100251273 law on sales reviewer

7/28/2019 100251273 Law on Sales Reviewer

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I. NATURE AND FORM OF THE CONTRACT

Sources of the Law on Sales

Sales are governed by the provisions of the Civil Code:

1. Book IV, Title VI, Articles 1458-1637 (Sales)

2. Title I, Arts. 1156-1422 (Obligations and Contracts)

3. Opinions of Commentators

4. Jurisprudence

Concept of Contract of Sale

The contract of sales is an agreement whereby one of the parties (called the seller or vendor) obligateshimself to deliver something to the other (called the buyer or purchaser or vendee) who, on his part, hindshimself to pay therefore a sum of money or its equivalent (known as the price).

The transfer of title to property or the agreement to transfer title for a pricepaid or promised, not mere

physical transfer of the property, is the essence of sale.

Characteristics of a Contract of Sale

1. Consensual

- perfected by mere consent of the parties without further acts.

2. Bilateral

- both the contracting parties are bound to fulfill correlative obligationstowards each other (the seller to deliver and transfer ownership of thething sold, and the buyer to pay the price).

3. Onerous

- the thing sold is conveyed in consideration of the price and viceversa.

4. Commutative

- the thing sold is considered the equivalent of the price paid and viceversa.

5. Aleatory

- in the case of sale of hope, one of the parties or both reciprocallybind themselves to give or to do something in consideration of whatthe other shall give or do upon the happening of an event which isuncertain, or which is to occur at an indeterminate time.

6. Nominate

- the contract is given a special name or designation in the Civil Code.

7. Principal


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- the contract does not depend for its existence and validity uponanother contract.

Essential Requisites of a Contract of Sale

1. Consent or meeting of the minds refers to the conformity of the parties to the terms of the contract,the acceptance by one of the offer made by the other. As a bilateral contract, the acceptance of payment bya party is an indication of his consent to a contract of sale, thereby precluding him from rejecting its bindingeffect [Clarin vs. Rulova, 127 SCRA 512].

. There may be a sale against the will of the owner in case of expropriation andthe three differentkinds of sale under the law ordinary execution sale, judicial foreclosure sale,and extra-judicialforeclosure sale.

2. Object or subject matter refers to the determinate thing which is the objectof the contract;


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. Even a future thing not existing at the time the contract is entered into maybe the object of sale,provided it has a potential or possible existence, that is, it is reasonably certain to come intoexistence as the natural increment or usual incident of something in existence already belonging tothe seller, and the tile will vest the buyer the moment the thing comes into existence (Art. 1461).

Emptio rei speratae

(sale of thing expected)

Rei spetae

- the sale of a thing not yet in existence,subject to the condition that the thing will existand on failure of the condition, the contractbecomes ineffective and hence, the buyer hasnot obligation to pay the price;

- the sale of hope itself that the thing will come

into existence, where it is agreed that the buyerwill pay the price even if the thing does noteventually exist;

- the future thing is certain as to itself butuncertain as to its quantity and quality;

- like the sale of a sweepstake ticket, it is notcertain that the thing itself (winning a prize) willexist, much less it quantity and quality;

- contract deals with a future thing;

- contract relates to a thing which exists or ispresent the hope or expectancy;

- sale is subject to the condition that the thingshould exist, so that if it does not, there will beno contract by reason of the absence of anessential element.

- produces effect even though the thing does notcome into existence because the object of thecontract is the hope itself, unless it is a vain hopeor expectancy (like the sale of a falsifiedsweepstakes ticket which can never win).

3. Cause or consideration refers to the price certain in money or its equivalent.

Natural Elements those which are deemed to exist in certain contracts, in the absence of any contrarystipulations, like warranty against eviction;


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Accidental Elements those which may be present or absent depending on the stipulations of the parties,like conditions, interest, penalty, time or place of payment.

Kinds of a Contract of Sale

1. As to presence or absence of conditions

Absolute where the sale is not subject to any condition whatsoever and where thetitle passes to the buyerupon delivery of the thing sold.

Conditional where the sale contemplates a contingency and where the contract issubject to certainconditions, usually in the case of the vendee, for the full payment of the agreed purchase price.

2. Other kinds

As to the nature of the subject matter real or personal, tangible or intangible

As to the manner of payment cash or installment

As to its validity valid, rescissible, unenforceable, void

Contract of Sale Distinguished from Contract to Sell


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Contract of Sale

Contract to Sell

Transfer oftitle:

- passes to the buyer upondelivery of the thing sold.

- remains with the seller untilfull payment of the agreedprice.

