THE LAW ON SALES
PAGE 82
THE LAW ON SALES
CHAPTER 1NATURE OF A CONTRACT OF SALE
Definition
Article 1458, CC
Contract whereby the seller obligates himself to transfer the
ownership, and to deliver the possession, of a determinate thing,
to the buyer, who binds himself to pay therefor a price
certain.
Nature of Obligations Arising from a Sale
Sellers Obligations:
Transfer the Ownership, and
Deliver the Possession, of the Subject Matter or Determinate
Thing;Buyers Obligation:
Pay the Price.
-The above-stated obligations are real obligations or
obligations to give, which can serve as bases for a complaint for
specific performance, if not complied with.-Articles 1480 &
1165, CC, allow recovery of damages, plus delivery of determinate
thing, by the buyer, if the seller refuses to comply with his
obligations.Subject Matter of Sale
Determinate Thing (Art. 1458) or Determinable Thing (Art.
1460)
Elements of Contract of Sale Consent; Subject Matter; and
Price.-Concurrence of the three (3) elements results in the
perfection or birth of a contract of sale.-Absence of any of the
elements prevents the birth of a contract of sale.-A defect or
illegality involving any of the elements makes the contract of sale
either voidable or void.Stages in the Life of Sale Policitacion,
negotiation or preparation; Perfection; and
Consummation.
Essential Characteristics of Sale
Nominate/Principal designated name;
independent;
intent of the parties is given weight
Consensual Perfected by mere consent
Factors Affecting Consensual Nature*Suspensive
term/condition
In sales with assumption of mortgage, the assumption of mortgage
is a condition precedent for perfection.
*Absence of agreement on final price prevents the perfection of
sale notwithstanding delivery by seller, and possession by buyer,
of the determinate thing. Bilateral and Reciprocal
imposes obligations on both parties; obligation of one is cause
for obligation of the other;
each party is debtor and creditor of the other;
as a bilateral contract with reciprocal obligations, it is
implied that (1) the power to rescind is present, (2) no delay is
incurred if the other party does not comply, and (3) the default by
one starts from the moment the other party performs his obligation,
without further demand. Onerous
requires the payment of a price certain
Commutative
it is presumed that the value of the subject matter is
equivalent to the price paid; honest belief of the seller that he
receives good value for the thing he sold is a sufficient standard;
inadequacy of price does not affect the nature of contract as a
sale;
however, as an exception, a great discrepancy between the value
of the thing and the amount received may negate the existence of
sale and indicate another contract such as donation in which
liberality is the consideration.Sale is Title and Not Mode
sale is title that creates the obligation to transfer ownership,
including possession, of a determinate thing; Roman, not common
law, concept; sale is not a mode of conferring ownership upon the
buyer;
in sale, which is consensual in nature, ownership of the
determinate thing is transferred to the buyer through delivery or
tradition; title or sale is the juridical justification; mode or
delivery is the actual process of acquiring or transferring
ownership over a thing; Declaration of Heirship and Waiver of
Rights is neither a sale of nor a mode of transferring ownership
over a thing (Acap v. CA, 251 SCRA 30, 38 (1995); transfer of
ownership for a price paid or promised is the essence of sale.
Sale Distinguished from Other Contracts
From Donation
sale is onerous while donation is gratuitous;
sale is perfected by mere consent while donation, being a solemn
contract, requires compliance with formalities mandated by law for
its validity.
From Barter-in barter, one party binds himself to give a thing
in consideration of the other partys promise to give another thing;
in sale, one party binds himself to deliver a thing consideration
of the others undertaking to pay a price certain.
Rules to Determine Whether Contract is Sale or Barter:
a. Manifest intention of the parties;
b. If intention is unclear and consideration is partly in money
and partly in another thing:
-it is barter, where the value of the thing exceeds the amount
given;
-it is sale, where the value of the thing given equals or is
less than the amount given.
From Contract for Piece-of-Work
in contract for a piece-of-work, the contractor binds himself to
execute a piece of work for the employer in consideration of a
certain price;
the main distinguishing factor between sale and contract for a
piece-of-work is the basic reason why the parties enter into a
contract: a) if the essence is the object, the contract is sale; if
the essence is the service, knowledge, or reputation of the maker
or manufacturer, it is contract for a piece-of-work.
From Agency to Sell/Buy
sale is not unilaterally revocable while agency to sell is
essentially revocable, being based on fiduciary relationship,
notwithstanding the presence of a irrevocability clause;
in sale, the buyer becomes the owner after delivery while in
agency to buy, the agent does not become the owner even after
delivery of the thing to him; in agency to sell, the agent is
barred from earning a profit from the transaction, which pertains
to his principal; in sale, the seller warrants; in agency, the
agent assumes no personal liability as long as he acts within his
authority and in the name of the principal; Factors to be
considered in distinguishing a sale from agency to sell/buy:a.
essential clause that payment was to be made at the end of sixty
days xxx shows the features of a sale;
b. contractual provision that stipulated the fixed prices for
the equipment;
c. contractual stipulation on insurance against loss or damage
shows that ownership over the thing was not transferred;
d. control, which one party exercises over the other; if one
acts independently, it is sale; if one takes orders from another,
it is agency.-Distinction is important because a sale must conform
to the Statute of Frauds for enforceability while an agency to sell
is valid and enforceable in any form. From Dacion En Pago dation in
payment is one whereby property is alienated to the creditor in
full satisfaction of a debt in money;
it constitutes the delivery and transmission of a thing by the
debtor to the creditor as an accepted equivalent of the performance
of the obligation; in its modern concept, dacion en pago is an
objective novation of the obligation where the thing offered as an
accepted equivalent of the performance of an obligation is
considered as the object of the contract, while the debt is
considered as the purchase price; dacion en pago only involves the
consummation of the contract, being a special mode of payment;
before the delivery of the subject matter, there is no separate
contract entered; what exists is only an arrangement by which an
obligation will be satisfied or extinguished.-SC implicitly ruled
that in dacion en pago involving the delivery of a particular
parcel of land as the accepted prestation, a new contract of sale
was deemed constituted subject to specific performance. (SSS v.
Atlantic Gulf, 553 SCRA 677 (2008). From Lease
in lease, the lessor binds himself to give to the lessee the use
of the thing for a price certain, for a definite or indefinite
period;CHAPTER 2
PARTIES TO A CONTRACT OF SALE
General Rule on Capacity of Parties General Rule: Any person who
has capacity to act or the power to do acts with legal effects, or
one who has the power to obligate himself, may enter into a
contract of sale, either as seller or buyer; a natural person has
capacity to act once he attains the age of majority (18 years of
age (Art. 234, Family Code, as amended by R. A. No. 6809); a
artificial being or a juridical person (corporations and entities
with legal personality) exists in contemplation of law; as such, it
is given the power to enter into contracts; Special Rule: Minors,
insane and demented persons, and deaf-mutes who do not know how to
write, have no legal capacity to enter into a contract; however, if
these incapacitated persons enter into contracts, the contract is
not void but merely voidable (valid until annulled); Exception:
insane and demented persons can enter into contracts during their
lucid intervals the contract is valid; when a party to the contract
is drunk or under hypnosis, the contract is voidable; an
incapacitated person is obliged to make a restitution to the extent
of the benefit or price he received;Necessaries
general rule: a minor has no legal capacity to enter into a
contract; if he does, the contract is voidable (valid until
annulled) because the consent given is defective under the law;
exception: the contract which a minor enters into is valid when
necessaries are sold and delivered to him; necessaries, under the
Family Code, cover everything indispensable for sustenance,
dwelling, clothing, medical attendance, education and
transportation; considering that sale involves the delivery of a
determinate thing, necessaries in a sale only involve things for
sustenance, dwelling, and clothing, medicines, books and other
educational materials; sale of necessaries to a minor is valid when
sale is perfected and necessaries are delivered to the minor.
Emancipation previously, this takes place when a minor enters
into a contract of marriage;
this is no longer possible under the Family Code, which declares
null and void a marriage entered into by persons below 18 years of
age;Senility and Serious Illness incapacity to give consent
(senility, advanced age, and serious illness) or gross and shocking
inadequacy of the price or consideration only render the contract
of sale merely voidable; however, in at least two (2) decisions,
the Supreme Court considered the sales void ab initio on the
grounds of physical and mental incapacity and gross inadequacy of
the price;Sales By and Between Spouses
Sales With Third Parties generally, under the Civil Code and the
Family Code, a spouse may, without the consent of the other, enter
into a contract of sale in the regular or normal pursuit of his/her
profession, vocation or trade; but, under the Family Code (Articles
96 & 124), administration and enjoyment of the community
property or conjugal property belong to both spouses jointly; in
case of disagreement, the husbands decision prevails; but the wife
can question the sale before the proper court within 5 years from
contract date; general rule: any disposition or encumbrance of
community property or conjugal property shall be void without a
court order or written consent of the other spouse; at best, the
sale is considered a continuing offer subject to the other spouses
acceptance or the courts approval before the offer is withdrawn; SC
declared null and void a sale which a husband entered into with a
third party involving conjugal property because it lacked the
consent of the other spouse; under Art. 124, FC, consent of both
spouses is necessary. The sale cannot be ratified by compromise.
