Reg Frame

Universidad de Manila
CBAE BSA 21, 22, 23 Prof.: Atty. Maria Milagros R. Lisaca, CPA LLM(Candidate)
Regulatory Framework and Legal Issues in Business
Source: Regulatory Framework and Legal Issues in Business Part1, Atty. A. D. Domingo, CPA MBA
CONTRACT OF SALE
Art, 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership and to deliver a determinate thing, and
the other to pay therefore a price certain in money or its equivalent. A
contract of sale may be absolute or conditional.
Stages of a contract of sale

1. Negotiation – it covers the period from the time the prospective contracting
parties indicate interest in the contract to the time the contract is perfected
2. Perfection – it takes place upon the concurrence of the essential elements of
the sale, which is the meeting of the minds of the parties as to the object of
the contract and upon the price.
3. Consummation – it begins when the parties perform their respective
undertakings under the contract of sale, culminating in the extinguishment
thereof.
Sale by itself does not transfer or affect ownership; the most that sale does is to
create the obligation to transfer ownership. It is tradition or delivery, as a
consequence of sale, that actually transfers ownership.
Two kinds of a contract of sale

1. Absolute
2. Conditional – there are certain conditions attached to the contract.
Essential elements of a contract of sale

1. Consent – manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the agreement
Acceptance – may be evidenced by some act, or conduct communicated to
the owner such as payment of the purchase price
2. Object – must be determinate as to its kind; determinate – when it is
particularly designated or physically segregated from all others of the same
class. The cause
is the why of the contract or the essential reason which moves the
contracting parties to enter into the contract. To be valid, it must be lawful
such that it is not contrary to law, moral, good customs, public order or public
policy.
3. Price – disagreement on the manner of payment is tantamount to a failure to
agree on the price.
Characteristics of a contract of sale

1. Consensual – perfected by mere consent
2. Bilateral – the seller and buyer are bound by obligations dependent upon
each other
3. Onerous – it imposes a valuable consideration, which is a price certain in
money or its equivalent
4. Commutative – the thing of value is exchanged for equal value
5. Nominate – the Civil Code refers to it by a special name, “contract of sale”
6. Principal – it can stand on its own and does not depend on another contract
for its validity
What is option or “unaccepted offer”?

An option, as used in the law on sales, is a continuing offer or a contract by which
the owner stipulates with another that the latter shall have the right to buy the
property at a fixed price within a certain time, or under, or in compliance with,
certain terms and conditions, or which gives to the owner of the property the right
to sell or demand a sale.
What is the test in determining whether it is a “contract of sale or purchase or a

mere option”?
The test in determining whether a contact is a “contract of sale or purchase or a
mere option is whether or not the agreement could be specifically enforced. It is
only an option when no obligation rests on the party to make any payment except
such as may be agreed on between the parties as consideration to support the
option until he has made up his mind within the time specified.
Earnest money
It shall be considered as part of the price and as proof of the perfection of the
contract. It constitutes an advance payment and must therefore be deducted from
the total price. It is given by the buyer to the seller to bind the bargain.
Art. 1459. The thing must be licit and the vendor must have a right to
transfer the ownership thereof at the time it is delivered.
Licit means lawful. The thing object of the sale should not be contrary to law,
morals, good customs, public order or public policy.
Examples of void sale (illicit object)
1. Sale of animals suffering from contagious diseases
2. Sale of future inheritance
3. Sale of land in violation of the constitution
Art. 1460. A thing is determinate when it is particularly designated or

physically segregated from all others of the same class.
The requisite that the thing be determinate is satisfied if at the time
of the contract is entered into, the thing is capable of being made
determinate without the necessity of a new or further agreement between
the parties.
Example: my car, my only car, my house located at xxx
Requisites of a determinate thing:

1. At the time the contract is entered into, the thing is capable of being made
determinate, and
2. There is no necessity of a new or further agreement between the parties
Art. 1461. Things having a potential existence may be the object of the
contract of sale.
The efficacy of the sale of a mere hope or expectancy is deemed
subject to the condition that the thing will come into existence.
The sale of a vain hope or expectancy is void.
Things having a potential existence. This is the future thing that can be the object
of sale.
Example: still ungrown fruits, young of animals not yet in existence
Sale of a mere hope or expectancy

This is the subject to the condition that the thing will come into existence.
Example. Sale of sweepstakes ticket that was already run
Emptio rei speratae vs. emptio spei

Emptio rei speratae Emptio spei
Sale of thing with potential existence Sale of a mere hope or expectancy that
the thing will come to existence.
Sale of he hope itself.
Sale is subject to the condition that the Sale is effective even if the thing does
thing will exist. If it does not, there is not come into existence unless it is a
no contract. vain hope.
The object is a future thing. The object is a present thing which is
the hope or expectancy.
General rule: a person cannot sell or convey what he does not have or own.
Exceptions:
1. Sale of a thing having potential existence
2. Sale of future goods, and
3. Contract for 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 at the time or not.
Art. 1462. The goods which form the subject of a contract of sale may be
either existing goods, owned or possessed by the seller, or goods to be
manufactured, raised, or acquired by the seller after the perfection of the
contract of sale, in this Title called “future goods”.
There may be a contract of sale of goods, whose acquisition by the
seller depends upon a contingency which may or may not happen.
Kinds of goods
1. Existing goods. Those goods that are owned by the seller
2. Future goods. Those goods that are to be manufactured (like a future table,
chairs, or bicycle to be manufactured), raised (like the young of animals) or
acquired (like the cell phone which the seller expects to buy) by the seller
after the perfection of the contract of sale.
Art. 1463. The sole owner of a thing may sell an undivided interest
therein.
Example:
B owns a parcel of land with an area of 400 sqm. If B decides to sell 100 sqm to C,
then they will become co-owners of the said land. Thus, B owns 300 sqm while C
owns 100sqm.
Art. 1464.In the case of fungible goods, there may be a sale of an

