LAW ON BUSINESS TRANSACTIONS

I. Law on Sales

SALE is a contract where one party (seller or vendor) obligates himself to transfer the
ownership of and to deliver a determinate thing, while the other party (buyer or vendee)
obligates himself to pay for said thing a price certain in money or its equivalent.

Question: Does inadequacy of price affect a contract of sale?

 NO. Gross inadequacy of price does not affect a contract of sale,
except as it may indicate a defect in the consent, or that the party
really intended a donation or other act or contract. (Art. 1470)

Essential Characteristics of a Contract of Sale

a) Consensual – because the contract is perfected by mere consent. However, take
note that some contracts of sale must be in writing to be enforceable.
b) Bilateral reciprocal – because both parties are bound by obligations dependent
upon each other.
c) Onerous – to acquire the rights, valuable consideration must be given.
d) Principal – because a contract of sale can validly exist without the depending on
the existence of another valid contract.

Essential Elements of a Contract of Sale

1. Consent or meeting of the minds
a. Contracting parties
b. Offer and acceptance
i. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute
the contract. The offer must be certain and the acceptance must be
absolute.
c. Legal capacity of the contracting parties
i. Unemancipated minors and insane or demented persons, and deaf-
mutes who do not know how to write cannot give consent to a
contract.
ii. Contracts entered into during lucid interval are valid.
iii. Contracts agree to in a state of drunkenness or during a hypnotic
spell are voidable (valid until annulled).
d. The consent must be intelligent, free and spontaneous.
i. A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable.
ii. Violence or intimidation shall annul the obligation, although it may
have been employed by a third person who did not take part in the
contract.
 2. Determinate subject matter
a. The object must be existing, have potential existence, a future thing, or
contingent or subject to resolutory condition.
i. All things which are not outside the commerce or men, including
future things, may be the object of a contract.
ii. No contract may be entered into upon future inheritance except in
cases expressly authorized by law.
iii. The object of every contract must be determinate as to its kind. The
fact that the quantity is not determinate shall not be an obstacle to
the existence of the contract, provided it is possible to determine
the same, without the need of a new contract between the parties.
b. The object must be licit and the vendor must have a right to transfer the
ownership thereof at the time it is delivered.
c. It must be determinate or at least determinable.
i. A thing is determinable when it is particularly designated or
physically segregated from all others of the same class.
3. Cause or consideration
a. For the seller : payment of price
b. For the buyer: transfer of ownership and delivery of the thing

Obligations of the VENDOR:

1. To transfer ownership
2. Deliver the thing sold
3. Deliver the fruits and accessories
a. The vendor is bound to deliver the thing sold and its accessions and
accessories in the condition in which they were upon the perfection of the
contract.
b. The buyer has a right to the fruits of the thing from the time the obligation
to deliver it arises. However, he shall acquire no real right over it until the
same has been delivered to him.
i. This mean that if the thing was sold by the vendor to another buyer
who is in good faith, the original buyer has no cause of action
against the buyer in good faith, but only against the vendor.
c. The obligation to give a determinate thing includes that of delivering all its
accessions and accessories, even though they may not have been
mentioned.
4. Make warranties
a. The vendor is bound to warrant the thing which is the object of the sale.
b. Unless a contrary intention appears, there is:
i. An implied warranty on the part of the seller that he has a right to
sell the thing at the time when the ownership is to pass, and that
 the buyer shall from that time have and enjoy the legal and
peaceful possession of the thing; and
ii. An implied warranty that the thing shall be free from any hidden
faults or defects, or any charge or encumbrance not declared or
known to the buyer.
o These are implied warranties which means that these are
inherent in the contract, and which in the absence of any
contrary provision, are deemed to exist.
5. Take care of the thing, pending delivery, with proper diligence
a. Every person obliged to give something is also obliged to take care of it
with the proper diligence of a good father of a family, unless the law or the
stipulation of the parties requires another standard of care.
i. Diligence of a good father of a family is that kind of diligence that
we ourselves ought to exercise in handling the affairs of our own
family.
6. Pay for the expenses for the execution and registration of the sale, unless there
is stipulation to the contrary
7. Accord the buyer the right to examine the goods
a. When the goods are delivered to the buyer, which he has not previously
examined, he is not deemed to have accepted them unless and until he
has had a reasonable opportunity of examining them for the purpose of
ascertaining whether they are in conformity with the contract, if there is no
stipulation to the contrary.
b. When goods are on “cash on delivery”, the buyer is not entitled to examine
the goods before the payment of the price, in the absence of agreement.

Obligations of the VENDEE:

1. To accept delivery
2. To pay the price of the thing sold in legal tender unless another mode has been
agreed upon
3. To take care of the thing without the obligation to return them, in case the goods
are delivered to the buyer and he rightfully refuses to accept unless otherwise
agreed upon
4. To pay interest for the period between delivery of the thing and the payment of
the price when:
a. Interest is stipulated;
b. Fruits or income are received by the vendee from the thing sold; or
c. Vendee is guilty of default from the time of judicial or extrajudicial demand.

Contract of Sale vs. Barter

Contract of Sale Barter
Consideration is the giving of price certain Consideration is the giving of a thing
in money or its equivalent as payment
If a consideration consists partly in money and partly in thing:
1. First, look at the manifest intention of the parties. If it is not clear:
2. Thing > Money --- BARTER
3. Thing = Money --- SALE
4. Thing < Money --- SALE

Contract of Sale vs. Contract for a Piece of Work

Contract of Sale Contract for a Piece of Work
Sale of a good which in the ordinary Goods are manufactured especially for a
course of business manufactures or customer and upon a special order and
procures for the general market, whether not for the general market.
on hand or not).
Object is the thing itself. Object is the service.

Contract of Sale vs. Agency to Sell

Contract of Sale Agency to Sell
Parties Seller and Buyer Seller and Agent
Price Buyer pays the price Agent delivers the price
received from the buyer
Ownership Buyer becomes owner of the Seller remains the owner even if
thing the object has been delivered to
the Agent
Warranty Seller warrants the thing Agent does not warrant the
thing; He/she assumes no risk
or liability as long as he acts
within the scope of authority 1
given to him and in the name of
the Seller2.
Profit Seller receives the profit Agent is not entitled to profit
(commission only)

Contract of Sale vs. Contract to Sell

Contract of Sale Contract to Sell
Ownership passes to buyer Ownership is retained and will
upon delivery be transferred only upon
payment or fulfillment of a
condition
Failure to pay is a breach of the Failure to pay is not a breach
contract and puts an end to the but prevents the obligation of
transaction the vendor to convey the title
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