LAW ON

SALES
DEFINITION:

• By 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 therefor a price certain in
money or its equivalent. (Article 1458, NCC)
Essential Elements

Consent – when there is

Cause – the price certain
a meeting of minds to Object – the determinate
in money or its
transfer ownership in thing to be delivered.
equivalent.
exchange of the price.
NATURAL ELEMENTS

Warranty against Warranty against

hidden defects eviction
 - These refer to the stipulations agreed

ACCIDENTAL upon by the parties, such as those

per taining to the terms and manner of

ELEMENTS payment, penalty, interest and other

conditions governing the contract of sale.
 CHARACTERISTICS OF
CONTRACT OF SALE

A. CONSENSUAL

- The contract of sale is perfected at the moment there is a

meeting of the minds upon the thing which is the object of the
contract and upon the price.

- From that moment, the parties may reciprocally demand

per formance, subject to the provisions of the law governing the form
of contracts. (Article 1475, NCC)
 CHARACTERISTICS OF
CONTRACT OF SALE

B. BILATERAL

- 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 therefor a price certain in
money or its equivalent. (Article 1458, NCC)

- the par ties are bound by their reciprocal obligations (i.e.

seller- deliver and transfer a determinate thing, buyer- to pay the
price)
 CHARACTERISTICS OF
CONTRACT OF SALE

C. COMMUTATIVE

- By an aleatory contract, one of the parties or both

reciprocally bind themselves to give or to do something in
consideration of what the other shall give or do upon the happening
of an event which is uncertain, or which is to occur to an
indeterminate time. (Article 2010, NCC)

- the par ties exchange almost equivalent values

 CHARACTERISTICS OF
CONTRACT OF SALE

D. PRINCIPAL

- It is capable of standing alone without need of another

contract.
 CHARACTERISTICS OF
CONTRACT OF SALE

E. ONEROUS

- In onerous contracts, the cause is understood to be, for each

contracting par ty, the prestation or promise of a thing or service by
the other; in renumeratory ones, the service or benefit which is
renumerated; and in contracts of pure beneficience, the mere
liberality of the benefactor. (Article 1350, NCC)
 CHARACTERISTICS OF
CONTRACT OF SALE

F. NOMINATE

- the contract is given a special name or designation in the

Civil Code
 A . A B S OLU TE

- n o t s u b j ec t to a ny c o n d i ti o n wh a ts o ever;

KINDS OF ti tl e o r o wn ersh i p p a sses to th e b u yer u p o n

d el i ver y o f th e th i n g so l d .

CONTRACT B. C ONDITIONA L

- sa l e c o n temp l a tes a c o n ti n g en c y; su b j ec t
OF SALE to c er ta i n c o n d i ti o n s. H ere th e d el i ver y o f th e th i n g
so l d d o es n o t tra n sfer o wn ersh i p u n ti l th e
c o n d i ti o n i s f u l f i l l ed .
STAGES OF A CONTRACT OF SALE

1. NEGOTIATION – it covers the period from the time the prospective

contracting par ties indicate interest in the contract to the time the
contract is per fected.
2. PERFECTION – It takes place upon the concurrence of the essential
elements of the sale, which is the meeting of the minds of the par ties
as to the object of the contract and upon the price.
3. CONSUMMATION – It begins when the par ties per form their
respective under takings under the contract of sale, culminating in the
extinguishment thereof.
 FORM OF CONTRACT OF SALE

GENERAL RULE: A contract EXCEPTIONS:

of sale may be made in
1. If the law requires a document or other special
writing, or by word of form, the contracting parties may compel each
mouth, or par tly in writing other to observe that form. (Art. 1357, NCC)
2. Under the Statute of Frauds, certain contracts
and partly by word of
must be in writing, otherwise, they shall be
mouth, or may be inferred unenforceable. (Art. 1403(2), NCC)
from the conduct of the 3. Sale of large cattle which requires that the same
be recorded with the city/municipal treasurer and
parties. that a certificate of transfer be issued. Otherwise
the sale is not valid. (Art. 1581, NCC)
 A is located abroad and called his friend,
B, who is in the Philippines. A asked B to
sell his land located in Batangas, as he is
in need of cash. B sold the land to C. The
deed of sale was in a public instrument.

EXAMPLE The sale of Aʼs lot is:

a. Voidable *

b. Unenforceable

c. Void

d. Valid
CONTRACT TO SELL

* A bilateral contract whereby the prospective seller, while expressly

reserving the ownership of the subject property despite the 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, the fulfillment of the purchase price.
A preparatory contract to the absolute
sale.

-there is a deed of absolute sale that is

the end goal of a contract to sell.
Is a CONTRACT TO SELL the same as CONDITIONAL CONTRACT
OF SALE?

NO. A contract to sell may fur ther be distinguished from a conditional

contract of sale, in that, the fulf illment of the suspensive condition,
which is the full payment of the purchase price, will not automatically
transfer ownership to the buyer although the proper ty may have been
previously delivered to him. The prospective vendor still has to convey
title to the prospective buyer by entering into a contract of absolute
sale.

- While in a contract of sale, the fulf illment of the suspensive condition

renders the sale absolute and affects the seller ʼs title thereto such that
if there was previous deliver y of the proper ty, the seller ʼs ownership or
title to the proper ty is automatically transferred to the buyer.
PARTIES TO A CONTRACT OF SALE

1. VENDOR/SELLER – The vendor must be legally capacitated to

enter into a contract. If the vendor is a corporation, the contract
must be executed by the board of directors or by a corporate
agent duly authorized by the board.

- The vendor must have a right to transfer the ownership at the

time it is delivered.

2. VENDEE/BUYER – The vendee must also be legally capacitated to

enter into contract.
 PARTIES WHO MAY NOT ENTER
INTO A CONTRACT OF SALE

A B S OLU TE INCA PAC ITY

- In c a p a c i ty i s a b s o l u te i n c a se o f p erso n s wh o c a n n o t b i n d th emsel ves.

