DON HONORIO VENTURA STATE UNIVERSITY

College of Business Studies

Regulatory Framework and Legal Issues in Business
Atty. Angela Dela Cruz-Lacanlale
LAW ON SALES

I. TRANSFER OF OWNERSHIP

General rule: The delivery of the thing transfers ownership to the buyer

Exception: The parties may agree that the ownership shall remain with the seller until
the full payment of the purchase price (pactum reservatii in domini). This kind of
stipulation is common in sale of property in installment.

- When this stipulation is present, the sale is technically referred to as “contract to

sell” and not a contract of sale. The payment of the price is a condition precedent.

II. BILATERAL RECIPROCAL CONTRACT – A promise to buy and sell a determinate

thing for a price certain is reciprocally demandable.

- There is a “promise to buy” on the part of the buyer, and a “promise to sell” on
the part of the seller. This juridical relationship is reciprocally demandable.
There is no need for a consideration for this bilateral promise to buy and sell.

Illustration:

Mr. A promised to buy a particular land of Mr. B for Php 5,000,000.00, and Mr. B
promised to sell that land to Mr. A, which mutual commitments are to be effected
simultaneously on a specific date. Their mutual promise is as good as a perfected
sale.

ACCEPTED UNILATERAL PROMISE – the accepted unilateral promise to buy or to sell

a determinate thing for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.

- The promise is an option to buy if viewed strictly from the viewpoint of the buyer.
The buyer may not be compelled to buy because he has the right, freedom, or
option to buy or not. On the part of the seller, he is allowed to withdraw from the
promise he had accepted EXCEPT when the promise to buy is supported by a
consideration (option money) distinct and separate from the purchase price.

- In case of option to buy, the seller cannot withdraw within the period agreed upon
because the accepted promise has become a binding contract – called contract
of option – which is separate and distinct from the contract of sale.

Illustration:

Mr. A unilaterally offered to buy a particular land of Mr. B for Php 5,000,000.00 within
10 days. Mr. B accepted the offer. Mr. A delivered to Mr. B Php10,000.00 as option
money. Mr. B cannot sell the property to another party within 10 days because he is
bound under the contract of option which is created by the acceptance of the option
money.

In this case, if Mr. A decides to buy the land, Mr. A will pay Php5,000,000.00 and not
Php 4,990,000.00. The Php 10,000 paid as option money is not deductible from the
purchase price.

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Regulatory Framework and Legal Issues in Business
Atty. Angela Dela Cruz-Lacanlale
OPTION CONTRACT – a privilege existing in one person, for which he had paid a
consideration, which gives him the right to buy a certain merchandise or a certain
specified property from another person at any time within the agreed period at a fixed
price.

Can an accepted option to buy be unilaterally withdrawn? Yes, if not supported by a

consideration. Without any consideration (option money), there will arise no option
contract because a contract cannot exist without any consideration.

POLICITATION – a unilateral promise to buy or sell which is not accepted by the other
party. It produces no legal effect. It is a mere offer and has not been converted into
any contract.

III. RIGHT OF FIRST REFUSAL – it is a contractual grant, not of the sale of property, but
of FIRST PRIORITY TO BUY THE PROPERTY in the event the owner sells the same

- It is based on the current offer to sell of the seller or the offer to purchase of any
prospective buyer. Only if the optionee fails to exercise its right of first priority
could the owner validly offer to sell the property to third persons.

- If the property is sold in violation of the right of first refusal, the resulting contract
is rescissible by the person in whose favor the right of first refusal was given.

- The right of first refusal must be contained in a written contract and the grant of
such right must be clear and express.

OPTION CONTRACT v. RIGHT OF FIRST REFUSAL

OPTION CONTRACT RIGHT OF FIRST

REFUSAL
Nature Principal contract Accessory contract
Consideration Needs separate Does not need separate
consideration consideration
Subject Matter and Price Subject matter and price There must be subject
must be valid matter but price is not
important
Condition Not conditional Conditional
Offer to sell There is no offer to sell, There is an offer to sell
but only an opportunity
for the buyer to enter into
a contract of sale
Subjectivity to Specific Not subject to specific Subject to specific
Performance performance perormance

IV. WHO WILL SUFFER THE INJURY/WHO WILL BENEFIT FROM THE IMPROVEMENTS
FROM THE TIME OF THE PERFECTION OF THE CONTRACT TO THE TIME OF
DELIVERY (Arts 1163 – 1165, and 1262)

- In the absence of a perfected contract between the supposed parties, the loss,
destruction, or deterioration of the thing shall be borne by the owner in virtue of the
principle known as res perit domino (owner bears the loss).

