THE LAW ON SALES, AGENCY, AND CREDIT TRANSACTIONS
DE LEON & DE LEON
2010
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Part 1: Sales
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Chapter 1 – Nature and Form of Contract
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I.
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Definitions
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II.
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Contract of Sale – a contract whereby one of the parties (called the
seller or vendor) obligates himself to deliver something to the other
(called the buyer or purchaser or vendee) who, on his part, binds
himself to pay therefore a sum of money or its equivalent
Natural Elements – those which are deemed to exist in certain
contracts, in the absence of any contrary stipulations like warranty
against eviction or hidden defects
Sale by description – occurs where a seller sells things as being of a
particular kind, the buyer not knowing whether the seller’s
representations are true or false.
o Note: If the bulk of the goods delivered do not correspond with
the description, the contract may be rescinded
Fungible goods – goods of which any unit is, from its nature or by
mercantile usage, treated as the equivalent of any other unit such as
grain, oil, wine, gasoline, etc.
Conditional Sale – sale contemplates a contingency and in general
where the contract is subject to certain conditions, usually the full
payment of the purchase price
o Note: The delivery of the thing sold does not transfer
ownership until the condition is fulfilled
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Contracts of sale that must be in writing to be enforceable by court
action (Under Statute of Frauds):
o Sale of personal property at a price not less than P500
o Sale of real property or an interest therein regardless of the
price involved
o Sale of property not to be performed within a year from the
date thereof regardless of the nature of the property and the
price involved
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Distinctions between a Contract of Sale and a Contract of Agency
Contract of Sale
Contract of Agency
Buyer receives the goods as owner
Agent receives the goods as the
goods of the principal who retains his
ownership over them
Buyer has to pay the price
Agent has simply to account for the
proceeds of the sale he may make
on the principal’s behalf
Buyer, as a general rule, cannot Agent can return the object in case
return the object sold
he is unable to sell the same to a
third person
Seller warrants the thing sold
Agent makes no warranty for which
he assumes personal liability as long
as he acts within his authority and in
the name of the seller
Buyer can deal with the thing sold The agent in dealing with the thing
as he pleases
received, must act and is bound
according to the instructions of his
principal
Discussions:
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Difference between Earnest Money and Option Money
Earnest Money
Part of Purchase Price
Given only where there is a sale
When earnest money is given, buyer is
bound to pay the balance
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Option Money
Money given as distinct consideration for
the option contract
Applies to a sale not yet perfected
Would-be-buyer is not required to buy
when he gives option money
Remedies available to a vendor in sale of personal property payable in
installments
o Elect fulfillment upon the vendee’s failure to pay
o Cancel the sale, if the vendee shall have failed to pay two or
more installments
o Foreclose the chattel mortgage, if one has been constituted, if
the vendee shall have paid to pay two or more installments
Characteristics of a contract of sale:
o Consnsual – perfected by mere consent without further act
Bilateral – because both contracting parties are bound to fulfill
obligations reciprocally towards each other
Onerous - thing sold is conveyed in consideration of price and
vice versa
Commutative - thing sold is considered the equivalent of the
price paid and vice versa
Nominate – it is given a designation in the Civil Code, namely
“Sale”
Principal – does not depend for its existence and validity upon
another contract
Chapter 2 – Capacity to Buy or Sell
I.
Definitions
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Necessaries – things which are needed for sustenance, dwelling,
clodting and medical attendance, in keeping with the financial capacity
of the family of the incapacitated person.
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Compromise
- a contract whereby the parties, by reciprocal
concessions, avoid a litigation or put an end to one already commenced
II.
Discussions
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Relative incapacity of husband and wife
o Husband and wife are prohibited by the above article from
selling property to each other
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People who may enter into a contract of sale
o As a general rule, all persons, whether natural or juridicial, who
can bind themselves by contract have also legal capacity to
buy and sell
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Chapter 3 – Effect of the Contract When The Thing Sold Has Been Lost
I.
II.
Chapter 4 – Obligations of the Vendor
I.
