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CPA Reviewer Law on Sales updated as of 2017 2018
Bachelors of Science Major in Accountancy (University of San Jose - Recoletos)
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CPA in Transit Reviewer: Law on Sales
2017-2018 ed.
I.
RFBT
SALES
Nature of Obligation Created
A contract where one party obliges
himself to transfer ownership and to
deliver a determinate thing and the
another party to pay a price certain in
money or its equivalent.
Elements of a Contract of Sale
1. Essential Elements
a. Consent
b. Determinate object
c. Price certain in money
2. Natural Elements
a. Warranty against eviction
b. Warranty against hidden
defects and encumbrances
3. Accidental Elements- refer to
the stipulations of the
contracting parties
Characteristics of a Contract of Sale
1. Consensual- perfected by
mere consent
2. Principal- capable of standing
alone without the need of
another contract
3. Bilateral- there is a reciprocal
obligation between the parties
4. Onerous- valuable consideration
is given by both parties
5. Commutative- the consideration
exchange are of equivalent values
6. Nominate- has a name given by law
Stages of a Contract of Sale
1. Preparation/Conception- the
time the contracting parties
shows interest in the contract.
2. Perfection/birth- concurrence of
the essential elements of the sale
3. Consummation/death- begins
when the parties perform their
respective undertakings, resulting
in the extinguishment thereof.
a.) For the SELLER: To transfer
ownership and to deliver
possession of the subject matter
b.) For the BUYER: to pay the price
Sale as a Title
Contract of sale DOES NOT transfer the
ownership of the subject matter. It is
merely a title that creates the obligation to
transfer ownership and a mode thereof.
The contract of sale transfers no real
rights. Ownership and position is
transferred through delivery or tradition.
II. SALE DISTINGUISH FROM
OTHER CONTRACTS
A) DONATION
Sale
Donation
Onerous
Gratuitous
Perfected by mere Perfected by
consent
donee’s acceptance
Donation is an act of liberality whereby a
person disposes gratuitously of a thing or
right in favor of another, who accepts it.
B) BARTER
Sale
Barter
Cause or
Cause or
consideration is in consideration is
money
another thing
By contract of barter or exchange, one
of the parties binds himself to give one
thing in consideration of the other’s
promise to give another thing. [Art. 1638]
Note: Consideration is partly in money
and partly in another thing.
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The type of contract is determined under
the following hierarchy;
a. Manifest intention of the parties
b. If intention is not clear, the
following rules shall apply:
i. Thing is more valuable than
money- barter
ii. Money is equal or more than
to the value of the thing- sale
C) CONTRACT FOR PIECE OF WORK
Sale
Contract for Piece of
Work
Ordered in the
Made specially for
ordinary course of the customer upon
the business
his special order
Thing transferred
already existed and Thing transferred
can be a subject of existed due to the
order of the party
sale to other
desiring it.
persons
Within the statues Not within the
of fraud
statues of fraud
When each product or system executed
is always UNIQUE and could not massproduce the product because of its very
nature, such is a contract for a piece of
work. [Commissioner vs. Engineering
Equipment and Supply Co., 1975]
D) DACION EN PAGO
Sale
Dacion en Pago
No pre-existing
Pre-existing debt
debt
Creates an
Extinguishes an
obligation
obligation
Freedom in
Price is value of the
determining price thing given
The cause or
Cause is the
consideration is
extinguishment of
the price and the the obligation and
delivery of the
the delivery of the
object
object
Ver. 1.07 | BY: R.M.P
E) CONTRACT TO SELL
Contract of sale
Contract to sell
Ownership is
Ownership is
transferred upon
transferred upon full
delivery
payment
Non-payment is a Full payment is a
resolutory
positive suspensive
condition
condition
Sale is already
No perfected sale yet
perfected
Subsequent buyer is Subsequent buyer is
presumed to be in presumed to be in
bad faith
good faith
Vendor loses and
cannot recover
Title remains in the
ownership of the
vendor if the vendee
thing sold until
does not comply
contract of sale is
with the conditions
resolved and set
of the contract
aside
Contract to sell cannot be considered as
a contract of sale because the first
element (consent) is lacking. The
prospective seller does not consent until
the happening of an event. The seller
only agrees is to fulfill his promise to sell
the subject when full payment is made.
F) AGENCY TO SELL
Sale
Agency to Sell
Agent receives goods
Buyer receives
of the principal who
goods as owner
retains ownership
Agent delivers the
Buyer pays the price price which he got
from his buyer
Buyer, as a general
Agent can return the
rule, cannot return
goods
the object sold
Seller warrants the Agent makes no
thing sold
warranty
Agent can deal with
the thing received as
Buyer can deal with
long as it is within
the thing sold
his authority given
by the principal
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G) KINDS OF CONTRACT OF SALE
1) Absolute- sale is not subjected
to any condition and the title
immediately passes to the
purchaser upon delivery
2) Conditional- ownership of the
object remains with vendor
until fulfillment of condition/s.
Conditional Co ntract
of Sale
Sale is already
perfected
Upon fulfillment
of condition,
ownership
automatically
transfers to the
buyer
H) LEASE
Sale
Ownership
transferred by
delivery
Seller must be the
owner at the time
of delivery
Contract to Sell
Sale is not
perfected
Upon fulfillment
of condition,
ownership does
not automatically
transfers to the
buyer
a. Existing Goods- goods owned or
possessed by the seller
b. Future Goods- goods to be
manufactures, raised or acquired
by the seller after the perfection
of the contract. These are things
which are expected
Objects must be within the commerce of
men. If the subject is illicit, contract is
VOID and cannot be ratified.
Instances of sale of things not actually or
already owned by seller at time of sale
1. Sale of thing having potential
existence
2. Sale of future goods
3. Contract for the delivery at a certain
price of a thing the vendor produces
in the ordinary course of the
business or for the general market.
Lease
No transfer of
ownership
Lessor need not be
the owner
One person binds himself to grant
temporarily the use of the thing or to
render some service to another who
undertakes to pay some rent.III. OBJECT/SUBJECT MATTER
Requisites of a Valid Subject Matter
a. For Things:
1. Licit/ lawful
2. Should not be impossible
3. Determinate or determinable
b. For Rights:
1. Transmissible
2. Licit
Ver. 1.07 | BY: R.M.P
Goods which may be Object of Sale
LICIT
The thing is licit when:
1) It is within the commerce of man
2) When right is transmissible
3) It does not contemplate a future
inheritance, unless expressly
authorized by law
Example of properties not within the
commerce of man:a) Public property
a. Property for public use
b. Intended for public service
c. Intended for development
of national wealth
b) Church
c) Narcotics or drugs
Kinds of Illicit Things
1) Per Se- of its nature
2) Per Accidens- due to provisions of
law declaring it illegal
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Examples of illicit sale:
a. Sale of Future inheritance
b. Sale of animals suffering from
contagious disease
c. Sale of animal to be used for a
service stated in a contract, and they
have found to be unfit therefor.
d. Sale or transfer of land to aliens
EXISTING, FUTURE, CONTINGENT
Goods which form the subject may
either be:
1) Existing
2) Goods to be manufactures,
raise or acquired by the seller
3) Things having potential existence
4) Sale of specific things
5) Fungible goods
6) Undivided interest
Mere Hope or expectancy (Emptio Spei)
The sale of a mere hope or expectancy
is deemed subject to the condition that
the thing contemplated or expected will
come into existence.
The Sale it self is valid even if the thing
hoped or expected does not come into
existence, unless if such hope or
expectancy is in vain, such sale is VOID.
Emptio Rei Speratae
Sale of an expected
thing
Subjected to the
condition that the
thing will come into
existence
Uncertain with
regard to quantity
Future Goods (Emptio Rei Speratae)
It is in the form of a present sale, is valid
only as an executory contract to be
fulfilled by the acquisition and delivery of
the goods specified. Upon the
acquisition of goods, either party may
demand the execution of the contract.
