Session No.

07

SALES
Sales, defined
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
(Art. 1458).
Essential Elements - necessary for the validity of the
sale.
Meeting of the minds of the seller and the buyer
Object which is certain and determinate
Price certain in money or its equivalent

Natural Elements - those which are inherent in

the contract and are deemed to exist in the
contract of sale in the absence of clear
contrary agreement.
Warrant against eviction
Warranty against hidden defects and

encumbrances
Accidental Elements - may or may not exist
depending on the stipulations of the parties
like conditions, payment of interest, place and
time of payment.

Characteristics or Features of Contract of Sale (NBCCOP)

Nominate - It has a specific name given by law.
Bilateral - both parties are obliged to fulfil reciprocal

obligations to one another.

Consensual - It is perfected by mere consent

Commutative - the thing sold is equivalent of the price paid
Onerous - The thing sold is conveyed in consideration of the

purchase price and the purchase price i spaid in

consideration of the conveyance of the thing.

Principal - Its existence does not depend upon the existence

and validity of another contract

Phases or Stages of a Contract of Sale

Preparation, conception or generation - the

period of negotiation and bargaining, ending at

the moment of agreement of the parties
Perfection or Birth of the Contract the meeting

of minds between parties

Consummation or deathwhich is the fulfilment

or performance of the terms agreed upon

Contract of Sale

Contract to Sell

Sale
fromisContract
Title over distinguished
the property passes to
Ownership
retained by the to
the buyer upon delivery unless
seller whether or not there is
Sell
there is a contrary agreement
delivery. Ownership passes to the
buyer only upon full payment of
the price
Non-payment of the purchase
price is a negative resolutory
condition, meaning the sale
becomes ineffective upon the
happening of such condition

The payment in full is a positive

suspensive condition, meaning, if
the purchase price is not paid, the
obligation to deliver and to
transfer ownership on the part of
the seller does not become
effective

After delivery of the objective, the

seller loses ownership over it.
Unless, the contract is set aside,
he cannot recover the object

Whether there is delivery or not,

the seller retains the ownership of
the object. If the seller, due to
non-payment of the price is
ousting the buyer from the
property, he (seller) is not

Conditional Sale (Pactum

Reservatii Domini) distinguished
from
Contract
to Sell
Conditional
Sale
Contract to Sell
Conditional Sale there is already a No contract to sale only, a
contract of sale
preparatory contract
There is already delivery but
ownership retain by seller

No delivery yet. No sale yet

Specific Performance/Rescission

No specific
performance/rescissionno
contract yet

Payment completes the

transaction

Payment will not complete

transaction

Sale distinguished from Dacion en

Pago
Contract of Sale

Dacion en Pago

There is no pre-existing debt

There is a pre-existing debt

Sale creates obligation

Dacion extinguishes an obligation

The cause or consideration is the

price (for sellers point of view)
and the delivery of the object
(from the buyers point of view)

The cause or consideration is the

extinguishment of the obligation
(from the debtors point of view)
and the delivery of the object
given as payment for credit (from
the point of view of creditor )

There is greater freedom in fixing

the price

Less freedom in fixing the price

because the amount of the preexisting debt the parties seek to
extinguish.

Sale distinguished from

Payment by Cession
Sale

Payment by Cession

There is no pre-existing debt

There is a pre-existing debt

It creates obligations between

parties

It extinguishes an obligation

The cause or consideration is the

price (for sellers point of view)
and the delivery of the object
(from the buyers point of view)

The cause or consideration is the

extinguishment of the obligation
(from the debtors point of view)
and the assignment of the things
to be sold (from the point of view
of creditors )

There is greater freedom in fixing

the price

Less freedom in fixing the price

because the amount of the preexisting debt the parties seek to
extinguish.

Ownership is transferred to the

buyer

Creditors do not become the

owners of the properties assigned

Sale distinguished from Agency to

Sell
Sale

Agency to Sell

The buyer pays for the price of

the goods/property purchased

The agent does not pay for the

price. He merely accounts for the
proceeds of the sale.

The buyer becomes the owner of

the goods/property purchased

The agent does not become the

owner of the goods/property
delivered to him for sale.