(Guiang v. CA, 26 June 1998). If consent is merely vitiated,
ratification can cure the defect. (Ibid.) exception: sale of
conjugal property without the wifes consent is valid if the sale is
made to answer for conjugal liabilities under Articles 161 &
162, CC; Sales Between Spouses Art. 1490, CC spouses cannot sell
property to each other, except: a) when a separation of property
was agreed upon in a marriage settlement; or b) when there is a
judicial decree for the separation of property; prohibition under
Art. 1490 applies also to sales in legal redemption, compromises
and renunciations; Sales Between Spouses are Void
SC declared sale between spouses null and void ab initio; proper
parties who can assail the validity are limited to the following:
a) heirs of the spouses who are prejudiced; b) prior creditors; and
c) the State insofar as taxes due on the sale transactions are
concerned; rationale for prohibition:
-prevent dispositions in fraud of creditors;-prevent a dominant
spouse from taking advantage of the weaker spouse;
-avoid a circumvention of prohibition against donations between
spouses under Art. 133, CC;-spouses governed by a complete
separation of property regime are not prohibited from selling to
each other because no fraud can be committed against one spouse or
third parties, and the value of the estates of each spouse remains
unaltered;
-spouses under an absolute community property regime cannot
enter into a contract of sale with each other because a party-owner
cannot buy what he/she already owns by virtue of the property
regime;
Specific Incapacity Mandated By Law
Persons prohibited from entering into contracts of sale (Art.
1491, CC): Agent; Guardian;
Executor or administrator;
Public officers and employees;
Justices, judges, prosecuting attorney, clerks of court and
other officers and employees;
Lawyers;
Prohibition applies to sales in legal redemption, compromises
and renunciations; what cannot be done directly, cannot be done
indirectly. Contracts in violation of Arts. 1491 & 1942, CC,
are void and could produce no legal effect;
but, sales contracted by guardians, agents, administrators and
executors, though void under Art. 1491, CC, can be ratified by
means of and in the form of a new contract; this is allowed because
only a private wrong is involved, which can be disregarded or
condoned by the private party concerned;
however, sales contracted by judges, judicial officers,
prosecutors and lawyers are beyond ratification because private
parties cannot validate an act that is contrary to public
policy;
Proper Party to Raise Issue of Nullity:
any person may invoke the inexistence of the contract whenever
juridical effects xxx are asserted against him (Tolentino, Vol. IV,
pp. 578 579)
Fraud or Lesion Irrelevant in Nullity of Sale Agents not covered
by prohibition under Art. 1491, CC, as their authority is limited
to looking for or bringing parties together to consummate a
transaction; Guardians, Administrators and Executors
these persons who occupy fiduciary positions are absolutely
prohibited from entering into contracts of sale with respect to the
properties under their administration; a court-approved sale cannot
prevail over the absolute prohibition under Art. 1491, CC;
Benefit or advantage which may accrue in favor of the ward,
estate or principal is totally irrelevant in upholding the
prohibited sale;
Hereditary Rights Not Included in the Prohibition hereditary
rights pertain to the heirs upon the death of the owner and do not
form part of the estate under administration; Judges, Justices and
Those Involved in Administration of Justice prohibition applies
once the property comes under the judicial action of the judge, as
in the case of levy or execution; action involving property need
not be tried by the judge; prohibition applies during the period of
litigation;
Attorneys due to the fiduciary relationship between attorney and
client, sale between them involving a property under litigation is
prohibited to completely curtail any undue influence of the lawyer
upon his client; nullity of sale is permanent and cannot be cured
by ratification; does not apply to a sale involving a property
under litigation to attorneys who did not in any manner act as
counsel for any of the litigants;
does not apply to a sale or acquisition that occurred before the
litigation involving the property;
does not apply to a sale by client to attorney involving a
property not subject to litigation; Contingent Fee Arrangements a
lawyer is not barred from acquiring a certain percentage of the
value of the property in litigation that may be awarded to his
client;
reason: payment is not made during the pendency of the
litigation but only after judgment is rendered in favor of the
client;; does the prohibition involving a contract of sale apply to
a contingent fee contract, which is a contract for service?
the Law of Sale is a catch-all provision that applies to any
transaction involving the transfer of ownership over the property
under litigationCHAPTER 3
SUBJECT MATTERRequisites of Valid Subject Matter The validity of
a sale depends inter alia on a valid subject matter, which can
either be: existing;
having potential existence; a future thing; or something
contingent or subject to resolutory condition or a possible thing;
subject matter must be licit; and
subject matter must be determinate or determinable. No contract
is formed or the contract may be considered void under Art. 1409,
CC, if subject matter lacks any of the requirements; Determining
whether a sale is perfected or void is important because of the
remedies available to the parties involved; if no contract is
formed, the parties are left to themselves and cannot seek redress
from the courts; however, if the contract is void, the party who
made payment can recover his money on the ground of unjust
enrichment by the other party; Art. 1411, CC When the cause or
object is illegal, and the act amounts to a criminal offense, the
parties are considered in pari delicto, making them without a cause
of action against each other; however, if a party is innocent or
without fault, he can recover what he has given, without complying
with his promise; Art. 1412, CC
When the cause or object is illegal but the act does not amount
to a crime, both parties have no recourse if both are at fault; If
one is at fault, he has no remedy whatsoever; but, the innocent
party can recover what he has given, without complying with his
promise; Art. 1416, CC
If the contract is prohibited to protect the plaintiff, he can
recover what he has given or paid, if public policy is enhanced; SC
ruling: even if a contract is declared void, a party can recover
what he has paid or given because the parties are bound by good
faith and fair dealing; when a sale is perfected, what is
constituted is the obligation of the seller to deliver the thing,
coupled with the right of the buyer to demand the performance of
the obligation; Subject Matter Must Be Possible Thing it is
sufficient if the thing in a contract of sale is a possible thing
or something that can exist at the time of delivery, not
perfection, of the sale;
Legal Bases Why Thing Need Not Exist at the Time Sale is
Perfected Art. 1347, CC all things which are not outside the
commerce of men, including future things, may be the object of a
contract;
Art. 1461, CC things having a potential existence may be the
object of a contract of sale (emptio rei speretae); Art. 1409
(3)
Art. 1459, CC it only requires that the seller must have a right
to transfer ownership of the subject matter at the time it is
delivered;
Thus, when Art. 1409 (3) states that contracts are inexistent
and void from the beginning when the cause or object did not exist
at the time of the transaction, it only refers to impossible
things, (things which cannot come into existence), not to things
that did not exist at the time of perfection, but which are capable
of coming into existence; Emptio Rei Speretae (Art. 1461, CC)
contract covering future things, subject to a suspensive
condition: that the subject matter will come into existence; if it
does not arise or exist, the contract is extinguished upon
expiration of the time or period or upon ascertainment that the
event will not take place;
this covers only determinate things;
pending crops can be the subject of matter of sale, apart from
the land on which they grow (Sibal v. Valdez); prohibition under
the Public Land Act from selling land acquired thereunder does not
extend to sale of coconut trees (or fruits, for that matter)
planted thereof; prohibition extends only to the land, not to the
fruits or crops planted thereon (Pichel v. Alonzo);
sale subject to condition that seller will acquire property is
valid;
Emption Spei
sale of a sweepstakes ticket; object of the sale is the ticket
or the chance to win (not the prize);
Sale of Things Subject to Resolutory Condition-Article 1465,
CC-things subject to a resolutory condition may be the object of
sale; Subject Matter is Nexus of Sale in sale, the subject matter
must be existing or must come into existence; otherwise, sale is
void or the sale is extinguished, with the obligation to return the
price, if already given; similar contracts such as barter and
dacion en pago are governed by the Law on Sales;
Civil Code provisions of sale are catch-all provisions that
cover transactions involving transfers of ownership for a
consideration (Polytechnic University v. Court of Appeals);
2.Subject Matter Must Be Licit
a thing is licit when: it is not outside the commerce of man;
or
the right is transmissible;
if thing is illicit, contract of sale is void;
illicit things (animals suffering from contagious disease, unfit
for use or service, future inheritance); a mere waiver of acquired
hereditary rights cannot transfer ownership rights in favor of a
non-heir; reason: elements of sale, donation or other derivate mode
of acquiring ownersjip are not present;a.Sales Declared Illegal by
Law
where subject matter is prohibited (narcotics, wild birds or
mammals, rare wild plants, poisonous plants or fruits, dynamited
fish, gunpowder and explosives, firearms and ammunitions, sale of
realty by non-Christians); sale of friar land without the consent
of the Secretary of Agriculture is null and void; objects outside
the commerce of men refer to objects that cannot be appropriated
such as the open seas and the heavenly bodies (Quijada v. Court of
Appeals); sale in favor of an alien using a dummy is null and void,
being in violation of the constitutional provision prohibiting
aliens from owning private lands in the Philippines; sales in
violation of land reform laws is null and void;
3. Subject Matter Must Be Determinate
or at Least Determinablea. Determinate Subject Matter
particularly designated or physically segregated from all others of
the same class; when the thing is determinate, the seller is not
liable if the thing is lost due to a caso fortuito or force
majeure;b. Determinable Subject Matter at the time the sale is
perfected, the thing is capable of being determined; and it can be
