REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS

Law on Sales

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

I. Essential elements of the contract of sale – These are elements necessary for validity and perfection of
contract of sale. (Consent, Price, Determinate subject)

a. Subject matter or object which should be a determinate thing

i. Requisites of subject matter of a contract of sale
1. It must be within the commerce of men.
2. It must be licit and not contrary to law, morals, good customs, public order or public policy.
3. It must be determinate.
4. It must be owned by the vendor at the time of delivery.

ii. Things that may become the subject matter of a contract of sale
(The vendor must have the right to transfer the ownership of the thing at the time it is delivered; not necessarily
at the time of sale)
1. Existing goods owned or possessed by the seller.
2. Goods to be manufactured, raised or acquired by the seller after the perfection of the contract
of sale or “future goods”/ Emptio rei speratae subject to the condition that it must materialize.
If the future things do not materialize, the contract of sale will become inefficacious or void for
absence of subject matter which is an essential element of contract of sale.
3. Goods whose acquisition by the seller depends upon the contingency which may or may not
happen.
4. Things subject to resolutory condition which if happens, the contract of sale will be
extinguished.
5. Hereditary rights
6. Undivided interest in co-owned property which will result to co-ownership on the part of
buyer and seller.
7. Fungible goods which refer to interchangeable goods such as grain, oil, etc. that allow to
be replaced by another without loss of value.
A. Principles on sale of an undivided share of a specific mass of fungible goods though
the seller purports to sell and the buyer purports to buy a definite number, weight or
measure of the goods in the mass, and though the number, weight or measure of the goods
in the mass is undetermined.
i. If the quantity, number, weight or measure, of the mass is more than the quantity
sold, the parties shall become co-owners of the mass.
ii. If the quantity of the mass is less than the quantity sold, the buyer becomes the
owner of the whole mass, with the seller being bound to make good the deficiency
from goods of the same kind and quality, unless a contrary intent appears.

iii. Things not allowed to become the subject matter making the contract null and void
1. Those contrary to law, morals or public policy.
2. Those outside the commerce of men.
3. Future inheritance
4. Vain hope

iv. Distinctions between emptio rei speratae and emptio spei

Emptio rei speratae (Sale of Future Thing) Emptio spei (Sale of Hope or Expectancy)
The thing expected will definitely come into existence, but It is not certain that the thing will exist much less its quantity or
its quality or quantity unknown. (Sale of future thing) quality. (Sale of present thing which is the hope itself)
Subject to the condition that the thing should exist, so that Produces effects even though the thing does not come into
if it does not, there will be no contract of sale by reason of existence because the subject matter is the hope itself, however, the
the absence of an essential element of subject matter sale of vain hope or expectancy is void.
Ex: Sale of future harvest Ex: Sale of lottery ticket No. 113
Ex of vain hope: Sale of a losing sweepstake ticket already drawn

b. Price certain in money or its equivalent: the sum stipulated, put to the debit of the vendee, and agreed by him.
i. Requisites of price in a contract of sale
1. It must be certain.
2. It must be real
3. It must not be fictitious.
ii. Instances when the price is certain
1. If the parties have agreed upon a definite amount for the sale.
2. If it be certain with reference to another thing certain.
 ii. The third person acted in bad faith or by mistake.
Ø The injured party may ask the court to fix the reasonable price.
iii. The third person is prevented from fixing the price by fault of the seller or the buyer.
Ø The injured party may ask for damages
4. If the price is fixed by the court which price may no longer be changed by the contracting parties.
5. If the price fixed is that which the thing sold would have on a definite day, or in a particular exchange
or market, or when an amount is fixed above or below the price on such day, or in such exchange or
market, provided said amount is certain.
6. If the price is fixed by one of the contracting parties and accepted by the other.

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

1. It does not affect a contract of sale, except as it may indicate a defect in the consent which makes
the contract voidable requiring annulment of contract.
2. It renders the contract one of donation if that is the real intention of parties. Thus, it will require
reformation of instrument.

iv. Effects of simulated price in a contract of sale

1. If the price is absolutely simulated, the contract of sale is null and void requiring declaration of
nullity.
2. It the price is relatively simulated, the intent of the parties is hidden requiring reformation of
instrument.

c. Consent of the contracting parties on the determinate thing and the price certain in money
i. Moment of perfection of contract of sale
1. At the moment there is a meeting of minds upon the thing which is the object of the contract and
upon the price.
ii. Moment of perfection of contract of sale by auction
1. When the auctioneer announces its perfection by the fall of the hammer or in any other
manner.
a. Rights of auctioneer and highest bidder before the perfection of contract of sale by
auction
i. Before perfection, any bidder may retract his bid.
ii. Before perfection, the auctioneer may generally withdraw the goods from the sale
unless the auction has been announced without reservation by auctioneer.
b. Rights of auctioneer and highest bidder after the perfection of contract of sale by
auction
i. After perfection, the winning bidder cannot retract his bid.
ii. After perfection, the auctioneer cannot withdraw the goods.
c. Requisites before auctioneer may participate in bidding or auction
i. The right to bid must have been reserved expressly by or on behalf of the seller.
ii. The right to bid must not be prohibited by law or stipulation.
iii. Notice must be given that the sale is subject to a right to bid by or on behalf of the
seller.
d. By bidders or puffers refer to persons employed by the seller to bid in his behalf, the
purpose of which is to raise the price, but the said persons are not in themselves bound by
their bids. The employment by the seller of by-bidders or puffers without notice to the other
bidders may make the perfected contract of sale voidable because the consent of the highest
bidder is vitiated by causal fraud.

