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I.

NATURE AND FORM OF THE CONTRACT

Emptio rei speratae

Sources of the Law on Sales

(sale of thing expected)

Sales are governed by the provisions of the Civil Code:

- the sale of a thing not yet in existence,


subject to the condition that the thing will
exist and on failure of the condition, the
contract becomes ineffective and hence,
the buyer has not obligation to pay the
price;

1. Book IV, Title VI, Articles 1458-1637 (Sales)


2. Title I, Arts. 1156-1422 (Obligations and Contracts)
3. Opinions of Commentators
4. Jurisprudence
Concept of Contract of Sale
The contract of sales is an agreement whereby one of the parties (called the seller or
vendor) obligates himself to deliver something to the other (called the buyer or purchaser
or vendee) who, on his part, hinds himself to pay therefore a sum of money or its
equivalent (known as the price).
The transfer of title to property or the agreement to transfer title for a price paid or
promised, not mere physical transfer of the property, is the essence of sale.
Characteristics of a Contract of Sale

Rei spetae

- the sale of hope itself that the thing will


come into existence, where it is agreed that
the buyer will pay the price even if the thing
does not eventually exist;

- the future thing is certain as to itself but - like the sale of a sweepstake ticket, it is not
uncertain as to its quantity and quality;
certain that the thing itself (winning a prize)
will exist, much less it quantity and quality;
- contract deals with a future thing;

- contract relates to a thing which exists or is


present the hope or expectancy;

- sale is subject to the condition that the


thing should exist, so that if it does not,
there will be no contract by reason of the
absence of an essential element.

- produces effect even though the thing does


not come into existence because the object of
the contract is the hope itself, unless it is a
vain hope or expectancy (like the sale of a
falsified sweepstakes ticket which can never
win).

3. Cause or consideration refers to the price certain in money or its equivalent.

1. Consensual

- perfected by mere consent of the parties without further


acts.

2. Bilateral

- both the contracting parties are bound to fulfill correlative


obligations towards each other (the seller to deliver and
transfer ownership of the thing sold, and the buyer to pay
the price).

Accidental Elements those which may be present or absent depending on the


stipulations of the parties, like conditions, interest, penalty, time or place of payment.

3. Onerous

- the thing sold is conveyed in consideration of the price and


vice versa.

1. As to presence or absence of conditions

4. Commutative

- the thing sold is considered the equivalent of the price paid


and vice versa.

Absolute where the sale is not subject to any condition whatsoever and where the title
passes to the buyer upon delivery of the thing sold.

5. Aleatory

- in the case of sale of hope, one of the parties or both


reciprocally bind themselves to give or to do something in
consideration of what the other shall give or do upon the
happening of an event which is uncertain, or which is to
occur at an indeterminate time.

Conditional where the sale contemplates a contingency and where the contract is
subject to certain conditions, usually in the case of the vendee, for the full payment of the
agreed purchase price.

6. Nominate

- the contract is given a special name or designation in the


Civil Code.

As to the nature of the subject matter real or personal, tangible or intangible

7. Principal

- the contract does not depend for its existence and validity
upon another contract.

Natural Elements those which are deemed to exist in certain contracts, in the absence
of any contrary stipulations, like warranty against eviction;

Kinds of a Contract of Sale

2. Other kinds

As to the manner of payment cash or installment


As to its validity valid, rescissible, unenforceable, void
Contract of Sale Distinguished from Contract to Sell

Essential Requisites of a Contract of Sale


1. Consent or meeting of the minds refers to the conformity of the parties to the terms
of the contract, the acceptance by one of the offer made by the other. As a bilateral
contract, the acceptance of payment by a party is an indication of his consent to a
contract of sale, thereby precluding him from rejecting its binding effect [Clarin vs.
Rulova, 127 SCRA 512].

There may be a sale against the will of the owner in case of expropriation
and the three different kinds of sale under the law ordinary execution sale,
judicial foreclosure sale, and extra-judicial foreclosure sale.

2. Object or subject matter refers to the determinate thing which is the object of the
contract;

Even a future thing not existing at the time the contract is entered into may
be the object of sale, provided it has a potential or possible existence, that
is, it is reasonably certain to come into existence as the natural increment or
usual incident of something in existence already belonging to the seller, and
the tile will vest the buyer the moment the thing comes into existence (Art.
1461).

Transfer of title:

Contract of Sale

Contract to Sell

- passes to the buyer upon


delivery of the thing sold.

- remains with the seller until full


payment of the agreed price.

Payment of price: - non-payment of the price is a


negative resolutory condition,
and the remedy is to exact
fulfillment or to rescind the
contract.

