SALES (Atty Rachel Castro)

SALES

UC-BAR OPS 2011

Atty. Rachel Tenefrancia-Castro

CONTRACT OF SALE FROM CONTRACT TO SELL:

1. In a contract of sale, title passes to the vendee upon the delivery of the thing sold, while in Contract to sell, by agreement, ownership is reserved in the vendor and is not to pass until full payment of the price;

2. In contract of sale, nonpayment is a negative resolutory condition; while in contract to sell, full payment is a positive suspensive condition;

3. In contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; while in contract to sell, title remains in the vendor, and when he seeks to eject the vendee because of noncompliance by such vendee with the suspensive condition stipulated, he is enforcing the contract and not resolving it.

EMPTIO SPERATAE AND EMPTIO SPEI:

1. emptio res speratae is the sale of a thing having a potential existence; while emptio spei is the sale of a hope or expectancy;

2. in ERS, the uncertainty is with regard to the quantity and quality but not with regard to the existence of the thing; in ES, the uncertainty is with regard to the existence of the thing;

3. In ERS, the contract deals with a future thing; in ES, the contract deals with a present thing which is the hope or expectancy;

4. In ERS, the sale is subject to the condition that the thing should exist, so that if it does not, there is no contract for lack of an essential requisite; in ES, the sale produces effects even though the thing itself does not come into existence, since the subject matter is the hope itself.

BARTER – “if the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be characterized by the manifest intention of the parties. Is such intention does not clearly appear, it shall be considered a barter if the value of the thing given as part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale.” Such that, if the cash added to the thing traded is more than the value of such thing, the contract is a sale; if less, the contract is a barter.

A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissory of the promise is supported by a consideration distinct from the price.

Who between the vendor and the vendee must bear the risk of loss after the contract of sale has been perfected, but before the thing sold has been delivered?

If the object of a contract is lost before delivery, it is the vendor who is still the owner and must bear the loss and not the vendee. This is in conformity with the principle of res perit domini. The owner of the thing must bear the risk of loss.

EARNEST MONEY’ “Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract.” Earnest money is part of the purchase price advanced by the vendee to the vendor as a token of the perfection of the contract.

SALE OF PERSONAL PROPERTY BY INSTALLMENT, remedies of the vendor

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;

Page 1 of 20

SALES

UC-BAR OPS 2011


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 the last 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. (Art. 1474)

A stipulation that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances (Art. 1486)

A contract executed by an agent without authority to sell is not void but simply unenforceable.

The acceptance and encashment by the owner of a check representing the purchase price of his property sold through his agent constitute ratification of the contract of sale and produces the effects of an express power of agency.

In a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded.

An option to buy or a promise to sell is different and distinct from the right to repurchase that must be reserved by means of stipulations to that effect in the contract of sale.

A contract of sale is consensual in nature and is perfected upon the mere meeting of the minds. When there is merely an offer by one party without acceptance by the other, there is no contract.

Possession along with ownership is transferred to the vendee by virtue of the notarized deed of conveyance.

If the deed of sale is void, then the action for the declaration of the contract’s nullity is imprescriptible. An action for reconveyance of the property on a void contract does not prescribe.

Under a pacto de retro sale, title to and ownership of property are immediately vested in the vendee a retro, subject only to the resolutory condition that the vendor repurchases it within the stipulated period.

An equitable mortgage has been defined “as one which although lacking in some formality, or form or words, or other requisites demanded by a statue, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law.”

R.A. No. 6552 otherwise known as the “Realty Installment Buyer Protection Act” recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon nonpayment of an installment by the buyer, which cancellation may be done outside the court particularly when the buyer agrees to such cancellation provided that such cancellation by the seller must be in accordance with Sec. 3(b) of R.A. No. 6552, which requires a notarial act of rescission and the refund to the buyer of the full payment of the cash surrender value of the payments on the property. . A demand letter is not the same as the notice of cancellation or demand for rescission by a notarial act required under said law.

Between two transactions concerning the same parcel of land, the registered transaction prevails over the earlier unregistered right. Knowledge gained by the first buyer of the second sale cannot defeat the first buyer’s rights, except where the second buyer registers in good faith the second sale ahead of the first.

A contract of sale may either be absolute or conditional – one form of conditional sale is what is now popularly termed as a “Contract to Sell” where ownership or title is retained

Page 2 of 20

SALES

UC-BAR OPS 2011


until the fulfillment of a positive suspensive condition normally the payment of the purchase price in the manner agreed upon.

EFFECT OF SALE ON THE SELLER

I. GENERAL OBLIGATIONS:A. To preserve the thing with the proper diligence of a good father of a family (Art.

1163).a. Deterioration, loss or improvement (Theory of Risks)

1. If the title has passed, the risk is upon the buyer, whether there has been actual delivery or not.

B. To deliver the thing sold with its accessions and accessories (Art. 1537)a. FORM (MANNER OF DELIVERY)

1. Physical or Real (Art. 1497)2. Constructive

i. Real Property: by public instrument.aa. Provided no actual impediment to physical delivery (e.g. when a third party is in lawful possession) or contrary

stipulation exists.

bb. Except: registered property (Act 496). Registration is the operative act of transfer (but the contract is

binding between the parties).

ii. Personal Propertyaa. Delivery of the keys (Art. 1498, par. 2)bb. Common agreement (Art. 1499)cc. By negotiable document of title (Arts. 1513, 1514).

iii. Incorporeal property (Art. 1501) : By execution of a public instrument, delivery of title, or the exercise by the

vendee of his rights with the vendor’s consent. (Quasi-tradition).