Payment ofprice:

- non-payment of the price is anegative resolutory condition,and the remedy is to exactfulfillment or to rescind the

contract.

- full payment is a positivesuspensive condition, thefailure of which is not a breach,casual or serious, of thecontract but simply an eventthat prevents the obligation ofthe vendor to convey title fromacquiring binding force.

Ownershipof vendor:

- vendor loses and cannotrecover ownership of the thingsold and delivered, actually orconstructively until and unlessthe contract of sale itself isresolved and set aside.

- title remains in the vendoruntil full payment of price.

Sale Distinguished from Dation in Payment:

Sale

Dation in Payment

- no pre-existing credit

- there is pre-existing credit


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- gives rise to obligation

- extinguishes obligation

- cause or consideration is the price, or theacquisition of title to the property

- cause of consideration is extinguishment of thedebt (from the point of view of the offeror), andthe acquisition of the object offered (from thepoint of view of the creditor) in lieu of the originalcredit

- there is greater freedom in the determination ofthe price

- less freedom

- giving of the price may generally end theobligation of the buyer

- the giving of the object in lieu of the credit mayextinguish completely or partially the credit(depending on the agreement)

Sale of goods by description

Sale of goods by sample

- occurs where the purchaser has not seenthe article sold and relies on the description givenhim by the vendor, or has seen the goods but thewant of identity is not apparent on inspection.-

- the parties contracted solely with reference tothe sample, with the understanding that the bulkwas like it.- the vendor warrants that the thing


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If the bulk of the goods delivered does notcorrespond with the description, the contract maybe rescinded. (Art. 1481.)

sold and to be delivered by him shall conformwith the sample in kind, charater, and quality.

Form of Contract of Sale

Generally, a contract may be entered into in any form provided all the essentialrequisites for its validity arepresent (Art. 1356). It may be in writing, oral, or partly in writing and partyoral. It may even be inferredfrom the conduct of the parties, since sale is a consensual contract that is perfected by mere consent.

However, in case the contract of sale should be covered by the Statute of Frauds, the law requires that theagreement be in writing subscribed by the party charged, or by his agent; otherwise, the contract cannot beenforced by action [see Art. 1403].

. Under the Statute of Frauds (Art. 1403 [2, a, d, e].) of the Civil Code, the following contracts mustbe in writing to be enforceable:

(a) sale of personal property at a price not less than P500;

(b) sale of real property or an interest therein regardless of the price involved; and

(c) sale of property not to be performed within a year from the date thereof regardless of the nature of

the property and the price involved.

. The Statute Frauds specifies three (3) ways in which contracts of sales of goods within its termsmay be made binding:

(a) the giving of a memorandum;

(b) acceptance and receipt of part of the goods (or things in action) sold and actual receipt of the same(Art. 1585); and

(c) payment or acceptance at the time some part of the purchase price.

. The Statute of Frauds is applicable only to executory contracts (where no performance, i.e., deliveryand payment, has as yet been made by both parties), and not to contracts which are totallyconsummated or partially performed [Vda. De Espiritu vs. CFI of Cavite, 47 SCRA354].


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Recto Law (Art. 1484) Remedies of Vendor in Sale of Personal Property Payable inInstallments:

(a) elect fulfillment upon the vendees failure to pay;

(b) cancel the sale, if the vendee shall have failed to pay two or more installments;

(c) foreclose the chattel mortgage, if one has been constituted, if the vendee shall have failed to pay twoor more installments.

. These remedies are alternative and are not to be exercised cumulatively or successively and theelection of one is a waiver of the right to resort to the others [Pacific Commerial Co. vs De la RAma,62 Phil. 380; Nonato vs. IAC, 140 SCRA 255].


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. In transactions involving the sale of financing of real estate on installmentpayments, includingresidential condominium apartments, the following are the rights given to the buyer who has paid atleast two (2) years of installments in case he defaults in the payment of succeeding payments

(a) to pay without additional interest the unpaid installments due within the total grace period earned byhim fixed at the rate of one-month grace period for every one year of installment payments made thisright shall be exercised by him only once in every five (5) years of the life ofthe contract and its extension,if any; and

(b) if the contract is cancelled, the seller shall refund to the buyer the cashsurrender value of thepayments on the property equivalent to 50% of the total payments made and, after5 years of installments,an additional 5% of every year but not to exceed 90% of the total payments made.[Sec. 3, RA 6552 or theRealty Installment Buyer Protection Act; see Layug vs. IAC, 67 SCRA 627].

