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ATENEO DE DAVAO UNIVERSITY

School of Business and Governance
CPA Review Center
Business Law
IMPORTANT TIPS ON THE LAW ON SALES
(Arts. 1458-1637, CIVIL CODE)
1.

Contract of Sale Defined: Sale is a contract where one party (seller or vendor) obligates himself to
transfer the ownership of and to deliver a determinate thing, while the other party (buyer or vendee)
obligates himself to pay for said thing a price certain in money or its equivalent. (Art. 1458, Civil Code)

2.

Etymology of the word "Sale":

Roman law, a sale is termed as "vendito". French refers to contract of sale as vente, Italians refer to
it as vendita and the Spaniards call it a "venta". The Pilipino term for sale is bilihan.

3. Essential Characteristics of the Contract of Sale:

a) Consensual (as distinguished as real), because the contract is perfected by mere consent; See Article
1315 on principle of consensuality.
b) Bilateral reciprocal - because both parties are bound by obligations dependent upon each other.
( reiterated by Article 1191)
c) Onerous, because to acquire the rights, valuable considerations must be given.
d) Commutative, as a rule, because the values exchanged are almost equivalent to each other.
(NOTE: By way of exception, some contracts of sale are aleatory, that is, what one receives may in
time greater or smaller than what he has given. Example: The sale of genuine sweepstakes ticket.)
e) Principal (as distinguished from an accessory contract), because for the contract of sale to be validly
exist, there is no necessity for it to depend upon the existence of another valid contract.
f) Nominate because the Code refers to it by a special designation or name, that is the contract of sale.
4.

Elements of the Contract of Sale:

a) Essential elements (those without which there can be no valid sale)
Consent or meeting of the minds, that is consent transfer ownership in exchange for the price
Determinate subject matter (generally, there is no sale of generic thing, moreover, if the parties
differ as to the object, there be no meeting of the minds).
Price certain in money or its equivalent (this is the cause or consideration) (The price need not
be in money)
Capacity of the contracting parties. In other words, the contracting parties must have the legal
capacity to engage in lawful commerce.
a) Natural elements (those which are inherent in the contract, and which in the absence of any contrary
provision, are deemed to exist in the contract)
Warranty against eviction, deprivation of the property bought)
Warranty against Hidden Defects
a) Accidental elements (those which may be present or absent in the stipulation, such as the place or
time of payment, or the presence of conditions)

5.

Stages in the Contract of Sale:

a) Generation or Negotiation
b) Perfection - Meeting of the Minds
c) Consummation - when the object is delivered and the price is paid.
6. Kinds of Sales
a) As to the subject matter:
-sale of real property
-sale of personal property
b) As to the value of things exchanged:
-Commutative
-Aleatory
c)

As to whether the object is tangible or intangible:

Sale of property (tangible or corporeal)
Sale of Rights (Assignment of a right or a credit, or some other intangibles such as copyright,
trademark or goodwill)
(NOTE: If the object is tangible, it is called a chose in possession; if the object is intangible, as in the
case of a right, it is chose in action.

d) As to the validity or defect of the transaction:

-valid sale
-rescissible sale
-voidable sale
-unenforceable sale
-void sale

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e) As to the presence or absence of conditions:
-Absolute Sale (no conditions imposed)
-Conditional Sale (As when there is a sale with a pacto de retro, a right to
repurchase or redeem; or when there are suspensive
conditions, or when the things sold merely possess potential
existence, such as sale of future harvest of a designated
parcel of land.)
f)

As to the legality of the object:

-Sale of a licit object
-Sale of an illicit object

g) As to whether wholesale or retail:

Wholesale, if to be resold for a profit the goods being unaltered when resold,
the quantity being large.
Retail, if otherwise
h) As
i)

to proximate inducement for the sale:

Sale by description
Sale by sample
Sale by description and sample (Art.1481)

As to when the price is tendered:

Cash sale
Sale on the installment plan

Query:
A sold a piano to B, by private instrument, for P 10,000. In that contract of sale, which is the object,
and which is the cause?
Answer: There are at least two viewpoints here, the latter of which appears to be preferable.
FIRST VIEW - The object (subject matter) of the sale is the piano, while the cause (consideration) is
the P 1,000 ( or, as the same authority puts in, the giving of the P 1,000, at least insofar as the seller A is
concerned.
Insofar as the buyer B is concerned, the object is the P 1,000. While the cause (consideration for
which he parted with his money) is the piano (or, as the same authority puts in, the giving of the piano)
SECOND VIEW - Insofar as both the seller and the buyer are concerned, there is only one subject
matter, namely, the piano. The cause or consideration for the seller is the price paid; for the buyer, it is the
delivery to him of the piano.
7. Sale Distinguished from Dation in Payment
SALE

DATION IN PAYMENT

1.

There is no pre-existing credit.

1. There is a pre-existing credit.

2.

Give rise to an obligation.

1.

Extinguishes obligations.

3.

The cause or consideration here is the

price, from the viewpoint of the seller; or
of the obtaining of the object from the
viewpoint of the buyer.

3.

The cause or consideration here, from the

viewpoint of the person offering the
dation, is the extinguishing of his debt;
from the viewpoint of the creditor is the
acquisition of the object offered in lieu of
the original credit.

4.

There is greater freedom

determination of the price.

the

4.

There is less freedom in the determination

of the price

5.

The giving of the price may generally end

the obligation of the buyer.

5.

The giving of the object in lieu of the

credit may extinguish completely or
partially the credit depending on the
agreement.

in

Example: I owe Maria P 100. But I ask her if she is willing to accept my watch, instead of the money. If Maria
agrees, my debt will be extinguished. Please observe that in this example , although what happened is
dation in payment, it is as if I sold my watch for P 100. Hence, we have to distinguish between the two
transactions.
8. Difference between a Contract of Sale and a Contract to Sell
-

In a Contract of Sale, the non-payment of the price is a resolutory condition, that is the contract
of sale may by such occurrence put an end to a transaction that once upon a time existed.; In a
Contract to Sell, the payment in full of the price is a positive suspensive condition. Hence if the
price is not paid, it is as if the obligation of the seller to deliver and to transfer ownership never
became effective.

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-

In the Contract of Sale, title over the property generally transfer to the buyer upon delivery; in
the Contract of Sell, ownership is retained by the seller, regardless of the delivery and it will not
pass until full payment of the price.
In a contract of Sale, after delivery has been made, the seller has lost ownership and cannot
recover it unless the contract is resolved or rescinded. In a Contract to Sell, since the seller
retains ownership, despite delivery, he is enforcing the contract if he seeks to oust the buyer for
failure to pay.

Problem:
"A" agrees to sell a sewing machine to "B" for P 4,000 in cash, and places the machine aboard the
truck of "B", while "B" goes home to fetch money. Before "B" returns, "C" appears and claim
ownership of the sewing machine, exhibiting a document signed by "B" selling the machine to "C". A
rejects "C's" claim alleging that he is still the owner. Decide with reasons.
Answer:
It is submitted that the claim of "A" that he is still the owner of the sewing machine is correct. While
it is true that there is already a perfected contract of sale between "A" and "B" and that apparently,
there is already an actual delivery when the former placed the sewing machine onboard the truck of
the latter, nevertheless, such delivery did not vest ownership thereof in the vendee. In other words,
we have here a simple case of reservation of the vendor of his right over the thing sold. That this can
be done expressly or impliedly. In the case at bar, the agreement between "A" and "B" is that the
sale must be in cash. Hence, it can be easily inferred that at the precise moment while "A" was
waiting for "B" return with the P 4,000 purchase price, which the latter was supposed to fetch in his
house, his intention, in spite of actual delivery, was to reserve ownership in himself and to vest such
ownership in the vendee only upon the actual payment of the purchase price. Beside we have here a
clear case of a Contract to Sell. Well-settled is the rule that in a Contract to Sell, as distinguished
from a Contract of Sale, ownership is reserved to the vendor and not to pass to the vendee until full
payment of the purchase price.
Principles applicable to the elements of a Contract of Sale
9. The object of Sale must be LICIT and the Vendor must have the right to transfer ownership at
the time the object is delivered. (Art. 1459)
Things may be illicit or unlawful, per se (of its nature) Example: Sale of human flesh for human
pleasure) or per accidens (made illegal by provision of the law). Example is sale of land to an
alien.
As to transfer of ownership, it is essential for a seller to transfer ownership (art. 1458) and
therefore the seller must be the owner of the object sold. This stems from the principle that
nobody can dispose of that, which does not belong to him - Nemo dat quad non habet. But
although the seller must be the owner, he need not be the owner at the time of the perfection of
the contract. It is sufficient that he is the owner at the time the object is delivered otherwise he
may be held liable for breach of warranty against eviction. Be it noted that the contract of sale
by itself, is not a mode of acquiring ownership. The contract transfers no real right, it merely
causes certain obligation to arise.
10. The object of the sale must be determinate, that is specific, but it is not essential really that
at the time of perfection, the object be already specific. It is sufficient that it be capable of being
determinate without nee of any new agreement. Thus, there can be a sale of 20 kilos of sugar of a
named quality. However in the viewpoint of risk or loss, not until the object has really been made
determinate can we say that the object has been lost for as is well known, generic things cannot be lost."
11. Things of potential Existence may be an object of sale. This is a future thing that may be sold.
Example: "All my rice harvest next year." Note however that future inheritance cannot be sold, however.
(Art. 1347, par. 2, Civil Code)
Other examples of things possessed of a potential existence:
a) Young animals not yet in existence or still ungrown fruits;
b) The wine that a particular vineyard is expected to produce;
c) Expected goodwill of a business

Requisites for things potential existence:

-The object need not be in actual existence at the time of perfection of the contract;
-The object is capable of potential existence;
-The thing sold must be determinate or capable of being determinate;
-The thing sold belong to the vendor at the time of the perfection of the sale
12.Sale of expected thing and sale of mere hope or expectancy). Art. 1461
Sale of expected thing (Emptio Rei Speratae)
Sale of hope itself (Emptio Spei)
NOTE: If the expected thing in (a) does not materialize, the sale is not effective. In the second, it
does not matter whether the expected thing materialized or not; what IS IMPORTANT IS THAT THE
HOPE ITSELF VALIDLY EXISTED. The first deals with future thing - that which is expected; the second
deals with the present thing - certainty the hope or expectancy already exist.
Example of Emptio Spei: Sale of a valid sweepstakes ticket. Whether the sweepstake ticket wins
or not, the sale is valid.

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NOTE: If the hope or expectancy itself is in vain, the sale is itself VOID. Be it noted that this is not
an aleatory contract for while in aleatory contract there is an element of chance, here there is completely
no chance.
Example : Sale of a losing ticket for a sweepstake already drawn.
Graphic Distinction between emptio speratae & emptio spei
Point of Distinction
Emptio Rei Speratae
Object of Sale
Things having potential existence
Existence of Condition
Conditional
Validity of Contract of Sale
Valid
Effect of failure of object to come
into existence.

Emptio Spei
There is hope or expectancy
Absolute
Valid as long as the sale is not
vain hope or expectancy
It does not invalidates sale

Contract become ineffective

13 Goods may be future or existing goods.

The New Civil Code enumerates different kinds of future goods:
a) Existing Goods which may be either be owned or possessed by the seller; and
b) Non-existing of future goods having potential existence, when may come to existence either by:
(1) those still to be manufactured, (2) raised or (3) those acquired by the seller after the perfection of
the contract. Art. 1462
c) Sale of goods the acquisition of which depends upon a contingency is valid.
14. An undivided Interest may also be sold. Art 1463. Notwithstanding the fact that an object may be
divisible, the owner thereof has the perfect right to dispose of the same as a whole as a natural consequence
of ownership or he may sell only a portion of that entire object if he be the owner only of a portion thereof.
15. Sale of undivided share of a specific mass.
The subject matter of the sale is incorporeal right. (Act 1501)
Meaning of fungible goods It means goods of which any unit is, from its nature or by mercantile
usage, treated as the equivalent of any other unit, Sec. 76 of the US Uniform Sales Act). It includes movable
substances or goods that are replaceable distinguishable as to undivided parts in quantity.
Effect of sale The owner of a mass of goods may sell only an undivided share thereof, provided the
mass is specific or capable of being made determinate. (Art. 1460)
(a) By such sale, the buyer becomes a co-owner with the seller of the whole mass in the proportion in
which the definite share bought bears to the mass. It must follow that the aliquot share of each
owner can be determined only by the measurement of the entire mass.
(b) If later on it be discovered that the mass of fungible goods contain less than what was sold, the
buyer becomes the owner of the whole mass and furthermore, the seller shall supply whatever is
lacking from goods of the same kind and quality, subject to any stipulation to the contrary.
16. Also things subject to a resolutory condition may be sold. Art. 1465
A resolutory condition is that the happening of which depends on the extinction of the obligation. In
other words, a resolutory condition is that which puts an end to an obligation.
So long as the object of the sale is licit or lawful and the vendee has the right to transfer ownership
thereof at the time it has to be delivered, it is a valid object of such sale, even if it be subject to a resolutory
condition.
Example is pacto de retro sale.
17. Distinction between a Contract of Sale and An Agency to Sell (Art. 1466)
CONTRACT OF SALE
AGENCY TO SELL
1.

In contract of sale, the buyer pays the

price.

1.

2.

In sale, the buyer after delivery becomes

the owner;

2.

3.

In sale, the seller warrants

3.

In an agency to sell, the agent delivers

the price which in turn he got from his
buyer;
The agent who is supposed to sell does
not become the owner, even if the
property has been delivered to him;
The agent who sells assumes no personal
liability as long as he acts within his
authority and in the name of the principal.

Graphic Distinction between sale and agency to sell

Point of Distinction
Contract of Sale
Governing Law
Law on Sales
Objections created
The obligation of vendor in a
contract of sale is to deliver the
thing sold and the buyer to pay
the price.
Existence of trust and confidence
between parties.

Unnecessary because it does no

affect the contract.

Contract of Agency
Law on Agency
The obligation of the agent in the
agency to sell is to render account
and deliver the proceeds to the
principal who in turn should pay
agent commission.
Necessary because it is the basis
of the contract.

