SALES

ST. MARY’S COLLEGE

SALES

I. Multiple Choice
Choose the letter of the correct answer and explain. (2 points)

1. A, who resides in Manila, sells his car to B who resides in Cebu City. B
pays A the purchase price by depositing the money in the latter’s ATM
account. Who shall pay for the expenses in transporting the car from
Manila to Cebu?

A. A shall pay, unless otherwise stipulated

The New Civil Code provides that the seller has the obligation to
deliver the thing subject of the sale which includes the corresponding
expenses in transporting the same unless otherwise stipulated in the
contract of sale.

B. B shall pay, unless otherwise stipulated

C. Both shall divide the expenses equally
D. Both shall pay in the amount stipulated in the contract

2. A agrees to sell to B his car on instalment basis payable in sixty equal monthly
instalments on condition that B will not operate it as a taxi for as long as the
purchase price is not yet fully paid. After a year, B operates the car as a taxi. Which
of the following is true?
A. The obligation remains valid and unchanged.

The condition is not imposed on the payment of the purchase price but on the
manner the car will be operated. Hence, the obligation between the buyer
and the seller remains.

B. The remaining instalments are immediately demandable.

C. The contract becomes void.
D. None of the above

3. A buys a refrigerator from an appliance dealer. Upon payment of the purchase price,
A issued a sales invoice in which is described with particularity the refrigerator. On
the way to A’s place to deliver the refrigerator, the dealer’s delivery van is hit by a
truck while the latter was trying to overtake another vehicle. The van and the
refrigerator are completely destroyed. Which of the following is true?
A. The obligation of the dealer subsists and he has to provide another refrigerator.
B. The obligation of the dealer is extinguished.
C. A may sue the owner of the truck for the price of the refrigerator.
D. Both A and C

The obligation of the seller to deliver the thing subsist as the cause of the
destruction of the thing is not due to force majeure. The buyer may also sue the
owner of the truck under quasi-delict.

4. A sells his coconut land to B who buys it and pays the agreed purchase price. Before
the land was delivered, A was able to harvest coconut which he refuses to deliver to
B. B may
A. sue for recovery and possession
B. sue for specific performance
C. not compel delivery, for A is the rightful owner of the coconut

The New Civil Code provides that the perfection of a contract only gives rise to
the obligation of both parties but does not confer title nor transmit ownership. It is
delivery which confers ownership of the subject of the sale to the buyer. In this case,
the coconut was harvested prior to the delivery of the land. Hence, the rightful owner
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of the coconuts is A since at the time the coconuts were harvested, he was still the
rightful owner of the land.

D. none of the above

5. A, a minor, sells his car to B. Later, he borrows the car and while in A’s possession,
the car was stolen because he forgot to lock the doors. B now demands for another
car of equal value.
A. A has the right to annul the contract on the ground that he is a minor.
As a rule, minors do not have the capacity to enter into a contract of sale and
the same is not subject to any ratification except when the buyer of the car is
in good faith.
B. A’s right to annul the contract is extinguished by the loss of the car.
C. A is not liable on the ground that he is a minor.
D. None of the above.

6. A sells his car to B who pays the agreed purchase price. On the delivery date, an
earthquake causes the building where the car is kept to collapse and the car is
completely destroyed. Which of the following is true?
A. A’s obligation to deliver is extinguished.
B. A’s obligation to deliver subsists.
C. A is not liable for anything unless the contrary is stipulated.
D. Both A and C.

As a rule in the law on sales, if the buyer fails to deliver the thing subject of the
sale, the buyer can compel the former for specific performance except in cases
where the subject of the sale is a specific thing, then the remedy of the buyer is to
rescind the contract and demand for damages.

However, this rule is not applicable in cases of loss of the specific thing due to
force majeure which extinguishes the obligation of the seller and he cannot be held
liable for damages unless the contrary is stipulated and given the facts in this case,
the aforementioned rule can be made applicable to it.

7. A owes B P1 million. C, with the consent of B and A, assumes the obligation of A and
pays B a partial payment of P500 000. If A becomes insolvent, who will have
superior right over A’s assets?
A. B C. The choice is with A
B. C D. Both will have equal rights over A’s assets

C has no better right than B over the property of A as he only succeeds the right of B

8. Aligada orally offered to sell his two-hectare rice land to Balane for P 10Million. The
offer was orally accepted. By agreement, the land was to be delivered (through
execution of a notarized Deed of Sale) and the price was to be paid exactly one-
month from their oral agreement. Which statement is most accurate?
A. If Aligada refuses to deliver the land on the agreed date despite payment by
Balane, the latter may not successfully sue Aligada because the contract is oral.
B. If Aligada refused to deliver the land, Balane may successfully sue for fulfillment
of the obligation even if he has not tendered payment of the purchase price.
C. The contract between the parties is rescissible.
D. The contract between the parties is subject to ratification by the parties. The law
allows the parties to compel each other to observe the forms required for the
enforceability of the contract.