3. De Consituto (constitutum possessorium):By retention of the thing by seller under another right (Art. 1500)

subordinate to the right of the buyer.

C. Transfer of Ownership to the Buyera. Generally ownership is transferred upon delivery to (Art. 1477, 1496) and

acceptance by the buyer (Art. 1585) express or implied.1. Where the buyer refuses to accept without justification (Art.

1588) title passes when the goods are placed at the disposal of the buyer.

2. Delivery to the carrier is delivery to the buyer unless title is reserved (Art. 1523, par.1)

3. In sales ‘F.A.S.”4. In sales “C.I.F.” or ‘F.O.B.”

b. When delivery does not transfer title:

1. In “delivery on approval, trial or satisfaction” (Art. 1502, par. 2-5), title passes –

i. Upon the buyer’s signifying approval or acceptance;ii. Upon the buyer’s doing an act signifying adoption of the

contract;iii. Upon the retention by the buyer beyond the time fixed (or

reasonable time) without notice of rejection.2. In case of Express reservation of title in the seller, made so that

title does not pass-

Page 3 of 20

SALES

UC-BAR OPS 2011


i. Until payment (Art. 1478)ii. Until fulfillment of the condition (1503, par.1)

notwithstanding delivery3. Implied reservation of title arises when-

i. Goods are deliverable to the order of the shipper or agent (Art. 1503, par. 2)

aa. But where goods are deliverable to the order of the buyer or his agent and the seller retains the bill of lading (Art. 1503, par. 3) title passes subject to the

lien of the seller for security purposes.ii. If a bill of lading is transmitted with a draft attached (1503,

par.4), in which case title passes upon acceptance; if the draft is dishonored, the buyer should return the bill

of lading

iii. But if the bill provides that the goods are deliverable to the buyer, or the order of the buyer, of it is indorsed

in blank, the bill transfers title to the buyer for value and without notice that the draft was not honored.

4. Sale to two different persons by the same seller

5. When the seller is not the owner (Art. 1505): The buyer has no better title, except in cases of:

i. Estoppel of the owner to deny the seller’s title (Art. 1438)ii. Recording laws;iii. Statutory power to sell or order of the court to the officer

(to sell)iv. Sales in merchat’s stores, fairs, or markets

aa. Compare this with the rule that possession of movables in good faith is equivalent to title.

Art. 559bb. When the seller has a voidable title (Art. 1506), the

sale is good if bough for value and without notice before the seller’s title is avoided.

DOCUMENTS OF TITLE TO GOODS DEFINED (Art. 1636, No.1): “…any document used in the ordinary course of business in the sale or transfer of goods, as proof of the possession or control of the goods, or authorizing… the possessor of the document to transfer or receive, either by indorsement or delivery, goods represented by such document.”

TIME AND PLACE OF DELIVERY:

a. TIME-i. As stipulated.ii. If there is no stipulation, at a reasonable time and hour (which is a

question of fact) (Art. 1521)b. PLACE –

i. As stipulated or established by usage (Art. 1521)ii. In the absence of stipulation or usage:

1. At the place of business or residence of the seller2. If the thing (specific) was elsewhere, and the parties knew it,

where the thing was at the time of sale (applying the rule of Art. 1251).

a. The possessor (if a third person) must acknowledge holding the goods for the buyer.

Page 4 of 20

SALES

UC-BAR OPS 2011


3. If it is stipulated that the seller will send the goods to the buyer (Art. 1523);

a. The seller must arrange the transportation, on reasonable terms, to the place of business or residence of the buyer (par.2)

b. The seller must insure the goods if stipulated or required by usage;

c. Otherwise, the seller must give notice so that the buyer may insure. If no notice is given, the goods travel at the seller’s risk (par.3)

II. Delivery to the carrier is deemed as delivery to the buyer (but carrier must acknowledge holding the goods for the buyer) (Art. 1523)

A. Unless the contrary intent appears, or title is reserved, expressly of impliedly, or stoppage in transit is exercised.B. Subject to the seller’s duty to notify the buyer under Art. 1523 for insurance purposes.

III. Expenses of delivery are borne by the seller (Art. 1247) (Art. 1521, last par.)

A. In sales, “C.I.F”, the price includes insurance and freight to the place of destination but goods travel at the risk of the buyer

B. In sales “F.O.B.” (free on board) or “F.A.S” (free alongside ship) the goods are delivered at the specified place at no expense to the buyer, and title to the goods is presumed to pass at that place.

RIGHTS OF THE UNPAID SELLER OF GOODS

I. Definition of “unpaid seller” (Art. 1525, par.1)

A. An unpaid seller is one-a. To whom the whole price has not been paid or tendered; orb. Who has been conditionally paid by a negotiable instrument which

has been dishonored. (Art. 1525)

B. An unpaid seller may be one-a. Whose goods are in his possession and property in the goods has not

passed to the buyer; orb. Whose goods are in his possession but property in the goods has passed

to the buyer; orc. Whose goods has not passed to the buyer but property in the goods has

not passed to the buyer; ord. Whose goods are not in his possession and property in the goods has

passed to the buyer.

