ACTREG2

Module 1
Law on Sales

1. Contract of Sales is a contract whereby one of the contracting parties, known as the seller or
vendor, obligates himself to transfer the ownership of and to deliver a determinate thing, and
the other party, known as the buyer or vendee, obligates himself to pay therefore a price
certain in money or its equivalent.

2. Contracting Parties in a Contract of Sale

a. Seller or Vendor refers to the contracting party who obligates himself to transfer the
ownership of a determinate thing through its actual or constructive delivery to the buyer.
b. Buyer or Vendee refers to the contracting party who obligates himself to pay a price
certain in money or its equivalent.

3. Essential elements of the contract of sale – These are elements necessary for validity and
perfection of contract of sale. Absence of any of the essential elements will make the contract
of sale void requiring declaration of nullity of contract.

a. Subject matter which should be a determinate thing

i. Requisites of subject matter of a contract of sale

1. It must be within the commerce of men.

2. It must not be contrary to law, morals, good customs, public order or
public policy.
3. It must be determinate at the time of perfection of contract of sale without
need of further agreement.
4. It must be owned by the vendor not necessarily at the time of perfection of
contract of sale but at the time it is to be delivered to the buyer.

ii. Things that may become the subject matter of a contract of sale

1. Existing goods owned or possessed by the seller.

2. Goods to be manufactured, raised or acquired by the seller after the
perfection of the contract of sale or “future goods” subject to the condition
that it must materialize. If the future things do not materialize, the contract
of sale will become inefficacious or void for absence of subject matter
which is an essential element of contract of sale.
3. Goods whose acquisition by the seller depends upon the contingency
which may or may not happen.
4. Things subject to resolutory condition which if happens, the contract of
sale will be extinguished.
5. Hereditary rights which exist upon the death of the decedent
6. Undivided interest in a property which will result to co-ownership on the
part of buyer and seller.

iii. Things not allowed to become the subject matter of a contract of sale
making the contract null and void

1. Those contrary to law, morals, good customs, public order or public policy.
2. Those outside the commerce of men.
3. Future inheritance or advance inheritance before the death of decedent
4. Vain hope

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 iv. Distinctions between emptio rei speratae and emptio spei

1. Emptio rei speratae is the sale of future thing while emptio spei is a sale
of hope or expectancy.
2. Sale of future harvest is emptio rei speratae while sale of lottery ticket
No. 113 is emptio spei.
3. In emptio rei speratae the thing expected will definitely come into
existence, but its quality or quantity unknown; while in emptio spei it is
not certain that the thing will exist much less its quantity or quality.
4. Emptio rei speratae is subject to the condition that the thing should exist,
so that if it does not, there will be no contract of sale by reason of the
absence of an essential element of subject matter while emptio spei
produces effects even though the thing does not come into existence
because the subject matter is the hope itself.
a. Note: In case of doubt or ambiguity, the contract of sale will be
interpreted as emptio rei speratae (sale of future thing) over
emptio spei (sale of hope or expectancy) because: (1) the former is
less risky and (2) onerous contract is interpreted in favor of greatest
reciprocity of interest.

b. Price certain in money or its equivalent

i. Requisites of price in a contract of sale

1. It must be certain.
2. It must be real.
3. It must not be fictitious.

ii. Instances when the price is certain

1. If the parties have agreed upon a definite amount for the sale.

2. If the price is fixed by one of the contracting parties and accepted by the
other.

3. If it be certain with reference to another thing certain.

4. If the price fixed is that which the thing sold would have on a definite day,
or in a particular exchange or market, or when an amount is fixed above or
below the price on such day, or in such exchange or market, provided said
amount is certain.

5. If the determination of the price is left to the judgment of a specified

person or persons.

a. Remedies of the injured party if:

i. The third person is unable or unwilling to fix the price.

1. The contract is inefficacious or null and void requiring
declaration of nullity unless the parties subsequently
agree upon a price certain in money or its equivalent.

ii. The third person is prevented from fixing the price or terms
by fault of the seller or the buyer.
1. The injured party may ask for damages.

iii. The third person acted in bad faith or by mistake.

1. The injured party may ask the court to fix the
reasonable price.

6. If the price has already been fixed by the court and that designated price
by the court may no longer be changed by the contracting parties.

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 iii. Effects of inadequacy of price in a contract of sale

1. As a general rule, inadequacy of price does not affect a contract of sale,

except in the following cases:
a. It may indicate a defect in the consent of the seller which makes the
contract voidable requiring annulment of contract; or
b. It may indicate that the true intention of the contracting parties is
actually a contract of donation or contract of loan with equitable
mortgage instead of contract of sale. Thus, it will require
reformation of instrument in order to show the true intention of the
contracting parties.

iv. Effects of simulated price in a contract of sale

1. If the price is absolutely simulated, the contract of sale is void requiring

declaration of nullity because of the absence of consent.
2. It the price is relatively simulated, the intent of the parties is hidden
requiring reformation of instrument. The stated contract of sale is void but
the intended contract of either donation or loan with mortgage will be valid.

c. Consent of the contracting parties on the determinate thing and the price certain
in money

i. Moment of perfection of contract of sale

1. The contract of sale is perfected at the moment there is a meeting of
minds upon the determinate thing which is the object of the contract and
upon the price certain in money or its equivalent.

ii. Moment of perfection of contract of sale by auction

1. When the auctioneer announces its perfection by the fall of the

hammer or in any other manner.
a. Rights of auctioneer and highest bidder before the perfection
of contract of sale by auction
i. Before perfection, any bidder may retract his bid.
ii. Before perfection, the auctioneer may generally withdraw the
goods from the sale unless the auction has been announced
without reservation by auctioneer.
b. Obligations of auctioneer and highest bidder after the
perfection of contract of sale by auction
i. After perfection, the winning bidder cannot retract his bid.
ii. After perfection, the auctioneer cannot withdraw the goods.
c. Requisites before auctioneer may participate in bidding or
auction
i. The right to bid must have been reserved expressly by or on
behalf of the seller.
ii. The right to bid must not be prohibited by law or stipulation.
iii. Notice must be given that the sale is subject to a right to bid
by or on behalf of the seller.
d. By bidders or puffers refer to persons employed by the seller to
bid in his behalf, the purpose of which is to raise the price, but the
said persons are not in themselves bound by their bids. The
employment by the seller of by-bidders or puffers without notice to
the other bidders may make the perfected contract of sale voidable
because the consent of the highest bidder is vitiated by causal
fraud.

