SALES

A.

CONCEPT

1. A sale is a contract whereby a person, called the seller, obligates himself to deliver and to transfer ownership of a thing or right to another, called the buyer, for a price certain. It could be absolute or conditional. 2. In conditional sale, ownership of the thing is retained until the fulfillment of a positive suspensive condition, i.e., the full payment of the price, the breach of the condition prevents the conveyance of the title. 3. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. 4. If the condition is not fulfilled, the other party may either refuse or proceed or waive said condition. 5. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale. But if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work. a. The key to determine whether a contract is sale or piece of work is whether the manufacturer makes and keeps on hand for sale his products to anyone, if such is the case, then it is sale; if it is not, it is piece of work.

B.

ELEMENTS

1. The elements of a contract of sale are: (a) consent; (b) object; (c) price in money or its equivalent. 2. The object of sale must be licit, which means something within the commerce of man; something that can be sold, mortgaged or be the object of the contract.

3. Objects of sale may be: (a) things having potential existence (emptio rei speratae); (b) things that are existing or to be manufactured or acquired in the future, or future things; (c) those whose acquisition by the seller depends upon a contingency which may or may not happen; (d) things subject to a resolutory condition. 4. Distinctions between emptio rei speratae and emption spei (sale of mere hope or expectancy) are: a. b. In emptio rei speratae, there is a sale of thing having potential existence; while in emptio spei, there is a sale of a hope. In the first, the sale is subject to the condition that the thing will exist, if it does not, there is no contract; in the second, the sale produces effect even if the thing does not come into existence, unless it is a vain hope. In the first, the uncertainty is with regard the quality and quantity of the thing; while in the second, the uncertainty is with regard the existence of the thing. In the first, the object is a future thing; in the second, the object is a present thing.

c.

d.

5. The seller need not be the owner of the thing sold at the time the contract is entered into; it is sufficient he is the owner of the thing at the time of its delivery. 6. The definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. a. A price is considered certain if it has reference to another thing certain; or if it can be determined by stipulations of the parties.

7. Concepts of policitacion, option contract, right of first refusal and earnest money. a. Policitacion is an unaccepted unilateral promise to buy or sell. Even if accepted by the other party, it is not binding upon the promissor and may be withdrawn at anytime.
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b.

c.

d.

Option contract is an accepted unilateral promise to buy or sell a determinate thing for a price certain supported by a consideration distinct from the price. The offeror is bound to comply with his undertaking by the optionee has the right but not the obligation to buy or sell. The optionee can sue for damages only, but he cannot sue for specific performance on the proposed contract. Right of first refusal is an innovative juridical relation, and if such right is incorporated in a contract, it is enforceable by specific performance; otherwise, the injured party can only sue for damages. Earnest money is a partial payment of the purchase price and is considered as proof of the perfection of a sale. An option money may become earnest money if the parties agree. A contract to sell is different from conditional contract of sale. a. A contract to sell is bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. In conditional contract of sale, the fulfillment of the suspensive condition results in the perfection of sale, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without ant further act having to be performed by the seller.

8.

b.

9. In a contract where the consideration is partly in money and partly goods, the following rules shall apply: a. b. The intention of the parties must first be determined; If the intent is not clear, then apply the following rules:
- if the thing is more valuable than money, the contract is

barter; - if the money and the thing are of equal value, the contract is one of sale; - if the thing is less valuable than money, the contract is a contract of sale.
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10. Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract. Capacity to Buy and Sell 11. Generally, all persons who are capable of acting with civil effects or authorized to obligate themselves may enter into a contract of sale. Disqualifications

a.

b.

The husband and the wife cannot sell property to each other, except: (1) when a separation of property was agreed upon in the marriage settlements; (2) when there has been a judicial separation of property between the spouses. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another
- the guardian, the property of the person or persons who may -

be under his guardianship. Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given. Executors and administrators, the property of the estate under administration. Public officers and employees, the property of the State or of any subdivision thereof, or institution, the administration of which has been entrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale. Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon on execution before the court within whose jurisdiction or territory they exercise their respective functions.; this shall apply to lawyers with respect to property and right in litigation.
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- Any others specially disqualified by law.

c.

A contract of sale entered into by persons who are disqualified by law is void.

12.

