Pointers in Contract of Sale - Mercantile Law - Philippine Bar Examination Cafe PDF

1/10/2021 Pointers in Contract of Sale > Mercantile Law | Philippine Bar Examination Cafe
Pointers In Contract Of Sale > Mercantile Law

Posted on March 22, 2012. Filed under: 2012 Bar Review Materials, Bar Review Materials, Mercantile Law | Tags: 2012, 2012 bar exams, Bar Examination, Bar Tips,
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I. NATURE AND FORM OF THE CONTRACT
Sources of the Law on Sales
Sales are governed by the provisions of the Civil Code:
1. Book IV, Title VI, Articles 1458-1637 (Sales)
2. Title I, Arts. 1156-1422 (Obligations and Contracts)
3. Opinions of Commentators
4. Jurisprudence
Concept of Contract of Sale
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.
Characteristics of a Contract of Sale
1. Consensual – perfected by mere consent of the parties without further acts.

2. Bilateral – both the contracting parties are bound to fulfill correlative obligations
towards each other (the seller to deliver and transfer ownership of the
thing sold, and the buyer to pay the price).
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.
6. Nominate – the contract is given a special name or designation in the Civil Code.
7. Principal – the contract does not depend for its existence and validity upon
another contract.
Essential Requisites of a Contract of Sale
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.
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2. Object or subject matter – refers to the determinate thing which is the object of the contract;
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Even a future thing not existing at the time the contract is entered into may be the object of sale, provided anda accept
it has potential
or possible existence, that is, it is reasonably certain to come into existence as the natural increment or usual incident of
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something in existence already belonging to the seller, and the tile will vest the buyer the moment the thing comes into
existence (Art. 1461).
Emptio rei speratae Rei spetae
(sale of thing expected)
– the sale of a thing not yet in existence, subject – the sale of hope itself that the thing will come
to the condition that the thing will exist and on into existence, where it is agreed that the buyer
failure of the condition, the contract becomes will pay the price even if the thing does not
ineffective and hence, the buyer has not eventually exist;
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 thing – produces effect even though the thing does not
should exist, so that if it does not, there will be come into existence because the object of the
no contract by reason of the absence of an contract is the hope itself, unless it is a vain hope
essential element. or expectancy (like the sale of a falsified
sweepstakes ticket which can never win).
3. Cause or consideration – refers to the price certain in money or its equivalent.
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.
Kinds of a Contract of Sale
1. As to presence or absence of conditions
Absolute – where the sale is not subject to any condition whatsoever and where the title passes to the buyer upon delivery of
the thing sold.
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
As to the nature of the subject matter – real or personal, tangible or intangible
As to the manner of payment – cash or installment
As to its validity – valid, rescissible, unenforceable, void
Contract of Sale Distinguished from Contract to Sell
Contract of Sale Contract to Sell

Transfer of – passes to the buyer upon – remains with the seller until
title: delivery of the thing sold. full payment of the agreed
price.
Payment of – non-payment
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price: negative resolutory condition, suspensive condition, the
and the remedy is to exact failure of which is not a breach, Close and accept
fulfillment or to rescind the casual or serious, of the
contract. contract but simply an event
that prevents the obligation of

the vendor to convey title from
acquiring binding force.
Ownership – vendor loses and cannot – title remains in the vendor
of vendor: recover ownership of the thing until full payment of price.
sold and delivered, actually or
constructively until and unless
the contract of sale itself is
resolved and set aside.
Sale Distinguished from Dation in Payment:
Sale Dation in Payment
– no pre-existing credit – there is pre-existing credit

