Law on Sales

Chapter 1
Sales

 Contract wherby one of the parties (seller) obligates himself to transfer the ownership, and
to deliver the possession, of a determinate thing; and the other party (buyer) obligates
himself to pay therefor a price certain in money or its equivalent.

Nature and Obligations Created in a Sale

Obligations of the Seller

 Transfer the Ownership; and

 Deliver the possession of the Subject Matter

Obligations of the Buyer

 Pay the Price

Subject Matter of a Sale

 Art. 1458 & Art. 1460

 Determinate (Specific)
o Particularly Designated
o Physically Segregated

Elements of Contract of Sale

 Consent – Meeting of the minds to transfer ownership in exchange for the price
 Subject Matter – “thing” being sold
 Price – certain in money or its equivalent

Stages in the Life of a Sale

 Negotiation – Preparation or policitacion

 Perfection – Conception or “birth”
 Consummation – “Death”

Essential Characteristics of Sale

 Nominate and Principal

o Sale is a nominate contract since it has been given a particular name by law
o It can stand on its own and does not depend on another contract for its
validity/existence
 Consensual
o Perfected by mere consent, at the moment there is a meeting of the minds upon the
thing which is the object of the contract upon the price
 Consensual characteristic of sale can be affected by modalities such as a
suspensive term or condition
  Bilateral and Reciprocal
o The power to rescind is implied, and such power need not be stipulated in the
contract in order for the innocent party to invoke the remedy
o Neither party incurs delay if the other party does not comply, or is not ready to
comply in a proper manner, with what is incumbent upon him
o From the moment one of the parties fulfills the obligation, the default by the other
begins, without the need of prior demand
 Onerous
o It imposes a valuable consideration as a prestation, which ideally is a price in
money or its equivalent
 Commutative
o A thing of value is exchanged for equal value (ideally the value of the subject
matter is equal to the price paid)
 Sale is Title and not Mode
o The seller assumes the obligation to transfer ownership and to deliver the thing
sold, but the real right of ownership is transferred ONLY “by tradition” or
delivery thereof to the buyer

Article 1465. Things subject to a resolutory condition may be the object of the contract of sale.

Resolutory condition

 an uncertain event upon the happening of which the obligation (or right) subject to it is
extinguished.

Sale Distinguished from Other Similar Contracts

Sale vs Donation

 Sale is an Onerous contract; Donation is a Gratuituous contract

 Sale is perfected by mere consent; donation is a solemn contract (also requires consent,
must comply with formalities mandated by law for validity)

Sale vs Barter Art. 1468

 Sale- Price money or its equivalent

 Barter- another thing in exchange

Rules to Determine whether Contract is Sale or Barter

 Manifest Intention of the Parties (intention to sell or trade)

 When intention is unclear and consideration is partly in money and partly in another
thing:
o Barter- value of the thing given as part of the consideration exceeds the
amount of money given or it equivalent
o Sale- value of the thing given as part of the consideration equals or is less
than the amount of money given

Contract for a Piece of Work Art. 1467

 Contract for a piece of work – here, the contractor binds himself to execute a piece of
work for the employer, in consideration of a certain price or compensation.

Schools of Thought

 Massachusetts Rule (Usually Applied in the Philippines)

o If product is manufactured in an ordinary course of a business, it is a
Sale
 New York Rule
o If readily available, it is a contract of Sale; if to be manufactured, it is a
contract for a piece of work
 English Rule
o Sale- If material cost is higher
o PoW- If labor cost is higher

Sale vs Agency to Sell/Buy Art. 1466

 In Sale, Title to the goods is transferred to the buyer upon delivery; In Agency, Title is
retained by the owner despite delivery
 In sale, buyer is required to pay the price; in Agency, the agent is required to turn over
to the principal the price of the goods which he received from the buyer.
 In sale, the recipient may do with the property as he pleases; in agency, the principal
retains control over the property

Sale vs Dacion en Pago

 In sale, there is no pre-existing credit; in Dacion en pago, there is pre-existing credit

 Sale creates obligations; Dacion en pago extinguishes obligations
 In sale, the cause or consideration is the price (seller) and delivery of the object (buyer);
In dacion en pago, the cause or consideration is the extinguishment of the obligation
(debtor) and delivery of the object given (creditor)
 In sale, there is greater freedom in fixing the price; in Dacion en pago, there is less
freedom in fixing the price