II. Natural elements of the contract of sale – These are elements which are presumed to exist in a contract of
sale unless validly waived by the contracting parties.
Note: (Persons professing to sell by virtue of authority is not liable for breach of warranty. Ex.: Sheriff, auctioneer)
a. Warranty against eviction: enjoy the legal and peaceful possession of the thing
b. Warranty against hidden defects: free from any hidden faults or defects
c. Warranty against non-apparent and unregistered servitude or encumbrance
d. Warranty for merchantability

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

IV. Characteristics of a contract of sale

a. Principal – It can exist by itself without being dependent upon another contract.
b. Consensual – It is perfected by mere consent upon the price certain and determinate thing except in case
of sale of a piece of land by the agent in the name of the principal which is a formal or solemn contract
which requires that the authority of the agent to sell the land must be in writing for the contract to be valid.
c. Bilateral – The parties are bound by reciprocal obligations.
 V. Sale vs Dacion en pago vs payment by Cession
Sale Dacion en pago Cession
No pre-existing credit There is pre existing credit There is pre-existing credits
Creates obligations Extinguishes obligations Extinguishes obligations
Greater freedom in fixing the price Less freedom because of the amount of Less freedom because of the amount of
pre-existing credit which the parties seek pre-existing credit which the parties seek
to extinguished to extinguished
Cause/consideration: price (S), delivery of Cause/consideration: extinguishment of Cause/consideration: extinguishment of
object (B) obligation (D), delivery of the object the obligation (D), assignment of the
given in place of credit (C) things to be sold (C)
Buyer becomes the owner of the thing Creditor become the owner of the Creditors do not become the owners of
transferred upon delivery property assigned the property assigned to them but are
merely given the right to sell such property
and apply the proceeds to their claims.
Governed by Law on Sales Governed by Law on Sales Governed by special law: Financial
Rehabilitation and Insolvency Act (FRIA)

VI. Contract of sale vs contract for a piece of work vs contract of barter

Sale Piece of work Contract of barter
It is for the delivery at a certain price of an It is for the goods to be manufactured
article which the vendor in the ordinary especially for the customer upon his
course of business, manufactures or special order and not for the general
procures for the general market, whether market.
the same is on hand or not
a price of at least P500 or sale of a price of <=P500 is not covered by movable with price of at least P500 or
immovable regardless of price is covered Statute of Fraud. barter of immovable regardless of price
by Statute of Fraud is not covered by Statute of Fraud.
The cause is cash The cause is a noncash asset

A. Rules for determining whether a contract is one of sale or barter if the cause is a combination of cash
and noncash asset.
1) Determine the manifest or evident intention of the parties.
2) If the evident intention of the parties is not present, apply the following rules: (comparison of the non cash vs cash)
i. The contract is one of barter if the value of the noncash asset given as part of the consideration
exceeds the monetary consideration. (Noncash > Monetary value)
ii. The contract is one of sale if the monetary consideration is more than or equal the value of the
noncash asset given as part of the consideration. (Noncash <= Monetary value)

VII. Contract of sale vs contract to sell vs agency to sell

Contract of sale Contract to sell Agency to sell
Ownership passes to the buyer upon The title to the goods does not pass to Title to the goods is retained by the
delivery the buyer until some future time: owner/principal despite the delivery of
agreement reserved to the vendor/seller the goods to the agent.
and oftentimes upon payment of the
price
The risk of loss or damage to the goods The risk is borne by the seller after
upon delivery is on the buyer, under the delivery based on the same principle that
rule “res perit domino: the thing perished the thing perishes with the owner.
with the owner”
Non-payment of the price is a negative Payment in full of the price is a positive
resolutory condition: the seller loses suspensive condition; No consent yet
ownership and cannot recover it until and from seller to transfer ownership until the
unless the contract is resolved or happening of the event/full payment
rescinded.
Note:
1. The rule on double sale applies only if both contracts are of sale but it is not applicable to contract to sell.
2. When S promises to execute a deed of absolute sale upon the completion by the buyer of the payment of the purchase
price, the contract is only a contract to sell even if their agreement is denominated of Conditional Sale.

2. Distinction between Bilateral promise to buy and sell and Unilateral promise to buy or sell
Bilateral promise to buy and sell Unilateral promise to by or sell
Definition Takes place when one party promises to buy and The promise to buy or sell a determinate thing at a
the other party promises to sell a determinate thing certain price is made by only one of the parties.
at an agreed price.
Perfection When there is a promise to buy and sell Binding only if accepted by promisee and supported by
option money: consideration distinct from the price
Policitacion refers to unilateral promise not accepted by
the promisee, therefore, it does not produce any effect.

3. Distinctions between option money and earnest money or arras

Option money Earnest money or arras
Proof of perfection of contract of option, not necessarily monetary Proof of perfection of contract of sale
4. Moment of obtaining personal rights by the buyer over the fruits of the determine thing sold in a contract of
sale: from the moment of perfection of contract of sale (buyer shall acquire no real right over its fruits until delivered)

5. Effect of the complete loss of the object of the contract of sale before the perfection of the contract or at the
moment of perfection of contract of sale: the contract of sale is null and void for absence of essential element of
subject matter.

6. Remedies of the buyer in case of the partial loss of the object of the contract of sale at the time of the perfection
of the contract of sale
I. Withdrawal from the contract or rescission.
II. Demanding the remaining part and paying its proportionate price.

7. Party who shall bear the risk of the complete loss of the object of the contract of sale after perfection of contract
of sale but before delivery of the subject matter. There are 2 views of matter:
a. *Seller based on the concept of Res perit domino which means that the thing perishes with the owner and
Buyer is not obliged to pay the price. (This view is more favored)
Exceptions: at buyer’s risk
1) If there is an agreement to that effect.
2) If ownership of goods is retained by S merely to secure the performance by B of his obligation under
the contract.
3) When actual delivery has been delayed through the fault of B.

b. Buyer on the basis of Provision of the Civil Code: since any benefit therefrom during the period inures B.
Exceptions: at seller’s risk
1) When S delays
2) When law provides even in case of fortuitous event.
3) When parties have stipulated.
4) When nature of S’s obligation requires the assumption of risk.

8. Effects of the complete loss of the object of the contract of sale after perfection of contract of sale and after
delivery of the subject matter
a. The buyer shall suffer the risk of loss.
b. The buyer must pay the price.

