University of the Cordilleras

College of Accountancy

RFBT 3 (Law on Sales, Credit Transactions, Negotiable Instruments and Other

Business Transactions)

Course Description:

This course will civil code provisions of the law on sales, credit transactions and
other nominate contracts, and the special laws on negotiable instruments and
other business transactions.

Course Outcome:

At the end of the trimester the student is expected to have:

1. A comprehensive understanding and knowledge of the following:

a. General Principles on the Law of Sales

b. A Contract of Sale as differentiated from other business transactions.

c. General Principles of the Negotiable Instruments Law

d. General Principles on the law of Other Business Transactions

2. Application of the aforementioned laws in solving problems of law.

Topic 1:
Sales

Objectives:
At the end of the Topic Module the student is expected to have a comprehensive
understanding and knowledge of the following:
a. General Principles on the Law of Sales
b. A Contract of Sale as differentiated from other business transactions.

Instruction Materials:
1. Online Lectures
2. Individual Online and Offline Homework
3. Online Assessment and Activities
4. This written Course Module

Modules:

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 1. Definition, Nature, Characteristics, Forms, Kinds and Requisites.
2. Contract of Sale differentiated from other similar contracts.
3. Rights and Obligations of the Vendor(Seller) and the Vendee(Buyer)
4. Warranties in relation to consumer laws.
5. Sales made in installments
a. Real property – Maceda Law
b. Personal Property – Recto Law
c. Condominiums – Condominium Act( P.D. 957)

Written Module Lesson

Module 1:
Definition, Nature, Characteristics, Forms, and Requisites.
Definition:

By the contract of sale, one of the contracting parties obligates himself to

transfer the ownership and to deliver a determinate thing, and the other to pay
therefore a price certain in money or its equivalent.(Art. 1458, New Civil Code)

The nature of a contract of sale is the transfer of ownership or that the recipient
has the ability to alienate the thing transferred to him. Ownership is acquired
through delivery: (Racelis v. Spouses Javier,G.R. No. 189609, January 9, 2018)

a. Actual delivery – object is actually delivered to the buyer. (Art. 1497, New
Civil Code) For example A sells b his cellphone, actual delivery is when A
hands B his cellphone and is now in the possession of B.

b. Constructive delivery – there is no actual delivery but is deemed delivered

by operation of law. (Article 1498-1501, New Civil Code) For example A
sells B his house and lot, the execution of a notarized deed of sale will be
considered as delivery of the object. (San Lorenzo Dev. Co v. Court of
Appeals, et al., G.R. No. 124242, January 1, 2005)

Characteristics

a. Consensual – a contract of sale is perfected by mere consent (meeting of

minds) of the parties upon the thing which is the object of the sale and
upon the price. (De Leon, 2005)

b. Reciprocal – both parties in a contract of sale have corresponding

obligations to each other. The Buyer should give the price and the Seller
should deliver the object of the sale. (Ibid.)

c. Onerous – the parties in a contract of sale acquire rights for a valuable

consideration. (Ibid.)

d. Commutative – things of similar value are exchanged. (Ibid.)

e. Nominate – the law specifies a name for the contract. (Ibid.)

f. Principal – its existence is not dependent on another contract. (Ibid.)

Form

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 The general rule is that a contract of sale can take any form, thus, it may
be in writing, by word of mouth, or partly in writing or partly by word of mouth, or
may even be inferred from the actions or conduct of the parties. (Art. 1356, New
Civil Code)

Exceptions:
a. Contracts covered under the statute of frauds, namely:

i. If the sale is to be performed after 1 year from perfection of the

contract it must be in a written instrument. (Art. 1403, New Civil
Code)

ii. If the sale involves real property (e.g. land) it must be in a written
public instrument (Ibid.)

iii. If the sale involves personal property with a value exceeding P500 it
must be in a written instrument. (Ibid.)

iv. In the sale of large cattle (cows, horses, etc.) the sale must be in a
written instrument(Ibid.)

v. In the sale of a piece of land the power to sell (agency) must be in

writing. (Art. 1403, New Civil Code) (Ibid.)

Kinds (Article 1458, New Civil Code)

1. Absolute – the sale is not based on any condition and ownership of the
object is transferred to the buyer immediately upon delivery.

2. Conditional – ownership of the object remains with the seller until the
condition/s are fulfilled.

a. Sale or Return – the buyer is given the option to return the object of
the sale instead of paying for the price. Ownership will transfer to
the buyer upon delivery but he may revest ownership of the object
to the seller within the time provided, or if not provided, within a
reasonable time. (Art. 1502, New Civil Code)

b. Sale on approval – goods are delivered to the buyer on approval

or no trial or on satisfaction, or other similar terms. Ownership will
pass to the buyer signifies his approval or acceptance expressly or
impliedly. He does not signify his acceptance or approval but if the
time given to signify or a reasonable time, if no time was stipulated,
has expired. (Ibid.)

