REGULATORY FRAMEWORK AND LEGAL There may be a contract of sale of

ISSUES IN BUSINESS goods, whose acquisition by the seller

depends upon a contingency which
SALES
may or may not happen.
What is a Contract of Sale

Art. 1458. By the contract of sale one of Article 1463. The sole owner of a thing
the contracting parties obligates himself may sell an undivided interest therein.
to transfer ownership and to deliver Article object
determinate thing and the other to pay
therefor a price certain in money or its 1465. Things subject to a resolutory
equivalent. condition may be the of the contract of
sale. (n)
Stages of a Contract of Sale

• Negotiation Article 1466. In construing a contract

• Perfection containing provisions characteristic of
• Consumation both the contract of sale and of the
contract of agency to sell, the essential
Article 1459. The thing must be licit and clauses of the whole instrument shall be
the vendor must have a right to transfer considered.
the ownership thereof at the time it is
delivered.
Article 1467. A contract for the delivery
at a certain price of an article which the
Article 1460. A thing is determinate when vendor in the ordinary course of his
it is particularly designated or physical business manufactures or procures for
segregated from all others of the same the general market, whether the same is
class. on hand at the time or not, is a contract
The requisite that a thing be determinate of sale, but if the goods are to be
is satisfied if at the time the contract is manufactured specially for the customer
entered into, the thing is capable of and upon his special order, and not for
being made determinate without the the general market, it is a contract for a
necessity of a new or further agreement piece of work.
between the parties.
Article 1468. If the consideration of the
Article 1461. Things having a potential contract consists partly in money, and
existence may be the object of the partly in another thing, the transaction
contract of sale. shall be characterized by the manifest
intention of the parties. If such intention
The efficacy of the sale of a mere hope does not clearly appear, it shall be
or expectancy is deemed subject to the considered a barter if the value of the
condition that the thing will come into thing given as a part of the consideration
existence. exceeds the amount of the money or its
The sale of a vain hope or expectancy is equivalent; otherwise, it is a sale.
void.
Article 1469. In order that the price may
Article 1462. The goods which form the be considered certain, it shall be
subject of a contract of sale may be sufficient that it be so with reference to
either existing goods, owned or another thing certain, or that the
possessed by the seller, or goods to be determination thereof be left to the
manufactured, raised, or acquired by judgment of a special person or persons.
the seller after the perfection of the Should such person or persons be unable
contract of sale, in this Title called "future or unwilling to fix it, the contract shall be
goods."
inefficacious, unless the parties Article 1478. The parties may stipulate
subsequently agree upon the price. that ownership in the thing shall not pass
to the purchaser until he has fully paid
If the third person or persons acted in
the price. (n)
bad faith or by mistake, the courts may
fix the price.
Article 1479. A promise to buy and sell a
Where such third person or persons are determinate thing for a price certain is
prevented from fixing the price or terms reciprocally demandable.
by fault of the seller or the buyer, the
party not in fault may have such An accepted unilateral promise to buy or
remedies against the party in fault as are to sell a determinate thing for a price
allowed the seller or the buyer, as the certain is binding upon the promisor if the
case may be. promise is supported by a consideration
distinct from the price.

Article 1470. Gross inadequacy of price

does not affect a contract of sale, Article 1482. Whenever earnest money is
except as it may indicate a defect in the given in a contract of sale, it shall be
consent, or that the parties really considered as part of the price and as
intended a donation or some other act proof of the perfection of the contract.
or contract. (n) (1454a)

Article 1471. If the price is simulated, the Article 1483. Subject to the provisions of
sale is void, but the act may be shown to the Statute of Frauds and of any other
have been in reality a donation, or some applicable statute, a contract of sale
other act or contract. (n) may be made in writing, or by word of
mouth, or partly in writing and partly by
word of mouth or may be inferred from
Article 1472. The price of securities, grain,
the conduct of the parties. (n)
liquids, and other things shall also be
considered certain, when the price fixed
is that which the thing sold would have Article 1484. In a contract of sale of
on a definite day, or in a particular personal property, the price of which is
exchange or market, or when an payable in installments, the vendor may
amount is fixed above or below the price exercise any of the following remedies:
on such day, or in such exchange or (1) Exact fulfillment of the obligation,
market, provided said amount be should the vendee fail to pay;
certain.
(2) Cancel the sale, should the vendee's
failure to pay cover two or more
Article 1475. The contract of sale is
installments;
perfected at the moment there is a
meeting of minds upon the thing which is (3) Foreclose the chattel mortgage on
the object of the contract and upon the the thing sold, if one has been
price. constituted, should the vendee's failure
to pay cover two or more installments. In
From that moment, the parties may
this case, he shall have no further action
reciprocally demand performance,
against the purchaser to recover any
subject to the provisions of the law
unpaid balance of the price. Any
governing the form of contracts.
agreement to the contrary shall be void.