Ownership of
vendor:

- full payment is a positive


suspensive condition, the failure
of which is not a breach, casual
or serious, of the contract but
simply an event that prevents
the obligation of the vendor to
convey title from acquiring
binding force.

- vendor loses and cannot


- title remains in the vendor until
recover ownership of the thing full payment of price.
sold and delivered, actually or
constructively until and unless
the contract of sale itself is
resolved and set aside.

Sale Distinguished from Dation in Payment:

(b) cancel the sale, if the vendee shall have failed to pay two or more installments;

Sale

Dation in Payment

(c) foreclose the chattel mortgage, if one has been constituted, if the vendee shall have
failed to pay two or more installments.

- no pre-existing credit

- there is pre-existing credit

- gives rise to obligation

- extinguishes obligation

- cause or consideration is the price, or the - cause of consideration is extinguishment of


acquisition of title to the property
the debt (from the point of view of the
offeror), and the acquisition of the object
offered (from the point of view of the creditor)
in lieu of the original credit
- there is greater freedom in the
determination of the price

These remedies are alternative and are not to be exercised cumulatively or


successively and the election of one is a waiver of the right to resort to the
others [Pacific Commerial Co. vs De la RAma, 62 Phil. 380; Nonato vs. IAC,
140 SCRA 255].

In transactions involving the sale of financing of real estate on installment


payments, including residential condominium apartments, the following are
the rights given to the buyer who has paid at least two (2) years of
installments in case he defaults in the payment of succeeding payments

- less freedom

- giving of the price may generally end the - the giving of the object in lieu of the credit
obligation of the buyer
may extinguish completely or partially the
credit (depending on the agreement)

Sale of goods by description

Sale of goods by sample

- occurs where the purchaser has not


seen the article sold and relies on the
description given him by the vendor, or has
seen the goods but the want of identity is
not apparent on inspection.If the
bulk of the goods delivered does not
correspond with the description, the
contract may be rescinded. (Art. 1481.)

- the parties contracted solely with reference


to the sample, with the understanding that
the bulk was like it.- the vendor warrants
that the thing sold and to be delivered by him
shall conform with the sample in kind,
charater, and quality.

(a) to pay without additional interest the unpaid installments due within the total grace
period earned by him fixed at the rate of one-month grace period for every one year of
installment payments made this right shall be exercised by him only once in every five
(5) years of the life of the contract and its extension, if any; and
(b) if the contract is cancelled, the seller shall refund to the buyer the cash surrender
value of the payments on the property equivalent to 50% of the total payments made
and, after 5 years of installments, an additional 5% of every year but not to exceed 90%
of the total payments made. [Sec. 3, RA 6552 or the Realty Installment Buyer Protection
Act; see Layug vs. IAC, 67 SCRA 627].
(c) The buyer has the right to sell his right or assign the same before actual
cancellation of the contract and to pay in advance any unpaid installment anytime without
interest and to have such full payment of the purchase price annotated in the certificate
of title covering the property.
II.

CAPACITY TO BUY OR SELL

Form of Contract of Sale

Persons Who May Enter Into a Contract of Sale

Generally, a contract may be entered into in any form provided all the essential requisites
for its validity are present (Art. 1356). It may be in writing, oral, or partly in writing and
party oral. It may even be inferred from the conduct of the parties, since sale is a
consensual contract that is perfected by mere consent.

As a general rule, all persons, whether natural or juridical, who can bind themselves,
have the legal capacity to buy and sell.

However, in case the contract of sale should be covered by the Statute of Frauds, the law
requires that the agreement be in writing subscribed by the party charged, or by his
agent; otherwise, the contract cannot be enforced by action [see Art. 1403].

1. Absolute Incapacity pertains to persons who cannot bind themselves

Under the Statute of Frauds (Art. 1403 [2, a, d, e].) of the Civil Code, the
following contracts must be in writing to be enforceable:

(a) sale of personal property at a price not less than P500;

Persons Who Are Incapacitated to Enter Into a Contract of Sale

(a) Minor
(b) Insane or demented persons
(c) Deaf-mutes who do not know how to read and write

Contracts entered into by a minor and other incapacitated persons


arevoidable. However, where the necessaries are sold and delivered to him
(without the intervention of the parent or guardian), he must pay a
reasonable price therefor. The contract is therefore valid, but the minor has
the right to recover any excess above a reasonable value paid by him.

