Private Sale of Goods Contract

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					                                            SALES                                                    1

Contract of Sale. By the 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
therefore a price certain in money or its equivalent.

Contract of Sale                                    Contract to Sell
Title over the property passes to the buyer         Ownership is retained by the seller whether or
upon delivery unless there is a contrary            not there is delivery. Ownership passes to the
agreement                                           buyer only upon full payment of the price
Non-payment of the purchase price is a              The payment in full is a positive suspensive
negative resolutory condition, meaning the sale     condition, meaning, if the purchase price is not
becomes ineffective upon the happening of           paid, the obligation to deliver and to transfer
such condition                                      ownership on the part of the seller does not
                                                    become effective
After delivery of the objective, the seller loses   Whether there is delivery or not, the seller
ownership over it. Unless, the contract is set      retains the ownership of the object. If the seller,
aside, he cannot recover the object                 due to non-payment of the price is ousting the
                                                    buyer from the property, he (seller) is not
                                                    rescinding the contract of sale but is precisely
                                                    enforcing it.

Pactum Reservatii Domini                            Contract to Sell
Conditional Sale there is already a contract of     No contract to sale only, a preparatory contract
There is already delivery but ownership retain      No delivery yet. No sale yet
by seller
Specific Performance/Rescission                     No     specific    performance/rescission—no
                                                    contract yet
Payment completes the transaction                   Payment will not complete transaction

Phases or Stages of A contract of Sale
1. Preparation, conception or generation—the period of negotiation and bargaining, ending at
the moment of agreement of the parties
2. Perfection or Birth of the Contract
3. Consummation or death—which is the fulfilment or performance of the terms agreed upon

Characteristics or Features of Contract of Sale (NBC-COP)
1. Nominate—It has a specific name given by law.
2. Bilateral—both parties are obliged to fulfil reciprocal obligations to one another.
3. Consensual—It is perfected by mere consent
4. Commutative—The thing sold is equivalent of the price paid
5. Onerous—The thing sold is conveyed in consideration of the purchase price and the purchase
price is paid in consideration of the conveyance of the thing.
6. Principal—Its existence does not depend upon the existence and validity of another contract

Elements of Contract of Sale
1.Essential Elements—necessary for the validty of the sale.
     a. Meeting of the minds of the seller and the buyer
     b. Object which is certain and determinate
     c. Price certain
2. Natural Elements—those which are inherent in the contract and are deemed to exist in the
contract of sale in the absence of clear contrary agreement.
     a. Warrant against eviction
     b. Warranty against hidden defects
3. Accidental Elements—May or may not exist depending on the stipulations of the parties like
conditions, payment of interest, place and time of payment.
                                              SALES                                                  2

Object Must be Licit or Lawful. There are two kinds of illicit things:
    a. Illicit per se—when by its nature it is heinous, immoral or wrongful
    b. Illicit per accidens—when it is prohibited by law

When is a thing determinate?
     a. When it is particularly designated or physically segregated from all others of the same
     b. The thing is capable of being made determinate, at the time the contract is entered into,
w/o the necessity of a new or further agreement between the parties.

Emptio rei speratae—a sale of an expected thing subject to the condition that the thing will come
to existence. If the thing did not come into existence, the contract is not effective and the buyer
has no obligation to pay the price. Presumption is in favor of this kind of sale, because it is more
in keeping with the commutative character of a sale.

Emptio spei—a sale of a hope or expectancy. The contracting parties intended that contract of
sale to exist at all events, whether or not the expected thing will come into existence such that the
buyer will have to pay the purchase price, such that the contract becomes aleatory in nature.

Emptio rei speratae vs. Emptio spei
              Emptio rei speratae                                       Emptio spei
Sale of a thing having a potential existence           Sale of a mere hope or expectancy
The uncertainty is with regard the quantity and        The uncertainty is with regard the existence of
quality but not with regard the existence of the       the thing
The contract deals with a future thing                 The contract deals with a present thing—the
                                                       hope or expectancy
The sale is subject to the condition that the          The sale produces effects eventhough the
thing should exist, so that if it does not, there is   thing itself does not come into existence, since
no contract for lack of an essential requisite         the subject matter is the hope itself

Future Goods that may be subject of a contract of sale
1. Goods to be manufactured yet
2. Goods to be acquired by the seller after the perfection of contract of sale
3. Goods that depends upon a contingency that may or may not happen

Purchase of an Undivided Share in Specific Mass of Fungible Goods. Rules:
1. If the aliquot part purchased from the seller is more than the whole undetermined mass after it
had been weighed or measured, then the buyer becomes the owner of the entire mass.
2. If the aliquot part purchased is less than the whole undetermined mass, the purchaser will
become the co-owner of the whole mass in the proportion in which the number, weight or
measure of what had been purchased bears to the number, weight or measure of the mass or
                                              SALES                                                    3

Sale vs. Agency
SALE                                                 AGENCY
The buyer pays for the price of the                  The agent does not pay for the price. He
goods/property purchased                             merely accounts for the proceeds of the sale.
The buyer becomes the owner of the                   The agent does not become the owner of the
goods/property purchased                             goods/property delivered to him for sale.
Buyer cannot return the goods/property when          The agent returns the goods/property if he was
the sale is defective                                not able to sell the same
The seller warrants the goods/property sold          The agent does not make any warranty as long
                                                     as he acts within his authority and in the name
                                                     of the principal
The seller has full freedom to enter into any        The agent must follow the instructions of the
terms or conditions on the contract of sale          principal

Contract for a Piece of Work—The article sold is specially manufactured and upon the special
order of the customer. Article is not sold in the ordinary course of business. (See. Concrete
Aggregates vs. CTA)

          Contract for a piece of work                              Contract of Sale
The thing transferred is one not in existence        The thing transferred is one which would have
and w/c never would have existed but for the         existed and would have been the subject of
order of the party desiring to acquire it            sale to some other person, even if the order
                                                     had not been given
The services dominate the contract                   The primary objective of the contract is a sale
eventhough there is a sale of goods involved         of the manufactured item; it is a sale of goods
                                                     eventhough the item is manufactured by labor
                                                     furnished by the seller and upon previous order
                                                     of the customer
Not w/in the Statute of Frauds                       Governable by the Statute of Frauds

Rules if Consideration is partly Money and Partly Goods
1. Determine the intention of the parties.
2. If intention could not be determined, consider the value of the thing given:
       a. If value of the thing more than value of the money, it is BARTER
       b. If value of the thing less than value of the money, it is SALE
       c. If both values are the same, SALE

Money Exchange.
     If local currency is exchanged for foreign currency—there is purchase and sale.
     If the local currency is exchanged with other denominations of the local currency also,
       there is barter (Same rule if Foreign Currency exchanged in the Philippines for another
       foreign currency)

- the sum stipulated as the equivalent of the thing sold and also every incident taken into
consideration for the fixing of the price, which was agreed upon by both parties.

Rules if there is no specific amount stipulated as purchase price
1. It is still certain if it is determinable by making reference to another thing which is itself certain
2. It is still certain if determination is entrusted to the judgment of a specified person or persons
3. By reference to certain fact or facts (such as in Art. 1472—when the price is fixed is that which
the thing sold would have on a definite day or a particular exchange)
                                           SALES                                                  4

Effect if 3 Person fixed the price
     General Rule: It is binding upon the parties
     1. When the 3 person acts in bad faith
     2. When the 3 person disregards the specific instructions or the procedure marked out by
the parties
Effect when the price is not fixed by the 3 person designated
1. If the 3 person refuses or cannot fix the price, the contract shall become ineffective, unless
the parties subsequently agree upon the price
2. If the 3 person is prevented from fixing the price by the fault of the seller or buyer, the party
not in fault may obtain redress against the party in fault.

Effect of Gross Inadequacy of Price. No effect.
       Exceptions: (meaning, sale is set aside)
1. If consent is vitiated, such as VIMFU (Violence, Intimidation, Mistake, Fraud, Undue influence)
2. If the parties intended a donation or some other act or contract
3. If the price is so low as to be shocking to the conscience

Effect of Simulated Price. Sale is void, unless it could be shown that the parties intended a
donation or some other act of liberality.
     Price Simulated- No price to support a contract of sale, such that neither party had any
intention that the amount will be paid—void
     Price is False- there is a real price not declared—contract is valid, but the underlying deed
is subject to reformation to indicate the real price upon which the minds of the parties have met.