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 4. Natural elements of the contract of sale – These are elements which are presumed to exist
in a contract of sale unless validly waived by the contracting parties.
a. Warranty against eviction
b. Warranty against hidden defects
c. Warranty against non-apparent and unregistered servitude or encumbrance in sale of
immovable property
d. Warranty for merchantability

5. Accidental elements in the contract of sale – These are elements which do not exist in a
contract of sale unless provided by the contracting parties.

a. Place of delivery and payment

b. Time of delivery and payment
c. Terms or conditions of payment
d. Interest of the price

6. Characteristics of a contract of sale

a. Principal – It can exist by itself without being dependent upon another contract.

b. Consensual – It is perfected by mere consent upon the price certain and determinate
thing except (1) in case of sale of a piece of land by the agent in the name of the
principal which is a formal or solemn contract which requires that the authority of the
agent to sell the land must be in writing for the contract to be valid; (2) sale of
community/conjugal property by one of the spouses, there must be authority given by
the other spouse.

i. Contracts of sale which must be in writing to be enforceable as required by

Statute of Fraud (Consensual contracts of sale)
1. Executory agreement of sale of any property that by its term is not to be
performed within one year from the making thereof
2. Executory sale of movable or personal property at a price of P500 or more
3. Executory sale of immovable or real property or any interest therein
regardless of price

c. Bilateral – Both parties are required to perform an obligation. The seller is required to
transfer the ownership of the determinate thing through its delivery while the buyer is
required to pay the price certain in money.

d. Reciprocal – The object or prestation on one party is the cause or consideration on the
other party. The cause on the part of the seller is the payment of the price certain in
money or its equivalent which is the object of the buyer while the cause on the part of
the buyer is the transfer of ownership of determinate thing through delivery which is the
object on the part of the seller.

e. Onerous – Valuable considerations are given by both parties to acquire rights. The
price and determinate thing are both valuable considerations.

f. Commutative – The parties exchange almost equivalent values. The price

approximates the fair market value of the determinate thing.

g. Nominate – It has special name given to it by law.

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 7. Distinctions between contract of sale and dacion en pago

a. As to pre-existence of credit, in sale, there is no pre-existing credit, while in dacion en

pago, there is pre-existing credit.
b. As to effect to obligations, a sale creates obligations while dacion en pago
extinguishes obligations.
c. As to freedom in fixing the price , in sale, there is greater freedom in fixing the price,
while in dacion en pago, there is less freedom in fixing the price because of the
amount of the pre-existing credit which the parties seek to extinguish.
d. As to cause or consideration , in sale, the cause or consideration is the price from the
seller’s point of view, and the delivery of the object from the buyer’s view point, while in
dacion en pago, the cause or consideration is the extinguishment of the obligation,
from the debtor’s point of view and the delivery of the object given in place of the credit,
from the creditor’s point of view.

Similarities: Both contract of sale and dacion en pago are governed by Law on Sales. Both contract
of sale and dacion en pago are considered onerous transfers.

8. Distinctions between contract of sale and payment by cession

a. As to pre-existence of credit, in sale, there is no pre-existing credit while in payment by

cession, there are pre-existing credits.
b. As to effect to obligations, sale creates obligations while payment by cession
extinguishes obligations.
c. As to cause or consideration , In sale, the cause or consideration is the price from the
seller’s point of view, and the delivery of the object, from the buyer’s point of view while
in payment by cession, the cause or consideration is the extinguishment of the
obligation from the debtor’s point of view and the assignment of the things to be sold
from the creditor’s point of view.
d. As to freedom in fixing the price, in sale, there is greater freedom in fixing the price
while in payment by cession there is less freedom in fixing the price because of the
fixed amount of the pre-existing credits which the parties seek to extinguish.
e. As to rights transferred, in sale, the buyer becomes the owner of the thing transferred
upon delivery while in cession, the creditors do not become the owners of the property
assigned to them but are merely given the right to sell such property and apply the
proceeds to their claims.
f. As to governing laws, contract of sale is governed by Law on Sales while payment by
cession is governed by Financial Rehabilitation and Insolvency Act of 2010 (FRIA of
2010), a special law.

9. Distinctions between contract of sale and contract for a piece of work

a. As to concept or definition, it is a contact of sale if it is for the delivery at a certain price

of an article which the vendor in the ordinary course of business, manufactures or
procures for the general market, whether the same is on hand or not while it is a
contract for a piece of work if the goods are to be manufactured especially for the
customer upon his special order and not for the general market.
b. As to applicability of Statute of Fraud , contract of sale of movable or personal property
with a price of at least P500 or contract of sale of immovable or real property
regardless of price is covered by Statute of Fraud while contract for a piece of work is
not covered by Statute of Fraud.

10. Distinctions between contract of sale and contract of barter

a. As to cause or consideration on the part of transferor of determinate thing , in a contract

of sale, the cause is cash while in a contract of barter, the cause is a noncash asset.
b. As to applicability of Statute of Fraud, contract of sale of movable or personal property
with a price of at least P500 or contract of sale of immovable or real property
regardless of price is covered by Statute of Fraud while contract of barter of any
property is not covered by Statute of Fraud.

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 11. Rules for determining whether a contract is one of sale or one of barter if the cause or
consideration is a combination of cash and noncash asset.

a. Determine the manifest or evident intention of the contracting parties.

b. If the evident intention of the contracting parties is not present, apply the following rules:
i. The contract is one of barter if the value of the noncash asset given as part of
the consideration exceeds the cash consideration.
ii. The contract is one of sale if the cash consideration is more than the value of the
noncash asset given as part of the consideration.
iii. The contract is one of sale if the cash consideration is equal to the value of the
noncash asset given as part of the consideration.

