Law On Sales Outline: Chapter 1: Introduction
Law On Sales Outline: Chapter 1: Introduction
Law On Sales Outline: Chapter 1: Introduction
Outline
CHAPTER 1: INTRODUCTION
CONTRACT OF SALE – One of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price
certain money or its equivalent. A contract of sale may be absolute or conditional.
SALES
1. Contract of sale (absolute)
real obligation – obligation to give
remedies available:
a. specific performance
b. rescission
c. damages
GENERAL RULE: All parties with capacity to contract can enter into a valid contract of sale
1. Natural
2. Judicial - corporation/partnership/associations/Cooperatives
Status of contract valid
Remedies available therefore are:
a. specific performance
b. rescission
c. damages
GUARDIAN/AGENT/ADMINISTRATOR
1. Legal status of contract: VOID (case law)
2. Direct or indirect
3. If mediator – no need to prove collusion; inutile
4. Even if court approved sale
Reason: fiduciary relationship is based on trust
ATTORNEYS
REQUISITES:
1. Lawyer-client relationship exists
2. Subject matter – property in litigation (all types)
3. Duration – while in litigation (from filing of complaint to final judgment); may be
future litigation
Reason: due to public policy; ground for mal practice
a. Client is at the mercy of the lawyer
b. Law is a noble profession
c. 2 Masters – 2 interest; one cannot serve 2 masters at the same time
Exception: CONTINGENT FEE ARRANGEMENT
a. Amount of legal fees is based on a value of property
b. Property itself is involved
Not a sale but service contract
I give that you may do (innominate contract) so has to be governed by
law on sales but because of public policy, considered VALID
Reason why contingent fee is followed:
i. constitutional prohibition v impairment of contract
ii. subject to control of courts (may be reduced if unconscionable or
nullified)
iii. canons of legal ethics
iv. higher public policy litigants
CHARTER 4: PRICE – signifies the sum stipulated as equivalent of the thing sold
REAL
1. When price stated is one intended by parties
If fictitious: no intention with respect to price - VOID
If False/simulated: what appears in contract is not the true price
a. VALID if there is true consideration
b. VOID but if none (because it is fictitious)
2. Valuable
When not valuable – VOID
When contract is onerous, presumed to have valuable consideration
Nominal consideration w/c is common law concept does not apply (P1.00)
Gross inadequacy of price in ordinary sale does not render contract void
unless it is shocking to conscience of man.
Except:
a. Judicial sale
Shocking to conscience of man
Higher price can be obtained at re-sale
b. Rescissible contracts due to lesion
c. Sales with right to repurchase (raises presumption of equitable mortgage)
– Remedy is reformation
CERTAIN OR ASCERTAINABLE
CERTAIN
1. Sufficient that it is fixed with reference to another thing certain
That thing will have on a definite day, or in a particular exchange or market, or when an
amount is fixed above or below the price on such day, or in such exchange or market
provided said amount be certain.
POLITIACION
1. offer is floated but not absolute
2. acceptance is likewise floated but conditional
RULES:
1. offer is floated – prior to acceptance, may be withdrawn at will by offeror
2. offer floated with a period – without acceptance, extinguished when period has
ended & maybe withdrawn at will by offeror; right to withdrawn must not be arbitrary
otherwise, liable to damage under Art 19, 20, 21 of civil code
3. offer floated with a condition – extinguished by happening/non-happening of
condition
4. offer floated without period/without condition – continues to be valid depending
upon circumstances of time, place & person
5. offer is floated & there is counter-offer – original offer is destroyed, there is a new
offer; can not go back to original offer
6. offer is floated – no authority of offeror to modify offer
7. offer is accepted absolutely – proceed to perfected stage
OPTION CONTRACT
floats in the policitacion stage
offer with a period but founded upon a separate consideration distinct from the
price
no presumption of consideration, needs to be proven
Characteristics:
a. not the contract of sale by itself, distinct
b. nominate
c. principal; but can be attached to other principal contracts
d. onerous
commutative
EARNEST MONEY
1. money given as part of purchase price
2. its acceptance is proof that contract of sale exists
nothing in law prevents parties from treating earnest money differently
old concept: subject to forfeiture when BUYER backs out
new concept: cannot be forfeited – part of purchase price; must be
restored
qualification: if old concept is stipulated – VALID
presumption of perfection of contract of sale and such earnest money as
art of purchase price is disputable
FORM OF SALES
1. Form not important in validity of sale
Sale being consensual, may be oral or written, perfected by mere consent
as to price & subject matter
If particular form is required under the statute of frauds:
a. valid & binding between parties
rd
b. not binding to 3 persons only
