BAREBUSX: REGULATORY FRAMEWORK

AND LEGAL ISSUES IN BUSINESS

Law on Sales

1. Contract of Sales is a contract whereby one of the contracting

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

2. Contracting Parties in a Contract of Sale

a. Seller or Vendor refers to the person who obligates himself

to transfer the ownership of and to deliver a determinate
thing.
b. Buyer or Vendee refers to the person who obligates himself
to pay therefore a price certain in money or its equivalent.

3. Essential elements of the contract of sale – These are elements

necessary for validity and perfection of contract of sale.

a. Subject matter which should be a determinate thing

i. Requisites of subject matter of a contract of sale

1. It must be within the commerce of men.

2. It must not be contrary to law, morals, good
customs, public order or public policy.
3. It must be determinate.
4. It must be owned by the vendor at the time of
delivery.

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

1. Existing goods owned or possessed by the seller.

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

iii. Things not allowed to become the subject matter of

a contract of sale making the contract null and void

1. Those contrary to law, morals or public policy.

2. Those outside the commerce of men.
3. Future inheritance
4. Vain hope

iv. Distinctions between emptio rei speratae and emptio

spei

1. Emptio rei speratae is the sale of future thing

while emptio spei is a sale of hope or expectancy.
2. Sale of future harvest is emptio rei speratae while
sale of lottery ticket No. 113 is emptio spei.
3. In emptio rei speratae the thing expected will
definitely come into existence, but its quality or
quantity unknown; while in emptio spei it is not
certain that the thing will exist much less its quantity
or quality.

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 4. Emptio rei speratae is subject to the condition that
the thing should exist, so that if it does not, there
will be no contract of sale by reason of the absence
of an essential element of subject matter while
emptio spei produces effects even though the
thing does not come into existence because the
subject matter is the hope itself.
a. Note: In case of doubt whether the contract
of sale is one of emptio rei speratae or emptio
spei, it is presumed to be be emptio rei
speratae because it is less risky and it
results to greatest reciprocity of interests
which is the applicable construction for
incidental circumstances of onerous
contract.

b. Price certain in money or its equivalent

i. Requisites of price in a contract of sale

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

ii. Instances when the price is certain

1. If the parties have agreed upon a definite amount

for the sale.

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

and accepted by the other.

3. If it be certain with reference to another thing

certain.

4. If the price fixed is that which the thing sold would

have on a definite day, or in a particular exchange
or market, or when an amount is fixed above or
below the price on such day, or in such exchange
or market, provided said amount is certain.

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 5. If the determination of the price is left to the
judgment of a specified person or persons
designated by the buyer and seller.

a. Remedies of the injured party if:

i. The third person is unable or unwilling to

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

ii. The third person is prevented from

fixing the price or terms by fault of the
seller or the buyer.
1. The injured party may ask for
damages.

iii. The third person acted in bad faith or by

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

6. If the price is fixed by the court which price may no

longer be changed by the contracting parties.

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

1. It does not affect a contract of sale, except as it

may indicate a defect in the consent which makes
the contract voidable requiring annulment of
contract.
2. It may indicate that the true intention of the parties
is actually a contract of donation or loan with
equitable mortgage. Thus, it will require
reformation of instrument.

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 iv. Effects of simulated price in a contract of sale

1. If the price is absolutely simulated, the contract

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

c. Consent of the contracting parties on the determinate

thing and the price certain in money

i. Moment of perfection of contract of sale

1. At the moment there is a meeting of minds upon

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

ii. Moment of perfection of contract of sale by auction

1. When the auctioneer announces its perfection

by the fall of the hammer or in any other
manner.

a. Rights of auctioneer and highest bidder

before the perfection of contract of sale
by auction

i. Before perfection, any bidder may

retract his bid.
ii. Before perfection, the auctioneer may
generally withdraw the goods from the
sale unless the auction has been
announced without reservation by
auctioneer.

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 b. Obligations of auctioneer and highest
bidder after the perfection of contract of
sale by auction
i. After perfection, the winning bidder
cannot retract his bid.
ii. After perfection, the auctioneer cannot
withdraw the goods.

c. Requisites before auctioneer may

participate in bidding or auction
i. The right to bid must have been
reserved expressly by or on behalf of
the seller.
ii. The right to bid must not be
prohibited by law or stipulation.
iii. Notice must be given that the sale is
subject to a right to bid by or on behalf
of the seller.

d. By bidders or puffers refer to persons

employed by the seller to bid in his behalf, the
purpose of which is to raise the price, but the
said persons are not in themselves bound by
their bids. The employment by the seller of
by-bidders or puffers without notice to the
other bidders may make the perfected
contract of sale voidable because the
consent of the highest bidder is vitiated by
causal fraud.

