INTRODUCTION

A. Definition of Sale
Sale – a contract where by one obligates himself to transfer ownership of and to deliver a
determinate thing, and the other to pay a price certain in money or its equivalent.
(Art.1458)

The seller need not be the owner of the thing sold at the time the sale is perfected. However, it
is a must that he is the owner at the time the thing sold is delivered.

B. Elements of the Contract of Sale

1. Essential – without which there can be no valid sale
2. Consent – consent to transfer ownership in exchange for the price
3. Determinate subject matter
4. Price certain money or its equivalent – the cause of consideration

2. Natural – inherent in the contract; even in their absence they are deemed to exist
 warranty against eviction (deprivation of the property bought)
 warranty against hidden defects

 Accidental – may be present or absent in the stipulation

Ex. Place or time of payment

C. Stages in the Contract of Sale

1. Generation/negotiation
2. Perfection – meeting of the minds (Art. 1475); when the auctioneer announces its
perfection by the fall of the hammer in case of sale by auction (Art. 1476)
3. Consummation – when the objects is delivered & the price is paid

D. Obligations created
 The buyer may compel the seller to deliver the thing bought (determinate thing), or the
obligation be complied with at the expense of the seller (indeterminate or generic) – Art.
1165
 Liable for damages in case fraud, negligence, or delay, and those who in any manner
contravene the tenor (Art 1170)

E. Characteristics of a Contract of Sale

1. Consensual – perfected by mere consent
2. Bilateral reciprocal – both parties are bound by obligations dependent upon each other
3. Onerous – to acquire rights, valuable consideration must be given
4. Commutative – values exchanged are almost equivalent to each other
5. Principal – for sale to exist, no necessity to depend upon the existence of another
contract
6. Nominate – refers to it by special designation – “contract of sale”

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F. Sale of Title and Not Mode

G. Sale distinguished from other contracts

H. Contract of Sale/Contract to Sell

PARTIES TO A CONTRACT OF SALE

A. Capacity of parties – Arts. 1489-1492

o In order to be capacitated to enter into a contract of sale, one must be 18 years old
o When minors buy, the contract is generally voidable, exception: object is necessaries

B. Absolute incapacity – Arts. 1327, 1397, 1399

C. Relative incapacity: Married Persons

Generally a sale of one spouse to another is void
Exceptions:
- When separation of property was agreed upon
- There has been a judicial separation of property

D. Special disqualifications – Arts. 1491-1492

1. Guardian – as to the property of person under his guardianship
2. Agents – as to the property under his administration/entrusted to him
3. Executors/administrators – property of the estate under administration
4. Public officers/employees – as to property of the state or any of its subdivision
5. Officers/employees of the court – as to property/rights in litigation under its
jurisdiction
6. Others – specially disqualified by law.

Applies to sales, legal redemption, compromises and renunciations.

SUBJECT MATTER

A. Requisites of a valid subject matter – Arts. 1459-1465

 Must be licit (lawful, w/in the commerce of man) – Art. 1459
 Rights can also be sold (ex. Usufructuary right)
 Must be determinate (not required to be specific at the time of perfection of the contract) –
Art 1460

B. Particular kinds
 Things subject to resolutory condition may be the object of sale. (Art. 1465)

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  It can be things with a potential existence (Art. 1461)
o Emptio Rai Sperati – sale of an expected thing
o Emptio Spei – sale of the hope itself
o Sale of vain hope or expectancy – NO CHANCE; VOID; NOT ALEATORY (there is
an element of chance); ex. Sale of a losing sweepstake ticket
 May be future or existing (Art 1462)
o Future – to be manufactured (piano), raised (young of animals), acquired after
perfection of the contract (land), things whose acquisition depends upon
contingency which may or may not happen (car to be given if I pass the bar)