determined without the necessity of a new or further agreement;
in short, it is a generic object; stipulation that the sale
includes lands needed for the construction of the city hall site,
avenues and parks according to the Arellano plain is valid,
covering as it does a determinable thing (Melliza v. City of
Iloilo); the requisite of determinability is met if the courts will
not consult parties to the contract to establish the identity of
the thing; contractual terms must be sufficient to enable the court
to find the property subject of sale;c. Test of Determinability is
the Meeting of Minds of the Parties general rule: the public can
deal with registered land exclusively on the basis of the title
thereto; exception: one sells or buys real property as he sees it,
in its actual setting and by its physical metes and bounds, and not
by the mere lot number assigned to it in the certificate of title;
hence, what matters is the true intention of the parties, not a
mere error in the deed of sale;d. When Quantity of Subject Matter
Not
Essential for Perfection the meeting of the minds on the
identity, the nature and quality of the subject matter results in
the perfection of the contract of sale; general rule: the actual
quantity of goods is essential in the meeting of the minds of the
parties;
exception: where the seller was allowed to deliver a specified
quota of 2,640 cavans of rice, although no exact quantity was
agreed upon, the sale was deemed perfected (National Grains
Authority v. Intermediate Appellate Court); controlling doctrine:
the specific quantity of the subject matter is not important when
the quantity thereof can be determined without resorting to a new
agreement by the parties; certain generic objects may be the object
of a contract of sale provided these objects are determinable at
the time of perfection; actually, this contract may be denominated
as preparatory contract to enter into a contract of sale or a
supply agreement, in commercial parlance; the preparatory contract
involves an agreement to enter into a sale involving a personal
obligation to do, not the real obligation to deliver and to
pay;
in a preparatory contract, a complaint for specific performance
will not prosper because of the constitutional guarantee against
involuntary servitude; instead, a complaint for damages may be
filed against the party in default;
e.Generic Non-Determinable Objects a generic object that is
determinable can be the subject matter of a sale; however, the
obligation to deliver can only be complied with once the thing
becomes determinate;
thus, before delivery, the risk of loss does not arise because a
generic thing is never lost;
when a party binds himself to deliver 600 piculs of first class
of sugar, the party in default is liable for breach of contract,
which implies that a valid sale was entered into; however, he
cannot invoke force majeure (storm) to defeat liability for breach
because the buyer does not assume the risk of loss of a generic,
but determinable, subject matter, until the thing is made
determinate, either through physical segregation or physical
designation (Yu Tek & Co. v. Gonzales); Article 1246, CC, does
not allow that any generic subject matter can be the object of a
sale; in fact, under Article 1409 (6), CC, where the intention of
the parties relative to the principal object of the contract cannot
be ascertained, the contract is deemed inexistent or void; thus,
Article 1246, CC, covers only the quality of a generic subject
matter; consequently, the contract is void if the quality of the
subject matter is not ascertainable without resorting to a new
agreement;
f.Status of Sale Not Complying with Third Requisite if there is
no agreement or meeting of the minds with respect to the subject
matter, which is neither determinate or determinable, the contract
is void;
basis: the enforceability or demandability of the obligation to
deliver is in peril;g. Sale of Undivided Interest sale of an
undivided interest results in co-ownership (Article 1463, CC);
h. Sale of Undivided Share in Mass when the parties agree on a
definite number, weight or measure of the goods in the mass,
although the same are undetermined, the buyer becomes a co-owner to
the extent of the number, weight or measure of the goods that he
buys; however, if the mass is less than what he buys, he becomes
the owner of the whole mass, but the seller remains liable to make
good the deficiency, unless there is a contrary intent or
stipulation;
when there is no stipulation for the measuring or weighing of
the subject matter, but the parties agree on a price which is not
based on a particular measurement or weight, the subject matter of
the sale is the mass, not the actual number of units or tons
contained in the agreement; hence, it is incumbent upon the seller
to deliver all the ore found in the mass, although the quantity
delivered is less than the amount estimated (Gaite v. Fonacier); i.
Sale of Mortgaged Property a prior mortgage of the property does
not prevent the mortgagor from selling the property, since a
mortgage is merely an encumbrance on the property and does not
extinguish the debtors title over his property;
a stipulation prohibiting the mortgagor-debtor from selling the
mortgage property is void;
4. Sellers Obligation to Transfer Ownership
Required at the Time of Delivery of the Thing generally, a sale
cannot be annulled on the ground that the seller at the time of
perfection was not the owner of the thing sold;
it is sufficient that the seller is the owner at the time of the
delivery; in fact, acquisition of the subject matter may even
depend on a contingency; this circumstance, however, does not
render the sale null and void; sale of copra for future delivery
does not make the seller liable for estafa for failure to deliver
the object of the sale; the obligation to deliver is civil, not
criminal, in nature (Esguerra v. People); sale of a lot to be
acquired from a government agency is valid, being a sale of a
future thing (Mananzala v. Court of Appeals) a. Conflicting Rulings
SC held that sale by non-owner of property is void; thus, the right
to repurchase attached to the sale is also void (Nool v. Court of
Appeals);
comment: SC equated real obligation to personal obligation; SC
should have made the sellers liable for breach of contract; if
specific performance is impossible, SC can decree rescission of
sale, with damages;
a seller cannot dispose of that which does not belong to
him;
Art. 1459, CC vendor must have a right to transfer the ownership
thereof at the time it is delivered. summary of principles:
ownership by the seller of the thing sold at the time of perfection
of the contract of sale is not an element of its perfection; the
law only requires that the seller has the right to transfer
ownership at the time the thing sold is delivered; perfection per
se does not transfer ownership which occurs upon actual or
constructive delivery of the thing sold; a sale cannot be validly
challenged on the ground that the seller was not the owner at the
time of perfection (Quijada v. Court of Appeals);b. Exception: When
Seller Must Be Owner at the Time of Sale judicial sale: in
mortgage, it is essential that the mortgagor is the absolute owner
of the thing mortgaged, in anticipation of a foreclosure
sale;CHAPTER 4
(PRICE AND OTHER CONSIDERATION)
Meaning of Price sum stipulated as equivalent of the thing
sold;
seller cannot unilaterally increase the price due to increased
construction cost;
buyer cannot unilaterally withdraw from contract in case
interest rate is increased;
Requisites for Valid Price it must be real;
it must be money or its equivalent;
it must be certain or ascertainable;
Price Must Be Real -legal intention to pay and to receive;
A.When Price is Simulated parties had no intention that the
amount will be paid;
in simulation, a colorable contract exists; it is devoid of
substance;
When Price is False what is stated is not the one intended to be
paid;
sale is valid and enforceable, subject to reformation;
parties may be estopped from reflecting the real price, if third
parties are concerned;
Meeting of Minds as to Price -parties must agree on the
price;
Effect of Non-Payment of Price failure to pay price, if
condoned, does not cancel the sale; non-payment relates to
consummation, not perfection;
non-payment does not render sale invalid; gives rise to demand
for specific performance or rescissionSimulation of Price
AffectsDelivery of Subject Matter-delivery of subject matter by
virtue of a void sale for lack of consideration does not transfer
ownership to the buyer;
Price Must Be in Money or its Equivalent(Valuable Consideration)
Art. 1458, CC, requires payment of price certain in money or its
equivalent;
does equivalent mean something representative of money such as a
check or draft?
consideration for valid sale can be the price and other
consideration;
(Valuable Consideration) expectation of profits from the
subdivision project is valid cause or consideration (Torres v.
Court of Appeals);
cancellation of the liabilities of the seller is valid
consideration for sale (PUP v. CA);
price is subject to variations; other forms of cause or
consideration which are valuable can support a valid sale;
Concept of Valuable Consideration in Philippine jurisprudence,
for consideration to support a contract of sale, it must be a
valuable consideration;
hence, a nominal price renders the sale void;
Price Must Be Certain or Ascertainable at Perfection certain
when expressed and agreed upon in terms of specific pesos and/or
centavos;
money is the best model of valuable consideration;
price is ascertainable if it can be determined with reference to
a particular thing or its determination is left to the judgment of
a specified person/s (Art. 1469, CC);
Price Fixed by Third Party designation of a third party to fix
the price is valid; it makes the price ascertainable;
parties can ask the court to fix the price if designated party
fixes the price in bad faith or by mistake (Art. 1469, CC);
Fixing of Subject Matter by Third Party designation of a third
party to fix the subject matter is not provided by law;
a species obligation cannot be performed by a third party who
may choose a thing beyond the capacity of the seller to
deliver;
Effect of Unascertainability-when price is unascertainable,
contract of sale is inefficacious;
Manner of Payment of Price Must Be Agreed Upon manner of payment
goes into the essence of what makes price certain or
ascertainable;
manner and terms of payment are intertwined with the concept of
price; they constitute an integral part of the price;
When Sale Exists Even When No Price is Agreed Upon Art. 1471,
CC, provides the only exception that a valid sale exists even if no
agreement upon the price is made;
xxx However, if the thing or any part thereof has been delivered
to and appropriated by the buyer, he must pay a reasonable price
therefor. What is reasonable price is a question of fact dependent
on the circumstances of each particular case.
