THE LAW ON SALES, AGENCY, AND CREDIT TRANSACTIONS o Bilateral because both contracting parties are bound to fulfill

DE LEON & DE LEON obligations reciprocally towards each other

2010 o Onerous - thing sold is conveyed in consideration of price and
vice versa
Part 1: Sales o Commutative - thing sold is considered the equivalent of the
price paid and vice versa
Chapter 1 Nature and Form of Contract o Nominate it is given a designation in the Civil Code, namely
Sale
I. Definitions o Principal does not depend for its existence and validity upon
another contract
Contract of Sale a contract whereby one of the parties (called the
seller or vendor) obligates himself to deliver something to the other Contracts of sale that must be in writing to be enforceable by court
(called the buyer or purchaser or vendee) who, on his part, binds action (Under Statute of Frauds):
himself to pay therefore a sum of money or its equivalent o Sale of personal property at a price not less than P500
Natural Elements those which are deemed to exist in certain o Sale of real property or an interest therein regardless of the
contracts, in the absence of any contrary stipulations like warranty price involved
against eviction or hidden defects o Sale of property not to be performed within a year from the
Sale by description occurs where a seller sells things as being of a date thereof regardless of the nature of the property and the
price involved
particular kind, the buyer not knowing whether the sellers
representations are true or false. Distinctions between a Contract of Sale and a Contract of Agency
o Note: If the bulk of the goods delivered do not correspond with Contract of Sale Contract of Agency
the description, the contract may be rescinded Buyer receives the goods as owner Agent receives the goods as the
Fungible goods goods of which any unit is, from its nature or by goods of the principal who retains his
mercantile usage, treated as the equivalent of any other unit such as ownership over them
grain, oil, wine, gasoline, etc. Buyer has to pay the price Agent has simply to account for the
Conditional Sale sale contemplates a contingency and in general proceeds of the sale he may make
where the contract is subject to certain conditions, usually the full on the principals behalf
payment of the purchase price Buyer, as a general rule, cannot Agent can return the object in case
o Note: The delivery of the thing sold does not transfer ownership return the object sold he is unable to sell the same to a
until the condition is fulfilled third person
Seller warrants the thing sold Agent makes no warranty for which
II. Discussions: he assumes personal liability as long
Difference between Earnest Money and Option Money as he acts within his authority and in
the name of the seller
Earnest Money Option Money Buyer can deal with the thing sold The agent in dealing with the thing
Part of Purchase Price Money given as distinct consideration for as he pleases received, must act and is bound
the option contract according to the instructions of his
Given only where there is a sale Applies to a sale not yet perfected principal
When earnest money is given, buyer is Would-be-buyer is not required to buy
bound to pay the balance when he gives option money

Remedies available to a vendor in sale of personal property payable in

installments
o Elect fulfillment upon the vendees failure to pay
o Cancel the sale, if the vendee shall have failed to pay two or
more installments
o Foreclose the chattel mortgage, if one has been constituted, if
the vendee shall have paid to pay two or more installments
Characteristics of a contract of sale:
o Consnsual perfected by mere consent without further act
Chapter 2 Capacity to Buy or Sell
I. Definitions
Necessaries things which are needed for sustenance, dwelling,
clodting and medical attendance, in keeping with the financial capacity
of the family of the incapacitated person.
Compromise - a contract whereby the parties, by reciprocal
concessions, avoid a litigation or put an end to one already commenced
II. Discussions o It must be of such nature that expert knowledge is not sufficient
Relative incapacity of husband and wife to discover it
o Husband and wife are prohibited by the above article from o If veterinarian acts in bad faith (through ignorance or failure of
selling property to each other disclosure), he shall be liable for damages
People who may enter into a contract of sale *Article only applies tosale of animals
o As a general rule, all persons, whether natural or juridicial, who Implied Warranty of Fitness seller guarantees that the thing sold is
can bind themselves by contract have also legal capacity to reasonably fit for the known particular purpose for which it was acquired
buy and sell by the buyer
o If bought by description, it should be reasonably fit on its
Chapter 3 Effect of the Contract When The Thing Sold Has Been Lost merchantable quality
Eviction judicial process whereby the vendee is deprived of the whole
I. Definitions or part of the thing purchased by virtue of a final judgement based on a
Specific goods goods identified and agreed upon at the time a right prior to the sale or an act imputable to the vendor
contract of sale is made Caveat venditor doctrine that states that the vendor is liable to the
Divisible contract its consideration is made up of several parts vendee for any hidden faults or defects in the thing sold, even though h
was not aware thereof.
II. Discussions II. Discussions
When a thing is considered lost
o When it perishes or goes out of commerce Sale by a person not the owner

