Document Text Contents
Page 1
1
1
CHAPTER 1
NATURE OF SALE
DEFINITION OF SALE
Article 1458 of the Civil Code defi nes “sale” as a contract
whereby one of the contracting parties (Seller) obligates himself
to transfer the ownership, and to deliver the possession, of a
determinate thing; and the other party (Buyer) obligates himself
to pay therefor a price certain in money or its equivalent.1
The Roman Law concept embodied in the old Civil Code2
that treated delivery of tangible property as the sole purpose of
sale has been modifi ed under the present Article 1458, which
applies the common law concept of requiring the obligation to
transfer the ownership of the subject matter of the sale as a
principal obligation of the seller.
1. Nature of Obligations Created in a Sale
The defi nition of the contract of sale under Article 1458
provides that its perfection brings about the creation of two sets
of obligations:
(a) Two OBLIGATIONS of the SELLER to:
(i) Transfer the Ownership,3 and
1Alfredo v. Borras, 404 SCRA 145 (2003); Cruz v. Fernando, 477 SCRA 173 (2005);
Roberts v. Papio, 515 SCRA 346 (2007).
2Art. 1445 of the old Civil Code.
3Flancia v. Court of Appeals, 457 SCRA 224, 231 (2005), defi nes “ownership” as
“the independent and general power of a person over a thing for purposes recognized
by law and within the limits established thereby — aside form the jus utendi and the
jus abutendi inherent in the right to enjoy the thing, the right to dispose, or the jus
disponendi, is the power of the owner to alienate, encumber, transform and even destroy
the thing owned.”
Page 2
LAW ON SALES2
(ii) Deliver the Possession, of the SUBJECT
MATTER;
(b) An OBLIGATION for the BUYER to:
(i) Pay the PRICE.4
Both sets of obligations, are real obligations or obligations
“to give,” as contrasted from personal obligations “to do” and
“not to do,” and can be the proper subject of actions for specifi c
performance.5 In contrast, obligations to do or not to do, cannot
be enforced through actions for specifi c performance because
of the public policy against involuntary servitude;6 although the
creditor can have the same executed by another at the cost of
the obligor,7 and the obligor’s refusal to comply can be the basis
for claims for damages.8
To illustrate, Article 1480 of the Civil Code, which cross-
refers to Article 1165 thereof, provides that when what is to be
delivered is a determinate thing, the buyer, in addition to the
right to recover damages, may compel the seller to make the
delivery. In other words, a defaulting party in a sale cannot insist
on just paying damages when the non-defaulting party demands
performance.
2. Subject Matter of Sale
Although Article 1458, in defi ning sale, uses the word
“determinate” to describe the subject matter of the sale, the
present Law on Sales has expanded the coverage to include
generic objects which are at least “determinable.” Article 1460
states that the “requisite that the thing be determinate is satisfi ed
if at the time the contract is entered into, the thing is capable of
4Acap v. Court of Appeals, 251 SCRA 30 (1995); Velarde v. Court of Appeals, 361
SCRA 56 (2001).
5Art. 1165 of the Civil Code: “When what is to be delivered is a determinate thing,
the creditor . . . may compel the debtor to make the delivery. If the thing is indeterminate
or generic, he may ask that the obligation be complied with at the expense of the
debtor.”
6Sec. 18(2), Art. III, 1987 Constitution.
7Art. 1167, Civil Code.
8Art. 1170, Civil Code.
Page 344
LAW ON SALES344
344
CHAPTER 9
LOSS AND DETERIORATION,
FRUITS AND OTHER BENEFITS
Analysis of the prevailing doctrines in Philippine jurisdiction
on the risk of loss and deterioration, and the benefi ts fl owing from
the fruits and improvements, of the object of sale, offer interesting
study on the convergence of disparate principles in civil law and
common law. The discussions hereunder cover only contracts of
sale where the subject matter is determinate or specifi c, since a
determinable generic subject matter does not deteriorate nor is
it subject to loss.1
In drafting the Title on Sales of the New Civil Code, the Code
Commission engrafted many provisions of the Uniform Sales Law
of the United States to achieve a common set of rules on sales
on both sides of the Pacifi c, since the United States was then our
biggest and most important trading partner. Unfortunately, the
grafting together of civil and common law principles in our Law
on Sales has yielded confusing and varying interpretations.