Sale vs Contract to Sell Art. 1466

 In contract to sell, title is passed to buyer after full payment of the price
 In contract to sell, the risk of loss is on the seller

Art. 1469
 There is no sale if price is not certain or ascertainable in money (currency) or its
equivalent
 If no specific amount has been agreed upon, the price is still considered certain:
o if it be certain with reference to another thing certain
o if the determination of the price is left to the judgment of a specified person or
persons;
o in the cases provided for under Art. 1472, Civil Code
Sale By Auction

 each lot is the subject of a separate contract of sale

 perfected when the auctioneer announces its perfection by the fall of the hammer, or in
other customary manner
 A right to bid may be reserved expressly by or on behalf of the seller

Art. 1480 Rules on risk of loss or deterioration

 If thing lost before perfection – seller bears the loss (res perit domino)
 If thing lost at the time of perfection – contract void; no object
 If thing lost after perfection but before delivery – buyer bears the loss
 If thing lost after delivery – buyer bears the loss

Rule for paragraph 3:

 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. Par. 3 is an exception to the
rule that vendee bears the risk of loss after perfection but before delivery.

Art 1482

Earnest money

 money given by the buyer to the seller to bind the bargain. It is a partial payment and is
considered proof of the perfection of the contract.

Recto Law (Art. 1484-1486)

 Also known as Installment Sales Law

 Applies to:
o Sale of personal property by installment
o 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

Expropriation is the exercise of the government of its power of eminent domain

Chapter 2

Art. 1489

All persons, whether natural or juridical, who can bind themselves by contract have also legal
capacity to buy and sell, EXCEPT If the law otherwise states that a party is incapacitated.

Kinds of Incapacity:

 Absolute – persons who cannot bind themselves (e.g. minor or insane)

 Relative – exists only with reference to certain persons or a certain class of property
 Necessaries – things which are needed for sustenance, dwelling, clothing, and medical attendance,
in keeping with the financial capacity of the family of the incapacitated person
Art. 1490
A sale between a husband and wife is generally VOID AB INITIO, except;
 When a separation of property was agreed upon in the marriage settlements; or
 When there has been a judicial separation of property under article 191.
Art 1491
People who cannot purchase:
 Guardian
 Agents
 Executors and Administrators
 Public Officers and Employees
 Justices, Judges, Prosecutos, Court Clerks etc.
 Any others specially disqualified by law
Status of sale in violation of this article: VOIDABLE only. Can be ratified.
Chapter 3
Art. 1493
Effect of loss of thing at the time of sale (perfection):
 Lost Entirely – contract is inexistent and void, there being no object
 Lost partially – vendee may elect between:
o withdrawing from the contract; or
o demanding the remaining part, paying its proportionate price.
A thing is considered 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
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:
 As avoided; or
 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.
Chapter 4
Section 1
 Principal obligations of the vendor:
o To transfer the ownership of the determinate thing sold
o To deliver the thing
o To warrant against eviction and hidden defects
o To take care of the thing, pending delivery, with proper diligence
o To pay for the expenses for the execution and registration of the deed of sale, unless
there is a stipulation to the contrary.
 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. 1496
No delivery:No Transfer of Ownership
Ways of effecting delivery:
 Actual or real delivery – physical delivery of the thing
  Constructive or legal delivery
 Delivery in any other manner signifying an agreement that the possession is transferred to the
vendee
Section 2

Tradition
 is a derivative mode of acquiring ownership by virtue 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 them.
 Importance: To enable the vendee to enjoy and make use of the property purchased.
Actual Delivery
 There is an actual delivery when the thing sold Is placed in the control and possession of the
vendee
 Actual or manual delivery of an article sold is not always essential to passing of title thereto.
 Delivery is generally evidenced by a written acknowledgement of the buyer.
Symbolic Tradition
 to effect delivery, the parties make use of a token symbol to represent the thing delivered.
Public Instrument
 It is one which is acknowledged before a notary public or any authorized to administer oath, by
the person who executed the same
 Rule: The execution of such applies to, movable as well as immovable property.
 Exception: If it appears from the document or it can be inferred therefrom that it was not the
intention of the parties to make delivery, no tradition can be deemed to have taken place.

