Law on Sales

Atty. Kris Norwin B. Saunar, MBA

I. Definition

CONTRACT OF SALE – One of the contracting parties obligates himself to

transfer the ownership of and to deliver a determinate thing, and the other to
pay therefore a price certain in money or its equivalent. A contract of sale
may be absolute or conditional.
I. Definition

Contract of Sale Contract to Sell

Absolute Conditional
Obligation to Give Obligation to Do
Title passes to buyer upon delivery Ownership will only pass to buyer
upon full payment purchase price
Non-payment is negative resolutory Non-payment prevents the obligation
condition to transfer title to buyer
II. Distinguished from other contracts

Donation Sale
Gratuitous or onerous Onerous
Formal contract Consensual contract
Governed by law of donation Governed by law on sale
II. Distinguished from other contracts

Barter Sale
Consideration: Giving of a thing Consideration: Giving of money as
payment
Governed by law on sales
If it’s a combination of both: look at intention of parties
If intention is not clear: Value of thing If intention is not clear: Value of thing
is more than payment of money - is less than payment of money - sale
barter
Contract for Piece of Work Sale
Goods are to be manufactured Contract for delivery of an article
specially for a customer and upon which the vendor in the ordinary
special order and not for the general course of business
market manufactures or procures for general
market (whether on hand or not)
Essence is service Essence is object
Lease Sale
Use of thing is for a Obligation to absolutely
specified period only with transfer ownership of
an obligation to return thing
Consideration is the Rent Consideration is the Price
Lessor need not be owner Seller needs to be the owner
III. Elements

1. Consent
2. Determinate subject matter
3. Price certain in money or its equivalent

How do these compare to the elements of contracts?

1. Parties to a Contract of Sale

 GENERAL RULE - All Parties having capacity to Contract can be valid

parties to a Sale can be valid parties to a sale.
Exceptions:

A. MINORS, INSANE AND DEMENTED PERSONS, AND DEAF-MUTES

1. Contracts are voidable, subject to annulment or ratification
2. Also includes:
- State of drunkenness
- Hypnotic spell
- Where necessaries are those sold and delivered to a minor or other person
without capacity to act, he must pay
Exceptions

B. Spouses (Art. 1490)

 Sales to Third Parties– Sale by
One Spouse without consent of
the other spouse Void
 Sales to Each Other– Void
Exception to exception:
 When marriage governed by
Complete Separation of
Property Regime
 A spouse may, without the
consent of the other spouse,
enter into sales transactions in
the regular pursuit of their
profession, vocation, or trade
Exceptions
C. Others disqualified to acquire property through sale: (Art. 1491)
 The guardian, the property of the person or persons who may be under his
guardianship;
 Agents, the property whose administration or sale may have been entrusted to
them, unless the consent of the principal has been given;
 Executors and administrators, the property of the estate under administration;
 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 entrusted to them; this provision shall apply to
judges and government experts who, in any manner whatsoever, take part in the
sale;
 Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and
other officers and employees connected with the administration of justice, the
property and rights in litigation or levied upon an execution before the court
within whose jurisdiction or territory they exercise their respective functions; this
prohibition includes the act of acquiring by assignment and shall apply to
lawyers, with respect to the property and rights which may be the object of any
litigation in which they may take part by virtue of their profession.
 2. Subject Matter of Sale
1. As to “THINGS”
a. “Possible” - existing, future, and contingent. Whether the subject matter is of a
type and nature that exists or could be made to exist to allow the seller
reasonable certainty of being able to comply with his obligations.
b. Licit - Not outside the commerce of man. If it is illicit, the contract is void.
c. Determinate or determinable – It is determinate if it particularly designated or
physically segregated from all others of the same class. It is determinable if 1.)
the thing is capable of being made determinate 2.) without the necessity of a
new further contract
2. Subject Matter of Sale

2. As to RIGHTS
Rights must be transmissible, except: a.) future inheritance and b.) service

Examples: Licenses, copyright, intellectual property,

 3. Price (requisites)
1. Real
when at the perfection of the contract of sale, there is every intention on the buyer
to pay the price, and every expectation on the part of the seller to receive such
price as the value of the subject matter he obligates himself to deliver. Not
simulated.

2. In money or its equivalent

consideration for a valid contract of sale can be the price and other valuable
consideration; at the very least, a true contract of sale must have price as part of its
consideration
 3. Price (requisites)

3. Certain or ascertainable
certain: expressed and agreed in terms of specific pesos and/or centavos
ascertainable:
i. by third persons
ii. by the courts – in cases where the third person fixes the price in bad faith or by
mistake
iii. by reference to a definite day, particular exchange or market
iv. by reference to another thing certain
4. Manner of payment must be agreed upon (Marnelego v. Banco Filipino Savings
and Mortgage Bank)
IV. FORMATION OF CONTRACT OF SALE