II. Rights of an unpaid seller (Art. 1526)A. A Lien on the goods or right to retain them (Art. 1526, par.1)

a. When the lien exists:1. Cases (Art. 1527) when it arises –

i. Where the sale is without stipulation as to credit;ii. Where the sale is on credit, but the term credit has

expired.iii. When the buyer becomes insolvent

2. It may be exercised notwithstanding the seller’s possession as agent or bailee for the buyer (Art. 1527, par.2)3. Effect on the right if there has been partial delivery:

i. The lien may be exercised on the remainder (Art. 1528)

Page 5 of 20

SALES

UC-BAR OPS 2011


aa. Exception:aaa. When by such partial delivery, the intention

was to waive the lien or right of retention (Art. 1528)

b. When the lien is lost.1. Instances (Art. 1529)

i. When the seller delivers the goods to the carrier or other bailee for transmission to the buyer without

reserving the ownership in the goods.ii. When the buyer or his agent lawfully obtains possession of

the goods;iii. By waiver thereof.

2. Effect of a judgement for the price of goods obtained by the seller i. The lien is not lost (Art. 1529, par. 2)

B. Right to stop in transit (Art. 1626 No.2) (Stoppage in transit).

a. Requisites for the exercise.1. The buyer is or becomes insolvent (Art. 1526, No. 2 and Art.

1530).i. When the buyer is said to be insolvent: See Art. 1636,

No.2 (does not require judicial proceedings).2. The goods are in transit (Art. 1530)

i. When goods are deemed to be in transit –aa. From the time they are delivered to the carrier or

bailee for transmission to the buyer until the buyer takes delivery

bb. If the buyer rejects them and the carrier continues in possession.

ii. When goods are no longer in transit (See Art. 1531, par.4)

aa. If the buyer or his agent obtains deliver;bb. If at destination the carrier or bailee acknowledges

holding them for the buyer;cc. If the carrier or bailee wrongfully withholds

possession from the buyer.

b. How stoppage in transit is exercised (Art. 1532):

1. By obtaining actual possession of the goods (Art. 1532, par.1);2. By giving notice of the claim (Art. 1532, par.1).

i. To whom must notice be given –aa. To the person in actual possession of the goods;bb. To his principal.

ii. Obligation of the carrier or bailee in possession of the

goods.aa. To re-deliver the goods to the seller.

aaa. If the goods are covered by negotiable document of title –

aa. The document must be surrendered (Art. 1532, par.2).

iii. Obligation of the seller.aa. To pay the expenses of deliver

(art. 1532, par.2)CONDITIONS AND WARRANTIES

Page 6 of 20

SALES

UC-BAR OPS 2011


I. Conditions (precedent)A. Upon failure of the conditions (Art. 1545): the party whose obligation is

dependent upon it need not perform.

II. Warranties (stipulations promissory): Kinds –A. Express (Art. 1546): affirmation of fact inducing the buyer to purchase in reliance

thereon.

B. Implies (Arts. 1547 and 1562): that the seller has a right to sell; that there are no hidden defects or encumbrances; that the goods are of merchantable quality and fit for a known purpose.

a. A statement of the seller’s opinions is not warranty, unless he is an expert and was relied upon. (Art. 1546)

III. Warranty Against Eviction.A. Requisites –

a. Eviction (dispossession) of the buyer (Art. 1548) (this is applicable to a judgement debtor in judicial sales unless the judgement provides otherwise, Art. 1552).

1. The vendee is deprived of the qhole or a material part of the thing purchased.

2. By a final judgment (Art. 1557) (the buyer need not appeal, Art. 1549)

3. Based on a right anterior to the sale, including –i. Adverse possession completed before the sale (Art. 1550)ii. Sale for tax delinquency not notified to the buyer (Art.

1551).

b. There has been no express waiver by the buyer with knowledge of the risk (Art. 1554).

c. The seller (vendor) is duly summoned in the suit against the buyer (Art. 1558) and made a co-defendant (Art. 1559). (See Rule 9, sec. 1, Rules of Court).

B. Effect of the warranty (Art. 1555)a. The seller in good faith must –

1. Return the value (not the price) at the time of eviction;2. Return the income or fruits that the buyer had to surrender; plus3. Costs of the suit; and4. Expenses of the contract.

b. The seller in bad faith is subject to the liabilities of the seller in good faith under –

1. The rules of the preceding paragraph ( par.a);2. Plus payment of damages, interest and ornamental expenses

(useful expenses are to be recovered from the party causing the eviction, not from the seller).

c. Loss of an important part (Art. 1556) (partial Eviction). The remedies are –

1. Indemnity OR rescission, at the buyers’ option.

C. Waiver of warranty against eviction by the buyer (vendee):

Warranty against Redhibitory (Hidden, Physical) Vices (of movables).A. Requisites – The vices must be –

a. Not visible or could not be known to the buyer, even if an expert (Art. 1561);

b. They must be serious (as to render the thing unfit) (Art. 1561) because of the implied warranty of quality (Art. 1562) or of fitness for a purpose known to the seller;

Page 7 of 20

SALES

UC-BAR OPS 2011


Except: Sales under a patent or trade name (Art. 1563) where no implied warranty exists.

c. There were not known to the buyer;d. They existed prior to the sale;e. They must be notified to the seller within a reasonable time from

discovery (Art. 1586)f. Action must be within 6 months (Art. 1571) or 40 days (from delivery) in

case of animals (Art. 1577) prescription).g. No stipulation against the warranty has been agreed

B. The vice need not be known to the vendor (Art. 1566).

C. Effects of warranty against defects or vices:a. The vendee may elect between (Art. 1567) –

1. Withdrawal from the contract; or2. Reduction of the price (with damages in case of bad faith)

b. If the thing is lost due to hidden vice (Art. 1568)1. If the Vendor is aware of the vice: He must –

i. Return the price (not the value); and ii. Refund the expenses of the contract; andiii. Pay damages.