9. Contracts covered by Recto Law (Art. 1484)

a. Installments sales of personal property
b. Contracts purporting to be leases of personal property with option to buy, when the lessor has deprived
the lessee of the possession or enjoyment of the thing

I. Remedies of vendor or lessor in Recto Law

a. Sole remedy if the vendee or lessee fails to pay a single installment
i. Exact fulfillment of the obligation with right to recovery for damages

b. Alternative remedies if the vendee or lessee fails to pay two or more installments
ii. Exact fulfillment of the obligation with right to recovery for damages.
iii. Cancel the sale should the vendee fails to pay two or more installments resulting to mutual
restitution. However, the vendor may retain the installments already received if there is agreement
to that effect provided such agreement is not unconscionable.
iv. Foreclose the chattel mortgage on the thing sold, if one has been constituted without right to recover
any deficiency. Any stipulation for recovery of deficiency is null and void.

II. When deficiency may be recovered

a. In case of sale on straight-term. (Balance after down payment is to be paid in its entirety at once.)
b. If security foreclosed is other than the chattel mortgage constituted on the thing sold.
c. In the case of sale on execution of judgment in favor of the seller.
Note: General rule: If the foreclosure sale in chattel mortgage results in deficiency, the same may be recovered by
the creditor. Recto Law is an exception to this: no deficiency may be recovered.

10. Rights of the Buyer in Sale of residential/ real property in installments governed by Maceda Law (RA6552)
Also known as Realty Installment Buyer Act, its objective is to protect buyers of real estate on installment payments
against onerous and oppressive conditions.

I. Transactions covered: Sale or financing of real estate on installment payments, including residential
condominium apartments, but excluding industrial lots, commercial buildings, and sales to tenants under RA.3844
amended by RA. 6389 (Land Reform Law), where the buyer has paid at least two years (>=2 yrs) of installments.

a. Right to a grace period from the date the installment became due with no interest which can be
exercised only once every five (5) years.
Paid installments Grace period with no interest
Paid less < 2 years of installment Minimum GP= 60 days
 c. Right to cash surrender value in case of cancellation by seller.
Paid installments Grace period with no interest
Paid less < 2 years of installment Not entitled to any CSV.
Paid 2-5 years of installment Entitled to 50% CSV of the total payment
th
Paid more > 5 years of installment Entitled to 50% + 5% (after 5 yr) per year of total payment but
th
not to exceed 90% of total payments made (13 yr)
Note: Down payments, deposits, or options shall be included in the computation of the total payment.

d. Additional rights:
1) B shall have the right during the grace period before the cancellation of the contract:
a. To sell his rights to another by notarial act.
b. To assign his rights to another, by notarial act.
c. To reinstate the contract by updating the account.
2) To pay in advance any installment or the full unpaid balance any time without interest.
3) To ask for annotation of the full payment of the purchase price in the certificate of title covering the property.

II. When cancellation shall take place: the actual cancellation shall take place after thirty (30) days from receipt
by B of the notarized notice of cancellation or the demand for rescission of the contract by notarial act and upon the
full payment of the CSV to the buyer.

III. Maceda law is NOT applicable to a loan transaction, or bank financing. This transaction give rise to a lender-
borrower relationship. Maceda law should be construed only as a mode of payment in relation to the seller of the
real estate. Here, the real estate is being purchased from another company, not from the bank.

11. Rights of Buyer of Subdivision or condominium unit under PD 957 or Subdivision and Condominium Buyer's
Protective Decree
I. Transactions covered: “Subdivision lot” shall mean any of the lots, whether residential, commercial, industrial, or
recreational, in a subdivision project.

II. Rights of Buyer in case of default: Governed by RA 6552, or Realty Installment Buyer Act, or Maceda Law
a. In case of noncompliance by the developer with the plan, the buyer may suspend payment of the price
and ask for the cancellation of contract with corresponding demand for the return of the price he has paid
including amortization interests but excluding delinquency interests.
b. The developer shall pay the real property tax before transfer of ownership to buyer.
c. The developer can only collect fees for registration of sale from the buyer.

12. Persons incapacitated to enter into a contract of sale

a. Those suffering from absolute incapacity
i. Minor
ii. Insane
iii. Demented
iv. Deaf-mute who do not know how to write
Note:
1. If only one party is incapacitated, the contract of sale is voidable.
2. If both parties are incapacitated, the contract of sale is unenforceable.
3. When necessaries are sold to a minor or other incapacitated person, he must pay a
reasonable price thereof and the sale is valid. Necessaries include everything
indispensable for sustenance, dwelling, clothing, medical attendance, education and
transportation.

b. Those suffering from relative incapacity

i. Husband and wife
1. General rule: Contract of sale between husband and wife is null and void.
2. Exceptions: when husband and wife may validly sell to each other
a. If there is prenuptial or ante-nuptial agreement of complete separation of property
b. If there is judicial separation of property by reason of legal separation

13. Persons who are prohibited from acquiring by purchase, even at public or judicial auction, sales in legal
redemption, compromises or renunciation
a. The guardian, the property of the person or persons under his guardianship.
b. Agents, the property whose administration or sale may have been entrusted to them, unless the consent
of the principal has been given.
c. Executors and administrators, the property of the estate under administration.
d. Public officers and employees, the property of the State or GOCC under their administration.
e. Justices, judges, prosecuting attorneys, clerks of court and other officers and employees connected
with the administration of justice, the property and rights in litigation.
Note:
1. For a-c, the contract is voidable since only private interests are involved.
2. For d-e, the contract of sale is null and void because they are imbued with public interest, thus is contrary to law.
14. Obligations of the vendor or seller
a. To transfer the ownership of the thing sold at the time the subject matter should be delivered.
b. To deliver the determinate thing sold including the accessions and accessories in the condition in which
they were upon the perfection of the contract.
c. To warrant the thing sold against eviction, hidden defects and non-apparent and unregistered
encumbrances.
d. To take care of the thing sold with the diligence of a good father of a family unless the law or the stipulation
of the parties requires another standard of care.
Note:
General rule: the creditor has a right to the fruits of the thing from the time the obligation to deliver the thing arises.
Exception: (for contract of sale) the fruits shall pertain to the buyer (personal right only) from the day on when the
contract was perfected, unless stipulated otherwise.

