Sales Midterms Reviewer

SALES LAW CHAP TE R 1 I NTRO DUCTI O N
DEAN CESAR VILLANUEVA
DEFINITION OF SALE Art1458 of the Civil Code A contract whereby one of the contracting parties [seller] obligates himself to transfer ownership of, and to deliver, a determinate thing; and the other part [buyer] obligates himself to pay therefore a price certain in money or its equivalent. Sale includes both absolute sale [KoS] and conditional sale [Contract to Sell] Contract to sell ownership is reserved until suspensive condition of full payment of purchase price is fulfilled. A subsequent contract is needed to transfer ownership. However, it is already a valid sale. Again, sale is consensual so transfer of ownership is not required for a perfected sale. Common law concept of sale is embodied in New Civil Code under Art1458 Requires transfer of ownership of the subject matter of the sale as a principal obligation of seller. Remember: Common law concept refers to the OBLIGATION TO TRANSFER ownership of SM and not actual physical transfer/delivery to perfect contract of sale.
Nature of Obligations Created

2 SETS OF OBLIGATIONS IN SALE Obligations of SELLER Obligations of BUYER a. b. a. Transfer Ownership Deliver Possession of Subject Matter Pay the Price
Both sets of Obligations are REAL obligations, meaning they are obligations to give, meaning they may be subject of SPECIFIC PERFORMANCE Distinguished from Personal Obligations, which are Obligations to do or not to do Why distinguish kind of obligations? To know the remedies Personal Obligations cannot be subject of Specific Performance because it would be violation of public policy against Involuntary Servitude Personal Obligations can be executed by another at the cost of the obligor and refusal to comply can bring action for damages. Real Obligations are subject to specific performance
ELEMENTS OF CONTRACT OF SALE [Coronel v CA] CONSENT - meeting of the minds to transfer ownership in exchange of the price SUBJECT MATTER must be determinate/determinable PRICE certain in money or its equivalent.
1. 2. 3.
Once all three concur, there is automatically a perfected contract of sale. NO CONTRACT v VOID/VOIDABLE According to CLV, when one of the essential elements is COMPLETELY ABSENT, there is a NO CONTRACT situation and not merely a void contract. When all 3 elements are present, but there is a DEFECT or ILLEGALITY constituting any of such elements, the resulting contract can either be VOID or VOIDABLE Voidable when defect constitutes vitiation of consent Void when it falls under Art1409 of NCC
Subject Matter of Sale Subject Matter is the essence of sale Of all 3 elements, its the most important! SM must be Determinate or Determinable [Art1458] Meaning generic things can also be covered by sale, provided they are at least Determinable
SALES LAW

Satisfied if at the time the contract is entered into, thing is capable of being made determinate w/o necessity of a new or further agreement between the parties [Art1460] Minimum Requirement: Determinable Generic SM If its Determinable Generic, then it must mean SM becomes determinate at point of performance. Requirement that SM is Determinate Means that SM is required to be: 1. Physically Segregated 2. Particularly Designated Why must it be determinate? Has to do with the performance of the obligation of the seller to transfer ownership and deliver possession [consummation stage] If SM was not determinate, seller could not transfer and deliver, therefore he could not perform contract of sale. The issues of Risk of Loss do not apply to determinable SM because being generic, it is not susceptible to loss, there will always be something existing of the same kind. Although Art1458 uses the term determinate to describe SM of sale, it does not exclude generic things which are determinable. Art1458 only emphasizes that the obligation to transfer/deliver can only be performed if SM is specific or determinate. Note: Term determinate in Art1458 only refers to the time when contract of sale is to be performed or consummated already. Since we already know that a valid contract of sale exists at the stage of perfection, even w/o delivery, and is consensual, then the SM of the sale can include those which are generic-determinable. This is because as to generic-determinable objects, they may not be determinate now, but when the time to perform the contract comes, what was determinable becomes determinate.
Stages in Life of Sale 1. Negotiation, Preparation or Policitacion stage Time of indication of interest until perfection Involves offers, counter-offers and acceptance 2. Perfection or birth Upon concurrence of the 3 essential elements of KOS Involves meeting of the minds of the parties as to the object of the contract and upon the price. 3. Consummation or death Begins when the parties perform their respective undertakings under the contract Ends upon extinguishment of contract Note: Even after performance of obligations, the KOS is not automatically extinguished because there are still warranties to worry about. Inclusion of Concept of Contract to Sell 2nd par of Art1458 provides that the term sale includes: Absolute sale Contract of Sale Conditional sale Contract to Sell CLV: sale being merely a title and not a mode, contract to sell is technically included in the term sale because transfer of ownership is not required in a perfected contract of sale.