Requisites

All three of the following elements must be present in a contract of sale: (1)
consent or meeting of the minds; (2) a determinate subject matter; and (3) price
certain in money or its equivalent. (Racelis v. Spouses Javier,G.R. No. 189609,
January 9, 2018)

Essential Elements

1. Consent – consent is the meeting of minds between the parties where the
seller consents to transfer ownership of the object and the buyer to pay
the price certain. Consent must be freely given by those who are legally

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 capacitated by absolute acceptance of an offer. (Article 1475, New Civil
Code)

a. Both spouses must give consent in a sale involving conjugal

property.

b. Both parties in a contract of sale must be capacitated to give

consent.

In the case of a sale by auction:

a) Where goods are put up for sale by auction in lots, each lot is the
subject of a separate contract of sale. (Art. 1476, New Civil Code)

b) A sale by auction is perfected when the auctioneer announces its

perfection by the fall of the hammer, or in other customary
manner. Until such announcement is made, any bidder may retract
his bid; and the auctioneer may withdraw the goods from the sale
unless the auction has been announced to be without reserve.
(Ibid.)

c) A right to bid may be reserved expressly by or on behalf of the

seller, unless otherwise provided by law or by stipulation. (Ibid.)

d) Where notice has not been given that a sale by auction is subject
to a right to bid on behalf of the seller, it shall not be lawful for the
seller to bid himself or to employ or induce any person to bid at
such sale on his behalf or for the auctioneer, to employ or induce
any person to bid at such sale on behalf of the seller or knowingly
to take any bid from the seller or any person employed by him. Any
sale contravening this rule may be treated as fraudulent by the
buyer. (Ibid.)

2. Object – the object of a sale maybe something which is determinate or

determinable. The object may be of things of potential existence, future
goods, fungible goods, or things subject to resolutory condition. (Ibid.)

Requisites of a valid object in a contract of sale

a. Determinable - a thing is determinable if is capable of being

determinate without the need for the parties in the sale to enter
into a new agreement. (Art. 1459, New Civil Code)

b. Potential Existence – things that may come into existence can be

the object of a sale, but the sale of a mere hope or expectancy is
valid only if the hope or expectancy actually comes into existence.

i. Future Goods – the object of the contract maybe one that is

yet to be acquired, manufactured, or raised after the
perfection of the contract. (Art. 1462, New Civil Code)

ii. Things subject to a resolutory condition (extinguishes the

obligation) can be the subject of a contract. (Art. 1461, New
Civil Code)

iii. A contract of sale may involve and object depends upon a

contingency (Emptio spei and Emptio rei speratei) (Art. 1462,
New Civil Code)

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 EMPTIO REI SPERATAE EMPTIO SPEI
Sale of thing having Sale of mere hope or expectancy
potential existence
Uncertainty is w/ regard Uncertainty is w/ regard
to quantity & quality to existence of thing
Contract deals w/ future thing Contract deals w/ present thing – hope or
expectancy
Sale is valid only if the Sale is valid even though expected thing
expected thing will exist. does not come into
(Gaite v. Fonacier et. al., G.R. No. L-11827, existence as long as the hope itself validly
July 31, 1961) existed. (eg. lotto) (De Leon, 2005)

iv. A contract of sale may involve an object where the seller

has a voidable title to it. The sale is valid as long as it was
perfected before the title is voided and the buyer is
unaware of the defective title. (Art. 1506, New Civil Code)

c. The object of the sale must be Licit (lawful) and the seller must have
the right to transfer ownership of the thing to be sold. (Art. 1459,
New Civil Code)

3. Consideration – the consideration in a contract of sale is the price certain

in money or its equivalent.

Requisites of a valid price/consideration in a contract of sale

a. Certain – it must be certain or ascertainable at the time of the

perfection of the contract.

i. It is a fixed amount; (Art. 1469)

ii. With reference to another thing certain, or (Ibid.)

iii. The determination of the price is left to the judgment of a

third person/s. (Art. 1469)

b. Money or its equivalent – the price should refer to money or legal

tender or its equivalent, e.g. checks,

c. Real – there must be actual payment of the price. If the price is

completely simulated, the sale is void but it can be proven to be
another contract. If the price is only partially simulated, the sale
remains to be valid, gross Inadequacy of the price will not affect
the contract of sale. If the price given is false, the sale is void but it
can be proven that the sale is founded on another true and lawful
price. If no price can be agreed upon the sale is inefficatious or
without any effect. (Art. 1470)

Option Money – money paid in advance that is not part of the

price because it is a consideration in a separate contract of
option/option contract.