Reason: purposes of convenience only & not for validity & enforceability;
cause of action is granted to sue & compel other party to execute the document
2. When form is important for validity; exception by specific provision of law;
a. power to sell a piece of land granted to an agent – otherwise VOID
b. sale of large cattle; must also be registered with Municipal treasurer –
otherwise VOID
c. sale of land by non-Christian if not approved by Governor – VOID
3. When form is important for enforceability (STATUTE OF FRAUDS)
a. sale to be performed 1 year after
b. Agreement to sell things with value of 500 and up
c. Sale of real property or interest therein
Exception:
i. When there is a note or memorandum in writing & subscribe by party or
his agent (contains essential terms of the contract)
ii. When there has been partial performance/execution (seller delivers with
intent to transfer title/receives price)
iii. when there has been failure to object to presentation of evidence
(oral) (constitute waiver)
COMPLETENESS OF DELIVERY
1. MOVABLES – delivery of thing plus accessories & accessions in the condition in
which they were upon the perfection of the contract including the fruits
a. LESS – buyer has 2 options:
i. reject
ii. accept
(1) when accepts with knowledge that seller is not going to perform
contract in full, he must pay at price stipulated
(2) when accepts & consumes before knowledge that buyer will both
perform contract in full, liable only for fair value of goods delivered
b. LARGER – buyer has 2 options;
i. accepts per contract & reject the rest
ii. accept the whole – pay price stipulated
iii. reject whole if subject matter is indivisible
c. MIXED WITH GOODS OF DIFFERENT DESCRIPTION – buyer has 2
options:
i. accepts good w/c are in accordance with contract & reject the rest
ii. reject goods entirely – if indivisible
2. IMMOVABLES
a. sold per unit or number
· with statement of its area, rate at certain price
· deliver all that may heave been stated in the contract ·
if impossible, remedies of buyer:
Ø
LESS IN AREA
i. rescission
ii. proportional reduction of price – LACK IN AREA SHLD NOT BE
LESS THAN 1/10 OF AREA AGREED UPON
GREATER IN AREA
i. accept per stipulation & reject the rest
ii. accept whole area – pay at contract rate
Not applicable to judicial sales
b. sold for lump sum
When price per unit not indicated
Is area delivered is either greater or lesser – price will not be adjusted
accordingly
OBLIGATION OF BUYER
1. Pay the price
Buyer is obligated to pay price according to terms agreed upon –
regarding time, place & amount
If payment of interest is stipulated – must pay; if amount of interest not
mentioned – apply legal rate
When buyer defaults – constitutes breach: subject to specific
performance/rescission & damages ; interest to be paid also from of default
2. Accept delivery of thing sold
Where to accept: at time & place stipulated in the contract; if none
specified – at the time & place of delivery
Goods; there is acceptance when:
a. He intimates to seller that he has accepted
b. When delivered & does any act inconsistent with ownership of seller
c. Retains without intimating to seller that he has rejected
Sale of Goods on installment:
a. Goods must be delivered in full, except when stipulated
b. When not examined by buyer – not accepted until examined or at least had
reasonable time to examine
Acceptance of goods in general, absent contrary express stipulation,
does not discharges seller from liability in case of breach of warranties (unless no
notice or failure to give it within reasonable time)
When buyer has a right to refuse goods, no need to return; shall be
considered as depositary; unless there is stipulation to contrary
DOUBLE SALE
General Rule: FIRST IN TIME, PRIORITY IN RIGHT
When does it apply: when not all requisites embodied in 1544 concur
GOOD FAITH
1. one who buys property without notice that another person has a right or interest
in such property
2. one who has paid price before notice that another has claim or interest
lis pendens – notice that subject matter is in litigation
adverse claim – notice that somebody is claiming better right
POSSESSION
· Both actual or constructive
REGISTRATION
1. registered under Torrens system
1544 applies
2. not registered under the Torrens system
1544 still applies
decided case which excluded unregistered land dealt with judicial sale
whereby buyer acquires right of transferor; outside of such situation – must apply
to conflicting sale over same unregistered parcel of land
3. when situation is sale 1 deals with land when not yet registered & sale 2 is done
when land already registered – apply FIRST IN TIME, PRIORITY IN RIGHT
2 FUNCTIONS
1. evidence of existence & possession of goods described therein
2. medium by which seller is able to transfer possession of goods
2 FORMS
1. negotiable
a. deliver to bearer (negotiation by mere delivery)
b. deliver to specific person or his order (negotiation by endorsement +
delivery)
even if face of instrument says NON-NEGOTIABLE it is still NEGOTIABLE;
limiting words not to destroy negotiability