perishes material deterioration or complete change o Where the owner of the goods is, by his conduct, precluded
in the nature of the thing from denying the sellers authority to sell.
o Dissappears in such a way that its existence is unknown or it o Where the law enables the apparent owner to dispose of the
cannot be recovered goods as if he were the true owner thereof
Effect of loss of thing at the time of sale o Where the sale is sanctioned by statutory or judicial authority
o Lost totally: o Where the sale is made at merchants stores, fairs or markets

Contract is inexistent and void because there is no o Where the seller has a voidable title which has not been
object avoided at the time of the sale
o Lost partially: o Where seller subsequently acquires title.
Vendee may: Ways of effecting delivery
Withdraw from the contract or o By actual or real delivery
Demand the remaining part, paying its o By constructive or legal delivery

proportionate price Execution of a public instrument or document
Symbolic delivery
Chapter 4 Obligations of the Vendor Traditio Longa Menu
Takes place by mere consent or agreement
I. Definitions of the contracting parties as when the vendor
Unpaid Seller of Goods one who has not been paid or tendered the merely points to the thing sold which shall
whole price thereafter be at the control/disposal of the
Traditio Brevi Manu mode of legal delivery which happens when the vendee.
vendee has already the possession of the thing sold by virtue of another o Only qualifies if the thing sold
title as when the lessor sells the thing leased to the lessee cannot be delivered to the vendee
Sale or Return A contract by which property is sold but the buyer at time of sale
(who becomes the owner of the property on delivery), has the option to Traditio Brevi Manu
Traditio Constitutum Posessorium
return the same to the seller instead of paying the price.
o Option to sale or return rests on the buyer Quasi-Traditio
Tradition a derivative mode of acquiring ownership by virtue of which o By delivery in any other manner signifying an agreement that
one who has the right and intention to alienate a corporeal thing, the possession is transferred to the vendee
transmits it by virtue of a just title to one who accepts the same Requisites for the exercise of right of stoppage in transit
Redhibitory defect a defect in the article sold against which defect o Seller must be unpaid
the seller is bound to warrant o Buyer must be insolvent
o Defect must be hidden; and o Goods must be in transit
 o Seller must either actually take possession of the goods sold Acceptance of the goods assent to become owner of the
or give notice of his claim to the carrier or other person in specific goods when delivery of them is offered to the buyer
possession Wrongful refusal of buyer to accept when buyer refuses to
o Seller must surrender the negotiable instrument of title, if any, accept the goods without just cause
issued by the carrier or bailee o Risk of loss is borne by him from the moment they are
o Seller must bear the expenses of delivery of the goods after placed in his disposal
the exercise of the right
II.Discussions
Implied warranties in sale Implied acceptance by the vendee of the goods sold
o Implied warranty as to sellers title o After delivery of goods: When buyer does any act
Seller guarantees that he has a right to the the sell the
thing sold and transfer ownership inconsistent with the sellers ownership (as when he sells
o Implied warranty against hidden defects or unknown or attempts to sell the goods, uses or makes alteration in
encumbrances them in a manner proper only for an owner)
Seller guarantees that the thing sold is free from any o After the lapse of reasonable time: When buyer retains
hidden defects the goods without intimating his rejection
o Implied warranty as to fitness or merchantability
Sale or return distinguished from Sale on Trial When vendee can suspend payment of price
Sale or Return Sale on Trial o If he is disturbed in the possession or ownership of the
Sale subject to a resolutory Subjecttoasuspensive thing bought
condition condition o If he has a well-grounded fear that his possession or
Depends entirely on the will of Depends on the character or ownership would be disturbed by a vindicatory action or
the buyer quality of the goods foreclosure of mortgage
Ownership of the goods passes Ownership remains in the seller
to the buyer on deliveryand until the buyer signifies his Chapter 6 Actions for Breach of Contract of Sale of Goods
