REGULATORY FRAMEWORK for BUSINESS TRANSACTIONS

Sales 2. Sale of a real property or an interest

A contract whereby one of the contracting parties therein;
(known as the seller or vendor), obligates himself 3. Sale of property not to be performed
to transfer the ownership of and to deliver a within a year from the date thereof;
determinate thing, and the other party, (known as 4. When an applicable statute requires
the buyer or vendee), obligates himself to pay that the contract of sale be in a certain
therefor a price certain in money or its equivalent. form (Art. 1403, par.2, NCC)
(Art. 1458, New Civil Code)
Kinds of Contract of Sale
Elements of a contract of sale
1. Essential elements – for validity: Absolute Sale
a. Consent A sale is absolute when no condition is imposed
b. Determinate subject matter and ownership passes to the vendee upon
c. Consideration delivery of the thing subject of the sale (Art. 1497,
NCC).
2. Natural elements – those which are inherent in
the contract, and which in the absence of any Conditional Sale
contrary provision, are deemed to exist in the It is conditional where the sale contemplates a
contract contingency, and in general, where the contract
a. Warranty against eviction is subject to certain conditions, usually in the
b. Warranty against hidden defects case of the vendee, the full payment of the agreed
purchase price and in the case of the vendor, the
3. Accidental elements – dependent on parties’ fulfillment of certain warranties
stipulations;
Examples: CONDITIONAL SALE ABSOLUTE SALE
a. Conditions One where the seller is One where the title to the
b. Interest granted the right to property is not reserved
unilaterally rescind the to the seller or if the
c. Time & Place of payment
contract predicated on seller is not granted the
d. Penalty the fulfillment or right to rescind the
nonfulfillment, as the contract based on the
Characteristic of Contract of Sale case may be, of the fulfillment or
1. Consensual prescribed condition. nonfulfillment, as the
case may be, of the
2. Bilateral prescribed condition
3. Commutative
4. Principal Contract to sell
5. Onerous Contract to sell may be defined as a bilateral
6. Nominate contract whereby the prospective seller, while
expressly reserving the ownership of the subject
Formal requirement for the validity of a property despite delivery thereof to the
contract of sale prospective buyer, binds himself to sell the said
property exclusively to the prospective buyer
GR: A contract of sale may be made in writing, or upon fulfillment of the condition agreed upon,
by word of mouth, or partly in writing and partly that is, full payment of the purchase price
by word of mouth, or may be inferred from the (Coronel v. Court of appeals, G.R. no. 103577,
conduct of the parties (Art. 1483, NCC). October 7, 1996)

XPNs: CONTRACT CONTRACT

a) If the law requires a document or other special BASIS
OF SALE TO SELL
form, the contracting parties may compel each Ownership is
Ownership is
other to observe that form (Art. 1357, NCC). transferred to
transferred
the buyer upon
b) Under Statute of Frauds, the following upon full
delivery of the
contracts must be in writing; otherwise, they As regards payment of the
object to him.
shall be unenforceable: transfer of purchase price.
ownership
1. Sale of personal property at a price not NOTE: Vendor
NOTE: Prior to
less than P500; has lost and
full payment,
cannot recover
ownership is
ownership until