2. If the Vendor is not aware of the vice: He must –i. Return the price with interest; andii. Refund expenses.

c. If the thing is lost by fortuitous event or by the fault of the buyer –1. If the vendor is in good faith: He must return the price less the

value when lost.2. If the vendor is in bad faith: He must –

i. Return the price less the value; andii. Pay damages.

OBLIGATIONS OF THE BUYERI. To Accept Delivery:A. If there was no previous examination, the buyer must have a reasonable opportunity to

examine (Art. 1584, par. 1 & 2).a. The seller must allow the buyer to examine, if the buyer so demands.b. Except in case of a stipulation that the goods are not to be delivered by the carrier unless paid for (C.O.D.) (the buyer is not entitled to an examination unless the contract or usage to the contrary permits examination) (Art. 1584, par. 3).

B. Unjustified refusal of the buyer to accept does not bar transfer of title (and risk) (Art. 1588).

2. But the seller may make consignation (Art. 1256).

C. The buyer justifiably refusing to accept need not return the thing (Art. 1587) but only has to notify the seller.

II. Payment of Price and Interest:A. time and Place (Art. 1528):

a. According to stipulation (unless the buyer loses the benefit of the period).b. At the time and place of delivery, if there is no contrary stipulation,

B. Suspension of payment by the buyer (Art. 1590) after delivery.a. Grounds –

1. Actual disturbance of possession or ownership; or2. Reasonable ground to fear a disturbance caused by –

Page 8 of 20

SALES

UC-BAR OPS 2011


i. Vindicatory action;ii. Foreclosure of mortgage (which grounds are exclusive)

b. There is no right to suspend payment if:1. The stipulation provides for payment despite risk of disturbance;

or2. The vendor cause the disturbance to cease; or3. The Vendor gives security for the return of the price; or4. The disturbance is by mere act of trespass.

C. Payment of Interest on the Price: )Art. 1598). This duty arises –a. Even before default, if –

1. The stipulation so provides; or2. The thing produces fruits which pertain to the buyer under

Article 1164.

b. After default (moratory interest) from the time of the seller’s tender or performance (art. 1169, last par. on reciprocal obligations).

D. Legal Guaranties for Payment of the Price:a. Suspension of delivery (retention) by the seller –

1. In cash sales, if the payment is not tendered (art. 1524);2. In sales on credit, if the buyer loses the benefit of the term

under Art. 1198 (art. 1536) or the buyer is insolvent (Art. 1527).

c. Seller’s lien on the goods in his possession (Art. 1526).d. Stoppage in transit, if the buyer is insolvent and the price is unpaid

(Art. 1530).1. When goods are in transit (Art. 1531): the goods must be

in the possession of the carrier as such, not as bailee for the buyer.

2. How stoppage is made (Art. 1532)i. Resuming actual possession,ii. Giving opportune notice to the carrier or bailee.

3. Effect of notice on the carrier or bailee Art. 1532, par. 2)i. The carrier or bailee must redeliver, unless the

negotiable receipt issued is not surrendered to the carrier or bailee.

e. Resale of goods (Art. 1533) (without bringing an action).1. The remedy is applicable in case of

i. Perishable goods; orii. Express reservation in the event of default; oriii. Default for an unreasonable time on the part of the

buyer, Provided: the seller has a lien or made stoppage in transit.

2. Procedure in Resale (See p. 54).i. Resale may be public or private.ii. Notice to the buyer is not essential.iii. The seller is to exercise reasonable care and

judgmentiv. The seller cannot buy directly or indirectly.

3. The buyer at resale acquires good title against the original buyer, but not against the holder in due course of a

negotiable document of title (Art. 1535).

4. Effect on the seller:i. He is not accountable for the profit.ii. He may sue for damages due to the breach.

Page 9 of 20

SALES

UC-BAR OPS 2011


f. Rescission of Transfer of Title1. In case of goods (corporeal movables) –

i. Extrajudicial rescission (Art. 1534), if –aa. Expressly reserve, orbb. The buyer is in default for an un

reasonable time in paying the price.

Aaa. Notice ( or some other overt act) is required (otherwise transfer of title is

not rescinded) but need not be communicated to the buyer;

Bbb. Failure to give notice is relevant on the question of default for an

unreasonable time; and

cc. The seller has a lien or made stoppage in transit (Art. 1534)

ii. Judicial (Art. 1191), if –

aa. The buyer fails to accept at the stipulated time, without just reasons.

bb. The buyer fails to tender the price upon receipt, if no period was stipulated

(Art. 1593).