15. Obligation of the vendee or buyer

a. To pay the price certain in money or its equivalent on the date agreed upon.

16. Delivery is a mode of acquiring ownership whereby the object of the contract is placed in the control and possession
of the vendee or buyer. It is the act that transfers ownership from seller to buyer in a contract of sale. However, the
contracting parties may agree that ownership will be transferred from the seller to the buyer by any other acts such as
full payment of the price.
I. Types of Delivery
a. Actual delivery
b. Constructive delivery

II. Examples of constructive deliveries

a. By legal formalities – When the same is made through a public document, the execution thereof shall
be equivalent to the delivery of the thing sold. It applies to both movable and immovable property. The
execution of a public instrument gives rise to a prima facie presumption of delivery. Such presumption is
destroyed when the delivery is not effected because of legal impediment.

b. Symbolic delivery (traditio simbolica or traditio clavium) – This is delivery that takes place by delivering
the keys of the place or depository where the movable is stored or kept.

c. Traditio longa manu – It is the delivery of a movable by mere consent or agreement of the parties if the
thing cannot be transferred to the possession of the vendee at the time of sale. “Delivery by the long hand.”,
usually made by pointing at the thing.

d. Traditio brevi manu – It is a delivery that takes place when the vendee or buyer is already in the
possession of the thing sold even before the sale and thereafter continues in possession thereof in the
concept of an owner. It applies to movables only. “Delivery by the short hand.”

e. Traditio constitutum possessorium – It is a delivery that takes place when the vendor or seller
continues in possession of the thing sold after the sale but in another capacity such as that of a lessee
or depositary. It applies to both movable and immovable property. “Delivery by agreement of possessors.”

f. Constructive deliveries of intangible assets or incorporeal rights, or quasi-traditio

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

17. Distinctions between Sale or return vs. Sale on trial or approval

Sale or return Sale on trial or approval
Ownership is transferred to the delivery does not transfer ownership to the buyer but instead ownership is transferred to the buyer
buyer upon delivery, but the under any of the following instances:
buyer has the option to revest (a) when the buyer signifies his approval or acceptance of the goods;
their ownership on S by (b) when the buyer does an act adopting the transaction;
returning within the time fixed (c) when the buyer does not signify his approval or acceptance of the goods but retains the
or reasonable time. goods without giving notice of rejection within the time fixed in the contract or within reasonable
time, and such time has expired.
B may return the goods even if B has no right to return the goods if he is satisfied of its quality.
he is satisfied of its quality.
18. Delivery to the common carrier (FOB Shipping Point)
I. General rule: The law presumes that the contract of sale is FOB Shipping Point which means that delivery to
the carrier means delivery to the Buyer.
II. Exceptions: Instances which the ownership is retained by Seller despite delivery to carrier or other bailee:
1. When there is a stipulation to that effect.
2. When by the terms of the bill of lading, the goods are to be delivered to the order of the B or his agent, but the bill
of lading is retained by S or his agent.
19. I. General rule: A non-owner cannot transfer ownership to his buyer, B acquires no better title than S.
II. Exceptions: Instances when the sale of a non-owner transfers ownership to the buyer:
a. When the sale is made with authority or consent of the owner.
b. When the owner is precluded by his conduct from denying the seller’s authority to sell.
c. When the sale is made under the provisions of any factor’s acts, recording laws or any other provisions
of law enabling the apparent owner to dispose of the goods as if he were the true owner thereof.
d. When the sale is made under a statutory power of sale or under the order of court of competent jurisdiction.
e. When the purchase is made in a merchant’s store, or in fairs, or markets.
III. If the seller’s title is voidable but the same has not been avoided at the time of sale, the buyer acquires good title
to the goods, provided he buys them in good faith, for value, and without notice of the seller’s defect title.

20. Places wherein the things sold should be delivered

a. Place stipulated in the contract.
b. In case there is no stipulation, place fixed by usage or trade.
c. In the absence of a and b, the seller’s place of business if he has one; if none, the seller’s place of
residence.
d. In the case of specific goods, the place where the goods are located at the time of perfection of contract
of sale.
Note: Seller bears the expense of and incidental to putting the goods into a deliverable state, unless otherwise stipulated.

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

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

22. I. General rule: it is the obligation of S to deliver the thing sold to buyer after perfection of contract of sale.
II. Exceptions: Instances when S is not bound to deliver the thing sold after perfection of contract of sale:
a. If the vendee has not paid him the price.
b. If no period for payment of the price has been fixed in the contract.
c. If the vendee loses the right to make use of the period.
1) When B becomes insolvent, unless he gives a guaranty or security for the payment of the price.
2) When B fails to furnish the guaranties or securities that he has promised.
3) When the guaranties or securities have been impaired through his own acts or when through a fortuitous
event they disappear, unless he immediately gives new ones equally satisfactory.
4) When B violates any undertaking n consideration of which the vendor agreed to the period.
5) When the vendee attempts to abscond.

