LAW123 REVIEWER

Article 1458: By the contract of sale one of the contracting parties obligates himself to transfer
the ownership of and to deliver a determinate thing, and the other to pay therefore a price
certain in money or its equivalent. A contract of sale may be absolute or conditional.

Contract of sale: One party (seller or vendor) obligates to deliver something to the other (buyer,
purchase, or vendee) who, on his part, binds himself to pay therefore a sum of money or its equivalent
(price).

Characteristics of a contract of sale:

1. Consensual: perfected by mere consent
2. Bilateral: both contracting parties are bound to fulfill respective obligations; seller to deliver
and buyer to pay price
3. Onerous: thing sold is conveyed in consideration of a price and vice versa
4. Commutative: thing sold is considered equivalent of price paid and vice versa. Can be
aleatory (random chance)
5. Nominate: given a special name or designation in Civil Code, namely “Sale”
6. Principal: does not depend its existence and validity upon another contract
Requisites of a contract of sale:
1. Consent or meeting of minds: Must have legal capacity to give consent or obligate
themselves. When there is offer by one party and no acceptance of other, there is no consent.
Acceptance is indication to consent to a contract of sale
2. Object or subject matter: Refers to the determinate thing. It must be determinate or capable
of being made determinate because if seller and buyer differ in regard of the things sold, there
is no meeting of minds; no sale; subject matter may be real or personal property
3. Cause or consideration: Refers to price certain in money or its equivalent such as check or
promissory note, mortgage debt. Absence of price is different from failing to pay the price

Natural Elements: deemed to exist in certain contracts, in the absence of any contrary stipulations
like warranty against eviction
Accidental Elements: may be present or absent depending on stipulations, like conditions, interest,
penalty, time, or place of payment, etc.

Kinds of Contract of sale:

1. Absolute: Sale is not subject to any condition and title of ownership transfers to buyer upon
delivery of thing sold
2. Conditional: Sale contemplates a contingency, subject to certain conditions, usually full
payment of purchase price. Delivery does not transfer ownership until condition is fulfilled

Article 1459: The thing must be licit and the vendor must have a right to transfer the ownership
thereof at the time it is delivered.

Requisites concerning object:

1. Things: must be determinate, not impossible and lawful or licit. Should not be contrary to
law, morals, good customs, public order, or public policy.
2. Rights: All rights not intransmissible or personal may be the object of sale, like right of
usufruct, conventional redemption. Services can be object of contract, but CAN’T BE object
of contract of sale.
Rights of vendor to transfer ownership:
1. One can sell what he owns: vendor must be able to transfer ownership and therefore must be
the owner or authorized by its owner.
2. Sufficient if right exists at time of delivery: Does not require vendor to have the right to
transfer ownership at the time of the perfection of the contract. Sufficient that he has the right
to sell the thing at the time when the ownership is to pass.
Article 1460: A thing is determinate when it is particularly designated or physically segregated
from all others of the same class. Requisite that a thing be a determinate is satisfied f at the time
the contract is entered into, the thing is capable of being made determinate without the necessity
of a new or further agreement between the parties.

Subject matter must be determinate:

1. When thing determinate: designated or physically segregated from all others of same class
2. Sufficient if subject matter capable of being made determinate: capable of being made
determinate w/o necessity of a new or further agreement between the parties

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

Sale of a future thing, even if not existing at the time the contracts is entered into, may be the object of
sale provided it has potential or possible existence, reasonably certain to come into existence and title
will vest in the buyer the moment the thing comes into existence

Article 1462: The goods which form the subject of a contract of sale may be either existing
goods owned or possessed by seller or goods to be manufactured, raised, or acquired by the
seller after the perfection of the contract of sale, in this Title called “future goods.” There may
be a contract of sale of goofs, whose acquisition by the seller depends upon a contingency which
may or may not happen.

Goods which may be the object of sale:

1. Existing goods: goods owned or possessed by the seller
2. Future goods: goods to be manufactured, raised, acquired

Sale of future goods

Sale of future goods even though contract is in the form of a present sale, is valid only as an executory
contract to be fulfilled by acquisition and delivery of the goods specified.
Goods not owned by seller but which thereafter are to be acquired by him cannot be subject to
executed sale but may be subject of a contract for the future sale and delivery thereof.
First paragraph does not apply if the goods to be manufactured are manufactured especially for the
buyer and not readily saleable to others in manufacturer’s regular course of business. Contract must
be considered as one for a piece of work.

Article 1463: The sole owner of a thing may sell an undivided interest therein.

Sale of undivided interest in a thing

1. By sale owner: Owner may sell entire thing or only a specific portion thereof; or an
undivided interest therein and such interest may be designated as an aliquot part of the whole.
Makes the buyer a co-owner of the thing sold. As co-owner, he acquired full ownership of his
part and can sell it which is limited to the portion allotted to him.
2. By co-owner: Can dispose of share even w/o consent of other co-owners which is limited to
the portion allotted to him

Article 1464: In the case of fungible goods, there may be a sale of an undivided share of a
specific mass, though the seller purports to sell and the buyer to buy a definite number, weight
or measure of the goods in the mass, and though the number, weight or measure of the goods in
the mass is undetermined. By such a sale, the buyer becomes owner in common of such a share
of the mass as the number, weight, or measure bought bears to the number, weight or measure
of the mass. If the mass contains less than the number, weight, or measure bought, the buyer
becomes the owner of the whole mass and the seller is bound to make good the deficiency from
goods of the same kind and quality, unless a contrary intent appears.

Sale of an undivided share of a specific mass

1. Meaning of fungible goods: Goods of which any unit is treated as the equivalent of any other
unit such as grain, oil, wine, gasoline, etc.
2. Effect of sale: Owner of mass of goods may sell only an undivided share thereof, provided
the mass is specific or capable of being made determinate
a. Buyer becomes co-owner w/ the seller of the whole mass in the proportion in which
the definite share bought bears to the mass. Aliquot share of each owner can be
determined by the measurement of the entire mass
b. If later on it be discovered that the mass of fungible goods contains less than what
was sold, buyer becomes owner of whole mass, seller shall supply what was lacking
from goods of the same kind and quality
3. Risk of loss: If buyer becomes co-owner w/ seller, whole mass is at the risk of all the parties
interested in it, in proportion to their various holdings
4. Subject matter: Subject matter is incorporeal or intangible right. Ownership passes to the
buyer by the intention of the parties.