No notice or demand is required (Art. 1534) unless the goods have not been delivered. (See

Art. 1597)

2. In case of real property (Art. 1592). The buyer may pay until given judicial or notarial demand for rescission, despite a stipulation to the contrary (pacto

comisorio).Exceptions:

i. The rule does not apply where title was reserved by the seller

ii. In case of danger of loss of the thing and price, after delivery (Art. 1591), the seller may sue immediately for rescission even if he price is

not yet due.iii. Neither does the rule apply to a mere contract to

sell

3. Action for the Price and Damages

I. Action for the price (of personal property) (art. 1595).A. Grounds –a. After ownership has passed, and price is not paid, if no period for payment was

given.b. Failure to pay, where it is stipulated to be payable irrespective of delivery or

transfer of title, although title has not passed.

1. Defense of the buyer:i. That the seller at any time before judgment, manifested either –

Page 10 of 20

SALES

UC-BAR OPS 2011


aa. Inability to perform; orbb. Intention not to perform.

c. Refusal of the buyer to accept delivery of the goods, if:1. The goods were offered and refused; and2. The goods can not readily be resold; and3. The buyer did not notify repudiation before the goods were placed

in a fully deliverable state ; and4. The seller notifies the buyer that he holds the goods as bailee for

the buyer. Then the seller may treat the goods as the buyer’s and sue for the price.

II. Action for damages for non-acceptance (Art. 1596) of the goodsA. Grounds –

a. The buyer’s wrongful failure to accept and pay (the goods maybe resold)b. The buyer’s repudiation or countermand before the goods are placed in a

deliverable state.B. Measure of damages

a. Generally –1. The loss naturally and directly resulting (in the ordinary course)

from the breach.b. When there is an available market –

1. The difference between the contract price and the market price at the time when acceptance should be made.

i. If no time was fixed for acceptance, then the market price at the time of refusal.

c. When repudiation is made or notified before the seller complete preparations for fulfillment –

1. The liability is for expenses incurred, and2. The profit the seller would have obtained under the contract.

III. Action for Total Rescission (Art. 1597) by the seller (against the buyer)

A. Requisites:a. The goods were not delivered.b. The buyer either –

1. Repudiates; or2. Manifests inability to perform; or3. Commits breach of contract;

c. The seller gives notice of his election to rescind.

IV. Buyer’s Action for Seller’s Specific Performance (Art. 1598).

A. The seller has no option to retain the goods by paying damages.B. The judgment may be absolute or conditional as the court deems fit.

V. Buyer’s Action for Breach of Warranty (Art. 1599). (express or implied)

A. Buyer’s choices:a. To accept or keep the goods and set off damages against the price;b. To accept the goods and sue for damages;c. To refuse or return the goods and sue for damages;d. To rescind the contract, refuse or return the goods and recover the price

B. The options are alternative, but the buyer may ask for rescission after asking for specific performance, if the latter is impossible (Art. 1191, par.2)

Page 11 of 20

SALES

UC-BAR OPS 2011


C. The buyer can not rescind, if –a. He knew of the breach of warranty when he accepted the goods; orb. He fails to notify the seller in due time of the election to rescind; orc. He fails to return the goods in substantially the same condition,

1. Unless the deterioration was due to the breach of warranty.

D. Effects of Buyer’s Election to Rescind (Art. 1599, par.4)a. The buyer ceases to be liable for the price upon tender or return of the

goods.b. He may recover the price paid –

1. Concurrently with the return, or2. Immediately after the tender.

c. If the seller refuses to accept the return; the buyer holds the goods as bailee. In which case, the buyer –

1. Has a lien on the goods to secure repayment of the price; and2. Has a right of stoppage in transit and resale, as the seller has

under Article 1526.

E. Loss in Case of Breach of Warranty of Quality (Art. 1599, par.5)a. The liability consists in the difference in value at the time of delivery and

the value if the warranty were not broken.1. Unless special circumstances show greater damage.

I. Causes of Extinguishment –A. General causes (Art. 1231) –

a. Payment or performanceb. Loss of the thing duec. Condonation or remissiond. Confusion or mergere. Compensationf. Novationg. Annulmenth. Rescissioni. Fulfillment of the resolutory conditionj. Prescription

B. Special Causes –a. Redemption.

1. Conventional2. Legal

II. Article 1600 applies to perfected as well as consummated sales.

I. Concept.A. Defined:

Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other stipulations which may have been agreed upon

B. Nature: Conventional redemption is –a. An accidental element (must be stipulated);b. An express condition;c. A potestative resolutory conditiond. A real right and enforced against a third person climing under the

purchaser

II. Conventional redemption includes transactions presumed to be equitable mortgages.

Page 12 of 20

SALES

UC-BAR OPS 2011


A. Equitable mortgage defined – one in which although it lacks some formality, form of words or other requisites, prescribed by a statute, show the intention of the parties to charge a real property as security for a debt and contains nothing impossible or contrary to law.