SALES LAW
7 CHARACTERISTICS OF CONTRACT OF SALE 1. NOMINATE v innominate Has been given a particular name by law BUT the substance of the contract is what determines it to be a sale, not the title given to it by the parties. However, intent of parties is also considered as shown by terminology used and contemporaneous acts can stand on its own and does not depend on validity of another for its existence perfected by mere meeting of the minds upon the thing which is the object of the contract and upon the price Real requires delivery of object to be valid, example is pledge Solemn Requires certain formalities to be valid, example is agency to sell real property/estate or interest therein. Bilateral imposes obligations on both parties, whereby the obligation or promise of each party is the cause or consideration for the obligation or promise of the other. Reciprocal arises from same cause, and in which each party is a debtor and a creditor of the other, such that the obligations of one is dependent upon the obligations of the other. Burdensome because it imposes a valuable consideration as a prestation, which is a price certain in money or its equivalent. A thing of value is exchanged for equal value, consequence of equal bargaining. Involves relative value between what is given and what is received. Sale is merely a title that creates the obligation on the part of the seller to transfer/deliver, it would be delivery or tradition that would legally be the mode to transfer ownership and possession to the buyer. Mode is a process of ownership and possession. Since Sale is consensual in nature, possession is not essential for a perfected sale. Perfection confers title and not ownership. Sale does not in itself confer ownership, it only creates OBLIGATION to transfer ownership. At perfection of KoS, one is not yet the owner, it is delivery that consummates sale.
2. PRINCIPAL v accessory 3. CONSENSUAL v real/solemn
4. RECIPROCAL & BILATERAL v unilateral 5. ONEROUS v gratuitous 6. COMMUTATIVE v aleatory 7. TITLE, NOT MODE
So what if Consensual? 1. Form generally, KoS needs no certain form to be valid, but certain formalities must be satisfied to make it binding upon 3rd parties only. But as between parties to the KoS, even an oral contract of sale is valid and binding. 2. Delivery - From the moment all 3 essential elements concur, any party to the KOS may demand performance, no need for delivery 3. Non-performance - merely gives rise to remedy of specific performance or rescission, both with damages. Even if not performed, there is valid KoS binding between 2 parties. 4. Ownership - by seller of SM is not an element for perfection. Law only requires that seller has right to transfer ownership at time of consummation. 5. Obligations from the moment all 3 elements concur, parties are bound not only to fulfill obligations stipulated, but also all the consequences which, according to their nature, may be in keeping with good faith, usage and law. [Art1315] 6. Force of Law between parties from the time all 3 elements concur, the contract of sale has the force of law between the contracting parties. [MUTUALITY OF CONTRACTS] So what if Bilateral and Reciprocal? 1. To be performed simultaneously such that the obligation to of one party to perform his part is conditioned upon the simultaneous fulfillment of the other 2. Power to rescind is implied and such power need not be stipulated 3. A party cannot simply choose not to proceed with sale by offering SM to another buyer. 4. Each party may avail of remedy of specific performance 5. General rules on default do not apply to a contract of sale because latter is a reciprocal obligation 6. Default in Sale: By performance, mere performance by 1 party, the other party is automatically placed in default Why is it important to know if it is reciprocal? To know when obligation starts [conditioned upon performance of 1 party] A party is in default if he did not perform his obligation, or demand is made via notice of demand.
SALES LAW


General rules on default do not apply to a KoS because latter is a reciprocal obligation Default in Sale: By performance, mere performance by 1 party, the other party is automatically placed in default Not every non-performance merits rescission, rescission is not proper when there is substantial compliance. RESCISSION is a natural remedy in sale by virtue of its reciprocal and bilateral nature.
NOT every Bilateral contract is Reciprocal Bilateral contracts may impose non-reciprocal obligations, while reciprocal obligations must contain a bilateral contract. CASES: Polytechnic University case Civil Code provision on sales is a catch-all provision which includes a whole gamut of transfers whereby ownership of thing is ceded for a consideration. ONG v CA Reciprocal obligations arise from the same cause, where each party is debtor and creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other.