Example of future things:
1. Goods to be manufactured
or printed
2. To be raised or future
agricultural products
3. To be acquired by seller after
the perfection of the contract
4. Things whose acquisition
depends upon a contingency
Potential Existence
Goods not existing at the time can be an
object as long as it has a potential or
possible existence, that is, it is reasonably
certain to come into existence, and the
title will vest in the buyer the moment the
thing comes into existence.
and quality of the
thing
Object is a future
thing
Emptio Spei
Sale of the hope
itself
Sale produces effect
even if the thing does
not come into
existence
Uncertain with the
existence of the
thing
Object is a present
thing
Note: In case of doubt, presumption is in
favor of emptio rei speratae since it is
more in keeping the commutative
character of the contract.
SALE OF SPECIFIC THINGS
A) Sale of Things in Litigation
Entered into by defendant, without
knowledge and approval of the litigants
or the court is rescissible. [Art. 1381 (4)]
Rescission will not take place when
the thing legally is in the possession
of a 3rd person who acted in good
faith. [Art. 1385 (2)]
B) Sale of Undivided Interest
Makes the buyer a co-owner of the
thing. The co-owner can dispose his
share even without the consent of
the other co-owner/s.
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CPA in Transit Reviewer: Law on Sales
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RFBT
IV.
C) Sale of undivided share of a
Specific Mass of Fungible Goods
The sale of an undivided share in a
specific mass of fungible goods makes
the buyer a co-owner of the entire mass
in proportion to the amount he bought.
If later on it was discovered that the
mass of fungible goods contain less
than what was agreed upon, the buyer
becomes owner of whole mass and
seller must make up for the difference.
D) Sale of Things Subject to a
Resolutory Condition
If the resolutory condition happens, the
vendor cannot transfer ownership of
what he sold since there is no object.
PRICE
It is the sum stipulated as equivalent of
the thing sold and also every incident
taken into consideration for the fixing of
the price put to the debit of the buyer
and agreed to by him.
Requisites
1. Certain or ascertained at the time
of perfection
2. In money or its equivalent
3. Real, not fictitious
A) CERTAINTY OF PRICE
Price must be certain, otherwise the
sale is void by reason of absence of
meeting of minds.
Price can be determined or certain when:
DETERMINATE OR DETERMINABLE
A) Determinate
A thing is determinate when it is
particularly designated or physically
segregated from all others of the
same class.
B) Determinable
A thing is determinable when it is
capable of being made determinate at
the time the contract was entered
without the necessity of a new or further
agreement between the parties.
O
O
Note:
Failure to state the exact location of
the land does not make the object
indeterminate, so long as it can be
located.
The fact that the exact area of the land
specified in the contract of sale is
subjected to the result of the survey
does not make the object indeterminate.
a.) Parties have fixed or agreed upon
a definite price
Fixing of price cannot be left to the
discretion of one of the parties
unless if such was accepted by the
other, therefor the sale is perfected.
b.) If it be certain with reference to
another thing certain
c.) Determination is left to the
judgement of a specified person
Price fixed by 3rd persons designated
by the parties is binding upon them.
Exemptions
1. If unable or unwilling: sale is
inefficacious unless parties
subsequently agree about the
price.
2. If in bad faith/by mistake: Courts
may fix the price.
3. If 3rd person is prevented from
fixing price by fault of seller or
buyer: Innocent party may
avail of remedies through
recession or fulfillment of
obligation, with damages.
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RFBT
B) INADEQUACY OF PRICE
Gross inadequacy of price does not
affect the contract of sale except that
it may indicate a defect in consent.
1. Voluntary Sales
• General rule: Mere inadequacy
of the price does not affect
validity of the sale.
• Exceptions:
a.) When low price indicates vice of
consent, sale may be annulled
b.) Where the price is so low as to
be “shocking to conscience”,
sale may be set aside
c.) Where the parties did not intend
to be bound at all, sale is VOID
2. Involuntary Sales
• General Rule: Mere inadequacy
of the price is not a sufficient
ground for the cancellation of the
sale if property is real.
• Exceptions:
1. Where the price is so low as
to be shocking to the moral
conscience, judicial sale will
be set aside.
2. In the event of resale, a better
price can be obtained.
C) SIMULATION OF PRICE
If the price is simulated, the contract
is void for the lack of cause or
consideration, but can be shown as a
donation or some other contract.
Disagreement on the matter of payment
is tantamount to a failure on the price
1. False Price (Relative Simulation)
Price stated in the contract is not
the true price parties intended to
be bound
2. Simulated Price (Absolute
Simulation)
Price stated in the contract is
not intended to be paid. Parties
never intended to be bound.
Contract is void and inexistent.
D) FAILURE TO DETERMINE
PRICE
1. Where contract executory- contract
is without effect. There is no
obligation created.
2. Where delivery has been made- buyer
must pay a reasonable price.
Reasonable Price
What is a reasonable price is a
question of fact dependent on the
circumstances of each case.
It may be determined on the basis of
a company’s balance sheet showing
the book or fair value of its shares.
Generally, reasonable price is the
market price at the time and place
fixed by the contract or by law for
delivery of goods.
E) EARNEST MONEY
Partial payment of the purchase
price & considered proof of the
perfection of the contract.
Earnest Money
Part of purchase
price
Given only when
there is already a
sale
Buyer is bound to
pay the balance
In case of nonpayment, specific
performance or
rescission can be
filed
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Option Money
Separate and distinct
from purchase price
Given when sale in
not yet perfected
Would-be-buyer is
not required to buy
In case of nonpayment, there can
be an action for
specific
performance.
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RFBT
NOTE: Expenses for the execution
and registration of the sale shall be
borne by the vendor, unless there is a
stipulation to the contrary.
Remedies of vendor to unpaid price
1. Exact fulfillment
2. Cancel the sale, should
vendee failed to pay two or
more installments.
3. Foreclose the chattel mortgage.
Requisites
a.) Must be a contract of sale b.)
Object is personal property c.)
Sale must be in installments
Does not apply for sale for cash or
straight terms.
V.
OFFER
• General Rule: Offer may be withdrawn
at any time without even communicating
such withdrawal to the interested buyer
• Exception: When the offeror has allowed
the offeree a certain period to accept, may
be withdrawn at any time before acceptance
by communicating such withdrawal.
Exception to the exception: Cannot be
withdrawn within a certain period if
found under a consideration.
OPTION CONTRACT
An accepted unilateral promise to buy or
sell supported by a consideration
distinct from the price. It secures the
privilege to buy.
Option Contract
Unilateral
Sale of right to
Sale
Bilateral
Sale of Property
purchase
An option without consideration is VOID
and the effect is the same as if there
was no option.
Kinds of Promises
1. Unilateral promise to sellpromise elects to buy
2. Unilateral promise to buypromise elects to sell
3. Bilateral promise to buy and
sell-either parties choose to
exact fulfillment
VI.
ACCEPTANCE
The acceptance referred to which
determines consent is the acceptance of
the offer, and not of the goods delivered.
Requisites
1. It must be absolute
2. Must be plain and unconditional
3. To bind the offeror, the offeree
must comply with the conditions
of the offer.
VII.
PERFECTION
Contract of sale is perfected at the moment
of the meeting of the minds of the parties.
From the moment of perfection, parties
may reciprocally demand performance.
Requirements for Perfection
1.When parties are face to face, when an
offer is accepted without conditions and
without qualifications. If negotiation is made
through a phone, it is as if the parties are face
to face.
2. When contract is through a
correspondence or thru telegram, there
is perfection when the offeror receives
or has knowledge of the acceptance by
the offeree.