Article 1466: In construing a contract containing provisions characteristic of both the contract
of sale and of the contract of agency to sell, the essential causes of the whole instrument shall be
considered.

Sale distinguished from agency to sell

Contract of agency: person binds himself to render some service or to do something in representation
or on behalf of another, with consent or authority of the latter

1. Sale: Buyer receives the goods as owner; Agency to sell: Agent receives goods as the goods
of the principal who retains his ownership over them
2. Sale: Buyer has to pay the price; Agency to sell: Agent has simply to account for the
proceeds of the sale he may make on the principal’s behalf
3. Sale: Buyer cannot return the object sold; Agency to sell: Agent can return the object in case
he is unable to sell the same to a third person
4. Sale: Seller warrants the thing sold; Agency to sell: Agent makes no warranty for which he
assumes personal liability as long as he acts within his authority and in the name of the seller
5. Sale: Buyer can deal with the things sold as he pleases, being the owner; Agency to sell:
Agent in dealing with the thing received, must act and is bound according to the instructions
of his principal.

Article 1467: A contract for the delivery at a certain price of an article which the vendor in the
ordinary course of his business manufactures or procures for the general market, whether the
same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured
specially for the customer and upon his special order, and not for the general market, it is a
contract for a piece of work.

Sale distinguished from contract for a piece of work

1. In a contract for work, labor, or materials or for a piece of work, the thing transferred is one
not in existence and which never would have existed but for the order of the party desiring to
acquire it while in a contract of sale, thing transferred is one which would have existed and
been the subject of sale to some other person, even of order had not been given.
2. In the first case, risk of loss before delivery is borne by the worker or contractor and not by
employer (person who ordered), In the second case, risk of loss is borne by the buyer.
3. Contracts for a piece of work are not within the statute of frauds.
Article 1468: If the consideration of the contract consists partly in money and partly in another
thing, the transaction shall be characterized by the manifest intention of the parties. If such
intention does not clearly appear, it shall be considered a barter if the value of the thing given as
a part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a
sale.

Sale distinguished from barter

Contract of barter to exchange, one of the parties binds himself to give one thing in consideration of
the other’s promise to give another thing. Contract of sale, vendor gives a thing in consideration for a
price in money.
1. Above distinction is not always adequate to distinguish one from the other. Hence, Article
1468 handles cases in which the thing given in exchange consists partly in money and partly
in another thing.
a. Manifest intention is paramount in determining whether it is one of barter or of sale
and such intention can be ascertained by taking into account the contemporaneous
and subsequent acts of the parties.
b. If intention cannot be ascertained, then last sentence of article applies. But if the
intention is that the contract shall be one of sale, then such intention must be followed
even though the value of the thing given as a part of the consideration is more than
the amount of money given
2. The only difference is that “price certain in money or its equivalent” is present in sale but not
in barter

Article 1475: The contract of sale is perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price. From that moment, the parties
may reciprocally demand performance, subject to the provisions of the law governing the form
of contracts.

Reciprocal obligations arises from the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price. In case of incompliance, injured party may sue for
fulfillment or rescission w/ payment of damages in either case.

Right of owner to fix his own price

1. Owner of a thing has the right to quote his own price, reasonable or unreasonable. It is up to
the buyer to accept or reject it.
2. It is also well within his right to quote a small or nominal consideration and such
consideration is just as effectual and valuable a consideration as a larger sum stipulated or
paid.

Effect of failure to pay price/absence of price

1. Price stipulated: Does not convert the contract into one w/o cause or consideration. Demand
specific performance or rescission w/ damages in either case.
2. No price stipulated: Sale is void and non-existent as to w/o cause or consideration because
there is no meeting of minds regarding the purchase and thus no contract of sale at all.
Article 1476: In the case of a sale by auction:
1. Where goods are put up for sale by auction in lots is subject of a separate contract of
sale
2. Sale by auction is perfected when auctioneer announces its perfection by the fall of the
hammer, or in other customary manner. Until announcement is made, bidder may
retract his bid; auctioneer may withdraw the goods from the sale unless the auction has
been announce to be without reserve.
3. A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise
provided by law or by stipulation
4. Where notice has not been given that a sale by auction is subject to a right to bind on
behalf of the seller, it shall not be lawful for the seller to bid himself or to employ or
 induce any person to bid at such sale on his behalf or for the auctioneer. It may be
treated as fraudulent by the buyer.

Rules governing auction sales:

1. Sales of separate lots by auction are separate sales: Separate lots are subject of separate
biddings and are separately knocked down, there is a separate contract in regard to each lot.
Parties may subsequently consolidate all purchases into one transaction as by giving a single
note for the aggregate price.
2. Sale perfected by the fall of the hammer: By putting the goods for sale, merely an
invitation to those present to make offers which they do by making bids. Each bid is an offer
and contract is perfected only by the fall of the hammer. Retraction can occur before the fall
of the hammer unless it has been announced that the auction was to be without reserve, then
the highest bidder has the right to enforce his bid.
3. Right of seller to bid in the auction: Allowed if such right is reserved; notice is given that
the sale is subject to a right to bid on behalf of the seller; right to bid by the seller is not
prohibited by law or stipulation
a. No notice is given of right to bid: Unlawful for seller to bid either directly or
indirectly or for auctioneer to induce a person to bid on behalf of seller. Prevents
puffing or inflating price of goods sold and is considered a fraud upon the purchaser
and a sufficient ground for relieving him from his bid and avoiding the sale.
b. Notice is given of right to bid: Allowed because the secrecy of puffing is what
makes it fraudulent.