Meaning of Inefficacious Under Art. 1474, CC
devoid of legal effect; does not exclude void sale contracts due
to uncertain/unascertainable contracts;CHAPTER 5
FORMATION OF SALEStages in the Life of Sale
policitacion negotiation;
perfection birth of contract; when parties come to agree;
consummation death of contract; when parties perform
obligation;
Negotiation Stage deals with matters arising prior to perfection
such as invitation to make offer, offer, acceptance, right of first
refusal, option contract, supply agreement, mutual promises to buy
and sell or contracts to sell, agency to sell or agency to buy;
there is freedom to contract;1. Advertisements and Invitations
business advertisements are not definite offers;
general rule: advertisements are mere invitations to make an
offer;
do not giver rise to a valid/binding sale;
exception: when advertisements appear otherwise; meaning, when
advertisement specifies a determinate subject matter, the price and
terms of payment, and is addressed to a particular person, which
amount to a definite offer;2.Offers
an offer, before acceptance, is subject to the will of the
offeror; offer with a period amount to nothing upon expiration
thereof; offeree may accept or reject offer in its entirety;
counter-offer replaces the original offer;
conditional acceptance amounts to a counter-offer;
offer becomes ineffective by reason of death, civil
interdiction, insanity, or insolvency of either offeror or
offeree;
3.Option Contracts
a.Determining the Location of Options Art. 1479, CC
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the
price.
When the option is founded upon a proper consideration, then the
offer may not be withdrawn at any time during the option
period;
b.Definition and Essence of Option Contract option contract
privilege existing in one person, for which he had paid a
consideration and which gives him a right to buy a certain
property, from another person, if he chooses, at any time within
the agreed period at a fixed price (Cavada v. Diaz);
option continuing offer or contract by which the owner shall
have the right to buy the property at a fixed price within a
certain time; it merely secures the privilege to buy (Adelfa
Properties, Inc. v. Court of Appeals);c.Characteristics/Obligations
in an Option Contract; Compared with Sale
option contract is onerous like sale;
consideration in an option contract is anything of value while
that of sale is price certain in money or its equivalent;
option contract and sale are consensual contracts;
option contract is essentially a unilateral contract as the
optioner is the one obliged; sale is bilateral; subject matter of
option contract is the option to purchase, not the subject matter
of the sale to be entered into; option is an unaccepted offer;
states the terms and conditions on which the owner is willing to
sell his land, if the holder elects to accept them within the time
agreed upon; if the holder does so elect, notice must be given to
the other party; acceptance within the period results in a valid or
binding contract;
contract of sale defines the rights and obligations of the
parties at the time of execution, preventing either party from
exercising the option to withdraw or proceed; offer and acceptance
are concurrent;
d.Elements of Valid Option Contract consent;
subject matter; option right (offer to sell/promise to sell;
offer to buy/promise to buy);
prestation; consideration separate and distinct from the
purchase price for the option given;e.Meaning of Separate
Consideration anything or undertaking of value, which must be
separate and distinct from the purchase price agreed upon;
e. When Option is Without Separate Consideration general rule:
without a consideration separate from the purchase price, an option
contract is void; however, it can be treated as a valid offer;
exception: if the option is exercised prior to its withdrawal,
this becomes an accepted offer, giving rise to a valid and binding
sale;f.Period of Exercise of Option when the option contract does
not provide the period within which the option will be exercised,
the period is not indefinite; the right of option prescribes in ten
(10) years as actions based on a written contract expire after ten
(10) years;
renewal of the lease does not include the extension of an option
to purchase attached to the contract of lease;g.Effects of Exercise
of Option when there is an option contract, the timely acceptance
of the offer converts the option contract into a bilateral promise
to sell and to buy;
h.Rules When Period is Given to Offeree Within Which to Accept
if the period is not supported by a separate consideration, offeror
can withdraw before acceptance;
right to withdraw must not be exercised whimsically or
arbitrarily;
if the period has a separate consideration, the option contract
is deemed perfected; withdrawal of the offer amounts to a breach;
the option is an independent contract, distinct from the projected
main agreement;i.Right of First Refusal promise on the part of the
owner that in case he decides to sell the property, he would first
negotiate its sale to the promise; a right of first refusal clause
is not a sufficient basis for specific performance because there is
no agreement on the price;4.Mutual Promise to Buy and Sell promise
to sell a determinate thing with a promise to buy at a specified
price is binding as an executory agreement;5.Earnest Money Defined
money given as part of the purchase price and as proof of the
perfection of the contract (Dizon v. Lustre)
a.Function of Earnest Money Art. 1482, CC, provides that earnest
money given in a sale is considered as part of the purchase price;
prevails only in the absence of contrary or rebuttal evidence;
hence, it is a disputable presumption;b.Distinctions Between
Earnest Money (EM) and Option Money (OM)
EM is part of the purchase price while OM is given as a distinct
consideration for an option contract;
EM is given only where a sale has been perfected while OM is
given before a sale is perfected;
When EM is given, buyer is bound to pay the balance, while OM,
if given by the prospective buyer, does not require him to
buy;c.Effect of Rescission on Earnest Money Received without any
stipulation, the seller of a real property does not have the right
to keep the earnest money received to answer for damages sustained
in case sale does not prosper due the prospective buyers fault;
amounts received as part of downpayment could not be forfeited whey
the buyer fails to pay the balance of the purchase price; however,
in case of rescission under Art. 1385, CC, there is an obligation
to return the object of the contract, including fruits and
interest;
d.Non-Performance Does Not Affect Perfection non-performance of
the parties obligations does not affect the perfection of the
contract;
Form of Sales1. Generally, Form is Irrelevant to the Validity of
Sale
subject to the provisions of the Statute of Frauds, a contract
of sale may be made in writing, or by word of mouth, or partly in
writing and partly by word of mouth, or may be inferred from the
conduct of the parties. (Art. 1483, CC) sale of land under a
private instrument is valid; title is transferred once delivery of
land is made in favor of the buyer (Gallar v. Husain) necessity of
public document involving sales of real property or an interest
therein is for the purpose of convenience; not a requirement for
validity or enforceability (Dalion v. Court of Appeals) however,
sale contained in a private document does not bind third parties
(Talusan v. Tayag);
sale of land in a public document and recording of the document
in the Registry of Deeds makes the sale binding on third parties
(Secuya v. Vda. De Selma);a. Function of Deed of Sale deed of sale
formal or symbolic delivery of the property sold; a deed of sale,
to become a public document, must be subscribed and acknowledged
before a notary public; notarization of the document is neither a
guarantee of its validity nor of the veracity of its contents;
notary public does not validate the document;
the execution and notarization of a deed of sale, though a form
of constructive delivery, is not conclusive presumption of delivery
of possession (Santos v. Santos, 366 SCRA 395;
2. When Form of Sale Affects Its Validity general rule: form of
sale is not important for the validity of a sale;
exceptions:
a. the power to sell a piece of land or interest therein must be
in writing; otherwise, the sale by the agent is void;
b. sale of large cattle must be in writing; otherwise, it is
void; sale thereof must also be registered with the municipal
treasurer;c. sale of land by non-muslim hill tribe cultural
minorities all throughout the Philippines is void if not approved
the National Commission on Indigenous Peoples;3. Statute of Frauds:
When Form is Important for Enforceability
a. Nature and Purpose of Statue of Frauds purpose: prevent fraud
and perjury in the enforcement of obligations; application of the
Statute of Frauds presupposes the existence of a perfected
contract;
b. Sales Covered in Statute by Frauds the following agreements
are unenforceable, unless there is a note or memorandum in writing,
and subscribed by the party or his agent:
a. a sale agreement which is not to be performed within a year
from the making thereof;b. an agreement for the sale of goods,
chattels or things in action, at a price not less than P 500; andc.
a sale of real property or of an interest thereinc. Sales Not
Covered by Statute of Fraudsa. when there is a note/memorandum in
writing, subscribed by the party and his agent;b. when the is
partial consummation of the sale;c. failure to object to evidence
aliunde regarding the existence of contract;d. when sales are
effected through electronic commerce;
d. Nature of Memorandum in writing and subscribed by the party
charged;
various letters taken collectively can constitute a memorandum;
these documents contain names of parties, terms and conditions,
price, description of property; in short, the memorandum must
contain all the elements of a contract of sale;
Statute of Frauds applies only to executory contracts; it does
not apply to completed, executed or partially executed contracts;e.
