CHAPTER 1

Contract of Sale – contract whereby one of the parties (seller or vendor) obligates himself to
deliver something to the other (buyer or purchaser or vendee) who, on his part, binds himself
to pay therefor a sum of money or its equivalent.

CHARACTERISTICS OF A CONTRACT OF SALE

1. Consensual – perfected by mere consent without any further act
2. Bilateral – both contracting parties are bound to fulfill obligations reciprocally towards
each other,
3. Onerous – thing sold is conveyed in consideration of the price and vice versa
4. Commutative – thing sold is considered the equivalent of the price paid and vice versa.
5. Nominate – given a special name or designation in the Civil Code
6. Principal – does not depend for its existence and validity upon another contract.

REQUISITES OF A CONTRACT OF SALE

1. Consent or Meeting of the Minds – where there is merely an offer by one party,
without the acceptance of the other, there is no consent.
2. Object or Subject Manner – thing must be determinate or at least capable of being
made determinate, licit or lawful, not impossible and within the commerce of men; may
be real or personal property
3. Cause or Consideration – the cause is the buyer’s promise to pay the price and the
seller’s promise to deliver the thing

Natural Elements – deemed to exist in certain contracts (warranty against eviction or hidden
defects)

Accidental Elements – may be present or absent depending on the stipulations of the parties
(conditions, interest, penalty, time or place of payment)

TWO KINDS OF CONTRACT OF SALE

1. Absolute – sale is not subject to any condition whatsoever and where the title or
ownership passes to buyer upon delivery
2. Conditional – sale contemplates a contingency

* Services may be the object of a contract but they cannot be the object of a contract of sale.

KINDS OF ILLICIT THINGS

1. Illicit per se – when by its nature it is heinous, immoral or wrongful (decayed food unfit
for consumption)
2. Illicit per accidens – prohibited by law (prohibited lottery tickets and drugs)

When is a thing determinate?

a. When it is particularly designated or physical segregated from all others of the same
class
b. The thing is capable of being determinate, at the time the contract is entered into,
without the necessity of a new or further agreement between the parties.

* A future thing not existing at the time the contract is entered into, may be the object of sale
provided it has a potential or possible existence
* The sale of hope or expectancy itself is valid even if the thing hoped or expected does not
come into existence, unless the hope or expectancy is void.

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 The uncertainty is with regard the
and quality but not with regard the existence of the thing
existence of 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, thing itself does not come into existence,
there is no contract for lack of an essential since the subject matter is the hope itself
requisite

Future Goods that may 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

Fungible Goods – goods of which any unit is, from its nature or by mercantile usage, treated as
the equivalent of any other unit

Purchase of an Undivided Share in Specific Mass of Fungible Goods. Rules:

1. If the aliquot part purchased is more than the whole undetermined mass after it had
been weighed or measured, then the buyer become 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 stock.

Resolutory Condition – uncertain event upon the happening of which the obligation subject to
it is extinguished.

CONTRACT OF SALE AGENCY TO SELL

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
goods/property purchased the goods/property delivered to him for
sale.
Buyer cannot return the goods/property The agent returns the goods/property if he
when the sale is defective was not able to sell the same
The seller warrants the goods/property The agent does not make any warranty as
sold long as he acts within his authority and in
the name of the principal
The seller has full freedom to enter into The agent must follow the instructions of
any terms or conditions on the contract of the principal
sale
 Contract for a piece of work
The thing transferred is one not in existence
and which never would have existed but for
the order of the party desiring to acquire it
The services dominate the contract
eventhough there is a sale of goods involved
Not w/in the Statute of Frauds
Contract of Sale
The thing transferred is one which would have
existed and would have been the subject of
sale to some other person, even if the order
had not been given
The primary objective of the contract is a sale
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
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>money = BARTER
b. If value<money = SALE
c. If value = money = SALE

Rules if there is no specific amount stipulates as purchase price

1. It is still certain if it is determinable by making reference to another thing certain
2. It is still certain if determination is entrusted to the judgment of a specified person
Except:
a. When the 3rd person acts in bad faith
b. When the 3rd person disregards the specific instructions or the procedure
marked out by the parties

Effect when the price is not fixed by the 3rd person

1. The contract shall become ineffective, unless the parties subsequently agree upon the
price.
2. If prevented 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:
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 liberty.