(c) The buyer has the right to sell his right or assign the same before actual cancellation of the contractand to pay in advance any unpaid installment anytime without interest and to have such full payment of thepurchase price annotated in the certificate of title covering the property.

II. CAPACITY TO BUY OR SELL

Persons Who May Enter Into a Contract of Sale

As a general rule, all persons, whether natural or juridical, who can bind themselves, have the legal capacity

to buy and sell.

Persons Who Are Incapacitated to Enter Into a Contract of Sale

1. Absolute Incapacity pertains to persons who cannot bind themselves

(a) Minor

(b) Insane or demented persons

(c) Deaf-mutes who do not know how to read and write

. Contracts entered into by a minor and other incapacitated persons arevoidable.

However, wherethe necessaries are sold and delivered to him (without the intervention of the parent or guardian),he must pay a reasonable price therefor. The contract is therefore valid, but the minor has the rightto recover any excess above a reasonable value paid by him.. Sale of real property by minors who have already passed the ages of puberty and adolescence andare now in the adult age, when they pretended to have already reached their majority, while in fact


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they have not, is valid, and they cannot be permitted afterwards to excuse themselves fromcompliance with the obligations assumed by them or to seek their annulment. Thisis in accord withthe doctrine of estoppel[Mercado and Mercado vs. Espiritu, 37 Phil. 265].

2. Relative Incapacity where it exists only with reference to certain persons or class of property (Art.1490-1491). The prohibition extends to sales by virtue of legal redemption, compromises, andrenunciations.

(a) Husband and wife to each other except when a separation of property was agreed upon in themarriage settlements, or when there has been a judicial separation of property

(b) Guardian as to the property of his ward

(c) Agents as to the property whose administration or sale has been entrusted tothem, unless consentof the principal is given

(d) Executors or administrators as to the state under their administration


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(e) Public officers and employees as to the property of the State or any subdivision thereof, or of thegovernment-owned or controlled corporations, the administration of which is entrusted to them

(f) Judges and government experts who take part in the sale of the property andrights under litigation

. The prohibition is based on the fiduciary relationship (based on trust), to prevent fraud and undueand improper influence.. With respect to (b) to (d), the sale shall only be voidable because in such cases only privateinterests are affected. The defect can be cured by ratification by the seller. With respect to (e) and(f), the sale shall be null and void, public interests being involved therein.

(g) Aliens who are disqualified to purchase private agricultural lands under Art. XII, Secs. 3 and 7 of theConstitution

(h) Unpaid seller having a right of lien or having estopped the goods in transit

u

(i) Officer holding the execution or his deputy

III. EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN LOST

. Where the thing is entirely lost at the time of perfection, the contract is inexistent and void becausethere is no object. There being no contract, there is no necessity to bring an action for annulment.. Where the thing is only partially lost, the vendee may elect between withdrawing from the contractand demanding the remaining part, paying its proportionate price.

. The thing is lost when it perishes or goes out of commerce or disappears in such a way that itsexistence is unknown or it cannot be recovered.

IV. OBLIGATIONS OF THE VENDOR

Principal Obligations of the Vendor

to transfer the ownership of the determinate thing sold (Art. 1495);

. The vendor need not be the owner of the thing at the time of perfection of thecontract; it is

sufficient that he has a right to transfer the ownership thereof at the time itis delivered (Art. 1459).. If the seller promised to deliver at a stipulated period and such period is ofthe essence of thecontract but did not comply with his obligation on time, he has no right to demand payment of theprice. The vendee-buyer is fact may ask for the rescission or resolution of thesale.. If the failure of the seller to deliver on time is not due to his fault, as when it was the buyer who


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failed to supply the necessary credit for the transportation of the goods, delayon the part of theseller may be said to be sufficiently excused.

to deliver the thing, with its accessions and accessories, if any, in the condition in which they were upon theperfection of the contract (Art. 1537);

to warrant against eviction and against hidden defects (Arts. 1495, 1547);

to take care of the thing, pending delivery, with proper diligence (Art. 1163);

to pay for the expenses of the deed of sale, unless there is a stipulation to the contrary (Art. 1487).

Delivery or Tradition

Tradition or delivery is a derivative mode of acquiring ownership by virtue of which one has the right andintention to alienate a corporeal thing, transmits it by virtue of a just titleto one who accepts the same.


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. Duty to Deliver at Execution Sale: a judgment debtor is not obliged to deliverright away; he hasone (1) year within which to redeem the property.