12. Distinctions between contract of sale and contract to sell

a. As to act that transfers ownership from seller to buyer , in contract of sale, ownership
passes to the buyer upon delivery while in contract to sell, the title to the goods does
not pass to the buyer until some future time and oftentimes upon full payment of the
price.
b. As to risk of loss after delivery , in contract of sale, the risk of loss or damage to the
goods upon delivery is on the buyer, under the rule “res perit domino”, or the thing
perished with the owner; while in contract to sell, the risk is borne by the seller after
delivery based on the same principle that the thing perishes with the owner.
c. As to legal effect of payment or nonpayment of price, in contract of sale, the non-
payment of the price is a resolutory condition while in contract to sell, the payment in
full of the price is a suspensive condition.
d. As to applicability of the rules on double sale, contracts of sale are governed by the
rules on double sale while contracts to sell are not governed by the rules on double
sale.

13. Distinctions between contract of sale and agency to sell (consignment sale)

a. As to transfer of ownership, in sale, ownership passes to the buyer, while in agency to

sell, ownership is retained by the principal-consignor.
b. As to payment of price, in sale, the buyer pays the seller, while in agency to sell, the
buyer pays the agent-consignee and the latter transmits the money to the principal-
consignor.
c. As to delivery of goods, in sale, the goods are delivered by the seller to the buyer while
in agency to sell, it is delivered by the agent-consignee to the final consumer.
d. As to governing laws, contract of sale is governed by law on sales while agency to
sell is governed by law on agency.

14. Principles on sale of an undivided share of a specific mass of fungible goods though
the seller purports to sell and the buyer purports to buy a definite number, weight or
measure of the goods in the mass, and though the number, weight or measure of the
goods in the mass is undetermined.

I. If the quantity, number, weight or measure, of the mass is more than the quantity sold, the
parties shall become co-owners of the mass.
II. If the quantity of the mass is less than the quantity sold, the buyer becomes the owner of
the whole mass, with the seller being bound to make good the deficiency from goods of the
same kind and quality, unless a contrary intent appears.

15. Distinction between Bilateral promise to buy and sell and Unilateral promise to buy or
sell

a. Bilateral promise to buy and sell is as good as perfected contract of sale while
unilateral promise to buy or sell accepted by the promissee is binding only if
supported by option money.
b. Policitacion refers to unilateral promise not accepted by the promisee, therefore, it
does not produce any effect.

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 16. Distinctions between option money and earnest money or arras

a. As to purpose, option money is intended to reserve the property within the promised
period while earnest money or arras is intended as down payment on the contract of
sale.
b. As to contract perfected, option money is proof of perfection of contract of option while
earnest money or arras is proof of perfection of contract of sale.
c. As to being part of the purchase price, option money is not part of the purchase price
while earnest money or arras is part of the purchase price.

17. Moment of obtaining personal right vs. real right by the buyer of the determinate thing
and its fruits

a. The buyer obtains personal right over the determinate things and its fruits sold from
the moment of perfection of contract of sale while he obtains real right over the
determinate things and its fruits from the moment of their delivery.

18. Effect of the complete loss of the object of the contract of sale before the perfection of
the contract of sale or at the time the contract of sale is perfected

a. The contract of sale is null and void for absence of essential element of subject matter.
The contract shall be without any effect.

19. Alternative remedies of the buyer in case of the partial loss of the object of the contract
of sale at the time of the perfection of the contract of sale

I. Withdrawal from the contract or rescission; or

II. Demanding the remaining part and paying its proportionate price

20. Alternative remedies of the buyer 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

III. The buyer may treat the contract of sale as avoided; or

IV. The buyer may treat the contract of sale 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

21. Party who shall bear the risk of the complete loss of the object of the contract of sale
after perfection of contract of sale but before delivery of the subject matter

a. Seller based on the concept of Res perit domino which means that the thing perishes
with the owner
b. Buyer on the basis of Provision of the Civil Code.

22. Effects of the complete loss of the object of the contract of sale after perfection of
contract of sale and after delivery of the subject matter

a. The buyer shall suffer the risk of loss.

b. The buyer must pay the price.

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 23. Persons incapacitated to enter into a contract of sale

a. Those suffering from absolute incapacity to give consent to a contract

i. Minor
ii. Insane
iii. Demented
iv. Deaf-mutes who do not know how to write
v. Drunken person
vi. Hypnotized person

1. If only one party is incapacitated, the contract of sale is voidable. However

if the subject matter is necessary, the incapacitated person must still pay a
reasonable price.

2. If both parties are incapacitated, the contract of sale is unenforceable.

b. Those suffering from relative incapacity

i. Husband and wife

1. As a general rule, the contract of sale between husband and wife is null
and void.

ii. Exceptional instances when husband and wife may validly sell to each
other

1. If there is prenuptial or ante-nuptial agreement of complete separation of

property involving their property regime.
2. If there is judicial separation of property by reason of legal separation
under Family Code of the Philippines.

24. Persons who are prohibited from acquiring by purchase, even at public or judicial
auction, sales in legal redemption, compromises or renunciation
a. The guardian, the property of the person or persons under his guardianship.
b. Agents, the property whose administration or sale may have been entrusted to them,
unless the consent of the principal has been given.
c. Executors and administrators, the property of the estate under administration.
d. Public officers and employees, the property of the State or GOCC under their
administration.
e. Justices, judges, prosecuting attorneys, clerks of court and other officers and
employees connected with the administration of justice, the property and rights in
litigation.
Note: The contract of sale is null and void because it is contrary to law. However, in cases of letter a,
b and c, since they involve private interests, the injured party such as ward, principal or heir, may be
barred by estoppel from filing action for declaration of nullity of the contract of sale. On the other
hand, in cases of letter d and e, since they involve public interests, action for declaration of nullity of
contract of sale will still prosper because estoppel never runs against the government or the state.
The enumerated persons are only prohibited from acquiring those properties enumerated but they are
not barred from selling properties to their counterpart enumerated persons.

25. Obligations of the vendor or seller

a. To transfer the ownership of the thing sold at the time the subject matter should be
delivered.
b. To deliver the determinate thing sold including the accessions and accessories in the
condition in which they were upon the perfection of the contract.
c. To warrant the thing sold against eviction, hidden defects and non-apparent and
unregistered encumbrances.
d. To take care of the thing sold with the diligence of a good father of a family unless the
law or the stipulation of the parties requires another standard of care.