OBLIGATIONS OF THE SELLER TO TRANSFER OWNERSHIP

A. Sale by a person not the owner at time of delivery – Arts. 1462, 1505, 1459
 Seller must have the right transfer ownership at the time the object is delivered – Art. 1459
o nemo dat quad non habet (nobody can dispose of that which does not belong to him)
 Future goods can be the object of sale. (Art. 1462)
o to be manufactured (piano), raised (young of animals), acquired after perfection of the
contract (land), things whose acquisition depends upon contingency which may or may
not happen (car to be given if I pass the bar)
 The buyer acquires no better title to the goods than the seller who is not the owner or does not
have the authority to sell (Art. 1505)

Exceptions: (Art. 1505)

1. When the owner by his conduct precluded from denying the seller’s authority
2. Purchase made in merchant’s store/fairs
3. Sale under statutory power of sale by order of a court of competent jurisdiction –
public auction
4. Ownership has been duly recorded in accordance with law – Sale of large cattle, land
registration, sale of vessels

B. Sale by a person having a voidable title – Arts. 1506, 559

 A voidable contract is valid until voided.
 A buyer in good faith & for value acquires a good title to the goods bought
 The possession of movable property acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has been unlawfully deprived thereof
may recover it from the person in possession of the same. (Art. 559)

PRICE

A. Meaning of price – Arts. 1469-1474

 It must be certain – shall be sufficient (it can be referred to another thing
certain/judgment of specified person) – Art. 1469

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B. Requisites for a valid price
 The price must not be fictitious and not simulated else sale is VOID (Art. 1471)
 Price cannot be left to the discretion of one of the contracting parties (Art. 1473)
Exception: if the other party agreed/accepted, the sale is perfected.

C. How price is determined

If no specific amount has been agreed upon, the price is still considered certain:
 If it can be reference to another thing certain (Art. 1469)
 If the price is left to the judgment of specified persons (Art. 1469)
 Court may fixed the price if third persons acted in bad faith (Art. 1469)
 In case of securities, grain, liquids & other things, that there be an amount certain in
the exchange/market on a definite day (Art. 1472)

D. Inadequacy of price – Arts. 1355, 1470

 Gross inadequacy of the price does not affect the contract of sale, it remains valid even
if the price is very low (Art. 1470)
 lesion or inadequacy of cause shall not invalidate a contract, unless there has been
fraud, mistake or undue influence (Art. 1355)

E. When no price agreed – Art. 1474

 If the price cannot be determined, the sale is VOID.
 If the thing or any part of it has been delivered & appropriated by the buyer, he must
pay a reasonable amount

F. Manner of payment must be agreed upon

G. Earnest money vs. option money – art. 1482

 Earnest money is part of the price and a proof of the perfection of the contract (Art.
1482)
 In Oesmer, et al. v. Paraiso Dev. Corp., G. R. No. 157493, February 5, 2007, the SC had the
occasion to distinguish earnest money from option money. It said that earnest money
and option money are not the same but distinguished thus:
Earnest Money Option Money
part of the purchase price the money given as a distinct
consideration for an option contract
given only where there is already a applies to a sale not yet perfected
sale
when earnest money is given, the while when the would-be buyer gives
buyer is bound to pay the balance option money, he is not required to buy,
but may even forfeit it depending on the
terms of the option
FORMATION OF CONTRACT OF SALE

A. Preparatory – Art. 1479

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 1. Offer – Art. 1475
The offer must be certain and the acceptance absolute. A qualified acceptance
constitutes a counter-offer. (Art. 1319)

Acceptance made by letter or telegram does not bind the offerer except from the time
it came to his knowledge. The contract, in such a case, is presumed to have been
entered into in the place where the offer was made. (1262a)

2. Option Contract – Arts. 1479, 1324

If the promise to buy or sell is supported by a consideration distinct from the price –
option contract (Art 1479, 2nd par)

3. Right of First Refusal

The right of a person or company to purchase something before the offering is made
available to others.

