LECTURE NOTES

ATTY. FM VALDEZ, CPA, DBA

CHAPTER 1 NATURE AND FORM OF THE CONTRACT

CONTRACT OF SALE – is a contract whereby one of the party undertakes to deliver/transfer ownership
of a determinant thing and the other, to pay a price certain in money or its equivalent.

CHARACTERISTICS of a CONTRACT OF SALE

1. Consensual – perfected by mere consent or meeting of minds of both parties (all contracts are
consensual in nature without stipulation of the parties as to form)

2. Bilateral – more than 1 contracting parties undertaking to fulfill their obligations

3. Onerous – both parties must give something equivalent to what the other party has given

4. Commutative – what is given is equivalent to the other

5. Nominate – has name by law 6. Principal – doesn’t depend on other contracts for its existence

 Essential Elements

1. Consent

2. Object – must be determinate, useful, legal and possible

3. Cause/ Consideration – refers to price certain in money or its equivalent

Natural Elements – deemed to exist without any stipulation

Example: warranties against hidden defects; warranties against eviction

Accidental Elements – stipulated by parties Example: interest

“A contract may be

1.) absolute (not subject to any condition)

2.) conditional (subject to condition.)”

Contract to Sell – if the sale is subject to a condition such as the full payment of price

OBJECT OF A CONTRACT OF SALE .

1.) Sale of Vain Hope or Expectancy – void

2.) Things having potential Existence – valid

3.) Mere hope or expectancy – valid
4.) Sale of future inheritance – void
5.) “things subject to a resolutely condition may be the object of a contract of sale.” Ex: Pact
De Retro Sale – sale with a right to repurchase

Contract of Agency – a person binds himself to render some service or to do something in

representation or on behalf of another with the consent or authority of the latter.

Contract for a piece of work – the contractor binds himself to execute a piece of work for the
employer. The contractor may either employ his labor or skill or also furnish the material.

Contract of Barter/ Exchange – one of the parties binds himself to give one thing in
consideration of the other’s promise to give another thing.

RULES GOVERNING PRICE INSTANCES WHERE PRICE IS CONSIDERED CERTAIN

a) The parties have fixed or agreed upon a definite amount
b) With reference to another thing certain
c) Upon a 3rd person’s judgment

Gross inadequacy of price – contract is valid except:

1. The consent is vitiated
2. The parties really intended a donation

When Price simulated – void

The fixing of the price cannot be left to the discretion of one of the contracting parties.

Effect if price not determined

a. No effect, if yet to be executed (delivered)
b. The buyer must pay a reasonable price thereof, (if delivery has been made)

STAGES OF A CONTRACT OF SALE

1. Negotiation - contracting parties indicate interest

2. Perfection – meeting of the minds of the parties upon the object and upon the price

3. Consummation – parties perform their respective undertakings

OWNERSHIP - ownership of things is transferred through delivery.

Statute of Frauds -

The law enumerates certain transaction to be stated in writing in order to prevent fraudulent
cases, disputes/ issue
1. Sale that is to be performed more than 1 year
2. Sale of personal (movable) property not less than php500.
3. Sale of real property/interest

OPTION MONEY – reservation fee, what you paid is the time or the option to buy, not compelled
to buy
 EARNEST MONEY – down payment, part of the purchase price

RISK OF LOSS OF THE OBJECT/SUBJECT MATTER

Res perit domino – the thing perishes with the owner

1. Before perfection – seller

2. At the time of perfection – contract is void and inexistent because it lacks an essential
element (object)
3. After perfection, before delivery – buyer

4. After delivery – buyer

REMEDIES OF VENDOR IN SALE OF PERSONAL & REAL PROPERTY PAYABLE IN

INSTALLMENTS

What is Recto Law?

The law says:

Recto Law covers sales of personal property on installment basis. Recto Law falls Article 1484
the Civil Code of the Philippines which is stated in the following manner:

“Article 1484. In a contract of sale of personal property, the price of which is payable in
installments, the vendor may exercise any of the following remedies:

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;
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 this 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.”