– gives rise to obligation – extinguishes obligation
– cause or consideration is the price, or the – cause of consideration is extinguishment of the
acquisition of title to the property debt (from the point of view of the offeror), and the
acquisition of the object offered (from the point of
view of the creditor) in lieu of the original credit
– there is greater freedom in the determination of – less freedom
the price
– giving of the price may generally end the – the giving of the object in lieu of the credit may
obligation of the buyer extinguish completely or partially the credit
(depending on the agreement)
Sale of goods by description Sale of goods by sample
– occurs where the purchaser has not seen the

article sold and relies on the description given him – the parties contracted solely with reference to the
by the vendor, or has seen the goods but the want sample, with the understanding that the bulk was
of identity is not apparent on inspection.- If like it.- the vendor warrants that the thing sold and
the bulk of the goods delivered does not to be delivered by him shall conform with the
correspond with the description, the contract may sample in kind, charater, and quality.
be rescinded. (Art. 1481.)
Form of Contract of Sale
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:
(a) sale of personal property at a price not less than P500;
(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.
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(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.
II. CAPACITY TO BUY OR SELL
Persons Who May Enter Into a Contract of Sale
As a general rule, all persons, whether natural or juridical, who can bind themselves, have the legal capacity to buy and sell.
Persons Who Are Incapacitated to Enter Into a Contract of Sale
1. Absolute Incapacity – pertains to persons who cannot bind themselves
(a) Minor
(b) Insane or demented persons
(c) Deaf-mutes who do not know how to read and write
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
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seek their annulment. This is in accord with the doctrine of estoppel[Mercado and Mercado vs. Espiritu, 37 Phil. 265].
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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
(b) Guardian – as to the property of his ward
(c) Agents – as to the property whose administration or sale has been entrusted to them, unless consent of the principal is
given
(d) Executors or administrators – as to the state under their administration
(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
(i) Officer holding the execution or his deputy
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
Principal Obligations of the Vendor
to transfer the ownership of the determinate thing sold (Art. 1495);
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);
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1495, 1547);
to take care of the thing, pending delivery, with proper diligence (Art. 1163);
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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.
Kinds of Delivery or Tradition
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.
2. Legal or Constructive (Arts. 1498-1501) – through the execution of a public instrument
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.
Requisites in constructive delivery before ownership may be transferred:
(a) Seller must have control over the thing; otherwise, can he put another in control?
(b) Buyer must be put under control;
(c) There must be the intention to deliver the thing for purposes of ownership.
Rules of constructive delivery:
1. If a seller has an actual possession, he cannot transfer ownership by constructive delivery.
2. There can be no constructive delivery by means of a public instrument if there is a stipulation to the contrary.
3. The execution of a deed or contract is only presumptive delivery.
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.
Rights of an unpaid seller:

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2. A right of stopping the goods in transitu in case of insolvency of the buyer; requisites: Close and accept
(a) the seller must be unpaid;

(b) the buyer must be insolvent;
(c) the goods must be in transit;
(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
4. A right to rescind the sale
Rules in case of loss, deterioration, or improvement of thing before delivery
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.
Rules as to preference of ownership in case of double sale
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].
2. If the property sold is immovable, the ownership shall belong to:
(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.
V. CONDITION AND WARRANTIES
Condition means an uncertain event or contingency on the happening of which the obligation (or right) of the contract depends.
Warranty is a statement or representation made by the seller of goods, contemporaneously and as a part of the contract of sale,
having reference to the character, quality, or title of the goods, and by which he promises or undertakes to insure that certain facts
are or shall be as he then represents them.
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. Close and accept
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.
Essential elements of warranty against eviction
1. the vendee is deprived in whole or in part of the thing purchased;

2. the vendee is so deprived by virtue of a final judgment ;
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
5. there is no waiver on the part of the vendee.
Kinds of waiver of eviction
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)
1. return of the value of the thing sold at the time of eviction;

2. income or fruits if he has been ordered to deliver them to the party who won the suit against him;
3. costs of the suit;
4. expenses of the contract;
5. damages and interests and ornamental expenses if the sale was made in bad faith.
Redhibition Redhibitory action Redhibitory vice or defect

