LAW ON SALES

INTRODUCTION
• CONTRACT OF SALE
• One of the contracting parties obligates himself to transfer the ownership of and
to deliver a determinate thing, and the other to pay therefore a price certain in
money or its equivalent. A contract of sale may be absolute or conditional.

• ELEMENTS OF A CONTRACT OF SALE

1. Consent
2. Determinate subject matter
3. Price certain in money or its equivalent

• STAGES IN LIFE OF CONTRACT OF SALE

1. Negotiation
2. Perfection
3. Consummation
 PARTIES TO A CONTRACT OF SALE
• NOTE: GENERAL RULE - All persons who are authorized in this Code to
obligate themselves may enter into a contract of sale
1. MINORS, INSANE AND DEMENTED PERSONS, AND DEAF-MUTES
• Contracts are voidable, subject to annulment or ratification
• Also includes: State of drunkenness/Hypnotic spell
• Where necessaries are those sold and delivered to a minor or other person without
capacity to act, he must pay a reasonable price therefore

2. SPOUSES - A spouse may, without the consent of the other spouse, enter
into sales transactions in the regular pursuit of their profession, vocation, or
trade
CHARACTERISTICS OF CONTRACT OF SALE
1. Nominate
2. Principal
3. Consensual
4. Bilateral
5. Reciprocal
6. Onerous
7. Commutative
8. Title and not a mode
Q: What are the elements of a contract of sale?
A: ANE
1. Accidental elements – dependent on parties’ stipulations; Examples:
a. Conditions
b. Interest
c. time & place of payment
d. penalty
2. Natural elements – those that are inherent even in absence of
contrary provision.
E.g. warranties
3. Essential elements – for validity:
a. Consent
b. Determinate subject matter
c. Consideration
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.
 DIFFERENT KINDS OF SALES
1. Nature of the subject matter:
a. Sale of real property;
b. Sale of personal property
2. Value of the things exchanged:
a. Commutative sale;
b. Aleatory sale
3. Whether the object is tangible or intangible:
a. Sale of property (tangible or corporeal);

Note: A tangible object is also called chose in possession

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 action.

4. Validity or defect of the transaction:

a. Valid
b. Rescissible
c. Voidable
d. Unenforceable
e. Void
5. Presence or absence of conditions:
a. Absolute
b. Conditional

6. Wholesale or retail:
a. Wholesale
b. Retail

7. Proximate inducement for the sale:

a. Sale by description
b. Sale by sample
c. Sale by description and sample

8. When the price is tendered:

a. Cash sale
b. Sale on installment plan
 AS TO PRESENCEOR ABSENCE OF
CONDITION
ABSOLUTE SALE
Q: When is a sale absolute?
A: 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.
 CONDITIONAL SALE
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)
•FORMALITIES REQUIRED
Q: Is there a formal requirement for the validity of a
contract of sale?
• A: GR: No form is required. It is a consensual
contract.

XPN: Under Statute of Frauds, the following contracts

must be in writing; otherwise, they shall be
unenforceable:
 UNDER STATUTE OF FRAUDS
• 1. Sale of personal property at a price not less than P500;
• 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.
 Q: ARE THERE INSTANCES WHERE THE STATUTE OF
FRAUDS IS NOT ESSENTIAL FOR THE VALIDITY OF A
CONTRACT OF SALE
A: Yes.
1. When there is a note or memorandum in writing and subscribed
to by the party or his agent (contains essential terms of the
contract);
2. When there has been partial performance/execution (seller
delivers with the intent to transfer title/receives price);
3. When there has been failure to object to presentation of
evidence aliunde as to the existence of a contract without being
in writing and which is covered by the Statute of Frauds;
4. When sales are effected throughelectronic commerce.
 B. OPTION CONTRACT
Q: What is an option contract?
A: 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.
Note: If the option is perfected, it does not result in the perfection or
consummation of the sale.

Q: What is the period within which to exercise the option?

A:
1. Within the term stipulated
2. If there is no stipulation, the court may fix the term

• Notes: An action for specific performance to enforce the option to purchase

must be filed within 10 years from the time the cause of action accrues.