3. When sale is made subject to a
suspensive condition, perfection is when
from the moment the condition is fulfilled.
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RFBT
Statute of Fraud
Effect of Perfection
The following transaction must be in writing,
otherwise contract is unenforceable. Unless
ratified by failure to object to oral
acceptance of benefits under the contract.
After perfection, parties must now
comply with their mutual obligations. In
the meantime, buyer has personal
rather than real right. Hence if seller
sells again a parcel of land to a stranger
in good faith, the proper remedy of the
buyer would be to sue for damages for
he cannot recover ownership over
something he had never owned before.
1. Sale of property at price not
less than P500.00
2. Sale not to be performs within
one year
3. Sale of real property or
interest therein
NOTE: Applicable only to executory
contracts and not to contracts which
are totally or partially performed.
Sale by Auction
Perfected when the auctioneer accepts
the bid by the falloff the hammer, gavel,
or in any other customary manner.
If the auction is announced “without
reserved”, goods cannot be withdrawn
from sale after the bid is made.
By taking part in the auction, the buyer
voluntarily submitted to the terms and
condition of the auction.
Sale Of Goods By Description
Seller sells things as being a particular
kind, and buyer has not seen the article
sold and relies on the description given
by the vendor.
Sale by Sample
Parties contracted solely with reference to
the sample, with the understanding that
the bulk was like it. The vendor warrants
the thing sold will conform with the sample
in kind, character, and quantity. It is the
sole basis or inducement of the sale.
NOTE: goods must satisfy all the warranties.
Otherwise, contract may be rescind.
VIII. CAPACITY TO BUY AND SELL
All persons who can bind themselves by
contract have also legal capacity to buy
and sell.
Kinds of Incapacity
1. Absolute Incapacity- persons
cannot bind themselves at all
a. Minors
b. Insane or Demented
c. Deaf-mutes who do not
know how to write
d. Civil Interdiction
2. Relative Incapacity- only with
regards to certain persons
and certain class of property
Husband and Wife
• General Rule: Husband and wife
cannot sell to each other
• Exception:
1) When separation of property
was agreed
2) There was a judicial separation
of property
Relative Incapacity
The following persons cannot acquire
property by purchase, even at a public
auction, either in person or through the
mediation of another:
1) Guardian, with respect to the
property of his ward
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2) Agents, the property whose
administration or sale may have
been in trusted to them, unless
consent of principal is given
3) Executors and administrators,
property of estate under his
administration.
4) Public officers and employees, with
respect to the properties of the
government, political subdivisions,
or GOCCs, entrusted to them.
5) Judges,
justice,
prosecuting
attorney, clerks of court, etc., with
respect to the property in custogia
legis.
6) Other persons disqualified by law
Effect of violation
a. With respect to 1-3: VOIDABLE
Reason: only private rights,
which are subject to ratification
are violated.
b. With respect to 4-6: NULL & VOID
Reason: violation of public policy
cannot be subjected to ratification
IX. LOSS AND DETERIOTAION
•
After delivery: buyer bears the risk.
Unless delivery was delayed through
the fault of either parties, the risk is
with the party in fault; and when the
ownership of the goods has been
retained by the seller.
X.
OBLIGATIONS OF
THE VENDOR
1) Transfer ownership
2) Deliver the thing, with its
accessions and accessories, if any
3) Warrant against eviction and
against hidden defects
4) To take care of the thing, pending
delivery, with proper diligence
5) To pay the expenses of the deed
of sale, unless there is stipulation
to the contrary
XI.
DELIVERY
Ownership, as a consequence of certain
contracts such as sale, shall be
transferred to the vendee upon actual or
constructive delivery
Res Perit Domino
The concept that owner bears risk of loss
and deterioration because ownership is
not transferred until delivery.
Rule on Risk of Loss and Deterioration:
•
•
•
•
Before Perfection: Seller bears
the risk
At the time of perfection: Contract is
VOID or inexistence
At the time of sale: if entirely lost,
contract is VOID or inexistence. If
partially lost, vendee may elect
between
withdrawing
or
demanding the remaining part.
After perfection but before delivery:
risk of loss is shifted to the buyer
but stipulations in the contract will
govern.
Intention to Transfer Ownership
In all forms of delivery, the act of
delivery shall be coupled with the
intention of delivering the thing. The act
without the intention is insufficient.
Requisites of Delivery
1. Identity
2. Integrity
3. Intentional
When vendor is not bound to deliver
1. Vendee has not paid the price
2. No period for payment has been
fixed
3. Even if a period for payment has
been fixed, if the vendee has lost
the right to make use of the same
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Kinds
1. Actual or real- placing the thing
under the control and possession
of the buyer
2. Legal or constructive- delivery is
represented by other signs or
acts indicative thereof
3. Quasi-tradition- delivery of
rights, credits or incorporeal
property, made by (i) placing
titles of ownership in the hands
of the buyer or (ii) allowing the
buyer to make use of rights
4. Tradition by operations of law
Kinds of Constructive or Legal Delivery
a) By Legal Formalities- sale is
made through public instrument.
Gives rise only to a prima facie
presump-tion of delivery.
b) Symbolic Delivery (tradition
simbolica)- delivery of keys or
depository where the movable
is kept or stored.
c) Traditio Longa Manu- delivery of
a movable by mere consent or
agreement. Pointing at the thing
d) Traditio Brevi Manu- buyer simply
continues in possession of the
thing but under ownership. Applies
to movables only. Happens when
buyer already has possession of
the thing sold before the sale.
e) Traditio Constitutum Posessoriumseller continues to be in possession
of the property sold but not as a
owner but in some other capacity.
Sale or Return
Property is sold, but the buyer has the
option to return it to the seller instead of
paying the price. It depends on the
discretion of the buyer; it is a sale with a
resolutory condition.
It is a kind of sale with condition
subsequent. Buyer, being the owner, bears
the risk of loss. The buyer must comply
with express or implied conditions
otherwise, the sale becomes absolute.
Sale on Approval or Trial
Title remains with seller notwithstanding
delivery of the goods. It is in nature of
an option to purchase. Sale is
dependent on the quality of the goods; it
is a sale with suspensive condition.
Buyer become owner when:
1) Buyer signifies his approval or
acceptance to seller
2) Does any other act adopting the
transaction
3) Retains the goods without giving
notice of rejection after the time
fixed has expired; it no time has
been fixed, after the expiration of
a reasonable time
Sale or Return
Subject to a
resolutory
condition
Depends on the will
of the buyer
Ownership passes
to buyer on delivery
Risk of loss or
injury rest with the
buyer
Sale on Trial
Subject to a
suspensive condition
Depends on the
character or quality
of the goods
Ownership remains
in the seller until
buyer signifies his
approval (meeting of
the minds)
Risk of loss and
injury remains with
seller
Goods Delivered Through Carrier
• General Rule: Delivery to carrier is
deemed to be delivery to the buyer.
• Exception: Where the right of
possession or ownership of specific
goods sold is reserved.
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Seller’s Duty After Delivery to Carrier
1. To enter on behalf of buyer into
such contract reasonable under
the circumstances
2. To give notice to buyer regarding
necessity of insuring the goods.
Instances Where Seller Is Still The Owner
Despite Delivery
1. Sale on trial, approval or satisfaction
2. Contrary intention appears by the
terms of the contract
3. Implied reservation of ownership
a. Goods are shipped, but by
the bill of landing goods
are delivered to seller or
his agent or their order
b. Bill of landing is kept by
the seller or his agent
c. When the buyer does not
honor the bill of exchange
by returning the bill of
landing to seller.
