The Professional CPA Review School

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REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS ATTY. MARY ANN R. SAGANA

WEEK 6
LECTURE AID - SALES

SALE - A contract where one party obligates himself to transfer the ownership of and to deliver a determinate thing,
while the other party obligates himself to pay for said thing a price certain in money or its equivalent.

Requisites:
a. Consent or meeting of minds - transfer the ownership of and to deliver on the part of the seller, to pay on the
part of the buyer
b. Object or subject matter – determinate or specific
c. Cause or consideration – price certain in money or its equivalent

Elements: Parties:
a. Essential: a. vendor/seller
1. Consent or meeting of minds b. vendee/buyer
2. Determinate subject matter
3. Price certain in money or its equivalent
b. Natural:
1. warranty against eviction
2. warranty against hidden defects
c. Accidental: stipulations of the parties

Kinds of Sale:
a. Absolute – the contract is not subject to any condition and title passes to the buyer upon delivery of the
thing
b. Conditional – the contract contemplates a contingency, usually payment of the price

Essential Characteristics:
a. Consensual d. Commutative
b. Bilateral/reciprocal e. Principal
c. Onerous f. Nominate

SALE DACION EN PAGO

1. no pre-existing credit 1. there is a pre-existing credit
2. give rise to obligations 2. extinguishes obligations
3. the cause or consideration here is the price, from 3. the cause or consideration here, from the viewpoint of
the viewpoint of the seller; or the obtaining of the the person offering the dation in payment, is the
object, from the view point of the buyer extinguishment of his debt; from the viewpoint of the
creditor, it is the acquisition of the object offered in lieu of
the original credit
4. there is greater freedom in the determination of the 4. there is less freedom in the determination of the price
price
5. the giving of the price may generally end the 5. the giving of the object in lieu of the credit may
obligation of the buyer extinguish completely or partially the credit (depending
on the agreement)

RELATED CONCEPTS
1. Pactum Reservati Dominii (Contractual Reservation of Title) - A stipulation stating that despite delivery,
the ownership of the thing shall remain with the seller until the buyer has fully paid the price.
2. Assignment of Credit - a contract by virtue of which one person transfers to another his rights and
actions against a third person in consideration of a price certain in money or its equivalent.
3. Barter - One of the parties binds himself to give one thing in consideration of the other's promise to give
another thing.
RULES If the consideration is partly in money and partly in another thing:
a. The manifest intention of the parties;
b. If the intention is unclear, it shall be a barter if the value of the consideration exceeds the
amount of the money; otherwise, it is a sale.

4. Policitacion – An unaccepted unilateral promise to buy or to sell a thing.

5. Option Contract – An accepted unilateral promise to buy or to sell which is not binding upon the
promissory unless supported by a consideration separate and distinct from the purchase price

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EARNEST MONEY OPTION MONEY

1. partial payment of the purchase price 1. not part of the purchase price
2. considered as proof of the perfection of the 2.proof of the perfection of the option contract
sale
3. deductible on the purchase price in case the 3. not deductible
contract of sale is consummated
4. Injured party may file action for specific 4. Specific performance only
performance or rescission

6. Auction sale (perfection) – When the auctioneer announces end of bidding by the fall of the hammer,
or in any other customary manner.
7. By-bidding or Puffing - persons who have no intention to buy but are employed by the seller in
auction sale to raise the price by fictitious bids.
8. Sale or return – property is sold, but the buyer, who becomes the owner of the property upon delivery,
has the option to return the same to the seller instead of paying the price
9. Sale on trial, satisfaction or approval – there is delivery to the buyer but he has an option to
purchase if the goods prove satisfactory therefore ownership shall be reserved to the seller until
acceptance by the buyer
10. Contract for a Piece of Work (Massachusetts Rule) – If the thing is particularly made/manufactured
for a specific person only.

PERSONS INCAPACITATED TO ENTER IN A CONTRACT OF SALE:

a. Minors and other incapacitated persons
b. Husband and wife, except:
1. When separation of property was agreed upon in the marriage settlement
2. When there has been judicial separation of property
c. Persons who’s position and relation with the owner is fiduciary in nature
1. guardians
2. agents
3. executors and administrators
4. public officers and employees
5. judicial officers and employees
6. lawyers
d. the seller in an auction sale cannot bid unless there has been reservation of the right
e. unpaid seller cannot buy the goods sold by him in case of resale

REQUISITES BEFORE A THING COULD BE A VALID OBJECT:

a. the thing must be existing or have a future or contingent existence
emptio rei sperati/speratae – sale of future things
emptio spei – sale of hope or expectancy
b. must be licit/legal
c. must be determinate
d. there is a right on the part of the vendor to transfer ownership at the time of delivery

CERTAINTY AS TO THE PRICE

a. both the seller and the buyer fixed or agreed upon a definite amount
b. fixed with reference to another thing certain
c. the determination of the price is left to the judgment of a specified third person
d. if the third person will act in bad faith or by mistake, the court will fix the price

NOTE: If the price is simulated, the contract is void, unless it can be shown that it is really a donation or some
other contract

OBLIGATIONS OF THE VENDOR:

1. Deliver thing sold (including fruits and accessories)
2. Transfer ownership
3. Warranties
4. Exercise diligence pending delivery
5. Pay for the expenses of the contract, unless there is a stipulation to the contrary

KINDS OF DELIVERY (traditio)

a. Actual or real – physical transfers of control and possession of the thing
b. Constructive
1. Legal formalities or execution of public instrument
2. Quasi-traditio
3. Traditio simbolica
4. Traditio longa manu
5. Traditio brevi manu
6. Constitutum possesorium
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LOSS OF THE OBJECT:

1. Before perfection - seller bear the loss. (res perit domino)
2. At the time of perfection - contract is void or inexistent. Seller bears the loss.
3. After the perfection but before delivery - buyer bears the loss
(exception to the rule of res perit domino)
4. After delivery - buyer bears the loss.

OBLIGATIONS OF THE VENDEE:

1. Payment of the price
2. Accept the delivery
3. Pay the expenses of the contract (if stipulated)

GENERAL RULE: In case of sale by a person who is not the owner, the buyer acquires no title even if in good
faith and for value. "Nemo dat qui non habet" (you cannot give what you do not have).

EXCEPTIONS:
In the following cases the buyer acquires a valid title:
a. The owner is estopped by his conduct
b. Under recording laws
c. Sales sanctioned by judicial or statutory authority
d. Purchases in a merchant's store, fairs or markets.
e. Title of the seller was merely voidable/defective at the time of sale

/mrs