lOMoAR cPSD| 13706118 CPA Reviewer Law on Sales updated as of 2017 2018 Bachelors of Science Major in Accountancy (University of San Jose - Recoletos) Studocu is not sponsored or endorsed by any college or university Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 1 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. I. RFBT SALES Nature of Obligation Created A contract where one party obliges himself to transfer ownership and to deliver a determinate thing and the another party to pay a price certain in money or its equivalent. Elements of a Contract of Sale 1. Essential Elements a. Consent b. Determinate object c. Price certain in money 2. Natural Elements a. Warranty against eviction b. Warranty against hidden defects and encumbrances 3. Accidental Elements- refer to the stipulations of the contracting parties Characteristics of a Contract of Sale 1. Consensual- perfected by mere consent 2. Principal- capable of standing alone without the need of another contract 3. Bilateral- there is a reciprocal obligation between the parties 4. Onerous- valuable consideration is given by both parties 5. Commutative- the consideration exchange are of equivalent values 6. Nominate- has a name given by law Stages of a Contract of Sale 1. Preparation/Conception- the time the contracting parties shows interest in the contract. 2. Perfection/birth- concurrence of the essential elements of the sale 3. Consummation/death- begins when the parties perform their respective undertakings, resulting in the extinguishment thereof. a.) For the SELLER: To transfer ownership and to deliver possession of the subject matter b.) For the BUYER: to pay the price Sale as a Title Contract of sale DOES NOT transfer the ownership of the subject matter. It is merely a title that creates the obligation to transfer ownership and a mode thereof. The contract of sale transfers no real rights. Ownership and position is transferred through delivery or tradition. II. SALE DISTINGUISH FROM OTHER CONTRACTS A) DONATION Sale Donation Onerous Gratuitous Perfected by mere Perfected by consent donee’s acceptance Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it. B) BARTER Sale Barter Cause or Cause or consideration is in consideration is money another thing By contract of barter or exchange, one of the parties binds himself to give one thing in consideration of the other’s promise to give another thing. [Art. 1638] Note: Consideration is partly in money and partly in another thing. Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 2 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT The type of contract is determined under the following hierarchy; a. Manifest intention of the parties b. If intention is not clear, the following rules shall apply: i. Thing is more valuable than money- barter ii. Money is equal or more than to the value of the thing- sale C) CONTRACT FOR PIECE OF WORK Sale Contract for Piece of Work Ordered in the Made specially for ordinary course of the customer upon the business his special order Thing transferred already existed and Thing transferred can be a subject of existed due to the order of the party sale to other desiring it. persons Within the statues Not within the of fraud statues of fraud When each product or system executed is always UNIQUE and could not massproduce the product because of its very nature, such is a contract for a piece of work. [Commissioner vs. Engineering Equipment and Supply Co., 1975] D) DACION EN PAGO Sale Dacion en Pago No pre-existing Pre-existing debt debt Creates an Extinguishes an obligation obligation Freedom in Price is value of the determining price thing given The cause or Cause is the consideration is extinguishment of the price and the the obligation and delivery of the the delivery of the object object Ver. 1.07 | BY: R.M.P E) CONTRACT TO SELL Contract of sale Contract to sell Ownership is Ownership is transferred upon transferred upon full delivery payment Non-payment is a Full payment is a resolutory positive suspensive condition condition Sale is already No perfected sale yet perfected Subsequent buyer is Subsequent buyer is presumed to be in presumed to be in bad faith good faith Vendor loses and cannot recover Title remains in the ownership of the vendor if the vendee thing sold until does not comply contract of sale is with the conditions resolved and set of the contract aside Contract to sell cannot be considered as a contract of sale because the first element (consent) is lacking. The prospective seller does not consent until the happening of an event. The seller only agrees is to fulfill his promise to sell the subject when full payment is made. F) AGENCY TO SELL Sale Agency to Sell Agent receives goods Buyer receives of the principal who goods as owner retains ownership Agent delivers the Buyer pays the price price which he got from his buyer Buyer, as a general Agent can return the rule, cannot return goods the object sold Seller warrants the Agent makes no thing sold warranty Agent can deal with the thing received as Buyer can deal with long as it is within the thing sold his authority given by the principal lOMoAR cPSD| 13706118 3 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT G) KINDS OF CONTRACT OF SALE 1) Absolute- sale is not subjected to any condition and the title immediately passes to the purchaser upon delivery 2) Conditional- ownership of the object remains with vendor until fulfillment of condition/s. Conditional Co ntract of Sale Sale is already perfected Upon fulfillment of condition, ownership automatically transfers to the buyer H) LEASE Sale Ownership transferred by delivery Seller must be the owner at the time of delivery Contract to Sell Sale is not perfected Upon fulfillment of condition, ownership does not automatically transfers to the buyer a. Existing Goods- goods owned or possessed by the seller b. Future Goods- goods to be manufactures, raised or acquired by the seller after the perfection of the contract. These are things which are expected Objects must be within the commerce of men. If the subject is illicit, contract is VOID and cannot be ratified. Instances of sale of things not actually or already owned by seller at time of sale 1. Sale of thing having potential existence 2. Sale of future goods 3. Contract for the delivery at a certain price of a thing the vendor produces in the ordinary course of the business or for the general market. Lease No transfer of ownership Lessor need not be the owner One person binds himself to grant temporarily the use of the thing or to render some service to another who undertakes to pay some rent.III. OBJECT/SUBJECT MATTER Requisites of a Valid Subject Matter a. For Things: 1. Licit/ lawful 2. Should not be impossible 3. Determinate or determinable b. For Rights: 1. Transmissible 2. Licit Ver. 1.07 | BY: R.M.P Goods which may be Object of Sale LICIT The thing is licit when: 1) It is within the commerce of man 2) When right is transmissible 3) It does not contemplate a future inheritance, unless expressly authorized by law Example of properties not within the commerce of man:a) Public property a. Property for public use b. Intended for public service c. Intended for development of national wealth b) Church c) Narcotics or drugs Kinds of Illicit Things 1) Per Se- of its nature 2) Per Accidens- due to provisions of law declaring it illegal lOMoAR cPSD| 13706118 4 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT Examples of illicit sale: a. Sale of Future inheritance b. Sale of animals suffering from contagious disease c. Sale of animal to be used for a service stated in a contract, and they have found to be unfit therefor. d. Sale or transfer of land to aliens EXISTING, FUTURE, CONTINGENT Goods which form the subject may either be: 1) Existing 2) Goods to be manufactures, raise or acquired by the seller 3) Things having potential existence 4) Sale of specific things 5) Fungible goods 6) Undivided interest Mere Hope or expectancy (Emptio Spei) The sale of a mere hope or expectancy is deemed subject to the condition that the thing contemplated or expected will come into existence. The Sale it self is valid even if the thing hoped or expected does not come into existence, unless if such hope or expectancy is in vain, such sale is VOID. Emptio Rei Speratae Sale of an expected thing Subjected to the condition that the thing will come into existence Uncertain with regard to quantity Future Goods (Emptio Rei Speratae) It is in the form of a present sale, is valid only as an executory contract to be fulfilled by the acquisition and delivery of the goods specified. Upon the acquisition of goods, either party may demand the execution of the contract. Example of future things: 1. Goods to be manufactured or printed 2. To be raised or future agricultural products 3. To be acquired by seller after the perfection of the contract 4. Things whose acquisition depends upon a contingency Potential Existence Goods not existing at the time can be an object as long as it has a potential or possible existence, that is, it is reasonably certain to come into existence, and the title will vest in the buyer the moment the thing comes into existence. and quality of the thing Object is a future thing Emptio Spei Sale of the hope itself Sale produces effect even if the thing does not come into existence Uncertain with the existence of the thing Object is a present thing Note: In case of doubt, presumption is in favor of emptio rei speratae since it is more in keeping the commutative character of the contract. SALE OF SPECIFIC THINGS A) Sale of Things in Litigation Entered into by defendant, without knowledge and approval of the litigants or the court is rescissible. [Art. 1381 (4)] Rescission will not take place when the thing legally is in the possession of a 3rd person who acted in good faith. [Art. 1385 (2)] B) Sale of Undivided Interest Makes the buyer a co-owner of the thing. The co-owner can dispose his share even without the consent of the other co-owner/s. Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 5 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT IV. C) Sale of undivided share of a Specific Mass of Fungible Goods The sale of an undivided share in a specific mass of fungible goods makes the buyer a co-owner of the entire mass in proportion to the amount he bought. If later on it was discovered that the mass of fungible goods contain less than what was agreed upon, the buyer becomes owner of whole mass and seller must make up for the difference. D) Sale of Things Subject to a Resolutory Condition If the resolutory condition happens, the vendor cannot transfer ownership of what he sold since there is no object. PRICE It is the sum stipulated as equivalent of the thing sold and also every incident taken into consideration for the fixing of the price put to the debit of the buyer and agreed to by him. Requisites 1. Certain or ascertained at the time of perfection 2. In money or its equivalent 3. Real, not fictitious A) CERTAINTY OF PRICE Price must be certain, otherwise the sale is void by reason of absence of meeting of minds. Price can be determined or certain when: DETERMINATE OR DETERMINABLE A) Determinate A thing is determinate when it is particularly designated or physically segregated from all others of the same class. B) Determinable A thing is determinable when it is capable of being made determinate at the time the contract was entered without the necessity of a new or further agreement between the parties. O O Note: Failure to state the exact location of the land does not make the object indeterminate, so long as it can be located. The fact that the exact area of the land specified in the contract of sale is subjected to the result of the survey does not make the object indeterminate. a.) Parties have fixed or agreed upon a definite price Fixing of price cannot be left to the discretion of one of the parties unless if such was accepted by the other, therefor the sale is perfected. b.) If it be certain with reference to another thing certain c.) Determination is left to the judgement of a specified person Price fixed by 3rd persons designated by the parties is binding upon them. Exemptions 1. If unable or unwilling: sale is inefficacious unless parties subsequently agree about the price. 2. If in bad faith/by mistake: Courts may fix the price. 3. If 3rd person is prevented from fixing price by fault of seller or buyer: Innocent party may avail of remedies through recession or fulfillment of obligation, with damages. Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 6 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT B) INADEQUACY OF PRICE Gross inadequacy of price does not affect the contract of sale except that it may indicate a defect in consent. 1. Voluntary Sales • General rule: Mere inadequacy of the price does not affect validity of the sale. • Exceptions: a.) When low price indicates vice of consent, sale may be annulled b.) Where the price is so low as to be “shocking to conscience”, sale may be set aside c.) Where the parties did not intend to be bound at all, sale is VOID 2. Involuntary Sales • General Rule: Mere inadequacy of the price is not a sufficient ground for the cancellation of the sale if property is real. • Exceptions: 1. Where the price is so low as to be shocking to the moral conscience, judicial sale will be set aside. 2. In the event of resale, a better price can be obtained. C) SIMULATION OF PRICE If the price is simulated, the contract is void for the lack of cause or consideration, but can be shown as a donation or some other contract. Disagreement on the matter of payment is tantamount to a failure on the price 1. False Price (Relative Simulation) Price stated in the contract is not the true price parties intended to be bound 2. Simulated Price (Absolute Simulation) Price stated in the contract is not intended to be paid. Parties never intended to be bound. Contract is void and inexistent. D) FAILURE TO DETERMINE PRICE 1. Where contract executory- contract is without effect. There is no obligation created. 2. Where delivery has been made- buyer must pay a reasonable price. Reasonable Price What is a reasonable price is a question of fact dependent on the circumstances of each case. It may be determined on the basis of a company’s balance sheet showing the book or fair value of its shares. Generally, reasonable price is the market price at the time and place fixed by the contract or by law for delivery of goods. E) EARNEST MONEY Partial payment of the purchase price & considered proof of the perfection of the contract. Earnest Money Part of purchase price Given only when there is already a sale Buyer is bound to pay the balance In case of nonpayment, specific performance or rescission can be filed Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) Option Money Separate and distinct from purchase price Given when sale in not yet perfected Would-be-buyer is not required to buy In case of nonpayment, there can be an action for specific performance. lOMoAR cPSD| 13706118 7 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT NOTE: Expenses for the execution and registration of the sale shall be borne by the vendor, unless there is a stipulation to the contrary. Remedies of vendor to unpaid price 1. Exact fulfillment 2. Cancel the sale, should vendee failed to pay two or more installments. 3. Foreclose the chattel mortgage. Requisites a.) Must be a contract of sale b.) Object is personal property c.) Sale must be in installments Does not apply for sale for cash or straight terms. V. OFFER • General Rule: Offer may be withdrawn at any time without even communicating such withdrawal to the interested buyer • Exception: When the offeror has allowed the offeree a certain period to accept, may be withdrawn at any time before acceptance by communicating such withdrawal. Exception to the exception: Cannot be withdrawn within a certain period if found under a consideration. OPTION CONTRACT An accepted unilateral promise to buy or sell supported by a consideration distinct from the price. It secures the privilege to buy. Option Contract Unilateral Sale of right to Sale Bilateral Sale of Property purchase An option without consideration is VOID and the effect is the same as if there was no option. Kinds of Promises 1. Unilateral promise to sellpromise elects to buy 2. Unilateral promise to buypromise elects to sell 3. Bilateral promise to buy and sell-either parties choose to exact fulfillment VI. ACCEPTANCE The acceptance referred to which determines consent is the acceptance of the offer, and not of the goods delivered. Requisites 1. It must be absolute 2. Must be plain and unconditional 3. To bind the offeror, the offeree must comply with the conditions of the offer. VII. PERFECTION Contract of sale is perfected at the moment of the meeting of the minds of the parties. From the moment of perfection, parties may reciprocally demand performance. Requirements for Perfection 1.When parties are face to face, when an offer is accepted without conditions and without qualifications. If negotiation is made through a phone, it is as if the parties are face to face. 2. When contract is through a correspondence or thru telegram, there is perfection when the offeror receives or has knowledge of the acceptance by the offeree. 3. When sale is made subject to a suspensive condition, perfection is when from the moment the condition is fulfilled. Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 8 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT Statute of Fraud Effect of Perfection The following transaction must be in writing, otherwise contract is unenforceable. Unless ratified by failure to object to oral acceptance of benefits under the contract. After perfection, parties must now comply with their mutual obligations. In the meantime, buyer has personal rather than real right. Hence if seller sells again a parcel of land to a stranger in good faith, the proper remedy of the buyer would be to sue for damages for he cannot recover ownership over something he had never owned before. 1. Sale of property at price not less than P500.00 2. Sale not to be performs within one year 3. Sale of real property or interest therein NOTE: Applicable only to executory contracts and not to contracts which are totally or partially performed. Sale by Auction Perfected when the auctioneer accepts the bid by the falloff the hammer, gavel, or in any other customary manner. If the auction is announced “without reserved”, goods cannot be withdrawn from sale after the bid is made. By taking part in the auction, the buyer voluntarily submitted to the terms and condition of the auction. Sale Of Goods By Description Seller sells things as being a particular kind, and buyer has not seen the article sold and relies on the description given by the vendor. Sale by Sample Parties contracted solely with reference to the sample, with the understanding that the bulk was like it. The vendor warrants the thing sold will conform with the sample in kind, character, and quantity. It is the sole basis or inducement of the sale. NOTE: goods must satisfy all the warranties. Otherwise, contract may be rescind. VIII. CAPACITY TO BUY AND SELL All persons who can bind themselves by contract have also legal capacity to buy and sell. Kinds of Incapacity 1. Absolute Incapacity- persons cannot bind themselves at all a. Minors b. Insane or Demented c. Deaf-mutes who do not know how to write d. Civil Interdiction 2. Relative Incapacity- only with regards to certain persons and certain class of property Husband and Wife • General Rule: Husband and wife cannot sell to each other • Exception: 1) When separation of property was agreed 2) There was a judicial separation of property Relative Incapacity The following persons cannot acquire property by purchase, even at a public auction, either in person or through the mediation of another: 1) Guardian, with respect to the property of his ward Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 9 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT 2) Agents, the property whose administration or sale may have been in trusted to them, unless consent of principal is given 3) Executors and administrators, property of estate under his administration. 4) Public officers and employees, with respect to the properties of the government, political subdivisions, or GOCCs, entrusted to them. 5) Judges, justice, prosecuting attorney, clerks of court, etc., with respect to the property in custogia legis. 6) Other persons disqualified by law Effect of violation a. With respect to 1-3: VOIDABLE Reason: only private rights, which are subject to ratification are violated. b. With respect to 4-6: NULL & VOID Reason: violation of public policy cannot be subjected to ratification IX. LOSS AND DETERIOTAION • After delivery: buyer bears the risk. Unless delivery was delayed through the fault of either parties, the risk is with the party in fault; and when the ownership of the goods has been retained by the seller. X. OBLIGATIONS OF THE VENDOR 1) Transfer ownership 2) Deliver the thing, with its accessions and accessories, if any 3) Warrant against eviction and against hidden defects 4) To take care of the thing, pending delivery, with proper diligence 5) To pay the expenses of the deed of sale, unless there is stipulation to the contrary XI. DELIVERY Ownership, as a consequence of certain contracts such as sale, shall be transferred to the vendee upon actual or constructive delivery Res Perit Domino The concept that owner bears risk of loss and deterioration because ownership is not transferred until delivery. Rule on Risk of Loss and Deterioration: • • • • Before Perfection: Seller bears the risk At the time of perfection: Contract is VOID or inexistence At the time of sale: if entirely lost, contract is VOID or inexistence. If partially lost, vendee may elect between withdrawing or demanding the remaining part. After perfection but before delivery: risk of loss is shifted to the buyer but stipulations in the contract will govern. Intention to Transfer Ownership In all forms of delivery, the act of delivery shall be coupled with the intention of delivering the thing. The act without the intention is insufficient. Requisites of Delivery 1. Identity 2. Integrity 3. Intentional When vendor is not bound to deliver 1. Vendee has not paid the price 2. No period for payment has been fixed 3. Even if a period for payment has been fixed, if the vendee has lost the right to make use of the same Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 10 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT Kinds 1. Actual or real- placing the thing under the control and possession of the buyer 2. Legal or constructive- delivery is represented by other signs or acts indicative thereof 3. Quasi-tradition- delivery of rights, credits or incorporeal property, made by (i) placing titles of ownership in the hands of the buyer or (ii) allowing the buyer to make use of rights 4. Tradition by operations of law Kinds of Constructive or Legal Delivery a) By Legal Formalities- sale is made through public instrument. Gives rise only to a prima facie presump-tion of delivery. b) Symbolic Delivery (tradition simbolica)- delivery of keys or depository where the movable is kept or stored. c) Traditio Longa Manu- delivery of a movable by mere consent or agreement. Pointing at the thing d) Traditio Brevi Manu- buyer simply continues in possession of the thing but under ownership. Applies to movables only. Happens when buyer already has possession of the thing sold before the sale. e) Traditio Constitutum Posessoriumseller continues to be in possession of the property sold but not as a owner but in some other capacity. Sale or Return Property is sold, but the buyer has the option to return it to the seller instead of paying the price. It depends on the discretion of the buyer; it is a sale with a resolutory condition. It is a kind of sale with condition subsequent. Buyer, being the owner, bears the risk of loss. The buyer must comply with express or implied conditions otherwise, the sale becomes absolute. Sale on Approval or Trial Title remains with seller notwithstanding delivery of the goods. It is in nature of an option to purchase. Sale is dependent on the quality of the goods; it is a sale with suspensive condition. Buyer become owner when: 1) Buyer signifies his approval or acceptance to seller 2) Does any other act adopting the transaction 3) Retains the goods without giving notice of rejection after the time fixed has expired; it no time has been fixed, after the expiration of a reasonable time Sale or Return Subject to a resolutory condition Depends on the will of the buyer Ownership passes to buyer on delivery Risk of loss or injury rest with the buyer Sale on Trial Subject to a suspensive condition Depends on the character or quality of the goods Ownership remains in the seller until buyer signifies his approval (meeting of the minds) Risk of loss and injury remains with seller Goods Delivered Through Carrier • General Rule: Delivery to carrier is deemed to be delivery to the buyer. • Exception: Where the right of possession or ownership of specific goods sold is reserved. Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 11 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT Seller’s Duty After Delivery to Carrier 1. To enter on behalf of buyer into such contract reasonable under the circumstances 2. To give notice to buyer regarding necessity of insuring the goods. Instances Where Seller Is Still The Owner Despite Delivery 1. Sale on trial, approval or satisfaction 2. Contrary intention appears by the terms of the contract 3. Implied reservation of ownership a. Goods are shipped, but by the bill of landing goods are delivered to seller or his agent or their order b. Bill of landing is kept by the seller or his agent c. When the buyer does not honor the bill of exchange by returning the bill of landing to seller. Sale by one having a Voidable Title If the seller has only a voidable title, buyer acquires a good title to the goods provided he buys them: a) Before the title of the seller has been avoided b) In goods faith for value c) Without notice of the seller’s defect of title Sale of Goods by a Non-owner • General Rule: Buyer acquires no title even if in good faith or for value. Nemo dat quid non habet (“You cannot give what you do not have”). • Exceptions: 1. Owner is estopped or precluded by his conduct 2. Sale is made by the registered owner or apparent owner 3. Sales sanctioned by judicial or statutory authority 4. Purchase in a merchant’s store, fairs or markets (art. 559) 5. When a person who is not the owner sells and delivers a thing, subsequently acquires title thereto. 