Important Tips on the Law on Sales_edited 2009

8/20/2019 Important Tips on the Law on Sales_edited 2009

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Prelim Notes: Preliminary Discussion

1. Contract of Sale De ned : Sale is a contract where one party (seller or vendor)obligates himself to transfer the ownership of and to deliver a determinate thingwhile the other party (buyer or vendee) obligates himself to pay for said thing aprice certain in money or its e!uivalent. ("rt. 1#$% &ivil &ode)

'. Etymology of the word "Sale :

oman law a sale is termed as vendito . *rench refers to contract of sale as+vente , -talians refer to it as + vendita , and the Spaniards call it a venta .

he Pilipino term for sale is + bilihan ,.

Origin of the Philippine Law on Sales

Prior to the adoption of the New &ivil &ode Philippine law on Sales were basedon the Spanish &ivil &ode of Spain of 1%%/ and the Spanish &ode of &ommerce of 1%%$. -n 10#/ however a &ode &ommission was created to draft and update the&ivil &ode. he &ode &ommission completed its wor sometime in December 10#/and the New &ivil &ode actually too e2ect on "ugust 34 10$4. Provisions on thesales of the Spanish &ode of &ommerce were repealed and the distinction between&ivil and &ommercial sales was eliminated.

-nstead the &ode &ommission had adopted ma5ority of the provisions of the"merican 6niform Sales "ct which was prepared by the National &onference of &ommissioners on 6niform State 7aws of 104/ the principal ob5ective of which wasto eliminate the diversities in the law on sales which e8isted as a result of thedivergent interpretations of sales contracts by courts of di2erent states in "merica.

he 6niform Sales "ct was largely declaratory of the common law rules whichhad been developed and generally followed by the di2erent states in "merica at thetime it was drafted. eport of the &ode &ommission states +ma5ority of theprovisions of the 6niform Sales 7aw, which is in force in 31 States and erritories of the "merican 6nion have been adopted in the New &ivil &ode with modi9cations tosuit the principles of Philippine 7aw., he Philippine 7aw on Sales today as coveredby the itle - "rticles 1#$% to 1;3/ of the New &ivil &ode is a blend of &ivil 7awand &ommon 7aw principles.

Sale As a contract

"rticle 134$. " contract is a meeting of minds between two persons whereby onebinds himself with respect to the other to give something or to render someservice.

Parties involved:

Seller or Vendor Buyer or Vendee

Principles of Contracts

A!tonomy of ill

"rticle 134;. he contracting parties may establish such stipulations clausesterms and conditions as they may deem convenient provided they are not contraryto law morals good customs public order or public policy.

Obligatory in #orce

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"rticle 11$0. 8ception:

"rticle 1340. he determination of the performance may be left to a third personwhose decision shall not be binding until it has been made nown to bothcontracting parties. (n)

"rticle 1314. he determination shall not be obligatory if it is evidently ine!uitable.-n such case the courts shall decide what is e!uitable under the circumstances

Principle of consens!ality%

"rticle 131$. &ontracts are perfected by mere consent and from that moment theparties are bound not only to the ful9llment of what has been e8pressly stipulatedbut also to all the conse!uences which according to their nature may be in eepingwith good faith usage and law.

Principle of &elativity

Article '(''% Contracts ta)e e*ect only between the parties+ their assignsand heirs+ e,cept in case where the rights and obligations arising from thecontract are not transmissible by their nat!re+ or by stip!lation or byprovision of law% -he heir is not liable beyond the val!e of the property hereceived from the decedent%

.f a contract sho!ld contain some stip!lation in favor of a third person+ hemay demand its f!l llment provided he comm!nicated his acceptance tothe obligor before its revocation% A mere incidental bene t or interest of aperson is not s!/cient% -he contracting parties m!st have clearly anddeliberately conferred a favor !pon a third person%

?ence death of any of the contracting parties in a contract of sale after itsperfection does not e8tinguish the obligations and rights arising therefrom. ( elateprovision with transmissibility of rights in "rticle 11/%)

"rticle 11/%. Sub5ect to the laws all rights ac!uired in virtue of an obligation aretransmissible if there has been no stipulation to the contrary.

>8ceptions: a. when there is stipulation otherwiseb. @hen the law provides it is intransmissible such as in contractsof

partnership agency and commodatumc. @hen nature of the obligation re!uires it to be nonA

transmissible

Essential Characteristics of the Contract of Salea) &onsensual (as distinguished as real) because the contract is perfected by

mere consent= See "rticle 131$ on principle of consensuality.

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&onscious and spontaneous

- Determinate sub5ect matter (generally there is no sale of generic thingmoreover if the parties di2er as to the ob5ect there be no meeting of theminds).

Notes:

"rticle 13#/. "ll things which are not outside the commerce of menincluding future things may be the ob5ect of a contract. "ll rights whichare not intransmissible may also be the ob5ect of contracts.

No contract may be entered into upon future inheritance e8cept in casese8pressly authoriHed by law.

"ll services which are not contrary to law morals good customs publicorder or public policy may li ewise be the ob5ect of a contract. (1'/1a)

Be it noted that the ob5ect of contract of sale are -0.12S A1D &.20-Sonly. Services cannot be an ob5ect of sale

"rticle 13#%. -mpossible things or services cannot be the ob5ect of contracts. (1'/')

Geaning of Determinate:

"rticle 1#;4. " thing is determinate when it is partic!larly designated orphysical segregated from all others of the same class%

he re!uisite that a thing be determinate is satis9ed if at the time the contract isentered into the thing is capable of being made determinate without the necessityof a new or further agreement between the parties. C elate this paragraph with"rt. 13#0

"rticle 13#0. he ob5ect of every contract must be determinate as to itsind. he fact that the !uantity is not determinate shall not be an obstacle

to the e8istence of the contract provided it is possible to determine thesame without the need of a new contract between the parties.

B. Price certain in money or its e!uivalent (this is the cause or consideration)( he price need not be in money)

Notes:

"rticle 1'#0. he payment of debts in money shall be made in thecurrency stipulated and if it is not possible to deliver such currency thenin the currency which is legal tender in the Philippines.

he delivery of promissory notes payable to order or bills of e8change orother mercantile documents shall produce the e2ect of payment onlywhen they have been cashed or when through the fault of the creditorthey have been impaired.

-n the meantime the action derived from the original obligation shall beheld in the abeyance.

- &apacity of the contracting parties. -n other words the contractingparties must have the legal capacity to engage in lawful commerce.

3pdates

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Payment of debts in money shall be made only in the Philippine currencywhich the legal tender pursuant to "rt. 1'#0 of the &ivil &ode in relation to epublic"ct No. %1%3. &@ A -nsofar as both the seller and the buyer are concernedthere is only one sub5ect matter namely the piano. he cause or consideration forthe seller is the price paid= for the buyer it is the delivery to him of the piano.

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@hat is the ob5ect in a contract of saleK Determinate thing@hat is the cause in the contract of saleK Price certain in money or its e!uivalent

a) Natural elements (those which are inherent in the contract and which in theabsence of any contrary provision are deemed to e8ist in the contract)- @arranty against eviction deprivation of the property bought)- @arranty against ?idden Defects

Natural elements C inherent in the contract and which in the absence of anycontrary provision are deemed to e8ist in the contract:

1. @arranty against eviction

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'. @arranty against hidden defects

"ccidental elements (those which may be present or absent in the stipulation suchas the place or time of payment or the presence of conditions)

"ccidental elements C may be present or absent depending on the stipulation of theparties (e.g.: conditions interest penalty time or place of payment etc.)

3. Stages in the Contract of Sale :

a) Ieneration or Negotiationb) Perfection A Geeting of the Gindsc) &onsummation A when the ob5ect is delivered and the price is paid.

5% 6inds of Sales

a) "s to the sub5ect matter:Asale of real propertyAsale of personal property

b) "s to the value of things e8changed:

A&ommutativeA"leatory

c) "s to whether the ob5ect is tangible or intangible:- Sale of property (tangible or corporeal)- Sale of ights ("ssignment of a right or a credit or some other intangibles

such as copyright trademar or goodwill)

(N< >: -f the ob5ect is tangible it is called a chose in possession= if the ob5ectis intangible as in the case of a right it is chose in action.

d) "s to the validity or defect of the transaction:Avalid saleArescissible saleAvoidable saleAunenforceable saleAvoid sale

e) "s to the presence or absence of conditions:A"bsolute Sale (no conditions imposed)A&onditional Sale ("s when there is a sale with a pacto de retro a right to

repurchase or redeem= or when there are suspensiveconditions or when the things sold merely possess

potentiale8istence such as sale of future harvest of a designated

parcel of land.)

f) "s to the legality of the ob5ect:ASale of a licit ob5ectASale of an illicit ob5ect

g) "s to whether wholesale or retail:- @holesale if to be resold for a pro9t the goods being unaltered when

resoldthe !uantity being large.

- etail if otherwise

h) "s to pro8imate inducement for the sale:- Sale by description

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- Sale by sample- Sale by description and sample ("rt.1#%1)

i) "s to when the price is tendered:- &ash sale- Sale on the installment plan

Sale Disting!ished from Dation in PaymentSALE DA-.O1 .1 PA7$E1-

1. here is no preAe8isting credit.