Buyer cannot return the

goods/property when the sale is
defective

The agent returns the

goods/property if he was not able
to sell the same

The seller warrants the

goods/property sold

The agent does not make any

warranty as long as he acts within
his authority and in the name of
the principal

The seller has full freedom to

The agent must follow the
enter into any terms or conditions instructions of the principal

Contract for a Piece of WorkThe article sold is

specially manufactured and upon the special order of
the customer. Article is not sold in the ordinary
course of business. (See. Concrete Aggregates vs.
Contract for a piece of work
Contract of Sale
CTA)
The thing transferred is one not in
existence and w/c never would
have existed but for the order of
the party desiring to acquire it

The thing transferred is one which

would have existed and would
have been the subject of sale to
some other person, even if the
order had not been given

The services dominate the

contract even though there is a
sale of goods involved

The primary objective of the

contract is a sale of the
manufactured item; it is a sale of
goods even though the item is
manufactured by labor furnished
by the seller and upon previous
order of the customer

Not w/in the Statute of Frauds

Governable by the Statute of

Frauds

Barter is a contract wherein parties trade

goods or commodities for other goods. In
sale, the consideration is money. In barter,
the consideration is another thing.
Rules if Consideration is partly Money and Partly
Goods

Determine the intention of the parties.

If intention could not be determined, consider the value

of the thing given:

If value of the thing more than value of the money, it is
BARTER
If value of the thing less than value of the money, it is
SALE
If both values are the same, SALE

Money Exchange
If local currency is exchanged for foreign

currencythere is purchase and sale.

If the local currency is exchanged with other

denominations of the local currency also,

there is barter (Same rule if Foreign Currency
exchanged in the Philippines for another
foreign currency)

Rules on the object of the contract of sale

The thing must be licit ( i.e. not be contrary lo law,

morals, good customs, public order or public policy).

There are two kinds of illicit things:
a. Illicit per se - when by its nature it is heinous,
immoral or wrongful ( such as sale of prohibited
drugs, sale of animal suffering contagious disease,
etc.)

b. Illicit per accidens - when it is prohibited by law

(such as selling narra lumber when the
government passed a law prohibiting sale of such
things)

The thing must be within the commerce of men.

- Within the commerce of men means that the thing or
object of the contract of sale must be available for
commercial transactions. Those that are outside the
commerce of men, such as public plaza, public
monuments, seashores, bridges and other public
infrastructures, cannot be made object of the contract of
sale.

The thing must be determinate. A thing determinate

- When it is particularly designated or physically
segregated from all others of the same class.
- The thing is capable of being made determinate, at the
time the contract is entered into, w/o the necessity of a
new or further agreement between the parties.

The vendor must have a right to transfer the

ownership thereof at the time it is delivered.

Things having a potential existence may be

the object of the contract of sale.

The efficacy of the sale of a mere hope or

expectancy is deemed subject to the condition

that the thing will come into existence. The
sale of a vain hope or expectancy is void

Sale of expected thing (Emptio rei speratae) - a

sale of an expected thing subject to the
condition that the thing will come to existence.
If the thing did not come into existence, the
contract is not effective and the buyer has no
obligation to pay the price. Presumption is in
favor of this kind of sale, because it is more in
keeping with the commutative character of a
sale.
(example: the rice that may be harvested from
the Riceland, the wine that will be produced
from the grape vineyard, the dairy products that
may be produced from farm with cow-breeds)

Sale of hope itself (Emptio spei) - a sale of a hope

or expectancy.

The contracting parties intended that contract of sale

to exist at all events, whether or not the expected
thing will come into existence such that the buyer
will have to pay the purchase price, such that the
contract becomes aleatory in nature.
(example: sale of the hope to win in the lotto, sale of
hope to win in raffles).
Note: sale of vain hope or expectancy shall be void,

such as when tickets are sold today when the raffle

was made yesterday.

 The goods which form the subject of a contract of sale

may be either

Present goods - existing goods, owned or possessed by the seller

Future goods are goods to be manufactured, raised, or

acquired by the seller after the perfection of the contract of sale.

The following future goods that may be subject of a contract of
sale
Goods to be manufactured yet

Examples: the house to be build, the rice that will be

harvested
in
farmland, the table that will be made from
lumber

Goods to be acquired by the seller after the perfection of

contract of sale

Goods that depends upon a contingency that may or may not

happen

The sole owner of a thing may sell an undivided

interest therein (Art. 1463). Such sale shall produce

the effect of making the seller and the buyer the coowner of the thing sold.
Sale of fungible goods
Fungible goods are those that can readily be
estimated and replaced according to weight,
measure, and amount.
Fungibilityis the property of agoodor acommodity
whose individual units are capable of mutual
substitution, such ascrude oil, shares in a company,
bonds,precious metals, orcurrencies.