Obligations of the Seller/Vendor

a. The vendor is bound to transfer ownership of and deliver, as well as warrant, the thing which is he object of the sale. b. The delivery of the thing includes all its accessions and accessories in the condition in which they were upon the perfection of the contract. c. The ownership of the thing sold is acquired by the vendee upon actual or constructive delivery thereof or from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501 of the Civil Code; or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee. d. Constructive delivery 1. 2. The thing sold shall be understood as delivered when it is placed in the control and possession of the vendee. Where the sale is made through a public instrument, the execution thereof shall be equivalent to delivery of the thing which is the object of the contract if from the deed the contrary does not appear or cannot be clearly inferred. For movables, the delivery of the keys of the place or depository where it is stored or kept constitutes delivery. The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties if the thing sold cannot be transferred to the possession of the vendee at the time of he sale, or if the latter already had it in his possession for any other reason. Tradition constitutum possessorium such as when the seller continues to be in possession as the lessee of the buyer. with respect to incorporeal property, the sale made through a public instrument is equivalent to delivery if the contrary does not appear or cannot be clearly inferred.

3.

4. 5.

Transfer of Goods covered by Documents of Title

13. A document of title is considered negotiable if it stated that the goods referred therein will be delivered to the bearer, or to the order of any person named in such document. 14. A negotiable document of title may be negotiated by delivery (a) when it is deliverable to bearer, or (b) deliverable to the order of a specified person, and such person or subsequent indorsee of the document has indorsed it in blank or to bearer. 15. A negotiable document of title may be negotiated by the owner of the goods, or by any person to whom the possession or custody of the document has been entrusted by the owner. 16. A person to whom a negotiable document of title has been duly negotiated acquires (a) title to the goods as the person negotiating the document to him had or had ability to convey to a purchase in good faith and fir value, and (b) direct obligation of the bailee issuing the document to hold possession of the goods for him according to the terms of the document as fully as if such bailee had contracted directly with him. 17. The implied warranties given by the person who negotiated the document of title by indorsement or delivery are the following: a. b. c. d. The document is genuine. He has legal right to negotiate or transfer it. He has knowledge of no fact which would impair the validity or worth of the document. He has a right to transfer the title to the goods and that the goods are merchantable or fir for a particular purpose.

18. C.I.F. sales of goods refers to sales where the buyer pays a fixed price, while the seller pays the insurance and freight up to the place of destination. F.O.B. sales of goods, on the other hand, the goods are shipped by the seller to a certain point without any expense to the buyer, but after delivery at such point, all subsequent expenses incident to the delivery shall be paid by the buyer.
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19.

The seller of the goods is deemed to be an unpaid seller when: a. b. When the whole of the price has not yet been paid or tendered; and 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 broken by reason of the dishonor of the instrument, the insolvency of the buyer, or otherwise

20.

Remedies of the unpaid seller a. b. c. d. e. A lien on the goods or right to retain them for the price while he is in possession of them; In case of insolvency of the buyer, a right of stopping the goods in transit after he has parted with the possession of them. A right of resale A right to rescind the sale When ownership has not yet passed to the buyer, the seller may withhold the delvery of the goods.

21. The unpaid seller can retain the possession of the goods until payment is made (a) where the goods have been sold without any stipulation as to credit; (b) where the goods have been sold on credit, but the term of credit has expired; (c) where the buyer becomes insolvent. 22. The unpaid seller loses his right of retention when (a) he delivers the goods to carrier or bailee for purposes of transmission to the buyer without reserving the ownership in the goods or the right to the possession thereof; (b) the buyer or his agent lawfully obtains possession of the goods, and (c) waiver was made by him. 23,. The right of stoppage in transit is available to the unpaid seller when he has already parted with the possession of the goods and the buyer is or becomes insolvent. It can be exercised either by obtaining actual possession of the goods or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. 24. The right of resale is available to the unpaid seller of goods in the following cases: (a) where the goods are of perishable goods; (b) where the
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seller has expressly reserved the right of resale in case the buyer should make default; and (c) where the buyer has been in default in the payment of the price for an unreasonable time. Notice to resell the property is not essential for the validity of the sale, except of the ground for resale is the default for unreasonable time to pay the price. 25. The right of rescission is available to the unpaid seller when (a) he expressly reserved the right to do so in case the buyer should make default, and (b) the buyer has been in default in the payment of the price for an unreasonable time. This can only be exercised if the unpaid seller has lien over the goods or has stopped the goods in transit.

Warranties 26. When the seller makes an affirmation of fact or any promise relating to the thing, this affirmation is an express warranty if the natural tendency of such affirmation or promise is to induce the buyer to purchase the same and the buyer purchases the thing relying thereon. An opinion of the seller or statement as to value of the thing is not considered an express warranty except if such statement was made by the seller as an expert and the buyer relied thereon. 27. The following are the implied warranties of the seller: a. He has the right to sell the thing at the time when the ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful possession of the thing; and The thing shall be free from any hidden faults or defects, or any charge or encumbrance not declared or known to the buyer

b.