Partial Performance partial performance of the sale takes the
transaction outside the coverage of the Statute of Frauds;
f. Effect of Partial Execution on Third Parties third parties
cannot invoke partial performance as basis to take the transaction
outside of the coverage of the Statute of Frauds;
reason: third parties have legal remedies against the
contract;
g. Nature and Coverage of Partial Performance partial
performance, which takes the contract out of the coverage of the
Statute of Frauds, includes:
partial payment of purchase price;
possession;
making of improvements;
rendition of services;
payment of taxes;
relinquishment of rights;
tender of payment plus building of improvements;
h. Waiver of Provisions of Statute of Frauds an oral contract of
sale becomes enforceable by waiver of the provisions of the Statute
of Frauds; example: failure to object to oral testimony or
cross-examination on the contract;i. Sales Effected as Electronic
Commercea. Legal Recognition of Electronic Data Message an
electronic data message or information shall not be denied validity
or enforceability (Sec. 6, Electronic Commerce Act);
electronic document includes information, data, figures, symbols
or other modes of written expression which is received, recorded,
transmitted, stored, processed, retrieved or produced
electronically (Sec. 5 (f), E-Commerce Act);
electronic signature refers to any distinctive mark,
characteristic and/or sound in electronic form, representing the
identity of a person and attached to or logically associated with
the electronic data message or electronic document (Sec. 5 (e),
E-Commerce Act);
b. Legal Recognition of Electronic Documents electronic
documents have the legal effect, validity or enforceability as any
other document (Sec. 7, E-Commerce Act);
c. Legal Recognition of Electronic Signatures an electronic
signature on the electronic document is equivalent to the signature
of a person on a written document (Sec. 8, E-Commerce Act);
d. Presumption Relating to Electronic Signatures in any
proceedings involving an electronic signature, it shall be presumed
that:
a. the electronic signature is the signature of the person to
whom it correlates; and
b. the electronic signature was affixed by that person with the
intention of signing or approving the electronic document;
exception: unless the person relying thereon knows the defects
in or unreliability of the signature, or reliance thereon is
unreasonable;e. Consummation of Electronic Transactions electronic
transactions made through networking among banks, or linkages
thereof with other entities or networks, and vice versa, shall be
deemed consummated upon actual dispensing of cash or the debit of
one account and the corresponding credit to another;
the obligation of a bank, entity or person similarly situated to
another arising therefrom shall be deemed absolute and shall not be
subjected to the process of preference of credits;
CHAPTER 6
PERFORMANCE OR CONSUMMATION OF SALEObligations of Seller
1.To Preserve Subject Matter every person obliged to give a
determinate thing is also obliged to take care of it with the
proper diligence of a good father of a family, unless the law or
the stipulation of the parties requires another standard of care
(Art. 1163, CC);
ancillary obligation to do;
a necessary legal assurance to the buyer that the seller can
fully comply with the main obligation to deliver the object of
sale;
2. To Deliver Subject Matter seller is bound:
a. to transfer the ownership of the thing, which is the object
of the sale;
b. to deliver the thing;
title passes from the moment the thing sold is placed in the
possession and control of the buyer;
except when there is a provision that title shall not pass until
full payment of the price;
delivery of the thing produces conveyance of ownership, without
prejudice to the right of the seller to claim payment of the price;
delivery ipso jure transfers it ownership to the buyer (Ocejo, et
al v. International Banking Corp.);3. To Deliver Fruits and
Accessories the transferee has a right to the fruits of the thing
from the time the obligation to deliver it arises; however, he
shall acquire no real right over them until the same has been
delivered to him (Art. 1164,CC);
this provision applies only to an obligation to deliver a
determinate thing; the obligation to deliver a determinate thing
includes the obligation to deliver its accessions and accessories,
and all the fruits thereof from the time of perfection;4. To
Warrant the Subject Matter seller is obliged to warrant the thing
which is the object of the sale;
Tradition as a Consequence of Valid Sale ownership of the thing
sold is a real right, which the buyer acquires only upon delivery
of the thing to him in any of the ways authorized under the Civil
Code; this right is transferred, not merely by contract, but also
by tradition or delivery (Equatorial Realty Dev., Inc. v. Mayfair
Theater, Inc.);
there is delivery when the thing sold is placed in the control
and possession of the vendee;
Types of Delivery1. Actual Delivery when the thing sold is
placed in the control and possession of the buyer;
however, control can take other forms other than actual physical
possession;
the key word is control, not possession in determining the legal
effect of tradition;2. Constructive Delivery manner signifying an
agreement that the possession is transferred from the vendor to the
vendee;
execution of a public instrument is a form of constructive
delivery;a. Execution of Public Instrument regarding the sale of
movables and immovables through a public instrument, the execution
thereof is equivalent to delivery, in the absence of a contrary
intention; deed of sale has two functions:1. formal/symbolic
delivery;
2. authority for buyer to use the document as proof of
ownership;
general rule: execution of a public instrument has the legal
effect of actual or physical delivery; this general rule applies
only to a public instrument evidencing a valid sale;
i. Constructive Delivery Has Same Legal Effect as Actual
Delivery the mere execution of the deed of conveyance in a public
instrument is equivalent to the delivery of the property (Art.
1498, CC);
ii. When Execution of Public Instrument Does Not Produce Effects
of Delivery when there is a stipulation to the contrary; examples:
certain date for purchase to take possession, where title is not
transferred until full payment; seller reserves right to use and
enjoy the property; seller has no control over the thing sold at
the moment of the sale; when at the time of the execution of the
public instrument, the subject matter was not subject to the
control of the seller; when control over the property or the
ability to transfer physical possession does not subsist for a
reasonable length of time from the execution of the public
instrument; thus, mere execution of a public instrument does not
create a conclusive presumption of delivery;b. Symbolic Delivery as
to movables, constructive delivery is made by delivery of the keys
of the place where the movable is stored;
an acknowledgment receipt of partial payment does not amount to
symbolic delivery;
c. Constitutum Possessorium
takes effect when seller, at the time of perfection, possesses
subject matter in the concept of an owner, and the seller only
possesses the property as a lessee;
d. Traditio Brevi Manu
opposite of constitutum possesorium; would-be buyer earlier
possessed the property as a lessee but now possesses the same in
the concept of an owner by virtue of the sale;e. Traditio Longa
Manu delivery of a thing by agreement; under Art. 1499, CC,
delivery of movable property is made by mere consent, as possession
thereof cannot be effected in favor of the buyer at the time of
sale;
f. Delivery of Incorporeal Property involves property having no
physical existence; delivery thereof is effected by constructive
delivery (public instrument, title is placed in the possession of
the buyer, use and enjoyment by the buyer);
g. Delivery by Negotiable Document of Title person to whom a
negotiable document of title is negotiated acquires title to the
goods as transferor; invoice, which is not a negotiable document of
title, does not give the effect of constructive delivery;
h. Delivery through Carrier
a form of constructive delivery; pertains only to sale of
goods;
general rule: delivery to carrier is deemed delivery to buyer;
carrier acts as an agent of the buyer; exception:
stipulation/circumstances to the contrary;
the seller has the duty to enter into a contract with the
carrier on behalf of the buyer under reasonable terms and
conditions; if the seller fails to do so, and the goods are lost or
damaged, buyer may hold the seller liable for damages; where goods
sent to buyer are normally insured, but seller fails to notify
buyer of the same, the risk of loss or damage pertains to seller;
F.A.S. Sales seller pays all charges and is subject to risk until
goods are placed alongside vessel; meaning: delivery of goods
alongside vessel completes the effect of tradition; F.O.B Sales
free on board; seller shall bear all expenses until the goods are
delivered; f.o.b. at the point of shipment delivery of the goods to
the carrier is equivalent to delivery to the buyer; at that point,
the risk of loss pertains to the buyer;
f.o.b. , destination delivery to the buyer is completed when the
vessel has arrived at the point of destination; prior thereto, the
risk of loss is shouldered by the seller;