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 SALES

and unless the retained by the 3. Husband and wife - sale by and between
contract is seller. spouses
resolved or
rescinded
There are two XPN to XPN:
contracts: 1. Where necessaries are sold and delivered to a
minor or other person without capacity to act, he
1. The contract must pay a reasonable price therefor.
to sell
2. In case of sale between spouses:
NOTE: a. when separation of property was
There is only Preparatory agreed upon in the marriage settlements;
one contract sale or
As to numbers
executed b. when there has been a judicial
of contracts
between the 2. The deed of
involved
seller and the absolute sale
separation of property agreed upon
buyer. between them
NOTE: The
principal Persons relatively incapacitated to be the
contract is vendee in a contract of sale (AGE-COP)
executed after
full payment of
RELATIVELY PROPERTIES STATUS OF RATIFICATION
the purchase INCAPACITATED INVOLVED SALE
price TO BUY
Full payment of Agents Property Unenforce Can be
the price is a entrusted to able ratified after
Non-payment positive them for the
of the price is a suspensive administratio inhibition
resolutory condition. n or sale has ceased
condition.
Vendor loses NOTE: Failure XPN: When Reason: the
ownership over to fully pay the principal gave only wrong
Payment as a
the property price is not a his consent that
condition
and cannot breach but an subsists is
recover it until event that Guardian Property of the Voidable the private
and unless the prevents the ward during wrong to the
contract is obligation of period of ward,
resolved or the vendor to guardianship principal or
rescinded. convey title estate; and
Executors and Property of the
from becoming can be
administrator estate under
effective. condoned
s administratio
1. Specific n by the
Remedies Performance 1. Resolution 2. private
available 2. Rescission 3. Damages parties
Damages themselves
Court officers Property and Void Cannot be
Parties to a contract of sale and rights in ratified
employees litigation or
levied upon on Reason: It is
1. Seller – one who sells and transfers the thing
execution not only a
and ownership to the buyer before the private
2. Buyer – one who buys the thing upon payment court under wrong, but
of the consideration agreed upon their also a
jurisdiction public
Others wrong.
Persons who may enter into a contract of sale
specially
disqualified by
GR: All persons, whether natural or juridical, law
who can bind themselves, have legal capacity to
buy and sell (Art. 1489, par. 1, NCC). Pubic officers Property of the
and State
employees entrusted to
XPNs: them for
1. Minors, insane and demented persons and administratio
deaf-mutes who do not know how to write n
2. Persons under a state of drunkenness or
during hypnotic spell
 SALES

Requisites of a proper objects of sale Obligations of the Seller

1. Things 1. Deliver the thing sold;

a. Determinate or determinable 2. Deliver fruits & accessions/accessories
b. Lawful (licit), otherwise contract is void accruing from perfection of sale;
c. Should not be impossible (within the 3. Transfer the ownership;
commerce of men) 4. Warranties;
5. Take care of the thing, pending delivery, with
NOTE: From the viewpoint of risk or loss, not proper diligence;
until the object has really been made determinate
can we say that the object has been lost, because Price
“genus never perishes.”
It must be:
2. Rights 1. Real
GR: Must be transmissible. 2. In money or its equivalent
3. For valuable consideration
Example: right of redemption, right of usufruct, 4. Certain or ascertainable at the time of
sale of credit, right to inheritance already the perfection of the contract
assigned, etc.
Effect if price is simulated
XPN:
a. Future inheritance – cannot be the subject of GR: The sale is void.
sale
b. Service – cannot be the object of sale. They are XPN: If it can be shown to be a donation or
not determinate things and no transfer of another contract (Art. 1471, NCC). The price is
ownership is available but it can be the object of simulated when neither party had the intention
certain contracts such as contract for a piece of that the amount will be paid
work.
Effect of Gross Inadequacy of Price
Objects of Sale
GR: It does not affect the validity of the sale if it
1. Existing Goods – owned/ possessed by seller is fixed in good faith and without fraud
at the time of perfection
2. Future Goods – goods to be manufactured, XPN: (CoRDS)
raised, acquired by seller after perfection of the 1. If Consent is vitiated (
contract or whose acquisition by seller depends 2. If the parties intended a Donation or some
upon a contingency (Art. 1462, NCC) other act/ contract
3. If the price is so low as to be “Shocking to the
EMPTIO REI EMPTIO SPEI conscience”
SPERATAE
Sale of thing having Sale of mere hope or Option money
potential existence expectancy
Uncertainty is w/ regard Uncertainty is w/ regard
to quantity & quality to existence of thing It is the distinct consideration in case of an option
Contract deals w/ future Contract deals w/ contract. It does not form part of the purchase
thing present thing – hope or price hence; it cannot be recovered if the buyer
expectancy did not continue with the sale. (Art. 1479, NCC).
Sale is valid only if the Sale is valid even though
expected thing will exist. expected thing does not
come into existence as Earnest money or “arras”
long as the hope itself
validly existed. (eg. lotto) This is the money given to the seller by the
prospective buyer to show that the latter is truly
Obligations of the Buyer interested in buying the property, and its aim is
to bind the bargain
1. Payment of the price
2. Accept delivery of thing sold
 SALES