Kinds of Delivery or Tradition

1. Actual or Real (Art. 1497) the thing sold is placed in the control and possession of the vendeeor his agent. This involves the physical delivery of the thing and is usually done by the passing ofa movable thing from hand to hand.2. Legal or Constructive (Arts. 1498-1501) through the execution of a public instrument

Legal formalities applies to real and personal properties, where the delivery ismade through the executionof a public document;

Traditio simbolica to effect delivery, the parties make use of a token symbol torepresent the thingdelivered;

Traditio longa manu movable property is delivered by mere consent by the contracting parties if the thingsold cannot be transferred to the possession of the vendee at the time of the sale;

Traditio brevi manu the vendee already has the possession of the thing sold by virtue of another title aswhen the lessor sells the thing leased to the lessee;

Constitotum possessorium the vendor continues in possession of the property soldnot as owner but insome other capacity (e.g., as tenant of the vendee).

3. Quasi-Traditio (Art. 1501) delivery of rights, credits or incorporeal real property, made byplacing the titles of ownership in the hands of the vendee or lawyer, by execution of a public instrument, orby allowing the vendee to use his rights as new owner with the consent of the vendor.

. Requisites in constructive delivery before ownership may be transferred:

(a) Seller must have control over the thing; otherwise, can he put another in control?

(b) Buyer must be put under control;

(c) There must be the intention to deliver the thing for purposes of ownership.

. Rules of constructive delivery:

1. If a seller has an actual possession, he cannot transfer ownership by constructive delivery.


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2. There can be no constructive delivery by means of a public instrument if there is a stipulation to thecontrary.

3. The execution of a deed or contract is only presumptive delivery.

An Unpaid Seller is one who has not been pair or rendered the whole price or whohas received a bill ofexchange or other negotiable instrument as conditional payment and the conditionon which it was receivedhas been broken by reason of the dishonor of the instrument.

Rights of an unpaid seller:

1. A lien on the goods or right to retain them for the price while in his possession

2. A right of stopping the goods in transitu in case of insolvency of the buyer;requisites:

(a) the seller must be unpaid;

(b) the buyer must be insolvent;

(c) the goods must be in transit;

(d) the seller must either actually take possession of the goods sold or give notice of his claim to thecarrier or other person in possession;


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(e) the seller must surrender the negotiable document of title, if any, issued by the carrier or bailee; and

(f) the seller must bear the expenses of delivery of the goods after the exercise of the right.

3. A right of resale

4. A right to rescind the sale

Rules in case of loss, deterioration, or improvement of thing before delivery

1. If the thing is lost without the fault of the debtor, the obligation shall beextinguished.2. If the thing is lost through the fault of the debtor, he shall be obliged topay damages, if isunderstood that the thing is lost when it perishes, or goes out of commerce, ordisappears in sucha way that its existence is unknown or it cannot be recovered.3. When the thing deteriorates without the fault of the debtor, the impairment is to be borne by thecreditor.4. If it deteriorates through the fault of the debtor, the creditor may choose b

etween the rescissionof the obligation and its fulfillment, with indemnity for damages in either case.5. If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of thecreditor.6. If it is improved at the expense of the debtor, he shall have no other rightthan that granted to theusufructuary.

Rules as to preference of ownership in case of double sale

1. If the property sold is movable, the ownership shall be acquired by the vendee who first takespossession in good faith [Villa Rey Transit, Inc. vs Ferrer, 25 SCRA 861].2. If the property sold is immovable, the ownership shall belong to:

(a) the vendee who first registers the sale in good faith in the Registry of Deeds has preferred right overanother vendee who has not registered his title even if the latter is in actualpossession of the immovableproperty governed by the principle prius tempore, patior jure (first in time, stronger in right) knowledgeby the first buyer of the second sale cannot defeat the first buyers right except

when the second firstregisters in good faith the second sale;

(b) in the absence of registration, the vendee who first takes possession in good faith; and

(c) in the absence of both registration and possession, the vendee who presentsthe oldest title (who firstbought the property) in good faith.


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. Article 1544 has no application to lands not registered with the Torrens system.

V. CONDITION AND WARRANTIES

Condition means an uncertain event or contingency on the happening of which theobligation (or right) ofthe contract depends.

Warranty is a statement or representation made by the seller of goods, contemporaneously and as a part ofthe contract of sale, having reference to the character, quality, or title of the goods, and by which hepromises or undertakes to insure that certain facts are or shall be as he then represents them.

If the obligation of either party is subject to any condition and such conditionis not fulfilled, such party mayeither (1) refuse to proceed with the contract, or (2) proceed with the contract, waiving the performance ofthe condition.

If the condition is in the nature of a promise that it should happen, the non-pe

rformance of such conditionmay be treated by the other party as a breach of warranty.