 Traditio Longa Manu – takes place by mere consent or agreement of the contracting parties as
when the vendor merely points to the thing sold which shall be at the control and disposal of
the vendee.
 Traditio Brevi Manu – happens when the vendee has already the possession of the thing sold by
virtue of another title as when the lessor sells the thing leases to the lessee.
 Traditio constitutum possessorium – takes place when the vendor continues in possession of the
property sold not as owner but in some other capacity.
 Quasi-traditio – when delivery is in case of incorporeal things.
o By execution of public instrument
o If no delivery, by placing of the titles of ownership in the possession of the vendee
o Allowing the vendee to use his rights as new owner w/ consent of vendor.
Sale or return Sale on trial or approval
 The property is sold but the buyer has the  A contract in the nature of an option to
option to return the same to the seller instead purchase, if the goods prove satisfactory, the
of paying the price. approval of the buyer being a condition
precedent.
 Subject to resolutory condition  Subject to suspensive conditions
 Depends entirely on the will of the buyer  Depends on the character or quality of the
goods
 Ownership of goods passes to the buyer on  Ownership remains on the seller until the buyer
delivery and subsequent return reverts signifies his approval or acceptance to the seller
ownership to seller
 Risk of loss or injury rest upon the buyer  Risk still remains with the seller
Delivery of specific goods
 Delivery, be it only constructive, passes title in the thing sold.
 Delivery to a carrier is deemed to be a delivery to the buyer.
Exception
 If the contrary intention appears by the terms of the contract
 In the cases provided in the 2nd and 3rd paragraph of article 1523
 In cases provided in the 2nd, 3rd and last paragraph of article 1503.
Where seller’s title only for purpose of security
 Form of bill of lading not conclusive
 Where ownership would have passes but for the form of the bill of lading
 Where goods are shipped and bill of lading is deliverable, but possession of the bill of lading is
retained by seller/agent, the possession of goods remains on the seller.
 The effect of such is controlling, as it does the possession of the goods and the latter cannot
obtain the goods without the bill.
Where bill of lading is sent w/ draft
 Delivery conditional
 Duty of buyer if draft not honored
 Right innocent third person

Risk of loss
Res perit domino – if the thing is lost by fortuitous event, the risk is borne by the owner of the thing at
the time of the loss.
Exception:
 Where seller reserves the ownership of the goods to secure the performance of the buyer of his
obligations, buyer assumes the risk of loss.
 Where actual delivery has been delayed through the fault of either, risk is at the party at fault.
Sale by person not the owner
 Where the owner of goods is, by his conduct, precluded from denying the seller’s authority to
sell
 Where the law enables the apparent owner to dispose of the goods as if he were the true owner
 Where the sale is sanctioned by statutory or judicial authority
 Where the sale is made at merchant’s stores, fairs or markets
 Where the seller has a voidable title which has not been avoided at the time of the sale
 Where seller subsequently acquires title.

