COLEGIO DE SAN ANTONIO DE PADUA

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COLLEGE OF ACCOUNTING AND INFORMATION SYSTEMS

(BSAIS)

MODULE 3
IN
REGULATORY FRAMEWORK AND
LEGAL ISSUES IN BUSINESS

WELCOME TO CSAP! THE GATEWAY TO BETTER LIVES!

Prepared by:
ATTY. CHERRY C. ROBLE

Name: __________________________________________________________

Course & Section: _________________________________________________

SECOND SEMESTER
S.Y. 2025-2026

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III. Law on Sales
• Definition
➢ By the contract of sale, one of the contracting parties obligates himself to
transfer the ownership and to deliver a determinate thing, and the other
to pay therefor a price certain in money or its equivalent.
➢ A contract of sale may be absolute or conditional.

• Kinds of Contract of Sale

1) Absolute – when sale is not subject to any condition and the title
immediately passes to the purchaser upon delivery.
2) Conditional – ownership of the object remains with the vendor until the
fulfillment of the condition/s.

• Nature, forms, and requisites

➢ The essence of a contract of sale is the transfer of ownership or that the
recipient can alienate the thing that was transferred to him.

• Essential elements of a valid Contract of Sale

1) Consent or meeting of the minds
➢ Consent refers to the seller’s consent to transfer ownership of, and
deliver, a determinate thing, and to the buyer’s consent to pay the price
certain.
➢ Being a consensual contract, the contract of sale is perfected at the
moment there is a “meeting of the minds” upon the thing which is the
object of the contract and upon the price.

2) Object or subject matter

➢ Must be determinate or capable of being determinate, licit, within the
commerce of man, and must be possible

3) Cause or consideration
➢ Refers to “price certain in money or its equivalent.” It must be real,
certain, and with a pecuniary value.

• Non-essential Elements of a Contract of Sale

1) Natural – those deemed to exist in certain contracts in the absence of any
contrary stipulations.
Ex. Warranty against eviction, hidden defects

2) Accidental – those which may be present or absent depending on the

stipulations of the parties.
Ex. Conditions, interest, penalty

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• Stages of Contract of Sale
1) Preparation, conception, negotiation, or generation stage – from the time
the prospective contracting parties indicate interest in the contract to the
time the contract is perfected.
2) Perfection or “birth” of the contract – upon the concurrence of the essential
elements of the sale; and
3) Consummation or “death” of the contract – begins when the parties
perform their respective undertakings under the contract of sale,
culminating in the extinguishment thereof.

• Characteristics of a Contract of Sale

1) Consensual – perfected by mere consent and without any further acts.
2) Bilateral and Reciprocal – imposes correlative obligations on both parties to
the relationship.
Consequently, the power to rescind is implied.
3) Principal – can stand on its own and does not depend on another contract
for its validity, unlike an accessory contract.
4) Onerous – imposes valuable consideration such as prestation, as
distinguished from a gratuitous contract.
Consequence: all doubts in construing an onerous contract, shall be
resolved in that which gives greater reciprocity of interests. (Art. 1378)
5) Commutative – because a thing for value is exchanged for equal value, as
differentiated from an aleatory contract.
Test: As long as the party believes in all honesty that he is receiving
equal for what he gave up for, then commutative character is complied with.
6) Nominate – given a particular name by law.

• Sale is a title and not mode

➢ Sale is merely a title that creates the obligation on the part of the seller to
transfer ownership and deliver possession, but on its own, sale is not a mode
that transfers ownership.
➢ When a contract of sale is perfected, the seller is merely obligated to transfer
ownership and to deliver the property. Transfer of ownership is effected only
upon delivery.

• Sale distinguished from other contracts

Sale Donation
Onerous Gratuitous
Perfected by mere consent Must comply with the formalities
required by law.
Sale Barter
Consideration is price in money or Consideration is another thing
its equivalent
Sale Contract for a Piece of Work

