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LAW ON SALES LAW ON SALES

ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA
REO.CPA.ACADEMICS.F2.01.00
REO.CPA.ACADEMICS.F2.01.00
6. Nominate Contract: not only because there’s a specific designation of the contract, but more so because there are
specific rules provided by law to govern the rights and obligations of the parties, after stipulations;
LAW ON SALES Aleatory: there is also a sale of hope where there is no equivalence in the value of prestations. Since the obligation of the
other party is not certain to arise. E.g., lotto. (Art. 1461)
ATTY. NICKO SORIANO, CPA/ATTY. DIANE AZORES, CPA

TOPIC OUTLINE FORM OF A CONTRACT OF SALE

1. Contract of Sale, in general

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2. Elements of a Contract of Sale General rule: A contract of sale may be made in writing, or by word of mouth, or partly in writing and partly by word of
3. Perfection of a Contract of Sale mouth, or may be inferred from the conduct of the parties
4. Installment sales
a. Personal property – Recto Law

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Exceptions:
b. Real Property – Maceda Law 1. If the law requires a document or other special form, the contracting parties may compel each other to observe that form
c. PD 957 / Condominium Act (Art. 1357)
5. Obligations of the Vendor 2. Under Statute of Frauds, certain contracts must be in writing, otherwise, they shall be unenforceable (Art. 1403(2)

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a. To take care of the thing 3. Sale of large cattle which requires that the same be recorded with the city/municipal treasurer and that a certificate of
b. To deliver the object transfer be issued. Otherwise, the sale is not valid (Art. 1581)
c. To warrant the thing
6. Rights of an Unpaid Seller
7. Rules of Double Sale
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A CONTRACT OF SALE MAY BE ABSOLUTE OR CONDITIONAL:
8. Obligations of the Vendee
9. Extinguishment of a contract of sale 1. In absolute sale, no condition is imposed and ownership transfers upon delivery, actual or constructive, even if no total
a. Conventional Redemption payment of the price has been made yet.
b. Legal Redemption
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CONTRACTS OF SALE, IN GENERAL 2. A conditional 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
DEFINITION: fulfillment of certain warranties.

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver
DISTINGUISHED FROM OTHER TRANSACTIONS:
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a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

ELEMENTS OF A CONTRACT OF SALE 1. Donation

1. Essential – required for validity. SALE DONATION

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2. Natural – those which are deemed part of the contract even if not stipulated or even if the parties are unaware. Deemed Onerous Gratuitous/onerous
part of the contract by law. E.g., warranties. Consensual Formal contract
3. Accidental – present only because the parties so stipulated. E.g. obligation to pay interest
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Law on Sales Law on Donation
CHARACTERISTICS OF A CONTRACT OF SALE:
The distinction between sale and donation is important when the consideration of the contract is not clear. Note that if
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1. Consensual: as a rule, is by mere consent, since there exists a contract of sale the moment the parties “obligate” the price in a contract of sale is simulated, the contract is void, unless it may be shown that the parties intended to enter
themselves; into a contract of donation or some other act.
2. Bilateral Contract: since both parties have their respective obligations;
3. Commutative: in the sense that there is equivalence in the prestation of the parties. Ordinarily, price reflects the value 2. Barter
of the property, since the seller would not normally accept a price below the value of the property and the buyer would
not normally pay an amount more than the value of the property. SALE BARTER
4. Principal- Its existence does not depend upon another contract Cause or consideration is Cause or consideration is
5. Onerous- The parties give valuable considerations in order to acquire rights in money another thing

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LAW ON SALES LAW ON SALES

ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA
REO.CPA.ACADEMICS.F2.01.00 REO.CPA.ACADEMICS.F2.01.00
Rules in determining whether a contract is a sale or barter
SALE: A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business
Priority 1: The contract shall be one of sale or barter depending upon the manifest intention. manufactures or procures for the general market, whether the same is on hand at the time or not.

Priority 2: If the intention of the parties does not clearly appear: CONTRACT FOR A PIECE OF WORK: if the goods are to be manufactured specially for the customer and upon his
special order, and not for the general market.
The contract is one of barter if the value of the thing given is part of the consideration exceeds the monetary
consideration SIMILARITIES:
a. There is transfer of ownership
The contract is one of sale if the monetary consideration is more than or equal to the value of the thing given as part of b. Buyer/Customer pays the price.

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the consideration. (Art. 1468)
DISTINCTION: is as to the subject matter: in a contract of sale, the subject is a thing and its delivery, in a contract for a
3. Agency to sell piece of work, the subject is service.

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Art. 1466. In construing a contract containing provisions characteristic of both the contract of sale and of the contract of Importance of Distinction: for purposes of applying the Statute of Frauds, only the sale of personal property priced P500
agency to sell, the essential clauses of the whole instrument shall be considered. (n) or more is required to be in writing.

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SIMILARITY: in both contracts, things or objects are delivered to the buyer/agent. 6. Contract of agency to sell

SALE AGENCY TO SELL Art. 1466. In construing a contract containing provisions characteristic of both the contract of sale and of the contract of
Title to the goods is transferred to the Title to the goods is not transferred to agency to sell, the essential clauses of the whole instrument shall be considered. (n)
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buyer upon delivery of the thing the agent upon delivery. The risk of
sold. Thus, after delivery, risk of loss remains with the principal- SIMILARITY: in both contracts, things or objects are delivered to the buyer/agent.
loss is with the buyer already. owner and not transferred to the
agent 7. Contract to sell
The buyer is required to pay the price The agent is required to turn over to the
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principal the price of the goods A Contract to Sell is a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the
which he received from the buyer subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to
the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price
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4. Dacion en pago SALE CONTRACT TO SELL

SIMILARITIES: In dacion en pago, there is also a transfer of ownership of the thing delivered and it is likewise governed by The title to the property passes to the vendee upon the Ownership is, by agreement, reserved to the vendor and is
the law on sales. delivery of the thing sold not to pass to the vendee until payment of the
purchase price
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DISTINCTIONS: Vendor has lost and cannot recover ownership until and
unless the contract is resolved or rescinded. Prior to full payment, ownership is retained by the seller.
CONTRACT OF SALE DACION EN PAGO
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No requirement for a pre-existing obligation There is a need for a pre-existing obligation Full payment of the purchase price is a positive
Source of obligation Special form of payment which extinguishes an obligation suspensive condition, i.e., title remains in the vendor if
The cause or consideration is the price from The cause or consideration is the extinguishment of the the vendee does not comply with condition precedent
Non-payment of the price is a negative resolutory
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the seller’s point of view; and the delivery of obligation, from the debtor’s point of view; and the delivery of making payment at the time specified in the
condition, i.e., the vendor loses ownership of the
object from the buyer’s point of view of the object given in place of the credit from the creditor’s contract.
property and cannot recover it until and unless the
point of view. contract of sales is resolved or rescinded.
There is greater freedom in fixing the price There is less freedom in fixing the price because of the In other words, failure to pay the price is not a breach but
amount of the pre-existing credit which the parties seek to an event that prevents the obligation of the vendor to
extinguish. convey title from becoming effective
The risk of loss is on the buyer The risk of loss is on the seller

5. Contract for a piece of work

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LAW ON SALES LAW ON SALES

ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA
REO.CPA.ACADEMICS.F2.01.00 REO.CPA.ACADEMICS.F2.01.00
v. Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees
There are two contracts:
connected with the administration of justice, the property and rights in litigation or levied upon an execution
1. The contract to sell
before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition
There is only one contract executed between the seller 2. The deed of absolute sale
includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights
and the buyer
which may be the object of any litigation in which they may take part by virtue of their profession.
The deed of absolute sale is executed after full payment of
vi. Any others specially disqualified by law
the purchase price.
Example: Aliens are prohibited by the Constitution from acquiring lands in the Philippines, except by succession
or in case of a former natural born Filipino citizen who has lost his citizenship.
Question: Is a Contract to Sell the same as a Conditional Contract of Sale?

