BL.M.1602.Law on Sales_Edited

8/18/2019 BL.M.1602.Law on Sales_Edited

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PRACTICAL ACCOUNTING 1

BL.M - 1602

LAW ON SALES

“Home of Topnotch ProfessionaCerts Knowledge Engineering Team

MARGINAL NOT

BUSINESS LAW

REVIEW NOTES

Contract of Sale- 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 pat therefore a

price certain in money or its equivalent.

Essential Requisites of Contract of Sale:1.

Consent or meeting of the minds

2.

Object or subject matter

3.

Cause or consideration

Characteristics of contract of sale

1.

Consensual

2.

Bilateral

3.

Onerous

4.

Commutative5.

Nominate-

6.

Principal

Two Kinds of Sale:

1.

Absolute

2.

Conditional

Requisites concerning Object:

1.

Determinate Licit/Lawful

2.

Possible

Requisites:

1.

Things- determinate, lawful and possible (within the

commerce of men)


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BL.M-1602.Law on Sales BL

2.

Rights- all rights not intransmissible

Rights of vendor to transfer ownership;

1.

One can sell only what he owns

2.

Sufficient if right exists at the time of delivery

When is subject matter determinate?

Emptio Rei Speratae

Emptio Spei

Future goods as object of sale- is valid only as an executory

contract to be fulfilled by the acquisition and delivery of the

goods specified.

Stages in Contract:

1.

Negotiation

2.

Perfection

3.

Consummation

Fungible goods – goods of which any unit is, from its nature

or by mercantile usage, treated as the equivalent of any

other unit.

Sale of an undivided share of a specific mass (fungible

goods).

1.

If the mass bought is lower than the whole mass?

2.

If the mass bought is higher than the whole mass?

Note: subject matter, incorporeal or intangible

right, ownership passes to the buyer by the

intention of the parties.

Contract of Sale distinguished from Contract to Sell (agency)

In the first, title passes to the vendee upon delivery

of thing sold; in second, ownership is reserved in

vendor and is not to pass until full payment


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BL.M-1602.Law on Sales B

In the first, nonpayment is negative resolutory

condition; in second, full payment is positive

suspensive condition

In the first, vendor has lost and cannot recover

ownership until and unless contract is rescinded; in

the second, title remains in the vendor and when he

seeks to eject the vendee because of non-

compliance by such vendee with the suspensive

condition stipulated, he is enforcing the contract

and not resolving the same.

Piece of work distinguished from Contract of sale;

In the first, contractor binds himself to execute a

piece of work for the employer in consideration of acertain price or compensation. The contractor may

either employ his labor, skill or furnish the material.

In the first, the thing transferred is not in existence

and which never would have existed but for the

order of the party desiring to acquire it; in the

second, the thing transferred is one which would

have existed and been the subject of sale to some

other person, even if the order had not been given.

In the first the risk of loss before delivery is borne

by the worker/contractor, not by the employer; in

the second, the risk of loss is borne by the buyer.

Contracts for a piece of work are not within the

statue of frauds unlike contracts of sale:

Sale distinguished from barter:

1.

Intention of the parties

2.

The intention cannot be determined or cannot beascertained

a.

Thing higher- barter

b.

Money higher- sale


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Effect where price is fixed by third person?

Effect where price not fixed by third person designated?

Effect of gross inadequacy of price in voluntary sales:

General Rule – mere inadequacy of the price does not

invalidate the contract.

Exception:

1.

if indicates defect, fraud, mistake, or undue

influence – voidable

2.

if price is simulated or false – void if not intended to

bound at all (absolute). If intended to transfer

gratuitously (relative) – donation.

Effect of gross inadequacy of price in involuntary or

execution sales;

General Rule - mere inadequacy of price is not sufficient

ground for the cancellation of execution sale.

- with right to repurchase- still valid- low price

easy to redeem.

Exception - so low as to shock the minds of the court

Effect of failure to determine the price;?

Rule governing auction sale

1.

Sale of separate lots by auction are separate sales

2.

Sale perfected by the fall of the hammer

3.

Right to bid by the seller – with notice, yes

Without notice, no

Ownership of thing transferred by delivery

Exception to the rule: when there is a stipulation that despite

delivery, the ownership of the thing


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shall remain with the seller until full payment is made by the

buyer.

Kinds of promise:

1.

Accepted unilateral promise to sell in which the

promissee (acceptor) elects to buy

2.

Accepted unilateral promise to buy which the

promissee (acceptor) promise to sell.

3.

Bilateral promise to buy and sell reciprocally

accepted.

Effect of unaccepted unilateral promise – no juridical effect or

legal bond – policitation.

Meaning of option contract and earnest money;

Option Contract – agreement granting a privilege to buy or

sell within an agreed time and at a determined price. It is a

separate and distinct contract from that which the parties

may enter into upon consummation of contract. It must be

supported by consideration.

Earnest money – part of the purchase price advanced by the

vendee to vendor as token of perfection of the contract.

Effect of accepted unilateral promise

A unilateral promise to sell or to buy a determinate

thing for a price certain does not bind the promisor

even if accepted and may be withdrawn at any time

if not supported by a consideration distinct and

separate from the price.

Effect of bilateral promise to buy and sell- the same effect as a

perfected contract

Sale of goods by description and/or sample;

1.

By description

2.

Sale by sample

3.

Sale by description and by sample


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Form of contract of sale

General Rule – in any form provided all the essential requisites

are present.

Exception –

1.

If covered by statute of frauds (only to executory

contracts)

2.

If required in order that the contra be valid

3.

For convenience of the parties (Public instrument)

Sale of personal property by installments

Remedies of the vendor:

Sale of personal property by INSTALLMENT:

(a)

Remedies (alternative remedies) available to the vendor

in case of breach:

a.

Exact fulfillment (failure to pay one (1)

installment).

b.

Cancel the sale, should failure to pay cover two

(2) or more installments. c.

