CHAPTER I

INTRODUCTION

I. Definition of Sales

Note: The condition should only refer to the obligation to pay the price and NOT:
a. The obligation concerning the subject matter (a&b above)—
which is the essence of a K of sale. (Gaite)
b. The whole contract—in which the case it is K to sell (Villanueva
believes that a K to sell and the K of sale are of the same genus
and both covered by Art. 1458. However, recent rulings in the
SC hold that they are different.)

Genius of Villanueva: Gaite gave 2 parameters in order for a condition

in K of sale to be valid:

a. The condition must go into the payment of the price, and NOT
the subject matter because you will be put as under the
essence of K of sale.
b. The only time it can exist is when it is clearly stipulated.

II. Elements

1. Consent or meeting of the minds (to transfer of ownership in exchange for price)
2. Determinate subject matter
3. Price certain in money or its equivalent (Coronel)

III. Stages

1. Negotiation
2. Perfection
3. Consummation

Note: Technically, only 2 and 3 are the only lives of a K, since in

negotiation there is no K yet.

IV. Nature of the Contract Created

1. Buyer ―”to give”

• Price
2. Seller ―to give
• Deliver
• Transfer ownership
Note: It is important to know that a sale is the obligation to give because being such, a
breach of it can have the remedy of (a) specific performance and (b) rescission. An
obligation ―to do‖ cannot be subject to specific performance, ONLY rescission. Because
specific performance in ―to do‖ may amount to involuntary servitude, which is prohibited in
the Constitution.

V. Characteristics of a K of Sale (it is enough that these

characteristics exist at perfection)

1.Nominate and Principal

• Nominate means it has a particular name by law and governed by
specific provision (Title on Sale)
• Title given to a K is not significant; rather it‘s the substance which
is.
• Although a K of sale may be attached to another K, the test of
being a principal is whether it can stand on its own and does not
depend on another K for its validity or existence.

2.Consensual
• This is a very important characteristic. Every K has two lives,
perfection and consummation. What perfects a K of sale is mere
consent or meeting of the minds. Performance (e.g. paying the
price or delivering the subject matter) goes into the consummation
and is totally irrelevant to perfection.
• As distinguished from:
1. Solemn K – which requires not only consent, but also
a particular form of the K
2. Real K – which requires not only consent, but also delivery
• Upon the perfection of a K of sale, only the 3 obligations (2 for
buyer and 1 for the seller) begin to exist. It doesn’t ‘t matter if there
is no payment made yet nor transfer of ownership by delivery, nor
ownership itself of the subject matter.
• Being consensual, he who alleges the existence must prove it by
competent evidence, as well as essential element thereof.

3.Bilateral
• As distinguished from unilateral, both parties here are obligated.
(Seller: transfer and deliver; Buyer: pay)
• The importance of this is that the power to rescind un a K of sale
is implied and need not be stipulated in the K.

4.Onerous
• Means that the consideration given is a valuable consideration (as
distinguished from donation where the obligation is gratuitous)
• Test of being onerous: It is objective. Any consideration in the
normal commercial transaction, supports and transaction. In other
words, valuable consideration is one which, from the objective
point of view, on its own has rent values.
5.Commutative
• As distinguished from aleatory, it means that equal value is exchanged for
equal value.
• It refers to consideration as compared to the subject matter, in
contrast to onerous which refers only to consideration.
• Commutativeness is a subjective test. But it must not go into
absurdity, otherwise even if you feel that it is commutative, the
substance of the K may say otherwise. Inadequacy of the price
may show vice in consent, in which the said sale may be annulled,
but such annulment is not for inadequacy of price, but rather for
vitiated consent. Art. 14.

6.Title and Mode

• Title – legal basis by which to affect dominion or ownership
• Mode – legal means by which dominion or ownership is created,
transferred, destroyed, or modified.
• Sale, by its creation, is just a title. It does not even touch dominion. Sale only
provides the legal justification in the future on the part of the
buyer to be able to claim ownership.
• Sale by itself does not transfer or affect ownership; the most a sale
does is to create the obligation to transfer ownership. It is tradition
or delivery, as a
consequence of sale that actually transfers ownership.

VI. As Distinguished From

1. Donation

Sale Donation
Consideration Onerous – consideration is Gratuitous – consideration
price which is valuable is a liberality
Type Consensual – perfected by Solemn – must comply with
mere consent the formalities by law for
perfection

2. Barter
• One of the parties binds himself to give one thing in
consideration of the other ‘s promise to give another thing.

• Rules to determine whether it’s a K of sale or a barter:

o It is a barter where the value of the thing given as part of
consideration exceeds the amount of money given or its equivalent.
o It is a sale, where the value of the thing given as part of the
consideration equals or is less than the amount of the
money given.

• For practical legal purposes, the distinction between a sale or

barter are practically academic since aside from the two
 separate rules applicable to barter (Arts. 1639-1640), as to all
matter specifically provided for, barter shall be governed by
the provision on sales.
• Instance when knowing the differences is important:
o Statute of Frauds does not apply to barter
o Right to legal redemption to an adjoining owner covers only ―resale‖
o Tax purpose

3. Contract for Piece of Work (POW)

Sale POW
Parties Buyer and Seller Principal client and contractor
Subject Matter Service
Obligations To pay (buyer) To pay (principal)
To deliver possession (seller) To perform service (contractor)
To transfer ownership (seller)
Kind of Obligation To give To do
Breach Can be subject to specific Cannot be subject to specific
performance performance

How will you differentiate a sale from a K of POW? (Here you will
see the genius of Villanueva, makes you proud to be a
brother…EXCELLENCE)

i. Art. 1467 gives us two sets of distinction:

• Habituality test – manufacturing in ordinary course
of business makes it a sale. When the
manufacturer engages in the same activity in the
ordinary course of business and does not need to
apply extra ordinary skills and equipment that
would classify the underlying transaction as a K of
sale.
• Timing test – manufacturing upon special order of
customers makes it a K of POW.
ii. In Celestino, the habituality test was upheld. BUT the SC
interpreted that the test in 1467 is not one of timing or habit
but a nature of work to be performed test. It must be of
the nature that the products are not ordinary products of the
manufacturer, and they would require the use of
extraordinary skills or equipment to make it a K of POW.

iii. In EEL, the SC held that the habituality test is not

controlling. The business of EEI was a staple undertaking,
one that was considered ordinary and usual in their
operations, and yet what they did was a POW. Then they
held that the timing test in 1467 is actually a nature of the
object test, meaning could the company manufacture the
product in mass, would it make business sense to do so.
 iv. In CIR, Tolentino talked about the intent test (more
important test). If the parties intend that an object will be
delivered without considering the work or labor of the part
bound, it is a sale. But if the basis is the work that will be
employed, it is a POW.

v. With all the tests enumerated, what should be used?

vi. The habituality and timing tests seem to have been abandoned. What is
controlling then is the nature of the object test and the intent
test. Both must be applied.
vii. HOWEVER, what if a seller offers 10,000 inclined erasers
to a buyer who buys them because of the seller‘s
reputation, and upon agreement, the seller reaches under
the table and offer the erasers, would that be a sale or a
POW? (The tests seems to answer that it is the POW,
because it does not make business sense to manufacture
10,000 erasers and obviously the intent here is for the
seller‘s skills.)

viii. Genius: The answer is a Sale. Why? Because a breach of

a K of POW looks at the service, obviously, you cannot pay
for service which has already been done as in this case. So
that means that we are back to the timing test in 1467 (only
if it is manufactured upon special order, will it become a
POW). We have come into a full circle.

4.Agency to Sell

Sale Agency to Sell

Buyer himself pays for the object’s price.
Seller warrants
Not unilaterally irrevocable.
The agent is not obliged to pay the price
merely to deliver the price received from
the buyer
No personal liability as long as acting within
his authority and the name of the principal
(however, an agent may bind himself to the
warranties of the seller)
Essentially revocable even in the presence
of an irrevocability clause

Profits belong to the seller Any profit received must pertain to the
principal, the agent disqualified from
receiving personal profits

Must comply with the Statute of Frauds to Valid and enforceable in whatever from it
be may be entered into.
enforceable.

Nothing that is not written within the 4 Agent must always follow the principal
corners of the K can bind the parties or can
be the basis for damages
Essence: Transfer of title, and such transfer
puts the transferee in the attitude or
position of an owner and makes him liable
to the transferor as debtor for the agreed
price
Essence: delivery into an agent is not as
his property, but as property of the principal
who remains the owner and has the right to
control the sale and the proceeds

CHARACTERISTICS OF AN AGENCY

1. Prepatory – meaning it is entered into in order to achieve other

ends and other relationships
a. Types of Prepatory Ks
1. Agency to sell and agency to buy – give rise to a K of sale
2. Distributorship agreement or an agreement to enter
into a series of Ks of sale – in this case, there is no
price yet so it is NOT a K of sale
2. Involves a personal obligation – therefore, it is not subject to
specific performance (like distributorship agreement)
3. Fiduciary – based on confidence and trust, so it is not
transmissible. (Death extinguishes the K, except in agency
coupled with an interest.)
4. Revocable – because of its fiduciary nature. Any attempt to make
it irrevocable is void. Except in an agency coupled with an interest
(when an agency is constituted as part of the mechanism for
mortgage).