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2. Object – is the subject matter which may be things or rights.
Answer: No, a contract to sell may further be distinguished from a conditional contract of sale, in that, the fulfillment of the
suspensive condition, which is the full payment of the purchase price, will not automatically transfer ownership to the buyer Service: unlike in contracts, in general, where “service” may be the object of the contract, in sales, service cannot be a valid

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although the property may have been previously delivered to him. The prospective vendor still has to convey title to the subject since the purpose of a contract of sale is to transfer ownership and no person acquires ownership over service. It,
prospective buyer by entering into a contract of absolute sale. While in a conditional contract of sale, the fulfillment of the may, however, be another contract, such as a lease or agency.
suspensive condition renders the sale absolute and affects the seller's title thereto such that if there was previous delivery
of the property, the seller's ownership or title to the property is automatically transferred to the buyer. Rules as to Objects of Contracts of Sale:

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a. It must be licit or within the commerce of men.
b. The vendor must have a right to transfer the ownership thereof at the time it is delivered.
c. It must be determinate. A thing is determinate when:
ESSENTIAL ELEMENTS OF A CONTRACT OF SALE i. It is particularly designated or
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ii. Physical segregated from all other of the same class.
1. Consent of the contracting parties, i.e., the buyer and the seller.
The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of
a. Vendor/Seller- The vendor must be legally capacitated to enter into contract. If the vendor is a corporation, the being made determinate without the necessity of a new or further agreement between the parties.
contract must be executed by the board of directors or by a corporate agent duly authorized by the board. The
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vendor must have a right to transfer the ownership at the time it is delivered. d. It may be either existing goods, owned or possessed by the seller, or it may be things having a potential existence(Art.
b. Vendee/Buyer- The vendee must be also legally capacitated to enter into contract 1461) or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale(Art.
1462), called "future goods." In either case, the failure of the condition or contingency to materialize will invalidate the
Incapacity: consent may have been given, but the one giving it is incapacitated. contact.
a. Absolute Incapacity – the party cannot give consent to any and all contract, which may result in the contract being
voidable or void.
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There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or
Minors and those without capacity to act: may enter into a valid contract of sale of “necessaries” as provided under may not happen.
Art. 1489. Necessaries are those which are indispensable for sustenance, dwelling, clothing and medical attendance.
i. Emptio rei speratae - sale of future thing; must come into existence otherwise the sale will not be effective; e.g.
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b. Relative Incapacity – the party is prohibited from entering some specific transactions with some persons and sometimes wine, milk, butter.
over specific things. ii. Emptio spei – sale of hope itself; produces effects even if the thing hoped does not come into existence. E.g., lotto
ticket
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Examples of Relative Incapacity: iii. Vain Hope – the sale of vain hope is void. E.g. lotto ticket that was already drawn.
a. Husband and wife cannot sell property to each other, except:
i. When a separation of property was agreed upon in the marriage settlements; or
e. It may be a segregated or an undivided share or interest.
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ii. When there has been a judicial separation or property
b. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through
the mediation of another: • The sole owner of a thing may sell an undivided interest therein (Art. 1463) Such sale shall produce the effect of
i. The guardian, the property of the person or persons who may be under his guardianship; making the seller and the buyer co-owners of the thing sold
ii. Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the
principal has been given; f. Things subject to a resolutory condition may be the object of the contract of sale, such as one that is the subject to a
iii. Executors and administrators, the property of the estate under administration; right of repurchase.
iv. Public officers and employees, the property of the State or of any subdivision thereof, or of any government-
owned or controlled corporation, or institution, the administration of which has been intrusted to them; this g. Sale of fungible goods
provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale;

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LAW ON SALES LAW ON SALES

ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA
REO.CPA.ACADEMICS.F2.01.00 REO.CPA.ACADEMICS.F2.01.00
• Fungible goods refer to interchangeable goods such as grain, oil, etc. that allow one to be replaced by another The price is simulated when neither party had the intention that the amount will be paid. If price is simulated, the sale
without loss of value. is void. Exception is if it can be shown to be a donation or another contract.

There may be a sale of an undivided share of a specific mass of fungible goods even though d. The fixing of the price can never be left to the discretion of one of the contracting parties. However, if the price fixed by
i. The seller purports to sell and the buyer to buy a definite number, weight or measure of the goods in the mass, and one of the parties is accepted by the other, the sale is perfected.
ii. The number, weight or measure of the goods in the mass is undetermined.
Where the price cannot be determined in accordance with the preceding rules, or in any other manner, the contract is
By such a sale the buyer becomes owner in common of such a share of the mass as the number, weight or measure inefficacious.
bought bears to the number, weight or measure of the mass.
However, if the thing or any part thereof has been delivered to and appropriated by the buyer he must pay a reasonable

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If the mass contains less than the number, weight or measure bought, the buyer becomes the owner of the whole mass price therefor. What is a reasonable price is a question of fact dependent on the circumstances of each particular case
and the seller is bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent
appears.

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OPTION MONEY AND EARNEST MONEY

3. Cause – as to each contracting party is the prestation or promise to be performed by the other party. For the buyer, it Option Agreement and Contract: A promise to buy and sell a determinate thing for a price certain is reciprocally
is the delivery of the object, while for the seller, it is the payment of the price. demandable.

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Rules as to PRICE: An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the
a. It must be certain. Price is considered certain: promise is supported by a consideration distinct from the price, known as option money.
i. When its agreed upon by the parties
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ii. With reference to another thing certain, or Option Money is a separate consideration to give the offeree a definite period within which to decide whether or not to
iii. The determination thereof be left to the judgment of a special person or persons. accept an offer, there is no perfected contract of sale yet and does not form part of the purchase price.
1) Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the
parties subsequently agree upon the price.
2) If the third person or persons acted in bad faith or by mistake, the courts may fix the price. NOTE: Option money is not always monetary but could consist of other things or undertakings.
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3) Where such third person or persons are prevented from fixing the price or terms by fault of the seller or the
buyer, the party not in fault may have such remedies against the party in fault as are allowed the seller or the
buyer, as the case may be Rules Applicable:
1. A period agreed upon under an Option Agreement by the offeror and the offeree is not binding upon the offeror unless
The price of securities, grain, liquids, and other things shall also be considered certain, when the price fixed is that it is supported by a consideration distinct from the price, which we call the option money.
which the thing sold would have: 2. Accordingly, the offeror may withdraw his offer at any time, even before the expiration of the period agreed upon, without
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i. On a definite day, or being liable for damages.
ii. In a particular exchange or market, or 3. If there is such a separate consideration, the agreement as to the period is covered by an Option CONTRACT. In which
iii. When an amount is fixed above or below the price on such day, or in such exchange or market, provided said case, the offeror cannot withdraw the offer without being liable for damages for breach of the option contract.
amount be certain. 4. In either case, if there is acceptance by the offeree which was already communicated, withdrawal cannot be validly
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made since there is already a perfected contract of sale and there is no “offer” to withdraw anymore, subject to the
b. Failure to pay the consideration vs lack of consideration Statute of Frauds as to enforceability.
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Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the EARNEST MONEY – is the money given as part of the purchase price and as proof of the perfection of the contract. It is
fulfillment or cancellation of the obligation under an existing valid contract while the latter prevents the existence of a also called “arras” or something of value to show that the buyer was really in earnest and given to the seller to bind the
valid contract. bargain.
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c. Gross inadequacy of price vs. simulated price OPTION MONEY EARNEST MONEY
As to Money Given Money given as distinct Forms part of the purchase
Gross inadequacy of price does not affect a contract of sale, except: consideration for an option price.
i. The consent is vitiated (the contract may be annulled or presumed to be equitable mortgage) contract.
ii. The parties really intended a donation or some other act or contract.
As to Perfection Applies to a sale not yet Given only when there is
iii. The price is so low as to “shocking to the conscience” perfected. already a sale.
iv. If in the event of resale, a better price can be obtained