6. When the seller has a voidable title which has not been avoided at the time of sale. Place of Delivery 1. Where there is an agreement: Place specified 2. Where there is no agreement: Place of delivery determined by usage of trade 3. Where there is no agreement and no prevalent usage: seller’s place of business 4. In any other case: seller’s residence Payment of the Purchase Price • General Rule: Seller is not bound to deliver unless the purchase price has been paid. • Exception: The Seller is bound to deliver even if the price has not been paid, is a period of payments has been fixed. Goods Delivered Less Than Quantity Agreed 1. Buyer may reject; or 2. Buyer may accept and pay at the contract rate Quantity More Than Agreed Upon 1. Buyer may reject all; or 2. Buyer may accept the goods agreed upon and reject the rest; or 3. Buyer may accept all and must pay for them at the contract rate Goods Mixed With Goods Of Different Description Buyer may accept the goods which are in accordance with the contract and reject the rest. Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 12 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT Indivisible Goods Classes of Documents of Title If the subject is indivisible, in case of delivery of a large quantity of goods or a mixed goods, the buyer may reject the whole of the goods. Right of rejecting the whole of the goods delivered is given only if the subject matter is indivisible. Rights of Vendee to the Fruits Vendee has the right to the fruits of the thing sold from the time obligation to deliver arises. Generally at time of perfection, however parties may modify it by agreement. XII. DOCUMENT OF TITLE A document of title in which is stated that the goods referred to therein will be delivered to the bearer, or to order of any person named in such document is a negotiable instrument of title. Document is negotiable if: 1.) Goods are deliverable to bearer 2.) Goods are deliverable to the order of a certain person Common forms of document of title a) Bill of Landing- contract or receipt for the transport of goods and their delivery to the person named therein, to order or bearer. b) Dock Warrant- given by dock owners to an importer of goods recognizing the latter’s title of the said goods c) Warehouse Receipt- contract or receipt for goods deposited with a warehouseman containing the latter’s undertaking to hold and deliver the said goods to a specified person, to order or bearer. a) Negotiable Documents of title- stated that goods can be delivered to bearer, or to the order of a person. b) Non-negotiable Instrument of Titlestated that goods are to be delivered to a specified person. Negotiation of negotiable document of title 1.) By Delivery 2.) By indorsement plus delivery Forms of Indorsement a) Blank Indorsement- consist of signature of the indorser without specifying the name of the indorsee. b) To bearer- where the indorsement states that the goods are deliverable to bearer. c) Special Indorsement- name of indorsee is specified. Negotiable Document of title marked “Non-negotiable” Such mark will have no effect on the instrument and remains to be negotiable. Who may negotiate negotiable document of title 1. By the owner 2. By the person to whom the possession or custody of the document has been entrusted by the owner. Rights of the Holder 1. Title of the person negotiating the document, over the goods covered by the document; 2. Title of the person to whose order by the terms of the document the goods were to be delivered, over such goods; 3. The direct obligation of the bailee to hold possession of the goods for Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 13 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT him, as if the bailee had contracted to him directly. NOTE: Mere transfer foes not acquire directly the obligation of the bailee. To acquire it, he must notify the bailee. Rights of the Transferee The rights of a transferee, tot whom a document is transferred but not negotiated, are not absolute as it is subjected to the terms of the agreement. 1. Title of the goods as against the transferor; 2. Right to notify the bailee of the transfer thereof; 3. Right, thereafter, to acquire the obligation of the bailee to hold goods for him. Bailee The bailee has the direct obligation to hold possession of the goods for the original owner. The goods cannot be attached or levied and bailee cannot be compelled to deliver the goods unless the document be first surrendered or its negotiation prohibited by court. Failure of bailee or previous indorsers to fulfill their obligations Indorser hall not be liable for any failure on the part of the bailee or previous indorsers to fulfill their respective obligation. Effect of typographical or Grammatical Error It does not destroy the negotiability of the document of title, for what should be considered is the intent. Transfer for Value by Delivery If a negotiable document of title is transferred for value by delivery, and indorsement is essential for negotiation, The right of the transferee are: 1. Right to the goods as against the transferor; 2. Right to compel the transferor to indorse Negotiation shall take effect as to the time when indorsement is actually made. Warranties on sale of document 1. Document is genuine 2. He has a legal right to negotiate or transfer it 3. He has knowledge of no fact which would impair the validity or worth of the document 4. He has the right to transfer the title to the goods and that goods are merchantable or fit for a particular purpose XIII. UNPAID SELLER Unpaid seller is one who has not been paid the whole amount of the price or one who received a negotiable instrument and it has been dishonored, buyer is insolvent, or otherwise. Rights of the Unpaid Seller 1) Right to lien of goods or the rights to retain them for the price while he is in possession of them 2) Right of stoppage in transit 3) Right of resale 4) Right to rescind the sale RIGHT TO LIEN Right to retain possession of goods until payment or tender of the whole price, or unless he agrees to sell on credit A) When available: 1.) Goods sold without stipulation as to credit 2.) Goods are sold on credit, but credit term has expired 3.) Buyer becomes insolvent Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 14 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT B) Lien on Partial Delivery: When unpaid seller made partial delivery of the goods, he may exercise his lien on the remainder, unless such part delivery shows an intent to waive the lien or right of retention. C) When lien is lost: 1.) Delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the ownership in the goods or the right of possession thereof; 2.) Buyer or his agent lawfully obtains possession of the goods; 3.) By waiver thereof RIGHT OF STOPPAGE IN TRANSITU An extension of the lien for the price; entitles unpaid seller to resume possession of the goods while they are in transit before the goods come in possession of the vendee A) When available: 1.) Buyer must be insolvent; 2.) Seller must be unpaid 3.) Goods are in transit 4.) Seller must actually take possession of the goods sold or give notice of his claim to the carrier or other person in possession. 5.) Seller must surrender the document of title, if any, issues by the carrier or bailee; 6.) Seller must bear the expenses of delivery after the exercise of the right B) When goods are considered in transit: 1.) After delivery to carrier or other bailee and before the buyer or his agent takes delivery of them; 2.) Goods are rejected by buyer, and carrier or bailee continues to be in possession of them, even if seller refused to received them back. C) How to exercise: 1.) By obtaining actual possession of the goods. 2.) By giving notice of his claim to the carrier or bailee. Such notice may be given in to the person in actual possession or to his principal. But if given to the principal, it must be given at such time and under such circumstances to be effectual so the principal can prevent delivery. D) Effects of exercise: 1.) Goods are no longer in transit 2.) Carrier shall be liable as depositary or other bailee. 