Sale of real property by minors who have already passed the ages of
puberty and adolescence and are now in the adult age, when they pretended
to have already reached their majority, while in fact they have not, is valid,
and they cannot be permitted afterwards to excuse themselves from
compliance with the obligations assumed by them or to seek their
annulment. This is in accord with the doctrine of estoppel[Mercado and
Mercado vs. Espiritu, 37 Phil. 265].

(b) sale of real property or an interest therein regardless of the price involved; and
(c) sale of property not to be performed within a year from the date thereof regardless
of the nature of the property and the price involved.

The Statute Frauds specifies three (3) ways in which contracts of sales of
goods within its terms may be made binding:

(a) the giving of a memorandum;


(b) acceptance and receipt of part of the goods (or things in action) sold and actual
receipt of the same (Art. 1585); and
(c) payment or acceptance at the time some part of the purchase price.

The Statute of Frauds is applicable only to executory contracts (where no


performance, i.e., delivery and payment, has as yet been made by both
parties), and not to contracts which are totally consummated or partially
performed [Vda. De Espiritu vs. CFI of Cavite, 47 SCRA 354].

2. Relative Incapacity where it exists only with reference to certain persons or class
of property (Art. 1490-1491). The prohibition extends to sales by virtue of legal
redemption, compromises, and renunciations.
(a) Husband and wife to each other except when a separation of property was agreed
upon in the marriage settlements, or when there has been a judicial separation of
property

Recto Law (Art. 1484) Remedies of Vendor in Sale of Personal Property Payable
in Installments:

(b) Guardian as to the property of his ward

(a) elect fulfillment upon the vendees failure to pay;

(c) Agents as to the property whose administration or sale has been entrusted to
them, unless consent of the principal is given

(d) Executors or administrators as to the state under their administration


(e) Public officers and employees as to the property of the State or any subdivision
thereof, or of the government-owned or controlled corporations, the administration of
which is entrusted to them
(f) Judges and government experts who take part in the sale of the property and rights
under litigation

Tradition or delivery is a derivative mode of acquiring ownership by virtue of which one


has the right and intention to alienate a corporeal thing, transmits it by virtue of a just title
to one who accepts the same.

Duty to Deliver at Execution Sale: a judgment debtor is not obliged to deliver


right away; he has one (1) year within which to redeem the property.

Kinds of Delivery or Tradition

The prohibition is based on the fiduciary relationship (based on trust), to


prevent fraud and undue and improper influence.

1.

With respect to (b) to (d), the sale shall only be voidable because in such
cases only private interests are affected. The defect can be cured by
ratification by the seller. With respect to (e) and (f), the sale shall be null and
void, public interests being involved therein.

Actual or Real (Art. 1497) the thing sold is placed in the control and
possession of the vendee or his agent. This involves the physical delivery of
the thing and is usually done by the passing of a movable thing from hand to
hand.

2.

Legal or Constructive (Arts. 1498-1501) through the execution of a public


instrument

(g) Aliens who are disqualified to purchase private agricultural lands under Art. XII,
Secs. 3 and 7 of the Constitution

Legal formalities applies to real and personal properties, where the delivery is made
through the execution of a public document;

(h) Unpaid seller having a right of lien or having estopped the goods in transitu

Traditio simbolica to effect delivery, the parties make use of a token symbol to
represent the thing delivered;

(i)

Officer holding the execution or his deputy

III.
LOST

EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN

Where the thing is entirely lost at the time of perfection, the contract is
inexistent and void because there is no object. There being no contract,
there is no necessity to bring an action for annulment.

Where the thing is only partially lost, the vendee may elect between
withdrawing from the contract and demanding the remaining part, paying its
proportionate price.

The thing is lost when it perishes or goes out of commerce or disappears in


such a way that its existence is unknown or it cannot be recovered.

IV.

Traditio longa manu movable property is delivered by mere consent by the contracting
parties if the thing sold cannot be transferred to the possession of the vendee at the time
of the sale;
Traditio brevi manu the vendee already has the possession of the thing sold by virtue
of another title as when the lessor sells the thing leased to the lessee;
Constitotum possessorium the vendor continues in possession of the property sold not
as owner but in some other capacity (e.g., as tenant of the vendee).
3. Quasi-Traditio (Art. 1501) delivery of rights, credits or incorporeal real
property, made by placing the titles of ownership in the hands of the vendee or lawyer, by
execution of a public instrument, or by allowing the vendee to use his rights as new
owner with the consent of the vendor.