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Illustrative (Decided) Cases:
Case I
X Co. granted to A the exclusive right to sell in the Visayas a certain number of beds which the
company was manufacturing at the invoice price of the beds in Manila, with a discount of 20%, the price to
be paid at the end of 60 days. What contract is perfected - a contract of sale or a contract of agency to sell?
ANSWER: The contract perfected here is a contract of sale. The essential features of sale are
present in this case. There is the obligation on the part of X Company to supply the beds and the obligation
on the part of A to pay the purchase price. These features exclude the legal conception of a contract of
agency to sell where the agent receives the thing in order to sell it without paying the price but with the
obligation to deliver to the principal the price which he may have obtained from sale of the thing to third
person, then if he does not succeed in selling it, he returns it. In the contract between X Co., and A, the
latter, on receiving the beds, was necessarily obliged to pay the price within the term fixed, without any
other consideration and regardless as to whether he had or had not sold the beds.
Case II
In a case where the consignor or firm delivers goods to a distributor for resale to customers, retaining
the ownership of such goods, and the price and term are still subject to the control of the firm, but with the
understanding that the distributor is not the agent or legal representative of the firm for any purpose
whatsoever, what kind of contract was perfected - a contract of sale or a contract of agency to sell? Explain.
ANSWER: The contract is still a contract of agency to sell. Since the company retained ownership of
the goods, even as it delivered possession to the dealer for resale to customers, the price terms of which
were subject to the company's control, the relationship between the company and dealer is one of agency.
Summary as the Requisites Nature of the Object of Contract of Sale
18. Requisites in order that a thing may be the object of sale:
(1) The thing must be existing, or at least, have a future or contingent existence (Arts. 1461, 1462,
1465);
(2) It must be determinate or determinable by description or segregation (Art. 140);
(3) It must be licit or legal (Art. 1459)
(4) The vendor must have real right to transfer ownership of the thing at the time it is delivered (Art.
1459)
19. Objects of Contract of Sale:
The following may be the objects of sale:
(a) Things having potential existence (Art. 1461, NCC);
(b) Things that are existing or to be manufactured, raised or acquired in the future or future goods (Art.
1462, NCC)
(c) Those whose acquisition by the seller depends upon contingency which may or may not happen
(Art. 1462, NCC);
(d) Things subject to a resolutory condition (Art. 1465)
20. Contract of Sale as against Contract for a Piece of Work:
By the contract for a piece of work, the contractor binds himself to execute a piece of work for the
employer (e.g., to construct a house) in consideration of a certain price or compensation. The contractor
may either employ his labor or skill, or also furnish the material. (Art. 1713.)
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 especially for the customer and
upon his special order (e.g. dress made on the basis of the body measurement of the customer) and not
for the general market, it is a contract for a piece of work. (Art. 1467)
Graphic distinction between contract of sale and contract of piece of work
Point of Distinction
Contract of Sale
Contract of Piece of Work
Governing Law
Arts. 1458-1637, NCC
Arts. 1713 -1731, NCC
Obligations of vendor
Delivery
of
the
object Delivery of object manufactured
manufactured on ordinary course specially for the customer.
of business
Existence of special order of Special order of customers not Special order of customer is
customers
necessary
necessary.
Applicability of Statute of Frauds
Applicable
Not applicable
21. Rules to determine whether contract is sale or barter.
In a contract where the
consideration is partly money and partly goods, the following rules shall apply:
(a) the intention of the parties must be determined;
(b) If the intent is not clear, then apply the following rules:
1. If the sold thing is more valuable than money, the contract is barter;
2. If the money and the thing are equal value, the contract is sale;
3. If the thing is less valuable than money, the contract is a contract of sale (Art. 1468, NCC)

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Note: Meaning of contract of barter or exchange: One of the parties binds himself to give one
thing in consideration of the other's promise to give another thing. (Art. 1638) In contrast to the
contract of sale, the vendor gives a thing in consideration for a price.
Graphic distinction between contract of sale and contract of barter
Point of Distinction
Contract of Sale
Contract of Barter
Governing Law
Arts. 1458-1637, NCC
Arts. 1638-1641, NCC
Consideration
A price certain in money or its Non-fungible things (Art. 1954)
equivalent
Nature/Requisites for Cause
22. Requisites of price in a contract of sale:
(a) The price must be in money or its equivalent (Art. 1458)
(b) It must be certain or ascertainable (Art. 1469)
(c) It must be real, i.e., not simulated, (Art. 1471)
23. Meaning of a price certain:
(a) The parties have fixed or agreed upon a definite amount; or
(b) It be certain with reference to another thing certain (See Art. 1472), as where the buyer agrees to
pay the price as indicated in the invoices;
(c) The determination of the price is left to the judgment of a specified person or persons (Art. 1469)
The last two cases are applicable only when no specific amount has been stipulated by the parties.
24. Rules if price is to be determined by a third person:
(a) The price fixed by the third person is binding except when he acts in bad faith or by mistake;
(b) In such case, the courts may fix the price;
(c) If the third person is unable or unwilling to fix the price, the contract shall be inefficacious (without
effect), unless the parties subsequently come to an agreement ; and
(d) If the third person is prevented from fixing the price by the fault of the seller or buyer, the party not
in fault may choose between rescission and fulfillment with damages in either case. (Art. 1469)
22. The fixing of the price may not be left to the discretion of one of the contracting parties, as it
cannot be said that there is meeting of minds upon the fixed price. (Art. 1308) But if the
other accepts price fixed, the sale is deemed perfected.
23. If the price cannot be determined, the contract is inefficacious. However, if the thing or any part
thereof has been delivered to and appropriated by the buyer, he is under obligation to pay reasonable
price thereof. (Art. 1474)
24. Effect of Gross Inadequacy of Price:
It does not affect the contract of sale except when the inadequacy may indicate that there is a defect in
the consent, or that the parties really intended a donation or some other act or contract.
Inadequacy of the cause (lesion) may only be an effect of vitiated consent and so the contract becomes
voidable under Article 1390. If damage or lesion is suffered by ward or absentee more than of the
value of the property, contract is rescissible under Articles 1381 pars. 1 & 2.
25. Simulation of the Price (Art. 1471)
There is simulation of the price in a contract of sale when for the purpose of deceiving others, the parties
thereto made it appear in document either:
a) There is a price when actually there is none at all. In this case being absolutely simulated contract is
void. (Art. 1346)
b) That the price stated is different from the actual price. This merely relative simulation of the price
and does not render the contract of sale null and void. The parties are bound by their true
agreement as long as the same does not prejudice a third person and is not contrary to law, morals,
good customs, public order or public policy ( Arts. 1345 & 1346)
26. When price of securities, grains, liquids and other things considered certain:
a. The price fixed is that which things sold would have on a definite day;
b. The price fixed is that which the thing sold would have in a particular exchange or market;
and
c. or the price fixed is an amount above or below the price on such day or on such exchange
or market.
27. Perfection of sale: The contract of sale is perfected at the moment there is meeting of the minds
upon the thing which is the object of contract and upon the price.
28. Effects of perfection of sale:
(a) From the moment consent is given, the reciprocal obligations of the parties arise and they may
reciprocally demand the performance, subject to the Statute of Fraud;
(b) The ownership of the thing sold is not transferred until it is delivered, actually or constructively, to
the buyer (Art. 1477); and

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(c) In case one of the contracting parties does not comply with what is incumbent upon him, the injured
party may sue for fulfillment or rescission with the right to damages in either case. (art. 1191)
29. Perfection of Sale
It is consensual and for this reason principle of consensuality applies. Contracts are perfected by mere
consent, and from that moment the parties bound not only to the fulfillment of the what has been
expressly stipulated but also to all the consequences which, according to their nature, may be keeping
with good faith, usage and law (Art. 1315). Obligations arising from contracts have the fore of law
between the contracting parties and should be complied with in good faith (Art. 1159).
Since sale is reciprocal, the parties may reciprocally demand performance subject to the provision of law
governing forms.
30. Perfection of Sale by Auction:
Sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer, or
in any customary manner. Until such announcement is made, any bidder may retract his bid; and the
auctioneer may withdraw the goods from the sale unless the auction has been announced without
reserve (meaning the seller did not reserve the right to bid)
31. Gross inadequacy of price in cases of auction sales where there is right to redeem is not
material as in forced sales, judgment debtors ought not to expect their properties to be sold
on its market value. The nature of such sales precludes any reasonable expectation of obtaining
prices such as are procured in ordinary sales where the elements of free bargaining is in full play. It has
likewise been held by the Supreme Court in DBP vs. Vda de Moll, 43 SCRA 82 that if there is right to
redeem in foreclosure sale, inadequacy of the price is not material because the lesser the price, the
easier it will be for the owner to effect the redemption.
32. The ownership of the thing sold shall be transferred to the vendee upon the actual or
constructive delivery. ( Art. 1477)
Ownership of a thing is not transferred by mere perfection of the contract of sale but by ACTUAL or
CONSTRUCTIVE delivery.
33. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully
paid the price. (PACTUM RESERVATI DOMINI)
34. Effect of an accepted unilateral promise to sell or buy a thing for a price certain:
(a)

Such unilateral promise also known as option contract does not bind the promissor and may be
withdrawn at any time;
If the promise, however, is supported by a consideration distinct from the price, its acceptance
gives rise to the perfection of the contract.

(b)
Case:

X unilaterally promised to sell to Y his car for P 50,000.00 within a period of one month. Y accepted
the promise. On the 16th day, Y received a note from X telling him that he is withdrawing the promise.
Issues:
(a) Can Y hold X liable for damages if he persists on withdrawing the promise? Why?
(b) Assume that Y gave an option money when he accepted the promise, and on the 16 th day, he
backed out, can X compel him to buy the car? Explain
Answers:
(a) No. An accepted unilateral promise to buy or to sell a determinate thing or a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from the price.
(Art. 1479 (2) & Art. 1324) In the case at bar, no consideration distinct form the price has been
delivered to X, the offer or promise can be withdrawn anytime.
(b) No, because the option to buy or not to buy depends upon Y.
35. Effect of a bilateral promise to buy and sell a thing for a price certain:
When the promise is bilateral, that is, one party accepts the other's promise to buy and the latter, the
former's promise to sell, a determinate thing for a price certain, it has practically the same effect as a
perfected contract of sale since it is reciprocally demandable. But there is no contract of sale yet until it
is executed.
Graphic Distinction between Promise to Buy and Sell and Unilateral Promise to Buy and Sell
Point Distinction
Promise to buy and sell
Unilateral Promise to buy and
Sell
Parties Involved
Seller and Buyer
Seller or buyer
Effect
Reciprocally demandable
Binding on promissory if supported
by consideration distinct form
price
Application of Article 1354 in relation to Article 1479 of the New Civil Code

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Article 1354 of the New Civil Code which presumes the existence of a consideration in every contract
applies to contracts in general, whereas the second paragraph of Article 1479 thereof refers to sales and
more specifically to an accepted unilateral promise to buy and sell.
Policitation simply means an unilateral promise to buy or sell which is not accepted. That being the
case, it is a mere offer and has not yet been converted into a contract. Therefore, of no judicial effect.
36. Rules with regards to any injury to or benefit from the thing sold, after contract is perfected
but before delivery( Article 1480).
(1) The vendor is obliged to take care of the thing sold with proper diligence. (Art. 1163)
(2) The vendor has the right to the fruits of the thing from the time the obligation to deliver arises but
shall acquire no real right or ownership over it until the same has been delivered to him (Art. 1164;
Art. 1537)
(3) If the thing is determinate, the vendee may compel the vendor to make the delivery, and hold him
liable for damages by reason of fraud, delay, etc., Arts. 1165 and 1170)
(4) If the thing is generic, he may ask that the obligation be complied with at the expense of the vendor
if the latter fails to make delivery also with a right to damages in proper case (Arts. 1165, 1170);
(5) If the thing is determinate, and it is lost or destroyed --(a) Through the fault of one party, the party at fault is liable for damages;
(b) Through fortuitous event, the vendor is released from the obligation to deliver and the vendee is
liable to pay the price if he has not yet paid the same (see Arts. 1480, 1583, 1189 and 1269).
Art. 1504, par. 1 however provides a rule contrary to 1480);
(c) The vendor shall be responsible for any fortuitous event if it is so stipulated, or if the same took
place after he has incurred delayed, or he has promised to deliver the same thing to two or more
persons who do not have the same interest, Arts. 1164, 1262)
(d) The rule under letter (b) applies to the sale of fungible things, made independently and for a
single price or without consideration or their weight, number or measurement (Art. 1480).
Reason: In such case, the fungible things have been " particularly designated or physically
segregated"
(e) It does not apply where the fungible things have been sold for a price fixed in relation to weight,
number or measure. In such case, the risk shall not be imputed to the vendee until they have
been weighed, counted or measured and delivered;
Applicable Provisions:
Art. 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver
it arises. However, he shall acquire no real right over it until the same has been delivered to him.
(1095)
Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the
right granted him by Article 1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied with at the
expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more persons who do
not have the same interest, he shall be responsible for any fortuitous event until he has effected
the delivery.
Art. 1188. The creditor may, before the fulfillment of the condition, bring the appropriate
actions for the preservation of his right.
The debtor may recover what during the same time he has paid by mistake in case of a
suspensive condition.
Art. 1189. When the conditions have been imposed with the intention of suspending the
efficacy of an obligation to give, the following rules shall be observed in case of the
improvement, loss or deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is
understood that the thing is lost when it perishes, or goes out of commerce, or disappears in
such a way that its existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne
by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the
rescission of the obligation and its fulfillment, with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the
benefit of the creditor;

9
(6) If it is improved at the expense of the debtor, he shall have no other right than that
granted to the usufructuary.
Art. 1262. An obligation which consists in the delivery of a determinate thing shall be
extinguished if it should be lost or destroyed without the fault of the debtor, and before he
has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the
thing does not extinguish the obligation, and he shall be responsible for damages. The same
rule applies when the nature of the obligation requires the assumption of risk.
(6) If the thing is generic, the loss with or without the vendor's fault, of anything of the same kind does
not distinguish his obligation to deliver. (Art 1262)
32. Special Rules on sales by description and sale by sample
(1) In the contract of sales of goods by description or by sample, the contract may be rescinded if
the bulk of goods delivered do not correspond with the description or by the sample;
(2) If the contract be by sample as well as by description, it is not sufficient that the bulk of goods
correspond with sample if they do not correspond with the description;
(3) The buyer shall have reasonable opportunity of comparing bulk with the description or sample
(Art. 1481)
Graphic Distinction between sales by description and sample
Point of Distinction
Sale by Description
Basis of Buyer
Sellers representation or
descriptions
Previous sight of goods by the
NONE
buyer
Opportunity for examination by
None
buyer

Sale by Sample
Sellers sample
Buyer saw the sample
None

Notes:
a) For exhibition of sample to result in sale by sample, it is necessary that such exhibition of the
sample must have been sole basis or inducement of the sale to the buyer.
b) It is important to know whether a sale was made by description or sample because it the goods
sold does not correspond to the sample or description or both if agreed upon, the sale may be
rescinded.
1. Principle of Earnest Money or Arras:
Earnest Money is that given by the buyer to the seller to bind the bargain. It is actually a partial payment
of the purchase price and is considered as proof of the perfection of the contract.
Earnest Money vs. Option Money
(1)
(2)
(3)

Earnest money is part of the purchase price, while option money is given as distinct consideration
for an option contract;
Earnest money is given only if there is already a sale while option money applies to sales not yet
perfected;
When the earnest money is given, the buyer is bound to pay the balance, while the would be buyer
who gives option money is not required to buy.
But option money may become earnest money if the parties so agree.