B. The following are presumed to be equitable mortgages –

a. Contracts of sale with right to repurchase in the following cases – (Art. 1602)(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.

b. Contracts of absolute sale in the cases mentioned in Art. 1602 (Art. 1604)

c. When a transaction purporting to be a contract of sale with right to repurchase is of doubtful interpretation (Art. 1603)

1. A stipulation that in case of failure of the vendor-a-retro as lessee to pay rentals, the lease shall automatically terminate and the right of

ownership of the vendee shall become absolute – is valid, not contrary to law nor oppressive. It is a clause common to “pacto de retro” and has received court sanction

2. Although “pactum commissorium” ( a stipulation for automatic vesting of title over the security in the creditor in case of the debtor’s default)

is void, such a clause in a contract is conclusive proof that it is a mortgage and not a sale with pacto de retro

C. Effect when the transaction is deemed an equitable mortgage.

a. Fruits, money or other benefit received as rents by the vendee are considered as interest which shall be subject to the usury laws.

(Art. 1602, last par)b. the apparent vendor may ask for the reformation of the instrument.

III. Period of Repurchase or Redemption.

A. Where no period is agreed upon –a. Four years from the date of the contract (Art. 1606, par.1)

B. When a period is agreed upon – (which includes a stipulation of redemption “at any time”)

a. Within the period stipulated, which cannot exceed 10 years (Art. 1606, par.2)

C. The period may be extended to 30 days after final judgment was rendered in a civil case claiming that the contract was a true sale with right to

repurchase (Art. 1606, par.3)a. Pendency of litigation suspends the period of redemptionb. The thirty day extension is applicable even should the case be filed after

the expiration of the redemption period, if the parties dispute its nature as a pacto-de-retro sale with the allegation that it does not express their true agreement.

Page 13 of 20

SALES

UC-BAR OPS 2011


D. The period during which vendor cannot redeem when added to the period of permitted redemption, must not total more than 10 years. (Rosales vs.

Ryes, 25 Phil 495)

E. Redemption period was not extended by the enemy occupation (Rivero vs. Rivero, 80 Phil 802)

F. Rulings on the period within which to make a repurchase –a. The legal period of 4 years may be extended by stipulation, provided that

the new period stipulated does not exceed 10 years.b. A stipulation that the vendor cannot redeem the property until after 3

years should be construed to allow redemption within 4 years, after the lapse of the 3 years, counted from such lapse.

c. An agreement granting the vendor the right to repurchase when he “ has established a certain business” is not a period. In such a case the

vendor may redeem within 4 years.d. Where there is an agreed period, the period in excess of 10 years is void e. A stipulation granting the vendors the right to redeem “at any time the

vendors have the money” should be construed to allow redemption within 10 years

f. The stipulation period of redemption is suspended by the filing of an action brought in good faith relating to the validity of a sale with

pacto-de- retro (it being claimed to be an equitable mortgage) and again commences to run only after decision declaring it to be a sale has become final

g. Where the courts are functioning regularly, the redemption term is not suspended or extended by war.

IV. Who may redeem or exercise the right of redemption –

A. The vendor in whose favor the right is reserved.The following are included –a. When the vendors are co-owners selling jointly and in the same contract

an undivided immovable.1. Right of each co-owner.

i. To redeem only his share (Art. 1612, par.1)2. Right of the vendee.

i. He may compel all the co-owners to redeem the whole (Art. 1613). Also when the whole property is

adjudicated to the vendee in partition (Art. 1611)

b. When a co-owner sells his share of an undivided immovable separately (Art. 1614).

1. Right of the vendor-co-owneri. He may only redeem his share (Art. 1614)ii. He cannot be compelled to redeem the whole (Art. 1614)

B. Heirs of the vendor (Art. 1612, par.2)a. Right of each heir.

1. Each can redeem only the part which he may have acquired.b. Right of the vendee

1. He may compel all the heirs to redeem the whole (Art. 1613)

NOTE: The rule of the Code in one sale, one redemption; except in case of death of the buyer a retro.

C. Creditors of the vendor (Art. 1610)a. Requisite –

Page 14 of 20

SALES

UC-BAR OPS 2011


1. The creditors must have already exhausted the properties of the vendor (Art. 1610)

V. From whom or against whom may redemption be made –A. The vendeeB. The heir or heirs of the vendee –

a. If there is more than one heir (Art. 1615);1. Against each of the heirs for his respective share.

i. Exception:a. When the thing sold is awarded to only one heir

C. Every possessor whose right is derived from the vendee (Art. 1608)a. Without prejudice to the provisions of the Mortgage Law and Act No. 496

(Land Registration Act)

VI. Obligations of the vendor-a-retroA. The vendor’s obligations are (Art. 1616):

a. To return the price of the saleb. To return the expenses of the contract and y other legitimate payments

made by reason of the salec. To reimburse the necessary and useful expenses made on the thing sold,

after their amount is determined.

B. Effect of the vendor’s failure to comply with his obligation –a. General rule:

Ownership consolidates in the vendeeb. Exception:

1. When the subject matter consists of real property (Art. 1608)i. Requisites –

aa. Consolidation of ownership must be by virtue of a judicial order, after hearing the vendor.

VII. Obligations of the vendee-a-retroA. To return the thing sold free from all charges and mortgages constituted by the vendee (Art. 1618)

1. Exception:i. Lease contracts in good faith and according to custom, which must be

respected.

VIII. Rights of the vendee-a-retroA. To compel the vendor or a part of an undivided immovable to redeem the whole property upon the vendee acquiring the entire immovable (Art. 1611) in partition proceedings.

