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CPA RFBT Reviewer Law on Sales and credit transactions
BS Accountancy (Ateneo de Zamboanga University)
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CPA in Transit Reviewer: Law on Sales
1
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
Onerous
Perfected by mere
consent
Donation
Gratuitous
Perfected by
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
Cause or
consideration is in
money
Barter
Cause or
consideration is
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
Thing transferred
already existed and
existed due to the
can be a subject of
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
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
Title remains in the
cannot recover
vendor if the vendee
ownership of the
does not comply
thing sold until
with the conditions
contract of sale is
of the contract
resolved and set
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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RFBT
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 Contract
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
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
Goods which may be Object of Sale
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.
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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RFBT
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
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.
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
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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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.
Note:
o Failure to state the exact location of the
land does not make the object
indeterminate, so long as it can be
located.
o 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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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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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
Sale
Unilateral
Bilateral
Sale of right to
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 sell- promise
elects to buy
2. Unilateral promise to buy- promise
elects to sell
3. Bilateral promise to buy and selleither 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
the risk of loss. The buyer must comply with
express or implied conditions otherwise,
the sale becomes absolute.
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 presumption 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.
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
Sale on Trial
Subject to a
suspensive condition
Depends on the
Depends on the will
character or quality
of the buyer
of the goods
Ownership remains
in the seller until
Ownership passes
buyer signifies his
to buyer on delivery
approval (meeting of
the minds)
Risk of loss or
Risk of loss and
injury rest with the injury remains with
buyer
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.
It is a kind of sale with condition
subsequent. Buyer, being the owner, bears
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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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Classes of Documents of Title
Indivisible Goods
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.
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.
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
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
The requirement of the law then is two-fold:
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.
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. Proceed
the
contract,
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
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
deliver or some
other circumstances
Implied Warranty
Condition
Affects the existence
of the obligation
It is a natural, not an essential element of a
contract, and is deemed incorporated in the
contract of sale. It is inherent.
Must be stipulated
Its reason is to protect naïve and
unsuspecting buyers from scrupulous
sellers from running away from their
wrongful doings.
Non-happening does
not breach the
contract
It may be modified or suppressed by
agreement of the parties. Unless waived, the
warranties stay.
Always relate to the
subject matter or the
seller’s obligations
Implied Warranties in sale
1. Warranty as to seller’s title
2. Warrant against hidden defects
3. Warranty as to fitness
merchantability
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
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.
or
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)
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)
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: Rehibitory 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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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
e) Obligation to notify the seller
of such refusal (art. 1587)
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.
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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;
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
redihibitory
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. 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;
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.
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) Coowners 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
seller’s obligations
other circumstances
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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)
1. Guaranty
2. Mortgage
3. Pledge
4. Preference
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
creditor/assignor after assignment
to
Accessory Rights Included in Assignment
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.
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.
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
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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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