4. Natural elements of the contract of sale – These are elements

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

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5. Accidental elements in the contract of sale – These are
elements which do not exist in a contract of sale unless provided by
the contracting parties.
a. Place of delivery and payment
b. Time of delivery and payment
c. Terms or conditions of payment
d. Interest of the price

6. Characteristics of a contract of sale

a. Principal – It can exist by itself without being dependent upon
another contract.
b. Consensual – It is perfected by mere consent upon the price
certain and determinate thing except in case of sale of a piece
of land by the agent in the name of the principal which is a
formal or solemn contract which requires that the authority of
the agent to sell the land must be in writing for the contract to
be valid.
c. Bilateral – Both parties are required to perform an obligation.
d. Reciprocal – The object or prestation on one party is the
cause or consideration on the other party.
e. Onerous – Valuable considerations are given by both parties
to acquire rights.
f. Commutative – The parties exchange almost equivalent
values.
g. Nominate – It has special name given to it by law.

7. Distinctions between contract of sale and dacion en pago

a. As to presence of credit, in sale, there is no pre-existing credit,
while in dacion en pago, there is pre-existing credit.
b. As to effect to obligation, a sale creates obligations while
dacion en pago extinguishes obligations.
c. As to freedom in fixing the price, in sale, there is greater
freedom in fixing the price, while in dacion en pago, there is
less freedom in fixing the price because of the amount of the
pre-existing credit which the parties seek to extinguish.
d. As to cause of contract or obligation, in sale, the cause or
consideration is the price from the seller’s point of view, and
the delivery of the object from the buyer’s view point, while in
dacion en pago, the cause or consideration is the
extinguishment of the obligation, from the debtor’s point of view
and the delivery of the object given in place of the credit, from
the creditor’s point of view.

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

8. Distinctions between contract of sale and payment by cession

a. As to presence of credit, in sale, there is no pre-existing credit

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

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

work

a. As to specification of the design, it is a contact of sale if it is

for the delivery at a certain price of an article which the vendor
in the ordinary course of business, manufactures or procures
for the general market, whether the same is on hand or not
while it is a contract for a piece of work if the goods are to be

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 manufactured especially for the customer upon his special
order and not for the general market.
b. As to coverage of statute of fraud, contract of sale of movable
property with a price of at least P500 or sale of immovable
regardless of price is covered by Statute of Fraud while
contract for a piece of work at a price of P500 is not covered
by Statute of Fraud.

10. Distinctions between contract of sale and contract of barter

a. As to cause of contract, in a contract of sale, the cause is

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

11. Rules for determining whether a contract is one of sale

or barter if the cause is a combination of cash and noncash
asset.

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

b. If the evident intention of the parties is not present, apply the

following rules:
i. The contract is one of barter if the value of the noncash
asset given as part of the consideration exceeds the
cash consideration.
ii. The contract is one of sale if the cash consideration is
more than the value of the noncash asset given as part
of the consideration.
iii. The contract is one of sale if the cash consideration is
equal to the value of the noncash asset given as part of
the consideration.

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 12. Distinctions between contract of sale and contract to sell

a. As to operative act that transfers ownership to the buyer, in

contract of sale, ownership passes to the buyer upon delivery
while in contract to sell, the title to the goods does not pass
to the buyer until some future time and oftentimes upon
payment of the price.

b. As to who shall suffer the risk of loss, In contract of sale, the

risk of loss or damage to the goods upon delivery is on the
buyer, under the rule “res perit domino”, or the thing perished
with the owner; while in contract to sell, the risk is borne by
the seller after delivery based on the same principle that the
thing perishes with the owner.

c. As to effect of non-payment of price, in contract of sale, the

non-payment of the price is a resolutory condition while in
contract to sell, the payment in full of the price is a suspensive
condition.

Note: The rule on double sale applies only if both contracts are of sale
but such rule does not apply if one contract is contract of sale while the
other contract is contract to sell.

13. Distinctions between contract of sale and agency to sell

(consignment sale)

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

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

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

I. If the quantity, number, weight or measure, of the mass is more

than the quantity sold, the parties shall become co-owners of the
mass.