Principal in a K of Agency

• These are ―essential clauses‖ contemplated by law, such as if

these are present the name of the K is not controlling.
• The acts of the agent bind the principal, the agent acts beyond his
commission.
• Agent has no legal basis to receive anything on his own.
Everything an agent receives must be accounted for and returned
to the principal. Agent is never liable for the price.
• An agent cannot two principals, for this would violate the agency
relationship. Genius: To determine whether it is a sale or one of
agency, look at 2 things: delivery and transfer of ownership. If
these are made to be assumed in whole or in part by the agent,
meaning if he bears the risk with regard to it, he cannot be an
agent. An agent is never liable in whole or in part of the subject
matter.
• The price of any stipulation makes the price the liability of the
supposed agent or makes him exposed to the risk of the price (e.g.
an increase, then he could not have been an agent since an agent
is not liable for any portion of the price.
 5.Dacion en Pago

• A genus of sale and is governed by the law on sales.

• Shows us that a sale is both perfected and consummated. Dacion
en pago represents a perfected and consummated contract of
sale.
• Differences

Sale Dacion en pago

Principal Accessory
Consensual Real
Title Mode

6. Lease

Sale
Dominion is absolutely disposed by the
seller in favor of the buyer upon the
payment of the price.
Lease
Temporary disposition in favor of the lessee
with the payment of rentals, but after the
period of lease, the things revert back to the
owner.

CHAPTER II
PARTIES TO A CONTRACT OF SALE

General Rule: Any person who is authorized under the law to oblige
himself, may enter into a contract of sale.

Exceptions:

1. Minors and incapacitated persons

• They do not have capacity to obligate themselves

• Effect of sale: Voidable
• Consequences:
o Capacitated person cannot seek annulment on the basis of the other party‘s
incapacity.
o The incapacitated person, when properly represented is one who has legal
standing to annul the contract.

• Remedies for a voidable contract:

o Specific performance
o Ratification
o Rescission – can be availed of by both parties; but minors need only to
restitute up to the extent he has been benefited
• Exceptions: necessaries (everything that is indispensable for sustenance and refers
only to things)
• To be a valid contract, it is required that:
o The K was perfected
o There was delivery of the necessaries
o The minor must be the buyer
o Social standing must be considered

2. Sale by Married Couple

• Sale to third party

• Void if done without the consent of the other
spouse.
• Sale between spouses
o Void (this applies even in legal redemption, compromises
and renunciation)
o Exception:
▪ When a separation of property was agreed upon in
marriage settlement.
▪ When there has been a judicial separation of
property agreed
upon between them
o Rational
▪ To prevent defraudation of creditors by transferring property to another
spouse.
▪ So dominant spouse won‘t take advantage of the weaker spouse.
▪ Avoid an indirect violation of the prohibition against donation
between spouse.
Note: This also applies between common law spouses.
3. Relative incapacity mandated by law. (This applies even
to sale on legal redemption, compromises and renunciation
because what you can ‘t do directly, you cannot do directly.)
• Applies to:
o Guardian with respect to the property of the ward
o Agents with respect to the property under his
administration (unless consented)
o Administrator and executor with respect to the property of the estate
o Public officer or employees with respect to the property of the state
o Public officer or employees with respect to property rights
under litigation.
o Lawyers with respect to the property of his client who is the
subject of litigation

• Effect of sale: VOID because it is against against public

policy (Rubias) The first 3 cases are ratifiable and the; last
3 are non-ratifiable
o Ratifiable – by entering into a new K after relationship is
ended; allowed because after the relationship is ended, the
remaining evil is a private one.

o Non-ratifiable – even if prohibited relationship is not there,

they cannot be allowed to agree into a new K because
 there is still public interest involving the sale reflecting the
public institution itself.
• Philtrust doctrine:
o When a property is sold to a third person and it goes back
to the person prohibited, that transaction is presumed void.
But you can show proof that there was no collusion,
making the sale valid. (Lapse of time is material but not
conclusive.)
o Even if the courts allow the sale which is prohibited, it is still void.
o Even if the sale is beneficial to the other party, it is still void
because what is considered is merely the relationship in
the K not the existence of fraud or advantage.

• Naval doctrine: Hereditary rights are vested entirely in the heirs

upon the death of the decedent. They are not among those
covered under the prohibition since with regard to administrators
and executors, the property must be property of the estate.

o Genius rebuttal of the Naval doctrine:

o Although they are vested directly on the heirs and not under the estate, the
value of these rights is inextricably necessary to the value of the estate under
the administration of the administrator. Therefore, if he squanders or destroys
the value of the estate, he actually destroys the value of the rights.
Hereditary rights are never within the estate being
administered because these are right pertaining
directly to the heir. But even if you are buying just the
―right‖, it’s like buying the property already. You must
not be allowed to do indirectly, what you can ‘t do
directly. The SC based its decision that a hereditary
right is technically not property itself.

• With regard to lawyer-client relationship, the

requisites are:
o Lawyer-client relationship
o Object is property under litigation
o Any kind of litigation whether adversarial or not
o Does not necessarily mean actual litigation
o During the pendency of the case

This also applies to the case of judges

o The period is from the filing of the complaint until there is
absolutely no judicial proceeding of whatever nature
pending with respect to the property. Even if it is final,
executory and unappealable but there is something
pending before the courts even a motion for execution, the
period has not ended.

• Note: Contingency fee arrangements (always subject to the

supervision of the courts):

o Payment based on a certain percentage of the property in

litigation— valid. No property is being assigned here.
o Payment is a portion of the value of the properties—valid.
Held to be so by the SC because the greater good it
 advances is greater than the public policy sought to be
protected by Art. 1491. This contingency arrangement is in
the nature of a dacion en pago, and is therefore under the
law on sales.

CHAPTER III
SUBJECT MATTER OF THE SALE

Requisites (these must exist at the time of PERFECTION):

1. It must be existing, or it may be future or even contingent
a. Requisites:
i. Must be existing; or
• Present Object
• Emptio Spei – sale of a mere hope or expectancy (BUT the sale of a
vain hope or expectancy is VOID.)
• Present object subject to a resolutory condition – upon the happening
of the condition, the parties shall return to each other what they have
received
ii. Must come to existence (TEST: must be of such that it can come about under
the present technological and scientific conditions of man)
• Future thing having a potential of existence
• Emptio rei speretae – future thing subject to a suspensive condition (but
if thing does NOT come into existence, the K is extinguished.)
b. The absence of this requisite makes the K void under Art. 1409 (3). Remember
that said provision talks about the QUALITY of the object, whether it has the
capability to exist, and not necessarily that it is existing.

2. It must be licit.
a. Licit – legal, when it is not outside the commerce of man and includes all rights
which are not instramissible.
b. Absence of this requisite makes the K void under Art. 1409 (1).

3. It must be determinate or at least determinable

a. Determinate—specific or that which has been:
i. physically segregated
ii. Particularly designated
b. Determinable—a generic thing which has:
i. The capacity of being made determinate
ii. Without need of further/new agreement between the parties
• In accordance with the principle of the
obligatory force of K ‘s, that it is free from the
whims and caprices, imagination or lack of it on
the part of the parties
• When both parties can imagine the same type
of SM in their minds, almost the same in all
other descriptions even as to a 3rd party, then it
satisfies this requirement.
 • Quantity is NOT important, ONLY when it is still possible to
determine the quantity without the need of a new K between the
parties (National Grains which was fucked up by Johannes
Schuback)

• Seller may NOT be the owner of the thing at the time of perfection.
It is only at the time of delivery that it is essential that the owner
owns the thing.
• If a seller is NOT the owner of the thing he sold, the buyer cannot
ask for specific performance because obviously, the seller here
cannot perform. The only remedy left is rescission. BUT when at
the time of perfection, the seller sells a subject matter over which
he is not the owner, the subsequent acquisition of title by a seller
validates the sale and title passes to the buyer by operation of law,
provided there has been previous delivery of the subject matter by
the seller to the buyer.

Yu Tek doctrine: Justice Trent ruled that there was no K of sale, even though the thing
was obviously determinable. BUT he was speaking in the point of view of the SM (To
understand this, imagine yourself to be a SM, and not one of the parties in the sale). Such
that there can be no K of sale as to any genus of the thing until it is physically segregated
from the rest. In short, there was no sale as to the SM, but there was a sale between the
parties.

Legality of Sale:
1. As to subject matter:
a. Various special laws declare certain sales of things illegal
and therefore VOID (e.g. drugs)

2. Simulation of SM makes the K of sale VOID (when there is no

intention whatsoever to give or receive the SM)

When motive nullifies the sale: Consideration is, as a rule, different from
the motive of the parties, and when the primary motive is illegal, such as
when the sale was executed over a parcel of land to illegally frustrate a
person‘s right to inheritance and to avoid payment of estate tax, the sale
is void because illegal motive predetermines the purpose of
the K. (Olegario)
 CHAPTER IV
PRICE

1. Consideration in a K of sale which plays a secondary role to the SM.

2. Seller cannot unilaterally increase previously agreed purchase price.

Requisites:
a. It must be real
a. When at the time the minds of the parties met, the
seller expected and intended to receive the price
and the buyer intended to pay for it

b. Must be with valuable consideration (NOT NOMINAL)

i. If this is not present, it might be another K (e.g. donation)
ii. There is a presumption that every K of sale entered into is with
valuable consideration. BUT if the party who ‘s saying there’s
no true consideration, the burden of proof SHIFTS. (Ong and
Bagnas)
iii. When price is simulated/fictitious, or there is the absence of
an expectation to receive payment by the seller and an intention
to pay on the buyer, the K of sale is VOID, but it might be another
kind of K.
iv. When there is a false price, or there is a price but it is not the one
agreed to by the parties but another price, the K of sale is VALID,
but subject to reformation.

b. Must be in money or its equivalent

a. “or its equivalent” must mean having the same
characteristics as money

b. If not in money, it’s a VOID K of sale, but it may be

another K like barter or dacion, which is still governed
by the law on sales, so it is as if there is a valid K of
sale (this shows that price merely plays a secondary
role).

c. In Republic vs. Phil. Resources Development, the

buyer was allowed to pay in GI sheets. Did the SC do
away with requirement no. 2? NO. The payment of
the thing other than money was done at the
consummation of the K of sale. At the time of
perfection, it was only in money.
c. Must be certain or ascertainable
a. Certain—when the amount is designated in pesos and centavos
b. Ascertainable—to be ascertainable, the price must be:
i. Fixed in reference to other things.
ii. Can be mathematically computed using a formula.
iii. Must have been designated to be fixed by a 3rd party (this is a
suspensive condition, so if the 3rd party refuses to fix the price,
the K is inefficacious).
a. If the 3rd person:
i. Acted in bad faith
 ii. Acted by mistake
….the courts can fix the price (this is the only time the courts can fix the price).