Ex a mp l e: M i n o rs , i n s a n e a n d d emen ted p erso n s, i mb ec i l e, d ea f a n d d u mb

p erso n s, p ro d i g a l s a n d th o se su b j ec t to c i vi l i n terd i c ti o n . A s th ei r p erso n a l i ty i s
restri c ted , th ey h ave n o c a p a c i ty to p u rc h a se a n d sel l by th emsel ves p erso n a l l y,
b u t o n l y th ro u g h th ei r l eg a l rep resen ta ti ves. (Ar t. 1327, C C )

No te: In c a se o f mi n o rs o r o th er p erso n s wi th o u t c a p a c i ty to a c t, th e c o n tra c t o f

sa l e i s VOIDA B LE. H o wever, th e p u rc h a se o f n ec es s i ti es i s VA LID, fo r wh i c h th ey
sh a l l p ay a rea so n a b l e p ri c e th erefo r. (Ar t. 37, 1489, C C )
 PARTIES WHO MAY NOT ENTER
INTO A CONTRACT OF SALE

RELATIVE INCAPACITY –Incapacity is relative when person, under

cer tain circumstances cannot buy cer tain proper ty.

Example: Husband and wife – sale by and between spouses.

SPECIAL DISQUALIFICATIONS:
Examples:
1. Sale by and between guardians and wards
2. Sale between agents and principals
3. Sale between executors and administrators of estate of the deceased
SUBJECT MATTER OF THE SALE

1. It must be licit.

2. It must be a thing the seller of which has a right to transfer

ownership at the time of the deliver y.

3. It must be determinate, meaning, it is particularly designated or

physically segregated from all others of the same class.
SUBJECT MATTER OF THE SALE

4. It may be things having a potential existence (Ar t. 1461, C) or goods

to be manufactured, raised or acquired by the seller af ter the
per fection of the contract. (Ar t. 1462, CC). In either case, the failure
of the condition or contingency to materialize will invalidate the
contract.

5. It may be segregated or an undivided share or interest. (Ar t. 1463-

64, CC)

6. It may be subject to a resolutor y condition. (Ar t. 1465, CC) Ex. The

object of a pacto de retro sale.
 PRICE

1. CERTAINTY – Price of the thing sold must be certain; otherwise

the sale is void by reason of the absence of meeting of minds
between the par ties

Price is considered certain:

a. When it is agreed upon by the parties. (Art. 1473, CC)
b. When it is in reference to another thing cer tain. (Ar t. 1469,
CC)
c. When the determination thereof is lef t to the judgment or
specified person /s
 PRICE

2. Failure to pay the consideration vs. lack of consideration

Failure to pay the consideration results in a right to demand the
fulfillment or cancellation of the obligation under an existing
contract while the latter prevents the existence of a valid
contract.

3. Gross inadequacy of price vs. simulated price

Gross inadequacy of price means the price is insufficient to
satisfy the real or actual price of the object of the sale. It does
not affect the validity of the sale.
 PRICE

Exceptions:
1. If consent is vitiated (may be annulled or presumed to be
equitable mor tgage)
2. If the par ties intended a Donation or some other act /contract;
3. If the price is so low as to be “shocking to the conscience”;
4. If in the even of RESALE, a better price can be obtained.

The PRICE IS SIMULATED when neither party had the intention that
the amount will be paid. If price is simulated, the sale is VOID.
Exception is if it can be shown to be a donation or another contract.
 SALE distinguished from
OTHER TRANSACTIONS

1. CONTRACT FOR PIECE OF WORK

- A contract for the delivery at 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

and upon his special order, and not for the general market, it is a
contract for a piece of work. (Art. 1467, CC)
 SALE distinguished from
OTHER TRANSACTIONS

2. DAC ION EN PAG O

- D a ti o n i n p aymen t, wh ereby th e d eb to r g i ves so meth i n g el se to th e c red i to r i n

exc h a n g e fo r p aymen t o f a n ex i sti n g d eb t i n mo n ey. If th e sa l e o f p ro p er ty i s
so l el y fo r th e p u rp o se o f p ro tec ti o n a n d n o t to p ay a l o a n , th ere i s n o d a ti o n .

3. C ESS ION BY PAYM ENT

- It i s th e a s s i g n men t o r a b a n d o n men t o f a l l o f th e d eb to r ʼs a s s ets fo r th e

b en ef i t o f h i s c red i to rs, so th a t th ey c a n sel l th em a n d a p p l y th e p ro c eed s to th e
rep aymen t o f th ei r d eb ts .
 Differences of Dation in Payment and
Dation in Cession
DATION IN PAYMENT
• There is usually only one creditor
• Does not presuppose the insolvency of
the debtor or a situational financial
difficulties
• Does not involve all the property of the
debtor
• The creditor becomes the owner of the
thing given by the debtor
• Really an act of novation
DATION IN CESSION
• There are several creditors
• The debtor is insolvent at the time of
assignment.
• Extends to all the properties of the
debtor subject to execution
• The creditors only acquire the right to
sell the thing and apply the proceeds to
their credit pro rata
• Not an act of novation
 SALE distinguished from
OTHER TRANSACTIONS

4. BARTER OR EXCHANGE

- If the consideration of the contract consists partly in money, and

partly in another thing, the transaction shall be characterized by the
manifest intention of the par ties. If such intention does not clearly
appear, it shall be considered a barter if the value of the thing is
given as a par t of the consideration exceeds the amount of the
money or its equivalent; otherwise, it is a sale.
 OPTION MONEY

Q: What is an OPTION MONEY?

A: Option money is the consideration paid for the purpose of holding
one to his promise to buy or sell a determinate thing for a cer tain
period of time, which consideration is separate and distinct from the
purchase price.

Option money is not always monetar y but could consist of other things
or under takings.

Q: What is the effect of having an option money?