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Regulatory Framework and Legal Issues in Business
Atty. Angela Dela Cruz-Lacanlale
CONSEQUENCES OF THE LOSS/DETERIORATION OF THE THING

Before the perfection Loss/deterioration will be suffered by the

VENDOR/SELLER
At the time of perfection The contract is inexistent because its
object does not exist. The contract will
have no legal effect. The SELLER bears
the loss.
After the perfection, but before delivery (a) If loss/deterioration due to the fault of
the vendor – VENDOR shall bear the
injury;
(b) If loss/deterioration due to the fault of
the VENDEE – the VENDEE shall bear
the injury;
(c) No fault – two conflicting views

(I) Res Perit Domino – VENDOR

bears the loss

(II) Res Perit Creditori – VENDEE

bears the loss
After delivery Buyer becomes the owner so the
BUYER bears the risk of loss

TWO CONFLICTING THEORIES

BEFORE DELIVERY – after the perfection of the contract of sale but before delivery
of the object of sale, there are two theories:

(i) First theory: The VENDOR shall bear the loss. This theory is premised
on the following arguments:

- Ownership is transferred only after delivery. There being no delivery

yet, ownership is still in the hands of the vendor.

- The risk is not imputed to the vendee until after delivery.

(ii) Second theory: The VENDEE bears the loss and as such he must still
pay the price. This is based on the following arguments:

- Under the Roman Law, the reciprocal obligations of the parties

are considered distinct stipulations, that is the extinguishment of
one obligation does not affect the other.

- Under Roman Law, “the risk of the thing sold passes to the buyer,
even though he has not received the thing.”

VIEW: The first theory seems to be the better and fair rule, that is
the VENDOR shall bear the loss. It is more in keeping with the
reciprocal nature of the contract of sale. It is more equitable than
the second theory because the vendee here who did not receive
the thing by reason of the loss or destruction of the object without
any fault or delay (to accept) on his part, is justifiably relieved of
any responsibility. To pay for something which had ceased to exist
at no fault of the vendee is revolting to the conscience.

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Regulatory Framework and Legal Issues in Business
Atty. Angela Dela Cruz-Lacanlale

AFTER DELIVERY – if there is no stipulation as to who will suffer the loss or

deterioration after delivery of the thing to the vendee, the VENDEE shall bear the
loss under the principle of res perit domino. The vendee is considered the owner
already after the delivery.

V. SALE BY DESCRIPTION/SALE BY SAMPLE

SALE BY DESCRIPTION – where a seller sells things as being certain kind verbally
describing the thing, and the buyer simply relies on the seller’s descriptions of the
things, not knowing whether the seller’s representations are true or not. The buyer
has not seen the goods but is simply relying on the descriptions given.

SALE BY SAMPLE – where the seller warrants the bulk of the goods being sold
correspond with the sample or samples exhibited, not only in kind but also in
quality and character. The bulk is not presented but only a sample or small
quantity thereof. There is no opportunity to inspect the bulk.

*if the bulk of the goods delivered do not match with the description/sample, the
contract may be rescinded.

SALE BY DESCRIPTION AND SAMPLE – two-fold warranty:

(a) The goods purchased matched with the description

(b) That the goods also matched in kind, quality, and character with that of the
sample or samples exhibited.

*the bulk (whole) of the goods must correspond both with the sample and
description.

VI. CONCEPT OF EARNEST MONEY

- The money given to the seller by the prospective buyer to show that the latter is
truly interested in buying the property, and its aim is to bind the bargain
- “Arras” in Spanish
- It is considered part of the purchase price and proof of the perfection of the
contract
- It constitutes an advance payment and must be deducted from the total price

*Should the earnest money be returned if transaction did not materialize? Yes,
earnest money must be returned. However, by way of exception, the parties may
agree that the earnest money be retained by the seller there being no prohibition to
so stipulate under the law.

