THE LAW ON SALES, AGENCY, AND CREDIT TRANSACTIONS

DE LEON & DE LEON

2010

Part 1: Sales

Chapter 1 Nature and Form of Contract

I.

Definitions

II.

Contract of Sale a contract whereby one of the parties (called the

seller or vendor) obligates himself to deliver something to the other
(called the buyer or purchaser or vendee) who, on his part, binds
himself to pay therefore a sum of money or its equivalent
Natural Elements those which are deemed to exist in certain
contracts, in the absence of any contrary stipulations like warranty
against eviction or hidden defects
Sale by description occurs where a seller sells things as being of a
particular kind, the buyer not knowing whether the sellers
representations are true or false.
o Note: If the bulk of the goods delivered do not correspond with
the description, the contract may be rescinded
Fungible goods goods of which any unit is, from its nature or by
mercantile usage, treated as the equivalent of any other unit such as
grain, oil, wine, gasoline, etc.
Conditional Sale sale contemplates a contingency and in general
where the contract is subject to certain conditions, usually the full
payment of the purchase price
o Note: The delivery of the thing sold does not transfer
ownership until the condition is fulfilled

Contracts of sale that must be in writing to be enforceable by court

action (Under Statute of Frauds):
o Sale of personal property at a price not less than P500
o Sale of real property or an interest therein regardless of the
price involved
o Sale of property not to be performed within a year from the
date thereof regardless of the nature of the property and the
price involved

Distinctions between a Contract of Sale and a Contract of Agency

Contract of Sale
Contract of Agency
Buyer receives the goods as owner
Agent receives the goods as the
goods of the principal who retains his
ownership over them
Buyer has to pay the price
Agent has simply to account for the
proceeds of the sale he may make
on the principals behalf
Buyer, as a general rule, cannot Agent can return the object in case
return the object sold
he is unable to sell the same to a
third person
Seller warrants the thing sold
Agent makes no warranty for which
he assumes personal liability as long
as he acts within his authority and in
the name of the seller
Buyer can deal with the thing sold The agent in dealing with the thing
as he pleases
received, must act and is bound
according to the instructions of his
principal

Discussions:

Difference between Earnest Money and Option Money

Earnest Money
Part of Purchase Price
Given only where there is a sale
When earnest money is given, buyer is
bound to pay the balance

Option Money
Money given as distinct consideration for
the option contract
Applies to a sale not yet perfected
Would-be-buyer is not required to buy
when he gives option money

Remedies available to a vendor in sale of personal property payable in

installments
o Elect fulfillment upon the vendees failure to pay
o Cancel the sale, if the vendee shall have failed to pay two or
more installments
o Foreclose the chattel mortgage, if one has been constituted, if
the vendee shall have paid to pay two or more installments
Characteristics of a contract of sale:
o Consnsual perfected by mere consent without further act

Bilateral because both contracting parties are bound to fulfill

obligations reciprocally towards each other
Onerous - thing sold is conveyed in consideration of price and
vice versa
Commutative - thing sold is considered the equivalent of the
price paid and vice versa
Nominate it is given a designation in the Civil Code, namely
Sale
Principal does not depend for its existence and validity upon
another contract

Chapter 2 Capacity to Buy or Sell

I.

Definitions

Necessaries things which are needed for sustenance, dwelling,

clodting and medical attendance, in keeping with the financial capacity
of the family of the incapacitated person.

Compromise
- a contract whereby the parties, by reciprocal
concessions, avoid a litigation or put an end to one already commenced

II.

Discussions

Relative incapacity of husband and wife

o Husband and wife are prohibited by the above article from
selling property to each other

People who may enter into a contract of sale

o As a general rule, all persons, whether natural or juridicial, who
can bind themselves by contract have also legal capacity to
buy and sell

Chapter 3 Effect of the Contract When The Thing Sold Has Been Lost
I.

II.