'. Iive rise to an obligation.

3. he cause or consideration here isthe price from the viewpoint of the seller= or of the obtaining of the ob5ect from the viewpoint of the buyer.

#. here is greater freedom in thedetermination of the price.

$. he giving of the price maygenerally end the obligation of thebuyer.

1. here is a preAe8isting credit.

1. >8tinguishes obligations.

3. he cause or consideration herefrom the viewpoint of the persono2ering the dation is thee8tinguishing of his debt= from theviewpoint of the creditor is theac!uisition of the ob5ect o2ered inlieu of the original credit.

#. here is less freedom in thedetermination of the price

$. he giving of the ob5ect in lieu of the credit may e8tinguishcompletely or partially the creditdepending on the agreement.

>8ample: - owe Garia P 144. But - as her if she is willing to accept my watchinstead of the money. -f Garia agrees my debt will be e8tinguished. Pleaseobserve that in this e8ample although what happened is dation in payment it is asif - sold my watch for P 144. ?ence we have to distinguish between the twotransactions.

%. Di*erence between a Contract of Sale and a Contract to Sell

- -n a &ontract of Sale the nonApayment of the price is a resolutorycondition that is the contract of sale may by such occurrence put an end

to a transaction that once upon a time e8isted. = -n a &ontract to Sell thepayment in full of the price is a positive suspensive condition. ?ence if the price is not paid it is as if the obligation of the seller to deliver and totransfer ownership never became e2ective.

- -n the &ontract of Sale title over the property generally transfer to thebuyer upon delivery= in the &ontract of Sell ownership is retained by theseller regardless of the delivery and it will not pass until full payment of the price.

- -n a contract of Sale after delivery has been made the seller has lost

ownership and cannot recover it unless the contract is resolved orrescinded. -n a &ontract to Sell since the seller retains ownership despitedelivery he is enforcing the contract if he see s to oust the buyer forfailure to pay.

Problem:" agrees to sell a sewing machine to B for P # 444 in cash and places the

machine aboard the truc of B while B goes home to fetch money. Before

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B returns & appears and claim ownership of the sewing machinee8hibiting a document signed by B selling the machine to & . " re5ects

&Ls claim alleging that he is still the owner. Decide with reasons.

"nswer:

-t is submitted that the claim of " that he is still the owner of the sewingmachine is correct. @hile it is true that there is already a perfected contractof sale between " and B and that apparently there is already an actualdelivery when the former placed the sewing machine onboard the truc of thelatter nevertheless such delivery did not vest ownership thereof in thevendee. -n other words we have here a simple case of reservation of thevendor of his right over the thing sold. hat this can be done e8pressly orimpliedly. -n the case at bar the agreement between " and B is that thesale must be in cash. ?ence it can be easily inferred that at the precisemoment while " was waiting for B return with the P # 444 purchase pricewhich the latter was supposed to fetch in his house his intention in spite of actual delivery was to reserve ownership in himself and to vest suchownership in the vendee only upon the actual payment of the purchase price.Beside we have here a clear case of a &ontract to Sell. @ellAsettled is the rulethat in a &ontract to Sell as distinguished from a &ontract of Sale ownershipis reserved to the vendor and not to pass to the vendee until full payment of the purchase price.

Principles applicable to the elements of a Contract of Sale

0. -he ob8ect of Sale m!st be L.C.- and the 9endor m!st have the right totransfer ownership at the time the ob8ect is delivered% :Art% '5;< )

- hings may be illicit or unlawful per se (of its nature) >8ample: Sale of human Mesh for human pleasure) or per accidens (made illegal byprovision of the law). >8ample is sale of land to an alien.

- "s to transfer of ownership it is essential for a seller to transfer ownership(art. 1#$%) and therefore the seller must be the owner of the ob5ect sold.

his stems from the principle that nobody can dispose of that which doesnot belong to him A Nemo dat quad non habet. But although the sellermust be the owner he need not be the owner at the time of the perfectionof the contract. -t is suEcient that he is the owner at the time the ob5ectis delivered otherwise he may be held liable for breach of warranty againsteviction. Be it noted that the contract of sale by itself is not a mode of ac!uiring ownership. he contract transfers no real right it merely causescertain obligation to arise.

14. -he ob8ect of the sale m!st be determinate+ that is speci c+ b!t it is notessential really that at the time of perfection+ the ob8ect be alreadyspeci c . -t is suEcient that it be capable of being determinate without nee of any new agreement. hus there can be a sale of '4 ilos of sugar of a named!uality. ?owever in the viewpoint of ris or loss not until the ob5ect has reallybeen made determinate can we say that the ob5ect has been lost for as is well

nown generic things cannot be lost.

11. -hings of potential E,istence may be an ob8ect of sale . his is a futurething that may be sold. >8ample: "ll my rice harvest ne8t year. Note howeverthat future inheritance cannot be sold however. ("rt. 13#/ par. ' &ivil &ode)

b= -he wine that a partic!lar vineyard is e,pected to prod!ce>c= E,pected goodwill of a b!siness

&e?!isites for things potential e,istence

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@-he ob8ect need not be in act!al e,istence at the time ofperfection of the contract>@-he ob8ect is capable of potential e,istence>@-he thing sold m!st be determinate or capable of beingdeterminate>

@-he thing sold belong to the vendor at the time of theperfection of the sale

1'. Sale of e,pected thing and sale of mere hope or e,pectancy=% Art% '5 'Sale of e,pected thing :Emptio &ei Speratae=Sale of hope itself :Emptio Spei=

1O-E : -f the e8pected thing in (a = does not materialiBe+ the sale is note*ective . -n the second it does not matter whether the e8pected thingmaterialiHed or not= what .S .$PO&-A1- .S -0A- -0E 0OPE .-SEL# 9AL.DL7 E .S-ED . he 9rst deals with future thing A that which is e8pected= the second

deals with the present thing A certainty the hope or e8pectancy already e8ist.E,ample of Emptio Spei : Sale of a valid sweepsta es tic et. @hether the

sweepsta e tic et wins or not the sale is valid.1O-E : -f the hope or e8pectancy itself is in vain the sale is itself


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E*ect of sale C he owner of a mass of goods may sell only an undivided sharethereof provided the mass is speci9c or capable of being made determinate. ("rt.1#;4)

(a) By such sale the buyer becomes a coAowner with the seller of the wholemass in the proportion in which the de9nite share bought bears to the mass.-t must follow that the ali!uot share of each owner can be determined onlyby the measurement of the entire mass.

(b) -f later on it be discovered that the mass of fungible goods contain less thanwhat was sold the buyer becomes the owner of the whole mass andfurthermore the seller shall supply whatever is lac ing from goods of thesame ind and !uality sub5ect to any stipulation to the contrary.

' % "lso things sub5ect to a resolutory condition may be sold. "rt. 1#;$

" resolutory condition is that the happening of which depends on the e8tinctionof the obligation. -n other words a resolutory condition is that which puts an end toan obligation.

So long as the ob5ect of the sale is licit or lawful and the vendee has the right totransfer ownership thereof at the time it has to be delivered it is a valid ob5ect of such sale even if it be sub5ect to a resolutory condition.

>8ample is pacto de retro sale.

'F% Distinction between a Contract of Sale and An Agency to Sell :Art%'5 =

CO1-&AC- O# SALE A2E1C7 -O SELL

1. -n contract of sale the buyer paysthe price.

'. -n sale the buyer after deliverybecomes the owner=

3. -n sale the seller warrants

1. -n an agency to sell the agentdelivers the price which in turn hegot from his buyer=

'. he agent who is supposed to selldoes not become the owner evenif the property has been deliveredto him=

3. he agent who sells assumes nopersonal liability as long as heacts within his authority and in thename of the principal.

2raphic Distinction between sale and agency to sellPoint of Distinction Contract of Sale Contract of AgencyIoverning 7aw 7aw on Sales 7aw on "gency8istence of trust andcon9dence between

parties.

6nnecessary because itdoes no a2ect the

contract.

Necessary because it isthe basis of the contract.

-llustrative (Decided) &ases:

&ase - &o. granted to " the e8clusive right to sell in the isayas a certain number

of beds which the company was manufacturing at the invoice price of the beds in

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but if the goods are to be manufactured especially for the customer and uponhis special order (e.g. dress made on the basis of the body measurement of thecustomer) and not for the general mar et it is a contract for a piece of wor .("rt. 1#;/)

2raphic distinction between contract of sale and contract of piece ofwor)

Point of Distinction Contract of Sale Contract of Piece of or)

Ioverning 7aw "rts. 1#$%A1;3/ N&& "rts. 1/13 A1/31 N&&8istence of special orderof customers

Special order of customersnot necessary

Special order of customeris necessary.