if order instrument & no endorsement was made – equivalent to assignment
IMPORTANT CONSIDERATIONS
1. Negotiation gives better right than assignment
NEGOTIATION ASSIGNMENT
transferor/holder acquires title to goods acquires title to goods against transferor
bailee has direct obligation to holder as if acquires right to notify bailee so that he
directly dealt with him acquires obligation of bailee to hold goods
for him
2. Assignee takes document with defects of the assignor
3. Obligation of bailee – bailee is immediately bound to the document
1. SALE BY NON-OWNER
Perfection Stage
a. sale by owner – valid
b. sale by non-owner – valid;
because ownership is necessary only transfer title to goods; at perfection
stage, no obligation on part of seller to transfer ownership
law on estoppel further bolster it: title passes by operation of law to
grantee when person who is not owner of goods sold delivers it and later on
acquires title thereto
since valid, action to annul is improper; there is perfected contract
Consummation Stage
Contract of sale is valid because it has passed perfected stage, despite:
a. seller is not owner
b. seller has no authority to sell
What is void is the transfer of title/ ownership did not pass
Effect: buyer acquired no better right than transferor
Legal effect: CAVEAT EMPTOR – BUYER BEWARE
a. co-owner sells whole property prior to partition – sale is void as to his
spiritual share
b. co-owner sells definite portion to partition – sale is void as to other co-
owner but valid as to his spiritual share
Exception:
a. owner by his conduct is precluded from denying seller’s authority
(ESTOPPEL)
b. contrary is provided for in recording laws (pd 1529)
c. sale is made under statutory power of sale or under a court of competent
jurisdiction
d. sale is made under merchant’s store in accordance with code of
commerce & special laws
1. possessory lien
2. stoppage in transitu
3. special right of re-sale Can only be exercised when 2 prior rights
4. special right to rescind have been exercised
POSSESSORY LIEN
Seller not bound to deliver if buyer has no paid him the price
Right to retain; cannot be availed when seller does not have custody
Exercisable only in following circumstances:
a. goods sold without stipulation as to credit
b. goods sold on credit but term of credit has expired
c. buyer becomes insolvent
When part of goods delivered, may still exercise right on goods undelivered
Instances when possessory lien lost:
a. seller delivers goods to carrier for transmission to buyer without reserving
ownership in goods or right to possess them
b. buyer or agent lawfully obtains possession of goods
c. waiver
loses lien when he parts with goods (still has stoppage in transitu)
notice by seller to buyer not essential
STOPPAGE IN TRANSITU
Requisites:
1. Goods are in transit
When goods are in transit
From the time goods are delivered to carrier for purpose of transmission
to buyer
Goods rejected by buyer & carrier continues to possess them
When goods no longer in transit
Reached point of destination
Before reaching destination, buyer met seller along the way
Goods are supposed to have been delivered to buyer but carrier refused
2. Shown by seller that buyer is insolvent ( failure to pay when debts come
due )
How is right exercised:
a. Obtain actual possession of goods
b. Give notice of claim to carrier / bailee in possession thereof
Notice by seller to buyer is not required; notice to carrier is essential
REMEDIES OF BUYER
When Seller fails to deliver, buyer may seek SPECIFIC PERFORMANCE WITHOUT
GIVING SELLER OPTION TO RETAIN GOODS ON PAYMENT OF DAMAGES
SALE OF MOVABLES ON INSTALLMENT
REMEDIES OF UNPAID SELLER (1484)
1. Exact fulfillment should the buyer fail to pay
2. Cancel the sale if buyer fails to pay 2 or more installments
3. Foreclose on chattel mortgage if buyer fails to pay 2 or more installments
If buyer chooses foreclosure, no further action against buyer to recover
any unpaid balance of the price
When is law is applicable: Sale on movables by installment
Sale on installment: payment by several partial payments in small amount
Rationale of the law: Buyer is lulled into thinking that he could afford
because of small amounts per installment & at the same time remedy abuse of
commercial houses
Nature of remedies: alternative & not cumulative
Coverage: sale & financing transaction & contracts of lease with option to
purchase
Action : Judicial & Extrajudicial
SPECIFIC PERFORMANCE
If already chose specific performance, cannot anymore choose other remedies
Except: after choosing, it has become impossible, rescission may be pursued
RESCISSION
When chosen, there is correlative obligation to restitute
But stipulation that installments paid are forfeited are valid if not unconscionable
Deemed chosen when:
a. Notice of rescission is sent
b. Takes possession of subject matter of sale
c. Files action for rescission
Barring effect on recovery of balance
FORECLOSURE
Barring effect on recover of balance
Extent of barring effect: purchase price
Exception: mortgagor refuses to deliver property to effect foreclosure; expenses
incurred in attorneys fees, etc.