2.

Formalities for validity or enforceability of contracts

The general rule, a contract of sale may be made orally or in writing or partly oral or partly in writing
or even inferred from the conduct of the parties thereto. Some of the exceptions are provided by law.
In contract of sale, some forms are prescribed for reasons of validity, enforceability or convenience.

Examples:
a) Sale of a piece of land or any interest therein through an agent, authority of the latter shall be in
writing, otherwise sale shall be void (Art. 1874).
b) Agreement for sale of goods, chattels or things in action at a price not less than P 500 must be in
writing to be enforceable (Art. 1403 par 2 (d)
c) Agreement of sale of real property or any interest therein must be in writing for enforceability ( Art.
1403 par. 2 (e)
d) Agreement of sale not to be performed within a year from the making thereof must be in writing for
enforceability
e) Sale must be in public instrument for convenience to bind third person (Art. 1356)
3. Remedies of vendor in Sale of Personal Property Payable in Installments.
(RECTO LAW))
The vendor of personal property payable in installments may exercise any of the following remedies:
(1) Elect fulfillment upon the vendee's failure to pay;

10
(2) Cancel the sale, if the vendee shall have failed to pay two or more installments; or
(3) Foreclose the chattel mortgage, if one has been constituted, if the vendee shall have failed to
pay two or more installments.
4. Nature of the above remedies in Recto Law:
These remedies are alternative and are not to be exercised cumulatively or successively and the
election of one is a waiver of the right to resort to the others.
5. Right of the vendor to recover the unpaid balance of the purchase price:
(a) The vendor who has chosen specific performance or to exact fulfillment of the obligation is not
limited to the proceeds of the sale, on execution, of the mortgaged goods. He may still recover from
the purchaser the unpaid balance of the price, if any on real or personal properties of the purchaser
not exempt by law from attachment or execution;
(b) If the vendor chooses rescission or cancellation of the contract upon the vendee's failure to pay two
or more installments, the latter can demand the return of payments already made unless there is a
stipulation about forfeiture. (See Art. 1468)
(c) If the vendor has chosen the third remedy of foreclosure of the chattel mortgage, he shall have no
further action against the vendee for the recovery of any unpaid balance of the price and any
agreement to the contrary is void. The foreclosure is caused by selling the mortgaged personal
property at public auction and applying the proceeds of the sale to the satisfaction of the claim
secured by the mortgage.
6. Requisites before Art. 1484 may be applied:
(a) There must be a contract.
(b) The contract must be of sale.
(c) What is sold in personal property
(d) The sale must be in installment
7. Instances where Art. 1484 may not be applied:
(a) It does not apply in real property mortgage.
(b) It does not apply to sale of personal property in straight terms, a sale on straight terms being one,
which the balance, after the payment of initial sum should be paid in totality at the time specified.
Illustrations:
Case I :
ABC Corporation, a dealer in appliances sold to Mr. T, a Video-CD for P 15,000 payable on installment
at the rate of P 1,200.00 per month. Mr. T executed a chattel mortgage over the thing sold. When Mr. T
defaulted in the payment of his obligation, ABC Corporation foreclosed the mortgage. At the sale, only P
10,000 was realized. Can the seller recover the deficiency?
Answer: No, because in case of foreclosure of the chattel mortgage and there is deficiency, the seller
cannot recover the deficiency. This is an absolute prohibition in the Recto Law, amending Art. 1484, NCC.
Case II :
X purchased on installment basis a car from ABC Corp. Having failed to pay his installments, the
corporation sued X for replevin (an action for recovery of personal property) and seized the unit, sold it
but it failed to realize the balance of X in the sheriff's sale. Can ABC Corp. recover the balance? Why?
Answer: Yes, where the mortgagee in installment sales of personal property chose specific performance
in a replevin suit with damages, it is entitled to an alias writ of execution for the portion of the judgment
that has not been satisfied.
The rule is that in installment sales, if the action instituted is for specific performance and the
mortgaged property is subsequently attached and sold, the sale thereof does not amount to a foreclosure
of the mortgage. Hence, the seller creditor is entitled to a deficiency judgment.
8. Lease of Personal Property with Option to Buy is considered as sale of property in installments.
(Art. 1485) As a rule, payment of installments should be returned unless parties stipulate that the
same shall not be returned. Article 1486 provides that a stipulation that the installments or rents paid
shall not be returned to the vendee or lessee shall be valid insofar as the same may not be
UNSCONCIONABLE under circumstances.
9. Expenses for the execution and registration shall be borne by the vendor in the absence of any
agreement between the parties to the contrary.
10. REALTY INSTALLMENT BUYER PROTECTION ACT (MACEDA LAW) R.A. NO. 6552 also known
as AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL ESTATE ON INSTALLMENT
PAYMENTS
Section 1. This Act shall be known as the "Realty Installment Buyer Act."
Section 2. It is hereby declared a public policy to protect buyers of real estate on installment payments
against onerous and oppressive conditions.

11
Section 3. In all transactions or contracts involving the sale or financing of real estate on installment
payments, including residential condominium apartments but excluding industrial lots, commercial buildings
and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic
Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments,
the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the total grace period
earned by him which is hereby fixed at the rate of one month grace period for every one year of
installment payments made: Provided, That this right shall be exercised by the buyer only once in
every five years of the life of the contract and its extensions, if any.
(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty per cent of the total payments made, and, after five
years of installments, an additional five per cent every year but not to exceed ninety per cent of the
total payments made: Provided, That the actual cancellation of the contract shall take place after
thirty 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.
Down payments, deposits or options on the contract shall be included in the computation of the total number
of installment payments made.lawphi1
Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a
grace period of not less than sixty days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the
contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission
of the contract by a notarial act.
Section 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same to
another person or to reinstate the contract by updating the account during the grace period and before
actual cancellation of the contract. The deed of sale or assignment shall be done by notarial act.
Section 6. The buyer shall have the right to pay in advance any installment or the full unpaid balance of the
purchase price any time without interest and to have such full payment of the purchase price annotated in
the certificate of title covering the property.
Section 7. Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3, 4,
5 and 6, shall be null and void.
Section 8. If any provision of this Act is held invalid or unconstitutional, no other provision shall be affected
thereby.lawphi1
Section 9. This Act shall take effect upon its approval.
Approved: August 26, 1972.
Salient Features of the above law:
11. In transactions involving the sale or financing of real estate on installment payments
including residential condominium apartments, under the Maceda Law, (R.A.NO. 6552), the
rights of the buyer who has paid at least two (2) years installments and subsequently
defaulted in the succeeding installments are the following
(a) To pay w/out additional interest, the unpaid installment within total grace period earned by him fixed
at the rate of one-month grace period for every one year of installments made. The right however
shall be exercised by him only once in every 5 years of the life of the contract and its extensions, if
any; and
(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the
payments on property equivalent to 50% of the total payments made and after 5 years of
installments, and additional 5% every year but not to exceed 90% of the total payments made.
(Section 3, R.A. No. 6552 (Maceda Law), Realty Installment Buyer Protection Act)
The above law excludes from its operation sales on installments of industrial lots and
commercial buildings and sales to tenants under the CARP. Down payments, deposits or options
on the contract shall be included in the computation of the total number of installments payable.
Further, R.A. No. 6552 applies to the purchase of subdivisions and condominiums in relation to
Section 24 of P.D. No. 957 otherwise known as Subdivision and Condominium Buyers protective decree
12. Effect of buyer on realty installments has paid less than 2 years of installments:
The seller shall give him a grace period of not less than 60 days from the date the installment became
due. If he fails to pay the installments due at the expiration of the grace period, the seller may cancel
the contract after 30 days from receipt of the buyer of the notice of cancellation or the demand for
rescission of the contract by notarial act.
NOTE:

12
Under SECTION 24 of PD 957 otherwise known as Subdivision and Condominium Buyers
Protective Act:
Failure to pay installments. The rights of the buyer in the event of this failure to pay the
installments due for reasons other than the failure of the owner or developer to develop the
project shall be governed by Republic Act No. 6552.

Where the transaction or contract was entered into prior to the effectivity of Republic Act No.
6552 on August 26, 1972, the defaulting buyer shall be entitled to the corresponding refund
based on the installments paid after the effectivity of the law in the absence of any provision in
the contract to the contrary.

Presidential Decree No. 957 - THE SUBDIVISION AND CONDOMINIUM BUYERS'

PROTECTIVE DECREE
Purpose: According to the Supreme Court, (In Sps. Co Chien v. Sta. Lucia Realty &
Dev., Inc., et al., G.R. No. 162090, January 31, 2007 (Puno, J) P.D. 957 is a law that
seeks to regulate the sale of subdivision lots and condominiums in view of the
increasing number of incidents wherein real estate subdivision owners, developers,
operators, and/or sellers have reneged on their representations and obligations to
prove and maintain properly the basic requirements and amenities, as well as
reports of alarming magnitude of swindling and fraudulent manipulations
perpetrated by unscrupulous subdivision and condominium sellers and operators. As
such, P.D. 957 requires the registration not just of the developers, seller, brokers
and/or owners of the project but also of the project itself. Upon the registration of the
project, a license to sell must be obtained prior to the sale of the subdivision lots or
condominium units therein. The law also provides for the suspension and revocation
of the registration and license in certain instances, as well as the procedure to be
observed in the event thereof. Finally, the law provides for administrative fines and
other penalties in case of violation of, or non-compliance with its provisions.
A review of the relevant provisions of P.D. 957 reveals that while the law penalizes the
selling of subdivision lots and condominium units without prior issuance of a Certificate of
Registration and License to Sell by the HLURB, it does not provide that the absence
thereof will automatically render a contract, otherwise validly entered, void. The penalty
imposed by the decree is the general penalty provided for the violation of any of its
provisions. It is well-settled in this jurisdiction that the clear language of the law shall
prevail. This principle particularly enjoins strict compliance with provisions of law which
are penal in nature, or when a penalty is provided for the violation thereof. With regard to
P.D. 957, nothing therein provides for the nullification of a contract to sell in the event
that the seller, at the time the contract was entered into, did not possess a certificate of
registration and license to sell. Absent any specific sanction pertaining to the violation of
the questioned provisions (Secs. 4 and 5), the general penalties provided in the law shall
be applied. The general penalties for the violation of any provisions in P.D. 957 are
provided for in Sections 38 and 39. As can early be seen in the aforequoted provisions,
the same do not include the nullification of contracts that are otherwise validly entered.
The requirements of Section 4 and 5 of P.D. 957 do not go into the validity of the
contract, such that the absence thereof would automatically render the contract null and
void. It is rather more of an administrative convenience in order to allow for a more
effective regulation of industry. While it is the intent of the prohibition in Section 5 of P.D.
957 to prevent cases of swindling and fraudulent manipulations perpetrated by
unscrupulous subdivision and condominium seller s and operators and to ensure that
penalties be imposed on fraudulent practices and manipulations committed in
connection therewith, such does not obtain in this case, as it is undisputed that the title
to the subject property has been available for more than a year, and the Eagle Ridge
project was almost 100% completed, before Spouses Co Chien decided to have the
Contract declared void to seek a refund of their down payment. Contrary to Spouses Co
Chiens bare allegation of bad faith on the part of the private respondents, the Court of
Appeals found that at the time the Contract to Sell was executed, the applications for the
Certification and the License were already pending with the HLURB but were only issued
several months thereafter. More importantly, when Spouse Co Chien received notice of
the availability of the title to the subject property, the private respondents had long since
been issued the Certificate and License. It was in fact Spouses Co Chien who, instead of
paying the balance as required in the contract, sought to renegotiate the same, and
failing therein, sought to nullify the contract a year and a half after notice that the title to
the subject property, free from any liens and encumbrance, was already available for
delivery.

13
One of the purposes of P.D. 957 is to discourage and prevent unscrupulous
owners, developers, agents and sellers from reneging on their obligations and
representations to the detriment of innocent purchasers. The law mandates HLURB to
close regulate, supervise and monitor the real estate industry, particularly residential
developments such as subdivisions and condominium projects. To this end, P.D. 957
provides for the issuance, suspension, revocation and even the outright denial of
registration and license to developers, agents and the project itself, as well as penalties
for the non-compliance with the requirements provided therein. It does not, however,
provide for the nullification of a contract, due to the lack of registration and license at the
moment of execution, which in this case was thereafter undisputedly issued by HLURB.
As correctly averred by respondent Alsons, the requirement for registration and license is
primarily directed at preventing fraudulent schemes from being perpetrated on the public
who seek to have their own abode. No fraud has been alleged, much less proven, by
Spouses Co Chien in the present case. The lack of certificate and registration, without
more, while penalized under the law, is not in and of itself sufficient to render a contract
void. Such a deficiency, however, together with other relevant factors may be duly
considered in nullifying a contract, should the circumstances so demand.
The Housing and Land Use Regulatory Board (HLURB) is a national government
agency tasked as the planning, regulatory and quasi-judicial body for land use
development and real estate and housing regulation. These roles are done via a triad of
strategies namely, policy development, planning and regulation.
The Subdivision and Condominium Buyers Protective Decree (PD 957) is
covered by the following features;
a) Regulate sale of subdivision lots and condominiums units to buyers;
b) Defines sale to be covered by registration;
c) Defines duties and responsibilities of owner/developer or of condominium and
subdivision projects
and
d) Defines rights of condominium/subdivision units/lot buyers.
Rights of Buyer under PD 957 Before Buying
1. Check if the Project has a Certificate of Registration and License to Sell.
You should ask the broker/agent of the owner/developer if the project is registered and
has a License to Sell issued by HLURB:
* This can be verified at the On-line Queries/HLURB website (www.hlurb.gov.ph) for the
list of projects covered with Certificate of Registration and License to Sell as well as any
encumbrance thereon, e.g. Cease and Desist Order, Suspension of License, etc.;
* Or you may visit or call the nearest HLURB Regional Office for this information.
2. Visit the subdivision/condominium, where the house and lot or condo unit to be
purchased is located to know its natural topography, viz: susceptibility to landslide,
flooding, erosion, etc.;
If the project is covered with a License to Sell, you may already enter into a Contract with
the owner/developer. However, there are things which must be checked:
1. The date of completion of the project as indicated in the License to Sell;
2. If the property is mortgaged, it should have a Clearance to Mortgage from the HLURB;
3. The facilities and amenities represented in the advertisement flyers/ brochures are in
accordance with the approved subdivision and condominium plan on file with HLURB.
When Buying
1. Check if the broker/agent is registered with HLURB/DTI;
2. Verify if the property has not been sold to other buyers with the Register of Deeds;
3. Check into your source of income whether you can afford to pay the equity and the
monthly installments;
4. Check if the materials of the house or condo unit conform with the development
standards and approved construction specifications submitted to HLURB;
5. Check whether the developer would payfor the water and electric meters, the
subdivision perimeter fence, etc;.
6. Check who would eventually operate the subdivision/condominium water system.
Before Signing the Contract to Sell
1. Dont sign any blank form of the Contract;
2. Read thoroughly all the contents of the Contract more especially the terms and
conditions in fine print;
3. Secure a copy of the Contract and all other documents that you have signed;
4. Make sure that the Contract would be registered by the owner/developer to the
Register of Deeds;