Article 1477. The ownership of the thing

CAPACITY TO BUY OR SELL
sold shall be transferred to the vendee
upon the actual or constructive delivery Art. 1489. All persons who are authorized
thereof. (n) in this Code to obligate themselves, may
enter into a contract of sale, saving the
modifications contained in the following
articles. Art. 1499. The delivery of movable
property may likewise be made by the
Where necessaries are those sold and mere consent or agreement of the
delivered to a minor or other person contracting parties, if the thing sold
without capacity to act, he must pay a cannot be transferred to the possession
reasonable price therefor. Necessaries of the vendee at the time of the sale, or
are those referred to in Article 290. if the latter already had it in his possession
for any other reason. (1463a)
Art. 1490. The husband and the wife
Art. 1500. There may also be tradition
cannot sell property to each other,
constitutum possessorium.
except:

(1) When a separation of property was Art. 1501. With respect to incorporeal
agreed upon in the marriage property, the provisions of the first
settlements; or paragraph of article 1498 shall govern. In
(2) When there has been a judicial any other case wherein said provisions
separation or property under Article 191. are not applicable, the placing of the
titles of ownership in the possession of the
vendee or the use by the vendee of his
rights, with the vendor's consent, shall be
OBLIGATIONS OF THE VENDOR
understood as a delivery.
Art. 1495. The vendor is bound to transfer
the ownership of and deliver, as well as Article 1875. Agency is presumed to be
warrant the thing which is the object of for a compensation, unless there is proof
the sale. to the contrary.
Art. 1496. The ownership of the thing sold
is acquired by the vendee from the Article 1876. An agency is either general
moment it is delivered to him in any of the or special.
ways specified in Articles 1497 to 1501, or
The former comprises all the business of
in any other manner signifying an
the principal. The latter, one or more
agreement that the possession is
specific transactions.
transferred from the vendor to the
vendee.
Article 1877. An agency couched in
general terms comprises only acts of
Delivery of the Thing Sold administration, even if the principal
Art. 1497. The thing sold shall be should state that he withholds no power
understood as delivered, when it is or that the agent may execute such acts
placed in the control and possession of as he may consider appropriate, or even
the vendee. though the agency should authorize a
general and unlimited management.

Art. 1498. When the sale is made through Article 1879. A special power to sell
a public instrument, the execution excludes the power to mortgage; and a
thereof shall be equivalent to the special power to mortgage does not
delivery of the thing which is the object include the power to sell.
of the contract, if from the deed the
contrary does not appear or cannot Article 1880. A special power to
clearly be inferred. compromise does not authorize
With regard to movable property, its submission to arbitration.
delivery may also be made by the
delivery of the keys of the place or Article 1881. The agent must act within
depository where it is stored or kept. the scope of his authority. He may do
such acts as may be conducive to the Article 1887. In the execution of the
accomplishment of the purpose of the agency, the agent shall act in
agency. accordance with the instructions of the
principal.
Article 1882. The limits of the agent's In default thereof, he shall do all that a
authority shall not be considered good father of a family would do, as
exceeded should it have been required by the nature of the business.
performed in a manner more
advantageous to the principal than that
Article 1888. An agent shall not carry out
specified by him.
an agency if its execution would
manifestly result in loss or damage to the
Article 1883. If an agent acts in his own principal.
name, the principal has no right of action
against the persons with whom the agent
has contracted; neither have such Obligations of the Principal
persons against the principal. Article 1910. The principal must comply
In such case the agent is the one directly with all the obligations which the agent
bound in favor of the person with whom may have contracted within the scope
he has contracted, as if the transaction of his authority.
were his own, except when the contract As for any obligation wherein the agent
involves things belonging to the has exceeded his power, the principal is
principal. not bound except when he ratifies it
The provisions of this article shall be expressly or tacitly.
understood to be without prejudice to
the actions between the principal and Article 1911. Even when the agent has
agent. exceeded his authority, the principal is
solidarily liable with the agent if the
former allowed the latter to act as
Obligation of the Agent
though he had full powers.
Article 1884. The agent is bound by his
acceptance to carry out the agency, Article 1912. The principal must advance
and is liable for the damages which, to the agent, should the latter so request,
through his non-performance, the the sums necessary for the execution of
principal may suffer. the agency.
He must also finish the business already Should the agent have advanced them,
begun on the death of the principal, the principal must reimburse him
should delay entail any danger. therefor, even if the business or
undertaking was not successful,
Article 1885. In case a person declines an provided the agent is free from all fault.
agency, he is bound to observe the
The reimbursement shall include interest
diligence of a good father of a family in
on the sums advanced, from the day on
the custody and preservation of the
which the advance was made.
goods forwarded to him by the owner
until the latter should appoint an agent
or take charge of the goods. Modes of Extinguishment of Agency