undivided share of a specific mass, though the seller purports to sell and
the buyer to buy a definite number, weight or measure of the goods in the
mass, and though the number, weight or measure of the goods in the mass
is undetermined. By such a sale the buyer becomes owner in common of
such a share of the mass as the number, weight or measure bought bears
to the number, weight or measure of the mass. If the mass contains less
than the number, weight or measure bought, the buyer becomes the
owner of the whole mass and the seller is bound to make good the
deficiency from the goods of the same kind and quality, unless a contrary
intent appears.
Example: S is engaged in the business of buy and sell of rice and he owns a bodega
filled with undetermined sacks of rice. Subsequently, B buys 100 sacks of rice. If
there are 300 sacks of rice stored in the bodega, then S and B will be co-owners
where S owns 200 sacks of rice while B owns 100 sacks of rice. However, if there
are only 95 sakcs of rice stored in the bodega, S is liable for the deficiency of 5
sacks of rice to B because the contract of sale is still valid. The 5 sacks of rice
should be of the same kind and quality.
Art. 1465. Things subject to a resolutory condition may be the object of

the contract of sale.
Resolutory condition. A condition that upon fulfillment terminates an already

enforceable obligations and entitles the parties to be restored to their original
positions. A conditional obligation that may be immediately enforced but will come
to an end when an uncertain event that is specified occurs.
Example. S and B entered into a contract of sale with a Right of Repurchase within
one year over the former’s parcel of land. S then delivered said parcel of land to B.
In this case, the condition or uncertain event is whether S will repurchase the said
parcel of land within one year. In the meantime, however, B can sell this parcel of
land to C, a third person.
Art. 1466. In construing a contract containing provisions characteristic of both the

contract of sale and of the contract of agency to sell, the essential clauses of the
whole instrument shall be considered.
Contract of sale vs agency to sell
Contract of sale Agency to sell
The buyer receives the goods of owner The agent receives the goods as goods
of the principal who retains his
ownership over them.
The buyer pays the price The agent delivers the price, which he
got from his buyer, to his principal.

The buyer, as a general rule, cannot The agent can return the goods in case
return the object sold. he is unable to sell the same to a third
person.
Art. 1467. A contract for the delivery of a certain price of an article which
the vendor in the ordinary course of his business manufactures or
procures for the general market, whether the same is on hand at the time
or not, is a contract of sale, but if the goods are to be manufactured
specially for the customer upon his special order, and not for the general
market is a contract for a piece of work.
Contractor – a person who, in the pursuit of the independent business, undertakes

to do a specific job or piece of work for other persons, using his own means and
methods without submitting himself to control as to the petty details.
Art. 1468. If the consideration of the contract consists of partly in money

and partly in another thing, the transaction shall be characterized by the
manifest intention of the parties. If such intention does not clearly
appear, it shall be considered a barter if the value of the thing given as a
part of the consideration exceeds the amount of the money or its
equivalent; otherwise, it is a sale.
Sale vs Barter
Sale Barter
A thing is given in exchange of a price A thing is given in exchange for another
certain in money or its equivalent thing.
If the consideration is partly in money and partly in another thing:
1. The transaction is characterized by the manifest intention of the parties.
2. If there is no manifest intention:
a. Barter if the value of the thing is more valuable than money.
b. Sale if the value of the thing is equal or less than the amount of money.
Art. 1469. In order that the price may be considered certain, it shall be
sufficient that it be so with reference to another thing certain, or that the
determination thereof be left to the judgment of a special person or
persons.
Should such person or persons be unable or unwilling to fix it, the
contract shall be inefficacious, unless the parties subsequently agree upon
the price.
If the third person or persons acted in bad faith or by mistake, the
courts may fix the price.
Where such third person or persons are prevented from fixing the
price or terms by fault of the seller or the buyer, the party not in fault may
have remedies against the party in fault as are allowed the seller or the
buyer, as the case may be.
Requisites for a valid price