"pplicability of Statute of *rauds

"pplicable Not applicable

'1. &!les to determine whether contract is sale or barter% .n a contractwhere the consideration is partly money and partly goods the followingrules shall apply:

(a) the intention of the parties must be determined=(b) -f the intent is not clear then apply the following rules:

1. -f the sold thing is more valuable than money the contract is barter='. -f the money and the thing are e!ual value the contract is sale=3. -f the thing is less valuable than money the contract is a contract of sale

("rt. 1#;% N&&)

Note: $eaning of contract of barter or e,change One of the partiesbinds himself to give one thing in consideration of the otherHs promise togive another thing% :Art% ' (G= .n contrast to the contract of sale+ thevendor gives a thing in consideration for a price .

2raphic distinction between contract of sale and contract of barterPoint of Distinction Contract of Sale Contract of Iarter

Ioverning 7aw "rts. 1#$%A1;3/ N&& "rts. 1;3%A1;#1 N&&&onsideration " price certain in money

or its e!uivalentNonAfungible things ("rt.10$#)

1at!reJ&e?!isites for Ca!se

''. &e?!isites of price in a contract of sale :

(a) he price must be in money or its e!uivalent ("rt. 1#$%)(b) -t must be certain or ascertainable ("rt. 1#;0)(c) -t must be real i.e. not simulated ("rt. 1#/1)

'3. $eaning of a price certain :

(a) he parties have 98ed or agreed upon a de9nite amount= or(b) -t be certain with reference to another thing certain (See "rt. 1#/') as

where the buyer agrees to pay the price as indicated in the invoices=

(c) he determination of the price is left to the 5udgment of a speci9ed person orpersons ("rt. 1#;0)

he last two cases are applicable only when no speci9c amount has beenstipulated by the parties.

'#. &!les if price is to be determined by a third person :

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(a) he price 98ed by the third person is binding e8cept when he acts in badfaith or by mista e=

(b) -n such case the courts may 98 the price=(c) -f the third person is unable or unwilling to 98 the price the contract shall

be ineEcacious (without e2ect) unless the parties subse!uently come to anagreement = and

(d) -f the third person is prevented from 98ing the price by the fault of the selleror buyer the party not in fault may choose between rescission andful9llment with damages in either case. ("rt. 1#;0)

22. -he ,ing of the price may not be left to the discretion of one of thecontracting parties+ as it cannot be said that there is meeting of minds!pon the ,ed price% ("rt. 134% ) But if the other accepts price xed, thesale is deemed perfected.

23. .f the price cannot be determined+ the contract is ine/cacio!s .?owever if the thing or any part thereof has been delivered to and appropriatedby the buyer he is under obligation to pay reasonable price thereof. ("rt. 1#/#)

24. E*ect of 2ross .nade?!acy of Price :

-t does not a2ect the contract of sale e8cept when the inade!uacy may indicatethat there is a defect in the consent or that the parties really intended adonation or some other act or contract.

-nade!uacy of the cause (lesion) may only be an e2ect of vitiated consent andso the contract becomes voidable under "rticle 1304. -f damage or lesion issu2ered by ward or absentee more than of the value of the property contractis rescissible under "rticles 13%1 pars. 1 '.

25. Simulation of the Price ("rt. 1#/1) here is simulation of the price in a contract of sale when for the purpose of deceiving others the parties thereto made it appear in document either:a) here is a price when actually there is none at all. -n this case being

absolutely simulated contract is void. ("rt. 13#;)b) hat the price stated is di2erent from the actual price. his merely relative

simulation of the price and does not render the contract of sale null and void. he parties are bound by their true agreement as long as the same does notpre5udice a third person and is not contrary to law morals good customspublic order or public policy ( "rts. 13#$ 13#;)

26. @hen price of securities grains li!uids and other things considered certain: a. he price 98ed is that which things sold would have on a de9nite day= b. he price 98ed is that which the thing sold would have in a particulare8change or mar et=

andc. or the price 98ed is an amount above or below the price on such day or on

such e8changeor mar et.

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27. Perfection of sale : The contract of sale is perfected at the moment thereis meeting of the minds upon the thing which is the object of contract and uponthe price .

28. E*ects of perfection of sale

(a) *rom the moment consent is given the reciprocal obligations of the partiesarise and they may reciprocally demand the performance sub5ect to theStatute of *raud=

(b) he ownership of the thing sold is not transferred until it is delivered actuallyor constructively to the buyer ("rt. 1#//)= and

(c) -n case one of the contracting parties does not comply with what isincumbent upon him the in5ured party may sue for ful9llment or rescissionwith the right to damages in either case. (art. 1101)

29. Perfection of Sale-t is consensual and for this reason principle of consensuality applies. +&ontractsare perfected by mere consent and from that moment the parties bound notonly to the ful9llment of the what has been e8pressly stipulated but also to allthe conse!uences which according to their nature may be eeping with goodfaith usage and law ("rt. 131$).


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32. +he o%"ership of the thi"& sold shall (e tra"sferred to the *e"deeupo" the actual or co"structi*e deli*er$. ( "rt. 1#//)

2ect eciprocally demandable Binding on promissory if

supported byconsideration distinct formprice

"pplication of "rticle 13$# in relation to "rticle 1#/0 of the New &ivil &ode

"rticle 13$# of the New &ivil &ode which presumes the e8istence of aconsideration in every contract applies to contracts in general whereas the second

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paragraph of "rticle 1#/0 thereof refers to sales and more speci9cally to anaccepted unilateral promise to buy and sell.

+Policitation , simply means an unilateral promise to buy or sell which is notaccepted. hat being the case it is a mere o2er and has not yet been convertedinto a contract. herefore of no 5udicial e2ect.

36. &!les with regards to any in8!ry to or bene t from the thing sold+after contract is perfected b!t before delivery: Article '5G = .

(1) he vendor is obliged to ta e care of the thing sold with proper diligence.("rt. 11;3)

(') he vendor has the right to the fruits of the thing from the time theobligation to deliver arises but shall ac!uire no real right or ownership over ituntil the same has been delivered to him ("rt. 11;#= "rt. 1$3/)

(3) -f the thing is determinate the vendee may compel the vendor to ma e thedelivery and hold him liable for damages by reason of fraud delay etc."rts. 11;$ and 11/4)

(#) -f the thing is generic he may as that the obligation be complied with at thee8pense of the vendor if the latter fails to ma e delivery also with a right todamages in proper case ("rts. 11;$ 11/4)=

($) If the thing is determinate, and it is lost or destroyed AAA

(a) hrough the fault of one party the party at fault is liable for damages=(b) hrough fortuitous event the vendor is released from the obligation to

deliver and the vendee is liable to pay the price if he has not yet paid thesame (see "rts. 1#%4 1$%3 11%0 and 1';0). "rt. 1$4# par. 1 howeverprovides a rule contrary to 1#%4)=

(c) he vendor shall be responsible for any fortuitous event if it is sostipulated or if the same too place after he has incurred delayed or hehas promised to deliver the same thing to two or more persons who donot have the same interest "rts. 11;# 1';')

(d) he rule under letter (b) applies to the sale of fungible things madeindependently and for a single price or without consideration or theirweight number or measurement ("rt. 1#%4). eason: -n such case thefungible things have been particularly designated or physicallysegregated

(e) -t does not apply where the fungible things have been sold for a price98ed in relation to weight number or measure. -n such case the risshall not be imputed to the vendee until they have been weighedcounted or measured and delivered=

"pplicable Provisions:

"rt. 11;#. he creditor has a right to the fruits of the thing from the timethe obligation to deliver it arises. ?owever he shall ac!uire no real rightover it until the same has been delivered to him. (140$)

"rt. 11;$. @hen what is to be delivered is a determinate thing thecreditor in addition to the right granted him by "rticle 11/4 may compelthe debtor to ma e the delivery.

-f the thing is indeterminate or generic he may as that the obligation becomplied with at the e8pense of the debtor.

-f the obligor delays or has promised to deliver the same thing to two ormore persons who do not have the same interest he shall be responsiblefor any fortuitous event until he has e2ected the delivery.

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"rt. 11%%. he creditor may before the ful9llment of the conditionbring the appropriate actions for the preservation of his right.

he debtor may recover what during the same time he has paid bymista e in case of a suspensive condition.

"rt. 11%0. @hen the conditions have been imposed with the intentionof suspending the eEcacy of an obligation to give the following rulesshall be observed in case of the improvement loss or deterioration of the thing during the pendency of the condition:

(1) -f the thing is lost without the fault of the debtor the obligationshall be e8tinguished=

(') -f the thing is lost through the fault of the debtor he shall beobliged to pay damages= it is understood that the thing is lost when itperishes or goes out of commerce or disappears in such a way that its

e8istence is un nown or it cannot be recovered=

(3) @hen the thing deteriorates without the fault of the debtor theimpairment is to be borne by the creditor=

(#) -f it deteriorates through the fault of the debtor the creditor maychoose between the rescission of the obligation and its ful9llment withindemnity for damages in either case=

($) -f the thing is improved by its nature or by time the improvementshall inure to the bene9t of the creditor=

(;) -f it is improved at the e8pense of the debtor he shall have noother right than that granted to the usufructuary.

"rt. 1';'. "n obligation which consists in the delivery of a determinatething shall be e8tinguished if it should be lost or destroyed without thefault of the debtor and before he has incurred in delay.

