by Republic Act No. 6552.
Where the transaction or contract was entered into prior to the effectivity of Republic Act No. 6552 on August 26, 1972, the defaulting
buyer shall be entitled to the corresponding refund based on the installments paid after the effectivity of the law in the absence of any
provision in the contract to the contrary.
B. Bulk Sales Law (Act No. 3952)

AN ACT TO REGULATE THE SALE, TRANSFER, MORTGAGE OR ASSIGNMENT OF GOODS, WARES, MERCHANDISE,
PROVISIONS OR MATERIALS, IN BULK, AND PRESCRIBING PENALTIES FOR THE VIOLATION OF THE PROVISIONS THEREOF
Approved: 01 December 1972
Section 1. This Act shall be known as "The Bulk Sales Law."
Sec. 2. Sale and transfer in bulk. Any sale, transfer, mortgage or assignment of a stock of goods, wares, merchandise, provisions, or
materials otherwise than in the ordinary course of trade and the regular prosecution of the business of the vendor, mortgagor,
transferor, or assignor, or sale, transfer, mortgage or assignment of all, or substantially all, of the business or trade theretofore
conducted by the vendor, mortgagor, transferor, or assignor, or of all, or substantially all, of the fixtures and equipment used in and
50
about the business of the vendor, mortgagor, transferor, or assignor, shall be deemed to be a sale and transfer in bulk, in contemplation
of this Act: Provided, however, That if such vendor, mortgagor, transferor or assignor, produces and delivers a written waiver of the
provisions of this Act from his creditors as shown by verified statements, then, and in that case, the provisions of this section shall not
apply.
Sec. 3. Statement of creditors. It shall be the duty of every person who shall sell, mortgage, transfer, or assign any stock of goods,
wares, merchandise, provisions or materials in bulk, for cash or on credit, before receiving from the vendee, mortgagee, or his, or its
agent or representative any part of the purchase price thereof, or any promissory note, memorandum, or other evidence therefor, to
deliver to such vendee, mortgagee, or agent, or if the vendee, mortgagee, or agent be a corporation, then to the president, vice-
president, treasurer, secretary or manager of said corporation, or, if such vendee or mortgagee be a partnership firm, then to a member
thereof, a written statement, sworn to substantially as hereinafter provided, of the names and addresses of all creditors to whom said
vendor or mortgagor may be indebted, together with the amount of indebtedness due or owing, or to become due or owing by said
vendor or mortgagor to each of said creditors, which statement shall be verified by an oath to the following effect:
PHILIPPINE ISLANDS
PROVINCE OR CITY OF _________________}
Before me, the undersigned authority, personally appeared __________________ (vendor, mortgagor, agent or
representative, as the case may be), bearing cedula No. ____________ issued at ___________ on the day of
_____________ who, by me being first duly sworn, upon his oath, deposes and states that the foregoing statement contains
the names of all of the creditors of ________________ (vendor, or mortgagor) together with their addresses, and that the
amount set opposite each of said respective names, is the amount now due and owing, and which shall become due and
owing by _____________ (vendor or mortgagor) to such creditors, and that there are no creditors holding claims due or which
shall become due, for or on account of goods, wares, merchandise, provisions or materials purchased upon credit or on
account of money borrowed, to carry on the business of which said goods, wares, merchandise, provisions or materials are a
part, other than as set forth in said statement.
Subscribed and sworn to before me this _______ day of ______, 19___, at ________
Sec. 4. Fraudulent and void sale, transfer or mortgage. Whenever any person shall sell, mortgage, transfer, or assign any stock of
goods, wares, merchandise, provisions or materials, in bulk, for cash or on credit, and shall receive any part of the purchase price, or
any promissory note, or other evidence of indebtedness for said purchase price or advance upon mortgage, without having first
delivered to the vendee or mortgagee or to his or its agent or representative, the sworn statement provided for in section three hereof,
and without applying the purchase or mortgage money of the said property to the pro rata payment of the bona fide claim or claims of
the creditors of the vendor or mortgagor, as shown upon such sworn statement, he shall be deemed to have violated this Act, and any
such sale, transfer or mortgage shall be fraudulent and void.
Sec. 5. Inventory. It shall be the duty of every vendor, transferor, mortgagor, or assignor, at least ten days before the sale, transfer or
execution of a mortgage upon any stock of goods, wares, merchandise, provisions or materials, in bulk, to make a full detailed inventory
thereof and to preserve the same showing the quantity and, so far as is possible with the exercise of reasonable diligence, the cost
price to the vendor, transferor, mortgagor or assignor of each article to be included in the sale, transfer or mortgage, and notify every
creditor whose name and address is set forth in the verified statement of the vendor, transferor, mortgagor, or assignor, at least ten
days before transferring possession thereof, personally or by registered mail, of the price, terms conditions of the sale, transfer,
mortgage, or assignment.
Sec. 6. Any vendor, transferor, mortgagor or assignor of any stock of goods, wares, merchandise, provisions or materials, in bulk, or
any person acting for, or on behalf of any such vendor, transferor, mortgagor, or assignor, who shall knowingly or willfully make, or
deliver or cause to be made or delivered, a statement, as provided for in section three hereof, which shall not include the names of all
such creditors, with the correct amount due and to become due to each of them, or shall contain any false or untrue statement, shall be
deemed to have violated the provisions of this Act.
Sec. 7. It shall be unlawful for any person, firm or corporation, as owner of any stock of goods, wares, merchandise, provisions or
materials, in bulk, to transfer title to the same without consideration or for a nominal consideration only.
Sec. 8. Nothing in this Act contained shall apply to executors, administrators, receivers, assignees in insolvency, or public officers,
acting under judicial process.
Sec. 9. The sworn statement containing the names and addresses of all creditors of the vendor or mortgagor provided for in section
three of this Act, shall be registered in the Bureau of Commerce. For the registration of each such sworn statement a fee of five pesos
shall be charged to the vendor or mortgagor of the stock of goods, wares, merchandise, provisions or materials, in bulk.
Sec. 10. The provisions of this Act shall be administered by the Director of the Bureau of Commerce and Industry, who is hereby
empowered, with the approval of the Department Head, to prescribe and adopt from time to time such rules and regulations as may be
deemed necessary for the proper and efficient enforcement of the provisions of this Act.
Sec. 11. Any person violating any provision of this Act shall, upon conviction thereof, be punished by imprisonment not less than six
months, nor more than five years, or fined in sum not exceeding five thousand pesos, or both such imprisonment and fine, in the
discretion of the court.
Sec. 12. This Act shall take effect on its approval.
C. Retail Trade Liberalization Act (Republic Act No. 8762), sec. 3 and 5
AN ACT LIBERALIZING THE RETAIL TRADE BUSINESS, REPEALING FOR THE PURPOSE REALING FOR THE PURPOSE
REPUBLIC ACT NO. 1180, AS AMENDED, AND FOR OTHER PURPOSES
Section 3. Definition. - As used in this Act.