Article 1478: The parties may stipulate that ownership in the thing shall not pass to the
purchaser until he has fully paid the price.

Article 1479: A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable. An accepted unilateral promise to buy or sell a determinate thing for a price
certain is binding upon the promisor if promise is supported by a consideration distinct from
the price

Kinds of promise:
1. Accepted unilateral promise to sell in which promisee (acceptor) elects to buy
2. Accepted unilateral promise to buy in which the promise (acceptor) elects to sell
3. A bilateral promise to buy and sell reciprocally accepted in which either of the parties
chooses to exact fulfillment

Effects of unaccepted unilateral promise

No juridical effect or legal bond. Called a policitation

Meaning of Option
Option is a privilege existing in one person for which he has paid a consideration which gives him the
right to buy/sell to a person if he chooses, at any time w/in the agreed period at a fixed price, or under,
or in compliance w/ certain terms or conditions.

Effect of accepted unilateral promise

Does not bind promisor even if accepted and may be withdrawn at any time. Only when supported by
consideration distinct and separate from the price that the price will give rise to a perfected contract.

Ex: If B accepts promise S that S would sell, S is not bound to sell his car to B because there is no
promise, in turn, on the part of B to buy.

Effect of bilateral promise to buy and sell

One party accepts the other’s promise to buy and the latter, the former’s promise to sell, a determinate
thing for a price certain, same effects as a contract of sale perfected since it is reciprocally
demandable.

Article 1483: Contract of sale may be made in writing, word of mouth, partly in writing and
partly by word of mouth, or may be inferred from conduct of parties.

Form of Contract of Sale

1. General Rule: Contract may be entered into in any form provided all essential requisites for
its validity are present
2. Where contract covered by Statute of Frauds: It should be in writing subscribed by the
party charged, otherwise contract cannot be enforce by action and also the contract of sale be
in a certain form for its validity and enforceability . The following contracts must be in
writing otherwise cannot be enforced in a court litigation:
a. Sale of personal property at a price not less than P500
b. Sale of real property or an interest therein regardless of 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 the price involved.
3. Where form is required in order that a contract may be valid: Must be in the required
form in order that the contract may be both valid and enforceable
4. Where the form is required only for the convenience of the parties: Form is not
indispensable since they are allowed by law to compel each other to execute the contract of
sale observing that form.

Sale of property
Void, unless agent’s authority is in writing. To be effective against third persons, must be registered in
Registry of Deeds (or Property) of the province or city it is located. Must be in a public instrument or
document for other the registration will be refused. Valid between parties but cannot be registered to
bind or affect third persons.

Statute of Frauds applicable to only executory contracts

Applicable when no performance is made and not when there is partial or total performance.

Article 1495: The vendor is bound to transfer the ownership of and deliver, as well as warrant
the thing which is the object of the sale.

Principal Obligations of the Vendor

1. Transfer ownership of the determinate thing sold
2. Deliver the thing
3. To warrant against eviction and hidden defects
4. Take care of thing, pending delivery, with proper diligence
5. To pay for the expense for the execution and registration of the deed of sale, unless there is
stipulation to the contrary

Obligations to transfer ownership and to deliver

Vendor need not be the owner of the thing at the time of the perfection of the contract;
enough that he has the right to transfer at the time it is delivered. One who sells something he does not
yet own is bound by the sale when he acquires the thing later.

Article 1537: The vendor is bound to deliver the thing sold and its accessions and accessories in
the condition in which they were upon the perfection of the contract. All the fruits shall pertain
to the vendee from the day on which the contract was perfected.

Sale of determinate thing (land) includes all accessions (house) and accessories even though they may
not have been mentioned, sale of the former is not sufficient to convey right to the former.
Accessions: fruits of a thing; additions or improvements upon a thing such as the young of animals,
house or trees on a land
Accessories: anything attached to a principal thing for its completion, ornament or better use such as a
picture frame, key of a house, etc.

Right of vendee to the fruits

Vendee has a right to the fruits of the thing sold from the time the obligation to deliver it arises.
Obligation to deliver arises upon perfection of the contract of sale.

Ex: S sold horse to B for 8,000. While still in possession of S, horse gave birth to colt. Who has right
to colt? S

1. B is entitled to colt which was born after the perfection of the contract. Holds true even if delivery
is subject to suspensive period (next month) or suspensive condition (upon demand) if B has paid the
purchase price.
2. S has right to colt if it was born before his obligation to deliver the horse has arisen and B has not
yet paid the purchase price.

In this case, S does not have to give the colt and B is not obliged to pay legal interests since the colt
and interests are deemed to have been mutually compensated.

Article 1477: The ownership of the thing sold shall be transferred to the vendee upon the actual
or constructive delivery thereof.
Article 1478: The parties may stipulate that ownership in the thing shall not pass to the
purchaser until he has fully paid the price.

Delivery of the thing is essential and only after the delivery of the thing sold does the purchases
acquire real right or ownership over it. Nonpayment of the price, after thing is delivered, prevents
transfer of ownership only if such stipulation is present.

Article 1403: The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority or
legal representation, or who has acted beyond his powers;

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the same,
or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or
by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a
secondary evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from the making
thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual promise to marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five
hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action or pay at the time some part of the purchase
money; but when a sale is made by auction and entry is made by the auctioneer in his sales
book, at the time of the sale, of the amount and kind of property sold, terms of sale, price,
names of the purchasers and person on whose account the sale is made, it is a sufficient
memorandum;

(e) An agreement of the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;

(f) A representation as to the credit of a third person.

Article 1481: In the contract of sale of goods by description or by sample, contract may be
rescinded if bulk of goods delivered do not correspond w/ the description or the sample. If the
contract be by sample as well as description, it is not sufficient that bulk of goods correspond w/
sample if they do not correspond w/ description. Buyer shall have a reasonable opportunity of
comparing the bulk w/ the description of the sample.

Bulk of the goods: does not designate the greater portion of the goods, but the goods themselves as
distinguished from the sample and/or description with which they must correspond.