26. Obligation of the vendee or buyer

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 a. To pay the price certain in money or its equivalent on the date agreed upon.

27. Delivery is a mode of acquiring ownership whereby the object of the contract is placed in the
control and possession of the vendee. It is the act that transfers ownership of the determinate
thing from seller to buyer in a contract of sale. However, the contracting parties may agree that
instead of delivery, ownership of the determinate thing will be transferred from the seller to the
buyer by any other acts such as but not limited to full payment of the price.

28. Types of Delivery

a. Actual delivery
b. Constructive delivery

29. Examples of constructive deliveries

a. By legal formalities – When the sale is made through a public document, the
execution thereof shall be equivalent to the delivery of the thing sold. It applies to both
movable and immovable property.

b. Symbolic delivery (traditio simbolica or traditio clavium) – This is delivery that

takes place by delivering the keys of the place or depository where the movable is
stored or kept.

c. Traditio longa manu – It is the delivery of a movable by mere consent or agreement of

the parties if the thing cannot be transferred to the possession of the vendee at the time
of sale. (Example: Pointing the subject matter)

d. Traditio brevi manu (Finance Lease arrangement) – It is a delivery that takes place
when the vendee is already in the possession of the thing sold even before the sale and
thereafter continues in possession thereof in the concept of an owner. It applies to
movables only.

e. Traditio constitutum possessorium (Sales and Leaseback arragement) – It is a

delivery that takes place when the vendor continues in possession of the thing sold after
the sale but in another capacity such as that of a lessee or depositary. It applies to both
movable and immovable property.

f. Constructive deliveries of intangible assets or incorporeal rights

i. By constructive traditio such as execution of public document.
ii. By placing the titles or certificate of ownership in the possession of the vendee
such as delivering the stock certificate covering the shares of stock sold or
certificate of ownership of an intellectual property.
iii. Through the use by the vendee of his rights with consent of the vendor such as
when the seller authorizes the buyer of shares of stock to vote during the
stockholder’s meeting.

30. Distinctions between Sale or return vs. Sale on trial or approval

a. In sale or return, ownership of the thing sold is transferred to the buyer upon delivery
while in sale on trial, delivery does not transfer ownership of the thing sold to the buyer
but instead ownership of the thing sold is transferred to the buyer under any of the
following instances: (a) when the buyer signifies his approval or acceptance of the
goods; (b) when the buyer does an act adopting the transaction; or (c)when the buyer
does not signify his approval or acceptance of the goods but retains the goods without
giving notice of rejection within the time fixed in the contract or within reasonable time,
and such time has expired.

31. Delivery to the common carrier (FOB Shipping Point) - The law presumes that the contract
of sale is FOB Shipping Point which means that delivery to the carrier means delivery to the
buyer.

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 32. As a general rule, a non-owner cannot transfer ownership to his buyer. However, these
are the exceptional instances when the sale of a non-owner transfers ownership to the
buyer:
a. When the sale is made with authority or consent of the owner.
b. When the owner is precluded by his conduct from denying the seller’s authority to sell.
c. When the sale is made under the provisions of any factor’s acts, recording laws or any
other provisions of law enabling the apparent owner to dispose of the goods as if he
were the true owner thereof.
d. When the sale is made under a statutory power of sale or under the order of court of
competent jurisdiction.
e. When the purchase is made in a merchant’s store, or in fairs, or markets

33. Rules on sale made by a thief

a. When the sale is made by a thief directly to the buyer, the lawful owner may recover the
determinate thing from the buyer without necessity of reimbursing the buyer of the
amount he paid to the thief-seller.
b. When the sale is made by a thief through a public auction, the lawful owner may recover
the determinate thing from the buyer but with necessity of reimbursing the buyer of the
amount he paid to the thief-seller.
c. When the sale is made by a thief through a merchant’s store or fair or market, the lawful
owner can no longer recover the determinate thing from the buyer as the buyer obtains
a good title from such acquisition.
d. When the sale involves a registered land covered by Torren’s title, a forged document
(forged notarized deed of sale) can become a root of a valid title if the title of the
property is already in the hands of a purchaser in good faith and for value.

34. Sale by an incapacitated person to give consent to a contract of sale

a. When the determinate thing was acquired from an incapacitated person to give consent
to a contract of sale such as minor or insane or demented person, the title of the buyer
is voidable. However, when such buyer with voidable title subsequently sells the subject
matter, his buyer will obtain a perfectly good title provided: (1) such buyer is a purchaser
in good faith and for value; and (2) no action for annulment of the original contract of
sale is filed prior to celebration of the second contract of sale.

35. Places wherein the things sold should be delivered

a. Place stipulated in the contract.
b. In case there is no stipulation, place fixed by usage or trade.
c. In the absence of a and b, the seller’s place of business if he has one; if none, the
seller’s place of residence.
d. In the case of specific goods, the place where the goods are located at the time of
perfection of contract of sale.

36. Time for delivery of the subject matter of a contract of sale

a. At the time agreed upon.
b. In the absence of time agreed upon, within reasonable time from the execution of the
contract.

37. As a general rule, it is the obligation of the vendor to deliver the thing sold to the buyer
after perfection of contract of sale. However, the following are the instances when a
vendor is not bound to deliver the thing sold after perfection of contract of sale:

a. If the vendee has not paid him the price.

b. If no period for payment of the price has been fixed in the contract.
c. If the vendee loses the right to make use of the period.