EARNEST MONEY v. OPTION MONEY

EARNEST MONEY OPTION MONEY

It is part of the purchase price It is given as a distinct consideration for
an option contract which gives the buyer
a specific period within which to
purchase the thing.
Given only when there is already a Given at a time when the sale had not yet
perfected sale. been perfected.

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Regulatory Framework and Legal Issues in Business
Atty. Angela Dela Cruz-Lacanlale
The buyer is bound to pay the purchase Even if the option money is paid by the
price. would be-buyer, he is not bound to buy
the thing
If the sale does not materialize, the If the buyer decides not to buy the thing,
earnest money must be returned he cannot recover the option money

VII. FORM OF CONTRACT OF SALE

- Generally, contracts shall be obligatory in any form they are entered into
provided all the essential elements for their validity are present. EXCEPTION:
when the law requires a specific form

- A sale may be entered into any of the following forms:

(a) It may be in writing

(b) It may be partly in writing, partly oral
(c) In the absence of the above, it may be inferred from the conduct of the parties

However, under the Statute of Frauds, the following contracts of sale cannot be
enforced by action unless evidenced by some writing:

(i) Sale of real property or an interest therein, irrespective of the price

involved
(ii) Sale of personal property in an amount of at least Php 500.00
(iii) Future sale of property, whether real or personal, not to be executed
within one year, regardless of the values thereof.

*Effect of False Notarization – It does not affect the validity of the sale. The sale need
not be notarized to be valid. It is sufficient if done in writing.

VIII. SALE OF PROPERTY BY INSTALLMENTS

RECTO LAW (Act No. 4122) – Sale of property by installment

Requisites of Recto Law

(1) Valid contract of sale

(2) Subject property is personal property
(3) Payable in installments (does not apply to a sale where there is an initial
payment and the balance is payable in the future or straight sale)
(4) There has been a failure to pay two or more installments

Alternative Remedies in case of Sale of Property by Installments:

(i) Specific Performance – exact fulfillment of the obligation

GR: If availed of, the unpaid seller cannot anymore choose other remedies

EXPN: If after choosing performance, it has become impossible to perform

it.
(ii) Rescission - cancel if the if the buyer fails to pay 2 or more installments
(iii) Foreclosure of the chattel mortgage – if the buyer fails to pay 2 or more
installments. He shall have no further action against the purchaser to
recover unpaid balance of the price

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Regulatory Framework and Legal Issues in Business
Atty. Angela Dela Cruz-Lacanlale

MACEDA LAW (R.A. No. 6552) – Sale of real property by installment

What are the rights of the buyer

(a) If the buyer has paid at least 2 years of installments, the buyer is entitled to the
following rights in case he defaults in the payment of succeeding installments:

(i) To pay, without additional interest, the unpaid installments due within
a total grace period earned by him, which is fixed at the rate of one
month grace period for every one year of installment payments made;
(ii) If the contract is cancelled, the seller shall refund to the buyer the cash
surrender value of the payments on the property equivalent to 50% of
the total payments made, and after 5 year of installments, an
additional 5% every year but not to exceed 90% of the total payments
made

(b) If the buyer has paid less than 2 years of installment

- The seller may give the buyer a grace period of not less than 60 days from the date
the installment became due

- If the buyer fails to pay the installment due at the end of the grace period, the seller
may cancel the contract after thirty (30) days from receipt of the buyer of the
notice of cancellation.

IX. RULE OF MUTUAL RESTITUTION IN RESCISSION OR CANCELLATION

GENERAL RULE: In case of rescission or cancellation of sale or lease, the parties

shall make mutual restitution for what they had received from each other. The
installments or rents paid shall be returned.

However, if there is an agreement that the installments or rents paid shall not be
returned, such agreement shall be valid, UNLESS the same are unconscionable
(such as when the totality of installments or rents is enormous as to be shocking
to the conscience if the entire amount shall be retained by the seller or lessor).