– an action instituted to avoid a – a defect in the article sold
– the avoidance of a sale on sale on account of some vice or against which defect the seller is
account of some vice or defect defect in the thing sold which bound to warrant. The vice or
in the thing sold, which renders renders its use impossible, or so defect must constitute an
its use impossible, or so inconvenient and imperfect that it imperfection, a defect in its
inconvenient and imperfect that must be supposed that the buyer nature, of certain importance;
it must be supposed that the would not have purchased it had and a minor defect does not five
buyer would not have he known of the vice. The object is rise to redhibition. The mere
purchased it had he known of the rescission of the contract. If absence of a certain quality in the
the vice. the object is to procure the return thing sold which the vendee
of a part of the purchase price paid thought it to contain is not
by the vendee, the remedy is necessarily a redhibitory defect.
known as accion One thing is that is positively
minoris orestimatoris. suffers from certain defects.
Doctrines of caveat venditor and caveat emptor
Caveat venditor Caveat emptor
(Let the seller beware) (Let the buyer beware)
– the vendor is liable to the vendee for any – applies in sheriff’s sale, sales of animals, and tax
hidden faults or defects in the
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though he was not aware thereof (Art. 1566).- the part of the seller in such sales.
Based on the principle that a sound price
warrants a sound article. – Also applies in double sales of property where
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the issue is who between two vendees has a better
right to the property .
– Requires the purchaser to be aware of the

supposed title of the vendor and one who buys
without checking the vendor’s title takes all the
risks and losses consequent to such failure [Solvoso
vs. Tanega, 87 SCRA 349].
Alternative remedies of the buyer to enforce warranty (Art. 1567):
1. Accion redhibitoria – to withdraw from the contract

2. Accion quanti minoris – demand a proportionate reduction of the price, with a right to damages in either case
Effect of loss of thing sold on account of hidden defects (Art. 1568)
If the vendor was aware of the hidden defects in (a) the expenses of the price paid
consequence of which the thing sold was lost, he
shall bear the loss because he acted in bad faith. b) the contract; and
In such case, the vendee has the right to
recover:
(c) damages.
If the vendor was not aware of them, he shall be (a) the price paid
obliged only to return:
(b) interest thereon; and
(c) expenses of the contract if paid by the

vendee. He is not made liable for damages
because he is not guilty of bad faith.
VI. OBLIGATIONS OF THE VENDEE
The vendee is obliged to (1) accept delivery; and (2) pay the price of the thing sold.
The following rules must be borne in mind:
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:
a) should he be disturbed in the possession or ownership of the thing sold;
b) should he have reasonable grounds to fear such disturbance by a vindicatory action or by a foreclosure of mortgage;
These rights do not exist in the following cases:
(a) should there be a stipulation to that effect; or
(b) should the vendor

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(c) should the vendor have caused the disturbance or danger to cease; or
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(d) should the disturbance consist only of a mere act or trespass.
VII. ACTIONS FOR THE BREACH OF CONTRACT OF SALE OF GOODS
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 payment of the price (Art. 1595)
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 specific performance (Art. 1598)
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.
VIII. EXTINGUISHMENT OF SALE
Classification of modes or causes of extinguishing the contract of 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).
Extra-special – conventional redemption and legal redemption.
Conventional Redemption Legal Redemption
(Arts. 1601-1618) (Arts. 1619-1623)
It is the right which the vendor reserves to himself, It is the right to be subrogated, upon the same
to reacquire the property sold provided her returns terms and conditions stipulated in the contract, in Close and accept
to the vendee the price of the sale, the expenses of the place of one who acquires a thing by purchase
the contract, any other legitimate payments made or dation in payment, or by any other transaction
therefore and the necessary and useful expenses whereby ownership is transmitted by onerous
made on the thing sold, and fulfills other title.
stipulations which may have been agreed upon.
Nature: Nature: (a) identical with conventional
redemption, except for the source of the right –
(a) it is purely contractual because it is a right conventional redemption arises from the voluntary
created, not by mandate of the law, but by virtue agreement of the parties; legal redemption
of an express contract[Ordoñez vs. Villaroman, 78 proceeds from law;
Phil. 116];
(b) it is not predicated on proprietary right but
(b) it is an accidental stipulation and, therefore, on a bare statutory privilege to be exercised only
its nullity cannot affect the sale of itself since the by the person named in the statute – the statute
latter might be entered into without said does not make actual ownership at the time of sale
stipulation [Alojado vs. Lim Siongco, 51 Phil. 339]; or redemption a condition precedent, the right
following the person and not the property[Magno
vs. Viola and Sotto, 61 Phil. 80];
(c) it is a real right when registered, because it
binds third persons [Mortera vs. Martinez, 14 Phil.
541]; (c) it is in the nature of a mere privilegecreated
partly for reason of public policy and partly for the
benefit and convenience of the redemptioner to
(d) it is a resolutory condition because when
afford him a way out of what might be a
exercised, the right of ownership acquired by the
disagreeable or inconvenient association into which
vendee is extinguished[Aquino vs. Deal, 63 Phil.
he has been thrust – it is intended to minimize co-
582];
ownership [Basa vs. Aguilar, 117 SCRA 128; Tan vs.
CA, 172 SCRA 660].
(e) it is potestative because it depends upon the
will of the vendor;
(f) it is a power or privilege, not an obligation,