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Goods are manufactured or Goods are manufactured or
procured in the ordinary course of procured in the ordinary course of
business business
For the general market whether on For a specific Customer
hand or not
Governed by Statute of Frauds Not within the Statute of Frauds
Sale Dacion en pago
No pre-existing debt Pre-existing debt
Creates an obligation Extinguishes the obligation (mode
of payment)
Price is more freely agreed upon, Price is the value of the thing given
fixed by the parties
The buyer has to pay the price Payment is received by the debtor
before the contract is perfected
Contract of Sale Contract to sell
Ownership is transferred upon Ownership is only transferred upon
delivery full payment of price
Ownership is only transferred upon Full payment is a positive
full payment of price suspensive condition, hence non-
payment would not give rise to the
obligation to transfer ownership
Conditional Contract of Sale Contract to sell
Sale is already perfected No perfected sale yet
Sale Agency to sell
Buyer receives the goods as owner Agent receives good as goods of the
principal
Seller warrants the thing sold Agent makes no Warranty
Sale Lease
Ownership is transferred by delivery No transfer of Ownership
Permanent Temporary
Seller must be the owner at the time Lessor need not be the owner
of delivery
Sale Option Contract
By the contract of sale, one of the An accepted unilateral promise to
contracting parties obligates himself buy or sell is supported by a
to transfer the ownership and to consideration distinct from the
deliver a determinate thing, and the price.
other to pay therefor a price certain
in money or its equivalent.
Bilateral Unilateral: gives right to buy or sell,
but imposes no obligation on the
option-holder, aside from
consideration for the offer
Sale of property Sale of right to purchase

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• When Seller is not the Owner
➢ General Rule: When the seller is not the owner of the thing sold, ownership
is not acquired by the buyer. One cannot give what one does not have.
(Art 1505)
Exceptions:
1. Seller has a right to transfer ownership-
➢ The seller need not be the owner of the thing at the time of
perfection of the contract. It is sufficient that the seller has a right
to transfer ownership thereof at the time it is delivered. [Art. 1459]
➢ Note: One who sells something he does not own yet, is bound by the
sale when he acquires the thing later.
2. Estoppel
➢ The owner is, by his conduct, precluded from denying the seller’s
authority to sell. (Art. 1434)
3. Buyer in good faith of a Registered land bought
➢ General rule: Buyer need not go beyond the Torrens Title
Exception: When he has actual knowledge of facts and
circumstances that would impel a reasonably cautious man to make
further inquiry.
4. Order of courts; Ex: purchase in an execution sale,
➢ the buyer merely steps into the shoes of the judgment debtor
5. When goods are purchased in a Merchant’s store, Fair, or Market (Art
1505)

• Sale by Person having a Voidable Title

1. True owner may recover the thing when the following requisites
concur:
a. Subject matter is movable
b. The owner has either lost the thing or has been unlawfully
deprived. (Art 559)
2. Reimbursement is necessary before the owner can recover when:
a. Buyer acted in good faith
b. Thing is acquired at a public auction (Art 559)
3. Recovery is no longer possible when:
a. Buyer in good faith
b. Acquired it at a merchant’s store, fair or market. (Art 1506)

• Inadequacy of Price
➢ General Rule: Does not affect a contract of sale’s validity.
Exceptions:
1. In Voluntary sales
a. Where a low price indicates a vice of consent, the sale may be
annulled.

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 b. Where the price is so low to be shocking to the conscience
(fraud, mistake, undue influence), then the sale may be set
aside.
c. Where price is simulated such as when the real intention was a
donation or some other contract.
d. Where the parties did not intend to be bound at all, the sale is
void.
2. In Involuntary sales
➢ A judicial or execution sale is one made by a court concerning
the property of the debtor for the satisfaction of his
indebtedness.
a. Where the price is so low to be shocking to the conscience,
such that a reasonable mind would not be likely to consent to
it, then judicial sale will be set aside.
b. If in the event of a resale, a better price can be obtained.
3. Rescissible contracts of sale
➢ Inadequacy of price is a ground for rescission of conventional
sale under Art 1381 (a-b)

• Presumption that a contract is an Equitable Mortgage and not a

Contract of Sale (Art. 1602)
1) Price unusually inadequate;
2) Possession retained by the seller as lessee or otherwise;
3) Period of redemption extended (or granted anew) upon or after the
expiration of the right to repurchase;
4) Part of the purchase price retained by the seller;
5) Payment of taxes on the thing sold borne by the seller;
6) Any other case where it may be fairly inferred that the Real intention of
the parties is for the transaction to secure a debt or other obligation.
➢ Note: In case of doubt, a contract purporting to be a sale with right
to repurchase shall be construed as an equitable mortgage.

▪ Rationale behind provision on Equitable Mortgage

➢ Circumvention of the prohibition against pactum commissorium
– which means that the creditor cannot appropriate the things given
by way of pledge or mortgage without availing proper remedies
such as foreclosure.