When Price Cannot be determined, effect: Sale is inefficacious. (1474)
      Is appropriation of the thing delivered in an inefficacious contract allowed? Yes, buyer must
pay a reasonable price to that part delivered. (Reasonable price is generally the market price at
the time and place fixed by the contract or by law for the delivery of the goods)

PERFECTION OF CONTRACT OF SALE. Meeting of the minds upon the thing and price.
   Effect: Parties may reciprocally demand performance

1. Each lot is subject of a separate contract of sale
2. Auction sale is perfected when the auctioneer announces its perfection by the fall of the
hammer or in other customary manner.
     * Pending announcement:
               Any bidder may retract his bid
               Auctioneer may withdraw the goods, unless auction is w/o reserve
3. A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise
provided by law or stipulation
4. Notice is essential for the seller or his representative to be able to bid.
     By-bidders or puffers: persons employed by auctioneer who will bid w/o being bound but
whose bids will have a tendency to induce or provoke higher bids from interested buyers, thus
misleading the latter because of the inflated bid price.
     **It is the secrecy of the puffing and not the authorized bidding by the seller which makes it

OPTION CONTRACT. A Privilege existing in one person, for which he had paid a consideration,
which gives him the right to buy, certain merchandise or property from another person at anytime
within the agreed period at a fixed price. In case of breach of promise to buy or to sell, injured
party can only seek damages. (See Art. 1479)
                                               SALES                                                  5

Test to Determine whether a Contract is A contract of Sale or An Option. Whether or not the
agreement could be specifically enforced. If such stipulation could be independently enforced
from the contract, then such stipulation is an option.

Earnest Money                                           Option Money
It is part of the purchase price                        It is given as a distinct consideration for an
                                                        option contract which gives the buyer a specific
                                                        period within which to purchase the thing
It is given only when there is already a                It is given at a time when the sale had not yet
perfected sale                                          been perfected. What had been perfected only
                                                        is the option contract
When it is given, the buyer is bound to pay the         Even if option money is paid by the would-be-
balance of the agreed purchase price                    buyer he is not bound to buy the thing
If the sale does not materialize, the earnest           If the buyer decides not to buy the thing, he
money paid must be returned, unless a                   cannot recover the option money he paid as
contrary agreement had been stipulated                  consideration for the contract of option


BEFORE PERFECTION. No contract to talk about. Would-be-seller bears the loss.

     *contract without any effect: it never came to existence. Tthere could be no contract of sale
without a thing to be sold. Would-be-seller bears the loss.

    I. 1480 Applicability, correlate to: (Fungibles sold independently and for a single price
covered by the law)

           Art. 1163. Every person obliged to give something is also obliged to take care
           of it with the proper diligence of a good father of a family, unless the law or the
           stipulation of the parties requires another standard of care
           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.
           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. 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.
                                            SALES                                                  6

      II. 1504 Applicability. Principle of Res Perit Domino. Vendor bears risk of loss until ownership
is transferred by delivery.
            Exceptions: a) Where delivery of goods has been made but ownership is retained by
the seller merely to secure performance of buyer’s obligation
                            b) Where actual delivery is delayed through fault of the buyer.

Sale of Goods By Description- where a seller sells a thing as being of a certain kind verbally
describing them and the buyer simply relies on the seller’s descriptions of the things, not knowing
whether the seller’s representations are true or not.

Sale by Sample- Where the seller warrants that the bulk of goods being sold correspond with the
sample or samples exhibited not only in kind but also in quality and character.

Sale by Description and Sample- Where the seller has to satisfy the requirements in sale by
description and sample. There are two-fold warranty here: (a) the goods purchased matched with
the description and (b) the goods also matched in kind, quality and character with that of the
sample or samples exhibited to the buyer or his representative

Applicability: Sales of Personal Property in Installments and Leases of Personal Property w/
Option to Buy
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.

          The stipulation that the instalments or rents shall not be returned to the vendee or
         lessee shall be valid as long as it is not unconscionable. (1486)

ART. 1489.
    Two Kinds of Incapacity:
    1. Absolute Incapacity- Party cannot bind himself in any case.
    2. Relative Incapacity- Certain Persons under certain circumstances cannot buy certain

     ** Minors in contract for necessaries must pay reasonable price.

Necessaries—those things which are needed for sustenance, dwelling, clothing and medical
attendance, in keeping with the financial capacity of the family of the incapacitated person.

ART. 1490. Prohibition against Husband and Wife. Exceptions.
   Rationale: PID
   a. To avoid Prejudice to 3 Persons
   b. To prevent one spouse from unduly influencing the other.
   c. To avoid by indirection the violation of the prohibition against donations.

     Who may assail illegality?
     a. Creditors prior to the sale
     b. Heirs of either spouse.

     ** Either spouse may not assail illegality because they are parties thereto.
                                             SALES                                                7

    ** A spouse designated as agent of the other spouse may sell the latter’s exclusive property.

ART. 1491. Persons Relatively Incapacitated to Buy. (PAGEJO)

1. Public Officers and employees—Property Of State.
2. Agents—Property of Principal unless with consent.
3. Guardian—Property of Ward.
4. Executors and administrators—Estate
5. Justices, Judges, Prosecuting Attorneys, Clerks and employees of court—Property/Rights
under litigation.
6. Others disqualified by law. (Ex. *aliens who are disqualified to purchase private agricultural
lands; *an unpaid seller having a right of lien or having stopped the goods in transitu, who is
prohibited from buying the goods either directly or indirectly in the resale of the same at a public
or private sale w/c he may make. Art. 1533, par.5)

Rationale: Fiduciary relationship
Status of Sale: Voidable (1-3); Void (4-6)

ART. 1492. 1490 and 1491 Applicable to Legal Redemption, Compromises and

ART. 1493. Loss of Object Before Sale. Complete and Partial Loss.
   Partial Loss Rules:
   1. Vendee may withdraw from the contract
   2. Demand the remaining part, paying its price in proportion to the total sum agreed upon

ART. 1494. Loss/Substantial Deterioration of Specific Goods without seller’s knowledge.
   1. Buyer may avoid the sale or
   2. May treat sale as valid w/ respect to the existing goods

ART. 1495. Obligations of Vendor. (TDWP)
1. Transfer Ownership (not waivable)
2. Deliver (not waivable)
3. Warrant Object (waivable and may be modified)
4. Preserve Thing from perfection to delivery (Art. 1163)
5. Pay for the execution and registration of the sale unless there is a contrary agreement

**Execution sales do not require the delivery of thing since a one year period of redemption is
available to seller.

ART. 1496. Delivery Transfers Ownership.
ART. 1497. Control and Possession necessary in Delivery.
   Exception: Art. 1478. Stipulation as to full payment of price.

    Delivery- a mode of acquiring ownership as a consequence of a contract of sale by virtue of
which actually or constructively the object is placed in the control and possession of the vendee.

1. Actual or Real. (1497)
2. Legal or Constructive
     a. Legal Formalities (1498); execution of public instrument.
     b. Symbolical Tradition (1498 par 2)- keys delivered.
     c. Traditio Longa Manu- by mere consent /agreement. If the movable sold cannot yet be
transferred to the possession of the buyer at the time of the sale. (1499)
                                            SALES                                                8

     d. Traditio Brevi Manu- if the buyer had already the possession of the object even before the
purchase. (lessee becomes owner)
     e. Traditio constitutum possessorium- possession as owner changed. (Owner becomes

3. Quasi-Tradition- Delivery of Rights, credits or incorporeal property made by:
     a. Execution of public instrument
     b. Placing titles of ownership in the hands of a lawyer.
     c. Allowing the buyer to make use of the rights (1501)

ART. 1498. Constructive delivery.
1. Seller’s Control.
2. Seller’s Control transferred to buyer.
3. Intention to deliver for ownership.

ART. 1499. Traditio Longa and Brevi Manu
ART. 1500. Traditio Constitutum Possessorium.
ART. 1501. Delivery of Incorporeal Property. (Constructive and Quasi-Tradition)

ART. 1502.
Transaction on Sale or Return. Subject to Resolutory Condition.
    Difference with ―Delivery with option to purchase‖- Ownership is transferred in Sale or

Transaction on Approval or Trial/Satisfaction. Subject to Suspensive Condition.
     1. Risk of loss to seller until the sale becomes absolute. (Exceptions: Buyer in default; Buyer
agreed to bear the loss)
     2. Buyer must give goods a trial except when it is evident that it cannot perform the work
     3. Period of signifying acceptance commences to run only when all the parts essential for
operation has been delivered.
     4. A provision that a 3 person must satisfy approval is valid but he must be in Good faith.
     5. Generally the Sale and Delivery to an expert buyer is not a sale on approval/trial.