C.I.F. Sales costs, insurance, and freight; the price fixed
covers not only the costs of the goods, freight and insurance are
paid by the seller; effects of delivery under c.i.f. sales:a. first
school of thought: delivery to carrier is delivery to buyer;
carrier acts as an agent of the buyer; buyer must have insurable
interest in the thing insured;b. second school of thought: delivery
to carrier is not delivery to buyer; both parties agree that seller
is responsible for insuring and shipping the goods, for which he
gets a package price; thus, seller bears the risk of loss during
the shipment period;Effects and Completeness of Delivery-to
transfer ownership to the buyer, delivery must be made pursuant to
a valid sale; and delivery must be effected when seller has
ownership over the subject matter of sale;When Buyer Refuses to
Accept -delivery is complete even if buyer unjustly refuses to
accept the goods, once the goods are placed at his disposal; title
therefore passes to buyer;
Rules on Double Sales-when subject matter is movable, ownership
shall pertain to the buyer who may have first taken possession
thereof in good faith (Art. 1544, CC);
-when subject matter is immovable, ownership shall pertain to
the buyer who in good faith first recorded the sale in the Registry
of Property; if there is no inscription, to the person who in good
faith first acquired possession thereof; or in the absence thereof,
to the person who in good faith presents the oldest
title;-registration in good faith under the Torrens System is of
the highest order; this does not apply to unregistered land;
Other Principles-purchaser in good faith one who buys the
property of another without any notice that some other person has a
right to or interest in the property and pays a full and fair price
for the property;
-obligation to investigate known facts a purchaser cannot close
his eyes to facts which should put a reasonable man upon his
guard;
- land in adverse possession requires buyer to inquire as to the
occupants right over the property; purchaser must go beyond the
certificate of title;-annotation of lis pendens on the title
renders the buyer in bad faith;-annotation of adverse claim places
subsequent buyers in bad faith;
Obligations of Buyer
Pay for the price
pay for the price at the time and place stipulated in the
contract;
letter expressing intent to pay is not a valid tender of
payment; to be effective, payment shall be made to the person in
whose favor the obligation has been constituted or his successor in
interest, or any person authorized to receive (Art. 1240, CC);
buyer is obliged to pay interest for the period between delivery
and payment of the price when it is so stipulated, if object
delivered produces fruits/income, or buyer defaults from
demand;Accept Delivery of Thing Bought buyer is bound to accept
delivery of the thing bought at the time and place stipulated in
the contract; if not stipulated, at the time and place of the
delivery of the thing sold;
Opportunity to Inspect Goods general rule: buyer is given a
reasonable opportunity to examine the goods to determine if the
same are consistent with the specifications in the contract;
exception: C.O.D. Sales or collect on delivery sales buyer is
not entitled to examine the goods before the payment of the price,
in the absence of agreement or usage of trade permitting such
examination;Goods Sold on Installments unless otherwise agreed,
buyer of goods is not bound to accept delivery thereof by
installments;
Effect of Acceptance of Goods on Sellers Warranty acceptance of
the goods does not discharge the seller from liability for damages
or for breach of warranty, unless there is a stipulation to the
contrary;
however, acceptance of the goods without notice of any defect
thereof or breach of warranty excuses the seller from
liability;Refusal to Accept Goods buyer is not bound to return the
goods, if he refuses to accept the same for a valid reason; he is
only required to notify the seller of his refusal to accept; buyer
can voluntarily constitute himself as a depository, and becomes
liable as such; in case of refusal to accept goods without a valid
reason, title thereto passes to him from the moment the goods are
placed at his disposal;CHAPTER 6SALE BY A NON-OWNER OR BY ONE
HAVING VOIDABLE TITLEWhen Seller is not Owner of the Subject
Matter
At Perfection perfection of sale merely creates the obligation
on the part of the seller to transfer ownership, but by itself
perfection does not transfer ownership;
it is not critical for perfection of sale to take place that the
seller is the owner of subject matter at the time of perfection;
law on estoppel provides: when the person who is the owner of a
thing sells or alienates and delivers it, and later the seller or
grantor acquires title thereto, such title passes by operation of
law to the buyer or grantee (Art. 1434, CC); word sells in Art.
1434, CC, refers to the perfection stage of a sale;
At Consummation where goods are sold by a person who is not the
owner thereof, and who does not sell then under authority or with
the consent of the owner, the buyer acquires no better title to the
goods that the seller had (Art. 1505, CC);
Art. 1505 does not provide that the sale of good by a non-owner
is void; it only states the nature of the title of the buyer; One
can sell only what one owns or is authorized to sell; thus, the
buyer can acquire no more than what the seller can transfer
legally;
Sale by Co-Owner of the Whole Property or Definite Portion
Thereof
in co-ownership, none of the co-owners may claim any right,
title or interest to a particular portion of the thing owned in
common; a co-owner has no right to sell a divided part of the real
estate, although he is the owner of an undivided half of a tract of
land; a co-owner has a right to sell and convey an undivided half,
but he has no right to divide the lot into two parts, and convey
the whole of one part by metes and bounds;
Exceptions to Rule on Effect of Sale of Definite Portion by
Co-Owner general rule: sale by co-owner of the entire property
owned in common or any definite portion thereof is void, but the
sale is valid with respect the co-owners ideal share;
exceptions:
a.when the subject matter is indivisible by nature or by
intent;
b.when the sale of a particular portion of the thing owned in
common is with the consent of the other co-owners; partial
partition results;CHAPTER 7LOSS AND DETERIORATION, FRUITS AND OTHER
BENEFITSBefore Perfection the rules on loss, deterioration, fruits
and improvement of the purported subject matter are the same: such
loss, deterioration, fruits and improvements pertain to the
purported seller, since ownership remains in the seller;At the Time
of Perfection if at the time the sale is perfected, the subject
matter has been entirely lost, the contract shall be without any
effect (Article 1493, CC);
however, if the thing is lost in part only, the buyer may choose
between withdrawing from the contact and demanding the remaining
part, paying its price in proportion to the total sum agreed upon;
Art. 1493, CC, does not hold a sale at perfection to be void when
the object thereof is lost; it uses the phrase without any
effect;
strictly speaking, the physical existence or non-existence of
the subject matter is not important for perfection of the sale;
however, if subject matter is lost, there is no point in entering
into a contract as the seller cannot comply with obligation to
deliver the subject matter; Tolentinos view: the contract never
comes into existence. There can be no sale without a thing to be
sold. xxx there is no need of an action to annul the contract,
because there can be no annulment of something that does not
exist.How to Treat Loss, Deterioration and Benefits After
Perfection if the subject matter is lost at the point of
perfection, and the seller bears the loss and the buyer is relieved
of his obligation under the contract, then the implication is that
after the perfection, they buyer bears the risk of loss and
deterioration even without prior delivery to him;After Perfection
But Before Delivery
Loss of Subject Matter CC has retained the Roman law rule that
ownership is transferred only by delivery, whether actual or
constructive; however, CC also adopted the common law principle of
res perit domino, i.e., it is the owner of the thing (the seller
before delivery) who bears the consequences of its loss;
Tolentinos view: in reciprocal obligations, the extinguishment
of the obligation duet to loss of the thing affects both debtor and
creditor; the entire juridical relation is extinguished, so that if
the creditor has himself an obligation, this is likewise
extinguished.
the debtor must return to the creditor whatever the latter may
have already delivered by reason of the obligation; a logical
consequence of the principle of res perit domino recognized in the
code.
the risk pertains to the debtor, which means that if an
obligation is extinguished by the loss of the thing or
impossibility of performance through fortuitous events, the
counter-prestation is also extinguished;
the debtor is released from liability but he cannot demand the
prestation which has been stipulated for his benefit;
examples: a. if the thing leased is destroyed by fortuitous
event, the lessee is not obliged to pay the stipulated rental; b.
in a contract of a piece of work where the contractor furnished
both labor and material, if the thing is lost before delivery, the
contractor cannot recover the agreed compensation.