The Roman law principle embodied in the Spanish Civil Code
previously applicable to the Philippines, mandated that from the
moment of perfection of sale, the risk of loss on a determinate
subject matter passes to the buyer without need of delivery,
provided that the sale is unconditional. Although the principles
provided that ownership of the subject matter is transferred to
the buyer only upon delivery thereof by the seller, nonetheless,
after perfection of the sale but before delivery, the consequences
of deterioration of the subject matter without the fault of the seller
1Art. 1263 of the New Civil Code provides that: “In an obligation to deliver a
generic thing, the loss or destruction of anything of the same kind does not extinguish
the obligation.”
Page 345
345
shall likewise be borne by the buyer, and he must still pay the price
agreed upon even when eventually the subject matter delivered
is no longer in the same condition. Under the same principle, any
improvement or fruits of the subject matter after perfection are for
the benefi t of the buyer.
On the other hand, under common law principles, it is the
owner who bears the risk of loss (res perit domino), in the absence
of any stipulation to the contrary. However, in a sale, ownership
of the subject matter is transferred to the buyer from the moment
the contract is entered into and the goods are available to be
delivered to the buyer. When it comes to goods, it is not delivery
under common law that transfers ownership to the buyer, but the
perfection of an unconditional sale with availability of the subject
matter for delivery.
Therefore, even when the legal principles were different, the
legal consequences from the point of perfection were the same
in both legal systems: upon perfection of an unconditional sale
involving specifi c or determinate subject matter, the risk of loss,
deterioration and the benefi ts of fruits and improvements, were
for the account of the buyer.
In amending the provisions relating to the risk of loss, the
Code Commission decided to adopt the common law principle
that it should be the owner of the subject matter of the sale that
should bear the risk of loss (res perit domino); but they maintained
the civil law principle that ownership can only be transferred by
delivery. This legal fusion on principles have caused the current
confusion that prevails on the issue of risk of loss.
BEFORE PERFECTION
Before the perfection of a sale, the rules on loss, deterioration,
fruits and improvement of the purported subject matter are
the same: such loss, deterioration, fruits and improvements
shall pertain to the purported seller, since he owns the thing.
Notwithstanding the extent of the negotiations that have taken
place, prior to perfection, the purported subject matter bears no
legal or even equitable relationship to the purported buyer, and
LOSS AND DETERIORATION,
FRUITS AND OTHER BENEFITS
Page 687
xxxvii
CATEGORIES OF RETAIL TRADE ENTERPRISES ............................. 604
WHEN ALIENS MAY INVEST AND/OR ENGAGE IN RETAIL TRADE
1. Grandfather Rule .................................................. 607
2. Requirements of Foreign Investors ....................... 609
3. Foreign Investors Acquiring Shares of Stock
of Local Retailers .................................................. 610
4. Public Offering of Shares of Stock ........................ 610
FOREIGN RETAILERS
1. Prequalifi cation Requirements .............................. 611
2. Application for Prequalifi cation .............................. 612
3. Branches/Stores .................................................... 613
a. Direct Opening of Branches/Stores .................. 613
b. Acquiring/Investing in Existing
Retail Stores ..................................................... 613
4. Promotion of Locally-Manufactured Products ....... 614
5. Prohibited Activities of Qualifi ed Foreign
Retailers ............................................................... 614
6. Binding Effect of License to Engage in Retail
on Private Parties ................................................. 614
PENALTY CLAUSE ................................................................... 614
APPLICATION OF ANTI-DUMMY LAW .......................................... 615
IMPLEMENTING AGENCY
1. DTI as the Implementing Agency .......................... 617
2. Role of DOJ and SEC ........................................... 618
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS ............................ 619
Page 688
xxxviii
1
1
CHAPTER 1
NATURE OF SALE
DEFINITION OF SALE
Article 1458 of the Civil Code defi nes “sale” as a contract
whereby one of the contracting parties (Seller) obligates himself
to transfer the ownership, and to deliver the possession, of a
determinate thing; and the other party (Buyer) obligates himself
to pay therefor a price certain in money or its equivalent.1
The Roman Law concept embodied in the old Civil Code2
that treated delivery of tangible property as the sole purpose of
sale has been modifi ed under the present Article 1458, which
applies the common law concept of requiring the obligation to
transfer the ownership of the subject matter of the sale as a
principal obligation of the seller.