14
5. Pay directly to the owner/developer or the marketing agent authorized by said
owner/developer only; and
6. Ask an official receipt on all payments for your file.
Right to a Clean Title
The buyer of a subdivision lot or condominium unit shall have a right to a clean title of
said lot or unit upon the full payment of the purchase price. If the lot or unit is
mortgaged, the owner/developer shall redeem the mortgage within six months from full
payment so that the title could be delivered to the buyer. The only fee collectible from
the buyer is the registration fee for the deed of sale in the Registry of Deeds.
Realty taxes can be assessed on the buyer if he has actually taken possession and
occupied the lot or unit prior to the transfer of the title in his name.
These are so provided under Sections 25 and 26 of PD 957, Subdivision and
Condominium Buyers Protective Decree, thus:
SECTION 25. Issuance of Title. The owner or developer shall deliver the title of the lot
or unit to the buyer upon full payment of the lot or unit. No fees, except those required
for the registration of the deed of sale in the Registry of Deeds, shall be collected for the
issuance of such title. In the event a mortgage over the lot or unit is outstanding at the
time of the issuance of the title to the buyer, the owner or developer shall redeem the
mortgage or the corresponding portion thereof within six months from such issuance in
order that the title over any fully paid lot or unit may be secured and delivered to the
buyer in accordance herewith.
SECTION 26. Realty Tax. Real estate tax and assessment on a lot or unit shall be paid
by the owner or developer without recourse to the buyer for as long as the title has not
passed to the buyer; Provided, however, that if the buyer has actually taken possession
of and occupied the lot or unit, he shall be liable to the owner or developer for such tax
and assessment effective the year following such taking of possession and occupancy.
Non-Forfeiture of Payments
A buyers payment for a subdivision lot or condominium unit cannot be forfeited by the
owner or developer when he desists paying on the ground that the project is not develop
per approved plans and within the time limit for development. He must, however, notify
the owner or developer of his decision to suspend payments.
The said buyer has the option to demand a refund of the total amount paid with legal
interest. The total amount includes amortization interest but delinquency interest is
excluded. Section 23 of PD 957 Subdivision and Condominium Buyers Protective Decree
provides, thus:
SECTION 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a
subdivision or condominium project for the lot or unit he contracted to buy shall be
forfeited in favor of the owner or developer when the buyer, after due notice to the
owner or developer, desist from further payment due to the failure of the owner or
developer to develop he subdivision or condominium project according to the approved
plans and within the time limit for complying with the same. Such buyer, may at his
option, be reimbursed the total amount paid including amortization interest but excluding
delinquency interest, with interest thereon at the legal rate.
Failure to Pay Installments
In case the buyer fails to pay his installments for other reasons not attributable to the
non-development of the project i.e. he failed to raise the needed money, he may avail of
his rights under Republic Act 6552, Realty Installment Buyer Protection Act. This is so
provided under Section 24 of PD 957, thus:
SECTION 24. Failure to Pay Installment. The rights of the buyer in the event of his failure
to pay the installment due for reason other than the failure of the owner or developer to
develop the project shall be governed by Republic Act No. 6552.
SECTION 24.
Failure to pay installments. The rights of the buyer in the
event of this failure to pay the installments due for reasons other than the failure
of the owner or developer to develop the project shall be governed by Republic Act
No. 6552.
Where the transaction or contract was entered into prior to the effectivity of
Republic Act No. 6552 on August 26, 1972, the defaulting buyer shall be entitled to
the corresponding refund based on the installments paid after the effectivity of the
law in the absence of any provision in the contract to the contrary.

15
Where the transaction or contract was entered into prior to the effectivity of Republic Act
No. 6552 on August 26, 1972, the defaulting buyer shall be entitled to the corresponding
refund based on the installments paid after the effectivity of the law in the absence of
any provision in the contract to the contrary.
Sanctions for Violating PD 957
A violation of the provisions of the decree and its implementing rules and
regulations will carry administrative and penal sanctions. The liability extends to
controlling persons in cases where the violator is a partnership or corporation. The
violation usually carries administrative and criminal penalties. The HLURB as a quasijudicial entity has jurisdiction over administrative aspect of the case while the criminal
aspect is lodge before the fiscals office and accordingly if there is a finding of probable
cause a criminal action is filed in the civil courts.
Section 38, 39 and 40 of PD 957 provides:
SECTION 38. Administrative Fines. The Authority may prescribe and impose fines not
exceeding ten thousand pesos for violations of the provisions of this Decree or of any rule
or regulation thereunder. Fines shall be payable to the Authority and enforceable through
writs of execution in accordance with the provisions of the Rules of Court.
SECTION 39. Penalties. Any person who shall violate any of the provisions of this
Decree and/or any rules or regulation that may be issued pursuant to this Decree shall,
upon conviction, be punished by a fine of not more than twenty thousand (P 20, 000.00)
pesos and/or imprisonment of not more than ten (10) years: Provided, that in the case of
corporations, partnership, cooperatives, or associations, the President, Manager or
Administrator or the person who has charge of the administration of the business shall be
criminally responsible for any violation of this Decree and/or the rules and regulations
promulgated pursuant thereto.
SECTION 40. Liability of controlling persons. Every person who directly or indirectly
controls any person liable under any provision of this Decree or of any rules or regulation
issued thereunder shall be liable jointly and severally with and to the same extent as
such controlled person unless the controlling person acted in good faith and did not
directly or indirectly induce the acts constituting the violation or cause of action.

43.

Capacity to sell and buy: (Who can enter in a Contract of Sale?)

General Rule: All persons, whether natural or juridical, who are authorized by the Civil Code to
oblige themselves may enter in to a contract of sale. Exceptions are those who suffer absolute incapacity
and relative incapacity under Arts. 1490-1491)
Contracts entered by a minor as a rule are voidable. However, they are allowed to buy necessaries
for support on equitable grounds.
Meaning of Necessaries: those which are needed for sustenance, dwelling, clothing and medical
attendance in keeping with the financial capacity of the family of the I
incapacitated person (Art. 194. Family Code.)
Kinds of Incapacity
a) Absolute incapacity if a person is prohibited by law to enter into a contract of sale in all cases;
and
b) Relative incapacity If a person under circumstances is not allowed to buy or sell properties to
another.
Persons disqualified to sell and buy:
(a) The husband and wife cannot sell property to each other, except:
(1) when a separation of property was agreed upon in the marriage settlement; or
(2) when there has been judicial separation of property
(b) Persons who, because of their position and relation with the person under their charge or property
under their control are prohibited from acquiring said property either directly or indirectly and
whether in private or public sale, namely:
(1) guardians;
(2) agents;
(3) executors and administrators;
(4) public officers and employees; and
(5) judicial officers and employees and lawyers
(6) others especially disqualified by law
(c) The seller in an auction sale may not bid unless notice is given reserving such right. (Art. 1476 (4);

16
(d) An unpaid seller cannot buy, directly or indirectly the goods sold by him, in case of resale (Art. 1533)
The prohibition under Nos. 1 & 2 is applicable to sales in legal redemption, compromises and
renunciations. Art. 1492).
Contracts entered in violation of pars. 1 to 3 are VOIDABLE.
Contracts entered in violation of pars. 4-6 are VOID being contrary to public policy.

44. Is the prohibition applicable to a man and a woman who are living together without the
benefit of marriage? Why?
Yes, because to give them that right would amount to giving better rights and privileges to people
who are violating the law. The prohibition can also be gleaned from Art. 87 of the Family Code as it
expanded the prohibition against between husband and wife to those persons who are living together
as husband and wife without the benefit of marriage.
45. Reasons behind the prohibition against selling of properties between husband and wife:
(a) to prevent the commission of fraud or prejudice to third persons;
(b) to prevent one from unduly influencing the other;
(c) to avoid indirect donations
Note : A stranger who questions the validity of sale between spouses must bear a relation with
them like a creditor.
Query: May a lawyer purchase a property of his client subject litigation during
the pendency of the litigation? Why?
Answer: No, it is expressly prohibited by law. It is also prohibited by reason of
public policy.
46. Rules regarding risk of loss in contracts of sale:
(a) If the thing is lost before perfection, the seller and not the one who intends to purchase bears
the loss in accordance with the principle that the thing perishes with the owner (res permit domino).
(b) If the thing is lost at the time of perfection, the contract is void or inexistent (Art. 1409 The
legal effect is the same as when the object is lost before the perfection of the contract of
sale (Art. 1493)
(1) If the subject matter (i.e., a specific thing or a mass of specific goods such as 100 cavans of rice
in a particular warehouse) is only partially lost, the vendee may choose between withdrawing
from the contract and demanding the remaining part, paying its proportionate price. (Art. 1464)
(c)

If the thing is lost after perfection but before delivery, that is even before ownership is
transferred to the buyer, the risk of loss by a fortuitous event without the sellers fault is
borne by the buyer as an exception to the rule of res perit domino. (Art. 1480).
Note: This is in conflict with Article 1504 which provides that unless otherwise agreed, the
goods remain at the sellers risk until ownership therein is transferred to the buyer.

(d) If the thing is lost after delivery, the buyer bears the risk of loss following the rule of res permit
domino.
(1)
Where the seller reserves ownership of goods merely to secure the performance by the buyer
of his obligations under the contract, the goods are at the buyer's risk from the time of delivery.
(2)
Where the actual delivery has been delayed through the fault of either the buyer or the seller,
the goods are risk of the party at fault. (Art. 1504)
(e) If the object refers to a thing or specific thing and it should have been lost in part only, the vendee
may choose between withdrawing from the contract and demanding the remaining part, paying its
price in proportion to the total sum agreed upon. (Art 1493)
(f) Where specific goods are lost or changed in character in part or wholly without knowledge of the
seller, the buyer may at his option treat the sale as (1) avoided; or (2) consider valid as to existing
goods or so much thereof which has not deteriorated. ( Art. 1494)
47.

Obligations of the Vendor:

(a) to transfer ownership (cannot be waived)
(b) to deliver (cannot be waived)
(c) to warrant the object sold (this can be waived or modified since warranty is not an essential element
of a contract of sale;
(d) to preserve the thing from perfection to delivery otherwise he can be held liable for damages.

48. Effect of Failure to deliver in time:

If the seller promised to deliver at a stipulated time and such period is of the essence of the contract, but
did not comply with his obligation on time, he has no right to demand payment of the price. As a matter
of fact, the vendee-buyer may ask for rescission of the sale.
49. Ownership is transferred generally only by delivery.
50. Kinds of Delivery (Tradition)
(1) Actual or real (Art. 1497)

17
(2) Legal or constructive
(a) legal formalities (Art. 1498)
(b) symbolica tradition or traditio symbolica (such as the delivery of the key of the place where
the movable sold is being kept) (Art. 1498 par. 2);
(c) traditio longa manu (by mere consent or agreement) if the movable sold cannot yet be
transferred to the possession of the buyer at the time of the sale (Art. 1499)
(d) traditio breva manu ( if the buyer had already the possession of the object even before the
purchase, as when the tenant of the car buys the car, that his possession as an owner). ( Art.
1499)
(e) traditio constitutum possessorium (opposite of tradito breva manu) possession as owner
changed, for example possession as a lease. I.e, I sold my car but continued to possess it as a
lessee of the purchaser (Art. 1500)
(3) Quasi-tradition - delivery of rights, credits or incorporeal property made by:
(1) By the execution of a public instrument, or
(2) by placing titles of ownership in the hands of the buyer;
(3) or allowing the buyer to make use of the rights. (Art. 1501)
51. Sale or Return - it is a contract by which property is sold but the buyer who becomes the owner of the
property on delivery has the option to return the same to the seller instead of paying the price.
52. Sale on Trial or Approval - It is a contract in the nature of option to purchase if goods prove
satisfactory, the approval of the buyer being a condition precedent. In this kind of contract, the title shall
continue in the seller until the sale has become absolute:
(a) Upon the buyer's approval or acceptance made known to the seller;
(b) Upon the buyer's doing any other act adopting the transaction; or
(c) Upon the retention by the buyer of the goods beyond the time fixed (or a reasonable time) without
giving notice of rejection. (Art. 1502)
Note : In sale or return, the risk of loss or injury rests upon the buyer while in sale on approval, the
risk still remains in the seller.
Point of Distinction
Transfer of ownership of
object of sale
Option to return
Risk of deterioration

the

Sale or Return
Transferred to vendee upon
delivery
Existing
Vendee:
(1) At fault-right to return is
lost.
(2) Not at fault- no effect on
right to return

Sale on Trial or Approval

No transfer of ownership to
vendee upon delivery
Existing

53. Cases when delivery does not transfer ownership over thing sold.
1. Where a contrary intention appears by the terms of the contract:
(a) In case of express reservation by the seller of his title, until certain conditions have been fulfilled
(Art. 1503, par. 1) particularly the full payment of the purchase price. (Art. 1478);
(b) In case of implied reservation of title as when goods are deliverable to the order of the seller or
his agent; and
(c) In sale on approval, or trial or on satisfaction (Art. 1502);
2. Where the seller failed to make such contract with the carrier on behalf of the buyer as may be
reasonable under the circumstances (See Art. 1523, par. 2); and
3. Where the seller failed to give notice to the buyer as may enable him to insure the goods during their
transit if under the circumstances it is usual to insure them.
(Note: Nos. 2 & 3 are also exceptions to the general rule that delivery to the carrier is deemed
delivery to the buyer)
Notes:

a) Article 1503 refers to sale of Specific Goods. Meaning, these are goods identified and agreed upon at
the time a contract of sale is made.

b) This provision provides that as a general rule, the ownership in the goods passes to the buyer upon
c)

d)

e)

their delivery to the carrier. Exception are provided above no. 53.
General principle: Delivery of specific goods sold to the buyer generally passes ownership to the
buyer. Res perit domino rule. Delivery transfers ownership. Hence, if the thing is lost before
delivery, the loss shall not be imputable to the buyer. See (Arts. 1503 and 1504). This is in conflict
with Article 1480. If the contract is already perfected and even before the delivery of the thing, the
loss of the thing without fault on the part of the seller is borne by the buyer.
In Art. 1480- the law speaks of non-fungibles and fungibles sold independently and for a single price
or for a price fixed without consideration of their weight, number or measure. The rules on Arts.
1189, 1174, 1269, 1538 supports Article 1480, which also refer to a prestations specific or
determinate in character.
In Art. 1504, the previous article refers to specific goods. Specific goods as defined under Article
1636 means goods identified and agreed upon at the time of the contract of sale.