It is considered as: b. No inscription, first to possess in good

1. Part of the purchase price – earnest money is faith
deducted from the total price; c. No inscription & no possession in good
2. Proof of perfection of the contract (Art. 1482, faith –Person who presents oldest title in
NCC). good faith

OPTION MONEY EARNEST MONEY A thing is considered as lost

Money given as distinct Forms part of the
consideration for an purchase price GR: It is understood that the thing is lost when
option contract
Applies to a sale not yet Given only when there is
it:
perfected already a sale 1. perishes, or
Prospective buyer is not When given, the buyer is 2. goes out of commerce, or
required to buy. bound to pay the 3. disappears in such a way that its existence is
balance. unknown or cannot be recovered (Art. 1189, 2nd
If buyer does not decide If sale did not
to buy, it cannot be materialize, it must be
par., NCC).
recovered. returned.
XPN: In an obligation to deliver a generic thing,
Three (3) stages involved in the formation of a the loss or destruction of anything of the same
contract of sale kind does not extinguish the obligation (Art.
1263, NCC).
1. Negotiation/Preparatory offer/Policitation
2. Perfection Installment Sales Law
3. Consummation
Commonly known as the Recto Law. It is
Transfer of ownership embodied in Art. 1484 of the NCC, which provides
for the remedies of a seller in the contracts of sale
It is tradition or delivery, which is a consequence of personal property by installments.
of the sale that transfers ownership.

Different kinds of delivery Application of Recto Law

1. Actual – thing sold is placed under the control
and possession of buyer/agent;
2. Constructive – does not confer physical
possession of the thing, but by construction of
law, is equivalent to acts of real delivery.
Double Sale (Article 1544, NCC)
There is double sale when the same object of the
sale is sold to different vendees.
This law covers contracts of sale of personal
property by installments (Act No. 4122). It is also
applied to contracts purporting to be leases of
personal property with option to buy, when the
lessor has deprived the lessee of the possession
or enjoyment of the thing (PCI Leasing and
Finance Inc. v. Giraffe- X Creative Imaging, Inc.,
G.R. No. 142618, July 12, 2007).
Requisites of the Recto Law

Requisites of Double Sales 1. Valid contract of sale;

2. Subject matter is personal property;
1. Same subject matter 3. Payable in installments; and
2. Same immediate seller 4. In the case of the second and third remedies,
3. Two or more different buyers that there has been a failure to pay two or more
4. Both sales are valid installments (Art. 1484, NCC).

Rules according to Article 1544 of the Civil Alternative remedies in case of sale of
Code (Rules on preference) personal property in installments