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LAW ON SALES LAW ON SALES

ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA
REO.CPA.ACADEMICS.F2.01.00 REO.CPA.ACADEMICS.F2.01.00
Obligation of the buyer upon Prospective buyer is not When given, the buyer is Seller’s right to bid:
payment of required to buy. bound to pay the balance. 1. General Rule: The seller has no right to bid
consideration 2. Requisites for the seller to have the right to bid.
a. The right to bid was expressly reserved;
As to Recovery If buyer does not decide to
b. Notice was given to the bidders; AND
buy, it cannot be If sale did not materialize, it c. It is not prohibited by law or stipulation.
recovered. must be returned.
As to Transfer of Ownership Ownership is reserved to the Title passes to the buyer upon Any sale made contradicting the above may be treated as fraudulent by the buyer.
seller and is not to pass delivery of the thing sold.
until full SALE OF GOODS BY DESCRIPTION OR SAMPLE: the contract may be rescinded if the bulk of the goods delivered

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payment do not correspond with the description or the sample.
Effect of Non-payment Specific performance. Specific performance and
rescission. SALE OF GOODS BY DESCRIPTION AND SAMPLE: if the contract be by sample as well as description, it is not sufficient

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that the bulk of goods correspond with the sample if they do not also correspond with the description.

The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample.
STAGES OF FORMATION OF CONTRACT OF SALE

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FORM: no specific form is required for the perfection of a contract of sale.
a. NEGOTIATION occurs upon the communication of the offer to buy/sell to the other party. Prior to acceptance of
the offer, no contract of sale is perfected. However, the same is still subject to the Statute of Frauds for its enforceability, particularly the following provisions:
1. Those not to be performed within 1 year;
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b. PERFECTION-A contract of sale is perfected at the moment there is meeting of the minds upon the thing which is 2. Sale of personal property the price not less than (or at least) P500
the object of the contract and upon the price The acceptance of the offer must be absolute. It must be plain, 3. Sale of real property
unequivocal, unconditional and without variance of any sort from the proposal.
As such, the above contracts of sale must be in writing or in some memorandum, in order to be enforceable.
Effect of a qualified acceptance
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INSTALLMENT SALES
It constitutes merely a counter-offer which must in turn be accepted to give rise to a valid and binding contract
RECTO LAW
c. CONSUMMATION
APPLICATION: The Recto Law applies to a contract of sale of personal property the price of which is payable in
Consummation stage in a contract of sale takes place by the delivery of the thing together with the payment of the installments.
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price.
The law, however, does not apply to sales “on credit”, only sales in “installment.” The law does not also apply to sales of
PERFECTION OF A CONTRACT OF SALE personal property on straight payment or where the balance, after payment of the initial sum, should be paid in its totality at
the time specified.
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Consensual Contract: sale, being a consensual contract, is perfected by mere consent as to the object of the contract
and upon the price. It likewise applies to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived
the lessee of the possession or enjoyment of the thing.
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Transfer of ownership: however, happens only after delivery, either actual or constructive, as a general rule. Except if the
parties agreed that ownership will not pass until full payment of the price. ALTERNATIVE REMEDIES OF THE SELLER:
1. Exact fulfillment of the obligation, should the vendee fail to pay;
Sale by Auction: is perfected when the auctioneer announces its perfection by the fall of the hammer, or in other 2. Cancel the sale, should the vendee's failure to pay cover two or more installments;
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customary manner. 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.
Before perfection:
1. Any bidder may retract his bid; and The remedies are alternative. As such, if the seller/vendor invoked one, he can no longer invoke any of the two remaining
2. the auctioneer may withdraw the goods from the sale unless the auction has been announced to be without reserve. remedies. Any agreement to the contrary shall be void.

Object of a sale by auction: Where goods are put up for sale by auction in lots, each lot is the subject of a separate FORFEITURE OF INSTALLMENTS IN CASE OF CANCELLATION: The 2nd option of cancelling the sale would entail
contract of sale. mutual restitution by the parties.

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LAW ON SALES LAW ON SALES

ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA
REO.CPA.ACADEMICS.F2.01.00 REO.CPA.ACADEMICS.F2.01.00
General Rule: The seller is allowed to retain a reasonable amount of the purchase price already paid as compensation Rules affecting installment purchases of Condominiums:
for the use of the thing (rent), or ALL of the amount paid only if there is a forfeiture clause which entitles him to the 1. Non-forfeiture of payments: No installment payment made by a buyer in a subdivision or condominium project for the
purchase price already paid at the time of cancellation. lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to
the owner or developer, desists from further payment due to the failure of the owner or developer to develop
Exception: the retention of ALL the purchase price would be unconscionable. the subdivision or condominium project according to the approved plans and within the time limit for complying
with the same.
FORECLOSURE OF THE CHATTEL MORTGAGE: The 3rd option entails that the foreclosed mortgage is the mortgage
on the personal property itself, and in case of deficiency of the foreclosure sale proceeds, the seller is NOT entitled to Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding
recover such, since recovery of the deficiency falls under option 1. delinquency interests, with interest thereon at the legal rate. (Section 23, PD 957)

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However, if what is foreclosed is another security or a mortgage on different property, the prohibition to collect the deficiency 2. Failure to pay installments: The rights of the buyer in the event of this failure to pay the installments due for reasons
would not apply, since foreclosure of a mortgage of a different thing precisely falls under option 1 also. other than the failure of the owner or developer to develop the project shall be governed by RA 6552 (Maceda Law).

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MACEDA LAW Other salient provisions of the Condominium Act:
1. The realty tax on the lot shall be paid by the developer without recourse to the buyer for as long as title has not yet
APPLICATION: the Maceda Law, or the Realty Installment Buyer Act (RA No. 6552), applies to a contract of sale of passed to the buyer. However, if the buyer has taken possession of the lot although title has not yet been transferred,
residential realty on installments, where the buyer is given protection in case of failure to pay installments. the realty tax shall be for the account of the buyer effective the year following said taking of possession.