Foreclose the chattel mortgage on the thing

sold, if one has been constituted, should

vendee’s failure to pay cover two (2) or more

installments. If this is the remedy, he shall have

no further action against the purchaser to

recover any unpaid balance of the price. Any

agreement to the contrary shall be VOID.

Sale of real property by instalment

Realty Installment Buyer Protection Act (“Maceda Law”) – law

that provides protection to buyers of REAL ESTATE ON

INSTALLMENT PAYMENTS


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a.

Applies to contracts involving sale or financing of real

estate on instalment payments, including residential

condominium apartments but excluding industrial lots,

commercial buildings and sales to tenants under RA

3844 (Agricultural Land Reform Code)

b.

Where buyer has paid at least 2 years of instalments,

buyer is entitled to the following rights in case he

defaults in the payment of succeeding instalments:

i.

To pay, without additional interest, the unpaid

instalments due within the total grace period

earned by him, which is one month grace

period for every 1 year of instalments made.

This right shall be exercised by the buyer only

once in every 5 years of the life of the contractand its extensions, if any;

ii.

If the contract is cancelled, seller shall refund to

the buyer the cash surrender value of the

payments on the property equivalent to 50% of

the total payments made and after 5 years of

instalments, and additional 5% ever year but

not to exceed 90% of the total payments made.

Cancellation shall only take place after 30 days

from receipt by the buyer or the notice ofcancellation or demand for rescission by

notarial act AND upon full payment of the cash

surrender to the buyer. Down payment,

deposits or options shall be included in the

computation of the total number of

installments

c.

In case where less than 2 years of installments were

paid, seller shall give the buyer a grace period of not

less than 60 days from the date the instalment If buyer

fails to pay the instalment due at the expiration of the

grace period, seller may cancel the contract after 30

days from receipt by buyer of the notice of cancellation

or demand for rescission of the contract by a notarial

act.


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CAPACITY TO BUY OR SELL

Person who may enter into a contract of sale- all natural or

juridical with legal capacity

Kinds of incapacity

1.

Absolute- persons who cannot bind themselves

2.

Relative- with reference only to certain persons

Liability for necessaries of minor or other person without

capacity to act

Necessaries- needed for sustenance

General Rule - contracts entered into by minors,insane etc. voidable

Except: necessaries are sold, valid, to pay

reasonable price

Relative incapacity of husband and wife

Prohibited from selling to each other (void and

inexistent), except:

a.

When a separation of property was agreed

upon in the marriage settlements; or

b.

When there has been a judicial separation orproperty.

Also donations except moderate gifts

Reason for prohibition- for the protection of third person.

Incapacity by reason of relation to property;

Persons prohibited from acquiring by purchase, even at public

or judicial auction, either in person or through the mediation of

another, are:

a.

Guardian, the property of the person/s under his

guardianship.


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b.

Agents, property whose administration or sale may

have been intrusted to them (UNLESS with consent of

principal)

c.

Executors or administrators, the property of the estate

under administration

d.

Public officers and employees, the property of the state

or any subdivision thereof, or of any GOCC or

institution, the administration of which has been

intrusted to them

e.

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 on

execution before the court whose jurisdiction orterritory they exercise their respective functions.

Lawyers also, the property and rights which may be the

object of any litigation in which they may take part by

virtue of their profession.

f.

Any others disqualified by law.

Other persons especially disqualified?

Effect of sale in violation of prohibition.1.

1 to 3- voidable

2.

4 to 6 – null and void

Prohibition extends to sales in legal redemption:

1.

Compromise

2.

Renunciation

EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN

LOST

Effect of loss of thing at the time of sale

1.

Thing entirely lost at the time of perfection – void


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2.

Partially lost – buyer may elect fulfilment of the

remaining part and paying proportionate price or

withdraw the contract

When a thing is considered lost?

Effect of loss in case of specific goods

1.

divisible –

a.

avoided

b.

or enforce the remaining

2.

indivisible – pay the proportionate amount of goods

remaining

OBLIGATIONS OF THE VENDOR

Principal obligations of the vendor

1.

transfer the ownership of determinate thing

2.

deliver the thing

3.

to warrant against and hidden defects

4.

to take of the thing with proper diligence pending

delivery

5.

to pay for the expenses of execution and

registration except otherwise agreed upon.

Kinds of delivery:

a.

Actual

b.

Constructive

a.

By public instrument- valid only when the thing

is subject to the control of the vendor.

b.

Delivery of keys of place or depository where it

is stored or kept, as regards or movable

property- valid only when the thing is subject to

the control of the vendor.

c.

Tradition longa manu – takes place by mere

consent or agreement of the contracting parties

as when the vendor merely points to the thing


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sold which shall thereafter be at the control and

disposal of the vendee.

d.

Tradition brevi manu – by mere consent, as

when the vendee has already in possession of

the thing sold by virtue of another title, i.e.

lease

e.

Tradition constitutum possessorium – opposite

of tradition brevi manu. Takes place when the

vendor continues in possession of the property

sold not as owner but in some other capacity,

i.e. when vendor stays as tenant on the vendee.

f.

Quasi tradition, delivery by agreement

signifying a transfer of possession.

a.

Public instrumentb.

Placing the title of ownership to the vendee

c.

Allowing the vendee to use the rights as

new owner

Contracts of sale or return

Sale on trial or approval or satisfaction

Delivery of specific goods sold to the carrier generally passestitle.

Exception:

1. Reservation of right of possession or ownership when

specific goods are shipped

2. Where seller or his agent is consignee. By the bill of

lading the goods are deliverable to the seller or his

agent. Seller may dispose to third person.

3. Where buyer or his agent is consignee but seller

retains the bill of lading. Seller retains possession.

Risk of loss generally attends title. (owner)

1. Where seller’s tittle only for purpose of security –

title passes and buyer will bear the loss.