Instances of Legal Redemption:
that the vendor has reserved for himself [Ocampo
vs. Potenciano, CA 48 OG 2230];
(g) it is reserved at the moment of the perfection

of the contract for if the right to repurchase is (a) Under the Civil Code, those found in Arts.
agreed upon afterwards, there is only a promise to 1620-1622, 1634, and 1088;
sell which produces different rights and effects and
is governed by Art. 1479 [Diamante vs. CA, 206
SCRA 52];
(b) Under special laws:
(h) the person entitled to exercise the right of
redemption necessarily is theowner of the (1) redemption by owner of real property sold for
property sold and not any third party [Gallar vs. delinquent taxes – period is within 1 year from date
Husain, 20 SCRA 186]; of sale;
(i) it gives rise to reciprocal obligationthat of (2) repurchase by homesteader of homestead

returning the price of sale and other expenses, on sold under the Public Land Act – period is 5 years
the part of the vendor, and that of delivering the [Tupas vs. Damasco, 132 SCRA 593];
property and executing a deed of sale therefore, on
the part of the vendee [Pandaquilla vs. Gaza, 12
(3) redemption by judgment debtor or
Phil. 663].
redemptioner or real property sold on execution –
period is 12 months;
(4) redemption by mortgagor after mortgaged

property has been judicially foreclosed and sold –
period is 90 days but before confirmation of sale by
the court (in all cases of extra-judicial foreclosure
sale, the mortgagor may redeem the property
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sale);
(5) redemption by an agricultural lessee of

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landholding sold by the landowner – period is 180
days from notice in writing which shall be served by
the vendee on all lessees affected by DAR upon the

registration of the sale.
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.
Pacto de retro Mortgage
Ownership is transferred but the ownership isOwnership is not transferred but the property is
subject to the condition that the seller might recovermerely subject to a charge or lien as security for the
the ownership within a certain period of time. compliance of a principal obligation, usually a loan.
If the seller does not repurchase the property upon The mortgagor does not lose his interest in the
the very day named in the contract, he loses allproperty if he fails to pay the debt at its maturity.
interest thereon.
There is no obligation resting upon the purchaser to It is the duty of the mortgagee to foreclose the
foreclose; neither does the vendor have any right to mortgage if he wishes to secure a perfect title
redeem the property after the maturity of the debt. thereto, and after the maturity of the debt secured
by the mortgage and before foreclosure, the
mortgagor has a right to redeem [Basilio vs.
Encarnacion, 5 Phil. 360].
Instances when conventional redemption is presumed to be an equitable mortgage:
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 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.
Requisites before legal redemption can be exercised:

