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SALES Chapter 1 – Nature and Form of the Contract CHAPTER 1 c. Onerous – to acquire the rights, valuable...

SALES Chapter 1 – Nature and Form of the Contract CHAPTER 1 c. Onerous – to acquire the rights, valuable consideration must be given. NATURE AND FORM OF THE CONTRACT d. Commutative – the values exchanged are almost Article 1458. By contract of sale one of the equivalent to each other. contracting parties obligate himself to transfer the ownership and to deliver a determinate thing, and Note: By way of exception, some contracts are aleatory. the other to pay therefore a price certain in money or Ex: Sale of a genuine sweepstakes ticket. its equivalent. e. Principal (as distinguished from accessory Sales – a contract where one party (seller or vendor) contract) – there is no necessity for it to depend obligates himself to transfer the ownership of and to deliver upon the existence of another valid contract. (Ex: a determinate thing, while the other party (buyer or vendee) Contracts of pledge and mortgage) obligates himself to pay for said thing a price certain in money or its equivalent. f. Nominate (as distinguished from an innominate contract) – a special designation or name. (Ex: the Under Roman Law, sale was termed avenditio. Today the contract of sale) French refer to the contract as a venta Elements of the Contract of Sale  The vendor need not be the owner at the time the sale is perfected. It is sufficient that he is the owner a. Essential elements (those without which there can be no valid sale) at the time the thing sold is deliver. 1. Consent or meeting of the minds – (Ex:  Suppose Art. 1458 did not specify that the seller consent to transfer ownership I exchange for must transfer the ownership of the object, he still the price. have this obligation for after all the transfer of ownership is the fundamental aim of the contract. A 2. Determinate subject matter (generally buyer is not interested in a mere physical transfer, he there is no sale of generic thing; moreover, if is after the ownership. the parties differ as to the object, there can be no meeting of the minds. Essential Characteristics of the Contract of Sale 3. Price certain in money or its equivalent – a. Consensual – perfected by mere consent. (This is the cause or consideration) (The price b. Bilateral reciprocal – both parties are bound by need not be in money.) obligations dependent upon each other.  SALES Chapter 1 – Nature and Form of the Contract b. Natural elements (those which are inherent in c. As to whether the object is tangible or the contract, and which in the absence of any intangible contrary provision, are deemed to exist in the contract.) 1. sale of property (tangible or corporeal) 1. warranty against eviction (deprivation of the 2. sale of a right (assignment of a right or a credit, or property bought) some other intangibles such as a copyright, a trademark, or goodwill.) 2. warranty against hidden defects tangible – chose of possession. c. Accidental elements (those which may be present or absent in the stipulation, such as the place or time of intangible – chose of action. payment, or the presence of conditions.)  The term “goods” as used in the Uniform Sales Act Stages in the Contract of Sale does not ordinarily include choses in action (things in action). Neither does the term include money. a. Generation or negotiation d. As to the validity or defect of the transaction b. Perfection – meeting of the minds 1. valid sale c. Consummation – when the object is delivered and the price is paid. 2. rescissible sale Kinds of Sales 3. voidable sale a. As to the nature of the subject matter 4. unenforceable sale 1. sale of real property 5. void sale 2. sale of personal property e. As to the legality of the object b. As to the value of the things exchanged 1. sale of a licit object 1. commutative sale 2. sale of an illicit object 2. aleatory sale  SALES Chapter 1 – Nature and Form of the Contract f. As to the presence or absence of conditions Sale distinguished from “Dation in Payment” (Adjudicacion en Pago, or Dacion en Pago or Dacion 1. absolute sale (no condition) en Solutum) 2. conditional sale (as to whether there is a sale with a SALE DATION IN PAYMENT pacto de retro, a right to repurchase or redeem; or when there are suspensive conditions, or when the 1. There is no pre-existing 1. There is a pre-existing things sold merely possess a potential existence, credit. credit. such as the sale of the future harvest of a designated parcel of land; or when, for example, all the personal 2. Gives rise to obligations. 2. extinguishes obligations. properties in an army depot would be sold “except all 3. The cause or 3. The cause or combat materials” that may be found therein. consideration here is the consideration here, from the Therefore such combat materials should be excluded price, from the viewpoint of viewpoint of the person from sale.) the seller, or the obtaining of offering the dation in g. As to whether wholesale or resale the object, for the viewpoint payment, is the extinguishin of the buyer. of his debt; from the 1. wholesale –if to be resold for a proft the goods being viewpoint of the4 creditor, it unaltered when resold, the quantity being large. 4. There is greater freedom is the acquisition of the in the determination of the object offered in lieu of the 2. retail – if otherwise (also sold to tailors) price. original credit. h. A to the proximate inducement for the sale 5. The giving of the price 4. There is less freedom in may generally end the the determination of the 1. sale by description obligation of the buyer. price. 2. sale by sample 5. The giving of the object in 3. sale by description and sample lieu of the credit may extinguish completely or i. As to whether the price is tendered partially the credit (depending on the 1. cash sale agreement) 2. sale on the installment plan  SALES Chapter 1 – Nature and Form of the Contract Sale distinguished from Assignment of Property in Favor of Creditors (Cession or Cession de Bienes) Contract of Sale distinguished from Contract to Sell SALE CESSION 1. As defned, there is 1. The assignee or creditor CONTRACT OF SALE CONTRACT TO SELL transfer of ownership and does not acquire ownership delivery of a determinate over the things assigned, but 1. The non-payment of price 1. The payment in full of the thing. only the right to sell said is a resolutory condition. (ex: price is a positive suspensive things. the contract of sale may by condition. Hence, if the price such occurrence put an end is not paid, it is as if the to a transaction that once obligation of the seller to upon a time existed.) deliver and to transfer Cession – consists in the abandonment of all the ownership never became property of the debtor for the beneft of his creditors in 2. Title to the property effective and binding. order that the latter may apply the proceeds thereof to generally passes to the the satisfaction of their credits. buyer upon delivery. 2. Ownership is retained by the seller, regardless of Dacion in payment distinguished from Cession 3. After delivery has been delivery and is not to pass made, the seller has lost until full payment of the DATION IN PAYMENT CESSION ownership and cannot price. 1. One creditor is sufficient. 1. There must be two or recover it unless the contract more creditors. is resolved or rescinded. 3. Since the seller retains 2. Not all properties of the ownership, despite delivery, debtor are conveyed. 2. All the debtor’s properties he is enforcing and not are conveyed. rescinding the contract if he 3. Debtor may be solvent or seeks to oust the buyer for insolvent. 3. Cession takes place only if failure to pay. the debtor is insolvent. 4. The creditor becomes the owner of the thing conveyed. 