“ Alternative, not cumulative”

in sale of personal property – chattel mortagage.

In real property- real- estate mortage

Note: “ the installment and rents paid can be forfeited, if stipulated.”

Maceda Law

Republic Act No. 6552, or the Realty Installment Buyer Protection Act, is named
after its primary author Ernesto Maceda.
 The Maceda Law, as it is known, is an act that protects property owners from
unfavorable terms that may occur from sale transactions funded by an installment agreement
by describing the rights of the buyers regarding refund entitlement and grace periods.

Maceda Law covers real estate purchasing transactions or financing for residential
properties only, including houses, lots, and condominiums under an installment payment
arrangement. Meaning, purchases made for industrial lots, commercial lots, sales on tenants,
and mortgage sales will not be covered by this law.

Maceda Law is also on the side of the homebuyers in the event that there will be any
offenses on the part of the developer or the seller as this law declared the protection of real
estate buyers on installment payments as a public policy.

As a whole, it serves as a security defense of low-income and middle-class buyers

who would like to purchase their property.

Difference between the Maceda Law and the Recto Law

Both laws regulate the sale of property in an installment arrangement. Recto Law,
however, forms as a part of the Civil Code that governs the sales of personal property.
Personal property means anything that can be moved and can be subject to ownership except
land.

The Maceda Law, on the other hand, is a special law that rules over real property
sales or anything that cannot be moved, which includes land and everything attached to it.

A buyer who has paid at least two years of installments in all transactions or contracts
involving the sale or financing of real estate installment payments. The properties covered
are residential condominiums, apartments, houses, townhouses, and houses and lots. This
excludes industrial lots, commercial buildings, and sales of properties to existing tenants.

Here are the guarantees you can have once you satisfy this type of qualified
buyer:

On defaulting:

Buyers who fall behind on their installment payments are entitled to pay the unpaid
installments due within the total grace period they have earned, without additional interest.
You can have a one-month grace period for every one (1) year of installment payments made.
Buyers should note that this right can only be applied once every five years of the contract
life and its extensions.
On contract cancellation:

If the contract is canceled, the seller is required to reimburse the buyer the cash
surrender value of the property payments, which is equal to 50% of the total payments made.
An additional 5% for each payment year will be added after five years of installment, but this
must not exceed 90% of the total payments made. The actual cancellation of the contract is
applicable 30 days after the receipt of the notice of cancellation by the buyer. This notice of
cancellation or demand for retraction must be in writing and signed by a notary public, and it
must be accompanied by full payment of the cash surrender value to the buyer.

On grace periods:

In times of crisis, just like this pandemic, buyers might want to hold on to cash as
much as possible. Good thing that the Maceda Law grants two months grace period as long
you've already finished two years of installment payments. It's worth taking advantage of this
brief reprieve from duties to carefully consider your canceling options. If you've given it
some thought and still want to terminate the contract, you can get a refund of 50% of what
you spent if you've made two years' worth of installment payments.

On refunds:

Only individuals who have paid at least two years of installments on transactions
covered by the Maceda Law are eligible for a refund of the down payment.

A buyer who has purchased residential condominiums, apartments, houses, townhouses, and
houses and lots but only paid less than two (2) years of installment.

You can still be entitled to have a grace period of not less than 60 days, which will be
counted from the due date of the installment.
Meanwhile, the seller has the right to cancel the contract if the buyer does not pay the
payments due before the grace period's conclusion. Despite that, the seller must notify the
buyer first about the contract cancellation or the retraction demand. This notice or demand
must be in the form of a notarial act and will only be effective 30 days after this has been
made.
 Chapter 2 Capacity to Buy or Sell

Kinds of Incapacity
1. Absolute Incapacity- Party cannot bind himself in any case.
2. Relative Incapacity- Certain Persons under certain circumstances cannot buy certain
property.
Necessaries—those things which are needed for sustenance, dwelling, clothing and
medical attendance, in keeping with the financial capacity of the family of the incapacitated
person.