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 38. Unpaid seller is one who has not been paid or tendered the whole of the price or who has
received a bill of exchange or other negotiable instruments as conditional payment and the
condition under which it was received has been broken by reason of the dishonor of the
instrument, the insolvency of the buyer, or otherwise. It includes an agent of the seller to whom
the bill of lading has been indorsed, or a consignor or agent who has himself paid, or is directly
responsible for the price, or any other person who is in the position of a seller

39. Rights of an unpaid seller

a. Right to possessory lien on the goods or right to retain them while he is in

possession of them
i. Grounds for right of possessory lien
1. Where the goods have been sold without any stipulation as to credit.
2. Where the goods have been sold on credit, but the credit term has
expired.
3. Where the buyer is insolvent.
ii. Instances when right of possessory lien is no longer available to the
unpaid seller
1. When the seller delivers the goods to a carrier or other bailee for the
purpose of transmission to the buyer without reserving the ownership in
the goods or the right to the possession thereof.
2. When the buyer or his agent lawfully obtains possession of the goods.
3. By waiver of the possessory lien.
iii. Note: When the unpaid seller obtains judgment or decree for the price of the
goods, he does not lose his possessory lien or his right to retain them while he is
in possession of them.

b. Right of stoppage in transit refers to the right of the unpaid seller to resume
possession of the goods at any time while they are in transit, and he will them become
entitled to the goods as he would have had if he had never parted with the possession.

i. Ground for right of stoppage in transit

1. Where the buyer is insolvent.

ii. Manners of exercising the right of stoppage in transit

1. By obtaining actual possession of the goods; or
2. By giving notice of his claim to the carrier or other bailee in whose
possession the goods are

iii. Effects of the exercise of right of stoppage in transit

1. The goods are no longer in transit.
2. The contract of carriage ceases and the carrier shall be liable as
depositary or other bailee.
3. The carrier must deliver the goods to or according to the instructions of the
seller.

iv. Instances when goods are still in transit

1. From the time they are delivered to the carrier or other bailee for the
purpose of transmission to the buyer, until the buyer or his agent, takes
delivery of them from such carrier or other bailee.
2. If the goods are rejected by the buyer, and the carrier or other bailee
continues in possession of them, even if the seller has refused to receive
them back.

v. Instances when goods are no longer in transit

1. If the buyer obtains delivery of the goods before arrival at the appointed
destination.
2. If the carrier or other bailee acknowledges to the buyer or his agent, that
he is holding the goods in his behalf, after arrival of the goods at their
appointed destination.
3. If the carrier or other bailee wrongfully refuses to deliver the goods to
buyer or his agent.

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 c. Right of resale

i. Grounds for right of resale

1. The goods are of perishable nature.

2. The seller has expressly reserved the right to resell the goods in case the
buyer should make default.
3. The buyer has been in default for an unreasonable time.
a. Note: It is not essential to the validity of resale that notice of an
intention to resell the goods be given by the seller to the original
buyer. But if the ground of sale is the buyer has been in default for
an unreasonable time, then, giving notice of intention to original
buyer becomes relevant to determine the unreasonableness of the
default.

ii. Place of Resale

1. Public sale; or
2. Private sale

iii. Effects of Resale

1. The seller shall not be liable to the original buyer for the delivery of the
goods.
2. The seller may recover damages from the original buyer for any loss
occasioned by the breach of the contract of sale.
3. The new buyer acquires a good title against the original buyer.

iv. Note: The unpaid seller is prohibited from participating as a bidder, directly or
indirectly, in the public sale or private sale of the goods.

d. Right to rescind the sale

i. Grounds for right to rescind the sale

1. The seller has expressly reserved the right to rescind the sale in case the
buyer should make default.
2. The buyer has been in default in the payment of the price for an
unreasonable time.

ii. Effects of rescission of sale

1. The seller shall not be liable to the buyer upon the contract of sale.
2. The seller may recover from the buyer damages for any loss occasioned
by the breach of contract of sale.
3. The seller resumes ownership of the goods.

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 40. Remedies of buyer in sale of real estate with a statement of its area at the rate of a
certain price per unit of measure or number if the vendor delivers the following area:

Example: Contract of Sale of 100SQM Lot at P1,000 per SQM

a. Excess area (Actual Area = 103SQM)

i. Accept the whole area and pay for the contract rate; or (103SQM = P103,000) or
ii. Accept the agreed area and reject the excess (100SQM = P100,000)

b. Lacking area (Actual Area = 91SQM) (9SQM or 9%)

i. Lacking of Less than 10% of Actual Area

1. Action quanti minoris or proportionate reduction of price; or (91SQM =
P91,000)
2. Action for cancellation but only if the lacking area of less than 10% of
Actual Area is very important (Purpose = 100 SQM HOUSE/MANSION)

ii. Lacking of 10% or more of Actual Area (Actual Area = 90 SQM) (10SQM or
10%)

1. Action quanti minoris or proportionate reduction of price; or (90SQM =

P90,000)
2. Action for cancellation whether or not the lacking area of 10% or more of
Actual Area is very important

c. Poor quality (Sale of 100 SQM Garden Soil)

i. Poor Quality of 10% or less of Actual Area (Actual Area = 90SQM Garden
Soil 10SQM Sand Soil)

1. Action quanti minoris or proportionate reduction of price

2. Action for cancellation but only if the poor quality of not more than 10% of
Actual Area is very important

ii. Poor Quality of more than 10% of Actual Area (Actual Area = 89 SQM
Garden Soil and 11 SQM sand soil)

1. Action quanti minoris or proportionate reduction of price; or

2. Action for cancellation whether or not the poor quality of more than 10% of
Actual Area is very important

Note: Prescriptive period of the action – It shall be filed within 6 months from the date of delivery.

41. Rights of buyer and seller in sale real estate for a lump sum and not at the rate of a
certain sum for a unit of measure or number

Example: Contract of Sale of 100SQM Lot at lump sum price P100,000 bounded by concrete
fence

a. In sale of real estate for a lump sum and not at the rate of a certain sum for a unit of
measure or number, the vendor is bound to deliver all that it is included within the
boundaries stated in the contract although there be greater or less area or number than
that stated in the contract.
i. (95 SQM = P100,000)
ii. (103 SQM = P100,000)

b. The buyer has the obligation to pay the lump sum stipulated in the contract with no
increase or decrease in the price although there be greater or less area or number than
that stated in the contract unless the lacking or excess area is already unconscionable.
i. (70SQM = Cancel or Quanti Minoris)

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 42. Requisites of Double Sale
a. There must be a single property involved.
b. There must be two or more contracts of sales.
c. There must be two or more different buyers whose rights are conflicting.
d. The buyers must have acquired the same property from the same seller.