Note: Absence of 1 & 2 makes the K a no contract situation and the absence of 3
makes it inefficacious or it cannot be given effect, unless the party mutually agree on a new
price. But if the other party has already sued the other party, the court cannot compel the
parties to agree to a price.

Note: Also, even if the price has NOT been agreed upon, but the SM has already been
delivered and appropriated, the buyer has to pay a reasonable price, depending on the
circumstances of each case.

d. Manner of payment
a. Applies only when it is clearly implied in perfection
that the money is NOT present value. The general
rule is that it is presumed that the manner of payment
is the present value.
b. Because if you do not agree upon the terms of
payment, your minds have not met because you have
not agreed upon the same value.

Inadequacy of price (Erenote vs. Bezone)

1. Does not make the K void, EXCEPT:
a. Gross inadequacy to the point of being nominal (there is
therefore no real price).
b. Judicial sales
i. Requisites:
• Inadequacy must be so gross to the point of being
unconscionable
• There must be proof that had the thing been resold,
there would be a better price.
ii. Exception: when there is a right of redemption.

2. In sales a retro, gross inadequacy of price raises a presumption of

equitable mortgage.
 CHAPTER V
FORMATION OF CONTRACT OF SALE

I. Policitacion of Preparatory Stage

Heirarchy of species in policitacion

1. Invitations
An advertisement is an invitation to make an offer ―unless it
appears otherwise,‖ which would make it an offer.

2. Offer/Acceptance
It creates no relationship until it is
accepted. Kinds:

a. General – an offer to sell or an offer to buy direct

ed to everybody

b. Specific – an offer made to a particular person

and cannot be taken advantage of or availed of by
any other person other than the offeree

Characteristics (it is important to remember this shit!)

a. It is within complete control of the offeror
b. It cannot exist indefinitely
c. An offer with a period expires after the period
d. An offer with a condition ceases to exist when the
condition happens
e. An offer can ONLY be accepted absolutely and is indivisible
f. A modification is a counter-offer and destroys the first offer

3. Right of First Refusal

a. Under Ang Yu:

• A transaction covering a specific property wherein a lessee is given an

option to purchase the leased property in the event the lessor should
desire to sell the same.
• It is similar to an option contract because it has a SM and consent. But
different because it lacks price and separate consideration. Furthermore,
in an option contract, the prospective buyer has the option. In right of first
refusal, the person who has the right cannot exercise it at will. He must
wait for the future sale.
• It is always conditional. The condition being sale of the property in the
future.
• It is not even a contract, therefore not subject to specific performance and
a breach of the right may only amount to recovery of damages under Art
19.

b. Under Equatorial and Paranaque:

• However, if the right of the first refusal is embedded to a contract of lease,
they become enforceable and therefore, subject to specific performance.
 • Even though there is no price, upon breach of the right (when it is sold to
a 3rd person), the price will be based on the price it was sold.
• The lessee will have the right to specific performance and ask for
rescission of the sale. Provided there is a ground for rescission which is
bad faith on the part of the buyer (if the buyer was in good faith, he will be
protected)

NOTE: Paranaque further held that a buyer cannot be in good faith when there is a right of
first refusal in a property because everybody who buys the property must examine it first.

4. Option Contracts
• A unilateral promise that grants to the optionee the privilege or right to
purchase the SM at a certain price within a period, for a separate
consideration.
• An option is not a Contract to Sell. It is only half a K to sell because it is
either a unilateral obligation to sell or a unilateral obligation to purchase.
• The consideration in an option contract must be separate and distinct
from the purchase price. It can be anything of value.
• Nietes Doctrine: An option contract is exercised by mere notice3 to the
seller. Tender and consignation by the optionee is not needed.
• 2 Kinds of Option Contracts (the SM and price must have all the
requisites):
a. Valid option contract
i. Supported by a consideration separate and distinct from
the price
ii. If it is accepted prior to the time it was
withdrawn, it will give rise to a valid K of sale

b. Void option contract

i. There is lack of separate consideration
ii. Although it is void as an option contract, it is
valid as an offer (Sanchez doctrine)

NOTE: However, in Montilla and Diamante, the SC held that an option contract without a
separate consideration creates no contract.

• Principle of Double Acceptance in order that a void option contract will

give rise to a sale:

o 1st acceptance – this is needed to give rise to a void contract

while it is valid as an offer
o 2nd acceptance – giving rise to the contract of sale since the
offer was accepted
• Pre-Ang Yu doctrine: When an option K is supported by a separate
consideration, and is accepted as an option, the moment the option is
exercised within the period, it gives rise to a K of sale. If the offeror
withdraws the offer within the period, it will give rise to damages for
breach of K.

• Post-Ang Yu doctrine (plus the stupid cases of Equitable, Paranaque

Kings): An offeror can withdraw the offer anytime within the option period
regardless of the fact if there is a separate consideration or not. If it is with
consideration it will give rise to damages under breach of K. If there is no
consideration, it will give rise to tort under Art. 19 because there was no
valid option K.
 • Therefore, Ang Yu actually reduces the option K to mean nothing
because a valid option contract and a void option contract has been
placed in the same category which can be destroyed at the will of the
offeror.

NOTE: Although Ang Yu fucked up option contracts, it’s all obiter.

5. Mutual promise to buy and sell

This is a Contract to Sell

II. Perfection: Offer and Acceptance

Perfection of a K of Sale
• Upon the meeting of the minds as to a valid SM and price which
has all the requisites
• The offer must be certain and the acceptance absolute:
1. Certain offer – Price and SM with all the requisites
2. Absolute acceptance:
a. Absolute “absolute” – offer is accepted
without any qualification or counter-offers
b. Non-absolute (Villonco doctrine):
i. Do minimis – the change in acceptance is
so insignificant that there is substantial
absolute acceptance (e.g. Offer is pay in
2,000 days but acceptance is 1,999 days);
or
ii. Nature of change - the change does NOT
go into the SM or consideration (e.g. Offer
is that payment should be done with the
buyer in long pants but the acceptance is
that buyer will pay in shorts)

NOTE: However, if the offer was pay and then cut your hair, and the
acceptance did not include cutting the fair, this already goes into
consideration and constitutes a counter-offer

• When there is a suspensive condition, there is no perfected K of

sale until the condition is fulfilled, In Romero, the SC held that an
injured party can waive the condition and ask for specific
performance or sue for rescission and refuse to proceed if the
condition is imposed on the performance of an obligation.
• In sale by auction, only when the auctioneer announces by the fall
of the hammer or in customary manner is the sale perfected.

Earnest Money
1. Part if the purchase price which is proof of the perfection of the contract
2. However, in Spouses Doromal, the SC held that the proof is
rebuttable and evidence can be shown that the parties intended to
treat “earnest money” differently.
Genius Villanueva: This is because under Roman Law, earnest money served as liquidated
damages such that withdrawing from the sale means forfeiture of the earnest money now is
still acceptable. This is why Doromal provides that earnest money is not a conclusive proof
of the perfection of the contract, because the parties might intend it to be earnest money
under the concept of Roman Law.

Differences between earnest money and option money:

Earnest Money Option Money

Part of the purchase price Given as a distinct consideration
Given already while there is a sale (but take Applies to a sale not yet perfected
note of Spouses Doromal)
When given, buyer is bound to pay the When given, buyer is not required to buy
balance

III. Form of Sales

General Rule: Form is not important for the validity of sale.

Exceptions:
1. Power to sell a piece of land or interest therein must be in writing,
otherwise the sale thereof by the agent (even if the sale itself is
written) is void
2. Sale of large cattle must be in writing
3. Sale of land by non-Christians is void if not approved by the Provincial governor

STATUTE OF FRAUDS

General Rule: Form is important for enforceability

Coverage:
1. A sale agreement which by its terms is not to be performed within
a year from the making thereof

2. An agreement for the sale of foods, chattels, or things in action, at

a price not less than P500
3. The sale of real property or of an interest therein

Exceptions to the Coverage

1. Note or memorandum (it may be contained in 2 or more documents) Requisites for
a note or memorandum
a. In writing
b. Must contain the signature of the contracting party against whom the contract
is sought to be enforced.
c. Must describe the SM and Price which has all requisites

NOTE: In an auction sale, even if the 2nd requisite is not met, if the auctioneer enters the
sale in the entry book, the sale is taken out of the provisions of the Statute of Frauds

2. Partial performance
• The partial performance must either go to the SM or the price (not the
consideration!!!)
 • Tender of payment is not considered partial performance because there is no
involvement of the party against whom the sale is to be enforced (this is an
important element for partial performance to be valid.
• However, tender of payment, accompanied by other acts such as building of
improvements, possession and payment of taxes, may be considered partial
performance (Ortega doctrine).
• Claudel Doctrine: If the rights of the 3rd parties are involved, partial execution is
not good enough for the sale to be taken out of the Statute of Frauds. There must
be a memorandum. Why? Because there is no complicity on the part of 3rd
parties who were not involved in the srcinal transaction.

NOTE: Claudel applies only to movables where possession is presumed ownership unlike in
immovables where title is the basis.