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

I. Rights of an unpaid seller

a. Right to possessory lien on the goods or right to retain them while he is in possession of them
i. Grounds for right of possessory lien
1. Where the goods have been sold without any stipulation as to credit.
2. Where the goods have been sold on credit, but the credit term has expired.
3. Where the buyer is insolvent.
ii. Instances when right of possessory lien is no longer available to the unpaid seller
1. When the seller delivers the goods to a carrier or other bailee for the purpose of
transmission to the buyer without reserving the ownership in the goods or the right to the
possession thereof.
2. When the buyer or his agent lawfully obtains possession of the goods.
3. By waiver of the possessory lien.
iii. Note: When the unpaid seller obtains judgment or decree for the price of the goods, he does not
lose his possessory lien or his right to retain them while he is in possession of them.

b. Right of stoppage in transit refers to the right of the unpaid seller to resume possession of the goods at
any time while they are in transit, and he will them become entitled to the goods as he would have had if
he had never parted with the possession.
i. Ground for right of stoppage in transit: Where the buyer is insolvent.
ii. Manners of exercising the right of stoppage in transit
1. By obtaining actual possession of the goods; or
2. By giving notice of his claim to the carrier in whose possession the goods are
iii. Effects of the exercise of right of stoppage in transit
1. The goods are no longer in transit.
2. The contract of carriage ceases and carrier shall be liable as depositary or other bailee.
3. The carrier must deliver the goods to or according to the instructions of the seller, with the
seller bearing the expenses of delivery.
iv. Instances when goods are still in transit
 2. If the goods are rejected by the buyer, and the carrier or other bailee continues in
possession of them, even if the seller has refused to receive them back.
v. Instances when goods are no longer in transit
1. If the buyer obtains delivery of the goods before arrival at the appointed destination.
2. If the carrier or other bailee acknowledges to the buyer or his agent, that he is holding
the goods in his behalf, after arrival of the goods at their appointed destination.
3. If the carrier or other bailee wrongfully refuses to deliver the goods to buyer or his agent.

c. Right of resale
i. Right is available when the following requisites are present:
1. The buyer has defaulted in the payment of the price.
2. The seller has the right of lien or has stopped the goods in transit.
3. Title to the goods has passed on to the buyer.
ii. Grounds for right of resale
1. The goods are of perishable nature.
2. The seller has expressly reserved the right to resell the goods in case the buyer should
make default.
3. The buyer has been in default for an unreasonable time.
Note: It is not essential to the validity of resale that notice of an intention to resell the goods
be given by the seller to the original buyer. But if the ground of sale is the buyer has
been in default for an unreasonable time, then, giving notice of intention to original buyer
becomes relevant to determine the unreasonableness of the default.
iii. Place of Resale
1. Public sale; or
2. Private sale
iv. Effects of Resale
1. The seller shall not be liable to the original buyer for the delivery of the goods.
2. The seller may recover damages from the original buyer for any loss occasioned by the
breach of the contract of sale.
3. The new buyer acquires a good title against the original buyer.
v. Note: The unpaid seller is prohibited from participating as a bidder, directly or indirectly, in the
public sale or private sale of the goods.

d. Right to rescind the sale

i. Right is available when the following requisites are present:
1. The buyer has defaulted in the payment of the price.
2. The seller has the right of lien or has stopped the goods in transit.
3. Title to the goods has passed on to the buyer.
ii. How rescission is made
1. By giving notice to B of the intention to rescind.
2. By doing an overt act manifesting the intention to rescind.
iii. Grounds for right to rescind the sale
1. The seller has expressly reserved the right to rescind the sale in case the buyer should
make default.
2. The buyer has been in default in the payment of the price for an unreasonable time.
iv. Effects of rescission of sale
1. The seller shall not be liable to the buyer upon the contract of sale.
2. The seller may recover from the buyer damages for any loss occasioned by the breach of
contract of sale.
3. The seller resumes ownership of the goods.

e. Effect on possessory lien or right of stoppage in transit if B has sold or disposed of the goods
S’s possessory lien or right of stoppage in transit is not affected by any sale or disposition of the goods
made by B except:
1. When S has assented to the sale by B.
2. When a negotiable document of title representing the goods as been negotiated to a
purchaser for value in good faith.

24. Rights of the buyer when quantity or quality of goods delivered is different from that which the seller contracted
a. When the quantity delivered is less than that the parties had agreed upon:
1. Reject the goods: the creditor cannot be compelled to accept partial payment.
2. Accept the goods: B must pay for them at the contract rate. B shall not be liable for more than the fair
value to him of the goods so received, which amount may be lower but not greater that contract rate.

b. When the quantity delivered is more than that which the parties agreed upon:
1. Accept the goods agreed upon and reject the rest.
2. Accept the whole of the goods delivered and pay for them at the contract rate.
3. Reject the whole of the goods if they are indivisible.

c. When the seller delivers the goods agreed upon but are mixed with goods different description:
25. Remedies of buyer in sale of real estate with a statement of its area at the rate of a certain price per unit of
measure or number if the vendor delivers the following area:
Excess area Lacking area (1) Poor quality (2)
1. Lacking of less than 1. Accept the whole area and 1. Action quanti minoris or 1. Action quanti minoris or
< 10% of actual area pay for the contract rate; or proportionate reduction of price proportionate reduction of price
2. Accept the agreed area 2. Action for cancellation but 2. Action for cancellation but
2. Poor quality of less and reject the excess only if the lacking area of less only if poor quality of less than
than or equal <= to 10% than 10% is very important* or equal to 10% is very
of actual area important
1. Lacking of more than or 1. Accept the whole area and 1. Action quanti minoris or 1. Action quanti minoris or
equals to <= 10% of pay for the contract rate; or proportionate reduction of price proportionate reduction of price
actual area 2. Accept the agreed area 2. Action for cancellation but 2. Action for cancellation
and reject the excess only if the lacking area is 10% or whether or not the poor quality
2. Poor quality more than more is very important of more than 10% of actual area
> 10% of actual area is very important
Note: 1. Prescriptive period of the action: It shall be file-d within 6 months from the date of delivery.
2. *Very important: if B would not have bought the lot had he known that a part thereof is of inferior value.

26. Rights of buyer and seller in sale real estate for a lump sum and not at the rate of a certain sum for a unit of
measure or number
a. In sale of real estate for a lump sum and not at the rate of a certain sum for a unit of measure or number,
the vendor is bound to deliver all that it is included within the boundaries stated in the contract
although there be greater or less area or number than that stated in the contract.
b. The buyer has the obligation to pay the lump sum stipulated in the contract with no increase or decrease
in the price although there be greater or less area or number than that stated in the contract unless the
lacking or excess area is already unconscionable.
I. Buyer’s remedies if the vendor does not deliver the area within the boundaries stated.
1. B may ask for a proportionate reduction in the price
2. Rescind the contract.