3.) Carrier must redeliver the goods to, or according to the instructions of the seller E) When goods are no longer in transit: 1.) After delivery to the buyer or his agent in that behalf; 2.) Buyer obtains delivery of the goods before arrival at the appointed destination 3.) Carrier or bailee acknowledges to hold the goods on behalf of the buyer 4.) Carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent. RIGHT OF RESALE A) When available: 1.) Seller has the right to lien or stoppage in transitu. 2.) Under the following cases: a. Goods are perishable by nature b. Right to resell is expressly reserved c. Buyer delays in payment for an unreasonable time Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 15 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT B) Effects of resale 1.) Seller is not liable to the buyer for any profit 2.) If sells for less than the price, seller has right to sue for the balance from buyer 3.) New buyer acquires good title as against the original buyer RIGHT TO RESCIND THE SALE Return of the title over the undelivered goods to the seller, and right to recover damages for breach of contract A) When available: 1.) Seller has the right to lien or stoppage in transitu 2.) Under either of the 2 situations: a. Right to rescind is expressly reserved b. When buyer delays in the payment of the price for an unreasonable time. B) Effects of rescission 1.) Seller resumes ownership of the goods 2.) Seller shall not be liable to the buyer upon the contract 3.) Buyer may be held liable to the seller for damages for any loss occasioned by the breach of contract C) How seller may rescind: by notice to the buyer or by some overt act showing an intention to rescind. Communication to buyer of rescission is not always necessary but giving/failure to give notice is relevant in determining reasonableness of time given to the buyer to make good his obligation under contract. Effect if Buyer Sold the Goods Generally, the unpaid seller's right of lien or stopage in transitu remains even if the buyer has sold or otherwise disposed of the goods. Exceptions: 1.) Seller has given his consent 2.) When purchaser or buyer is a purchaser for value in good faith of a negotiable document of title. IX. SALE OF REAL ESTATE Unit Price Contract Payment will be made only on the basis of contractual items actually performed. The amount agreed upon is merely an estimate. Price is depending upon the quantities performed multiplied by the unit prices previously agreed upon. Sale of Real Estate by the Unit The vendor must deliver the entire property agreed upon. The immovable property must be of the quality specified in the contract. If the entire area could not be delivered, then the object of the contract is not delivered. Hence the vendee is entitled to rescind it. But he may, however, enforce the contract with the corresponding decrease in price. When Vendee is Entitled to Rescind Sale of Real Property 1.) If the lack of area is at least 1/10th than that stated or stipulated. 2.) If the deficiency in the quality specified in the contract exceeds 1/10th of the price agreed upon 3.) If the vendee would not have bought the immovable had he known of its smaller area or inferior quality. Where immovable of a greater area or number Vendee may accept the area included in the contract and reject the rest. The vendee may not withdraw from the contract. Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 16 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT Lump Sum Sale (A Cuerpo Cierto) Sates the full purchase price based on the estimate or where both area and boundaries are stated. 2.) Double Sale of Real Property a. First registrant in good faith b. First possessor in good faith c. Person with oldest title in good faith Boundaries Mentioning the boundaries of the land is indispensable in every conveyance of real estate. The vendor is bound to deliver all that is included within the said boundaries. The area of which, even if lesser or grater than what is stipulated, is immaterial. The requirement of the law then is twofold: acquisition in good faith and registration in good faith. Good faith must concur with the registration. If it would be shown that a buyer was in bad faith, the alleged registration they have made amounted to no registration at all. Real property not in Vendor's Possession The failure of a person to take the ordinary precautions, specially in buying a piece of land in the actual, visible and public possession of another person, other than the vendor, constitutes gross negligence amounting to bad faith. One who purchases real property which is in the actual possession of another should, at least make some inquiry concerning the right of those in possession. He can scarely, in the absence of such inquiry, be regarded as a bona fide purchaser as against such possessors. Prescription of Action The action for either recission of the or reduction of the price must be brought 6 months from the day of delivery. X. DOUBLE SALE Requisites of Double Sale 1. Two or more valid contract of sale; 2. Two or more buyers ; 3. They must pertain exactly to the same object; and 4. They must be bought from the same seller. Rules of Preference 1.) Double Sale of Movables - who first takes possession in good faith XI. CONDITIONS An uncertain event or contingency on the happening. Conditions may be: 1.) Waived; or 2.) Considered as warranties Effect of non-fulfillment of Condition 1.) If the obligation of either party is subjected to any condition and such condition is not fulfilled, such party may; a. Refuse to proceed with the contract b. Proceedthecontract, waiving the performance of the condition 2.) If condition is in nature a promise that it should happen, the nonperformance of such condition may be treated by the other party as a breach of warranty. XII. WARRANTIES It is a promise that a fact is true. In a sale, it is a statement of fact abut the quality or character of the goods sold to induce the sale relied upon by the buyer. Breach or violation of it gives rise to a suit for damages. Warranty is enforceable only against the immediate vendor of the party dispossessed. Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 CPA in Transit Reviewer: Law on Sales Ver. 1.07 | BY: R.M.P 2017-2018 ed. 17 Warranty vs Condition Warranty Goes into the performance of an Implied Warranty obligation and may, in itself, be an obligation Stipulation or operation of law Non-fulfillment constitutes breach of contract May attach to the seller’s duty to RFBT Condition Affects the existence of the obligation Must be stipulated Non-happening does not breach the contract It is a natural, not an essential element of a contract, and is deemed incorporated in the contract of sale. It is inherent. Its reason is to protect naïve and unsuspecting buyers from scrupulous sellers from running away from their wrongful doings. It may be modified or suppressed by agreement of the parties. Unless waived, the warranties stay. Always relate to the subject matter or the deliver or some other circumstances seller’s obligations Kinds of Warranties 1.) Express Warranty 2.) Implied Warranty Express of Opinion A mere expression of opinion by the seller does not import a warranty unless: 1.) Seller is an expert; and 2.) Opinion was relied upon by the buyer Not every false representation voids the contract, only those matters substantially affecting the buyer’s interest Implied Warranties in sale 1. Warranty as to seller’s title 2. Warrant against hidden defects 3. Warranty as to fitness or merchantability When Implied Warranty not Applicable 1.) “As is and where is” sale 2.) Sale of secondhand articles 3.) Sale by virtue of authority in fact or law SUBSECTION 1 Warranty Against Eviction Eviction Vendee is deprived of the whole or part of the thing purchased. (art. 1548) Express Warranty It is an affirmation of fact or any promise by the seller about the subject matter where the natural tendency of it is to induce the buyer to purchase the thing and the buyer purchases the thing relying on such affirmation or promise. An express warranty can be made by and also be binding on the seller even in the sale of a second hand article. Warranty against Eviction Seller guarantees that he has the right to sell the thing sold and to transfer ownership to the buyer who shall not be disturbed in his legal and peaceful possession thereof. If evicted, vendor is liable thereof. Elements of Warranty Against Eviction 1.) Vendee has been deprived in whole or in part of the thing purchased 2.) Deprived by virtue of final judgement Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 18 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT 3.) Judgement is based on right prior to the sale or act imputable