OBLIGATIONS OF THE VENDOR

Requisites in constructive delivery before ownership may be


transferred:

Principal Obligations of the Vendor

(a) Seller must have control over the thing; otherwise, can he put another in control?

to transfer the ownership of the determinate thing sold (Art. 1495);

(b) Buyer must be put under control;

The vendor need not be the owner of the thing at the time of perfection of
the contract; it is sufficient that he has a right to transfer the ownership
thereof at the time it is delivered (Art. 1459).
If the seller promised to deliver at a stipulated period and such period is of
the essence of the contract but did not comply with his obligation on time, he
has no right to demand payment of the price. The vendee-buyer is fact may
ask for the rescission or resolution of the sale.
If the failure of the seller to deliver on time is not due to his fault, as when it
was the buyer who failed to supply the necessary credit for the
transportation of the goods, delay on the part of the seller may be said to be
sufficiently excused.

to deliver the thing, with its accessions and accessories, if any, in the condition in which
they were upon the perfection of the contract (Art. 1537);

(c) There must be the intention to deliver the thing for purposes of ownership.

Rules of constructive delivery:

1. If a seller has an actual possession, he cannot transfer ownership by constructive


delivery.
2. There can be no constructive delivery by means of a public instrument if there is a
stipulation to the contrary.
3. The execution of a deed or contract is only presumptive delivery.
An Unpaid Seller is one who has not been pair or rendered the whole price or who has
received a bill of exchange or other negotiable instrument as conditional payment and
the condition on which it was received has been broken by reason of the dishonor of the
instrument.
Rights of an unpaid seller:

to warrant against eviction and against hidden defects (Arts. 1495, 1547);
1. A lien on the goods or right to retain them for the price while in his possession
to take care of the thing, pending delivery, with proper diligence (Art. 1163);
2. A right of stopping the goods in transitu in case of insolvency of the buyer; requisites:
to pay for the expenses of the deed of sale, unless there is a stipulation to the contrary
(Art. 1487).

(a) the seller must be unpaid;

Delivery or Tradition

(b) the buyer must be insolvent;


(c) the goods must be in transit;

(d) the seller must either actually take possession of the goods sold or give notice of
his claim to the carrier or other person in possession;

If the condition is in the nature of a promise that it should happen, the non-performance
of such condition may be treated by the other party as a breach of warranty.

(e) the seller must surrender the negotiable document of title, if any, issued by the
carrier or bailee; and

Implied warranty as to sellers title (Art. 1548) that the seller guarantees that he has a
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.

(f) the seller must bear the expenses of delivery of the goods after the exercise of the
right.
3. A right of resale
4. A right to rescind the sale
Rules in case of loss, deterioration, or improvement of thing before delivery
1.

If the thing is lost without the fault of the debtor, the obligation shall be
extinguished.

2.

If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages, if is understood that the thing is lost when it perishes, or goes out
of commerce, or disappears in such a way that its existence is unknown or it
cannot be recovered.

3.
4.

When the thing deteriorates without the fault of the debtor, the impairment is
to be borne by the creditor.
If it deteriorates through the fault of the debtor, the creditor may choose
between the rescission of the obligation and its fulfillment, with indemnity for
damages in either case.

5.

If the thing is improved by its nature, or by time, the improvement shall inure
to the benefit of the creditor.

6.

If it is improved at the expense of the debtor, he shall have no other right


than that granted to the usufructuary.

Rules as to preference of ownership in case of double sale


1.

If the property sold is movable, the ownership shall be acquired by the


vendee who first takes possession in good faith [Villa Rey Transit, Inc. vs
Ferrer, 25 SCRA 861].

2.

If the property sold is immovable, the ownership shall belong to:

(a) the vendee who first registers the sale in good faith in the Registry of Deeds has
preferred right over another vendee who has not registered his title even if the latter is in
actual possession of the immovable property governed by the principle prius tempore,
patior jure (first in time, stronger in right) knowledge by the first buyer of the second
sale cannot defeat the first buyers right except when the second first registers in good
faith the second sale;
(b) in the absence of registration, the vendee who first takes possession in good faith;
and
(c) in the absence of both registration and possession, the vendee who presents the
oldest title (who first bought the property) in good faith.

Article 1544 has no application to lands not registered with the Torrens
system.

V. CONDITION AND WARRANTIES


Condition means an uncertain event or contingency on the happening of which the
obligation (or right) of the contract depends.
Warranty is a statement or representation made by the seller of goods,
contemporaneously and as a part of the contract of sale, having reference to the
character, quality, or title of the goods, and by which he promises or undertakes to insure
that certain facts are or shall be as he then represents them.
If the obligation of either party is subject to any condition and such condition is not
fulfilled, such party may either (1) refuse to proceed with the contract, or (2) proceed with
the contract, waiving the performance of the condition.