2. where actual delivery was delayed, the party at fault

shall bear the loss


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Risk of loss by fortuitous event after perfection but before

delivery (1480 vs 1504)

Sale by a person not the owner:

Rule where buyer buys object from somebody who is not the

owner and not authorized to sell it:

General rule: the vendee acquires no better title to the object

than the vendor had.

Exception:

a.

where the owner of the goods is, precluded from

denying the seller’s authority to sell. b.

where the law enables the apparent owner to

dispose of the goods as if he were the true owner

thereof.

c.

where the sale is sanctioned by statutory or juridical

authority.

d.

where the sale is made at merchant’s store, or in

fairs or markets.

e.

Where the seller has a voidable title which has not

been avoided at the time of the sale.f.

Where seller subsequently acquires title.

Sale by one having a voidable title;

If the seller has only a voidable title to the goods,

the buyer acquires a good title to the goods

provided he buys them;

a.

before the title of the seller has been

avoided

b.

good faith for value

c.

without notice of the seller’s defect

Negotiable document of title – a document of title in which it is

stated that the goods referred to herein will be delivered to the

bearer or to the order of any person named in such document.


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Nature and function of documents of title

1. receipts of, or orders upon, a bailee of goods

represented

2. evidence of transfer of title and possession of goods

and contract between the parties

Most common forms of documents of title?

Classes of documents of title

1.

negotiable

2.

non-negotiable

How may a negotiable document of title be negotiated byindorsement?

By the indorsement of the person to whose order the

goods are by the terms of the document deliverable.

Indorsement may be in blank t bearer or to another specified

person.

Who may negotiate a negotiable document of title:

a.

By the owner thereof; or

b.

By any person to whom the possession or custody ofthe document has been entrusted by the owner, if by

the terms of the document the bailee issuing the

document undertakes to deliver the goods to the order

of the person to whom possession or custody of the

document has been entrusted or if at the time of such

entrusting the document in such form that it may be

negotiated by delivery.

The implied warranties of the person who negotiates a

document of title by indorsement or delivery are:

a.

The document is genuine

b.

He has legal right to negotiate or transfer it

c.

He has knowledge of no fact which would impair the

validity or worth of the document


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d.

He has right to transfer the title to the goods and that

the goods are merchantable or fit for a particular

purpose.

The indorser of a negotiable document of title is not a

guarantor.

Place of delivery

Time/hour

The seller has a duty to put goods in deliverable

condition

Delivery of goods less than quantity:

Delivery of goods more than the quantity:

Delivery of goods mixed with others:

C.O.D – the carrier acts on behalf of the seller in collecting the

purchase price.

C.I.F – they signify that the price fixed covers not only the cost

of the goods, but the expenses of freight and insurance to be

paid by the seller up to the point especially named.

F.O.B. – they mean that the goods are to be delivered free of

expense to the buyer to the point where they are F.O.B. In

general, the point of F.O.B., either the point of shipment or the

point of destination, determines when the ownership passes.

Shipping point – buyer must pay freight

Destination – seller must pay freight

When is seller of goods deemed to be an unpaid seller?

Remedies of unpaid seller:


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a.

Lien on the goods or right to retain them for the price

while he is in possession

b.

In case of insolvency of buyer, right of stopping the

goods in transit after he parts with possession

c.

Right of resale

d.

Right to rescind

When is right to retain the goods available to the unpaid seller?

When does unpaid seller lose his lien on or right of retention

over goods?

Part delivery- lien not lost

Right of stoppage in transitu – right of unpaid seller to resume

possession of goods at any time while they are in transit

Requisites:

Available to unpaid seller when he has already parted with the

possession of the goods and the buyer is or becomes insolvent:

1.

Seller must be unpaid

2.

Buyer must be insolvent3.

Goods must be in transit

4.

exercised either by obtaining actual possession of

the goods or by giving notice of his claim to the

carrier or other bailee in whose possession the

goods are.

5.

Must surrender the negotiable document of title, if

any

6.

Seller must bear the expenses of delivery of the

goods after the exercise of the right

When goods considered in transit?

When goods considered not anymore in transit?


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Attornment by the bailee – the right to stop the goods may be

terminated not simply by delivery, but by attornment or

acknowledgement of the bailee to the buyer that the former

holds the goods on behalf of the latter.

Effect of partial delivery. – may still exercise stoppage in transit

to the remaining

Ways of exercising the right to stop

1.

Taking actual possession

2.

Giving notice of his claim to the carrier or bailee

When resale is available

a.

Where goods are of perishable natureb.

Where seller has expressly reserved the right of resale

in case the buyer should make default

c.

Where buyer has been in default in the payment of the

price for an unreasonable time

d.

Before resale can be made, the unpaid seller should

have a right of lien or should have stopped the goods in

transit.

Effect of resale – the seller is not liable for any profit made bysuch resale in public or private sale, but if he sells for less than

the price, he has a right to sue for the balance. As against the

original buyer, the new buyer acquires a good title to the goods.

Notice of resale is not essential - but if resale is not due to

perishable nature of goods or upon express provision of

contract of sale, the failure to give notice shall be relevant in

any issue involving the question whether the buyer had been in

default for an unreasonable period of time.

When seller may rescind.

a.

When right is expressly reserved in case of buyer’s

default

b.

When buyer delays in the payment of the price for

unreasonable time


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Provided: the unpaid seller should have a right of lien or

should have stopped the goods in transit.

How the seller may rescind?

Effect of sale of goods subject to lien or stoppage in transit

1.

No negotiable document of title – a purchaser from

the original buyer may acquire only such right as

the buyer then had.

2.

With negotiable document of title – the seller’s lien

cannot prevail against the rights against a purchaser

for value and in good faith.

Right of vendor to withhold delivery in sale or credit

1.

Even if the vendee has the benefit of the period if

he lost the benefit of the period as provided by the

provision of obligations and contracts.

2.

No obligation to deliver if not paid, except if period

has been agreed upon for the payment, delivery of

the goods should take place.