X. EXPENSES FOR EXECUTION AND REGISTRATION OF SALE SHALL BE BORNE

BY THE VENDOR (unless there is a stipulation to the contrary)

XI. EMINENT DOMAIN AND EXPROPRIATION, distinguished.

Eminent Domain – the right of the State or its subdivision to take a private
property for public use and always upon payment of just compensation

Expropriation – the process of enforcing the right in court

*Expropriation is INVOLUNTARY in nature. The owner of the private property is

being compelled to surrender his property to the expropriating entity after the
requisites have been complied with. If the owner voluntarily conveys the property,
there is no need for expropriation. Instead, there shall be a sale by the owner.

*Generally, expropriation does not result in a sale of property because the

acquisition is AGAINST the will of the owner and therefore there was no meeting

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Regulatory Framework and Legal Issues in Business
Atty. Angela Dela Cruz-Lacanlale
of the minds between the parties. However, for purposes of imposition of taxes on
the profits derived from taxable as capital gains, the exercise of the right of
eminent domain, where there is judgment of just compensation, is a sale or
exchange (Gutierrez v. CTA 101 Phil. 713)

XII. CAPACITY TO BUY OR SELL - A person has both juridical capacity and capacity
to act is said to have full civil capacity. It is understood that he is of legal age and
suffers no restriction on his capacity to act.

KINDS OF INCAPACITY:

(a) ABSOLUTE INCAPACITY – when the person cannot bind himself in any
contract (minority, insanity, imbecility, prodigality, or civil interdiction). By
himself alone, he cannot enter into a contract of sale. He needs a legal
representative.

(b) RELATIVE INCAPACITY – when a person cannot buy a certain property

because of a special prohibition.

Ex.
(i) A person cannot buy a certain property because of his/her relation to
the other party or because of his relation to the object of the sale
(ii) A foreigner cannot buy lands in the Philippines, unless he was a former
Filipino (R.A. No. 8179)

XIII. NECESSARIES SOLD AND DELIVERED TO MINORS OR OTHER PERSONS

WITHOUT CAPACITY TO ACT

Necessaries – all that is needed for support of a person, who need not be a minor.

- Everything indispensable for sustenance, dwelling, clothing, medical

attendance, education, transportation

- If necessaries are delivered to the minor or any incapacitated person, without the
intervention of their parents, guardians, or legal representatives, the sale is
considered VALID, by way of exception, and therefore the one who sold or
delivered the necessaries must be paid the reasonable value thereof.

XIV. HUSBAND AND WIFE CANNOT SELL PROPERTY TO EACH OTHER (General rule)

Exception:

(1) When a separation of property was agreed upon in the marriage settlement
(2) When there has been a judicial separation of property

Rationale:

(1) To prevent the stronger spouse from exploiting the weaker spouse
(2) To prevent donations disguised as sales
(3) To protect third persons, especially creditors, against fraud through the
transfer of the properties of one spouse to the other to evade payment of
obligations.

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Regulatory Framework and Legal Issues in Business
Atty. Angela Dela Cruz-Lacanlale
XV. PROHIBITED SALE TRANSACTIONS

(1) Guardians – with respect to the property of the ward

(2) Agents – with respect to property under their administration or property
entrusted to them for sale
(3) Executors or Administrators - with respect to the property of the estate
under administration
(4) Public officers and employees - with respect to the property of the State or
its subdivisions or any GOCC or institution the administration of which had
been entrusted to them
(5) Justices, judges, prosecutors, clerks of court, other officers and
employees connected with the administration of justice – with respect to
property and rights in litigation or levied upon in execution before the court
within whose jurisdiction they exercise their respective functions.
(6) Lawyers – with respect to property and rights of their clients
(7) Others specifically disqualified by law

Rationale: Based on public policy. In view of the fiduciary relationship

involved or peculiar control exercised by these persons over the subject
property or rights. To allow so would open the doors to frauds or exploitations
by these persons will be opened wide.

The incapacity to purchase on the part of the disqualified persons is based on

moral grounds and is intended to avoid situations where such persons may
find their personal interests clashing with the interests of those whom the are
sworn to protect and represent.

XVI. EFFECT OF TOTAL LOSS/PARTIAL LOSS

LOSS – a thing is considered lost when it perishes, goes out of commerce, or

disappears in such a way that its existence is unknown or it cannot be recovered.