43. Preferred buyer in double sale of personal property or movable property

a. Actual or constructive possessor in good faith

b. Buyer with the oldest title

44. Preferred buyer in double sale of titled real property

a. Registrant of the deed of sale in good faith

b. Actual or constructive possessor in good faith
c. Buyer with the oldest title

45. Preferred buyer in double sale of untitled real property

a. Buyer with the oldest title

46. Natural elements or implied warranties in a contract of sale

a. Warranty against eviction

b. Warranty against hidden defects
c. Warranty against undeclared charge or encumbrance or unregistered
encumbrances/servitude
d. Warranty for merchantability

47. Eviction refers to the deprivation of the vendee of the whole or a part of the thing sold by
virtue of a final judgment based on a right prior to the sale or an act imputable to the vendor.

48. Requisites in order that the seller’s warranty against eviction may be enforced

a. There must be a final judgment depriving the vendee of the whole or part of the thing
sold.
b. The vendee must not appeal from the decision or judgment depriving him of the thing
sold.
c. The deprivation is based on a right prior to the sale or an act imputable to the vendor.
d. The vendor must have been notified of the suit for eviction at the instance of the
vendee.

49. Alternative remedies of buyer in case of partial eviction of the thing sold
a. Ask for rescission of contract of sales; or
b. Enforce vendor’s liability for breach of warranty against eviction (Action for damages)

50. Other Instances of Eviction which makes the seller liable for breach of warranty

a. If the property is sold for non-payment of taxes due and not made known to the vendee
before the sale.
b. In case of judicial sales unless otherwise decreed in the judgment.

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 51. Status of Waiver of warranty against eviction initiated by the seller

a. Stipulation exempting a vendor from the obligation to answer for eviction is valid if he
acted in good faith.

i. Two types of Buyer’s waiver of warranty against eviction when the Seller
acted in good faith

1. Waiver Consciente is a type of waiver made by the buyer when he acted

in good faith because he has no knowledge of risk of eviction. The seller
is still liable for eviction but only up to the extent of the value of the
property at the time of eviction.
2. Waiver Intentionada is a type of waiver made by the buyer when he
acted in bad faith because he has knowledge of risk of eviction. The
seller is no longer liable for eviction.
3. Note: In case of doubt or ambiguity, the buyer’s waiver of warranty
against eviction is presumed to be waiver consciente over waiver
intentionada because waiver or renunciation is a gratuitous agreement
which shall be interpreted in favor of least transmission of rights.

b. Stipulation exempting a vendor from the obligation to answer for eviction is void if he
acted in bad faith.

52. Liabilities of Vendor in case of Breach of Contract of Sale by reason of eviction without
waiver by buyer

a. Extent of Liability of Vendor who acted in bad faith

i. Value of the thing at the time of eviction.
ii. Income or fruits of the thing.
iii. Cost of suit caused by eviction.
iv. Expenses of the contract if the vendee has paid them.
v. Damages, interests and ornamental expenses.

b. Extent of Liability of Vendor acted in good faith

i. Value of the thing at the time of eviction.
ii. Income or fruits of the thing.
iii. Cost of suit caused by eviction.
iv. Expenses of the contract if the vendee has paid them.

53. Remedies of buyer for breach of warranty against

54. encumbrance or non-apparent servitude in contract of sale of immovable or real
property

a. Within one year from the date of contract

i. Action for damages; or
ii. Action for rescission

b. Within one year from the discovery of servitude after the lapse of the one year
period from the date of contract
i. Action for damages only

Note: Prescriptive period – One year from the date of contract or discovery of servitude

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 55. Other implied warranties of seller
a. Where the buyer, expressly or by implication, makes known to the seller the particular
purpose for which the goods are acquired, and it appears that the buyer relies on the
seller's skill or judgment (whether he be the grower or manufacturer or not), there is an
implied warranty that the goods shall be reasonably fit for such purpose. (warranty for
particular purpose)
b. Where the goods are brought by description from a seller who deals in goods of that
description (whether he be the grower or manufacturer or not), there is an implied
warranty that the goods shall be of merchantable quality. (warranty for merchantable
quality)
c. In the case of a contract of sale by sample, if the seller is a dealer in goods of that kind,
there is an implied warranty that the goods shall be free from any defect rendering them
unmerchantable which would not be apparent on reasonable examination of the
sample. (warranty for merchantability)

56. Alternative Remedies of buyer in case of breach of warranty committed by the seller
a. Accept or keep the goods and set up against the seller the breach of warranty by way of
recoupment or diminution or extinction of the price; or
b. Accept or keep the goods and maintain an action against the seller for damages for
breach of warranty; or
c. Refuse to accept the goods, and maintain an action against the seller for damages for
breach of warranty; or
d. Rescind the sale and refuse to receive the goods or if the goods have already received,
return them or offer to return them to the seller and recover the price of any part thereof
which has been paid.

57. Requisites for enforcement of vendor’s liability against hidden defects

a. The defect must exist at the time of sale.
b. The defect must be hidden.
c. The defect must render the thing unfit for the use for which it is intended or diminishes
its fitness for such use to such an extent that had the vendee been aware thereof, he
would not have acquired it or would have given a lower price for it.
d. The action to enforce it must be made within the period provided by law.

58. Sale of Property without Implied Warranty Against Hidden Defects

a. Sale of second hand item or pre-owned item or pre-loved item
b. Sale by Junk-shop operators
c. Sale in auction

59. Nature of Liability of Seller in sale of property with Hidden Defects

a. The seller is liable for selling object with hidden defect regardless of the awareness of
the presence of defect.
b. The seller is liable for selling object with hidden defect regardless of the reason of the
loss of the thing sold.

60. Remedies of Buyer of Breach of Implied Warranties for Merchantability or Hidden Defect

a. Accion redhibitoria is one of the two remedies of the vendee in case of breach of
warranties against hidden defects, of merchantability, of merchantable quality or fitness
for a particular purpose. It refers to the withdrawal from the contract or rescission.

b. Accion quanti minoris is one of the two remedies of the vendee in case of breach of
warranties against hidden defects, of merchantability, of merchantable quality or fitness
for a particular purpose. It refers to demanding a proportionate reduction in the price.