II. If the quantity of the mass is less than the quantity sold, the buyer
becomes the owner of the whole mass, with the seller being
bound to make good the deficiency from goods of the same kind
and quality, unless a contrary intent appears.

15. Distinction between Bilateral promise to buy and sell and

Unilateral promise to buy or sell

a. Bilateral promise to buy and sell is as good as perfected

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

16. Distinctions between option money and earnest money or

arras

a. Option money is intended to reserve the property within the

promised period while
earnest money or arras is intended as down payment on the
contract of sale.
b. Option money is proof of perfection of contract of option
while earnest money or arras is proof of perfection of
contract of sale.
c. Option money is not part of the purchase price while earnest
money or arras is part of the purchase price.

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17. Moment of obtaining personal rights by the buyer over the
fruits of the determine thing sold in a contract of sale

a. From the moment of perfection of contract of sale

18. Effect of the complete loss of the object of the contract of

sale before the perfection of the contract or at the moment of
perfection of contract of sale

a. The contract of sale is null and void for absence of essential

element of subject matter.

19. Alternative remedies of the buyer in case of the partial loss

of the object of the contract of sale at the time of the perfection
of the contract of sale

I. Withdrawal from the contract or rescission; or

II. Demanding the remaining part and paying its proportionate price

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

a. Seller based on the concept of Res perit domino which

means that the thing perishes with the owner
b. Buyer on the basis of Provision of the Civil Code.

21. Effects of the complete loss of the object of the contract of

sale after perfection of contract of sale and after delivery of the
subject matter

a. The buyer shall suffer the risk of loss.

b. The buyer must pay the price.
22. Contracts covered by Recto Law

a. Installments sales of personal property; or

b. Contracts purporting to be leases of personal property with
option to buy, when the lessor has deprived the lessee of the
possession or enjoyment of the thing (Finance Lease)

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23. Remedies of vendor or lessor in Recto Law

a. Sole remedy of vendor or lessor if the vendee or lessee

fails to pay a single installment or periodic rental
i. Exact fulfillment of the obligation with right to recovery for
deficiency.

b. Alternative remedies of vendor or lessor if the vendee or

lessee fails to pay two or more installments or periodic
rentals
i. Exact fulfillment of the obligation with right to recovery for
deficiency.
ii. Cancel the installment sale or finance lease resulting to
mutual restitution. The buyer must return the movable
sold to the seller while the seller must return all the
installments received from the buyer minus reasonable
rent. However, the vendor or lessor may retain the
installments or periodic rentals already received if there
is agreement to that effect provided such agreement is
not unconscionable. The seller is no longer allowed to go
after the buyer for the unpaid balance of the installment
price.
iii. Foreclose the chattel mortgage on the thing sold, if one
has been constituted without right to recover any
deficiency. Any stipulation for recovery of deficiency is
null and void.

24. Rights of the Buyer in Sale of residential property in

installments governed by RA 6552 or Maceda Law

a. Right to a grace period from the date the installment

became due with no interest which can be exercised only
once every five (5) years.
i. For buyer who has paid less than two years of
installments, the minimum grace period is 60 days. (Not
less than 60 days)
ii. For buyer who has paid more than two years of
installments, the grace period is one month for every year
of installment paid. (One month per year of installment
paid)

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 b. Right to additional 30 days but with interest, after the
expiration of the initial grace period, before the seller can
cancel the contract by notarial act.

c. Right to cash surrender value in case of cancellation by

seller.

i. For buyer who has paid less than two years of

installments, he is not entitled to any cash surrender
value.
ii. For buyer who has paid two to five years of installments,
he is entitled to fifty percent (50%) cash surrender value.

iii. For buyer who has paid more than five years of
installments, he entitled to an additional five percent (5%)
every year aside from the initial fifty percent (50%) but
not to exceed ninety percent (90%) of the total payments
made including downpayment.

Note: Downpayment is not included in the computation of number

of years of installments paid by the buyer.

25. Rights of Buyer of Subdivision or condominium unit

under PD 957 also known as Subdivision and Condominium
buyer's Protective Decree

a. In case of noncompliance by the developer with the plan, the

buyer may suspend payment of the price and ask for the
cancellation of contract with corresponding demand for the
return of the total amount he has paid including amortization of
interest but exclusive of delinquency interest.

b. The developer shall pay the real property tax before transfer of
ownership to buyer without right of recourse against the buyer.

c. The developer can only collect fees for registration of sale from
the buyer.