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2. When the project is without access to any existing public road, the developer must secure a right of way which must be
Similar to the Recto Law, the Maceda Law does not apply to sales “on credit”, only ones in installment. developed and maintained according to the requirement of the government authorities concerned.
3. Developers are required to secure development permit, registration certificate, and license to sell from the
RIGHTS OF THE BUYER UNDER THE MACEDA LAW DHSUD. Selling a subdivision or condominium project is defined to include offering to sell, advertising to sell and
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1. If installments already paid are less than two years equivalent: receiving reservation deposits.
a. Grace Period - pay without interest within 60 days. Note, however, that this right can only be applied once every 5 4. No mortgage of any lot by the project owner/developer without permit to mortgage from HLURB. In case a mortgage
years. was executed by the developer pursuant to an HLURB permit, the buyer may opt to pay his installment directly to the
b. The buyer may sell or assign his interest; mortgage.
c. Pay the entire balance. 5. Representations by the developer on development facilities and infrastructures appearing in advertisements, brochures,
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leaflets and other announcements are deemed part of the main contract and enforceable against the developer.
2. After two years’ worth of installment, the buyer will have the following additional rights: 6. Any alteration in the approved plan relating to roads, open spaces, facilities and other forms of development require
a. In addition to the 60 day grace period, the buyer shall have additional 1 month grace period for every year of prior approval of HLURB (now LGU) and written consent of Homeowners Association.
installment payments after the first 2 years installments;
b. If the seller will exercise his right to rescind the contract, he is required to first give the Cash Surrender Value to OBLIGATIONS OF THE VENDOR
the buyer.
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1. To take care of the thing after the contract has been perfected, prior to delivery.
Cash Surrender Value:
i. Minimum of 50% of all payments (including downpayment) plus Loss of the thing pending delivery:
ii. 5% after five years (55% after 6 years of payment); and a. If the object is entirely lost - the contract shall be without any effect.
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iii. 5% for every additional year thereafter upto a maximum of 90% (or 14 years of instalment). b. If the thing is lost in part only, the buyer may choose between:
i. Withdrawing from the contract; and
VOID STIPULATIONS: The following are void stipulations: ii. Demanding the remaining part, paying its price in proportion to the total sum agreed upon.
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1. Stipulation as to interest or damages or penalty during the grace period c. The goods without the knowledge of the seller have perished in part or have wholly or in a material part so
2. Forfeiture clause deteriorated in quality as to be substantially changed in character, the buyer may at his option treat the sale:
3. Automatic cancellation or rescission upon default of the buyer i. As avoided; or
ii. As valid in all of the existing goods or in so much thereof as have not deteriorated, and as binding the buyer to
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RESCISSION REQUIREMENTS: the rescission will take effect only after 30 days from complying with both: pay the agreed price for the goods in which the ownership will pass, if the sale was divisible.
1. Notice to be given to the buyer as to the intention to rescind
2. Payment of the cash surrender value Risk of Loss: General Rule: the thing perishes with the owner, following the principle of res perit domino.

CONDOMINIUMS Exceptions:
a. Stipulation
PD No 957 or the THE SUBDIVISION AND CONDOMINIUM BUYERS' PROTECTIVE DECREE covers the sale of b. Security title - Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of
condominium units, among others. the contract and the ownership in the goods has been retained by the seller merely to secure performance by the
buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery;

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 Page 13 of 27 | RFBT Pre-recorded Handout 03 Page 14 of 27 | RFBT Pre-recorded Handout 03

LAW ON SALES LAW ON SALES

ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA
REO.CPA.ACADEMICS.F2.01.00 REO.CPA.ACADEMICS.F2.01.00
c. Delay in the delivery – whoever causes the delay shall bear the risk of loss. 2) Factor’s Act (agency) – so far as third persons are concerned, they only have to rely on the power of
attorney as written, they need not inquire into limitations imposed by the principal to the agent not written.
Note: the risk of loss is where it is important why there are distinctions in the following: 3) Art. 1518 – for goods covered by negotiable instruments.
• Contract of Sale vs. Contract of Agency to Sell e. Purchase from a Merchant Store, Market or Fair in good faith and for value: the purpose of this exception is
• Sale or Return vs. Sale on Approval/Trial/Satisfaction to facilitate commercial transactions so as not to degrade the trust in sales made through such stores.

SALE OR RETURN: where the goods are delivered to the buyer but the buyer has an option to return the goods instead Right of buyer to reimbursement: One who has lost any movable or has been unlawfully deprived thereof, may
of paying the price, the ownership passes to the buyer but he may revest the ownership in the seller by returning or recover it from the person in possession of the same. If the possessor of a movable lost or which the owner has
tendering the goods within the time fixed in the contract, or when no time is fixed, within a reasonable time. been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without
reimbursing the price paid therefor.

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Note that ownership transfers to the buyer upon delivery. As such, the buyer bears the risk of loss once the goods are
delivered. 5. To deliver the determinate or specific thing including the fruits from the moment the obligation to deliver arises
and the accessions and accessories thereof.

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SALE ON APPROVAL OR ON TRIAL OR ON SATISFACTION: Here, there is delivery of the goods also, but no transfer
of ownership yet. As such, the seller, being the owner, bears the risk of loss. Delivery is the mode by which ownership is transferred. It is accomplished by placing the thing in the control and
possession of the vendee.
The ownership passes to the buyer:

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a. When he signifies his approval or acceptance to the seller or does any other act adopting the transaction MODES OF DELIVERY: THINGS
b. If he does not signify his approval or acceptance to the seller, but retains the goods without giving notice of rejection, a. Actual Delivery: The actual and physical transfer of the thing to the buyer.
then if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been b. Constructive Delivery
fixed, on the expiration of a reasonable time. What is a reasonable time is a question of fact. i. Traditio Longa Manu: literally, long-hand delivery, or by pointing to the thing sold accomplished by mere consent
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of the seller, ownership transfers to the buyer, because at the time of sale, the seller cannot transfer possession
2. Obligation to pay taxes and incidents of the sale, unless otherwise agreed upon; to the buyer, e.g., the thing is leased by another.
3. To warrant the thing (see Warranties); ii. Consitutum Posessorium: at the time of sale, the seller is in possession and remains in possession in another
4. To transfer ownership. concept other than an owner, like that of a lessee, depositary or borrower. E.g., sale lease-back.
iii. Brevi Manu: or short hand delivery. When the buyer is in possession of the thing, in a concept other than that
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Seller need not be the owner for validity of the contract: the seller need not be the owner and the sale is still valid of an owner, at the time of sale, and remains in possession after sale, now as owner. E.g., a lessee who buys
if he sold the thing in a capacity authorizing him to do so such as a liquidator, executor, administrator, sheriff, or a notary the thing leased.
(in case of pledge). iv. Symbolic Delivery: where the seller merely gives the key to a warehouse where the goods are located or in a
sale of car, the delivery of the keys is symbolic delivery.
This is different from a pledge or mortgage which requires the pledger or mortgagor to be the absolute owner of the v. Execution of the Required Formality: by execution of a public instrument. This mode of delivery is available to
thing. both sale of rights and sale of things;
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c. Delivery to a common carrier: when the parties so agreed that the seller will deliver to the common carrier for
SELLER IS NOT THE OWNER: ultimate delivery to the buyer. In this case, there is already delivery upon receipt of the common carrier. EXCEPT:
General Rule: the buyer acquires no better title to the goods than the seller had i. Ownership is reserved by the seller – such as if it is deliverable to the seller or his agent.
ii. The seller reserved possession – goods are deliverable to the buyer, but possession of the bill of lading is with
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Exceptions: In all of these exceptions, the buyer acquires GOOD TITLE to the object even if the seller is not the owner. the seller.
a. Seller is authorized by the owner – such as an agent. iii. A Bill of Exchange is drawn by the seller against the buyer and the latter dishonors the same.
b. Seller had statutory or judicial authority to sell – such as a guardian, executor, administrator, or court sheriff.
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c. In cases of estoppel: MODE OF DELIVERY: As to rights:
i. As to the owner: estoppel in pais - by his conduct or representation, he led the buyer to believe that the seller a. By execution of an instrument;
had authority to sell. b. Quasi Traditio:
ii. As to the seller: estoppel by deed – if after the sale, the seller acquired ownership, such ownership automatically i. When the title of ownership is placed in the possession of the vendee (e.g., certificates of stock for sale of
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passes to the buyer as to the thing already delivered shares of stock);
d. Sale of an Apparent Owner: REQUISITES: ii. By the use of the vendee of his rights with the vendor’s consent. (e.g., the vendee of shares where the same
i. There is apparent ownership has not been transferred in his name yet, with the consent of the owner, through a proxy, he may exercise his
ii. Buyer in good faith and for value – the buyer had no knowledge of any defect in the seller’s title at the time of rights as a stockholder)
full payment (not only at the time of sale).
iii. There must be a law from which apparent ownership may be had, such as: TIME OF DELIVERY:
1) PD 1529 which provides that those dealing with registered land need not inquire beyond the title, also a. Stipulation of the parties;
known as the mirror principle, unless the buyer is required under the law to exercise the highest degree of b. If no stipulation, within a reasonable time.
diligence, e.g., banks and public utility companies.