Sale by one having a Voidable Title
If the seller has only a voidable title,
buyer acquires a good title to the goods
provided he buys them:
a) Before the title of the seller has
been avoided
b) In goods faith for value
c) Without notice of the seller’s
defect of title
Sale of Goods by a Non-owner
• General Rule: Buyer acquires no title
even if in good faith or for value. Nemo
dat quid non habet (“You cannot give
what you do not have”).
• Exceptions:
1. Owner is estopped or precluded
by his conduct
2. Sale is made by the registered
owner or apparent owner
3. Sales sanctioned by judicial or
statutory authority
4. Purchase in a merchant’s store,
fairs or markets (art. 559)
5. When a person who is not the
owner sells and delivers a thing,
subsequently acquires title thereto.
6. When the seller has a voidable
title which has not been avoided
at the time of sale.
Place of Delivery
1. Where there is an agreement:
Place specified
2. Where there is no agreement:
Place of delivery determined by
usage of trade
3. Where there is no agreement and
no prevalent usage: seller’s place
of business
4. In any other case: seller’s residence
Payment of the Purchase Price
• General Rule: Seller is not bound to deliver
unless the purchase price has been paid.
• Exception: The Seller is bound to deliver
even if the price has not been paid, is a
period of payments has been fixed.
Goods Delivered Less Than Quantity
Agreed
1. Buyer may reject; or
2. Buyer may accept and pay at the
contract rate
Quantity More Than Agreed Upon
1. Buyer may reject all; or
2. Buyer may accept the goods
agreed upon and reject the rest; or
3. Buyer may accept all and must
pay for them at the contract rate
Goods Mixed With Goods Of Different
Description
Buyer may accept the goods which are
in accordance with the contract and
reject the rest.
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Indivisible Goods
Classes of Documents of Title
If the subject is indivisible, in case of
delivery of a large quantity of goods or a
mixed goods, the buyer may reject the
whole of the goods.
Right of rejecting the whole of the goods
delivered is given only if the subject
matter is indivisible.
Rights of Vendee to the Fruits
Vendee has the right to the fruits of the
thing sold from the time obligation to
deliver arises. Generally at time of
perfection, however parties may modify
it by agreement.
XII.
DOCUMENT OF TITLE
A document of title in which is stated
that the goods referred to therein will be
delivered to the bearer, or to order of
any person named in such document is
a negotiable instrument of title.
Document is negotiable if:
1.) Goods are deliverable to bearer
2.) Goods are deliverable to the
order of a certain person
Common forms of document of title
a) Bill of Landing- contract or receipt
for the transport of goods and their
delivery to the person named
therein, to order or bearer.
b) Dock Warrant- given by dock owners
to an importer of goods recognizing
the latter’s title of the said goods
c) Warehouse Receipt- contract or
receipt for goods deposited with a
warehouseman
containing
the
latter’s undertaking to hold and
deliver the said goods to a specified
person, to order or bearer.
a) Negotiable Documents of title- stated
that goods can be delivered to
bearer, or to the order of a person.
b) Non-negotiable Instrument of Titlestated that goods are to be
delivered to a specified person.
Negotiation of negotiable document of
title
1.) By Delivery
2.) By indorsement plus delivery
Forms of Indorsement
a) Blank Indorsement- consist of
signature of the indorser without
specifying the name of the indorsee.
b) To bearer- where the indorsement
states that the goods are
deliverable to bearer.
c) Special Indorsement- name of
indorsee is specified.
Negotiable Document of title marked
“Non-negotiable”
Such mark will have no effect on the
instrument and remains to be negotiable.
Who may negotiate negotiable document
of title
1. By the owner
2. By the person to whom the
possession or custody of the
document has been entrusted by
the owner.
Rights of the Holder
1. Title of the person negotiating the
document, over the goods
covered by the document;
2. Title of the person to whose order
by the terms of the document the
goods were to be delivered, over
such goods;
3. The direct obligation of the bailee
to hold possession of the goods for
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him, as if the bailee had
contracted to him directly.
NOTE: Mere transfer foes not acquire
directly the obligation of the bailee. To
acquire it, he must notify the bailee.
Rights of the Transferee
The rights of a transferee, tot whom a
document is transferred but not
negotiated, are not absolute as it is
subjected to the terms of the agreement.
1. Title of the goods as against the
transferor;
2. Right to notify the bailee of the
transfer thereof;
3. Right, thereafter, to acquire the
obligation of the bailee to hold
goods for him.
Bailee
The bailee has the direct obligation to
hold possession of the goods for the
original owner. The goods cannot be
attached or levied and bailee cannot be
compelled to deliver the goods unless
the document be first surrendered or its
negotiation prohibited by court.
Failure of bailee or previous indorsers to
fulfill their obligations
Indorser hall not be liable for any failure on
the part of the bailee or previous indorsers
to fulfill their respective obligation.
Effect of typographical or Grammatical
Error
It does not destroy the negotiability of
the document of title, for what should be
considered is the intent.
Transfer for Value by Delivery
If a negotiable document of title is
transferred for value by delivery, and
indorsement is essential for negotiation,
The right of the transferee are:
1. Right to the goods as against the
transferor;
2. Right to compel the transferor to
indorse
Negotiation shall take effect as to the time
when indorsement is actually made.
Warranties on sale of document
1. Document is genuine
2. He has a legal right to negotiate
or transfer it
3. He has knowledge of no fact
which would impair the validity or
worth of the document
4. He has the right to transfer the
title to the goods and that goods
are merchantable or fit for a
particular purpose
XIII.
UNPAID SELLER
Unpaid seller is one who has not been
paid the whole amount of the price or
one who received a negotiable
instrument and it has been dishonored,
buyer is insolvent, or otherwise.
Rights of the Unpaid Seller
1) Right to lien of goods or the rights
to retain them for the price while
he is in possession of them
2) Right of stoppage in transit
3) Right of resale
4) Right to rescind the sale
RIGHT TO LIEN
Right to retain possession of goods until
payment or tender of the whole price, or
unless he agrees to sell on credit
A) When available:
1.) Goods sold without stipulation
as to credit
2.) Goods are sold on credit, but
credit term has expired
3.) Buyer becomes insolvent
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B) Lien on Partial Delivery:
When unpaid seller made partial
delivery of the goods, he may
exercise his lien on the
remainder, unless such part
delivery shows an intent to waive
the lien or right of retention.
C) When lien is lost:
1.) 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 of possession thereof;
2.) Buyer or his agent lawfully
obtains possession of the goods;
3.) By waiver thereof
RIGHT OF STOPPAGE IN TRANSITU
An extension of the lien for the price;
entitles unpaid seller to resume possession of
the goods while they are in transit before the
goods come in possession of the vendee
A) When available:
1.) Buyer must be insolvent;
2.) Seller must be unpaid
3.) Goods are in transit
4.) Seller must actually take
possession of the goods sold
or give notice of his claim to
the carrier or other person in
possession.
5.) Seller must surrender the
document of title, if any,
issues by the carrier or bailee;
6.) Seller must bear the expenses
of delivery after the exercise
of the right
B) When goods are considered in transit:
1.) After delivery to carrier or other
bailee and before the buyer or his
agent takes delivery of them; 2.)
Goods are rejected by buyer, and
carrier or bailee continues to be in
possession of them, even if
seller refused to received
them back.
C) How to exercise:
1.) By obtaining actual
possession of the goods.
2.) By giving notice of his claim to
the carrier or bailee.
Such notice may be given in to
the person in actual possession
or to his principal. But if given to
the principal, it must be given at
such time and under such
circumstances to be effectual so
the principal can prevent delivery.
D) Effects of exercise:
1.) Goods are no longer in transit
2.) Carrier shall be liable as
depositary or other bailee.