Sale or Return vs. Sale on Approval
Basis                          Sale or Return                       Sale on Approval
Condition                      Subject     to     Resolutory        Subject      to     suspensive
                               condition                            condition
Premise                        It depends upon the will of the      It depends upon the suitability,
                               buyer                                quality or character of the
Transfer of ownership              Ownership          immediately   Ownership       does         not
                                   passes to    the    buyer on     immediately pass to the buyer.
                                   delivery                         It passes only upon approval
                                                                    or satisfaction of the buyer
                                                                    duly manifested after trial
Revesting of ownership in the      Ownership is revested in the     There is no revesting of
owner                              seller if the buyer so decides   ownership because it is
                                                                    retained by the seller until the
                                                                    sale becomes absolute
Risk of loss or deterioration      The risk rests on the buyer      The risk remains in the seller
                                   before the revestment of         while the goods are on trial
                                            SALES                                                  9


1. When a contrary intention appears by the terms of the contract.
2. When the goods are shipped, and by the bill of lading(BOL) the goods are deliverable to the
seller or his agent, or to the order of the seller or of his agent.
     Exception: Form of bill of lading not conclusive if for security purposes only.
3. When the goods are shipped and by the BOL the goods are deliverable to the order of the
buyer or of his agent, but possession of the BOL is retained by the seller or his agent.
4. Where bill of lading is sent forward to the buyer with bill of exchange attached and the buyer
did not pay the bill of exchange.

** If the BOL provides that the goods are deliverable to the buyer or to the order of the buyer or is
indorsed in blank or is indorsed to the buyer by the consignee named therein, a purchaser in
GF for value of the BOL or goods from the buyer will obtain the ownership in the goods
although the BOE has not been honored.

Kinds of Delivery to the Carrier
1. C.I.F. (Cost, Insurance, Freight)—signify that the price fixed covers not only the costs of the
goods, but the expense of the freight and the insurance to be paid by the seller
2. F.O.B. (Free on Board)—goods are to be delivered free of expense to the buyer to the point
where they are F.O.B. The point of F.O.B. (either at point of shipment or the point of destination)
determines when the ownership passes.
     *CIF and FOB merely make rules of presumption.
3. C.O.D. (Collect on Delivery)—the carrier acts for the seller in collecting the purchase price,
which the buyer must pay to obtain possession of the goods.

General Rule: Buyer acquires no better title to the goods than the seller had.
Exceptions: SOLVAM
1. Where the sale is sanctioned by statutory or judicial authority. (See Art. 559)
2. Where the owner of the goods is by his conduct, precluded from denying the seller’s authority
to sell.
3. Where the law enables the owner to dispose of the goods as if he were the true owner thereof.
     *** Factor’s Acts (Agency); Recording Laws (PD 1529, RA 4136-Land Transportation and
Traffic Code, Revised Administrative Code); NIL; Warehouse Receipts Law.

4. Where the seller has a voidable title which has not been avoided at the time of the sale.
5. Where seller subsequently acquires title.
6. Where the sale is sold at merchant’s stores, fairs or markets.

1. Bought before the title of seller has been avoided.
2. in GF for value
3. without notice of the seller’s defect of title.


Document of Title of Goods—includes any bill of lading, dock warrant, quedan, or warehouse
receipt or order for the delivery of goods, or any other document used in the ordinary course of
business in the sale or transfer of goods, or authorizing or purporting to authorize the possessor
of the document to transfer or receive, either by indorsement or by delivery, goods represented
by such document.
                                             SALES                                                  10

Nature and function:
1. Receipts of, or orders upon, a bailee of goods represented.
2. Evidence of transfer of title and possession of goods and contract between the parties.

Some Forms of Documents of Title

1. Bill of Lading- It is a contract or receipt for the transport of goods and their delivery to the
person named therein, to order or to bearer. It usually involves three persons: the carrier, the
shipper and the consignee.
2. Dock Warrant- it is an instrument given by dock owners to an importer of goods warehoused
on the dock as a recognition of the importers title to the said goods, upon production of the bill of
3. Quedan- a warehouse receipt for commodities or goods such as sugar, tobacco, rice or hemp
4. Warehouse Receipt—A receipt wherein it is stated that certain goods were received by the
bailee to be delivered to the bearer or to the order of any person named in such receipt or to a
specified person
5. Letter of Credit—it is nothing more than a commitment by the issuer that the party in whose
favor it is issued and who can collect upon it will have his credit against the applicant of the letter
duly paid in the amount therein specified.

Classes of Documents of Title:
1. Negotiable- those by the terms of which the bailee undertakes to deliver the goods to the
bearer and those by the terms of which the bailee undertakes to deliver the goods to the order of
a specified person.
2. Non Negotiable- those by the terms of which the goods covered are deliverable to a specified

1. Where by the terms the carrier, warehouseman or other bailee undertakes to deliver the goods
to the bearer.
2. Where by the terms the carrier, warehouseman or other bailee undertakes to deliver the goods
to a specified person and such person or subsequent indorsee has indorsed it in blank or to
    Where negotiable document of title the goods are deliverable to bearer or where a
   negotiable document of title has been indorsed in blank or to bearer, any holder may indorse
   the same to himself or to any specified person, and in such case the document shall thereafter
   be negotiated only by the indorsement of such indorsee.

Indorsement is made by the person to whose the goods are deliverable. It may be in blank, to
bearer or to a specified person.

-No effect on negotiability. The obligations of carrier,warehouseman, or bailee not limited.

-Though non-negotiable may be transferred but transferee acquires rights under 1514. Even if
document indorsed transferee has no additional rights.

1. By the owner thereof
2. By any person to whom possession or custody has been entrusted by the owner, if bailee
undertakes to deliver the goods to the order of the possessor of the document OR document is in
such form that it may be negotiated by delivery at the time it is entrusted.
                                             SALES                                               11

1. The title of the person negotiating the document over the goods covered by the document.
2. The title of the person(depositor or owner) to whose order by the terms of the document the
goods were to be delivered.
3. The direct obligation of the bailee (warehouseman or carrier) to hold possession of the goods
for him, as if the bailee had contracted with him.

Applicability: (a) Transferee of Negotiable document of title not duly negotiated (b)transferee of a
non-negotiable document.

Rights acquired:
1. Title to the goods as against the transferor.
2. The right to notify the bailee of the transfer thereof.
3. The right, thereafter to acquire the obligation of the bailee to hold the goods for him.

**Rights not absolute. They are subject to the terms of any agreement with the transferor.
**Before Notification the bailee is not bound to the transferee whose right may be defeated by a
levy of an attachment or execution upon the goods by the creditor of the transferor or by a
notification to such bailee of the subsequent sale of the goods.

Rights of transferee:
1. The right to the goods as against the transferor.
2. The right to compel the transferor to indorse the indorsement.

**Ascertain the intention if contrary appears as to necessity of negotiation.

(indorsement /delivery) (GRIT)
1. That the document is Genuine
2. That he has legal Right to negotiate or transfer it.
3. The he has no knowledge of fact which would Impair the validity or worth of the document.
4. That he has the right to transfer the Title to the goods and goods are merchantable or fit for a
particular purpose.


--If the transferee paid value, without notice of such factors, therefore in Good Faith


or TRO.

ART. 1521.
1. Agreement.
2. Usage of trade.
3. Seller’s place of business
                                              SALES                                               12

4. Seller’s residence.
5. Specific Goods: Place where goods are at the time of contract known to parties.

1. Agreement.
2. No time fixed, within a reasonable time.

3 person acknowledges to be the bailee of the buyer.

D. Demand or tender of delivery effective if made at a reasonable hour.
E. Seller bears the expenses incidental to putting goods in deliverable state.

ART. 1522
1. Buyer may reject.
2. Buyer may accept by paying:
     a. price at the contract rate if he knew that no more were to be delivered
     b. fair value (reasonable market value) of the goods if he did not know that the seller is going
to be guilty of breach of contract.

1. Accept and reject excess.
2. Accept all- Liable for all of them.

1. Accept in accordance with the contract and reject the rest.
2. Accept all.

** If goods are indivisible the buyer may reject the whole of the goods.
** Rules may be controlled by usage or agreement.

Exceptions: 1503 (1) (2) (3) and when Contrary intention appears.

Seller’s duty after delivery to carrier.
1. To enter on behalf of buyer into such contract reasonable under the circumstances. (If seller
omits this buyer may decline to treat delivery to carrier, delivery to him, if goods were
2. To give notice to buyer regarding necessity to insure goods while in transit if under
circumstances it is usual to insure. (risk during transit is borne by him if he fails)


1. When the whole of the price has not been paid or tendered.
2. When a BOE or other Negotiable Instrument has been received as conditional payment but
was dishonored or the buyer became insolvent.

