Chapter 1: NATURE AND FORM OF THE CONTRACT

(ARTICLE 1458 TO 1488)

Contract of Sale (Article 1458)

By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent.

• “contracting parties” – seller ; “and the other” – buyer

• There is a meeting of the minds between two parties namely vendor and vendee.

• Contract of sale may be absolute (if silent) or conditional (needs to be stipulated)

What kind of Contract is Sale

It is a Special Contract

Obligations of Vendor/Seller

To deliver a determinate thing

To transfer ownership

Obligations of Vendee/Buyer

To accept the delivery

To pay the price

Characteristics of Contract of Sale

Consensual

Commutative - As a rule

Bilateral - always

Onerous - always

Principal - always

Reciprocal - As a rule

Nominate - always

Onerous - always

Transmissive - always

Bilateral

Bound by reciprocal obligations

• both parties have obligations

• entered into by two or more persons and the rights and obligations arising therefrom are always reciprocal

Consensual

Perfected by mere consent

• Valid in any form whether oral or in writing provided there is meeting of the minds

Exceptions to the General Rule of Consent

1. It is a formal contract when it is a sale of land through an agent if the authority is not in writing.

   1. The authority is given ORALLY – contract is VOID

   2. All the things that the agent will do pertaining to that sale is also VOID

If the owner of the land sold the land orally

It is considered valid but (a defective contract) unenforceable contract for it violates the statute of fraud.

Sale of securities

VOID + criminal liability if the securities are not SEC registered

● Based on Securities Regulation Code

Commutative

The parties exchange almost equivalent values.

● It is not determined by risk. The amount of debit is equal to the amount of credit.

● Exception to the rule: Aleatory sale - a sale determined by risk

Aleatory contract

one of the parties or both reciprocally binds themselves to give or to do something in consideration of what the other shall give or do upon the happening of an event which is uncertain, or which is to occur at an indeterminate time.

that through its nature or by the parties' will offers at least to one contracting party the chance of advantage, exposing it at the same time to the risk of losses, that depend upon an uncertain prospective event.

○ Ex. Insurance, lotto tickets

Nominate

It has special name given to it by law.

Onerous

There is an exchange of valuable considerations

• Always have value in return

• On the part of the vendor, the price of the goods.

• On the part of the vendee, the determinate thing is received.

Without the price nor the goods, the contract of sale is void.

Principal

It can exist by itself.

● It can stand alone without the aid of other contract

● It does not depend on its existence or validity upon some other contracts

Reciprocal

Simultaneous performance is required to the parties unless stipulated (there are separate dates to perform)

Transmissive of Ownership

● The ultimate obligation of the seller is to transfer ownership to the buyer.

○ Transfer of ownership at the delivery unless stipulated

● If the contract does not involve the transfer of ownership, it will never be considered a contract of sale.

Essential Requisites of Contract of Sale

A. Consent

B. Object

C. Price

A. Consent

● Conformity of the parties

● Meeting of the minds upon the thing which is the object of the contract and the price

● Persons who cannot give a valid consent: MIDD

• Minor, Insane person, Demented persons, Deaf/mute who doesn’t know how to read and write

Vitiation of consent: MVIUF (voidable, valid until annulled)

• Mistake, Violence, Intimidation, Under influence, Fraud

Stages in life of a Contract

Negotiation

Perfection (most important)

Consummation

Review the defective contracts: Sale may be

● Rescissible – Sale of property identification without court approval

● Voidable – Sale when one party is incapacitated

● Unenforceable – Both parties are incapacitated, Sale in violation of Statute of Fraud

● Void – Sale of illegal objects

When is a sale perfected?

a. Face to face transaction

b. Sale by correspondence

c. Sale with suspensive condition

d. Sale by public auction

a. Face to face transaction

Upon acceptance of the offer. Provided that the offer is clear or definite and the acceptance is complete and unconditional

Sale by correspondence

– Apply Cognition Theory: when offeror learns of the acceptance by the offeree ● Ex. Sale through shopee, E-commerce, sale through text messaging

Sale with suspensive condition

– Upon the happening of the condition ● Ex. I will sell to you my car when you become a CPA

Sale by public auction

Upon the fall of the hammer or other customary modes ● Puffing or by bidding (fake bidders) -- not allowed as a rule (only allowed if announced publicly and before the public auction starts)

Prohibited Sales

Absolutely void (graft and corruption)

1. Public officials → are prohibited to buy properties under their custody

2. Officers of the court → are prohibited to buy properties under their litigation

● Including lawyers if property of their present client

Relatively void (instances where it can be valid)

3. Guardians → cannot purchase property of their wards

4. Executors/Administrators → cannot purchase property of the estate

5. Agents → cannot purchase property of the principal (covered by agency)

6. Husband and Wife → cannot enter into a contract unless they are legally separated or governed by absolute separation of property

Object or Subject Matter

(1) Must be licit (Article 1459)

(2) Seller must have the right to transfer ownership of object at the time of delivery (Article 1459)

(3) Must be determinate thing (Article 1460) ○ What if the thing sold is indeterminate? It would not be void

(4) Emptio rei speratae is the sale of future thing (Article 1461) – Thing having potential existence

(5) Emptio spei is a sale of hope or expectancy (Article 1461)

○ Hindi requirement that the hope or expectancy would come into existence

(6) Vain hope or expectancy – void

○ Example: expired ticket

(7) Future inheritance – void

EMPTIO SPEI

Sale of hope / chance, Ex. Lotto tickets Not sale of vain hope -- VOID, Ex. Drawed letter tickets

Absolute sale (no conditions are attached to the sale)

Price is fixed

EMPTIO REI SPERATAE

Sale of future goods.