4. Mutual Promise to Buy and Sell – Art. 1479

Mutual Promise - a promise to buy and sell; bilateral reciprocal contract (1st par)
Accepted Unilateral Promise – only one makes the promise, the other accepts it (2 nd
par)

B. Perfection – Arts. 1475, 1319, 1325, 1326

 Perfected by consent/meeting of the minds (Art. 1475)
o Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. (Art. 1319)
o Acceptance made by letter or telegram does not bind the offerer except from
the time it came to his knowledge. The contract, in such a case, is presumed
to have been entered into in the place where the offer was made. (Art. 1319)
 When the auctioneer announces its perfection by the fall of the hammer in case of
sale by auction (Art. 1476)


C. Formalities of the Contract – Art. 1403 (d) (e)

In WRITING, for agreements for the sale of goods, chattels or things in action, at a price
not less than five hundred pesos

TRANSFER OF OWNERSHIP

A. Manner of Transfer – Arts. 1477, 1496-1501

 Delivery transfers ownership – either actual or constructive (Art. 1477)
 Actual – the thing sold is placed under the control & possession of the buyer (Art.
1497)
 Legal or constructive

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B. When delivery does not transfer title
Generally, ownership is transferred upon delivery of the thing
Exception: stipulation that ownership shall not pass until full payment of the price (Art.
1478)

C. Kinds of delivery
1. Tradition Longa Manu (delivery by mere consent/agreement) – Art 1499
2. Tradition brevi manu (possession of the object before sale) – Art 1499
3. Tradition constitutum possessorium (possession as owner changed) – Art 1500
4. Legal formalities – sale through a public instrument = delivery of the thing (Art.
1498 1st par & 1501)
5. Tradition Simbolica – delivery of the key of the place where the movable sold is being
kept (Art 1498 2nd par)
6. Quasi-tradition – placing title of ownership in the possession of the buyer (Art. 1501)

D. Double Sales – Art. 1544

Double Sale – a thing is sold to two or more persons
Rule:
a. For personal property – possessor in good faith
b. For real property:
1. Registrant in good faith – registration is the operative act that gives validity
to transfer or creates a lien on the land
2. Possession in good faith
3. Person with the oldest title in good faith

E. Property Registration Decree

1. Requisites for registration of deed of sale in good faith
2. Accompanied by vendors duplicate certificate of title, payment of capital gains tax, and
documentary tax registration fees

RISK OF LOSS

A. General rule – Arts. 1263, 1189

Loss - when it perishes, or goes out of commerce, or disappears in such a way that its
existence is unknown or it cannot be recovered
 if the thing is lost without the fault of the debtor, the obligation shall be
extinguished (Art 1189 [1])
 If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages (Art 1189 [2])
 The loss or destruction of a generic thing does not extinguish the obligation. (Art
1263)

B. When loss occurred before perfection

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C. When loss occurred at time of perfection – Arts. 1493 and 1494
 When loss occurred at time of perfection – contract is without any effect (Art 1493)
 In case of partial loss – withdrawal or fulfilment of the contract as to the remaining
part
 Loss of specific goods – cancellation (avoidance) or specific performance as to the
remainder of the remaining goods (if sale is divisible) (Art 1494)

D. When loss occurred after perfection but before delivery

 The risk of loss remains with the seller until ownership is transferred. (Art 1504)

E. When ownership is transferred – Art. 1504

 When ownership has been transferred to the buyer, buyer bears the risk whether actual
delivery has been made or not.

DOCUMENTS OF TITLE

A. Definition – Art. 1636

Document of Title – any bill of lading, dock warrant, “quedan”, or warehouse receipt or
order for the delivery of goods as proof of the possession or control of the goods
authorizing or purporting to authorize the possessor of the document to transfer or receive
the goods in such document by indorsement or delivery

B. Purpose of documents of title

To authorize or purporting to authorize the possessor of the document to transfer or
receive the goods by indorsement or delivery

C. Negotiable documents of title

A document stating that the goods referred therein will be delivered to the bearer or to the
order of the person named in such document (Art 1507)

Documents of title may be negotiated by:

