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I. Nature and Form of The Contract Sources of The Law On Sales
I. Nature and Form of The Contract Sources of The Law On Sales
3. Opinions of Commentators
4. Jurisprudence
The contract of sales is an agreement whereby one of the parties (called the seller or vendor) obligates
himself to deliver something to the other (called the buyer or purchaser or vendee) who, on his part,
hinds himself to pay therefore a sum of money or its equivalent (known as the price).
The transfer of title to property or the agreement to transfer title for a price paid or promised, not mere
physical transfer of the property, is the essence of sale.
3. Onerous – the thing sold is conveyed in consideration of the price and vice
versa.
4. Commutative – the thing sold is considered the equivalent of the price paid and
vice versa.
5. Aleatory – in the case of sale of hope, one of the parties or both reciprocally
bind themselves to give or to do something in consideration of what
the other shall give or do upon the happening of an event which is
uncertain, or which is to occur at an indeterminate time.
7. Principal – the contract does not depend for its existence and validity upon
another contract.
1. Consent or meeting of the minds – refers to the conformity of the parties to the terms of the
contract, the acceptance by one of the offer made by the other. As a bilateral contract, the acceptance
of payment by a party is an indication of his consent to a contract of sale, thereby precluding him from
rejecting its binding effect [Clarin vs. Rulova, 127 SCRA 512].
There may be a sale against the will of the owner in case of expropriation and the three
different kinds of sale under the law – ordinary execution sale, judicial foreclosure sale, and
extra-judicial foreclosure sale.
2. Object or subject matter – refers to the determinate thing which is the object of the contract;
Even a future thing not existing at the time the contract is entered into may be the object of
sale, provided it has a potential or possible existence, that is, 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 tile will vest the buyer the moment the thing comes into
existence (Art. 1461).
– the sale of a thing not yet in existence, – the sale of hope itself that the thing will come
subject to the condition that the thing will into existence, where it is agreed that the buyer
exist and on failure of the condition, the will pay the price even if the thing does not
contract becomes ineffective and hence, the eventually exist;
buyer has not obligation to pay the price;
– the future thing is certain as to itself but – like the sale of a sweepstake ticket, it is not
uncertain as to its quantity and quality; certain that the thing itself (winning a prize) will
exist, much less it quantity and 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 – produces effect even though the thing does
thing should exist, so that if it does not, there not come into existence because the object of
will be no contract by reason of the absence the contract is the hope itself, unless it is a vain
of an essential element. hope or expectancy (like the sale of a falsified
sweepstakes ticket which can never win).
Natural Elements – those which are deemed to exist in certain contracts, in the absence of any contrary
stipulations, like warranty against eviction;
Accidental Elements – those which may be present or absent depending on the stipulations of the
parties, like conditions, interest, penalty, time or place of payment.
Conditional – where the sale contemplates a contingency and where the contract is subject to certain
conditions, usually in the case of the vendee, for the full payment of the agreed purchase price.
2. Other kinds
Transfer of – passes to the buyer upon delivery of – remains with the seller until full
title: the thing sold. payment of the agreed price.
Ownership of – vendor loses and cannot recover – title remains in the vendor until full
vendor: ownership of the thing sold and payment of price.
delivered, actually or constructively
until and unless the contract of sale
itself is resolved and set aside.
– occurs where the purchaser has not seen – the parties contracted solely with reference to
the article sold and relies on the description the sample, with the understanding that the
given him by the vendor, or has seen the goods bulk was like it.- the vendor warrants that the
but the want of identity is not apparent on thing sold and to be delivered by him shall
inspection.- If the bulk of the goods conform with the sample in kind, charater, and
delivered does not correspond with the quality.
description, the contract may be rescinded.
(Art. 1481.)
Generally, a contract may be entered into in any form provided all the essential requisites for its validity
are present (Art. 1356). It may be in writing, oral, or partly in writing and party oral. It may even be
inferred from the conduct of the parties, since sale is a consensual contract that is perfected by mere
consent.
However, in case the contract of sale should be covered by the Statute of Frauds, the law requires that
the agreement be in writing subscribed by the party charged, or by his agent; otherwise, the contract
cannot be enforced by action [see Art. 1403].