1. Sale by description: Occurs when seller sells things as being of a particular kind, buyer not
knowing whether the seller’s representations are true or false, but relying on them as true where the
purchaser has not seen the article sold and relies on the description given him by the vendor or has
seen the goods but the want of identity is not apparent on inspection. Can be the cause for rescission.

2. Sale by sample: Occurs when parties contracted solely w/ reference to the sample, w/ the
understanding that the bulk was like it. Exhibition of the sample by seller was an inducement of the
sale or formed the sole basis thereof. The thing sold shall be warranted and to be delivered by seller
and conform w/ sample in kind, character, and quality.

3. Sale by description and sample: Goods must satisfy all the warranties.

Article 1496: Ownership of the thing sold is acquired by vendee from the moment it is delivered
to him in any of the ways specified in articles 1497 to 1501, or in any other manner signifying an
agreement that the possession is transferred from the vendor to the vendee.

Ways of effecting delivery:

1. By actual or real delivery
2. By constructive or legal delivery
3. By delivery of any other manner signifying an agreement that the possession is transferred to the
vendee.

Ways of effecting constructive delivery:

1. Equivalent to actual delivery:
a. Execution of a public instrument
b. Symbolical tradition (traditio symbolica)
c. traditio longa manu
d. traditio brevi manu
e. traditio constitutum possessorium
f. By quasi-delivery or quasi-traditio

2. Contrary may be stipulated: Parties may stipulate that ownership shall pass only after price is fully
paid or fulfilled certain conditions. In a contract of absolute sale, ownership is transferred
simultaneously w/ the delivery of thing sold.

Article 1497: Thing sold shall be understood as delivered, when it is placed in the control of the
vendee
Tradition: acquiring ownership by virtue of which one who has the right and intention to alienate a
corporate thing, transmits it by virtue of a just title to one who accepts the same.

Delivery of the thing, together w/ payment of price, marks consummation of the contract of sale.
Delivery is necessary to enable vendee to enjoy and make use of property purchased.

Actual delivery of thing sold

1. When deemed made: When thing sold is place in control and possession of the vendee. Involves
physical delivery.
2. Not always essential to passing of title: Actual or manual delivery is not always essential to pass
title. Parties may agree when and on what conditions the ownership shall pass to buyer (ex. Full
payment)

Article 1498: When the sale is made through a public instrument, the execution thereof shall be
equivalent to the delivery of the thing, if from the deed the contract does not appear or cannot
clearly be inferred. With regard to movable property, delivery may also be made by the delivery
of the keys of the place or depository where it is stored or kept.

Public instrument: one which is acknowledged before a notary public or any official authorized to
administer oath by the person who executed the same. Declares the instruments is his free act and
deed while officer certifies that such party is known to him and the same person who executed the
instrument and it was his free act and deed.
If it appears from the document or it can be inferred therefrom that it was not the intention of
the parties to make delivery, no tradition can be deemed to have taken place.

When the thing not subject to control of vendor

Symbolic delivery by the execution of a public instrument is equivalent to actual delivery only when
thing is subject to control of vendor. Hence, vendor who executes said public instrument fails in his
obligation to deliver if vendee cannot enjoy possession because of opposition of third person
(squatter) who is in actual possession. In other words, seller cannot deliver constructively if he cannot
deliver actually even if he wants to.

Constructive delivery is symbolic when, to effect the delivery, the parties make use of a token symbol
to represent the thing delivered. Ex. Delivery of key where thing is sold is equivalent to delivery of
thing because key represents the thing.

Article 1499: The delivery of a movable property may likewise be made by the mere consent or
agreement of the contracting parties, if thing sold cannot be transferred to the possession of the
vendee at the time of sale, or if the latter already had it in his possession for any other reason.

Traditio longa manu

Takes place by mere consent of contracting parties as when the vendor merely points to the thing sold
which shall thereafter be at the control and disposal of the vendee. (Ex. Party purchases car from auto
dealer that is auto dealer’s lot, auto dealer will deliver vehicle to purchaser’s home)

Traditio brevi manu

Vendee already has possession of thing sold by virtue of another title when lessor sells the thing
leased to the lessee. Instead of vendee turning over the thing to the vendor, latter may deliver it back
to him. (Ex. Person who leases a car is not the owner, but when the car has option to buy, it is
needless to return the car to lessor solely to afford the owner/lessor to make a legal delivery.)
Article 1500: There may also be traditio constitutum possessorium

Opposite of tradiitio brevi many. Takes place when vendor continues in possession of property sold
not as owner but in some other capacity. (Instead of vendor delivering thing to vendee, latter may
deliver it back to vendor)

Article 1501: W/ respect to incorporeal property, provisions of first paragraph of Art. 1498
shall govern. In any other case, placing of titles of ownership in possession of vendee shall be
understood as delivery.

Quasi-traditio
Tradition can only be made w/ respect to corporeal things. In case of incorporeal things, delivery is
effected:
1. Execution of public instrument
2. When mode of delivery is not applicable, by the placing of the titles of ownership in the possession
of the vendee
3. Allowing vendee to use his rights as new owner w/ consent of vendor
This mode of delivery of incorporeal things or rights is known as quasi-tradition.

Article 1502: When goods are delivered to the buyer “on sale or return” to give the buyer an
option to return the goods instead of paying the price, the ownership passes to the buyer on
delivery, but he may revast the ownership in the seller by returning or tendering the goods
within the time fixed in the contract, or if not time fixed, within a reasonable time.
When goods are delivered to the buyer on approval or on trial or on satisfaction, or
other similar terms, ownership passes to buyer:
1. Signifies approval or acceptance to seller
2. Does not signify his approval, but retains goods w/o giving notice of rejection or if a time has
been fixed for return of goods, expiration of such time, no time specified, expiration of
reasonable time.