9. Allan bought Billy’s property through Carlos, an agent empowered with a special
power of attorney (SPA) to sell the same. When Allan was ready to pay as
scheduled, Billy called, directing Allan to pay directly to him. On learning of this,
Carlos, Billy's agent, told Allan to pay through him as his SPA provided and to
protect his commission. Faced with two claimants, Allan consigned the payment in
court. Billy protested, contending that the consignation is ineffective since no tender
of payment was made to him. Is he correct?
A. No, since consignation without tender of payment is allowed in the face of the
conflicting claims on the plaintiff.
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B. Yes, as owner of the property sold, Billy can demand payment directly to himself.
C. Yes, since Allan made no announcement of the tender.
D. Yes, a tender of payment is required for a valid consignation. Under the law, a
tender of payment by the buyer is necessary to require a valid consignation.

10. X sold Y 100 sacks of rice that Y was to pick up from X’s rice mill on a particular
date. Y did not, however, appear on the agreed date to take delivery of the rice. After
one week, X automatically rescinded the sale without notarial notice to Y. Is the
rescission valid?
A. Yes, automatic rescission is allowed since, having the character of movables and
consumables, rice can easily deteriorate.
B. No, the buyer is entitled to a customary 30-day extension of his obligation to take
delivery of the goods.
C. No, since there was no express agreement regarding automatic rescission.
Automatic recission of a contract without notice to the other party is not allowed.
D. No, the seller should first determine that Y was not justified in failing to appear.

II. Answer the following questions / problems. A mere yes or no would not
merit any point.
A.

Regor, a tycoon, owns a vast of lands in Davao Region. On his 80 th birthday,

he announced during her celebration that he will pass all his property to his only
daughter Chesca. Grace, best friend of Chesca, has long been wanted to buy the
land of Regor at Suawan approached Chesca and offered to buy the land Chesca
will inherit. Chesca being a wanderlust agreed to the offer of Grace and made a
deed of absolute sale of the land in favor of Grace. Regor discover such sales,
approached you and asked the following question:

1. What is a contract of sale? (3%)

Under the New Civil Code, a Contract of Sale is a contract where the
seller undertakes to deliver a determinate thing or right and the buyer to
give a consideration of a price certain in money or its equivalent.

2. Is the sale made by Chesca to Grace valid, considering that Regor has no
other heir? (3%)

No. The sale made by Chesca to Grace is not valid as the rights of
Chesca over the property is still inchoate and a subject to the laws on
succession.

Thus, pursuant to the principle that a person cannot give what he does
not have, Chesca cannot validly sell the land to Grace as the former does not
legally own the same.

3. What is the remedy available to Regor? How about the remedy available to
Grace? (4%)

Under the New Civil Code, Regor, as third party to the contract whose
rights stood to be prejudiced, may petition the court to rescind the contract of
sale between Grace and Chesca.

As for Grace, being a party to the contract of sale, the law allows her to
rescind the contract of sale and thus demand for the purchase price, the legal
expenses incurred and damages due to the breach of Chesca on the warranty
on ownership of the thing.

B.
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A foreign manufacturer of computers and a Philippine distributor entered into
a contract whereby the distributor agreed to order 1,000 units of the
manufacturer’s computers every month and to resell them in the Philippines at the
manufacturer’s suggested prices plus 10%. All unsold units at the end of the year
shall be bought back by the manufacturer at the same price they were ordered.
The manufacturer shall hold the distributor free and harmless from any claim for
defects in the units. Is the agreement one for sale or agency? (5%)

The agreement is one of agency.

As a rule, in order to properly distinguish a contract of sale from a contract of

agency is to use the control test. This means that if the seller, upon delivery of the
thing subject of the contract still exercises control over the same, it is a contract of
agency, otherwise, it is a sale.

In this case, the distributor has no hold over the number of units to be
purchased, the price of the item in the Philippines and the manufacturer shall hold
the distributor free and harmless from any claim for the defects in the units. Thus,
it can be inferred on the stipulations in the contract that despite delivery, the
manufacturer still exercises control over the item. Therefore, the contract is that of
an agency.

C.

