RFBT 3 | Law on Sales, Agency and Credit Transactions

Week 1 Discussion

Definition of sale; concept (1458)

Art. 1458. 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 therefor a price certain in money or
its equivalent. A contract of sale may be absolute or conditional. (1445a)

The contract of sale is an agreement whereby one of the parties (called the seller or vendor) obligates
himself to deliver something to the other (called the buyer or purchaser or vendee) who, on his part,
binds himself to pay therefor a sum of money or its equivalent (known as the price).

Obligation – vendor to deliver a determinate thing and transfer ownership

– vendee ta pay a certain price
money can be cash or equivalent to it such as check, promissory notes

Elements (Essential|Natural|Accidental)
Essential elements
1. consent or meeting of minds, that is, consent to transfer ownership in exchange for the price;
2. determinate subject matter; and
3. price certain in money or its equivalent
- all three must be present if not then it is not one of sale

Sale distinguished from barter

Sale distinguished from dacion en pago:

1. Sale, there is no pre-existing credit while dacion en pago there is a pre-existing credit.
2. Sale creates obligation while dacion en pago extinguishes obligation
3. Sale the cause or consideration is the price and delivery of the object, while dacion en pago the
cause is extinguishment of obligation.
4. Sale, greater freedom from fixing the price while dacion en pago less freedom in fixing the price
because the amount of pre-existing credit which the parties seek to extinguish.
Dacion en pago – transfer ownership in consideration of a pre-existing credit

Absolute Sale vs. Conditional contract of sale vs. Contract to sell

conditional – future and uncertain event
Absolute: Where the sale is not subject to any condition whatsoever and where title or ownership
passes to the buyer upon delivery of the things sold
Conditional: where the sale contemplates a contingency, and in general, where the contract is subject to
certain conditions, usually the full payment of the purchase price. The delivery of the thing sold does not
transfer ownership until the condition is fulfilled.
Contract to sell: first element - consent or meeting of minds – is lacking. In this kind of contract, the
prospective seller explicitly reserves the transfer of title/right to the perspective buyer, meaning, the
perspective seller does not yet agree or consent to transfer ownership of the property subject of the
contract to sell until the happening of an event, which is usually for the full payment of the purchase
price.
‘there is an agreement to sell but not yet the agreement to transfer of ownership only if the
purchase price is fully paid.’
‘without payment there is no agreement yet to transfer the ownership as opposed to
conditional sale wherein there is an agreement but the transfer of ownership does not happen until
the price is fully paid’

Characteristics of the Contract of Sale

(1) Consensual, because it is perfected by mere consent without any further act;
(2) Bilateral,1 because both the contracting parties are bound to fulfill correlative obligations towards
each other — the seller, to deliver and transfer ownership of the thing sold and the buyer, to pay the
price;
(3) Onerous, because the thing sold is conveyed in consideration of the price and vice
(4) Commutative, because the thing sold is considered the equivalent of the price paid and vice versa.
(see Ibid.) However, the contract may be aleatory2 as in the case of the sale of a hope (e.g., sweepstakes
ticket);
(5) Nominate, because it is given a special name or designation in the Civil Code, namely, “sale”; and
(6) Principal, because it does not depend for its existence and validity upon another contract.

ESSENTIAL ELEMENTS in detail

CONSENT
Parties and their consent
Art. 1489. All persons who are authorized in this Code to obligate themselves, may enter into a contract
of sale, saving the modifications contained in the following articles.
Where necessaries are those sold and delivered to a minor or other person without capacity to act, he
must pay a reasonable price therefor. Necessaries are those referred to in Article 290. (1457a)
-persons who have attained the age of majority is allowed to enter into contract
EXC. -insane or demented persons, deaf mutes who do not know how to read and write, minors
-contract of sale is valid if it is necessaries that is bought
Special disqualifications to buy
a. Husband and wife (1490)
Art. 1490. The husband and the wife cannot sell property to each other, except:
(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation or property under Article 191. (1458a)
RATIONALE: what is the property of the husbands’ is also the wife’ vice versa hence you cannot
buy what you already own
:there is influence imposed by the other e.g. wife is forced to s ell
-Common law partners or live in couples is also prohibited to sell property to each other
because it is a basic principle that those who are not following the provision of law should not
gain more compared to those who are following accdg. to the law.
b. Persons in trust relation (1491)
 Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial
auction, either in person or through the mediation of another:
(1) The guardian, the property of the person or persons who may be under his guardianship;
(2) Agents, the property whose administration or sale may have been entrusted to them, unless
the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under administration;
(4) 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 intrusted to them; this provision shall apply to judges and government experts who, in
any manner whatsoever, take part in the sale;
(5) 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.
(6) Any others specially disqualified by law. (1459a)
c. In auctions (1476 (4))
(4) 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. (n)