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26. Persons incapacitated to enter into a contract of sale

a. Those suffering from absolute incapacity to give consent

to a contract of sale
i. Minor
ii. Insane
iii. Demented
iv. Deaf-mute who do not know how to write
v. Drunken person
vi. Hypnotized person

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

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

2. If both parties are incapacitated, the contract of

sale is unenforceable.

b. Those suffering from relative incapacity

i. Husband and wife

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

ii. Exceptional instances when husband and wife may

validly sell to each other

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

complete separation of property involving their
property regime.

2. If there is judicial separation of property by reason

of legal separation under Family Code of the
Philippines.

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 27. Persons who are prohibited from acquiring by
purchase, even at public or judicial auction, sales in legal
redemption, compromises or renunciation
a. The guardian, the property of the person or persons under his
guardianship.
b. Agents, the property whose administration or sale may have
been entrusted to them, unless the consent of the principal
has been given.
c. Executors and administrators, the property of the estate under
administration.
d. Public officers and employees, the property of the State
or GOCC under their administration.
e. Justices, judges, prosecuting attorneys, clerks of court and
other officers and employees connected with the
administration of justice, the property and rights in litigation.

Note: The contract of sale is null and void because it is contrary to law.
However, in cases of letter a, b and c, since they involve private interests,
the injured party such as ward, principal or heir, may be barred by estoppel
from filing action for declaration of nullity of the contract of sale. On the
other hand, in cases of letter d and e, since they involve public interests,
action for declaration of nullity of contract of sale will still prosper because
estoppel never runs against the government or the state. The enumerated
persons are only prohibited from acquiring those properties enumerated
but they are not barred from selling properties their counterpart
enumerated persons.

28. Obligations of the vendor or seller

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

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29. Obligation of the vendee or buyer
a. To pay the price certain in money or its equivalent on the date
agreed upon.

30. Delivery is a mode of acquiring ownership whereby the object

of the contract is placed in the control and possession of the vendee.
It is the act that transfers ownership from seller to buyer in a contract
of sale. However, the contracting parties may agree that ownership
will be transferred from the seller to the buyer by any other acts such
as full payment of the price.

31. Types of Delivery

a. Actual delivery
b. Constructive delivery
32. Examples of constructive deliveries
a. By legal formalities – When the same is made through a
public document, the execution thereof shall be equivalent to
the delivery of the thing sold. It applies to both movable and
immovable property.

b. Symbolic delivery (traditio simbolica or traditio clavium) –

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

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

consent or agreement of the parties if the thing cannot be
transferred to the possession of the vendee at the time of sale.

d. Traditio brevi manu – It is a delivery that takes place when

the vendee is already in the possession of the thing sold even
before the sale and thereafter continues in possession thereof
in the concept of an owner. It applies to movables only.

e. Traditio constitutum possessorium – It is a delivery that

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

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

33. Distinctions between Sale or return vs. Sale on trial or

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

34. Delivery to the common carrier (FOB Shipping Point) - The

law presumes that the contract of sale is FOB Shipping Point which
means that delivery to the carrier means delivery to the buyer.

35. As a general rule, a non-owner cannot transfer ownership

to his buyer. However, these are the exceptional instances when
the sale of a non-owner transfers ownership to the buyer:
a. When the sale is made with authority or consent of the owner.
b. When the owner is precluded by his conduct from denying the
seller’s authority to sell.
c. When the sale is made under the provisions of any factor’s
acts, recording laws or any other provisions of law enabling the
apparent owner to dispose of the goods as if he were the true
owner thereof.

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 d. When the sale is made under a statutory power of sale or under
the order of court of competent jurisdiction.
e. When the purchase is made in a merchant’s store, or in fairs, or
markets.

36. Places wherein the things sold should be delivered

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

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

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

38. As a general rule, it is the obligation of the vendor to deliver

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

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

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

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

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40. Rights of an unpaid seller

a. Right to possessory lien on the goods or right to retain

them while he is in possession of them

i. Grounds for right of possessory lien

1. Where the goods have been sold without any
stipulation as to credit.
2. Where the goods have been sold on credit, but
the credit term has expired.
3. Where the buyer is insolvent.

ii. Instances when right of possessory lien is no

longer available to the unpaid seller
1. When the seller delivers the goods to a carrier or
other bailee for the purpose of transmission to the
buyer without reserving the ownership in the goods
or the right to the possession thereof.
2. When the buyer or his agent lawfully obtains
possession of the goods.
3. By waiver of the possessory lien.