3.) Carrier must redeliver the
goods to, or according to the
instructions of the seller
E) When goods are no longer in transit:
1.) After delivery to the buyer or
his agent in that behalf;
2.) Buyer obtains delivery of the
goods before arrival at the
appointed destination
3.) Carrier or bailee
acknowledges to hold the
goods on behalf of the buyer
4.) Carrier or other bailee
wrongfully refuses to deliver the
goods to the buyer or his agent.
RIGHT OF RESALE
A) When available:
1.) Seller has the right to lien or
stoppage in transitu.
2.) Under the following cases:
a. Goods are perishable
by nature
b. Right to resell is
expressly reserved
c. Buyer delays in payment
for an unreasonable time
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B) Effects of resale
1.) Seller is not liable to the buyer
for any profit
2.) If sells for less than the price,
seller has right to sue for the
balance from buyer
3.) New buyer acquires good title
as against the original buyer
RIGHT TO RESCIND THE SALE
Return of the title over the undelivered
goods to the seller, and right to recover
damages for breach of contract
A) When available:
1.) Seller has the right to lien or
stoppage in transitu
2.) Under either of the 2 situations:
a. Right to rescind is
expressly reserved
b. When buyer delays in the
payment of the price for
an unreasonable time.
B) Effects of rescission
1.) Seller resumes ownership of
the goods
2.) Seller shall not be liable to the
buyer upon the contract
3.) Buyer may be held liable to
the seller for damages for any
loss occasioned by the breach
of contract
C) How seller may rescind:
by notice to the buyer or by some
overt act showing an intention to
rescind.
Communication to buyer of rescission is not
always necessary but giving/failure to give
notice
is
relevant
in
determining
reasonableness of time given to the buyer
to make good his obligation under contract.
Effect if Buyer Sold the Goods
Generally, the unpaid seller's right of
lien or stopage in transitu remains even
if the buyer has sold or otherwise
disposed of the goods.
Exceptions:
1.) Seller has given his consent
2.) When purchaser or buyer is a
purchaser for value in good faith
of a negotiable document of title.
IX.
SALE OF REAL ESTATE
Unit Price Contract
Payment will be made only on the basis
of contractual items actually performed.
The amount agreed upon is merely an
estimate. Price is depending upon the
quantities performed multiplied by the
unit prices previously agreed upon.
Sale of Real Estate by the Unit
The vendor must deliver the entire
property agreed upon. The immovable
property must be of the quality specified
in the contract.
If the entire area could not be delivered,
then the object of the contract is not
delivered. Hence the vendee is entitled
to rescind it. But he may, however,
enforce
the
contract
with
the
corresponding decrease in price.
When Vendee is Entitled to Rescind Sale
of Real Property
1.) If the lack of area is at least 1/10th
than that stated or stipulated.
2.) If the deficiency in the quality
specified in the contract exceeds
1/10th of the price agreed upon
3.) If the vendee would not have bought
the immovable had he known of its
smaller area or inferior quality.
Where immovable of a greater area or
number
Vendee may accept the area included in the
contract and reject the rest. The vendee
may not withdraw from the contract.
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Lump Sum Sale (A Cuerpo Cierto)
Sates the full purchase price based on
the estimate or where both area and
boundaries are stated.
2.) Double Sale of Real Property
a. First registrant in good faith
b. First possessor in good faith
c. Person with oldest title in
good faith
Boundaries
Mentioning the boundaries of the land is
indispensable in every conveyance of real
estate. The vendor is bound to deliver all
that is included within the said boundaries.
The area of which, even if lesser or grater
than what is stipulated, is immaterial.
The requirement of the law then is twofold: acquisition in good faith and
registration in good faith. Good faith
must concur with the registration. If it
would be shown that a buyer was in bad
faith, the alleged registration they have
made amounted to no registration at all.
Real property not in Vendor's Possession
The failure of a person to take the ordinary
precautions, specially in buying a piece of
land in the actual, visible and public
possession of another person, other than
the vendor, constitutes gross negligence
amounting to bad faith. One who purchases
real property which is in the actual
possession of another should, at least make
some inquiry concerning the right of those in
possession. He can scarely, in the absence
of such inquiry, be regarded as a bona fide
purchaser as against such possessors.
Prescription of Action
The action for either recission of the or
reduction of the price must be brought 6
months from the day of delivery.
X.
DOUBLE SALE
Requisites of Double Sale
1. Two or more valid contract of sale;
2. Two or more buyers ;
3. They must pertain exactly to
the same object; and
4. They must be bought from
the same seller.
Rules of Preference
1.) Double Sale of Movables
- who first takes possession in
good faith
XI.
CONDITIONS
An uncertain event or contingency on
the happening. Conditions may be:
1.) Waived; or
2.) Considered as warranties
Effect of non-fulfillment of Condition
1.) If the obligation of either party is
subjected to any condition and
such condition is not fulfilled,
such party may;
a. Refuse to proceed with the
contract
b. Proceedthecontract,
waiving the performance
of the condition
2.) If condition is in nature a promise
that it should happen, the nonperformance of such condition
may be treated by the other party
as a breach of warranty.
XII.
WARRANTIES
It is a promise that a fact is true. In a
sale, it is a statement of fact abut the
quality or character of the goods sold to
induce the sale relied upon by the
buyer. Breach or violation of it gives rise
to a suit for damages. Warranty is
enforceable only against the immediate
vendor of the party dispossessed.
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Warranty vs Condition
Warranty
Goes into the
performance of an
Implied Warranty
obligation and may,
in itself, be an
obligation
Stipulation or
operation of law
Non-fulfillment
constitutes breach
of contract
May attach to the
seller’s duty to
RFBT
Condition
Affects the existence
of the obligation
Must be stipulated
Non-happening does
not breach the
contract
It is a natural, not an essential element of
a contract, and is deemed incorporated in
the contract of sale. It is inherent.
Its reason is to protect naïve and
unsuspecting buyers from scrupulous
sellers from running away from their
wrongful doings.
It may be modified or suppressed by
agreement of the parties. Unless
waived, the warranties stay.
Always relate to the
subject matter or the
deliver or some
other circumstances seller’s obligations
Kinds of Warranties
1.) Express Warranty
2.) Implied Warranty
Express of Opinion
A mere expression of opinion by the
seller does not import a warranty unless:
1.) Seller is an expert; and
2.) Opinion was relied upon by the
buyer
Not every false representation voids the
contract, only those matters substantially
affecting the buyer’s interest
Implied Warranties in sale
1. Warranty as to seller’s title
2. Warrant against hidden defects
3. Warranty as to fitness or
merchantability
When Implied Warranty not Applicable
1.) “As is and where is” sale
2.) Sale of secondhand articles
3.) Sale by virtue of authority in fact
or law
SUBSECTION 1
Warranty Against Eviction
Eviction
Vendee is deprived of the whole or part
of the thing purchased. (art. 1548)
Express Warranty
It is an affirmation of fact or any promise
by the seller about the subject matter
where the natural tendency of it is to
induce the buyer to purchase the thing
and the buyer purchases the thing
relying on such affirmation or promise.
An express warranty can be made by
and also be binding on the seller even in
the sale of a second hand article.
Warranty against Eviction
Seller guarantees that he has the right to
sell the thing sold and to transfer ownership
to the buyer who shall not be disturbed in
his legal and peaceful possession thereof. If
evicted, vendor is liable thereof.
Elements of Warranty Against Eviction
1.) Vendee has been deprived in whole
or in part of the thing purchased
2.) Deprived by virtue of final
judgement
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3.) Judgement is based on right prior
to the sale or act imputable to the
vendor
4.) Vendor was summoned in the
suit for eviction at the instance of
the vendee
5.) There is no waiver on the part of
the vendee
NOTE: Rescission is not a remedy
against
total
eviction.
Rescission
contemplates that the one demanding it is
able to return whatever he has received
under the contract. Since the buyer can
no longer return the thing sold to the
seller, rescission cannot be carried out.