to the vendor 4.) Vendor was summoned in the suit for eviction at the instance of the vendee 5.) There is no waiver on the part of the vendee NOTE: Rescission is not a remedy against total eviction. Rescission contemplates that the one demanding it is able to return whatever he has received under the contract. Since the buyer can no longer return the thing sold to the seller, rescission cannot be carried out. Prescription Where one acquires ownership and other real right through the lapse of time in the manner and conditions prescribed by law. a. Completed before sale- vendee can enforce warranty against eviction b. Completed after sale- vendor is not liable for eviction. (art. 1550) Effect of Waiving Warranty in Bad Faith a. Vendor in bad faith- cannot be exempted from warranty. Because he has knowledge beforehand of a presence of a fact giving rise to eviction. (art. 1553) b. Vendee in bad faith- not entitled to warranty against eviction nor right to recover damages. He proceeded to the sale with the assumption of the risk of eviction. (art. 1554) Kinds of Waiver 1. Consciente a. voluntarily made by the vendee without the knowledge and assumption of the risks of eviction. b. Vendor shall only pay the value of the thing sold at the time of eviction Eviction in Part Buyer may either enforce vendor’s liability for eviction or he may demand rescission of the contract provided in article 1556, if the buyer lose, by eviction, a part of the thing sold of such importance that he would not have bought it without said part. 2. Intencionada a. Made by vendee with knowledge of risk of eviction and assumption of its consequences b. Vendor not liable unless acted in bad faith Rights and liabilities In case eviction occurs, the vendee shall have the right to demand of the vendor the following: 1. Return of value of thing 2. Income or fruits of thing 3. Cost of the suit 4. Expenses of the contract 5. Damages and interest, and ornamental expenses, if sale is made in bad faith. (art. 1555) SUBSECTION 2 Warranty Against Hidden Defects of, or Encumbrances upon, the Thing Sold Requisites for Warranty against Hidden Defects 1. Defect must be important or serious; 2. Must be hidden 3. Must exist at the time of sale 4. Vendee must give notice of defect to vendor within reasonable time 5. Action for rescission or reduction in price must be brought within 6 months from delivery or 40 days in case of animals 6. No waiver of warranty on the part of vendee Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 19 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. When defect important a) Renders the thing sold unfit for its intended use; b) Diminishes its fitness for such use NOTE: The use contemplated must be that which is stipulated, and in absence of stipulation, that which is adopted to the nature of the thing, and to the business of the buyer. Implied Warranty of Fitness Generally, there is no implied warranty of fitness for any particular purpose except under the following: a) Buyer expressly or impliedly manifest to the seller the particular purpose of the goods acquired b) Buyer relies upon the seller’s skill or judgement There is an implied warranty that the goods are reasonably fit for such special purpose. Implied Warrant of Merchantability It’s a warranty that goods are reasonably fit for the general purpose for which the same are sold. Ignorance of Vendor of Hidden Defects Ignorance does not relieve the vendor from liability. Good faith cannot be availed of as a defense by the vendor. a) Doctrine of Caveat Venditor Vendor is still liable even is he is not aware due to this doctrine. It is based on the principle that a sound price warrants a sound article. Alternative Remedies of the Buyer Vendee has the option to either: 1. Accion redhibitoria (withdraw from the contract) 2. Accion quanti minoris (reduction in price) Ver. 1.07 | BY: R.M.P RFBT Effects of Thing loss due to hidden defects a.) Vendor aware of hidden defect- he shall bear the lost due to bad faith. Vendee may recover: 1. Price paid 2. Expenses of the contract 3. Damages b.) Vendor is not aware- since he acted in good faith, he shall be obliged only to return: 1. Price 2. Interest 3. Expenses of the contract paid by vendee Lost due to fault of Vendee If the thing sold had any hidden defects at the time of sale, and it is lost through the fault of the vendee, vendor shall be liable for the price paid less value of the thing had when it was lost. (art. 1569) RULES IN CASE OF SALE OF ANIMALS Redhibitory vice or defect A defect which the seller is bound to warrant in animals, the following special rules shall apply: 1. Defect must be hidden 2. Must be of such nature that expert knowledge is not sufficient to discover it Veterinarian is liable if he fails to discover or disclose the hidden defect through ignorance or bad faith. (art. 1576) Seller liable if animal dies within 3 days after its purchase due to a disease that existed at the time of sale. Limitation of the action: Redhibitory action must be brought 40 days from the date of their delivery to the vendee. (art. 1577) lOMoAR cPSD| 13706118 20 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT No warranty against hidden defects 1. Animals sold at public fairs or public auctions. 2. Livestock sold as condemned Void Sale of Animals a) animals sold are suffering from contagious disease; or b) found unfit for the use or service stated in the contract. Animal died with Vices If loss is caused for fortuitous event or by fault of vendee and animal has vices, the buyer may either: 1. withdraw from the contract; or 2. demand a reduction in price. XIII. EASEMENT OR SERVITUDE Easement or servitude is an encumbrance imposed upon an immovable for the benefit of another immovable owned by a different person. Kinds of easement or servitude a) Apparent easement- expressly made b) Non-apparent easement- no external indication of its existence When Vendee’s rights can’t be exercised 1.) When servitude is apparent 2.) If non-apparent servitude is registered 3.) If vendee has knowledge of the encumbrance, registered or not XIV. OBLIGATIONS OF THE VENDEE Principal Obligations of the Vendee 1.) Accept delivery 2.) Pay the price 3.) Bear expenses for the execution and registration of the sale and putting the goods in a deliverable state, if such is the stipulation Pertinent Rules: 1.Vendor not required to deliver the thing sold until the price is paid nor the vendee to pay the price before the thing is delivered in the absence of an agreement to the contrary; (art. 1524) 2. If stipulated, vendee is bound to accept delivery and to pay the price at the time and place designated; Requisites for Vendor’s Liability for Immovable sold with Easement 1.) Must be non-apparent 2.) Not indicated in the agreement 3.) Must be of such nature that the vendee would not have acquired the immovable had he been aware thereof. 3.If there is no stipulation as to the time and place of payment and delivery, the vendee is bound to pay at the time and place of delivery; Remedies & Right of Vendee 1.) Within 1 year from execution of the deed of sale: a. Rescission; or b. Damages. 2.) After one (1) year from of execution of deed of sale: a. Damages, within a period of one (1) year from discovery of easement or servitude 5. If only the time for delivery has been fixed the vendee is required to pay even before the thing is delivered to him; (art. 1524) 4. In the absence of stipulation as to the place of delivery, it shall be made wherever the thing might be at the perfection of the contract (art. 1251); and Delivery in installments (art. 1583) • General Rule: Buyer is not bound to accept delivery or pay the price thereof by installments. • Exception: If there is a stipulation Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 21 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT Right of Buyer to Examine Goods • General Rule: Buyer has the right to a reasonable opportunity to examine the goods before accepting them. (art. 1584) • Exception: (1) When there is an agreement; (2) stipulation that the goods shall not be delivered to buyer until he paid the price (C.O.D.). If seller refused to allow an opportunity for inspection, buyer may recind or recover the price paid. NOTE: the right to examine the goods is a condition precedent to the transfer of ownership. When there is Acceptance of Goods 1. Express acceptance 2. Buyer does an act which only an owner can do 3. Failure to return after reasonable lapse of time Effect of acceptance on vendor’s liability for breach of warranty • • General Rule: Seller is not discharged from liability for breach of warranty by the acceptance of the goods Exception: (1) If there is an agreement, express or implied; (2) if buyer fails to give notice to seller of breach of warranty within a reasonable time after buyer knows of such breach. (art. 1586) Effects if buyer refuses to accept delivery 1) Buyer justifiably refuses a) Buyer has no duty to return the goods b) Title does not pass c) Not be obliged to pay the price d) If he constitute himself as a depositary, he shall be liable as such 2) Buyer unjustifiably refuses a) Title passes to the buyer, unless there is stipulation and seller reserved the ownership b) Obliged to pay the price (art. 1588) Time and place for payment of price a. Time and place stipulated b. Time and place of delivery of thing, in absence of stipulation When Vendee is liable for interest Buyer shall pay interest for the period between delivery and payment of price in the following cases: 1. If there is stipulation 2. Thing sold produces fruits or income 3. If he is in default, from the time judicial or extrajudicial demand for payment of price. (art. 1589) Suspension of Payment (art. 1590) 1. When buyer may suspend payment a. If he is disturbed in the possession or ownership of thing bought; or b. If he has a well-grounded fear that his possession or ownership would be disturbed by a vindicatory action or foreclosure of mortgage. 