subsequent return of the goods approval or acceptance to the
revert ownership in the seller seller I. Definitions
Risk of loss or injury rests upon Risk remains with the seller Goods includes all chattels personal but not things in action or
the buyer money of legal tender in the Philippines. This term also includes
growing fruits or crops
Place of delivery of goods sold (with no agreement) Recoupment accept the goods and set up the sellers breach to
o Place of delivery is that determined by usage of trade reduce or extinguish the price
o When there is also no prevalent usage, the place of
delivery is the sellers place of business II. Discussions
Actions available to the buyer in case of breach of warranty by
Principal Obligations of the Vendor the seller of the goods:
o To transfer ownership of the determinate thing sold o Recoupment:
o To deliver the thing Accept the goods and set up the sellers breach
to reduce or extinguish price
o To warrant against eviction and hidden defects
o Action or counterclaim for damages:
o To take care of the thing, pending delivery, with proper Accept the goods and maintain an action for
diligence damages
Refuse to accept the goods and maintain an
o To pay for the expenses for the execution and registration
of the deed of sale, unless there is stipulation to the contrary action for damages for the breach of
Risk of loss by fortuitous event after perfection but before delivery the
o Borne by the buyer (as an exception to the rule of res warranty
perit domino) o Rescission:
Rescind the contract of sale by returning or
offering the return of the goods and recover
Chapter 5 Obligations of the Vendee the price
Cases where rescission by the buyer is not allowed although
I. Definitions the seller has committed a breach of warranty:
 o If the buyer accepted the goods knowing of the
breach of warranty without protest
o If the buyer fails to notify the seller within a
reasonable time of his election to rescind
o If the buyer fails to return or offer to return the goods
in substantially as good condition as they were in at
the time of the transfer of ownership to him
Situations where the seller is given the right to bring an action
for damages against the buyer
o If the buyer, without lawful cause, neglects or refuses
to accept and pay for the goods he agreed to buy
(damages for non-acceptance)
o In an executory contract, where the ownership in the
goods has not passed, and the seller cannot maintain
an action to the price, sellers remedy will be also an
action for damages
o If the goods are not yet identified at the time of the
contract or subsequently, the sellers right is
necessarily confined to an action for damages
Situations where the seller of specific goods is given the right
to be paid notwithstanding that delivery to the buyer has not
been effected:
o When the price is payable on a certain day, and the
buyer wrongfully neglects or refuses to pay such
price, irrespective of delivery or transfer of title
o When the buyer wrongfully refuses to accept delivery
Chapter 7 Extinguishment of Sale
I. Definitions
Legal Redemption is the right to be subrogated, upon the same
terms and conditions stipulated in the contract, in the place of one
who acquires a thing by purchase or dation in payment, or by any
transaction whereby ownership is transmitted by onerous title
Equitable Mortgage is one which, although it lacks the proper
formalities of a mortgage, shows the intention of the parties to
make the property subject of the contract as a security for the
fulfillment of an obligation
Conventional Redemption is the right which the vendor
reserves to himself, to reacquire the property sold provided he
reimburses the vendee of the price, the expenses of the contract,
any other legitimate payments made therefor and the necessary
and useful expenses made on the thing sold and fulfills other
stipulations which may have been agreed upon
II. Discussions
Requisites for the right of legal redemption of a co-owner to
exist o There must be co-ownership
o There must be alienation of all or of any of the shares of
the other co-owners
o Sale must be to a third person or stranger
o Sale must the before partition
o Right must be exercised within the period provided in
Article 1623
o Vendee must be reimbursed for the price of the sale
Cases when the contract shall be presumed to be an equitable
mortgage:
o When the price of a sale with right to repurchase is
unusually inadequate
o When the vendor remains in possession as lesee or
otherwise
o When upon or after the expiration of the right to