Prescription
Where one acquires ownership and other
real right through the lapse of time in the
manner and conditions prescribed by law.
a. Completed before sale- vendee can
enforce warranty against eviction
b. Completed after sale- vendor is not
liable for eviction. (art. 1550)
Effect of Waiving Warranty in Bad Faith
a. Vendor in bad faith- cannot be
exempted from warranty. Because
he has knowledge beforehand of a
presence of a fact giving rise to
eviction. (art. 1553)
b. Vendee in bad faith- not entitled to
warranty against eviction nor right to
recover damages. He proceeded to
the sale with the assumption of the
risk of eviction. (art. 1554)
Kinds of Waiver
1. Consciente
a. voluntarily made by the
vendee
without
the
knowledge and assumption
of the risks of eviction.
b. Vendor shall only pay the
value of the thing sold at
the time of eviction
Eviction in Part
Buyer may either enforce vendor’s liability
for eviction or he may demand rescission
of the contract provided in article 1556, if
the buyer lose, by eviction, a part of the
thing sold of such importance that he
would not have bought it without said part.
2. Intencionada
a. Made by vendee with
knowledge of risk of
eviction and assumption of
its consequences
b. Vendor not liable unless
acted in bad faith
Rights and liabilities
In case eviction occurs, the vendee shall
have the right to demand of the vendor
the following:
1. Return of value of thing
2. Income or fruits of thing
3. Cost of the suit
4. Expenses of the contract
5. Damages and interest, and
ornamental expenses, if sale is
made in bad faith. (art. 1555)
SUBSECTION 2
Warranty Against Hidden Defects of, or
Encumbrances upon, the Thing Sold
Requisites for Warranty against
Hidden Defects
1. Defect must be important or serious;
2. Must be hidden
3. Must exist at the time of sale
4. Vendee must give notice of defect
to vendor within reasonable time
5. Action for rescission or reduction
in price must be brought within 6
months from delivery or 40 days
in case of animals
6. No waiver of warranty on the part
of vendee
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When defect important
a) Renders the thing sold unfit for its
intended use;
b) Diminishes its fitness for such use
NOTE: The use contemplated must be
that which is stipulated, and in absence
of stipulation, that which is adopted to
the nature of the thing, and to the
business of the buyer.
Implied Warranty of Fitness
Generally, there is no implied warranty
of fitness for any particular purpose
except under the following:
a) Buyer expressly or impliedly
manifest to the seller the particular
purpose of the goods acquired
b) Buyer relies upon the seller’s skill
or judgement
There is an implied warranty that the goods
are reasonably fit for such special purpose.
Implied Warrant of Merchantability
It’s a warranty that goods are
reasonably fit for the general purpose
for which the same are sold.
Ignorance of Vendor of Hidden Defects
Ignorance does not relieve the vendor
from liability. Good faith cannot be
availed of as a defense by the vendor.
a) Doctrine of Caveat Venditor
Vendor is still liable even is he is
not aware due to this doctrine. It is
based on the principle that a sound
price warrants a sound article.
Alternative Remedies of the Buyer
Vendee has the option to either:
1. Accion redhibitoria (withdraw from
the contract)
2. Accion quanti minoris (reduction
in price)
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Effects of Thing loss due to hidden defects
a.) Vendor aware of hidden defect- he
shall bear the lost due to bad faith.
Vendee may recover:
1. Price paid
2. Expenses of the contract
3. Damages
b.) Vendor is not aware- since he
acted in good faith, he shall be
obliged only to return:
1. Price
2. Interest
3. Expenses of the contract
paid by vendee
Lost due to fault of Vendee
If the thing sold had any hidden defects
at the time of sale, and it is lost through
the fault of the vendee, vendor shall be
liable for the price paid less value of the
thing had when it was lost. (art. 1569)
RULES
IN CASE OF SALE OF ANIMALS
Redhibitory vice or defect
A defect which the seller is bound to
warrant in animals, the following special
rules shall apply:
1. Defect must be hidden
2. Must be of such nature that
expert knowledge is not sufficient
to discover it
Veterinarian is liable if he fails to discover
or disclose the hidden defect through
ignorance or bad faith. (art. 1576)
Seller liable if animal dies within 3 days
after its purchase due to a disease that
existed at the time of sale.
Limitation of the action: Redhibitory action
must be brought 40 days from the date of
their delivery to the vendee. (art. 1577)
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No warranty against hidden defects
1. Animals sold at public fairs or
public auctions.
2. Livestock sold as condemned
Void Sale of Animals
a) animals sold are suffering
from contagious disease; or
b) found unfit for the use or
service stated in the contract.
Animal died with Vices
If loss is caused for fortuitous event or
by fault of vendee and animal has vices,
the buyer may either:
1. withdraw from the contract; or
2. demand a reduction in price.
XIII. EASEMENT OR SERVITUDE
Easement
or
servitude
is
an
encumbrance
imposed
upon
an
immovable for the benefit of another
immovable owned by a different person.
Kinds of easement or servitude
a) Apparent easement- expressly made
b) Non-apparent easement- no
external indication of its existence
When Vendee’s rights can’t be exercised
1.) When servitude is apparent
2.) If non-apparent servitude is
registered
3.) If vendee has knowledge of the
encumbrance, registered or not
XIV. OBLIGATIONS OF THE
VENDEE
Principal Obligations of the Vendee
1.) Accept delivery
2.) Pay the price
3.) Bear expenses for the execution
and registration of the sale and
putting the goods in a deliverable
state, if such is the stipulation
Pertinent Rules:
1.Vendor not required to deliver the
thing sold until the price is paid nor the
vendee to pay the price before the thing
is delivered in the absence of an
agreement to the contrary; (art. 1524)
2. If stipulated, vendee is bound to
accept delivery and to pay the price at
the time and place designated;
Requisites for Vendor’s Liability for
Immovable sold with Easement
1.) Must be non-apparent
2.) Not indicated in the agreement
3.) Must be of such nature that the
vendee would not have acquired
the immovable had he been
aware thereof.
3.If there is no stipulation as to the time
and place of payment and delivery, the
vendee is bound to pay at the time and
place of delivery;
Remedies & Right of Vendee
1.) Within 1 year from execution of
the deed of sale:
a. Rescission; or
b. Damages.
2.) After one (1) year from of
execution of deed of sale:
a. Damages, within a period of
one (1) year from discovery
of easement or servitude
5. If only the time for delivery has been fixed
the vendee is required to pay even before
the thing is delivered to him; (art. 1524)
4. In the absence of stipulation as to the
place of delivery, it shall be made
wherever the thing might be at the
perfection of the contract (art. 1251); and
Delivery in installments (art. 1583)
• General Rule: Buyer is not bound to
accept delivery or pay the price
thereof by installments.
• Exception: If there is a stipulation
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RFBT
Right of Buyer to Examine Goods
•
General Rule: Buyer has the right to a
reasonable opportunity to examine the
goods before accepting them. (art. 1584)
•
Exception: (1) When there is an
agreement; (2) stipulation that the
goods shall not be delivered to buyer
until he paid the price (C.O.D.).
If seller refused to allow an opportunity
for inspection, buyer may recind or
recover the price paid.
NOTE: the right to examine the goods is
a condition precedent to the transfer of
ownership.