• Earnest money vs. Option money

➢ Earnest Money – paid in advance of the purchase price agreed upon by
the parties in a contract of sale, given by the buyer to the seller, to bind
the latter to the bargain. This forms part of the purchase price.
Earnest Money Option Money
Part of purchase price (Art 1482) Separate and distinct consideration
from the purchase price

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 Given only when there is already a Given when sale is not yet
sale perfected
When given, the buyer is bound to When given, the would-be-buyer is
pay the balance not required to buy, but may even
forfeit it depending on the terms of
the option
Buyer manifests his earnest desire Grantee of option is still undecided
to buy the property whether or not to buy or sell the
property

• Rights/obligations of vendor and vendee

▪ Obligations created
a. For the Seller: To transfer ownership and to deliver possession of the
subject matter
b. For the Buyer: To pay the price

▪ Obligations of the Vendor in general

1) To transfer ownership of the thing (Art. 1495)
2) To deliver the thing, with its accessions and accessories, if any (Arts.
1164 & 1166)
3) To warrant against eviction and hidden defects (Arts 1545-1581)
4) To take care of the thing, pending delivery, with proper diligence (Art
1163)
5) To pay for the expenses of the deed of sale (Art. 1487)

▪ What to Deliver
1) The thing sold (Art. 1495)
2) The fruits thereof which belong to the vendee from the day of
perfection of the sale. (Art. 1164 & 1537)
3) The accessions and accessories in the same condition they were in,
on the day of perfection. (Art. 1166 & 1537)
a. Improvements made by the seller at his expense grants him
a usufructuary right (Art 1138 & 1189)
b. No indemnification
c. But he may remove it to the extent that there is no damage
(Art. 1538)

▪ Kinds of Delivery
1) Actual delivery
➢ Deemed made when the thing sold is placed in the control and
possession of the vendee
2) Constructive delivery
a. Execution of public instrument- produces the same legal effects of
actual delivery unless the parties intended otherwise.
b. Symbolic Delivery-

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 Example: Delivery of keys of the place or depositary where the thing
is stored or kept.
c. Tradition Longa Manu (Long Hand)- Delivery of movable property by
mere consent or agreement, if the thing sold cannot be transferred
to the possession of the buyer at the time of sale.
Example: Seller points to the property without actually transferring
physical possession thereof.
d. Tradition Brevi Manu (Short Hand)- Delivery of movable property by
mere consent or agreement, if the buyer already had it in his
possession for any other reason.
➢ This happens when the buyer already possesses the thing sold
before the sale by virtue of another title (as lessee, borrower,
depositary, etc.)
e. Tradition Constitutum Possessorium- Seller continues to be in
possession of the property sold not as the owner but in some other
capacity, like as tenant or lessee.
f. Quasi-traditio- Mode of delivery of incorporeal things or rights.
Delivery is effected:
1. By execution of public instrument
2. When such is not applicable, by placing the titles of ownership in
the possession of the buyer
3. By allowing the buyer to use his rights as a new owner with the
consent of the seller

▪ Delivery to a Common Carrier

➢ General Rule: Delivery to the courier or carrier is tantamount to
delivery to the buyer, whether the carrier is named by the buyer or
not. The buyer assumes the risk of loss.
Exception: When the Seller has reserved title through any forms with
intent to remain as the owner.

• Double Sales (ART. 1544)

➢ General Rule: Prior tempore, prior jure (“First in time, priority in right”)
applies.
➢ Requisites:
1) two (2) or more valid sales;
2) Same subject matter;
3) two (2) or more buyers with conflicting interests over the rightful
ownership of the thing sold;
4) Same seller.

▪ Rules:
a. Sale of Movables
➢ Ownership shall be transferred to the person who may have first
taken possession in good faith.
b. Sale of Immovables

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 ➢ Ownership belongs to the person who:
1. In good faith, first recorded the sale in the Registry of Property; or
2. If there is no inscription of sale on the title, ownership passes to
the person who in good faith was first in possession; or
3. In the absence thereof, to the person who presents the oldest title,
provided there is good faith.

• Risk of Loss & Deterioration

➢ res perit domino- Owner bears risk of loss.
➢ Basis: Ownership is not transferred until delivery.

• Extinguishment of Sale
➢ Generally, extinguished by the same causes as all other obligations.

• Warranties (in relation to consumer laws)

➢ A statement or representation made by the seller contemporaneously and
as part of the contract of sale, having reference to the character, quality,
or title of the goods, and by which he promises or undertakes to ensure
that certain facts are or shall be as he then represents.

➢ Not every false representation voids the contract, only those matters
substantially affecting the buyer’s interest, not matters of opinion,
judgment, probability, or expectation. When the buyer undertakes his own
investigation, and the seller does nothing to prevent it from being fulfilled
as the buyer chooses, the buyer cannot afterward allege
misrepresentations.
Condition Warranty
Pertains to and affects the Goes into the performance of an
existence of the obligation obligation and may, in itself, be an
obligation
Non-happening does not amount to Non-fulfillment constitutes breach
breach of contract of contract

Must be stipulated Stipulation or operation of law

May attach either to the seller’s Always relates to the subject
duty to deliver thing or some other matter or the seller’s obligations as
circumstance to the subject matter

• Express Warranties
➢ For an express warranty to exist, the following requisites must concur:
1) An affirmation of fact or any promise relating to the thing sold;
2) The natural tendency of such affirmation or promise is to induce the
buyer to buy;
3) The buyer buys the thing relying to such affirmation or promise.
4) Made before the sale not upon delivery or any other point.