Under the Statute of Frauds (Art. 1403 [2, a, d, e].) of the Civil Code, the following contracts
must be in writing to be enforceable:
(b) sale of real property or an interest therein regardless of the price involved; and
(c) sale of property not to be performed within a year from the date thereof regardless of the nature
of the property and the price involved.
The Statute Frauds specifies three (3) ways in which contracts of sales of goods within its terms
may be made binding:
(b) acceptance and receipt of part of the goods (or things in action) sold and actual receipt of the same
(Art. 1585); and
(c) payment or acceptance at the time some part of the purchase price.
The Statute of Frauds is applicable only to executory contracts (where no performance, i.e.,
delivery and payment, has as yet been made by both parties), and not to contracts which are
totally consummated or partially performed [Vda. De Espiritu vs. CFI of Cavite, 47 SCRA 354].
Recto Law (Art. 1484) – Remedies of Vendor in Sale of Personal Property Payable in Installments:
(a) elect fulfillment upon the vendee’s failure to pay;
(b) cancel the sale, if the vendee shall have failed to pay two or more installments;
(c) foreclose the chattel mortgage, if one has been constituted, if the vendee shall have failed to pay
two or more installments.
These remedies are alternative and are not to be exercised cumulatively or successively and the
election of one is a waiver of the right to resort to the others [Pacific Commerial Co. vs De la
RAma, 62 Phil. 380; Nonato vs. IAC, 140 SCRA 255].
In transactions involving the sale of financing of real estate on installment payments, including
residential condominium apartments, the following are the rights given to the buyer who has
paid at least two (2) years of installments in case he defaults in the payment of succeeding
payments
(a) to pay without additional interest the unpaid installments due within the total grace period earned
by him fixed at the rate of one-month grace period for every one year of installment payments made –
this right shall be exercised by him only once in every five (5) years of the life of the contract and its
extension, if any; and
(b) if the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to 50% of the total payments made and, after 5 years of
installments, an additional 5% of every year but not to exceed 90% of the total payments made. [Sec. 3,
RA 6552 or the Realty Installment Buyer Protection Act; see Layug vs. IAC, 67 SCRA 627].
(c) The buyer has the right to sell his right or assign the same before actual cancellation of the contract
and to pay in advance any unpaid installment anytime without interest and to have such full payment of
the purchase price annotated in the certificate of title covering the property.
As a general rule, all persons, whether natural or juridical, who can bind themselves, have the legal
capacity to buy and sell.
(a) Minor
Contracts entered into by a minor and other incapacitated persons arevoidable. However,
where the necessaries are sold and delivered to him (without the intervention of the parent or
guardian), he must pay a reasonable price therefor. The contract is therefore valid, but the
minor has the right to recover any excess above a reasonable value paid by him.
Sale of real property by minors who have already passed the ages of puberty and adolescence
and are now in the adult age, when they pretended to have already reached their majority,
while in fact they have not, is valid, and they cannot be permitted afterwards to excuse
themselves from compliance with the obligations assumed by them or to seek their
annulment. This is in accord with the doctrine of estoppel[Mercado and Mercado vs. Espiritu, 37
Phil. 265].
2. Relative Incapacity – where it exists only with reference to certain persons or class of property (Art.
1490-1491). The prohibition extends to sales by virtue of legal redemption, compromises, and
renunciations.
(a) Husband and wife to each other – except when a separation of property was agreed upon in the
marriage settlements, or when there has been a judicial separation of property
(c) Agents – as to the property whose administration or sale has been entrusted to them, unless
consent of the principal is given
(e) Public officers and employees – as to the property of the State or any subdivision thereof, or of the
government-owned or controlled corporations, the administration of which is entrusted to them
(f) Judges and government experts who take part in the sale of the property and rights under litigation
The prohibition is based on the fiduciary relationship (based on trust), to prevent fraud and
undue and improper influence.
With respect to (b) to (d), the sale shall only be voidable because in such cases only private
interests are affected. The defect can be cured by ratification by the seller. With respect to (e)
and (f), the sale shall be null and void, public interests being involved therein.
(g) Aliens who are disqualified to purchase private agricultural lands under Art. XII, Secs. 3 and 7 of the
Constitution
(h) Unpaid seller having a right of lien or having estopped the goods in transitu
III. EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN LOST
Where the thing is entirely lost at the time of perfection, the contract is inexistent and void
because there is no object. There being no contract, there is no necessity to bring an action for
annulment.