• The implied renewal of the lease on a month‐tomonth basis did not have the
effect of extending the life of the option to purchase which expired at the
end of the original lease period. The lessor is correct in refusing to sell on the
ground that the option had expired. (2001 Bar Question)
• Q: How is an option exercised?

• A: A notice of acceptance must be communicated

to offeror even without actual payment as long as
payment is delivered in the consummation stage.
Q: What is the effect of a separate consideration in an option contract?
A:
1. With separate consideration:
a. Contract is valid
b. Offeror cannot withdraw offer until after expiration of the option
c. Is subject to rescission & damages but not specific performance

2. Without separate consideration:

a. the option contract is not deemed perfected
b. offer may be withdrawn at any time prior to acceptance
• C. RIGHT OF FIRST REFUSAL
• Q: What is the right of first refusal?
• A: 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: May the right of first refusal be waived?
• A: Yes. Like other rights, the right of first
refusal may be waived or when a party
entered into a compromise agreement.
 CASE
• Q: NDC and Firestone entered into a contract of lease wherein it is stipulated
that Firestone has the right of first refusal to purchase the leased property
"should lessor NDC decide to sell the same”. After the rumor that NDC will
transfer the lot to PUP, Firestone instituted an action for specific performance
to compel NDC to sell the property in its favor. PUP moved to intervene
arguing that the Memorandum issued by then President Aquino ordered the
transfer of the whole NDC compound to the Government, which in turn
would convey it in favor of PUP. Can Firestone exercise its right of first refusal?
• A: Yes. It is a settled principle in civil law that when a
lease contract contains a right of first refusal, the
lessor is under a legal duty to the lessee not to sell to
anybody at any price until after he has made an
offer to sell to the latter at a certain price and the
lessee has failed to accept it. The lessee has a right
that the lessor's first offer shall be in his favor. (PUP v.
CA, G.R. No. 143513, Nov. 14, 2001)
• Q: In a 20‐year lease contract over a building, the lessee is expressly granted
a right of firstrefusal should the lessor decide to sell both the land and
building. However, the lessor sold theproperty to a third person who knew
about the lease and in fact agreed to respect it. Consequently, the lessee
brings an action against both the lessor‐seller and the buyer (a) to rescind
the sale and (b) to compel specific performance of his right of first refusal in
the sense that the lessor should be ordered to execute a deed of absolute
sale in favor of the lessee at the same price. The defendants contend that
the plaintiff can neither seek rescission of the sale nor compel specific
performance of a "mere" right of first refusal. Decide the case.
• A:
•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.
• Q: When is an auction sale perfected?
• A: 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)
 D. OBLIGATIONS CREATED
OBLIGATIONS OF THE BUYER

Q: What are the obligations of the buyer?

A:
1. Payment of the price
GR: Seller is not bound to deliver unless the purchase price is paid
XPN: A period of payment has been fixed
2. Accept delivery of thing sold
3. Pay for expenses of delivery
Note: A grace period granted the buyer in case of failure to pay is a right not
an obligation. Nonpayment would still generally require judicial or extrajudicial
demand before default can arise.
 Q: WHAT ARE THE OTHER
OBLIGATIONS OF THE BUYER?
A:
1. To take care of the goods without the obligation to return, where the
goods are delivered to the buyer and he rightfully refuses to accept;
Note: The goods in the buyer’s possession are at the seller’s risk.
2. To be liable as a depositary if he voluntarily constituted himself as such;
3. To pay interest for the period between delivery of the thing and the
payment of the price in the following cases:
a. should it have been stipulated;
b. should the thing sold and delivered produces fruits or income; or
c. should he be in default, from the time of judicial or extra‐judicial demand
for the payment of the price.
 OBLIGATIONS OF THE SELLER
A: DDTWTP
1. Deliver the thing sold;
2. Deliver fruits & accessions/accessories accruing from
perfection of sale;
3. Transfer the ownership;
4. Warranties;
5. Take care of the thing, pending delivery, with proper
diligence;
6. Pay for the expenses of the deed of sale unless there is a
stipulation to the
contrary
 DISTINCTIONS

SALE DONATION

Onerous Gratuitous/onerous

Consensual Formal contract

Law on Sales Law on Donation

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

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 than amount of money Value of thing is more than amount of money = Barter
= Sale

Both are governed by law on sales

 SALE AGENCY TO SELL

Buyer pays for price of object Agent not obliged to pay for price; must account for
the
proceeds of the sale.