Condition of thing to be delivered?

Rules in case of loss, deterioration, improvement of

thing before delivery (the same rules as in obligations

and contracts)

Sale of real property by unit of measure or number.( cause is

the number or measure)

1.

If the sale of real estate should be made with the

statement of its area, at the rate of a certain price

for a unit of measure or number. Vendor must

deliver the entire property agreed upon.

2.

Where the entire area within the stipulated

boundaries could not be delivered,


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a.

May rescind; or

b.

Pay the proportionate amount (lower)

When vendee entitled to rescind sale of realty?

Rule where there is a greater area or number (immovable)?

Where in sale of real estate made for a lump sum (cause is the

thing sold regardless of the number or measure)?

Prescription of action- 6 months from delivery

Rule on Double Sales:

1.

As to Movables- the ownership shall be acquired by thevendee who first takes possession in good faith.

2.

As to Immovables – the ownership shall belong to:

a.

The vendee who first recorded in good faith in

the registry of property (registry of deeds).

b.

In the absence of registration, the vendee who

first takes possession in good faith.

c.

In the absence of both registration and

possession, the vendee who presents oldest

title in good faith.

Law on Double Sales applies only to lands covered by

torrens title.

CONDITIONS AND WARRANTIES:

Meaning of condition – uncertain event or contingency, may or

may not come.

Effect of conditions?

Meaning of warranty

Is any representation made by the seller of thing

with respect to its character, quality or ownership,


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by which he induces the buyer to purchase the

same relying on said representation.

Kinds of warranty;

1.

Express warranty;

2.

Implied warranties in contract of sale.

Meaning of implied warranty

Is that which the law derives by implication or

inference 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.

Warranty against Eviction – implied warranty in contracts of

sale, by virtue of which if the vendee is deprived of the thing

purchased by final judgment based on a prior right or an act

imputable to the vendor, the vendor shall answer for the

eviction.

Requisites for warranty against eviction:

1.

Deprivation in whole or part of thing purchased

2.

Deprivation is by virtue of final judgment3.

Deprivation is based on right prior to the sale or act

imputable to the vendor

4.

Vendor must be summoned in the suit for eviction at

the instance of the vendee.

5.

There is no waiver on the part of the vendee.

Refers to trespass in law, Vendor’s liability is waivable;

Deprivation for non-payment of taxes

Vendor liable provided that at the time of sale,

vendee has no knowledge of the non payment of

taxes.

Liability of judgment debtor


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Stipulation waiving warranty:

Kinds of waiver of warranty against eviction?

Extent of liability of vendor in warranty against eviction?

Rights of vendee in case of partial eviction:

1. Enforce the vendor’s liability ; or

2.

Demand rescission of the contract

WARRANTY AGAINST HIDDEN DEFECTS

Requisites for warranty against hidden defects?

When defect important – the defect is important when 1) it

renders the thing sold unfit from which it is intended 2) it

diminishes its fitness for such use to such an extent that the

vendee would not have acquired it had he been aware

thereof or would have given a lower price for it.

When defect hidden – not known or could not have known

by the vendee. Cannot be seen by your naked eye.

Implied warranties of quality:a.

Warranty of fitness

b.

Warranty of merchantability

Sale under a patent or trade name - In the case of contract of

sale of a specified article under its patent or other trade

name, there is no warranty as to its fitness for any particular

purpose, unless there is a stipulation to the contrary.

Effect of ignorance of vendor against hidden defects?

Doctrines of caveat emptor – buyer beware

caveat venditor – vendor is liable even though he is

unaware thereof of the defect.

Alternative remedies of the buyer to enforce warranty;


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1.

Withdraw from the contract or

2.

Ask for reduction of the price

Effect of loss of thing sold on account of hidden defects?

1.

Vendor aware of hidden defects :

2.

If not aware :

Effect of loss of defective thing sold?

Warranty in judicial sales – but the sheriff will be not liable for

damages.

Accion redhibitoria (redhibitory action):

Accion quanti minoris: What are the remedies of vendee in case of breach by

vendor or implied warranty against hidden defects or

encumbrances upon the thing sold?

OBLIGATIONS OF THE VENDEE

Principal obligations of the vendee

a.

Accept delivery

b.

Pay the price

Rules governing delivery by installments

General Rule – vendee not bound receive delivery by instalment

Exception:

1.

By agreement

2.

Where separate price has been fixed for each

instalment

Effect of breach?

Buyer’s right to examine the goods

Right of examination not absolute- reasonable

opportunity and within reasonable time only and upon

request


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Modes of manifesting acceptance

1.

Express

2.

Implied

Delivery and acceptance separate acts.

Where buyer’s refusal to accept justified?

Effect of buyer’s wrongful refusal to accept?

When is vendee liable for interest on the price?

When vendee may suspend payment of price?

Vendee cannot suspend payment of price when?

ACTIONS FOR BREACH OF CONTRACT OF SALE OF GOODS

Actions available;

1.

Action by the seller for payment of the price

2.

Action by the seller for damages for non-acceptance

3.

Action for the seller for the rescission of the contract

4.

Action by the buyer for specific performance5.

Action by the buyer for rescission or breach of warranty

Seller’s right of action for the price;

1.

When the ownership of the goods has passed to the

buyer and he wrongfully neglects or refuses to pay

2.

When the price is payable on a certain day and he

wrongfully neglects or refuses to pay. Even if ownership

has not passed.

3.

When the goods cannot be readily resold for a

reasonable price and the buyer wrongfully refuses to

accept them even before the ownership of the goods

has passed.

Seller’s right of action for damages


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1.

If the buyer without lawful cause neglects or refuses to

accept and pay for the goods he a

agreed to buy.

2.

In executor contract, where the ownership of the goods

has not passed, and the seller can con maintain an

action to the price.

3.

If the goods are not yet identified at the time of the

contract.

Measure of damages for non-acceptance of goods

1.

Difference between contract price and market price if

there is available market

2.