1. Movable – Owner who is first to possess in good 1. Specific Performance: Exact fulfillment should
faith the buyer fail to pay
2. Immovable –
a. First to register in good faith
 SALES
GR: If availed of, the unpaid seller cannot
anymore choose other remedies;
XPN: if after choosing, it has become impossible,
rescission may be pursued
2. Rescission: Cancel the sale if buyer fails to pay
2 or more installments. Deemed chosen when:
a. Notice of rescission is sent
b. Takes possession of subject matter of
sale
c. Files action for rescission
3. Foreclosure: Foreclose on chattel mortgage if
buyer fails to pay 2 or more instalments. 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.
GR: Actual foreclosure is necessary to bar
recovery of balance.
XPN: Mortgagor refuses to deliver property to
effect foreclosure; expenses incurred in attorneys
fees, etc.
NOTE: The remedies are alternative not
cumulative. Availment of one is a bar to the other
remedies
Rationale of Recto Law
To remedy the abuses committed in connection
with the foreclosure of chattel mortgages and to
prevent mortgagees from seizing the mortgaged
property, buying it at a foreclosure sale for a low
price and then bringing suit against the
mortgagor for a deficiency judgment
Realty Installment Buyer Act
Commonly known as the “957 Law.” It is
embodied in R.A. 6552 which provides for certain
protection to particular buyers of real estate
payable on installments. The law declares as
"public policy to protect buyers of real estate on
installment payments against onerous and
oppressive conditions.
NOTE: The purpose of the law is to protect
buyers in installment against oppressive
conditions.
Q: What are the so-called “Maceda” and
“Recto” laws in connection with sales on
installments? Give the most important
features on each law.
A: The Maceda Law (R.A. 6552) is applicable to
sales of immovable property on installments.
The most important features are:
1. After having paid installments for at least two
years, the buyer is entitled to a mandatory grace
period of one month for every year of installment
payments made, to pay the unpaid installments
without interest.
If the contract is cancelled, the seller shall refund
to the buyer the cash surrender value
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.
2. In case the installments paid were less than 2
years, the seller shall give the buyer a grace
period of not less than 60 days. If the buyer fails
to pay the installments due at the expiration of
the grace period, the seller may cancel the
contract after 30 days from receipt by the buyer
of the notice of cancellation or demand for
rescission by notarial act. (Rillo v. CA, G.R. No.
125347 June 19, 1997)
The Recto Law (Art.1484) refers to sale of
movables payable in installments and limiting
the right of seller, in case of default by the buyer,
to one of three remedies:
1. Exact fulfillment;
2. Cancel the sale of two or more installments
have not been paid;
3. Foreclose the chattel mortgage on the things
sold, also in case of default of two or more
Unpaid Seller
One is considered as unpaid seller when:
1. The whole of the price has not been
paid or tendered;
2. A bill of exchange or other negotiable
instrument has been received as
conditional payment, and the condition
on which it was received has been broken
by reason of the dishonor of the
instrument, the insolvency of the buyer,
or otherwise.
Remedies of an Unpaid Seller
I. Ordinary
1. Action for Price
 SALES
Exercised when:
a. ownership has passed to
buyer;
b. price is payable on a day
certain
c. goods cannot readily be resold
for reasonable price and Art.
1596 is inapplicable
2. Action for Damages – In case of
wrongful neglect or refusal by the buyer
to accept or pay for the thing sold
II. Special
1. Possessory Lien – Seller not bound to
deliver if buyer has not paid him the
price. This remedy presupposes that the
sale is on credit. It is exercisable only in
following circumstances:
a. goods sold without stipulation
as to credit
b. goods sold on credit but term
of credit has expired
c. buyer becomes insolvent
NOTE: When part of goods delivered, may still
exercise right on goods undelivered
2. Stoppage in Transitu
Requisites: I-CSENT-U
a. Insolvent buyer
b. The sale of goods must be on Credit
c. Seller must Surrender the negotiable
document of title, if any
d. Seller must bear the Expenses of
delivery of the goods after the exercise of
the right.
e. Seller must either actually take
possession of the goods sold or give
Notice of his claim to the carrier or other
person in possession
f. Goods must be in Transit
g. Unpaid seller
3. Special Right to Resell the Goods
Exercised when:
a. Goods are perishable,
b. Stipulated the right of resale in case of
default, or
c. Buyer in default for unreasonable time
Remedies of the buyer
I. Immovables in general
1. Disturbed in possession or with
reasonable grounds to fear disturbance –
Suspend payment
2. In case of subdivision or condominium
projects – If real estate developer fails to
comply with obligation according to
approved plan:
a. Rescind
b. Suspend payment until seller
complies
II. Movables
1. Failure of seller to deliver – Action for
specific performance without giving the
seller the option of retaining the goods on
payments of damages
2. Breach of seller’s warranty – The buyer
may, at his election, avail of the following
remedies:
a. Accept goods & set up breach of
warranty by way of recoupment in
diminution or extinction or the price.
b. Accept goods & maintain action
against seller for damages
c. Refuse to Accept goods & maintain
action against seller for damages
d. Rescind contract of sale & refuse to
receive goods/return them when already
received.
3. Disturbed in possession or with reasonable
grounds to fear disturbance – Suspend payment
Warranty
A statement or representation made by the seller
of goods, as part of the contract of sale, having
reference to the character, quality, or title, of the
goods, and by which he promises or undertakes
to insure that certain facts are or shall be as he
then represents (De Leon, 2011).
Kinds of warranties
1. Express
2. Implied
1. Warranty that seller has right to sell
2. Warranty against eviction
3. Warranty against encumbrances (non-
apparent)
4. Warranty against Hidden Defects
Causes for extinguishment of sale