 Mere delivery (deliverable to bearer)
 Indorsement + delivery

D. Non-negotiable documents of title

E. Warranties of seller of documents of title – Art. 1516

F. Rules on levy/garnishment of goods – Arts. 1514, 1519, 1520

REMEDIES OF AN UNPAID SELLER

A. Definition of unpaid seller – Art. 1525

 The whole of the price has not been paid or tendered

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  Dishonor of a negotiable instrument/bill of exchange

B. Remedies of unpaid seller (Art. 1526)

 Possessory lien (in the nature of a pledge) – seller is the preferred creditor as to the
thing sold
o Goods sold without any stipulation
o Goods sold on credit, but term of credit has expired
o The buyer becomes insolvent

 Right of stoppage in transit (Art 1530)

o If the seller has parted with the possession of the goods AND the buyer
becomes insolvent (need not be judicially declared)
o Exercised by any person unpaid vendor/seller
o What goods are in transit/not – Art 1531
o Buyer unjustifiably refuses to receive goods – still in transit
o How right is exercised? – actual possession, giving notice of claim (in
possession/principal) – Art 1532

 Right of resale
o This right exists on perishable goods, express stipulation & unreasonable
default

 Right to rescind the sale

o An unpaid seller who has stopped the goods in transit has the right to rescind
sale and resume ownership in the goods
o This applies in cases where there has been
 Express stipulation/reservation
 Unreasonable default
o Notice must be given to the buyer (essential) before rescission
o Replevin suit – implied rescission of the sale

PERFORMANCE OF CONTRACT

A. Delivery of thing sold

1. Sale of Movables – Arts. 1522, 1537, 1480
Art 1522
 When the quantity of the goods sold is LESS than that agreed upon
o Buyer may REJECT
o OR buyer may accept what has been delivered at the contract rate
 When the quantity of the goods sold is MORE than that agreement
o Buyer my reject ALL
o Buyer may accept the goods agreed upon and reject the excess
o If he gets all, he must pay for them at the contract rate.

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  When buyer exercise ownership over the goods – implied acceptance
 When the goods is MIXED with goods of different description
o Accept the goods that are in accordance with the contract
o AND reject the rest

Art 1537
 Seller is bound to deliver the thing sold – including its accessions (fruits) &
accessories
 Fruits – to the buyer from the day the contract was perfected.
 It is the duty of the seller to PRESERVE the goods sold

Art 1480 – RISK OF LOSS

 Object is lost before the perfection of the contract – seller bears the risk
 After delivery of the object to the buyer – buyer bears the loss
 Object is lost after perfection but before delivery – buyer bears the lost (since the
buyer gets the benefits during the intervening period, he must also shoulder the
loss)– EXCEPTION to res perit domino

2. Sale of Immovables – Arts. 1539-1543

Sale of Real Estate by Unit
- If the property cannot be delivered as stated in the contract, the buyer may opt to:
 Reduce the price in proportion to the actual size of the property,
 OR rescission of the contract (provided that the lacking size be not 1/10 of the
area stated)
Applicable not only to size/area but may refer also to quality (inferior)
Art 1543 action for rescission prescribes in 6 months from date of delivery
 If greater in area/size, buyer may accept only that stated in the contract. If buyer
accepts all, he must pay at the contract rate for the entire area accepted.

Sale by Lump Sum (a cuerpo cierto) – Art 1542

 No decrease/increase of the price although there be greater or less area or
number than that stated in the contract.
 What is important is the delivery of all the land included in the boundaries:
o If this is done, area is immaterial
o If this is not done, reduction in price or rescission is the remedy

3. Inspections and Acceptance

Presumption: buyer ascertained the area & quality of the real estate before the contract was
perfected. (Teron v. Villanueva Viuda de Riosa, 56 Phil. 667)

B. Payment of price

WARRANTIES

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A. Express warranties
 Any affirmation or promise by the seller to induce the buyer to buy the thing sold
 If made by the seller as his opinion – not considered a warranty EXCEPT if made as
an expert & it was relied upon by the buyer – Art 1546
 Dealer’s talk – little exaggeration is allowed
 Simplex commendation non obligat or caveat emptor