3. Waiver
• This refers exclusively to the failure of the party to object to
oral testimony presented in court.
• The cross-examination on the contract is deemed a waiver

NOTE: In case the transaction falls under the exceptions, parol or oral evidence may be
introduced to prove the existence of the contract.

CHAPTER VI
PERFORMANCE OR CONSUMMATION OF THE CONTRACT OF SALE

I. Obligations of the Buyer and the Seller

Consummation: the state where either parties begin to perform their

respective obligations. On the part of the seller, to deliver the thing and
transfer ownership. On the part of the buyer, to pay the price.

NOTE: Always remember that in this stage, it is necessary that there is already a VALID
contract of sale. In other words, if you have not mustered what constitutes a valid contract of
sale, you‘ll get lost.

A. Obligations of the Seller

1. To take care of the SM with proper diligence of a good father of the family
• Unless another standard of care is required
• Applied only when the SM is determinate

2. To deliver the fruits and accessories

• But until actual delivery, the buyer only has a personal right to the fruits
(meaning the seller can sell the fruits and the one buying the fruits has a
better right)
• Applied only when the SM is determinate
 3. Deliver the SM (Tradicion)

• Twin effects of tradition:

a. transfer of ownership
b. seller is deemed to have fulfilled his obligations
Note: tradicion is a mode only when there is an underlying valid K of sale

Two Types of Delivery

a. Actual or Physical - thing sold is placed in the control and possession of the buyer
b. Constructive - seller transfers ownership without transferring
physical possession (achieved by mere consent of the parties)
i. execution of public instrument
ii. symbolic delivery - delivery of a thing which is a representation of the SM
(both parties must agree that the thing is a representation of the SM)
iii. constitutum possesorium - when at the time of perfection, the seller had
possession of the SM in the concept of an owner and pursuant to the
sale, hold physical possession thereof no longer in the concept of an
owner
iv. tradition brevi manu - before the K of sale, the would-be buyer was
already in the possession of the would be SM, and pursuant to the sale,
he would not hold possession in the concept of an owner
v. tradition longa manu – delivery by agreement such as when the seller
points the property
vi. delivery by negotiable documents of title
vii. seller allows buyer to exercise rights on the property

Requisites of a valid constructive delivery (specially in public instruments)

a. there must be no stipulation that the execution of a public
instrument will not produce the effect of delivery
b. at the time of the execution of the public instrument, the SM was
subject to the control of the seller (Addison doctrine)
c. such capacity, although existing at the time of the execution, must
continue within a reasonable time (Villablanca doctrine)

Exception to the Addison and Villablanca doctrines:

• When the public instrument was executed and there was no actual physical
possession, constructive delivery would still be ineffective if from the nature of
the contract, the buyer knew that there were adverse claims/occupants in the
property eh accepted the responsibility to set them out (Power doctrine)

Delivery through Carrier

1. FAS – Free Alongside Ship
• Seller pays all charges and is subject to risk until the goods
are placed alongside the vessel
2. FOB – Free on Board
a. shipping point – delivery of the goods to the carrier, inside
the vessel, is equivalent to delivery of the buyer
b. destination – only when vessel has arrived at the points of
destination and actual signals to the buyer that the goods are
there that there is deemed to be delivery to the buyer
3. CIF – Cost, Insurance Freight
 • The amount quoted by the seller and agreed to by the buyer
covers not only the cost of the merchandise but also
insurance and freight

a. majority school of thought – the carrier is an agent of the

buyer (like FOB shipping point)

b. minority school of thought – the seller covers all the

insurance and freight making the carrier his agent (like FOB
destination)

NOTE: These classifications are bullshit. Let me explain. They provide for very weak
presumptions. The moment there is anything to the contrary to indicate the real intention of
the parties, be it oral or written, then that intention governs regardless of the classification
they placed on the transaction (General Foods Doctrine)

Types of Tradicion Concepts When it Comes to Immovables:

REMEMBER: In every sale of an automobile, it is essential for validity

that there be a description (metes and bounds of the area must be
given)

1. Sale per unit of measure – sale of real estate made with a

statement of its area, at the rate of a certain price for a unit
measure (e.g. P3000 per square meter)
a. Effect: If it turns out that the area delivered is less, there is
substantial breach. Remedies would be specific performance
or rescission (But lack of area must not be less than 1/10 or
else it would be considered substantial compliance

2. Lump sum sale – not at a rate of a certain sum for a unit of

measure (e.g. P20M for that lot)

a. Effect: If it turns out that the area is less, there is not a

ground for rescission since the only obligation is to delivery
everything within the boundary

Sta. Ana Doctrine: Just because a statement of the measurement of the

area is given, with the corresponding price, does NOT mean that it is a
sale per unit of measure. The default rule is that it is a lump sum sale
ONLY when it is expressly provided that the sale is
at a certain price per unit of measure is it such kind of a sale.
Two Special Species of Sale in Movables
1. Sale on Return
• There is already a sale but it is subject to a resolutory condition
• This is an exception to the general rule that once tradicion is effected, ownership
is transferred
2. Sale on Approval
• This is an exception to the general rule that once tradicion is effected,
ownership is transferred
NOTE: To be construed as a sale on return or sale on approval, there must be a clear
agreement to such effect. It must be in writing and cannot be proved by parole evidence
(Industrial Doctrine).

B. Obligations of the Buyer

1. Pay the price

2. Accept delivery of the thing sold
If the buyer refuses to accept delivery, the seller only has to
place the SM at the disposition of the buyer. Even if the latter
has no possession and control, tradition is completed and
the risk of loss is on the buyer. Acceptance by the buyer is
NOT an integral part of delivery.

II. Double Sales

A. Movables
• Ownership shall be confirmed to the person who takes 1st
possession in good faith

B. Immovables
• Ownership shall be confirmed in accordance with the following hierarchy:
1. to the person who 1st registered under PD 1529 (Torrens System)
2. To the person who is 1st in time and has priority in right
provide the following requisites concur (Radiowealth and
Carumba):
3. In accordance with Art. 1544 of the NCC:
4. 1st in time, priority in right
NOTE: The rules on Double Sales do not apply if one of the contracts is a contract to sell. In
a contract to sell, the condition goes into the essence of the contract, such that if it doesn ‘t
happen, the contract is extinguished. In a contract of conditional sale, to which the rule on
double sales apply, the condition attaches to the obligations, and the non-happening of
which constitutes a breach which may be a ground for recession.

Genius of Villanueva: Theoretically, recession is the only remedy in case there is a breach
of the conditions of a conditional contract of sale. This is because specific performance
cannot be availed of since the obligation has been extinguished. However, if the non-
happening of the condition is due to the seller‘s fault, then the condition is deemed fulfilled
and specific performance can be a remedy.
 CHAPTER VII
DOCUMENTS OF TITLE

Documents of Title: includes any bill of lading, dock warrant, quedan or warehouse receipt
or order for the delivery of goods, or any other document used in the ordinary course of
business in the sale of transfer of goods, as proof of the possession or control of the goods,
or authorizing or purporting to authorize the possessor of the document to transfer or
receive, either b endorsement or by delivery, goods represented by such document.

• A type of constructive delivery

• It must always be in writing
• The SM is always fungible
Two Functions
a. the document itself is a representation of possession and
description which are covered thereby
b. it is the medium by which the goods described therein are delivered

Two Types
1. Negotiable – containing the words of negotiability and written
words like non-negotiable does not destroy its being negotiable
2. Non-negotiable
Basic Rule: Protect the purchaser in good faith for value. Even if
the negotiation is a violation of the ownership of the principal
owner, a purchaser in good faith is always protected.

Effects of Negotiation of a Negotiable DT

a. acquisition of such title to the goods as the person negotiating the
document to him, had or had ability to convey a purchaser in good
faith for value
b. acquisition of such title to the goods as a person to whose order
the goods were to be delivered by the terms of the document had
or had ability to convey to a purchaser in good faith and for value

c. acquisition of the direct obligation of the bailee issuing the

document to hold possession of the goods for him according to
terms of the document as fully as if such bailee had contracted
with him

Effects of transfer or assignment of a non-negotiable DT

The assignee acquires thereby as against the transferor:
a. title to the goods, subject to the terms of any agreement with the transferor
b. the right to notify the bailee who issued the document of the
transfer thereof, and thereby to acquire the direct obligation of
such bailee to hold possession of the goods for him according to
the terms of the document
Warranties on negotiation or assignment:
a. referring to the DT itself
i. DT is genuine
ii. Right to negotiate or transfer the DT
 iii. That there is knowledge of any defect which would impair the
validity or worth of the document
b. referring to the goods
i. the goods exist
ii. they are of merchantable quality
Note: Other than the breach of these warranties, there is NO cause
of action to recover on the seller.

Rules on Levy/Garnishment of Goods Covered by DT

NEGOTIABLE
Judgment creditors of the srcinal owner
cannot actually levy or execute upon the
goods since ownership and possession of
the document itself is equivalent to the
holder having actual ownership and
possession.
NON-NEGOTIABLE
Judgment creditors of the srcinal owner can
levy or execute upon the goods since
possession and ownership of the DT does
NOT necessarily bring title over the goods.
It is the notification of the bailee of the
assignment that it is the operative act that
will transfer the goods, not allowing the
levy.

CHAPTER VIII
SALE BY A NON-OWNER OR BY ONE HAVING A VOIDABLE TITLE

WARNING: In the following discussion, note the difference between the time of perfection
(where the seller may not be the owner) and consummation.

General Rule: 1505, which states that where the goods are sold by a person who is not the
owner thereof, the buyer acquires no better title to the goods than the seller had. In other
words, NO title, NO transfer. (The SC even held that a transfer by someone who does not
own the SM is void.