Implied warranty against hidden defects or unknown encumbrance (Art. 1562) that the
seller guarantees that the thing sold is reasonably fit for the known particular purpose for
which it was acquired by the buyer or, where it was bought by description, that it is of
merchantable quality.
Essential elements of warranty against eviction
1.

the vendee is deprived in whole or in part of the thing purchased;

2.

the vendee is so deprived by virtue of a final judgment ;

3.

the judgment is based on a right prior to the sale or an act imputable to the
vendor;

4.

the vendor was summoned in the suit for eviction at the instance of the
vendee; and

5.

there is no waiver on the part of the vendee.

Kinds of waiver of eviction

1.

Consciente the waiver is voluntarily made by the vendee without the


knowledge and assumption of the risks of eviction. If the waiver was only
conscious, the vendor shall pay only the value which the thing sold had at
the time of eviction this is a case of solution indebiti the effect is to
deprive the purchaser of the benefits mentioned in Nos. 2, 3, 4 and 5 of
Article 1555.

2.

Intencionada the waiver is made by the vendee with knowledge of the


risks of eviction and assumption of its consequence. The vendor is
exempted from the obligation to answer for eviction, provided he did not act
in bad faith [Andaya vs. Manansala, 107 Phil. 1151].

Rights of the vendee against the vendor in case eviction occurs (Art. 1555)
1.

return of the value of the thing sold at the time of eviction;

2.

income or fruits if he has been ordered to deliver them to the party who won
the suit against him;

3.

costs of the suit;

4.

expenses of the contract;

5.

damages and interests and ornamental expenses if the sale was made in
bad faith.

Redhibition

Redhibitory action

Redhibitory vice or defect

- an action instituted to avoid a sale - a defect in the article sold


on account of some vice or defect against which defect the
- the avoidance of a sale on in the thing sold which renders its seller is bound to warrant.
use impossible, or so inconvenient The vice or defect must
account of some vice or
and imperfect that it must be
constitute an imperfection, a
defect in the thing sold,
supposed that the buyer would not defect in its nature, of certain
which renders its use
have purchased it had he known of importance; and a minor
impossible, or so
defect does not five rise to
inconvenient and imperfect the vice. The object is the
redhibition. The mere
that it must be supposed that rescission of the contract. If the
object is to procure the return of a absence of a certain quality
the buyer would not have
purchased it had he known part of the purchase price paid by in the thing sold which the
the vendee, the remedy is known vendee thought it to contain
of the vice.
as accion minoris orestimatoris. is not necessarily a
redhibitory defect. One thing
is that is positively suffers
from certain defects.
Doctrines of caveat venditor and caveat emptor

Caveat venditor

Caveat emptor

(a) should there be a stipulation to that effect; or

(Let the seller beware)

(Let the buyer beware)

(b) should the vendor give security for the return of the price; or

- the vendor is liable to the vendee for any - applies in sheriffs sale, sales of animals, and
hidden faults or defects in the thing sold, tax sales, for there is no warranty of title or
even though he was not aware thereof quality on the part of the seller in such sales.
(Art. 1566).- Based on the principle that a
sound price warrants a sound article.
- Also applies in double sales of property
where the issue is who between two vendees
has a better right to the property .
- Requires the purchaser to be aware of the
supposed title of the vendor and one who buys
without checking the vendors title takes all the
risks and losses consequent to such
failure [Solvoso vs. Tanega, 87 SCRA 349].
Alternative remedies of the buyer to enforce warranty (Art. 1567):
1.

Accion redhibitoria to withdraw from the contract

2.

Accion quanti minoris demand a proportionate reduction of the price, with


a right to damages in either case

Effect of loss of thing sold on account of hidden defects (Art. 1568)


If the vendor was aware of the hidden
(a) the expenses of the price paid
defects in consequence of which the thing
sold was lost, he shall bear the loss
b) the contract; and
because he acted in bad faith. In such case,
the vendee has the right to recover:
(c) damages.
If the vendor was not aware of them, he
shall be obliged only to return:

(a) the price paid

(c) should the vendor have caused the disturbance or danger to cease; or
(d) should the disturbance consist only of a mere act or trespass.
VII.