Where the thing is only partially lost, the vendee may elect between withdrawing from the
contract and demanding the remaining part, paying its proportionate price.
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.
IV. OBLIGATIONS OF THE VENDOR
The vendor need not be the owner of the thing at the time of perfection of the contract; it is
sufficient that he has a right to transfer the ownership thereof at the time it is delivered (Art.
1459).
If the seller promised to deliver at a stipulated period and such period is of the essence of the
contract but did not comply with his obligation on time, he has no right to demand payment of
the price. The vendee-buyer is fact may ask for the rescission or resolution of the sale.
If the failure of the seller to deliver on time is not due to his fault, as when it was the buyer who
failed to supply the necessary credit for the transportation of the goods, delay on the part of the
seller may be said to be sufficiently excused.
to deliver the thing, with its accessions and accessories, if any, in the condition in which they were upon
the perfection of the contract (Art. 1537);
to warrant against eviction and against hidden defects (Arts. 1495, 1547);
to take care of the thing, pending delivery, with proper diligence (Art. 1163);
to pay for the expenses of the deed of sale, unless there is a stipulation to the contrary (Art. 1487).
Delivery or Tradition
Tradition or delivery is a derivative mode of acquiring ownership by virtue of which one has the right
and intention to alienate a corporeal thing, transmits it by virtue of a just title to one who accepts the
same.
Duty to Deliver at Execution Sale: a judgment debtor is not obliged to deliver right away; he has
one (1) year within which to redeem the property.
1. Actual or Real (Art. 1497) – the thing sold is placed in the control and possession of the vendee
or his agent. This involves the physical delivery of the thing and is usually done by the passing of
a movable thing from hand to hand.
Legal formalities – applies to real and personal properties, where the delivery is made through the
execution of a public document;
Traditio simbolica – to effect delivery, the parties make use of a token symbol to represent the thing
delivered;
Traditio longa manu – movable property is delivered by mere consent by the contracting parties if the
thing sold cannot be transferred to the possession of the vendee at the time of the sale;
Traditio brevi manu – the vendee already has the possession of the thing sold by virtue of another title
as when the lessor sells the thing leased to the lessee;
Constitotum possessorium – the vendor continues in possession of the property sold not as owner but in
some other capacity (e.g., as tenant of the vendee).
3. Quasi-Traditio (Art. 1501) – delivery of rights, credits or incorporeal real property, made by
placing the titles of ownership in the hands of the vendee or lawyer, by execution of a public instrument,
or by allowing the vendee to use his rights as new owner with the consent of the vendor.
(a) Seller must have control over the thing; otherwise, can he put another in control?
(c) There must be the intention to deliver the thing for purposes of ownership.
2. There can be no constructive delivery by means of a public instrument if there is a stipulation to the
contrary.
An Unpaid Seller is one who has not been pair or rendered the whole price or who has received a bill of
exchange or other negotiable instrument as conditional payment and the condition on which it was
received has been broken by reason of the dishonor of the instrument.
1. A lien on the goods or right to retain them for the price while in his possession
2. A right of stopping the goods in transitu in case of insolvency of the buyer; requisites:
(d) the seller must either actually take possession of the goods sold or give notice of his claim to the
carrier or other person in possession;
(e) the seller must surrender the negotiable document of title, if any, issued by the carrier or bailee;
and
(f) the seller must bear the expenses of delivery of the goods after the exercise of the right.
3. A right of resale
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, if 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.
1. If the property sold is movable, the ownership shall be acquired by the vendee who first takes
possession in good faith [Villa Rey Transit, Inc. vs Ferrer, 25 SCRA 861].
(a) the vendee who first registers the sale in good faith in the Registry of Deeds has preferred right
over another vendee who has not registered his title even if the latter is in actual possession of the
immovable property – governed by the principle prius tempore, patior jure (first in time, stronger in
right) – knowledge by the first buyer of the second sale cannot defeat the first buyer’s right except
when the second first registers in good faith the second sale;
(b) in the absence of registration, the vendee who first takes possession in good faith; and
(c) in the absence of both registration and possession, the vendee who presents the oldest title (who
first bought the property) in good faith.