27. Preferred buyer in double sale

Personal property Titled real property Untitled real property
Preferred 1. Actual or constructive possessor 1. Registrant of the sale in good 1. Buyer with the oldest title
buyer in good faith faith
2. Buyer with the oldest title 2. Actual or constructive possessor
in good faith
3. Buyer with the oldest title
I. Governing principle in double sale: priore tempore, potior jure: “First in time, stronger in right.”
a. Knowledge gained by the first buyer of the second sale cannot defeat the first buyer’s rights, except where
the second buyer registers in good faith the second sale ahead of the first.
b. Importance of the second realty buyer must act in good faith: Knowledge gained by the second buyer
of the first sale defeats his rights even if he is first to register the second sale, since such knowledge taints
his prior registration with bad faith.
Note: Principle of automatic registration does not apply to the first buyer when he gains knowledge of the
second sale. The first buyer, who was in good faith at the time of sale, remains in good faith
notwithstanding his knowledge of the second sale.

28. Eviction refers to the deprivation of the vendee of the whole or a part of the thing sold by virtue of a final judgment
based on a right prior to the sale or an act imputable to the vendor.
I. Requisites in order that the seller’s warranty against eviction may be enforced
a. There must be a final judgment depriving the vendee of the whole or part of the thing sold.
b. The vendee must not appeal from the decision or judgment depriving him of the thing sold.
c. The deprivation is based on a right prior to the sale or an act imputable to the vendor.
d. The vendor must have been notified of the suit for eviction at the instance of the vendee.

II. Other Instances of Eviction which makes the seller liable for breach of warranty
a. If the property is sold for non-payment of taxes due and not made known to the vendee before the sale.
b. In case of judicial sales unless otherwise decreed in the judgment.

III. Vendor’s liability in case of eviction

a. If there is a waiver exempting S from the obligation to answer for eviction
1. If S acted in bad faith (whether there’s a waiver or none): the waiver is void, S shall be liable for the ff:
i) Value of the thing at the time of eviction
ii) Income or fruits, if the vendee has been ordered to deliver them
iii) Cost of suit
iv) Expenses of the contract
v) Damages and interests, and ornamental expenses
2. If S acted in good faith:
a. 2 types of B’s waiver of warranty against eviction
i) Waiver Consciente is a type of waiver made by the buyer when he acted in good faith because
he has no knowledge of risk of eviction. The seller is still liable for the value of the thing sold at the
 IV. Status of Waiver of warranty against eviction
a. Stipulation exempting a vendor from the obligation to answer for eviction is valid if he acted in good faith.
b. Stipulation exempting a vendor from the obligation to answer for eviction is void if he acted in bad faith.

V. Vendee’s remedies in case of partial eviction

If the vendee loses a part of the thing sold of such importance, in relation to the whole, that he would not have bought it
without said part, he may demand:
a. Rescission of the contract.
b. Enforcement of the vendor’s liability for eviction.

29. Remedies of buyer for breach of warranty against hidden encumbrance or non-apparent servitude in contract
of sale of immovable
1. Easement or servitude is an encumbrance imposed upon an immovable for the benefit of another immovable
belonging to a different owner. Ex.: right of way
2. Requisites for vendor’s liability
a. The easement must be non-apparent (one which shows no external indication).
b. It must not have been mentioned in the agreement.
c. It must be of such nature that it must be presumed that the vendee would not have acquired the
immovable had he been aware thereof.
3. Prescriptive period:
a. Within one year from the date of contract
i. Action for damages; or
ii. Action for rescission
b. Within one year from the discovery of servitude after the lapse of one year period from the date of contract
i. Action for damages only

30. Other implied warranties of seller

a. Warranty for particular purpose: where the buyer, expressly or by implication, makes known to the seller
the particular purpose for which the goods are acquired, and it appears that the buyer relies on the seller's
skill or judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the
goods shall be reasonably fit for such purpose.
b. Warranty for merchantable quality: where the goods are brought by description from a seller who deals
in goods of that description (whether he be the grower or manufacturer or not), there is an implied warranty
that the goods shall be of merchantable quality.
c. Warranty for merchantability: in the case of a contract of sale by sample, if the seller is a dealer in goods
of that kind, there is an implied warranty that the goods shall be free from any defect rendering them
unmerchantable which would not be apparent on reasonable examination of the sample.

31. Remedies of buyer in case of breach of warranty committed by the seller

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

32. Requisites for enforcement of vendor’s liability against hidden defects

a. The defect must exist at the time of sale.
b. The defect must be hidden.
c. The defect must render the thing unfit for the use for which it is intended or diminishes its fitness for such
use to such an extent that had the vendee been aware thereof, he would not have acquired it or would have
given a lower price for it.
d. The action to enforce it must be made within the period provided by law.