Rules in purchase of an Undivided Share in

Specific Mass of Fungible Goods.
If the aliquot part purchased from the seller is

more than the whole undetermined mass after it

had been weighed or measured, then the buyer
becomes the owner of the entire mass.

If the aliquot part purchased is less than the

whole undetermined mass, the purchaser will

become the co-owner of the whole mass in the
proportion in which the number, weight or
measure of what had been purchased bears to
the number, weight or measure of the mass or
stock.

Things subject to a resolutory condition may

be the object of the contract of sale.

Example: P sold to S a parcel of land,
giving P the right to repurchase within 4 years
from the execution of the Deed of Sale. The
sale and the right to repurchase was
annotated in the title and registered in the
Registry of Deeds. After 1 year, S sold to A the
same land, but S must respect the right of
repurchase of P annotated in the title.

Price, defined
Price is the sum stipulated as the equivalent of
the thing sold and also every incident taken into
consideration for the fixing of the price, which
was agreed upon by both parties
Rules on price
The price must be certain.
The price of the thing sold must be certain that
is, both parties must agree on the monetary
value or consideration of the thing of the
contract. The price is certain under the following
circumstances:

If the parties have agreed upon a definite amount for

the sale

If is no specific amount stipulated as purchase

price, the price is still considered certain if:

it

is determinable by making reference to another

thing which is itself certain
If determination is entrusted to the judgment of a
specified person or persons.

Rule: The fixing of the price can never be left to the

discretion of one of the contracting parties.
However, if the price fixed by one of the parties is
accepted by the other, the sale is perfected (Art.
1473).

Effect if 3rd Person fixed the price

General Rule: It is binding upon the
parties
Exceptions:
When the 3rd person acts in bad faith
When the 3rd person disregards the specific
instructions or the procedure marked out by the
parties

Effect when the price is not fixed by the 3 rd

person designated
If the 3rd person refuses or cannot fix the price, the

contract shall become ineffective, unless the parties

subsequently agree upon the price

If the 3rd person is prevented from fixing the price by

the fault of the seller or buyer, the party not in fault

may obtain redress against the party in fault.

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 be certain. (Art. 1472)

Effect if the price cannot be determined

Where the price cannot be determined in

accordance with the preceding articles, or in any

other manner, the contract is inefficacious.
However, if the thing or any part thereof has
been delivered to and appropriated by the buyer
he must pay a reasonable price therefor. What is
a reasonable price is a question of fact
dependent on the circumstances of each
particular case (Art. 1474).

Note: Reasonable price is generally the market

price at the time and place fixed by the contract

or by law for the delivery of the goods.

Effect of Gross Inadequacy of Price

Gross inadequacy of price does not affect
a contract of sale, except:
If consent is vitiated, such as VIMFU (Violence,

Intimidation, Mistake, Fraud, Undue influence)

If the parties intended a donation or some other

act or contract
If the price is so low as to be shocking to the

conscience

Effect of Simulated Price.

Sale is void, unless it could be shown that the

parties intended a donation or some other act of

liberality.
Price Simulated - No price to support a contract of

sale, such that neither party had any intention that

the amount will be paid void
Price is False - there is a real price not declared -

contract is valid, but the underlying deed is subject

to reformation to indicate the real price upon which
the minds of the parties have met.

When is a contract of sale perfected?

The contract of sale is perfected at the moment
there is a meeting of minds upon the thing
which is the object of the contract and upon
the price.
From that moment, the parties may reciprocally
demand performance, subject to the provisions
of the law governing the form of contracts.

Form of contract of sale

A contract of sale may be made
orally or
in writing, or
partly oral and partly in writing, or
maybe inferred from the conduct of the parties
Contacts falling under Statute of Fraud must be in writing,

otherwise, it is unenforceable

Sale of real property or any interest therein regardless of

price, must be in writing

Sale of goods, chattels or thing in action in the price is P500

or more

The authority of the agent to sell a piece of land must be in

writing, otherwise it is void.

Rules in case of sale by auction (Art. 1476)

Auction sale is defined as a sale open to the

general public and conducted by an auctioneer,

a person empowered to conduct such a sale, at
which property is sold to the highest bidder.
Abidis an offer by abidder, a prospective

purchaser, to pay a designated amount for the

property on sale.

Where goods are put up for sale by auction in lots,

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

A sale by auction is perfected when the auctioneer

announces its perfection by the fall of the hammer,

or in other customary manner. Until such
announcement is made,

Any bidder may retract his bid

This is so because a bid is merely an offer, and offer

maybe withdrawn at any time before its acceptance

The auctioneer may withdraw the goods from the

sale unless the auction has been announced to be

without reserve.