EFFECT OF TOTAL LOSS

If the thing is lost BEFORE or AT THE TIME OF PERFECTION – the contract shall
have no effect, because the object did not exist at the time of the transaction

EFFECT OF PARTIAL LOSS

The vendee has alternative remedies:

(i) He may WITHDRAW from the contract

(ii) He may DEMAND DELIVERY OF THE REMAINING PART for which he shall
pay an amount in proportion to the total sum agreed upon.

XVII. LOSS OR DETERIORATION OF A MASS OF SPECIFIC GOODS

The buyer is given the option to consider the sale:

(1) Avoided or cancelled

(2) To continue with it insofar as the available or remaining goods are concerned.
These goods shall pass in ownership to the buyer but subject to proportionate
reduction of the price.

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Regulatory Framework and Legal Issues in Business
Atty. Angela Dela Cruz-Lacanlale
- This second option is applicable only if the objects are divisible. If they are
indivisible (like cars) the only available option is avoidance of the sale.

XVIII. DELIVERY OF THE THING SOLD

ACTUAL DELIVERY – the object is placed in the control and possession of the
vendee or his agent. It involves physical delivery of the thing like the passing of a
personalty from hand to hand.

CONSTRUCTIVE DELIVERY/DELIVERY BY LEGAL FICTION

(i) Delivery through a public instrument – execution of the instrument like a

duly notarized deed of sale is tantamount to the delivery of the object to
the vendee.

EXPN: If the parties had agreed that ownership shall not pass until certain
acts, like full payment, shall have been fulfilled by the buyer, ownership is
not transferred to the latter by the execution of the contract.

(ii) Traditio Symbolica – delivery of the keys of the place

When Delivery DOES NOT Transfer Title

(1) Sale on trial, approval, or satisfaction

(2) When there is an express reservation
- If it was stipulated that ownership shall not pass to the purchaser until he
has fully paid the price
(3) When there is implied reservation
(4) When sale is not valid
(5) When the seller is not the owner of the goods (subject to exceptions under
Art. 1505)
(6) GR: When the goods are held by a third party

EXPN: Third person acknowledges to the buyer that he holds the goods in
behalf of the buyer.

(7) On sale or return – the ownership passes to the buyer upon delivery, but he
may revest ownership in the seller by returning or tendering the goods within
the time fixed in the contract or within reasonable time.

XIX. DELIVERY ON SALE OR RETURN

- The delivery of goods on “sale or return” constitutes a contract of sale with a

resolutory condition. The buyer becomes the owner of the goods upon
delivery to him. However, the buyer has the option to return the goods without
paying for them if he finds them unsatisfactory for his needs or purposes.

- If the buyer opts to revest the ownership of the goods to the seller, he should
return or tender the return of the goods within the period agreed upon. If there
is no period fixed, he must do so within reasonable time.

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Regulatory Framework and Legal Issues in Business
Atty. Angela Dela Cruz-Lacanlale
SALE ON TRIAL OR APPROVAL, OR SATISFACTION

- The goods are delivered to the buyer but the ownership is not transferred to
him until the same becomes absolute either by:

(i) his approval of the transaction

(ii) failure to return the goods
(iii) failure to send notice of dissatisfaction within the period agreed
upon
(iv) by doing overt acts manifesting the buyer’s approval or satisfaction
over the goods delivered

- it is a transaction subject to condition precedent, the condition being that the

goods be satisfactory to the purchaser

Risk of Loss or Deterioration In Sale By Trial – the risk of loss or deterioration is on

the SELLER because ownership is still vested in him before the buyer has
manifested his approval or satisfaction over the goods. The only exception is when
the goods were lost or deteriorated due to the fault of the buyer.