Goods include all chattels personal but not things in action or money of legal tender in
the Philippines. The term includes growing fruits or crops.
Actions available for breach of the contract of sale of goods:
Action by the seller for payment of the price (Art. 1595)
Action by the seller for damages for non-acceptance of the goods (Art. 1596)
Action by the seller for rescission of the contract for breach thereof (Art. 1597)
Action by the buyer for specific performance (Art. 1598)
Action by the buyer for rescission or damages for breach of warranty (Art. 1599)
Remedies allowed to the buyer when the seller has been guilty of a breach of
promise or warranty (Art. 1599):
1

Recoupment - accept the goods and set up the sellers breach to reduce or
extinguish the price.The theory of recoupment is that the sellers damages are cut
down to an amount which will compensate him for the value of what he has given.

Set-off or Counterclaim for damages - accept the goods and maintain an action for
damages for the breach of the warranty. Both sides of the contract are enforced in
the same litigation. The buyer (defendant) does not seek to avoid his obligation
under the contract but seeks to enforce the sellers (plaintiffs) obligation and to
deduct it from his liability for the price for breach of warranty.

Action for damages refuse to accept the goods and maintain an action for
damages for the breach of the warranty.

Rescission - rescind the contract of sale by returning or offering the return of the
goods, and recover the price or any part thereof which has been paid. This remedy is
not available in the following cases:

(b) interest thereon; and


(c) expenses of the contract if paid by the
vendee. He is not made liable for damages
because he is not guilty of bad faith.
VI. OBLIGATIONS OF THE VENDEE

The vendee is obliged to (1) accept delivery; and (2) pay the price of the
thing sold.

(a) if the buyer accepted the goods knowing of the breach of warranty without
protest;

The following rules must be borne in mind:

(b) if he fails to notify the seller within a reasonable time of his election to rescind;
and

1. In contract of sale, the vendor is not required to deliver the thing sold until the price is
paid nor the vendee pay the price before the thing is delivered in the absence of an
agreement to the contrary [La Font vs. Pascacio, 5 Phil. 591].

(c) if he fails to return or offer to return the goods in substantially as good condition
as they were in at the time of the transfer of ownership to him. But where the injury
to the goods was caused by the very defect against which the seller warranted, the
buyer may still rescind the sale.

2. If stipulated, then the vendee is bound to accept delivery and to pay the price at the
time and place designated.
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.
4. In the absence also of stipulation, as to the place of delivery, it shall be made wherever
the thing might be at the moment the contract was perfected (Art. 1251).
5. If only the time for delivery of the thing sold has been fixed in the contract, the vendee
is required to pay even before the thing is delivered to him; if only the time for payment of
the price has been fixed, the vendee is entitled to delivery even before the price is paid
by him (Art. 1524).
Instances when the vendee may suspend the payment of the price:
a) should he be disturbed in the possession or ownership of the thing sold;
b) should he have reasonable grounds to fear such disturbance by a vindicatory action or
by a foreclosure of mortgage;
These rights do not exist in the following cases:

ACTIONS FOR THE BREACH OF CONTRACT OF SALE OF GOODS

VIII.

EXTINGUISHMENT OF SALE

Classification of modes or causes of extinguishing the contract of sale:


Common those causes which are also the means of extinguishing all other contracts
like payment, loss of the thing, condonation, etc. (Art. 1231).
Special those causes which are recognized by the law on sales (those covered by Arts.
1484, 1532, 1539, 1540, 1542, 1556, 1560, 1567, and 1591).
Extra-special conventional redemption and legal redemption.
Conventional Redemption

Legal Redemption

(Arts. 1601-1618)

(Arts. 1619-1623)

It is the right which the vendor reserves to


It is the right to be subrogated, upon the
himself, to reacquire the property sold provided same terms and conditions stipulated in
her returns to the vendee the price of the sale, the contract, in the place of one who

the expenses of the contract, any other


legitimate payments made therefore and the
necessary and useful expenses made on the
thing sold, and fulfills other stipulations which
may have been agreed upon.

acquires a thing by purchase or dation in


payment, or by any other transaction
whereby ownership is transmitted by
onerous title.

Nature:

Nature: (a) identical with conventional


redemption, except for the source of the
(a) it is purely contractual because it is a right right conventional redemption arises
from the voluntary agreement of the
created, not by mandate of the law, but by
parties; legal redemption proceeds from
virtue of an express contract[Ordoez vs.
law;
Villaroman, 78 Phil. 116];
(b) it is not predicated on proprietary
right but on a bare statutory privilege to
be exercised only by the person named
in the statute the statute does not make
actual ownership at the time of sale or
redemption a condition precedent, the
(c) it is a real right when registered, because right following the person and not the
it binds third persons [Mortera vs. Martinez, 14 property[Magno vs. Viola and Sotto, 61
Phil. 80];
Phil. 541];
(b) it is an accidental stipulation and,
therefore, its nullity cannot affect the sale of
itself since the latter might be entered into
without said stipulation [Alojado vs. Lim
Siongco, 51 Phil. 339];