Discussions

When a thing is considered lost

o When it perishes or goes out of commerce

perishes material deterioration or complete change

in the nature of the thing
o Dissappears in such a way that its existence is unknown or it
cannot be recovered

Effect of loss of thing at the time of sale

o Lost totally:

Contract is inexistent and void because there is no

object
o Lost partially:

Vendee may:

Withdraw from the contract or

Demand the remaining part, paying its

proportionate price

Chapter 4 Obligations of the Vendor

I.

Definitions

Specific goods goods identified and agreed upon at the time a

contract of sale is made

Divisible contract its consideration is made up of several parts

Definitions

Unpaid Seller of Goods one who has not been paid or tendered the
whole price

Traditio Brevi Manu mode of legal delivery which happens when the
vendee has already the possession of the thing sold by virtue of another
title as when the lessor sells the thing leased to the lessee

Sale or Return A contract by which property is sold but the buyer

(who becomes the owner of the property on delivery), has the option to
return the same to the seller instead of paying the price.
o Option to sale or return rests on the buyer

Tradition a derivative mode of acquiring ownership by virtue of which

one who has the right and intention to alienate a corporeal thing,
transmits it by virtue of a just title to one who accepts the same

Redhibitory defect a defect in the article sold against which defect

the seller is bound to warrant
o Defect must be hidden; and

II.

It must be of such nature that expert knowledge is not sufficient

to discover it
o If veterinarian acts in bad faith (through ignorance or failure of
disclosure), he shall be liable for damages
*Article only applies tosale of animals
Implied Warranty of Fitness seller guarantees that the thing sold is
reasonably fit for the known particular purpose for which it was acquired
by the buyer
o If bought by description, it should be reasonably fit on its
merchantable quality
Eviction judicial process whereby the vendee is deprived of the whole
or part of the thing purchased by virtue of a final judgement based on a
right prior to the sale or an act imputable to the vendor
Caveat venditor doctrine that states that the vendor is liable to the
vendee for any hidden faults or defects in the thing sold, even though h
was not aware thereof.

Discussions

Sale by a person not the owner

o Where the owner of the goods is, by his conduct, precluded
from denying the sellers authority to sell.
o Where the law enables the apparent owner to dispose of the
goods as if he were the true owner thereof
o Where the sale is sanctioned by statutory or judicial authority
o Where the sale is made at merchants stores, fairs or markets
o Where the seller has a voidable title which has not been
avoided at the time of the sale
o Where seller subsequently acquires title.

Ways of effecting delivery

o By actual or real delivery
o By constructive or legal delivery

Execution of a public instrument or document

Symbolic delivery

Traditio Longa Menu

Takes place by mere consent or agreement

of the contracting parties as when the vendor
merely points to the thing sold which shall
thereafter be at the control/disposal of the
vendee.
o Only qualifies if the thing sold
cannot be delivered to the vendee
at time of sale

Traditio Brevi Manu

Traditio Constitutum Posessorium

Quasi-Traditio
o By delivery in any other manner signifying an agreement that
the possession is transferred to the vendee

Requisites for the exercise of right of stoppage in transit

o Seller must be unpaid
o Buyer must be insolvent
o Goods must be in transit

o
o
o

II.
Implied warranties in sale
o Implied warranty as to sellers title

Seller guarantees that he has a right to the the sell the

thing sold and transfer ownership
o Implied warranty against hidden defects or unknown
encumbrances

Seller guarantees that the thing sold is free from any

hidden defects
o Implied warranty as to fitness or merchantability
Sale or return distinguished from Sale on Trial
Sale or Return
Sale on Trial
Sale subject to a resolutory Subject
to
a
suspensive
condition
condition
Depends entirely on the will of Depends on the character or
the buyer
quality of the goods
Ownership of the goods passes Ownership remains in the seller
to the buyer on deliveryand until the buyer signifies his
subsequent return of the goods approval or acceptance to the
revert ownership in the seller
seller
Risk of loss or injury rests upon Risk remains with the seller
the buyer

Place of delivery of goods sold (with no agreement)

o Place of delivery is that determined by usage of trade
o When there is also no prevalent usage, the place of
delivery is the sellers place of business
Principal Obligations of the Vendor
o To transfer ownership of the determinate thing sold
o To deliver the thing
o To warrant against eviction and hidden defects
o To take care of the thing, pending delivery, with proper
diligence
o To pay for the expenses for the execution and registration
of the deed of sale, unless there is stipulation to the contrary
Risk of loss by fortuitous event after perfection but before delivery
o Borne by the buyer (as an exception to the rule of res perit
domino)

Chapter 5 Obligations of the Vendee

I.