@hen by law or stipulation the obligor is liable even for fortuitousevents the loss of the thing does not e8tinguish the obligation and heshall be responsible for damages. he same rule applies when thenature of the obligation re!uires the assumption of ris .

(;) -f the thing is generic the loss with or without the vendorLs fault of anythingof the same ind does not distinguish his obligation to deliver. ("rt 1';')

3'. Special &!les on sales by description and sale by sample

(1) -n the contract of sales of goods by description or by sample the contractmay be rescinded if the bul of goods delivered do not correspond withthe description or by the sample=

(') -f the contract be by sample as well as by description it is not suEcientthat the bul of goods correspond with sample if they do not correspondwith the description=

(3) he buyer shall have reasonable opportunity of comparing bul with thedescription or sample ("rt. 1#%1)

Iraphic Distinction between sales by description and samplePoint of Distinction Sale by Description Sale by Sample

Basis of Buyer SellerRs representation ordescriptions

SellerRs sample

Previous sight of goods by N Buyer saw the sample

17


18/57

the buyerarnest money is given only if there is already a sale while option moneyapplies to sales not yet perfected=

(3) @hen the earnest money is given the buyer is bound to pay the balancewhile the would be buyer who gives option money is not re!uired to buy.

But option money may become earnest money if the parties so agree.

K% #ormalities for validity or enforceability of contracts

he general rule a contract of sale may be made orally or in writing or partlyoral or partly in writing or even inferred from the conduct of the partiesthereto. Some of the e8ceptions are provided by law.

-n contract of sale some forms are prescribed for reasons of validityenforceability or convenience.

>8amples:a) Sale of a piece of land or any interest therein through an agent authority of

the latter shall be in writing otherwise sale shall be void ("rt. 1%/#).b) "greement for sale of goods chattels or things in action at a price not less

than P $44 must be in writing to be enforceable ("rt. 1#43 par ' (d)c) "greement of sale of real property or any interest therein must be in writing

for enforceability ( "rt. 1#43 par. ' (e)d) "greement of sale not to be performed within a year from the ma ing thereof

must be in writing for enforceabilitye) Sale must be in public instrument for convenience to bind third person ("rt.

13$;)

(% &emedies of vendor in Sale of Personal Property Payable in.nstallments% :&EC-O LA ==

he vendor of personal property payable in installments may e8ercise any of thefollowing remedies:

(1) >lect ful9llment upon the vendeeLs failure to pay=(') &ancel the sale if the vendee shall have failed to pay two or more

installments= or(3) *oreclose the chattel mortgage if one has been constituted if the vendee

shall have failed to pay two or more installments.

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5% 1at!re of the above remedies in &ecto Law : hese remedies are alternative and are not to be e8ercised cumulatively or

successively and the election of one is a waiver of the right to resort to the others.

;% &ight of the vendor to recover the !npaid balance of the p!rchaseprice :

(a) he vendor who has chosen speci9c performance or to e8act ful9llment of the obligation is not limited to the proceeds of the sale on e8ecution of themortgaged goods. ?e may still recover from the purchaser the unpaidbalance of the price if any on real or personal properties of the purchasernot e8empt by law from attachment or e8ecution=

(b) -f the vendor chooses rescission or cancellation of the contract upon thevendeeLs failure to pay two or more installments the latter can demand thereturn of payments already made unless there is a stipulation aboutforfeiture. (See "rt. 1#;%)

(c) -f the vendor has chosen the third remedy of foreclosure of the chattelmortgage he shall have no further action against the vendee for therecovery of any unpaid balance of the price and any agreement to thecontrary is void. he foreclosure is caused by selling the mortgagedpersonal property at public auction and applying the proceeds of the sale tothe satisfaction of the claim secured by the mortgage.

% &e?!isites before Art% '5G5 may be applied :

(a) here must be a contract.(b) he contract must be of sale.(c) @hat is sold in personal property(d) he sale must be in installment

F% .nstances where Art% '5G5 may not be applied :

(a) -t does not apply in real property mortgage.(b) -t does not apply to sale of personal property in straight terms a sale on

straight terms being one which the balance after the payment of initial sumshould be paid in totality at the time speci9ed.

.ll!strations :

&ase - :

"B& &orporation a dealer in appliances sold to Gr. a ideoA&D for P 1$ 444payable on installment at the rate of P 1 '44.44 per month. Gr. e8ecuted achattel mortgage over the thing sold. @hen Gr. defaulted in the payment of his obligation "B& &orporation foreclosed the mortgage. "t the sale only P14 444 was realiHed. &an the seller recover the de9ciencyK

"nswer: No because in case of foreclosure of the chattel mortgage and there isde9ciency the seller cannot recover the de9ciency. his is an absoluteprohibition in the ecto 7aw amending "rt. 1#%# N&&.

&ase -- :

purchased on installment basis a car from "B& &orp. ?aving failed to payhis installments the corporation sued for replevin (an action for recovery of personal property) and seiHed the unit sold it but it failed to realiHe the balanceof in the sheri2Ls sale. &an "B& &orp. recover the balanceK @hyK

"nswer: Qes where the mortgagee in installment sales of personal propertychose speci9c performance in a replevin suit with damages it is entitled to an

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alias writ of e8ecution for the portion of the 5udgment that has not beensatis9ed.

he rule is that in installment sales if the action instituted is forspeci9c performance and the mortgaged property is subse!uently attached andsold the sale thereof does not amount to a foreclosure of the mortgage. ?encethe seller creditor is entitled to a de9ciency 5udgment.

G% Lease of Personal Property with Option to I!y is considered as sale of property in installments. ("rt. 1#%$) "s a rule payment of installmentsshould be returned unless parties stipulate that the same shall not bereturned. "rticle 1#%; provides that a stipulation that the installments orrents paid shall not be returned to the vendee or lessee shall be valid insofaras the same may not be 6NS&


21/57

Section ;% 6nder Section 3 and # the buyer shall have the right to sell his rights orassign the same to another person or to reinstate the contract by updating theaccount during the grace period and before actual cancellation of the contract. hedeed of sale or assignment shall be done by notarial act.

Section % he buyer shall have the right to pay in advance any installment or thefull unpaid balance of the purchase price any time without interest and to have suchfull payment of the purchase price annotated in the certi9cate of title covering theproperty.

Section F% "ny stipulation in any contract hereafter entered into contrary to theprovisions of Sections 3 # $ and ; shall be null and void.

Section G% -f any provision of this "ct is held invalid or unconstitutional no otherprovision shall be a2ected thereby. lawphi1™

Section


22/57

*ailure to pay installments. he rights of the buyer in the event of thisfailure to pay the installments due for reasons other than the failure ofthe owner or developer to develop the pro5ect shall be governed by

epublic "ct No. ;$$'.

• @here the transaction or contract was entered into prior to thee2ectivity of epublic "ct No. ;$$' on "ugust '; 10/' the defaultingbuyer shall be entitled to the corresponding refund based on theinstallments paid after the e2ectivity of the law in the absence of anyprovision in the contract to the contrary.

Presidential Decree No. 0$/ A -0E S3ID.9.S.O1 A1DCO1DO$.1.3$ I37E&SH P&O-EC-.9E DEC&EE

P!rpose "ccording to the Supreme &ourt (-n Sps. &o &hien v.

Sta. 7ucia ealty Dev. -nc. et al. I. . No. 1;'404 January31 '44/ (Puno J ) P.D. 0$/ is a law that see s to regulate thesale of subdivision lots and condominiums in view of theincreasing number of incidents wherein +real estate subdivisionowners developers operators andFor sellers have reneged ontheir representations and obligations to prove and maintainproperly, the basic re!uirements and amenities as well as+reports of alarming magnitudeT of swindling and fraudulentmanipulations perpetrated by unscrupulous subdivision andcondominium sellers and operators., "s such P.D. 0$/ re!uiresthe registration not 5ust of the developers seller bro ersandFor owners of the pro5ect but also of the pro5ect itself. 6ponthe registration of the pro5ect a license to sell must beobtained prior to the sale of the subdivision lots orcondominium units therein. he law also provides for thesuspension and revocation of the registration and license incertain instances as well as the procedure to be observed inthe event thereof. *inally the law provides for administrative9nes and other penalties in case of violation of or nonA

compliance with its provisions. " review of the relevant provisions of P.D. 0$/ reveals that

while the law penaliHes the selling of subdivision lots andcondominium units without prior issuance of a &erti9cate of

egistration and 7icense to Sell by the ?76 B it does not providethat the absence thereof will automatically render a contractotherwise validly entered void. he penalty imposed by thedecree is the general penalty provided for the violation of any of its provisions. -t is wellAsettled in this 5urisdiction that the clearlanguage of the law shall prevail. his principle particularlyen5oins strict compliance with provisions of law which are penal innature or when a penalty is provided for the violation thereof.@ith regard to P.D. 0$/ nothing therein provides for thenulli9cation of a contract to sell in the event that the seller at thetime the contract was entered into did not possess a certi9cate of

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registration and license to sell. "bsent any speci9c sanctionpertaining to the violation of the !uestioned provisions (Secs. #and $) the general penalties provided in the law shall be applied.

he general penalties for the violation of any provisions in P.D.