CONTRACT ON SALE or RETURN and SALE ON APPROVAL

Basis On Sale or Return Sale on Approval

Condition This is subject to a This is subject to a
resolutory condition. suspensive condition.
Premise It depends upon the will It depends upon the
of the buyer suitability, quality
Transfer of ownership Ownership immediately Ownership does not
passes to the buyer on immediately pass to the
delivery buyer. It passes only
upon approval or
satisfaction of the buyer
duly manifested after
trial
Revesting of ownership Ownership is revested in There is no revesting of
in the owner the seller if the buyer so ownership because it is
decides retained by the seller
until the sale becomes
absolute
Risk of loss or The risks rests on the The risk remains in the
deterioration BUYER before the SELLER while the goods
revestment of are on trial
ownership

XX. PLACE, TIME, and MANNER OF DELIVERY

PLACE OF DELIVERY – the following, in the order of enumeration shall be the

place of delivery:

(i) The place stipulated

(ii) The place enumerated by usage of trade
(iii) The seller’s place of business
(iv) The seller’s place of residence

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Regulatory Framework and Legal Issues in Business
Atty. Angela Dela Cruz-Lacanlale
Rule for Specific Goods – If specific goods are involved in the sale, the place
where they are found shall be the place of delivery

Waiver – if the goods were accepted by the buyer in some other place not
specified in the contract, the buyer is deemed to have waived his right to receive
the goods at the proper place of delivery

TIME AND MANNER OF DELIVERY

(i) The specific date and time agreed upon

(ii) Within reasonable time (what is reasonable will depend upon the
circumstances attending the particular transaction – character of the
goods, their purpose, ability of the seller to manufacture, facilities of
transportation, etc.)

XXI. BREACH OF CONTRACT ON THE PART OF THE SELLER

(a) Quantity of goods delivered LESS THAN what has been contracted for

(i) The buyer may REJECT the goods delivered

(ii) The buyer may ACCEPT what has been delivered, but he will pay at the
contract price if he knew that the seller is not going to deliver all the
goods contracted for.

(b) Quantity of goods delivered is MORE THAN what has been contracted for

(i) The buyer may REJECT ALL the goods delivered

(ii) The buyer may ACCEPT the goods he purchased and REJECT THE REST
(iii) If the buyer decides to take all, he should pay for them at the contract
price

(c) The goods delivered are MIXED with goods of different descriptions

(i) The buyer may ACCEPT the goods which he contracted to buy
(ii) The buyer may REJECT the rest
(iii) If the goods are indivisible, the buyer may REJECT THE WHOLE

XXII. SHIPMENT OF GOODS BY THE SELLER THROUGH A CARRIER

GENERAL RULE: Delivery to the carrier is delivery to the buyer

The above rule does not apply in the following cases:

(i) Seller reserves the right of ownership until certain conditions have been
fulfilled;
(ii) Delivery is directed by the seller to the place of destination, to himself, or
his agent
(iii) When the bill of lading is deliverable to the buyer, but the seller retains
possession of the bill of lading

*Bill of lading - a legal document between a shipper and a carrier detailing

the type, quantity, and destination of goods; acts as a document of title
which allows the person holding it to claim ownership of the cargo.

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Regulatory Framework and Legal Issues in Business
Atty. Angela Dela Cruz-Lacanlale
CLASSIFICATION OF DELIVERY OF GOODS TO THE CARRIER

(a) C.I.F. (Cost, Insurance, and Freight) - the buyer pays a fixed price for which
the seller furnishes the goods, pays the freight and insurance to the point of
delivery, and all risks while the goods are for the account of the BUYER

- Title to the goods shall pass at the moment of delivery to the point specified

(b) F.O.B. (Free on Board) – when goods are delivered at the point of shipment,
delivery to carrier by placing the goods on vessel is delivery to the buyer. The
seller shall bear all expenses until the goods are delivered, depending on
whether the goods are to be delivered “f.o.b” at the point of shipment or
destination

i. F.O.B at the place of shipment – the buyer must pay the freight
(compensation paid for the transportation of goods), provided the
seller complies with his part of the contract.

ii. F.OB. at the place of destination – the freight must be paid by the
seller

(c) C.O.D. (Collect on Delivery) – the carrier acts for the seller in collecting price
of the goods delivered.

(d) F.A.S. (Free along Side) - when goods are delivered along side the ship, there
is already delivery to the buyer. The seller pays all charges and is subject to
risk until the goods are placed alongside the vessel.