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Definitions
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Specific goods – goods identified and agreed upon at the time a
contract of sale is made
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Divisible contract – its consideration is made up of several parts
Discussions
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When a thing is considered lost
o When it perishes or goes out of commerce
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“perishes” – material deterioration or complete change
in the nature of the thing
o Dissappears in such a way that its existence is unknown or it
cannot be recovered
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Effect of loss of thing at the time of sale
o Lost totally:
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Contract is inexistent and void because there is no
object
o Lost partially:
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Vendee may:
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Withdraw from the contract or
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Demand the remaining part, paying its
proportionate price
Definitions
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Unpaid Seller of Goods – one who has not been paid or tendered the
whole price
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Traditio Brevi Manu – mode of legal delivery which happens when the
vendee has already the possession of the thing sold by virtue of another
title as when the lessor sells the thing leased to the lessee
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Sale or Return – A contract by which property is sold but the buyer
(who becomes the owner of the property on delivery), has the option to
return the same to the seller instead of paying the price.
o Option to ‘sale or return’ rests on the buyer
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Tradition – a derivative mode of acquiring ownership by virtue of which
one who has the right and intention to alienate a corporeal thing,
transmits it by virtue of a just title to one who accepts the same
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Redhibitory defect – a defect in the article sold against which defect
the seller is bound to warrant
o Defect must be hidden; and
It must be of such nature that expert knowledge is not sufficient
to discover it
o If veterinarian acts in bad faith (through ignorance or failure of
disclosure), he shall be liable for damages
*Article only applies tosale of animals
Implied Warranty of Fitness – seller guarantees that the thing sold is
reasonably fit for the known particular purpose for which it was acquired
by the buyer
o If bought by description, it should be reasonably fit on its
merchantable quality
Eviction – judicial process whereby the vendee is deprived of the whole
or part of the thing purchased by virtue of a final judgement based on a
right prior to the sale or an act imputable to the vendor
Caveat venditor – doctrine that states that the vendor is liable to the
vendee for any hidden faults or defects in the thing sold, even though h
was not aware thereof.
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II.
Discussions
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Sale by a person not the owner
o Where the owner of the goods is, by his conduct, precluded
from denying the seller’s authority to sell.
o Where the law enables the apparent owner to dispose of the
goods as if he were the true owner thereof
o Where the sale is sanctioned by statutory or judicial authority
o Where the sale is made at merchant’s stores, fairs or markets
o Where the seller has a voidable title which has not been
avoided at the time of the sale
o Where seller subsequently acquires title.
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Ways of effecting delivery
o By actual or real delivery
o By constructive or legal delivery
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Execution of a public instrument or document
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Symbolic delivery
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Traditio Longa Menu
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Takes place by mere consent or agreement
of the contracting parties as when the vendor
merely points to the thing sold which shall
thereafter be at the control/disposal of the
vendee.
o Only qualifies if the thing sold
cannot be delivered to the vendee
at time of sale
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Traditio Brevi Manu
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Traditio Constitutum Posessorium
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Quasi-Traditio
o By delivery in any other manner signifying an agreement that
the possession is transferred to the vendee
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Requisites for the exercise of right of stoppage in transit
o Seller must be unpaid
o Buyer must be insolvent
o Goods must be in transit
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II.
Implied warranties in sale
o Implied warranty as to seller’s title
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Seller guarantees that he has a right to the the sell the
thing sold and transfer ownership
o Implied warranty against hidden defects or unknown
encumbrances
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Seller guarantees that the thing sold is free from any
hidden defects
o Implied warranty as to fitness or merchantability
“Sale or return” distinguished from “Sale on Trial”
Sale or Return
Sale on Trial
Sale subject to a resolutory Subject
to
a
suspensive
condition
condition
Depends entirely on the will of Depends on the character or
the buyer
quality of the goods
Ownership of the goods passes Ownership remains in the seller
to the buyer on deliveryand until the buyer signifies his
subsequent return of the goods approval or acceptance to the
revert ownership in the seller
seller
Risk of loss or injury rests upon Risk remains with the seller
the buyer
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Place of delivery of goods sold (with no agreement)
o Place of delivery is that determined by usage of trade
o When there is also no prevalent usage, the place of
delivery is the seller’s place of business
Principal Obligations of the Vendor
o To transfer ownership of the determinate thing sold
o To deliver the thing
o To warrant against eviction and hidden defects
o To take care of the thing, pending delivery, with proper
diligence
o To pay for the expenses for the execution and registration
of the deed of sale, unless there is stipulation to the contrary
Risk of loss by fortuitous event after perfection but before delivery
o Borne by the buyer (as an exception to the rule of res perit
domino)
Chapter 5 – Obligations of the Vendee
I.