These implied warranties do not make liable the sheriff, auctioneer, mortgagee, pledgee or other person professing to sell by virtue of authority in fact or in law for the sale of a thing in which a third person has legal or equitable interest. 28. Implied Warranty Against Eviction

a. Eviction shall take place whenever by final judgment based on a right prior to the sale or of an act imputable to the vendor, the vendee is deprived of the whole or of a part of the thing purchased. The vendee need not appeal from the decision in order that the vendor may become liable for eviction. b. The vendors liability for eviction may be enforced only if the following requisites concur: (1) there is a final judgment; (2) the purchaser is deprived of the whole or part of the thing sold; (3) the deprivation is by virtue of a right prior to the sale in question; and (4) the vendor has been summoned and made a co-defendant in the suit for eviction at the instance of the vendee. c. If the vendee has renounced the right to warranty in case of eviction, an eviction should take place, the vendor shall only pay the value which the thing sold had at the time of the eviction. Should the vendee have made the waiver with knowledge of the risks of eviction and assumed its consequences, the vendor shall not be liable. d. If eviction occurs, the vendee shall have the right to demand from the vendor: 1. 2. 3. The return the value of the thing sold had at the time of the eviction, be it greater or less than the price of the sale; The income or fruits, if he has been ordered to deliver them to the party who won the suit against him; The costs of the suit which caused the eviction, and, in proper case, those of the suit brought against the vendor for the warranty; The expenses of the contract, if the vendee has paid them; The damages and interest, and ornamental expenses, if the sale was made in bad faith.

4. 5.

If through eviction, the thing was lost partially, the vendee may demand rescission should such part is so important to him, without which he would not have bought it. In this case, the vendee shall return the remaining thing without encumbrances than those which it had when he acquired it. This rule shall also apply if two or more things have been jointly sold for a lump sum.

29. Implied Warranty Against Hidden Defects of or Encumbrances Upon the Thing Sold a. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended or should they diminish its fitness for the same such an extent that, had the vendee been aware thereof, he would not have acquired it or would have a given a lower price for it. b. The vendor shall not be liable for warranty against hidden defects: (1) if the contrary has been stipulated and the vendor was not aware of the hidden faults or defects in the thing sold; (2) if the defects are patent or those which may be visible, or for those which are not visible but the vendee is an expert who, by reason of his trade or profession, should have known them. c. The remedy against violations of the warranty against hidden defects is either to withdraw from the contract (redhibitory action) or to demand a proportionate reduction of the price (accion quanti minoris) with damages in either case. d. If the thing sold should be lost in consequence of the hidden faults and the vendor was ware of them, he shall bear the loss and shall be obliged to return the price and refund the expenses of the contract, with damages; if he was not aware thereof, he shall only return the price and interest thereon and reimburse the expenses of the contract which the vendee might have paid. e. If the thing sold had hidden defects was lost through fortuitous event, or fault of the vendee, the latter may demand of the vendor the price which he paid, less the value which the thing had when it was lost; if he acted in bad faith, he shall pay damages to the vendee. f. Actions arising from hidden defects or encumbrances shall be barred after 6 months from the delivery of the thing sold. g. Redhibitory Defects of Animals If 2 or more animals are sold together, the redhibitory defect of one shall only give risr to its redhibition, and not that of the others; unless it should appear that the vendee would not have purchased the sound animal or animals without the defective one. The

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defect is considered redhibitory if the defect of such nature that expert knowledge is not sufficient to discover such defect even in case of a professional inspection. Actions arising from this redhibitory defect must be brought within 40 days from the date of their delivery to the vendee.

30.

Double Sale

a. In the double sale of personal property, the vendee who in good faith takes first possession has the better right to its ownership; otherwise, the preference, all things being equal, should be given to the first buyer. b. In the double sale of immovable, ownership is transferred to: 1. 2. 3. the first registrant in good faith; the first in possession in good faith; and the buyer who presents the oldest title in good faith.

c. The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer of the second sale cannot defeat the first buyers rights except when the second buyer first registers in good faith the second sale. Conversely, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since such knowledge taints his registration with bad faith. d. In cases of double sales of immovable, what finds relevance and materiality is not whether or not second buyer is a buyer in good faith but whether or not the second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold. 31. Caveat Emptor (Buyer beware)

a. Where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than what the seller had, unless the owner of the goods is, by his conduct, precluded from denying the sellers authority to sell.
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b.

