Earnest Money – also called “arras” is the money given as part of the purchase price and as a proof of

the perfection of the contract.

Option Money – is the consideration paid for the purpose of holding one to his promise to buy or sell a
determinate thing for a certain period of time, which consideration is separate and distinct from the
purchase price.

WHO BEARS THE RISK OF LOSS/DETERIORATION

1) Before perfection
 Res perit domino – the owner bears the loss
 Seller
2) At perfection
 Res perit domino – the owner bears the loss
 Seller
Explanation: Buyer is the one who possessed the thing sold at perfection but since there is a
loss on the thing (means no object involve) so the contract is void or inexistence concluding
that the object is in possession of seller
3) After perfection but before delivery
 Exception to Res perit domino
 Buyer
4) After delivery
 Res perit domino – the owner bears the loss
 Buyer

REMEDIES OF VENDOR IN INSTALLMENT SALES

1) Exact fulfillment of the obligation, should the vendee fail to pay

2) Failure of two (2) or more installments, at his option, avail himself of:
a. Exact fulfillment of the obligation, should the vendee fail to pay; or
b. Either of the following:
B.1 Cancel the sale – sums less reasonable rent
B.2 forecloses the chattel mortgage but no further action against the purchaser to recover
any unpaid balance of the price.

CAPACITY TO BUY OR SELL

GENERAL RULE: All parties with capacity to contract can enter into a valid contract of sale whether (1)
Natural or (2) Judicial - corporation/partnership/associations/cooperatives except for:

1) Absolute incapacity
Except for  Minors Is a valid contract which
necessaries may be either affirmed or
(includes  Insane or demented persons Voidable rejected at the option of
everything  Deaf-mutes who do not know to write one of the parties
indispensable
or necessary 2) ‘Relative’ incapacity – this applies to certain persons who, under circumstances, cannot
for
purchase certain property.
sustenance)
sold to minors
where they
must pay a
reasonable
price.
 a. Husband and wife – void or inexistence
Except if:
 When a separation of property was agreed upon in the marriage settlements/pre-
nuptial or ante-nuptial agreement.
 When there has been a judicial separation of property
b. GAEPJ
 Guardian Voidable
 Agent Private Interest
 Executor or administrators
 Public officers and employees Void
Public Interest
 Justices, judges and presenter

“SALE OR RETURN” AND “SALE ON APPROVAL”

Sale/Return Sale on trial

1) Subject to a resolutory condition (refers to
condition whereby upon fulfillment
terminates an already enforceable obligation)
2) Depends entirely on the will of the buyer
3) Ownership passes to the buyer on a delivery
and subsequent return reverts ownership in
the seller
4) Risk of loss/injury rests upon the buyer
1) Subject to a suspensive condition (is a
condition which suspends rights and
obligations until the uncertain future event
occur)
2) Depends on the character/quality of the goods
3) Ownership remains in the seller until buyer
signifies his:
a. approval/acceptance of the goods to the
seller
b. when he does an act adopting the
transaction
c. retains the goods within the time fixed in
the contract, or within a reasonable time,
and such time where expired.
4) Risk of loss remains with the seller (except loss
is due to the fault of the buyer)

SALE BY A PERSON WHO IS NOT THE OWNER OF THE THING SOLD

a. Buyer acquires no title even if in good faith and for value, “Nemo dat qui nen habet”, (You
cannot give what you do not have)
b. Exceptions:
1) Owner
2) Agent
3) The owner is stopped by his conduct
4) Under recording
5) Sales sanctioned by judicial on statutory authority
6) Purchase in a merchants store/markets
7) Title of the seller was merely voidable/defective at the time of sale

WHEN THE SELLER’S TITLE TO THE GOODS IS VOIDABLE

 If the seller’s title is voidable but the same has not been avoided at the time of sale, the buyer
acquires a good title to the goods, provided he buys them in good faith, for value, and without notice of
the seller’s defect of title.

Document of title of goods – includes any document used in the ordinary course of business in the sale
or transfer of goods

Common forms of documents of title

1) Bill of lading – this refers to the written acknowledgement of the receipt of the goods
2) Dock warrant – a warrant given by a dock owner to the owner of the goods imported and
warehoused on the dock
3) Warehouse receipt or order – this is a written acknowledgement by a warehouseman of the
receipt of the goods which are placed in his possession.