33. Nature of Liability of Seller in sale of property with Hidden Defects

a. The seller is liable for selling object with hidden defect regardless of the awareness of the presence of
defect
b. The seller is liable for selling object with hidden defect regardless of the reason of the loss of the thing sold.
Cause of loss is defect Cause of loss is a fortuitous event or fault of B
Vendor was aware 1. Return the price. 1. Return the price paid less the value of the
of defect 2. To refund the expenses of the contract. thing at the time of loss.
(in bad faith) 3. To pay damages. 2. To pay damages.
Vendor was not 1. Return the price. . Return the price paid less the value of the
aware of defect 2. To pay interest thereon. thing at the time of loss.
(in good faith) 3. To refund the expenses on the contract.
c. Remedies of Buyer of Breach of Implied Warranties (with damages in either cases)
i. Accion redhibitoria is a remedy of the vendee in case of breach of warranties against hidden
defects, of merchantability, of merchantable quality or fitness for a particular purpose. It refers to
the withdrawal from the contract or rescission.
 e. Status of Waiver of warranty against hidden defect
i. Stipulation exempting a vendor from the obligation to answer for hidden defect is valid if he acted
in good faith.
ii. Stipulation exempting a vendor from the obligation to answer for hidden defect is void if he acted
in bad faith.s

34. Redhibitory defect, liability of veterinarian: refers to a defect in an animal and it is of such nature that expert
knowledge, even after a professional inspection has been made, is not sufficient to discover it.
Note: If through ignorance or bad faith should fail to discover or disclose it, he shall be liable for damages.
I. Alternative remedies for redhibitory defect of an animal sold together with other animals not as a pair
a. Accion redhibitoria or Cancellation of sale over the defective animal; or
b. Accion quanti minoris or Proportional Reduction of Price over the defective animal

II. Remedy for redibitory defects of two animals sold together as a pair, yoke, team, or set
a. Accion redhibitoria or Cancellation of the contract of sale

III. Prescriptive period of action based on breach of warranty of animal with redhibitory defect
a. 40 days from the date of delivery

IV. Sale of animals without warranty for hidden defects

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

V. Status of sale of animal suffering from contagious disease or find to be unfit for the use for which they were
acquired: null and void for being contrary to law and public policy

VI. Requisites in order for the vendor to be liable in case the animal dies of disease
a. The disease exists at the time of sale.
b. The disease is the cause of death of the animal.
c. The animal dies within 3 days from time of purchase.

35. Duration of warranty

a. Period stipulated by S and consumer when the express warranty shall be enforceable.
b. Any other implied warranty shall endure not less than 60 days nor more than 1 year following the sale.

36. Instances when the buyer’s deemed to have accepted the delivered goods
a. When he intimates to the seller that he is accepting them.
b. When he does an act in relation to the goods which is inconsistent with the ownership of the seller.
c. When he retains the goods after the lapse of a reasonable time without intimating to the seller that he has
rejected them.

I. General rule: B may inspect the goods.

II. Exceptions: Instances when the buyer cannot examine the goods
a. When there is an agreement to that effect.
b. When there is stipulation that the goods shall not be delivered to the buyer until he has paid the price.
c. When the goods are marked with the words collect on delivery.

III. Effects when the buyer refuses to accept delivery and the refusal is justified
Ex.: when the quantity is not complete or the goods being delivered are different from that stipulated
a. Buyer has no duty to return goods to the seller unless otherwise agreed.
b. The buyer shall not be obliged to pay the price.
c. If the buyer constitutes himself as depositary of the goods, he shall be liable as such.

IV. Effects when the buyer refuses to accept delivery and the refusal is unjustified
a. Title to the goods passes to the buyer from the moment the goods are placed at his disposal.
b. The buyer shall be obliged to pay the price.

V. The time and place of payment of the price of the contract of sale
a. At the time and place stipulated
b. At the time and place of delivery of the thing.

VI. Instances wherein the buyer shall pay interest for the period between the delivery of the thing and the
payment of the price
a. If there is stipulation for payment of interest and if the rate is not provided, it should be:
i. 12% before July 1,2013
ii. 6% starting July 1,2013 and afterwards
b. If the thing sold produces fruits or income.
c. If B is in default, from the time of judicial or extrajudicial demand for the payment of the purchase price.
 I. Instances wherein the right to suspend payment by the vendee is not available
a. If the vendor gives security for the return of the price.
b. If it has been stipulated that the vendee shall pay the price notwithstanding the existence of disturbance or
danger.
c. If the disturbance is a mere act of trespass.

38. Remedy of vendor to sue for immediate rescission of the contract of sale of immovable
a. If there are reasonable grounds to fear the loss of the immovable property sold and its price.
Note: Pactum commisorium: agreement in the sale of immovable that rescission of the contract shall of right take
place if the vendee fails to pay the price at the time agreed upon. This agreement is not valid. B may pay
even after the expiration of the period as long as no demand for rescission has been made upon him either
judicially or notarial act.

I. Alternative remedies of vendor in case there is reasonable ground to fear the loss of the immovable property
or its price
b. Fulfillment of the contract with damages or
c. Rescission of the contract with damages.

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

40. Remedies or Actions by the seller for breach of contract of sale of goods committed by buyer
a. Assuming the goods have already been delivered, maintain an action for the price of the goods if the
buyer wrongfully neglects or refuses to pay.
b. Maintain an action for damages if the buyer wrongfully neglects or refuses to accept and pay for the
goods.
c. Rescind the contract if the buyer has repudiated the sale or manifested his inability to perform his
obligation or has committed a breach of contract, where the goods have not been delivered to buyer.

41. Proper Action or remedy by the buyer if the seller has broken the contract to deliver specific or ascertained
goods by not delivering the goods
a. Bring an action for specific performance plus damages.
b. Action for rescission plus damages.
c. Action for damages.

42. Modes for extinguishment of contract of sale:

a. No-Co-Me-Re-Pa-Lo-Pre-Re-Ful-An
b. Cancellation of sale of personal property payable in installments
c. Resale of the goods by the unpaid seller
d. Rescission of the sale by the unpaid seller
e. Rescission by the buyer in case of partial eviction
f. Rescission by the buyer in case of breach of warranty against hidden defects
g. Rescission by the buyer of sale of animals with redhibitory defects
h. Rescission by the buyer of sale of land with non-apparent servitude or encumbrance
i. Rescission by the buyer of sale of land with lacking area or area with poor quality
j. By redemption, whether conventional redemption or legal redemption

43. Types of Redemption in a Contract of Sale

a. Conventional redemption is a type of redemption that occurs when the vendor reserved the right to
repurchase the thing sold with the obligation to return to the vendee the price of the sale, expenses of
the contract and necessary and useful expenses made on the thing sold and to comply with other
stipulations which may have been agreed upon.

