Sources of Law On Sales

NOTES
1. Sources of Law on Sales
 The Philippine law on sales, as it exists today, is an admixture of civil law and common
law principles. According to the Code Commission:
“A majority of the provisions of the Uniform Sales Law which is in force in 31 States and
Territories of the American Union have been adopted in the Civil Code with
modifications to suit the principles of Philippine Law.”
In incorporating some provisions of the Uniform Sales Act of the United States, the
Commission states: “This incorporation of a goodly number of American rules on sale of
goods has been prompted by these reasons:
(1) The present [old] Code does not solve questions arising from certain present-day
business practices. Among them are: the sale of “future goods”; sale of goods by
description or by sample; when goods are delivered “on sale or return”; sale of goods by
negotiation or transfer of a document of title; and the rights of the unpaid seller of goods.
(2) The present Code fails to regulate many incidents and aspects of delivery and
acceptance of goods, of warranty of title and against hidden defects, and of payment of
the price.
(3) It is probable that a considerable portion of the foreign trade of the Philippines will
continue for many years with the United States. In order to lessen misunderstanding
between the merchants on both sides of the Pacific, their transactions should, as far as
possible, be governed by the same rules. This desirable condition will not only facilitate
trade but will also perpetuate sentiments of esteem and goodwill between the two
peoples. It is but a truism to say that fair and mutually beneficial trade incalculably
enhances international friendship.”
 In addition:
“The Title on ‘Sales’ has been enriched by the addition of new provisions based on the
opinions of commentators and on judicial decisions and of new rules adopted with
modifications to suit the philosophy and framework of Philippine Law, from the Uniform
Sales Act of the United States.
2. Sale (Art 1458)
A. Elements
1. A contract of sale has the following essential elements:

Consent or meeting of the minds - the definite agreement between parties with
respect to the thing (object) and price (cause); both parties having legal capacity.
Object or subject matter - the determinate thing to be sold.
Cause or consideration - the price certain in money or its equivalent.
 The contract will not be perfected unless the aforementioned elements or requisites
concur.
 In addition, a contract of sale also has:
Natural elements - those which are part of the contract even if the parties do not
provide (stipulate) them, and is presumed by law to exists; such as a warranty of
hidden defects or eviction in contract of sale.
Accidental elements - those which are established or stipulated in the contract by
the contracting parties as they may deem convenient; such as stipulations, clauses,
terms and conditions.
B. Concepts
 The contract of sale is an agreement whereby one of the parties (called the seller or
vendor) obligates himself to deliver something to the other (called the buyer or
purchaser or vendee) who, on his part, binds himself to pay therefor a sum of money or
its equivalent (known as the price).
Under the Spanish Civil Code, the contract was referred to as a contract of “purchase
and sale.” As every “sale” necessarily presupposes a “purchase,” this name was
regarded as redundant. Hence, the name of Title VI has been simplified by calling it
“sales” and the name of the contract has been changed for the same reason to “contract
of sale.”
“It is required in the proposed Code that the seller transfers the ownership of the thing
sold. In the present Code his obligation is merely to deliver the thing, so that even if the
seller is not the owner, he may validly sell, subject to the warranty to maintain the
buyer in the legal and peaceful possession of the thing sold. The Commission considers
the theory of the present law unsatisfactory from the moral point of view.”
C. Sale vs. other contracts
 DISTINGUISHED FROM OTHER CONTRACTS:
1. Donation
a. donation is gratuitous; sale is onerous
b. donation is formal contract; sale is consensual
c. donation is governed by law on donation; sale is governed by law on sales.
2. Barter
a. In barter, the consideration is the giving of a thing; in sale, it is giving of money as

payment
b. both are governed by law on sales; both are species of the genus sales
c. if consideration consists partly in money & partly by thing – look at manifest

intention; if intention is not clear (Article 1468 of the Civil Code of the Philippines):
 if value of thing = or < than amount of money then it is a sale
 if value of thing > amount of money then it is a barter
3. Contract for piece of work
a. contract for delivery of an article which the vendor in the ordinary course of
business manufactures or procures for general market ( whether on hand or not )
b. goods are to be manufactured specially for a customer and upon special order
and not for the general market – contract for piece of work.
Jurisprudence:
a. Timing test – under Art. 1467; Inchausti; whether the thing transferred would

have never existed but for the order – contract for piece of work (abandoned)
b. Habituality test – enunciated in Celestino v CIR; contract of sale if

manufacturer engages in activity without need to employ extraordinary skills and
equipment; contract for piece of work is sale of service; contract of sale is sale of
things.
c. Nature of the object test – enunciated in EEI v CIR; each product’s nature of
execution differs from the others; products are not ordinary products of
manufacturer.
4. Agency to sell
a. In sale, buyer pays for price of object; in agency to sell, agent not obliged to
pay for price, merely obliged to deliver price received from buyer.
b. In sale, buyer becomes owner of thing; in agency; principal remains owner

even if object delivered to him
c. In sale, seller warrants; in agency, agent assumes no risk/liability as long as

within authority given
d. In sale, not unilaterally revocable; in agency, may be revoked unilaterally

because fiduciary & even w/o ground
e. In sale, seller receives profit; in agency, agent not allowed to profit
5. Dacion en pago
a. In dacion, there is a pre-existing credit. In sale there is none.
b. In dacion: obligation is extinguished. In sale, it gives rise to obligations.