Contracts of sale or return, and of sale on trial or approval or satisfaction:

1. Sale or return: Contract by which property is sold but the buyer, who becomes the owner of the
property on delivery, has option to return the same to seller. Option to purchase or return rests entirely
on buyer w/o reference to quality of goods.
2. Sale on trial or approval: Contract in nature of an option to purchase if goods prove satisfactory, the
approval of the buyer being a condition precedent. Title continue in seller until sale becomes absolute
either by approval of goods, or failing to comply with express or implied conditions of contract as to
giving notice of dissatisfaction or as returning the goods.

Sale or return distinguished from sale on trial

1. Sale or return is sale subject to a resolutory condition while sale on trial is subject to a suspensive
condition
2. Sale or return depends on will of buyer, sale on trial depends on character or quality of goods
3. Sale or return ownership passes to buyer on delivery and return of goods revert ownership while
sale on trial, ownership remains on seller until buyer signifies approval or acceptance to seller
4. Sale or return, the risk of loss or injury rests on buyer, while sale on approval is on seller

Article 1503: Bill of Lading 

Article 1521: The question of whether the buyer will take possession of goods or seller to send it
to buyer is up to the case on the contract, express or implied, between the parties. Place of
delivery is most often in seller’s place of business, if not, in his residence. In the case of specific
goods, and the knowledge of parties when the contract or sale was made were in some other
place, that place is the place of delivery.
 When seller is bound to send goods to buyer and no time is fixed, reasonable time is
given.
When goods at the time of sale are in possession of third person, obligation of seller is
not accomplished until third person acknowledges to buyer that he holds the goods on buyer’s
behalf.
Demand of delivery may be treat ineffectual when made at an unreasonable hour.
Unless otherwise stated, expenses of incidental to putting the goods into a deliverable state must
be borne by seller.

Place of delivery of goods sold:

1. Presence of agreement: place of delivery agreed upon
2. No agreement: determined by usage of trade
3. No agreement and no prevalent usage: seller’s place of business
4. Any other case: seller’s residence
5. Specific goods: knowledge of parties when the contract or sale was made were in some other place,
that place is the place of delivery.

Buyer must take the goods from seller’s place of business or residence rather than the seller to deliver
them to buyer.

Time of delivery of goods sold

1. No time fixed: Seller bounds too send goods to buyer w/in reasonable time. Depends on character
of goods, purpose intended, ability of seller to produce goods if they are to be manufactured,
distance goods must be carried
2. Fixed time: Whether time is of the essence, if so, whether correct performance was offered within
that time.
3. Contract does not specify time for delivery: reasonable time

Delivery of goods in possession of a third person

Person holding goods must acknowledge being the bailee for the buyer.

Buyer is not bound to make tender or offer of payment until seller has complied with his obligations.

Article 1524: Vendor shall not be bound to deliver thing sold, if vendee has not paid him the
price, or if no period for the payment has been fixed in the contract.

General rule: Obligation to deliver thing arises from perfection of contract and time the obligation
may be enforced.

Delivery can occur even if price has not been paid first if time for such payment has been fixed in
contract.

Article 1409: The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order
or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the contract
cannot be ascertained;
(7) Those expressly prohibited or declared void by law

Article 1493: If at the time the contract of sale is perfect, object is entirely lose, contract shall be
without any effect. If thing lost is in part only, vendee may choose between withdrawing from
contract and demanding remaining part paying its price in proportion to the total sum agreed
upon.

Effect of loss of thing at the time of sale

1. Thing entirely lost: Contract inexistent and void because no object
2. Partially lost: Withdraw from contract or demanding remaining part paying its proportionate price

When thing considered lost

Perishes, goes out of commerce, disappears in such a way that its existence is unknown or cannot be
recovered.

Article 1480: An injury to or benefit from the thing sold, after contract has been perfected, from
the moment of perfection to time of delivery, governed by Art. 1163-1165, and 1262
Applies to sale of fungible things, made independently and for a single price, or w/o
consideration of their weight, number, or measure. If sold for price fixed according to weight,
number, or measure, risk shall not be imputed to vendee until weighed, counted, measured, and
delivered until latter incurred delay.

Risk of loss or deterioration

1. Lost before perfection: seller bears loss
2. Lost at time of perfection: void and inexistent
3. Lost after perfection but before delivery: Shifted to buyer as an exception to res perit domino
4. Lost after delivery: buyer bears risk of loss following general rule of res perit domino

Buyer assumes risk of loss caused by fortuitous event w/o fault of seller.

Article 1504: Goods remain at seller’s risk until ownership is transferred to buyer, unless
ownership is transferred to buyer whether actual delivery is made or not except:
1. Delivery of goods made to buyer or bailee of buyer, ownership is retained by seller merely to
secure performance by buyer, goods are at buyer’s risk.
2. Actual delivery is delayed through fault of buyer and seller, risk borne by party in fault

Article 1494: Parties support sale of specific goods, and goods without knowledge of seller have
perished in part or wholly or in a material part so deteriorated in quality as to be substantially
changed in character, buyer may treat sale at his option:
1. Avoided
2. Valid in all of the existing goods or in so much thereof as have not deteriorated, as binding the
buyer to pay agreed price for goods in which ownership will pass, if sale was divisible.

Article 1505: Goods sold by person who is not the owner and does not sell them under authority
or consent of owner, buyer acquires no better title to goods than the seller had, unless owner, by
his conduct, precluded (prevent from happening) from denying seller’s authority to sell.

Sale by a person not the owner:

1. Where owner of goods, by his conduct, precluded denying seller’s authority to sell: Sale is valid
when owner states he authorized sale of agent of the owner and he can’t retracts his former sworn
statement that he had consented to said sale.
2. Where law enables apparent owner to dispose of goods as if he were the true owner thereof
3. Sale sanctioned by statutory or judicial authority
4. Sale is made at merchant’s stores, fairs or markets
5. Seller has voidable title which has not been avoided at the time of sale
6. Seller subsequently acquires title
Article 1544: If same thing is sold to different vendees, ownership transfer to first person who
takes possession in good faith if movable property. If immovable, ownership transfer to person
acquiring in good faith first recorded in Registry of Property. No inscription: first person who
acquires in good faith and in absence thereof, person who presents oldest title w/ good faith.