1. Nature of Obligations Created in a Sale
The defi nition of the contract of sale under Article 1458
provides that its perfection brings about the creation of two sets
of obligations:
(a) Two OBLIGATIONS of the SELLER to:
(i) Transfer the Ownership,3 and
1Alfredo v. Borras, 404 SCRA 145 (2003); Cruz v. Fernando, 477 SCRA 173 (2005);
Roberts v. Papio, 515 SCRA 346 (2007).
2Art. 1445 of the old Civil Code.
3Flancia v. Court of Appeals, 457 SCRA 224, 231 (2005), defi nes “ownership” as
“the independent and general power of a person over a thing for purposes recognized
by law and within the limits established thereby — aside form the jus utendi and the
jus abutendi inherent in the right to enjoy the thing, the right to dispose, or the jus
disponendi, is the power of the owner to alienate, encumber, transform and even destroy
the thing owned.”
Page 2
LAW ON SALES2
(ii) Deliver the Possession, of the SUBJECT
MATTER;
(b) An OBLIGATION for the BUYER to:
(i) Pay the PRICE.4
Both sets of obligations, are real obligations or obligations
“to give,” as contrasted from personal obligations “to do” and
“not to do,” and can be the proper subject of actions for specifi c
performance.5 In contrast, obligations to do or not to do, cannot
be enforced through actions for specifi c performance because
of the public policy against involuntary servitude;6 although the
creditor can have the same executed by another at the cost of
the obligor,7 and the obligor’s refusal to comply can be the basis
for claims for damages.8
To illustrate, Article 1480 of the Civil Code, which cross-
refers to Article 1165 thereof, provides that when what is to be
delivered is a determinate thing, the buyer, in addition to the
right to recover damages, may compel the seller to make the
delivery. In other words, a defaulting party in a sale cannot insist
on just paying damages when the non-defaulting party demands
performance.
2. Subject Matter of Sale
Although Article 1458, in defi ning sale, uses the word
“determinate” to describe the subject matter of the sale, the
present Law on Sales has expanded the coverage to include
generic objects which are at least “determinable.” Article 1460
states that the “requisite that the thing be determinate is satisfi ed
if at the time the contract is entered into, the thing is capable of
4Acap v. Court of Appeals, 251 SCRA 30 (1995); Velarde v. Court of Appeals, 361
SCRA 56 (2001).
5Art. 1165 of the Civil Code: “When what is to be delivered is a determinate thing,
the creditor . . . may compel the debtor to make the delivery. If the thing is indeterminate
or generic, he may ask that the obligation be complied with at the expense of the
debtor.”
6Sec. 18(2), Art. III, 1987 Constitution.
7Art. 1167, Civil Code.
8Art. 1170, Civil Code.
Page 344
LAW ON SALES344
344
CHAPTER 9
LOSS AND DETERIORATION,
FRUITS AND OTHER BENEFITS
Analysis of the prevailing doctrines in Philippine jurisdiction
on the risk of loss and deterioration, and the benefi ts fl owing from
the fruits and improvements, of the object of sale, offer interesting
study on the convergence of disparate principles in civil law and
common law. The discussions hereunder cover only contracts of
sale where the subject matter is determinate or specifi c, since a
determinable generic subject matter does not deteriorate nor is
it subject to loss.1
In drafting the Title on Sales of the New Civil Code, the Code
Commission engrafted many provisions of the Uniform Sales Law
of the United States to achieve a common set of rules on sales
on both sides of the Pacifi c, since the United States was then our
biggest and most important trading partner. Unfortunately, the
grafting together of civil and common law principles in our Law
on Sales has yielded confusing and varying interpretations.