IMPLIED RESERVATION OF OWNERSHIP

1.

When there is implied reservation ownership such as in the following:

18
a.
b.

c.

54.

Where the goods are shipped and by the bill of lading the goods are deliverable to seller or
his agent, the seller thereby reserves ownership in the goods. (Art. 1503 paragraph 2)
Where goods are shipped and by the bill of lading the goods are deliverable to the order of
the buyer or his agent, but the possession of the bill of lading is retained by the seller or
agent, the seller thereby retains a right to the possession of the goods as against the seller.
(Art. 1503 par. 3)
Where the seller draws on the buyer for the price and transmits the bill of exchange and the
bill of lading together to the buyer to secure acceptance or payment of the bill of exchange,
the title is regarded as retained in the seller until the bill of exchange is paid. The fact that
the bill of lading and bill of exchange are attached together indicates that the seller intends
to make the delivery of the goods conditional upon the payment or acceptance of the draft.

What title is acquired by the vendee or buyer if the object which he bought was sold by
somebody who is not the owner thereof and who was not authorized to sell it?
The vendee, in such a case acquires no better title to the object than the vendor had. This rule,
however is subject to the following exceptions:
a) Where the true owner is estopped or precluded by his conduct from denying the vendor's
authority to sell;
b) Where the sale is made by the registered or apparent owner in accordance with recording or
registration laws;
c) Where the sale or under the order of a court of competent jurisdiction; and
d) Where the purchase is made in a merchant's store or in fairs, or markets, in accordance with the
Code of Commerce and special laws (Art. 1505)

Illustrative Case:
X is the owner of a ring, which was stolen by her maid. While at a social gathering in the
neighborhood, she saw the ring in the possession of her comadre, Y. She demanded the return of the ring,
but Y refused. Can she compel Y to return the ring? Why?
Answer:
Yes, because she was unlawfully deprived of the same. Under the law, one who has lost any
movables or has been unlawfully deprived thereof, may recover it from the person in possession of the same,
(Art. 559). This is true if possessor bought it from a thief.
Suppose in the above problem, Y bought the ring from a merchant store, can X compel Y to return the
ring? Why?
Answer:
Yes, provided that she would reimburse Y the amount she may have paid to the merchant store.
Under the law, if the possessor of the movable lost or of which the owner has been unlawfully deprived, has
acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price
paid thereof.
55.

Where the seller of goods has a voidable title thereto, but his title has not been avoided at the time
of the sale, a) the buyer acquires good title to the goods, provided (2) he buys them in good faith, for
value and (3) without notice of the seller defect of title. (Art. 1506)

56.

A. Define Negotiable Document of Title:

that the negotiation was a breach of duty on the part of the person making the
negotiation, or by the fact that the owner of the document was deprived of the
possession of the same by loss, theft, fraud, accident, mistake, duress, or conversion, if
the person to whom the document was negotiated or a person to whom the document
was subsequently negotiated paid value therefor in good faith without notice of the
breach of duty, or loss, theft, fraud, accident, mistake, duress or conversion. (n)
A document of title in which it is stated that the goods referred to therein will be delivered to the bearer,
or to the order of the any person named in such document is a negotiable document of tile. (Art. 1507)

B. Meaning of Trust Receipt : It is a receipt signed by an importer in favor of a bank which advanced on
his credit the price on the goods received, generally providing that the title to the goods shall remain in the
bank and authorizing the importer to sell the same for its account, and to pay the proceeds to the said bank.
If the importer violates the trust by converting the proceeds to his own use, he is guilty of estafa.
C.

Nature of Document of Title: It refers to goods and not to money. They all have this in common:
that they are receipts of a bailee, or orders upon a bailee.
D. Function: Evidence of transfer of title and possession of goods and contract between the parties.
E. Common forms of Document of title:
a) Bill of Lading- A contract or receipt for the transport of goods and their delivery to the persons
named therein, to order or to bearer. It usually involves three persons - the carrier, the shipper
and the consignee. The shipper and the consignee may be one and the same person.
b) Dock warrant- An instrument given by dock owners to an importer of goods warehoused on the
dock recognizing the importer's title to the said goods;
c) Warehouse receipt - A contract or receipt for goods deposited with the warehouseman containing
the latter's undertaking to hold and deliver the said goods to a specified person, to order or to
bearer. Quedan is warehouse receipt usually for sugar received by warehouseman.

19
SALIENT PROVISIONS

WAREHOUSE RECEIPT

a. It is a written acknowledgement by a warehouse that he has received and holds certain goods therein
described in store for the person to whom it is issued.
b. It is a simple written contract between the owner of the goods and the warehouseman to pay the
compensation for that service.
c. It is a bilateral contract. It imports that goods are in the hands of a warehouseman and is a symbolical
representation of the property itself.
If goods are stolen and deposited by the thief with a warehouseman, the warehouseman shall not be liable to
the holder of the receipt even if he delivers the goods to the real owners without the receipt being surrendered to
him. (Secs. 11 and 141, WRL)

MEANING OF NEGOTIABLE UNDER THE ACT

It indicates that in the passage of warehouse receipts through the channels of commerce, the law regards the
property which they describe as following them and gives to their regular transfer by indorsement the effect of
manual delivery of the things specified in them.
DISTINCTION between the right of a person to whom a receipt has been negotiated and rights of a person to
whom a receipt has been transferred.
a. Rights of a person to whom a receipt has been negotiated (Sec. 41):
1. the title of the person negotiating the receipt over the goods covered by the receipt;
2. the title of the person (depositor or owner) to whose order by the terms of the receipt the goods were to
be delivered over such goods; and
3. the direct obligation of the warehouseman to hold possession of the goods for him, as if the
warehouseman directly contracted with him.
b. Rights of a person to whom receipt has been transferred (Sec. 42): may be defeated by levy and execution
1. The title of the goods as against the transferor with respect to a negotiable warehouse receipt not duly
negotiated (merely steps into the shoes);
2. If the receipt is non-negotiable, such person also acquires the right to notify the warehouseman of the
transfer thereof; and
3. The rights, thereafter, to acquire the obligation of the warehouseman to hold the goods for him.
An unpaid sellers lien or right of stoppage in transitu cannot defeat the right of the holder in good faith of
NWR.
Sec. 25 of Warehouse Receipt Law
If goods are delivered to a warehouse man by the owner or by a person whose act in conveying the
title to them to a purchaser in good faith for value would bind the owner, and the negotiable receipts is issued for
them.
While in possession of such warehouseman, the goods cannot be attached or levied upon under
execution UNLESS:
1. The document be first surrendered; or
2. Its negotiation is enjoined; or
1. The document is impounded by the court.
Reason: the law protects an innocent purchaser for value in the negotiation of NWR.
Goods covered by NWR cannot be attached or levied upon unless receipt is surrendered.
WAREHOUSEMAN
A person lawfully engaged in the business of storing goods for compensation for such service.
TO WHOM DELIVERED
upon demand made by the holder of receipt or depositor provided such demand is accompanied by :
a. an offer to satisfy the WMs lien;
b. an offer to surrender the receipt, if negotiable, with such endorsement as would be necessary for the
negotiation of the receipt; and
c. a readiness and a willingness to sign, when the goods are delivered, if such signature is requested by
the warehouseman.
WARRANTIES ON SALE OF RECEIPT: (Sec. 44)
a. that the receipt is genuine;
b. that he has legal right to negotiate or transfer it;
c. that he has knowledge of no fact which would impair the validity or worth of the receipt; and

20
d. that he has a right to transfer the title to the goods and that the goods are merchantable or fit for a particular
purpose whenever such warranties would have been implied, if the contract of the parties had been to
transfer without a receipt the goods represented thereby.
Conttinuation of Discussion on Negotiable Doument of Title:
57. How may a negotiable document of title negotiated by delivery?
A negotiable document of title may be negotiated by delivery:
(1) Where by the terms of the document the carrier, warehouseman or other bailee issuing the same
undertakes to deliver the goods to the bearer;
(2) Where by the terms of the document the carrier, warehouseman or other bailee negotiating the
same undertakes to deliver to deliver the goods to the order of a specified person, and such person
or a subsequent indorsee of the document has indorsed it in blank or to the bearer;
Where by the terms of a negotiable document of title, the goods are deliverable to bearer or where
the negotiable document of title has been indorsed in blank or bearer, any holder may indorse the
same to himself or to any specified person, and in such are the document shall thereafter be
negotiated only by the indorsement of such indorsee. (Art. 1508)
58. How may a negotiable document of title be negotiated by indorsement?
A negotiable document of title may be negotiated by the indorsement of the person to whose order the
goods are by the terms of the document deliverable. Such indorsement may be in blank, to bearer or to
a specified person. If indorsed to a specified person, it may be again negotiated by the indorsement of
such person in blank, to bearer or to another specified person. Subsequent negotiations may be made in
like manner. (Art. 1509)
59. Under Article 1520, the words non-negotiable placed in the document of title which is negotiable in
character have no effect and the document continues to be negotiable.
60. A non-negotiable document of title cannot be negotiated (Art. 1511)
61. Who may negotiate a negotiable document of title?
(1) By the owner thereof;
(2) By any person to whom the possession or custody of the document has been entrusted by the owner,
if by the terms of the document the bailee issuing the document undertakes to deliver the goods to
the order of the person to whom the possession or custody of the document has been entrusted, or if
at the time of such entrusting the document is such form that it may be negotiated by delivery (Art.
1512)
62.
What are the rights, which are acquired by a person to whom a negotiable document of
title has been duly negotiated?
A person to whom negotiable document of title has been duly negotiated acquires thereby:
(1) Such title to the goods as the person negotiating the document to him had or had ability to
convey to a purchaser in good faith for value and also such title to the goods as to the person to
whose order the goods were to be delivered by the terms of the document had and had ability to
convey to a purchaser in good faith for value;
(2) The direct obligation of the bailee issuing the document to hold possession of the goods for him
according to the terms of document as fully as if such bailee had contracted directly with him
(Art. 1513).
With the foregoing, one who purchases goods covered by a negotiable document title issued to
a thief acquires no right over the goods as the thief has no right to transfer notwithstanding that
such purchaser acquires title where the owner, by his conduct, is stopped from asserting his
title.
A negotiated a warehouse receipt issued by W to B representing goods. Said goods were stolen
and deposited by A to W for safekeeping. W not aware about the defect issued a negotiable
warehouse receipt to A. Assuming said receipt was negotiated to a holder or purchaser in good
faith, the latter can never acquire title because the goods are stolen.
63. What are the implied warranties of the person who negotiates a document of title by
indorsement or delivery?
A person, who for value negotiates or transfers a document of title by indorsement or delivery,
including one who assigns for value a claim secured by a document of title unless a contrary
intention appears, warrants:
1. That the document is genuine;
2. That he has legal right to negotiate or transfer it;
3. That he has knowledge of no fact which would impair the validity or worth of the document; and
4. That he has right to transfer the title of the goods are merchantable or fit for a particular
purpose, whenever such warranties would have been implied if the contract of the parties had
been to transfer without a document of title of goods represented thereby (Art. 1516)
64. Indorsers are not guarantors. The indorsement of a document of title amounts merely to a
conveyance by the indorser, not a contract of guaranty. An indorser of a document of title shall not

21
be liable to the holder of for example the bailee fails to deliver the goods because they were lost due
to his fault or negligence.
65. Under Article 1518, a negotiable document may be negotiated by any person in possession thereof I
whatever manner it is obtained or acquired. In other words, it may be negotiated by the thief or
finder and the holder thereof would acquire good title thereto if he paid for value in good faith
without notice of the sellers defect of title. This exists an alleged inconsistency considering under
Article 1512 as a thief nor finder can neither negotiate document of title because he is not the owner
thereof. The conflict can be resolved easily by locating the subject matter of the provisions. If what
was stolen is the negotiable document of title representing goods lawfully or validly acquired or
obtained, then Article 1518 applies provided the acquirer obtained it for value and in good faith.
66. Art. 1518. The validity of the negotiation of a negotiable document of title is not impaired
by the fact Art. 1519. If goods are delivered to a bailee by the owner or by a person whose act in
conveying the title to them to a purchaser in good faith for value would bind the owner and a
negotiable document of title is issued for them they cannot thereafter, while in possession of such
bailee, be attached by garnishment or otherwise or be levied under an execution unless the
document be first surrendered to the bailee or its negotiation enjoined. The bailee shall in no case be
compelled to deliver up the actual possession of the goods until the document is surrendered to him
or impounded by the court.
67. Art. 1520. A creditor whose debtor is the owner of a negotiable document of title shall be entitled to
such aid from courts of appropriate jurisdiction by injunction and otherwise in attaching such
document or in satisfying the claim by means thereof as is allowed at law or in equity in regard to
property which cannot readily be attached or levied upon by ordinary legal process.
As a general rule, attachment or levy of goods covered by negotiable document of title is prohibited.
The only recognized exceptions to the general rule are as follows: a) If the document is surrendered
to him; or (2) negotiation is enjoined.
Instances when bailee can be compelled to surrender goods. The rule is baille cannot be compelled to
surrender the goods in his possession covered by a negotiable document of title. He may do so,
however: ( a) if document is surrendered to him or (2) the document is impounded by the court.
68. Art. 1521. Whether it is for the buyer to take possession of the goods or of the seller to send them to
the buyer is a question depending in each case on the contract, express or implied, between the
parties. Apart from any such contract, express or implied, or usage of trade to the contrary, the place
of delivery is the seller's place of business if he has one, and if not his residence; but in case of a
contract of sale of specific goods, which to the knowledge of the parties when the contract or the sale
was made were in some other place, then that place is the place of delivery.
Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for
sending them is fixed, the seller is bound to send them within a reasonable time.
Where the goods at the time of sale are in the possession of a third person, the seller has not fulfilled
his obligation to deliver to the buyer unless and until such third person acknowledges to the buyer
that he holds the goods on the buyer's behalf.
Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What
is a reasonable hour is a question of fact.
Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state
must be borne by the seller. (n)
Art. 1522. Where the seller delivers to the buyer a quantity of goods less than he contracted to sell,
the buyer may reject them, but if the buyer accepts or retains the goods so delivered, knowing that
the seller is not going to perform the contract in full, he must pay for them at the contract rate. If,
however, the buyer has used or disposed of the goods delivered before he knows that the seller is
not going to perform his contract in full, the buyer shall not be liable for more than the fair value to
him of the goods so received.
Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer
may accept the goods included in the contract and reject the rest. If the buyer accepts the whole of
the goods so delivered he must pay for them at the contract rate.
Where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a different
description not included in the contract, the buyer may accept the goods which are in accordance
with the contract and reject the rest.
In the preceding two paragraphs, if the subject matter is indivisible, the buyer may reject the whole
of the goods.
The provisions of this article are subject to any usage of trade, special agreement, or course of
dealing between the parties. (n)
PLACE OF DELIVERY

22
1.
2.
3.
4.
5.