Withdrawal of the goods is equivalent to

rejection of the offer made by any bidder.

If an auction is without reserve, after the

auctioneer calls for a bid on an article or lot,

that article or lot cannot be withdrawn unless
no bid is made within a reasonable time.
Highest Bidder is he who, at an auction,

offers the greatest price for the property

sold.The highest bidder is entitled to have the
article sold at his bid

Can the seller bid in the auction sale?

The seller can bid during the auction sale in the following

circumstances

A right to bid was reserved expressly by or on behalf of the

seller,

If the seller expressly reserved his right to bid on the

auctioned item, he is allowed to participate in the bidding

process and may even wound up as the highest bidder. This
right to bid is allowed unless prohibited by law or stipulations
between parties.

The right to bid is not prohibited by law or by stipulation.

Example: in the exercise of unpaid seller of his right to resell the
goods, he cannot buy the same goods during the auction sale

Notice must be given that the sale is subject to a right to bid

by or on behalf of the seller.

Who are By-bidders or puffers?

By-bidders or puffers are persons employed by auctioneer

who will bid without being bound but whose bids will have a
tendency to induce or provoke higher bids from interested
buyers, thus misleading the latter because of the inflated
bid price.

Effects of the employment of by-bidders

If notice was previously given to the public that seller

employed by-bidders, the result of auction sale is VALID

If notice was not given to the public that seller employed by-

bidders, the result of auction sale is FRAUDULENT, thus

maybe annulled.

Note: It is the secrecy of the puffing and not the authorized

bidding by the seller which makes it fraudulent.

Effect to parties after perfection of

auction sale
The winning bidder cannot retract his bid,
nor the auctioneer withdraw the goods since
there is already a perfected contract of sale

When ownership of the thing sold is

transferred?
The ownership of the thing sold shall be

transferred to the vendee upon the actual or

constructive delivery thereof (Art. 1477).
The parties may stipulate that ownership in

the thing shall not pass to the purchaser until

he has fully paid the price (Art. 1478)

Promise to buy and/or sell

Bilateral promise this takes place when one party

promises to buy and the other party promises to sell

a determinate thing at an agreed price. This is
reciprocally demandable since there is already
meeting of minds between parties to perfect a
contract of sale.

Unilateral promise - the promise to buy or sell a

determinate thing at a certain price made only by

one of the parties. The promise has he following
effect:
If not accepted by the promisesee, it does not produce
any legal effect. This is referred to as policitation.

 If accepted by the promissee, it does not produce

any binding effect unless it is supported by

consideration distinct from the price called
option.

What is Option Contract?

An option contract - is a privilege existing in

one person, for which he had paid a

consideration, which gives him the right to buy,
certain merchandise or property from another
person at anytime within the agreed period at a
fixed price. In case of breach of promise to buy
or to sell, injured party can only seek damages.

Earnest Money vs. Option Money

Earnest Money

Option Money

It is part of the purchase price

It is given as a distinct
consideration for an option
contract which gives the buyer a
specific period within which to
purchase the thing

It is given only when there is

already a perfected sale

It is given at a time when the sale

had not yet been perfected. What
had been perfected only is the
option contract

When it is given, the buyer is

bound to pay the balance of the
agreed purchase price

Even if option money is paid by

the would-be-buyer he is not
bound to buy the thing

If the sale does not materialize,

the earnest money paid must be
returned, unless a contrary

If the buyer decides not to buy

the thing, he cannot recover the
option money he paid as

Rules on preservation of, injury to or

benefit from the thing sold before or
after perfection of contract of sale
Duty of the seller to preserve the thing after
perfection but before delivery
Every person obliged to give something is

also obliged to take care of it with the proper

diligence of a good father of a family, unless
the law or the stipulation of the parties
requires another standard of care (Article
1163)

Right of the buyer to fruits

- All the fruits shall pertain to the vendee from the

day on which the contract was perfected (Art.
1537).
The creditor has a right to the fruits of the
thing from the time the obligation to deliver it
arises. However, he shall acquire no real right over
it until the same has been delivered to him (Art.
1164)

Loss, injury or deterioration of the thing

Before perfection loss shall be bear of the

would-be seller
Complete loss the sale is void, since there can be
no contract (absence of object)
Partial loss the buyer may choose between

Withdrawal from the contract

Demanding for the remaining price and pay its

proportionate price

During the execution of the contract same

with loss sustained before perfection

After perfection but before delivery seller
bears the loss consistent with the principle
res perit domino which means the loss of
property falls upon its owner. This phrase is
used to express that when a thing is lost or
destroyed, it is lost to the person who was the
owner of it at the time.