Article 1544 has no application to lands not registered with the Torrens system.
Condition means an uncertain event or contingency on the happening of which the obligation (or right)
of the contract depends.
If the obligation of either party is subject to any condition and such condition is not fulfilled, such party
may either (1) refuse to proceed with the contract, or (2) proceed with the contract, waiving the
performance of the condition.
If the condition is in the nature of a promise that it should happen, the non-performance of such
condition may be treated by the other party as a breach of warranty.
Implied warranty as to seller’s title (Art. 1548) – that the seller guarantees that he has a right to sell the
thing sold and to transfer ownership to the buyer who shall not be disturbed in his legal and peaceful
possession thereof.
Implied warranty against hidden defects or unknown encumbrance (Art. 1562) – that the seller
guarantees that the thing sold is reasonably fit for the known particular purpose for which it was
acquired by the buyer or, where it was bought by description, that it is of merchantable quality.
3. the judgment is based on a right prior to the sale or an act imputable to the vendor;
4. the vendor was summoned in the suit for eviction at the instance of the vendee; and
1. Consciente – the waiver is voluntarily made by the vendee without the knowledge and
assumption of the risks of eviction. If the waiver was only conscious, the vendor shall pay only
the value which the thing sold had at the time of eviction – this is a case of solution indebiti –
the effect is to deprive the purchaser of the benefits mentioned in Nos. 2, 3, 4 and 5 of Article
1555.
2. Intencionada – the waiver is made by the vendee with knowledge of the risks of eviction and
assumption of its consequence. The vendor is exempted from the obligation to answer for
eviction, provided he did not act in bad faith [Andaya vs. Manansala, 107 Phil. 1151].
Rights of the vendee against the vendor in case eviction occurs (Art. 1555)
2. income or fruits if he has been ordered to deliver them to the party who won the suit against
him;
5. damages and interests and ornamental expenses if the sale was made in bad faith.
– the avoidance of a sale on – an action instituted to avoid a – a defect in the article sold
account of some vice or sale on account of some vice or against which defect the seller
defect in the thing sold, defect in the thing sold which is bound to warrant. The vice
which renders its use renders its use impossible, or so or defect must constitute an
impossible, or so inconvenient and imperfect that imperfection, a defect in its
inconvenient and imperfect it must be supposed that the nature, of certain importance;
that it must be supposed that buyer would not have purchased and a minor defect does not
the buyer would not have it had he known of the vice. The five rise to redhibition. The
purchased it had he known of object is the rescission of the mere absence of a certain
the vice. contract. If the object is to quality in the thing sold which
procure the return of a part of the vendee thought it to
the purchase price paid by the contain is not necessarily a
vendee, the remedy is known redhibitory defect. One thing is
as accion minoris orestimatoris. that is positively suffers from
certain defects.
– the vendor is liable to the vendee for any – applies in sheriff’s sale, sales of animals, and
hidden faults or defects in the thing sold, tax sales, for there is no warranty of title or
even though he was not aware thereof (Art. quality on the part of the seller in such sales.
1566).- Based on the principle that a sound
– Also applies in double sales of property where
price warrants a sound article.
the issue is who between two vendees has a
better right to the property .
2. Accion quanti minoris – demand a proportionate reduction of the price, with a right to damages
in either case
If the vendor was aware of the hidden defects (a) the expenses of the price paid
in consequence of which the thing sold was
b) the contract; and
lost, he shall bear the loss because he acted in
bad faith. In such case, the vendee has the (c) damages.
right to recover:
If the vendor was not aware of them, he shall (a) the price paid
be obliged only to return:
(b) interest thereon; and
The vendee is obliged to (1) accept delivery; and (2) pay the price of the thing sold.
1. In contract of sale, the vendor is not required to deliver the thing sold until the price is paid
nor the vendee pay the price before the thing is delivered in the absence of an agreement to the
contrary [La Font vs. Pascacio, 5 Phil. 591].
2. If stipulated, then the vendee is bound to accept delivery and to pay the price at the time and
place designated.
3. If there is no stipulation as to the time and place of payment and delivery, the vendee is
bound to pay at the time and place of delivery.