iii. Note: When the unpaid seller obtains judgment or

decree for the price of the goods, he does not lose his
possessory lien or his right to retain them while he is in
possession of them.
b. Right of stoppage in transit refers to the right of the unpaid
seller to resume possession of the goods at any time while they
are in transit, and he will them become entitled to the goods as
he would have had if he had never parted with the possession.

i. Ground for right of stoppage in transit

1. Where the buyer is insolvent.

ii. Manners of exercising the right of stoppage in transit

1. By obtaining actual possession of the goods; or

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

20
 iii. Effects of the exercise of right of stoppage in transit

1. The goods are no longer in transit.

2. The contract of carriage ceases and the
carrier shall be liable as depositary or other
bailee.
3. The carrier must deliver the goods to or according
to the instructions of the seller.

iv. Instances when goods are still in transit

1. From the time they are delivered to the carrier or

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

v. Instances when goods are no longer in transit

1. If the buyer obtains delivery of the goods before

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

c. Right of resale
i. Grounds for right of resale

1. The goods are of perishable nature.

2. The seller has expressly reserved the right to
resell the goods in case the buyer should make
default.

21
 3. The buyer has been in default for an unreasonable
time.
a. Note: It is not essential to the validity of
resale that notice of an intention to resell the
goods be given by the seller to the original
buyer. But if the ground of sale is the buyer
has been in default for an unreasonable
time, then, giving notice of intention to
original buyer becomes relevant to
determine the unreasonableness of the
default.

ii. Place of Resale

1. Public sale; or
2. Private sale

iii. Effects of Resale

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

iv. Note: The unpaid seller is prohibited from participating

as a bidder, directly or indirectly, in the public sale or
private sale of the goods.

d. Right to rescind the sale

i. Grounds for right to rescind the sale

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

ii. Effects of rescission of sale

1. The seller shall not be liable to the buyer upon the
contract of sale.

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 2. The seller may recover from the buyer damages
for any loss occasioned by the breach of contract
of sale.
3. The seller resumes ownership of the goods.

41. Remedies of buyer in sale of real estate with a statement

of its area at the rate of a certain price per unit of measure or
number if the vendor delivers the following area:

a. Excess area
i. Accept the whole area and pay for the contract rate; or
ii. Accept the agreed area and reject the excess

b. Lacking area
i. Lacking of Less than 10% of Actual Area
1. Action quanti minoris or proportionate reduction of
price; or
2. Action for cancellation but only if the lacking area
of less than 10% of Actual Area is very important
ii. Lacking of 10% or more of Actual Area
1. Action quanti minoris or proportionate reduction of
price; or
2. Action for cancellation whether or not the lacking
area of 10% or more of Actual Area is very
important

c. Poor quality
i. Poor Quality of 10% or less of Actual Area
1. Action quanti minoris or proportionate reduction of
price
2. Action for cancellation but only if the poor quality
of not more than 10% of Actual Area is very
important
ii. Poor Quality of more than 10% of Actual Area
1. Action quanti minoris or proportionate reduction of
price; or
2. Action for cancellation whether or not the poor
quality of more than 10% of Actual Area is very
important

Note: Prescriptive period of the action – It shall be filed within 6 months

from the date of delivery.

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42. Rights of buyer and seller in sale real estate for a lump sum
and not at the rate of a certain sum for a unit of measure or
number
a. In sale of real estate for a lump sum and not at the rate of a
certain sum for a unit of measure or number, the vendor is
bound to deliver all that it is included within the boundaries
stated in the contract although there be greater or less area or
number than that stated in the contract.
b. The buyer has the obligation to pay the lump sum stipulated in
the contract with no increase or decrease in the price although
there be greater or less area or number than that stated in the
contract unless the lacking or excess area is already
unconscionable.

43. Requisites of Double Sale

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

44. Preferred buyer in double sale of personal property

a. Actual or constructive possessor in good faith

b. Buyer with the oldest title

45. Preferred buyer in double sale of titled real property

a. Registrant of the sale in good faith

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

46. Preferred buyer in double sale of untitled real property

a. Buyer with the oldest title

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

a. Warranty against eviction

b. Warranty against hidden defects

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 c. Warrantyagainst undeclared charge or encumbrance or
unregistered encumbrances/servitude
d. Warranty for merchantability

48. Eviction refers to the deprivation of the vendee of the whole or

a part of the thing sold by virtue of a final judgment based on a right
prior to the sale or an act imputable to the vendor.