Seller must either actually take possession of the goods sold or

give notice of his claim to the carrier or other person in
possession
Seller must surrender the negotiable instrument of title, if any,
issued by the carrier or bailee
Seller must bear the expenses of delivery of the goods after
the exercise of the right

Definitions

Acceptance of the goods assent to become owner of the

specific goods when delivery of them is offered to the buyer
Wrongful refusal of buyer to accept when buyer refuses to
accept the goods without just cause
o Risk of loss is borne by him from the moment they are
placed in his disposal

Discussions

Implied acceptance by the vendee of the goods sold

o After delivery of goods: When buyer does any act
inconsistent with the sellers ownership (as when he sells
or attempts to sell the goods, uses or makes alteration in
them in a manner proper only for an owner)
o After the lapse of reasonable time: When buyer retains the
goods without intimating his rejection

When vendee can suspend payment of price

o If he is disturbed in the possession or ownership of the
thing bought
o If he has a well-grounded fear that his possession or
ownership would be disturbed by a vindicatory action or
foreclosure of mortgage

Chapter 6 Actions for Breach of Contract of Sale of Goods

I.

Definitions

Goods includes all chattels personal but not things in action or

money of legal tender in the Philippines. This term also includes
growing fruits or crops

Recoupment accept the goods and set up the sellers breach to

reduce or extinguish the price

II.

Discussions

Actions available to the buyer in case of breach of warranty by

the seller of the goods:
o Recoupment:

Accept the goods and set up the sellers

breach to reduce or extinguish price
o Action or counterclaim for damages:

Accept the goods and maintain an action for

damages

Refuse to accept the goods and maintain an

action for damages for the breach of the
warranty
o Rescission:

Rescind the contract of sale by returning or

offering the return of the goods and recover
the price

Cases where rescission by the buyer is not allowed although

the seller has committed a breach of warranty:

If the buyer accepted the goods knowing of the

breach of warranty without protest
o If the buyer fails to notify the seller within a
reasonable time of his election to rescind
o If the buyer fails to return or offer to return the goods
in substantially as good condition as they were in at
the time of the transfer of ownership to him
Situations where the seller is given the right to bring an action
for damages against the buyer
o If the buyer, without lawful cause, neglects or refuses
to accept and pay for the goods he agreed to buy
(damages for non-acceptance)
o In an executory contract, where the ownership in the
goods has not passed, and the seller cannot maintain
an action to the price, sellers remedy will be also an
action for damages
o If the goods are not yet identified at the time of the
contract or subsequently, the sellers right is
necessarily confined to an action for damages
Situations where the seller of specific goods is given the right
to be paid notwithstanding that delivery to the buyer has not
been effected:
o When the price is payable on a certain day, and the
buyer wrongfully neglects or refuses to pay such
price, irrespective of delivery or transfer of title
o When the buyer wrongfully refuses to accept delivery

o
o
o
o

Chapter 7 Extinguishment of Sale

I.

II.

Definitions

Legal Redemption is the right to be subrogated, upon the same

terms and conditions stipulated in the contract, in the place of one
who acquires a thing by purchase or dation in payment, or by any
transaction whereby ownership is transmitted by onerous title

Equitable Mortgage is one which, although it lacks the proper

formalities of a mortgage, shows the intention of the parties to make
the property subject of the contract as a security for the fulfillment of
an obligation

Conventional Redemption is the right which the vendor

reserves to himself, to reacquire the property sold provided he
reimburses the vendee of the price, the expenses of the contract,
any other legitimate payments made therefor and the necessary
and useful expenses made on the thing sold and fulfills other
stipulations which may have been agreed upon
Discussions