Exceptions:
1. When the owner is estopped by his conduct from denying the seller ‘s authority to
sell.
2. When the contrary is provided for in recording laws (PD 1529)
• This applies only to registered lands
• Chain of Title Theory: there must be 2 links in order for this exception to
apply. The 1st link is the 1st sale, where the buyer still has the opportunity to
look behind the title of the seller. The 2nd link is the 2nd sale, where no amount
of looking behind the title will a defect be seen since the name of the title
corresponds to the person selling.
3. 1434: When the person who is not the owner of a thing sells or alienates or delivers
it, and later the seller or grantor acquires title thereto, such title passes by the
operation of law to the buyer or grantee
4. When the sale is made under statutory power of sale or under the order of a court of
competent jurisdiction
• Because the seller in these cases is NOT the owner.
5. When the sale is made in a merchant‘s store
• Requisites to be a merchant store:
 i. there must be goods stored therein and in display
ii. the store is actually engaged in buying and selling
6. 1506: Requirements in order that the sale is valid as to the buyer
• seller must have voidable title at the time of execution
• title has not been avoided
• buyer in good faith and for value
• there must have been tradition
7. Special right of resale
• Even when the title to the goods has already been transferred to the buyer,
the unpaid seller can enter into another sale and deliver the goods to a 3 rd
person even if the former already lost ownership
• This will be elaborated under remedies

Article 559: Possession of movable property acquired in good faith is equivalent to title. But
one who has lost or been unlawfully deprived of a movable may recover it from the person in
possession of the same.
• This rule is in accordance with the general rule in 1505 that when there is no title,
there is no title.
• But if the possessor acquired the movable in a public sale, the owner cannot obtain
its return without reimbursing the price.
• If the buyer acquired the movable from a merchant‘s store, the owner cannot recover
anymore even if he was unlawfully deprived or it was lost.
• Unlawfully deprived – does NOT apply if the owner voluntarily participates in a sale
and was the victim of fraud (EDCA Doctrine). What it means is the taking without the
owner‘s consent or participation (e.g. theft and robbery)

Rules on Sale by a Co-Owner

General Rule:
• If he sells the entire – the sale is void, but valid as to his spiritual share
• If he sells a definite portion – the sale is void, but valid as to his spiritual share (if
indeed the buyer would have still bought such share had he known that the
definite portion sold would not be acquired by him
Exceptions:
1. it does not apply when the SM is indivisible by nature or intent (Mindanao Doctrine)
2. when the sale of a particular portion of a thing owned in common is with the consent
of the co-owners (Pamplona Doctrine)
3. A co-owner who sells one of the 2 lands owned in common with another and how
does not turn ½ of the proceeds of the sale to the other co-owner, the latter may
by law and equity lay exclusive claim to the remaining parcel of land (Imperial
Doctrine)
 CHAPTER IX
LOSS, DETERIORATION, FRUITS AND OTHER BENEFITS

Application
1. applies only when the SM is determinate
2. applies to both movables and immovables

History

Civil law Common Law

Ownership is transferred by tradition Ownership is transferred by the perfection
of the contract
Risk of loss is borne by the buyer upon Res Perit Domino – the owner bears the
perfection loss

The Bocobo Commission adopted the Res Perit Domino rule and at the same time, retained
the civil law concept that ownership is transferred by tradition. The result is a fuck-up.

Effects
1. Before Perfection – risk of loss shall be borne by the would-be seller since he owns
the thing
2. At the time of Perfection – if the thing is lost, the contract shall
be “without any effect” and therefore the seller bears the risk of
loss
3. After Perfection but before delivery –

a. Loss

Tolentino and Baviera Paras and Padilla

Loss is with the seller because his estate Loss is with the buyer since even
has become less due to the loss. Buyer though the SM is lost, he is still obliged to
does not have to pay because a sale is pay the price. His obligation to pay was not
reciprocal by nature and the seller cannot extinguished.
comply with his obligation anymore. The
contract has become inefficacious
Villanueva: The Tolentino & Baviera stance is more logical.

b. Deterioration, fruits and improvements - risk of deterioration and benefits

of fruits and improvements shall be borne by the buyer. Although the seller
has ownership, the benefits and improvements are for the benefit of the
buyer. (So, in effect, the res perit domino rule applies only in loss and not in
deterioration, fruits and improvements.

NOTE: Just remember this simple formula by the Genius Villanueva: the risk of loss,
deterioration and improvement shall always be for the account of the person who has both
title and beneficial interest over the SM. When the title and beneficial interest do not merge
in the same party, the risk of loss, deterioration and improvement will be for the account of
the person who has beneficial interest.
 4. After Delivery – risk is borne by the buyer who owns the thing
Except:
a. when the delivery of the goods has been made to the buyer and the
ownership has been retained by the seller merely to secure the performance
by the buyer of his obligations in the contract (even if the buyer does not own
the thing, the risk of loss is still hers).

b. Actual delivery had been delayed through either party‘s fault (risk of loss is
with the party at fault)

CHAPTER X
REMEDIES OF PARTIES FOR BREACH OF CONTRACT OF SALE

I. IN CASE OF MOVABLES

A. REMEDIES OF THE SELLER

1. Specific performance and rescission
2. Special remedies of an unpaid seller

Definition of an “Unpaid Seller”

a. When the whole of the price has not been paid or tendered
b. When a bill of exchange or other negotiable instrument has been received as
conditional payment, and the condition on which it was received has been received
has been broken by reason of dishonor of the instrument, the insolvency of the buyer
or otherwise.
Note: This includes an agent of the seller.

Rights of the Unpaid Seller

a. applies even if the seller has lost ownership (there has been constructive
delivery)
b. applies even if the buyer has entered into a 2nd sale
c. the first 2 remedies must be first availed of before the next 2 remedies can
apply:

I. Possessory Lien
• Requisites:
1. where the goods have been sold without any stipulation as to
credit
2. where the goods have been sold on credit, but the term of credit
has expired
3. where the buyer has become insolvent

• Instances when unpaid loses his possessory lien

 1. he 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. the buyer or his agent lawfully obtains possession of the goods
3. by waiver thereof

Note: there is no need to notify the buyer and the right may be exercised even if the unpaid
seller is an agent or bailee

II. Stoppage in transitu – allowed only if the buyer becomes insolvent which
must be proved (insolvent - buyer is unable to pay his debts as they fall due)

• When are goods “in transit”?

1. from the time they are delivered to a carrier or other bailee for the
purpose of transmission to the buyer, until the buyer or his agent
in that behalf, takes delivery of them from such carrier or bailee
2. if the goods are rejected by the buyer, the carrier or other bailee
continues in possession of them, even if the seller has refused to
receive them back

• When are goods not “in transit”?

1. if the buyer of his agent obtains delivery of the goods before their
arrival at the destination
2. if after arrival of the goods, the carrier or other bailee
acknowledges to the buyer or his agent that he holds the goods
on his behalf and continues in possession of them as bailee of the
buyer or his agent; and it is immaterial that further destination for
the goods may have been indicated by the buyer.
3. If the carrier of other bailee wrongfully refuses to deliver the goods
to the buyer or his agent.
• How is the right exercised?
1. by obtaining actual possession of the goods
2. by giving notice of his claim to the carrier or other bailee in whose
possession the goods are:
a. at the point of notice, the carrier has no choice but to hold
the goods for the disposition of the seller
b. if the notice was given to the carrier‘s principal, enough
time must be given for the principal to inform the carrier
• When are the rights inapplicable?
1. when the goods are NOT in transit
2. when there is a waiver of the right

III. Special Right to Resell

• Requisites for the right to apply

1. the goods are of perishable nature
2. where the seller expressly reserves the right of resale in case the
buyer should make default
3. where the buyer has been in default in the payment of the price for an
unreasonable time

• Effects
1. destruction of ownership of the 1st buyer even without court
intervention
 2. even an innocent 3rd person will not be protected if the 1st buyer
sells the goods to such 3rd person
3. the unpaid seller can sell the goods to another even if he is not the
owner of the goods.
4. Any deficiency in the 2nd sale will be paid by the 1st buyer

• Unpaid seller cannot directly or indirectly buy the goods (1533)

Note: Giving of notice is not essential for the validity of the resale. It is relevant only in an
issue involving the question of whether the buyer had been in default for an unreasonable
time before the resale was made.

IV. Special Right to Rescind

• Requisites for application

1. It was expressly reserved in case the buyer should make default, or
2. the buyer has been in default in the payment for an unreasonable time

• Effects
1. destruction of ownership of the 1st buyer even without court intervention
2. even an innocent 3rd person will not be protected if the 1st buyer sells the
goods to such 3rd person
3. seller may recover from the buyer any loss caused by the breached contract

• Difference between ordinary rescission and special right to rescind:

o Generally, ordinary rescission needs court intervention. The special right to
rescind does NOT need court intervention.

Note: Giving of notice is not essential for the validity of the resale. It is relevant only in an
issue involving the question of whether the buyer had been in default for an unreasonable
time before the resale was made. (However, in view of the UP case, notice must be given
every time there is rescission.)