In sale by one having voidable title, buyer can acquire such if:
 Before the title of the seller has been avoided
 In good faith for value
 Without notice of the seller’s defect of title.
Document of title – Includes any bill of lading, dock warrant, “quedan”, or warehouse receipt or any
other document used in the ordinary course of business as proof of the possession or control of the
goods.
Nature and Function
 Refers to goods and not to money. They are receipts of bailee, or orders upon bailee
  Evidence of transfer of title and possession of goods and contract between the parties
Form of Document of Title
 Bill of Lading – Receipt for the transport of goods.
 Dock Warrant – Instrument given by dock owners to an importer of goods warehoused.
 Warehouse Receipt – receipt for goods deposited w/ a warehouseman.
Classes
 Negotiable documents of titles
 Non-negotiable document of titles
Negotiation of negotiable document
 If the goods are deliverable to the bearer
 When it is endorsed in blank or to the bearer.
Who may negotiate?
 By the owner
 By the person whom the possession or custody is entrusted by the owner
Person being negotiated acquires:
 Title of the person negotiating the document over the goods covered
 Title of the person to whose order were to be delivered over such goods
 Direct obligation of the bailee to hold possession of the goods
Rights of person document been transferred
 Right to notify the bailee of the transfer
 Right to acquire the obligation of the bailee to hold the goods for him
When attachment of levy available
 While in the possession of the bailee, it cannot be attached or levied, unless
Exceptions:
o the document be first surrendered
o its negotiation is prohibited by court
 The bailee cannot be compelled to deliver the possession of goods until the document is
surrendered to him or impounded by the court.
Remedy: Aid from courts of appropriate jurisdiction by adjunction (restraining order)
Place of delivery
 Where there is agreement, express or implied, the place of delivery is that agreed upon
 If no agreement, determined by usage of trade
 If no agreement and prevalent usage, the seller’s place of business
 In any other case, the seller’s residence
 In case of specific goods, which knowledge of both is to some other place, that is the place.
Time of delivery
 No time fixed, seller is bound to send the goods to buyer within a reasonable time
 Provides time, time is essence and correct performance was offered
 If contract does not specify and delivery is made within reasonable time, time is not of the
essence.
Delivery of seller
 When he delivers quantity of goods less than contracted, the buyer may reject. But when he
accepts with knowledge of seller not going to perform in full, he must pay for them at the
contracted rate.
  When he delivers quantity of goods larger than contracted, the buyer may accept the goods and
rejects the rest. If he accepts the whole, he must pay for them at the contracted rate.
 When he delivers goods mixed with goods of a different description, the buyer may accept and
reject the rest.
 If the subject matter is indivisible, the buyer may reject the whole
Seller’s duty after delivery to carrier
 To enter on behalf of buyer into such contract reasonable under the circumstances
 To hive notice to buyer regarding necessity to insure goods.

Unpaid seller – one who has not been paid or tendered the whole price
Deemed to be unpaid seller
 When whole price has not been paid or tendered
 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.

Requisite to exercise right of stoppage in transit

 The seller must be unpaid
 The buyer must be insolvent
 The goods must be in transit
 The seller must take possession
 The seller must surrender the negotiable document
 The seller must bear the expenses of delivery
Ways of exercising the right to stop
 By taking actual possession of goods
 By giving notice to his claim to the carrier/bailee
When resale is allowable
 Where goods are perishable in nature
 Right to resell is expressly reserved, in case buyer in in default
 Buyer delays in the payment of price

In case of loss, deterioration or improvement of thing before delivery

 If the thing is lost w/out fault of debtor, the obligations shall be extinguished.
 If thing lost through vendors fault, he shall pay damages
 When thing deteriorates w/out fault of debtor, impairment is borne by creditor.
 When thing deteriorates in fault of debtor, the creditor may choose between rescission of
obligation and its fulfillment, with indemnity for damages
 If thing is improved by its nature or by time, it shall inure to the benefit of the creditor
 If thing is improved at the expense of debtor, he has no right

When vendee is entitles to rescind

 If the lack in area is at least 1/10 than that stated or stipulated
 If the deficiency in the quality specified exceeds 1/10 of the price agreed upon
  If vendee would have not brought the immovable had he known of its smaller area or inferior
quality
Sale of real estate on lump sum
 Mistake in the area stated in contract immaterial
 Where area or number stated together w/ boundaries
 Actions for rescission must be made 6 months from the day of delivery
Rules in cases of double sale
 If property is movable, ownership shall be acquired by who first take possession in good faith
 If property is immovable:
o Vendee who first register the sale to the Registry of Property
o In absence of registration, vendee who first takes possession in good faith
o In absence of both, one who presents the oldest title in good faith.