1. Real. The price is not simulated or fictitious.
2. Certain or ascertainable. It is certain if it is expressed and agreed in terms of
specific amount of money or its equivalent. It is ascertainable if it is sufficient
that it be so with reference to another thing certain, or that the determination
thereof be left to the judgment of a special person or persons.
3. In money or its equivalent
4. Manner of payment must be agreed upon.
Art. 1470. Gross inadequacy of price does not affect the contract of sale,
except as it may indicate a defect in the consent, or that the parties really
intended a donation or some other act or contract.
Example.
S sold to B his 5-year old car for P500,000 not knowing that the fair marker value of
which is P650,000. Is the sale valid? The sale is valid because gross inadequacy of
he selling price does not invalidate a contract of sale.
Art. 1471. If the price is simulated, the sale is valid, but the act may be shown to
have been in reality a donation, or some other act or contract.
What is simulated price? A simulated price is a fictitious price.
Art. 1472. The price of securities, grains, liquids, and other things shall also be
considered certain, when the price fixed is that which the thing sold would have on
a definite day, or in a particular exchange or market, or when an amount is fixed
above or below the price on such day, or in such exchange or market, provided said
amount be certain.
Art. 1473. The fixing of the price can never be left to the discretion of one of the
contracting parties. However, if the price fixed by one of the parties is accepted by
the other, the sale is perfected.
Art. 1474. Where the price cannot be determined in accordance with the preceding
articles, or in any other manner, the contract is inefficacious. However, if the thing
or any part thereof has been delivered to and appropriated by the buyer he must
pay a reasonable price therefor. What is reasonable price is a question of fact
dependent on the circumstances of each particular case.
Art. 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts.
Art. 1476. In the case of a sale by auction:

1. Where goods are put up for sale by auction in lots, each lot is the subject of a
separate contract of sale.
2. A sale by auction is perfected when the auctioneer announces its perfection
by the fall of the hammer, or in other customary manner. Until such
announcement is made, any bidder may retract his bid; and the auctioneer
may withdraw the goods from the sale unless the auction has been
announced to be without reserve.
3. A right to bid may be reserved expressly by or on behalf of the seller, unless
otherwise provided by law or by stipulation.
4. Where notice has not been given that a sale by auction is subject to a right to
bid on behalf of the seller, it shall not be lawful for the seller to bid himself or
to employ or induce any person to bid at such sale on his behalf or for the
auctioneer, to employ or induce any person to bid at such sale on behalf of
the seller or knowingly to take any bid from the seller or any person
employed by him. Any sale contravening this rule may be treated as
fraudulent by the buyer.
Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon
the actual or constructive delivery thereof.
Two aspects of delivery; delivery or tradition

1. De jure delivery or the execution of deeds of conveyance; and
2. The delivery of the material possession.
Art. 1478. The parties may stipulate that ownership in the thing shall not pass to
the purchaser until he has fully paid the price.
Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.
What is a contract to sell?

A contract to sell is a bilateral contract whereby a prospective seller, while expressly
reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the
prospective buyer upon fulfillment of the condition agreed upon, that is, full
payment of the purchase price.
What is an option contract?

A contract by which the owner of the property agrees with another person that he
shall have the right to buy his property at a fixed price within a certain time.
What is a right of first refusal?

It cannot be deemed a contract of sale. The exercise of the right would be
dependent not only on the grantor’s eventual intention to enter into a binding
juridical relation with another but also on terms, including the price, that obviously
are yet to be firmed up.
Art. 1480. Any injury to or benefit from the thing sold, after the contract has been
perfected, from the moment of the perfection of the contract to the time of delivery,
shall be governed by Art. 1163 to 1165, and 1262.
This rule shall apply to the sale of fungible things, made independently and
for a single price, or without consideration of their weight, number or measure.
Should fungible things be sold for a price fixed according to weight, number,
or measure, the risk shall not be imputed to the vendee until they have been
weighed, counted or measured and delivered, unless the latter has incurred in
delay.
Object is lost before perfection, the seller bears the loss.

Object is lost after delivery to the buyer, the buyer bears the loss.
Object is lost after perfection but before delivery, the buyer bears the loss.
Res perit domino. Property lost to the owner.
What are fungible goods? Goods that are interchangeable with one another,
goods that, by nature or trade usage, are the equivalent of any other like unit, such
as coffee or grain.
Art. 1481. In the contract of sale of goods by description or by sample, the contract
may be rescinded if the bulk of the goods delivered do not correspond with the
description of the sample, and if the contract be by sample as well as description, it
is not sufficient that the bulk of goods correspond with the sample if they do not
also correspond with the description.
The buyer shall have a reasonable opportunity of comparing the bulk with the
description or the sample.
Art. 1482. Whenever earnest money is given in a contract of sale, it shall be

considered as part of the price and as proof of the perfection of the contract.
Art. 1483. Subject to the provisions of the Statute of Frauds and of any other
applicable statute, a contract of sale may be made in writing, or by word of mouth,
or partly in writing and partly by word of mouth, or may be inferred from the
conduct of the parties.
General rule. A contract of sale may be made in writing, or by word of mouth, or

partly in writing and partly by word of mouth, or may be inferred from the conduct
of the parties.
Exceptions: when a sale of a piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing, otherwise, the sale shall be
void.
Form is required for enforceability.