If no available market, full amount of damages

3.

Proximate damagesMeasure of damages for repudiation or countermand;

1.

The labor performed and expenses incurred for

materials before receiving notice of the buyer’s

repudiation

2.

Profit he would have realized if the sale had been fully

performed.

Seller’s right of rescission before delivery

1.

When the buyer has repudiated the contract of sale2.

When the buyer has manifested his inability to perform

his obligations

3.

When the buyer has committed a breach of the

contract.

Buyer’s right to specific performance- if seller has broken a

contract

What are the remedies of buyer for breach of warranty by

seller?

Nature of remedies?

When rescission by the buyer not allowed?


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Rights and obligations of the buyer in case of rescission?

EXTINGUISHMENT OF SALE; pa lo re me co no an res res pres

CONVENTIONAL REDEMPTION

Conventional redemption (pacto de retro) – takes place when

vendor reserves right to repurchase the thing sold with the

obligation to reimburse to the vendee the price of the sale,

the expenses of the contract, other legitimate expenses as well

as all necessary and useful expenses made on the thing sold.

Subject matter – both real or personal property

Equitable mortgage- is one, which although it lacks the proper

formalities of a mortgage, shows the intention of the parties to

make the property subject of the contract as a security for the

fulfilment of an obligation.

Conventional Redemption presumed to be an equitable

mortgage when:

a.

Price of sale with right to repurchase is unusuallyinadequate

b.

Vendor remains in possession as lessee or otherwise

c.

Upon after expiration of right to repurchase, another

instrument extending the period of redemption or

granting a new period is executed.

d.

When purchaser retains for himself a part of the

purchase price

e.

When vendor binds himself to pay the taxes on the

thing sold

f.

Any other case where it may be fairly inferred that the

real intention of the parties is that the transaction shall

secure the payment of a debt or the performance of an

obligations


25/44



g.

When there is doubt as to whether the contract is a sale

or with right of repurchase or an equitable mortgage

Price in pacto de retro sale usually lower;

Presumption in case of doubt- doubt to be resolved in

favour of equitable mortgage

When vendor may ask for reformation- if the parties

really intended a mortgage but in the instrument what

was stated was a sale, reformation is allowed.

Redemption period?

Redemption in sale of part of undivided immovable

Art 494 and 498 – allotted to the co-owner and the

latter indemnify the others

If the co-owners cannot agree that the thing be

allotted to one of them, sell and divide the

proceeds

In either case, the co-owner who acquires the

whole may demand the for the redemption of the

whole property

Redemption in joint sale by co-owners of undivided immovable?

Effect of redemption of co-owner of entire property?

Redemption in separate sales by co-owners of undivided

immovable?

Redemption against heirs of the vendee?

Obligations of vendor a retro when he exercises his right ofrepurchase:

a.

Return the price of the sale

b.

Pay expenses of the contract and other expenses

c.

Pay all necessary and useful expenses made on the

thing sold


26/44



Offer to redeem must be bona fide;

Rights of parties as to the fruits of land?

Right of vendor a retro to recover thing sold free from charges;

Legal redemption (retracto legal) – right to be subrogated upon

the same terms and conditions stipulated in the contract or in

the place of one who acquires a thing by purchase or dation in

payment or by any other transaction whereby ownership is

transmitted by onerous title.

Right of legal redemption of co-owner

Requisites:1.

There must be co-ownership

2.

There must be alienation of all or any of the

shares of the other co-owners

3.

The sale must be to a third person or stranger

4.

Sale must be before partition

5.

Right must be exercised within the period

provided (1 month)

6.

Vendee must be reimbursed for the price of the

saleBy whom and against whom right may be exercised?

Purpose of the grant of right to co-owners- the government

discourage co-ownership

Right of redemption of adjacent owners of rural lands

Requisites?

If two or more requested:

a. owner of adjoining land with smaller area

b. if the same, first who requested

c. if still the same, pro-rata


27/44



Instances of legal redemption:

a.

Redemption by other co-owners or by any or some of

them should a co-owner sell his undivided share to a

third person.

b.

Redemption by other co-heirs or by any or some of

them, should co-heir sell his hereditary right to a

stranger

c.

Redemption by owner of adjoining land should owner

of a piece of rural land, area of which does not exceed 1

hectare, alienate it to a 3rd person

d.

Redemption by an owner of adjoining land should the

owner of a piece of urban land, which is so small and so

situated that a major portion cannot be used for any

practical purpose within a reasonable time and whichsaid owner had bought merely for speculation, resell it

to a third person. Reasonable price. The person who will

use the land appears to be justified.

e.

Redemption by debtor should credit or other

incorporeal right in litigation be sold by creditor to third

person

Redemption distinguished from Pre-emption

In the first, sale to a third person has already beenperfected. In the second, sale to 3

rd person has not

yet been perfected.

In the first, it is directed against the 3 rd person who

bought the property. In the second, right of pre-

emption is directed against the prospective vendor

who is about to resell the property

In the first, the effect is to extinguish a contract

already perfected or consummated. In the second,

the effect of pre-emption is to prevent the birth or

perfection of a contract.

Right of pre-emption or redemption: 30 days


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MULTIPLE CHOICE QUESTIONS

1. One has the right to transfer ownership if he/ she with the

exception of

A.

Was authorized by the owner

B.

Is the owner

C.

Paid half of the total price

D.

None of the above

E.

All of the above

2. This is not an essential element of a contract of sale

A.

Warranty against eviction

B.

Subject matter which should be determinate

C.

Consent of the contracting parties

D.

Consideration which is certain or its equivalent

3. Dacion en pago as distinguished from a contract of sale

A.

There is a greater freedom in fixing the price

B.

Obligations are created

C.

A pre-existing credit is extinguished

D.

Ownership of the object is transferred to the other

party

4. The following are characteristics of a contract of sale asidefrom

A.

Unilateral

B.

Principal

C.

Consensual

D.