―Seller‖- includes agent of the seller to whom the BOL has been indorsed; or a consignor or agent
who has himself paid or is directly responsible for the price.
                                            SALES                                                  13

1. A lien on the goods or right to retain them for the price while he is in possession of them;
2. Right of stopping the goods in transitu after he has parted with the possession of them;
3. Right of Resale
4. Right to Rescind
5. Right of withholding the delivery when ownership has not yet passed to buyer.

1. Sales without stipulation as to credit.
2. Expiration of term of credit.
3. Insolvency of the buyer.


1. Delivery to agent or bailee of buyer.
2. Possession by buyer or his agent.
3. Waiver of lien.

*** When unpaid seller becomes judgment creditor he does not lose his lien.

1. The seller must be unpaid (1525)
2. The buyer must be insolvent
3. The goods must be in transit (1531)
4. The seller must either actually take possession of the goods sold or give notice of his claim to
the carrier. (1532.1)
5. The seller must surrender the negotiable document of title, if any, issued by the carrier or
bailee. (1532.2)
6. The seller must bear the expenses of delivery of the goods after the exercise of the right.

ART. 1531. When Goods are in transit
1. after the delivery to a carrier or other bailee and before the buyer or his agent takes delivery of
2. if the goods are rejected by the buyer, and the carrier or other bailee continues in possession
of them.

When Goods No longer in Transit (after delivery to buyer/agent)
1. if the buyer or his agent obtains possession of the goods at a point before the destination
originally fixed.
2. if the carrier or bailee acknowledges to hold the goods on behalf of the buyer
3. if the carrier or bailee wrongfully refuses to deliver the goods to the buyer.

*** Goods delivered to a ship, freight, train, truck or airplane chartered by the buyer—
circumstantial whether they are in possession of the carrier or as agent of the buyer.

*** Part of Delivery made to buyer or agent—remainder may be stopped in transitu, unless there
is showing an agreement with buyer to give up possession of the whole of goods.

1. Taking actual possession of the goods
2. giving notice of his claim to the carrier or bailee.
                                             SALES                                                   14

     --Notice to be effectual must be given in such time and circumstance that the principal by the
exercise of reasonable diligence may prevent a delivery to the buyer.
     --Redelivery necessary according to directions of seller.
     --If goods are covered by negotiable document of title carrier or bailee has no obligation to
deliver to seller unless document is cancelled.

Where seller has either a right of lien or a right of stoppage in transitu and under the following
cases: PRD
1. Where the goods are perishable in nature
2. Where the right to resell is expressly reserved in case the buyer should make a default
3. Where the buyer delays in the payment of the price for an unreasonable time.

1. Where the right to rescind is expressly reserved in case the buyer should make a default
2. Where the buyer delays in the payment of the price for an unreasonable time.


1. Where Goods not covered by negotiable document of title.—Seller can give no larger right than
he has. Also with a buyer who sold goods to another.
2. Where Goods covered by negotiable document of title—Seller’s lien cannot prevail against the
rights of a purchaser for value in GF to whom the document is indorsed.

Article 1536—Right to Withhold delivery of thing sold by the vendor in case the vendee lose the
right to make use of the term, as provided in Art. 1198: (IFIVA)
      1. When after the obligation has been contracted vendee becomes insolvent, unless he
gives a guaranty or security for the price
      2. When he does not furnish to the vendor the guaranties or securities which he has
      3. When by his own acts he has impaired said guaranties or securities after their
establishment, and when through fortuitous event they disappear, unless he immediately gives
new ones equally satisfactory
      4. When the vendee violates any undertaking, in consideration of which the vendor agreed
to the period
      5. When the vendee attempts to abscond

Article 1537—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 fruits pertain to vendee from
the day on which the contract was perfected.

Article 1538—Loss, Deterioration or Improvement of Object before its delivery governed by
Article 1189.
      1. If the thing is lost w/o the fault of the seller, the obligation shall be extinguished
      2. If the thing is lost through the fault of the seller, 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 w/o the fault of the seller, the impairment is to be borne by the
      4. If it deteriorates through the fault of the seller, the buyer may choose b/w rescission or
fulfilment with indemnity in either case
      5. If the thing is improved by its nature, or by time, the improvement shall inure to the benefit
of the buyer
                                            SALES                                                  15

     6. If it is improved at the expense of the seller, he shall have no other right than that granted
to the usufructuary

Article 1539—What delivery includes? It includes the placing in the control of the vendee all that
is stated in the contract in conformity with the following rules:

     a. Sale OF REAL ESTATE by unit of measure or number: The vendor must deliver all that
may have been stated in the contract. If it is not possible to deliver all, the vendee may choose
          1. Proportional reduction of the price or
          2. Rescission of the contract provided the lack in area is at least 1/10 of the area stated
in the contract
          The above rules are applicable also in case there is no lack in area but the quality is
              not the same as specified in the contract. Rescission shall take place only if inferior
              value of the thing sold exceeds 1/10 of the price.
          But if the vendee would not have bought the immovable had he known of its smaller
              area or inferior quality he may rescind the sale.

         GREATER AREA OR NUMBER (1540)
          Vendee may accept the area stated in the contract and reject the excess OR
          Vendee may accept the whole but must pay for the same at the contract rate
          No Right of Rescission since the vendee is not prejudiced at all.

           The Above Rules (Art. 1539 and 1540 shall be applicable to judicial sales)

     b. Sale of REAL ESTATE by lump sum(1542): There should be no increase or decrease of
the price, although there be a greater or lesser area or number than that stated in the contract.
          Rule applicable to Sale of two or more immovables for a single price.
          What if the area or number of the immovable is stated together with its boundaries?
               Then the vendor is bound to deliver all that is included w/in the BOUNDARIES,
               although the same exceeds the area or number specified in the contract. The
               BOUNDARIES prevail because it contains the real and true area of the land.
          What if the vendor cannot deliver all that is included w/in the designated
               boundaries? Vendee has the option to:
                     a. Reduce the price in proportion to the deficiency in the area OR
                     b. Rescind the contract for breach of stipulations.

 PRESCRIPTION OF ACTIONS for rescission or exaction of proportionate reduction of the
 purchase price against the vendor under Art. 1539 and 1542: Six Months from the day of
 delivery. [1543]


 Applicability of General Rule: Only when the requisites in Article 1544 are not present

 Requisites for DOUBLE SALE to EXIST (VOCS)
 1. Two or more sales transactions must constitute valid sales
 2. Two or more sales transactions must pertain to the same object or subject matter
 3. Two or more buyers at odds over the rightful ownership of the subject matter must each
 represent conflicting interests
 4. Two or more buyers must each have brought from the very same seller
                                            SALES                                                  16

Rules of Preference of Ownership

Movable or Personal Property: Owner is the one who is in first possession in good faith.

    1. First to register in good faith
    2. No inscription, first to possess in good faith
    3. No inscription and no possession in good faith—Person who presents oldest title in good

What is REGISTRATION? It is any entry made in the books of the Registry, including both
registration in its ordinary and strict sense, and cancellation, annotation, and even the marginal
notes. It is the entry which records solemnly and permanently the right of ownership and other
real rights.

1. When the earlier transaction is a pacto de retro sale of an unregistered land and the
subsequent conveyance is a donation of the land in favor of another by the vendor a retro. The
vendee a retro has the better right over the donee. The donor had nothing more to donate
because of failure to repurchase the property.
2. Where one of the deeds of sale is a forgery.
3. Where one sale is absolute and the other is a pacto de retro where the period to redeem has
not yet expired.
4. Where one of the sales is subject to a suspensive condition which condition was not complied
with and the other is an absolute sale. Even if the conditional sale was made prior to the
absolute sale.
5. Where one transaction is a sale and the other a mortgage
6. Where one claim is based on prescription and the other is on sale
7. Where the subject land is not registered under PD 1529
8. In a contract to sell, there being no previous sale of the property.

       Article 1544 applicable to Double Donations as provided by Art. 744.


Article 1545.
   What are the options of a party to a contract of sale subject to a condition, when such
condition was not fulfilled by the other party?
   a. Refuse to proceed with the contract OR
   b. Waive performance of the condition and proceed with the contract

    What if the condition agreed upon is in the nature of a promise that it should happen? Then
the non-fulfillment of such condition is considered a breach of warranty.