61. Prescriptive period of action based on breach of warranty against hidden defect
a. 6 months from the date of delivery

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 62. Extent of Liability of Seller in case of loss of thing sold with Hidden Defects
a. The seller acted in bad faith and the cause of loss is the hidden defect
i. Return the price, refund the expenses of the contract and pay damages
b. The seller acted in good faith and the cause of loss is the hidden defect
i. Return the price, refund the expenses of the contract and pay interests of the
price
c. The seller acted in bad faith and the cause of loss is the fault of buyer or
fortuitous event
i. Return the price paid less the value of the thing at the time of loss and to pay
damages.
d. The seller acted in good faith and the cause of loss is the fault of buyer or
fortuitous event
i. Return the price paid less the value of the thing at the time of loss

63. Status of Waiver of warranty against hidden defect

a. Stipulation exempting a vendor from the obligation to answer for hidden defect is valid if
he acted in good faith.
b. Stipulation exempting a vendor from the obligation to answer for hidden defect is void if
he acted in bad faith.

64. Redhibitory defect refers to a defect in an animal and it is of such nature that expert
knowledge, even after a professional inspection has been made, is not sufficient to discover it.

65. Alternative remedies for redhibitory defect of an animal sold together with other animals
not as a pair

a. Accion redhibitoria or Cancellation of sale over the defective animal; or

b. Accion quanti minoris or Proportional Reduction of Price over the defective animal

66. Remedy for redhibitory defects of two animals sold together as a pair

a. Accion redhibitoria or Cancellation of the contract of sale

67. Prescriptive period of action based on breach of warranty of animal with redhibitory
defect

a. 40 days from the date of delivery

68. Sale of animals without warranty for hidden defects

a. Sale of animals at fairs

b. Sale of animal at public auctions
c. Sale of live stocks as condemned

69. Status of sale of animal suffering from contagious disease

a. Null and void for being contrary to law and public policy

70. Requisites in order for the vendor to be liable in case the animal dies of disease

a. The disease exists at the time of sale.

b. The disease is the cause of death of the animal.
c. The animal dies within 3 days from time of purchase.

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 71. Instances when the buyer is deemed to have accepted the delivered goods

a. When he intimates to the seller that he is accepting them.

b. When he does an act in relation to the goods which is inconsistent with the ownership of
the seller.
c. When he retains the goods after the lapse of a reasonable time without intimating to the
seller that he has rejected them.

72. As a general rule, the buyer may inspect the goods. However, the following are the
exceptional instances when the buyer cannot examine the goods

a. When there is an agreement that the buyer cannot examine the goods sold
b. When there is stipulation that the goods shall not be delivered to the buyer until he has
paid the price.
c. When the goods are marked with the words collect on delivery.

73. Effects when the buyer refuses to accept delivery and the refusal is justified such as
when the quantity is not complete or the goods being delivered are different from that
stipulated

a. Buyer has no duty to return goods to the seller unless otherwise agreed.
b. The buyer shall not be obliged to pay the price.
c. If the buyer constitutes himself as depositary of the goods, he shall be liable as such.

74. Effects when the buyer refuses to accept delivery but the refusal is unjustified

a. Title to the goods passes to the buyer from the moment the goods are placed at his
disposal.
b. The buyer shall be obliged to pay the price.

75. The time and place of payment of the price of the contract of sale

a. At the time and place stipulated by the contracting parties

b. In the absence of agreement, at the time and place of delivery of the thing.

76. Instances wherein the buyer shall pay interest for the period between the delivery of the
thing and the payment of the price
a. If there is a written stipulation for payment of interest on the price and if the rate is not
provided, it should be 12% before July 1,2013 and 6% afterwards.
b. If the thing sold produces fruits or income since the fruits and income of the thing sold
will go to the buyer from the moment of perfection of contract of sale.
c. If the buyer is guilty of delay or default which will happen from the time of judicial or
extrajudicial demand for the payment of the purchase price (Compensatory or Legal
Interest will accrue)

77. Grounds for the suspension of the payment of the price by the vendee
a. Disturbance in the vendee’s possession or ownership of the thing purchased.
b. Reasonable grounds to fear such disturbance, by a vindicatory action or foreclosure of
mortgage.
c. Loss of the thing due to the fault of the vendor.

78. Instances wherein the right to suspend payment by the vendee is not available
a. If the vendor gives security for the return of the price.
b. If it has been stipulated that the vendee shall pay the price notwithstanding the
existence of disturbance or danger.
c. If the disturbance is a mere act of trespass.

79. Ground for vendor’s remedy to sue for immediate rescission of the contract of sale of
immovable or real property

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 a. If there are reasonable grounds to fear the loss of both the immovable property sold and
its price.

80. Alternative remedies of vendor in case there is reasonable ground to fear the loss of
either the immovable property or its price

a. Fulfillment of the contract with damages or

b. Rescission of the contract with damages.

81. Effects if the buyer failed to pay the price of the contract of sale of immovable or real
property at maturity date and the contract of sale of immovable provides that in case of
nonpayment of the price, the contract of sale is automatically cancelled

a. The contract of sale is not automatically cancelled.

b. The buyer may still pay the price provided notarial or judicial demand for rescission has
not yet been made by the seller.

82. Grounds for immediate rescission of the sale of a movable or personal property at
vendor’s option
I. If at the time of the delivery of the thing, the vendee does not appear to receive the thing.
II. If at the time of the delivery of the thing, the vendee having appeared, does not pay the
price, unless a longer period is stipulated for its payment.

83. Remedies or Actions by the seller for breach of contract of sale of goods committed by
buyer
a. Assuming the goods have already been delivered to the buyer and the buyer wrongfully
neglects or refuses to pay the price, maintain an action for the price of the goods a.k.a.
file an action to collect a sum of money.
b. If the buyer wrongfully neglects or refuses to accept and pay for the goods, maintain an
action for damages.
c. Assuming the goods have not yet been delivered to the buyer and (1) If the buyer has
repudiated the sale or (2) If the buyer manifested his inability to perform his obligation to
pay the price or (3) If the buyer has committed a breach of contract, rescind the contract
of sale.

84. Alternative Remedies by the buyer if the seller has broken the contract to deliver
specific or ascertained goods by not delivering the goods
a. Bring an action for specific performance plus damages.
b. Action for rescission plus damages.
c. Action for damages.