Article 1919. Agency is extinguished:

Article 1886. Should there be a stipulation
that the agent shall advance the (1) By its revocation;
necessary funds, he shall be bound to do
(2) By the withdrawal of the agent;
so except when the principal is insolvent.
(3) By the death, civil interdiction, insanity
or insolvency of the principal or of the Pledge
agent;
Article 2093. In addition to the requisites
(4) By the dissolution of the firm or prescribed in article 2085, it is necessary,
corporation which entrusted or in order to constitute the contract of
accepted the agency; pledge, that the thing pledged be
placed in the possession of the creditor,
(5) By the accomplishment of the object
or of a third person by common
or purpose of the agency;
agreement. (1863)
(6) By the expiration of the period for
which the agency was constituted. Article 2094. All movables which are
within commerce may be pledged,
PLEDGE, MORTGAGE AND ANTICHRESIS provided they are susceptible of
possession. (1864)
Article 2085. The following requisites are
essential to the contracts of pledge and
mortgage: Article 2095. Incorporeal rights,
evidenced by negotiable instruments,
(1) That they be constituted to secure the bills of lading, shares of stock, bonds,
fulfillment of a principal obligation; warehouse receipts and similar
documents may also be pledged. The
(2) That the pledgor or mortgagor be the
instrument proving the right pledged
absolute owner of the thing pledged or
shall be delivered to the creditor, and if
mortgaged;
negotiable, must be indorsed. (n)
(3) That the persons constituting the
pledge or mortgage have the free Article 2096. A pledge shall not take
disposal of their property, and in the effect against third persons if a
absence thereof, that they be legally description of the thing pledged and the
authorized for the purpose. date of the pledge do not appear in a
Third persons who are not parties to the public instrument.
principal obligation may secure the latter Article 2097. With the consent of the
by pledging or mortgaging their own pledgee, the thing pledged may be
property. alienated by the pledgor or owner,
subject to the pledge. The ownership of
Article 2086. The provisions of article 2052 the thing pledged is transmitted to the
are applicable to a pledge or mortgage. vendee or transferee as soon as the
(n) pledgee consents to the alienation, but
the latter shall continue in possession. (n)
Article 2087. It is also of the essence of
these contracts that when the principal Article 2098. The contract of pledge
obligation becomes due, the things in gives a right to the creditor to retain the
which the pledge or mortgage consists thing in his possession or in that of a third
may be alienated for the payment to the person to whom it has been delivered,
creditor. (1858) until the debt is paid. (1866a)

Article 2088. The creditor cannot

appropriate the things given by way of Article 2099. The creditor shall take care
pledge or mortgage, or dispose of them. of the thing pledged with the diligence
Any stipulation to the contrary is null and of a good father of a family; he has a
void. right to the reimbursement of the
expenses made for its preservation, and
is liable for its loss or deterioration, in
conformity with the provisions of this the enjoyment of the property, except
Code. when there is a stipulation to the
contrary.
Article 2124. Only the following property
may be the object of a contract of Article 2139. The last paragraph of article
mortgage: 2085, and articles 2089 to 2091 are
applicable to this contract.
(1) Immovables;
Chattel Mortgage
(2) Alienable real rights in accordance
with the laws, imposed upon Article 2140. By a chattel mortgage,
immovables. personal property is recorded in the
Chattel Mortgage Register as a security
Nevertheless, movables may be the
for the performance of an obligation. If
object of a chattel mortgage.
the movable, instead of being recorded,
is delivered to the creditor or a third
Article 2132. By the contract of person, the contract is a pledge and not
antichresis the creditor acquires the right a chattel mortgage. (n)
to receive the fruits of an immovable of
his debtor, with the obligation to apply
Article 2141. The provisions of this Code
them to the payment of the interest, if
on pledge, insofar as they are not in
owing, and thereafter to the principal of
conflict with the Chattel Mortgage Law
his credit. (1881)
shall be applicable to chattel
mortgages.
2

Article 2133. The actual market value of

the fruits at the time of the application
thereof to the interest and principal shall
be the measure of such application. (n)

Article 2134. The amount of the principal

and of the interest shall be specified in
writing; otherwise, the contract of
antichresis shall be void.

Article 2135. The creditor, unless there is a

stipulation to the contrary, is obliged to
pay the taxes and charges upon the
estate.

He is also bound to bear the expenses

necessary for its preservation and repair.

The sums spent for the purposes stated in

this article shall be deducted from the
fruits. (1882)

Article 2136. The debtor cannot

reacquire the enjoyment of the
immovable without first having totally
paid what he owes the creditor.

But the latter, in order to exempt himself

from the obligations imposed upon him
by the preceding article, may always
compel the debtor to enter again upon