49. Requisites in order that the seller’s warranty against

eviction may be enforced

a. There must be a final judgment depriving the vendee of the

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

50. Alternative remedies of buyer in case of partial eviction of

the thing sold
a. Ask for rescission of contract of sales; or
b. Enforce vendor’s liability for breach of warranty against eviction
(Action for damages)

51. Other Instances of Eviction which makes the seller liable

for breach of warranty

a. If the property is sold for non-payment of taxes due and not

made known to the vendee before the sale.
b. In case of judicial sales unless otherwise decreed in the
judgment.

52. Two types of Buyer’s waiver of warranty against eviction

a. Waiver Consciente is a type of waiver made by the buyer

when he acted in good faith because he has no knowledge of
risk of eviction. The seller is still liable for eviction but only up
to the extent of the value of the object at the time of eviction.
b. Waiver Intentionada is a type of waiver made by the buyer

25
 when acted in bad faith
because he has knowledge of risk of eviction. The seller is no
longer liable for eviction.

53. Status of Waiver of warranty against eviction

a. Stipulation exempting a vendor from the obligation to answer

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

54. Liabilities of Vendor in case of Breach of Contract of Sale

by reason of eviction

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

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

b. Extent of Liability of Vendor acted in good faith

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

55. Remedies of buyer for breach of warranty against

hidden encumbrance or non- apparent servitude in contract
of sale of immovable

a. Within one year from the date of contract

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

b. Within one year from the discovery of servitude after the

lapse of the one year period from the date of contract
i. Action for damages only

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

discovery of servitude

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56. Other implied warranties of seller
a. Where the buyer, expressly or by implication, makes known to
the seller the particular purpose for which the goods are
acquired, and it appears that the buyer relies on the seller's
skill or judgment (whether he be the grower or manufacturer or
not), there is an implied warranty that the goods shall be
reasonably fit for such purpose. (warranty for particular
purpose)

b. Where the goods are brought by description from a seller who

deals in goods of that description (whether he be the grower or
manufacturer or not), there is an implied warranty that the
goods shall be of merchantable quality. (warranty for
merchantable quality)
c. In the case of a contract of sale by sample, if the seller is a
dealer in goods of that kind, there is an implied warranty that
the goods shall be free from any defect rendering them
unmerchantable which would not be apparent on reasonable
examination of the sample. (warranty for merchantability)

57. Remedies of buyer in case of breach of warranty committed

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

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58. Requisites for enforcement of vendor’s liability against
hidden defects
a. The defect must exist at the time of sale.
b. The defect must be hidden.
c. The defect must render the thing unfit for the use for which it is
intended or diminishes its fitness for such use to such an extent
that had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it.
d. The action to enforce it must be made within the period provided
by law.
59. Sale of Property without Implied Warranty Against Hidden
Defects
a. Sale of second hand item or pre-owned item or pre-loved item
b. Sale by Junk-shop operators
c. Sale in auction

60. Nature of Liability of Seller in sale of property with Hidden

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

61. Remedies of Buyer of Breach of Implied Warranties for

Merchantability or Hidden Defect

a. Accion redhibitoria is one of the two remedies of the vendee

in case of breach of warranties against hidden defects, of
merchantability, of merchantable quality or fitness for a
particular purpose. It refers to the withdrawal from the contract
or rescission.

b. Accion quanti minoris is one of the two remedies of the

vendee in case of breach of warranties against hidden defects,
of merchantability, of merchantable quality or fitness for a
particular purpose. It refers to demanding a proportionate
reduction in the price.

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

63. Extent of Liability of Seller in case of loss of thing sold with

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

64. Status of Waiver of warranty against hidden defect

a. Stipulation exempting a vendor from the obligation to answer

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

65. Redhibitory defect refers to a defect in an animal and it is

of such nature that expert knowledge, even after a professional
inspection has been made, is not sufficient to discover it.

66. Alternative remedies for redhibitory defect of an animal

sold together with other animals not as a pair

a. Accion redhibitoria or Cancellation of sale over the defective

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

29
67. Remedy for redibitory defects of two animals sold together
as a pair

a. Accion redhibitoria or Cancellation of the contract of sale

68. Prescriptive period of action based on breach of warranty

of animal with redhibitory defect

a. 40 days from the date of delivery

69. Sale of animals without warranty for hidden defects

a. Sale of animals at fairs

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

70. Status of sale of animal suffering from contagious disease

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

71. Requisites in order for the vendor to be liable in case the

animal dies of disease

a. The disease exists at the time of sale.