B. To be subrogated to the vendor’s rights and actions (Art. 1609)

IX Rules on pro-rating of fruits existing at the time of redemption.A. If there are visible fruits at the time of the execution of the sale –

a. No reimbursement or pro-rating (Art. 1617, par. 1) is required. –i. If indemnity for fruits was paid by the vendee when the sale was

executed (Art. 1617, par.1)B. If no visible fruits at the time of the sale existed –

a. Fruits must be pro-rated (Art. 1617, par.2).1. Share of the vendee:

i. That portion corresponding to the time he possessed the land in the last year, counted from the anniversary

of the date of the sale.

I. LEGAL REDEMPTION Concept.A. Defined. (See Art. 1619)

Page 15 of 20

SALES

UC-BAR OPS 2011


B. Alienation must be by –a. Saleb. Dation in paymentc. Other transactions whereby ownership is transferred by onerous title (Art.

1619)C. Distinguished from Pre-emption

a. Legal Redemption1. The right is born after the sale2. It rescinds the contract and leaves without effect a sale that has

been perfected and consummated3. The action is directed against the purchaser.

b. Pre-Emption1. The right is born before the sale.2. The contract of sale does not yet exist3. The action is directed against the prospective vendor

D. The rules are applicable to both movables and immovables

II. Instances by Co-ownersA. Redemption by Co-owners

a. Purpose – to end indivision or at least reduce the number of co-owners, keeping strangers out of the co-ownership

b. Requisites1. Co-ownership must exist2. There must be alienation of the shares of all other co-owners or

any of them3. Alienation must be to a stranger, not a co-owner4. Alienation to said stranger must be before partition

c. Who may exercise redemption –1. A co-owner (Art. 1620)

i. Effect if two or more co-owners desire to redeem:aa. They may only do so in proportion to the share they

may respectively have in the thing owned in common (Art. 1620, par.2)

d. Obligation of the redemptioner –1. To pay the price of the sale (Art. 1620, par.1).

i. Exception:aa. When the price is grossly excessive –

aaa. To pay only a reasonable price (Art. 1620, par.1

e. Legal Redemption by Co-heirs (Art. 1088) is a variety of this by Co-owners

B. Redemption by Adjoining Owners.a. Instances –

1. Rural lands.i. Purpose: To favor the development of rural property

in the interest of agricultureii. Requisites:

aa. Both adjoining tenements are ruralbb. There must be alienationcc. Area of the land alienated does not exceed one

hectaredd. Tenements must be adjacent without solution of

surface of continuity.

Page 16 of 20

SALES

UC-BAR OPS 2011


Aaa. Tenements separated by brooks, ravines, roads, etc. are not included (Art.

1621, par.2ee. The vendee must own some other rural land

iii. Who may exercise the right –aa. Order of preference

aaa. Co-owners (Art. 1623, par.2)bbb. Adjoining owners (Art. 1621, par.3)

I. Preference (secondary order)A. The owner of the adjoining land of smaller areaB. If the areas are the same, the first to request redemption

2. Urban lands (Art. 1622)i. Requisites

aa. Both adjoining tenements are urbanbb. The tenement being redeemed was bough merely

for speculationcc. The major portion of the tenement is so situated

that it can not be used for any practical purpose within a reasonable time.

dd. There is alienationee. The tenements are adjacent

ii. Who may exercise the right –aa. Order of preference

aaa. Co-owners (Art. 1623, par.2)bbb. Adjoining owners (Art. 1622, par.1)

I. Effect if two or more adjoining owners desire to exercise the right:A. Preference is given to the adjacent owner whose intended use of the land in

question appears best justified (Art. 1622, par.3)

iii. Other rights available to the adjoining owneraa. Pre-emption (Art. 1623) –exercised within 30 days

from notice in writing by the prospective vendor

b. Obligation of the Redemptioner1. To pay a reasonable price.2. To notify the prospective vendor and vendee of his desire to

redeem

III. Procedure in RedemptionA. When to exercise the redemption –

a. Within 30 days from the notice in writing by the vendorB. Requisite for the Registration of the Sale in the Registry of Property

a. It must be accompanied by an affidavit of the vendor that he has given written notice to all possible redemptioners.

C. Special Rules:a. Legal Redemption requires no previous notice of intention to redeemb. Tender of the price is not a condition precedent to redemption

IV. Other cases of legal redemption –

a. Redemption by the debtor in the sale of a credit in litigation (Art. 1634)b. Redemption by co-heirs in case of a sale by an heir of his hereditary rights to a

stranger before partitionc. Redemption by the application, his widow, and legal heirs within five (5) years

from the conveyance of lands under a homestead or free patent

Page 17 of 20

SALES

UC-BAR OPS 2011


d. Redemption within one year by a judgment debtor or redemptioner of real property sold under execution

e. Redemption by the owner of the property sold for delinquent realty taxesf. Redemption within one (1) year by the mortgagor in sales under –

1. Extra-judicial foreclosure2. Judicial foreclosures by –

i. The Rehabilitation Finance Corporationii. The Philippine National Bankiii. Banks within the purview of the General Banking Act.

ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL RIGHTS

I. Concept: “A contract, unilateral or bilateral, onerous or lucrative, commutative or aleatory, whereby a person transmits to another his right or rights against a third party, whether or not an equivalent for the transmission is received from the transferee.”