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Implied warranty as to sellers title (Art. 1548) that the seller guarantees thathe has a right to sell thething sold and to transfer ownership to the buyer who shall not be disturbed inhis legal and peacefulpossession thereof.

Implied warranty against hidden defects or unknown encumbrance (Art. 1562) thatthe seller guaranteesthat the thing sold is reasonably fit for the known particular purpose for whichit was acquired by the buyeror, where it was bought by description, that it is of merchantable quality.

Essential elements of warranty against eviction

1. the vendee is deprived in whole or in part of the thing purchased;2. the vendee is so deprived by virtue of a final judgment ;3. the judgment is based on a right prior to the sale or an act imputable to thevendor;4. the vendor was summoned in the suit for eviction at the instance of the vendee; and5. there is no waiver on the part of the vendee.

Kinds of waiver of eviction

1. Consciente the waiver is voluntarily made by the vendee without the knowledgeandassumption of the risks of eviction. If the waiver was only conscious, the vendor shall pay only thevalue which the thing sold had at the time of eviction this is a case of solution indebiti theeffect is to deprive the purchaser of the benefits mentioned in Nos. 2, 3, 4 and5 of Article 1555.2. Intencionada the waiver is made by the vendee with knowledge of the risks ofeviction andassumption of its consequence. The vendor is exempted from the obligation to ans

wer for eviction,provided he did not act in bad faith [Andaya vs. Manansala, 107 Phil. 1151].

Rights of the vendee against the vendor in case eviction occurs (Art. 1555)

1. return of the value of the thing sold at the time of eviction;2. income or fruits if he has been ordered to deliver them to the party who wonthe suit against him;3. costs of the suit;4. expenses of the contract;5. damages and interests and ornamental expenses if the sale was made in bad faith.

Redhibition

Redhibitory action

Redhibitory vice or defect


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- the avoidance of a sale onaccount of some vice or defectin the thing sold, whichrenders its use impossible, orso inconvenient and imperfectthat it must be supposed thatthe buyer would not havepurchased it had he known ofthe vice.

- an action instituted to avoid asale on account of some vice ordefect in the thing sold whichrenders its use impossible, or soinconvenient and imperfect that itmust be supposed that the buyerwould not have purchased it hadhe known of the vice. The objectis the rescission of the contract. Ifthe object is to procure the returnof a part of the purchase pricepaid by the vendee, the remedy is

- a defect in the article sold

against which defect the seller isbound to warrant. The vice ordefect must constitute animperfection, a defect in itsnature, of certain importance;and a minor defect does not fiverise to redhibition. The mereabsence of a certain quality inthe thing sold which the vendeethought it to contain is notnecessarily a redhibitory


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known as accionminoris orestimatoris.

defect. One thing is that ispositively suffers from certaindefects.

Doctrines of caveat venditor and caveat emptor

Caveat venditor

(Let the seller beware)

Caveat emptor

(Let the buyer beware)

- the vendor is liable to the vendee for anyhidden faults or defects in the thing sold, eventhough he was not aware thereof (Art. 1566).-Based on the principle that a sound price

warrants a sound article.

- applies in sheriffs sale, sales of animals, and taxsales, for there is no warranty of title or qualityon the part of the seller in such sales.

- Also applies in double sales of property wherethe issue is who between two vendees has abetter right to the property .

- Requires the purchaser to be aware of thesupposed title of the vendor and one who buyswithout checking the vendors title takes all the

risks and losses consequent to suchfailure [Solvoso vs. Tanega, 87 SCRA 349].

Alternative remedies of the buyer to enforce warranty (Art. 1567):

1. Accion redhibitoria to withdraw from the contract2. Accion quanti minoris demand a proportionate reduction of the price, with a right to damages ineither case

Effect of loss of thing sold on account of hidden defects (Art. 1568)

If the vendor was aware of the hidden defectsin consequence of which the thing sold was lost,he shall bear the loss because he acted in badfaith. In such case, the vendee has the right torecover:

(a) the expenses of the price paid


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b) the contract; and

(c) damages.

If the vendor was not aware of them, he shallbe obliged only to return:

(a) the price paid

(b) interest thereon; and

(c) expenses of the contract if paid by thevendee. He is not made liable for damagesbecause he is not guilty of bad faith.

VI. OBLIGATIONS OF THE VENDEE

. The vendee is obliged to (1) accept delivery; and (2) pay the price of the thing sold.. The following rules must be borne in mind:

1. In contract of sale, the vendor is not required to deliver the thing sold until the price is paid northe vendee pay the price before the thing is delivered in the absence of an agreement to thecontrary [La Font vs. Pascacio, 5 Phil. 591].