these are the results of the reciprocal character of the
obligations; he who gives nothing has no reason to demand
anything;Summary of Rules According to Tolentino risk of loss is
borne by the seller from time of perfection up to period before
delivery;
however, the seller is not liable for damages if the thing is
lost through a fortuitous event; before delivery, if the
determinate subject of the sale is lost through the fault of the
seller, the buyer does not need to pay the price but he can recover
damages for breach of contract; if the determinate subject matter
is lost through a fortuitous event, the seller is excused from his
obligation to deliver the thing; he is not liable for damages
because he committed no breach;
buyer is therefore not obliged to pay the price because seller
failed to comply;
the net effect is the diminution of the value of the sellers
estate; risk of loss is borne by the seller;
Proper Doctrine on Loss, Deterioration, Fruits and
Improvements
Prior to Perfection both title and beneficial interests pertain
to the seller; therefore, the seller bears the risk of loss,
deterioration, and benefits from the fruits and improvements;
the buyer is without any risk because neither title nor
beneficial interest over the subject matter pertains to him;
After Delivery as delivery effectively transfers title and
beneficial interest to the buyer, the buyer bears both the risk of
loss and deterioration, as well as benefits from the fruits and
improvements of the subject matter of sale;
at this juncture, neither title nor beneficial interests pertain
to the seller; as such, whatever happens to the subject matter
without his fault will not affect him;
After Perfection But Before Delivery in this situation, title
and beneficial interests do not pertain to the same person;
according to jurisprudence, the party who had greater stake on
the subject matter at the point of loss, deterioration or
improvement should bear the risk of loss; thus, under this
situation, the party who is understood to have the beneficial
interest over the subject matter bears the risk of loss or
deterioration, or obtains benefits from the improvement of the
thing; examples:
a.when the obligor possesses the goods for the benefit of the
buyer, benefits and improvements pertain to the buyer; hence, the
buyer bears the risk of deterioration;
b.when goods are retained by the seller to secure the
performance of the buyers obligations, buyer bears the risk of loss
or deterioration;
c. when seller retains control over the goods until buyer
complies with his obligations, or where buyer does not intend to
have dominion, use or control over the goods, the owner-seller
bears the risk of loss or deterioration;CHAPTER 8
REMEDIES OF PARTIESRemedies in Cases of Movables
Ordinary Remedies of Seller
Movables in General
in sales of movables, seller can rescind the sale in case the
buyer does not show up to receive the subject matter of the sale,
or if he appears, the buyer does not offer to pay the price;
Sale of Goods Non-Payment of Price by Buyer
when ownership has passed to the buyer, but the buyer does not
pay, seller can maintain an action against the buyer for the price
of the goods or an action for specific performance;
when the ownership of the goods has not passed, seller may offer
to deliver the goods to the buyer; if buyer refuses to accept the
goods, seller may act as bailee for the buyer, with notice to the
buyer; thereafter, seller may treat the goods as his own and
maintain an action for the price of the goods against the
buyer;
when price payable on certain day, and the buyer refuses to pay
the price, seller may maintain action for the price;
Special Remedies of Unpaid Seller of Goods seller of goods is
deemed to be an unpaid seller either: a. when the whole of the
price has not been paid or tendered; or b. when a bill of exchange
or other negotiable instrument has been received as conditional
payment, and the condition is violated due to the dishonor of the
instrument, insolvency of the buyer, or otherwise; term includes an
agent of the seller to whom the bill of lading is indorsed, or
consignor or agent who paid or is directly responsible for the
price, or any person in the position of a seller;
unpaid seller has the following remedies (whether or not
ownership over the goods has been transferred to the buyer):
a. possessory lien; b. stoppage in transitu; c. special right of
resale;
d. special right to rescind;
these remedies have hierarchical application; meaning, the
rights to resell and rescind can only be availed after possessory
lien and stoppage in transitu have been exercised;
Possessory Lien lien is a legal claim or charge on property as
security for the payment of some debt or obligation; its meaning is
more extensive than the right to retain; it is enforceable against
the property in the hands of any person, except against a bona fide
purchaser for value without notice (Hongkong & Shanghai Banking
Corp. v. Rafferty);Stoppage in transitu stoppage in transitu
sellers right of stopping the goods in transitu after he has parted
with the possession thereof, in case buyer is insolvent;seller may
resume possession of the goods at any time while goods are in
transit; this can be exercised even if ownership over the goods has
passed to the buyer; this right is not affected by any sale, or
other disposition of the goods made by the buyer, unless the seller
consents thereto;When Goods are Deemed In Transit from time goods
are delivered to a carrier or other bailee for transmission to
buyer, until buyer or agent obtains goods from carrier/bailee;
if buyer rejects the goods, and the carrier/bailee continues in
possession thereof, even if seller refuses to take back the
goods;
How Right is Exercised obtain actual possession of the goods; or
notify carrier/bailee in possession thereof of his claim over the
goods;Special Right to Resell Goods even if ownership in the goods
has passed to the buyer, unpaid seller has a special right of
resale, under conditions provided by law;
When Right Can Be Exercised
to avail of this right, unpaid seller must have previously
exercised right of possessory lien or stoppage in transitu;
goods must be sold under the following conditions:
a. goods are of perishable nature;
b. seller is expressly reserved in case buyer defaults; c. buyer
is in default in the payment of the price for an unreasonable
time;
Buyers Liability for the Difference if the buyer fails to take
delivery and pay the purchase price of the subject matter of the
contract, the seller, notwithstanding the absence of judicial
rescission, can resell the goods; and if the seller is obliged to
resell the goods for less than the contract price, the buyer is
liable for the difference (Katigbak v. Court of Appeals);
Standard of Care/Disqualification in Resale seller is bound to
exercise reasonable care and judgment in making a resale, and
subject to this requirement may make a resale either by public or
private sale;
seller cannot directly or indirectly buy the goods;Special Right
to Rescind despite the transfer of ownership over the goods to the
buyer, the unpaid seller has a special right to rescind the
sale;
When Right May Be Exercised an unpaid seller who has a right of
lien or has stopped the goods in transitu, may rescind the transfer
of title and resume ownership in the goods in any of the following
instances:
a.where the seller expressly reserved the right to rescind in
case the buyer defaults; or
b.where the buyer has been in default in the payment of the
price for an unreasonable time;Effect of Exercise of Right to
Rescind seller is not liable to the buyer upon the sale; seller may
even recover from buyer damages for loss arising from the
contractual breach;
Transfer of Title transfer of title is rescinded upon
manifestation of intention to rescind to the buyer, either through
a notice or some other overt act;
Remedies of Buyer
1.action for specific performance (in case seller has breached
obligation to deliver specific or ascertained goods); 2.remedies
under Art. 1599, CC:
a.accept or keep the goods and set up against the seller the
breach of warranty by way of recoupment;
b.accept or keep the goods and maintain an action against the
seller for damages for the breach of warranty;
c.refused to accept the goods and maintain an action against the
seller for damages for breach of warranty;
d. rescind the sale and refuse to receive the goods, or if good
have been received, return them or offer to return them to the
seller and recover the price or any part thereof which has been
paid;
if fulfillment becomes impossible, buyer can exercise right to
rescind, even if previously he availed of specific performance;
-3.suspension of payments in anticipation of breach-buyer may
suspend the payment of the price in case of:
a.disturbance in the possession or ownership of the thing
acquired; or
b.existence of reasonable grounds that such disturbance will
occur; or
c.any vindicatory action; or
d.foreclosure of mortgage;
unless the seller gives security for the return of the price; in
case of a pending suit involving the subject matter of the sale,
buyer can suspend payment of the balance of the purchase price
(Adelfa Properties v. CA);
Sales of Movables on Installments (Recto Law, now incorporated
in Art. 1484, CC)
in a sale of personal property the price of which is payable in
installments, the seller may exercise any of the following
remedies:a. exact fulfillment of the obligation, should the buyer
fail to pay any installment;b. cancel the sale, should the buyers
failure to pay cover two or more installments;
c. foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the buyers failure to pay cover two or
more installments;
-the above-stated remedies are alternative, not cumulative;
exercise of one bars the exercise of the others; remedies cannot
also be pursued simultaneously;When is Sale on Installments?
where the price is payable in several installments; where
partial payments consist in relatively small amounts; Recto
Law/Art. 1484 applies to financing transactions derived from sales
of movables on installments; the execution of a contract of loan is
immaterial because the promissory note had been assigned or
negotiated by the original seller;
Recto Law/Art. 1484 does not apply if an initial payment is
made, and the balance is payable in the future; this is a straight
sale, not a sale on installments (Levy Hermanos v. Gervacio); in
this case, the seller can recover the unpaid balance from the
buyer, even if the buyer has been deprived thereof through
foreclosure;Contracts to Sell Movables Not Covered when the
contract governing the sale of movables is a contract to sell, the
rules on rescission and substantial breach do not apply; reason: if
the suspensive condition does not occur, the contract to sell is
extinguished; thus, there is no contract to rescind;Remedies in
Cases of ImmovablesRemedies of Seller
Rescission of Sale (Anticipatory Breach) under Art. 1591, CC, if
the seller has reasonable grounds to fear the loss of the immovable
property sold and its price, he may sue for the rescission of the
sale; in case Art. 1591 does not apply, the seller may sue for
rescission of the sale under Art. 1191, CC, based on substantial
breach by the buyer for his failure to comply with his obligation
to pay the price when due;Rescission under Art. 1592 (Failure of
Buyer to Pay Price) in case the buyer fails to pay the price, the
seller has the option under Art. 1592, CC, to rescind the sale upon
judicial or notarial demand;Contracts to Sell Not Covered by
Article 1592, CC Art. 1592 applies to ordinary sale transferring
ownership simultaneously with the delivery of the real property
sold;
Remedies of BuyerSuspension of Payment Art. 1590, CC< allows
the buyer to suspend payment of the price incase of:
a.disturbance in the possession or ownership of the thing
acquired; or
b.the presence of reasonable grounds causing fear that
disturbance in his possession or ownership thereof will occur;
a mere act of trespass will not allow suspension of payment;
In Case of Subdivision or Condominium Projects
buyer can invoke Sections 23 and 24 of P. D. No. 957 that his
installment payments in a subdivision or condominium project cannot
be forfeited in favor of the owner or developer; under P. D. No.