0$/ are provided for in Sections 3% and 30. "s can early be seenin the afore!uoted provisions the same do not include thenulli9cation of contracts that are otherwise validly entered.

he re!uirements of Section # and $ of P.D. 0$/ do not go intothe validity of the contract such that the absence thereof wouldautomatically render the contract null and void. -t is rather moreof an administrative convenience in order to allow for a moree2ective regulation of industry. @hile it is the intent of theprohibition in Section $ of P.D. 0$/ +to prevent cases of swindlingand fraudulent manipulations perpetrated by unscrupuloussubdivision and condominium seller s and operators, and toensure that +penalties be imposed on fraudulent practices andmanipulations committed in connection therewith, such does notobtain in this case as it is undisputed that the title to the sub5ectproperty has been available for more than a year and the >agle

idge pro5ect was almost 144O completed before Spouses &o&hien decided to have the &ontract declared void to see a refundof their down payment. &ontrary to Spouses &o &hienRs bare

allegation of bad faith on the part of the private respondents the&ourt of "ppeals found that at the time the &ontract to Sell wase8ecuted the applications for the &erti9cation and the 7icensewere already pending with the ?76 B but were only issuedseveral months thereafter. Gore importantly when Spouse &o&hien received notice of the availability of the title to the sub5ectproperty the private respondents had long since been issued the&erti9cate and 7icense. -t was in fact Spouses &o &hien whoinstead of paying the balance as re!uired in the contract soughtto renegotiate the same and failing therein sought to nullify thecontract a year and a half after notice that the title to the sub5ectproperty free from any liens and encumbrance was alreadyavailable for delivery.


24/57

license at the moment of e8ecution which in this case wasthereafter undisputedly issued by ?76 B. "s correctly averred byrespondent "lsons the re!uirement for registration and license isprimarily directed at preventing fraudulent schemes from being

perpetrated on the public who see to have their own abode. Nofraud has been alleged much less proven by Spouses &o &hien inthe present case. he lac of certi9cate and registration withoutmore while penaliHed under the law is not in and of itself suEcient to render a contract void. Such a de9ciency howevertogether with other relevant factors may be duly considered innullifying a contract should the circumstances so demand.

he ?ousing and 7and 6se egulatory Board (?76 B) is a

national government agency tas ed as the planning regulatoryand !uasiA5udicial body for land use development and real estateand housing regulation. hese roles are done via a triad ofstrategies namely policy development planning and regulation.

-he S!bdivision and Condomini!m I!yers ProtectiveDecree :PD


25/57

'. -f the property is mortgaged it should have a &learance toGortgage from the ?76 B=3. he facilities and amenities represented in the advertisementMyersF brochures are in accordance with the approved subdivision

and condominium plan on 9le with ?76 B.hen I!ying1. &hec if the bro erFagent is registered with ?76 BFD -='. erify if the property has not been sold to other buyers with the

egister of Deeds=3. &hec into your source of income whether you can a2ord topay the e!uity and the monthly installments=#. &hec if the materials of the house or condo unit conform withthe development standards and approved constructionspeci9cations submitted to ?76 B=$. &hec whether the developer would payfor the water andelectric meters the subdivision perimeter fence etc=.;. &hec who would eventually operate thesubdivisionFcondominium water system.Iefore Signing the Contract to Sell1. DonRt sign any blan form of the &ontract='. ead thoroughly all the contents of the &ontract moreespecially the terms and conditions in 9ne print=3. Secure a copy of the &ontract and all other documents that you

have signed=#. Ga e sure that the &ontract would be registered by theownerFdeveloper to the egister of Deeds=$. Pay directly to the ownerFdeveloper or the mar eting agentauthoriHed by said ownerFdeveloper only= and;. "s an oEcial receipt on all payments for your 9le.

&ight to a Clean -itle he buyer of a subdivision lot or condominium unit shall have aright to a clean title of said lot or unit upon the full payment of thepurchase price. -f the lot or unit is mortgaged theownerFdeveloper shall redeem the mortgage within si8 monthsfrom full payment so that the title could be delivered to the buyer.

he only fee collectible from the buyer is the registration fee forthe deed of sale in the egistry of Deeds.

ealty ta8es can be assessed on the buyer if he has actuallyta en possession and occupied the lot or unit prior to the transferof the title in his name.

hese are so provided under Sections '$ and '; of PD 0$/Subdivision and &ondominium Buyers Protective Decree thus:

+S>& -


26/57

the issuance of such title. -n the event a mortgage over the lot orunit is outstanding at the time of the issuance of the title to thebuyer the owner or developer shall redeem the mortgage or thecorresponding portion thereof within si8 months from such

issuance in order that the title over any fully paid lot or unit maybe secured and delivered to the buyer in accordance herewith.

+S>& -& -


27/57

other than the failure of the owner or developer to develop thepro5ect shall be governed by epublic "ct No. ;$$'.

S>& -& -


28/57

of the business shall be criminally responsible for any violation of this Decree andFor the rules and regulations promulgatedpursuant thereto.

+S>& -very person whodirectly or indirectly controls any person liable under anyprovision of this Decree or of any rules or regulation issuedthereunder shall be liable 5ointly and severally with and to thesame e8tent as such controlled person unless the controllingperson acted in good faith and did not directly or indirectly inducethe acts constituting the violation or cause of action.,

#3 % Capacity to sell and b!y : ho can enter in a Contract of SaleM=

Ieneral ule: "ll persons whether natural or 5uridical who areauthoriHed by the &ivil &ode to oblige themselves may enter in to a contract of sale.>8ceptions are those who su2er absolute incapacity and relative incapacity under"rts. 1#04A1#01)

&ontracts entered by a minor as a rule are voidable. ?owever they areallowed to buy necessaries for support on e!uitable grounds.

Geaning of 1ecessaries : those which are needed for sustenance dwellingclothing and medical

attendance in eeping with the 9nancial capacity of thefamily of the - incapacitated person ("rt. 10#. *amily &ode.)

Winds of -ncapacity

a) "bsolute incapacity C if a person is prohibited by law to enter into acontract of sale in all cases= and

b) elative incapacity C -f a person under circumstances is not allowed to buyor sell properties to another.

Persons dis?!ali ed to sell and b!y :

(a) he husband and wife cannot sell property to each other e8cept::'= when a separation of property was agreed !pon in the marriage

settlement> or:K= when there has been 8!dicial separation of property

(b) Persons who because of their position and relation with the person undertheir charge or property under their control are prohibited from ac!uiring saidproperty either directly or indirectly and whether in private or public salenamely:(1) guardians=(') agents=(3) e8ecutors and administrators=(#) public oEcers and employees= and($) 5udicial oEcers and employees and lawyers(;) others especially dis!uali9ed by law

(c) he seller in an auction sale may not bid unless notice is given reserving suchright. ("rt. 1#/; (#)=

(d) "n unpaid seller cannot buy directly or indirectly the goods sold by him incase of resale ("rt. 1$33)

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he prohibition under Nos. 1 ' is applicable to sales in legal redemptioncompromises and renunciations. "rt. 1#0').&ontracts entered in violation of pars. 1 to 3 are


30/57

(1) @here the seller reserves ownership of goods merely to secure theperformance by the buyer of his obligations under the contract thegoods are at the buyerLs ris from the time of delivery.

(') @here the actual delivery has been delayed through the fault of eitherthe buyer or the seller the goods are ris of the party at fault. ("rt.1$4#)

(e) -f the ob5ect refers to a thing or speci9c thing and it should have been lost inpart only the vendee may choose between withdrawing from the contractand demanding the remaining part paying its price in proportion to the totalsum agreed upon. ("rt 1#03)

(f) @here speci9c goods are lost or changed in character in part or whollywithout nowledge of the seller the buyer may at his option treat the sale as(1) avoided= or (') consider valid as to e8isting goods or so much thereof which has not deteriorated. ( "rt. 1#0#)

5F% Obligations of the 9endor :

(a) to transfer ownership (cannot be waived)(b) to deliver (cannot be waived)(c) to warrant the ob5ect sold (this can be waived or modi9ed since warranty is

not an essential element of a contract of sale=(d) to preserve the thing from perfection to delivery otherwise he can be held

liable for damages.

5G% E*ect of #ail!re to deliver in time

-f the seller promised to deliver at a stipulated time and such period is of theessence of the contract but did not comply with his obligation on time he hasno right to demand payment of the price. "s a matter of fact the vendeeAbuyermay as for rescission of the sale.

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;K% Sale on -rial or Approval A -t is a contract in the nature of option topurchase if goods prove satisfactory the approval of the buyer being a conditionprecedent. -n this ind of contract the title shall continue in the seller until thesale has become absolute:

(a) 6pon the buyerLs approval or acceptance made nown to the seller=(b) 6pon the buyerLs doing any other act adopting the transaction= or(c) 6pon the retention by the buyer of the goods beyond the time 98ed (or a

reasonable time) without giving notice of re5ection. ("rt. 1$4')

Note : -n sale or return the ris of loss or in5ury rests upon the buyer while insale on approval the ris still remains in the seller.

