Law on Sales

Salient features
 CONTRACT OF SALE
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to transfer the
ownership and to deliver a determinate thing, and the
other to pay therefor a price certain in money or its
equivalent.

A contract of sale may be absolute or conditional.

(1445a)
 CLASSIFICATION OF ELEMENTS OF
SALE
1. Essential elements– those without which a contract of sale would never
exist
a. Consent
b. Determinate subject matter
c. Price certain in money or its equivalent

2. Natural elements – those inherent in a contract of sale which in the

absence of stipulation excluding them, are deemed to exist
a. warranty against eviction
b. warranty against hidden defects

3. Accidental Elements – they refer to particular stipulations of the parties

such as terms, place and time of payment and other conditions agreed
upon
Q: What is the effect and/or consequence of the
absence of consent of the owner in a contract of
sale of said property?

A: The contract of sale is void. One of the

essential requirements of a valid contract of
sale is the consent of the owner of the property.
STAGES IN LIFE OF CONTRACT OF
SALE
1. Negotiation
2. Perfection
3. Consummation
What are the characteristics of a contract of
1. Consensual sale?
2. Bilateral
3. GR: Commutative. XPN: Aleatory – In some contracts of sale, what one receives
may in time be greater or smaller than what he has given. (Tolentino, p. 2, 2000
ed)
4. Principal
5. Title and not a mode of acquiring ownership
6. Onerous
7. Nominate
 Q: Who are the parties to a contract of
sale?
Seller – one who sells and transfers the thing and
ownership to the buyer

Buyer – one who buys the thing upon payment of the

consideration agreed upon
 Capacity of the Parties
Rule: Any person who has capacity to contract or enter into obligations,
may enter into a contract of sale, whether as party‐seller or as
party‐buyer.

XPN:
• Minors, insane and demented persons and deaf‐mutes who do not
know how to write
• Persons under a state of drunkenness or during hypnotic spell
• Husband and wife ‐ sale by and between spouses
 minors
NOTE:

Where necessaries are those sold and

delivered to a minor or other person without
capacity to act, he must pay a reasonable
price therefore
 Spouses
GR: No Sale between them
EXC:
– when a separation of property was
agreed upon in the marriage
settlements; or
– when there has been a judicial
separation of property agreed upon
 Absolute incapacity
Q: Who are those absolutely incapacitated to enter
into a contract of sale?

• Unemancipated minors(Art. 1327, NCC);

• Insane or demented persons, and deaf‐
mutes who do not know how to write (Art.
1327, NCC)
 Relative Incapacity
1. Spouses (Art. 1490, NCC)
2. Agents, Guardians, Executors andAdministrators, Public
Officers and Employees, Court Officers and Employees, and
3. Others specially disqualified by law. (Art. 1491NCC)
– ALIENs who are disqualified to purchase private agricultural
lands (Art. XII Secs. 3 & 7)
– Unpaid seller having a right of lien or having stopped the
goods in transitu,
 KINDS OF SALE, among others
Sales according to:
1. Nature of the subject matter: 3. Whether the object is tangible or
intangible:
• Sale of real property; a. Sale of property (tangible or corporeal);
• Sale of personal property
2. Value of the things exchanged: Note: A tangible object is also called chose
in possession
• Commutative sale;
• Aleatory sale b. Sale of a right (assignment of a right, or
a credit or other intangibles such as
copyright, trademark, or good will);

Note: An intangible object is a chose in

 AS TO PRESENCEOR ABSENCE OF
ABSOLUTE SALE CONDITION
The sale is absolute where the sale is not subject to any condition whatsoever and
where the title passes to the buyer upon delivery of the thing sold. (De Leon, p. 15)

Q: When is a deed of sale considered absolute in nature?

A: A deed of sale is considered absolute in nature where there is neither a stipulation
in the deed that title to the property sold is reserved in the seller until the full
payment of the price, nor one giving the vendor the right to unilaterally rescind the
contract the moment the buyer fails to pay within a fixed period.
Q: When is a sale conditional?