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Seller must either actually take possession of the goods sold or
give notice of his claim to the carrier or other person in
possession
Seller must surrender the negotiable instrument of title, if any,
issued by the carrier or bailee
Seller must bear the expenses of delivery of the goods after
the exercise of the right
Definitions
Acceptance of the goods – assent to become owner of the
specific goods when delivery of them is offered to the buyer
Wrongful refusal of buyer to accept – when buyer refuses to
accept the goods without just cause
o Risk of loss is borne by him from the moment they are
placed in his disposal
Discussions
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Implied acceptance by the vendee of the goods sold
o After delivery of goods: When buyer does any act
inconsistent with the seller’s ownership (as when he sells
or attempts to sell the goods, uses or makes alteration in
them in a manner proper only for an owner)
o After the lapse of reasonable time: When buyer retains the
goods without intimating his rejection
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When vendee can suspend payment of price
o If he is disturbed in the possession or ownership of the
thing bought
o If he has a well-grounded fear that his possession or
ownership would be disturbed by a vindicatory action or
foreclosure of mortgage
Chapter 6 – Actions for Breach of Contract of Sale of Goods
I.
Definitions
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Goods – includes all chattels personal but not things in action or
money of legal tender in the Philippines. This term also includes
growing fruits or crops
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Recoupment – accept the goods and set up the seller’s breach to
reduce or extinguish the price
II.
Discussions
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Actions available to the buyer in case of breach of warranty by
the seller of the goods:
o Recoupment:
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Accept the goods and set up the seller’s
breach to reduce or extinguish price
o Action or counterclaim for damages:
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Accept the goods and maintain an action for
damages
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Refuse to accept the goods and maintain an
action for damages for the breach of the
warranty
o Rescission:
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Rescind the contract of sale by returning or
offering the return of the goods and recover
the price
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Cases where rescission by the buyer is not allowed although
the seller has committed a breach of warranty:
If the buyer accepted the goods knowing of the
breach of warranty without protest
o If the buyer fails to notify the seller within a
reasonable time of his election to rescind
o If the buyer fails to return or offer to return the goods
in substantially as good condition as they were in at
the time of the transfer of ownership to him
Situations where the seller is given the right to bring an action
for damages against the buyer
o If the buyer, without lawful cause, neglects or refuses
to accept and pay for the goods he agreed to buy
(damages for non-acceptance)
o In an executory contract, where the ownership in the
goods has not passed, and the seller cannot maintain
an action to the price, seller’s remedy will be also an
action for damages
o If the goods are not yet identified at the time of the
contract or subsequently, the seller’s right is
necessarily confined to an action for damages
Situations where the seller of specific goods is given the right
to be paid notwithstanding that delivery to the buyer has not
been effected:
o When the price is payable on a certain day, and the
buyer wrongfully neglects or refuses to pay such
price, irrespective of delivery or transfer of title
o When the buyer wrongfully refuses to accept delivery
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Chapter 7 – Extinguishment of Sale
I.
II.
Definitions
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Legal Redemption – is 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
transaction whereby ownership is transmitted by onerous title
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Equitable Mortgage – is one which, although it lacks the proper
formalities of a mortgage, shows the intention of the parties to make
the property subject of the contract as a security for the fulfillment of
an obligation
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Conventional Redemption – is the right which the vendor
reserves to himself, to reacquire the property sold provided he
reimburses the vendee of the price, the expenses of the contract,
any other legitimate payments made therefor and the necessary
and useful expenses made on the thing sold and fulfills other
stipulations which may have been agreed upon
Discussions
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Requisites for the right of legal redemption of a co-owner to exist
o There must be co-ownership
There must be alienation of all or of any of the shares of
the other co-owners
Sale must be to a third person or stranger
Sale must the before partition
Right must be exercised within the period provided in
Article 1623
Vendee must be reimbursed for the price of the sale
Cases when the contract shall be presumed to be an equitable
mortgage:
o When the price of a sale with right to repurchase is
unusually inadequate
o When the vendor remains in possession as lesee or
otherwise
o When upon or after the expiration of the right to
repurchase another instrument extending the period of
redemption or granting a new period is executed
o When the purchaser retains for himself a part of the
purchase price
o When the vendor binds himself to pay the taxes on the
thing sold
o In any other case where it may be fairly inferred that the
real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any
other obligation
Obligations of a vendor a retro in case of redemption
o The vendor must return to the vendee:
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Price of the sale (not the value of the thing)
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Expenses of contract and other legitimate
expenses
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Necessary expenses – those incurred
for the preservation of the thing
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Useful expenses – those which increase
the value of the thing or create
improvements thereon
Chapter 8 – Assignment of Credits and Other Incorporeal Rights
I.