Earnest Money – money paid in advance that is part of the

purchase price and serves as proof of an existing contract of sale.
(Art. 1482, New Civil Code)

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Module 2:
Contract of Sale differentiated from other similar contracts

1. Contract to Sell – this is a precursor to a contract of sale, a bilateral contract

whereby the prospective seller, while expressly reserving the ownership of the
subject property despite delivery thereof to the prospective buyer, binds
himself to sell the said property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, which is usually the payment of the
purchase price. (Spouses Delfino v. Spouses Lopez, G.R. No. 171692, June 3,
2013; Art. 1478, New Civil Code)

2. Agency to Sell – the seller delivers to the agent his property for the latter to
sell. In this contract delivery of the seller to the agent will not transfer property
to the agent, but will only transfer possession and give the authority to
alienate the property. The agent will have to remit to the seller any payment
he had received for the sale of the property, and receive his compensation
therefrom, if any. (Spouses Fernando v. Continental Airlines, Inc., G.R. No.
188288, January 16, 2012)

3. Contract for a Piece of Work –where the reason as to whether the thing
delivered will exist only because of an order of a person who has the desire
to own it. On the other hand, if the thing will exist even in the absence of an
order of a person who has the desire to own it, then it is a contract of sale.
(Yu v. Court of Appeals, G.R. No. 113564, June 20, 2001)

4. Option Contract – a contract where the prospective buyer is given the right
to purchase the thing to be sold for a specific period given or a reasonable
time for a separate consideration from the purchase price. (Art. 1479, New
Civil Code)

5. Contract for a right of first refusal – this contract gives first priority to a person
in the event that the buyer would sell the property. This right can only be
exercised if and when the seller actually decides to sell the property and is
ready to make an offer. (Villegas v. Court of Appeals, G.R. No. 111495, August
18, 2006)

6. Dacion en pago/Dation in payment – a special form of payment where the

obligor will deliver an equivalent of the original object of a pre-existing
monetary obligation. (Spouses Ong v. Roban Lending Corp., G.R. No. 172592,
July 9, 2008)

7. Double Sale – sale of a single object to two or more buyers. The earliest sale
is valid provided that it does not have any defect.

8. Barter – by the contract of barter or exchange, one of the parties binds

himself to give one thing in consideration of the other’s promise to give
another thing.(Art.1638, New Civil Code) If the consideration is partly in
money and partly exchange the intention of the parties will determine
whether the contract is sale or barter. If the manifest intention of the parties is
not clear, when the value of the exchange is greater than or equal to the
money paid it is barter, otherwise sale. The laws of Sale shall govern barter.
(Art. 1468 New Civil Code).

References:

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Republic Act 386, An Act to Ordain and Institute the Civil Code of the Philippines

De Leon, H. (2005), Comments and Cases on Sales and Lease. Quezon City,
Philippines: Rex Printing Company, Inc.

Victoria N. Racelis v. Spouses Germil Javier and Rebecca Javier, G.R. No. 189609,
January 29, 2018

San Lorenzo Development Corporation v. Court of Appeals, Pablo S. Babasanta,

Sps. Miguel Lu and Pacita Zavalla Lu, G.R. No. 124242, January 21, 2005

Fernando A. Gaite v. Isabelo Fonacier, George Krakower, Larap Mines &

Smelting Co., Inc., Segundina Vivas, Francisvo Dante, Pacifico Escando and
Fernando Ty, G.R. No. L-11827, July 31, 1961

Spouses Delfino Tumibay and Aurora T. Tumibay – deceased; Grace Julie Ann
Tumibay Manuel legal representative v. Spouses Melvin A. Lopez and Rowena
Gay T. Visitacion Lopez, G.R. No. 171692, June 3, 2013

Spouses Fernando and Lourdes Viloria v. Continental Airlines, Inc., G.R. No.
188288, January 16, 2012

Inocencia Yu Dino and her HUSBAND doing business under the trade name
“CANDY CLAIRE FASHION GARMENTS” v. Court of Appeals and Roman Sio, doing
business under the name “UNIVERSAL TOY MASTER MANUFACTURING”, G.R. No.
113564, June 20, 2001

Agripino Villegas, Anatacio Villegas, Soledad Ocampo Villegas, Rosa N.

Sanchez, and Corazon Sanchez v. The Court of Appeals, Vicente M. Reyes, Julita
R. Maylad, Lorenzo M. Reyes, Lydia R. Feliciano represented by Attorney-in-Fact
Victoria F. Harpst, Ruperta A. Reyes, Estrelita Crisostomo, Yolanda R. Chiu, Virgilio
A. Reyes, Carlito A. Reyes, Pacita R. Bautista amd Spouses Lita Sy and Sy Bon Su,
G.R. No. 111495, August 18, 2006

Spouses Wilfredo N. Ong v. Edna Sheila Paguio-Ong v. Roban Lending

Corporation, G.R. No. 172592, July 9, 2008

Disclaimer

The information provided in RFBT 3 in this module is for educational purposes only.
All information found herein is provided in good faith and we make no
representation or warranty, express or implied, as regards to the accuracy,
adequacy, validity, reliability, availability, or completeness of thereof.

We do not assume ownership of any of the information provided herein.

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