OBJECT
Qualities
1. Existing, future or contingent
Art. 1462. The goods which form the subject of a contract of sale may be either existing goods,
owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the
seller after the perfection of the contract of sale, in this Title called "future goods."
There may be a contract of sale of goods, whose acquisition by the seller depends upon a
contingency which may or may not happen. (n)

Existing goods: goods owned or possessed by the seller

Future goods: goods to be manufactured, raised, or acquired by the seller (vs. contract for a
piece of work)
contract for a piece of work: the object is manufactured by the seller on the basis of the order of
the buyer)

Rationale: one cannot sell what he does not own

Exc:
1. sale of thing having a potential existence;
 2. future goods; and
3. contract for delivery at a price certain of an article which the vendor in the ordinary course of
business manufactures or procures for the general market, whether the same is on hand at the
time or not is a contract of sale, but if the goods are to be manufactured specially for the
customer and upon his special order, and not for the general market, it is a contract for a piece
of work.
-In the contract of future goods the object is one which the seller usually or ordinarily
trades

2. With potential existence (1461)

Sale of a mere hope or expectancy (1461)
Art. 1461. Things having a potential existence may be the object of the contract of sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that
the thing will come into existence.
The sale of a vain hope or expectancy is void. (n)

Things having potential existence such as produce or fruits yet to be harvested is valid.

Things under resolutory condition (1465)

Art. 1465. Things subject to a resolutory condition may be the object of the contract of sale. (n)

A resolutory condition is an uncertain event upon the happening of which the obligation (or
right) subject to it is extinguished. Hence, the right acquired in virtue of the obligation is also
extinguished.

Example: Sale with right of repurchase

3. Must be lawful (1459)

Art. 1459. The thing must be licit and the vendor must have a right to transfer the ownership
thereof at the time it is delivered. (n)
must be within the commerce of man

4. Determinate or determinable (1460)

Art. 1460. A thing is determinate when it is particularly designated or physical segregated from
all other of the same class.
The requisite that a thing be determinate is satisfied if at the time the contract is entered into,
the thing is capable of being made determinate without the necessity of a new or further
agreement between the parties. (n)

Requisites:
1. At the time the contract is entered into, the thing is capable of being made determinate; and
2. there is no necessity of a new or further agreement between the parties
 Transferability of ownership
Aside from being legal or determinable the seller must be capable of transferring the
ownership of the object

When ownership should exist; when ownership is to pass, that is, delivery
Exc: in case of subsequent acquisition of title
Art. 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and
later the seller or grantor acquires title thereto, such title passes by operation of law to the
buyer or grantee.

CAUSE/CONSIDERATION
always the purchase price
Requisites of the price:
1. Real (1471) – not fictitious; not simulated
2. In money or equivalent (1458)
3. Certain or ascertainable

1. Price must be real (1471)

Art. 1471. If the price is simulated, the sale is void, but the act may be shown to have been in
reality a donation, or some other act or contract. (n)
Vs. mere inadequacy
2. Price must be in money or equivalent (1458)
Art. 1458. 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 therefor a price certain in
money or its equivalent. xxx
Equivalent is one which is in the same regard as money such as check or promissory
notes
3. Price must be certain or ascertainable
Price can be fixed by:
1. The parties
Art. 1473. The fixing of the price can never be left to the discretion of one of the contracting
parties. However, if the price fixed by one of the parties is accepted by the other, the sale is
perfected.
2. Third person appointed by the parties (1469)
Art. 1469. In order that the price may be considered certain, it shall be sufficient that it be so
with reference to another thing certain, or that the determination thereof be left to the
judgment of a special person or persons.
3. Court (1469)
If the third person or persons acted in bad faith or by mistake, the courts may fix the price.
4. By reference (1472)
Art. 1472. The price of securities, grain, liquids, and other things shall also be considered
certain, when the price fixed is that which the thing sold would have on a definite day, or in a
 particular exchange or market, or when an amount is fixed above or below the price on such
day, or in such exchange or market, provided said amount be certain.