A. While the Code treats of assignment of credits as a variety of sales the fact is that the assignment may be effected in a variety of ways; by sale, by barter, by donation or even by testament. The assignment is a transfer entirely different from the transaction originating it.

II. Essential requisites and formalities.A. These depend in each case upon the contract of act giving rise to the

assignment.a. Assignment of real rights upon immovable property, done by way of

donation, requires a public instrumentb. Assignment by way of legacy requires a probated willc. Assignment of choses in action by sale or onerous contract, if involving

P500 or more, is unenforceable inter partes, and comes under the Statute of Frauds (a written memorandum is required)

d. Assignment of a negotiable instrument requires indorsement or delivery.

B. As against third persons (but not the debtor of the credit assigned) an assignment of a credit, right or action shall produce no effect unless it appears in a public instrument, or the instrument is recorded in the registry of property, in case the assignment involves real property (Art. 1625)

a. The consent of the debtor of the assigned credit is not required for the validity of the assignment: but the assignment is not fully effective against the debtor until he is notified thereof or has actual knowledge of the assignment; i.e., the debtor until then is not bound to pay the assignee.

III. Effect of a valid assignment.

A. It transfers title to the assigned credit to the assignee, even if the debtor is unaware thereof.a. The assignment includes all accessory rights, such as guaranty, pledge,

mortgage or preference (Art. 1672)

B. The assignee takes the credit subject to all defenses acquired by the debtor before notice or knowledge of the assignmenta. Hence, the debtor who, before having knowledge of the assignment, pays

his creditor shall be released from the obligationb. The debtor may set up compensation of credits acquired after assignment

but before notice thereof (Art. 1198) unless the debtor agreed to the assignment (when he cannot compensate)

c. Any compromise or release of the assigned claim made by the assignor before notice, will be valid against the assignee and discharge the debtor.

Page 18 of 20

SALES

UC-BAR OPS 2011


1. Is recording sufficient notice? Yes, provided the recording is requires (not merely permitted) by law.

C. Warranty by the Assignora. The assignor in good faith shall be responsible for the existence and

legality of the credit at the time of sale, unless it should have been sold as doubtful.1. Doubtfulness of the credit assigned must expressly appear; it is

not presumed

b. The assignor in good faith, does not answer for the solvency of the debtor unless-1. Expressly stipulated2. The insolvency of the debtor was know to him personally or3. The insolvency of the debtor was prior to the sale and of common

knowledge (Art. 1628)

c. Where the solvency of the debtor is warranted by the assignor, his liability lasts only –1. One year after the assignment, if the debt was already matured2. One year after maturity, if the debt matures after assignment (Art.

1629)- Compare this with partition between co-heirs (liability for

solvency lasts 5 years (Art. 1095)

d. Recovery on the warranty1. The assignor in good faith must return the price received plus

expenses of the contract and payments on account thereof. (Art. 1628)

2. The assignor in bad faith: all of the above plus damages (Art. 1628)

VI. Special assignments.A. Sale of Inheritance (Estate)

a. If without enumeration of the items composing it, the vendor only answers for his character as heir (Art. 1630)

b. The vendor shall reimburse the vendee for the fruits obtained or anything received from the inheritance sold (Art. 1632) if the contrary is not stipulated

c. The vendee shall reimburse the vendor for –1. All that vendor paid on account of the estate debts;2. Credits that the vendor had against the estate (Art. 1633)

B. Sale of rights, rents or products for a lump suma. The vendor answers for the legitimacy of the whole in generalb. There is no warranty of individual items, unless there is eviction of the

whole or of the part of greater value (Art. 1931)

C. Sale and Redemption of litigious creditsa. Concept of litigious credit – A credit is considered in litigation from the

time the complaint concerning the same is answered. (Art. 1634, par.2)b. Effect of sale –

1. Legal redemption by the debtor – Requisites:i. The debtor must reimburse the assignee for –

aa. The price the assignee paidbb. Judicial costs incurred by himcc. Interest on the price from the day it was paid

Page 19 of 20

SALES

UC-BAR OPS 2011


ii. The right must be exercised within thirty days from the date the assignee demands payment from him

2. Excepted from the rule are sales (or assignments) made to:i. A co-heir or co-owner of the right assignedii. A creditor in payment of the creditiii. The possessor of a tenement or piece of land which is

subject to the right in litigation assigned. (Art. 1635)

I. Nature and characteristicsA. Defined (See Art. 1638)B. Characteristics – of barter:

a. Consensual –perfected by consentb. Bilateral – involving reciprocal prestationsc. Onerous – consisting in an exchange of equivalent valuesd. Nominate – having a special designatione. Principal – capable of existing alonef. Commutative – fulfillment being determined in advance

C. Requisite –a. The things must belong to the respective parties.

Hence –1. If one of the parties should prove that the other did not own the

thing promised and given, he cannot be compelled to deliver what he offered, but shall be entitled to damages (Art. 1639)

2. In case of eviction, the injured party may ask for-i. Recovery – provided:

aa. The thing remains in the possession of the other party, and

bb. Without prejudice to third persons who acquired rights in good faith

ii. Or only indemnity for damages (Art. 1640)

D. The provisions on sale are suppletory (Art. 1641)a. But barter is not subject to ceiling price laws.

Page 20 of 20

Documents

SALES (Atty Rachel Castro)