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

72. Instances when the buyer is deemed to have accepted the

delivered goods

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

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

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

a. When there is an agreement that the buyer cannot examine the

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

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

a. Buyer has no duty to return goods to the seller unless

otherwise agreed.
b. The buyer shall not be obliged to pay the price.
c. If the buyer constitutes himself as depositary of the goods, he
shall be liable as such.

75. Effects when the buyer refuses to accept delivery and the
refusal is unjustified

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

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

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

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

77. Instances wherein the buyer shall pay interest for the
period between the delivery of the thing and the payment of the
price
a. If there is a written stipulation for payment of interest on the
price and if the rate is not provided, it should be 12% before
July 1,2013 and 6% afterwards.

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 b. If the thing sold produces fruits or income since the fruits and
income will of the thing sold will go to the buyer from the
moment of perfection of contract of sale.

78. If the buyer is guilty of delay or default which will happen from
the time of judicial or extrajudicial demand for the payment of the
purchase price (Compensatory or Legal Interest will accrue)

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

80. Instances wherein the right to suspend payment by the

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

81. Ground for vendor’s remedy to sue for immediate

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

82. Alternative remedies of vendor in case there is reasonable

ground to fear the loss of either the immovable property or its
price

a. Fulfillment of the contract with damages or

b. Rescission of the contract with damages.

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

a. The contract of sale is not automatically cancelled.

32
 b. The buyer may still pay the price provided notarial or judicial
demand for rescission has not yet been made by the seller.

84. Grounds for immediate rescission of the sale of a movable

at vendor’s option
I. If at the time of the delivery of the thing, the vendee does not
appear to receive the thing.
II. If at the time of the delivery of the thing, the vendee having
appeared, does not pay the price, unless a longer period is
stipulated for its payment.

85. Remedies or Actions by the seller for breach of contract of

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

86. Alternative Remedies by the buyer if the seller has

broken the contract to deliver specific or ascertained goods
by not delivering the goods
a. Bring an action for specific performance plus damages.
b. Action for rescission plus damages.
c. Action for damages.

87. Modes for extinguishment of contract of sale:

a. No-Co-Me-Re-Pa-Lo-Pre-Re-Ful-An
b. Cancellation of sale of personal property payable in
installments
c. Resale of the goods by the unpaid seller
d. Rescission of the sale by the unpaid seller
e. Rescission by the buyer in case of partial eviction
f. Rescission by the buyer in case of breach of warranty against
hidden defects

33
 g. Rescission by the buyer of sale of animals with redhibitory
defects
h. Rescission by the buyer of sale of land with non-apparent
servitude or encumbrance
i. Rescission by the buyer of sale of land with lacking area or
area with poor quality
j. By redemption, whether conventional redemption or legal
redemption
88. Types of Redemption in a Contract of Sale
a. Conventional redemption is a type of redemption that occurs
when the vendor reserved the right to repurchase the thing sold
with the obligation to return to the vendee the price of the sale,
expenses of the contract and necessary and useful expenses
made on the thing sold and to comply with other stipulations
which may have been agreed upon. It is applicable in Pacto
De Retro Sale or Sale with a Right to Repurchase

i. Period for exercise of right of redemption in

conventional redemption or pacto de retro sale of
immovable property
1. If a period is not stated in the contract, it will be 4
years.
2. If a period less than 10 years is stated, follow the
stated period.
3. If a period more than 10 years is stated, it will be
10 years because that is the maximum period.
4. If there is a pending case before the court to
determine whether the contract is one pacto de
retro sale or equitable mortgage, it will be 30 days
from the decision of the court declaring it to be
pacto de retro sale.

ii. Rules in case of exercising conventional redemption

in Pacto de retro sale
1. A co-owner of an undivided immovable which is
essentially indivisible who sells his share with a
right to repurchase to a third person who
subsequently acquires the whole thereof, may be
compelled by the latter to redeem the whole
property, if the former wishes to make use of the
right of redemption.