ONEROUS v Gratuitous Onerous burdensome because it imposes a valuable consideration as a prestation, which is a price certain in money or its equivalent. Gratuitous act of pure liberality OBJECTIVE TEST: Whether or not there is a valuable consideration? Must have real value on its own valuable consideration means more than just nominal or negligible but economic value. Consideration itself does not make KoS onerous. Consideration must have value. But even if consideration has value, it may cease to be valuable if it is already ridiculous. For example, a price of 1 peso for a brand new jaguar is ridiculous and at some point the law enters. This is considered a void sale but may be a valid donation. Gaite v Fonacier case in contracts of sale, any ambiguity should be resolved in favor of the greatest reciprocity of rights or interests because sale is essentially onerous. Whether a stipulation in a contract of sale is a suspensive term rather than a condition, it shall be interpreted as a suspensive term in light of the greatest reciprocity of rights. COMMUTATIVE v Aleatory Commutative a thing of value is exchanged for equal value, consequence of equal bargaining. Involves relative value between what is given and what is received. Aleatory chance determines the value received SUBJECTIVE TEST: Whether parties believe they are receiving equal value for what they give. Limit: Must not be absurd or ridiculous In the Gaite case, the court recognized that obligations in a contract of sale may be subordinated to a suspensive condition with the parties fully aware that they assume the risk that they may receive nothing for what they give. [Ex. Emptio Spei involving sale of hope or expectancy] CONTRACT TO SELL Ownership is reserved subject to a suspensive condition Even though a contract to sell may be subordinated to a suspensive condition, the condition must: 1. Only refer to the PRICE and 2. Must be clearly stipulated Suspensive condition cannot refer to the SM. The obligation to transfer ownership also cannot be subject to a suspensive condition because this is the very essence of sale [the obligation to transfer] Although this may be contrary to the commutative nature of obligations [because party may get nothing for what he gave], it only proves that commutativeness involves a SUBJECTIVE test. Even if he runs the risk of getting nothing in the end, if the party believes in all honesty that he is receiving equal value for what he gave up, then it is a commutative contract. Limit of Subjectivity Completely ridiculous sales, but if no 3rd party complains, then the KoS is valid.
SALES LAW

Illustration: Barbara sells her car to Filbert for 100k. The real value of the car is 200k. This is still a valid KoS because Barbara believes honestly that she is getting the appropriate value for her car. Even if Filbert haggles with Barbara and does not stop until Barbara agrees to give him a discount and decrease the price to 50k, it would still be a valid KoS, commutative in nature, as long as both parties believe they are getting an appropriate value. Inadequacy of price does not affect an ordinary sale. It may be an indication of vitiated consent, but does not necessarily make K voidable. CASES BUENAVENTURA v CA No proof was shown of the instances mentioned in Articles 1355 and 1470 of the Civil Code which would invalidate or even affect the Deeds of Sale. Indeed, there is no requirement that the price be equal to the exact value of the subject matter of sale; all that sellers believed was that they received the commutative value of what they gave.
TITLE and NOT a mode

MODE Legal means by which dominion or ownership is created, transferred or destroyed Ownership and real rights are acquired pursuant to a legal mode or process. Mode is the actual process of acquisition or transfer of ownership over a thing. TITLE Only constitutes the legal basis by which to affect dominion or ownership Title [such as sale] is the juridical justification
CASES: ALACANTARA-DAUS v DE LEON While a contract of sale is perfected by mere consent, ownership of the thing sold is acquired only upon its delivery to the buyer. Upon the perfection of the sale, the seller assumes the obligation to transfer ownership and to delivery the thing sold, but the real right of ownership is transferred only by tradition or delivery thereof to the buyer.
SALE DISTINGUISHED FROM OTHER CONTRACTS The courts look at the intent of the parties and the elements of the contractual relationship and not at the nomenclature used to describe it. A contract is what the law defines it to be, taking into consideration the essential elements and not what the contracting parties call it.