Where there is an agreement, express or implied, the place of delivery is that agreed upon;
Where there is no agreement, the place of delivery is determined by usage of trade;
Where there is no agreement and there is also no prevalent usage, the place of delivery is the
sellers place of business;
In any other case, the place of delivery is the sellers residence; and
In case of specific goods, which to the knowledge of the parties at the time the contract was
made were in some other place, that place is the place of delivery, in the absence of any
agreement or usage of trade to the contrary.

69. Under Article 1523, the general rule delivery to the carrier is delivery to the buyer when the seller is
authorized or required to send the goods to the buyer (See. Art. 1521) Exceptions are in case of
express and implied reservations ( Art. 1503)
Seller duties if required to deliver the goods to the buyer
a) To enter on behalf of buyer into such contract with the carrier reasonable under circumstances.
If he omits to do so, (1) the buyer may decline to treat delivery to carrier as delivery to himself in
case goods are lost or damaged in course of transit, or (2) the buyer may hold the seller
responsible in damages ( par 2 of Art. 1523) If buyer exercised the first option, the transfer of
ownership will be deemed not to have taken place; and
b) To give notice to buyer regarding necessity to insure goods, if under the circumstances it is usual
to insure them. If seller fails to so, the risk will be borne by him.
Explain F.O.B, C.I.F., F.A.S., & C & F., EX (Point of Origin) and Ex dock;
1.
2.
3.
4.
5.
6.

F.O.B - The initials for the words, "Free on Board". This means that the goods are to be deliverable
free of expense to the buyer to the point where they are F.O.B.
C.I.F. - The initials stand for the words "cost, insurance and freight." They signify that the price fixed
covers not only the cost of the goods, but the expense of freight and insurance to be paid by the
seller up to the point especially named.
F.A.S. - The initials mean "free alongside vessel" (named port of shipment). Under this term, the
seller pays all charges and bears the risk until the goods are placed alongside overseas vessel and
within reach of its loading tackle.
C & F - The initials signify that the price fixed includes cost and freight to the named point of
destination.
Ex Factory, Ex Warehouse, etc. (named point of origin) - Under this term, the price quoted applies
only at the point of origin, and the seller agrees to place the goods at the disposal of the buyer at the
agreed place on the date within the period fixed.
Ex Dock (named port of importation). - Under this term, the seller quotes a price including the cost
of the goods on the dock at the named port of importation.

Graphic distinction as to when ownership passes to buyer in sales from one port to another
Point of Distinction
FOB point of shipment
FOB point of
COD or Cash on
destination
Delivery Shipment
When title passes to Upon delivery of goods Upon delivery to port of Upon delivery to the
buyer
for shipment
destination
carrier
70. The vendor shall not be bound to deliver the thing sold, if the vendee has not paid him the
price, or if no period for payment has been fixed in the contract.
As a rule, the obligation to deliver the thing subject matter of a contract arises from the moment of its
perfection and from the time the obligation may be enforced. But a contract of sale is bilateral and so
the obligation to deliver the thing is accompanied the obligation by the payment of the price. These
obligations are reciprocal.
Exception: If the time for such payment has been fixed in the contract, the thing must be
delivered though the price has not been paid yet.
71. Define an unpaid seller under Art. 1525
An unpaid seller is one a) who has not been paid or tendered the whole price; or
b) who has received a bill of exchange or other negotiable instrument as conditional payment and the
condition on which it was received has been broken by reason of dishonor of the instrument. (Art.
1525)
72. Rights of the unpaid seller:
Even if the ownership in the goods has already passed to the buyer, they are:
1) A lien on the goods or right to retain them for the price while in his possession;
2) A right of stopping the goods in transitu in case of insolvency of the buyer;
3) A right of resale; and
4) A right to rescind the sale.
If the unpaid seller still retains ownership in the goods, he cannot be said to have lien (on his goods).
But he does have, in addition to his other remedies, right of withholding delivery (Art. 1526)
65. Cases where the unpaid seller exercises his right of possessory lien:
1. When the goods have been sold without any stipulation as to credit;
2. Where the goods have been sold on credit, but the term of the credit has expired; and
3. Where the buyer becomes insolvent.
The seller may exercise his right o lien notwithstanding that he is in possession of the goods as agent
or bailee for the buyer. (Art. 1527)

23
66. An unpaid seller loses his lien to the goods:
1. When he delivers the goods to a carrier or other bailee for the purpose of transmission to the
buyer without reserving ownership of the goods or the right of possession thereof;
2. When the buyer or his agent lawfully obtains possession of the goods;
3. When the unpaid seller waives his lien.
Mere judgment by a court obtained by the unpaid seller for the price of the goods is not a ground
for the loss of his lien. (Art. 1529)
67. Meaning of the RIGHT TO STOPPAGE IN TRANSITU
The right of stoppage in transitu is the right of the unpaid seller who has parted with the possession
of the goods, when the buyer is or becomes insolvent, to stop them and resume possession while they
are in transit. The unpaid seller will become entitled to the same rights to the goods as if he had never
parted with possession (Art. 1530)
68.

Requisites in the exercise of the right of stoppage in transitu:

1.
2.
3.
4.
5.
6.

The seller must be unpaid (Art. 1525)

The buyer must be insolvent;
The goods must be in transit (Art. 1531)
The seller must either actually take possession of the goods sold or give notice of his claim to the
carrier or other person in possession (Art. 1532 p. 1)
The seller must surrender the negotiable document of title, if any, issued by the carrier or bailee
(ibid, p. 2)
The seller must bear the expenses of delivery of the goods after the exercise of the right. (Ibid.)

69. Manner of which unpaid seller may exercise the right to stop the goods in transitu:
1.
2.

Either by taking actual possession of the goods;

By giving notice of his claim to the carrier of business in whose possession the goods are.
The seller must surrender the negotiable document of title, if any issued by the carrier or bailee. (Art.
1532)

70. Instances where goods are considered not already in transitu:

The goods are no longer in transit after delivery to the buyer or his agent in that behalf and in the
following cases:
a) If the buyer or his agent obtains possession of the goods at a point before the destination originally
fixed;
b) If the carrier or bailee acknowledges to hold the goods on behalf of the buyer; and
c) If the carrier or bailee wrongfully refuses to deliver the goods to the buyer. (Art. 1531)
71. Right to Resale:
This right can be the unpaid seller only when he has right of lien or right to stop goods in
transitu and under any of the three following cases:
a. Where the goods are perishable in nature;
b. Where the right to resell is expressly reserved in case the buyer should make a default; and;
c. Where the buyer delays in the payment of the price for an unreasonable time.
72. Effect of Resale:
The seller is not liable for any profit made by such resale; but if he sells for less than the
price, he has the right to sue for the balance. As against the original buyer, the new buyer
acquires a good title to the goods.
Note: It is not essential to the validity of a resale that notice of an intention to resell the goods be given
by the seller to the original seller. Except where the resale is based on the default of the buyer in the
payment of the price, as notice in this case is relevant in any question whether the buyer had been in default
for unreasonable time before the resale was made.
No notice is required for the time and place of such resale to the buyer.
Seller is not allowed to directly or indirectly buy the goods in a public or private sale.
73.

Cases when an unpaid seller exercises his right to rescind:

Either of the two situations, namely:
1.
2.

When the right to rescind is expressly reserved; or

When the buyer defaults or delays in the payment of the price for an unreasonable time.

In the case of rescission, the seller resumes ownership in the goods. While the seller shall not be
liable to the buyer upon the contract of sale, the latter, however, may be made liable to the seller for
damages for any loss occasioned by the breach of contract. (Art. 1534)
Note ; An unpaid seller has right to rescind only if he has either a right of lien or
a right to stop goods in transitu.

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74. Effect of Rescission:
The seller resumes ownership of the goods. While the seller shall not be liable to the buyer
upon the contract of sale, the latter however may be made liable to the seller for damages for
any loss in occasioned by the breach of contract (par. 1, Art. 1533)
75. How to rescind?
An election by the seller to rescind may be manifested by notice to the buyer or some other over act
showing an intention to rescind. Communication of such election to the buyer is not necessary.
76. Effects of Sale of Goods subject to unpaid sellers right of lien or stoppage in transitu:
They are:
1) The seller's right is not affected by any disposition of goods made by the buyer, unless he has
assented thereto.
2) If, however, the goods are covered by a negotiable document of title, the seller's right cannot prevail
rights of purchaser for value in good faith to whom the document has been indorsed. (Art. 1535)
77.
Art. 1536. The vendor is not bound to deliver the thing sold in case the vendee should lose the right
to make use of the terms as provided in Article 1198.
78.
Art. 1537. The vendor is bound to deliver the thing sold and its accessions and accessories in the
condition in which they were upon the perfection of the contract.
All the fruits shall pertain to the vendee from the day on which the contract was perfected.
79.
Art. 1538. In case of loss, deterioration or improvement of the thing before its delivery, the rules in
Article 1189 shall be observed, the vendor being considered the debtor.

Art. 1539. The obligation to deliver the thing sold includes that of placing in the control of the vendee all that
is mentioned in the contract, in conformity with the following rules:
If the sale of real estate should be made with a statement of its area, at the rate of a certain price for
a unit of measure or number, the vendor shall be obliged to deliver to the vendee, if the latter should
demand it, all that may have been stated in the contract; but, should this be not possible, the vendee may
choose between a proportional reduction of the price and the rescission of the contract, provided that, in the
latter case, the lack in the area be not less than one-tenth of that stated.
The same shall be done, even when the area is the same, if any part of the immovable is not of the
quality specified in the contract.
The rescission, in this case, shall only take place at the will of the vendee, when the inferior value of
the thing sold exceeds one-tenth of the price agreed upon.
Nevertheless, if the vendee would not have bought the immovable had he known of its smaller area
of inferior quality, he may rescind the sale.
Art. 1540. If, in the case of the preceding article, there is a greater area or number in the immovable than
that stated in the contract, the vendee may accept the area included in the contract and reject the rest. If he
accepts the whole area, he must pay for the same at the contract rate.
Art. 1541. The provisions of the two preceding articles shall apply to judicial sales.
Art. 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of
measure or number, there shall be no increase or decrease of the price, although there be a greater or less
area or number than that stated in the contract.
The same rule shall be applied when two or more immovables as sold for a single price; but if, besides
mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or number
should be designated in the contract, the vendor shall be bound to deliver all that is included within said
boundaries, even when it exceeds the area or number specified in the contract; and, should he not be able to
do so, he shall suffer a reduction in the price, in proportion to what is lacking in the area or number, unless
the contract is rescinded because the vendee does not accede to the failure to deliver what has been
stipulated.
Art. 1543. The actions arising from Articles 1539 and 1542 shall prescribe in six months, counted from the
day of delivery.
Rules in case the area or number is greater or less that stated in the contract of
Sale of Real Estate:
1) The sale is made with a statement of its area at the rate of a certain price for a unit of measure or
number (e.g. a parcel of land containing an area of 1,000 square meters is sold at P 100.00 per
square meter) -

25
a) If the actual area, for example is 1,100 sq. meters - The vendee may accept the area included in
the contract (1,000 sq. meters) and the rest (100 sq. meters). If he accepts the whole area, he
must pay for the same at the contract rate of P 110,000. (Art. 1546)
b) If the actual area is 900 sq. meters - The vendee may choose between a proportionate reduction
of the price (P 90,000) and the rescission of the contract, provided in the latter case the lack in the
area be not less than 1/10 or more of that stated. (See Art. 1539)
2) The sale is made for lump sum - There shall be no increase or decrease of the price. (Art. 1542)
Reason: The law presumes that the purchaser had in mind a determinate price for the real estate
and that he ascertained the area and quality before the contract was perfected. This rule applies
when two or more immovable properties are sold for a single price (See Art. 1541). It does not apply
if the deficiency is so material as to go to the essence of the contract, for under such circumstances,
gross mistake may be inferred.
80. Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith
was first in the possession; and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith.
Who is deemed to be the owner in sales of the same thing to different vendee by the same
vendor ? : RULES ON DOUBLE SALES
(1) If the property sold is movable, the vendee who first took possession in good faith shall acquire the
ownership.
(2) If the property sold is immovable, the ownership shall belong to:
a) The vendee who first registered the sale in good faith in the Registry of Property (Registry of
Deeds);
b) In the absence of registration, the vendee who in good faith, first took possession; and
c) In the absence of both registration and possession, the vendee who presents the oldest title
(who first bought the property), provided there is good faith. (Art. 1544)
Case I:
A, the owner of a parcel of land sold the same to B, but the document was not registered. One year
later, he sold it again to C who registered. One year later, he sold it again to C who registered the document
and obtained a title over the same. Who has a better right over the parcel of land? Why?
Answer:
C has a better right. Under the law, if an immovable property is sold to two persons, the
ownership shall belong to the person acquiring it who, in good faith, first recorded it in the Registry of
Property. (Art. 1544) The facts do not show that C acquired the land in bad faith. Since he was the one who
first registered the sale in good faith and acquired title thereto, he has a better right.
Case II:
In a simple case of double sale of an immovable property, the owner sold it for a buyer merely in a
private instrument. Later on, it was sold to another, this time in a public instrument and registered at that.
The second buyer, however, knew of the first sale. Between the first and the second buyer, who has a better
right? Why?
The first buyer has a better right. Mere registration of the sale is not sufficient. Good faith must
concur with the registration. Bad faith renders the registration nothing but an exercise in futility.
The rule on double sales do not apply in cases:
a) The contract first registered is fictitious or forged;
b) The vendor is not the owner of the property; or
c) The sale is not made by the same vendor
81. Kinds of warranties in the contract of sale:
A) Express or Promissory Warranty - They are any affirmation of fact or any promise by the seller
relating to the thing, the natural tendency of which is to induce the buyer to purchase the thing and
the buyer thus induced purchases the same.
B) Implied Warranties: They are agreements or stipulations the existence of which is presumed
although not expressed in any words in the contract.
Republic Act 7394 otherwise known as the Consumers Act of the Philippines provides for additional
provisions or rules applicable to express and implied warranties.
81. What are Implied Contracts:
a) Warranty against eviction -the seller warrants that he has a 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
peaceful possession of the thing;
b) Warranty against hidden defects or unknown encumbrances - The seller guarantees the thing
sold is free from any hidden faults or defects or any charge or encumbrance not declared or
known to the buyer. (Art. 1547)
c) Warranty of Fitness or Merchantability - The seller warrants that the seller guarantees that the
thing sold is reasonably fit for the known particular purpose for which it was acquired by the
buyer or, where it was bought by description, that it is of merchantable quality. (Art. 1565)