None of the above

E.

All of the above

5. A contract of sale is not a (an)

A.

Onerous contract

B.

Accessory contract

C.

Commulative contract

D.

Bilateral contract


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6. Mrs. Lim agrees to sell his watch to Mr. Lomotan for P10,

000 in cash, and places the timepiece inside the car of Mr.

Lomotan, while he goes to an ATM to withdraw money.

Before Mr. Lomotan returns, Mr. Co arrives and claims

ownership of the watch presenting a document signed by

Mr. Lomotan selling the time piece to him. Mrs. Lim

discards the claim asserting that she is still the owner. In this

situation, who is the rightful owner of the watch?

A.

Mr. Lomotan, since he & Mrs. Lim as already come into

an agreement and there is actual delivery of the watch

from Mrs. Lim to Mr. Lomotan’s vehicle

B.

Mrs. Lim, because Mr. Lomotan has not yet paid the

agreed price

C.

Mr. Co, given that he has a written agreement betweenhim and Mr. Lomotan

D.

Both Mrs. Lim and Mr. Lomotan owns the watch since

their agreement is still incomplete

E.

None as of the moment for the reason that the sale of

the watch is still ongoing

7. One of the following is not correct

A.

The sole owner of the thing may sell an undivided

interest therein.

B.

Things having a potential existence may be the object ofcontract of sale.

C.

A thing is generic when it is particularly designated or

physically segregated from all others of the same class.

D.

Things subject to a resolutory condition may be the

object of the contract of sale.

8. Na Pulis offered to sell for P100,000 her house and lot to En

Really who was interested in buying the same. In her letter

to En Really, Na Pulis stated that she is giving him a period of

20 days within which to raise the amount and that as soon as

En Really is ready, they will sign the deed of absolute sale. 7

days before the expiration of the 20 day period, Na Pulis

went to En Really and told him that she is no longer willing to


30/44



sell the property unless the price is increased to

P200,000.00. which is correct?

A.

En Really cannot compel Na pulis to accept the

P100,000.00 first offered

B.

Na Pulis and En Really should shoulder the P100,000.00

difference

C.

Na Pulis may compel En Really to pay P200,000.00

D.

En Really may compel Na Pulis to accept the

P100,000.00 first offered

9. A contract of sale is

A.

An agreement where ownership is reserved in the seller

and not to pass until full payment of price

B.

Where full payment is a positive suspensive conditionC.

Where title passes to the vendee upon delivery of the

thing sold

D.

None of the above

E.

All of the above

10. If immovable property should have been sold to different

vendees, the ownership shall be transferred to the person

A.

Who have paid in good faith in full the purchase price

B.

Who in good faith first recorded it in the Registry ofDeeds (Registry of Property)

C.

Who presents the oldest title in good faith

D.

Who have first taken possession in good faith

11. A thing can be considered determinate when

A.

It is standard and within the same classification

B.

Physically segregated from all others of the same class

C.

Is specific and is identified by its individuality

D.

A and B are correct

E.

B and C are correct

F.

All of the above

12. Quezon Bed Company (QBC) granted to Happy Sleep

Incorporated (HSI) the exclusive right to sell in North Luzon

a certain number of beds which the company was


31/44



manufacturing at the invoice price of the beds in Manila,

with a discount of 20%, the price to be paid at the end of 60

days. What contract is perfect here?

A.

Contract of SaleB.

Contract of Barter

C.

Contract of Agency

D.

None of the above

13. Action by the vendee against the vendor to nullify the sale

due to some vices or defects which render the object of sale

unfit for the use intended or knowledge of which, the

vendee would not have bought the thing

A.

Accion redhibitoriaB.

Accion pauliana

C.

Accion reivindicatoria

D.

Accion quanti minoris

14. Effect of price fixed by third person can be considered void

except

A.

Third person adhere to the instructions laid down by

parties involve

B.

Third person acts in bad faith

C.

Third person disregards data and parameters given by

parties involve

D.

None of the above

E.

All of the above

15. A contract of agency to sell can be considered when

A.

Receives the goods as the owner

B.

Only accounts for the proceeds of the sale he/she may

make on the principal’s behalf

C.

Not bound to the instructions of the principal and

cannot return object sold

D.

None of the above

E.

All of the above


32/44



16. Alabang Shoe Store Incorporated (ASSI) entered into

separate contracts with 2 movie stars, Kimi and Honesto.

With Kimi, the agreement was that the shoe store shall

deliver at a specified date for a price of P2,000 a pair of

shoes of a specified brand which the store had been

manufacturing for the general public but which at the time

of the contract had already been sold out, and with

Honesto , the arrangement was that the shoe store shall

deliver at a specified date for a price of P3 ,000 a pair

of shoes to be made specifically for him,, in accordance

with a design submitted by him. What is the nature of the

contract between Kimi and ASSI?

A.

Contract of barter

B.

Contract for a piece of workC.

Contract of sale

D.

None of the above

E.

All of the above

17. (same situation as #16) What is the nature of the contract

between Honesto and ASSI?

A.

Contract of barter

B.

Contract for a piece of work

C.

Contract of saleD.

None of the above

E.

All of the above

18. Ronald transferred to Vincent a parcel of land for the

price of P15,000,000. It was stipulated in the contract that

Vincent will pay P5, 000,000 in cash and for the balance, we

will give a boat, valued at approximately P10, 000,000.

What kind of contract is this?

A.

Contract of barter

B.

Contract for a piece of work

C.

Contract of sale

D.

None of the above

E.

All of the above


33/44



19. In contract of sale, if the price is absolutely simulated, the

sale is

A.

Rescissible

B.

Void

C.

Voidable

D.

unenforceable

20. Voluntary renunciation made by the buyer of his right to

warranty against eviction where in case the buyer is evicted,

the seller is liable to the value of the thing at the time of

eviction

A.

Waiver intentionada

B.

Waiver consciente

C.