4. The creditors do not become owners of the thing conveyed. Sale distinguished from lease  SALES Chapter 1 – Nature and Form of the Contract In a sale, the seller transfers ownership; in a lease, the Things may be illicit: lessor or landlord transfers merely the temporary possession and use of the property. 1. per se (of its nature) Ex: Sale of human flesh for human pleasure. Kinds of Extrajudicial Foreclosure Sale 2. per accidens (made illegal by provision of the law) Ex: 1. Ordinary execution – governed by the sale of land to an alien after the effective date of the pertinent provisions of Rule 39 of the Rules of Constitution; Sale of illegal lottery tickets. Court. * If the object of sale is illicit, the contract is null and void. 2. Judicial foreclosure – governed by Rule 68 (Art 1409), and cannot, be ratifed. of the Rules of Court. * The right of redemption may be sold. So also may literary, 3. Extrajudicia foreclosure – governed by Act artistic, and scientifc works. A usufruct may also be sold. 3135, as amended by Act 4118, otherwise known as “An Act to Regulate the Sale of Transfer of Ownership Property Under Special Powers Inserted In or a. It is essential for a seller to transfer ownership (Art. 1458) Annexed to Real Estate Mortgages.” and, therefore, the seller must be the owner of the subject sold. Nemo dat quad non habet – nobody can dispose of that which does not belong to him. Article 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof b. But although the seller must be the owner, he need not at the time it is delivered. be the owner at the time of the perfection of the contract. It is sufficient that he is the owner at the time the object is Lawfulness of the Object and Right to Transfer delivered; otherwise he may be held liable for breach of Ownership warranty against eviction. Two rules: * The contract of sale by itself, is not a mode of acquiring ownership. a. The object must be LICIT. * The contract transfers no real rights; it merely causes b. The object must have the RIGHT to transfer certain obligations to arise. OWNERSHIP at the time the object is delivered. c. The seller need not be the owner at the time of perfection Licit – lawful, within the commerce of man. because, after all, “future things or goods” inter alia, ,may be sold.  SALES Chapter 1 – Nature and Form of the Contract * While there can be sale of future property, there can The efficacy of the sale of a mere hope or expectancy generally be no donation of future property. is deemed subject to the condition that the thing will come into existence. d. A person has a right over a thing (although he is not the owner of the thing itself) may sell such right. Hence, a The sale of a vain hope or expectancy is void. usufructuary may generally sell his usufructuary right/ Selling a thing having a potential existence – this is a e. If the buyer was already the owner of the thing sold at the future thing that may be sold. time of sale, there can be no valid contract. Examples: Article 1460. A thing is determinate when it is particularly designated or physically segregated from a. young animals not yet in existence or still ungrown fruits. all others of the same class. b. the wine that a particular vineyard is expected to The requisite that a thing be determinate is satisfied produce. if at the time the contract is entered into, the thing is c. the wool that shall, thereafter, grow upon a sheep capable of being made determinate without the necessity of a new or further agreement between the d. the expected goodwill of a business enterprise parties. the sale of “ a mere hope or expectancy” – should refer Determinate – specifc, but it is not essential really that at to a sale of “an expected thing” not to the hope or the time of perfection, the object be already specifc. It is expectancy for the hope or expectancy already exists. sufficient that it be capable of being determinate without need of any new agreement. Thus, there can be a sale of 20 kilos of sugar of a named quality.  However, from the viewpoint of risk or loss, not until the object has really been made determinate can we say that the object has been lost, for as is well known, “generic thins cannot be lost.” Article 1461. Things having a potential existence may be the object of the contract of sale. Emptio Rei Sperati (Sale of an expected thing) distinguished form Emptio Spei (Sale of the hope itself) Emptio Rei Sperati (Sale of Emptio Spei (Sale of the  SALES Chapter 1 – Nature and Form of the Contract an expected thing) hope itself) Future goods 1. If the expected thing does 1. It does not matter whether a. Those still to be manufactured (like a future airplane) or not materialize, the sale is the expected thing printed (like a subscription to a newpaper) not effective. materialized or not, what is important is that the hope b. Those still to be raised (like young animals, whether 2. Deals with a future thing – itself validly existed. already conceived or not at the same time of perfection of that which is expected. the contract), or future agricultural products (like copra still 2. Deals with a present thing to be manufactured.) Ex: Sale of a valid – for certainly the hope or sweepstakes ticket whether expectancy already exists. c. Those still to be acquired by seller after the perfection of it wins or not, the sale itself the contract (like land which the seller expects to buy.) This is valid. is also referred to as the sale of “hereafter-acquired” property.) d. Things whose acquisition depends upon a contingency * If the hope or expectancy itself is vain, the sale is itself which may or may not happen. Ex: I can sell you now a void. BE it noted that this is not an aleatory contract for specifc car which my father promised to give me, should I while in an aleatory contract there is an element of chance, pass the bar next year. The moment I get the car however, here, there is completely no chance. (Ex: Sale of a losing in accordance with my father’s promise you do not ticket for a sweepstakes already run. Except if the ticket be necessarily become its owner, for before title can pass to a collector’s item) you, I must frst deliver the car to you, actually or Article 1462. The goods which form the subject of a constructively. contract of sale may be either existing goods, owned Article 1463. The sole owner of a thing may sell an or possessed by the seller, or goods to be undivided interest therein. manufactured, raised, or acquired by the seller after the perfection of the contract of sale, in this Title called “future goods.” There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency Example of Sale of undivided interest which may or may not happen. a. If I own a house, I may sell an aliquot part thereof (say ½  Goods may be future or existing goods. or 1/3) to somebody, in which case he and I will become co- owners.  SALES Chapter 1 – Nature and Form of the Contract b. A full owner may sell the usufruct of his land leaving the b. A usufruct that may end when the naked owner becomes naked ownership to himself. a lawyer may be sold. Article 1464. In the case of fungible goods, there may Article 1466. In construing a contract containing be a sale of an undivided share of a specific mass, provisions characteristic of both the contract of sale though the seller purports to sell and the buyer to and of the contract of agency to sell, the essential buy a definite number, weight or measure of the clauses of the whole instrument shall be considered. goods in the mass, and though the number, weight or measure of the goods in the mass undetermined. By such a sale the buyer becomes owner in common of Contract of Sale distinguished from Agency to Sell such a share of the mass as the number, weight or (like a Consignment for Sale) measure bought bears to the number, weight or measure of the mass. If the mass contains less than CONTRACT OF SALE AGENCY TO SELL the number, weight or measure bought, the buyer becomes the owner of the whole mass and the seller 1. The buyer pays the price. 