2. When buyer may NOT suspend payment a. Vendor give security for the return of the price; b. It has been stipulated; c. Vendor has caused the disturbance or danger to cease; d. Disturbance is a mere act of trespass; e. Vendee has fully paid the price. e) Obligation to notify the seller of such refusal (art. 1587) Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 22 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT When Vendor may Rescind the Sale 1) Sale of immovable- seller must have a reasonable ground to fear the: a. Loss of the immovable property; AND b. Loss of the price. If one or both grounds do not exist, the vendor may choose between: a. Fulfillment with damages; b. Rescission with damages. NOTE: Rescission of real property is not automatic. Demand is needed before rescission may take place. Demand is for the rescission and not for the payment of the price. 2) Sale of Movables- rescission of the sale of movable shall take place at the option of the vendor, if at the time fixed for the delivery of the thing, the vendee: a. does not accept delivery b. does not pay the price, unless a longer period of payment is stipulated XV. BREACH OF CONTRACT OF SALE OF GOODS Actions by the Seller 1. Action for payment of price a. Ownership has passed to buyer and he wrongfully neglects or refuses to pay the price; b. Price is payable on a certain day and buyer did not pay, even if there is no transfer of title; or c. If the goods can’t be readily be resold for a reasonable price and buyer wrongfully refuses to accept them before ownership has passed. 2. Action for damages 3. Action for rescission a. When buyer repudiated the contract of sale; Ver. 1.07 | BY: R.M.P b. When buyer manifested his inability to perform his obligation; and c. When buyer has committed a breach in the contract. Action by the Buyer 1. Bring an action for specific performance, if the seller has broken the contract to deliver specific or ascertained goods. 2. In case of breach of warranty by seller: a. Accept the goods and ask to reduce or extinguish the price b. Accept goods and maintain an action for damages c. Refuse to accept the goods and maintain an action for damages d. Rescind the contract by the return of goods and recover of price When rescission by Buyer not allowed 1. If buyer accepted the goods knowing of the breach of warranty without protest; 2. If he fails to notify the seller within a reasonable time 3. Fails to return or offer to return the goods to the seller in substantially as good condition as they were in the time of delivery Rights and Obligation in Rescission 1. Buyer a. Obliged to return the goods, and cease to be liable for the price; b. If paid the price or any part thereof, he may recover it; c. Right to hold the goods as bailee if the seller refuse the return of goods; d. Right to have a lien of the goods for any portion of price paid, as if he were an unpaid seller. lOMoAR cPSD| 13706118 23 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT 2. Seller When seller may rescind before delivery a. When the buyer repudiated the contract of sale; b. When buyer manifested his inability to perform his obligation c. When buyer committed a breach of the contract. XVI. EXTINGUISHMENT OF SALE Sales are extinguish by: 1. By the same causes as all obligations: a. Payment/performance b. Prescription c. Loss of thing due d. Annulment e. Novation f. Condonation/remission g. Confusion or merger h. Compensation i. Rescission j. Resolutory Conditions 2. by the various causes of extinguishment in title VI (sales): a. Cancellation of sale of personal property in installments (art. 1484) b. Resale of the goods by unpaid seller (art. 1532) c. Rescission of the sale by unpaid seller (art. 1534 d. Rescission by the buyer in case of partial eviction (art. 1556) e. Rescission by buyer in case of breach of warranty against hidden defect (art. 1567) f. Rescission by buyer in sale of animals with redhibitory defects (art. 1580) 3. By redemption A.) CONVENTIONAL REDEMPTION Also called the right to redeem or repurchase, takes place when the vendor reserved the right to reacquire the thing sold, provided that he: 1. Return to the vendee: a. The price paid b. Expenses of the contract and other legitimate payments made thereof c. Necessary and useful expenses made on the thing sold. 2. Comply with other stipulations NOTE: the seller a retro must pay for useful improvements introduced by the buyer a retro; otherwise, the latter may retain possession of the land until reimbursement is made. Period of Redemption a.) No agreement : 4 years from date of contract b.) There is agreement: should not exceed 10 years. The time in excess of 10 years shall be null and VOID. c.) Civil Action between the parties: 30 days after final judgement was made, provided that the contract was a true sale with a right to repurchase. Effect of Failure to exercise right of repurchase Ownership shall be consolidated in the vendee. In case of real property, a judicial order is required for the purpose of recording the consolidation in the registry of property after the vendor has been duly heard. (art. 1607) Who may Exercise the right to Repurchase 1. Vendor a retro a. Vendee, who acquired the whole undivided interest, may compel the vendor, who only sold part thereof, to redeem the whole property.(art. 1611) Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 24 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT b. Property sold by co-owners jointly and in the same contract may exercise the right in respect to his share only. (art. 1612) c. In the case above (b), vendee cannot be compelled to consent to a partial redemption, he may demand all vendors or co-heirs to agree to repurchase the whole thing sold. (art. 1613) 2. Vendor remains in possession as lessee or otherwise; 3. Extension for period of right to repurchase; 4. Purchases retains for himself a part of the purchase price; 5. Vendor binds himself to pay the taxes of the thing sold; 6. When the real intention of the parties is to secure the payment of an obligation. 2. Creditors of the Vendor a. They cannot make use of the right of redemption until after they have exhausted the property of the vendor. (art. 1610) Rights of Parties as to the Fruits of Land 1. If there were fruits at the time of sale and vendee paid for them, he must be reimbursed. 2. If vendee did not pay for the fruits, no reimbursement for those existing at the time of redemption. 