REMEDIES OF BUYER
1. Disturbed in possession or with reasonable grounds to fear disturbance
SUSPEND PAYMENT
2. In case of subdivision or condo projects
If real estate developer fails to comply with obligation according to
approved plan:
a) RESCIND
SUSPEND PAYMENT UNTIL SELLER COMPLIES
IMMOVABLES (BY INSTALLMENT)
1592 – Applies only to contract of sale
Maceda Law – applies to COS & CTS & Financing
MACEDA LAW
Coverage: REAL ESTATE – defines space v CONDO – not defined space (w/
common areas)
1. contract of sale
2. contract to sell
3. financing transactions
Excluded:
1. industrial
2. commercial
3. sale to tenants under agrarian laws
RIGHTS GRANTED TO BUYERS:
1. Buyer paid at least 2 years installment
a. Pay without interest the balance within grace period of 1 month for every
year of installment payment
Grace to be exercised once every 5 years
b. When no payment - cancelled; buyer entitled to 50% of what he has paid +
5% for every year exceeding 90% of payments made
Cancellation to be effected 30 days from notice & upon payment of
cash surrender value
2. Buyer paid lees than 2 years installment
a. Grace period is 60 days
b. Cancellation if failure to pay within 60 days grace
c. 30 days notice before final cancellation
buyer can still pay within the 30 days period
with interest
Purpose of law : Protect buyers in installment against oppressive conditions
Notice needed – waiver thereof id oppressive
Apply to contracts even before law was enacted
Stipulation to contrary is void
Other rights:
a. Sell rights to another
b. Reinstate contract by updating within 30 days before cancellation
c. Deed of Sale to be done by notarial act
d. To pay full installment in advance the balance of price anytime without interest
e. Have full payment annotated in certificate of title
LIABILITY OF SELLER: (eviction w/c caused buyer to lose whole subject matter)
1. value of thing at time of eviction ( whether or not -/+ of price of sale )
2. value of income of fruits
3. cost of suit which caused the eviction
4. expenses of contract if buyer paid for them
5. damages & interests and ornamental expenses if sale was made in
bad faith
RIGHTS OF BUYER WHEN DEPRIVED OF ONLY PART OF THE SUBJECT MATTER BUT
WOULD NOT HAVE BOUGHT SUCH PART IF NOT IN RELATION FOR THE WHOLE :
1. rescission
2. mutual restitution
5. DEFECTS ON ANIMALS
even in the case of professional inspection but hidden defect is of such
nature
that expert knowledge is not sufficient - defect shall be considered as
REDHIBITORY
1. if vet fails to discover through ignorance or bad faith he is liable for
damages a. sale of animals on teams ( 2 or more )
when only one is defective, only one is redhibited & not the others
exception: when it appears that purchase of team will not be done without the defective
one
apply to sale of other things
b. sale of animals at fair or public auction
no warranty against hidden defects
c. sale of animals with contagious disease is void
d. sale of unit of animal
void if use / service for which they are acquired has been stated in
the contract and they are found to be unfit thereof
prescription of action: 40 days from date of delivery to buyer
if sale is rescinded, animals to be returned in same condition
when they are acquired; buyer shall answer for injury / loss due to his
fault
buyer may elect between withdrawing from sale or demanding
proportionate reduction of price with damages in either case
E. EFFECTS OF WAIVER
· Parties may increase or diminish implied warranty against eviction; but effect
depends on good faith or bad faith on the part of the seller.