Luisa gave Rogelio a receipt which states:

Receipt: Received from Rogelio as down payment for my Mazda 3 car

with plate number ABC 1234, Php 300 000.00 balance is
payable on December 31, 2021.

1. Compare and contrast contract of sale and contract to sell. And give their
purpose. (5%)

Under the New Civil Code, the contract of sale and a contract to sell can
be distinguished as follows, to wit;

A. In a contract of sale, ownership of the thing subject of the sale

passes to the buyer upon delivery while in a contract to sell, the
ownership of the thing does not pass unto the buyer despite
delivery as the seller withholds ownership over the same until the
full payment of the purchase price.

B. A contract of sale is covered by the Statute of Frauds while a

contract to sell is covered by the law on contracts.

C. The purpose of the contract of sale is to transfer ownership of a

thing or a right without any further positive act from the seller
while the purpose of a contract to sell is to withhold ownership of a
thing by the seller until the payment of the full purchase price.

2. Is the receipt above an evidence of contract to sell or contract of sale?

Explain (5%)

It is an evidence of a contract of sale.

Under the New Civil Code, in a contract of sale, there is no express

reservation made by the seller as to the ownership of the thing before the full
payment of the purchase price by the buyer while in a contract to sell, such
expression reservation is made by the seller.
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In this case, the receipt contains no express reservation as to the

ownership of the Mazda car. Hence, it is an evidence of a contract of sale.

D.

A land belonging to both A and B was sold by X to Y for the amount of Php
300 000.00. a year later, X was able to persuade both A and B to sell the land to
him, for Php 150 000.00. Discuss the status of sale between X and Y, as to its
validity. (5%)

The status of sale between X and Y is valid provided Y is a buyer in good

faith.

As a rule, the seller who is not the owner of the thing conveys no better right
to the buyer except if the buyer is a buyer in good faith.

In this case, the sale between X and Y is valid provided that Y has no
knowledge of the non-ownership of X on the land when it was sold to him.
E.

Ana bought a car at DMZ motors, inc. in installment plan. As a security, she
executed a chattel mortgage on it. In the said chattel mortgage, both parties
agreed that in the event of foreclosure of mortgage, and there appears to be
deficiency, Ana must pay the deficit amount of sale. Ana failed to pay for four
consecutive months already, hence, DMZ motors initiated a foreclosure proceeding,
and the subject vehicle was sold by auction. But the amount recovered was less
than the amount due to DMZ, hence, they initiated a collection suit against Ana.
Will the suit filed by DMZ against Ana prosper? (5%)

No. The suit filed by DMZ against Ana will not prosper.

Under the Recto Law which governs the sale of personal properties where the
price is to be paid in instalments, if the seller exercises his right to foreclose the
property subject of the chattel mortgage, he is prohibited to recover the deficit
amount.

In this case, DMZ cannot legally demand from Ana the deficit amount as the
former is prohibited by the law from doing so.Thus, the collection suit will not
prosper.
F.

Mr. P offered to sell his Manila Polo Club shares to Ms. Q for P2.500,000.00.
Ms. Q accepted on the condition that their agreement will not take effect until after
one (1) year. Mr. P then acceded and both of them shook hands, Excited about the
prospect of acquiring Mr. P’s shares, Ms. Q approached the former and offered to
pay him an earnest money equivalent to 1% of the purchase price, which Mr. P
accepted. After one (1) year, Ms. Q approached Mr. P seeking the enforcement of
their agreement for Mr. P to sell his shares to her. Mr. P refused to honor their
agreement, claiming that the same was covered by the Statute of Frauds because it
was not reduced into writing and hence, unenforceable.  Is the position of Mr. P
correct? Explain. (5%)

Yes. The position of Mr. P is correct.

As a general rule, a contract of sale demands no specific form except in cases

where the law expressly requires a format for its enforceability, those cases
covered by the Statute of Frauds and the sale of a large cattle.
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In this case, the shares of Mr.P which is a personal property exceeds Five
Hundred Pesos and is required by law to be in writing in order to be enforceable.
Thus, the contention of Mr. P is correct. However, Ms. Q is allowed under the law to
compel Mr. P to observe the format prescribed to enforce the contract.

G.

Spouses Roger and Nina wanted to sell their house. They found a prospective

buyer, Chesca. Nina negotiated with Chesca for the sale of their house and have
agreed on the fair price of 5 million. In her part, Chesca sent a letter of
confirmation of her intent to buy said house to Nina.
Chesca prepared a deed of sale to be signed by the couple and a managers
check for 5 million pesos. After receiving the check, Roger signed the deed of sale
but his wife Nina was not able to sign it, as she was abroad. Upon her return, Nina
refused to sign the deed of sale but instead asked for its nullification on the ground
that the contract of sale was void, considering she was not able to sign the deed,
thus, tantamount to none giving of consent, which is a condition in a sale of
properties owned by spouses.