4. In the absence also of stipulation, as to the place of delivery, it shall be made wherever the
thing might be at the moment the contract was perfected (Art. 1251).
5. If only the time for delivery of the thing sold has been fixed in the contract, the vendee is
required to pay even before the thing is delivered to him; if only the time for payment of the
price has been fixed, the vendee is entitled to delivery even before the price is paid by him (Art.
1524).
Instances when the vendee may suspend the payment of the price:
(b) should the vendor give security for the return of the price; or
(c) should the vendor have caused the disturbance or danger to cease; or
Goods – include all chattels personal but not things in action or money of legal tender in the Philippines.
The term includes growing fruits or crops.
Actions available for breach of the contract of sale of goods:
Action by the seller for damages for non-acceptance of the goods (Art. 1596)
Action by the seller for rescission of the contract for breach thereof (Art. 1597)
Action by the buyer for rescission or damages for breach of warranty (Art. 1599)
Remedies allowed to the buyer when the seller has been guilty of a breach of promise or warranty
(Art. 1599):
1 Recoupment – accept the goods and set up the seller’s breach to reduce or extinguish the
price.The theory of recoupment is that the seller’s damages are cut down to an amount
which will compensate him for the value of what he has given.
2 Set-off or Counterclaim for damages – accept the goods and maintain an action for
damages for the breach of the warranty. Both sides of the contract are enforced in the same
litigation. The buyer (defendant) does not seek to avoid his obligation under the contract
but seeks to enforce the seller’s (plaintiff’s) obligation and to deduct it from his liability for
the price for breach of warranty.
3 Action for damages – refuse to accept the goods and maintain an action for damages for
the breach of the warranty.
4 Rescission – rescind the contract of sale by returning or offering the return of the goods,
and recover the price or any part thereof which has been paid. This remedy is not available
in the following cases:
(a) if the buyer accepted the goods knowing of the breach of warranty without protest;
(b) if he fails to notify the seller within a reasonable time of his election to rescind; and
(c) if he fails to return or offer to return the goods in substantially as good condition as
they were in at the time of the transfer of ownership to him. But where the injury to the
goods was caused by the very defect against which the seller warranted, the buyer may still
rescind the sale.
Common – those causes which are also the means of extinguishing all other contracts like payment, loss
of the thing, condonation, etc. (Art. 1231).
Special – those causes which are recognized by the law on sales (those covered by Arts. 1484, 1532,
1539, 1540, 1542, 1556, 1560, 1567, and 1591).
It is the right which the vendor reserves to It is the right to be subrogated, upon the same
himself, to reacquire the property sold provided terms and conditions stipulated in the contract,
her returns to the vendee the price of the sale, in the place of one who acquires a thing by
the expenses of the contract, any other purchase or dation in payment, or by any other
legitimate payments made therefore and the transaction whereby ownership is transmitted
necessary and useful expenses made on the by onerous title.
thing sold, and fulfills other stipulations which
may have been agreed upon.
An equitable mortgage is one which lacks the proper formalities, form of words, or other requisites
prescribed by law for a mortgage, but shows the intention of the parties to make the property subject of
the contract as security for a debt and contains nothing impossible or contrary to law [Cachola vs. CA,
208 SCRA 496].
Dacion en pago is the transmission of the ownership of a thing by the debtor to the creditor as the
accepted equivalent of the performance of an obligation.
Ownership is transferred but the ownership is Ownership is not transferred but the property is
subject to the condition that the seller might merely subject to a charge or lien as security for
recover the ownership within a certain period of the compliance of a principal obligation, usually a
time. loan.
If the seller does not repurchase the property The mortgagor does not lose his interest in the
upon the very day named in the contract, he property if he fails to pay the debt at its maturity.
loses all interest thereon.
There is no obligation resting upon the purchaser It is the duty of the mortgagee to foreclose the
to foreclose; neither does the vendor have any mortgage if he wishes to secure a perfect title
right to redeem the property after the maturity thereto, and after the maturity of the debt
of the debt. secured by the mortgage and before foreclosure,
the mortgagor has a right to redeem [Basilio vs.
Encarnacion, 5 Phil. 360].
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 the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation; and
7. when there is a doubt as to whether the contract is a contract of sale with right or repurchase or
an equitable mortgage.