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 Page 15 of 27 | RFBT Pre-recorded Handout 03 Page 16 of 27 | RFBT Pre-recorded Handout 03

LAW ON SALES LAW ON SALES

ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA
REO.CPA.ACADEMICS.F2.01.00 REO.CPA.ACADEMICS.F2.01.00
PLACE OF DELIVERY: B. SALE OF REAL ESTATE FOR A LUMP SUM PRICE: whatever is the actual area of the land, the buyer is still
a. Stipulation of the parties; required to pay the price agreed upon and the seller is bound to deliver the entire area.
b. If no stipulation, by usage of trade;
c. If no stipulation nor usage of trade, the seller’s place of business; If the actual area is bigger than the agreed upon area, and the seller should not deliver the whole actual area, the
d. If none, the seller’s residence. buyer may:
e. However, in case of a contract of sale of specific goods, which to the knowledge of the parties when the contract or a. Reduce the price to be paid, in proportion to what is lacking in the area or number; or
the sale was made were in some other place, then that place is the place of delivery. b. Rescind the contract for failure of the vendor to deliver what has been stipulated.

SELLER IS NOT BOUND TO DELIVER: RIGHTS OF AN UNPAID SELLER

a. If it is a pure obligation and the buyer does not pay; or

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b. If there is a period agreed upon, the obligation to deliver shall be demandable at that time. Except, if the buyer loses Unpaid Seller: the seller of the goods is deemed to be an unpaid seller when:
the right to make use of the period under Art. 1198 1. The whole of the price has not been paid or tendered;
2. A bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which

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QUANTITY TO BE DELIVERED: it was received has been broken by reason of the dishonor of the instrument, the insolvency of the buyer, or otherwise

DELIVERY OF LESS OR MORE OF THE QUANTITY AGREED UPON IN SALE OF PERSONAL PROPERTY: • The term “unpaid seller” within the scope of Articles 1525 up to 1535 includes: (1) an agent of the seller; (2) a
1. Delivery is less than quantity agreed upon, the buyer may: consignor or agent who has himself paid or is directly responsible for the price; or (3) any other person in the position

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a. Reject the delivery; or of the seller. A seller is unpaid within the definition whether title has or has not passed. (Art. 1526.)
b. Accept or retain the goods delivered and pay:
(1) The full contract price if he knew that the seller is not going to perform the contract in full; or Rights of an Unpaid Seller: notwithstanding that the ownership of the goods may have passed to the buyer, the unpaid
(2) Pay the fair value of the goods delivered if without such knowledge. seller of goods has the following rights:
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2. Delivery is greater than quantity agreed upon, the buyer may: 1. Possessory lien – right to retain the goods or right to withhold delivery of the goods.
a. Accept the goods in the quantity agreed upon and reject the rest; or
b. Accept the whole of the goods delivered and pay for them at the contract rate. Grounds:
a. Where the goods have been sold without any stipulation as to credit;
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3. Delivery of goods mixed with goods of different description not included in the contract, the buyer may accept the b. Where the goods have been sold on credit, but the term of credit has expired;
goods which are in accordance with the contract and reject the rest. c. Where the buyer becomes insolvent.

4. In no. 2 and 3, if the subject matter is indivisible, the buyer may reject the whole of the goods. The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the
buyer.
DELIVERY OF LESS OR MORE OF THE QUANTITY AGREED UPON IN SALE OF REAL ESTATE
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Partial Lien: Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the
A. AT A RATE OF A CERTAIN PRICE FOR A UNIT OF MEASURE OR NUMBER: remainder, unless such part delivery has been made under such circumstances as to show an intent to waive the lien
1. Delivery is LESS than that agreed upon, the buyer may: or right of retention.
a. Ask for specific performance and demand delivery of the shortage;
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b. Ask for the proportionate reduction of the price (accion quanti minoris) Loss of possessor lien: happens:
c. Rescission, in case: a. When the seller delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without
(1) The area lacking is at least 1/10 of that agreed upon; or reserving the ownership in the goods or the right to the possession thereof;
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(2) The buyer would not have entered into the contract, had he known of its smaller area. b. When the buyer or his agent lawfully obtains possession of the goods;
c. By waiver.
The same rules apply if any part of the immovable is not of the QUALITY specified in the contract (except that
rescission is an available remedy in the event that the inferior value is MORE THAN 1/10 of the price agreed upon) The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has obtained judgment
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even if the area delivered be that agreed upon. or decree for the price of the goods.

2. If the delivery is in excess of the area agreed upon, the buyer may: Sale of the thing by the buyer to third persons:
a. Accept the area agreed upon and reject the rest; or a. As a rule, the seller does not lose his right to possessory lien or right of stoppage in transitu.
b. Accept the whole and pay at the contract rate. b. Exceptions:
i. If the seller assented to the transfer;
The above rules likewise applies to judicial sales. ii. If the goods are covered by a negotiable document of title and it is sold to a purchaser for value in good faith to
whom such document has been negotiated.

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 Page 17 of 27 | RFBT Pre-recorded Handout 03 Page 18 of 27 | RFBT Pre-recorded Handout 03

LAW ON SALES LAW ON SALES

ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA
REO.CPA.ACADEMICS.F2.01.00 REO.CPA.ACADEMICS.F2.01.00
2. Stoppage in transitu – right to stop the goods while in transit. Notice: except in case of resale made because the goods are perishable, notice shall be given to the original buyer
about:
Requisites: a. The intention to resell – which is relevant to prove that the buyer has been in default for an unreasonable length of
a. The seller already parted with the possession of the goods; time.
b. The goods are already in transit; b. The date, time and place of resale – to be considered doing the resale in good faith and entitle the seller to any
c. The buyer is insolvent. deficiency.

Goods are in transit: Note, however, that failure to give notice does not affect the validity of the resale.
a. From the time when they are delivered to a carrier by land, water, or air, or other bailee for the purpose of
transmission to the buyer, until the buyer, or his agent in that behalf, takes delivery of them from such carrier or Participation of the seller in the resale: is prohibited from being the buyer in the resale, either directly or indirectly,

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other bailee; whether the resale be public or private.
b. If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even if the
seller has refused to receive them back. 4. Rescission

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Goods are no longer in transit: Grounds:
a. If the buyer, or his agent in that behalf, obtains delivery of the goods before their arrival at the appointed destination; a. When the right to rescind is expressly reserved by the seller;
b. If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer b. When the buyer has been in default in the payment of the price for an unreasonable time.

