Sales Law Review PDF

**SALES**\ **[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. Requisites: Consent or meeting of the minds -- refers to...

**SALES**\ **[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. Requisites: Consent or meeting of the minds -- refers to the conformity of the parties to the terms of the contract, the acceptance by one of the offer made by the other. Object or subject matter -- this refers to the determinate thing which is the object of the contract.\ Cause or Consideration (Price) -- this refers to price certain in money or its equivalent such as check or a promissory note. Cause or Consideration (Price) -- this refers to price certain in money or its equivalent such as check or a promissory note. **\ CHARACTERISTICS OF A CONTRACT OF SALE** 1. **Consensual** - perfected by mere consent 2. **Bilateral -** the parties are bound by reciprocal obligations 3. **Onerous** - valuable considerations are given by both parties to acquire rights 4. **Commutative** - the parties exchange almost equivalent values **Nominate** - it has a special name given to it by law **Principal** - it can exist by itself without being dependent upon another contract **Earnest Money** **Option Money** ------------------------------------------------------------------- --------------------------------------------------------------------- buyer manifest his earnest desire to buy the property in question buyer is still undecided whether or not to buy or sell the property part of the purchase price given as a distinct consideration for an option given only when there is a perfect contract of sale applies to a sale not yet perfected buyer is bound to pay the balance would be buyer not required to buy at all **Rights/obligations of vendor and vendee** **Obligations of the Vendor under the Law** 1. To transfer ownership 2. To deliver 3. To warrant the thing 4. To observe property due diligence prior to delivery 5. From the time of perfection up to time of delivery, to pay for the expenses for the execution and registration 6. To deliver the fruits and/or accessions GEN: Art. 1477 "The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof." EXP: Art. 1503 -- Rights of possession or ownership may be thus reserved not withstanding the delivery of the goods to the buyer. Art. 1478 -- The parties may stipulate that ownership in the thing shall not pass to the purchase until he has fully paid the price. **Delivery** Kinds of Delivery 1. **Actual Delivery** -- there is a deed executed, transfer pf ownership even if not delivered physically unless contrary stipulation 2. **Legal or Constructive** - **Symbolic delivery (traditio symbolica)** -- delivering the keys of the place or depository where movable is stored or kept **Art. 1498.** When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. With regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is stored or kept. **Example**: Mary buys a car from a dealership. Instead of the dealer physically driving the car to her, they hand her the keys and the title documents. By handing over the keys and documents, ownership of the car is symbolically transferred to Mary. - **Traditio longa manu** - delivery by the long hand **Art. 1499**. The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale **Example:** Alex sells a boat to Bob. The boat is docked at a marina, and Alex points out the boat to Bob from a distance, saying, \"That is now your boat.\" Bob then goes to the boat and takes possession of it. - **Traditio brevi manu** -- delivery by the short hand, delivery that takes place when the vendor is already in the possession of the thing sold even before the sale **Example**: Emma has been renting a piano from a music store for a year. She decides to buy the piano from the store. Since the piano is already in her possession, the ownership changes hands without the need for physical delivery. - **Traditio constitutum possesorium** -- delivery that takes place when the vendor continues in possession of the thing sold after the sale but in another capacity **Example**: John sells his house to Sarah but agrees to continue living in the house for six more months under a rental agreement. Even though John physically retains the house, ownership is transferred to Sarah. 3. **Quasi-Tradition** -- delivery of right, credits to incorporeal property by: - Placing titles of ownership in the hand of the buyer; or - Allowing the buyer to make use of the rights (Art. 1501) **Sale on Return** **Sale on Approval** -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Buyer has right to return the thing within the time fixed in the agreement or his within a reasonable time as long as the thing's condition has not substantially changed. Buyer gets the thing on trial and signifies his acceptance or refusal within a certain period Ownership passes to the buyer upon the delivery of the thing but he must revert it Title of the goods remain with the seller although it has already been delivered to the buyer **Example**: A clothing store buys 50 t-shirts from a supplier. The store agrees that if they can't sell all the t-shirts in 30 days, they can send the unsold ones back to the supplier for a refund. **Example**: A furniture store sends a sofa to a customer's home to try it out for a week. If the customer likes it, they'll keep it and pay for it. If they don't, they can return it. **Obligations of the Vendee under the Law** 1. Obligation to accept the thing delivered; and 2. Obligation to pay the price (if warranted, with interest) **Warranties** **Kinds of Warranties\ 1. Express Warranties** Express warranty refers to any affirmation of fact or any promise by the seller relating to the thing whose natural tendency is to induce the buyer to purchase the same, and if the buyer to purchase the thing relying on such affirmation or promise. (Art. 1546) Requisites: 1. There is an affirmation of fact; and 2. The fact must pertain to the thing either to the quality, character or title of the thing. **2. Implied Warranties** - inherent in sales contracts unless waived by the parties. **Types of Warranties**: - Warranty against eviction: Seller ensures the right to sell and guarantees the buyer's legal and peaceful possession after the sale. - Warranty against hidden defects: This refers to the implied warranty that the thing shall be free from any hidden faults or defects, or any charge or encumbrance not declared or known to the buyer. (Art. 1547) Requisites: 1. The defect must exist at the time of the sale; 2. The defect must be hidden; and 3. The defect must result in the thing being unfit for the purpose of the buyer - Warrant against quality INCLUSIONS: 1. Warranty of fitness; and 2. Warranty of quality. Installment Sales 1. **Personal