26
Note: the rule on warranty does not apply to a sheriff, auctioneer, mortgage, pledgee or other
person who sells by virtue of authority in fact or law. In other words, the persons enumerated are not
liable to a third person with a legal and equitable interest in the thing sold. (Art. 1547, par. 2)
82. Meaning of eviction:
It is a judicial process whereby the vendee is deprived of the whole or part of the thing purchased by
virtue of a final judgment based on a right prior to the sale or an act imputable to the vendor. (Art.
1548)
83. Requisites for Warranty of Eviction
a)
b)
c)
d)
e)

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

He is deprived by virtue of a final judgment (Art. 1557)
The judgment is based on a right prior to the sale or an act imputable to the vendor;
The vendor was summoned in the suit for eviction at the instance of the vendee (Art. 1558); and
There is no waiver on the part of the vendee. (Art. 1548)

84. Kinds of Waiver of Eviction

a) Consciente. - The waiver is voluntarily made by the vendee without the knowledge and
assumption of risks of eviction. The vendor shall only pay the value of which the thing sold had
at the time of eviction; and
b) Intencionada. - The vendee makes the waiver with knowledge of the risks of eviction and
assumption of its consequences. (Art. 1554) The vendor is not liable for eviction if he acted in
good faith. (Art. 1553)
85. Rights of the vendee in case of eviction occurs:
a) The return of the value which the thing sold had at the time of the eviction, be it greater or lesser
than the price of the sale;
b) The income or fruits if he has been ordered to deliver them to the party who won the suit against
him;
c) The costs of the suit which caused the eviction, and, in a proper case, those of the suit brought
against the vendor for the warranty;
d) The expenses of the contract, if the vendee has paid them; and
e) The damages and interests, and the ornamental expenses, if the sale was made in bad faith. (Art.
1555)
Note: In case of partial eviction, the vendee has the option either to enforce the vendor's liability for
eviction (Art. 1555) or to demand rescission of the contract. (Art. 1556)
In case the vendee is totally evicted from the thing sold, he cannot avail of the remedy
contemplates that the one demanding it is able to return whatever he has received under the contract.
86. Warranty against Redhibition - is the avoidance of a sale on account of some service or defect in the
thing sold, which renders its use impossible, or so inconvenient and imperfect that it must be supposed that
the buyer would not have purchased it has he known of the vice.
87. Requisites of Warranty Against Redhibitory Defects (Hidden, Physical defects):
a)
b)
c)
d)
e)
f)

The defect must be serious or important;

It must be hidden;
It must exist at the time of the sale;
The vendee must give notice of the defect to the vendor within a reasonable time (Art. 1586)
The action for rescission or reduction of the price must be brought within the proper period - 6
months from the delivery of the thing sold (Art. 1571) or within 40 days from the date of delivery in
case of animals (Art. 1577, par. 10 and;
There must be no waiver of warranty on the part of the vendee.

88. When is defect considered important:

a) If it renders the thing sold unfit for which it is intended;
b) If it diminishes its fitness for such use to such extent that the vendee would not have acquired it had
he had been aware thereof or would have given a lower price for it. (Art. 1561)
89. Defect is hidden when it was not known and could not have been known to the vendee.
Hence, there is no warranty if the defect is patent and visible.
90. Requites of Warranty against hidden encumbrances:
a) The encumbrance must be important (the vendee would not have purchased the property had he
been aware of its existence);
b) The encumbrance is not registered, unless expressly warranted free from burdens. Reason:
Registration constitute constructive notice;
c) The vendee had no knowledge of the encumbrance whether it is registered or not. Reason:
Otherwise, there is no warranty; and
d) The action for rescission or damages must be brought within the proper period (supra); in case of
immovable property encumbered with any non-apparent burden or easement-within one year from
the execution of the drrd of sale. (Art. 1560)
If the period of one year has elapsed, the vendee of an immovable may only bring an action for
damages also within one year from the discovery of the non-apparent burden or servitude.

27
91. Warranty of Mercantability is a warranty that goods are fit for general purpose for which they are
sold, while warranty of fitness is a warranty that the goods are suitable for the special purpose of the
buyer which will be satisfied by mere fitness for general purpose .
92. Is there warranty as to quality or fitness for any particular purpose?
None. Except if:
a) The buyer expressly or by implication, manifests to the seller the particular purpose for which the
goods are acquired;
b) The buyer relies upon the seller's skill or judgment.
93. If a person sells a secondhand motor vehicle, is he liable for damages in case there are
defects or it is unfit for the purpose intended? Is there any exception? Explain.
Generally, in the sale of a designated and specific article sold as second hand, there is no implied
warranty as to its quality or fitness for the purpose intended, at least where it is subject to inspection at
the time of the sale. On the other hand, there is also authority that in sale of articles, there may be,
under some circumstances, an implied warranty of fitness for the ordinary purpose of the article sold for
the particular purpose of the buyer.
There is no implied warranty as to the condition, adaption, fitness or suitability for the purpose for
which a thing was made, or the quality of an article sold as and for a second hand article. Unless goods
are sold to raise an implied warranty, there is generally no implied warranty on sale of secondhand
articles.
Exception is found in Article 1562, which provides that in a sale of goods, there is implied warranty
or condition as to quality or fitness of goods as follows: Where the buyer expressly or by implication,
makes known to the seller the particular purpose for which the goods are acquired, and it appears that
the buyer relies on the skill or judgment (whether he be the grower or manufacturer or not), there is an
implied warranty that the goods shall be reasonably fit for such purpose.
95. Republic Act 7394 otherwise known as the Consumers Act of the Philippines provides for
additional provisions or rules applicable to express and implied warranties.

ARTICLE 68. Additional Provisions on Warranties . In additional to the Civil Code provisions
on sale with warranties, the following provisions shall govern the sale of consumer
products with warranty:
a) Terms of express warranty . Any seller or manufacturer who gives an express warranty
shall:
1) set forth the terms of warranty in clear and readily understandable language and clearly
identify himself as warrantor;
2) identify the party to whom the warranty is extended;
3) state the products or parts covered;
4) state what the warrantor will do in the event of a defect, malfunction of failure to
conform to the written warranty and at whose expense;
5) state what the consumer must do to avail of the rights which accrue to the warranty;
and
6) stipulate the period within which, after notice of defect, malfunction or failure to
conform to the warranty, the warrantor will perform any obligation under the warranty.
b) Express warranty operative from moment of sale. All written warranties or
guarantees issued by a manufacturer, producer, or importer shall be operative from the
moment of sale.
1) Sales Report. All sales made by distributors of products covered by this Article shall be
reported to the manufacturer, producer, or importer of the product sold within thirty (30)
days from date of purchase, unless otherwise agreed upon. The report shall contain,
among others, the date of purchase, model of the product bought, its serial number, name
and address of the buyer. The report made in accordance with this provision shall be
equivalent to a warranty registration with the manufacturer, producer, or importer. Such
registration is sufficient to hold the manufacturer, producer, or importer, liable, in
appropriate cases, under its warranty.
2) Failure to make or send report. Failure of the distributor to make the report or send
them the form required by the manufacturer, producer, or importer shall relieve the latter
of its liability under the warranty: Provided however. That the distributor who failed to
comply with its obligation to send the sales report shall be personally liable under the
warranty. For this purpose, the manufacturer shall be obligated to make food the warranty
at the expense of the distributor.

3) Retail The retailer shall be subsidiarily liable under the warranty in case of failure of
both the manufacturer and distributor to honor the warranty. In such case, the retailer shall
shoulder the expenses and costs necessary to honor the warranty. Nothing therein shall
prevent the retailer from proceeding against the distributor or manufacturer.

28

4) Enforcement of warranty or guarantee. The warranty rights can be enforced by

presentment of a claim. To this end, the purchase needs only to present to the immediate
seller product to be services or returned to the immediate seller. No other documentary
requirement shall be demanded from the purchaser. If the immediate seller is the
manufactures factory or showroom, the warranty shall immediately be honored. If the
product was purchased from a distributor, the distributor shall likewise immediately honor
the warranty. In the case of a retailer other than the distributor, the former shall take
responsibility without cost to the buyer of presenting the warranty claim to the distributor
in the consumers behalf.
5) Record of purchases - Distributors and retailers covered by this Article shall keep a
record of all purchases covered by a warranty or guarantee for such period of time
corresponding to the lifetime of the products respective warranties or guarantees.
6) Contrary stipulations Null and void. All covenants, stipulations or agreements
contrary to the provisions of this Article shall be without legal effect.
c) Designation of warranties A written warranty shall clearly and conspicuously designate
such warranty as
1) "Full warranty" if the written warranty meets the minimum requirements set forth in
paragraph (d); or
2) "Limited warranty" if the written warranty does not meet such minimum requirements.
d) Minimum standards for warranties. - For warrantor of a consumer product to met the
minimum standards for warranty, he shall:
1) remedy such consumer product within a reasonable time and without charge in case of
a defect, malfunction or failure to conform to such written warranty;
2) permit the consumer to elect whether to ask for a refund or replacement without charge
of such product or part, as the case may be, where after reasonable number of attempts to
remedy the defect or malfunction, the product continues to have the defect or malfunction.
The warrantor will not be required to perform the above duties if he can show that the
defect, malfunction or failure to conform to a written warranty was caused by damage due
to unreasonable use thereof.
e) Duration of warranty. The seller and the consumer may stipulate the period within
which the express warranty shall be enforceable. If the implied warranty on
merchantability accompanies an express warranty, both will be of equal duration. Any
other implied warranty shall endure not less than sixty (60) days nor more than one (1)
year following the sale of new consumer products.
f) Breach of warranties. (1) In case of breach of express warranty, the consumer may
elect to have the goods repaired or its purchase price refunded by the warrantor. In case
the repair of the product in whole or in part is elected, the warranty work must be made to
conform to the express warranty within thirty (30) days by either the warrantor or his
representative. The thirty-day period, however, may be extended by conditions which are
beyond the control of the warrantor or his representative. In case the refund of the
purchase price is elected, the amount directly attributable to the use of the consumer prior
to the discovery of the non-conformity shall be deducted.
2) In case of breach of implied warranty, the consumer may retain in the goods and
recover damages, or reject the goods, cancel and contract and recover from the seller so
much of the purchase price as has been paid, including damages.
96. Principal obligations of the vendee:
a) To accept delivery; and
b) To pay the price of the thing sold
97. Time and place of payment:
1) At the time and place stipulated in the contract; and
2) If there is no stipulation as to the time and place of payment, at the time when and place where the
thing sold is delivered by the Vendor. (Art. 1582; Art. 1251)
Note: In a C.O.D. sale, in the absence of agreement or usage of trade permitting such examination. But the
buyer is still entitled to examine the goods after their delivery and payment of the price for the purpose of
ascertaining whether they are in conformity with the contract (Art. 1584)
98. Kinds of Acceptance of the buyer of the goods sold:

29
a) Express - when he intimates to the seller that he accepts them; or
b) Implied - (a) when the buyer, after delivery of goods, does any act inconsistent with the sellers
ownership, as when he sells or attempts to sell the goods, or he uses or makes alteration in them in
a manner proper only for an owner; or (b) when the buyer, after the lapse of a reasonable time,
retains the goods without intimating his rejection. (Art. 1585)
99. If the buyer refuses to accept the goods without just cause, the title to the goods
passes to him from the moment they are placed at his disposal. (Art. 1588)
100. When is the vendee obliged to pay interest for the price for the period between
delivery of the thing and payment of the price?
a) Should it have been so stipulated;
b) Should the thing sold and delivered produce fruits or income; and
c) Should he be in default, from the time of judicial or extra-judicial demand for the payment of the
price. (Art. 1589)
101. Suspension of payment of the price by the buyer may be effected in the following
cases:
a) If he is disturbed in the possession or ownership of the thing sold; or
b) If he has a well grounded fear that his possession or ownership would be disturbed by a vindicatory
action for or foreclosure of mortgage. (Art. 1590)
102. Cases wherein vendee cannot suspend payment even if there is disturbance in his
ownership or possession of the thing bought:
a) If the vendor gives security for the return of the price in a proper case;
b) If it has been stipulated that notwithstanding any such contingency the vendee must make payment;
c) If the vendor has caused the disturbance or danger to cease;
d) If the disturbance is a mere trespass.
Of course the vendee can no longer suspend payment in case he has fully paid the price.
103. Effect of a stipulation that upon failure to pay the price at the time agreed upon, the
rescission of the contract of sale shall takes place:
a) With respect to immovables: Before a demand of rescission has been made by the vendor, either
judicially or extra-judicially, the vendee may still pay the price even after the expiration of the
stipulated period of payment. After such demand, the court may not grant the vendee new term.
(Art. 1592)
b) With respect to movable property. The vendor can rescind the contract as a matter of right, if the
vendee without valid cause does not (1) accept delivery or (2) pay the price unless a credit period for
its payment has been stipulated. (Art. 1593) Reason: The price of personal properties are so
changeable that any delay in their disposal might cause the vendor great prejudice.
104. ACTIONS AVAILABLE FOR BREACH OF CONTRACT OF SALE OF GOODS
a) Action for payment of the price (Art. 1595);
b) Action for damages for non- acceptance of goods (Art. 1596);
c) Action for rescission of the contract (Art. 1597)
d) Action for specific performance (Art. 1598)