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
2 Has a much broader scope Narrower in scope – may be exercised only where
there is a prospective resale of a small piece of
urban land originally bought by the prospective
vendor merely for speculation
3 Directed against the third person who bought theDirected against the prospective vendor who is
property about to resell the property
4 Effect is to extinguish a contract that has alreadyEffect is to prevent the birth or perfection of a
been perfected or even consummated contract
IX. ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL RIGHTS
Assignment of credit – a contract by which the owner of a credit transfers to another his rights and actions Close
againstand accept
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.
Renunciation – the abandonment of a right without a transfer to another.
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.
Binding effects of assignment:

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).
XI. THE BULK SALES LAW
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
(b) of all or substantially all, of the

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(c) of all or substantially all, of the fixtures and equipment used in the business of the vendor, mortgagor transferor, or
assignor.
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Acts punished by the law:
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.
––O––
Reference:
1. De Leon, Comments and Cases on Sales;

2. Paras, Civil Code of the Philippines Annotated, Book V;
3. Jurado, Civil Law Reviewer.
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Pointers in Contract of Sale - Mercantile Law - Philippine Bar Examination Cafe PDF

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1/10/2021 Pointers in Contract of Sale > Mercantile Law | Philippine Bar Examination Cafe

Pointers In Contract Of Sale > Mercantile Law

I. NATURE AND FORM OF THE CONTRACT

Sources of the Law on Sales

Sales are governed by the provisions of the Civil Code:

1. Book IV, Title VI, Articles 1458-1637 (Sales)

2. Title I, Arts. 1156-1422 (Obligations and Contracts)

Concept of Contract of Sale

Characteristics of a Contract of Sale

1. Consensual – perfected by mere consent of the parties without further acts.

Essential Requisites of a Contract of Sale

Emptio rei speratae Rei spetae

(sale of thing expected)

Kinds of a Contract of Sale

1. As to presence or absence of conditions

As to the nature of the subject matter – real or personal, tangible or intangible

As to the manner of payment – cash or installment

As to its validity – valid, rescissible, unenforceable, void

Contract of Sale Distinguished from Contract to Sell

Contract of Sale Contract to Sell

that prevents the obligation of

Sale Dation in Payment

– no pre-existing credit – there is pre-existing credit

Sale of goods by description Sale of goods by sample

– occurs where the purchaser has not seen the

(a) sale of personal property at a price not less than P500;

(a) the giving of a memorandum;

(a) elect fulfillment upon the vendee’s failure to pay;

II. CAPACITY TO BUY OR SELL

Persons Who May Enter Into a Contract of Sale

Persons Who Are Incapacitated to Enter Into a Contract of Sale

1. Absolute Incapacity – pertains to persons who cannot bind themselves

(b) Insane or demented persons

(c) Deaf-mutes who do not know how to read and write

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(b) Guardian – as to the property of his ward

(d) Executors or administrators – as to the state under their administration

(i) Officer holding the execution or his deputy

IV. OBLIGATIONS OF THE VENDOR

Principal Obligations of the Vendor

to transfer the ownership of the determinate thing sold (Art. 1495);

Kinds of Delivery or Tradition

Requisites in constructive delivery before ownership may be transferred:

(b) Buyer must be put under control;

Rules of constructive delivery:

1. If a seller has an actual possession, he cannot transfer ownership by constructive delivery.

3. The execution of a deed or contract is only presumptive delivery.

Rights of an unpaid seller:

(a) the seller must be unpaid;

(c) the goods must be in transit;

4. A right to rescind the sale

Rules in case of loss, deterioration, or improvement of thing before delivery

Rules as to preference of ownership in case of double sale

V. CONDITION AND WARRANTIES

Essential elements of warranty against eviction

1. the vendee is deprived in whole or in part of the thing purchased;

Kinds of waiver of eviction

1. return of the value of the thing sold at the time of eviction;

Redhibition Redhibitory action Redhibitory vice or defect

Caveat venditor Caveat emptor

(Let the seller beware) (Let the buyer beware)

– Requires the purchaser to be aware of the