Conditional sale – Aalamin pa sa future yung quality or quantity

Price varies

Price

Must be certain

1. Fixed by the parties

2. certain with reference to another thing certain.

3. If the determination of the price is left to the judgment of a specified person or persons.

   1. The third person is unable or unwilling to fix the price - The contract is inefficacious or null and void.

   2. The third person acted in bad faith or by mistake. - The injured party may ask the court to fix the reasonable price.

   3. The third person is prevented from fixing the price or terms by the fault of the seller or the buyer. - The injured party may ask for fulfilment or rescission plus damages.

4. If the price is fixed by one of the contracting parties and accepted by the other.

5. Inadequacy of price in a contract of sale – valid unless there is a defect in consent or parties intended a donation or some other contract.

6. Simulated price in a contract of sale – void but the parties may prove that the contract is a donation or some other contract.

Lesion / Insufficient / Inadequacy of Price

● Ex. FMV = 100,000 , Selling price = 20,000

● Sale is still VALID

○ Unless proven that the price is simulated, which results in a VOID sale.

○ Unless in the case of vitiated consent, VALID but VOIDABLE.

○ Unless the real agreement is a donation, the real contract will prevail, VALID, and the contract is not contrary to the law.

Price to be determined by Other Person

a. Third parties → ALLOWED, provided with proper guidelines and decision is communicated to the parties

● Ex. A is the buyer and B is the seller. C will decide an amount between 20,000 to 100,000

b. One of the parties → (either buyer or seller only) “Bahala ka na” or “it’s up to you” – VOID unless later, one party fixed the price and the other party accepted it

Form of Contract of Sale

● As a rule – oral or in writing or partly oral and partly in writing is considered valid

● Subject to statute of frauds and other laws:

○ Personal property (P500 or more)

○ Real property

○ Sale of piece of land made through an agent

Kinds of Contract of Sale

● Absolute

● Conditional

● Contract to sell

Absolute

– upon the delivery of the things sold to the buyer, there is already a transfer of ownership

Conditional

– upon the delivery of thing sold, wala pang transfer of ownership

– only upon the fulfillment of the condition, only at that time there would be transfer of ownership (usually full payment of purchase price)

Natural elements of the contract of sale

which are presumed to exist in a contract of sale unless validly waived by the contracting parties.

a. Warranty against eviction

b. Warranty against hidden defects

c. Warranty against non-apparent and unregistered servitude or encumbrance

d. Warranty for merchantability

Without these, the contract is still valid but may result in remedies (ex. warranties VS eviction or hidden defects)

Accidental elements in the contract of sale

Elements that do not exist in a contract of sale unless provided by the contracting parties.

a. Place of delivery and payment

b. Time of delivery and payment

c. Terms or conditions of payment

d. Interest of the price

Present only when stipulated by the parties (ex. Pacto de retro sale - sale with right to repurchase

Contract of sale vs. Agency to sell

a. In sale, ownership passes to the buyer, while in agency to sell, ownership is retained by the principal.

b. In sale, the buyer pays the seller, while in agency to sell, the buyer pays the agent and the latter transmits the money to the principal.

c. In sale, the goods are delivered by the seller to the buyer while in agency to sell, it is delivered by the agent to the final consumer.

Contract of sale vs. Contract for a piece of work

It is a contact of sale if it is for the delivery at a certain price of an article which the vendor in the ordinary course of business, manufactures or procures for the general market, whether the same is on hand or not,

while it is a contract for a piece of work if the goods are to be manufactured especially for the customer upon his special order and not for the general market.

Payment by Cession

● cede: to give up all your properties for the payment of your obligation

● It is the abandonment or assignment by the debtor of all his property in favor of his creditors so that the latter may sell them and recover their claims out of the proceeds.

● Extinguishment is not automatic

○ Ex. upon delivery and acceptance by the creditor

○ Ex. May utang ako sa inyong tig-100k, may lupa akong worth 10 million. Ibinigay ko na lang sa inyo ang lupa upang ibenta at kayo na ang mag-hati hati sa kita

● 1 debtor who is insolvent and 2 or more creditors

Dation in Payment

A special form of payment where the ownership of property is transferred to his creditor to pay a debt in money. It is important that both debtor and creditor consent to such an arrangement.