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or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or
his agent; and it is immaterial that further destination for the goods may have been indicated by the buyer; To exercise such right: the unpaid seller must have a right of lien or stoppage in transitu.
c. If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf.
Recovery of damages: the seller is not liable to the buyer upon the contract of sale, but may recover from the buyer
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If part delivery of the goods has been made to the buyer, or his agent in that behalf, the remainder of the goods may be damages for any loss occasioned by the breach of contract.
stopped in transitu, unless such part delivery has been under such circumstances as to show an agreement with the
buyer to give up possession of the whole of the goods. Notice: is not necessary for the validity of rescission. But the same shall be relevant in determining whether the buyer
has been in default for an unreasonable length of time.
Right of stoppage in transitu is exercised:
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a. By taking actual possession of the goods; or Mutually Exclusive Rights: the right of possessory lien and stoppage in transitu are mutually exclusive in the sense that
b. By giving notice of his claim to the carrier or other bailee who is in possession of the goods, as a consequence of both rights cannot exist together at the same time. This is because the right of possessory lien presupposes that the seller
which: retains possession, while in stoppage in transitu, the seller should have parted with the possession already.
i. The carrier or bailee then must redeliver the goods to, or according to the directions of, the seller.
ii. The expenses of such delivery must be borne by the seller. Note, however, that for the right of resale and right to rescind, it is necessary that the seller has either possessory lien or
iii. If, however, a negotiable document of title representing the goods has been issued by the carrier or other bailee, the right of stoppage in transitu.
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he shall not be obliged to deliver or justified in not delivering the goods to the seller unless such document is
first surrendered for cancellation. Insolvency of the buyer: is a requisite only for the right of stoppage in transitu, but not in all other rights. It is, however, a
ground to exercise possessory lien, but still, not a requisite.
3. Resale
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Grounds: RULES ON DOUBLE SALE
a. The goods are perishable in nature
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b. The seller expressly reserves the right of resale in case the buyer should make default, or Double sale exists when the following requisites are present:
c. Where the buyer has been in default in the payment of the price for an unreasonable time
1. Two or more transactions constitute valid sales
To exercise such right: the unpaid seller must have a right of lien or stoppage in transitu.
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In order for the Rules on Double Sale to apply, it presupposes that both the sale are valid or at least voidable or
In case the resale proceeds are: rescissible, prior to annulment or rescission.
▪ LESS than the price in the original sale, the seller can recover from the original buyer the difference as damages
occasioned by the breach of contract of sale; 2. The sales pertain to exactly the same object or subject matter
▪ MORE than the price in the original sale, the seller is entitled to the profit made in such resale. 3. The object must be bought from the same immediate seller
4. Two or more buyers who are at odds over the rightful ownership of the subject matter must represent conflicting interests
Good Title: the buyer in the resale acquires a good title as against the original buyer.

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 Page 19 of 27 | RFBT Pre-recorded Handout 03 Page 20 of 27 | RFBT Pre-recorded Handout 03

LAW ON SALES LAW ON SALES

ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA
REO.CPA.ACADEMICS.F2.01.00 REO.CPA.ACADEMICS.F2.01.00
MOVABLE PROPERTY: if the same movable is sold by the vendor to two or more vendees, the one who has a better right Period of Warranty – It is also mandated that all written warranties or guarantees issued by a manufacturer, producer, or
over the thing shall be the first one to take possession in good faith. importer shall be operative from the moment of sale. The period of warranty shall be:
1. The parties may stipulate the period within which the express warranty shall be enforceable. If the implied warranty on
IMMOVABLE PROPERTY: if the same immovable property is sold by the vendor to two or more vendees, the one who has merchantability accompanies an express warranty, both will be of equal durations;
a better right over the thing shall be: 2. Any other implied warranty shall endure not less than 60 days nor more than one year following the sale of new
1. The one to first register in good faith; if none, consumer products.
2. The one to first take possession in good faith; if none still,
3. The one with the oldest title. Implied Warranties:
1. Warranty against eviction – that the seller has a right to sell the thing at the time when ownership is to pass, and that
“Good faith” pertains to the time of registration or possession not the time of perfection of sale: as such, if at the the buyer shall from that time have and enjoy legal and peaceful possession of the thing;

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time of the second sale, the buyer had no knowledge of the prior sale, but learns of it prior to registration or possession (if
there is no registrant), he will NOT be considered a registrant/possessor in good faith. Eviction; requisites:
a. The vendee is deprived of the whole or of a part of the thing purchased;

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NOTE: In double sales, we follow the principle of priore tempore potior jure – first in time, stronger in right. Thus, knowledge b. By virtue of a final judgment
gained by the first buyer of the second sale cannot defeat the first buyer’s rights. The first buyer’s rights can only be defeated c. The vendor is summoned in the suit for eviction at the instance of the vendee.
if the second buyer registered the sale ahead of the first sale in good faith. d. Such judgment is based on:
i. A right prior to the sale or

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CONDITIONS AND WARRANTIES ii. An act imputable to the vendor

CONDITIONS: where the obligation of either party to a contract of sale is subject to any condition which is not performed, Rules Applicable:
such party may: a. The warranty applies even if there is no agreement to such effect;
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1. Refuse to proceed with the contract; or b. The vendee need not appeal from the decision in order that the vendor may become liable for eviction.
2. Waive the performance of the condition; or c. When the adverse possession had been commenced before the sale but the prescriptive period is completed after
3. Treat the non-performance as a breach of warranty and ask for damages. the transfer, the vendor shall not be liable for eviction.
d. If the property is sold for non-payment of taxes due and not made known to the vendee before the sale, the vendor
WARRANTIES: Any affirmation of fact or any promise by the seller relating to the thing is an express warranty if the natural is liable for eviction.
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tendency of such affirmation or promise is to induce the buyer to purchase the same, and if the buyer purchase the thing e. The judgment debtor is also responsible for eviction in judicial sales, unless it is otherwise decreed in the judgment.
relying thereon. f. The defendant vendee shall ask, within the time fixed in the Rules of Court for answering the complaint, that the
vendor be made a co-defendant.
Opinion of the seller: is not understood to be a warranty unless the seller made such affirmation or statement as an expert
and it was relied upon by the buyer. Extent of Liability: First, it will depend whether the seller is in bad faith:
a. If the seller is in bad faith, he shall be liable for:
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Express Warranty: is an affirmation of fact or promise by the seller relating to the thing which would induce the buyer to i. Value of the thing sold at the time of eviction;
buy the same. However, those relating to opinions of the seller are not considered warranties unless they are made by ii. Income or fruits, if he has been ordered to deliver them to the party who won the suit against him;
experts and the buyer relies upon them. iii. Costs of the suit which caused the eviction, and, in a proper case, those of the suit bought against the vendor
for the warranty;
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Warranties under the Consumer Act (RA No. 7394) iv. Expenses of the contract, if the vendee has paid them;
v. Damages and interests and ornamental expenses.
Applicability: Consumer products are goods which are primarily for personal, family, household or agricultural purposes b. If the seller is in good faith, the liability of the vendor shall depend whether there is a waiver executed by the buyer:
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which shall include but not limited to goods, drugs, cosmetics and devices; i. If there is no waiver, the seller is liable for VICE above except Damages.
ii. If there is a waiver, the liability of the vendor shall depend whether the buyer is aware of the risk of eviction:
Requirements: Any seller or manufacturer who gives an express warranty for consumer products is required to do the 1) Consciente – the buyer is not aware of the risk, or without knowledge of the defect in the title of the seller:
following: seller is still liable but only for the VALUE of the thing at the time of eviction;
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1. Set the terms of warranty in clear and readily understandable language and clearly identify himself as the warrantor; 2) Intencionada – the buyer was aware of the risk of eviction or of the defect in the title of the seller, the seller
2. Identify the party to whom the warranty is extended; is no longer liable for anything.
3. State the products or parts covered;
4. State what the warrantor will do in the event of a defect, malfunction or failure to conform to the written warranty and at Partial Loss: should the vendee lose only a part of the thing sold but the same is of such importance, in relation to the
whose expense; whole, that he would not have bought it without said part, he may demand the rescission of the contract; but with the
5. State what the consumer must do to avail of the warranty rights; obligation to return the thing without other encumbrances that those which it had when he acquired it, instead of enforcing
6. Stipulate the warranty period. the vendor’s liability for eviction.