Buyer becomes owner of thing Principal remains the owner even if the object
delivered to
agent

Agent assumes no personal liability as long as

Seller warrants
within authority given

Not unilaterally revocable May be revoked unilaterally even w/o

ground

Seller receives profit Agent not allowed to profit

Real contract Personal contract
 SALE DACION EN PAGO
Contract where property is alienated to extinguish pre‐
No pre‐existing credit existing credit/debt

Buyer‐seller relationship
Novates creditor‐debtor relationship into seller‐buyer
 SALE LEASE

Obligation to absolutely transfer ownership Use of thing is for specified period

only with obligation to return
of thing
Consideration is the price Consideration is the rental
Seller needs to be owner of thing to transfer
ownership. Lessor need not be owner
Note: Lease with option to buy – really a
contract of sale but designated as lease in
name.
 CONTRACT TO SELL

• Q: What is a contract to sell?

• A: 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)
 CONTRACT OF SALE CONTRACT TO SELL
As regards transfer of ownership
Ownership is transferred to the buyer upon delivery of the object to him.
Ownership is transferred upon full payment of the purchase price.
Note: Vendor has lost and cannot recover ownership until and unless the contract
Note: Prior to full payment, ownership is retained by the seller.
is resolved or rescinded

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 the buyer. Note: Conditional or preparatory sale
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 condition. Note: Failure to
Non‐payment of the price is a resolutory condition. Vendor loses ownership over
fully pay the price is not a breach but an event that prevents the
the property and cannot recover it until and unless the contract is resolved or
obligation of the vendor to convey title from becoming effective.
rescinded.

Remedies available
1. Specific
1. Resolution
2. Performance
2. Damages
3. Rescission
4. Damages
 Q: WHO ARE THOSE RELATIVELY INCAPACITATED
TO ENTER INTO A CONTRACT OF SALE?

A:
1. Spouses (Art. 1490, NCC)
2. Agents, Guardians, Executors andAdministrators, Public Officers and
Employees, Court Officers and Employees, and others speciallydisqualified by
law. (Art. 1491, NCC)
Note: Under Art. 1490 of the NCC, spouses cannot sell property to each other,
except:
a. When a separation of property was agreed in the marriage settlements; or
b. When there has been a judicial separation of property agreed upon
between them.
 Q: WHO ARE THOSE PERSONS
SPECIALLY DISQUALIFIED BY LAW TO
ENTER INTO CONTRACTS OF SALE?
A: ALIEN‐UnOS
1. ALIENs who are disqualified to purchase private agricultural lands (Art. XII Secs. 3 &
7)
2. Unpaid seller having a right of lien or having stopped the goods in transitu, is
prohibited from buying the goods either directly or indirectly in the resale of the same
at public/private sale which he may make (Art. 1533 [5]; Art. 1476 [4])
3. The Officer holding the execution or deputy cannot become a purchaser or be
interested directly or indirectly on any purchase at an execution. (Sec. 21 Rule 39,
Rules of Court)
4. In Sale by auction, seller cannot bid unless notice has been given that such sale is
subject to a right to bid in behalf of the seller. (Art. 1476)
 Q: WHAT ARE THE REQUISITES OF A
PROPER OBJECT OF
SALE?
1. Things
a. Determinate or 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: Can rights be the objects of sale?