XXIII. UNPAID SELLER

A seller is deemed an unpaid seller when:

(a) When the seller has not been totally paid of the price
(b) When there is no full payment tendered to him
(c) When a negotiable instrument has been received as conditional payment, but
the condition was not fulfilled

RIGHTS OF AN UNPAID SELLER

Ordinary/General Remedies

(1) Action for Price

(2) Action for Damages

Special Remedies

(3) Right to retain the goods as security for the payment of the price (possessory
lien)
(4) Right of stopping the goods while they are in transit (right of stoppage in
transitu)
(5) Right to resell the goods when the same are of perishable nature
(6) Right to rescind the sale

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Regulatory Framework and Legal Issues in Business
Atty. Angela Dela Cruz-Lacanlale
XXIV. POSSESSORY LIEN

- As long as the seller is still in possession of the goods, he has the right to retain
possession of them until full payment or tender of the price. This right can be
exercised ONLY in the following cases:

(1) When the sale is made without stipulation as to credit

(2) When the term of the credit has already expired
(3) When the buyer is found to be insolvent

XXV. RIGHT OF STOPPAGE IN TRANSITU

- The right of the seller who sold his goods on credit, to retake and possess them
while they are in transit, that is while they are in possession of a carrier or other
middleman who received them for delivery

Requisites for the Exercise of the Right:

(1) The sale of goods must be on credit

(2) The goods left the possession of the seller and are on their way for delivery
to the buyer
(3) The seller is an unpaid seller
(4) The buyer is found to be insolvent (a person is considered insolvent if he has
ceased to pay his debts as they become)

Ways of Exercising Right of Stoppage in Transitu:

(i) Obtaining actual possession of the goods

(ii) By giving notice of the seller’s claim to the CARRIER or OTHER BAILEE
in possession thereof

XXVI. RIGHT TO RESELL

This may be exercised in the following cases:

(i) If the goods are perishable in nature, that is they quickly deteriorate in
quality and in value
(ii) When there is reservation made for the seller’s exercise of the right to
resell in case of the buyer’s default in the payment of the price for an
unreasonable length of time
(iii) When there is no such reservation but the buyer has defaulted in the
payment of the price for an unreasonable length of time

XXVII. RIGHT TO RESCIND

Requirements of Rescission:

(i) The seller has the right of lien over the goods; OR
(ii) The seller has stopped the goods in transitu

Effects of Rescission - The unpaid seller resumes his ownership over the goods. He
is placed in a position as if the goods never passed to the buyer.

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DON HONORIO VENTURA STATE UNIVERSITY
College of Business Studies
Regulatory Framework and Legal Issues in Business
Atty. Angela Dela Cruz-Lacanlale
- The seller who rescinds the sale may also seek damages for any loss
occasioned by the buyer’s breach of contract.

XXVIII.DOUBLE SALES

Requisites of Double Sales

(1) Two or more sales transactions must constitute valid sales transactions
(2) Two or more sales transactions must pertain to exactly the same subject
matter
(3) Two or more buyer at odds over the rightful ownership of the subject matter
must represent conflicting interests; and
(4) Two or more buyer at odds over the rightful ownership of the subject matter
must each have bought from the very same seller.

A. Movable or Personal Property – If the same personal property was sold to two
or more different vendees by the same owner, the ownership shall be
transferred to the vendee who has first taken possession of it in good faith.

B. Immovable or Real Property – if what has been sold to different vendees by

the same owner is an immovable/real property, the ownership shall pertain:

(a) To the vendee who has FIRST REGISTERED OR RECORDED THE DEED OF
SALE in good faith with the proper Registry of Property
(b) If there is no inscription or recording, the ownership shall pertain to the
vendee who FIRST TOOK POSSESSION of the property in good faith
(c) If the vendees have taken possession of the property at the same time
and both in good faith, the ownership shall pertain to the one who
PRESENTS OLDEST TITLE, provided there is also good faith

*Oldest title – the sale or deed of conveyance first executed or the one earlier in
point of time, provided there is good faith.

Who is a PURCHASER IN GOOD FAITH?

(1) Buys the property without notice that some other person has a right to, or
interest in such property; and
(2) Pays a full and fair price for the same at the time of purchase, or before he has
notice of the claim or interest of some other person in the property.

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