Two or more things sold: the same rules as to partial loss shall apply:

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 Page 21 of 27 | RFBT Pre-recorded Handout 03 Page 22 of 27 | RFBT Pre-recorded Handout 03

LAW ON SALES LAW ON SALES

ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA
REO.CPA.ACADEMICS.F2.01.00 REO.CPA.ACADEMICS.F2.01.00
a. If they have been jointly sold for a lumpsum; or REDHIBITORY DEFECTS IN ANIMALS
b. Even if they were sold for a separate price for each of them if it should appear that the vendee would not have
purchased one without the other. Redhibitory Defect is the hidden defect on animals that, even in case a professional inspection has been made, should
be of such nature that expert knowledge is not sufficient to discover it.
2. Warranty against hidden defects or of quality - the thing shall be free from any hidden faults or defects.
But if the veterinarian, through ignorance or bad faith shall fail to discover or disclose it, he shall be liable for damages.
Hidden Defects: it would render the thing unfit for its intended use; or diminish its fitness for such use to such extent
that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it. Sale of more than 1 animal: General Rule: The redhibitory defect of one shall only give rise to its redhibition, and not of
the others; Except: if the vendee would not have purchased the sound animal or animals without the defective one, which
Vendor not liable: in case: is presumed when a team, yoke pair, or set is bought, even if a separate price has been fixed for each one of the animals

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a. The defects are patent or those which may be visible; or composing the same.
b. Even if not visible, the vendee who is an expert, by reason of his trade or profession, should have known.
No warranty: There is no warranty against hidden defects of animals sold at fairs or at public auctions, or of live stock

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Warranty of Fitness of Goods: there is an implied warranty that the goods shall be reasonably fit for such purpose; sold as condemned.
a. The buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are
acquired, and Void sale of animals:
b. It appears that the buyer relies on the seller's skill or judgment (whether he be the grower or manufacturer or not), a. The sale of animals suffering from contagious diseases shall be void.

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b. If the use or service for which they are acquired has been stated in the contract, and they are found to be unfit
In the case of contract of sale of a specified article under its patent or other trade name, there is no warranty as to its therefor.
fitness for any particular purpose, unless there is a stipulation to the contrary.
Remedies and Prescriptive Period: Remedies of the vendee in case of sale of animals with redhibitory defects are similar
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Warranty of Merchantable Quality: there is an implied warranty that the goods shall be of merchantable quality to the remedies for breach of warranty against hidden defects; but he must make use thereof within the same period
a. Where the goods are bought by description which has been fixed for the exercise of the redhibitory action or 40 days.
b. From a seller who deals in goods of that description (whether he be the grower or manufacturer or not),
Other Rules:
In the case of a contract of sale by sample, if the seller is a dealer in goods of that kind, there is an implied warranty that a. If the animal should die within three days after its purchase, the vendor shall be liable if the disease which cause the
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the goods shall be free from any defect rendering them unmerchantable which would not be apparent on reasonable death existed at the time of the contract.
examination of the sample. b. If the sale be rescinded, the animal shall be returned in the condition in which it was sold and delivered, the vendee
being answerable for any injury due to his negligence, and not arising from the redhibitory fault or defect.
Other rules on warranty against hidden defects or of quality: c. Sale of large cattle is governed by special laws.
a. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not
aware thereof, unless there is contrary stipulation. 3. Warranty against non-apparent encumbrances: an encumbrance (or an easement or servitude) is a burden
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b. An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage imposed upon an immovable for the benefit of another immovable belonging to a different owner. It is non-apparent,
of trade. when there are no external indications of their existence.

Remedies of the vendee: The warranty against non-apparent encumbrances arises when the same is:
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a. Withdraw from the contract plus damages; a. Not mentioned in the agreement; or
b. Accion quanti minoris or demand a proportionate reduction of the price plus damages. b. Not recorded in the Registry of Property (now Registry of Deeds).
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Loss of the thing with hidden defect; liability of the seller: In which case, the buyer has the following remedies, within 1 year, counted from:
a. If the cause was the defect itself: the seller shall be liable for: a. Ask for the rescission of the contract – from execution of the deed;
i. Price b. Ask for damages – from discovery.
ii. Expenses of the contract
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iii. Interest (if in good faith) Not applicable to: the implied warranties are not applicable to a sheriff, auctioneer, mortgagee, pledgee or other person
iv. Damages (if in bad faith) professing to sell by virtue of authority in fact or law, for the sale of a thing in which a third person has a legal or equitable
b. If the cause of the loss is a fortuitous event or through the fault of the vendee, the seller shall be liable to refund the interest.
price less the value at the time of loss, plus damages (if he was aware).
OBLIGATIONS OF THE VENDEE:
Judicial sales: the above rules likewise apply to judicial sales, except the judgment detor shall not be liable for damages.
1. To pay the price
Prescriptive period for the remedies: is 6 months from delivery. a. At the time and place stipulated; or if none was stipulated, the payment must be made at the time and place of
the delivery of the thing sold.

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience
www.reocpareview.ph REO CPA REVIEW www.reocpareview.ph REO CPA REVIEW
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 Page 23 of 27 | RFBT Pre-recorded Handout 03 Page 24 of 27 | RFBT Pre-recorded Handout 03

LAW ON SALES LAW ON SALES

ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA
REO.CPA.ACADEMICS.F2.01.00 REO.CPA.ACADEMICS.F2.01.00
b. The vendee shall be liable for interest for the period between the delivery of the thing and the payment of the price
in the following cases: Notify the seller in case of refusal: Unless otherwise agreed, where goods are delivered to the buyer, and he refuses
i. Should it have been so stipulated; to accept them, having the right so to do, he is not bound to return them to the seller, but it is sufficient if he notifies the
ii. Should the thing sold and delivered produce fruits or income; seller that he refuses to accept them.
iii. Should he be in default, from the time of judicial or extrajudicial demand for the payment of the price.
If he voluntarily constitutes himself a depositary thereof, he shall be liable as such.
Suspension of payments: if the vendee is disturbed in the possession or ownership of the thing acquired, or should
he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may Right to Examine:
suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless: a. Delivered goods not previously examined: he is not deemed to have accepted them unless and until he has had
i. The seller gives security for the return of the price in a proper case, or a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with

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ii. It has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. the contract if there is no stipulation to the contrary.
iii. There was only a mere act of trespass b. Unless otherwise agreed, the seller is bound, on request, to afford the buyer a reasonable opportunity of
examining the goods for the purpose of ascertaining whether they are in conformity with the contract

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Vendor’s Remedy of Rescission: The vendor may immediately sue for rescission if: c. Where goods are delivered to a carrier by the seller, upon the terms that the goods shall not be delivered by the
i. The vendee has not yet paid after delivery is made carrier to the buyer until he has paid the price, the buyer is not entitled to examine the goods before the
ii. The subject matter is immovable property payment of the price, in the absence of agreement or usage of trade permitting such examination.
iii. There is reasonable fear of loss of the property sold and its price. (Art. 1591)