Caveat emptor does not apply to: 1. the provisions of any factors act, recording laws, or any other provisions of law enabling the apparent owner of goods to dispose of them as if he were the true owner thereof. The validity of any contract of sale under statutory power of sale or under the order of a court. Purchases made in a merchants store, or in fairs, or markets.

2. 3.

Obligations of the Vendee 32. The vendee is bound to accept the delivery and to pay the price of the thing sold at the time and place stipulated in the contract. 33. The buyer may reject the delivery of things if (a) the quantity is less than what was contracted; (b) it is by installments. 34. The acceptance of the goods by the buyer shall not discharge the seller from liability in damages or other legal remedy for breach of any promise or warranty in the contract of sale. But if the buyer fails to give notice to the seller within a reasonable period of the breach by the latter after acceptance of the goods, and he knows or ought to know of such breach, then the seller shall not be liable thereof. Remedies available to the Buyer in case of breach

35. In case of disturbance of his possession, either because of an action or foreclosure, the buyer may suspend the payment of the price until the seller has caused the disturbance to cease. 36. In case of fear of loss of immovable property, the buyer may rescind the contract. 37. In case breach of warranty by the seller, the buyer may, at his option:

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a.

b. c. d.

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

Recto Law 38. Remedies available to the vendor in a contract of sale of personal property in the payment in case of breach in the payment of the price by installment (Recto Law): a. b. c. Exact fulfillment of the obligation, should the vendee fail to pay; Cancel the sale, should the vendees failure to pay cover 2 or more installments; Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendees failure to pay cover 2 or more installments. In the last case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. 39. The remedies are alternative and not cumulative; the exercise of one would bar the exercise of the others.

Maceda Law

40. The Realty Installment Buyer Protection Decree (Maceda Law) provides the following rights to the buyer in cases he paid at least 2 years of installment:

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a.

b.

To pay, without additional interest, the unpaid installments due within the total grace period earned him, which is 1 month per every 1 year of installment payments made, provided, this shall be exercised by the buyer only once in every 5 years. If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to 50% of the total payments made, provided that the actual cancellation of the contract shall take place after 30 days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. Downpayments, deposits and options are included in the computation of the total number of installments.

41. In case of less than 2 years of installments, the seller shall give the buyer a grace period of not less than 60 days from the date the installment became due. If the buyer fails to pay within the grace period given, the seller may cancel the contract after 30 days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act. 42. The buyer shall have the right to pay in advance any installment or the full unpaid balance of the purchase price at any time without interest and to have such full payment of the purchase price annotated in the title covering the property.

Extinguishment of Sale 43. Sales are extinguished by the same causes as all other obligations (i.e., payment of performance, loss, merger, novation, confusion), and by conventional or legal redemption. 44. Conventional redemption takes place when the vendor reserves the right to repurchase the thing sold, with the obligation to return to the vendee the purchase price and the expenses of the contract and other legitimate expenses made by reason of the sale as well as necessary and useful expenses made on the thing sold.

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45. Instances where contracts where right to repurchase is stipulated but considered as equitable mortgage: a. b. c. When the price of the sale is unusually inadequate. When the vendor remains in possession as lessee or otherwise. When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed. When the purchaser retains for himself a part of the purchase price. When the vendor binds himself to pay the taxes on the thing sold. When the intention of the parties is merely to secure the payment of a debt, or the performance of any other obligation.

d. e. f.

46. The right of redemption is correctly availed of by returning the price of the sale. It is not sufficient to intimate or to state to the vendee a retro the vendors desire to redeem, who must thereupon offer to repay the price. 47. If the vendor fails to redeem the property within the prescribed period, the right is lost and all rights pertaining to the property and all those incidental thereto are irrevocably consolidated in the buyer. 48. Legal redemption is the right to be subrogated, upon the 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. 49. Instances of legal redemption:

a. A co-owner of a thing may exercise the right of redemption in case the shares of all of other co-owners or of any of them are sold to a third person. b. The owners of adjoining lands shall have the right of redemption when a piece of rural land, the are of which does not exceed 1 hectare is alienated, unless the grantee does not own any rural land. c. whenever a piece of urban land which is so small and so situated that a major portion thereof cannot be used for any practical purpose within a reasonable time, having been bought merely for speculation, is

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about to be resold, the owner of the adjoining land has a right of pre-emption at a reasonable price. d. extrajudicial foreclosure of mortgage under Act 3135, as amended. e. Execution sales under Rule 39 of the Rules of Court f. Levy of real property for unpaid taxes. 50. The right of redemption in legal redemption shall not be exercised except within 30 days from the notice in writing by the prospective vendor, or by the vendor, as the case may be.

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