Chapter 3 Effects of the Contract when the Thing Sold has been Lost Partial Loss

Rules:

1. Vendee may withdraw from the contract

2. Demand the remaining part, paying its price in proportion to the total sum agreed upon

Loss/Substantial Deterioration of Specific Goods without seller’s knowledge.

1. Buyer may avoid the sale or
2. May treat sale as valid w/ respect to the existing goods

Chapter 4
Section 1 – General Provision Principal Obligation of Vendor

1. To transfer ownership of a determinate thing

2. To take care of the thing with proper diligence
3. To deliver the thing
4. To pay for the expenses
5. To warrant against eviction and hidden defects

Ways of effecting delivery

1. By actual or real delivery

2. Constructive or legal delivery

3. By delivery in any other manner signifying an agreement that the possession is

transferred to the vendee

“Delivery is an indispensable requisite to transfer ownership and must be made with

intention of delivering the thing sold.”

“ The delivery must be made to the vendee or his authorized representative”.

Ways effecting constructive delivery

 1. by the execution of a public instrument
2. by tradition brevi manu
3. By symbolical tradition or “tradition symbolica”
4. by tradition constitutium possessorim
5. by traditio longa manu
6. by quasi-delivery or quasi-traditio

Section 2 – Delivery of the Thing Sold

Tradition – is a derivative mode of acquiring ownership by virtue which one who has the right and
intention to alienate a corporeal thing, transmits it by virtue of a just title to one who accepts them.

Importance: To enable the vendee to enjoy and make use of the property purchased.

Types of Delivery:

Actual Delivery

1. There is an actual delivery when the thing sold Is placed in the control and possession
of the vendee

2. Actual or manual delivery of an article sold is not always essential to passing of title
thereto.

3. Delivery is generally evidenced by a written acknowledgement of the buyer.

Symbolic Tradition – to effect delivery, the parties make use of a token symbol to represent the
thing delivered.

Public Instrument – It is one which is acknowledged before a notary public or any authorized to
administer oath, by the person who executed the same.

Rule: The execution of such applies to, movable as well as immovable property.

Exception: If it appears from the document or it can be inferred there from that it was not
the intention of the parties to make delivery, no tradition can be deemed to have taken place.

Traditio Longa Manu – takes place by mere consent or agreement of the contracting parties as
when the vendor merely points to the thing sold which shall be at the control and disposal of the
vendee.

Traditio Brevi Manu – happens when the vendee has already the possession of the thing sold
by virtue of another title as when the lessor sells the thing leases to the lessee.

Traditio constitutum possessorium – takes place when the vendor continues in possession of
the property sold not as owner but in some other capacity.

Quasi-traditio – when delivery is in case of incorporeal things.

1. By execution of public instrument

 2. If no delivery, by placing of the titles of ownership in the possession of the vendee

3. Allowing the vendee to use his rights as new owner w/ consent of vendor.

Sale or return

1.) The property is sold but the buyer has the option to return the same to the seller
instead of paying the price.

2.) Subject to resolutory condition.

3.)Depends entirely on the will of the buyer Ownership of goods passes to the buyer on
delivery and subsequent return reverts ownership to seller

Sale on trial or approval

1.) A contract in the nature of an option to purchase, if the goods prove satisfactory, the
approval of the buyer being a condition precedent.

2.) Subject to suspensive conditions

3.) Depends on the character or quality of the goods Ownership remains on the seller
until the buyer signifies his approval or acceptance to the seller

Res perit domino – if the thing is lost by fortuitous event, the risk is borne by the owner of the
thing at the time of the loss.

Exception:

1. Where seller reserves the ownership of the goods to secure the performance of the
buyer of his obligations, buyer assumes the risk of loss.