Under the Statute of Frauds, the following contract of sale must be in writing to be
enforceable:
1. Sale of real property
2. Sale of personal property at a price not less than P500
3. Sale of property to be performed within a year from the date therein.
Art. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:
1. Exact fulfillment of the obligation, should the vendee fail to pay
2. Cancel the sale, should the vendee’s failure to pay cover two or more
installments
3. Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendee’s failure to pay cover two or more installments. In this
case, he shall have no further action against the purchaser to recover any
unpaid balance of the price. Any agreement to the contrary shall be void.
Art. 1485. The preceding article shall be applied to contracts purporing 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.
Art. 1486. In the case referred to in two preceding articles, stipulations that the
installments or rents paid shall not be returned tot he vendee or lessee shall be
valid insofar as the same may not be unconscionable under the circumstances.
Art. 1487. The expenses for the execution and registration of the sale shall be
borned by the vendor, unless there is a stipulation to the contrary.
Art. 1488. The expropriation of property for public use is governed by special laws.
Chapter 2 Contract to Buy or Sell
Art. 1489. All persons who are authorized in this Code to obligate themselves, may
enter into a contract of sale, saving the modifications contained in the following
articles.
Where necessaries are those sold and delivered to a minor or other person
without capacity to act, he must pay a reasonable price therefor. Necessaries are
those referred to in Art. 290.
General rule. All persons, whether natural or juridical, who can bind themselves,
have legal capacity to enter into a contract of sale.
Exception: persons who are incapacitated.
Kinds of incapacity
1. Absolute incapacity – persons who cannot enter into a contract of sale in
all circumstances; otherwise, the contract of sale is defective, either voidable
or unenforceable
Example: minors, insane, demented persons, deaf-mutes who do not know
how to read and write
2. Relative incapacity – these are certain persons, under certain
circumstances, cannot buy certain property
Example:
Husband and wife, guardian, agents, executors/administrators etc
What are necessaries – everything indispensable for maintenance, dwelling,

clothing, medical attendance, education, and transportation.
Art. 1490. The husband and the wife cannot sell property to each other, except:
1. When a separation of property was agreed upon in the marriage settlements;
or
2. When there has been a judicial separation or property under Art. 192.
Art. 1491. The following persons cannot acquire by purchase, even at a public or
judicial auction either in person or through the mediation of another:
1. The guardian, the property of the person or persons who may be under his
guardianship;
2. Agents, the property whose administration, or sale may have been entrusted
to them, unless the consent of the principal has been given;
3. Executors and administrators, the property of the estate under administration
4. Public officers and employees, the property of the State or of any subdivision
thereof, or of any government owned or controlled corporations, or
institution, the administration of which has been entrusted to them, this
provision shall apply to judges and government experts who, in any manner
whatsoever, take part in the sale;
5. Justices, judges, prosecuting attorneys, clerks of superior and inferior courts,

and other officers and employees connected with the administration of
justice, the property and rights in litigation or levied upon an execution
before the court within whose jurisdiction or territory they exercise their
respective functions, this prohibition includes the act of acquiring by
assignment and shall apply to lawyers, with respect to the property and
rights which may be the object of any litigation in which they may take part
by virtue of their profession;
6. Any others specially disqualified by law.
Art. 1492. The prohibition in the two preceding articles are applicable to sales in
legal redemption, compromises and renunciations.
Chapter 3. Effects of the Contract When the Thing Sold has been Lost
Art. 1493. If at the time the contract of sale is perfected, the thing which is the
object of the contract has been entirely lost, the contract shall be without any
effect.
But if the thing should have been lost in part only, the vendee may choose between
withdrawing from the contract and demanding the remaining part, paying its price
in proportion to the total sum agreed upon.
Art. 1494. Where the parties purport a sale of specific goods, and the goods without
the knowledge of the seller have perished in part or have wholly or in a material
part so deteriorated in quality as to be substantially changed in character, the buyer
may at his option treat the sale:
1. As avoided; or
2. As valid in all of the existing goods or in so much thereof as have not
deteriorated, and as binding the buyer to pay the agreed price for the goods
in which the ownership will pass, if the sale was divisible.
Chapter 4 Obligations of the vendor

Section 1. General Provisions
Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as
warrant the thing which is the object of the sale.
Obligations of the vendor

1. To transfer ownership of the thing sold.
2. To deliver the thing.
3. To warrant that object sold against eviction and hidden defects.
4. To take care of the object sold pending delivery, and
5. To pay for the expenses for the execution and registration of the contract of
sale unless there is a stipulation to the contrary.
Delivery
Refers to the concurrent transfer of two (2) things: possession and ownership.
Purpose of delivery:
Ownership does not pass by mere stipulation but only by delivery. – title has passed
from the seller to the buyer; delivery is a mode of acquiring dominion and
determines the transmission of ownership, the birth of real right. Manresa explains,
“the delivery of the thing xxx signifies that title has passed from the seller to the
buyer.”
What is delivery?
Delivery has been described as a composite act, a thing in which both parties must
join and the minds of both parties concur. It is an act by which one party parts with
the title to and the possession of the property, and the other acquires the right to
and the possession of the same. It means transfer of possession.
Delivery may either be actual or constructive.
Actual delivery – when the thing is placed under the control and possession of the
vendee.
Art. 1496. The ownership of the thing sold is acquired by the vendee from the
moment it is delivered to him in any of the ways specified in Articles 1497 to 1501,
or in any other manner signifying an agreement that the possession is transferred
from the vendor to the vendee.
General rule: Ownership of the thing sold is acquired only upon its delivery, actual
or constructive, to the buyer.
Exceptions:
1. When the seller and the buyer agree that the ownership shall remain with the
seller until the full payment of the purchase price.
2. Contract to sell
3. Sale on approval, trial or satisfaction, and
4. Implied reservation of ownership
Payment is NOT essential to transfer of ownership