34
 2. If several persons, jointly and in the same
contract, should sell an undivided immovable with
a right of repurchase, none of them may exercise
this right for more than his respective share.
3. If the person who sold an immovable alone has
left several heirs, each heir may redeem only the
part which he may have acquired.
4. In cases of 2 and 3, the vendee may demand that
the co-owners or co- heirs come to an agreement
upon the repurchase of the whole thing, and if they
fail to do so, the vendee cannot be compelled to
consent to a partial redemption.
5. Each one of the co-owners of an undivided
immovable who may have sold his share
separately, may independently exercise the right
of repurchase as regards his own share and the
vendee cannot compel him to redeem the whole
property.
b. Legal Redemption is a type of redemption in a contract of sale
that is available only in exceptional cases provided by law. It
refers to the right of a third person to repurchase a real property
sold by another person in exceptional cases provided by law.
It is defined as the right to be subrogated upon the same
terms and conditions stipulated in the contract, in the place of
one who acquires a thing by purchase, or dation in payment,
or by any other transaction whereby the ownership is
transmitted by onerous title.

i. Instances of Legal Redemption or Redemption by

operation of Law

1. By a co-owner. A co-owner of a thing may

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

35
 2. By an adjoining rural lot owner. If a piece of rural
land not exceeding one hectare is alienated to a
person who is not landless, the adjoining rural
owner shall have the right of legal redemption
unless the grantee does not own any rural land.
Order of Preference:
a. Adjoining rural owner with smallest area
b. Adjoining rural owner who first exercised the
right

3. By adjoining urban lot owner. If a small piece of

urban land which was bought for speculation has
been resold, the owner of the adjoining land has a
right of redemption at a reasonable price.
a. The adjacent urban land owner whose
intended use of the land in question appears
best justified shall be preferred.
Note: It is only the adjoining urban lot owner who
has the right of legal pre-emption which is the right
to be given the first opportunity before being
offered to other person.
Note: A co-owner has better right over adjoining
rural or urban lot owner in the exercise of right of
legal redemption.

ii. Period for the exercise of right of legal redemption

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

89. Instances wherein a contract of sale with a right to

repurchase and other contract purporting to be an absolute sale
shall be presumed to be an equitable mortgage thereby
requiring reformation of instrument
a. When the price of a sale with a right to repurchase is unusually
inadequate.
b. When the vendor remains in possession as lessee or otherwise
c. When the period for the exercise of the right of repurchase is
extended.
d. When the purchaser retains for himself part of the purchase
price.
e. When the vendor binds himself to pay the real property taxes
on the thing sold.

36
 f. When the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of any
other obligation.

90. Remedy of injured party in equitable mortgage

a. Action for reformation of instrument

91. Assignment of credit is a contract whereby a person transfers

his credit, right or action against a third person to another person for
a consideration which is certain in money or its equivalent.
92. Nature of Assignment of Credit as to Perfection of Contract
a. It is a consensual contract perfected by mere consent. It may
be entered to in any form, whether written or oral; or private
of public instrument.

93. Formality of Assignment of Credit to bind or to affect third

persons
a. For assignment of credit involving personal property, it must be
in a public instrument.
b. For assignment of credit involving real property, it must be
recorded in the Registry of Property.

94. Implied warranties of the vendor in good faith or assignor

in assignment of credits
a. Existence of the credit at the time of sale
b. Legality of the credit at the time of sale

95. Exceptional instances when the vendor or assignor of

credit is liable for the insolvency of the debtor of the credit
a. When the assignor expressly warrants the solvency of the
debtor of the credit.
i. Prescriptive period of warranty for solvency of debtor in
assignment of credit
1. 1 year from the maturity date of credit or date of
assignment whichever is later
b. When the assignor acted in bad faith because the insolvency
of the debtor of the credit is of public knowledge when he
assigned the credit.

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96. Difference between Assignment of Credit (Sale of
Nonnegotiable Promissory Note) by Assignor and Negotiation
of Negotiable Instruments by a General Indorser

a. As to covered promissory note, assignment is applicable to

non-negotiable promissory note while negotiation is
applicable to negotiable promissory note.
b. As to the term of transfree, the transferee in assignment is
called an assignee while the transferee in negotiation is called
a holder.
c. As to the term of transferor, the transferor in assignment is
called an assignor while the transferor in negotiation is called
a general indorser if there is indorsement.
d. As to availability of personal defense, the assignee in
assignment is subject to personal defenses available to prior
parties while the holder in due course in negotiation holds the
instrument free from personal defenses available to prior
parties.
e. As to warranty of solvency of maker, the assignor does not
warrant the solvency of maker unless expressly stated while
the general indorser guarantees the solvency of maker as
long as notice of dishonor will be given to him.

38