(d) it is a resolutory condition because when (c) it is in the nature of a mere


exercised, the right of ownership acquired by privilegecreated partly for reason of
the vendee is extinguished[Aquino vs. Deal, 63 public policy and partly for the benefit
and convenience of the redemptioner to
Phil. 582];
afford him a way out of what might be a
(e) it is potestative because it depends upon disagreeable or inconvenient association
into which he has been thrust it is
the will of the vendor;
intended to minimize co-ownership [Basa
(f) it is a power or privilege, not an obligation, vs. Aguilar, 117 SCRA 128; Tan vs. CA,
172 SCRA 660].
that the vendor has reserved for

An equitable mortgage is one which lacks the proper formalities, form of words, or other
requisites prescribed by law for a mortgage, but shows the intention of the parties to
make the property subject of the contract as security for a debt and contains nothing
impossible or contrary to law [Cachola vs. CA, 208 SCRA 496].
Dacion en pago is the transmission of the ownership of a thing by the debtor to the
creditor as the accepted equivalent of the performance of an obligation.
Pacto de retro

Ownership is transferred but the ownership Ownership is not transferred but the property
is subject to the condition that the seller is merely subject to a charge or lien as
might recover the ownership within a
security for the compliance of a principal
certain period of time.
obligation, usually a loan.
If the seller does not repurchase the
property upon the very day named in the
contract, he loses all interest thereon.

The mortgagor does not lose his interest in


the property if he fails to pay the debt at its
maturity.

There is no obligation resting upon the


purchaser to foreclose; neither does the
vendor have any right to redeem the
property after the maturity of the debt.

It is the duty of the mortgagee to foreclose


the mortgage if he wishes to secure a perfect
title thereto, and after the maturity of the debt
secured by the mortgage and before
foreclosure, the mortgagor has a right to
redeem [Basilio vs. Encarnacion, 5 Phil. 360].

Instances when conventional redemption is presumed to be an equitable


mortgage:

himself [Ocampo vs. Potenciano, CA 48 OG


2230];
Instances of Legal Redemption:
(g) it is reserved at the moment of the
perfection of the contract for if the right to
repurchase is agreed upon afterwards, there is
only a promise to sell which produces different
(a) Under the Civil Code, those found
rights and effects and is governed by Art.
in Arts. 1620-1622, 1634, and 1088;
1479 [Diamante vs. CA, 206 SCRA 52];
(h) the person entitled to exercise the right of
redemption necessarily is theowner of the
property sold and not any third party [Gallar vs. (b) Under special laws:
Husain, 20 SCRA 186];
(1) redemption by owner of real
(i) it gives rise to reciprocal obligationthat of property sold for delinquent taxes
returning the price of sale and other expenses, period is within 1 year from date of sale;
on the part of the vendor, and that of delivering
the property and executing a deed of sale
(2) repurchase by homesteader of
therefore, on the part of the
homestead sold under the Public Land
vendee [Pandaquilla vs. Gaza, 12 Phil. 663]. Act period is 5 years [Tupas vs.
Damasco, 132 SCRA 593];
(3) redemption by judgment debtor or
redemptioner or real property sold on
execution period is 12 months;
(4) redemption by mortgagor after
mortgaged property has been judicially
foreclosed and sold period is 90 days
but before confirmation of sale by the
court (in all cases of extra-judicial
foreclosure sale, the mortgagor may
redeem the property within 1 year from
the date of registration of the sale);
(5) redemption by an agricultural
lessee of landholding sold by the
landowner period is 180 days from
notice in writing which shall be served by
the vendee on all lessees affected by
DAR upon the registration of the sale.

Mortgage

1.

when the price of a sale with right to repurchase is unusually inadequate;

2.

when the vendor remains in possession as lessee or otherwise;

3.

when upon or after the expiration of the right to repurchase another


instrument extending the period of redemption or granting a new period is
executed;

4.

when the purchaser retains for himself a part of the purchase price;

5.

when the vendor binds himself to pay the taxes on the thing sold;

6.

in any other case where it may be fairly inferred the real intention of the
parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation; and

7.

when there is a doubt as to whether the contract is a contract of sale with


right or repurchase or an equitable mortgage.

Requisites before legal redemption can be exercised:


1

There must be a sale or assignment of credit. The concept of sale must be


understood in its restricted sense. The right cannot be exercised if the transaction is
exchange or donation.

