The Law on Sales

The Law on Sales: A Report on Chapters 8 and 9

Submitted by: Jose Parcon

Introduction
This report is written for our subject, Law on Sales, under Atty. Maria Cristina Gimenez. The title of the
book from which we based our report is Law on Sales by Cesar Villanueva. The book consists of 619 pages
and published by Rex Book Store.

The author of the book, Cesar Villanueva obtained his Bachelor of Laws at Ateneo De Manila Law School.
He also holds a Master of Laws degree from Harvard Law School, and Doctor of Laws from San Beda
Graduate School of Law. He was also the Dean of Ateneo Law School. He served as Chairman, Commercial
Law Department of Philippine Judicial Academy. He is also a founding Partner of the law firm, Villanueva
Gabionza & De Santos.

This is the 2009 edition of Law on Sales by Cesar Villanueva, published and distributed by Rex Book
Store. Our Professor recommended the book in the Law on Sales as our primary reference material for our
classroom discussions.

This report will focus on Chapters 8 and 9 of the Law on Sales by Villanueva.

CHAPTER 8
Sale by a Non-Owner or By One Having Voidable Title
In this Chapter, Villanueva states that sale is a progressive contract. And he likened sale to the
metamorphosis that a butterfly goes through, a sale has stages as it goes through its legal existence.[1]

Stages in the Life of Sale

According to the author, a contract of sale has two stages in its life, the perfection stage and the
consummation or performance stage.

The perfection stage is the birth of the contract of sale. It is at this particular stage that determines
whether the contract exists at all and the nature of its existence whether it is valid, voidable,
unenforceable, rescissible, or void contract.[2]

Consummation stage is the living-out of that kind of life that has been set by the perfection stage. If the
contract of sale is valid at perfection, it remains valid throughout its life and consummation has no choice
but to lead the life of a valid contract and the consequence thereof; consummation cannot change the
nature of such contract.[3]

Breach and rescission are legal concepts that necessarily pertain to the consummation or performance
stage. Because, according to the author, breach and rescission presupposes the existence of a valid
contract of sale. When a contract of sale is void, it gives rise to no obligations that can be breached;
neither does it allow a rescission to a contract that has no legal existence in the first place.[4]

Where the Seller is Not the Owner at the Time of Perfection

A valid contract of sale exists to bind both seller and buyer even if at the time of perfection the seller was
not the owner thereof since it does not even exist yet or even if it existed then but did not belong to the
seller at the time of perfection.[5]

Where the Seller is Not the Owner at the Time of Consummation

The Supreme Court, in Mindanao Academy, Inc. v. Yap, held: A seller cannot transfer ownership by
delivery of a thing that he does not own.[6]

Article 1505 of the Civil Code provides that, “where goods are sold by a person who is not the owner
thereof, and who does not sell them under authority or with consent of the owner, the buyer acquires no
better title to the goods than the seller had.”

The law stems from the principle that nobody can dispose of that which does not belong to him.[7]

Sale by Co-Owner of the Whole Property or Definite Portion Thereof

When a co-owner prior to partition sells the entire property owned in common, the sale of the property
itself is void, but valid as to his spiritual share. And when a co-owner, prior to partition, sells a definite
portion of the property owned in common, the sale as to that portion is not valid as to the other co-owner
but valid as to his spiritual share.[8]

Exceptions to the Rule on the Effect of Sale of a Definite Portion by a Co-owner

As a general rule, the sale of the entire property or a definite portion thereof owned in common, by one of
the co-owners, only affects the seller’s spiritual share. The exceptions to the general rule are the
following:

First, it does not apply when the subject matter is indivisible by nature or by intent. Villanueva cited the
case of Mindanao Academy, Inc. v. Yap, where one of the co-owners sold the school and its properties
owned in common with other co-owners, the Supreme Court held that the sale of the entire property
owned in common by one of the co-owners was void, and could not even be binding as to the spiritual
share of the seller since the prestation involved in the sale was indivisible, and therefore incapable of
partial annulment, inasmuch as the buyer would not have entered into transaction except to acquire all of
the properties purchased by him.[9]

Second, when a sale of a particular portion of the thing owned in common is with the consent of the other
co-owners, there is in effect a partial partition, and the sale of the definite portion is valid.[10]

Third, a co-owner who sells one of the parcels of land owned in common with another co-owner, and does
not turn over one-half of the proceeds of the sale to the other co-owner, the latter may by law and equity,
lay exclusive claim to the remaining parcel of land.[11]

Exceptions to the Rule on Legal Effects of Sale by a Non-Owner

As a general rule, in a sale by non-owner or without the consent of the owner, the buyer acquires no
better title than the seller had.

The exceptions are the following:

First, when the owner is, by his conduct, precluded from denying the seller’s authority to sell;

Second, when the contrary is provided for in recording laws such as those embodied by the Property
Registration Decree;

Third, when the sale is made under statutory power of sale or under the order of a court of competent
jurisdiction;

Fourth, when the sale is made in a merchant’s store in accordance with the Code of Commerce and special
laws.

Sale by a Seller Who has Voidable Title on the Thing Sold

Under Article 1506 of the Civil Code, “where the seller of goods has a voidable title thereto, but his title
has not been avoided at the time of sale, the buyer acquires a good title to the goods, provided he buys
them in good faith, for value, and without notice of the seller’s defect of title.”

Villanueva submitted that the phrase, “title has not been avoided at the time of sale” refers to the
consummation stage. Especially since Article 1506 talks of title or ownership to the property, since
perfection stage of the contract of sale involves the obligation to transfer ownership, but does not cover
nor convey ownership itself.[12]

Villanueva added that under Art. 1506, if the seller’s voidable title thereto is avoided after the perfection
of the contract of sale but before delivery, the buyer does not obtain good title to the property.