1. When is a contract of sale deemed perfected? (3%)

The New Civil Code provides that a contract of sale, as a consensual

contract, is perfected by mere consent of both parties which occurs when
there is meeting of the minds.

2. Will the suit filed by Nina prosper? (3%) Explain

No. The suit of Nina will not prosper.

Under the law, a contract of sale is perfected by mere consent of the

parties which occurs when there is a meeting of the minds.

In this case, Nina already gave her consent to the sale when she agreed
to the fair price of 5 million pesos. Hence, there is already a perfected
contract of sale and Nina cannot challenge the same of the ground that she
did not affix her signature in the Deed of Sale.

3. If you are Chesca, what are your defenses and remedies? (4%)

Under the law, Chesca may pose the defense that there is already a
perfected contract of sale when she and Nina agreed for the purchase price
which gives rise to an obligation for each party to perform.

Chesca may file an action for specific performance as there is already a

perfected contract of sale and thus, Nina is obliged to deliver the things and
transfer ownership of the same, among others.

H.

On March 13, 2008, Ariel entered into a Deed of Absolute Sale (DAS) with Noel where
the former sold his titled lot in Quezon City with an area of three hundred (300) square meters to
the latter for the price of P300,000.00. The prevailing market value of the lot was P3,000.00 per
square meter. On March 20, 2008, they executed another "Agreement To Buy Back/Redeem
Property" where Ariel was given an option to repurchase the property on or before March 20,
2010 for the same price. Ariel, however, remained in actual possession of the lot. Since Noel did
not pay the taxes, Ariel paid the real property taxes to avoid a delinquency sale.

On March 21, 2010, Ariel sent a letter to Noel, attaching thereto a manager's check for
P300,000.00 manifesting that he is redeeming the property. Noel rejected the redemption
claiming that the DAS was a true and valid sale representing the true intent of the parties. Ariel
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filed a suit for the nullification of the DAS or the reformation of said agreement to that of a Loan
with Real Estate Mortgage. He claims the DAS and the redemption agreement constitute an
equitable mortgage. Noel however claims it is a valid sale with pacto de retro and Ariel clearly
failed to redeem the property.

1. What is an equitable mortgage? (3%)

Under the law, an equitable mortgage is a sale where the actual intention of the
parties is to secure an existing debt.

2. Compare and contrast equitable mortgage from right to repurchase. (3%)

Under the New Civil Code, an equitable mortgage is a sale where the intention of the
parties is to secure an existing debt and is usually characterized by a grossly
inadequate purchase price and the seller remain in possession of the thing, among
others. A right to repurchase on the other hand is a condition imposed by the seller
simultaneously upon the sale of the thing that he shall be allowed to repurchase the
thing subject of the sale with a specified period which shall not exceed 10 years.

3. If you will be the judge, decide the case with reasons. (4%)

The sale was that of an equitable mortgage.

Under the law, the common characteristic of an equitable mortgage is the gross
inadequacy of the price and that the seller remains in possession of the property subject
of the sale.

These characteristics are present in this case. Therefore, the same is an equitable
mortgage and not a case of pacto de retro sale.

I.

Peter and Paul entered into a Contract to Sell whereby Peter, the lot owner, agreed to sell to
Paul his lot on November 6, 2016 for the price of Pl ,000,000.00 to be paid at the residence of
Peter in Makati City at 1 :00 p.m. If the full price is paid in cash at the specified time and place,
then Peter will execute a Deed of Absolute Sale and deliver the title to Paul.

On November 6, 2016, Paul did not show up and was not heard of from that date on. In view of
the nonperformance by Paul of his obligation, Peter sent a letter to Paul that he is expressly and
extra-judicially declaring the Contract to Sell rescinded and of no legal and binding effect. Peter
further stated that failure on the part of Paul to contest the rescission within thirty (30) days from
receipt of said letter shall mean that the latter agreed to the rescission.

Paul did not reply to this letter for five (5) years. Thus, Peter decided to sell his lot to Henry in
2021. After hearing that Henry bought the lot, Paul now questions the sale of the lot to Henry
and files a complaint for nullification of the sale.