1. The agent delivers the is bound to make good the deficiency from goods of price which in turn he got the same kind and quality, unless a contrary intent 2. The buyer after delivery from his buyer. appears. becomes the owner. 2. The agent who is Example of Share in a Specific Mass 3. The seller warrants. supposed to sell does not become the owner, even if In a stock of rice, the exact number of cavans which is still the property has already unknown, Jose buys 100 cavans. If there are really 150, Jose been delivered to him. becomes co-owner of the whole lot, his own share being 2/3 thereof. The sale is of a specifc object since the mass is 3. The agent who sells specifc. assumes no personal liability as long as he acts within his Article 1465. Things subject to a resolutory condition authority and in the name of may be the object of the contract sale. the principal. Article 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary Sale of things subject to a Resolutory Condition course of his business manufactures or procures for the general market, whether the same is on hand at a. A property subject to reserve troncal may be sold. the time or not, is a contract of sale, but if the goods  SALES Chapter 1 – Nature and Form of the Contract are to be manufactured specially for the customer b. If intent does not clearly appear – and upon his special order, and not for the general market, it is a contract for a piece of work. 1. If thing is more valuable than money – BARTER Rules to Determine if the Contract is One of Sale or a 2. If 50-50 – SALE Piece of Work 3. If thing is less valuable than the money – SALE a. If ordered in the ordinary course of business - SALE Article 1469. In order that the price may be b. If manufactured specially and not for the market piece of considered certain, it shall be sufficient that it be so work contract with reference to another thing certain, or that the determination thereof be left to the judgment of a Schools of Thought specified person or persons. a. Massachusetts Rule – If specially done at the order of Should such person or persons be unable or unwilling another, this is a contract for a piece of work. to fix it, the contract shall be inefficacious, unless the parties subsequently agree upon the price. b. New York Rule – If the thing already exists, it is a SALE; if not, WORK. If the third person or persons acted in bad faith, or by mistake, the courts may fix the price. c. English Rule – If material is more valuable, sale; if skill is more valuable, work. Where such third person or persons are prevented from fixing the price or terms by fault of the seller or Article 1468 – If the consideration of the contract the buyer, the party in fault as are allowed the seller consists partly in money, and partly in another thing, or the buyer, as the case may be. the transaction shall be characterized by the manifest intention of the parties. If such intention Certainty of the Price does not clearly appear, it shall be considered a barter if the value of the thing given as a part of the  The price must be certain; otherwise, there is no true consideration exceeds the amount of the money or consent between the parties. its equivalent; otherwise, it is a sale.  There can be no sale without a price. Rules to determine whether contract is one of Sale or Barter  If the price is fxed but is later on remitted or condoned, this is perfectly all right, for then the price a. First rule – Intent. would not be fctitious.  SALES Chapter 1 – Nature and Form of the Contract  The failure to pay the agreed price does not cancel a the price is so inadequate as to shock the conscience of the sale for lack of consideration, for the consideration is Court, it will not be set aside. still there, namely, the price. In case Contract was really a Donation  If the money paid is counterfeit, the sale would still be valid for we cannot say that the consideration or It is possible that a donation, not a sale, was really intended. cause of the contract is the illegal currency. The real In such a case, the parties may prove that the low price is consideration or caused is still the VALUE or price sufficiently explained by the consideration of liberality. agreed upon. Article 1471. If the price is simulated, the sale is When no specific amount is stipulated void, but the act may be shown to have been in reality a donation, or some other act or contract. If no specifc amount has been agreed upon, the price is still considered certain: Simulated price a. If it be certain with reference to another thing certain. a. The price must not be fctitious. Therefore if the price is merely simulated, the contract as a sale is void. It may b. If the determination of the price is left to the judgment however be valid as a donation or some other agreement, of a specifed person or persons. provided the requirements of donations or other agreements have been complied with. If these requirements do not exist, c. In the cases provided for under Art. 1472, Civil Code. then, as a sale, the contract is absolutely void, not merely voidable. An action for annulment is therefore not essential. Article 1470. Gross inadequacy of price does not affect a contract of sale except as it may indicate a b. A simulated price is fctitious. There being no price, there defect in the consent, or that the parties really is no cause or consideration; hence, the contract is void as a intended a donation or some other act or contract. sale. However, it is enough that the price be agreed on at the time of perfection. A rescission of the price will not Effect of Gross Inadequacy of Price invalidate the sale. a. In ordinary sale, the sale remains valid even if the price is very low. If there was vitiated consent (such as fraud, or undue influence is present) the contract may be annulled Fictitious sale but only due to such vitiated consent. If the sale of conjugal property is fctitious and therefore b. In execution of judicial sales – While mere inadequacy of non-existent, the widow who has an interest in the property price will not set aside a judicial sale of real property, still if subject of the sale may be allowed to contest the sale, even  SALES Chapter 1 – Nature and Form of the Contract BEFORE the liquidation of the conjugal partnership, making if the thing or any part thereof has been delivered to the executor a party-defendant if he refuses to do so. and appropriated by the buyer, he must pay a reasonable price therefore. What is a reasonable Article 1472. The price of securities, grain, liquids, price is a question of fact dependent on the and other things shall also be considered certain, circumstances of each particular case. when the price fixed is that which the thing sold would have on a definite day, or in a particular Effect if the price cannot be determined exchange or market, or when an amount is fixed above or below the price on such day, or in such a. If the price cannot really be determined, the sale is void exhange or market, provided said amount be certain. for the buyer cannot fulfll his duty to pay. Certainty of Price of Securities b. If the buyer has made use of it, he should not be allowed to enrich himself unjustly at another’s expense. So he must Ex: I can sell to you today my Mont Blanc fountain pen at pay a “reasonable price.” The seller’s price, however, must the price equivalent to the stock quotation two days from be the one paid if the buyer knew how much the seller was today of 100 shares of PLDT. charging and there was an acceptance of the goods delivered. Here, there