Point of Distinction Sale or &et!rn Sale on -rial orApproval

ransfer of ownership of the ob5ect of sale

ransferred to vendeeupon delivery

No transfer of ownership to vendeeupon delivery

8isting >8istingis of deterioration endee:

(1) "t faultAright toreturn is lost.

(') Not at faultA noe2ect on right toreturn

;(% Cases when delivery does not transfer ownership over thing sold .1. @here a contrary intention appears by the terms of the contract:

(a) -n case of e8press reservation by the seller of his title until certainconditions have been ful9lled ("rt. 1$43 par. 1) particularly the fullpayment of the purchase price. ("rt. 1#/%)=

(b) -n case of implied reservation of title as when goods are deliverable to theorder of the seller or his agent= and

(c) -n sale on approval or trial or on satisfaction ("rt. 1$4')='. @here the seller failed to ma e such contract with the carrier on behalf of the

buyer as may be reasonable under the circumstances (See "rt. 1$'3 par. ')=and

3. @here the seller failed to give notice to the buyer as may enable him toinsure the goods during their transit if under the circumstances it is usual toinsure them.

(Note: Nos. ' 3 are also e8ceptions to the general rule that delivery to thecarrier is deemed delivery to the buyer)

1otes :

a) "rticle 1$43 refers to sale of Speci9c Ioods. Geaning these are goodsidenti9ed and agreed upon at the time a contract of sale is made.

b) his provision provides that as a general rule the ownership in the goodspasses to the buyer upon their delivery to the carrier. >8ception are providedabove no. $3.

c) Ieneral principle: Delivery of speci9c goods sold to the buyer generallypasses ownership to the buyer. + es perit domino rule,. Delivery transfers

ownership. ?ence if the thing is lost before delivery the loss shall not beimputable to the buyer. See ("rts. 1$43 and 1$4#). his is in conMict with"rticle 1#%4. -f the contract is already perfected and even before the deliveryof the thing the loss of the thing without fault on the part of the seller isborne by the buyer.

d) -n "rt. 1#%4A the law spea s of nonAfungibles and fungibles soldindependently and for a single price or for a price 98ed without considerationof their weight number or measure. he rules on "rts. 11%0 11/# 1';0

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1$3% supports "rticle 1#%4 which also refer to a prestations speci9c ordeterminate in character.

e) -n "rt. 1$4# the previous article refers to speci9c goods. Speci9c goods asde9ned under "rticle 1;3; means goods identi9ed and agreed upon at thetime of the contract of sale.

.$PL.ED &ESE&9A-.O1 O# O 1E&S0.P

1. @hen there is implied reservation ownership such as in the following:a. @here the goods are shipped and by the bill of lading the goods are

deliverable to seller or his agent the seller thereby reserves ownershipin the goods. ("rt. 1$43 paragraph ')

b. @here goods are shipped and by the bill of lading the goods aredeliverable to the order of the buyer or his agent but the possession of the bill of lading is retained by the seller or agent the seller therebyretains a right to the possession of the goods as against the seller. ("rt.1$43 par. 3)

c. @here the seller draws on the buyer for the price and transmits the billof e8change and the bill of lading together to the buyer to secureacceptance or payment of the bill of e8change the title is regarded asretained in the seller until the bill of e8change is paid. he fact thatthe bill of lading and bill of e8change are attached together indicatesthat the seller intends to ma e the delivery of the goods conditionalupon the payment or acceptance of the draft.

;5% hat title is ac?!ired by the vendee or b!yer if the ob8ect which hebo!ght was sold by somebody who is not the owner thereof and whowas not a!thoriBed to sell itM

he vendee in such a case ac!uires no better title to the ob5ect than thevendor had. his rule however is sub5ect to the following e8ceptions:

a) @here the true owner is estopped or precluded by his conduct fromdenying the vendorLs authority to sell=

b) @here the sale is made by the registered or apparent owner inaccordance with recording or registration laws=

c) @here the sale or under the order of a court of competent 5urisdiction= andd) @here the purchase is made in a merchantLs store or in fairs or mar ets

in accordance with the &ode of &ommerce and special laws ("rt. 1$4$)

-llustrative &ase: is the owner of a ring which was stolen by her maid. @hile at a social

gathering in the neighborhood she saw the ring in the possession of her comadre Q.She demanded the return of the ring but Q refused. &an she compel Q to return theringK @hyK

"nswer: Qes because she was unlawfully deprived of the same. 6nder the law one

who has lost any movables or has been unlawfully deprived thereof may recover itfrom the person in possession of the same ("rt. $$0). his is true if possessorbought it from a thief.

Suppose in the above problem Q bought the ring from a merchant store can compel Q to return the ringK @hyK

"nswer: Qes provided that she would reimburse Q the amount she may have paid to

the merchant store. 6nder the law if the possessor of the movable lost or of which

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the owner has been unlawfully deprived has ac!uired it in good faith at a publicsale the owner cannot obtain its return without reimbursing the price paid thereof.

;;% @here the seller of goods has a voidable title thereto but his title has notbeen avoided at the time of the sale a) the buyer ac!uires good title to thegoods provided (') he buys them in good faith for value and (3) without noticeof the seller defect of title. ("rt. 1$4;)

; % " % De ne 1egotiable Doc!ment of -itle :

that the negotiation was a breach of d!ty on the part of the personma)ing the negotiation+ or by the fact that the owner of thedoc!ment was deprived of the possession of the same by loss+ theft+fra!d+ accident+ mista)e+ d!ress+ or conversion+ if the person towhom the doc!ment was negotiated or a person to whom thedoc!ment was s!bse?!ently negotiated paid val!e therefor in goodfaith witho!t notice of the breach of d!ty+ or loss+ theft+ fra!d+accident+ mista)e+ d!ress or conversion% :n=

" document of title in which it is stated that the goods referred to therein will bedelivered to the bearer or to the order of the any person named in suchdocument is a negotiable document of tile. ("rt. 1$4/)

B. Geaning of -r!st &eceipt : -t is a receipt signed by an importer in favor of aban which advanced on his credit the price on the goods received generallyproviding that the title to the goods shall remain in the ban and authoriHing theimporter to sell the same for its account and to pay the proceeds to the said ban .-f the importer violates the trust by converting the proceeds to his own use he isguilty of estafa .

&. 1at!re of Doc!ment of -itle : It refers to goods and not to money . heyall have this in common: that they are receipts of a bailee or orders upon abailee.

D. #!nction : >vidence of transfer of title and possession of goods and contractbetween the parties.

>. &ommon forms of Document of title:a) Bill of 7adingA " contract or receipt for the transport of goods and their

delivery to the persons named therein to order or to bearer. -t usuallyinvolves three persons A the carrier the shipper and the consignee. heshipper and the consignee may be one and the same person.

b) Doc warrantA "n instrument given by doc owners to an importer of

goods warehoused on the doc recogniHing the importerLs title to the saidgoods=c) @arehouse receipt A " contract or receipt for goods deposited with the

warehouseman containing the latterLs underta ing to hold and deliver thesaid goods to a speci9ed person to order or to bearer. Vuedan iswarehouse receipt usually for sugar received by warehouseman.

SAL.E1- P&O9.S.O1S A&E0O3SE &ECE.P-a. -t is a written ac nowledgement by a warehouse that he has received and

holds certain goods therein described in store for the person to whom it isissued.

b. -t is a simple written contract between the owner of the goods and thewarehouseman to pay the compensation for that service.

c. -t is a bilateral contract. -t imports that goods are in the hands of awarehouseman and is a symbolical representation of the property itself.

∗ -f goods are stolen and deposited by the thief with a warehouseman thewarehouseman shall not be liable to the holder of the receipt even if he

33


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delivers the goods to the real owners without the receipt being surrenderedto him. :Secs% '' and '5'+ &L=

$EA1.12 O# 1E2O-.AILE 31DE& -0E AC-

∗ -t indicates that in the passage of warehouse receipts through thechannels of commerce the law regards the property which they describe asfollowing them and gives to their regular transfer by indorsement the e2ectof manual delivery of the things speci9ed in them.

D.S-.1C-.O1 between the right of a person to whom a receipt has beennegotiated and rights of a person to whom a receipt has been transferred.

a. ights of a person to whom a receipt has been negotiated :Sec% 5'= :1. the title of the person negotiating the receipt over the goods covered

by the receipt='. the title of the person (depositor or owner) to whose order by the

terms of the receipt the goods were to be delivered over such goods=and

3. the direct obligation of the warehouseman to hold possession of thegoods for him as if the warehouseman directly contracted with him.

b. ights of a person to whom receipt has been transferred :Sec% 5K= : maybe defeated by levy and e8ecution1. he title of the goods as against the transferor with respect to a

negotiable warehouse receipt not duly negotiated (merely steps intothe shoes)=

'. -f the receipt is nonAnegotiable such person also ac!uires the right tonotify the warehouseman of the transfer thereof= and

3. he rights thereafter to ac!uire the obligation of the warehousemanto hold the goods for him.