A: The offeror cannot withdraw the offer until the expiration of the
option.
Example:
X p ro mi sed to sel l h i s c a r to Y fo r P1M, g i vi n g Y o n e week to d ec i d e wh eth er to
b u y o r n o t. Y a c c ep ted th e p ro mi se a n d g ave X P1, 000 to h o l d th e o f fer fo r a
week.

Q: May X wi th d raw h i s p ro mi se to sel l to Y?

A: No, h e i s b o u n d th ereto b ec a u se th ere i s a c o n tra c t o f o p ti o n th a t wa s
p er fec ted wh en Y g ave th e P1, 000 c o n si d era ti o n .

Q: B y g i vi n g o p ti o n mo n ey, i s Y o b l i g a ted to b u y th e c a r:
A: No, sh e i s merel y g i ven th e o p ti o n to b u y i t.

Q: H o w mu c h wi l l Y p ay i f sh e even tu a l l y d ec i d es to b u y th e c a r? 1M? Or 999, 000?

A: 1M b ec a u se th e a mo u n t p a i d by Y a s o p ti o n mo n ey i s n o t p a r t o f th e p u rc h a se
p ri c e.
 EARNEST MONEY
Earnest money is the money given as par t of the purchase price and as
proof of the per fection of the contract. It is also called “arras” or
something of value to show that the buyer was really in earnest and given
to the seller to bind the bargain.

Example:
D offered to buy Aʼs car for P500k, to which A agreed. To show that he is
in earnest, D gave A P10K upon the execution of this agreement, which A
accepts. Since there is already a per fected contract of sale, D will only pay
A P490,000 on the due date of the payment.

Note: Since there is already a per fected contract of sale, any of the par ties
cannot refuse to continue with the sale on the ground that the transaction
appears to be disadvantageous to them.
 OPTION MONEY EARNEST MONEY

As to Money given Money given as distinct Forms part of the purchase price.
consideration for an option
contract
As to perfection Applies to a sale not yet Given only when there is already a
perfected. sale.
Obligation of the Prospective buyer is not When given, the buyer is bound to
buyer upon required to buy pay the balance.
payment of
consideration
As to Recovery If buyer does not decide to If sale did not materialize, it must
buy, it cannot be recovered. be returned.
As to Transfer of Ownership is reserved to the Title passes to the buyer upon
ownership seller and is not pass until full delivery of the thing sold.
payment
Effect of Non- Specific performance Specific performance and rescission
Payment
Obligations of the Vendor

1. To transfer the ownership of the thing sold

• The ownership of the thing sold is acquired by the vendee from the
moment the thing is delivered to him. (Art. 1496)

2. To deliver the thing sold.

* The vendor is bound to deliver the thing sold and its accessories in
the condition in which they were upon the perfection of the contract.
All the fruits shall per tain to the vendee from the day on which the
contract is per fected. (Art. 1537)
Obligations of the Vendor

3. To warrant the thing sold.

• The vendor is liable for breach of warranty against eviction and

warranty against hidden defects or encumbrances (Art. 1547)

4. To take care of the thing sold with the diligence of a good father
of a family, unless the par ties agreed to a different standard of care.
DELIVERY

Q: When is a thing considered to be delivered?

A: The thing sold shall be understood as delivered, when it is placed

in the control and possession of the vendee. (Art. 1497)
Kinds of Delivery
1. ACTUAL OR REAL - Thing sold is placed under the physical control
and possession of buyer/agent

2. CONSTRUCTIVE or LEGAL – Does not confer physical possession of

the thing, but by construction of law, is equivalent to acts of real
deliver y

Requisites:
a) The seller must have control over the thing;
b) The buyer must be put under control;
c) There must be intention to deliver the thing for purposes of
ownership
Kinds of Delivery

i. Traditio Simbolica – deliver y of certain symbols representing the

thing. E.g. Delivery of keys of a house

ii. Traditio Longa Manu – deliver y of thing by mere agreement; when

seller points to the property without need of actually delivering.

iii. Traditio Brevi Manu – the buyer, being already in possession of the
thing sold due to some other causes, merely remains in possession
af ter the sale is effected, but now in concept of owner. E.g. From
lessee to becoming an owner.

iv. Constitutum Possessorium – the seller remains in possession of

the property in a different capacity. E.g. From owner to lessee
Kinds of Delivery

3. QUASI-TRADITIO – deliver y of rights, credits or incorporeal

property, is made when:

a) Sale is made thru a public instrument

b) Placing titles of ownership in the hands of the buyer;

c) Allowing buyer to make use of right.

Kinds of Delivery

4. TR A DITIONA L BY LEGA L F ORM A LITIES – Exec u ti o n o f a p u b l i c i n s tru men t i s

eq u i va l en t to d el i ver y. B u t to b e ef fec ti ve, i t i s n ec es s a r y th a t th e sel l er h ave
su c h c o n tro l over th e th i n g so l d th a t, a t th e mo men t o f sa l e, i ts ma teri a l
d el i ver y c o u l d h ave b een ma d e.

Gen era l Ru l e: Th ere i s p resu mp ti o n o f d el i ver y

Exc ep ti o n :
a ) C o n tra r y sti p u l a ti o n
b ) Wh en a t th e ti me o f exec u ti o n , su b j ec t ma tter wa s n o t su b j ec t to th e c o n tro l
o f th e sel l er;
c ) S el l er h a s n o c a p a c i ty to d el i ver a t ti me o f exec u ti o n ;
d ) S u c h c a p a c i ty sh o u l d su b si st fo r a rea so n a b l e ti me a f ter exec u ti o n of
i n s tru men t
Q: What are the remedies of a buyer if the seller delivers to him a
quantity of goods less than what he contracted to sell?

A. The buyer may:

1. Reject them;
2. 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; or
3. If, however, the buyer has used or disposed of the goods delivered
before he know that the seller is not going to per form his contract
in full, the buyer shall not be liable for more than the fair value to
him of the goods so received (Art. 1522)
Q: What are the remedies of a buyer if the seller delivers to him a
quantity of goods less than what he contracted to sell?