• A: Yes, if they are transmissible. (Art. 1347)

• Q: What may be objects of sale?
A:
• 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)
Q: Should the seller be the owner at the time of perfection of
the contract?
A:
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.
EMPTIO REI SPERATAE EMPTIO SPEI

Sale of thing having Sale of mere hope or

potential existence expectancy
Uncertainty is w/ regard to Uncertainty is w/ regard to
quantity & quality existence of thing
Contract deals w/ future Contract deals w/
thing present thing – hope or
expectancy
Sale is valid only if the Sale is valid even though
expected thing will expected thing does
exist. not come into
 Q: WHAT IS A PRICE?
A: 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)
B. REQUISITES FOR A VALID PRICE
Q: What are the requisites of price?
A: Must be:
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?
A:
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?
A:
GR: It does not affect the validity of the sale if it is fixed in good faith
and without fraud
XPN: CoRDS
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
• Q: What is sale on trial, approval or
satisfaction?
• A: It is a contract in the nature of an option to
purchase if the goods prove to be satisfactory,
the approval of the buyer being a condition
precedent.
• Q: When is the seller not bound to deliver the thing sold?
• A:
• 1. If the buyer has not paid the price;
• 2. No period for payment has been fixed in the contract;
• 3. A period for payment has been fixed in the contract but the buyer has lost
the right to make use of the time.
LAW ON SALES:
WARRANTIES
 WARRANTIES
• Goes into the performance of such obligation and in fact may constitute an
obligation in itself

• May form part of the obligation or contract by provision of the aw without

the parties having agreed thereto

• Non-fulfillment of a warranty would constitute a breach of contract

 WARRANTY, CONCEPT
• A statement or representation made by the seller of goods, as part of the contract of
sale, having reference to the character, quality, or title, of the goods, and by which he
promises or undertakes to insure that certain facts are or shall be as he then
represents.

• May either be express or implied.

• Effect of a breach of warranty? BUYER MAY:

1. Refuse to proceed with the contract; or
2. Proceed with the contract; waive the
condition.
• If the condition is in the nature that it should happen, the non‐performance may be
treated as a breach of warranty.-
 KINDS OF WARRANTIES
• Express - 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.
• liability of the seller for breach of express warranties - the seller is liable for
damages

• Implied - Warranties deemed included in all contracts of sale by operation of

law.
 IMPLIED WARRANTIES
1. Warranty that seller has right to sell – refers to consummation stage. Not
applicable to sheriff, auctioneer, mortgagee, pledge
2. Warranty against eviction
• Note: For eviction – disturbance in law is required and not just trespass in
fact.
3. Warranty against encumbrances (nonapparent)
4. Warranty against Hidden Defects
 WHEN IS IMPLIED WARRANTY NOT
APPLICABLE?
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
 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)
 WARRANTY AGAINST EVICTION
• In a contract of sale, unless a contrary intention appears, there is an implied
warranty on the part of the seller that when the ownership is to pass, and
that the buyer shall from that time have and enjoy the legal and peaceful
possession of the thing.
 EFFECT OF A BREACH OF WARRANTY
AGAINST EVICTION?

• The buyer shall have the right to demand the seller:

1. The return of the value which the thing sold had at the time of the eviction,
be it greater or lesser than the price of the sale
2. The income or fruits, if he has been ordered to deliver them to the party who
won the suit against him
3. The costs of suit which caused the eviction, and, in a proper case, those of
suit brought against the vendor for the warranty
4. The expenses of contract if buyer has paid them
5. The damages and interests and ornamental expenses if sale was made in
bad faith.
 HIDDEN DEFECTS
• A hidden defect is one which is unknown or could not have been known to
the buyer

• Remedies of the buyer in case of sale of things with hidden defects:

• The vendee may elect between:
1. Withdrawing from the contract, or
2. Demanding a proportionate reduction of the price, with damages in either
case.
 IS THERE A WAIVER OF WARRANTY
AGAINST HIDDEN
DEFECTS WHEN THE LESSEE INSPECTED THE
PREMISES
AND PUSHED THROUGH WITH THE
CONTRACT?
• 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.
 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.
 INSTANCES WHEN THE BUYER
CANNOT RESCIND THE SALE IN CASE
THERE IS A BREACH
OF WARRANTY?
1. If he knew of the breach of warranty
2. If he fails to return or offer to return goods to seller in substantially as good
condition as they were at time ownership was transferred
3. If he fails to notify the seller within a reasonable time of his election to
rescind