1. Is the exercise by Peter of his power to rescind extra-judicially the Contract to Sell
the proper and legal way of rescinding said contract? Explain. (2.5%)

Yes. The exercise of Peter of his power to extra-judicially rescind the Contract to Sell
is a proper and legal way to rescind the said contract because under the New Civil
Code, a contract to sell is generally governed by the law on contracts where no
prohibition on extra-judicial rescission is provided. Hence, the act of Peter is legal
and effective.

2. In case Paul made a downpayment pursuant to a stipulation in the Contract to Sell,

what is the legal remedy of Peter? (2.5%)

Under the law, Peter can file for an action for specific performance against Paul as
the Contract to Sell already took effect when the downpayment was made.

J.
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The Ifugao Arms is a condominium project in Baguio City. A strong earthquake occurred
which left huge cracks in the outer walls of the building. As a result, a number of condominium
units were rendered unfit for use.

1. May one of the owner of one of the condominium units affected, legally sue for partition
by sale of the whole project? (3%)

No. An owner of the affected condominium units cannot legally sue for partition by sale
of the whole project because the subject of the sale is indivisible. Under the law, if the
subject of the sale is indivisible, the buyer may claim for a reduction of the price or file for
damages against the seller.

2. Suppose Ariel has not yet fully paid the condominium unit, may he ask for a refund?
And if so may the developer of the condominium above invoke the Maceda Law?
Explain (2%)

Yes. Ariel may rescind the contract and ask for a refund in the same action as provided
for under the law. The developer cannot invoke the Maceda Law in this case because
the same is only made applicable to real properties where the payment is in instalments.

K.

Sergio is the registered owner of a 500-square meter land. His friend, Marcelo, who has long
been interested in the property, succeeded in persuading Sergio to sell it to him. On June 2,
2012, they agreed on the purchase price of P600,000 and that Sergio would give Marcelo up to
June30, 2012 within which to raise the amount. Marcelo, in a light tone usual between them,
said that they should seal their agreement through a case of Jack Daniels Black and P5,000
"pulutan" money which he immediately handed to Sergio and which the latter accepted. The
friends then sat down and drank the first bottle from the case of bourbon.

On June 15, 2013, Sergio learned of another buyer, Roberto, who was offering P800,000 in
ready cash for the land. When Roberto confirmed that he could pay in cash as soon as Sergio
could get the documentation ready, Sergio decided to withdraw his offer to Marcelo, hoping to
just explain matters to his friend. Marcelo, however, objected when the withdrawal was
communicated to him, taking the position that they have a firm and binding agreement that
Sergio cannot simply walk away from because he has an option to buy that is duly supported by
a duly accepted valuable consideration. (A) Does Marcelo have a cause of action against
Sergio? (5%)

No. Marcelo does not have a cause of action against Sergio.

Under the law, an option contract becomes a binding agreement upon payment of an
option money and the same shall be completely separate from that of a contract of sale.
However, the buyer must exercise his option to buy the thing during the period agreed upon.
Otherwise, the option contract will be terminated and the option money will be forfeited.

In this case, there was indeed a binding option contract between Marcelo and Sergio as
evidence by the option money denominated as “pulutan” money. However, Marcelo failed to
exercise his option to buy the land within the period agreed upon. Hence, the option contract is
terminated and he does not have a cause of action against Sergion as the option money was
forfeited as well.

L.

The subject of this case involves a motor vehicle originally owned by Goodyear Philippines, Inc.
It had since been in the service of Goodyear until April 1986 when it was hijacked. It was later
on recovered. The vehicle was used by Goodyear until 1996, when it sold it to Anthony Sy, who
in turn sold it to Jose L. Lee. But Lee filed an action for rescission of contract with damages
against Sy because he could not register the vehicle in his name due to the certification from the
PNP Regional Traffic Management Office that it was a stolen vehicle and the alarm covering the
same was not lifted. Instead, the PNP impounded the vehicle and charged Lee criminally. Do
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Goodyear breached any warranty in the absence of proof that at the time it sold the subject
vehicle to Sy, it was not the owner thereof? Explain. (5%)

No. Goodyear did not breach any warranty particularly on the warranty on
ownership as it is the rightful owner of the subject vehicle when it was sold to
Anthony Sy.

Under the New Civil Code, one of the implied warranties in a contract of sale
is the warranty on ownership. Under this warranty, the seller guarantees that the
ownership of thing subject of the sale belongs to him.

In this case, Goodyear is indeed the rightful owner of the car at the time it
was sold. Anthony Sy, as the buyer should have exercised proper caution in
purchasing the vehicle by checking the necessary documents pursuant to the
doctrine of caveat emptor. Hence, Goodyear cannot be held liable for breach of any
warranty.