2. Where actual delivery has been delayed through the fault of either, risk is at the party
at fault.

Sale by person not the owner

1. Where the owner of goods is, by his conduct, precluded from denying the seller’s
authority to sell

2. Where the law enables the apparent owner to dispose of the goods as if he were the
true owner

3. Where the sale is sanctioned by statutory or judicial authority

4. Where the sale is made at merchant’s stores, fairs or markets

5. Where the seller has a voidable title which has not been avoided at the time of the sale

6. Where seller subsequently acquires title.

In sale by one having voidable title, buyer can acquire such if:

1. Before the title of the seller has been avoided

2. In good faith for value

3. Without notice of the seller’s defect of title.

What is a Document of title – Includes any bill of lading, dock warrant, “quedan”, or warehouse
receipt or any other document used in the ordinary course of business as proof of the possession
or control of the goods.

Definition of Terms:

1.) COD (Collect on Delivery) – carrier acts for the seller in collecting the purchase price

3.) FOB (Free on Board) – Goods to be delivered free of expense

4.) CIF (Cost Insurance and Freight) – Price fixed not only cost of goods but also freight and
insurance
5.) FAS (Free Alongside Vessel) – Seller pays all the charges and bears risk until goods are
placed alongside overseas vessel and w/in reach of its loading tackle.
6.) Ex-Factory, Ex-warehouse – price quoted applies only at the point of origin
7.) Ex Dock – seller quotes price including cost of goods on the dock.

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 dishonor of the instrument.

One is Deemed to be unpaid seller when:

1) When whole price has not been paid or tendered
2) 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 dishonor of the
instrument.

Stoppage in Transitu---Lien on the goods Stopping the goods in transit

Right of unpaid seller as to retention of possession until tender of price

1) Goods have been sold w/out any stipulation as to credit
2) Goods have been sold on credit, but term has expired
3) Buyer becomes insolvent

When unpaid seller losses possessory lien

1) Delivers goods to agent or bailee of buyer
2) Possession is in the buyer or his agent
3) Waiver Requisite to exercise right of stoppage in transit
Requisites of stoppage in transitu

1.) The seller must be unpaid

2.) The buyer must be insolvent
3.)The goods must be in transit
4.) The seller must take possession
5.)The seller must surrender the negotiable document
6.) The seller must bear the expenses of delivery

Goods considered in transit when

1) After delivery to a carrier or other bailee and before the buyer takes delivery of them
2) If the goods are rejected by the buyer, and carrier continues in possession Goods
considered in transit

After delivery to the buyer or his agent If the buyer or agent obtains possession of the goods
If the carrier/bailee acknowledges to hold goods on behalf of the buyer If the carrier/bailee
wrongfully refuses to deliver the goods to the buyer.

Ways of exercising the right to stop:

1) By taking actual possession of goods
2) By giving notice to his claim to the carrier/bailee

When resale is allowable

1) Where goods are perishable in nature
2) Right to resell is expressly reserved, in case buyer in default
3) Buyer delays in the payment of price

Seller may rescind

1) It is expressly reserved in case of buyers’ default
2) Buyer delays in the payment of price

If the thing is lost w/out fault of debtor, the obligations shall be extinguished. If thing
lost through vendors fault, he shall pay damages

Rules in cases of double sale

1) If property is movable, ownership shall be acquired by who first take possession in good
faith
2) If property is immovable:
a) Vendee who first register the sale to the Registry of Property
b) In absence of registration, vendee who first takes possession in good faith
c) In absence of both, one who presents the oldest title in good faith.

If the thing deteriorates w/out fault of debtor, impairment is borne by creditor.

When thing deteriorates in fault of debtor, the creditor may choose between rescission
of obligation and its fulfillment, with indemnity for damages.
 If thing is improved by its nature or by time, it shall inure to the benefit of the creditor

Sale of real property where the area by unit of measure/number

1) Entire area stated in contract must be delivered
2) Where entire area could not be delivered, he is entitled to rescind it.

When vendee is entitles to rescind

1) If the lack in area is at least 1/10 than that stated or stipulated
2) If the deficiency in the quality specified exceeds 1/10 of the price agreed upon
3) If vendee would have not brought the immovable had he known of its smaller area or
inferior quality

Section 3 – Conditions and Warranty CONDITIONS AND WARRANTIES

Article 1545. What are the options of a party to a contract of sale subject to a condition, when such
condition was not fulfilled by the other party?

a. Refuse to proceed with the contract

b. Waive performance of the condition and proceed with the contract

What if the condition agreed upon is in the nature of a promise that it should happen?