When the price cannot be determined, sale is inefficacious.

* Ownership is not transferred until the delivery of the thing

RULES ON AUCTION SALES
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.

Effect of Unaccepted Unilateral Promise – creates no juridical effect or legal bond

Policitation – unaccepted offer

Option - 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.

RISK OF LOSS OR DETERIORATION

1. Lost before perfection – seller bears the loss
2. Lost at the time of perfection – contract is void or inexistent
3. Lost after perfection but before its delivery – risk of loss is shifted to the buyer
4. Lost after delivery – buyer bears the loss

Earnest Money Option Money

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

* In case the contract of sale should be covered by the Statute of Frauds, the law
requires that it be in writing and signed by the party charged, otherwise the contract
cannot be enforced.

The following contracts must be in writing:

1. Sale of personal property at a price not less than P500
2. Sale of real property or an interest therein regardless of the price involved.
3. 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.
* A sale of a piece of land or interest therein when made through an agent is void
UNLESS the agent’s authority is in writing

* For the sale of real property to be effective against third persons, the sale must be
registered in the Registry of Deeds of the province or city where the property is located.

* Statute of Frauds is applicable only to executory contracts where no delivery and

payment has yet been made.

* The expenses for the execution and registration of the sale shall be borne by the
vendor, unless there is a stipulation

CHAPTER 2

KINDS OF INCAPACITY
1. Absolute – persons who cannot bind themselves
2. Relative – exists only with reference to certain persons or a certain class of
property.

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

* Minors in contract for necessaries must pay reasonable price, therefore the minor has
the right to recover any excess above a reasonable value paid by him.

* Donations after marriage is exclusive

REASONS FOR PROHIBITIONS AGAINST HUSBAND AND WIFE

a. To avoid Prejudice to 3rd person
b. To prevent one from unduly Influencing the other
c. To avoid indirect Donations

Who can attack the transaction?

a. Creditors at the time of transaction
b. Heirs of either spouse

PERSONS RELATIVELY INCAPACITATED TO BUY

1. Guardian—Property of Ward.
2. Agents—Property of Principal unless with consent.
3. Executors and administrators—Estate
4. Public Officers and employees—Property of State.
5. Justices, Judges, Prosecuting Attorneys, Clerks and employees of court—
Property/Rights under litigation.
6. Others disqualified by law.
* Voidable (1-3) because private interests are affected; Void (4-6) because public interest are
being involved therein.

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

Renunciation – creditor gratuitously abandons his right against his creditor.

CHAPTER 3

PARTIAL LOSS RULES:

1. Vendee may withdraw from the contract
2. Vendee may demand the remaining part, paying its price in proportion t the total sum
agreed upon

LOSS/SUBSTANTIAL DETERIORATION OF SPECIFIC GOODS WITHOUT THE SELLER’S

KNOWLEDGE
1. Buyer may avoid the sale
2. Valid with respect to the existing goods

CHAPTER 4

OBLIGATIONS OF THE VENDOR

1. Transfer the ownership
2. Deliver
3. Warrant Object
4. Preserve thing from perfection to delivery
5. Pay for the expenses for the execution and registration, unless there is a stipulation

KINDS OF DELIVERY
1. Actual or Real
2. Legal or Constructive
a. Execution of a public instrument
b. Symbolical Tradition or Traditio Symbolica – delivery of keys of the place or
depository where it is stored or kept
c. Traditio Longa Manu – by mere consent/agreement. If the thing sold cannot be
transferred to the possession of the vendee at the time of the sale.
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 – owner becomes lessee
f. Quasi-delivery or Quasi-Traditio – mode of delivery of incorporeal things or rights
3. Delivery in any other manner signifying an agreement that the possession is transferred
to the vendee.

* A seller cannot deliver constructively if he cannot deliver actually even if he wants to.