“Title” as to Movable Properties

Article 559 of the Civil Code provides – “The possession of movable property acquired in good faith is
equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof,
ma recover it from the person in possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in
good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid
therefore.”

Even if the owner of a movable has lost it or has been unlawfully deprived thereof, and even if he offers to
reimburse the buyer, he cannot recover the movable from the buyer who bought it at a merchant’s
store.[13]

A merchant’s store is any place where goods are kept for sale; or where goods are deposited and sold by
one engaged in buying and selling them.[14]

Chapter 9
Loss, Deterioration, Fruits and Other Benefits
Introduction
In this Chapter, Villanueva discusses on who will bear the loss, deterioration of the object in a contract of
sale. And to which of the contracting parties will the fruits and benefits accrue.

Villanueva traces the origin of where all these confusions came from. And according to him, the confusion
of the prevailing doctrines on the risk of loss and deterioration, and the benefit of improvements on the
object of a contract of sale was brought about by the convergence of opposite principles in common law
and civil law.[15]

The Law on Sales in our present Civil Code is a combination of the Uniform Sales Law of the United States
and the Roman law principle of the Spanish Civil Code.

Under the Roman law principle embodied in the Spanish Civil Code, the moment there is a contract
perfected between the parties, and even without need of delivery of the subject matter, the risk of loss
passes to the purchaser; provided that the sale is unconditional and the object is determinate or
specific.[16]

This means that even prior to the time the buyer becomes the owner of the subject matter by delivery, he
already bears the risk of loss the moment an unconditional contract is perfected, and the subject matter is
ready for delivery.
On the other hand, under the common law, it is the owner who bears the risk of loss, in the absence of
any stipulation to the contrary. And ownership of the subject matter is transferred to the buyer from the
moment the contract is entered into and the goods are available to be delivered to the buyer.[17]

In these two different legal principles between the common law and Roman law, the legal consequences
from the point of perfection were the same: upon perfection of an unconditional contract of sale involving
specific or determinate subject matter, the risk of loss, deterioration and the benefits of fruits and
improvements were for the account of the buyer.[18]

Before Perfection
Before the perfection of a contract of sale, the rules on loss, deterioration, fruits and improvement of the
would-be subject matter shall pertain to the would-be seller, since he owns the thing.

At The Time of Perfection

Under Art. 1493 of the Civil Code, if at the time the contract of sale is perfected, the thing that is the
object of the contract has been entirely lost, the contract shall be “without any effect.” But if the thing
should have been lost in part only, the buyer may choose between withdrawing from the contract and
demanding the remaining part, paying its price in proportion to the total sum agreed upon.

In the sale of specific goods, and without the knowledge of the seller that the goods have perished in part
or have wholly or in a material part so deteriorated in quality as to be substantially changed in character,
the buyer may at his option treat the sale as either avoided, or as valid in all of the existing goods or in so
much thereof as have not deteriorated, and as binding the buyer to pay the agreed price for the goods in
which the ownership will pass if the sale was divisible.[19]

After Perfection But Before Delivery

Loss of Subject Matter

In case of loss, the Civil Code has adopted the common law rule of res perit dominothat it is the owner of
the thing who bears the consequences of its loss; but it retained the Roman law rule that ownership is
transferred only by delivery, whether actual or constructive. Consequently, the general rule under
Philippine jurisdiction is that after perfection but before delivery, the risk of loss is borne by the seller
under the rule of res perit domino.[20]

The above legal principle is the same with the works of Tolentino which states that the risk of loss is still
to be borne by the seller from the time of perfection up to before delivery of thing, but he would no longer
be liable for damages if the thing is lost through fortuitous event.[21]

Structuring the Proper Doctrine on the Rules of Loss, Deterioration, Fruits and Improvements
The prevailing doctrine under our jurisdiction on the subject matter of a contract of sale generally depends
on the issue of title pursuant to the principle of res perit domino or beneficial interest to the subject
property.[22]

Prior to perfection, both title and beneficial interests pertain to the seller and therefore, he must bear the
risk of loss, deterioration, and benefits from the fruits and improvements.[23]

After delivery, which effectively transfers title and beneficial interest to the buyer, the buyer bears both
the risk of loss and deterioration, as well as benefits from the fruits and improvements of the subject
matter of sale.[24]
It is only after perfection and before delivery that title and beneficial interests actually do not pertain to
the same person since title remains with the seller, but beneficial interest actually pertains to the
buyer.[25]

When the seller intends to have control over the goods until the buyer has complied with certain
obligations, such as C.O.D. sale, or where the buyer does not intend to have dominion, use or control over
the goods until certain conditions are met, such as sale on approval or trial, the general rule is that the
owner must bear the risk of loss, which in this case would be the seller.[26]

Under Article 1189, even prior to delivery but where there is an existing obligation to deliver a
determinate thing, since the accompanying obligations of the obligor show that he possesses the goods for
the benefit of the buyer, although the seller has ownership still over the subject matter, the benefits and
improvements over the subject matter are for the account of the obligee-buyer and in turn he must bear
the risk of deterioration.[27]

According to Villanueva, the unifying doctrine on the risk of loss, deterioration and improvement, the
same shall always be for the account of the person or party who has both title and beneficial interest over
the property or subject matter of the sale. When the title and beneficial interest do not merge in the same
party, then he who bears the risk of loss or deterioration, and who benefits from the improvement of the
thing, should be the party who at that point in time is understood to have real beneficial interest over the
subject matter.