i. Period for exercise of right of redemption in conventional redemption or pacto de retro sale
of immovable property
1. If a period is not stated in the contract, it will be 4 years.
2. If a period less than 10 years is stated, follow the stated period.
3. If a period more than 10 years is stated, it will be 10 years because that is the maximum
period.
4. If a period agreed upon is indefinite, such “at any time”, it will be 10 years.
5. If there is a pending case before the court to determine whether the contract is one pacto
de retro sale or equitable mortgage, it will be 30 days from the decision of the court
declaring it to be pacto de retro sale.

ii. Liability with respect to fruits existing at the time of redemption

1. If there were visible fruits at the time of sale: no reimbursement for or prorating the fruits
2. If there were no fruits at the time of sale: fruits at the time redemption will be prorated
 iii. Rules in case of exercising conventional redemption in Pacto de retro sale
1. A co-owner of an undivided immovable which is essentially indivisible who sells his share
with a right to repurchase to a third person who subsequently acquires the whole thereof,
may be compelled by the latter to redeem the whole property, if the former wishes to make
use of the right of redemption.
2. If several persons, jointly and in the same contract, should sell an undivided immovable
with a right of repurchase, none of them may exercise this right for more than his
respective share.
3. If the person who sold an immovable alone has left several heirs, each heir may redeem
only the part which he may have acquired.
4. In cases of 1 and 2, the vendee may demand that the co-owners or co-heirs come to an
agreement upon the repurchase of the whole thing, and if they fail to do so, the vendee
cannot be compelled to consent to a partial redemption.
5. Each one of the co-owners of an undivided immovable who may have sold his share
separately, may independently exercise the right of repurchase as regards his own share
and the vendee cannot compel him to redeem the whole property.
6. Vendor shall respect the leases which the vendee may have executed in good faith.
7. Creditors of the vendor cannot make use of the right of redemption against the vendee,
until after they have exhausted the property of the vendor.

b. Legal Redemption is a type of redemption in a contract of sale that is available only in exceptional cases
provided by law. It refers to the right of a third person to repurchase a real property sold by another person
in exceptional cases provided by law. It is defined as the right to be subrogated upon the same terms and
conditions stipulated in the contract, in the place of one who acquires a thing by purchase, or dation in
payment, or by any other transaction whereby the ownership is transmitted by onerous title.
Note: This right is not available if the transfer of ownership is gratuitous title.
i. Instances of Legal Redemption or Redemption by operation of Law
1. By a co-owner. A co-owner of a thing may exercise the right of redemption in case the
shares of all the other co-owners or of any of them, are sold to a third person. All co-owners
may exercise on the basis of their proportionate share.
2. By an adjoining rural lot owner. If a piece of rural land not exceeding one hectare is
alienated to a person who is not landless, the adjoining rural owner shall have the right of
legal redemption unless the grantee does not own any rural land. Order of Preference:
a. Adjoining rural owner with smallest area
b. Adjoining rural owner who first exercised the right
3. By adjoining urban lot owner. If a small piece of urban land which was bought for
speculation has been resold, the owner of the adjoining land has a right of redemption at
a reasonable price.
a. The adjacent urban land owner whose intended use of the land in question
appears best justified shall be preferred.
ii. When right is not available
1. if adjacent lands are separated by brooks, drains, ravines, roads and other apparent
servitude for the benefit of other estates.
Note:
1. It is only the adjoining urban lot owner who has the right of legal pre-emption which is the right to
be given the first opportunity before being offered to other person.
2. A co-owner has better right over adjoining rural or urban lot owner in the exercise of right of
legal redemption.

iii. Period for the exercise of right of pre-emption and legal redemption
1. 30 days from the notice given by the vendor or prospective vendor

44. Instances wherein a contract of sale with a right to repurchase and other contract purporting to be an absolute
sale shall be presumed to be an equitable mortgage thereby requiring reformation of instrument
a. When the price of a sale with a right to repurchase is unusually inadequate.
b. When the vendor remains in possession as lessee or otherwise
c. When the period for the exercise of the right of repurchase is extended.
d. When the purchaser retains for himself part of the purchase price.
e. When the vendor binds himself to pay the real property taxes on the thing sold.
f. When the real intention of the parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
Note: Any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered
as interest which shall be subject to the usury laws.
i. Rule in case of doubt
1. A contract purporting to be a sale with right to repurchase shall be construed as an
equitable mortgage.
ii. Remedy of injured party in equitable mortgage
1. Action for reformation of instrument
45. Assignment of credit is a contract whereby a person transfers his credit, right or action against a third person to
another person for a consideration which is certain in money or its equivalent. It is perfected by mere consent.
I. Nature of Assignment of Credit
a. It is a consensual contract perfected by mere consent.

II. Formality of Assignment of Credit to bind or to affect third persons

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

III. Warranties of the vendor in good faith or assignor in assignment of credits

a. Existence of the credit at the time of sale
b. Legality of the credit at the time of sale
Note: However, there is no such warranty if the credit was sold as doubtful. Ex.: Credit is in litigation.

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

V. Difference between Assignment of Credit (Sale of Nonnegotiable Promissory Note) by Assignor and
Negotiation of Negotiable Instruments by a General Indorser
Assignment of Credit by Assignor Negotiation of Negotiable Instrument by General Indorser
Applicable to non-negotiable promissory note. Applicable only to negotiable promissory note.
The transferee is called an assignee. The transferee is called a holder.
The transferor is called an assignor. The transferor is called a general indorser if there is
indorsement.
The assignee is subject to personal defenses available to prior The holder in due course holds the instrument free from
parties personal defenses available to prior parties.
Assignor does not warrant the solvency of maker unless General indorser guarantees the solvency of maker as long as
expressly stated. notice of dishonor will be given to him.
Note:
1. An assignment does not require the consent of the debtor. However, actual notice must be given to him of the
assignment so that he could make his payment to the assignee. This notice is a form of protection in favor of the
assignee.