When there is Acceptance of Goods
1. Express acceptance
2. Buyer does an act which only an
owner can do
3. Failure to return after reasonable
lapse of time
Effect of acceptance on vendor’s liability
for breach of warranty
•
•
General Rule: Seller is not discharged
from liability for breach of warranty by
the acceptance of the goods
Exception: (1) If there is an agreement,
express or implied; (2) if buyer fails to
give notice to seller of breach of
warranty within a reasonable time after
buyer knows of such breach. (art. 1586)
Effects if buyer refuses to accept delivery
1) Buyer justifiably refuses
a) Buyer has no duty to
return the goods
b) Title does not pass
c) Not be obliged to pay the
price
d) If he constitute himself as
a depositary, he shall be
liable as such
2) Buyer unjustifiably refuses
a) Title passes to the buyer,
unless there is stipulation and
seller reserved the ownership
b) Obliged to pay the price
(art. 1588)
Time and place for payment of price
a. Time and place stipulated
b. Time and place of delivery of
thing, in absence of stipulation
When Vendee is liable for interest
Buyer shall pay interest for the period
between delivery and payment of price
in the following cases:
1. If there is stipulation
2. Thing sold produces fruits or
income
3. If he is in default, from the time
judicial or extrajudicial demand
for payment of price. (art. 1589)
Suspension of Payment (art. 1590)
1. When buyer may suspend payment
a. If he is disturbed in the
possession or ownership of
thing bought; or
b. If he has a well-grounded fear
that
his
possession
or
ownership would be disturbed
by a vindicatory action or
foreclosure of mortgage.
2. When buyer may NOT suspend
payment
a. Vendor give security for the
return of the price;
b. It has been stipulated;
c. Vendor has caused the
disturbance or danger to cease;
d. Disturbance is a mere act of
trespass;
e. Vendee has fully paid the price.
e) Obligation to notify the seller
of such refusal (art. 1587)
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When Vendor may Rescind the Sale
1) Sale of immovable- seller must have
a reasonable ground to fear the:
a. Loss of the immovable
property; AND
b. Loss of the price.
If one or both grounds do not exist,
the vendor may choose between:
a. Fulfillment with damages;
b. Rescission with damages.
NOTE: Rescission of real property is
not automatic. Demand is needed
before rescission may take place.
Demand is for the rescission and not
for the payment of the price.
2) Sale of Movables- rescission of the
sale of movable shall take place
at the option of the vendor, if at
the time fixed for the delivery of
the thing, the vendee:
a. does not accept delivery
b. does not pay the price,
unless a longer period of
payment is stipulated
XV.
BREACH OF CONTRACT
OF
SALE OF GOODS
Actions by the Seller
1. Action for payment of price
a. Ownership has passed to buyer
and he wrongfully neglects or
refuses to pay the price;
b. Price is payable on a certain day
and buyer did not pay, even if
there is no transfer of title; or
c. If the goods can’t be readily
be resold for a reasonable
price and buyer wrongfully
refuses to accept them before
ownership has passed.
2. Action for damages
3. Action for rescission
a. When buyer repudiated the
contract of sale;
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b. When buyer manifested his
inability
to
perform
his
obligation; and
c. When buyer has committed a
breach in the contract.
Action by the Buyer
1. Bring an action for specific
performance, if the seller has
broken the contract to deliver
specific or ascertained goods.
2. In case of breach of warranty by
seller:
a. Accept the goods and ask to
reduce or extinguish the price
b. Accept goods and maintain an
action for damages
c. Refuse to accept the goods and
maintain an action for damages
d. Rescind the contract by the
return of goods and recover of
price
When rescission by Buyer not allowed
1. If buyer accepted the goods
knowing of the breach of
warranty without protest;
2. If he fails to notify the seller within
a reasonable time
3. Fails to return or offer to return
the goods to the seller in
substantially as good condition as
they were in the time of delivery
Rights and Obligation in Rescission
1. Buyer
a. Obliged to return the goods, and
cease to be liable for the price;
b. If paid the price or any part
thereof, he may recover it;
c. Right to hold the goods as
bailee if the seller refuse the
return of goods;
d. Right to have a lien of the goods
for any portion of price paid, as if
he were an unpaid seller.
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2. Seller
When seller may rescind before
delivery
a. When the buyer repudiated
the contract of sale;
b. When buyer manifested his
inability to perform his
obligation
c. When buyer committed a
breach of the contract.
XVI. EXTINGUISHMENT OF SALE
Sales are extinguish by:
1. By the same causes as all obligations:
a. Payment/performance
b. Prescription
c. Loss of thing due
d. Annulment
e. Novation
f. Condonation/remission
g. Confusion or merger
h. Compensation
i. Rescission
j. Resolutory Conditions
2. by the various causes of
extinguishment in title VI (sales):
a. Cancellation
of
sale
of
personal
property
in
installments (art. 1484)
b. Resale of the goods by
unpaid seller (art. 1532)
c. Rescission of the sale by
unpaid seller (art. 1534
d. Rescission by the buyer in case
of partial eviction (art. 1556)
e. Rescission by buyer in case
of breach of warranty against
hidden defect (art. 1567)
f. Rescission by buyer in sale of
animals
with
redhibitory
defects (art. 1580)
3. By redemption
A.) CONVENTIONAL REDEMPTION
Also called the right to redeem or
repurchase, takes place when the vendor
reserved the right to reacquire the thing
sold, provided that he:
1. Return to the vendee:
a. The price paid
b. Expenses of the contract and
other legitimate payments
made thereof
c. Necessary and useful expenses
made on the thing sold.
2. Comply with other stipulations
NOTE: the seller a retro must pay for
useful improvements introduced by the
buyer a retro; otherwise, the latter may
retain possession of the land until
reimbursement is made.
Period of Redemption
a.) No agreement : 4 years from date
of contract
b.) There is agreement: should not
exceed 10 years. The time in
excess of 10 years shall be null
and VOID.
c.) Civil Action between the parties: 30
days after final judgement was
made, provided that the contract
was a true sale with a right to
repurchase.
Effect of Failure to exercise right of
repurchase
Ownership shall be consolidated in the
vendee. In case of real property, a
judicial order is required for the purpose
of recording the consolidation in the
registry of property after the vendor has
been duly heard. (art. 1607)
Who may Exercise the right to
Repurchase
1. Vendor a retro
a. Vendee, who acquired the
whole undivided interest, may
compel the vendor, who only
sold part thereof, to redeem
the whole property.(art. 1611)
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b. Property sold by co-owners
jointly and in the same contract
may exercise the right in respect
to his share only. (art. 1612)
c. In the case above (b), vendee
cannot be compelled to consent
to a partial redemption, he may
demand all vendors or co-heirs
to agree to repurchase the
whole thing sold. (art. 1613)
2. Vendor remains in possession as
lessee or otherwise;
3. Extension for period of right to
repurchase;
4. Purchases retains for himself a
part of the purchase price;
5. Vendor binds himself to pay the
taxes of the thing sold;
6. When the real intention of the
parties is to secure the payment
of an obligation.
2. Creditors of the Vendor
a. They cannot make use of the right
of redemption until after they have
exhausted the property of the
vendor. (art. 1610)
Rights of Parties as to the Fruits of Land
1. If there were fruits at the time of
sale and vendee paid for them,
he must be reimbursed.
2. If vendee did not pay for the fruits,
no reimbursement for those
existing at the time of redemption.
3. No fruits at the time of same and
some exist at time of redemption, it
is to be distributed proportionately
to the vendor and vendee, giving
the latter a share in proportion to
the time he possessed the property
during the last year counted from
the anniversary from the date of
sale to compensate the vendee for
his expenses. (art. 1617)
B.) EQUITABLE MORTGAGE
One which lacks the proper formalities of
a mortgage, but shows the intention of the
parties to make the property subject of the
contract as security for a debt.
A contract may be presumed to be an
equitable mortgage under the following
cases: (applies only to absolute sale)
1. Unusually inadequate purchase
price;
NOTE: in case of doubt, a contract
purporting to be a sale with right to
repurchase (pacto de retro sale) shall be
construed as an equitable mortgage.
NOTE: Vendor may ask for reformation,
or to correct the instrument to express
the true intent of the parties.