Requisites for the right of legal redemption of a co-owner to exist

o There must be co-ownership

There must be alienation of all or of any of the shares of

the other co-owners
Sale must be to a third person or stranger
Sale must the before partition
Right must be exercised within the period provided in
Article 1623
Vendee must be reimbursed for the price of the sale

Cases when the contract shall be presumed to be an equitable

mortgage:
o When the price of a sale with right to repurchase is
unusually inadequate
o When the vendor remains in possession as lesee or
otherwise
o 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
o When the purchaser retains for himself a part of the
purchase price
o When the vendor binds himself to pay the taxes on the
thing sold
o 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
Obligations of a vendor a retro in case of redemption
o The vendor must return to the vendee:

Price of the sale (not the value of the thing)

Expenses of contract and other legitimate

expenses

Necessary expenses those incurred

for the preservation of the thing

Useful expenses those which increase

the value of the thing or create
improvements thereon

Chapter 8 Assignment of Credits and Other Incorporeal Rights

I.

Definitions

Assignment of credit a contract by which one person transfers

to another his rights and actions against a third person (debtor) in
consideration of a price certain in money or its equivalent

II.

Discussions

Warranties of the assignor of credit

o The assignor of credit only warrants the existence and
legality of the credit at the perfection of the contract
o There is no warranty as to solvency of the debtor unless
expressly stipulated or unless the insolvency was already

existing (and of public knowledge) at the time of the

assignment
Liabilities of the assignor of credit
o The liability of the assignor in good faith is limited only to
the price received and to the expenses of the contract, and
any other legitimate payments by reason of the
assignment
o The assignor in bad faith is liable not only for the payment
of the price and all expenses, but also for damages.
Nature of assignment of credit
o It is really a sale

Subject matter: credit or right assigned

Consideration: Price paid for the credit or right

Consent: The agreement of the parties to the

assignment at the agreed price

II.

Discussions

Similarities to Sale and Barter

o Barter is similar to sale with the only difference is that
instead of paying a price in money, another thing is given
in lieu thereof

Perfection and Consummation of the Contract of Barter

o Perfected from the moment there is a meeting of minds
upon the things promised by each party in consideration of
the other
o It is consummated from the time of mutual delivery by the
contracting parties of things they promised
Chapter 11 The Bulk Sales Law
I.

Chapter 9 General Provisions

I.

II.

Definitions

Legal tender is that currency which a debtor can legally compel a

creditor to accept in payment of a debt in money when tendered by
the debtor in the right amount

Thing or chose in action is any claim or right which may be

pleaded in a suit at law, such as claim of reparation for a tort or
right guaranteed under certain types of contracts
Discussions

Objects included in the phrase document of title to goods

according to Art. 1636:
Any
o Bill of Lading;
o Dock Warrant;
o Warehouse receipt or;
o Order for the delivery of goods or;
o Any other document used in the ordinary course of
business as proof of the possession and control of the
goods

A person is deemed insolvent when:

o A person who was ceased to pay his debt in the ordinary
course of business

Goods are in a deliverable state when:

o They are in such a state that the buyer would, under the
contract, be bound to take delivery of them

Chapter 10 Barter or Exchange

I.

Definitions

Barter one of the parties binds himself to give one thing in

consideration of the others promise to give another thing.

II.

Definitions

Fixtures merchandise usually possessed and annexed to the

premises occupied by merchants to enable them better to store,
handle, and display their wares

Merchandise must be construed to mean such things as are

usually bought and sold in trade by merchants
Discussions

When sale or transfer in bulk

o Sale, transfer, mortgage or assignment of

A stock of goods, wares, and merchandise

otherwise than in the ordinary course of
trade and the regular prosecution of the
business

All or substantially all, of the business or

trade

All or substantially all, of the fixtures and

equipment used in the business of the
vendor, mortgagor, transferor, or assignor

Purpose of the Law

o Designed to prevent defrauding of creditors by the
secret sale in bulk of all or substantially all of a
merchants stock of goods

Scheme of the law

o That such Bulk Sales are fraudulent and void as to
creditors of the vendor, or presumptively so, unless
specified formalities are observed such as

Demanding and giving list of creditors

Giving of actual or constructive notice to

such creditors

Making of an inventory