Then the non-fulfillment of such condition is considered a breach of warranty.

Article 1546. WARRANTY. --It is a collateral undertaking in a sale of either real or personal property,
express or implied, that if the property sold does not possess certain incidents or qualities, the purchaser
may either consider the sale void or claim damages for breach of warranty.

Express Warranty—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. Affirmation of the value of the thing or statement
of the seller’s opinion is not warranty, unless the seller made such affirmation or statement as an
expert and it was relied upon by the buyer.

Implied Warranty—It is inherent in a contract of sale and presumed to exist although nothing has
been mentioned about it. Implied Warranties in Contracts of Sale (1547)

1. Implied warranty as to the right of the seller to sell at the time when ownership has to
pass. (Warranty against eviction)

2. Implied warranty against hidden defects or faults or charge or encumbrances unknown

to the buyer

3. Implied warranty as to fitness and merchantability

4. Warranty against encumbrances or non-apparent servitudes (1560)

 Cases where implied warranty is not applicable

1. Sale made by a sheriff, auctioneer, mortgagee, pledge or other person professing to

sell by virtue of authority in fact or law (1547) (The judgment debtor is responsible here for
eviction)

2. Sale under “as is and where is”—this carries no warranty as to the quality or workable
condition of the goods and the buyer takes them as they are. However, such condition does not
include those that could not be discovered by a physical examination of the goods sold.

3. Sale of second hand articles does not carry any warranty as to the condition,
adaptation, fitness or suitability for purposes for which they have been purchased.

4. Sale of property sold at public auction for tax delinquency. There is no warranty on the
part of the State as to the title of the owner.

WARRANTY AGAINST EVICTION—The seller guarantees that he has the right to sell
the thing sold and to transfer ownership to the buyer who shall not be disturbed in his legal and
peaceful possession thereof. Eviction—A judicial process by virtue of which the vendee is
deprived of the ownership of the whole or part of the thing he purchased by final judgment or by
an act imputable to the vendor.

Elements

1. Vendee is deprived in whole or in part of the thing purchased

2. The deprivation is by virtue of a final judgment

3. The judgment is based on a prior right to the sale or an act imputable to the vendor

4. The vendor was summoned in the suit for eviction at the instance of the vendee

5. No waiver of warranty by the vendee

Failure of the vendee to appeal does not relieve vendor from responsibility

Warranty against encumbrances or non-apparent servitudes

Requisites: 1. Immovable sold is encumbered with non-apparent burden or servitude not

mentioned in the agreement

2. 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.

Remedies of the vendee 1. Rescission of the contract OR 2. Indemnity

Warranty is not applicable if non-apparent servitude is recorded in the Registry of Property, unless there
is an express warranty that the thing is free from all burdens and encumbrances.
Prescription of actions for rescission of damages: W/in 1 year from the execution of contract

If what was chosen was rescission but was not filed w/in 1 year, vendee may still sue for damages w/in
one year from the discovery of burden or servitude.

WARRANTY AGAINST HIDDEN DEFECTS

Requisites: (HIPANN)

1. Defect must be hidden. –it cannot be discovered by an ordinary inspection or examination.

2. Defect must be important or grave.

– a) defect renders the thing sold unfit for the use for w/c it is intended;

b) diminishes its fitness for the use intended, to such an extent that the vendee would not have
acquired if he had been aware thereof or would have given a lower price for it.

3. Defect must be present at the time of the execution of the sale.

4. Action for rescission or reduction of price must be filed w/in the prescriptive period.

5. No waiver of the warranty against hidden defects.

6. Notice by the vendee to the vendor within a reasonable time. REDHIBITORY DEFECTS—an
imperfection or defect of such nature as to engender a certain degree of importance REDHIBITION--claim
against the seller of a product in which the buyer demands a full refund or a reduction of the purchase
price due to a hidden defect that prevents the product from performing the task for which it was
purchased.