B. REMEDIES OF THE BUYER

1. Specific performance and rescission

2. Furthermore, the buyer may suspend payments in anticipation of breach unless the
seller gives security for the return of the price in a proper case

C. RECTO LAW AND ART. 1484

1. Rationale: to remedy the abuses committed in connection with the foreclosure of
chattel mortgages and was meant to prevent mortgagees from seizing the mortgaged
property, buying it at a foreclosure sale for a low price, and then brining suit against the
mortgagor for a deficiency judgment
2. Coverage
a. sale of personal property payable on installments
b. levy doctrine: to be under Art. 1484, there must be 2 or more installments
c. The SC in Zayas applied the Recto Law in financing. However, the peculiar
circumstances in Zayas was that there was an srcinal sale contract and the
credit was merely assigned to the financing company. In other words,
financing per se is not covered by the Recto Law. There must be an
underlying contract of sale.
3. Remedies
Note: The vertical barring effect states that once a remedy is
chosen among the 3 enumerated here and it takes effect, the
seller cannot choose another remedy

a. Specific performance
o When deemed chosen: Filing of an action for specific
performance in court
o Horizontal barring effect: NONE. You can recover the
whole unpaid balance. (This is true even if the action
instituted has the same effect as foreclosure, as wherein a
mortgage property has been attached and sold, since it is
NOT technically a foreclosure.)
o Choosing specific performance vertically bars the other
remedies EXCEPT if after choosing specific performance
the same has become impossible, rescission may be
availed of.

b. Rescission
o When deemed chosen
1. filing an action for rescission in court
2. taking actual possession or filing replevin coupled with a
manifest intention of rescission.
o Horizontal barring effect
1. Seller cannot seek further action on the purchase rice (since he
already has possession of the SM and rescission by its nature
involves mutual restitution returning any amount previously paid,
unless there is a stipulation that the installments paid shall not be
returned which is valid insofar as it is not unconscionable under
the circumstances.

2. Furthermore, damages may be awarded to the extent of the loss

c. Foreclosure

o When deemed chosen: upon actual sale; before that, the seller can still
collect the installments due (specific performance)
o Horizontal barring effect: once foreclosure is chosen, the seller cannot
anymore recover any unpaid balance of the price (that is the essence of the
Recto Law)
o “Unpaid balance of the price”: is all encompassing and includes not only
the purchase price but stipulations in the contract for damages,interests and
attorney ‘s fees (Eustaquio Doctrine)
o Eustaquio Doctrine: does not apply to a perverse buyer-mortgagor or one
who refuses to surrender the chattel to the seller to allow the latter to
foreclose. In such a case, the seller is allowed to recover expenses and
attorney‘s fees incurred in trying to obtain possession. (Ridad Doctrine).
o Cruz Doctrine: It is not true that after foreclosure, Art. 1484 prohibits
further action only ‗against the purchaser.‘ It applies also against recovering
the deficiency (e.g. by foreclosing on the other mortgages made by the buyer)
from 3rd parties.
o Borbon Doctrine: This is a situation which is the reverse in Cruz. To
circumvent Cruz, what if foreclosing on the other mortgages is instituted?
 This CANNOT be done. The reason is not because of the barring effect in
1484, but because of the principal in credit transactions that seeking specific
performance is deemed a wavier of the foreclosure of the chattel mortgage

II. In case of Immovables

A. Remedies of the Seller

1. Specific performance and rescission

2. An anticipatory breach entitles him to rescission
3. Failure of the buyer to pay the purchase price entitles the seller to
rescind the contract of sale upon judicial or notarial demand
(1529). But the SC in some cases refused to allow rescission even
if proper on equity grounds.

B. REMEDIES OF THE BUYER

1. Specific performance and rescission

2. Suspension of payment because of disturbance or reasonable
grounds to fear such disturbance
3. In case of subdivision and condominium projects, the developer
may not forfeit previous payments if the buyer desists from paying
installments due to the failure of the developer to develop the
subdivision or condominium. The notice of demand for refund and
notice of intent not to remit further payments can be made at the
same time.

C. MACEDA LAW

1. Rationale: protects buyer of real estate on installment payments

against onerous and oppressive conditions
2. Coverage: (both contracts of sale and contracts to sell)
a. Residential real estate
b. Residential condominium units
Note: By express provision of law, the Maceda Law not only
covers rates but also financing. Also, the meaning of installments
in the Levy doctrine applies also here.
3. Items not covered:
a. Commercial real estate
b. Industrial real estate
c. Non-residential condominium units
d. Agricultural lands
Note: Art. 1529, 1191 and the law on suspensive conditions
govern the first 3. CARP governs the last.
Rights under the Maceda Law

At least 2 years Installment Period Less than 2 years Installment Period

Statutory Grace Period: Statutory Grace Period:
To pay without additional interest, the unpaid To pay without additional interest, the unpaid
installments with a grace period of 30 days installments with a grace period
for every 1 year of installment paid of 60 days from the date of the
installment became due.
Jurisprudential Grace Period: Jurisprudential Grace Period:
The seller could cancel the contract only The seller could cancel the contract only
after 30 days after receipt of the notarial after 30 days after receipt of the notarial
notice or cancellation or rescission by the notice or cancellation or rescission by the
buyer. Within the 30 days, buyer may still buyer. Within the 30 days, buyer may still
pay. (But in this case, interest and penalties pay. (But in this case, interest and penalties
may be included unlike in the statutory grace may be included unlike in the statutory grace
period.) period.)
If the contract is cancelled, seller shall
refund 50% of the total payments made after
5 years of installment, an additional 5%
every year but not to exceed 90% of total
payments.
Note: It is only after the refund is the
cancellation or rescission complete. Unlike
when it is less than 2 years where the
cancellation or rescission is complete upon
the lapse of the jurisprudential 30 – day
grace.

• Any stipulation contrary to the Maceda Law is null and void.

• The notice of rescission or cancellation may be by notarial act, meaning it need not
be judicial. (However, note that the McLaughlin implies that the notarial act is not
needed if it is a “notice of cancellation”).
• In determining whether it is more or less than 2 years, the number of years is not
controlling. What determines the period is the application of payments, whether they
cover 2 years or not.
 CHAPTER XI
RESCISSION: CONTRACT OF SALE VS. CONTRACT TO SELL

WARNING: The following discussion is a poor attempt to synthesize the sales on rescission.
Proceed at your own risk.

Rescission
• A remedy by the party in reciprocal obligations where there is a breach on the part of
the other party
• This does not cover the rescission which pertains to rescissible contracts where
lesion is the main consideration
• The breach of contract which falls under rescission must be ―substantial breach‖
because of the doctrine that substantial compliance is deemed to be full compliance
• The effect of rescission is mutual restitution (but stipulations which say that
installments paid shall not be returned is valid insofar as they may not be
unconscionable under the circumstances)
• Only the injured party (which may be a 3rd person) may demand for rescission

Distinction between a contract of sale and a contract to sell

Contract of Sale Contract to Sell

Perfection gives rise to reciprocal Perfection only give rise to reciprocal
demandable obligations suspensive
conditional obligations (non-demandable
until
the condition happens). Consequently, the
non- happening of the condition
extinguishes the obligation.
Delivery transfers ownership. Even after the happening of the suspensive
condition (which is full payment of the price)
ownership is still not transferred, until a
contract of sale is entered into and there is
delivery.
Non-payment of the price by the buyer or the Non-happening of the suspensive condition,
non-delivery of the SM by the seller would which is payment of the price, prevents the
constitute resolutory conditions and may be obligation to sell n the part of the seller from
a basis for rescission. materializing at all.
Rescission can be availed of only in case of Principle of substantial breach has no
substantial breach. application since the non-happening of the
condition, substantial or not, ipso jure
prevents the obligation from arising. NOTE:
 Remember this concept, it will be relevant in
the following discussion
Provision granting a party a right to rescind Rescission is irrelevant. Non-happening of
will be superfluous since by law, it is inherent the
in this contract condition of full payment prevents the sale
from
materializing, so there is nothing to rescind.

• Under the law and jurisprudence, a contract which contains a stipulation that
ownership is reserved in the seller and not to pass to the buyer until full payment of
the purchase price is a contract to sell.
• Also, the SC in Dignos, held that in a contract to sell, there must be a right granted
to the seller to extra-judicially rescind or cancel the contract in case of default. Absence
of such a stipulation makes the contract one of sale.

Note: However, in some cases, the SC held that the contract is a contract to sell even in the
absence of such stipulation.

Rules on rescission and what law governs

1. 1191 is the general rule in rescission

2. 1191 does NOT apply to contracts to sell. No positive action is required in a contract
to sell because the non-happening of the condition destroys the contract. Therefore,
there is nothing to rescind.
3. Also, the following are NOT under 1191:
a. movables under the Recto Law since such law governs
b. immovables
4. Immovables are governed generally by 1529 which states that “in the sale of
immovable properties, even though it may have been stipulated that upon failure to
pay the price at the time agreed upon the rescission of the contract shall of right take
place, the vendee may pay even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by
notarial act. After the demand, the court may not grant him a new term.”
5. However, those immovables covered under the Maceda Law are governed by such
laws. Furthermore, the Maceda Law also covers Contract to Sell and allows
rescission to such contracts (which is a complete turn-around of the general rules in
1-4 above)

Rules on rescission and substantial breach

1. The general rule is that rescission is proper when there is substantial breach
2. Since 1191 and 1529 does NOT apply to a contract to sell, even if there is
substantial breach in a contract to sell, rescission is not proper because the non-
happening of the condition of full-payment prevents the sale from materializing.
There is no contract to rescind at all.
3. However, the SC in cases falling under the Maceda Law (where being a contract of
sale and a contract to sell fall under the same law), applied substantial compliance
principles to contracts to sell. This is because the Maceda Law promotes a higher
value. (So, take not of the coverage of the Maceda Law.)
4. We can conclude therefore that only those contracts to sell which fall under the
Maceda Law may be rescinded and where substantial compliance principles are
applicable.
Rules on rescission and when it takes effect
1. it is generally judicial and requires court action except when it is extra-judicial (the
contract contains the stipulation: in case of default by 1 party, the other party may
rescind by mere written notice (without need of going to court)
2. those under 1529 (take note of this provision‘s coverage above) require that there be
a demand for rescission either by judicial or notarial act)
3. since rescission is not applicable to contracts to sell, logically, notice need not be
given when the contract is a contract to sell
4. under the Maceda Law, for rescission to take place, there need only be the
expiration of the 30-day grace period after notarial notice of rescission or cancellation
has been given to the buyer (but take note that the case value refund must be paid
for rescission to take effect when installments have been paid for more than 2 years)
5. Furthermore, since under the Maceda Law, contracts to sell may be rescinded
(which is against rule number 3), the SC in UP and Palay held that even in contracts
to sell, a minimum requirement for rescission is notice to the buyer (this refers to
situations where rescission is allowed in contracts to sell like those under the
Maceda Law)

Note: The rationale why notice is required even in contracts to sell may be seen in 1545,
since the law grants the seller the option to waive the breach, and still accept payments,
then notice must be given to the buyer that the seller is not waiving.