Waiver pacienteD.

Waiver cliente

21. After the death of X, Y, X’s daughter, sold her inheritance

though its amount has not yet been determined to Z for a

consideration of P50,000.00, which is correct?

A.

The contract is unenforceable

B.

The contract is void as future inheritance cannot be the

object of sale

C.

The contract is valid even though the inheritance to begiven to Z is less than P50,000.00

D.

The contract is valid if the value of inheritance is at least

equal to P50,000.00

22. Option money is explained by the statements below except

A.

Part of the purchase price

B.

No sale has been perfected

C.

Buyers are not required to buy

D.

None of the above

E.

All of the above

23. Under the Statute of Frauds, the following contracts must

be in writing, otherwise they cannot be enforced in court

litigation except


34/44



A.

Sale of personal property at a price not less than

P300.00

B.

Sale of real property regardless of the price involved

C.

Sale of property not to be performed within a year

from the date thereof regardless of the nature of the

property and price involved

D.

None of the above

E.

All of the above

24. Aida, Lorna and Fe are co-owners of an undivided parcel of

land, Aida sold his 1/3 interest Lorna absolutely. Which is

correct?

A.

Fe may exercise his right of redemption on the interest

sold by AidaB.

Fe cannot exercise the right of redemption because the

sale was made in favour of a co-owner

C.

The sale made by Aida to Lorna is void because it was

not made in favour of a stranger

D.

Fe may redeem only ½ of the interest sold by Aida to

Lorna

25. A offers to B 50 computer sets for P200,000.00 payable in

30 days with 6% interest per year. B accepted the offer byletter, provided that the interest be reduced to 4%. If there

is no further communication between A and B involving the

terms

A.

The contract is perfected because of the acceptance of

B

B.

There is no contract yet between A and B because B

made the counter offer

C.

The contract is perfected under the terms of A

D.

There is no contract yet unless B gives an earnest

money

26. The principal obligations of the vendor are

A.

Deliver the unit sold

B.

Transfer the ownership of the unit sold


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C.

To maintain with proper diligence the unit sold pending

delivery

D.

None of the above

E.

All of the above

27. It is a contract by which property is sold but the buyer, who

becomes the owner of the property on delivery, has the

option to return the same to the seller instead of paying the

price.

A.

Sale on trial

B.

Sale on satisfaction

C.

Sale on approval

D.

None of the above

E.

All of the above

28. A seller sold to a buyer a rolex watch at a price of

P500,000.00. The contract provided that the buyer will pay the

seller P200,000.00 in cash and the balance, the buyer will give

the seller a car worth P300,000.00. What is the nature of the

contract?

A.

Mutuum

B.

Barter

C.

Sale

D.

Partly sale and partly barter

29. In Art 1490, a husband and wife, during marriage cannot

A.

Donate property to each other

B.

Sell property to each other

C.

Borrow proper from each other

D.

A and B are correctE.

B and C are correct

F.

C and A are correct

30. What is an option contract?

A.

An agreement granting a privilege to buy or sell with an

agreed time period and a determined price


36/44



B.

It is a separate contract from that which the

parties may enter into upon the consummation of

the option

C.

It is and must be supported by consideration

D.

None of the above

E.

All of the above

31. The following cannot acquire by purchase even at a public

auction, either in person or through the mediation of

another, except

A.

Executors and administrators

B.

Agents who was given consent by the principal

C.

Guardian

D.

Public employees/ officersE.

Justices, judges

F.

None of the above

32. Mike sold a motorcycle to Powee for P50,000 to be

paid as follows: P30,000 upon delivery of the motorcycle

to Powee, and the balance at the rate of P5,000 per month

until paid in full. The motorcycle, however, was burned

in the possession of Powee without his fault, before the

balance was paid in full. Is Powee obliged to pay thebalance?

A.

Yes, because Powee has already paid the downpayment

B.

No, given that the motorcycle is not yet fully paid and in

turn still owned by Mike that make him responsible for

it

C.

Yes, given that the ownership was already transmitted

to him upon delivery

D.

None of the above

33. In a contract of sale of personal property the price of which

in payable in installments, what are the possible remedies

available to the vendor in case of breach?

A.

Demand completion of the of the obligation should the

vendee fail to pay


37/44



B.

Cancel the sale if vendee fails to pay more the 2 months

installment

C.

Foreclose chattel mortgage on the thing sold

D.

None of the above

E.

All of the above

34. In Art 1490, a husband and wife, during marriage

cannot sell property to each other except

A.

When separation of property was agreed upon in the

marriage settlements

B.

Property is donated by the other half

C.

When separation of property was not agreed in the

marriage settlements

D.

None of the aboveE.

All of the above

35. At a mortgage foreclosure, a sale was carried out as a result

of a judicial proceeding. Tessa, an attorney for the

mortgage creditor, bought the mortgaged property. If

she bought it for herself, is the sale void or voidable?

A.

It is void because is it prohibited by the law

B.

It is not void because her knowledge of the said

foreclosure has no impact on the sale of the propertyC.

It is voidable because there is vices of consent

D.

None of the above

36. 1st

statement - The ownership of the thing sold shall be

transferred to the vendee upon perfection of the contract.

2nd statement – An unaccepted unilateral promise to buy

and to sell a determinate thing for a price certain is binding

upon the promissor.

A.

1st statement is true, 2nd statement is false

B.

1st

statement is false, 2nd

statement is true

C.

Both statements are true

D.

Both statements are false


38/44



37. If at the time the contract of sale is already perfected but

the thing sold was partially lost, what options does the

vendee have over the vendor?

A.

Vendee can demand damages from vendor due to the

result of the loss

B.

Vendee has no choice but to follow the contract since

the thing was just partially lost

C.

Vendee may withdraw from the contract with the

vendor

D.

None of the above

E.

All of the above

38. 1st

statement - If two or more animals are sold together,

whether for lump sum or for a separate price for each ofthem, the redhibitory defect of one shall give rise to the

redhibition of the others.