B. Implied warranties – Art. 1547

 Warranty against eviction - on the part of the seller, that he has a right to sell the
thing at the time ownership is to pass
o Natural element of the contract of sale even in the absence of stipulation
o Waivable and maybe renounced by the buyer
 Warranty against hidden defects
 Actions based on implied warranties prescribe in 10 years

C. Effects of warranties
 The seller shall answer for the eviction. – Art 1548
 Buyer need not appeal from decision so that the seller becomes liable for eviction. –
Art 1549
 Seller is liable for non-payment of taxes not known to the buyer. – Art 1551
 Judgment debtor is responsible for eviction in judicial sales – Art 1552
 Any stipulation exempting the seller from eviction is VOID if acted in bad faith. –
Art 1553
 In case of eviction, buyer has the right to demand from the seller to return/give the
following: Art 1555
o Value of the thing sold
o Income or fruits
o Cost of the suit
o Expenses of the contract if buyer has paid them
o Damages & interests
 In case of partial eviction: rescission or enforcement of warranty – Art 1556
 Warranty cannot be enforced until final judgment where the buyer loses the thing
acquired. – Art 1557
 It is necessary to summon the seller in the suit for the eviction of the buyer. – Art
1558
D. Effects of waivers
 Seller to pay only the value which the thing sold in case of eviction where the buyer
renounced his right to warranty against eviction. – Art. 1554
 Seller is not liable when the buyer waived the warranty against eviction with full
knowledge of its risk & assumed consequences. – Art 1554

E. Buyer’s options in case of breach of warranty – Art. 1599

 Accept or keep the goods AND set up against the seller the breach of warranty

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  Accept or keep the goods AND maintain an action for damages for breach of
warranty against the seller
 Refuse to accept the goods AND maintain an action for damages for breach of
warranty against the seller
 Rescind the contract of sale AND refuse to receive the goods (if received, return
them and recover the price which have been paid)
Note: These options are exclusive, when a remedy has been granted in any one of these, no other
remedy can thereafter be granted.
Rescission is possible even fulfilment was chosen if the latter becomes impossible.(Art
1191 2nd par). Rescission requires NOTICE.

BREACH OF CONTRACT

A. Remedies of the Seller – Arts. 1636, 1594

Sale of Movables
Rule if buyer refuses to pay (Art 1595)
 Seller may maintain an action for the price (specific performance) – ownership of
the goods sold has passed to the buyer
 Seller may maintain an action for the price (specific performance) – ownership has
not yet passed to the buyer but the price is payable on a certain day
 Holds the goods as a bailee for the buyer & bring an action for the price

Rule if buyer refuses to accept and pay (Art 1596)

 Seller may bring an action for damages for non-acceptance (damage is estimated
loss directly & naturally resulting in the course of events due to the breach)

Rule of buyer repudiates or manifested his inability to perform his obligations or

committed breach (Art 1597)
 Rescission if goods has not yet been delivered
 Rescission requires NOTICE to the buyer of such option

Sale of Immovables
Remedy: Rescission IF there is a reasonable ground to fear LOSS of the property & the
price (Art 1591)

B. Recto Law: Sale of Movables on Installment – Arts. 1484-1486

Sale of Movables/Personal Property
Remedy of the Seller:
 Specific performance should the buyer fail to pay
 Rescission/cancel the sale if buyer fails to pay two or more instalments
 Foreclose the chattel mortgage if constituted if buyer fails to pay two or more
installments

Lease of Personal Property with option to buy = sale of personal property on installments (Art

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 1485)

General Rule in case of rescission: mutual restitution (Art 1486)

Exception: by express stipulation and such is not unconscionable

Sale of Immovables
PD 957, sec. 23, 24
Maceda Law (RA 6552): Sale of Immovables on Installment
Remedy of the Seller
 Rescission/Cancellation of contract if buyer fails to pay within the grace period
o Grace Periods:
 60 days if installments made is less than two years
 One month for every year of installments made
o Cancellation shall take effect after30 days from notice to the buyer and payment of
the CSV; it must be made in a public instrument