A. The buyer may:

1. Accept the goods included in the contract and reject the rest;
2. If the buyer accepts the whole of the goods so delivered, he must
pay for them at the contract rate; or
3. If the subject matter is indivisible, the buyer may reject the whole
of the goods.
Q: What are the remedies of a buyer if the seller delivers to goods which he
contracted to sell and which are mixed with goods of a dif ferent description
not included in the contract?

A. The buyer may:

1. Accept the goods which are in accordance with the contract and
reject the rest; or
2. If the subject mater is indivisible, the buyer may reject the whole
of the goods (Ar t. 1522, CC)
OBLIGATIONS OF THE VENDEE

1. To accept the deliver y;

2. To pay the price

Q: What are the instances when the buyer can suspend payment?
A:
a) If he is disturbed in the possession or ownership of the thing
bought;
b) If he has a well-grounded fear that his possession or ownership
would be disturbed by a vindicator y action or foreclosure of
mor tgage.
OBLIGATIONS OF THE VENDEE

3. Bear the expenses for the execution and registration of the sale
and putting the goods in a deliverable state;
4. To take care of the goods without the obligation to return, where
the goods are delivered to the buyer and he rightfully refuses to
accept it.
5. To pay the interest for the period between delivery of the thing
and the payment of the price in the following cases:
a. Interest is stipulated;
b. Fruits or income are received by the vendee from the thing sold;
c. Vendee is guilty of default.
WARRANTIES

KINDS:
1. EXPRESS WARRANTY – Any affirmation of fact or any promise by
the seller relating to the thing if the natural tendency of such
affirmation or promise is to induce the buyer to purchase the
same, and if the buyer purchases the thing relying thereon Art.
1546
2. IMPLIED WARRANTY – inherent in a contract of sale. It is
presumed to exist although nothing has been mentioned about it.
IMPLIED WARRANTIES

A. WARRANTY AGAINST EVICTION – This refers to the implied

warranty on the par t of the seller that he has a right to sell the
thing at the time when the ownership is to pass, and that the
buyer shall from that time have and enjoy the legal and peaceful
possession of the thing.
B. WARRANTY AGAINST HIDDEN DEFECTS – This refers to the implied
warranty that the thing shall be free from any hidden faults or
defects, or any charge or encumbrance not declared or known to
the buyer.
WARRANTY AGAINST EVICTION

Q: When is there eviction?

A: Eviction shall take place whenever by a final judgment based on

a right prior to the sale or an act imputable to the vendor, the
vendee is deprived of the whole or of a part of the thing purchased.
Requisites:

a. The purchaser has been deprived of the whole or par t of the thing
sold;
b. The eviction is by final judgment;
• The vendee need not appeal from the decision or judgment in
order that the vendor may become liable for eviction. (Ar t. 1549)

c. The deprivation is based on a right prior to the sale or an act

imputable to the vendor (Art. 1548)
d. The vendor must have been notified of the suit for eviction at the
instance of the vendee (Art. 1558)
WARRANTY AGAINST HIDDEN DEFECTS

ELEMENTS:
a) The defect must be such that it renders the thing unfit for the use
for which it is intended, or it diminishes its fitness for 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. (Art.
1561, CC);
b) The defect must be hidden or cannot de discovered by ordinar y
inspection or examination (Art. 1561, CC)
c) The defect must be present at the time of the execution of the
sale;
d) The vendee has not waived the warranty. (Art. 1566, CC)
Obligation of the Vendor in case thing is lost due to hidden defects

A. If the vendor was aware thereof;

• Return the price and refund the expenses of the contract with
damages;

B. If the vendor was not aware thereof;

• Return the price and interest thereon, and reimburse the expenses
of the contract which the vendee might have paid.
Prescriptive Period for Recission or Reduction of the Price (Warranty
Against Hidden Defects)

A. 6 months from delivery

B. 40 days (in case of animals) from delivery
Specific implied warranties in sale of goods

• Warranty of fitness for a par ticular purpose

- Warranty of par ticular purpose is a warranty that the goods are
suitable for the particular or special purpose disclosed by the
buyer which will not be satisfied by the mere fitness of the goods
for general purposes.

• Warranty of merchantability
- Warranty of merchantability is a warranty that the goods
purchased are reasonably fit for the general purposes for which they
are sold.
BREACH OF CONTRACT

1. If breach is on the part of the vendee

a) Action for payment of the price of the goods (Art. 1595, CC)
b) Action for damages due to wrongful neglect and refusal to accept
and pay for the goods (Art. 1596, CC)
c) Action for rescission if buyer has repudiated the contracts or has
manifested his inability to per form his obligation. (Ar t. 1597, CC)
DOUBLE SALES

Q: When is there a double sale?

A:
1. Two or more transactions constitute valid sales.
2. The sales per tain to exactly the same object or subject matter
3. The object must be bought from the same immediate seller
4. Two or more buyers who are at odds over the rightful ownership
of the subject matter must represent conflicting interests.
Rules of Preference in Double Sales

A. MOVABLE PROPERTY
• Ownership shall be transferred to the f irst possessor in good faith.
Possession may be actual or constructive.

Example:
X sold to Y his rolex watch on Februar y 14. X said that he will deliver
the watch on Feb. 18. The next day X sold the same watch to Z who
immediately took possession of the watch but without knowledge of the
prior sale to Y. Who is the rightful owner of the watch?
A: Z is the rightful owner of the watch because he is the f irst possessor
in good faith.
Q: Suppose all of the sales are in private instrument and all of the
buyers are in good faith, who has a better right to the lot?

A: Since there was no registration and possession, B will have the

better right to the lot because he has the oldest title.

Note: The governing principle in double sales is priore tempore,

potior jure (first in time, stronger in right)
B. Immovable Property

Pri o ri ty I: Own ers h i p s h a l l b el o n g to th e p ers o n wh o i n g o o d f a i th f i rs t reg i s tered

th e sa l e i n th e Reg i str y o f Pro p er ty

Pri o ri ty 2: If th ere wa s n o reg i s tra ti o n , o wn ers h i p s h a l l p er ta i n to th e f i rs t

p o ssesso r i n g o o d f a i th .