A: It is conditional where the sale contemplates a

contingency, and in general, where the contract is
subject to certain conditions, usually in the case of the
vendee, the full payment of the agreed purchase price and
in the case of the vendor, the fulfillment of certain
warranties. (De Leon, p. 15)
 contract to sell
• It is one form of conditional sale where ownership or title is
retained by the seller until the fulfillment of a positive
suspensive condition, normally the payment of the
purchase price by the buyer in the manner agreed upon.
(Gomez v. CA, et. al., G.R. 120747, Sept. 21, 2000)
 Distinctions
SALE DONATION

Onerous Gratuitous

Consensual Formal contract

Law on Sales Law on Donation

 SALE BARTER
Consideration is giving of money Consideration is giving of a thing
as payment

If consideration consists party in money & partly by thing–look at

manifest intention;
If intention is not clear – Art. 1468

Value of thing is equal or less Value of thing is more than amount

than amount of money = Sale of money = Barter

Both are governed by law on sales

 SALE DACION EN PAGO
No pre-existing credit There is a pre-existing credit
Buyer‐seller relationship creditor‐debtor relationship

Sales creates obligation

Does not create, but

extinguishes them

Causes – seller and Cause – as to debtor and

buyer’s point of view creditor
Greater freedom of fixing Not so as it depends on the pre-exiting credit
the price
 SALE LEASE
Obligation to absolutely transfer Use of thing is for specified
period only with obligation to
ownership of thing return
Consideration is the price Consideration is the rental
Seller needs to be owner of thing to
transfer Lessor need not be owner
ownership.
Note: Lease with option to buy –
really a contract of sale but
designated as lease in name.
 CONTRACT OF SALE CONTRACT TO SELL
As regards transfer of ownership
Ownership is transferred to the buyer upon delivery of the
Ownership is transferred upon full payment of the purchase
object to him.
price.
Note: Vendor has lost and cannot recover ownership until and
Note: Prior to full payment, ownership is retained by the
unless the contract is resolved or rescinded
seller.
As to numbers of contracts involved
There are two contracts:
1. The contract to sell
There is only one contract executed between the seller and Note: Conditional or preparatory sale
the buyer.
2. The deed of absolute sale
Note: The principal contract is executed after full payment
of the purchase price.
Payment as a condition
Full payment of the price is a positive suspensive
Non‐payment of the price is a resolutory condition. Vendor
condition. Note: Failure to fully pay the price is not a
loses ownership over the property and cannot recover it until
breach but an event that prevents the
and unless the contract is resolved or rescinded.
obligation of the vendor to convey title from becoming
effective.
Risks of loss
Is on the buyer
On the seller
 OBJECT of Sale
1. Things
a. Determinate or capable of being determinable
b. Lawful (licit), otherwise contract is void
c. Should not be impossible (within the commerce of men)
2. Rights
GR: Must be transmissible.
XPN:
a. Future inheritance
b. Service – cannot be the object of sale. They are not determinate things and no
transfer of ownership is available but it can be the object of certain contracts
such uas contract for a piece of work.
 Q: other objects of sale?
1. Existing Goods – owned/ possessed by seller at the time of
perfection
2. Future Goods – goods to be manufactured, raised, acquired by
seller after perfection of the contract or whose acquisition by seller
depends upon a contingency (Art. 1462)
 existence as long as
Emptio rei the hope itself validly existed. (eg. lotto)
speratae is
presumed
 Q: Should the seller be the owner at the time of
perfection of the contract?