Note: What complicated matters is that the SC used the principles of justice and equity to
make rescission applicable to contracts to sell, even though by their nature, rescission is not
a remedy in those types of contracts. Also, the Maceda Law was made applicable to both
contracts of sale and to sell, which produced a number of mix-up principles.

CHAPTER XII
CONDITIONS AND WARRANTIES

Reason: Why they are lumped together:

1. to provide how each behaves differently in sales
2. to distinguish it from warranties

Distinguish:

Conditions Warranties
When a condition is imposed in the Non-fulfillment of a warranty constitutes a
perfection of the contracts, failure to comply breach and damages may be awarded.
means a failure of the contract to
materialize. When the condition is imposed
on the performance of the contract, the
injured party may either refuse to proceed
with the sale or waive the condition. Non-
happening of the condition is not a breach,
so there can be no damages.
Applies to a buyer and seller Applies only to the sellet because it
pertains to the SM
 Goes into the root of the existence of the Goes into the performance of the obligation
obligation
Must be stipulated May form part of the contract by express
provision of the law
Applicable to other contracts Applies only to sales contracts

• The only time a condition amounts to a breach is when there is an express promise
that the condition will happen. The condition becomes a warranty and damages may
be awarded in case of breach.
• It is important to discuss warranties because rescission on the part of the buyer can
ONLY happen if there is a breach of the seller ‘s warranties.

Kinds of Warranties
1. EXPRESS (it is essential to look at the wordings to determine the extent of the
warranty)
a. It must be an affirmation of fact or any promise by the seller relating to the
thing, SM of the sale
b. The natural tendency of such affirmation or promise is to induce the buyer to
purchase the same; and
c. The buyer purchases the thing relying thereon

Note: A statement of opinion (seller ‘s talk) is not a warranty, UNLESS The seller is an
expert and such was relied upon by the buyer.

2. IMPLIED
• Every contract has these warranties and the 3 requisites in express
warranties need not be present
• By express stipulation, an agent of the seller may bind himself to such
warranties

a. Warranty that the seller has a right to sell and transfer ownership
▪ Applies only in the consummation stage
▪ It is an essential warranty and CANNOT be waived
▪ It goes into the obligation to transfer ownership

b. Warranty against eviction

• Goes into the obligation to deliver possession
• Warrants that the buyer shall enjoy legal and peaceful possession of the
SM
• Requisites to say that there is a breach of the warranty:
i. buyer is dispossessed of the property in whole or in part
ii. by final judgment
iii. based on a cause of action prior to the sale or an act
imputable to the seller
iv. seller must be made either a co-defendant or a 3rd party
defendant
Note: However, even if all the requisites are present, but there is acquisitive prescription
prior to the sale and is completed after the transfer, the seller shall not be liable for eviction.
This is because the buyer did not do anything to prevent the prescription.
 • Waiver of the warranty:

i. Seller in bad faith (aware of the claims) – any waiver is VOID

ii. Seller in good faith (no knowledge of the risk)
- General: seller shall ONLY pay the value of the thing
sold at eviction (NO DAMAGES)
- Specific: if buyer knew of the specific risk, the seller
will not be liable, but only as to that specific risk

Genius of Villanueva: In effect therefore, there is no such thing as waiver of this warranty. A
general waiver is no waiver at all because the seller still has to pay. In a specific waiver,
there is nothing to waive because when you know that a problem exists and you still buy,
there’s nothing to waive.
• This warranty applies to judicial sales

c. Warranty against non-apparent servitudes

• Applies only:
i. with the servient estate
ii. the immovable sold is encumbered with any non-
apparent burden or servitude not mentioned in the
agreement
iii. the nature of the servitude is such that it must be
presumed that the buyer would not have acquired
it had he been aware thereof

• When not applicable: if the non-apparent burden or

servitude is recorded in the Registry of Property
UNLESS there is an express warranty that the thing is
free from all burdens and encumbrances
• Prescriptive Period (depends on the ground):
i. action for rescission or sue for damages – 1 year
from execution of the deed

ii. action for damages – 1 year from the knowledge

of burden or servitude

d. Warranty against hidden defects

• Applies only when:
i. the thing is new
ii. it is an intangible
iii. the defect is hidden
iv. the defect should go to the utility of the thing or it will render the
SM unfit for the purpose it was purchased
v. had the buyer been aware of the defect, he would not have
purchased

• Effect: Buyer may elect between withdrawing from the contract and
demanding a proportionate reduction of the price with damages in either
case
• Loss of the thing
i. if due to the defect
▪ seller was aware: seller shall bear the loss, return the price,
refund expenses for the contract and damages
▪ seller was not aware: same liability except NO damages
 ii. if NOT due to the defect
▪ seller was aware: buyer may demand the price he paid less
the value which the thing had when it was lost plus
damages
▪ seller was not aware: same liability except no damages

• waiver of the warranty

i. seller is in bad faith – still liable, the waiver is void
ii. seller is in good faith – loss will not make the seller liable
• Prescriptive period: 6 months from the delivery of the thing sold
• This applies only to judicial sales

e. Redhibitory defects on animals

• Applies only to movables

• Redhibitory defect of such nature that expert knowledge is not sufficient
to discover it
• General Rule: defect in one animal does not affect the other even if they
were bought as a team UNLESS it appears that the buyer would not have
bought if there was a defective one
• This warranty does NOT apply to animals sold at fairs or public actions or
livestock sold as condemned
• Void sale of animals:
i. those suffering from contagious diseases
ii. if the use or service which they acquired has been stated an
they were found to be unfit
• Prescriptive period: 40 days from the date of delivery to the buyer.

Specific Implied Warranties in the Sale of Goods

1. Warranty
a. Where buyer 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
b. Where the goods are brought by description from a seller who deals in
goods of that description

Note: In case of breach and in the absence of special circumstances showing

proximate damage of a greater amount, the measure of damage is the
difference between the value of the goods at the time of delivery and the
value they would have had if they had answered to the warranty.

2. Sale of Goods by Sample

a. There is an implied warranty that the goods shall be free from defect
rendering them unmerchantable which would not be apparent on
reasonable examination of the sample.
 CHAPTER XIII
EXTINGUISHMENT OF SALE

Preliminaries
The same grounds for extinguishment of obligations apply to sale.
However, payment or performance does not extinguish a contract
of sale itself since the relationship between the buyer and seller
remains
Redemption is a mode of extinguishment to a contract of sale
Kinds of Redemption
1. Conventional
2. Legal

Conventional Redemption

Definition: When the seller reserved for himself the right to repurchase
the thing sold with the obligation to return the price of the sale, the
expenses of the contract, any other legitimate payments made by
reason of the sale, and the necessary and useful expenses made on
the thing sold. In short, a right of repurchase or a sale a retro.

Distinguished from an Option Contract

Option Contract Right of Repurchase

A principal contract
Needs a separate consideration
Seeks to establish a contract of sale
Exercisable by notice of exercise
Period may be anytime
Not even a contract, it cannot exist apart
from a main contract of sale
The question of consideration is irrelevant
since there is not even a contract
Seeks to destroy a contact of sale in
existence
Exercisable by tender of payment or
consignation
Maximum period cannot exceed 10 years

When does a sale a retro exist?

1. only at the time of perfection
a. if at a point other than perfection, it is an option
2. it must be by express stipulation

Can the existence of a sale a retro be proved by parole evidence?

• The SC held that even though a sale a retro is part of the sale, there is no requirement
that it must be in a memo. (Remember: all that is required in a memo is SM and price
with all the requisites plus the signature of the party upon which the sale is sought to
be enforced.) The existence of the memo allows the introduction of parol evidence to
prove the existence of the sale a retro.
• Also, parol evidence may be used if no objection was made to its presentation in trial.

Period of Redemption
1. no period agreed upon – 4 years from the date of the contract
2. if there is a period agreed upon – that period, but it must not exceed 10 years
3. if the period is void for exceeding 10 years – period is 10 years
 How Redemption Effected
1. returning to the buyer the price of the sale
2. paying the expenses of the contract, and any other legitimate
payments made by reason of the sale
3. paying the necessary and useful expenses made on the thing sold

Note: ONLY tender of payment is sufficient. If the buyer is nowhere to

be found, the money must be consigned to the court.