Effect of inadequacy of price (1470)

Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as it may
indicate a defect in the consent, or that the parties really intended a donation or some other
act or contract. (n)

NATURAL ELEMENTS
Concept: those which exist in certain contracts, in the absence of any contrary stipulations of the
parties, eg
1. warranty against eviction
2. warranty against hidden defects
- buyer or vendee has the right to demand for the repair or replacement even if there is no
express agreement / not expressly agreed upon
- in the warranty against hidden defect there is an implied warranty or representation that
the object is good or working quality; if the seller does not provide one then he/she shall be
sought for because he has that duty or obligation

ACCIDENTAL ELEMENTS
- exist only when agreed upon/stipulated
Concept: those which may be present or absent depending on the stipulations of the parties, eg
1. conditions
2. interest
3. penalty
4. time of payment
5. place of payment

CONDITIONS AND WARRANTIES (Art. 1545 – 1547)

Condition: Uncertain event or contingency and happening of which the obligation of the contract
depends.
Effect of conditions:
A. If the obligation of either party is subject to any condition and such condition is not fulfilled,
search party may either:
1. Refuse to proceed with a contract; or
2. Proceed with the contract, waving the performance of the condition
B. If the condition it's in the nature of a promise that it should happen, the non-performance of
such condition may be treated by the other party as a breach of warranty
Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is
not performed, such party may refuse to proceed with the contract or he may waive performance of the
condition. If the other party has promised that the condition should happen or be performed, such first
mentioned party may also treat the nonperformance of the condition as a breach of warranty.
Where the ownership in the thing has not passed, the buyer may treat the fulfillment by the seller of his
obligation to deliver the same as described and as warranted expressly or by implication in the contract
of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the
thing. (n)

Warranty: Is any representation made by the seller of the thing with respect to its character, quality, or
ownership, play which he induces to buyer to purchase the same relying on said representation
- to protect third person
- deemed embedded or written on the contract

Kinds:
1. Express (1546)
It is an affirmation of fact or any promise by the seller relating to the thing, the natural
tendency of bridge is to induce the buyer to purchase the thing, and the buyer thus induce ,
does purchase the same.
A warranty is a part of the contract of sale. It is, therefore, immaterial whether the seller did
not know that it was false or true. No intent is necessary to make the seller liable for his
warranty.

Art. 1546. Any affirmation of fact or any promise by the seller relating to the thing is an express
warranty if the natural tendency of such affirmation or promise is to induce the buyer to
purchase the same, and if the buyer purchase the thing relying thereon.

2. Implied (1547, 1562)

Is that by which the law derives from implication or interference from the nature of the
transaction or the relative situation or circumstances of the parties irrespective of any intention
of the seller to create it.

Art. 1547. In a contract of sale, unless a contrary intention appears, there is:
(1) 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;
(2) 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.
This Article shall not, however, be held to render liable a sheriff, auctioneer, mortgagee,
pledgee, or other person professing to sell by virtue of authority in fact or law, for the sale of a
thing in which a third person has a legal or equitable interest. (n)

Art. 1562. In a sale of goods, there is an implied warranty or condition as to the quality or fitness
of the goods, as follows:
(1) Where the buyer, expressly or by implication, makes known to the seller the particular
purpose for which the goods are acquired, and it appears that the buyer relies on the seller's
skill or judgment (whether he be the grower or manufacturer or not), there is an implied
warranty that the goods shall be reasonably fit for such purpose;
 (2) Where the goods are brought by description from a seller who deals in goods of that
description (whether he be the grower or manufacturer or not), there is an implied warranty
that the goods shall be of merchantable quality. (n)

Instances where implied warranty is not applicable:

1. “As and where is” sale - where the vendor makes no warranty as to the quality or workable
condition of the goods, and then the vendee takes them in the condition in which they are
found from the place where they are located
2. Sale of secondhand articles (Note: but there may be express warranty in this instance.)
3. Sale by virtue of authority in fact or law (article 1547 , last par.)

Caveat emptor: Let the buyer beware.

 This doctrine applies when one who buys real property without checking the vendors title
where persons other than the vendor are in possession takes all their risk and loses
consequent to such failure engaged defenders title is defective.
 These also applies to execution sales since the sheriff does not warrant the title to real
property sold by him as sheriff and it is not incumbent upon him to place the purchaser in
possession of such property.