c. In dacion, there is less freedom in determining the price. In Sale, there is
greater freedom as to price determination.
d. In dacion, partial or complete fulfillment may be had by the giving of the

object. In sale, the giving of the price may generally end the obligation of the
buyer.
6. Lease
a. In sale: obligation = to absolutely transfer ownership of thing; in lease: use

of thing is for specified period only with obligation to return
b. In sale: consideration is price; in lease: consideration is rent
c. In sale: seller needs to be owner of thing to transfer ownership; in lease:

lessor need not be owner
d. Lease with option to buy: really a contract of sale but designated as lease in
name only.
D. Barter (Art 1468)

 Sale distinguished from barter.
By the contract of barter or exchange, one of the parties binds himself to give one thing in
consideration of the other’s promise to give another thing. On the other hand, in a
contract of sale, the vendor gives a thing in consideration for a price in money.
(1) The above distinction is not always adequate to distinguish one from the other. Hence,
the rule in Article 1468 for those cases in which the thing given in exchange consists
partly in money and partly in another thing.
(a) In such cases, the manifest intention of the parties is paramount in
determining whether it is one of barter or of sale and such intention may be
ascertained by taking into account the contemporaneous and subsequent acts of
the parties.
(b) If this intention cannot be ascertained, then the last sentence of the 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
consideration is more than the amount of the money given.
(2) The only point of difference between the two contracts is in the element which is
present in sale but not in barter, namely: “price certain in money or its equivalent
E. Agency to Sell (Art 1466)
 Sale distinguished from agency to sell.
By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter.
a. In order to classify a contract, due regard must be given to its essential clauses. A
contract is what the law defines it to be, and not what it is called by the contracting
parties. Sale may be distinguished from an agency to sell, as follows:
b. In a sale, the buyer receives the goods as owner; in an agency to sell, the agent
receives the goods as the goods of the principal who retains his ownership over
them and has the right to fix the price and the terms of the sale and receive the
proceeds less the agent’s commission upon the sales made;
c. In a sale, the buyer has to pay the price; in an agency to sell, the agent has simply
to account for the proceeds of the sale he may make on the principal’s behalf;
d. In a sale, the buyer, as a general rule, cannot return the object sold; in an agency to
sell, the agent can return the object in case he is unable to sell the same to a third
person;
e. In a sale, the seller warrants the thing sold; in an agency to sell, the 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; and
f. In a sale, the buyer can deal with the thing sold as he pleases being the owner; in an
agency to sell, the agent in dealing with the thing received, must act and is bound
according to the instructions of his principal.
F. Contract for a piece of work (1467)

 Sale distinguished from contract for a piece of work.
By the contract for a piece of work the contractor binds himself to execute a piece of
work for the employer, in consideration of a certain price or compensation. The
contractor may either employ his labor or skill, or also furnish the material.
The distinction between a contract of sale and one for work, labor or materials or for a
piece of work is tested by the inquiry whether 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,
or a thing which would have existed and been the subject of sale to some other person,
even if the order had not been given.
a. In the first case, the contract is one for work, labor and materials and in the
second, one of sale.
b. In the first case, the risk of loss before delivery is borne by the worker or
contractor, not by the employer (the person who ordered). A contract is for a
piece of work if services dominate that contract even though there is a sale of
goods involved. Where the primary objective of a contract is a sale of a
manufactured item, it is a sale of goods even though the item is manufactured by
labor furnished by the seller and upon previous order of the customer.
c. The importance of marking the line that divides contracts for a piece of work
from contracts of sale arises from the fact that the former is not within the Statute
of Frauds.
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NOTES

1. Sources of Law on Sales

1. A contract of sale has the following essential elements:

 DISTINGUISHED FROM OTHER CONTRACTS:

a. donation is gratuitous; sale is onerous

b. donation is formal contract; sale is consensual

c. donation is governed by law on donation; sale is governed by law on sales.

a. In barter, the consideration is the giving of a thing; in sale, it is giving of money as

c. if consideration consists partly in money & partly by thing – look at manifest

 if value of thing > amount of money then it is a barter

3. Contract for piece of work

a. Timing test – under Art. 1467; Inchausti; whether the thing transferred would

b. Habituality test – enunciated in Celestino v CIR; contract of sale if

b. In sale, buyer becomes owner of thing; in agency; principal remains owner

c. In sale, seller warrants; in agency, agent assumes no risk/liability as long as

d. In sale, not unilaterally revocable; in agency, may be revoked unilaterally

e. In sale, seller receives profit; in agency, agent not allowed to profit

a. In dacion, there is a pre-existing credit. In sale there is none.

b. In dacion: obligation is extinguished. In sale, it gives rise to obligations.

d. In dacion, partial or complete fulfillment may be had by the giving of the

a. In sale: obligation = to absolutely transfer ownership of thing; in lease: use

b. In sale: consideration is price; in lease: consideration is rent

c. In sale: seller needs to be owner of thing to transfer ownership; in lease:

D. Barter (Art 1468)

F. Contract for a piece of work (1467)

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