105. Action for payment of the price may be maintained by the vendor when:
a) When the ownership of the goods has passed to the buyer and he wrongfully neglects or refuses to
pay such price;
b) When the price is payable on a certain day and the buyer wrongfully neglects or refuses to pay such
price,, irrespective of delivery or of transfer of title; and
c) When the goods cannot readily be resold for a reasonable price and the buyer wrongfully refuses to
accept them even before the ownership in the goods has passed. (Art. 1595)
106. An action against the buyer for damages for non-acceptance may be maintained by the
vendor if in case the buyer wrongfully neglects or refuses to accept and pay for the goods (Art.
1596).
107. The vendor may rescind the sale of goods which have not yet delivered when:
a) When the buyer has repudiated the contract of sale;
b) When the buyer has manifested his inability to perform his obligations thereunder; and
c) When the buyer has committed a breach of the contract of sale (Art. 1597)
108. Vendee can maintain an action against the vendor for specific performance in case
the vendor fails to comply with his contract to deliver specific or ascertained goods,
the seller cannot retain the goods on payment of damages. ( Art. 1598) Reason:
Damages are imposed by law to insure fulfillment of the contract and to substitute for it. (Art.
1911)
109. Remedies available to the buyer when the seller has been guilty of a breach
of promise or warranty:
a) Recoupment. - accept goods and set up the seller's breach to reduce or extinguish the price;
b) Action for damages. - accept the goods and maintain an action for damages of the warranty;

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c)

Counterclaim for damages. - refuse to accept the goods and maintain an action for damages
for the breach of the warranty;
d) Rescission - rescind the contract of sale by returning or offering the return of the goods and
recover the price. (Art. 1599)
Note: The above remedies are alternative. The only exception is when after
The payee has chosen fulfillment, it should become impossible, in which case he may also sue for
rescission.
110. EXTINGUISMENT OF CONTRACT OF SALE
Causes:
a) Common - those causes, which are also means of extinguishing all other contracts like payment,
loss of the thing, condonation, etc. (Art. 1231);
b) Special - those causes which are recognized by law on sales (such those covered by Arts. 1484,
1532, 1539, 1540, 1542, 1556, 1560, 1567 and 1591);
c) Extra-special - those causes, which are given special discussion by the Civil Code and these, are
conventional redemption and legal redemption.
111. Define Conventional Redemption:
It is the right, which the vendor reserves to himself, to reacquire the property sold provided he (1)
reimburses the vendee of (a) the price, (b) the expenses of the contract, (c) any other legitimate
payments made thereof and (d) the necessary and useful expenses made on the thing sold (art.
1616); and (2) fulfills other stipulations which may have been agreed upon. (Art. 1601)

Nature of Conventional Redemption

1. contractual
2. accidental stipulation
3. real right, when it is registered as it binds third persons
4. potestative, it depends on the will of the vendor
5. resolutory condition, when the right is exercised, the right of ownership by the vendee is
extinguished;
6. Reserved at he moment of the perfection of the contract for if it is agreed afterwards, there is
only a promise to sell which produces different rights and effects.
112. Instances where pacto de retro or sale with right to repurchase are considered as
equitable mortgage:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the
period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay taxes on the thing sold; and
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation. (Art.
1602)
113. Meaning of Equitable Mortgage.
An equitable mortgage is one, which although it lacks the proper formalities of a mortgage, shows
the intention of the parties to make the property as security for a debt.
114. Period to exercise the right to repurchase in conventional redemption may be exercised:
a) If there is no agreement granting the vendor the right to redeem, there is no right of redemption
since the sale is considered as an absolute sale.
b) If the parties agreed only on the right to redeem on the part of the vendor but there is a total
absence of express stipulation as to the time within which the repurchase should be made, then
the period of redemption shall be four (4) years from the date of contract;
c) If the parties agree on a definite period of redemption, then the right to redeem must be
exercised within the period fixed provided it does not exceed 10 years;
d) If the parties agree that the vendor shall have the right to redeem and they intend a period
which, however is not specified (e.g. at any time the vendor has the money) then the redemption
period is 10 years.
e) From the time final judgment was rendered in a civil action on the basis that the contract was a
true sale with the right to repurchase the vendor a retro has 30 days within which to exercise the
right to repurchase. (Art. 1606)
115. Period of Redemption cannot be extended after its expiration because what is to be
extended has already extinguished. Before its expiration, it can be extended provided the
extension including the original term shall not extend beyond 10 years; otherwise the extension
is void as to the excess.
116. The vendor in the exercise of the right to repurchase has to return the
following:
a) The price of the sale;
b) The expenses of the contract, any other legitimate payments made by reason of the sale; and
c) The necessary and useful expenses made on the thing sold, (Art. 1616)
117. Effect of the failure of the vendor to redeem:

31
In personal property. - The vendee's title becomes irrevocable;
In case of real property - The consolidation of ownership in the vendee by virtue of the failure of the
vendor to comply with the provisions of Article 1616 shall not be recorded in the Registry of Property
without a judicial order, after the vendor has been duly heard. (Art. 1607). Reason: The transaction
may not be a genuine pacto de retro but only an equitable mortgage.
Art. 1607. In case of real property, the consolidation of ownership in the vendee by virtue of the failure of the
vendor to comply with the provisions of article 1616 shall not be recorded in the Registry of Property without
a judicial order, after the vendor has been duly heard.
Art. 1608. The vendor may bring his action against every possessor whose right is derived from the vendee,
even if in the second contract no mention should have been made of the right to repurchase, without
prejudice to the provisions of the Mortgage Law and the Land Registration Law with respect to third persons.
Art. 1609. The vendee is subrogated to the vendor's rights and actions.
Art. 1610. The creditors of the vendor cannot make use of the right of redemption against the vendee, until
after they have exhausted the property of the vendor.
Art. 1611. In a sale with a right to repurchase, the vendee of a part of an undivided immovable who acquires
the whole thereof in the case of article 498, may compel the vendor to redeem the whole property, if the
latter wishes to make use of the right of redemption.
Art. 1612. If several persons, jointly and in the same contract, should sell an undivided immovable with a
right of repurchase, none of them may exercise this right for more than his respective share.
The same rule shall apply if the person who sold an immovable alone has left several heirs, in which
case each of the latter may only redeem the part which he may have acquired.
Art. 1613. In the case of the preceding article, the vendee may demand of all the vendors or co-heirs that
they come to an agreement upon the purchase of the whole thing sold; and should they fail to do so, the
vendee cannot be compelled to consent to a partial redemption.
Art. 1614. Each one of the co-owners of an undivided immovable who may have sold his share separately,
may independently exercise the right of repurchase as regards his own share, and the vendee cannot compel
him to redeem the whole property.
Art. 1615. If the vendee should leave several heirs, the action for redemption cannot be brought against each
of them except for his own share, whether the thing be undivided, or it has been partitioned among them.
But if the inheritance has been divided, and the thing sold has been awarded to one of the heirs, the
action for redemption may be instituted against him for the whole.
Art. 1616. The vendor cannot avail himself of the right of repurchase without returning to the vendee the
price of the sale, and in addition:
(1) The expenses of the contract, and any other legitimate payments made by reason of the sale;
(2) The necessary and useful expenses made on the thing sold. (1518)
Art. 1617. If at the time of the execution of the sale there should be on the land, visible or growing fruits,
there shall be no reimbursement for or prorating of those existing at the time of redemption, if no indemnity
was paid by the purchaser when the sale was executed.
Should there have been no fruits at the time of the sale and some exist at the time of redemption, they shall
be prorated between the redemptioner and the vendee, giving the latter the part corresponding to the time
he possessed the land in the last year, counted from the anniversary of the date of the sale.
Art. 1618. The vendor who recovers the thing sold shall receive it free from all charges or mortgages
constituted by the vendee, but he shall respect the leases which the latter may have executed in good faith,
and in accordance with the custom of the place where the land is situated.
118. Legal Redemption - is the right to be subrogated, upon the same terms and conditions stipulated in
the contract, in the place of one who acquires a thing by purchase or dation in payment or by any other
transaction whereby ownership is transmitted by onerous title. (Art. 1619)
119. Instances of Legal Redemption:
a) Redemption by a co-heir of the share by the other heir, (Art. 1088).;
b) Redemption by a co-owner, (Art. 1620);
c) Redemption by an adjoining owner of a piece of rural land (Art. 1621) and or urban land (Art.
1622);
d) Redemption by a debtor in case of sale of right in litigation. (Art. 1634); and
e) Under special laws (among others)

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f) Redemption by owner of real property sold for delinquent taxes. The period is one year;
g) Repurchase by homesteader of homestead sold under the Public Land Act. The period is 5
years.
h) Redemption by judgment debtor or redemptioner of property sold on execution. The period
is 12 months;
i) Redemption by mortgagor after mortgaged property has been judicially foreclosed and sold.
The period is 90 days. If foreclosure is extra-judicial, the period is one year from the time of
the registration of the sale.
PROVISIONS GOVERNING LEGAL REDEMPTION
Art. 1619. Legal redemption is the right to be subrogated, upon the same terms and conditions
stipulated in the contract, in the place of one who acquires a thing by purchase or dation in
payment, or by any other transaction whereby ownership is transmitted by onerous title. (1521a)
Art. 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all the
other co-owners or of any of them, are sold to a third person. If the price of the alienation is
grossly excessive, the redemptioner shall pay only a reasonable one.
Should two or more co-owners desire to exercise the right of redemption, they may only do
so in proportion to the share they may respectively have in the thing owned in common.
Art. 1621. The owners of adjoining lands shall also have the right of redemption when a piece of
rural land, the area of which does not exceed one hectare, is alienated, unless the grantee does
not own any rural land.
This right is not applicable to adjacent lands which are separated by brooks, drains, ravines,
roads and other apparent servitudes for the benefit of other estates.
If two or more adjoining owners desire to exercise the right of redemption at the same time,
the owner of the adjoining land of smaller area shall be preferred; and should both lands have the
same area, the one who first requested the redemption.
Art. 1622. 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 about to be re-sold, the owner of any adjoining land has a right of preemption at a reasonable price.
If the re-sale has been perfected, the owner of the adjoining land shall have a right of
redemption, also at a reasonable price.
When two or more owners of adjoining lands wish to exercise the right of pre-emption or
redemption, the owner whose intended use of the land in question appears best justified shall be
preferred.
Art. 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty
days from the notice in writing by the prospective vendor, or by the vendor, as the case may be.
The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an
affidavit of the vendor that he has given written notice thereof to all possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners.
ASSIGNMENT OF CREDIT
120. Assignment of credit is a contract by which one person transfer to another his rights and actions
against a third person in consideration of a price certain in money or its equivalent, (Art. 1458).
121. Its nature is a really a contract of sale - a sale of credit and is therefore, governed by the law on
sale. There is however, one important difference and that is, after the transfer, a definite third person is
obliged; whereas, in sale, the subject is the whole world which must respect the title of the buyer.
122. Effects of valid assignment are as follows:
a) Assignment transfers title to the assigned credit to the assignee;
b) It includes all accessory rights, such as guaranty, mortgage, pledge or preference (Art. 1627);
c) The assignee takes the credit subject to defenses, which may have been acquired by the debtor
before notice of the assignment.
123 . Formalities required:
As between the parties - The assignment is valid although it appears in a private document so long as
the law does not require a specific form for its validity.
As against third person - To affect them, the assignment must appear in a public instrument, and in case
it involves real property, that it be recorded in the Registry of Property. (Art. 1625)
124. Assignment of credits includes all accessory rights such as guaranty, mortgage, pledge or
Preference (Art. 1627)

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125: The assignor in good faith shall warrant the existence and legality of the credit at the time of
sale but not for the SOLVENCY of the debtor unless it is expressly stipulated or unless the insolvency
was prior to the sale and of common knowledge. (Art. 1628) If the assignor in good faith is assumes
responsible for warranty of the solvency of the debtor, in the absence of any agreement to the
contrary, this warranty shall last for one year only if at the time of the assignment the period has
already expired. If the period has not expired, however, the one year shall last for only one year from
maturity. (Art. 1629)
126. Art. 1630. One who sells an inheritance without enumerating the things, of which it is composed, shall
only be answerable for his character as an heir.
127. Art. 1631. One who sells for a lump sum the whole of certain rights, rents, or products, shall comply by
answering for the legitimacy of the whole in general; but he shall not be obliged to warrant each of the
various parts of which it may be composed, except in the case of eviction from the whole or the part of
greater value.
128. Art. 1632. Should the vendor have profited by some of the fruits or received anything from the
inheritance sold, he shall pay the vendee thereof, if the contrary has not been stipulated.
129. Art. 1633. The vendee shall, on his part, reimburse the vendor for all that the latter may have paid for
the debts of and charges on the estate and satisfy the credits he may have against the same, unless there is
an agreement to the contrary.
130. Art. 1634. When a credit or other incorporeal right in litigation is sold, the debtor shall have a right to
extinguish it by reimbursing the assignee for the price the latter paid therefor, the judicial costs incurred by
him, and the interest on the price from the day on which the same was paid.
A credit or other incorporeal right shall be considered in litigation from the time the complaint concerning the
same is answered.
The debtor may exercise his right within thirty days from the date the assignee demands payment from him.
131. Art. 1635. From the provisions of the preceding article shall be excepted the assignments or sales made:
(1) To a co-heir or co-owner of the right assigned;
(2) To a creditor in payment of his credit;
(3) To the possessor of a tenement or piece of land which is subject to the right in litigation assigned.

BULK SALES LAW

WHEN IS A SALE CONSIDERED A SALE IN BULK?
a. when a sale, transfer or disposition is other than in the ordinary course;
b. the sale is of all or substantially all of the business;
c. when the sale is of all or substantially all of the fixtures and equipment.

PURPOSE
To prevent the defrauding of creditors by the secret sale or disposal in bulk of all or substantially all of a
merchants stock of goods.

EXCEPTIONS:
a.
b.
c.
d.

sale is made in the ordinary course of business;

there is a waiver from all the creditors and must be written;
sale is by virtue of a judicial order;
those sold by assignee or those beyond the right of creditors.

FORMALITIES REQUIRED BY LAW

a. the sale in bulk to be accompanied by sworn statement of the vendor/mortgagor listing the names and
addresses of, and amounts owing to, creditors (to be furnished to the buyer);
b. the seller to prepare an inventory of stock to be sold and notify the creditors of projected sale at least n10
days before such sale (Sec. 3-4).
EFFECTS OF SALE IN VIOLATION OF BSL

VALID between the parties, VOID as to affected creditors.

a. sale in bulk is void;
b. purchaser holds property in trust for seller (whether in good faith or bad faith);

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c.

purchaser is liable to sellers creditors for properties forming part of bulk and already disposed by him.

DISTINCTION BETWEEN FRAUDULENT CONVEYANCE UNDER THE BULK SALES LAW FROM THE
TRANSFER IN FRAUD OF CREDIORS UNDER THE CIVIL CODE
A conveyance or transfer fraudulently made in violation of the Bulk Sales Law is null and void while a
conveyance or transfer in fraud of creditors under Article 1381-1389 of the New Civil Code is rescissible and is
valid until set aside by a competent court.
Filename: Important Tips on the Law on Sales/Business Law/jgbdf 2015