Article 1546. WARRANTY.
    --It is a collateral undertaking in a sale of either real or personal property, express or implied,
that if the property sold does not possess certain incidents or qualities, the purchaser may either
consider the sale void or claim damages for breach of warranty.

Express Warranty—any affirmation of fact or any promise by the seller relating to the thing if
the natural tendency of such affirmation or promise is to induce the buyer to purchase the same
and if the buyer purchases the thing relying thereon.
                                           SALES                                                 17

        Affirmation of the value of the thing or statement of the seller’s opinion is not warranty,
         unless the seller made such affirmation or statement as an expert and it was relied upon
         by the buyer.

Implied Warranty—It is inherent in a contract of sale and presumed to exist although nothing has
been mentioned about it.

Implied Warranties in Contracts of Sale (1547)
1. Implied warranty as to the right of the seller to sell at the time when ownership has to pass.
(Warranty against eviction)
2. Implied warranty against hidden defects or faults or charge or encumbrances unknown to the
3. Implied warranty as to fitness and merchantability
4. Warranty against encumbrances or non-apparent servitudes (1560)

Cases where implied warranty is not applicable
1. Sale made by a sheriff, auctioneer, mortgagee, pledge or other person professing to sell by
virtue of authority in fact or law (1547) (The judgment debtor is responsible here for eviction)
2. Sale under ―as is and where is‖—this carries no warranty as to the quality or workable
condition of the goods and the buyer takes them as they are. However, such condition does not
include those that could not be discovered by a physical examination of the goods sold.
3. Sale of second hand articles does not carry any warranty as to the condition, adaptation,
fitness or suitability for purposes for which they have been purchased.
4. Sale of property sold at public auction for tax delinquency. There is no warranty on the part of
the State as to the title of the owner.

WARRANTY AGAINST EVICTION—The seller guarantees that he has the right to sell the thing
sold and to transfer ownership to the buyer who shall not be disturbed in his legal and peaceful
possession thereof.

Eviction—A judicial process by virtue of which the vendee is deprived of the ownership of the
whole or part of the thing he purchased by final judgment or by an act imputable to the vendor.

Elements (DVJ-SW)
1. Vendee is deprived in whole or in part of the thing purchased
2. The deprivation is by virtue of a final judgment (1557)
3. The judgment is based on a prior right to the sale or an act imputable to the vendor
4. The vendor was summoned in the suit for eviction at the instance of the vendee (1558)
5. No waiver of warranty by the vendee

        Failure of the vendee to appeal does not relieve vendor from responsibility [1549]

Effect of Prescription/Adverse Possession (1550)
1. Prescription consummated before sale—Vendee can claim warranty against eviction
(deprivation is based on right prior to sale)
2. Prescription consummated after sale—Vendee cannot claim warranty against eviction

        If Property is sold for non-payment of taxes due and not made known to the vendee
         before the sale, vendor is liable for eviction (1551)
        Judgment debtor is responsible for eviction in judicial sales unless otherwise decreed in
         judgment (1552)
        Any stipulation exempting vendor from responsibility for eviction is void if he acted in
         bad faith (1553)
                                             SALES                                                 18

Kinds of Waiver in eviction (1554) –Applicable to total eviction only.
1. Consciente—the waiver is voluntarily made by the vendee w/o the knowledge and assumption
of the risks of eviction. (Vendor shall only be liable to pay the value w/c the thing sold had at the
time of the eviction)
2. Intencionada—the waiver is made by the vendee w/ knowledge of the risk of eviction and
assumption of its consequences. (Vendor here shall not be liable)

Rights of Vendee in case of eviction (1555)
     To demand to the vendor the following (VICED)
     1. Value which the thing sold had at the time of eviction, be it greater or less than the price of
the sale.
     2. Income or fruits, if vendee was ordered to deliver them to the party who won the suit
against him
     3. Costs of the suit which caused the eviction, and those suit brought against the vendor for
     4. Expenses of the contract, if the vendee paid them
     5. Damages and interests and ornamental expenses, if the sale was made in bad faith.

* Rescission is not a remedy in case of Total eviction because rescission contemplates that the
one demanding it is able to return whatever he has received under the contract. Since the vendee
can no longer restore the subject-matter of the sale to the vendor, rescission cannot be carried

Rights of Action of Vendee in case of Partial Eviction (1556)
1. Enforce the vendor’s liability for warranty against eviction OR
2. Demand the rescission of the contract of sale w/ obligation to return the thing w/o other
encumbrances than those w/c it had when acquired

         Applicability: A part of the thing sold of such importance was lost because of eviction,
          that the vendee would not have bought it w/o said part.
         Same rules apply to a case where two or more things are jointly sold for a lump sum or
          for separate price for each, when the vendee would not have bought one w/o the other.

Warranty against encumbrances or non-apparent servitudes (1560)

1. Immovable sold is encumbered with non-apparent burden or servitude not mentioned in the
2. Nature of non-apparent servitude or burden is such that it must be presumed that the buyer
would not have acquired it had he been aware thereof.

Remedies of the vendee
1. Rescission of the contract OR
2. Indemnity

         Warranty is not applicable if non-apparent servitude is recorded in the Registry of
          Property, unless there is an express warranty that the thing is free from all burdens and
         Prescription of actions for rescission of damages: W/in 1 year from the execution of
         If what was chosen was rescission but was not filed w/in 1 year, vendee may still sue for
          damages w/in one year from the discovery of burden or servitude.
                                           SALES                                               19


     Requisites: (HIPANN)
     1. Defect must be hidden. –it cannot be discovered by an ordinary inspection or
     2. Defect must be important or grave. –a) defect renders the thing sold unfit for the use for
     w/c it is intended; b) diminishes its fitness for the use intended, to such an extent that the
     vendee would not have acquired if he had been aware thereof or would have given a lower
     price for it.
     3. Defect must be present at the time of the execution of the sale.
     4. Action for rescission or reduction of price must be filed w/in the prescriptive period.
     5. No waiver of the warranty against hidden defects.
     6. Notice by the vendee to the vendor within a reasonable time.

     REDHIBITORY DEFECTS—an imperfection or defect of such nature as to engender a
     certain degree of importance

     REDHIBITION--claim against the seller of a product in which the buyer demands a full
     refund or a reduction of the purchase price due to a hidden defect that prevents the product
     from performing the task for which it was purchased.

     Art. 1562—Implied Warranty or Condition as to quality or fitness of goods
          Applicability: Goods—all chattel personal but not things in action or money of legal
     tender, this includes growing fruits or crops

         General Rule: there is no implied warranty of fitness
         Exceptions: a) Buyer expressly makes known the particular purpose or by implication;
         b) Buyer relies upon the seller’s skill or judgment

           2. IMPLIED WARRANTY OF MERCHANTABILITY. Applies when goods are bought by
           * Merchantability—quality and condition of goods that a reasonable man would after a
     full examination accept the same under the circumstances of the case, in the performance
     of his offer to buy, whether for his own use or for resale.
                --fitness for the general purpose for which they are sold.

        There is no warranty as to fitness for particular purpose in a contract of sale of a
         specified article under its patent or other trade name unless there is a contrary
         stipulation. (1563)
        A warranty as to quality or fitness for a particular purpose may be attached to a contract
         by usage or trade in place of execution. (1564)
        Merchantability of goods in sale by sample is implied. Defect should not be apparent on
         reasonable examination of the sample for the vendor to be liable (1565)
        Vendor is liable eventhough not aware of hidden defects, unless there is a contrary
         stipulation and he is in good faith (1566)

     Caveat Venditor—“Let the Seller Beware” Vendor is liable eventhough not aware of hidden
     Caveat Emptor—“Let the Buyer Beware” Requires the purchaser to be aware of the
supposed title of the vendor and one who buys without checking the vendor’s title takes all the
risks and losses consequent to such failure.
                                           SALES                                                20

Remedies of Buyer (1567)
1. Accion Redhibitoria—action seeking withdrawal from the contract
2. Accion quanti minores or estimatoria—action for proportionate reduction in the price

Nature of Remedies: Alternative; both with damages

Loss of Thing Sold due to Hidden Defects (1568)

Vendor in Bad Faith                               Vendor in Good Faith
Bears the loss                                    Does not bear the loss
Must return the price                             Must return the price with interest
Must refund expenses of the contract              Must refund expenses of the contract
Pay damages                                       Not obliged to pay damages

Loss of Thing Sold w/ Hidden defects through fortuitous event or vendee’s fault (1569)
* Vendee may demand price paid less value of the thing at the time of loss plus damages if
vendor acted in bad faith.