A contract of sale is extinguished by:
1. Same causes as how an obligation is
extinguished, namely:
a. Payment or performance
b. Loss of the thing due
c. Condonation or remission of
the debt
d. Confusion or merger of the
rights of creditor and debtor
e. Compensation
f. Novation
g. Annulment
h. Rescission
i. Fulfillment of resolutory
condition
j. Prescription
2. Conventional Redemption
3. Legal redemption
Equitable mortgage
One which lacks the proper formalities, form or
words or other requisites prescribed by law for a
mortgage, but shows the intention of the parties
to make the property subject of the contract as
security for a debt and contains nothing
impossible or contrary to law
Essential requisites of equitable mortgage
1. Parties entered into a contract of sale
2. Their intention was to secure an existing debt
by way of a mortgage
THE SUBDIVISION AND CONDOMINIUM
BUYER’S PROTECTIVE DECREE (P.D. 957)
Purpose
To afford its inhabitants the requirements of a
decent human settlement and to provide them
with ample opportunities for improving their
quality of life
“Sale” or “Sell” defined under the Decree
It shall include:
1. Every disposition, or attempt to
dispose, for a valuable consideration, of a
subdivision lot, including the building
and other improvements thereof, if any,
in a subdivision project or
condominium unit in a condominium
project;
2. contract to sell;
3. contract of purchase and sale;
4. exchange;
SALES
5. attempt to sell;
6. option of sale or purchase;
7. solicitation of a sale;
8. offer to sell, directly or by an agent, or
by a circular, letter, advertisement or
otherwise; and
9. a. privilege given to a member of a
cooperative, corporation, partnership, or
any association and/or
b. the issuance of a certificate or receipt
evidencing or giving the right of
participation in, or right to, any land
in consideration of payment of the
membership fee or dues. (Deemed sale)
Defaulting buyers have rights under the
Decree
The rights of the buyer in the event of this failure
to pay the installments due for reasons other than
the failure of the owner or developer to develop
the project shall be governed by Republic Act No.
6552.
Where the transaction or contract was entered
into prior to the effectivity of Republic Act No.
6552 on August 26, 1972, the defaulting buyer
shall be entitled to the corresponding refund
based on the installments paid after the effectivity
of the law in the absence of any provision in the
contract to the contrary.
Instance when there will be non-forfeiture of
installment payments paid by the buyer
No installment payment shall be forfeited in favor
of the owner or developer when the buyer, after
due notice to the owner or developer, desists from
further payment due to the failure of the owner or
developer to develop the subdivision or
condominium project according to the approved
plans and within the time limit for complying with
the same (Sec. 23, P.D. 957).
Rights of the buyer in case he defaults in his
installment payment due to causes other than
the failure of the owner or developer to
develop the project
Where the transaction or contract was entered
into prior to the effectivity of Republic Act No.
a 6552, the defaulting buyer shall be entitled to the
corresponding refund based on the installments
paid after the effectivity of the law in the absence
of any provision in the contract to the contrary
(Sec. 24, P.D. 957)