From Donation Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another person, who accepts it. Donation is gratuitous and is a solemn contract. Why distinguish? Important in situations when the price to be paid for the SM is not certain as to ensure valuable consideration in money. If price is simulated, [if price is ridiculous] void KoS but may be a valid donation or other contract Different rules apply to a KoS and a K of Donation there are still formalities to be fulfilled in the latter. Art726 NCC: When the value of the burden placed upon the donee is more than the value of the thing given, it becomes an onerous donation, and really governed by the Law on Contracts, which may be equivalent to a Barter or Sale, which in both cases, are governed by the Law on Sales. From Barter In barter, one party binds himself to give one thing in consideration of another partys promise to give another thing [Art1638] In contract of sale, one party binds himself to deliver a thing in consideration of the others undertaking to pay the price in money or its equivalent. Whether Contract is Sale or Barter 5
SALES LAW
1. 2.

Manifest intention of the parties Even if acquisition of the thing is paid for by an object of greater value than the money component, it may be a sale if such was the intention of the parties Intention does not appear and the consideration consists partly of money and partly in another thing. Barter value of thing given as part of consideration exceeds amount of money given or its equivalent Sale value of thing given as part of consideration equals or is less than the amount of money given.
But remember, distinction between barter or sale is academic [almost useless] because the same law applies to both contracts. Barters are governed by Law on Sales it is a species of the genus of sales. Example: If Jobert gives Edgar a car in exchange for P20k and a Rolex watch worth 100k, and the intention of the parties does not appear in instrument. Transaction is considered Barter because the Rolex is more valuable than the P20k money component. Rules on Barter 1. If one of the contracting parties, having received the promised thing via barter, should prove that it did not belong to the other party who gave it, the former cannot be compelled to deliver that which he offered in exchange, but he shall be entitled to damages. [Art1639 NCC] 2. One who losses by eviction the thing received in barter may recover that which he gave in exchange, with a right to damages. Or he can only make use of the right to recover the thing which he has delivered while the same remains in the possession of the other party, and w/o prejudice to the rights acquired in good faith in the meantime by a 3 rd person. Even if the same, distinction is critical because: Rule on Statute of Frauds applies to sale of real and personal property worth more than 500pesos, but does not apply to BARTER The right of legal redemption granted by law to an adjoining owner applies only to resale and not to exchange of properties [Barter] [Art1621-22 NCC]
From Contract for Piece of Work By the 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 or compensation, the contractor may either employ only his labor or skill, or also furnish the material. Whether Sale or Contract for Piece of Work The main distinguishing factor between a contract of sale and a contract for PoW is the essence of why parties enter into it. If the essence is the object, irrespective of the party giving or executing it, the contract is a sale; if the essence is the service, knowledge or reputation who executes or manufactures the object, the contract is for a Piece of Work. If it can be produced ahead of an order = SALE If it cannot be produced ahead of demand = PIECE OF WORK There is never a contract for PoW for Past Work. This is a constant rule, it never changes, PoW is always for future service. That is why the TIMING TEST always prevails. Evolution of Tests:
TESTS FOR DETERMINATION IF CONTRACT FOR PIECE OF WORK
1. TIMING / HABITUALITY
Provided by Art1467 of NCC i. Manufacturing in the ordinary course of business to cover sales contracts ii. Manufacturing upon special order of customer Inchausti & Co v Cromwell When a person stipulates for the future sale of articles which he is habitually making, and which at the time are not made or finished, it is essentially a contract of sale and not a contract for labor
SALES LAW
2. NATURE OF WORK Celestino Co v CIR
The essence of a PoW is the sale of service, as opposed to the sale of an object.
If one accepts a job that requires the use of extraordinary or additional equipment, or involves services not generally performed by it it contracts for a piece of work filling special orders w/in the meaning of Art1467. CLV: Celestino basically says to forget 1467 judicial interpretation The test of special orders is not one of timing or habit, but actually must be drawn from the Nature of the Work to be performed. It must be of the nature that the products are not ordinary products of the manufacturer, and they would require the use of extraordinary skills or equipment.
