DE LA SALLE UNIVERSITY

College of Law

SALES (LAW 304M)

MID-TERM EXAMINATION

1. Define sale. (5%)

By the contract of sale one of the contracting parties (vendor or seller) obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay (vendee or buyer) therefor a price
certain in money or its equivalent. [Art. 1458]

2. Distinguish a contract of sale from:

2.1. Agency to sell; (5%)

SALE
The buyer pays for the price of the
goods/property purchased
The buyer becomes the owner of the
goods/property purchased
Buyer cannot return the goods/property when
the sale is defective
The seller warrants the goods/property sold
The seller has full freedom to enter into any
terms or conditions on the contract of sale
AGENCY
The agent does not pay for the price. He merely
accounts for the proceeds of the sale.
The agent does not become the owner of the
goods/property delivered to him for sale.
The agent returns the goods/property if he was
not able to sell the same
The agent does not make any warranty as long
as he acts within his authority and in the name
of the principal
The agent must follow the instructions of the
principal

2.2. Barter; (5%)

Sale distinguished from barter and rule if consideration is partly in money and partly in another thing

In sale, the cause or consideration is in money. In barter, the cause or consideration is another
thing.

However, where the consideration is partly in money and partly I another thing, the following rules
shall be observed to determine whether the contract is a sale or barter.

1. The contract shall be one of sale or barter depending upon the manifest intention of the parties.
2. If the intention of the parties does not clearly appear.
a. The contract is one of barter if the value of the thing given as part of the consideration
exceeds the monetary consideration.
b. The contract is one of sale if the monetary consideration is more than or equal to the value
of the thing given as part of the consideration. (Art. 1468).
 2.3. Contract to sell; (5%)

Contract of Sale Contract to Sell

Title over the property passes to the buyer upon
delivery unless there is a contrary agreement
Non-payment of the purchase price is a negative
resolutory condition, meaning the sale becomes
ineffective upon the happening of such condition
After delivery of the objective, the seller loses
ownership over it. Unless, the contract is set
aside, he cannot recover the object
Ownership is retained by the seller whether or
not there is delivery. Ownership passes to the
buyer only upon full payment of the price
The payment in full is a positive suspensive
condition, meaning, if the purchase price is not
paid, the obligation to deliver and to transfer
ownership on the part of the seller does not
become effective
Whether there is delivery or not, the seller
retains the ownership of the object. If the seller,
due to non-payment of the price is ousting the
buyer from the property, he (seller) is not
rescinding the contract of sale but is precisely
enforcing it.

2.4. Dacion en pago; (5%)

Art. 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a
debt in money, shall be governed by the law of sales.
1. In sale, there is no pre-existing credit, while in dacion en pago, there is a pre-existing credit.
2. A sale creates obligations, while dacion en pago extinguishes obligations.
3. In sale, the cause or consideration is the price, from the seller’s point of view; and the delivery of
the object, from the buyer’s point of view. In dacion en pago, the cause or consideration is the
extinguishment of the obligation, from the debtor’s point of view; and the delivery of the object
given in place of the credit, from the creditor’s point of view.
4. In sale, there is greater freedom in fixing the price, while in dacion en pago, there is less freedom
in fixing the price because of the amount of the pre-existing credit which the parties seek to
extinguish.

2.5. Contract for a piece of work; (5%)

Contract for a piece of work Contract of Sale

The thing transferred is one not in existence
and w/c never would have existed but for the
order of the party desiring to acquire it
The services dominate the contract
eventhough there is a sale of goods involved
Not w/in the Statute of Frauds
The thing transferred is one which would have
existed and would have been the subject of
sale to some other person, even if the order
had not been given
The primary objective of the contract is a sale
of the manufactured item; it is a sale of goods
eventhough the item is manufactured by labor
furnished by the seller and upon previous order
of the customer
Governable by the Statute of Frauds
3. Arthur gave Richard a receipt which states:

“Receipt

Received from Richard as down payment

For my 2010 Toyota Altis with
plate no. XYZ-123………………………………….… P150,000.00

Balance payable: 12/30/15………………………. P150,000.00

September 15, 2015

(Sgd.) Arthur”

Does this receipt evidence a contract to sell? Why? (5%)

It is a contract of sale because the seller did not reserve ownership until he was fully paid. In other words,
all the elements of sale are present – there is a determinate thing (Arhur’s 2010 Toyota Altis) the ownership
of which has been transferred to Richard in consideration of a price certain (Php 300,000)

4. 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 the defects in the units. Is the
agreement one for sale or agency? (5%)

The contract is one of agency not sale. The notion of sale is negated by the following indicia: (1) the price
is fixed by the manufacturer with the 10% mark-up constituting the commission; (2) the manufacturer
reacquires the unsold units at exactly the same price; and (3) warranty for the units was borne by the
manufacturer. The foregoing indicia negate sale because they indicate that ownership over the units was
never intended to transfer to the distributor.
5. A granted B the exclusive right to sell his brand of Maong pants in Isabela, the price
for his merchandise payable 60 days from delivery, and promising B a commission of
20% on all sales. After the delivery of the merchandise to B but before he could sell any
of them, B’s store in Isabela was completely burned without his fault, together with all
A’s pants. Must B pay A for his lost pants? Why? (5%)

(b)The contract between A and B is a sale not an agency to sell because the price is payable by B
upon 60 days from delivery even if B is unable to resell it. If B were an agent, he is not bound to
pay the price if he is unable to resell it.

As a buyer, ownership passed to B upon delivery and, under Art. 1504 of the Civil Code, the thing
perishes for the owner. Hence, B must still pay the price.