repurchase another instrument extending the period of
redemption or granting a new period is executed
o When the purchaser retains for himself a part of the
purchase price
o When the vendor binds himself to pay the taxes on the
thing sold
o 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
Obligations of a vendor a retro in case of redemption
o The vendor must return to the vendee:
Price of the sale (not the value of the thing)
Expenses of contract and other legitimate expenses
Necessary expenses those incurred
for the preservation of the thing
Useful expenses those which increase
the value of the thing or create
improvements thereon
Chapter 8 Assignment of Credits and Other Incorporeal Rights
I. Definitions
Assignment of credit a contract by which one person transfers
to another his rights and actions against a third person (debtor) in
consideration of a price certain in money or its equivalent
II. Discussions
Warranties of the assignor of credit
o The assignor of credit only warrants the existence and
legality of the credit at the perfection of the contract
o There is no warranty as to solvency of the debtor unless
expressly stipulated or unless the insolvency was already
 existing (and of public knowledge) at the time of the
assignment
Liabilities of the assignor of credit
o The liability of the assignor in good faith is limited only to
the price received and to the expenses of the contract,
and any other legitimate payments by reason of the
assignment
o The assignor in bad faith is liable not only for the payment
of the price and all expenses, but also for damages.
Nature of assignment of credit
o It is really a sale
Subject matter: credit or right assigned
Consideration: Price paid for the credit or right
Consent: The agreement of the parties to the
assignment at the agreed price
Chapter 9 General Provisions
I. Definitions
Legal tender is that currency which a debtor can legally compel a
creditor to accept in payment of a debt in money when tendered by
the debtor in the right amount
Thing or chose in action is any claim or right which may be
pleaded in a suit at law, such as claim of reparation for a tort or
right guaranteed under certain types of contracts
II. Discussions
Objects included in the phrase document of title to goods
according to Art. 1636:
Any
o Bill of Lading; o
Dock Warrant;
o Warehouse receipt or;
o Order for the delivery of goods or;
o Any other document used in the ordinary course of
business as proof of the possession and control of the
goods
A person is deemed insolvent when:
o A person who was ceased to pay his debt in the ordinary
course of business
Goods are in a deliverable state when:
o They are in such a state that the buyer would, under the
contract, be bound to take delivery of them
Chapter 10 Barter or Exchange
I. Definitions
Barter one of the parties binds himself to give one thing in
consideration of the others promise to give another thing.
II. Discussions
Similarities to Sale and Barter
o Barter is similar to sale with the only difference is that
instead of paying a price in money, another thing is given
in lieu thereof
Perfection and Consummation of the Contract of Barter
o Perfected from the moment there is a meeting of minds
upon the things promised by each party in consideration of
the other
o It is consummated from the time of mutual delivery by the
contracting parties of things they
promised Chapter 11 The Bulk Sales Law
I. Definitions
Fixtures merchandise usually possessed and annexed to the
premises occupied by merchants to enable them better to store,
handle, and display their wares
Merchandise must be construed to mean such things as are
usually bought and sold in trade by merchants
II. Discussions
When sale or transfer in bulk
o Sale, transfer, mortgage or assignment of
A stock of goods, wares, and merchandise
otherwise than in the ordinary course of
trade and the regular prosecution of the
business
All or substantially all, of the business or trade
All or substantially all, of the fixtures and
equipment used in the business of the
vendor, mortgagor, transferor, or assignor
Purpose of the Law
o Designed to prevent defrauding of creditors by the
secret sale in bulk of all or substantially all of a
merchants stock of goods
Scheme of the law
o That such Bulk Sales are fraudulent and void as to
creditors of the vendor, or presumptively so, unless
specified formalities are observed such as
Demanding and giving list of creditors
Giving of actual or constructive notice to such
creditors
Making of an inventory