3. No fruits at the time of same and some exist at time of redemption, it is to be distributed proportionately to the vendor and vendee, giving the latter a share in proportion to the time he possessed the property during the last year counted from the anniversary from the date of sale to compensate the vendee for his expenses. (art. 1617) B.) EQUITABLE MORTGAGE One which lacks the proper formalities of a mortgage, but shows the intention of the parties to make the property subject of the contract as security for a debt. A contract may be presumed to be an equitable mortgage under the following cases: (applies only to absolute sale) 1. Unusually inadequate purchase price; NOTE: in case of doubt, a contract purporting to be a sale with right to repurchase (pacto de retro sale) shall be construed as an equitable mortgage. NOTE: Vendor may ask for reformation, or to correct the instrument to express the true intent of the parties. C.) LEGAL REDEMPTION The right to be subrogated, upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by: (1)purchase or (2) dation in payment, or (3) by any other transaction whereby ownership is transferred by onerous title. May be effected against movables or immovables. It must be exercised within thirty (30) days from the notice in writing by the vendor. NOTE: Written notice under is mandatory for the right of redemption to commence. Right of Legal Redemption of Co-owners The following are the requisites for the right to exist: 1. There must be co-ownership; 2. There must be alienation of all or any of the shares of the other coowners; Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 25 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT 3. The sale must be to a third person or stranger; 4. The sale must be before partition; 5. The right must be exercised within the period provided; 6. Vendee must be reimbursed for the price of the sale. Against whom the right may be exercised The right of legal redemption is not granted solely and exclusively to the original coowner but applies to those who subsequently acquire their respective share while the co-ownership subsist. In other words, the right cannot be exercised against another co-owner but rather it is exercised against the buyer who bought the share. Legal Redemption of Adjacent Owners of RURAL Lands The following are the requisites for the right to exist: 1. The land must be rural; 2. Land must be adjacent; 3. There must be alienation; 4. Rural land alienates must not exceed 1 hectare; 5. Vendee must already own some rural land; and 6. Rural land sold must not be separated by brooks, drainage, ravines, roads and other apparent servitudes from the adjoining lands. NOTE: Legal right of redemption of rural land refers to land used for agriculture rather than residential purposes. [Fabia vs Intermediate Appellate Court, Nov. 21, 1984] If two or more adjoining owners desire to exercise the right of redemption 1. Owner of the smaller area shall be preferred. 2. If both lands have same area, the one who first requested the redemption shall be preferred. (art. 1621) Rights of Adjacent Owner of URBAN Lands The owners may exercise two (2) rights, right of pre-emption or right of redemption. The following are the requisites in order to exercise such right: 1. Land must be urban; 2. One exercising the right must be an adjacent owner; 3. The land sold must be so small and so situated that a major portion thereof cannot be used for any practical purpose within a reasonable time; 4. Such urban land was bought by its owner merely for speculation; and 5. It is about to be resold, or that its resale has been perfected. NOTE: If two or more owner wish to exercise their rights, the one whose intended use of the land appears best justified shall be preferred. (art. 1622) Co-owners are preferred over adjacent owners. (art. 1623, par 2) Pre-emption It is the act of purchasing before others. If exercised, they will have preference over other potential buyers. Pre-emption vs Redemption Pre-emption Redemption Arises before the Arises after sale sale No rescission There can be because no sale as rescission of the yet exist original sale The action is Action is directed directed against the against the buyer prospective buyer May attach to the Always relate to the seller’s duty to subject matter or the deliver or some other circumstances seller’s obligations Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 26 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT Period which Right may be Exercised The period shall be exercised within 30 days from the notice in writing by the prospective vendor, or by the vendor. NOTE: Art. 1626 stresses “knowledge” rather than when notice is received. If notice is not given, the 30-day period has not even begun to run. [Vda. De Cangco v. Escudibo] However, no specific form of written notice is required. The assignment of a credit does not only includes the credit but also all accessory thereto. It includes the following: (art. 1627) The 30-day notice in writing should be counted from notice, not of the perfected sale, but of the actual execution and delivery of the document of sale. [Doromal v. COA L-36083, Sept. 5, 1975] XVII. ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL RIGHTS Assignment of credit is a contract where one person (creditor/assignor) transfers to another his rights and actions against a third person (debtor) to another person (assignee) in consideration of a price certain in money. An assignment of credit not only entitles the assignee to the credit, but also the power to enforce it against the debtor of the assignor. Forms of assignment of credit 1. Between parties a. May be in any form, oral or written. So long as the law does not require a specific form for its validity. 2. To be binding against 3rd persons a. If personal property- public instrument b. If real property- public instrument must be recorded in the Registry of Property. Effects of payment by debtor to creditor/assignor after assignment Accessory Rights Included in Assignment 1. 2. 3. 4. Guaranty Mortgage Pledge Preference NOTE: this inclusion is based on the rule that accessory follows the principal. (art. 1537) Warranties of Assignor (art. 1628) 1. When a creditor assigns his credit, he warrants only at the perfection of the contract the: a. Existence; and b. Legality of the credit. NOTE: He is not liable of credit was sold as doubtful. 2. There is no warranty as to the solvency of the debtor unless: a. There is a stipulation; or b. The insolvency was already existing and of public knowledge at the time of sale. Liability for breach of warranty 1. In good faith a. Price received b. Expenses of the contract c. Other legitimate payments by reason of assignment 2. In bad faith a. Price received b. Expenses of the contract c. Other legitimate payments by reason of assignment d. Damages 1. No knowledge of assignmentReleased from obligation. (art. 1626) 2. With knowledge of assignment- not released. Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com) lOMoAR cPSD| 13706118 27 CPA in Transit Reviewer: Law on Sales 2017-2018 ed. RFBT Duration of Assignor’s Warranty 1. Period Stipulated 2. If no period stipulated, 1 year from date of maturity or assignment, which ever comes later. Sale of successional or hereditary rights The seller only warrants the fact that he is an heir if sold without specification of properties. He does not warrants the objects which makes up the inheritance. Unless stipulated, the vendor is liable to deliver the fruits of the inheritance; if consumed, he must reimburse them; if sold, he must deliver the price of sale. (art. 1632) The vendee must reimburse the vendor the debts and charges on the estate paid by the latter. (art. 1633) NOTE: Since vendor already sold the inheritance, he should not profit except, of course, insofar as the price is concerned. Sale of whole of certain rights, rents, or products Vendor only warrant the legitimacy of the WHOLE and not obliged to warrant each of the various parts of which it may be composed. Vendor is liable for eviction for: 1. The whole of the thing; or 2. Part of the grater value. (art. 1631) Legal redemption in sale of credit or other rights in litigation Requisites before the right can be exercised: 1. There must be a sale or assignment of a credit 2. There must be a pending litigation at the time of assignment 4. Right must be exercised 30 days from the date assignee demands payment from him. (art. 1634) Exceptions to debtor’s right to legal redemption The debtor’s right to legal redemption is not available when the assignment of the right in litigation is made to a: (art. 1635) 1. Co-heir or co-owner 2. Creditor in payment of his credit; 3. Possessor of property in question. <-------END-------> Bibliography Civil Code of the Philippines. (n.d.). De Leon, H. S., & De Leon, Jr., H. M. (2013). The Law on Sales, Agency and Credit Transactions (2013 ed.). Manila: Rex Book Store. Domingo, A. D. (n.d.). RFBT MCQ CPA Reviewer (2017 ed.). Benguet: Coaching for Results Publishing. Paras, E. (2013). Civil Code Volume V (Special Contracts) (17th ed.). Rex Book Store. Pineda, E. L. (2010). Sales and other Special Contracts. Central Booksupply Inc. San Beda College of Law. (n.d.). Memory Aid in Civil Law. Soriano, F. R. (2016). Notes in Business Law (2016 ed.). UP Law Bar Operations Comission. (2016). UP College of Law Bar Reviewer- Civil Law (2016 ed.). Villanueva, C. (2004). Law on Sales (2004 ed.). Res Books Store. 3. Debtor must pay the assignee: a. Price paid by him b. Judicial cost incurred. c. Interest on the price from the date of payment Ver. 1.07 | BY: R.M.P Downloaded by GWYNETH AIRA BORJA (gwynethaira17@gmail.com)
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