(1) "Retail trade" shall mean any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or
good for consumption, but the restriction of this law shall not apply to the following:
(a) Sales by manufacturer, processor, laborer, or worker, to the general public the products manufactured, processed or products by
him if his capital dose not exceed One hundred thousand pesos(100,000.00);
(b) Sales by a farmer or agriculturist selling the products of his farm;
(c) Sales in restaurant operations by a hotel owner or inn-keeper irrespective of the amount capital: provided, that the restaurant is
incidental to the hotel business; and
(d) Sales which are limited only to products manufactured, processed or assembled by a manufactured, processed or assembled by a
manufacturer though a single outlet, irrespective of capitalization.
(2) "High-end or luxury goods" shall refer to goods which are not necessary for life maintenance and whose demand is generated in
large part by the higher income groups. Luxury goods shall include, but are not limited to products such as; jewelry, branded or
designer clothing and footwear, wearing apparel, leisure and sporting goods, electronics and other personal effects.
Section 5. Foreign Equity Participation. - Foreign-owned partnerships, associations and corporation formed and organized under the
laws of the Philippines may, upon registration with the Securities and Exchange Commission (SEC) and the Department of Trade and
Industry (DTI), or in case of foreign owned single proprietorships, with the DTI, Engage or invest in the retail trade business, subject to
the following categories.
51
Category A Enterprises with paid-up capital of the equivalent in Philippine Peso of the than Two million five hundred
thousand US dollars (US$2,500,000.00) shall be reserved exclusively for Filipino citizens and corporations wholly owned by Filipino
citizens.
Category B Enterprises with a minimum paid-up capital of the equivalent in Philippine Pesos of two million five hundred
thousand US dollar (US$2,500,000.00) but less than Seven million five hundred thousand US dollars (US$7,500,000.00) may be wholly
owned by foreigners except for the first two (2) years after the effectivity of this Act wherein foreign participation shall be limited to not
more than sixty percent (60%) of total equity.
Category C Enterprises with a paid-up capital of the equivalent in Philippine Pesos of Seven million five hundred thousand
US dollars (US$7,500,000.00), or more may be wholly owned by foreigners: Provided, however, That in no case shall the investments
for establishing a store in vestments for establishing a store in Categories B and C be less than the equivalent in Philippine pesos of
Eight hundred thirty thousand US dollars (US$830,000.00).
Category D Enterprises specializing in high-end or luxury products with a paid-up capital of the equivalent in Philippine
Pesos of Two hundred fifty thousand US dollars (US$250,000.00) per store may be wholly owned by foreigners.
The foreign investor shall be required to maintain in the Philippines the full amount of the prescribed minimum capital unless
the foreign investor has notified the SEC and the DTI of its intention to repatriate its capital and cease operations in the Philippines. The
actual use in Philippine operations of the inwardly remitted minimum capital requirement shall be monitored by the SEC.
Failure to maintain the full amount of the prescribed minimum capital prior to notification of the SEC and the DTI, shall subject
the foreign investor to penalties or restrictions on any future trading activities/business in the Philippines.
Foreign retail stores shall secure a certification from the Bangko Sentral ng Pilipinas (BSP) and the DTI, which will verify or
confirm inward remittance of the minimum required capital investments.
REQUIRED READING/s and OTHER LEARNING RESOURCES
1. All Chapters covering the Law on Sales,