Art. 1562—Implied Warranty or Condition as to quality or fitness of goods Applicability: Goods—

all chattel personal but not things in action or money of legal tender, this includes growing fruits or crops

1. IMPLIED WARRANTY OF FITNESS. General Rule: there is no implied warranty of fitness

Exceptions: a) Buyer expressly makes known the particular purpose or by implication;
b) Buyer relies upon the seller’s skill or judgment

2. IMPLIED WARRANTY OF MERCHANTABILITY. Applies when goods are bought by description. *

Merchantability—quality and condition of goods that a reasonable man would after a full examination
accept the same under the circumstances of the case, in the performance of his offer to buy, whether for
his own use or for resale.

Merchantability of goods in sale by sample is implied. Defect should not be apparent on reasonable
examination of the sample for the vendor to be liable (1565) Vendor is liable eventhough not aware of
hidden defects, unless there is a contrary stipulation and he is in good faith (1566)

Caveat Venditor—“Let the Seller Beware” Vendor is liable even though not aware of hidden defects
Caveat Emptor—“Let the Buyer Beware” 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. Remedies of Buyer (1567)

1.) Accion Redhibitoria—action seeking withdrawal from the contract

2,) Accion quanti minores or estimatoria—action for proportionate reduction in the price

Loss of Thing Sold w/ Hidden defects through fortuitous event or vendee’s fault (1569) * Vendee may
demand price paid less value of the thing at the time of loss plus damages if vendor acted in bad faith.

Warranties against hidden defects, merchantability and fitness are applicable to judicial sales but
judgment debtor is not liable for damages, because the latter is only forced to sell and therefore did not
take part in the conduct of the sale and determination of price which precludes possibility of bad faith
(1570) Prescription of Actions: 6 Months from delivery of thing (1571)

CHAPTER 5 OBLIGATIONS OF THE VENDEE

PRINCIPAL OBLIGATIONS OF VENDEE

1. To accept delivery

2. To pay the price of the thing sold

3. To bear the expenses for the execution and registration of the sale and putting the goods in a
deliverable state

DIFFERENCE BETWEEN DELIVERY AND ACCEPTANCE 

Delivery – an act/obligation of the vendor

Acceptance – act of the vendee

ACCEPTANCE – an assent to become owner of the specific goods

2 modes of acceptance

1. Expressed – when the buyer expressly intimates to the seller that he has accepted the goods
2. Implied – either ` a. when the buyer does any act inconsistent with the sellers ownership
such as when the buyer uses the goods b.when the buyer after a lapse of time retains the
goods without intimating his rejection.

WHEN BUYERS REFUSAL IS WRONGFUL

 1. Title passes to the buyer

2. Risk of loss is borne by buyer

WHEN IS BUYER LIABLE FOR INTEREST - Starts from the time of delivery until the payment of price

1. If stipulated

2. If the thing sold produces income or fruits

3. If buyer default

WHEN CAN VENDEE SUSPEND PAYMENT OF PRICE

1. If he is disturbed in the possession or ownership of the thing

2. If he has a well-grounded fear that his possession will be disturbed

WHEN VENDOR CAN RESCIND SALE

a. Immovable

1. If he has good reasons to fear the loss of the property and its price

b. Movable

1. If the buyer without lawful cause, refuses to accept the delivery and pay the price

PACTO DE RETRO SALE - sale with a right to repurchase In case of doubt, it shall be construed as an
equitable mortgage (art. 1603)

The vendor may ask for reformation of the contract (art. 1605)

*reformation – remedy by which the written instrument is made or construed so as to express or

conform to the real intention of the parties when such intention is not expressed in the instrument.

PERIOD FOR REDEMPTION No agreement as to redemption, then it is an absolute sale 4 years – in the
absence of an agreement as to the time Shall not exceed 10 years 30 days, after a final judgement