Section 3
Options of a party to a contract of sale subject to a condition not fulfilled by the other party
 Refuse to proceed with the contract OR
 Waive performance of the condition and proceed with the contract
if the condition agreed upon is in the nature of a promise
 Then the non-fulfillment of such condition is considered a breach of warranty.
Warranty
 It is a collateral undertaking in a sale of either real or personal property, express or implied, that
if the property sold does not possess certain incidents or qualities, the purchaser may either
consider the sale void or claim damages for breach of warranty.
Express Warranty—any affirmation of fact or any promise by the seller relating to the thing if the
natural tendency of such affirmation or promise is to induce the buyer to purchase the same and if
the buyer purchases the thing relying thereon.
Implied Warranty—It is inherent in a contract of sale and presumed to exist although nothing has
been mentioned about it.
Warranty Against Eviction—The seller guarantees that he has the 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.
Eviction—A judicial process by virtue of which the vendee is deprived of the ownership of the whole
or part of the thing he purchased by final judgment or by an act imputable to the vendor
Essential elements of the warranty against eviction:
 The vendee is deprived in whole or in part of the thing purchased;
 He is so deprived by virtue of a final judgment;
 The judgment is based on a right prior to the sale or an act imputable to the vendor;
 The vendor was summoned in the suit for eviction at the instance of the vendee;
 There is no waiver on the part of the vendee.
o Failure of the vendee to appeal does not relieve vendor from responsibility
If Property is sold for non-payment of taxes due and not made known to the vendee before the
sale, vendor is liable for eviction
Judgment debtor is responsible for eviction in judicial sales unless otherwise decreed in
judgment
Any stipulation exempting vendor from responsibility for eviction is void if he acted in bad faith
Kinds of Waiver in Eviction
 1. Consciente—the waiver is voluntarily made by the vendee w/o the knowledge and assumption
of the risks of eviction. (Vendor shall only be liable to pay the value w/c the thing sold had at the time of
the eviction)
2. Intencionada—the waiver is made by the vendee w/ knowledge of the risk of eviction and
assumption of its consequences. (Vendor here shall not be liable)
What Seller Must Give in Case of Eviction
 V — value
 I — income (or fruits)
 C — costs
 E — expenses
 D — damages
Rules in Case of Partial Eviction
 Remedy here is either:
o rescission, or
o enforcement of warranty - If the circumstances set forth in paragraph 1 are not present

WARRANTY AGAINST HIDDEN DEFECTS (HIPANN)

 Hidden
 Important
 Present at the time of execution
 Action must be filed within the prescriptive period
 No waiver
 Notice by the vendee within a reasonable time
Art. 1562
 Quality of goods includes their state or condition
 Implied warranty of fitness applies only when:
o The buyer, expressly or by implication, manifests to the seller the particular purpose for
which the goods are acquired; and
o The buyer relies upon the seller’s skill or judgment
 Implied warranty of merchantability – where goods are bought by description, the seller
impliedly warrants that the goods are of merchantable quality
 Caveat emptor - buyer beware
 Caveat venditor – seller beware
Remedies of the buyer to enforce warranty:
 Withdraw from the contract (accion redhibitoria); or
 Demand a proportionate reduction of the price (accion quanti minoris)
 with a right to damages in either case

Loss of Thing Sold due to Hidden Defects (1568)

Vendor in Bad Faith - Bears the loss
Vendor in Good Faith
 Does not bear the loss
 Must return the price
 Must refund expenses of the contract
 Pay damages
  Must return the price with interest
 Must refund expenses of the contract
 Not obliged to pay damages

Loss of Thing Sold w/ Hidden defects through fortuitous event or vendee’s fault
Cause of the loss
 a fortuitous event;
 or thru the fault of the buyer.

Joint Sale of 2 or more animals

 General rule: When there is a redhibitory defect of one or some of them but not in all, the
redhibition will not affect the others without it.
 Exception: when it can be shown that the vendee would not have purchased the sound ones
without those which are defective.

Sale of Animals are void when: (by declaring nullity of Contract)

 When suffering from contagious diseases
 If use or service for which they are acquired has been stated in the contract and they are found
to be unfit

Redhibitory vice or defect

 defect in the article sold against which defect the seller is bound to warrant
 not even expert knowledge is sufficient to discover it

 Prescription of Redhibitory Actions in defective animals—40 days from delivery (1577)

 Vendor is liable if animal should die w/in 3 days after its purchase, if cause of death
existed at time of contract (1578)
 Animal should be returned in the condition in which it was sold and delivered if sale was
rescinded. Vendee is answerable for any injury due to his negligence and not arising from
redhibitory defect
Alternative remedies of vendee in sale of animals:

 Accion redhibitoria
 Accion quanti minoris

Art. 1581

 Form of sale of large cattle shall be governed by special laws.