is an implied assent to the price fxed. If stock market price cannot be ascertained Article 1475. The contract of sale is perfected at the If the stock quotation price two days later cannot really be moment there is a meeting of minds upon the thing ascertained at that time (2 days later), the sale is which is the object of the contract and upon the inefficacious. price. Article 1473. The fixing of the price can never be left From that moment, the parties may reciprocally to the discretion of one of the contracting parties. demand performance, subject to the provisions of the However, if the price fixed by one of the parties is law governing the form of contracts. accepted by the other, the sale is perfected. Nature of Contract Price cannot be left to one’s party’s discretion Sale is a consensual contract (perfected by mere consent). Reason: The other could not have consented to the price, Therefore, delivery or payment is not essential for for he did not know what is was. perfection. Article 1474. Where the price cannot be determined Note: The contract of sale is consummated upon in accordance with the preceding articles, or in any delivery and payment. other manner, the contract is inefficacious. However,  SALES Chapter 1 – Nature and Form of the Contract Requirements for Perfection and sale, the terms and conditions of which may not be held to depend on subsequent events or acts of the a.When parties are face to face, when an offer is accepted parties unless the contrary is stipulated. The mere fact without conditions and without qualifcations. (A conditional that the seller thereafter sells an object of the same kind acceptance is a counter-offer.) to another at a lesser price is no ground for the previous buyer to be entitled to claim the excess, his contract Note: if negotiated thru a phone, it is as if the parties are being independent of the other. face to face. Formalities for Perfection b.When contract is thru correspondence or thru telegram, there is perfection when the offeror receives or has Under the statute of Frauds, the sale of: knowledge of the acceptance by the offeree. a. Real Property (regardless of the amount) Note: If the buyer has already accepted, but the seller does not know yet of the acceptance, the seller may still b. Personal Property (if 500 or more must be in writing to be withdraw. enforceable. c.When a sale is made subject to a suspensive condition, * If orally made, it cannot be enforced by a judicial action, perfection is had from the moment the condition is fulflled. except if it has been completely or partially executed, or except if the defense of the Statute of Frauds is waived. Before perfection Note: Also in writing should be sales which are to be  Before perfection of the contract of sale, no mutual performed only after more than one year (from the time the rights and obligations exist between the would-be agreement was entered into) – regardless as to whether the buyer and the would-be seller. The same thing is true property is real or personal, and regardless of the price when perfection is conditioned upon something, and involved. that thing is not performed. Accepted Bilateral Promise to Buy and Sell Perfection in the Case of Advertisements  In a sense similar to, but not exactly the same as, a perfected contract of sale.  Advertisements are mere invitations to make an offer (Art. 1325, Civil Code) and, therefore, one cannot Note: From the moment the parties have agreed upon compel the advertiser to sell. the kind of rice and the price thereof, they are deemed to have entered into a perfected contract of purchase  SALES Chapter 1 – Nature and Form of the Contract Transfer of Ownership  In sales of textiles, if it be bought for resale at a proft, the goods being unaltered when resold, the a.Mere perfection of the contract does not transfer original sale is wholesale. If he resells the goods only ownership. Ownership of the object sold is transferred only after altering them by using his skill (as when he after delivery (tradition), actual, legal or constructive. transforms them to shirts), the original sale is retail. Same rule applies in the case of the retail of the The rule is, therefore, this: After delivery of the object, following: ownership is transferred. 1. Copra for the manufacture of soap or b.It is valid If it is stipulated that even with delivery there oleomargarine. will be no change or transfer of ownership till the purchase price has been fully paid. (But the stipulation is not binding 2. Hemp used to make twine or rope on innocent third persons such as customers at a store. The customers must not be prejudiced. 3. In general, raw materials that are used in or that entered into the manufacture of fnished The Sales Tax products. Even if the object sold has not yet been delivered, once Effect of Perfection there has been a meeting of the minds, the sale is perfected and, therefore, the sales tax (15% on the gross) is already After perfection the parties must now comply with their due. It accrues on perfection, not on the consummation of mutual obligations. Thus, for example, the buyer can now the sale. compel the seller to deliver to him the object purchased. In the meantime, the buyer has only the personal, not a real  Retail sales of flour to bakeries to be manufactured right. Hence, if the seller sells again a parcel of land to a into bread are subject to tax; if wholesale, they are stranger who is in good faith, the proper remedy of the not subject to tax. buyer would be to sue for damages.  To determine if a sale is wholesale or retail, we must not consider the quantity sold, but the character of the purchase. If the buyer buys the commodity for his own consumption, the sale is RETAIL, if for resale, the sale is deemed wholesale, regardless of quantity, and is not subject to the particular tax referred to.  SALES Chapter 1 – Nature and Form of the Contract - The bidder may retract hi bid because every bidding is merely an offer and, therefore, before it is Article 1476. In the case of a sale by auction: accepted, it may be withdrawn. The assent is signifed on the part of the seller by knocking down (1) Where goods are put up for sale by auction in the hammer. lots, each lot is the subject of a separate contract of sale. - The Auctioneer may withdraw the goods from the sale, unless the auction has been announced to be (2) A sale by auction is perfected when the without reserve. Reason: The bid is merely an offer, auctioneer announces its perfection by the fall of the not an acceptance of an offer to sell. Therefore, it can hammer, or in other customary manner. Until such be rejected. What the auctioneer does in withdrawing announcement is made, any bidder may retract his is merely reject the offer. bid; and the auctioneer may withdraw the goods from the sale unless the auction has been announced to be Conditions when a seller may bid without reserve. a. Provided such a right to bid was reserved; (3) A right to bid may be reserved expressly by on behalf of the seller, unless otherwise provided by law b. and notice was given that the sale by auction is or by stipulation. subject to a right to bid on behalf of the seller. (4) Where notice has not been given that a sale by  A seller may employ others to bid for him provided auction is subject to a right to bid on behalf of the he has notifed the public that the auction is subject seller, it shall not be lawful for the seller to bid to the right to bid on behalf of the seller. People who himself or to employ or induce any person to bid at bid for the seller, but are not themselves bound, are such sale on behalf of the seller or any person called “ by-bidders” or “ puffers.” In view of the employed by him. Any sale contravening this rule notice, there would not be any