        Warranties against hidden defects, merchantability and fitness are applicable to judicial
         sales but judgment debtor is not liable for damages, because the latter is only forced to
         sell and therefore did not take part in the conduct of the sale and determination of price
         which precludes possibility of bad faith (1570)
        Prescription of Actions: 6 Months from delivery of thing (1571)

Joint Sale of two or more animals (1572)
      Where one suffers redhibitory defect this shall not affect others
      Exception: If the buyer would not have purchased the sound animals w/o the defective
     ones. In such case, sale may be rescinded.
      Presumption of Exception: If a team, yoke or pair or set is bought even if a separate price
     has been fixed for each
      The following rules shall be applicable to joint sale of two or more things (1573)

* There is no warranty against hidden defects of animals sold at fairs or at public auctions or of
livestock sold as condemned.(1574) Rationale: Animals are not bought because of their quality or
capacity for work; and in such circumstance defects are clearly known to buyer.

When is Sale of Animals Void? (1575)
1. When suffering from contagious diseases
2. If use or service for which they are acquired has been stated in the contract and they are found
to be unfit
         Remedy: Declaration of Nullity of Contract

Redhibitory defect of Animals—such defect that even in case of professional inspection it is of
such nature that even expert knowledge is not sufficient to discover it.(1576)

      Prescription of Redhibitory Actions in defective animals—40 days from delivery(1577)
      Vendor is liable if animal should die w/in 3 days after its purchase, if cause of death
        existed at time of contract (1578)
      Animal should be returned in the condition in which it was sold and delivered if sale was
        rescinded. Vendee is answerable for any injury due to his negligence and not arising
        from redhibitory defect (1579)
                                             SALES                                                  21

Remedies of Buyer in Sale of Animals w/ Redhibitory defect (1580)
1. Accion Redhibitoria—action seeking withdrawal from the contract
2. Accion quanti minores or estimatoria—action for proportionate reduction in the price

         Form of sale of large cattle shall be governed by special laws. (1581)

Article 1582. Primary Obligations of the Vendee:
     a. To accept the delivery of the thing
     b. To pay the purchase price simultaneously upon the delivery of the thing unless a period or
term has been agreed upon.
     EXCEPTION TO SIMULTANEITY OF ACTS: if parties agreed, such as in sale by

     Payment shall be made at the stipulated time and place of delivery. If there is no stipulation
at the time and place of delivery of the thing.

*** The failure of the vendee to pay the price after delivery if ownership had been transferred,
does not cause the ownership to revert back to the seller until and unless the bilateral contract of
sale is first rescinded. [Chua Hoi vs. Kapunan]

Article 1583.
Rules in case of Contract of Sale of goods to be delivered in stated instalments.
     Two instances contemplated:
     a. Seller makes defective deliveries in one or more instalments—Buyer may reject the
defective portion and accept the good ones
     b. Buyer refuses w/o just cause to take delivery or pay one or more instalments—determine
whether breach is material to warrant refusal to proceed with the entire contract of sale. When the
breach is severable the injured party can seek damages or compensation but not to rescind the
whole contract.

Article 1584. Buyer’s Right to examine goods.
a. Delivery w/o previous examination: The buyer is not deemed to have accepted the same
unless he had a reasonable opportunity of examining them for the purpose of finding out whether
they conform with the specifications agreed upon.
b. Tender of Delivery by the seller: If seller tenders delivery, he should give the buyer if the latter
requested, the reasonable opportunity of examining the goods to determine whether they conform
with the contract.

When right of examination not allowed?
     a. If there is an express stipulation to the contrary
     b. When the goods are deliveres ―collect on delivery‖, the buyer cannot examine the goods
unless he pays first the price. Exception: He need not pay the price if there is a contrary
agreement or the examination is permitted by usage of trade at the place of delivery.

Article 1585. Signs or Evidence of Acceptance by the buyer of Goods delivered to him.
     a. When he communicates with the seller expressly manifesting his acceptance thereof.
     b. When he performs an act in relation to the goods inconsistent with the ownership of the
seller. Examples: (a) continuous possession and use of goods (b) reselling the goods (c)
mortgaging the goods
     c. When after the lapse of a reasonable time following the delivery, he retains the goods w/o
complaining to the seller or w/o intimating that he has rejected them.
                                            SALES                                                 22

Article 1586. Acceptance of Goods.
     Mere Acceptance does not necessarily discharge the seller from liability for the breach of
any promise or warranty. However to make the seller liable the buyer must notify the seller w/in a
reasonable time about the breach of promise or warranty.

   Purpose of Notice: To insulate the seller from belated claims of defects and to allow him to
make urgent investigation on the validity of claims.

Article 1587. Effects of Justifiable refusal to accept delivery by the buyer
     1. Buyer has no duty to return the goods to the seller but must notify the seller of his refusal
to accept the goods. (Risk of Loss here is on the seller)
     2. Buyer may voluntarily constitute himself as depositary of the goods, but he will be liable
for damages if he does not fulfil the duties of a depositary as required by law. (Risk of loss is on
the buyer)

Article 1588. Effect of Unjustifiable Refusal to accept goods by the buyer: Title or ownership
passes to him from the time goods were placed at his disposal.
     Exceptions: a. If there is contrary agreement
                    b. If the seller reserves ownership as security for payment of the price [1503 &

Article 1589. When vendee is bound to pay interest (period b/w date of delivery and date of
payment) after delivery:
     a. if the parties stipulated
     b. if the thing sold and delivered produces fruits or income
     c. if the vendee is in default, from the time demand is made upon him either juidicially or

Article 1590. When can the vendee suspend payment of the price (total or remaining)?
     1. If he is disturbed in his possession or ownership of the thing brought
     2. If he has a well-grounded fear that his possession or ownership would be disturbed by a
vindicatory action or foreclosure of mortgage.

Length of suspension: While the danger or disturbance exists.

Situations where vendee cannot suspend payment despite presence of disturbance
1. When the vendor has given security for the return of the price
2. When the parties have stipulated
3. When the vendor has succeeded in eliminating the danger or disturbance
4. If disturbance is mere act of trespass
5. If vendee has fully paid the price

      **Other causes for suspension: non-compliance by vendor of certain conditions; warranty of

Article 1591. Immediate rescission in sale of immovables, if the vendor has reasonable
ground to fear the loss of the immovable.
      ** Vendor however has the alternative of compelling specific performance if the ground to
fear loss does not exist.

Article 1592. Exception to the general rule on rescission in case of sale of immovables.

    General Rule on Rescission: The court may fix the period of payment when there is just
                                           SALES                                                 23

     Exception: Court is not allowed to grant a new period. Once there is a judicial demand by
notarial act received by the vendee, the court may not grant him a new term. The reason is that
the vendee already enjoyed the advantage of paying beyond the time originally fixed in the
contract, during the time when no demand for rescission either judicially or extra-judicially has
taken place.

     *Art. 1592 Not applicable in:
     1. Sales by instalments where parties have laid down the procedure to be followed in the
event the vendee failed to fulfill his obligation
     2. A mere promise to sell where the title remains with the vendor until full payment of the

Article 1593. Automatic Rescission of sale of movables. Conditions for applicability:
     1. if the vendee upon the expiration of the period fixed for the delivery of the thing
purchased, refused to receive it w/o justifiable cause
     2. if he failed to pay the price unless granted a longer period w/in w/c to pay.

Reason why judicial or notarial act not required: Personal things do not generally keep a stable
price in the market, any delay in their disposal may prejudice the vendor.

Actions for breach of contract of sale of goods

Article 1594. Actions available to vendor when there is breach of contract of sale on the part of
the vendee: (PDR)
1. Action for payment of the price of the goods [1595]
2. Action for damages due to wrongful neglect and refusal to accept and pay for the goods
3. Action for rescission if buyer has repudiated the contract or has manifested his inability to
perform his obligation [1597]

Actions available to the vendee, in case of breach by the vendor (SDR)
1. Action for specific performance in case of failure of the vendor to deliver the goods [1598]
2. Action for damages for breach of warranty but accepting the goods [1599]
3. Action for rescission for breach of warranty where the vendee may validly refuse acceptance of
the goods, or even if the goods had already been received, he may return them [1599 par. 4]

Article 1595. Action for collection of price, available in the following cases: (OPR)
1. When the ownership of the goods has passed to the buyer and he wrongfully neglects or
refuses to pay for the price according to the terms of the contract
2. When the price is payable irrespective of delivery or transfer of title, on a certain day and the
buyer wrongfully neglects or refuses to pay such price.
     Defense of Buyer: He may establish the fact that the seller has at anytime before judgment,
manifested his inability not to comply with the contract
3. When the goods cannot readily be resold for a reasonable price and the buyer refuses to
receive the goods when offered for delivery except when 1596 par. 4 is applicable (there is notice
of stopping the contract), with notification that the seller is holding them as bailee for the buyer

Article 1596. Damages for non-acceptance of goods.