The Roman law principle embodied in the Spanish Civil Code
previously applicable to the Philippines, mandated that from the
moment of perfection of sale, the risk of loss on a determinate
subject matter passes to the buyer without need of delivery,
provided that the sale is unconditional. Although the principles
provided that ownership of the subject matter is transferred to
the buyer only upon delivery thereof by the seller, nonetheless,
after perfection of the sale but before delivery, the consequences
of deterioration of the subject matter without the fault of the seller
1Art. 1263 of the New Civil Code provides that: “In an obligation to deliver a
generic thing, the loss or destruction of anything of the same kind does not extinguish
the obligation.”
Page 345
345
shall likewise be borne by the buyer, and he must still pay the price
agreed upon even when eventually the subject matter delivered
is no longer in the same condition. Under the same principle, any
improvement or fruits of the subject matter after perfection are for
the benefi t of the buyer.
On the other hand, under common law principles, it is the
owner who bears the risk of loss (res perit domino), in the absence
of any stipulation to the contrary. However, in a sale, ownership
of the subject matter is transferred to the buyer from the moment
the contract is entered into and the goods are available to be
delivered to the buyer. When it comes to goods, it is not delivery
under common law that transfers ownership to the buyer, but the
perfection of an unconditional sale with availability of the subject
matter for delivery.
Therefore, even when the legal principles were different, the
legal consequences from the point of perfection were the same
in both legal systems: upon perfection of an unconditional sale
involving specifi c or determinate subject matter, the risk of loss,
deterioration and the benefi ts of fruits and improvements, were
for the account of the buyer.
In amending the provisions relating to the risk of loss, the
Code Commission decided to adopt the common law principle
that it should be the owner of the subject matter of the sale that
should bear the risk of loss (res perit domino); but they maintained
the civil law principle that ownership can only be transferred by
delivery. This legal fusion on principles have caused the current
confusion that prevails on the issue of risk of loss.
BEFORE PERFECTION
Before the perfection of a sale, the rules on loss, deterioration,
fruits and improvement of the purported subject matter are
the same: such loss, deterioration, fruits and improvements
shall pertain to the purported seller, since he owns the thing.
Notwithstanding the extent of the negotiations that have taken
place, prior to perfection, the purported subject matter bears no
legal or even equitable relationship to the purported buyer, and
LOSS AND DETERIORATION,
FRUITS AND OTHER BENEFITS
Page 687
xxxvii
CATEGORIES OF RETAIL TRADE ENTERPRISES ............................. 604
WHEN ALIENS MAY INVEST AND/OR ENGAGE IN RETAIL TRADE
1. Grandfather Rule .................................................. 607
2. Requirements of Foreign Investors ....................... 609
3. Foreign Investors Acquiring Shares of Stock
of Local Retailers .................................................. 610
4. Public Offering of Shares of Stock ........................ 610
FOREIGN RETAILERS
1. Prequalifi cation Requirements .............................. 611
2. Application for Prequalifi cation .............................. 612
3. Branches/Stores .................................................... 613
a. Direct Opening of Branches/Stores .................. 613
b. Acquiring/Investing in Existing
Retail Stores ..................................................... 613
4. Promotion of Locally-Manufactured Products ....... 614
5. Prohibited Activities of Qualifi ed Foreign
Retailers ............................................................... 614
6. Binding Effect of License to Engage in Retail
on Private Parties ................................................. 614
PENALTY CLAUSE ................................................................... 614
APPLICATION OF ANTI-DUMMY LAW .......................................... 615
IMPLEMENTING AGENCY
1. DTI as the Implementing Agency .......................... 617
2. Role of DOJ and SEC ........................................... 618
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS ............................ 619
Page 688
xxxviii