Article 1545: Where obligation of either party to a contract of sale is subject to any condition
that is not performed, party may refuse to proceed contract or waive performance of condition.
If other party promises condition’s fulfillment, first mentioned party may treat non-
performance of condition as breach of warranty.
When ownership has not passed, buyer may treat fulfillment by seller or his obligation
to deliver the same as described and was warranted expressly or as implication in the contract
of sale as a condition of the buyer to perform his promise to accept and pay for the thing.

Article 1546: Any affirmation of fact or any promise by seller relating to the thing is an express
warranty if natural tendency of such affirmation or promise is to induce buyer to purchase the
same, and if buyer purchases the thing relying thereon. Opinions shall not be construed as a
warranty, unless seller made such affirmation as an expert and relied upon by the buyer.

Warranty: representation made by seller of thing w/ respect to its character, quality, or ownership by
which he induces the buyer to purchase the same relying on said representation.

Kinds of warranties
Seller is liable for express warranties, implied warranties of title, absence of hidden defects, fitness
or merchantability, description, and, sample.

Article 1547: Unless a contrary intention appears, there is:

1. Implied warranty on part of seller that he has right to sell the thing at the time when the
ownership is to pass
2. Implied warranty that thing is free from any hidden faults or defects or any charge or
encumbrance not declared or known to buyer
Not render liable a sheriff, auctioneer, mortgagee, pledgee or any other person professing to sell
by virtue of authority in fact or law

Implied warranty: law derives by implication from nature of transaction or relative situation or
circumstance of parties.

Where implied warranty is not applicable

1. “As is and where is” sale: means nothing more than that the vendor makes no warranty as to
quality or workable condition of goods and vendee takes them as what they are when they were
found. Does not extend to liens or encumbrances unknown to vendee that could not have been
disclosed through physical examination
2. Sale of secondhand articles: relation to secondhand goods
3. Sale by virtue of authority in fact or law: things bought in auctions are bought by purchaser and
will take all chances and cannot hold liable the auctioneer.
Article 1582: The vendee is bound to accept delivery and to pay the price of the thing at the time
and place stipulated in the contract. If the time and place should not have been stipulated,
payment must be made at the time and place of the delivery of the thing sold.

Principal obligations of vendee

1. Accept delivery
2. Pay price of thing sold
3. Bear expenses for execution and registration of sale and putting the goods in a deliverable state, if
such is the stipulation

Pertinent Rules
1. Vendor is NOT REQUIRED to deliver thing sold until price is paid nor the vendee to pay the
price before the thing is delivered in the absence of an agreement to the contrary.
2. If stipulated, vendee is bound to accept delivery and pay the price at the time and place designated
3. If no stipulation, vendee is bound to pay at the time and place of delivery
4. In absence of stipulation to place of delivery, shall be made where the thing might be at the moment
the contract was perfected.
5. If time of delivery has been fixed in contract, vendee is required to pay even before thing is
delivered to him

Article 1522: When seller delivers buyer quantity of goods less than he contracted to sell, buyer
may reject them. If buyer accepts and retains the goods delivered, knowing that seller is not
going to perform the contract in full, he must pay for them at the contract rate. If, buyer used
or disposed of goods delivered before he knows that the seller is not going to perform the
contract in full, buyer shall not be liable for more than fair value to him of the goods so
received.
When seller delivers buyer quantity of goods larger than he contracted to sell, buyer
may accept goods included in the contract and reject the rest. If buyer accepts the whole of the
goods so delivered, he must pay for them at the contract rate.
When seller delivers buyer goods he contracted to sell mixed w/ goods of different
description not included in the contract, buyer may accept goods which are in accordance and
reject the rest.
In the 2nd and 3rd paragraph, if goods are indivisible, buyer may reject the whole of the
goods.

Article 1583: Unless otherwise agreed, buyer is not bound to accept delivery by installments.
Where there is contract of sale of goods to be delivered by stated installments, which are
to be separately aid for, and seller makes defective deliveries in respect of one or more
installments or buyer neglects or refuses w/o just cause to take delivery of or pay for one or
more installments, it depends on contract and circumstance of case, whether breach of contracts
as to justify the injured party in refusing to proceed further and suing for damages for breach
of entire contract, or whether breach is severable, giving rise to a claim for compensation but
not a right to treat the whole contract as broken.

Rules governing delivery in installments:

1. General rule: Buyer not bound to accept delivery in installments and buyer also has no right to pay
price in installments unless stipulated upon.
2. Where separate price has been fixed for each installment: Depends on case on terms of contract
and circumstance whether breach is severable or not.
3. Where breach affects whole contract: If seller makes defective delivery or buyer wrongfully
neglects or refuses to accept delivery or fails to pay any installment, injured party may sue for
damages for breach of entire contract if breach is so material as to affect the contract as a whole.
4. Where breach divisible: If breach is severable, will only give rise to compensation for the
particular breach but not a right to treat the whole contract as broken.

Article 1584: Where goods are delivered to the buyer, which he has not previously examined, he
is not deemed to have accepted them unless and until he has had a reasonable opportunity of
examining them for the purpose ascertaining whether they are in conformity with the contract,
if no stipulation to the contrary.
Unless otherwise agreed, when seller tenders delivery of goods to the buyer he is bound,
on request, to afford the buyer a reasonable opportunity of examining the goods for the purpose
of ascertaining whether they are in conformity with the contract.
Where goods are delivered to a carrier by the seller, in accordance from the buyer, upon
the terms that goods shall not be delivered by the carrier to the buyer until he has paid the
price, whether such terms are indicated by marking the goods w/ words “collect on delivery”, or
otherwise, buyer is not entitled to examine the goods before the payment of the price.