85. Modes for extinguishment of contract of sale:

a. No-Co-Me-Re-Pa-Lo-Pre-Re-Ful-An
b. Cancellation of sale of personal property payable in installments
c. Resale of the goods by the unpaid seller
d. Rescission of the sale by the unpaid seller
e. Rescission by the buyer in case of partial eviction
f. Rescission by the buyer in case of breach of warranty against hidden defects
g. Rescission by the buyer of sale of animals with redhibitory defects
h. Rescission by the buyer of sale of land with non-apparent servitude or encumbrance
i. Rescission by the buyer of sale of land with lacking area or area with poor quality
j. By redemption, whether conventional redemption or legal redemption

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 86. Types of Redemption in a Contract of Sale

a. Conventional redemption is a type of redemption that occurs when the vendor

reserved the right to repurchase the thing sold with the obligation to return to the
vendee the price of the sale, expenses of the contract and necessary and useful
expenses made on the thing sold and to comply with other stipulations which may have
been agreed upon. It is applicable in a pacto retro sale or sale with a right to
repurchase.

i. Period for exercise of right of redemption in conventional redemption or

pacto de retro sale of immovable property

1. If a period is not stated in the contract, it will be 4 years.

2. If a period less than 10 years is stated, follow the stated period.

3. If a period more than 10 years is stated, it will be 10 years because that is

the maximum period.

4. If there is a pending case before the court to determine whether the

contract is one of pacto de retro sale or one of equitable mortgage, it will
be 30 days from the decision of the court declaring it to be pacto de retro
sale.

ii. Rules in case of exercising conventional redemption in Pacto de retro sale

1. A co-owner of an undivided immovable which is essentially indivisible who

sells his share with a right to repurchase to a third person who
subsequently acquires the whole thereof, may be compelled by the latter
to redeem the whole property, if the former wishes to make use of the right
of redemption.

2. If several persons, jointly and in the same contract, should sell an

undivided immovable with a right of repurchase, none of them may
exercise this right for more than his respective share.

3. If the person who sold an immovable alone has left several heirs,
each heir may redeem only the part which he may have acquired.

4. In cases of 2 and 3, the vendee may demand that the co-owners or co-
heirs come to an agreement upon the repurchase of the whole thing, and
if they fail to do so, the vendee cannot be compelled to consent to a partial
redemption.

5. Each one of the co-owners of an undivided immovable who may have

sold his share separately, may independently exercise the right of
repurchase as regards his own share and the vendee cannot compel him
to redeem the whole property.

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 b. Legal Redemption is a type of redemption in a contract of sale that is available only in
exceptional cases provided by law. It refers to the right of a third person to repurchase a
real property sold by another person in exceptional cases provided by law. It is defined
as the right to be subrogated upon the same terms and conditions stipulated in the
contract, in the place of one who acquires a thing by purchase, or dation in payment, or
by any other transaction whereby the ownership is transmitted by onerous title. It is
applicable in absolute sale or barter or dacion en pago. It is not applicable if the transfer
is by gratuitous title such as donation or succession.

i. Instances of Legal Redemption or Redemption by operation of Law

1. By a co-owner. A co-owner of a thing may exercise the right of

redemption in case the shares of all the other co-owners or of any of them,
are sold to a third person. All co-owners may exercise on the basis of their
proportionate share.

a. Note: This right of legal redemption is not available when the share
of a co-owner is sold to another co-owner.

2. By an adjoining rural lot owner. If a piece of rural land not exceeding

one hectare is alienated to a person who is not landless, the adjoining
rural owner shall have the right of legal redemption unless the grantee
does not own any rural land.

a. Order of Preference in case two or more adjoining rural lot

owner wish to exercise the right of legal redemption:

i. Adjoining rural lot owner with smallest area

ii. Adjoining rural lot owner who first exercised the right

Note: A co-owner has better right over adjoining rural lot owner in the exercise of right of legal
redemption in case both co-owner and adjoining rural lot owner are present in the legal
redemption.

ii. Instance of Legal Pre-emption or Right of First Refusal by Operation of Law

1. By adjoining urban lot owner. If a small piece of urban land which was
bought for speculation is about to be resold, the owner of the adjoining
land has a right of pre-emption or right of first refusal before it is offered to
other persons.

a. The adjacent urban land owner whose intended use of the land in
question appears best justified shall be preferred in case two or
more adjoining urban land owners wish to exercise the right of legal
pre-emption or right of first refusal.

iii. Period for the exercise of right of legal redemption or right of legal pre-
emption

1. 30 days from the notice given by the vendor or prospective vendor

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 87. Instances wherein a contract of sale with a right to repurchase and other contract
purporting to be an absolute sale shall be presumed to be an equitable mortgage
thereby requiring reformation of instrument

a. When the price of a sale with a right to repurchase is unusually inadequate.

b. When the vendor remains in possession as lessee or otherwise
c. When the period for the exercise of the right of repurchase is extended.
d. When the purchaser retains for himself part of the purchase price.
e. When the vendor binds himself to pay the real property taxes on the thing sold.
f. When the real intention of the parties is that the transaction shall secure the payment of
a debt or the performance of any other obligation.

88. Remedy of injured party in case of equitable mortgage

a. Action for reformation of instrument

89. Assignment of credit is a contract whereby a person transfers his credit, right or action
against a third person to another person for a consideration which is certain in money or its
equivalent.

90. Nature of Assignment of Credit as to Perfection of Contract

a. It is a consensual contract perfected by mere consent. It may be entered to in any form,

whether written or oral; or private or public instrument.

91. Formality of Assignment of Credit to bind or to affect third persons

a. For assignment of credit involving personal property, it must be in a public instrument.

b. For assignment of credit involving real property, it must be recorded in the Registry of
Property.

92. Implied warranties of the vendor in good faith or assignor in assignment of credits

a. Existence of the credit at the time of sale

b. Legality of the credit at the time of sale

93. As a general rule, the assignor of credit does not warrant the solvency of the debtor of
credit. However, the following are the exceptional instances when the vendor or
assignor of credit is liable for the insolvency of the debtor of the credit

a. When the assignor expressly warrants the solvency of the debtor of the credit.

i. Prescriptive period of warranty for solvency of debtor in assignment of credit

1. 1 year from the maturity date of credit or date of assignment whichever is

later

b. When the assignor acted in bad faith because the insolvency of the debtor of the credit
is of public knowledge when he assigned the credit.

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