957, buyer has the option to demand reimbursement of the total
amount paid, or to wait for further development of the subdivision
or condominium project (Relucio v. Brillante-Garfin); buyer in a
subdivision land can compel the seller to complete the roads and
other facilities of the subdivision, despite the absence of such or
similar stipulation (Lim v. De los Santos); buyer can suspend
payment of his monthly amortization where the seller fails to give
a copy of the Contract to Sell despite repeated demands (Gold Loop
Properties v. CA);
P. D. No. 957 does not allow the nullification of a contract to
sell in case the seller, at the time of the contract was entered
into, did not possess a Certificate of Registration and License to
Sell (Cho Chien v. Sta. Ljucia Realty & Dev., Inc.);
P. D. No. 957 Given Retroactive Effect P. D. No. 957 was applied
to a land purchase agreement entered into prior to the issuance of
P. D. No. 957; as an instrument of social justice, the law favors
the weak and the disadvantaged (Eugenio v. Drilon);
Right to Grace Period Stipulated when a grace period is
stipulated in a contract of sale, it is construed as a right; when
it is unconditionally conferred, the grace period is effective
without further need of demand for payment;
Maceda Law (Sales of Real Estate on Installments)
the law (Realty Installment Buyer Protection Act) declares as
public policy to protect buyers of real estate on installment
payments against onerous and oppressive conditions; it recognizes
the sellers right of cancellation of sale on installments of
industrial and commercial properties with full retention of
previous payments (Luzon Brokerage v. Maritime Bldg.);Transactions
Covered the Maceda Law does not cover all sales of realty on
installments, but primarily residential real estate; it also covers
financing of such acquisitions; expressly covers all transactions
or contracts involving the sale or financing of real estate on
installment payments, including residential condominium
apartments;
Maceda Law Covers Contracts to Sell
use of the term cancellation under the Maceda Law clearly
indicates that it covers contracts to sell residential real estate
on installments;Transactions Excluded from Coverage sales covering
industrial lots;
sales covering commercial buildings (and commercial lots by
implication); and
sales to tenants under agrarian reform laws;
Contrary Stipulations are Void contractual stipulations that are
contrary to the provisions of the Maceda Law are null and void;
(Section 7, Maceda Law);Maceda Law Cannot be Availed of by
Developer it does not apply to protect the developer or one who
succeeds the developer (Lagandaon v. CA);Cancellation of Judicial
Sale where a judicial sale is voided without fault of the
purchaser, the purchaser is entitled to reimbursement of the
purchase money; a judicial sale can only be set aside upon the
return to the buyer of the purchase price with simple interest,
including sums paid in improvements, taxes, and other expenses;
CHAPTER 9CONDITIONS AND WARRANTIES
Conditions and Warranties
a contract of sale may be subject to conditions, as well as
warranties, express or implied; otherwise, the caveat emptor (buyer
beware) rule may also find application (Filinvest Credit Corp. v.
Court of Appeals);
where the obligation of either party to a contract of sale is
subject to any condition which is not performed, such party may
refuse to proceed with the contract or he may waive performance of
the condition (Delta Motors v. Geronimo);
if one party promised that the condition should happen or be
performed, the party concerned may treat the non-performance of the
condition as a breach of warranty (Delta Motors v.
Geronimo);Express Warranty any affirmation of fact or any promise,
by the seller relating to the thing is an express warranty if it is
intended to induce the buyer to purchase the same, and if the buyer
purchases the thing relying thereon (Art. 1546, CC); a statement of
the sellers opinion on the thing does not amount to a warranty
(Art. 1546, CC);Implied Warranties that the seller has a right to
sell the thing at the time when ownership is to pass, and from then
on, the buyer shall have and enjoy legal and peaceful possession of
the thing;
that the thing shall be free from any hidden faults or defects,
or any charge or encumbrance not declared or known to the buyer;
these warranties shall not make liable a sheriff, auctioneer,
pledge, or other person selling the things, for the sale of a thing
in which a third person has a legal or equitable interest (Art.
1547, CC; Sta. Romana v. Imperio);
Implied Warranty Against Eviction eviction shall take place
whenever by a final judgment based on a right prior to the sale or
any act imputable to the vendor, the vendee is deprived of the
whole or of a part of the thing purchased ( Arts. 1548 1549; 1557
1559, CC; Bautista v. Lasam);Requisites for Vendors Liability final
judgment; buyer is deprived of the whole or part of the thing
sold;
deprivation is caused by a right prior to the sale in question;
and vendor is summoned and made a co-defendant in the suit for
eviction at the instance of the vendee (De Leon Escaler v. CA);
Waiver if the vendee has renounced the right to warranty in case
of eviction (consciente), and eviction should take place, the
vendor shall only pay the value of the thing sold at the time of
eviction; in case the waiver is made with knowledge of the risks of
eviction and assumed its consequences (intencionada), the vendor
shall not be liable (Art. 1554, CC, PNB v. Silo);
any waiver or stipulation exempting the vendor from the
obligation to answer for eviction shall be void, if he acted in bad
faith (Art. 1553, CC; Angelo v. Pacheco);Effects of Eviction the
vendee shall have the right to demand of the vendor:
a.the return of the value of the thing sold a the time of the
eviction, be it greater or less than the price of the sale;
b.the income or fruits, if he has been ordered to deliver them
to the party who won the suit against him;
c.the costs of the suit;
d.the expenses of the contract, if the vendee has paid them;
e.the damages and interest, and ornamental expenses, if the sale
was made in bad faith (Art. 1555, CC);
Implied Warranty Against Hidden Defects of Or Encumbrances Upon
the Thing Sold vendor shall be responsible for warranty against the
hidden defects which the thing sold may have, should they render it
unfit for the use for which it is intended or should they diminish
its fitness for such an extent that, had the vendee been aware
thereof, he would not have acquired it or would have given a lower
price for it; the vendor is responsible for any such hidden faults
or defects even though he was not aware thereof; this warranty
shall not apply if the contrary has been stipulated and the vendor
was not aware of the hidden faults or defects in the thing sold;
the vendor shall not be answerable for patent defects or those
which may be visible, or for those which are not visible if the
vendee is an expert who, by reason of his trade or profession,
should have known them;
in a sale of goods, there is an implied warranty or condition as
to the quality or fitness of the goods, as follows: 1.where the
buyer makes known to the seller the purpose for which the goods are
acquired, and the buyer relies on the sellers skill or judgment,
there is an implied warranty that the goods shall be reasonably fit
for such purpose;
2.where the goods are bought by description from a seller who
deals in such goods, there is an implied warranty that the goods
shall be of merchantable quality (Art. 1562, CC); in a contract of
sale by sample, if the seller is a dealer in goods of that kind,
there is an implied warranty that the goods are free from any
defect that will render the goods unmerchantable which is not
apparent on reasonable examination of the sample (Art. 1565,
CC);
Effects of Hidden Defects or Encumbrances vendee may elect
between withdrawing from the contract and demanding a proportionate
reduction of the price, with damages in either case (Consolidated
Plywood Industries v. IFC Leasing);
actions arising from the responsibilities of the vendor for
hidden defects or encumbrances shall be barred after six months,
from the delivery of the thing sold (Art. 1571, CC); there is no
implied warranty as to the condition, adaptation, fitness,
suitability or quality of a thing sold as and for second-hand
article;
an identor is one who, for compensation, acts as a middleman in
bringing about a purchase and a sale goods between a foreign
supplier and a local purchaser;
an indentor is not liable for the implied warranty for hidden
defects;
a mere expression of opinion that the equipment is very good
cannot be construed as an express warranty;
Redhibitory Defects of Animals the redhibitory defect of one
shall only give rise to its redhibition (Art. 1572, CC);
the defect is redhibitory in nature if expert knowledge is not
sufficient to discover the hidden defect of animals; there is no
warranty against hidden defects of animals sold at fairs or at
public auction, or of livestock sold as condemned (Art. 1574,
CC);
the redhibitory action must be brought within forty days from
the date of the delivery to the vendee;
Extinguishment of Sale sales are extinguished by the same causes
as all other obligations and by conventional or legal redemption,
regardless of whether the contract is a perfected sale or a
consummated sale (Ocejo v. International Bank);Conventional
Redemption takes place when the vendor reserves the right to
repurchase the thing sold, with the obligation to return to the
vendee the purchase price and the expenses of the contract, other
legitimate expenses in connection with the sale, as well as the
necessary and useful expenses on the thing sold (Art. 1601,
CC);
the right to repurchase under Art. 1601 shall last for four
years from the date of the contract; the period cannot exceed ten
years counted from the execution of the contract; in the following
instances, the contract is presumed to be an equitable mortgage:
1.when the price of a sale with right to repurchase is unusually
inadequate;
2.when the vendor remains in possession as lessee or
otherwise;
3.when upon or after the expiration of the right to repurchase,
another instrument extending the period of redemption or granting a
new period is executed ;
4.when the purchaser retains for himself a part of the purchase
price;
5.when the vendor binds himself to pay the taxes on the thing
sold; 6.where the parties intend that the transaction shall secure
the payment of a debt or the performance of any other
obligation;
Persons Entitled to Exercise Redemption the vendor-a-retro
normally exercises the right of redemption;
a co-owner of an undivided immovable may independently exercise
the right of repurchase as regards his own share (Art. 1614,
CC);
Proper Exercise of Conventional Redemption the proper exercise
of the conventional right of redemption requires a tender of
payment; a mere letter expressing that desire is not
sufficient;
the right of redemption is correctly availed of by returning the
price of the sale;
Failure of Redemption if the vendor fails to redeem the property
within the prescribed period, the right is lost and all rights
pertaining to the property and all those incidental thereto are
irrevocably consolidated in the buyer;
Legal Redemption it is the right to be subrogated in the place
of one who acquires a thing by purchase or dation in payment. Or by
any other transaction whereby ownership is transmitted by onerous
title (Art. 1619, CC);
Period of and Exercise of Redemption the right of legal
pre-emption or redemption shall not be exercised within thirty days
from the notice in writing by the prospective vendor;
notice is indispensable; actual knowledge by the redemptioner is
not legally sufficient;
to exercise the right, tender of payment, unlike in conventional
redemption, is not required;
other instances of legal redempt