GR: No. Seller must have the right to transfer ownership at the time of
delivery or consummation stage. He need not be the owner at the time of
perfection of the contract.
XPN: Foreclosure sale wherein the mortgagor should be the absolute
owner.
 price
Price signifies the sum stipulated as the equivalent of the thing sold
and also every incident taken into consideration for the fixing of the
price put to the debit of the buyer and agreed to by him. (Villanueva, p.
52)

REQUISITES FOR A VALID PRICE

1. Real
2. In money or its equivalent
3. Certain or ascertainable at the time of the perfection of the contract
 Q: When is price certain?
1. If there is a stipulation
2. If it be with reference to another thing certain
3. If the determination of the price is left to the
judgment of specified person(s)
4. By reference to certain fact(s) as referred to in Art.
1472 (Art. 1469)
Note: If the price is based on estimates, it is uncertain.
 Q: What is the effect of gross
inadequacy of price?
GR: It does not affect the validity of the sale if it is fixed in
good faith and without fraud
XPN:
1. If Consent is vitiated (may be annulled or presumed to be
equitable mortgage)
2. If the parties intended a Donation or some other act/ contract
3. If the price is so low as to be “Shocking to the conscience”
4. If in the event of Resale, a better price can be obtained
 FORMALITIES of a CONTRACT OF SALE

Is there a formal requirement for the validity of a

contract of sale?
GR: No form is required. It is a consensual contract.

Maybe in writing, word of mouth, partly in writing or partly by word

of mouth

XPN: Under STATUTE OF FRAUDS, WHERE contracts are

rendered unenforceable if not in writing.
 statute of frauds (Article 1403)
1. Sale of personal property or things in action, which is P500 or
more
2. Sale of a real property or an interest therein;
3. Sale of property not to be performed within a year from the date
thereof;
4. When an applicable statute requires that the contract of sale be
in a certain form. (Art. 1403, par.2)

Note: Statute of Frauds applies only to executory contracts but not

to partially executed contracts.
 Sale of a land through an agent

• The authority of an agent must be in writing for it to

be valid, OTW, void.
 OPTION CONTRACT
A contract granting a privilege in one person, for which he has paid
a consideration, which gives him the right to buy certain merchandise
or specified property, from another person, at anytime within the
agreed period, at a fixed price.

Note: Consideration in an option contract may be anything or undertaking

of value, unlike in sale where it must be a price certain in money.
 OPTION MONEY EARNEST MONEY(ARRAS)
Money given Part of the purchase
as distinct price
consideration for an
option contract
Applies to a sale not Given only when
perfected there is already a
sale
Not required to buy When given, buyer is
bound to pay the
balance
 RIGHT OF FIRST REFUSAL
It is a right of first priority, all things and conditions being equal; identity of the
terms and conditions offered to the optionee and all other prospective buyers,
with optionee to enjoy the right of first priority. It creates a promise to enter
into a contract of sale and it has no separate consideration.

Note: A deed of sale executed in favor of a 3rd party who cannot be deemed a
purchaser in good faith, and which is in violation of the right of first refusal
granted to the optionee is valid but rescissible. (Arts. 1380, 1381 [1])
• Q: Is it necessary that the right of first
refusal be embodied in a written contract?

• A: Yes, the grant of such right must be clear

and express.
 Auction Sales (Art. 1476)
A sale by auction is perfected when the auctioneer announces
its perfection by the fall of the hammer, or in other
customary manner. (Art. 1476, par.2)

Q: Does the seller have the right to bid in an auction sale?

A: Yes. The seller has the right to bid provided that such
right was reserved and notice was given to that effect.
(Pineda, p. 53)
WARRANTIES
 MEANING
• A statement or representation made by the seller
contemporaneously and as a part of the contract of sale,
having reference tot eh 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. May either be express or implied.
 Q: What is the effect of a breach of warranty?
Buyer may:
Refuse to proceed with the contract; or
Proceed with the contract; waive the condition.
 A. EXPRESS
Q: What are express warranties? WARRANTIES
A: Any affirmation of fact or any promise by the seller relating to
the thing if the natural tendency of such affirmation or promise is to
induce the buyer to purchase the same, and if the buyer purchases the
thing relying thereon. (Art. 1546)

Q: What are the requisites of EXPRESS warranties?

A: AIR
1. It must be an Affirmation of fact relating to the subject matter of
sale
2. Natural tendency is to Induce buyer to purchase subject matter
Q: What is the liability of the seller for
breach of express warranties?

A: The seller is liable for damages.