fraud, and the may be treated as fraudulent by the buyer. transaction with the rest should be considered as valid. Without the notice, any sale contravening the When Sale by Auction is Perfected rule may be treated by the buyer as fraudulent. In other words, the purchaser could be relieved from his  The sale is perfected when the auctioneer announces bid. its perfection by the fall of the hammer or in other customary manner. Note: It may happen that the owner is not himself the auctioneer. Now then if the auctioneer employs Before the Fall of the Hammer puffers and gives no notice to the public, the sale  SALES Chapter 1 – Nature and Form of the Contract would still be fraudulent, whether or not the owner of b. Constructive (Arts. 1498 – 1601, Civil Code), including the goods knew what the auctioneer had don “any other manner signifying an agreement that the possession is transferred.” (Art. 1496, Civil Code) Article 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price. Rule in case of a Private Sale When ownership is not transferred despite delivery  A private sale authorized by a probate court (and without objection on the part of the heirs or Generally, ownership is transferred upon delivery, but even creditors) cannot be assailed by a person who is not if delivered, the ownership may still be with the seller till full an “interested party” (such as an heir or creditor). payment of the price is made, if there is a stipulation to this One who merely offered a higher price (without effect. This stipulation is usually known as pactum actually buying the property) is not “interested reservati dominii and is common in sales on the party.” It would have been different had there been a installment plan. But of course, innocent third parties cannot public auction. be prejudiced. Article 1477. The ownership of the thing sold shall be Article 1479. A promise to buy and sell a determinate transferred to the vendee upon the actual or thing for a price certain is reciprocally demandable. constructive delivery thereof. An accepted unilateral promise to buy or to sell a When Ownership is Transferred determinate thing for a price certain is binding upon the promissory if the promise is supported by a Ownership is not transferred by perfection but by delivery. consideration distinct from the price. (This is true even f the sale has been made on credit; First paragraph Second paragraph payment of the purchase price is NOT essential to the (MUTUAL PROMISE) (ACCEPTED UNILATERAL transfer of ownership, as long as the property sold has been PROMISE) delivered. (Gabriel et. al. v. Encarnacion et. al.) A contrary A promise to buy something Only one makes the promise. stipulation is, however, VALID. and B promises to sell it at This promise is accepted by KINDS OF DELIVERY an agreed price. (This is a the other. Hence, A promise promise to buy and sell, to sell to B accepts the a. Actual (Art. 1497, Civil Code) clearly a bilateral reciprocal promise, but does not in turn contract.) promise to buy.  SALES Chapter 1 – Nature and Form of the Contract Policitacion – a unilateral promise to buy or to sell which is suspensive condition. Hence, promissor was never really not accepted. This produces no juridical effect, and creates obliged to convey title. Nothing wrong if he sells the no legal bond. This is a mere offer, and has not yet been property to another, after an unsuccessful demand for said conversed into a contract. price. Article 1480.Any injury to or benefit from the thing Bilateral Promise – to buy and sell a certain thing for a sold, after the contract has been perfected, from the price certain gives to the contracting parties personal rights moment of the perfection of the contract to the time in that each has the right to demand from the other the of delivery, shall be governed by Articles 1163 to fulfllment of the obligation. 1166, and 1262. Unilateral Promise – The acceptance of a unilateral (Art. 1163. Every person obliged to give something is also promise to sell must be plain, clear, and unconditional. obliged to take care of it with the proper diligence of a good Therefore, if there is a qualifed acceptance with terms father of a family, unless the law or the stipulation of the different from the offer, there is no acceptance, that is, there parties requires another standard of care. (1094a)) is no promise to buy and there is no perfected sale. (Art. 1164. The creditor has a right to the fruits of the thing Option – a contract granting a person the privilege to buy from the time the obligation to deliver it arises. However, he or not to buy certain objects at any time within the agreed shall acquire no real right over it until the same has been period at a fxed price. delivered to him. (1095)) The contract of option is a separate and distinct contract (Art. 1165. When what is to be delivered is a determinate from the contract which the parties may enter into upon the thing, the creditor, in addition to the right granted him by consummation of the contract; therefore, an option must Article 1170, may compel the debtor to make the delivery. have its own cause or consideration. If the thing is indeterminate or generic, he may ask that the Contract to SELL is NOT an Absolute Sale obligation be complied with at the expense of the debtor. A contract or promise to sell, a parcel of land for example, is If the obligor delays, or has promised to deliver the same not a contract of sale. Such a contract to sell would exist thing to two or more persons who do not have the same when for instance, land is promised to be sold, and title interest, he shall be responsible for any fortuitous event given only after the down payment and the monthly until he has effected the delivery. (1096)) installment therefor shall have all been paid. Failure to make the needed payment is failure to comply with the needed  SALES Chapter 1 – Nature and Form of the Contract (Art. 1166. The obligation to give a determinate thing b. If the object was lost after delivery to the buyer, clearly includes that of delivering all its accessions and accessories, the buyer bears the loss. (Res perit domino – the owner even though they may not have been mentioned. (1097a)) bears the loss.) (Art. 1262. An obligation which consists in the delivery of a c. If the object is lost after perfection but before delivery, determinate thing shall be extinguished if it should be lost the buyer bears the loss, as exception to the rule of res perit or destroyed without the fault of the debtor, and before he domino. has incurred in delay. When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires Exceptions to the rule that between perfection and the assumption of risk. (1182a)) delivery, the buyer bears the loss: a. If the object sold consists of fungibles sold for a price This rule shall apply to the sale of fungible things, made independently and for a single price or without fxed according to weight, number, or measure. (Here, if consideration of their weight, number, or measure. there has been no delivery yet, the seller bears the loss, unless the buyer is in mora accipiendi.) Last par. 1480 Should fungible things be sold for a price fixed b. If the seller is guilty of fraud, negligence, default, or according to weight, number, or measure, the risk violation of contractual term. Arts. 1165, 1262, 1170) shall not be imputed to the vendee until they have been weighed, counted, or measured, and delivered, c. When the object sold is generic because “genus does not unless the latter has incurred delay. perish” (genus nunquam perit) Note: the unfortunate effect of Art. 1504 on the question of the risk of loss is discussed under said article.) Who Bears the Risk of Loss Fungibles – personal property which may be replaced with equivalent things. a. If the object has been lost before perfection, the seller bears the loss. Reason: There was no contract, for there was Consumables and non-consumables distinguished no cause or consideration. Being the owner, the seller bears from fungibles and non-fungibles the loss. This means that he cannot demand payment of the price. The former is based on the nature of the thing, while the latter is based on the intention.  