∗ "n unpaid sellerRs lien or right of stoppage in transitu cannot defeat theright of the holder in good faith of N@ .

Sec% K; of areho!se &eceipt Law

∗ -f goods are delivered to a warehouse man by the owner or by aperson whose act in conveying the title to them to a purchaser in good faithfor value would bind the owner and the negotiable receipts is issued forthem.

∗ @hile in possession of such warehouseman the goods cannot beattached or levied upon under e8ecution 6N7>SS:1. he document be 9rst surrendered= or'. -ts negotiation is en5oined= or1. he document is impounded by the court.

eason: the law protects an innocent purchaser for value in thenegotiation of N@ .

∗ Ioods covered by N@ cannot be attached or levied upon unless receipt issurrendered.

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A&E0O3SE$A1∗ " person lawfully engaged in the business of storing goods forcompensation for such service.

-O 0O$ DEL.9E&ED∗ upon demand made by the holder of receipt or depositor provided suchdemand is accompanied by :

a. an o2er to satisfy the @GRs lien=b. an o2er to surrender the receipt if negotiable with such endorsement

as would be necessary for the negotiation of the receipt= andc. a readiness and a willingness to sign when the goods are delivered if

such signature is re!uested by the warehouseman.

A&&A1-.ES O1 SALE O# &ECE.P- :Sec% 55=

a. that the receipt is genuine=b. that he has legal right to negotiate or transfer it=c. that he has nowledge of no fact which would impair the validity or worth

of the receipt= andd. that he has a right to transfer the title to the goods and that the goods

are merchantable or 9t for a particular purpose whenever such warrantieswould have been implied if the contract of the parties had been totransfer without a receipt the goods represented thereby.

&onttinuation of Discussion on Negotiable Doument of itle:

;F% 0ow may a negotiable doc!ment of title negotiated by deliveryM

" negotiable document of title may be negotiated by delivery :(1) @here by the terms of the document the carrier warehouseman or other

bailee issuing the same underta es to deliver the goods to the bearer=(') @here by the terms of the document the carrier warehouseman or other

bailee negotiating the same underta es to deliver to deliver the goods to theorder of a speci9ed person and such person or a subse!uent indorsee of thedocument has indorsed it in blan or to the bearer=

@here by the terms of a negotiable document of title the goods aredeliverable to bearer or where the negotiable document of title has beenindorsed in blan or bearer any holder may indorse the same to himself or to

any speci9ed person and in such are the document shall thereafter benegotiated only by the indorsement of such indorsee. ("rt. 1$4%)

;G% 0ow may a negotiable doc!ment of title be negotiated byindorsement K

" negotiable document of title may be negotiated by the indorsement of theperson to whose order the goods are by the terms of the document deliverable.Such indorsement may be in blan to bearer or to a speci9ed person. -f indorsed to a speci9ed person it may be again negotiated by the indorsement of such person in blan to bearer or to another speci9ed person. Subse!uentnegotiations may be made in li e manner. ("rt. 1$40)

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(1) By the owner thereof=(') By any person to whom the possession or custody of the document has been

entrusted by the owner if by the terms of the document the bailee issuingthe document underta es to deliver the goods to the order of the person towhom the possession or custody of the document has been entrusted or if atthe time of such entrusting the document is such form that it may benegotiated by delivery ("rt. 1$1')

K% hat are the rights+ which are ac?!ired by a person to whom anegotiable doc!ment of title has been d!ly negotiatedM

" person to whom negotiable document of title has been duly negotiatedac!uires thereby:

(1) Such title to the goods as the person negotiating the document to himhad or had ability to convey to a purchaser in good faith for value andalso such title to the goods as to the person to whose order the goodswere to be delivered by the terms of the document had and had ability toconvey to a purchaser in good faith for value=

(') he direct obligation of the bailee issuing the document to holdpossession of the goods for him according to the terms of document asfully as if such bailee had contracted directly with him ("rt. 1$13).

@ith the foregoing one who purchases goods covered by a negotiabledocument title issued to a thief ac!uires no right over the goods as thethief has no right to transfer notwithstanding that such purchaserac!uires title where the owner by his conduct is stopped from assertinghis title.

" negotiated a warehouse receipt issued by @ to B representing goods.Said goods were stolen and deposited by " to @ for safe eeping. @ notaware about the defect issued a negotiable warehouse receipt to "."ssuming said receipt was negotiated to a holder or purchaser in goodfaith the latter can never ac!uire title because the goods are stolen.

(% hat are the implied warranties of the person who negotiates adoc!ment of title by indorsement or deliveryM

" person who for value negotiates or transfers a document of title byindorsement or delivery including one who assigns for value a claim securedby a document of title unless a contrary intention appears warrants:1. hat the document is genuine='. hat he has legal right to negotiate or transfer it=3. hat he has nowledge of no fact which would impair the validity or worth

of the document= and#. hat he has right to transfer the title of the goods are merchantable or 9t

for a particular purpose whenever such warranties would have beenimplied if the contract of the parties had been to transfer without adocument of title of goods represented thereby ("rt. 1$1;)

5% -ndorsers are not guarantors. he indorsement of a document of titleamounts merely to a conveyance by the indorser not a contract of guaranty."n indorser of a document of title shall not be liable to the holder of fore8ample the bailee fails to deliver the goods because they were lost due tohis fault or negligence.

;% 6nder "rticle 1$1% a negotiable document may be negotiated by anyperson in possession thereof - whatever manner it is obtained or ac!uired. -nother words it may be negotiated by the thief or 9nder and the holderthereof would ac!uire good title thereto if he paid for value in good faith

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without notice of the sellerRs defect of title. his e8ists an allegedinconsistency considering under "rticle 1$1' as a thief nor 9nder can neithernegotiate document of title because he is not the owner thereof. he conMictcan be resolved easily by locating the sub5ect matter of the provisions. -f what was stolen is the negotiable document of title representing goodslawfully or validly ac!uired or obtained then "rticle 1$1% applies providedthe ac!uirer obtained it for value and in good faith.

% Art% ';'G% -he validity of the negotiation of a negotiabledoc!ment of title is not impaired by the fact "rt. 1$10. -f goods aredelivered to a bailee by the owner or by a person whose act in conveying thetitle to them to a purchaser in good faith for value would bind the owner anda negotiable document of title is issued for them they cannot thereafterwhile in possession of such bailee be attached by garnishment or otherwiseor be levied under an e8ecution unless the document be 9rst surrendered tothe bailee or its negotiation en5oined. he bailee shall in no case becompelled to deliver up the actual possession of the goods until thedocument is surrendered to him or impounded by the court.

F% "rt. 1$'4. " creditor whose debtor is the owner of a negotiabledocument of title shall be entitled to such aid from courts of appropriate

5urisdiction by in5unction and otherwise in attaching such document or insatisfying the claim by means thereof as is allowed at law or in e!uity inregard to property which cannot readily be attached or levied upon byordinary legal process.

"s a general rule attachment or levy of goods covered by negotiabledocument of title is prohibited. he only recogniHed e8ceptions to thegeneral rule are as follows: a) -f the document is surrendered to him= or (')negotiation is en5oined.

-nstances when bailee can be compelled to surrender goods. he rule is baillecannot be compelled to surrender the goods in his possession covered by anegotiable document of title. ?e may do so however: ( a) if document issurrendered to him or (') the document is impounded by the court.

G% "rt. 1$'1. @hether it is for the buyer to ta e possession of the goodsor of the seller to send them to the buyer is a !uestion depending in eachcase on the contract e8press or implied between the parties. "part from anysuch contract e8press or implied or usage of trade to the contrary the placeof delivery is the sellerLs place of business if he has one and if not hisresidence= but in case of a contract of sale of speci9c goods which to the

nowledge of the parties when the contract or the sale was made were insome other place then that place is the place of delivery.

@here by a contract of sale the seller is bound to send the goods to thebuyer but no time for sending them is 98ed the seller is bound to send themwithin a reasonable time.

@here the goods at the time of sale are in the possession of a third personthe seller has not ful9lled his obligation to deliver to the buyer unless anduntil such third person ac nowledges to the buyer that he holds the goods onthe buyerLs behalf.

Demand or tender of delivery may be treated as ine2ectual unless made at areasonable hour. @hat is a reasonable hour is a !uestion of fact.

6nless otherwise agreed the e8penses of and incidental to putting the goodsinto a deliverable state must be borne by the seller. (n)

"rt. 1$''. @here the seller delivers to the buyer a !uantity of goods less thanhe contracted to sell the buyer may re5ect them but if the buyer accepts or

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retains the goods so delivered nowing that the seller is not going to performthe contract in full he must pay for them at the contract rate. -f howeverthe buyer has used or disposed of the goods delivered before he nows thatthe seller is not going to perform his contract in full the buyer shall not beliable for more than the fair value to him of the goods so received.

@here the seller delivers to the buyer a !uantity of goods larger than hecontracted to sell the buyer may accept the goods included in the contractand re5ect the rest. -f the buyer accepts the whole of the goods so deliveredhe must pay for them at the contract rate.