Payment of the purchase price is not essential to the transfer of ownership as long
as the property sold has been delivered, and such delivery (tradition) operated to
divest the vendor of title to the property which may not be regained or recovered
until and unless the contract is resolved or rescinded in accordance with law.
Section 2. Delivery of the thing sold
Art. 1497. The thing sold shall be understood as delivered, when it is placed in the
control and possession of the vendee.
Kinds of delivery
1. Real or actual
2. Legal or constructive
3. Quasi-tradition – Delivery of rights, credits, or incorporeal property, made by:
a. Execution of public instrument
b. Placing of titles of ownership in the hands of buyer, or
c. Allowing buyer to make use of rights
Kinds of legal or constructive delivery

a. Legal formalities – when the sale is made through a public instrument. The
delivery by execution of public instrument gives rise to prima facie
presumption of delivery, which is destroyed when actual delivery is not
affected due to legal impediment.
b. Symbolical tradition or tradition simbolica - the parties use a symbol to
represent the thing delivered. Ex. Delivery of the keys of the place
c. Traditio longa manu – delivery by mere consent or agreement of the
contracting parties, where the seller points out to the buyer the object of the
sale without the need of actually delivering it.
d. Tradtitio brevi manu – this occurs when the buyer had already the
possession of the object even before the contract of sale by virtue of another
title which is not ownership (like a lessee (in a contract of lease), and
pursuant to a contract of sale, he would now hold possession in the concept
of an owner (like a buyer of a house where he was a former lessee of the
same house).
e. Tradition constitutum possessorium – the delivery consists in the owner’s
continuous possession of the property he had already sold to another person
but his present possession is no longer that of an owner but under another
capacity like that of a lessee. (the opposite of tradition brevi manu).
Art. 1498. When the sale is made through a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear or cannot be clearly
inferred.
With regard to movable property, its delivery may also be made by the delivery of
the keys of the place or depository where it is stored or kept.
This article speaks about the two kinds of constructive delivery which are legal
formalities and tradition simbolica.
What is a public instrument – a document prepared by a notary public in the

presence of the parties who sign it before witnesses.
Notary Public – a person authorized by the State to administer oaths, certify

documents, attests to the authenticity of signatures, and perform official acts in
commercial matters, such as protesting negotiable instruments.
Art. 1499. The delivery of movable property may likewise be made by the mere
consent or agreement of the contracting parties, if the thing sold cannot be
transferred to the possession of the vendee at the time of the sale, or if the latter
already had it in his possession for any other reason.
This article speaks of two kinds of constructive delivery which are tradition longa
manu and tradito brevi manu.
Art. 1500. There may also be tradition constitutum possessorium.
Art. 1501. With respect to incorporeal property, the provisions of the first paragraph
of Art. 1498 shall govern. In any other case wherein said provision are not
applicable, the placing of the titles of ownership in the possession of the vendee or
the use of the vendee of his rights, with the vendor’s consent, shall be understood
as a delivery.
Delivery of incorporeal property

1. Execution of public instrument
2. The placing of the titles of ownership in the possession of the vendee
3. The use by the vendee of his rights, with the vendor’s consent
Art. 1502. When goods are delivered to the buyer “on sale or return” to give the
buyer an option to return the goods instead of paying the price, the ownership
passes to the buyer on delivery, but he may revert the ownership in the seller by
returning or tendering the goods within the time fixed in the contract, or, if no time
has been fixed, within a reasonable time.
When goods are delivered to the buyer on approval or on trial or on satisfaction, or
other similar terms, the ownership therein passes to the buyer:
1. When he signifies his approval or acceptance to the seller or does any other
act adopting the transaction.
2. If he does not signify his approval or acceptance to the seller, but retains the
goods without giving notice of rejection, then if a time has been fixed for the
return of the goods, on the expiration of such time, and, if no time has been
fixed, on the expiration of a reasonable time. What is reasonable time is a
question of fact.
Sale on approval – sale on trial, sale on acceptance, sale on satisfaction; there is

no transfer of ownership notwithstanding delivery of the goods. Ownership passes
to the buyer in the following instances:
1. When the buyer signifies his approval or acceptance to the seller or does any
other act adopting the transactions
2. If the buyer does not signify his approval or acceptance to the seller, but
retains the goods without giving notice of rejection, then if a time has been
fixed for the return of the goods, on the expiration of such time, and, if no
time has been fixed, on the expiration of a reasonable time.
Sale or return – ownership passes to the buyer on delivery. The subsequent return
of the goods reverts ownership in the seller. Delivery or tradition as a mode of
acquiring ownership must be in consequence of a contract, e.g. sale.
Express written agreement in Sale or Return or Sale on Approval

The provision in the Uniform Sales Act and the Uniform Commercial Code from
which Art. 1502 was taken, clearly requires an express written agreement to make a
sales contract either a “sale or return” , or a “sale on approval”. If the purchaser
desired to incorporate a stipulation securing to him the right of return, he should
have done so at the time the contract was made. On the other hand, the buyer
cannot accept part and reject the rest of the goods since this falls outside the
normal intent of the parties in the “on approval” situation.
Sale on return vs sale on trial