Pri o ri ty 3: In th e a b s en c e o f th e b o th reg i s tra ti o n a n d p o s s es s i o n , o wn ers h i p s h a l l

b el o n g to th e p erso n wh o p resen ts th e o l d est ti tl e i n g o o d f a i th .

In a l l o f th e a b ove c a ses, g o o d f a i th i s essen ti a l b ei n g th e b a si c p remi se o f

p referen ti a l ri g h ts g ra n ted to th e p erso n c l a i mi n g o wn ersh i p o f th e i mmova b l e
LOSS: IN GENERAL

When is the thing considered LOSS:

- When it perishes, goes out of commerce, or disappears in such a

way that its existence is unknown or it cannot be recovered.

- Risk of loss in a contract of sale is transferred when the ownership

of the determinate thing is transferred through deliver y. Thus, the
transfer of ownership of the determinate thing is pivotal event in
determining the rights and obligations of the parties in case of its
loss.
A. DETERMINATE THING

General Rule:

As a general rule, if the determinate thing perishes or is lost, destroyed or stolen,

the risk of loss is borne by the owner of the thing at the time of the loss under
the principle of res perit domino.

Exception: when a law specifically provides for a separate rule in determining the
person who shall bear the risk of loss.
RES PERIT DOMINO (the thing perishes with the owner)

A ( b u ye r ) a n d B ( s e l l e r ) h a d a n a g r e e m e n t t h a t A w i l l b u y B ʼs B M W c a r fo r 5 M c a s h .

1 . Af t e r t h e i r a g r e e m e n t , t h e r e wa s a t y p h o o n ( fo r t u i t o u s e ve n t ) a n d t h e c a r g o t
d e s t r o ye d . C a n B d e m a n d A t o p a y ?

- N o . T h e o w n e r s h i p o ve r t h e c a r a t t h e t i m e t h a t i t wa s d e s t r o ye d wa s w i t h B, r e s
p e r i t d o m i n o, s o B w i l l b e a r t h e l o s s .

2 . Af t e r 2 d a y s t h a t t h e y h a d a n a g r e e m e n t , A p a i d B o f 5 M a n d B p r o m i s e d t o
d e l i ve r t h e c a r. B u t b e fo r e h e c a n d e l i ve r t h e c a r t o A , t h e r e wa s a f l o o d a n d t h e c a r
wa s d a m a g e d . C a n A d e m a n d fo r a r e f u n d o f w h a t h e p a i d t o B ?

-Y E S . I f t h e r e i s D e l i ve r y t h e r e i s t h e t ra n s fe r o f o w n e r s h i p o ve r t h e t h i n g . B e fo r e t h e
c a r wa s d e l i ve r e d t o A , B s t i l l h a s o w n e r s h i p o ve r t h e c a r. B u t b e fo r e h e c a n d e l i ve r,
t h e r e wa s a f l o o d , r e s p e r i t d o m i n o, s o B s t i l l b e a r s t h e r i s k .
3. Af ter their agreement, B gave the car keys to A immediately even
before A paid 5M. When A went to the bank to withdraw 5M, he
used the car but got stuck in an on-going rally on the streets and
the car was destroyed by the rallyist (force majeure). Should A
pay B 5M?

- YES. The giving of the keys is considered as a delivery and A is

already considered the owner of the property even before he paid.
So A will bear the loss and should pay B.
4. Af ter their agreement, B gave the car keys to A for a test drive.
When A was using it, someone jumped out of the 15 th floor and the
landed on the car (force majeure). The car got destroyed. Can B
demand A to pay 5M?
-NO. Aʼs temporary use of car will not be considered as a delivery
and transfer of ownership of the car to A but only transfer of
possession or use or the proper ty. B is still the owner of the car, res
perit domino, so B cannot demand payment of 5M from A.
B. GENERIC THING

Ar ticle 1263. In an obligation to deliver a generic thing, the loss or destruction of

anything of the same kind does not extinguish the obligation.
This ar ticle points out that a generic obligation is not extinguished by the loss or
destruction of a thing that belongs to a par ticular genus or class.
If the obligation is to deliver a thing in a generic sense, this obligation is not
extinguished by its lost.
This is In accordance with the principle of genus nunquan perit or a genus of thing
can never perish. An example of a generic obligation is the obligation of the buyer
to pay the purchase price in money or its equivalent, which is pecuniar y in nature.
LOSS OF THE DETERMINATE THING IN THE
DIFFERENT STAGES OF A SALE TRANSACTION

1. Before Perfection of the Contract of Sale

- Since the seller still owns the determinate thing during negotiation or
before the perfection of the contract of sale, he bears the risk of loss
during this stage of the sale transaction under the principle of res perit
domino.
2. At the Time of Perfection

At this stage of the contract of sale, the determination of who shall bear the risk of
loss and its effect shall be governed by Ar ticle 1493.
LOSS OF THE THING ITS ENTIRET Y - , the contract is without effect
PARTIAL LOSS OR LOSS OF THE THING IN PART - , the buyer may either : Withdraw
from the contract, OR Demand the remaining par t and pay a propor tionate price
therefor.
These two available options of the buyer in case of par tial loss at the time of the
per fection of the contract are reiterated in Ar ticle 1494 of the Civil Code, which
par ticularly deals with the situation where, at the time the contract is made,
specific goods have perished without the knowledge of the seller.
Ar ticle 1494. Where the par ties purpor t a sale of specific goods, and the
goods without the knowledge of the seller have perished in par t or have
wholly or in a material par t 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.
3. Af ter Per fection but Before Deliver y

The determination of who between the seller and the buyer shall bear the risk of
loss of the thing sold af ter the contract is per fected but before its deliver y shall
be in accordance with their stipulation.