There must be a pending litigation at the time of the assignment. The complaint by
the assignor must have been filed and answered by the creditor before the sale of
the credit.

The debtor must pay the assignee (a) the price paid by him, (b) the judicial costs
incurred by him, and (c) the interests on the price from the date of payment.

The right must be exercised by the debtor within 30 days from the date the assignee
demands (judicially or extra-judicially) payment from him.

Redemption

Pre-emption

1 The sale to a third person has already been The sale to a third person has not yet
perfected
been perfected
2 Has a much broader scope

Narrower in scope may be exercised


only where there is a prospective resale
of a small piece of urban land originally
bought by the prospective vendor merely

for speculation
3 Directed against the third person who
bought the property

Directed against the prospective vendor


who is about to resell the property

4 Effect is to extinguish a contract that has


already been perfected or even
consummated

Effect is to prevent the birth or perfection


of a contract

Purpose of the law (Act No. 3952) is to prevent the defrauding of creditors by the secret
sale or disposal or mortgage in bulk of all or substantially all of a merchants stock of
goods.
The general scheme is to declare such bulk sales fraudulent and void as to creditors of
the vendor, or presumptively so, unless specified formalities are observed, such as the
demanding and the giving of a list of creditors, the giving of actual and constructive
notice to such creditors, by record or otherwise, and the making of an inventory.

IX. ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL RIGHTS

A sale and transfer in bulk under the Bulk Sales Law is any sale, transfer, mortgage, or
assignment

Assignment of credit a contract by which the owner of a credit transfers to another his
rights and actions against a third person in consideration of a price certain in money or its
equivalent (Art. 1458).

(a) of a stock of goods, wares, merchandise, provisions, or materials otherwise than in


the ordinary course of trade and the regular prosecution of the business; or

Assignment of credit and other incorporeal rights are consensual, bilateral, onerous, and
commutative or aleatory contracts. The assignment involves no transfer of ownership
but merely effects the transfer of rights which the assignor has at the time to the
assignee [Casabuena vs. CA, 286 SCRA 594].

(b) of all or substantially all, of the business or trade; or

It may be done gratuitously, but if done onerously, it is really a sale. Thus, the subject
matter is the credit or right assigned; the consideration is the price paid for the credit or
right; and the consent is the agreement of the parties to the assignment of the credit or
right at the agreed price.

Acts punished by the law:

(c) of all or substantially all, of the fixtures and equipment used in the business of the
vendor, mortgagor transferor, or assignor.

1.

knowingly or willfully making or delivering a statement as required by the Act


which does not include the names of all the creditors of the vendor, etc. with
the correct amount due and to become due or which contains any false or
untrue statement; and

2.

transferring title to a any stock of goods, wares, merchandise, provisions or


materials sold in bulk without consideration of for a nominal consideration
only

Renunciation the abandonment of a right without a transfer to another.


Agency involves representation, not transmission wherein the agent acts for the
principal.
Substitution the change of a new debtor for the previous debtor with the credit
remaining in the same creditor.
Subrogation the change in the person of the creditor with the credit being
extinguished.
Binding effects of assignment:
1 As between the parties, the assignment is valid although it appears only in a private
document so long as the law does not require a specific form for its validity.
2 To affect third persons, the assignment must appear in a public instrument, and in
case it involves real property, it is indispensable that it be recorded in the Registry of
Deeds [Lopez vs. Alvarez, 9 Phil. 28].
3 The assignee merely steps into the shoes of the assignor, the former acquiring the
credit subject to defenses (fraud, prescription, etc.) available to the debtor against
the assignor. The assignee is deemed subrogated to the rights as well as to the
obligations of the seller. He cannot acquire greater rights than those pertaining to the
assignor. [Koa vs CA, 219 SCRA 541].

X. BARTER OR EXCHANGE
Barter a contract whereby one person transfers the ownership of non-fungible things to
another with the obligation on the part of the latter to give things of the same kind,
quantity, and quality.
The contract is perfected from the moment there is a meeting of the minds upon the
things promised by each party in consideration of the other. It is consummated from the
time of mutual delivery by the contracting parties of things they promised.
Effect where the giver is not the lawful owner of the thing delivered: the aggrieved party
cannot be compelled to deliver the thing he has promised. He is entitled to claim
damages (Art. 1639). [Biagtan vs. Viuda de Oller, 62 Phil. 933].
Remedy in case of eviction: the injured party is given the option to recover the property
he has given in exchange with damages or only claim an indemnity for damages. The
right to recover is, however, subject to the rights of innocent third persons (Art. 1640).

XI. THE BULK SALES LAW