The Law on Sales, Agency and Credit Transactions by Hector S. De Leon and Hector M. De Leon Jr.
LEARNING ACTIVITIES / SELF-TESTS

Answer all the questions and exercises in the book for self-test.
Answer the provided activity by your instructor.
52

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SALES, AGENCY, LABOR AND OTHER COMMERCIAL LAWS

XCOMLAW - A MODULAR APPROACH

Mr. Jayvee P. Cordova, CPA

 Distinguishing Contract of sales from other Special Contracts.

LAW ON SALES: SUMMARY

II. Concept of contract of sale

III. Parties to the contract of sale

IV. Formation and perfection of contract of sale

V. Formalities of contract of sale

VI. Covenants: obligations of the seller

VII. Covenants: obligations of the buyer

X. Rules on risk of loss and deterioration

XI. Actions and remedies for breach of agreement

XII. Extinguishment of sale

XIII. Special problems in sales

XIV. Sale contract distinguished from other contracts

XV. Documents of title (Art. 1507-1520)

XVI. Special Laws

II. Concept of contract of sale

B. Characteristics of contract of sale

i. Consent (Art. 1319)

ii. Object (Arts. 1347-1349)

iii. Cause (Art. 1350)

SECTION 3. - Cause of Contracts

D. Kinds of contract of sale

III. Parties to the contract of sale

ii. Husband and wife (Arts. 1409, 1490, 1492)

iv. Other persons

SALES REVIEWER WEEK II-III (update with outline)

A. Consent/offer and acceptance

iii. Practice notes: offer and acceptance

b) Sale of an undivided interest in a thing

SALE OF UNDIVIDED INTEREST IN A THING

c) Sale of undivided share of a specific mass

SALE OF AN UNDIVIDED SHARE OF A SPECIFIC MASS

ii. Thing must be licit

GOODS WHICH MAY BE THE OBJECT OF SALE:

FUTURE GOODS AS OBJECT OF SALE

a) Sale of things having a potential existence

b) Sale of mere hope of expectancy

c) Sale of things in litigation

d) Sale of things subject to a resolutory condition

iv. Owner must have right to transfer ownership

(1) Seller must be OWNER or AUTHORIZED by owner of the thing sold.

REQUISITES FOR VALID CONTRACT OF SALE:

- Purchase at merchants store, market or fair

v. Practice notes: object or subject matter of the contract

WHEN PRICE CONSIDERED CERTAIN

EFFECT WHERE PRICE FIXED BY THIRD PESON DESIGNATED

EFFECT WHERE PRICE NOT FIXED BY THIRD PERSON DESIGNATED

PRICE ON A GIVEN DAY AT PARTICULAR MARKET

FIXING OF PRICE BY ONE OF THE CONTRACTING PARTIES, NOT ALLOWED

b) Effect when price not certain

EFFECT OF FAILURE TO DETERMINE PRICE

ii. Lack of cause or consideration

iii. Inadequacy of the price

a) When price inadequate

b) Effect of inadequate price

- on involuntary sales (auction sale, judicial sale)

- Purchase at merchants store, market or fair

(7) Applicants qualification to buy still subject to investigation