3 STAGES IN THE LIFE OF A CONTRACT OF SALE

1. Preparatory, Policitacion/Negotiation Stage - offer is floated, acceptance is
floated but they do not meet; the time when parties indicate their interest but
no concurrence of offer and acceptance.
2. Perfection - concurrence of all requisites; meeting of the minds.
3. Consummation - parties perform their respective undertakings
 a. Policitation Rules
1. offer is floated prior to acceptance, may be withdrawn
at will by offeror
2. offer floated with a period without acceptance, extinguished when
period has ended and maybe withdrawn
at will by offeror
3. offer floated w/ condition extinguished by
happening/nonhappening of condition
4. offer floated without period/without continues to be valid depending upon
condition circumstances of time, place and person
5. offer is floated and there is counter- original offer is destroyed, there is a new
offer offer; can not go back to original offer
6. offer is floated no authority of offeror to modify offer
7. offer accepted absolutely proceed to perfected stage
RIGHT OF FIRST REFUSAL:
1. creates a promise to enter into a contract of sale and it has no separate
consideration, not subject to specific performance because there is no
contractual relationship here and it is not an obligation to give (not a real
contract)
2. New doctrine: may be subject to specific performance.

OPTION CONTRACT - a contract granting an exclusive right in one person, for

which he has paid a separate consideration, to
b. Perfection of Sale

GENERAL RULE: A contract of sale is perfected at the moment there is a

meeting of the minds upon the thing which is the object of the contract and
upon the price; consensual contract
Exception: When the sale is subject to a suspensive condition
Requirements

1. When parties are face to face – when there is absolute acceptance of an

offer that is certain
2. When thru correspondence or telegram – when the offeror receives or had
knowledge of the acceptance
3. When the sale is subject to a suspensive condition – from the moment the
condition is fulfilled
EARNEST MONEY

1. Money given as part of purchase price

2. Acceptance is the proof that contract of sale exists
3. Nothing in law prevents parties from treating earnest money differently
4. Old concept: subject to forfeiture when BUYER backs out
5. New concept: can not be forfeited – part of purchase price; must be
restored
6. Qualification: if old concept is stipulated – VALID
7. Presumption of perfection of contract of sale and such earnest money as
part of purchase price is disputable
c. Consumation/Perfection Stage

Stage where parties both comply with their obligation. Nature of diligence
required: “diligence of a good father of the family” unless other requirement is
stipulated
Consequence: Seller will be guilty of breach if thing is lost through his fault
V. Transfer of Ownership/Kinds of
Delivery
1. Actual or real- when thing sold is placed in the control and possession of
the buyer

2. Legal or Constructive- can take several forms and may be any manner
signifying an agreement that the possession is transferred from the vendor to
the vendee.
 Kinds of Constructive Delivery

1. Traditio Longa Manu

− Delivery of thing by mere agreement; when SELLER points to the property without
need of actually delivering
2. Traditio Brevi Manu
− Before contract of sale, the would be buyer was already in possession of the would
be subject matter of sale (ex: as lessee)
3. Symbolic delivery
− As to movables – ex: delivery of the keys to a car
4. Constitutum possessarium
− When at the time of the perfection of the contract of sale, seller had
possession of the subject matter in the concept of owner and pursuant to the
contract, seller continues to hold physical possession no longer in the concept
of an owner but as a lessee or any other form of possession other than in the
concept of owner.
5. Quasi-tradition
− Delivery of rights, credits or incorporeal property, made by:
a. Placing titles of ownership in the hands of the buyer
b. Allowing buyer to make use of rights
Double Sales

1. Two or more sales transactions must constitute valid sales;

2. Two or more sales transactions must pertain to the same object or subject
matter;
3. Two or more buyers at odds over the rightful ownership of the subject matter
must each represent conflicting interests; and
4. Two or more buyers must each have bought from the very same seller.
Art. 1544

If the same thing should have been sold to different vendees,

the ownership shall be transferred to the person who may have
first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to
the person acquiring it who in good faith first recorded it in the
Registry of Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the
absence thereof, to the person who presents the oldest title,
provided there is good faith.
“If not all the elements are present for Art. 1544 to
apply, the principle of prior tempore, potior jure or
simply “he who is first in time is preferred in right”
should apply. Indisputably, he is a purchaser in
good faith because at the time he bought the
real property, there was still no sale to as a second
vendee.”
Preference in Double Sales

Immovable Property Movable Property

First to register in good faith First Possessor in good faith
First Possessor in good faith
Oldest title in good faith
First to purchase in good faith
V. Risk of Loss

1. BEFORE PERFECTION
a. Res perit domino
b. Owner is seller so seller bears risk of loss
2. AT PERFECTION
o Res perit domino
o Contract is merely inefficacious because loss of the subject matter does not
affect the validity of the sale
o Seller cannot anymore comply with obligation so buyer cannot anymore be
compelled
3. AFTER PERFECTION BUT BEFORE DELIVERY
o Loss – confused state
o Paras: BUYER
o Tolentino: SELLER
o Deterioration and fruits – Buyer bears loss
4. AFTER DELIVERY
o Res perit domino
o Delivery extinguishes ownership visa- vis the seller and creates a new one in
favor of the buyer
 VI: Extinguishment of Sale
Grounds (same grounds whereby obligations in general are extinguished)
1. payment or performance
2. loss of the subject matter
3. condonation or remission
4. confusion or merger of rights of creditor and debtor
5. compensation
6. novation
7. annulment
8. rescission
9. fulfillment of a resolutory condition
10. prescription