6. Bert offers to buy Simeon’s property under the following terms and conditions: P1
million purchase price, 10% option money, the balance payable in cash upon the
clearance of the property of all illegal occupants. The option money is promptly paid and
Simeon clears the property of all illegal occupants in no time at all. However, when Bert
tenders payment of the balance and asks Simeon for the deed of absolute sale, Simeon
suddenly has a change of heart, claiming that the deal is disadvantageous to him as he
has found out the property can fetch three times the agreed purchase price. Bert seeks
specific performance but Simeon contends that he has merely given Bert an option to
buy and nothing more, and offers to return the option money which Bert refuses to
accept.

6.1. Explain the nature of an option contract. (5%)

6.2. Will Bert’s action for specific performance prosper? Explain. (5%)
6.3. May Simeon justify his refusal to proceed with the sale by the fact that the
deal is financially disadvantageous to him? Explain. (5%)

A. An option contract is one granting a privilege to buy or sell within an agreed time and at a
determined price. It must be supported by a consideration distinct from the price. (Art. 1479 and 1482,
NCC)

B. Bert’s action for specific performance will prosper because there was a binding agreement of
sale, not just an option contract. The sale was perfected upon acceptance by Simeon of 10% of the agreed
price. This amount is in reality earnest money which, under Art. 1482, “shall be considered as part of the
price and as proof of the perfection of the contract.” (Topacio v. CA, 211 SCRA 291[1992]); Villongco Realty
v. Bormaheco, 65 SCRA 252 [1975]).

C. Simeon cannot justify his refusal to proceed with the sale by the fact that the deal is financially
disadvantageous to him. Having made a bad bargain is not a legal ground for pulling out of a binding
contract of sale, in the absence of some actionable wrong by the other party (Vales v. Villa, 35 Phil. 769
[1916]), and no such wrong has been committed by Bert.
7. Steve and Billy entered into a contract where Steve transferred his car to Billy in
exchange for P100,000.00 and a diamond ring. What is the nature of the contract?
Explain your answer. (5%)

S and B entered into a contract where S transferred his car to B in exchange for P100,000.00 and a diamond
ring. The contract is a sale if S and B intended it to be so regardless of whether the value of the diamond
ring is more or less than or equal to P100,000;00. if such intention does not clearly appear, the contract is
barter if the value of the diamond ring is more than the monetary consideration of P100,000.00. If the value
of the diamond ring is less than or equal to P100,000.00, the contract shall be one of sale.

8. Distinguish between option money and earnest money. (5%)

Earnest Money Option Money

It is part of the purchase price
It is given only when there is already a perfected
sale
When it is given, the buyer is bound to pay the
balance of the agreed purchase price
If the sale does not materialize, the earnest
money paid must be returned, unless a contrary
agreement had been stipulated
It is given as a distinct consideration for an
option contract which gives the buyer a specific
period within which to purchase the thing
It is given at a time when the sale had not yet
been perfected. What had been perfected only
is the option contract
Even if option money is paid by the would-be-
buyer he is not bound to buy the thing
If the buyer decides not to buy the thing, he
cannot recover the option money he paid as
consideration for the contract of option

9. Who suffer from absolute incapacity to enter into a contract of sale? Explain. (10%)

1. Absolute Incapacity

The following cannot give consent to a contract. A contract entered into by any of them is voidable. [Art.
1390] However, when both parties are incapable of giving consent to a contract, the contract is
unenforceable. [Art. 1403]

a. Minors – below 18 years of age.

b. Insane or demented persons
However, contracts entered into during lucid intervals are valid. [Art. 1328] Lucid interval
refers to the period of temporary sanity of an insane person.
c. Deaf-mutes who do not know how to write.[Art. 1327 NCC, Art. 234 FC, as amended]
Exception:
In a contract where necessaries, such as food, are sold and delivered to a minor or other person without
capacity to act, he must pay a reasonable price therefor. [Art.1489]
10. Who suffer from relative incapacity to enter into a contract of sale? Explain. (10%)

1. Relative Incapacity

A person may have the capacity to act but he may be disqualified by law to enter into specific contracts.

Examples:

1. The husband and the wife cannot sell property to each other, except:
(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation of property under article 191. [Art.1490]

2. Persons prohibited from acquiring by purchase

a) The guardian, the property of the person or persons under his guardianship.
b) Agents, the property whose administration or sale may have been entrusted to them, unless the
consent of the principal has been given.
c) Executors and administrators, the property of the estate under administration.
d) Public officers and employees, the property of the State or of any subdivision thereof, or of any
government owned or controlled corporation or institution, the administration of which has been
entrusted to them; this provision applies to judges and government experts who, in any manner
whatsoever, take part in the sale.
e) Justices, judges, prosecuting attorneys, clerks of court, and other officers and employees
connected with the administration of justice, the property and rights in litigation or levied upon an
execution before the court whose jurisdiction or territory they exercise their respective functions; this
prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the
property and rights which may be the object of any litigation in which they make take part by virtue of
their profession.
f) Any others specially disqualified by law. (1459a)

Article 1492. The prohibitions in the two preceding articles are applicable to sales in legal
redemption, compromises and renunciations. (n)

Art. 124 Family Code – conjugal property – sale by one spouse – void

Art. XII, Sections 7 and 8 – private lands except former natural-born citizens

11. Distinguish between emptio rei speratae and emptio spei and give example of each.
(10%)

Emptio rei speratae Emptio spei

Sale of a thing having a potential existence
The uncertainty is with regard the quantity and
quality but not with regard the existence of the
thing
The contract deals with a future thing
The sale is subject to the condition that the thing
should exist, so that if it does not, there is no
contract for lack of an essential requisite
Sale of a mere hope or expectancy
The uncertainty is with regard the existence of
the thing
The contract deals with a present thing—the
hope or expectancy
The sale produces effects eventhough the thing
itself does not come into existence, since the
subject matter is the hope itself