In the absence of a stipulation, the determination shall be in accordance with

Ar ticles 1480 and 1538 of the Civil Code.
Ar ticle 1480 . Any injur y to or benefit from the thing sold, af ter the contract has
been per fected, from the moment of the per fection of the contract to the time of
deliver y, shall be governed by ar ticles 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. (1452a)
Ar ticle 1538 . In case of loss, deterioration or improvement of the thing
before its deliver y, the rules in ar ticle 1189 shall be obser ved, the vendor
being considered the debtor.
Ar ticle 1189. When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules shall be
obser ved in case of the improvement, loss or deterioration of the thing during
the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be
extinguished; (2) If the thing is lost through the fault of the debtor, he shall be
obliged to pay damages; understood that the thing is lost when it perishes, or
goes out of commerce, or disappears in a way that its existence is unknown or it
cannot be recovered:
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages; understood that the thing is lost when it perishes, or goes out of
commerce, or disappears in a way that its existence is unknown or it cannot be
recovered:

(3) When the thing deteriorates without the fault of the debtor, the impairment is
to be borne by the creditor ; (4) If it deteriorates through the fault of the debtor,
the creditor may choose between the rescission of the obligation and its
fulfillment, with indemnity for damages in either case;
(4) If it deteriorates through the fault of the debtor, the creditor may choose between
the rescission of the obligation and its fulfillment, with indemnity for damages in
either case; (5) If the thing is improved by its nature, or by time, the improvement
shall inure to the benefit of the creditor ; (6) If it is improved at the expense of the
debtor, he shall have no other right than that granted to the usufructuar y. (1122)
(5) If the thing is improved by its nature, or by time, the improvement shall inure to
the benefit of the creditor ; (6) If it is improved at the expense of the debtor, he shall
have no other right than that granted to the usufructuar y. (1122)
(6) If it is improved at the expense of the debtor, he shall have no other right than
that granted to the usufructuar y. (1122)
REMEDIES OF UNPAID SELLER

I. ORDINA RY REMEDIES

1. Ac ti o n fo r p ri c e exerc i sed wh en :

a . Own ersh i p h a s p a ssed to b u yer;

b . Pri c e i s p aya b l e o n a d ay c er ta i n ;

c . Go o d s c a n n o t b e rea d i l y reso l d fo r rea so n a b l e p ri c e a n d Ar t. 1596 i s

i n a p p l i c a b l e.

2. Ac ti o n fo r D a ma g es – i n c a s e o f wro n g f u l n eg l ec t o r ref u s a l by th e b u yer to

a c c ep t o r p ay fo r th e th i n g s o l d .
REMEDIES OF UNPAID SELLER

2. SPECIAL REMEDIES
1. Possessory Lien – Seller not bound to deliver if buyer has not paid him
the price. It is exercisable only in following circumstances:
a. goods sold without stipulation as to credit
b. goods sold on credit but term of credit has expired
c. buyer becomes insolvent
Note: When part of goods delivered, may still exercise right on goods
undelivered
REMEDIES OF UNPAID SELLER

• Instances Where The Unpaid Seller Loses His Lien, thus, losing the
right to Keep The Property or Goods in his Possession

a. 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

b. When the buyer or his agent lawfully obtains passion of the

goods; and

c. By the waiver of the unpaid seller.

REMEDIES OF UNPAID SELLER

2. S t o p p age in T r an sit u
R eq uisit es:
a. In so lv en t b uy er
b . S eller m ust S ur r en d er th e n ego tiab le d o cum en t o f title, if an y
c. S eller m ust b ear t h e E x p en ses o f d eliv er y o f t h e go o d s af t er t h e ex er cise o f t h e r igh t .
d . S eller m ust eith er ac tually tak e p o ssessio n o f th e go o d s so ld o r giv e N o tice o f h is c laim
t o t h e car r ier o r o t h er p er so n in p o ssessio n
e. G o o d s m ust b e in T r an sit
f . U n p aid seller
REMEDIES OF UNPAID SELLER

3. Right to resale
a. Goods are perishable,
b. Stipulated the right of resale in case of default, or
- In cases of profit in resale, the seller shall not be liable to the original
buyer for any profit made by such resale but he may recover from the buyer
damages for any loss occasioned by the preach of contract of sale.
- Right of resale applies only if the title to goods has already passed to the
buyer. Otherwise, the goods cannot be resold.
c. Buyer in default for unreasonable time
REMEDIES OF UNPAID SELLER

4. Right to Rescind – an unpaid seller having the right of lien or

having stopped the goods in transit may rescind of title and resume
the ownership in the goods.

Requisites:

a. Expressly stipulated OR buyer is in default for unreasonable time;

b. Notice needed to be given by seller to buyer.

When Goods are in Transit (Art. 1531)

1. Af ter the deliver y to the carrier or other bailee and before the
buyer or his agent takes deliver y of them.

2. If the goods are rejected by the buyer, and that carrier or other
bailee continues in possession of them.
When Goods No Longer in Transit (after
delivery to buyer/agent)

1. If the buyer or his agent obtains possession of the goods at a

point before the destination originally fixed.

2. If the carrier or bailee acknowledges to hold the goods on belahf

of the buyer.

3. If the carrier or bailee wrongfully refuses to deliver the goods to

the buyer.
Rules on the sale of real estate

If the sale of real estate should be made with a statement of interest

at the rate of a certain price for a unit of measure or number:

1. The vendor shall be obliged to deliver to the vendee, if the latter

should demand it, all that may have been stated in the contract;
or
2. Should it be not possible, the vendee may choose between:
a. Proportional reduction of the price; and
b. Rescission of the contract, provided that the lack in the area is
not less than one-tenth (1/10) of that stated. Ar t. 1539, CC)
Article 1539

The same shall be done, even when the area is the same, if any par t of the
immovable is not of the quality specified in the contract.

The rescission , in this case, shall only take place at the will of the vendee , when
the inferior value of the thing sold exceeds one-tenth of the price agreed upon .