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Vendor’s Remedy of Rescission is an available remedy to the seller with respect to movable property, if the vendee
Note, however, that Art. 1191 (on reciprocal obligations) still applies, where rescission can be had even without upon the expiration of the period fixed for the delivery of the thing :
reasonable fear of loss if the vendee fails to pay upon delivery. a. Should not have appeared to receive it, or,
b. Having appeared, he should not have tendered the price at the same time, unless a longer period has been stipulated
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However still, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the for its payment.
rescission of the contract may be had, the vendee may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, EXTINGUISHMENT OF A CONTRACT OF SALE:
the court may not grant him a new term.
Sales are extinguished by the same causes as all other obligations, and by conventional or legal redemption.
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2. To accept delivery
CONVENTIONAL REDEMPTION
Delivery by installments: The buyer is not bound to accept delivery by installments, unless otherwise agreed upon.
CONVENTIONAL REDEMPTION: otherwise known as “right of repurchase” shall take place when the vendor reserves
If it was agreed that delivery be done in installments and payments separately made, and the right to repurchase the thing sold, with the obligation to return the price, expenses related thereto and useful and
a. the seller makes defective deliveries in respect of one or more instalments, or necessary expenses, and other stipulations which may have been agreed upon.
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b. the buyer neglects or refuses without just cause to take delivery of or pay for one or more instalments,
The sale, with a right of repurchase, is also known as pacto de retro sale.
It depends in each case on the terms of the contract and the circumstances of the case, whether the breach of contract
is: Ownership: transfers to the vendee-a-retro upon delivery. However, this ownership is not absolute but only conditional.
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a. So material as to justify the injured party in refusing to proceed further and suing for damages for breach of the This is because the vendor-a-retro may be able to exercise the right to repurchase and the ownership of the buyer will be
entire contract, or terminated. Thus, it can be said that the ownership of the vendee-a-retro is subject to a resolutory condition.
b. Severable, giving rise to a claim for compensation but not to a right to treat the whole contract as broken
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Amount to be paid at the time the right is exercised:
Deemed Acceptance: the buyer is deemed to have accepted the delivery if: 1. The purchase price;
a. He intimates to the seller that he has accepted the thing; 2. The expenses of the contract, and any other legitimate payments made by reason of the sale; and
b. He does any act which is inconsistent with the ownership of the seller; 3. Useful and necessary expenses (e.g., fencing of the land)
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c. After the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them.
Fruits:
Buyer’s obligation to notify the seller of breach of promise or warranty: After delivery is made, as a general rule,
the seller is not discharged of liability for damages or of breach of warranty. At the time of At the time of Effect
sale redemption
EXCEPT: There are There were If purchaser paid for the fruits existing at the time of sale, he shall be entitled to
a. There is an express or implied agreement to the contrary; or visible or fruits as well reimbursement or pro-rating of the fruits existing at the time of redemption.
b. The buyer fails to give notice to the seller of the breach within a reasonable time after the buyer knows, or ought growing fruits
to know of such breach.

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience
www.reocpareview.ph REO CPA REVIEW www.reocpareview.ph REO CPA REVIEW
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 Page 25 of 27 | RFBT Pre-recorded Handout 03 Page 26 of 27 | RFBT Pre-recorded Handout 03

LAW ON SALES LAW ON SALES

ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA
REO.CPA.ACADEMICS.F2.01.00 REO.CPA.ACADEMICS.F2.01.00
If no indemnity was paid by the purchaser, there is no such liability for reimbursement 3. CO-OWNERS SOLD SEPARATELY – each can exercise his own right of redemption and cannot be compelled to
or pro-rating. redeem the whole property.
No fruits Some exist The fruits shall be prorated between the redemptioner (Seller-a-retro) and the
vendee, giving the latter the part corresponding to the time he possessed the land in LEGAL REDEMPTION
the last year, counted from the anniversary of the date of the sale.
LEGAL REDEMPTION: is the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the
Equitable Mortgage: a sale with a right of repurchase (or even a contract of absolute sale) is presumed to be an equitable place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is
mortgage in the following cases: transmitted by onerous title.
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; The Right of Legal Redemption is available to:

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3. When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or 1. Co-owners – a co-owner of a thing may exercise the right of redemption in case the shares of all the other co-owners
granting a new period is executed; or of any of them, are sold to a third person.
4. When the purchaser retains for himself a part of the purchase price;

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5. When the vendor binds himself to pay the taxes on the thing sold; Subject property: may be movable or immovable property.
6. In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure
the payment of a debt or the performance of any other obligation. Amount to be paid for redemption: is the purchase price, unless the price of alienation is grossly excessive, in which
case, the redemptioner shall pay only a reasonable one.

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The remedy would be to ask for the reformation of the instrument purporting to be a contract of sale with right of repurchase
or a contract of absolute sale. Multiple redemptioners: should two or more co-owners desire to exercise the right of redemption, they may only do so
in proportion to the share they may respectively have in the thing owned in common
In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage.
2. Owners of adjoining lands – have the right of redemption in case of transfers of land.
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Period to exercise right of repurchase:
1. That which was agreed upon which cannot exceed 10 years;
2. If no agreement as to the period, it shall be four years from the date of the contract. Rural Land; Requisites:
3. The vendor may still exercise the right to repurchase within thirty days from the time final judgment was rendered in a a. The subject is rural land;
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civil action on the basis that the contract was a true sale with right to repurchase. b. The land does not exceed one hectare;
c. The redemptioner is an owner of a land adjoining the subject rural land;
No Redemption/Repurchase was made: d. The adjacent lands is not separated by brooks, drains, ravines, roads and other apparent servitudes for the benefit
1. In case of real property, the consolidation of ownership in the vendee by virtue of the failure of the vendor to pay of other estates; and
the required amounts shall not be recorded in the Registry of Property without a judicial order, after the vendor has e. The grantee/buyer owns a rural land;
been duly heard.
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2. In case of personal property, the consolidation of ownership is by operation of law. Multiple redemptioners: in case two or more adjoining owners desire to exercise the right of redemption at the same
time:
By consolidation of ownership, it means that the ownership of the vendee becomes absolute and the resolutory condition is a. The owner of the adjoining land of smaller area shall be preferred; and
removed. b. Should both lands have the same area, the one who first requested redemption.
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Vendor’s Right of Repurchase: Redemption and Pre-emption of Urban Land; Requisites:
1. The vendor may bring his action against every possessor whose right is derived from the vendee, even if in the second a. The subject is urban land;
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contract no mention should have been made of the right to repurchase, without prejudice to the provisions of the b. The area of the land is so small and so situated that a major portion thereof cannot be used for any practical purpose
Mortgage Law and the Land Registration Law with respect to third persons. within a reasonable time, having been bought merely for speculation;
2. The vendee is subrogated to the vendor's rights and actions. c. The one exercising the right of redemption or pre-emption is an adjoining land owner.
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3. The creditors of the vendor cannot make use of the right of redemption against the vendee, until after they have
exhausted the property of the vendor. When redemption, when pre-emption:
a. Pre-emption is the right exercised by the adjoining land owner if the sale is NOT YET perfected;
Multiple Parties b. Redemption is the right exercised if the sale is already perfected.
1. SALE OF UNDIVIDED IMMOVABLE – vendee eventually acquires the whole; may compel the vendor to redeem the
whole property. Multiple persons exercising the right of redemption/pre-emption: the one whose intended use is best justified shall be
2. SEVERAL PERSONS JOINTLY AND IN THE SAME CONTRACT: sell an undivided immovable with a right of preferred.
repurchase:
a. SELLERS – can only redeem their share
b. BUYER – can compel redemption of the entire property; cannot be compelled to agree to a partial redemption

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience
www.reocpareview.ph REO CPA REVIEW www.reocpareview.ph REO CPA REVIEW
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 Page 27 of 27 | RFBT Pre-recorded Handout 03

LAW ON SALES
ATTY. N. SORIANO, CPA/ATTY. D. AZORES, CPA
REO.CPA.ACADEMICS.F2.01.00
PERIOD TO EXERCISE LEGAL RIGHT OF REDEMPTION: 30 days from NOTICE in writing by the prospective vendor, or
by the vendor. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the
vendor that he has given written notice thereof to all possible redemptioners.

To summarize the differences:

SUBJECT MATTER AMOUNT TO BE PAID FOR MULTIPLE REDEMPTIONERS

REDEMPTION
Co-owners Real or personal property Purchase price All, pro-rata

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unless grossly excessive, in which
case, only a reasonable one.
Adjacent Rural land – complying with Purchase price 1. Smaller lot area

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rural land the above requisites 2. if same area, first
owners
Adjacent Urban land – complying Purchase price One whose use is best justified
urban land with the above requisites
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REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

www.reocpareview.ph REO CPA REVIEW
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