Definitions
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Assignment of credit – a contract by which one person transfers
to another his rights and actions against a third person (debtor) in
consideration of a price certain in money or its equivalent
II.
Discussions
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Warranties of the assignor of credit
o The assignor of credit only warrants the existence and
legality of the credit at the perfection of the contract
o There is no warranty as to solvency of the debtor unless
expressly stipulated or unless the insolvency was already
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existing (and of public knowledge) at the time of the
assignment
Liabilities of the assignor of credit
o The liability of the assignor in good faith is limited only to
the price received and to the expenses of the contract, and
any other legitimate payments by reason of the
assignment
o The assignor in bad faith is liable not only for the payment
of the price and all expenses, but also for damages.
Nature of assignment of credit
o It is really a sale
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Subject matter: credit or right assigned
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Consideration: Price paid for the credit or right
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Consent: The agreement of the parties to the
assignment at the agreed price
Discussions
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Similarities to Sale and Barter
o Barter is similar to sale with the only difference is that
instead of paying a price in money, another thing is given
in lieu thereof
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Perfection and Consummation of the Contract of Barter
o Perfected from the moment there is a meeting of minds
upon the things promised by each party in consideration of
the other
o It is consummated from the time of mutual delivery by the
contracting parties of things they promised
Chapter 11 – The Bulk Sales Law
II.
I.
Chapter 9 – General Provisions
I.
II.
Definitions
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Legal tender – is that currency which a debtor can legally compel a
creditor to accept in payment of a debt in money when tendered by
the debtor in the right amount
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Thing or chose in action – is any claim or right which may be
pleaded in a suit at law, such as claim of reparation for a tort or
right guaranteed under certain types of contracts
Discussions
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Objects included in the phrase “document of title to goods”
according to Art. 1636:
Any
o Bill of Lading;
o Dock Warrant;
o Warehouse receipt or;
o Order for the delivery of goods or;
o Any other document used in the ordinary course of
business as proof of the possession and control of the
goods
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A person is deemed insolvent when:
o A person who was ceased to pay his debt in the ordinary
course of business
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Goods are in a deliverable state when:
o They are in such a state that the buyer would, under the
contract, be bound to take delivery of them
Chapter 10 – Barter or Exchange
I.
Definitions
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Barter – one of the parties binds himself to give one thing in
consideration of the other’s promise to give another thing.
II.
Definitions
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Fixtures – merchandise usually possessed and annexed to the
premises occupied by merchants to enable them better to store,
handle, and display their wares
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Merchandise – must be construed to mean such things as are
usually bought and sold in trade by merchants
Discussions
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When sale or transfer in bulk
o Sale, transfer, mortgage or assignment of
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A stock of goods, wares, and merchandise
otherwise than in the ordinary course of
trade and the regular prosecution of the
business
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All or substantially all, of the business or
trade
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All or substantially all, of the fixtures and
equipment used in the business of the
vendor, mortgagor, transferor, or assignor
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Purpose of the Law
o Designed to prevent defrauding of creditors by the
secret sale in bulk of all or substantially all of a
merchant’s stock of goods
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Scheme of the law
o That such Bulk Sales are fraudulent and void as to
creditors of the vendor, or presumptively so, unless
specified formalities are observed such as
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Demanding and giving list of creditors
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Giving of actual or constructive notice to
such creditors
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Making of an inventory