SALES Chapter 1 – Nature and Form of the Contract Article 1481. In the contract of goods by description Earnest money – (“arras”) something of value to show that or by sample, the contract may be rescinded if the the buyer was really in earnest, and given to the seller to bulk of the goods delivered do not correspond with bind the bargain. the description or the sample, and if the contract be by sample as well as by description, it is not Significance of earnest money sufficient that the bulk of goods correspond with the a. Part of the purchase price. (Hence, from the total price sample if they do not also correspond with the must be deducted the arras; the balance is all that has to be description. paid.) The buyer shall have a reasonable opportunity of b. Proof of the perfection of the contract. comparing the bulk with the description or the sample. Option money – applies to a sale not yet perfected; the money is not part of the purchase price; the would be buyer Sale by description – Where seller sells things as being of is not required to buy. a certain kind, the buyer merely relying on the seller ’s representations or descriptions. Generally, the buyer has not When arras must be returned previously seen the good, or even if he has seen them, he believes (sometimes erroneously) that the description tallies If merchandise cannot be delivered, the arras must be with the goods he has seen. returned. Of course, this right may be renounced since neither the law nor public policy is violated. Sale by sample – that where the seller warrants that the bulk (not the major part or the majority of the goods but the goods themselves) of the goods shall correspond with the Article 1483. Subject to the provisions of the Statute sample in kind, quality, and character. On the sample is of Frauds and of any other applicable statute, a exhibited. The bulk is not present, and so there is no contract of sale may be made in writing, or by word opportunity to examine or inspect it. of mouth, or partly in writing and partly by word of mouth, or may be inferred from the conduct of the Sale by description and sample – must satisfy the parties. requirements in both, and not in only one. Article 1482. Whenever earnest money is given in a If sale is made thru an Agent contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. The sale of a piece of land or interest therein when made thru an agent is void. (not merely unenforceable) unless the  SALES Chapter 1 – Nature and Form of the Contract agent’s authority is in writing. (Art. 1874). This is true even if b. The contract must be one of sale (absolute sale, not a the sale itself s in a public instrument, or even registered. pacto de retro transaction, where redemption is effected in installments) Interest therein – refers to easement or usufruct for example. c. What is sold is personal property (sale of real property in installments is governed by RA 6552 – the Maceda Law –  If notary public is not authorized, the sale would still which took effect on the date of its approval Sept. 14, 1972. be valid since for validity of the sale, a public instrument is not even essential. d. The sale must be on the installment plan (an installment – is any part or portion of the buying price, including the down payment) Article 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following Purpose of the Rules For Sale of Personal Property on remedies: the Installment Plan (1)Exact fulfillment of the obligation, should the - To prevent abuse in the foreclosure of chattel vendee fail to pay; mortagages by selling at a low price and then suing for the defciency, is the precise purpose of this (2)Cancel the sale, should the vendee’s failure to pay article. Otherwise, the buyer would fnd himself cover two or more installments; without the property, and still indebted. (3)Foreclose the chattel mortgage on the thing sold, Cancellation requires mutual restitution if one has been constituted, should the vendee ’s failure to pay cover two or more installments. In this - It is clear that when the remedy of cancellation is case, he shall have no further action against the availed of, there must be a mutual restitution of purchaser to recover any unpaid balance of the price. whatever had been received by either party. Any agreement to the contrary shall be void. Ex: When the seller of a car on installment asks for cancellation of the sale, the car must be returned to him, and he in turn must give back all installments Requisites before Art. 1484 may be applied he has received, including the downpayment. a. There must be a contract Instances when Art. 1484 cannot be applied  SALES Chapter 1 – Nature and Form of the Contract a.Real estate mortgage because it can only be foreclosed Even if the word lease is employed, when a sale on only in conformity with special provisions. installment is evidently intended, it must be construed as a sale. b. Sale of personal property on straight terms, in which the balance, after the payment of the initial sum should be paid Article 1486. In the cases referred to in the two in its totality at the time specifed. Therefore, in a sale on preceding articles, a stipulation that the installments straight terms, the mortgagee-seller will still be entitled to or rents paid shall not be returned to the vendee or recover the unpaid balance. lessee shall be valid insofar as the same may be unconscionable under the circumstances. Non-return of Installments Paid Article 1485. The preceding article shall be applied to contracts purporting to be leases of personal a. As a general rule, it is required that a case of rescission or property with option to buy, when the lessor has cancellation of the sale requires mutual restitution, that is, deprived the lessee of the possession or enjoyment all partial payments of price or “rents” must be returned. of the thing. b. However, by way of exception, it is valid to stipulate Leases of Personal Property with Option to Buy that there should be NO returning of the price that has been partially paid or of the “Rents” given, provided the - This may really be considered a sale of personal stipulation is not unconscionable. property in installments. Therefore, the purpose of Art. 1485 is to prevent an indirect violation of Art. SALE OF REAL PROPERTY IN INSTALLMENTS 1484. REPUBLIC ACT No. 6552 “ when the lessor has deprived lessee of the possession or enjoyment of the thing” AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL ESTATE ON INSTALLMENT PAYMENTS. (Rep. Act For failure to pay, the lessor is apparently exercising the No. 6552) right of an unpaid seller, and has taken possession of the property. This is so even if the property had been given up in Section 1. This Act shall be known as the "Realty obedience to the lessor’s extrajudicial demand, such Installment Buyer Act." surrender not really being voluntary. Section 2. It is hereby declared a public policy to protect When lease construed as sale buyers of real estate on installment payments against onerous and oppressive conditions.  