Basis Sale or Return Sale on Approval

Condition Subject to Resolutory Subject to suspensive
condition condition
 Premise It depends upon the will of It depends upon the
the buyer suitability, quality or
character of the goods
Transfer of ownership Ownership immediately Ownership does not
passes to the buyer on immediately pass to the
delivery buyer. It passes only upon
approval or satisfaction of
the buyer duly manifested
after trial
Revesting of ownership in Ownership is revested in There is no revesting of
the owner the seller if the buyer so ownership because it is
decides 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
before the revestment of seller while the goods are
ownership on trial

RESERVATION OF POSSESSION OR OWNERSHIP BY THE SELLER WHEN SPECIFIC

GOODS ARE SHIPPED
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.
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 seller disposes the goods to the third person, he is liable to the buyer but the second
purchaser from the seller acquires the better right

* The buyer is bound to return the bill of lading if he does not honor the bill of exchange

* The buyer acquires no better title to the goods than the seller had

Document of title – symbol of the goods covered by it, serving as evidence of transfer of title,
transfer of possession and contract between parties

COMMON FORMS OF DOCUMENTS OF TITLE

1. Bill of Lading – contract or receipt for the transport of goods and their delivery to the
person names therein, to order, or to bearer. It usually involves 3 persons: carrier,
shipper and consignee.
2. Dock warrant – instrument given by dock owners to an importer of goods warehoused
on the dock recognizing the importer’s title to the said goods
3. Warehouse Receipt – contract or receipt for goods deposited with a warehouseman
containing the latter’s undertaking to hold and deliver the said goods to a specified
person, to order, or to bearer.
4. Quedan – a warehouse receipt for commodities or goods such as sugar, tobacco, rice or
hemp.
CLASSES OF DOCUMENTS OF TITLE
1. Negotiable Documents of Title – 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 Documents of Title – goods covered are deliverable to a specified
person

Negotiable documents of title marked “NON-NEGOTIABLE” may nevertheless be

negotiated (The obligations of the carrier, warehouseman and other bailee is not limited)

* Even if the non-negotiable document is indorsed, the transferee acquires no additional right

* Right of the transferee is not absolute as it is subject to the terms of any agreement

TRANSFER OF ORDER DOCUMENT WITHOUT INDORSEMENT

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

* Indorser is not liable for any failure on the part of the bailee

* Attachment or levy upon goods covered by a negotiable document is not allowed while in
possession of bailee unless document be first surrendered or its negotiation prohibited by the
court.

PLACE OF DELIVERY OF GOODS

a. Agreement
b. Usage of Trade
c. Seller’s Place of Business
d. Seller’s Residence
e. Specific Goods: Place where goods are at the time of contract known to parties

* The 3rd person holding the goods must acknowledge being the bailee for the buyer

DELIVERY OF GOODS LESS THAN THE QUANTITY CONTRACTED

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 (MV) of the goods (If he did not know that the seller is going to be
guilty of breach of contract)

DELIVERY OF GOODS MORE THAN QUANTITY CONTRACTED

1. Accept and Reject excess
2. Accept all and be liable for all of them

DELIVERY OF GOODS MIXED WITH OTHERS

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

* If the goods are indivisible the buyer may reject the whole of the goods.
KINDS OF DELIVERY TO CARRIER
1. C.O.D or Collect on Delivery – carrier acts for the seller in collecting the purchase price
2. F.O.B or Free on Board – goods are to be delivered free of expense to the buyer to the
point where they are F.O.B.
3. C.I.F or Cost Insurance and Freight – price fixed covers not only the cost of goods but
the expenses of freight and insurance
4. F.A.S or Free Alongside Vessel – seller pays all charges and bears the risk
5. Ex Factory, Ex Warehouse – seller agrees to place the goods at the disposal of the
buyer at the agreed place on the date within the period fixed
6. Ex Dock – seller quotes a price including the cost of the goods on the dock at the
named port of importation

Unpaid Seller – one who has not been paid or tendered the whole price or who has received a
bill of exchange or other negotiable instrument as conditional payment and the condition on
which it was received has been broken by reason of the dishonour of the instrument.

REMEDIES OF AN UNPAID SELLER

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.

CHAPTER 5

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.

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.

* 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.
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)

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
extra-judicially.

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

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.

Exception to the general rule on rescission in case of sale of immovable

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

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.
CHAPTER 6

Actions available to vendor when there is breach of contract of sale on the part of the vendee:
1. Action for payment of the price of the goods
2. Action for damages due to refusal for the goods
3. Action for rescission

Actions available to the vendee, in case of breach by the vendor (SDR)

1. Action for specific performance
2. Action for damages
3. Action for rescission

Action for collection of price, available in the following cases:

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
1. 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

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

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

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.

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
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.