3. NATURE OF PRODUCT/ TEST OF NECESSITY
Take into consideration the nature of execution of each order, even if work is done habitually, so many factors have to be considered, the products are individually created, and no 2 plants are identical. Even if the wanted to mass-produce, they couldnt. Each product was unique and always different from other orders it had serviced in the past. CIR v Engineering Equipment and Supply Co - If the thing ordered is exactly that which the company makes and keeps on hand for everyone, and no change pr modification is necessary, it is a sale, even though it may be entirely made after, and in consequence of the order. 2 Things to Consider 1. Whether the things are ordinarily available 2. Capacity to stockpile or mass-produce products [not actual mass-production]
4. INVENTORY TEST
From the nature of the product, can the producer build an inventory and dispose of the products? Although he produces upon the special orders of customers, the specifications of the customer do not transform the nature of the product as acceptable to the general public. CIR v Arnoldus - What determines whether the contract is one of work or of sale is whether the thing has been manufactured specially for the customer and upon his special order. If the thing is specially done at the order of another, this is a contract for a piece of work. If the thing is manufactured or procured for the general market in the ordinary course of business, it is a contract of sale.
5. INTENTION TEST
Tolentino: The distinction depends on the intention of the parties. If they intended that at some future date an object has to be delivered, w/o considering the work or labor of the party bound to deliver, the contract is one of sale. But if one of the parties accepts the undertaking on the basis of some plan, taking into account the work he will employ personally, or through another, there is a contract for a piece of work. Test of that which is extraordinary as to the test of the general populace
Why distinguish? Its confusing in both sale and contract for piece of work, a transfer of ownership is involved and a party necessarily walks away with an object. Because of the Remedies SUBJECT MATTER In piece of work, SM is service. In Sale, SM is object OBLIGATION Sale is involves real obligation while Piece of work involves personal obligation to do In POW, No specific performance, if refused, may be done by another at expense of party who refused, with damages.
From Agency to Sell A person binds himself to render some service or to do something in representation or on behalf of the principal, with the consent or authority of the latter. [Art1868 NCC] Distinctions:
AGENCY Preparatory contract Agent is not obliged to pay purchase price and is merely obliged to deliver the price which he received from the buyer Agent does not become owner of thing even if it is delivered to him Agent who effects the sale assumes no personal liability over the thing, as long as he is acting w/in his authority and in the name of the principal but it is acceptable for agent to bind himself to warranties made by his principal. A contract of agency is unilaterally revocable by principal. SALE Principal Contract Buyer himself pays purchase price which constitutes his main obligation Buyer becomes owner of thing after delivery Seller warrants and is personally liable to the buyer Not unilaterally revocable
SALES LAW

Agency is a fiduciary relationship based on trust and confidence. That is why it is always revocable, despite stipulations to the contrary It is inequitable/illegal for the agent to receive profit, other than that agreed upon by principal and agent; all proceeds must accrue and be accounted for to the principal Agent is the instrumentality of the principal, he has no legal separate existence [must be capacitated] The agent has no legal standing per se but acts only as representative of principal AGENT CANNOT BE SUED, ONLY THE PRINCIPAL If agent becomes a double-agent, he is in breach of the agency, so the principal has the right to take profits. Once an Agent is subject to personal liability, relationship ceases to be agency and it becomes sale. Indicators of Sale Look at the Subject Matter if any obligation is assumed by the agent, then it is a sale. Look at Liabilities if there is a stipulation that the agent is liable for risk, dominion, ownership or change of price, then it is a sale Statutory Rule In construing a contract containing provisions characteristic of both a sale and a contract of agency, the essential clauses of the whole instrument shall be considered. [Art1466 NCC] Why Distinguish? A contract of agency, in general, is not covered under Statute of Frauds and is valid in any form, except as to sale of real estate or property and any interest therein. Cases Quiroga v Parsons When one party is to pay for the products delivered at a specified time, it would be a sale and not an agency. In an agency, the agent is never personally liable. Any product not solid is usually returned to the principal. Gonzalo Puyat v Arco If the price is clearly stipulated, despite unforeseen events and any changes in price would be shouldered by the party selling, then it is a contract of sale. Because in a contract of agency, the agent is not liable for any change in price and he cannot receive profit because only the principal can receive profit. Ker & Co v Lingad Transfer of title or agreement to transfer it for a price is the essence of sale. If such transfer puts the transferee in the position of an owner and makes him liable to the transferor as debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale. The essence of an agency to sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the owner and has the right to control the sale, to fix the price and terms, demand and receive proceeds less the agents commission upon sales made. Victorias Milling v CA One of the factors that clearly distinguishes agency from other legal concepts is control; one person the agent agrees to act under the control or direction of another the principal. Lim v CA Practical Value of knowing distinctions The applicability of the Statute of Frauds A contract of agency to sell on commission basis does not belong to any of the 3 categories of contracts covered by Art1357 and 1358 requiring them to be in a particular form, and not one enumerated under Statute of Fraud in Art1403. Hence, unlike a sale contract which must comply with the Statute of Frauds for enforceability [remember, not perfection/validity], a contract of agency to sell is valid and enforceable whatever its form. The only exception is sale of a piece of land or any interest therein through an agent under Art1874.