 B. IMPLIED
WARRANTIES
Warranties deemed included in all contracts of sale by operation
of law. (Art. 1547)
The ff are implied warranties:

1. Warranty that seller has right to sell – refers to consummation

stage. Not applicable to sheriff, auctioneer, mortgagee, pledge
 IMPLIED WARRANTY
2. Warranty against eviction
Requisites for Warranty Against Eviction: JPENS
• Buyer is Evicted in whole or in part from the subject matter of sale
• Final Judgment
• Basis of eviction is a right Prior to sale or act imputable to seller
• Seller has been Summoned in the suit for eviction at the instance of buyer; or made
3rd party defendant through 3rd party complaint brought by buyer
• No waiver on the part of the buyer

Note: For eviction – disturbance in law is required and not just trespass in fact.
3. Warranty against encumbrances (non-apparent)
Requisites:
• immovable sold is encumbered with non‐apparent burden or servitude not
mentioned in the agreement
• nature of non‐apparent servitude or burden is such that it must be presumed
that the buyer would not have acquired it had he been aware thereof

• XPN: warranty not applicable when non‐apparent burden or servitude is

recorded in the Registry of Property – unless there is expressed warranty that
the thing is free from all burdens & encumbrances
4. Warranty against Hidden Defects
Requisites: HENNAS
1. Defect is important or Serious
2. The thing sold is unfit for the use which it is intended
3. Diminishes its fitness for such use or to such an extent that the buyer would not have acquired it had he
been aware thereof
4. Defect is Hidden
5. Defect Exists at the time of the sale
6. Buyer gives Notice of the defect to the seller within reasonable time
7. There must be No waiver of warranty on the part of the buyer.
8. ACTion for rescission or reduction of the price is brought within the proper period
• 6 months – from delivery of the thing sold
• Within 40 days – from the delivery in case of animals
 remedies of the buyer in case of
sale of things with hidden defects

• The vendee may elect between:

• Withdrawing from the contract, or
• Demanding a proportionate reduction of the price,
with damages in either case.
• Q: Is there a waiver of warranty against hidden
defects when the lessee inspected the premises and
pushed through with the contract?

• A: Yes. Under Arts. 1561 and 1653 of the Civil

Code, the lessor is responsible for warranty
against hidden defects, but he is not answerable
for patent defects or those, which are visible
When is implied warranty not applicable?
(ASAP)
1. “As is and where is” sale
2. Sale of second hand articles
3. Sale by virtue of authority in fact or law
4. Sale at public auction for tax delinquency
 Q: What are the effects of waiver of an implied
warranty?
• Seller in bad faith & there is waiver against eviction –void
• When buyer w/o knowledge of a particular risk, made general
renunciation of warranty – is not a waiver but merely limits
liability of seller in case of eviction
• When buyer with knowledge of risk of eviction assumed its
consequences & made a waiver – seller not liable (applicable
only to waiver of warranty against eviction)
 IMPLIED WARRANTIES IN CASE OF SALE OF GOODS
1. Warranty of fitness
• GR: No implied warranty
• XPN:
• Buyer manifests to the seller the particular purpose for which the
goods are required; and
• Buyer relies upon the seller’s skill or judgment

2. Warranty of merchantability – That goods are reasonably fit for

the general purpose for which they are sold.
 CAVEAT EMPTOR, principle

• It literally means, ‘Let the buyer beware’.

• The rule requires the purchaser to be aware of the
supposed title of the vendor and one who buys
without checking the vendor’s title takes all the risks
and losses consequent to such failure.
Q: In what particular sale transactions does
caveat emptor apply?

1. Sales of animals (Art. 1574)

2. Double sales (Art. 1544)
3. In sheriff’s sales (Art. 1570)
4. Tax sales (Art. 1547, last paragraph)
 remedies of the buyer in case of
breach of warranty
1. Accept goods & set up breach of warranty by way of
recoupment in diminution or extinction or the price.
2. Accept goods & maintain action against seller for damages
3. Refuse to accept goods & maintain action against seller for
damages
4. Rescind contract of sale & refuse to receive goods/return them
when already received.
END OF TOPIC 1