Classes of documents of title

1) Negotiable documents of title – is one which it is stated that the goods will be delivered to
bearer, to the order of any person named in such document
2) Non-negotiable documents of title – is one in which it is stated that the goods are to be
delivered to a specified person.

OBLIGATIONS OF THE VENDOR

1) Deliver thing sold

2) Transfer ownership
3) Warranties
4) Exercise diligence pending delivery
5) Pay for the expense of the contract unless there is a stipulation to the contrary

OBLIGATIONS OF THE VENDEE

1) Payment of the price
2) Accept the delivery
3) Pay the expenses of the contracts (if stipulated)

RIGHTS OF AN UNPAID SELLER

Unpaid seller – is one who has not been paid the whole price because the buyer is insolvent

Four (4) Rights of the unpaid seller:

1) Possessory Lien – right to retain goods while in the possession

2) Stoppage in transitu – right to resume possession of the goods at any time while they are in
transit
3) Resale
4) Rescind the sale

If no available remedies:

(Purchase Price + damages) will be collected from the buyer when he is now solvent.
INSTALLMENT SALE OF REAL PROPERTY (R.A. 6552/REALTY INSTALLMENT BUYER ACT)

Objective: to protect buyers of real estate on installment payments against onerous and oppressive
conditions

Real Property – includes residential condominium, apartment but excluding industrial lots, commercial
buildings, and sales to tenants.

Rights of the buyer

1) If at least 2 years of installments had been paid at the time of default

 Pay the unpaid installment without interest herein within the grace period given by the
seller
One (1) month grace period = One (1) Installments paid
Note: This right shall be exercised only once in every five (5) years of the life of the
contract and its extensions, if any.

Rights of the buyer during the grace period before the cancellation of the contract
1. To sell his right to another, by notarial act
2. To assign his right to another, by notarial act
3. To reinstate the contract by updating the account

 If the contract is cancelled, he shall be entitled to the refund of the cash surrender value
of the payments on the property equivalent to fifty percent (50%) of the total payments
made, and after five years of installments, an additional five percent (5%) every year
but not to exceed ninety percent (90%) of the total payments made.

Price paid
Options ××
Down payment ××
Deposits ××
Installment ××
Multiply by: Applicable rate ××
Cash surrender value ××

More than 5 years installments paid = 50%

In excess of 5 years +5% but not exceed 90%
Less than 5 years installments paid = 50%

2) If less than two (2) years of installments had been paid

a. Pay the unpaid installment without interest herein within the grace period given by the
seller which is sixty (60) days from the date the installment become due

Rights of the buyer during the grace period before the cancellation of the contract
1. To sell his right to another, by notarial act
 2. To assign his right to another, by notarial act
3. To reinstate the contract by updating the account
Failure to pay
 Seller may cancel the sale after 30 days from the date the buyer received the notice of
cancellation

b. To ask for annotation of the full payment of the purchase price in the certificate of title
covering the property

INSTALLMENT SALE OF PERSONAL PROPERTY

Rights of the seller

1) Exact fulfillment of the obligation, should the vendee fail to pay

 This remedy applies regardless of the number of installments defaulted
2) Vendee’s failure to pay two (2) or more installments
a. Cancel the sale – sum less reasonable rent
b. Foreclose the chattel mortgage – no further action against the purchases to recover any
unpaid balance of the price
PLEDGE
1) Accessory contract
2) Real contract
3) Constituted on movables
4) Properties is delivered to
pledged 3rd persons
5) Not valid against 3rd
persons unless a
description of the thing
pledged and the date of
the pledge appear in
public instrument
6) Debtor not entitled to
excess unless otherwise
agreed or except in case of
legal pledge
7) Creditor not entitle to
deficiency
notwithstanding
stipulation to the contrary
REAL MORTGAGE
Consensual contract
Constituted on immovable
Delivery is not necessary
Not valid against 3rd persons
if not registered
If property is foreclosed, the
excess over the amount due
goes to the debtor
If property is foreclosed, there
is deficiency. Creditor is
entitled to recover the
deficiency from the debtor.
CHATTEL MORTGAGE
Consensual contract
Constituted on movables
Delivery is not necessary
Registration in chattel
mortgage. Registration is
necessary for validity
If property is foreclosed, the
excess over the amount due
goes to the debtor
If property is foreclosed and
there is deficiency, creditor is
entitled to recover the
deficiency from the debtor.