From Dacion En Pago One whereby property is alienated to the creditor in satisfaction of a debt in money, it constitutes delivery and transmission of a thing by the debtor to the creditor as an accepted equivalent of the performance of an obligation. REAL Contract which requires DELIVERY. Prior to delivery, all that exists is the arrangement by which an existing obligation may be extinguished. The agreement does not necessarily constitute a separate contract. Shall be governed by the law on Sales [Art1245, NCC] 8
SALES LAW

Characteristics: 1. Extinguishes a pre-existing obligation, is actually a Novation 2. A Real contract, perfected by delivery 3. Delivery and transfer of ownership over thing is for payment not merely security 4. A species of the genus of sale Dation in Payment is actually a novation of the original contract of LOAN into A CONSUMMATED SALE In dation, the debtor transfers the property to the creditor in payment of a debt. Therefore, the debtor assumes the roles and obligations of a SELLER while the creditor assumes the role of the BUYER. The price/consideration of the sale becomes the previous monetary obligation. Cases PNB v PINEDA When there is no transfer of ownership in favor of the creditor, as when the repossession of the SM of a trust receipt is only by way of Security, there is no dation LO v KJS ECO-FRAMEWORK SYSTEM In dacion en pago, as a special mode of payment, debtor offers another thing to the creditor who accepts it as equivalent of payment of a debt. In order that there be a valid dation in payment, the following are the requisites: (1) There must be the performance of the prestation in lieu of payment ( animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) There must be some difference between the prestation due and that which is given in substitution (aliud pro alio); (3) There must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a presentation different from that due. PHILIPPINE LAWIN BUS CO v CA It is essential that the transfer of property must be accompanied by a meeting of the minds between the parties on whether the loan would be extinguished by Dacion En pago.
From Lease Lease contemplates the use of a thing for a price certain, and to return the same upon the expiration of the period agreed upon. Sale involves the obligation to absolutely transfer title or ownership of the SM A conditional sale may be made in the form of a lease with option to buy, a device used to circumvent the provisions of Art1484-1485 NCC. In such contract, it may be stipulated that the lessee has the option to buy the leased property for a small consideration at the end of the term of lease, provided that the rent has been duly paid; or if the rent throughout the term has been paid, title shall vest in the lessee. Such contracts are really conditional sales, and are leases in name only. Case: FILINVEST CREDIT CORPORATION v CA When a lease clearly shows that the rentals are meant to be installment payments, it is to be considered a SALE by installments, despite the nomenclature given by the parties.
SALES LAW
CHAP TE R 2 P ARTIE S TO A CO NTRACT O F S ALE [CO NS E NT i n KoS ]
Review:

Valid contract: CONSENT, CAUSE/SM, CONSIDERATION/PRICE 5 types of contract under Civil Law 1. Valid 2. Voidable Because of vice of consent Valid until annulled Remedies: Annulment, Specific Performance, Ratification 3. Unenforceable Both parties have no authority to give consent Statute of Frauds 4. Rescissible When there is either DURESS or LESION Remedies: Specific Performance or Rescission 5. Void When any one of the 3 elements is missing or illegal Or when all three are present but is against public policy There are only 4 types of contracts because void/inexistent contracts are technically NOT CONTRACTS. As to consent as element of contract, it could be either a valid, voidable or void contract.