C. Remedies of the Buyer

1. Sale of Movable
Rule when seller has broken a contract to deliver specific/ascertained goods (Art
1598)
 Specific performance with no right of retention on the part of the seller
o this requires a court order on application of the buyer

2. Sale of Immovables (Maceda Law – RA 6552)

Rights of the buyer in case he defaults in the payment of succeeding installments:
 To pay without additional interest within a grace period earned and before
cancellation of the contract
o Grace Periods:
 60 days if installments made is less than two years
 One month for every year of installments made
 If contract is cancelled, seller shall refund the cash surrender value of the
payments made
o CASH SURRENDER VALUE= 50% of the total payments made &
additional 5% every year but not to exceed 90% of the total payments
made
o Cancellation shall take effect after30 days from notice to the buyer and
payment of the CSV; it must be made in a public instrument
 Sell his rights or assign the same to another person
 Pay in advance any installment or the full unpaid balance of the purchase price
any time without interest

EXTINGUISHMENT OF SALE

A. Causes – Arts. 1600, 1231 - Same as those which extinguishes all other obligations

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  Novation – substitution or change of an obligation by another
 Compensation – those who are debtors & creditors of each other
 Merger or confusion – merger of the characters of the debtor & creditor in one &
the same person
 Remission or condonation – renunciation of the enforcement of the obligation, an
act of liberality
 Payment or performance – delivery of money or performance of an obligation
 Loss of the thing due – lost or destroyed w/o fault of the debtor before he incurs
delay

B. Conventional redemption – Art. 1601 (Right of redemption)

 Seller reserves the right to repurchase the thing sold (pacto de retro sale)
 It requires express stipulation in the contract of sale
 In a pacto de retro sale, the inadequacy of the price cannot be considered a ground
for rescinding the contract

C. Equitable mortgage – Arts. 1602-1604 - Property is used as a security for the payment of
the price (sale a retro)
1. Price is inadequate
2. Seller remains in possession as lessee
3. Extension of the period of redemption or granting a new period is executed in
another instrument
4. Buyer retains for himself a part of the purchase price
5. Seller binds himself to pay the taxes on the thing sold
6. Real intention of the parties to the contract is that the transaction shall secure the
payment of a debt or the performance of an obligation

In case of doubt and those which purports to be an absolute sale, such contract is presumed to be
an equitable mortgage (Art 1603 & 1604)

D. Distinguish from option to buy – Art. 1602

In an option to buy, contract of sale is not yet perfected while Art 1602 purports a situation
where the contract is consummated but divests of the real intention of the parties

E. Period of redemption – Art. 1606

 In the absence of express agreement => 4 years from date of contract
 Cannot exceed 10 years if an agreement was made but can be extended for another
10 years maximum
 Seller can still redeem w/in 30 days from final judgment

F. Exercise of the right to redeem – Art. 1616

Seller is required to give the buyer the following if redemption is made:
 The price

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  Expenses of the contract
 Other legitimate payments made by reason of the sale
 Necessary expenses made on the thing sold
 Useful expenses on the thing sold

G. Legal redemption – Art. 1619 – created by law

 Right to be subrogated in the place of one who acquires a thing by purchase, dation
in payment or by any other transaction whereby ownership is transferred by
onerous title
 Can be effected against movable or immovable property
 Can be exercised within one month from notice in writing of the
vendor/prospective vendor
 Legal redemption is granted by law to:
o Co-owners of the thing sold (Art 1620)
o Adjacent owner of rural property (Art 1621)
o Adjacent owner of urban property (Art 1622)
Co-owners are preferred over adjacent owners (Art 1623 par 2)

H. Age redemption – Art. 1619

The Law on Sale of Subdivision and Condominium (PD 957)

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 Reviewer in Civil Law

The Condominium Act (RA 4726)

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