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2. If stipulated, then the vendee is bound to accept delivery and to pay the price at the time andplace designated.

3. If there is no stipulation as to the time and place of payment and delivery,the vendee is bound topay at the time and place of delivery.

4. In the absence also of stipulation, as to the place of delivery, it shall bemade wherever the thingmight be at the moment the contract was perfected (Art. 1251).

5. If only the time for delivery of the thing sold has been fixed in the contract, the vendee isrequired to pay even before the thing is delivered to him; if only the time forpayment of the pricehas been fixed, the vendee is entitled to delivery even before the price is paidby him (Art. 1524).

Instances when the vendee may suspend the payment of the price:

a) should he be disturbed in the possession or ownership of the thing sold;

b) should he have reasonable grounds to fear such disturbance by a vindicatory action or by a foreclosure ofmortgage;

These rights do not exist in the following cases:

(a) should there be a stipulation to that effect; or

(b) should the vendor give security for the return of the price; or

(c) should the vendor have caused the disturbance or danger to cease; or

(d) should the disturbance consist only of a mere act or trespass.

VII. ACTIONS FOR THE BREACH OF CONTRACT OF SALE OF GOODS

Goods include all chattels personal but not things in action or money of legal tender in the Philippines. Theterm includes growing fruits or crops.

Actions available for breach of the contract of sale of goods:

Action by the seller for payment of the price (Art. 1595)

Action by the seller for damages for non-acceptance of the goods (Art. 1596)

Action by the seller for rescission of the contract for breach thereof (Art. 1597)

Action by the buyer for specific performance (Art. 1598)

Action by the buyer for rescission or damages for breach of warranty (Art. 1599)


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Remedies allowed to the buyer when the seller has been guilty of a breach of promise orwarranty (Art. 1599):

1

Recoupment - accept the goods and set up the sellers breach to reduce or extinguish theprice.The theory of recoupment is that the sellers damages are cut down to an amount whichwill compensate him for the value of what he has given.

2

Set-off or Counterclaim for damages - accept the goods and maintain an action fordamages for the breach of the warranty. Both sides of the contract are enforcedin the samelitigation. The buyer (defendant) does not seek to avoid his obligation under the contract butseeks to enforce the sellers (plaintiffs) obligation and to deduct it from his liability for the pricefor breach of warranty.


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3

Action for damages refuse to accept the goods and maintain an action for damagesfor thebreach of the warranty.

4

Rescission - rescind the contract of sale by returning or offering the return ofthe goods, andrecover the price or any part thereof which has been paid. This remedy is not available in thefollowing cases:

(a) if the buyer accepted the goods knowing of the breach of warranty without protest;

(b) if he fails to notify the seller within a reasonable time of his election torescind; and

(c) if he fails to return or offer to return the goods in substantially as goodcondition as theywere in at the time of the transfer of ownership to him. But where the injury to

the goods wascaused by the very defect against which the seller warranted, the buyer may still rescind thesale.

VIII. EXTINGUISHMENT OF SALE

Classification of modes or causes of extinguishing the contract of sale:

Common those causes which are also the means of extinguishing all other contracts like payment, loss of

the thing, condonation, etc. (Art. 1231).

Special those causes which are recognized by the law on sales (those covered byArts. 1484, 1532, 1539,1540, 1542, 1556, 1560, 1567, and 1591).

Extra-special conventional redemption and legal redemption.

Conventional Redemption

(Arts. 1601-1618)

Legal Redemption

(Arts. 1619-1623)

It is the right which the vendor reserves tohimself, to reacquire the property sold providedher returns to the vendee the price of the sale,the expenses of the contract, any other legitimatepayments made therefore and the necessary anduseful expenses made on the thing sold, andfulfills other stipulations which may have been


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agreed upon.

It is the right to be subrogated, upon the sameterms and conditions stipulated in the contract, inthe place of one who acquires a thing by purchaseor dation in payment, or by any other transactionwhereby ownership is transmitted by oneroustitle.