SALES Chapter 1 – Nature and Form of the Contract Section 3. In all transactions or contracts involving the sale grace period of not less than sixty days from the date the or fnancing of real estate on installment payments, installment became due. including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants If the buyer fails to pay the installments due at the under Republic Act Numbered Thirty-eight hundred forty- expiration of the grace period, the seller may cancel the four, as amended by Republic Act Numbered Sixty-three contract after thirty days from receipt by the buyer of the hundred eighty-nine, where the buyer has paid at least two notice of cancellation or the demand for rescission of the years of installments, the buyer is entitled to the following contract by a notarial act. rights in case he defaults in the payment of succeeding installments: Section 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same to another person (a) To pay, without additional interest, the unpaid or to reinstate the contract by updating the account during installments due within the total grace period earned the grace period and before actual cancellation of the by him which is hereby fxed at the rate of one month contract. The deed of sale or assignment shall be done by grace period for every one year of installment notarial act. payments made: Provided, That this right shall be exercised by the buyer only once in every fve years Section 6. The buyer shall have the right to pay in advance of the life of the contract and its extensions, if any. any installment or the full unpaid balance of the purchase price any time without interest and to have such full (b) If the contract is canceled, the seller shall refund payment of the purchase price annotated in the certifcate to the buyer the cash surrender value of the of title covering the property. payments on the property equivalent to ffty per cent of the total payments made, and, after fve years of Section 7. Any stipulation in any contract hereafter entered installments, an additional fve per cent every year into contrary to the provisions of Sections 3, 4, 5 and 6, shall but not to exceed ninety per cent of the total be null and void. payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of Section 8. If any provision of this Act is held invalid or cancellation or the demand for rescission of the unconstitutional, no other provision shall be affected contract by a notarial act and upon full payment of thereby.lawphi1™ the cash surrender value to the buyer. Section 9. This Act shall take effect upon its approval. Down payments, deposits or options on the contract shall be included in the computation of the total number of Approved: August 26, 1972. installment payments made.lawphi1™ Raison d’ Etre” of the Maceda Law Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a  SALES Chapter 1 – Nature and Form of the Contract - To help especially the low income lot buyers, Art. 1488. The expropriation of property for public delineating the rights and remedies of lot buyers and use is governed by special laws. protect them from one-sided and pernicious contract stipulations. The Act’s declared public policy is to Expropriation – involuntary in nature, that is, the protect buyers or real estate or installment basis owner may be compelled to surrender the property after against onerous and oppressive conditions. More all the essential requisites have been complied with. specifcally, the Act provided for the rights of the Therefore, generally expropriation does not result in a buyer in case of default in the payment of sale. succeeding installments, where he has already paid One exception to the rule at least two years of installments. Gutierrez v. CTA – SC held that the acquisition by the - The act seeks to address the acute housing shortage government of private properties thru the exercise of problem in our country that has prompted thousands eminent domain, said properties being justly of middle or lower class buyers of houses, lots, and compensated, is a sale or exchange within the meaning condominium units to enter into all sorts of contracts of the income tax laws and profts derived therefrom are with private housing developers involving installment taxable as capital gain; and this is so although the schemes. acquisition was against the will of the owner of the Art. 1487. The expenses for the execution and property and there was no meeting of the minds registration of the sale shall be borne by the between the parties. vendor, unless there is a stipulation to the When Transaction is one of Sale contrary. If the property owner voluntarily sells the property to the Who Pays for Expenses in Execution and government, this would be a sale, and not an example Registration of expropriation. Observe that as a rule the seller pays for the expenses Eminent Domain distinguished from Expropriation of: Eminent Domain refers to the right given to the state, a.The execution (of the deed) of sale; whereas, expropriation usually refers to the process. b. its registration. Essential requisites for Expropriation NOTE: There can, however, be a contrary stipulation. 1. Taking by competent authority 2. Observance of due process of law.  SALES Chapter 1 – Nature and Form of the Contract 3. Taking for public use. a.Absolute incapacity – when party cannot bind himself in any case. 4. Payment of just compensation. b.Relative incapacity – when certain person, under Just Compensation – market value (the price which the certain circumstances, cannot buy certain property. property will bring when it is offered for sale by one who (Wolfson v. Estate of Martinez) desires but is not obliged to sell it, and is bought by one who is under no necessity of having it) PLUS the Note: Among people relatively incapacitated are those consequential damages, if any, MINUS the consequential mentioned in Arts. 1490 and 491, Civil Code.) benefts, if any. BUT the benefts may be set off only against the consequential damages, and not against the Purchase by Minors basic value of the property taken.  When minors buy, the contract is generally  The fxing of just compensation in expropriation voidable, but in the case of necessaries, “where proceedings shall be made in accordance with Rule necessaries are sold and delivered to a minor or other person without capacity to act, he must pay a 67 of the Rules of Court and not on the basis of the reasonable price therefor. valuation declared in the tax declaration of the subject property by the owner or assessor which ahs Necessaries – include everything that is indispensable for been declared unconstitutional. sustenance, dwelling, clothing, and medical attendance, according to the social position of the family. CHAPTER 2 Support – also includes education of the person entitled to CAPACITY TO BUY OR SELL be supported until he completes his education or training for some profession, trade, or vocation, even beyond the age of majority.” (Art. 290, Civil Code) Art. 1489. All persons who are authorized in this Code to obligate themselves, may enter into a contract of Husbands sale, saving the modifications contained in the following articles. Under this Code, the husband may sell, alienate, or encumber, even without the consent of his wife, his Where necessaries are those sold and delivered to a exclusive property acquired before the effectivity of the Civil minor or other person without capacity to act, he Code. The wife cannot even ask for the annulment of the must pay a reasonable price therefor. Necessaries are sale on the ground that it is in fraud of her rights when the those referred to in Article 290. (1457a) purpose of the transaction is to beneft the family, that is, to raise money for a business venture. (See Arts. 166 and 173 Incapacity to Buy may be Absolute or Relative of the Code)  SALES Chapter 1 – Nature and Form of the Contract  If the deed of sale of the land lists as purchasers both 1. To avoid prejudice to third persons; the husband and the wife, the presumption is that it 2. To prevent one spouse from unduly influencing the is paraphernal property. (Castillo v. Castillo) other; 3. To avoid by indirection the violation of the prohibition against donations.  