Measure of damages:
1. As a rule: estimated loss directly and naturally resulting in the ordinary course of events from
the buyer’s breach (no available market)
2. When there is available market: ―difference‖ between contract price and market or current price
at the time when the goods ought to have been accepted or if not time has been fixed at the time
of refusal (If there are special circumstances establishing proximate damages of a different
                                             SALES                                                  24

amount than the ―difference‖ described then liability is based on the proximate damages)
Proximate Damages: refer to damages other than unrealized profits

* Repudiation of the contract or notice of stopping the contract, such as in the case of a
sale where goods are to be manufactured. Buyer here shall be liable for the cost of:
     1. labor performed
     2. expenses for materials used before receiving the notice of repudiation for stoppage
     3. unrealized profits

Article 1597. When seller may rescind contract in case there is no delivery yet
1. When buyer repudiated the contract
2. When the buyer has manifested his inability to perform his obligations
3. When the buyer has committed a breach of the contract

* Notice must be given to the buyer to totally rescind the contract.

Article 1598. Remedy of buyer in Contract to deliver specific goods: Specific Performance
w/o giving the seller option to retain the goods on payment of damages.

Article 1599. Remedies of buyer when seller commits breach of warranty.
1. Recoupment—whereby the buyer accepts the goods but he sets up against the seller the
reduction or extinction of the purchase price.
2. Action for damages—whereby the buyer may (a) accept the goods but w/ damages or (b)
refuse to accept the goods for the breach of warranty but also with damages.
3. Rescission—whereby the buyer seeks the cancellation of the sale and as a consequence
there will be restoration on both sides.

**Situations when buyer cannot choose or elect rescission (KNR)
1. If he knows of the breach of warranty when he accepted the goods w/o protest
2. If he fails to notify the seller w/in a reasonable time of the election to rescind
3. If he fails to return or offer to return the goods to the seller in substantially the same condition
as they were at the time the ownership was transferred to him.

Extinguishment of Sales

Art. 1600- Causes for Extinguishing Sales
1. Ordinary Causes—causes which extinguish ordinary contracts such as:
     a. Payment
     b. Loss of the things
     c. Novation
     d. Merger of rights of creditor and debtor
     e. Rescission
     f. Fulfillment of resolutory condition
     g. Prescription

2. Special Causes—refer to conventional redemption and legal redemption


Art. 1601. Requisites REV-CR
     a. The vendor reserves the right to repurchase the thing sold
     b. He shall shoulder the expenses of the contract and other legitimate payments made by
the buyer.
     c. He shall pay the value of the necessary and useful expenses made on the thing incurred
by the buyer
                                              SALES                                                   25

     d. He shall comply with other stipulations agreed upon.
     e. He shall return the price of the sale

     Characteristics of Conventional Redemption [EAR RPR]
     a. It begins to exist at the time of the perfection of the contract. (It becomes a mere promise
to sell if stipulated upon after the sale had been consummated)
     b. It is an accidental stipulation because it is a right created by the parties
     c. It is reciprocal when the right to redeem is exercised. (both vendor and vendee has
obligations with each other)
     d. It gives rise to a real right when properly registered because it affects third persons.
     e. It is potestative as its exercise depends upon the sole will of the vendor.
     f. It is a resolutory condition because when it is fulfilled, the ownership of the vendee over
the thing is extinguished

PACTO DE RETRO SALE                                  MORTGAGE
Ownership is consolidated in the vendee if           Failure of mortgagor to pay his obligations on
vendor does not repurchase w/in time agreed          time does not deprive him of his interest in the
upon                                                 property
No obligation on the part of the vendee to           Mortgagee must foreclose if he wants to secure
foreclose                                            a perfect title
Vendor has no more right to redeem after             Mortgagor may redeem before foreclosure and
expiration of period to redeem                       even after, w/in one year from registration of
                                                     the sale in extra-judicial foreclosure. In judicial
                                                     foreclosure redemption may be made before
                                                     confirmation of the sale by the court.
Vendee may alienate property                         Mortgagee cannot alienate property
Vendee becomes automatically the owner in            Mortgagee does not automatically become
case of vendor’s failure to redeem                   owner, there must be foreclosure sale first
Vendee is entitled to reimbursement for              Mortgagee is not entitled to reimbursement for
necessary and useful expenses                        improvements he made

Art. 1602—Presumption of Equitable Mortgage. (IPERTOD)
      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 the taxes on the thing sold.
      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.
      7. When there is doubt as to whether contract is Pacto de retro or an equitable mortgage

Equitable Mortgage—one which lacks the proper formalities, form of words or other requisites
prescribed by law for a mortgage, but however shows the intention of the contracting parties to
make the property subject of the contract as security for a debt and contains nothing impossible
or contrary to law.

Consequences of Declaration of Pacto de Retro Sale as an Equitable Mortgage (PTFR)
1. The repurchase price paid by the vendor is considered the principal of the loan.
2. Title remains in the vendor or if the title has already been transferred to the vendee, the same
must be revested into the vendor by a deed of reconveyance.
3. Any money fruits or other benefits received thereafter by the vendee are considered interests
on the loan.
4. If the vendor does not redeem on time the remedy of the vendee is to foreclose the mortgage.
                                            SALES                                                 26

Art. 1603—In case of doubt, a contract purporting to be a sale with right to repurchase shall be
construed as an equitable mortgage.
     Rationale: Least transmission of rights.
     *Although in conflict with Art. 1378, where it provides that if the contract is onerous, the
doubt shall be settled in favor of the greatest reciprocity of interests, Art. 1603 is the exception.
This is justified by the condemnation of pactum commissorium (which is a stipulation that creditor
automatically becomes owner of a property upon non-payment by the debtor)

Art. 1604—Art. 1602 also applicable to contract purporting to be an absolute sale

Art. 1605—Vendor may ask for reformation of instrument in cases referred to in 1602 & 1604

Art. 1606—Time to redeem in conventional redemption
      1. If there is a period agreed upon then this shall be observed, but this should not exceed
10 years
      2. If there is no period agreed upon, the redemption shall be exercised within 4 years from
the date of contract.
      3. If an action was brought by the seller claiming that the contract was an equitable
mortgage but later on proven that it was Pacto de retro Sale, he is given 30 days from the time
final judgment was rendered to repurchase.

Art. 1607—Judicial Order is required for the registration of the consolidation of ownership of a
real property in the vendee by failure of the vendor to redeem.
     Rationale: To accord the vendor the maximum safeguards for the protection of his legal
rights under the true agreement of the parties.

Art. 1608—The vendor may exercise his right of redemption against every possessor
whose right is derived from the vendee, even if the second contract does not mention of the right
of redemption.

Art. 1609—Vendee is subrogated to the vendor’s rights and actions
     As owner, vendee may:
     a. transfer his rights to a 3 person
     b. mortgage the property
     c. enjoy the fruits thereof
     d. recover the property against every possessor
     e. perform other acts of ownership

Art. 1610—Creditors of the vendor must exhaust first all the other properties of vendor
before they could exercise the right of redemption against the vendee.

Art. 1611—Applicability.
1. The vendee entered a Pacto de Retro Sale of a part of an undivided immovable.
2. The vendee later acquired the whole of the property.
3. The vendor in the ―Pacto de Retro Sale of a part‖ wishes to exercise his right of redemption
over the part.
If the abovementioned are present the vendee may compel the vendor in the Pacto de Retro Sale
of a part to redeem the whole property.
      Rationale: Co-ownership is not favored, because the co-owners are reluctant to make
improvements on the property due to the state of instability in its ownership.

Art. 1612—Joint Pacto de Retro Sale by Co-Owners or Co-Heirs of an Undivided
         Each Co-Owner/Co-Heir can exercise right of redemption with respect to their share
                                           SALES                                                 27

Art. 1613—In the case referred to in Art. 1612, vendee may demand that all the vendors or
co-heirs come to an agreement upon the repurchase of the whole thing, if they failed to do so
vendee cannot be compelled to accept partial redemption.