Sale on return Sale on trial
Ownership passes to the buyer on Ownership remains in the seller until
delivery and subsequent return reverts the buyer signifies his approval or
ownership in the seller acceptance to the seller
Subject to a resolutory condition Subject to a suspensive condition
Depends entirely on the will of the Depends on the quality of the goods
buyer
Risk of loss rests upon the buyer Risk of loss remains with the seller
Art. 1503. When there is a contract of sale of specific goods, the seller may, by the
terms of the contract, reserve the right of possession or ownership in the goods
until certain conditions have been fulfilled. The right of possession or ownership
may be thus reserved notwithstanding the delivery of the goods to the buyer or to a
carrier or other bailee for the purpose of transmission to the buyer.
Where goods are shipped, and by the bill of lading the goods are deliverable to the
seller or his agent, or to the order of the seller or of his agent, the seller thereby
reserves the ownership in the goods. But, if except for the form of the bill of lading,
the ownership would have passed to the buyer on shipment of the goods, the
seller’s property in the goods shall be deemed to be only for the purpose of securing
performance by the buyer of his obligations under the contract.
Where goods are shipped, and by the bill of lading the goods are deliverable to
order of the buyer or of his agent, but possession of the bill of lading is retained by
the seller or his agent, the seller thereby reserves a right to the possession of the
goods as against the buyer.
Where the seller of goods draws on the buyer for the price and transmits the bill of
exchange and bill of lading together to the buyer to secure acceptance or payment
of the bill of exchange, the buyer is bound to return the bill of lading if he does not
honor the bill or exchange, and if he wrongfully retains the bill of lading he acquires
no added right thereby. If however, the bill of lading provides that the goods are
deliverable to the buyer or to the order of the buyer, or it is endorsed in blank, or to
the buyer by the consignee named therein, one who purchases in good faith, for
value, the bill of lading, or goods from the buyer will obtain the ownership in the
goods, although the bill of exchange has not been honored, provided that such
purchaser has received delivery of the bill of lading indorsed by the consignee
named therein, or of the goods, without notice of the facts making the transfer
wrongful.
Art. 1504. Unless otherwise agreed, the goods remain at the seller’s risk until the
ownership therein is transferred to the buyer, but when the ownership therein is
transferred to the buyer the goods are at the buyer’s risk whether actual delivery
has been made or not, except that:
1. Where delivery of the goods has been made to the buyer or to a bailee for
the buyer, in pursuance of the contract and the ownership in the goods has
been retained by the seller merely to secure performance by the buyer of his
obligation under the contract, the goods are at the buyer’s risk from the time
of such delivery.
2. Where actual delivery has been delayed through the fault of either the buyer
or seller the goods are at the risk of the party in fault.
Art. 1505. Subject to the provisions of this Title, where goods are sold by a person
who is not the owner thereof, and who does not sell under authority or with the
consent of the owner, the buyer acquires no better title to the goods than the seller
had, unless the owner of the goods is by his conduct precluded from denying the
seller’s authority to sell.
Nothing in this Title, however, shall affect:
1. The provisions of any factor’s act, recording laws, or any other provision of
law enabling the apparent owner of goods to dispose of them as if he were
the true owner thereof,
2. The validity of any contract of sale under statutory power of sale or under the
order of a court of competent jurisdiction.
3. Purchases made in a merchant’s store, or in fairs, or markets, in accordance
with the Code of Commerce and special laws.
General rule: Where goods are sold by a person who is not the owner thereof, and
who does not sell them under authority or with the consent of the owner, the buyer
acquires no better title to the goods than the seller had.
Exceptions:
1. The owner of the goods is by his conduct precluded from denying the seller’s
authority to sell
2. A provision of law enables the apparent owner of goods to dispose of them as
if he were the true owner thereof.
3. The validity of any contract of sale under statutory power of sale or under the
order of a court of competent jurisdiction.
4. Purchases made in a merchant’s store, or in fairs, or markets, in accordance
with the Code of Commerce and special laws.
5. Where the seller of goods has a voidable title thereto.
Art. 1506. Where the seller of goods has a voidable title thereto, but his title has
not been avoided at the time of the sale, the buyer acquires a good title to the
goods, provided he buys them in goods faith, for value, and without notice of the
seller’s defect of title.
Art. 1507. A document of title in which it is stated that the goods referred to therein
will be delivered to the bearer, or to the order of any person named in such
document is a negotiable document of title.
Art. 1508. A negotiable document of title may be negotiated by delivery:

1. Where by the terms of the document the carrier, warehouseman or other
bailee issuing the same undertakes to deliver the good to the bearer.
2. Where by the terms of the document the carrier, warehouseman or other
bailee issuing the same undertakes to deliver the goods to the order of a
specified person, and person or a subsequent endorsee of the document has
indorsed it in blank or to the bearer.
Where by the terms of a negotiable document of title the goods are deliverable to
the bearer or where a negotiable document of title has been indorsed in blank or to
bearer, any holder may indorse the same to himself or to any specified person, and
in such case the document shall thereafter be negotiated only by the endorsement
of such endorsee.
Art. 1509. A negotiable document of title may be negotiated by the endorsement of