● Extinguishment is automatic

○ Ex. May utang ako sayong 10,000 and may cellphone akong worth 20,000. Tinignan mo yung cellphone at nag-agree kayong iyon na ang pambayad sa utang --- payment in kind

● 1 debtor who is solvent and 1 creditor

SPECIAL KINDS OF SALE (PAS6)

Not ordinary because they are deviated from ordinary characteristics of sale

1. Pacto de retro sale

2. Aleatory sale

3. Sale or return

4. Sale on TAS (Trial/ Approval/ Satisfaction)

5. Sale by sample

6. Sale by description

7. Sale by sample and description

8. Sale of undivided share of specific mass of fungible goods

1. Pacto de retro sale

● Sale with right to repurchase

● conditional sale -- needs to be stipulated - may limit kung hanggang kailan pwede i repurchase

● Sale with resolutory condition - kapag binalik yung goods ma-extinguish yung sale

2. Aleatory sale

● Determined by risk

● Normal sale is not determined by risk

3. Sale or return

● When the seller delivers to the buyer, there is already a transfer of ownership but the buyer can return later (within a limited

period ex. 10 days from sale) even without defects

● Conditional sale → sale with resolutory condition

○ Resolutory: kapag ni-return na extinguish yung sale

○ Immediately there is sale

● Lost after delivery due to fortuitous event → buyer will bear the loss

○ si buyer na ang owner kasi nagkaroon na ng transfer of ownership

4. Sale on TAS (Trial/ Approval/ Satisfaction)

● When the seller delivers to the buyer, there is no transfer of ownership yet unless the buyer informs the seller of his approval or

satisfaction

● Conditional sale → sale with suspensive condition

○ Suspensive: kapag na-approve, may sale na

● No sale yet, because approval or satisfaction of buyer needs to occur first

● Lost after delivery due to fortuitous event → seller will bear the loss

○ Wala pang approval, kaya wala pang transfer of ownership to the buyer

5. Sale by sample

● On normal sale, it is a face to face transaction

● But on sale by sample, the buyer merely relies on the sample of the seller. Hence, upon delivery, goods must conform with the

sample. Otherwise, the buyer may rescind the sale and the seller may be liable for damages or other remedies.

○ Ex. Ang binibili kong sample ay cute, little and yellow bird. Pero ang na-deliver ay isang eagle. Kahit mas mahal ang

eagle, hindi ito ang sample na pinakita kay buyer.

6. Sale by description

● Buyer relies on the description of the seller. Hence, upon delivery, goods must conform with the description. Otherwise, the

buyer will rescind the sale and the seller may be liable to damages or other remedies.

○ Ex. Sale in Shopee or Lazada

7. Sale by sample and description

● Buyer relies on both sample and description. Hence, upon delivery, goods must conform with the sample and description.

Otherwise, the buyer will rescind the sale and the seller may be liable to damages or other remedies.

8. Sale of undivided share of specific mass of fungible goods

● Fungible goods: goods that cannot be used without being consumed.

○ Ex. oil, sugar, rice, salt

○ Ex. 1,000 liters of gasoline. Ang owners ay si A, B, and C. Mr. C sold his share to Mr. D but did not specify the mass or

quantity. --- SALE IS VOID

■ Undivided yung gasoline and there is co-ownership kaya void yung sale.

○ Ex. I owned 30% of the gasoline and I will sell it all to you for 100,000. --- VALID

● NOTE: If the sale is of divided share, no need to specify the mass.

○ Ex. There are 3 containers owned each by A,B, and C. Mr. C sold his container to Mr. D for 50,000. --- SALE IS VALID

EVEN MASS IS NOT SPECIFIED

Bilateral or Mutual Promise

● Buy and sell is as good as perfected contract of sale

● Two parties making a promise (seller and buyer)

● Effect: if there is bilateral promise to buy and sell determinate thing for a certain price, it would be considered as reciprocally demandable

Unilateral Promise

● to buy or sell accepted by the promise is binding only if supported by option money.

● Only one party is making a promise

● Example: S sells a cellphone to B

○ If B did not accept the promise = it would not produce any legal effect

○ If B accepted the promise without consideration = the promise is not considered as binding upon the promisor

○ If B accepted with consideration = binding on the part of the promisor

■ perfected option contract of sale

■ Option money

■ Option period

Policitacion

refers to unilateral promise not accepted by the promisee, therefore, it does not produce any effect

Earnest Money

● Earnest money is proof of perfection of contract of sale

● Earnest money is part of the purchase price.

Option Money

● Proof of perfection of option contract of sale

● Not part of the purchase price

Who bears the risk of loss of object?

a. Before perfection – seller

b. At the time of perfection – seller

c. After perfection but before delivery – buyer

d. After perfection but after delivery – buyer

Installment Sales

● Sale of personal property in installment

● Sale of real property in installment

Sale of Personal Property in Installment (RECTO LAW)

● Recto Law – Article 1484

● Remedies of the seller

● The buyer benefits from this law