Never theless, if the vendee would not have bought the immovable had he known
of its smaller area or inferior quality, he may rescind the sale . (1469a)
 Sale of real property by unit of measure or number

(1) Entire area stated in contract must be delivered . - If the sale of real estate should
be made with a statement of its area, at the rate of a cer tain price per unit of measure
or number, the cause of the contract with respect to the vendee is the number of such
units or, if you wish, the thing purchased as determined by the stipulated number of
units. The vendor must deliver the entire proper ty agreed upon.

Thus, if the parcel of land is stated in the contract as having an area of 500 square
meters and sold at P1,000.00 per square meter, the vendor must deliver the entire area
as stated. Fur thermore, the immovable must be of the quality specified in the contract.
2) Where entire area could not be delivered. - If all that is included within the
stipulated boundaries is not delivered, then the object of the contract, its cause as
far as the vendee is concerned, is not delivered.

Hence, he is entitled to rescind it. He may, however, enforce the contract with the
corresponding decrease in price. He may, however, enforce the contract with the
corresponding decrease in price.

Thus, if the area of the land is only 450 square meters, the buyer is liable to pay
only P450,000
EXTINGUISHMENT OF SALE

A r t . 1 6 0 0 . S a l e s a re ex t i n g u i s h e d b y t h e s a m e c a u s e s a s a l l o t h e r o b l i gat i o n s , b y t h o s e state d i n t h e
p re c e d i n g a r t i c l e s o f t h i s T i t l e , a n d b y c o nve nt i o n a l o r l e ga l re d e m p t i o n .
C a u s e s o f ex t i n g u i s h m e nt o f s a l e :
1 . S a m e c a u s e s a s a l l o t h e r o b l i gat i o n s ;
a . Pay m e nt o r p e r fo r m a n c e o f o b l i gat i o n
b. Loss of the thing due;
c . C o n d o n at i o n o r re m i s s i o n o f d e b t ;
d . C o n f u s i o n o r m e rge r o f r i g ht s ;
e . C o m p e n s at i o n ;
f. N o vat i o n ; o r
g . O t h e rs
2 . C o nve nt i o n a l re d e m p t i o n ;
3 . L e ga l re d e m p t i o n
Same causes as all other obligations

a. Payment or performance
-delivery of money or performance, in any manner of an obligation.
b. Loss of the thing due
-loss of the determinate thing due to fortuitous event and there is no delay.
c. Condonation or remission of the debt
-is the gratuitous abandonment by the creditor of his right.
d. confusion or merger of the rights of the creditor and debtor
-is the meeting in one person the qualities or the character of creditor and debtor.
Same causes as all other obligations

e. C o m pens at io n
- t wo pers o ns , in t heir o wn r ig ht , are debto rs and credito rs o f each o t her.
f. No vat io n
- It is t he m o dif icat io n o r ext ing uis hm ent o f an o bligat io n by ano t her, eit her by :
a. chang ing t he o bj ect o r pr incipal co ndit io n;
b. s ubst it ut ing t he pers o n o f t he debto r ; o r
c. s ubro gat ing a t hird pers o n in t he r ig ht s o f t he credito r.
g . P res cr ipt io n
h. D eat h
CONVENTIONAL REDEMPTION

What is conventional redemption?

- Seller reserved the right to repurchase thing sold coupled with obligation to
return price of the sale, expenses of contract & other legitimate payments and
the necessary & useful expenses made on the thing sold

Note: Right to repurchase must be reserved at the time of perfection of

sale.
NATURE:

(a) it is purely contractual because it is a right created, not

by mandate of the law, but by virtue of an express contract

(b) it is an accidental stipulation and, therefore, its nullity cannot

affect the sale of itself since the latter might be entered into without
said stipulation

(c) it is a real right when registered in the Registry of Property,

because it binds third persons – registration is a constructive notice to
the whole world
NATURE:

(d) it is a resolutory condition because when exercised, the right of

ownership acquired by the vendee is extinguished. In a pacto de retro
sale, the title or ownership of the property sold is immediately vested
in the vendee a retro, subject only to the resolutory condition of
repurchase by the vendor a retro within the stipulated period.

(e) it is potestative because it depends upon the will of the vendor

(f ) it is a power or privilege, not an obligation, that the vendor has

reserved for himself
NATURE:

(g ) i t i s res erv ed at the m o m ent o f th e p erfec ti o n o f th e c o n trac t fo r i f the ri g ht

to rep u rc h as e i s ag reed u p o n afterward s , there i s o nl y a p ro m i s e to s el l whi c h
p ro d uc es d i fferent ri g hts and effec ts and i s g overned by Art. 1479

(h) th e p ers o n en ti tl ed to exerc i s e th e ri g h t o f red em p ti o n n ec es s ari l y i s the

o wn er o f th e p ro p erty s o l d and no t any thi rd p arty

(i ) i t g i v es ri s e to rec i p ro c al o b l i g ati o n th at o f retu rn i n g th e p ri c e o f s al e an d

o th er exp en s es , o n th e p art o f th e ven d o r, an d th at o f d el i veri n g th e p ro p erty an d
exec u ti n g a d eed o f s al e th erefo re, o n th e p art o f th e ven d ee.
CONVENTIONAL REDEMPTION

1. IF NO STIPULATION – WITHIN FOUR (4) YEARS

Example:
A sold to be a parcel of land on February 13, 2023 with a right to
repurchase. The right to repurchase can be exercised from February
14, 2023 to Februar y 13, 2027. That is four years, because there is
no stipulation.
CONVENTIONAL REDEMPTION

2. IF THERE IS STIPULATION – the stipulation will control but not to

exceed ten (10) years, over and above the ten-year period is VOID.
Example:
A sold to be a parcel of land on February 13, 2023 amounting to
100k with a right to repurchase. It was stated in the contract that
the right shall be exercised when “B can has money to pay ” or “ay
anytime they can have money ”
The right can be exercise within 10 years, from Februar y 14, 2023 to
Februar y 13, 2033 because the agreement is with a period, although
indefinite.
CONVENTIONAL REDEMPTION

3. IF THERE IS A PROHIBITIVE PERIOD – exclude the prohibitive

period and begin counting the four years period. If the prohibitive
period and the four-year period exceed 10 years, over and above the
ten-year period is void.
Example:
A sold to be a parcel of land on February 13, 2023, but such cannot
be exercised within 3 years.
The right can be exercised from Februar y 14, 2026 to Februar y 13,
2030, because there is no time agreement. Exclude first the 3-year
period, then begin counting the 4-year period.
LEGAL REDEMPTION (Retracto Legal)

• It is the right to be subrogated upon the same terms and conditions stipulated
in the contract, in the place of one who acquires the thing by purchase or by
dation in payment or by other transaction whereby ownership is transmitted
by onerous title.