Art. 1614—Separate Sales of Shares of Co-owners of an undivided immovable.
          Each vendor may exercise their right of redemption independently and the vendee
           cannot compel any of them to redeem the whole property

Art. 1615—If the vendee dies and property is left to several heirs, the action for redemption
can only be brought to each of them independently with respect to their share, whether or not the
property is still undivided or already partitioned.

Art. 1616—Obligations of the Vendor a Retro if he desires to redeem
     a. Return to the vendee the price of the sale
     b. He shall shoulder the expenses of the contract and other legitimate payments made by
the buyer.
     c. He shall pay the value of the necessary and useful expenses made on the thing incurred
by the buyer

Art. 1617—Rule in case there is no agreement on the sharing of the fruits of the property.
     1. If there are fruits at the time of the sale and the vendee paid them, he shall be reimbursed
by the vendor.
     2. Where there are no fruits at the time of the sale but there are existing at the time of
redemption, the vendee shall be entitled to the fruits gathered for one year reckoned from the last
anniversary of the date of the effectivity of the contract of sale.

Art. 1618—The vendor who recovers the thing shall receive it free from all charges or
mortgages constituted by the vendee, but shall respect the lease contract constituted on the
property in good faith and in accordance with the customs of the place.

--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. 1620—A co-owner of a thing may exercise the right of redemption when the shares of all the
other co-owners or any of them are sold to a 3 person. If the price of alienation is grossly
excessive, redemptioner shall pay only a reasonable price.
          --If two or more co-owners desire to exercise right of redemption they may only do so in
proportion to their share.

Art. 1621—Redemption by adjacent owner of rural lands. Requisites: (RATSO)
1. The adjacent lands involved must be rural land.
2. The rural land alienated and to be redeemed must not exceed one hectare in area
3. The alienation must be made in favor of a third person, not in favor of another adjacent owner
4. The two lands involved must not be separated by brooks, drains, ravines, roads and other
servitudes for the benefit of other estates.
5. The vendee or grantee must already be an owner of a rural land. If he does not own any,
redemption is not allowed.

If two or more adjoining owners desire to exercise the right of redemption at the same time, the
one with a smaller area shall be preferred. If both have same area, the one who first requested.
                                            SALES                                                 28

Art. 1622—Applicability: Piece of Urban Land which is so small and so situated that a major
portion cannot be used for any practical purpose w/in a reasonable time, having bought merely
for speculation and is about to resold.
     *Speculation—means buying or selling with expectation of profiting by a rise and fall in price.

Rights recognized by Article 1622.
      1. Right of Pre-emption—the right of an adjacent owner to purchase the property before it
is sold to a third person or before the projected sale to a 3 person is consummated.
      2. Right of Redemption—the right of an adjacent owner to redeem the property after the
sale had been perfected and consummated.

Pre-emption                                        Redemption
Arises before sale                                 Arises after sale
No Rescission because no sale as yet exists        There can be rescission of the original sale
The action is directed against the prospective     Action is directed against the buyer

* Preference when two or more owners of adjoining lands wish to exercise the right of
redemption or pre-emption: To the owner whose intended use is best justified.

Art. 1623—Period of Legal Pre-emption or Redemption.
          Must be exercised within 30 days from the notice in writing by the prospective
          The deed of sale executed by the vendor is not registered if not accompanied by an
           affidavit that he has given the required written notice.
          The right of redemption of co-owners is superior to the right of adjoining owners.

Instances of Legal Redemption under the Civil Code (CHURC)
1. Sale of a co-owner of his share to a stranger (1620)
2. Sale of an heir of his hereditary rights to a stranger (1088)
3. Sale of adjacent small urban lands bought merely for speculation (1622)
4. Sale of adjacent rural land not exceeding one hectare (1621)
5. When a credit or other incorporeal right in litigation is sold (1634)

Instances of Legal Redemption under special laws (THEJA)
1. Redemption in tax sales
2. Redemption of homesteads
3. A right of redemption in cases of extra-judicial foreclosures
4. An equity of redemption in cases of judicial foreclosures
5. Redemption by an agricultural tenant of land sold by the landowner


Assignment of Credit—an agreement whereby credits, rights or actions pertaining to a person
(called assignor) are transferred by him to another (called assignee) either onerously or
gratuitously who acquires the power to enforce the same against the debtors.

Nature of Assignment of Credits and other incorporeal rights: Has all the elements of a contract of
sale: (1) consent (2) Object which is the credit, right , action assigned and (3) consideration which
is the price paid for the assignment, or liberality of the assignor if the assignment is gratuitous.
                                              SALES                                                    29

Distinction between Contract of Sale and Assignment of Credits
Basis                         Contract of Sale               Assignment of Credits
Object                        Property                       Credit, incorporeal rights or
                                                             rights of action
Manner of Delivery of Object  It need not be through public It must be through a public
                              instrument                     instrument (1625)
Subject obligated             The whole world                A definite third person
Ownership when transferred    Transfer of ownership need Ownership is transferred upon
                              not be upon delivery of the delivery of the documents
                              thing. The parties may agree evidencing the credit or
                              that ownership be transferred incorporeal rights
                              only after full payment (1478)
Consideration                 It is always a requisite       It is not always a requisite.
                                                             Action may be maintained by
                                                             the assignee based on his title
                                                             even      if    there   is  no

Distinction between Dation in Payment and Assignment of Credits
Basis                          Dation in Payment                  Assignment of Credits
Nature                         It is an alienation of property of The alienation of credits or
                               a debtor in satisfaction of a rights, need not be in
                               debt in money                      satisfaction of debtor’s debt
Object                         Determinate property               Credits, incorporeal rights or
                                                                  rights of action
Effect                         Obligation is extinguished         Obligation is not extinguished

         Consent of debtor is not necessary for the assignment. He is therefore released from
          the obligation if he pays the creditor before having knowledge of the assignment (1626)
         Scope of Assignment: All accessory rights, such as guaranty, mortgage, pledge or
          preference (1627)

Art. 1628 What the Assignor of the Credit Warrants? (ELS)
1. The existence of the credit at the time of the assignment
2. The legality of the credit unless he sold the thing as ―doubtful‖, meaning, he is not sure of the
validity of his acquisition of the thing sold which fact he has disclosed to the assignee
3. The solvency of the debtor, if expressly stipulated or if the insolvency of the debtor was prior to
the sale and of common knowledge

Scope of Liability in case of breach of warranty
1. In good faith: Assignor shall pay (a) consideration of price which he received from the
assignee; (b) expenses of the contract (c) other legitimate expenses occasioned by the
2. In bad faith: Same liabilities as in above but with damages

Art. 1629 Duration of the Liability of the Assignor in Good Faith (in case there is no
1. One year from the date of the assignment of the credit if the period of payment of the credit has
already expired
2. One year after maturity of the credit if the period of payment has not yet expired

Art. 1630 Sale of Inheritance (Hereditary Rights) without specification of things.
--Seller shall only be answerable for his character as an heir. He warrants the fact of his heirship
in the estate of the decedent. If it turns out that he is not an heir, then he is liable for the breach of
                                          SALES                                                30

Sale of Hereditary Rights—presumes the existence of a contract or deed of sale between the
Waiver of Hereditary Rights—a mode of extinction of ownership, where there is intentional
relinquishment of a known right with knowledge of its existence and intention to relinquish it in
favor of other persons who are co-heirs in the succession

Lump-Sum Purchase of the whole of certain rights, rents or products (1631)
     Vendor warrants the legitimacy of the whole of the rights, rents or products but not the
   various parts of which the whole is composed of.
     Exception: If the vendee is evicted from the whole or the part of the greater value (more
   than half) of the credits in which case warranty stays.

Art. 1632—If vendor profited from the fruits or received anything from the inheritance sold he
must restore it by paying the vendee, unless there is a contrary stipulation.

Art. 1633—Charges and debts on the estate paid by the vendor must be reimbursed by the
vendee, unless there is a contrary stipulation.

Assignment of Credit or right in Litigation. (1634)
     debtor is given the right to extinguish the obligation by reimbursing the assignee: (PIJ)
    a. The price paid for the credit or right
    b. Interest on the said price from the time the day it was paid
    c. Judicial costs incurred by the assignee

        When is credit or right in litigation? From the time the complaint concerning the same is
        Prescriptive Period: 30 days from the date the assignee demands payment from debtor

Exceptions to the Right of Extinguishment by the debtor (1635)
      Assignments or sales made to: (CCP)
     a. A co-heir or co-owner of the right assigned
     b. A creditor in payment of his credit
     c. The possessor of a tenement or piece of land which is subject to the right in litigation

Description: Private Sale of Goods Contract document sample