Buyer’s right to examine the goods

1. Actual deliver contemplated: Right of examination is a condition precedent to the transfer of
ownership unless there is stipulation to the contrary.
2. Goods delivered C.O.D./not C.O.D.: Delivery of goods to carrier is deemed to be delivery to the
buyer.
a. Although title passes to buyer by mere delivery to carrier, buyer unless goods are sent
C.O.D. (cash on delivery) which is the normal procedure in importations has the right to
examine the goods before paying. Right to examine goods is a condition precedent to paying
the price after ownership has passed.
b. In a C.O.D. sale, buyer is allowed to examine goods before payment if agreed upon or
permitted by usage.

Right of examination not absolute

Seller is only bond to afford buyer a reasonable opportunity of examining goods only “on request.”
Must be availed of within a reasonable time in order that seller may not suffer undue delay or
prejudice. If seller refuses to allow opportunity to inspect, buyer may rescind contract and recover the
price or any part of it that he has paid.

Article 1585: Buyer is deemed to have accepted the goods when he intimates to the seller that he
has accepted them, or when the goods have been delivered to him, and he does an act in relation
to them which is inconsistent with the ownership of the seller, or when, after the laps of a
reasonable time, he retains the goods without intimating to the seller that he has rejected them.

Acceptance: assent to become owner of the specific goods when delivery of them is offered to the
buyer.

Modes of manifesting acceptance:

1. Express acceptance: buyer, after delivery of goods, intimates to the seller, verbally or in writing,
that he has accepted them.
2. Implied acceptance: takes place when:
a. When buyer, after delivery of goods, does any act inconsistent w/ seller’s ownership (sells
or attempts to sell goods, makes alteration in a manner proper only for an owner)
b. When buyer, after lapse of a reasonable time, retains the goods w/o intimating his rejection.

Delivery and acceptance, separate acts

1. Acceptance, not a condition to complete delivery: delivery is an act of vendor, thus one of the
obligations of the vendor is the delivery of the thing sold and vendee has nothing to do with the act of
delivery by the vendor.
2. Acceptance and actual receipt do not imply the other: acceptance of buyer may precede actual
delivery. There may be an actual receipt w/o acceptance and acceptance w/o receipt.

Article 1586: In absence of express or implied agreement of parties, acceptance of the goods by
the buyer shall not discharge the seller from liability in damages or other legal remedy for
breach of any promise or warranty in the contract of sale. But, if after acceptance of goods,
buyer fails to give notice to the seller of the breach in any promise of warranty within a
reasonable time after the buyer knows, or ought to know of such breach, seller shall not be
liable.

Notice to seller of breach of promise or warranty

1. Necessity: Requires buyer, in order to hold seller liable, to give notice to seller of any such breach
within a reasonable time. Time counts from the moment when he ought to have known it.
2. Purpose: Protect the seller against belated claims which prevent him from making prompt
investigation to determine the cause and extent of his liability and enable him to take any other
immediate steps that his interest may require.

Article 1587: Unless otherwise agreed, where goods are delivered to the buyer, and he refuses to
accept them, having the right to do so, he is not bound to return them to the seller, but it is
sufficient if he notifies the seller that he refuses to accept them. If he voluntarily constitutes
himself a depositary thereof, he shall be liable as such.

When buyer’s refusal to accept justified:

1. Duty of buyer to take care of goods without obligation to return: No obligation to return, but
only to take care of the goods if the goods are not of the kind and quality agreed upon.
2. Duty of seller to take delivery of the goods: Seller must have the burden of taking delivery of the
goods when notice of the non-acceptance is sent.
3. Seller’s risk of loss: While goods remain at buyer’s possession, seller’s risk. Buyer is not deemed
and not liable as a depositary unless he voluntarily constitutes himself as such.
4. Right of buyer to sell goods: Buyer may resell goods when seller fail to take delivery of the goods.

Article 1588: If no stipulation, when buyer’s refusal to accept goods is without just cause, title
passes to him from the moment they are place at his disposal.

Article 1589: Vendee shall owe interest from the period between the delivery of the thing and
the payment of the price, in the following three cases:
a. Stipulated
b. Thing sold produces fruits or income
c. He is in default, from the time of judicial or extrajudicial demand for the payment of price/

Liability of vendee for interest where payment made after delivery:

1. Interest is expressly stipulated: Can be oral or written. Rate is 12% if no rate has been stipulated
2. Fruits or income received by vendee from thing sold: The thing must have been delivered and it
must have produced income.
3. Vendee guilty of default: If vendee incurs in delay in the payment, interest is due from time of
demand by vendor for payment of price.
Article 1590: Should the vendee be disturbed in the possession of ownership of the thing
acquired, or should he have reasonable grounds to fear such disturbance, he may suspend the
payment of the price until vendor has caused the disturbance or danger to cease, unless latter
gives security for the return of the price in a proper case or it has been stipulated that vendee
shall be bound to make such payment. Trespass shall not authorize the suspension of payment.

When vendee can suspend payment of price:

1. Disturbed in the possession or ownership of the thing bought
2. Has well-grounded fear that his possession would be disturbed by a vindicatory action or
foreclosure of mortgage

When vendee cannot suspend payment of price:

1. Vendor gives security to return the price in a proper case
2. If stipulated that notwithstanding any such contingency the vendee must make payment
3. Vendor has caused the disturbance to cease
4. Disturbance is a mere act of trespass
5. Vendee has fully paid the price

Article 1591: Should the vendor have reasonable grounds to fear the loss of immovable property
sold and its price, he may immediately sue for the rescission of the sale.