1 There must be a sale or assignment of credit. The concept of sale must be understood in its
restricted sense. The right cannot be exercised if the transaction is exchange or donation.
2 There must be a pending litigation at the time of the assignment. The complaint by the
assignor must have been filed and answered by the creditor before the sale of the credit.
3 The debtor must pay the assignee (a) the price paid by him, (b) the judicial costs incurred by
him, and (c) the interests on the price from the date of payment.
4 The right must be exercised by the debtor within 30 days from the date the assignee
demands (judicially or extra-judicially) payment from him.
Redemption Pre-emption
1 The sale to a third person has already been The sale to a third person has not yet been
perfected perfected
3 Directed against the third person who bought Directed against the prospective vendor who
the property is about to resell the property
4 Effect is to extinguish a contract that has already Effect is to prevent the birth or perfection of a
been perfected or even consummated contract
Assignment of credit – a contract by which the owner of a credit transfers to another his rights and
actions against a third person in consideration of a price certain in money or its equivalent (Art. 1458).
Assignment of credit and other incorporeal rights are consensual, bilateral, onerous, and commutative
or aleatory contracts. The assignment involves no transfer of ownership but merely effects the transfer
of rights which the assignor has at the time to the assignee [Casabuena vs. CA, 286 SCRA 594].
It may be done gratuitously, but if done onerously, it is really a sale. Thus, the subject matter is the
credit or right assigned; the consideration is the price paid for the credit or right; and the consent is the
agreement of the parties to the assignment of the credit or right at the agreed price.
Agency – involves representation, not transmission wherein the agent acts for the principal.
Substitution – the change of a new debtor for the previous debtor with the credit remaining in the same
creditor.
Subrogation – the change in the person of the creditor with the credit being extinguished.
1 As between the parties, the assignment is valid although it appears only in a private
document so long as the law does not require a specific form for its validity.
2 To affect third persons, the assignment must appear in a public instrument, and in case it
involves real property, it is indispensable that it be recorded in the Registry of Deeds [Lopez
vs. Alvarez, 9 Phil. 28].
3 The assignee merely steps into the shoes of the assignor, the former acquiring the credit
subject to defenses (fraud, prescription, etc.) available to the debtor against the
assignor. The assignee is deemed subrogated to the rights as well as to the obligations of
the seller. He cannot acquire greater rights than those pertaining to the assignor. [Koa vs
CA, 219 SCRA 541].
X. BARTER OR EXCHANGE
Barter – a contract whereby one person transfers the ownership of non-fungible things to another with
the obligation on the part of the latter to give things of the same kind, quantity, and quality.
The contract is perfected from the moment there is a meeting of the minds upon the things promised by
each party in consideration of the other. It is consummated from the time of mutual delivery by the
contracting parties of things they promised.
Effect where the giver is not the lawful owner of the thing delivered: the aggrieved party cannot be
compelled to deliver the thing he has promised. He is entitled to claim damages (Art. 1639). [Biagtan vs.
Viuda de Oller, 62 Phil. 933].
Remedy in case of eviction: the injured party is given the option to recover the property he has given in
exchange with damages or only claim an indemnity for damages. The right to recover is, however,
subject to the rights of innocent third persons (Art. 1640).
Purpose of the law (Act No. 3952) is to prevent the defrauding of creditors by the secret sale or disposal
or mortgage in bulk of all or substantially all of a merchant’s stock of goods.
The general scheme is to declare such bulk sales fraudulent and void as to creditors of the vendor, or
presumptively so, unless specified formalities are observed, such as the demanding and the giving of a
list of creditors, the giving of actual and constructive notice to such creditors, by record or otherwise,
and the making of an inventory.
A sale and transfer in bulk under the Bulk Sales Law is any sale, transfer, mortgage, or assignment –
(a) 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; or
(c) of all or substantially all, of the fixtures and equipment used in the business of the vendor,
mortgagor transferor, or assignor.
1. knowingly or willfully making or delivering a statement as required by the Act which does not
include the names of all the creditors of the vendor, etc. with the correct amount due and to
become due or which contains any false or untrue statement; and
2. transferring title to a any stock of goods, wares, merchandise, provisions or materials sold in
bulk without consideration of for a nominal consideration only.