1. seller in bad faith & there is waiver against eviction – null & void
2. buyer without knowledge of a particular risk made general renunciation of
warranty – not waiver but merely limits liability of seller in case of eviction
(pay value of subject matter at time of eviction)
3. buyer with knowledge of risk of eviction assumed its consequences &
made a waiver – vendor not liable (applicable only to waiver of warranty
against eviction)
when goods delivered to buyer he cannot rescind sale
if he knew of the breach of warranty when he accepted goods without
protest
if he fails to return or offer to return goods to seller in substantially as
good condition as they were at time ownership was transferred
when goods deteriorated, buyer can still return them in that condition if
such is due to breach or warranty
CONVENTIONAL REDEMPTION
seller reserved the right to repurchase thing sold
coupled with obligation to return price of the sale, expensed of contract & other
legitimate payments and the necessary & useful expenses made on the thing sold
right must be recognized in the deed of sale; must be the same contract
OPTION TO PURCHASE
right to repurchase the thing sold granted to the vendor in a separate instrument
from the deed of sale
EQUITABLE MORTGAGE
a contract with right to repurchase is equitable mortgage if the following
requisites concur:
1. price of sale with right to repurchase is unusually inadequate
2. seller remains in possession as a lessee or otherwise
3. upon / after expiration of right to repurchase, another instrument
extending the period of redemption is executed
4. buyer retains for himself a part of the purchase price
5. seller binds himself to pay taxes on thing sold
6. real intention of parties is to secure the payment of a debt or performance
of other obligation
IN CASE OF MULTI-PARTIES
1. When an undivided thing is old because co-owners cannot agree that it be
allotted to on of them – vendee a retro my compel the vendor to redeem the whole
thing
2. When an undivided thing is sold by co-owners / co-heirs, vendors a retro may
only exercise his right over his respective share; vendee a retro may demand that
they must come to an agreement first and may not be compelled to consent to a
partial redemption
3. When rights for co-owners over an undivided thins is sold as regards to their own
share – vendee retro cannot compel one to redeem the whole property
4. Should one of the co-heirs/co-owners succeed in redeeming the property – such
vendor a retro shall be considered as trustee with respect to the share of the other
co-owners/co-heirs.
FRUITS
1. what controls is the stipulation between parties as regards the fruits; if none –
2. at time of execution of the sale a retro there should be visible or growing fruits –
there shall be no pro-rating at time of redemption of no indemnity was paid by the
vendee a retro
3. at time of execution sale a retro there should be no fruits but there are fruits at
time of redemption – pro-rated between vendor a retro & vendee a retro giving the
vendee a retro a part corresponding to the time he possessed the land.
LEGAL REDEMPTION
right to be subrogated upon the same terms and conditions stipulated in the
contract, in the place of one who acquires the thing by purchase or by dation in
payment or by
other transaction whereby ownership is transmitted by onerous title.
1. among co-heirs
any of heirs sells hereditary right to stranger before partition
any of the co-heirs may be subrogated to the rights of the purchaser by
redeeming said hereditary right: reimburse buyer of the price of the sale
co-heirs has 1 month from receipt of notice in writing
2. among co-owners
rd
any or all of co-owners sells their shared to 3 person
any co-owner may exercise right of redemption by paying reasonable price
of property to the buyer
if 2 or more co-owners desire to exercise right of redemption, they may
only do so in proportion to the share they may respectively have in the thing
owned in common
EFFECT OF ASSIGNMENT
1. lack of knowledge or consent of debtor not essential for validity but has legal effect
2. assignment of rights made w/o knowledge of debtor – debtor may set up against
assignee the compensation w/c would pertain to him against assignor of all credits
prior to assignment and later ones until he had knowledge of the assignment
3. debtor has consented to assignment – cannot set up compensation unless
assignor was notified that he reserved his right to the compensation
4. debtor has knowledge but no consent - compensation may still be set up
TRANSFER OF OWNERSHIP
by tradition & not by perfection
execution of public instrument because intangibles cannot be physically transferred
WARRANTIES
1. against hidden defect - N/A because intangibles has no physical existence
2. existence & legality of credit - there is warranty except when what is sold is
doubtful account
3. solvency of debtor - no warranty, unless
a. there is stipulation
b. insolvency was prior to assignment & of common knowledge
· shall only last for 1 year
4. one who assigns inheritance right w/o enumerating rights shall be answerable for
his character as an heir
5. one who sells certain rights for a lump sum, shall be answerable for legitimacy of
the whole in general but not for each of the various parts
BREACH OF WARRANTY
1. if in good faith - expenses of the contract & other legitimate payments made by
reason of the assessment
2. if in bad faith - expenses of contract & other legitimate payments plus useful &
necessary expenses
EFFECTS OF NON-COMPLIANCE
ON TRANSACTION ON SELLER
FAILURE TO:
Prepare & deliver sworn listing of creditors Fraudulent & void Criminal Liability
Apply proceeds pro-rata to listed creditors Fraudulent & void Criminal Liability
Make advance written disclosure of Not void No Criminal Liability
transactions to creditors
Register sworn statement with DTI Not void No Criminal Liability
Include or omit names of creditors & Void Criminal Liability
correct amount due in the statement
Sale for no consideration Void Criminal Liability
ANTI-DUMMY LAW
Penalizes Filipinos who permit aliens to use them as nominees or dummies to
enjoy privileges reserved only for Filipinos
Management, operation as officers, employees or laborers
Control or non-control position