@here the seller delivers to the buyer the goods he contracted to sell mi8edwith goods of a di2erent description not included in the contract the buyermay accept the goods which are in accordance with the contract and re5ectthe rest.

-n the preceding two paragraphs if the sub5ect matter is indivisible the buyer

may re5ect the whole of the goods. he provisions of this article are sub5ect to any usage of trade specialagreement or course of dealing between the parties. (n)

PLACE O# DEL.9E&7

1. @here there is an agreement e8press or implied the place of delivery isthat agreed upon=

'. @here there is no agreement the place of delivery is determined byusage of trade=

3. @here there is no agreement and there is also no prevalent usage the

place of delivery is the sellerRs place of business=#. -n any other case the place of delivery is the sellerRs residence= and$. -n case of speci9c goods which to the nowledge of the parties at the

time the contract was made were in some other place that place is theplace of delivery in the absence of any agreement or usage of trade tothe contrary.


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e8pense of freight and insurance to be paid by the seller up to the pointespecially named.

3. #%A%S% A he initials mean free alongside vessel (named port of shipment).6nder this term the seller pays all charges and bears the ris until the goodsare placed alongside overseas vessel and within reach of its loading tac le.

4. C # @ he initials signify that the price 98ed includes cost and freight to thenamed point of destination.

5. E, #actory E, areho!se+ etc% (named point of origin) A 6nder this termthe price !uoted applies only at the point of origin and the seller agrees toplace the goods at the disposal of the buyer at the agreed place on the datewithin the period 98ed.

6. E, Doc) (named port of importation). A 6nder this term the seller !uotes aprice including the cost of the goods on the doc at the named port of importation.

Iraphic distinction as to when ownership passes to buyer in sales from one port toanother

Point of Distinction #OI point of shipment #OI point of destination COD or Cash onDeliveryShipment

@hen title passesto buyer

6pon delivery of goods for shipment

6pon delivery toport of destination

6pon delivery tothe carrier

F % -he vendor shall not be bo!nd to deliver the thing sold+ if thevendee has not paid him the price+ or if no period for payment has been

,ed in the contract%"s a rule the obligation to deliver the thing sub5ect matter of a contract arisesfrom the moment of its perfection and from the time the obligation may beenforced. But a contract of sale is bilateral and so the obligation to deliver the

thing is accompanied the obligation by the payment of the price. heseobligations are reciprocal.E,ception .f the time for s!ch payment has been ,ed in the contract+the thing m!st be delivered tho!gh the price has not been paid yet%

F'% De ne an !npaid seller !nder Art% ';K;

"n unpaid seller is one Aa) who has not been paid or tendered the whole price= orb) who has received a bill of e8change or other negotiable instrument as

conditional payment and the condition on which it was received has beenbro en by reason of dishonor of the instrument. ("rt. 1$'$)

FK% &ights of the !npaid seller

>ven if the ownership in the goods has already passed to the buyer they are:1) " lien on the goods or right to retain them for the price while in his

possession=') " right of stopping the goods in transitu in case of insolvency of the buyer=3) " right of resale= and#) " right to rescind the sale.

-f the unpaid seller still retains ownership in the goods he cannot be said tohave lien (on his goods). But he does have in addition to his other remedies

right of withholding delivery ("rt. 1$';)

;$. Cases where the !npaid seller e,ercises his right of possessory lien1. @hen the goods have been sold without any stipulation as to credit='. @here the goods have been sold on credit but the term of the credit has

e8pired= and3. @here the buyer becomes insolvent.

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he seller may e8ercise his right o lien notwithstanding that he is inpossession of the goods as agent or bailee for the buyer. ("rt. 1$'/)

;; % An !npaid seller loses his lien to the goods :1. @hen he delivers the goods to a carrier or other bailee for the purpose of

transmission to the buyer without reserving ownership of the goods or theright of possession thereof=

'. @hen the buyer or his agent lawfully obtains possession of the goods=3. @hen the unpaid seller waives his lien.

Gere 5udgment by a court obtained by the unpaid seller for the price of the goods is not a ground for the loss of his lien. ("rt. 1$'0)

;/. Geaning of the &.20- -O S-OPPA2E .1 -&A1S.-3

he ri&ht of stoppa&e i" tra"situ is the right of the unpaid seller who hasparted with the possession of the goods when the buyer is or becomesinsolvent to stop them and resume possession while they are in transit. heunpaid seller will become entitled to the same rights to the goods as if he hadnever parted with possession ("rt. 1$34)

;% % &e?!isites in the e,ercise of the right of stoppage in transit! :

1. he seller must be unpaid ("rt. 1$'$)'. he buyer must be insolvent=3. he goods must be in transit ("rt. 1$31)#. he seller must either actually ta e possession of the goods sold or give

notice of his claim to the carrier or other person in possession ("rt. 1$3' p. 1)$. he seller must surrender the negotiable document of title if any issued by

the carrier or bailee (ibid p. ');. he seller must bear the e8penses of delivery of the goods after the e8ercise

of the right. (-bid.)

;0 % $anner of which !npaid seller may e,ercise the right to stop thegoods in transit!

1. >ither by ta ing actual possession of the goods='. By giving notice of his claim to the carrier of business in whose possession

the goods are.

he seller must surrender the negotiable document of title if any issued bythe carrier or bailee. ("rt. 1$3')

/4 % .nstances where goods are considered not already in transit! :

he goods are no longer in transit after delivery to the buyer or his agent in thatbehalf and in the following cases:

a) -f the buyer or his agent obtains possession of the goods at a point before thedestination originally 98ed=

b) -f the carrier or bailee ac nowledges to hold the goods on behalf of the buyer=and

c) -f the carrier or bailee wrongfully refuses to deliver the goods to the buyer.("rt. 1$31)

/1. &ight to &esale :

his right can be the unpaid seller only when he has right of lien or right to stopgoods in

transitu and under any of the three following cases:a. @here the goods are perishable in nature=

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b. @here the right to resell is e8pressly reserved in case the buyer shouldma e a default= and=

c. @here the buyer delays in the payment of the price for anunreasonable time.

FK% E*ect of &esale :

he seller is not liable for any pro9t made by such resale= but if he sells forless than the

price he has the right to sue for the balance. "s against the original buyerthe new buyer

ac!uires a good title to the goods.

Note: -t is not essential to the validity of a resale that notice of an intention toresell the goods be given by the seller to the original seller. >8cept where the resaleis based on the default of the buyer in the payment of the price as notice in thiscase is relevant in any !uestion whether the buyer had been in default forunreasonable time before the resale was made.

No notice is re!uired for the time and place of such resale to the buyer.

Seller is not allowed to directly or indirectly buy the goods in a public orprivate sale.

/3 % Cases when an !npaid seller e,ercises his right to rescind :

>ither of the two situations namely:

1. @hen the right to rescind is e8pressly reserved= or'. @hen the buyer defaults or delays in the payment of the price for an

unreasonable time.

-n the case of rescission the seller resumes ownership in the goods. @hilethe seller shall not be liable to the buyer upon the contract of sale the latterhowever may be made liable to the seller for damages for any lossoccasioned by the breach of contract. ("rt. 1$3#)

Note = "n unpaid seller has right to rescind only if he has either a right of lienor

a right to stop goods in transitu.

/#. E*ect of &escission : he seller resumes ownership of the goods. @hile the seller shall not be

liable to the buyerupon the contract of sale the latter however may be made liable to the

seller for damages forany loss in occasioned by the breach of contract (par. 1 "rt. 1$33)

/$. 0ow to rescind K

"n election by the seller to rescind may be manifested by notice to the buyeror some other over act showing an intention to rescind. &ommunication of suchelection to the buyer is not necessary.

/;. E*ects of Sale of 2oods s!b8ect to !npaid sellers right of lien orstoppage in transit! :

hey are:

1) he sellerLs right is not a2ected by any disposition of goods made by thebuyer unless he has assented thereto.

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') -f however the goods are covered by a negotiable document of title thesellerLs right cannot prevail rights of purchaser for value in good faith towhom the document has been indorsed. ("rt. 1$3$)

FF% "rt. 1$3;. he vendor is not bound to deliver the thing sold in case thevendee should lose the right to ma e use of the terms as provided in "rticle 110%.

78. "rt. 1$3/. he vendor is bound to deliver the thing sold and its accessionsand accessories in the condition in which they were upon the perfection of thecontract.

"ll the fruits shall pertain to the vendee from the day on which the contract wasperfected.

79. "rt. 1$3%. -n case of loss deterioration or improvement of the thing before itsdelivery the rules in "rticle 11%0 shall be observed the vendor being consideredthe debtor.

"rt. 1$30. he obligation to deliver the thing sold includes that of placing in thecontrol of the vendee all that is mentioned in the contract in conformity with thefollowing rules:

-f the sale of real estate should be made with a statement of its area at therate of a certain price for a unit of measure or number the vendor shall be obligedto deliver to the vendee if the latter should demand it all that may have beenstated in the contract= but should this be not possible the vendee may choosebetween a proportional reduction of the price and the rescission of the contractprovided that in the latter case the lac in the area be not less tha

Documents

Important Tips on the Law on Sales_edited 2009