Nature:

(a) it is purely contractual because it is a rightcreated, not by mandate of the law, but by virtueof an express contract[Ordoez vs. Villaroman, 78Phil. 116];

(b) it is an accidental stipulation and, therefore,its nullity cannot affect the sale of itself since thelatter might be entered into without saidstipulation [Alojado vs. Lim Siongco, 51 Phil.339];

Nature: (a) identical with conventionalredemption, except for the source of the right

conventional redemption arises from thevoluntary agreement of the parties; legalredemption proceeds from law;

(b) it is not predicated on proprietary right buton a bare statutory privilege to be exercised onlyby the person named in the statute the statutedoes not make actual ownership at the time ofsale or redemption a condition precedent, the


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(c) it is a real right when registered, because itbinds third persons [Mortera vs. Martinez, 14 Phil.541];

(d) it is a resolutory condition because whenexercised, the right of ownership acquired by thevendee is extinguished[Aquino vs. Deal, 63 Phil.582];

(e) it is potestative because it depends uponthe will of the vendor;

(f) it is a power or privilege, not an obligation,that the vendor has reserved for himself [Ocampovs. Potenciano, CA 48 OG 2230];

(g) it is reserved at the moment of theperfection of the contract for if the right torepurchase is agreed upon afterwards, there isonly a promise to sell which produces differentrights and effects and is governed by Art.1479 [Diamante vs. CA, 206 SCRA 52];

(h) the person entitled to exercise the right ofredemption necessarily is theowner of theproperty sold and not any third party [Gallar vs.Husain, 20 SCRA 186];

(i) it gives rise to reciprocal obligationthat ofreturning the price of sale and other expenses, onthe part of the vendor, and that of delivering theproperty and executing a deed of sale therefore,on the part of the vendee [Pandaquilla vs. Gaza,12 Phil. 663].

right following the person and not the

property[Magno vs. Viola and Sotto, 61 Phil. 80];

(c) it is in the nature of a mere privilegecreatedpartly for reason of public policy and partly for thebenefit and convenience of the redemptioner toafford him a way out of what might be adisagreeable or inconvenient association intowhich he has been thrust it is intended tominimize co-ownership [Basa vs. Aguilar, 117SCRA 128; Tan vs. CA, 172 SCRA 660].

Instances of Legal Redemption:

(a) Under the Civil Code, those found in Arts.1620-1622, 1634, and 1088;

(b) Under special laws:


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(1) redemption by owner of real property soldfor delinquent taxes period is within 1 year fromdate of sale;

(2) repurchase by homesteader of homesteadsold under the Public Land Act period is 5 years[Tupas vs. Damasco, 132 SCRA 593];

(3) redemption by judgment debtor orredemptioner or real property sold on execution period is 12 months;

(4) redemption by mortgagor after mortgagedproperty has been judicially foreclosed and sold period is 90 days but before confirmation of saleby the court (in all cases of extra-judicialforeclosure sale, the mortgagor may redeem theproperty within 1 year from the date ofregistration of the sale);

(5) redemption by an agricultural lessee oflandholding sold by the landowner period is 180days from notice in writing which shall be served

by the vendee on all lessees affected by DARupon the registration of the sale.


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An equitable mortgage is one which lacks the proper formalities, form of words,or other requisitesprescribed by law for a mortgage, but shows the intention of the parties to makethe property subject of thecontract as security for a debt and contains nothing impossible or contrary to law [Cachola vs. CA, 208 SCRA496].

Dacion en pago is the transmission of the ownership of a thing by the debtor tothe creditor as theaccepted equivalent of the performance of an obligation.

Pacto de retro

Mortgage

Ownership is transferred but the ownership issubject to the condition that the seller mightrecover the ownership within a certain period oftime.

Ownership is not transferred but the property ismerely subject to a charge or lien as security for

the compliance of a principal obligation, usually aloan.

If the seller does not repurchase the property uponthe very day named in the contract, he loses allinterest thereon.

The mortgagor does not lose his interest in theproperty if he fails to pay the debt at its maturity.

There is no obligation resting upon the purchaserto foreclose; neither does the vendor have anyright to redeem the property after the maturity of

the debt.

It is the duty of the mortgagee to foreclose themortgage if he wishes to secure a perfect titlethereto, and after the maturity of the debt securedby the mortgage and before foreclosure, themortgagor has a right to redeem [Basilio vs.Encarnacion, 5 Phil. 360].

Instances when conventional redemption is presumed to be an equitable mortgage:

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 theperiod 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 the real intention of the parties is that thetransaction shall secure the payment of a debt or the performance of any other o


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bligation; and7. when there is a doubt as to whether the contract is a contract of sale with right or repurchase oran equitable mortgage.

Requisites before legal redemption can be exercised:

1

There must be a sale or assignment of credit. The concept of sale must be understood in itsrestricted sense. The right cannot be exercised if the transaction is exchange or donation.

2

There must be a pending litigation at the time of the assignment. The complaintby theassignor must have been filed and answered by the creditor before the sale of the credit.