C.) LEGAL REDEMPTION
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:
(1)purchase or
(2) dation in payment, or
(3) by any other transaction whereby
ownership is transferred by onerous
title.
May be effected against movables or
immovables. It must be exercised within
thirty (30) days from the notice in writing
by the vendor.
NOTE: Written notice under is mandatory
for the right of redemption to commence.
Right of Legal Redemption of Co-owners
The following are the requisites for the
right to exist:
1. There must be co-ownership;
2. There must be alienation of all or
any of the shares of the other coowners;
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3. The sale must be to a third
person or stranger;
4. The sale must be before partition;
5. The right must be exercised
within the period provided;
6. Vendee must be reimbursed for
the price of the sale.
Against whom the right may be exercised The
right of legal redemption is not granted
solely and exclusively to the original coowner but applies to those who
subsequently acquire their respective share
while the co-ownership subsist. In other
words, the right cannot be exercised against
another co-owner but rather it is exercised
against the buyer who bought the share.
Legal Redemption of Adjacent Owners of
RURAL Lands
The following are the requisites for the
right to exist:
1. The land must be rural;
2. Land must be adjacent;
3. There must be alienation;
4. Rural land alienates must not
exceed 1 hectare;
5. Vendee must already own some
rural land; and
6. Rural land sold must not be
separated by brooks, drainage,
ravines, roads and other apparent
servitudes from the adjoining lands.
NOTE: Legal right of redemption of rural
land refers to land used for agriculture
rather than residential purposes. [Fabia vs
Intermediate Appellate Court, Nov. 21, 1984]
If two or more adjoining owners desire to
exercise the right of redemption
1. Owner of the smaller area shall
be preferred.
2. If both lands have same area, the one
who first requested the redemption
shall be preferred. (art. 1621)
Rights of Adjacent Owner of URBAN
Lands
The owners may exercise two (2) rights,
right of pre-emption or right of
redemption. The following are the
requisites in order to exercise such right:
1. Land must be urban;
2. One exercising the right must be
an adjacent owner;
3. The land sold must be so small
and so situated that a major
portion thereof cannot be used
for any practical purpose within a
reasonable time;
4. Such urban land was bought by its
owner merely for speculation; and
5. It is about to be resold, or that its
resale has been perfected.
NOTE: If two or more owner wish to
exercise their rights, the one whose
intended use of the land appears best
justified shall be preferred. (art. 1622)
Co-owners are preferred over adjacent
owners. (art. 1623, par 2)
Pre-emption
It is the act of purchasing before others.
If exercised, they will have preference
over other potential buyers.
Pre-emption vs Redemption
Pre-emption
Redemption
Arises before the
Arises after sale
sale
No rescission
There can be
because no sale as rescission of the
yet exist
original sale
The action is
Action is directed
directed against the
against the buyer
prospective buyer
May attach to the
Always relate to the
seller’s duty to
subject matter or the
deliver or some
other circumstances seller’s obligations
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Period which Right may be Exercised The
period shall be exercised within 30 days
from the notice in writing by the
prospective vendor, or by the vendor.
NOTE: Art. 1626 stresses “knowledge”
rather than when notice is received.
If notice is not given, the 30-day period
has not even begun to run. [Vda. De
Cangco v. Escudibo] However, no specific
form of written notice is required.
The assignment of a credit does not only
includes the credit but also all accessory
thereto. It includes the following: (art. 1627)
The 30-day notice in writing should be
counted from notice, not of the perfected
sale, but of the actual execution and
delivery of the document of sale.
[Doromal v. COA L-36083, Sept. 5, 1975]
XVII. ASSIGNMENT OF CREDITS
AND OTHER INCORPOREAL RIGHTS
Assignment of credit is a contract where
one person (creditor/assignor) transfers
to another his rights and actions against
a third person (debtor) to another
person (assignee) in consideration of a
price certain in money.
An assignment of credit not only entitles the
assignee to the credit, but also the power to
enforce it against the debtor of the assignor.
Forms of assignment of credit
1. Between parties
a. May be in any form, oral or
written. So long as the law
does not require a specific
form for its validity.
2. To be binding against 3rd persons
a. If personal property- public
instrument
b. If real property- public
instrument must be recorded
in the Registry of Property.
Effects of payment by debtor to
creditor/assignor after assignment
Accessory Rights Included in Assignment
1.
2.
3.
4.
Guaranty
Mortgage
Pledge
Preference
NOTE: this inclusion is based on the rule
that accessory follows the principal. (art.
1537)
Warranties of Assignor (art. 1628)
1. When a creditor assigns his
credit, he warrants only at the
perfection of the contract the:
a. Existence; and
b. Legality of the credit.
NOTE: He is not liable of credit
was sold as doubtful.
2. There is no warranty as to the
solvency of the debtor unless:
a. There is a stipulation; or
b. The insolvency was already
existing
and
of
public
knowledge at the time of sale.
Liability for breach of warranty
1. In good faith
a. Price received
b. Expenses of the contract
c. Other legitimate payments
by reason of assignment
2. In bad faith
a. Price received
b. Expenses of the contract
c. Other legitimate payments
by reason of assignment
d. Damages
1. No
knowledge
of
assignmentReleased from obligation. (art. 1626)
2. With knowledge of assignment- not
released.
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Duration of Assignor’s Warranty
1. Period Stipulated
2. If no period stipulated, 1 year from
date of maturity or assignment,
which ever comes later.
Sale of successional or hereditary rights
The seller only warrants the fact that he
is an heir if sold without specification of
properties. He does not warrants the
objects which makes up the inheritance.
Unless stipulated, the vendor is liable to
deliver the fruits of the inheritance; if
consumed, he must reimburse them; if sold,
he must deliver the price of sale. (art. 1632)
The vendee must reimburse the vendor
the debts and charges on the estate
paid by the latter. (art. 1633)
NOTE: Since vendor already sold the
inheritance, he should not profit except, of
course, insofar as the price is concerned.
Sale of whole of certain rights, rents, or
products
Vendor only warrant the legitimacy of the
WHOLE and not obliged to warrant each of
the various parts of which it may be
composed. Vendor is liable for eviction for:
1. The whole of the thing; or
2. Part of the grater value. (art. 1631)
Legal redemption in sale of credit or
other rights in litigation
Requisites before the right can be exercised:
1. There must be a sale or
assignment of a credit
2. There must be a pending litigation
at the time of assignment
4. Right must be exercised 30 days
from the date assignee demands
payment from him. (art. 1634)
Exceptions to debtor’s right to legal
redemption
The debtor’s right to legal redemption is
not available when the assignment of the
right in litigation is made to a: (art. 1635)
1. Co-heir or co-owner
2. Creditor in payment of his credit;
3. Possessor of property in question.
<-------END------->
Bibliography
Civil Code of the Philippines. (n.d.).
De Leon, H. S., & De Leon, Jr., H. M. (2013). The
Law on Sales, Agency and Credit
Transactions (2013 ed.). Manila: Rex
Book Store.
Domingo, A. D. (n.d.). RFBT MCQ CPA
Reviewer (2017 ed.). Benguet:
Coaching for Results Publishing.
Paras, E. (2013). Civil Code Volume V (Special
Contracts) (17th ed.). Rex Book Store.
Pineda, E. L. (2010). Sales and other Special
Contracts. Central Booksupply Inc.
San Beda College of Law. (n.d.). Memory Aid in
Civil Law.
Soriano, F. R. (2016). Notes in Business Law
(2016 ed.).
UP Law Bar Operations Comission.
(2016). UP College of Law Bar
Reviewer- Civil Law (2016 ed.).
Villanueva, C. (2004). Law on Sales (2004
ed.). Res Books Store.
3. Debtor must pay the assignee:
a. Price paid by him
b. Judicial cost incurred.
c. Interest on the price from
the date of payment
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