property** -- **Recto Law** - Both protection of buyer and remedy of the seller - Can pay unpaid installments without interest. - Grace period: 1 month per year of installment payments. - Can be used only once every 5 years. - Seller refunds 50% of total payments upon cancellation. - After 5 years of payments, refund increases by 5% per year (capped at 90%). - Cancellation occurs 30 days after the buyer receives notice. - Full refund must be paid before cancellation. - Count toward the total installment payments made. - Buyer gets a 60-day grace period for missed payments. - Seller can cancel the contract 30 days after notice if payments are still missed. A condominium is an interest in real property consisting of separate interest in a unit in a residential, industrial or commercial building and an undivided interest in common, directly or indirectly, in the land on which it is located and in other common areas of the building. Extinguishment of a contract of Sale 1. Payment 2. Novation; or 3. Loss of the thing; **Conventional redemption** -- seller reserved the right to repurchase thing sold coupled with obligation to return price of the sale **Legal redemption** -- right to be surrogated upon the same terms and conditions stipulated in the contract **CREDIT TRANSACTIONS -** Credit Transactions include all transactions involving the purchase of loan of goods, services or money in the present with a promise to pay or deliver in the future - **Without a promise to pay or deliver in the future, there can be no security transaction. A security contract is different from a loan contract. The former is an accessory contract while the latter is an independent contract.** Security contract -- accessory contract **Pledge (Sangla)** -- accessory contract by virtue which **property is delivered to the creditor as a security for an obligation (principal obligation) with the agreement that it can be sold at public auction** in case of non-payment to answer for the unpaid obligation or for the creditor to return the same in case the principal obligation is paid, actual delivery **REQUISITES:** 1\. The pledge must be constituted to secure the fulfilment of a principal obligation; 2\. The pledgor must be the absolute owner of the thing pledged or mortgaged; 3\. The pledgor must have free disposal of the property; 4\. The thing pledged should be placed in the possession of the creditor, or of a third person by common agreement (actual delivery must be made and not symbolic delivery. 5\. To take effect against third persons (the description of the thing pledged and the date of the pledged must appear in a public instrument). **Example**: A jeweler, Sarah, borrows \$10,000 from a bank to expand her shop. As security for the loan, she gives the bank her valuable gold jewelry. The bank holds onto the jewelry until Sarah repays the loan. If she doesn't repay, the bank has the right to sell the jewelry to recover the money. **Real mortgage** -- **immovable property is subjected to the claim of the creditor** - The debtor secures to the creditor the fulfillment of a principal obligation, specially subjecting to such security immovable property or real rights over immovable property in case the principal obligation in not complied with at the time stipulated. It is an accessory and subsidiary contract. **Real Estate Mortgage** -- must be registered with the Register of Deeds where the subject property is located in order to affect the third persons, unregistered mortgage is valid between the parties. **Example**: Tom\'s business borrows \$500,000 from a bank to build a new office. Tom offers the office building and the land as **collateral.** The bank records a mortgage on the property. Tom continues using the office, but if he fails to repay the loan, the bank can foreclose and sell the property to recover its money. **Chattel mortgage** -- personal property is recorded in the Chattel Mortgage, registered as security for the performance of an obligation **Example**: A construction company buys new machinery for \$100,000 using a loan from a finance company. The machinery is used as collateral for the loan. The company keeps the machinery and uses it, but the lender has a chattel mortgage over it. If the company defaults on the loan, the lender can seize and sell the machinery. **Similarities of Pledge and Mortgage:** 1. They must be constituted to secure the fulfillment of a principal obligation 2. The mortgage or pledgor must be the absolute owner of the thing pledged or mortgaged 3. The pledgor or mortgagor must have free disposal of the property **Common Features:** a. **Real Security --** It is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor. b. **Consideration --** the consideration for the principal obligation is the consideration for the mortgage. c. **Indivisible --** When several things are given to secure the same debt in its entirety, all of them are liable for the debt and the creditor does not have to divide his action by distributing the debt among the various things mortgaged. Even if only part of the debt remains unpaid, all the things are liable for such balance. 1. The indivisibility is present even if the debtor are jointly liable if the debtor, mortgagor or pledgor dies, their heirs cannot ask for proportionate extinguishment of the pledge or mortgage. 2. If the creditor dies, an hair cannot extinguish the pledge or mortgage to the prejudice of other heirs. d. **Obligation Secured --** Pledge or mortgage may secure obligations or contracts that are: (1) valid, (2) voidable, (3) unenforceable, (4) natural, (5) pure, and (6) conditional. **Loan contract -- independent contract** **Kinds of Loan Contract** 4. **Commodatum (hiram)** -- where the lender delivers to the borrower a non-consumable thing so that the borrower can use it for a certain time and return the identical thing; and 5. **Mutuum (utang**) -- where the lender delivers to the borrower money or other consumable thing upon the condition that the borrower shall pay the same amount of the same kind of quality **Pactum Commissorium** -- agreement whereby the creditor automatically becomes the owner of the things given by way of pledge or mortgage, or dispose of them in case of non-payment, property is given initially as a security but later appropriated without the benefit of foreclosure. This agreement is NULL and VOID. 1. Distinguish between **Dacion En Pagio**: In a true dacion en pago, the assignment of the property extinguishes the monetary debt. In pactum commisarium, the property is given initially as a security but later appropriated without the benefit of foreclosure. A promise to transfer a property in favor of the creditor in case of non-payment is not pactum commissorium because there is no automatic transfer.