3

The debtor must pay the assignee (a) the price paid by him, (b) the judicial costs incurred byhim, and (c) the interests on the price from the date of payment.

4

The right must be exercised by the debtor within 30 days from the date the assignee demands(judicially or extra-judicially) payment from him.


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Redemption

Pre-emption

1

The sale to a third person has already beenperfected

The sale to a third person has not yet beenperfected

2

Has a much broader scope

Narrower in scope may be exercised onlywhere there is a prospective resale of a smallpiece of urban land originally bought by theprospective vendor merely for speculation

3

Directed against the third person who bought theproperty

Directed against the prospective vendor who isabout to resell the property

4

Effect is to extinguish a contract that has alreadybeen perfected or even consummated

Effect is to prevent the birth or perfection of acontract

IX. ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL RIGHTS

Assignment of credit a contract by which the owner of a credit transfers to another his rights and actionsagainst a third person in consideration of a price certain in money or its equivalent (Art. 1458).

Assignment of credit and other incorporeal rights are consensual, bilateral, one

rous, and commutative oraleatory contracts. The assignment involves no transfer of ownership but merelyeffects the transfer ofrights which the assignor has at the time to the assignee [Casabuena vs. CA, 286SCRA 594].

It may be done gratuitously, but if done onerously, it is really a sale. Thus, the subject matter is the creditor right assigned; the consideration is the price paid for the credit or right;and the consent is the


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agreement of the parties to the assignment of the credit or right at the agreedprice.

Renunciation the abandonment of a right without a transfer to another.

Agency involves representation, not transmission wherein the agent acts for theprincipal.

Substitution the change of a new debtor for the previous debtor with the creditremaining in the samecreditor.

Subrogation the change in the person of the creditor with the credit being extinguished.

Binding effects of assignment:

1

As between the parties, the assignment is valid although it appears only in a private documentso long as the law does not require a specific form for its validity.

2

To affect third persons, the assignment must appear in a public instrument, andin case itinvolves real property, it is indispensable that it be recorded in the Registryof Deeds [Lopez vs.Alvarez, 9 Phil. 28].

3

The assignee merely steps into the shoes of the assignor, the former acquiring the credit

subject to defenses (fraud, prescription, etc.) available to the debtor againstthe assignor. Theassignee is deemed subrogated to the rights as well as to the obligations of theseller. Hecannot acquire greater rights than those pertaining to the assignor. [Koa vs CA,219 SCRA 541].

X. BARTER OR EXCHANGE

Barter a contract whereby one person transfers the ownership of non-fungible things to another with theobligation on the part of the latter to give things of the same kind, quantity,and quality.

The contract is perfected from the moment there is a meeting of the minds upon the things promised byeach party in consideration of the other. It is consummated from the time of mutual delivery by thecontracting parties of things they promised.


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Effect where the giver is not the lawful owner of the thing delivered: the aggrieved party cannot becompelled to deliver the thing he has promised. He is entitled to claim damages(Art. 1639). [Biagtan vs.Viuda de Oller, 62 Phil. 933].

Remedy in case of eviction: the injured party is given the option to recover theproperty he has given inexchange with damages or only claim an indemnity for damages. The right to recover is, however, subjectto the rights of innocent third persons (Art. 1640).

XI. THE BULK SALES LAW

Purpose of the law (Act No. 3952) is to prevent the defrauding of creditors by the secret sale or disposal ormortgage in bulk of all or substantially all of a merchants stock of goods.

The general scheme is to declare such bulk sales fraudulent and void as to creditors of the vendor, orpresumptively so, unless specified formalities are observed, such as the demandi

ng and the giving of a listof creditors, the giving of actual and constructive notice to such creditors, byrecord or otherwise, and themaking of an inventory.

A sale and transfer in bulk under the Bulk Sales Law is any sale, transfer, mortgage, or assignment

(a) of a stock of goods, wares, merchandise, provisions, or materials otherwisethan in the ordinary courseof trade and the regular prosecution of the business; or

(b) of all or substantially all, of the business or trade; or

(c) of all or substantially all, of the fixtures and equipment used in the business of the vendor, mortgagortransferor, or assignor.

Acts punished by the law:

1. knowingly or willfully making or delivering a statement as required by the Act which does notinclude the names of all the creditors of the vendor, etc. with the correct amount due and tobecome due or which contains any false or untrue statement; and2. transferring title to a any stock of goods, wares, merchandise, provisions or

materials sold in bulkwithout consideration of for a nominal consideration only.

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