the person to whose order the goods are by the terms of the document deliverable.
Such endorsement may be in blank, to bearer or to a specified person. If indorsed
to a specified person, it may be again negotiated by the endorsement of such
person in blank, to bearer or to another specified person. Subsequent negotiations
may be made in like manner.
Art. 1510. If a document of title which contains an undertaking by a carrier,

warehouseman or other bailee to deliver the goods to bearer, to a specified person
or order of a specified person or which contains words of like import, has placed
upon it the words, “not negotiable,” “non-negotiable”, or the like such document
may nevertheless be negotiated by the holder and is a negotiable document of title
within the meaning of this Title. But nothing in this Title contained shall be
construed as limiting or defining the effect upon the obligations of this carrier,
warehouseman, or other bailee issuing a document of title or placing thereon the
words “not negotiable’, “non-negotiable”, or the like.
Art. 1511. A document of title which is not in such form that it can be negotiated by
delivery may be transferred by the holder by delivery to a purchaser or done. A
non-negotiable document cannot be negotiated and the endorsement of such
document gives the transferee no additional right.
Art. 1512. A negotiable document of title may be negotiated:

1. By the owner therefor; or
2. By any person to whom the possession or custody of the document has been
encrusted by the owner, if, by the terms of the document, the bailee issuing
the document undertakes to deliver the goods to the order of the person to
whom the possession or custody of the document has been entrusted, or if at
the time of such entrusting the document is in such form that it may be
negotiated by delivery.
Art. 1513. A person to whom a negotiable document of title has been duly
negotiate acquires thereby:
1. Such title to the goods as the person negotiating that document to him had
or had ability to convey to a purchaser in good faith for value and also such
title to the goods as the person to whose order the goods were to be
delivered by the terms of the document had or had ability to convey to a
purchaser in good faith for value, and
2. The direct obligation of the bailee issuing the document to hold possession of
the goods for him according to the terms of the document as fully as if such
bailee had contracted directly with him.
Art. 1514. A person to whom a document of title has been transferred, but not
negotiated, acquires thereby, as against the transferor, the title to the goods,
subject to the terms of any agreement with the transferor.
If the document is no-negotiable, such person also acquires the right to notify the
bailee who issued the document of the transfer thereof and thereby to acquire the
direct obligation of such bailee to hold possession of the goods for him according to
the terms of the document.
Prior to the notification to such bailee by the transferor or transferee of a non-
negotiable document of title, the title of the transferee to the goods and the right to
acquire the obligation of such bailee may be defeated by the levy of an attachment
of execution upon the goods of a creditor of the transferor, or by a notification to
such bailee by the transferor or a subsequent purchaser from the transfer of a
subsequent sale of the goods by the transferor.
Art. 1515. Where a negotiable document of title is transferred for value by delivery,
and the endorsement of the transferor is essential for negotiation, the transferee
acquires a right against the transferor to compel him to endorse the document
unless a contrary intention appears. The negotiation shall take effect as of the time
when the endorsement is actually made.
Art. 1516. A person who for value negotiates or transfers a document of title by
endorsement or delivery, including one who assigns for value a claim secured by a
document of title unless a contrary intention appears, warrants:
1. That the document is genuine
2. That he has a legal right to negotiate or transfer it
3. That he has knowledge of no fact which would impair the validity or worth of
the document, and
4. That he has a right to transfer the title to the goods and that the goods are
mechantable or fit for a particular purpose, whenever such warranties would
have been implied if the contract of the parties had been to transfer without
a document of title the goods represented thereby.
Art. 1517. The endorsement of a document of title shall not make the endorser
liable for any failure on the part of the bailee who issued the document or previous
endorsers thereof to fulfill their respective obligations.
Art. 1518. The validity of the negotiation of a negotiable document of title is not
impaired by the fact that the negotiation was a breach of duty on the part of the
person making the negotiation, or by the fact that the owner of the document was
deprived of the possession of the same by loss, theft, fraud, accident, mistake,
duress, or conversion, if the person to whom the document was negotiated or a
person to whom the document was subsequently negotiated paid value therefor in
good faith without notice of the breach of duty, or loss, theft, fraud, accident,
mistake, duress or conversion.
Art. 1519. If goods are delivered to a bailee by the owner or by a person whose act
in conveying the title to them to a purchaser in good faith for value would bind the
owner and a negotiable document of title is issued for them they cannot thereafter,
while in possession of such bailee, be first surrendered to the bailee or its
negotiation enjoined. The bailee shall in no case be compelled to deliver up the
actual possession of the goods until the document is surrendered to him or