Effect When No Redemption is Made

1. buyer a retro acquires full ownership ipso jure
2. nothing stops the period of redemption from running (not even
non-payment of the rice by the buyer!), EXCEPT
a. the pendency of the action brought in good faith and relating
to the validity of a sale a retro (Ong Doctrine)

b. Art. 1606, which grants a 30-day redemption period after judgment in a case
where the issue is: whether a contract is a sale a retro or an
equitable mortgage

Note: if the issue is whether a contract is a sale a retro or an

absolute sale, then there is no 30-day redemption period

Equitable Mortgages in Relation to a Sale a Retro

• Definition: One which although lacking in some formality, or form of words, or other
requisites demanded by a statute, nevertheless reveals the intention of the parties to
charge real property as security for a debt, and contains nothing impossible or
contrary to law.
• Requisites:
i. that the parties entered into the contract denominated as a
contract of sale; and
ii. their intention was to secure an existing debt by way of mortgage

• Distinguish:

Equitable Mortgages Sale a Retro

Ancillary to a contract of loan Not an ancillary to any contract
Remedy of non-payment of the loan is If the right of repurchase is not
foreclosure exercised, the buyer becomes the owner
ipso jure

Why is this in sales? The practice nowadays is that instead of equitable mortgage, the
parties enter into a sale a retro (which in fact is an equitable mortgage in disguise), such that
upon failure to pay the loan, foreclosure proceedings need not be instituted. In mortgages,
there is a public policy that failure to pay the loan does not automatically transfer ownership
to the mortgagee (pactum commisorium). To circumvent this, lenders enter into an equitable
mortgage disguised as a sale a retro. That is why a sale a retro is construed to be a true
equitable mortgage, the expiration of the purported period of redemption does NOT ipso jure
transfer ownership to the purported buyer. There must be a foreclosure proceeding.
Furthermore, if there is a subsequent sale to an innocent 3rd person, the latter will not be
protected since there was voidable title on the person who sold to him (But take note of the
Chain of Title theory). In case of doubt, a sale a retro is treated as an equitable mortgage.
Legal Redemption

Definition: The right to be subrogate 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 ownership is transmitted by onerous title.

Instances of Legal Redemption

1. among co-heirs – in sale of hereditary rights
2. among co-owners – in sale of the indivisible co-owner‘s share
3. among adjoining owners
a. in rural land
b. in urban land
4. sale of credit in litigation – debtor is given the right to extinguish
the assignment of credit by reimbursing the assignee for the price
the latter paid, the judicial costs, and interest.

5. other cases by law

a. redemption by homestead
b. redemption of sales tax
c. redemption by judgment debtor
d. redemption in extra-judicial foreclosure
e. redemption in judicial foreclosure

Period in which to exercise the right

• 30 days which will ONLY begin to run when the following
requisites concur:
o There is a written notice (which may be in any
form)
o Given by the seller
▪ Note: these are strict requirements such that not even registration in
the Register of Deeds will do the trick
o The written notice by the seller must pertain to a perfected contract of sale
(Spouses Doromal Doctrine)
▪ Note: this is a stupid doctrine because the law also
talks of a would-be seller which implies an
unperfected contract of sale

Exceptions (that the running of the period is only upon written notice by the seller):
1. when there is laches (Alonzo and Pilapil Doctrine)
2. if the co-owner himself was the agent to effect the sale to a 3 rd party thereby having
knowledge thereof (Distrito Doctrine)
Note: The exceptions do not reverse the strict requirements of written
notice by the seller. It’s just that under the special circumstances in
those cases, they were exempted (Alonzo Doctrine).
 CHAPTER XIV
ASSIGNMENT

Assignment
• the sale of credits and other incorporeal rights
• Distinguished from sale because of the SM. In sale, the SM is tangible. In assignment
it is intangible. Otherwise both are the same.
• Like sale, assignment includes all accession and accessories.
• It needs constructive delivery to transfer ownership.

Binding Effect
• To bind 3rd persons, an assignment must be in a public instrument. Furthermore, if it
covers real rights, there must be registration in the Registry of Deeds.
• Without public instrument, the assignment would still be valid but enforceable only as
between the assignor and assignee and their successors-in-interest.
• An assignment of a document of title does NOT bind the bailee unless specific notice
of transfer is given.

Effect of Assignment of Credit

• If debtor pays the creditor without knowledge of the assignment, payment shall
releases the former from further obligations.
• If assignment is made w/o the debtor‘s knowledge, debtor may set up against the
assignee the compensation which would pertain to him against the assignor of all
credits prior to the assignment and also later ones until he has knowledge of the
assignment.
• If the debtor consented to the assignment, compensation cannot
be set up unless the assignor was notified by the debtor at the time
he gave his consent, that he reserved his right to compensation.
• If there is communication of the assignment by the creditor, and
the debtor did not consent, the latter may still set up the
compensation of debts previous to the assignment but not
subsequent ones.

Warranties
• Warranty against hidden defects is NOT applicable
• There is a warranty of the existence of the credit at the time of the sale EXCEPT if it
has been expressly sold as a doubtful account
• There is NO warranty regarding the solvency of the debtor except:
o There is a stipulation to that effect
o The insolvency of the debtor was prior to the assignment and of common
knowledge
Note: Either way, the warranty shall cease 1 year after the maturity of the credit.

Effect of Assignment of Credit in Litigation

• The debtor shall have a right to extinguish it by reimbursing the
assignee for the price the latter paid, the judicial costs, and the
interest on the price from the day on which the credit was paid
• Such right can be exercised by the debtor within 30 days from the
demand by the assignee for payment
• The right does not exist in the following:
 a. assignment of creditor or incorporeal right to the co-heir or
co-owner of the rights assigned
b. assignment to a creditor in payment for his credit; and
c. assignment to the possessor of a tenement of piece of land which is subject to
the right in litigation assigned

Note: “in litigation” means from the time a complaint concerning the credit is answered

CHAPTER XV
THE BULK SALES LAW

Rationale: To prevent a situation where merchants would cheat their

creditors by hurriedly selling their business and vanish into thin air, with
the creditors left holding the bag while the buyer in good faith and for
value is protected

Coverage (applies only to merchandising concerns)

1. any disposition or encumbrance of a stock of goods, wares,
merchandize provisions or materials otherwise than in the ordinary
course of trade and the regular prosecution of the STMAer

2. any disposition or encumbrance of all or substantially all of the

business or trade theretofore conducted by the STMAer
3. any disposition or encumbrance of all or substantially all of the
fixtures and equipments used in the business of the STMAer
Note: As long as the transcription fails within any of the 3 transactions, it is a Bulk Sale.
Intention of the seller, and good or bad faith is irrelevant.

Exceptions

1. if the STMAer delivers a written waiver of the provisions of the law

from creditors as shown by verified statements
2. doesn‘t apply to executors, administrators, receivers, assignees in
insolvency, or public officers, acting under process

Obligations of the Seller when the transaction is a Bulk Sale

1. prepare an inventory of amount of indebtedness and list of
creditors 10 days before the sale
2. send notice to the creditors 10 days before the sale
3. at the STMA, submit to the STMAer a sworn statement of creditors
4. immediately thereafter, apply the proceeds to the creditors
5. within 10 days after the STMA, submit to the DTI
6. going through STMA must not be nominal

Effect of failure of doing the obligations (in accordance with the order above)]
1. no criminal and civil consequences
2. void transaction and criminal sanction
 a. The transaction is void here not because of the Bulk Sales
Law but of Common Law Principle that if the price of a sale
is nominal, it is not real, making the contract void.

Obligations of the Buyer: There is no obligation and generally no

criminal liability. However, since non-compliance of the BSL may lead
to declaring the sale fraudulent and void, he is not entitled to the goods
delivered to him.

CHAPTER XVI
RETAIL TRADE LIBERALIZATION ACT OF 2000

Retail Trade Law

1. habitual selling of merchandise, commodities, or goods
2. to the general public
3. for consumption
a. By jurisprudence, ―for consumption‖ des not include sale to
industrial and commercial establishments. In effect, the SC
says that not only should you look at the nature of the goods,
but also the purpose for which the goods were brought.
(Balmaceda, Goodyear and BF Goodrich)
b. However, in Marsman, the SC looked at the nature of the
goods and the nature of the buyer. Such that diesel, not
being a consumer item, is not a consumer good. (It is an
auxiliary good because it is a factor in the production of other
goods and satisfy wants only indirectly.)

NOTE: Absent one of the elements takes the sale out of the Retail Trade Law.

Exempted Transaction
1. sales by a manufacturer, processor, laborer, or worker to the general public of the
products manufactured, processed or produced by him is his capital does not exceed
P100,000
2. sales by a farmer or agriculturist selling the products of his farm regardless of capital
3. sales in restaurant operations by a hotel owner or inn-keeper irrespective of the
amount of capital, provided that the restaurant is incidental to the hotel business
4. sales to the general public, through a single outler owned by a manufacturer or
products manufactured, processed or assembled in the Philippines, irrespective of
capitalization.
5. sales to industrial and commercial users or consumers who use the products bought
by them to render service to the general public and/or produce or manufacture goods
which are in turn sold by them; and
6. sales to the government and/or its agencies and government-owned and controlled
corporations

Categories of Retail Trade Enterprises

A. Less than $2.5M
B. $2.5M-$7.5M; store not less than $30K
 C. Above $7.5M; store not less than $830K
D. High-end or luxury products with a capital of $250K per store

When Aliens May Invest in Retail Trade

1. under category A, beginning 26 March 2002
2. under category B, C, D

Grandfather Rule
• Since the old RTL, prohibited non-100% owned corporations or partnership from
engaging in retail trade, how would you determine citizenship of shares of the selling
corporation when they are held by another entity?
• The rule is that shares belonging to corporations or parties at least 60% of the capital
is owned by Filipinos, is Filipino. But if it is less, then only the number of shares
corresponding to such percentage shall be Filipino.

Application of Anti Dummy Law

• ADL penalizes Filipinos who permit aliens to use them as
nominees or dummies to enjoy privileges reserved for Filipinos or
Filipino corporations.
• Aliens are prohibited from employment in retail trade or
establishments engaging in such EXCEPT when:
a. it is highly technical
b. no Filipino can do it
c. with the President ‘s consent

Note: Later PD 175 allowed the election of aliens as members of the Board of Directors, in
partially nationalized activities in proportion to their allowable participation in the capital of
such activities.

-Ora et Labora-