Principle of Res Perit Domino

Vendor bears risk of loss until ownership is

transferred by deliver, except in the following

cases:
When the parties so agreed that the loss shall be
borne by the seller
Where delivery of goods has been made but
ownership is retained by the seller merely to
secure performance of buyers obligation
Where actual delivery is delayed through fault of
the buyer.

Sale of Goods By Description- where a

seller sells a thing as being of a certain kind

verbally describing them and the buyer simply
relies on the sellers descriptions of the things,
not knowing whether the sellers
representations are true or not.
Sale by Sample- Where the seller warrants

that the bulk of goods being sold correspond

with the sample or samples exhibited not only
in kind but also in quality and character.

Sale by Description and Sample- Where

the seller has to satisfy the requirements in

sale by description and sample. There are
two-fold warranty here: (a) the goods
purchased matched with the description and
(b) the goods also matched in kind, quality
and character with that of the sample or
samples exhibited to the buyer or his
representative

Remedies in sale of goods by description,

sample and sale by description and sample
In the contract of sale of goods by description or by

sample, the contract may be rescinded if the bulk

of the goods delivered do not correspond with the
description or the sample, and if the contract be by
sample as well as description, it is not sufficient
that the bulk of goods correspond with the sample
if they do not also correspond with the description.

The buyer shall have a reasonable opportunity of

comparing the bulk with the description or the

sample (Art. 1481)

Sale of Personal Property on Installments and

Leases of Personal Property with Option to Buy
The vendor may exercise any of the following
remedies:
Exact fulfilment of the obligation, should the vendee

fail to pay;

Cancel the sale, should the vendee's failure to pay

cover two or more installments;

When the sale is cancelled or rescinded, the vendor

shall return to the vendee the sums received minus
reasonable rent. However, a stipulation that the
installments or rents paid shall not be returned to the
vendee or lessee shall be valid insofar as the same
may not be unconscionable under the circumstances

Foreclose the chattel mortgage on the thing

sold, if one has been constituted, should the

vendee's failure to pay cover two or more
installments. In this case, he shall have no
further action against the purchaser to
recover any unpaid balance of the price. Any
agreement to the contrary shall be void.
( this referred to as the Recto Law ).

Notes:
The remedies have been recognized as alternative, not

cumulative, in that the exercise of one would also bar the

exercise of the others. They cannot also be pursued
simultaneously.

If the seller should foreclose on the mortgage constituted

on the thing sold, he shall have no further action against

the purchaser to recover any unpaid balance of the price.
Any agreement to the contrary shall be void.

the object of Recto Law was to remedy the abuses

committed in connection with the foreclosure of chattel

mortgages and was meant to prevent mortgagees from
seizing the mortgaged property, buying it at foreclosure
sale for a low price and then bringing suit against the
mortgagor for a deficiency judgment.

Sale of Real Property in Installments (R.A. No.

6552, otherwise known as Maceda Law)

The Maceda Law, RA 6552, is the real estate
equivalent of the Recto Law. Like the Recto Law, it
also covers financing of sales ofreal propertyon
installment payments, including residential
condominium apartments.
It doesn't apply, however, to the following sales:
Industrial lots
Commercial buildings and lots
Lands under the CARP Law

Purpose of Maceda Law

Also known as the RealtyInstallmentBuyer

Act, they law is hereby declared a public

policy to protect buyers of real estate
oninstallmentpayments against onerous and
oppressive conditions. (Sec. 2, R.A. 6552)

Rights of the buyer under installment terms:

If the buyer paid less than 2 years' installments.
he is given a grace period of sixty (60) days

starting fromthe dateof his lastinstallmentto

resume paying
This period can be increased by the seller.
If after the grace period the buyer still can't pay,
the seller must make a notarial demand to cancel
the sale.
The cancellation becomes effective thirty (30) days
after the buyer was notified.

If the buyer paid at least two (2) years' installments

the buyer can pay the unpaid balance without interest.
The grace period is computed at one (1) month per

year ofinstallment payments. It also begins from the

time the buyer paid his lastinstallment.
The grace period can be used only once every five (5)
years of the sales contract's life -including its
extensions.
If the seller wants to cancel the sale, he has to refund
the buyer of 50% of the actual payments.
If the buyer paid more than five years' installments
another 5% for every year is to be added to the
refund, but only up to 90% of the total payments
made.

end