• Applies to both movable and immovable property

Dation in payment

Dation in payment or dacion en pago is the transmission of the

ownership of a thing by the debtor to the creditor as the accepted
equivalent of the performance of an obligation. (8 Manresa 314; see Art.
1245.)
Dation in payment

Nature of dation in payment.

(1) Sale of thing. — The undertaking partakes in one sense of the nature of
sale,1 that is, the creditor is really buying the thing or property of the
debtor, payment for which is to be charged against the debtor’s debt.
(2) Novation of an obligation. — In its modern concept, what actually takes
place in dacion en pago is an objective novation of the obligation where
the thing offered as an accepted equivalent of the performance of an
obligation is considered as the object of the contract of sale, while the
debt is considered as the purchase price.
LEGAL REDEMPTION

Instances of Legal Redemption:

1. Sale of hereditar y rights, and not to specif ic proper ty, for the
payment of the debts of the decedentʼs estate. (Ar t. 1088)
2. Right of redemption of adjoining owners of a piece of rural land not
exceeding one hectare alienated to third persons. (Ar t. 1621)
3. Right of redemption of adjoining owners of a small piece of urban
land sold to third persons. (Ar t. 1622)
4. Right of redemption of debtor in case of sale of credit or other
incorporeal right in litigation. (Ar t. 1634
5. 5. Redemption by owner of real proper ty sold for delinquent taxes.
The period is within one year from the date of sale. (Sec. 261, RA
7160, LGC)
Assignment of Credits and
Other Incorporeal Rights
INSTALLMENT SALES

RECTO LAW and MACEDA LAW

- Laws that applies on things on installment

Installment- the buyer is given a period to pay the price and the
por tions of the price are paid at different intervals or times within
that period and the obligations is extinguished upon the expiration
of the period, provided that the buyer complies religiously with the
stipulated payments.
RECTO LAW

Remedies of seller If buyer defaults in payment under Recto Law:

1. Demand payment or fulfillment of the obligation

2. Cancel the sale

3. Foreclose the chattel mortgage if one has been constituted on the object of the
sales
MACEDA LAW

Ri g h ts a n d B en ef i ts o f B u yer Un d er M a c ed a Law

-Rec ko n i n g p eri o d th e l en g th o f ti me th e b u yer p a i d th e i n sta l l men ts.

-If th e b u yer p a i d l es s th a n 2 yea rs o f i n s ta l l men ts , h e i s en ti tl ed to th e

fo l l o wi n g :

a . A g ra c e p eri o d o f u p to 60 d ays;
b . No w i f h e f a i l s to p ay wi th i n th e g ra c e p eri o d , h e i s en ti tl ed to a n o ta ri a l
n o ti c e o f c a n c el l a ti o n o r res c i s s i o n .

c . F i n a l l y 30 d ays sh a l l b e o b ser ved f ro m th e n o ta ri a l rec ei p t o f c a n c el l a ti o n o r

resc i ssi o n b efo re th e c o n tra c t i s termi n a ted .
MACEDA LAW

- If th e b u yer p a i d fo r mo re th a n 2 yea rs o f i n s ta l l men ts , h e i s en ti tl ed to th e

fo l l o wi n g :

a . A g ra c e p eri o d eq u i va l en t to 30 d ays o r o n e mo n th fo r ever y yea r o f p aymen t;

b . No w, i f h e f a i l s to p ay wi th i n th e g ra c e p eri o d , h e i s en ti tl ed to a n o ta ri a l
n o ti c e o f c a n c el l a ti o n o r rec i s s i o n ;

c . Th en , a ref u n d o r c a s h va l u e o f 50% o f th e to ta l p aymen t s h a l l b e g i ven .

d . F i n a l l y, 30 d ays sh a l l b e o b ser ved f ro m th e rec ei p t o f th e n o ta ri a l n o ti c e o f

c a n c el l a ti o n o r rec i ssi o n b efo re th e c o n tra c t i s termi n a ted
• In addition to the refund or 50% cash surrender value, the seller
is also entitled to additional 5% every year but not to exceed 90%
of the total payments made.
-
RECTO LAW DOES NOT APPLY TO:

1. Sale of real property

2. Sale of personal property when the price is payable in full at the

time of the contract;

3. The exclusivity of the remedies does not apply when the first
chosen remedy is not successful due to no fault of the seller
M AC EDA LAW D OES NOT A PPLY WH EN:

a . Th e s a l e i s a n a b s o l u te s a l e; th e M a c ed a Law b ei n g a p p l i c a b l e o n l y to
c o n tra c ts to sel l ;
b . Th e p ro p er ty wa s p u rc h a s ed a f ter a h o u s i n g l o a n wa s o b ta i n ed a n d th e
i n s ta l l men ts a re rep aymen ts o f th e l o a n .
c . S a l e o f i n d u stri a l l o ts, c o mmerc i a l b u i l d i n g s a n d sa l e to ten a n ts o f
a g ri c u l tu ra l l a n d s .

d . Wh en th e rea so n why th e b u yer d ef a u l ted i n h i s p aymen ts i s th e b rea c h o f

th e sel l er o f i ts o b l i g a ti o n s, fo r ex a mp l e th e f a i l u re to d el i ver th e p ro p er ty o r
vi o l a ti o n o f wa rra n ti es