GENERAL RULE Any person who has capacity to contract or to enter into obligations, may enter into a contract of sale, whether as seller or buyer. [Art1489] For Natural Persons : 18 years old For Juridical Persons : such as corporations, partnerships, associations and cooperatives A juridical personality separate and distinct from that of the shareholders, partners or members is recognized by law, with full capacity for such juridical persons to obligate themselves and enter into valid contracts. EXCEPTIONS 4 Exceptions Giving Rise to 2 kinds of Contracts I. VOIDABLE CONTRACTS 1. Minors 2. Insane or Demented BUT those entered into during lucid interval are valid contracts. 3. Deaf-Mutes who cannot Write 4. [Entered in a state of Drunkenness or during a Hypnotic Spell] II. VOID CONTRACTS 1. Sale by spouse to 3rd person w/o authorization 2. Sale Between Spouses 3. Agent, Guardian, Administrator, Public Official, Judges & Lawyers
MINORS, INSANE OR DEMENTED PERSONS, DEAF-MUTES WHO DONT KNOW HOW TO WRITE 10
SALES LAW


No capacity to enter into a contract of sale due to vitiated consent Why merely voidable? Because there was consent to begin with, its just that they have no capacity to act so the consent given is defective. As opposed to a void contract where there is NO consent at all.
While the general rule is that these contracts should be considered VOID: These contracts are VOIDABLE, subject to annulment or ratification by incapacitated party or his guardian Any action cannot be instituted by the capacitated party When annulled, the incapacitated party is not obliged to make restitution, except insofar as he has been benefited. Both may ask for rescission but only incapacitated party may ask for annulment.
EXCEPTIONS TO THE EXCEPTIONS When contracts entered by Minors, Insane/Demented, etc. are VALID Necessaries Everything which is: Indispensable Pertains to sustenance, dwelling, clothing, medical attendance, education and transportation. Education includes schooling or training fro some profession, trade or vocation, even beyond age of majority. Transportation includes expenses to and from school or place of work. In keeping with the financial capacity of the family. Art1489 says that where necessaries are sold and delivered to a minor or other person w/o capacity to act, he must pay a reasonable price therefore, and the resulting contract of sale is valid, not voidable. Although a minor/incapacitated person has no capacity to contract, if necessaries are sold and delivered, he must pay for them. These contracts are valid but the 2 requisites of sale must be present Perfection and Delivery The necessities must be sold and delivered, otherwise the contract is voidable. Emancipation Emancipation would terminate parental authority over the person and property of the minor, who shall then be qualified and responsible for all acts of civil life, including validly entering into contracts of sale. 18 years old is age of emancipation.
SALES BY AND BETWEEN SPOUSES CONTRACTS WITH THIRD PARTIES VOID because no consent Either spouse may exercise any profession, and the other may only object on valid/serious/moral grounds. In case of disagreement, the courts shall decide, and make rulings on the benefit. [Art73FC] If the benefits accrued before the objection, the obligation shall be enforced against the separate property of the spouse who has not obtained consent Otherwise, the resulting obligation shall be chargeable against the community property. Under the law on sales, a spouse may, w/o the consent of the other spouse, enter into sales transactions in the regular or normal pursuit of their profession, vocation or trade. Arts 96 and 124 of the FC also provide that the administration and enjoyment of the Community property or conjugal property, shall belong to both spouses jointly, and in case of disagreement, the husbands decision shall prevail but the wife may seek remedy from the courts w/in 5 years from the date of the contract. The disposition or encumbrance of community or conjugal property shall be void without authority of the court or the written consent of the other spouse. In such case, it will be considered as a continuing offer on the part of the consenting spouse and the 3rd person, and may be perfected as a binding contract upon acceptance by the other spouse or authorization from the courts before the offer is withdrawn.