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• Implied Warranties
➢ An implied warranty is derived by law, by implication or inference from the
nature of the transaction or relative situation, or circumstances of the
parties, irrespective of any intention of the seller to create it.
1) Implied Warranty of Title
a. Warranty of Seller’s Right to Sell
b. Warranty against Eviction
➢ seller warrants that the buyer, from the time ownership passes,
shall have and enjoy legal and peaceful possession of the thing.
2) Implied Warranty against Encumbrance/ Non-Apparent Servitudes
3) Implied Warranty against Hidden Defects
a. Implied warranty as to Merchantable Quality and Fitness of Goods
b. Implied warranty against Redhibitory Defect in the Sale of Animals

▪ The following sales are void (Art. 1575)

1. Sale of animals suffering from contagious diseases.
2. Sale of animals unfit for the purpose for which they are acquired
as stated in the contract
➢ Seller is liable if animal dies within 3 days after its purchase
due to a disease that existed at the time of sale.
c. Quality and Fitness of Goods in Sale by Sample or Description
4) Other Warranties

• Effects of Warranties
1) Natural tendency is to induce buyer to purchase the subject matter;
2) Buyer purchases subject matter relying thereon
3) Seller liable for damages in case of breach

• Installment Sales
▪ Recto Law-applies to personal properties
➢ Applies in cases of:
a) Sale of movables in installment
➢ The rule is intended to apply to sales of movables, the price of which
is payable in two or more installments, but not to straight-term sales
where the price is payable in full, after making a down payment
because the law aims to protect improvident buyers who may be
tempted to buy beyond their means.
b) Lease of personal property with option to buy

▪ Alternative remedies of the Unpaid Seller under Recto Law

a) Specific Performance
b) Cancellation of sale: If vendee fails to pay 2 or more installments.
➢ When the seller cancels the sale by repossessing the property sold,
he is barred from exacting payment for its price. It can only be carried

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 out when he who demands rescission can return whatever he may be
obliged to restore.
c) Foreclosure of Chattel Mortgage: If vendee fails to pay 2 or more
installments –
➢ If seller chooses this remedy, he shall have no further action to
recover any unpaid balance, and any stipulation to the contrary shall
be void. The purpose of the law is to remedy the abuses committed
in the foreclosure of chattel mortgages. It prevents mortgagees from
seizing the mortgaged property, buying it at foreclosure sale for a
low price, and then bringing the suit against the mortgagor for a
deficiency judgment. The almost invariable result of this procedure
was that the mortgagor found himself minus the property and still
owing practically the full amount of his original indebtedness.

➢ Note: Remedies are alternative not cumulative. The exercise of one

remedy bars the exercise of the others.

• Maceda Law- applies to real properties.

▪ RA 6552 (Maceda Law) does not apply to:
1) Industrial lots
2) Commercial buildings
3) Sale to tenants under the Agricultural Reform Code (RA 3844)
4) Sale of lands payable in straight terms
➢ Maceda Law applies to sale or financing of real estate on installment.

▪ Rights of the Buyer:

a) If buyer has paid at least 2 years of installments:
➢ Buyer is awarded a grace period of 1 month per year of installments
paid, within which he may pay without additional interest.
➢ May be used once every 5 years of the life of the contract or any of
its extensions
➢ If contract is to be cancelled, seller must first:
1. Give a 30-day notice of cancellation, and
2. Refund cash surrender value (CSV) to buyer;
3. CSV is equivalent to 50% of total payments made including
deposits, options and down-payments plus 5% for every year in
excess of 5 years of the life of the contract or any of its
extensions. BUT total CSV should not be greater than 90% of
total amount paid.
b) If buyer has paid less than 2 years of installments:
➢ Grace period of at least 60 days
➢ Notice of cancellation or demand for rescission by notarial act,
effective 30 days upon receipt thereof.
➢ During the grace period, the buyer shall also have the right:
i. To sell or assign his rights, evidenced in a notarial instrument

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 ii. To update his account
iii. To pay in advance any installment, or the full unpaid balance
of the price, without any interest, and to have such full
payment of the purchase price annotated in the certificate of
title covering the property.

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