If a Filipino sells a parcel of land to a Chinese who later sells the same to another Filipino, the second Effect of Sale sale is VALID because the purpose of the Constitution of preserving the land in favor of Filipinos has not  Generally, a sale by one spouse to another is void. been frustrated. However, not everybody can assail the validity of the transaction. (Thus creditors who became such after the transaction cannot assail its validity for the reason that they cannot be said to have been Art. 1490. The husband and the wife cannot sell prejudiced. But prior creditors (creditors at the time property to each other, except: of transfer) as well as the heirs of either spouse may invoke the nullity of the sale. (1) When a separation of property was agreed upon Art. 1491. The following persons cannot acquire by in the marriage settlements; or purchase, even at a public or judicial auction, either in person or through the mediation of another: (2) When there has been a judicial separation or property under Article 191. (1458a) (1) The guardian, the property of the person or persons who may be under his guardianship; NOTE: Under these two exceptions, the sale is generally valid, but of course, should there be vitiated consent (as in the case of undue influence) the sale is voidable. (2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given;  Just as a married couple cannot generally sell to each other, they also generally cannot donate to each other. This prohibition also applies to common-law (3) Executors and administrators, the property husband and wife on the theory that here there can of the estate under administration; be an even greater degree of undue influence. (4) Public officers and employees, the property Reason why Generally a Husband and Wife cannot of the State or of any subdivision thereof, or of Sell to Each Other any government-owned or controlled  SALES Chapter 1 – Nature and Form of the Contract corporation, or institution, the administration Purchase by Agent for Himself of which has been intrusted to them; this provision shall apply to judges and government An agent is not allowed, without his principal’s experts who, in any manner whatsoever, take permission, to sell to himself what he has been part in the sale; ordered to buy; or to buy for himself what he has been ordered to sell. (Moreno v. Villones) (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and -The fduciary relations between them estop the other officers and employees connected with agent from asserting a title adverse to that of the the administration of justice, the property and principal. And therefore such a sale to himself would rights in litigation or levied upon an execution be ineffectual and void, because it is expressly before the court within whose jurisdiction or prohibited by law. The agent may, of course, buy territory they exercise their respective after the termination of the agency. functions; this prohibition includes the act of acquiring by assignment and shall apply to NOTE: Under Art. 1459 of the old Civil code, an agent lawyers, with respect to the property and or administrator was disqualifed from purchasing rights which may be the object of any litigation property in his hands for sale or management. in which they may take part by virtue of their However, under Art. 1491 of the new Civil Code, this profession. prohibition was modified in that the agent may now buy the property placed in his hand for sale or (6) Any others specially disqualified by law. administration, provided the principal gives his (1459a) consent thereto. This article refers to relative incapacity. Purchase by Attorney Reason for the Law A lawyer is not allowed to purchase the property of his client which is in litigation. To do otherwise would  Public policy prohibits the transactions in view of the be a breach of professional conduct, and would fduciary relationship involved. constitute malpractice. Purchase Thru Another But assigning the amount of judgment by the client to his attorney, who did NOT take any part in the “ Thru the mediation of another” - this must be case where said judgment was rendered, is valid. proved, that is, that there was really an agreement between the intermediary and the person When a thing is said to be in litigation disqualifed; otherwise, the sale cannot be set aside. (Rodriguez v. Mactual)  SALES Chapter 1 – Nature and Form of the Contract A thing is said to be in litigation not only if there is Art. 1492. The prohibitions in the two preceding some contest or litigation over it in court, but also articles are applicable to sales in legal redemption, from the moment that it became subject to the compromises and renunciations. judicial action of the judge. Applicability of Relative Incapacity to Legal  Art. 1491 does not prohibit a lawyer from acquiring a Redemption, Compromises, and Renunciation certain percentage of the value of the properties in litigation that may be awarded to his client. A Example: contingent fee based on such value is allowed. If a ward’s property is sold, the guardian, even if he be an If however the attorney participates in the sale, not adjacent owner, and even if all the other requisites for legal as buyer but as agent for the buyer, there is no redemption are present, cannot exercise the right of legal violation of the law. redemption. Meaning of “ Any others specially disqualified by law” This refers to prohibited by reason of the fduciary Cross Reference relationship involved. Legal Redemption – the right to be subrogated upon the  Aliens though not allowed to buy land under the same terms and conditions stipulated in the contract. (Art. Constitution, they do not fall under the above phrase. 1619, Civil Code) Thus, while those disqualifed under Art. 1490 and 491 may not become lessees (Art. 1646), still aliens Compromises – Contract whereby the parties, by making may become lessees even if they cannot buy lands. reciprocal concessions, avoid a litigation or to put an end to one already commenced. (Art. 2028, Civil Code) Status of the Sale Renunciation – rights may be waived, unless the waiver is Generally, sales entered into in disregard of the prohibition contrary to law, public order, public policy, morals or good under this article are not void. They are merely voidable. customs or prejudicial to a third person with right recognized (Wolfson v. Estate of Martinez) by law. (Art. 6, Civil Code)  SALES Chapter 1 – Nature and Form of the Contract Renunciation - condonation or remission is essentially gratuitous and requires the acceptance by the obligor. May be made expressly or impliedly. (Art. 1270, Civil Code) Lost of the object before sale This refers to a case of loss of the object even before the perfection of the contract. It is evident that there would be no cause or consideration; hence, the contract is void. Observe that it is the seller here who naturally will have to bear the loss. Complete Loss Distinguished from Partial Loss When the object has been Partly or Partially Lost REMEDIES: 1. Withdrawal or rescission. 2. Specifc performance as to remainder by payment of proportional price. CHAPTER 3 Art. 1494. Where the parties purport a sale of specific EFFECTS OF THE CONTRACT WHEN THE THING SOLD goods, and the goods without the knowledge of the HAS BEEN LOST seller have perished in part or have wholly or in a material part so deteriorated in quality as to be Art. 1493. If at the time the contract of sale is substantially changed in character, the buyer may at perfected, the thing which is the object of the his option treat the sale: contract has been entirely lost, the contract shall be without any effect. (1) As avoided; or But if the thing sh