impounded by the court.
Art. 1520. A creditor whose debtor is the owner of a negotiable document of title
shall be entitled to such aid from courts of appropriate jurisdiction by injunction and
otherwise in attaching such document or in satisfying the claim by means thereof as
is allowed at law or in equity in regard to property which cannot be attached or
levied upon by ordinary legal process.
Art. 1521. Whether it is for the buyer to take possession of the goods or of the
seller to send them to the buyer is a question depending in each case on the
contract, express or implied, between the parties. Apart from any such contract,
express or implied, or usage of trade to the contrarym the place of delivery is the
seller’s place of business if he has one, and if not his residence, but in case of a
contract of sale of specific goods, which to the knowledge of the parties when the
contract or the sale was made in some other place, then that place is the place of
delivery.
Where by a contract of sale the seller is bound to ssend the goods to the buyer, but
no time bor sending them is fixed, the seller is bound to send them within a
reasonable time.
Where the goods at the time of sale are in the possession of a third person, the
seller has not fulfilled his obligation to deliver to the buyer unless and until such
third person acknowledges to the buyer that he holds the goods on the buyer’s
behalf.
Demand or tender of delivery may be treated as ineffectual unless made at a
reasonable hour. What is reasonable hour is a question of fact.
Unless otherwise agreed, the expenses of and incidental to putting the goods into a
deliverable state must be borne by the seller.
Art. 1522. Where the seller delivers to the buyer a quantity of goods less than he
contracted to sell, the buyer may reject them, but if the buyer accepts or retains the
goods so delivered, knowing that the seller is not going to perform the contract in
full, he must pay for them at the contract rate. If, however, the buyer has used or
disposed of the goods delivered before he knows that the seller is not going to
perform his contract in full, the buyer shall not be liable for more than the fair value
of the goods so received.
Where the seller delivers to the buyer a quantity of goods larger than he contracted
to sell, the buyer may accept the goods included in the contract and reject the rest.
If the buyer accepts the whole of the goods so delivered, he must pay for them at
the contract rate.
Where the seller delivers to the buyer the goods he contracted to sell mixed with
good of a different description not included in the contract, the buyer may accept
the goods which are in accordance with the contract and reject the rest.
In the preceding two paragraphs, if the subject matter is indivisible, the buyer may
reject the whole of the goods.
The provisions of this article are subject to any usage of trade, special agreement,
or course of dealing between the parties.
Art. 1523. Where, in pursuance of a contract of sale, the seller is authorized or

required to send the goods to the buyer, delivery of the goods to a carrier, whether
named by the buyer or not, for the purpose of transmission to the buyer is deemed
to be a delivery of the goods to the buyer, except in the case provided for in Art.
1503, first, second and third paragraphs, or unless a contrary intent appears.
Unless otherwise authorized by the buyer, the seller must make such contract with
the carrier on behalf of the buyer as may be reasonable, having regard to the
nature of the goods and the other circumstances of the case. If the seller omit so to
do, and the goods are lost or damaged in course of transit, the buyer may decline to
treat the delivery to the carrier as a delivery to himself, or may hold the seller
responsible in damages.
Unless otherwise agreed, where goods are sent by the seller to the buyer under
circumstances in which the seller knows or ought to know that it is usual to insure,
the seller must give such notice to the buyer as may enable him to insure them
during their transit, and, if the seller fails to do so, the goods shall be deemed to be
at his risk during such transit.
Art. 1524. The vendor shall not be bound to deliver the thing sold, if the vendee
has not paid him the price, or if no period for the payment has been fixed in the
contract.

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Universidad de Manila

Stages of a contract of sale

Two kinds of a contract of sale

Essential elements of a contract of sale

Characteristics of a contract of sale

What is option or “unaccepted offer”?

What is the test in determining whether it is a “contract of sale or purchase or a

Art. 1460. A thing is determinate when it is particularly designated or

Example: my car, my only car, my house located at xxx

Requisites of a determinate thing:

Sale of a mere hope or expectancy

Emptio rei speratae vs. emptio spei

Art. 1464.In the case of fungible goods, there may be a sale of an

Art. 1465. Things subject to a resolutory condition may be the object of

Resolutory condition. A condition that upon fulfillment terminates an already

Art. 1466. In construing a contract containing provisions characteristic of both the

got from his buyer, to his principal.

Contractor – a person who, in the pursuit of the independent business, undertakes

Art. 1468. If the consideration of the contract consists of partly in money

Requisites for a valid price

What is simulated price? A simulated price is a fictitious price.

Art. 1476. In the case of a sale by auction:

Two aspects of delivery; delivery or tradition

What is a contract to sell?

What is an option contract?

What is a right of first refusal?

Object is lost before perfection, the seller bears the loss.

Art. 1482. Whenever earnest money is given in a contract of sale, it shall be

General rule. A contract of sale may be made in writing, or by word of mouth, or

Form is required for enforceability.

Chapter 2 Contract to Buy or Sell

What are necessaries – everything indispensable for maintenance, dwelling,

5. Justices, judges, prosecuting attorneys, clerks of superior and inferior courts,

Chapter 4 Obligations of the vendor

Obligations of the vendor

Payment is NOT essential to transfer of ownership

Section 2. Delivery of the thing sold

Kinds of legal or constructive delivery

What is a public instrument – a document prepared by a notary public in the

Notary Public – a person authorized by the State to administer oaths, certify

Art. 1500. There may also be tradition constitutum possessorium.

Delivery of incorporeal property

Sale on approval – sale on trial, sale on acceptance, sale on satisfaction; there is

Express written agreement in Sale or Return or Sale on Approval

Sale on return vs sale on trial

Art. 1508. A negotiable document of title may be negotiated by delivery:

Art. 1509. A negotiable document of title may be negotiated by the endorsement of

Art. 1510. If a document of title which contains an undertaking by a carrier,

Art. 1512. A negotiable document of title may be negotiated:

actual possession of the goods until the document is surrendered to him or

Art. 1523. Where, in pursuance of a contract of sale, the seller is authorized or

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