Art. 1642. The contract of lease may be of things, or of work and service. (1542)

Art. 1643. In the lease of things, one of the parties binds himself to give to another the
enjoyment or use of a thing for a price certain, and for a period which may be definite or
indefinite. However, no lease for more than ninety-nine years shall be valid. (1543a)

Art. 1644. In the lease of work or service, one of the parties binds himself to execute a piece of
work or to render to the other some service for a price certain, but the relation of principal and
agent does not exist between them. (1544a)

Art. 1645. Consumable goods cannot be the subject matter of a contract of lease, except when
they are merely to be exhibited or when they are accessory to an industrial establishment.
(1545a)

Art. 1646. The persons disqualified to buy referred to in Articles 1490 and 1491, are also
disqualified to become lessees of the things mentioned therein. (n)

Art. 1647. If a lease is to be recorded in the Registry of Property, the following persons cannot
constitute the same without proper authority: the husband with respect to the wife's
paraphernal real estate, the father or guardian as to the property of the minor or ward, and the
manager without special power. (1548a)

Art. 1648. Every lease of real estate may be recorded in the Registry of Property. Unless a lease
is recorded, it shall not be binding upon third persons. (1549a)
LOANS

Article 1933. By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it
(COMMODATUM); or money or other consumable thing, upon the condition that the same
amount of the same kind and quality shall be paid (LOAN OR MUTUUM).

Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a stipulation to

pay interest.

In commodatum, bailor retains the ownership of the thing loaned, while in simple loan,
ownership passes to the borrower.

Contract of a loan is:

1. Real Contract: delivery of thing is necessary for perfection of contract
2. Unilateral Contract: once the subject matter has been delivered, it creates obligations on the part of
only one of the parties.

Cause or consideration in a contract of loan:

1. Borrower (bailee): acquisition of the thing
2. Lender (bailor): right to demand its return or its equivalent

COMMODATUM MUTUUM
THING DUE Not consumable Consumable or money
OWNERSHIP Retained by lender Transferred to borrower
GRATUITY Gratuitous Gratuitous or onerous
RETURN OF THING Same thing loaned Pay the same amount of the
same kind and quality
TYPE OF PROPERTY Real (fixed) or personal Personal
USAGE Use Consumption
TIME OF RETURN May be demanded before May not demand before laps of
expiration (Precarium) the term agreed upon
LOSS Suffered by bailor (owner) Suffered by bailee (borrower)

Kinds of Commodatum:
1. Ordinary Commodatum
2. Precarium: bailor may demand thing loaned at will

Article 1934. An accepted promise to delivery something by way of commodatum or mutuum is

binding upon the parties, but it shall not be perfected until delivery of the object of the contract.
COMMODATUM

Article 1935. The bailee in commodatum acquires the use of the thing loaned but not its fruits; if
any compensation is to be paid by him who acquires the use, contract ceases to be a
commodatum.

Article 1936. Consumable goods may be the subject of commodatum if the purpose of the
contract is not the consumption of the object, as when it is merely for exhibition.

Article 1937. Movable or immovable property may be the object of commodatum.

Article 1938. The bailor in commodatum need not be the owner of the thing loaned.

Not needed since ownership does not pass to borrower. Lessee or usufructuary is enough.

Article 1939. Commodatum is purely personal in character:

1. Death of either bailor or bailee extinguishes the contract.
2. Bailee can neither lend nor lease the object of the contract to a third person. However,
members of the bailee’s household may make use of the thing loaned, unless there is stipulation
to the contrary, or unless the nature of the thing forbids of such use.

Article 1940. A stipulation that the bailee may make use of the fruits of the thing loaned is valid.

SIMPLE LOAN OR MUTUUM

Article 1953. A person who receives a loan of money or any other fungible thing acquires
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and
quality.

Article 1954. A contract whereby one person transfers the ownership of non-fungible things to
another with the obligation on the part of the latter to give things of the same kind, quantity,
and quality shall be considered a barter (exchange).

Mutuum and commodatum distinguished from barter:

1. Mutuum: Money or fungible goods, Barter: Non-fungible goods
2. Commodatum: Bailee is bound to return the identical thing borrowed when time has expired or
purpose has been served, Barter: equivalent thing is given in return for what has been received
3. Mutuum may be gratuitous and commodatum is always gratuitous, Barter: is onerous.

Article 1955. Obligation of a person shall be governed by articles 1249 and 1250.
If what was loaned is a fungible thing other than money, debtor owes another thing of the same
kind, quantity, and quality, even if it should change in value. In case it is impossible to deliver
same kind, its value at the time of perfection of the contract shall be paid.

1. Loan of money: made in currency which is legal tender in Philippines, in case of extraordinary
inflation or deflation, basis of payment shall be value of currency at time of creation of obligation.
2. Loan of fungible things: borrower is under obligation to pay lender another thing of same kind,
quality and quantity. In case it is impossible, borrower shall pay its value at the time of perfection of
loan.
Article 1249. The payment of debts in money shall be made in the currency stipulated, and if it
is not possible to deliver such currency, then in the currency to which is legal tender in the
Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in abeyance.

Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation shall be
the basis of payment, unless there is an agreement to the contrary.

Article 1959. Without prejudice to the provisions of article 2212, interest due and unpaid shall
not earn interest. However, the contracting parties may by stipulation capitalize the interest due
and unpaid, which is added principal, shall earn new interest.

Accrued interest shall not earn interest except only in two instances:
1. When judicially demanded
2. There is express stipulation that interest due and unpaid shall be added to principal obligation. Also
called compounding interest.

Article 1960. If the borrower pays interest when there has been no stipulation, solutio indebiti is
applied.

Payment of interest without stipulation.

1. Where unstipulated interest (it is, therefore, not due) is paid by mistake, debtor may recover as this
would be a case of solutio indebiti or undue payment,
2. Where the unstipulated interest is paid voluntarily because debtor feels morally obliged to do so,
there can be no recovery as in the case of natural obligations (conscience binds the persons).

Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions
shall be governed concerning simple loan.

Relation between bank and depositor.

1. Contract of loan: deposits of money in banks are loans to a bank because bank can use same for its
ordinary transaction. Obligation to return amount deposited, no obligation to return or delivery same
money that was deposited.
2. Relation of debtor and creditor: the relation between depositor and bank. Bank’s failure to honor a
deposit is failure to pay its obligation as debtor and not a breach of trust arising from a depositary’s
failure to return thing deposited. General rule: bank can compensate or set off the deposit in its hands
for the payment of any indebtedness to it on the part of the depositor. In true deposit: No
compensation