2nd statement – there is no warranty against hidden defects

of animals sold at fairs or at public auctions or of livestock

sold as condemned.

A.

1st

statement is true, 2nd

statement is false

B.

1st statement is false, 2nd statement is true

C.


D.


39. The ownership of the thing sold shall be transferred from

the vendor to the vendee upon delivery which may be not

done by

A.

Legal delivery

B.

Actual delivery

C.

Proof of agreement that possession is already

transferred to the vendee

D.

None of the above

E.

All of the above

40. This mode of legal delivery happens when the vendee has

already the possession of the thing sold by virtue of another

title as when the lessor sells the thing leased to the lessee


39/44



A.

Traditio longa manu

B.

Traditio constitutum possessorium

C.

Traditio tempore constitutum

D.

None of the above

E.

All of the above

41. This mode of delivery is the opposite of traditio brevi manu.

This takes place when the vendor continues in possession

of the property sold not as owner but in some other

capacity.

A.

Traditio longa manu

B.

Traditio constitutum possessorium

C.

Traditio tempore manu

D.

None of the aboveE.

All of the above

42. A sold his only car to B for P300,000 to be paid as follows:

P150,000 upon delivery of the car to B and the balance at

P10,000 per month until full payment of the purchase price.

Later the car gets burned in the possession of B through

fortuitous event and without B’s fault before full payment

of the balance. Is B obliged to pay the balance?

A.

No, because the car was lost through fortuitous eventand without B’s fault, hence, B’s obligation is

extinguished.

B.

No, because the loss should be borne by the seller as

this is an instalment sale so until the buyer pays the full

amount of the price of the sale, A remains to be the

owner.

C.

Yes, but A must give another car to B because of the

principle of “genus nunquam peruit” or generic thing

never perishes.

D. Yes, because of the principle of “res perit domino” or

the thing perishes with the owner

43. Contracts of sale or return can be considered when

A.

Subject to a resolutory condition


40/44



B.

Depends on the mind of the vendee

C.

The risk of loss is with the vendee

D.

None of the above

E.

All of the above

44. A sold his motor vehicle to B who bought it for P500,000. It

turned out however, that A has two (2) motor vehicles.

BMW worth P560,000 and Ferrari worth P600,000. Which is

not correct?

a.

The parties may not ask for interpretation or

reformation

b.

The parties cannot ask for annulment of the contract

c.

There is contract of sale between A and B

d.

B may not choose between the BMW and Ferrari

45. What title is acquired by the buyer if the object which he

bought was sold by someone who is not the owner thereof

and who was not authorized to sell it?

A.

The buyer in such a case still has the right to the

object since he had no knowledge before the contract

was perfected

B.

The buyer in such a case acquires and interim title to

the object until the issue is resolvedC.

The buyer in such a case acquires no better title to the

object the vendor had

D.

None of the above

E.

All of the above

46. In what situation can the buyer still acquire the object and

claim ownership in case he bought the object from

someone who is not the owner?

A.

Where the true owner is estopped by his conduct

from denying the vendor’s authority to sell

B.

Where the sale is made by the registered owner in

accordance with registration laws


41/44



C. Where the purchase is made in a merchant’s store

of markets, in accordance with the code of commerce

and special laws

D.

None of the above

E.

All of the above

47. This is a circumstance where the goods are delivered to the

vendee and he was given an option to return goods instead

of paying. The ownership passes to the buyer on delivery,

but he/she may revest the ownership in the vendor by

tendering the goods within the time fixed in the contract or

within a reasonable time if no time was fixed.

A.

Sale on trial

B.

Sale on satisfactionC.

Sale or return

D.

None of the above

E.

All of the above

48. What are the implied warranties of the person who

negotiates a document of title by delivery?

A.

Document is authentic or genuine

B.

Has the legal right to transfer

C.

Has the legal to negotiateD.

None of the above

E.

All of the above

49. These are common forms of document of title except

A.

Dock warrant

B.

Promissory memo

C.

Bill of lading

D.

None of the above

E.

All of the above

50. The principal obligations of the vendee are except

A.

Accept delivery

B.

Pay the agreed price

C.

To maintain the unit pending delivery


42/44



D.

None of the above

E.

All of the above

51. The contract of sale is in the stage of conception when

A.

The contract is perfected

B.

The parties come to an agreement

C.

Negotiations are in progress

D.

There is meeting of the minds

52. 1st statement – Earnest money and option money both apply

to perfected sale.

2nd

statement – in a contract of sale of personal property,

the price of which is payable in instalment, the vendor may

cancel the sale should the vendee fail to pay.A.

1st statement is true, 2nd statement is false

B.


C.


D.


53. 1st

statement - If the animal sold should die within the

period of three (3) days after its purchase, the vendor shall be

liable to the vendee.

2nd statement – The fixing of the price can never be left tothe discretion of one of the contracting parties, but if the price

is fixed by one of the contracting parties is

accepted by the other, then the sale is considered perfected.

A.

1st

statement is true, 2nd

statement is false

B.


C.


D.


54. If redemption is to be made by the seller, one of the

following need not be given to the buyer

A.

Price of the sale

B.

Necessary expenses of the thing sold

C.

Interest on the price of the sale

D.

Expenses of the contract


43/44



55. A sold his specific car (BMW) to B for P500,000 payable in 6

equal installments. A delivered the car to B and B has

constituted a mortgage to answer for the unpaid instalments

using his other car (Porshe). B paid the first 2 installments

but was not able to pay the last 3 installments. A foreclosed

the mortgaged car and sold it at public auction for P250,000.

Which is correct?

A.

A can recover from B the deficiency even if there is no

stipulation to that effect

B.

A can recover from B the deficiency if there is

stipulation to that effect

C.

A cannot recover the deficiency even if there is

stipulation to the contrary

D.

A cannot recover the deficiency except if there isstipulation to the contrary


44/44

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