SALES BETWEEN SPOUSES VOID because no consent
11
SALES LAW

Under Art1490, Spouses cannot sell property to each other, except: When a separation of property was agreed upon in the marriage settlements When there has been a judicial separation of property agreed upon between them. The prohibition applies even to sales in legal redemption, compromises and renunciations. Status of Prohibited Sales Between Spouses Null and Void Who can Question the Sale? Heirs of the spouses, who have been prejudiced Prior Creditors The State, as to taxes due on the transactions The spouses themselves cannot question the sale because they are parties to an illegal act [Pari Delicto] Rationale for Prohibition To prevent a spouse from defrauding his creditors by transferring his properties to the other spouse To avoid a situation where the dominant spouse would unduly take advantage of the weaker spouse To avoid an indirect violation of the prohibition against donations between spouses under Art133 of the Civil Code. Rationale for Exceptions to Prohibition under Art1490 Difference between Donation And Sale as Between Spouses Spouses may sell to each other if their regime is complete separation of property BUT spouses may not DONATE to each other even if they are under Complete Separation of Property. Why only if there is complete separation of property? In ACP one hand cant sell to other hand, husband cant sell to wife because it requires consent of 2 parties but the spouses are of the same estate. Sale would be void. For CPG they are careful enough to enter pre-nuptial agreement so why is it still prohibited? Because the default rule before was CPG and the law on Sales has not been revised to accommodate ACP as default rule. Complete Separation of property in fact this is where there may be greater risk of defrauding creditors, influence weaker spouse and circumvention of rule against donations between spouses. Why Prohibit Donation but Allow Sale in Complete Separation regime? Because sale is an ONEROUS and COMMUTATIVE contract while DONATION is gratuitous. In sale, value was exchanged for equal value and there would be no deficiency in property of each spouse. Whereas in donation, the estate of the donor would necessarily be reduced and increase the estate of the Donee. Also because of the PSYCHOLOGY of the situation. Based on the fact that a pre-nup must be executed to have separation of property, the hardness of heart between the spouses makes it unlikely that one spouse would allow the other to influence him or her. Applicability of Prohibition to Common Law Spouses For as long as marriage is the cornerstone of society, common-law relationships must have the same prohibitions as marriage. Calimlim-Canullas v Fortun Sale by husband of conjugal land to his concubine is null and void for being contrary to morals and public policy and was subversive of the stability of the family, a basic social institution which public policy cherishes and protects.
SPECIFIC INCAPACITY MANDATED BY LAW Art1491 prohibits the following persons from entering into contracts of Sale under the following circumstances: May be RATIFIED AGENT principal As to property whose administration or sale may have been entrusted to him, Unless the consent of the principal has been given GUARDIAN - ward 12
SALES LAW

As to property of the person under his guardianship EXECUTOR / ADMINISTRATOR - estate As to property of estate under their administrations Cannot be RATIFIED PUBLIC OFFICERS & EMPLOYEES - state As to property of the State or any subdivision thereof, or of any governmentowned or controlled corporation or institution, the administration of which has been entrusted to them Includes judges & government experts who in any manner whatsoever take part in the sale JUSTICES, JUDGES, PROSECUTING ATTORNEYRS, CLERKS OF COURTS, & OTHER OFFICERS & EMPLOYEES CONNECTED WITH THE ADMINISTRATION OF JUSTICE under litigation/ levied upon As to property and rights under litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions LAWYERS client during litigation As to property and rights which may be the object of any litigation in which they may take part by virtue of their professions. Exceptions Agents if with consent of principal Lawyers as to contingent fees Public policy behind Art1491 is: UNDUE ADVANTAGE BY BREACH OF FIDUCIARY RELATION. Despite lack of undue advantage, mere existence of relation would render the contract void Public policy in 1491 is of the highest order To avoid even an opportunity to abuse the relationship The following are not factors to the prohibition, their existence is not a defense against the nullity of the contract, the contract would still be void: Absence of fraud Absence of damage or lesion Tremendous Benefit Court Approval Rubias v Batiller Once prohibited contracts are entered into = VOID and inexistent Regardless of whether case is adversarial or not, as long as the client-lawyer relationship exists, sale is absolutely prohibited Contracts entered into by AGENT, GUARDIAN and ADMINISTRATOR may be ratified Because they involve public policy that is only aimed at a private entity. The last 3, as public officers, require adherence to public policy against undue advantage, and therefore cannot be ratified. Private contracts may not cure private wrongs. For the first time, SC applied remedy of RATIFICATION to Void Contracts BUT in the first 3 instances [agent, guardian, administrator], term of ratification is neither Express nor Implied Ratification applicable to voidable, rescissible and unenforceable contracts. The Ratification referred to here is the execution of a NEW CONTRACT of sale after the relationship ceases Requires new consent: new offer and new acceptance But same subject matter and same or old price. Ratification in Oblicon retroacts but ratification in Sales starts only upon execution of new contract and is prospective. Any person may invoke the contracts inexistence/nullity whenever affected or whenever juridical effects are asserted against them. AGENTS Brokers do not come within the coverage of the prohibition, as their authority consist merely in looking for a buyer or seller Agents do not have individual standing to maintain action on a sale They cannot file specific performance. Even if their commission is dependent upon contract of sale, they cannot invoke pour autrui principle.
13
SALES LAW

GUARDIANS/ADMINISTRATORS/EXECUTORS Considered officers of the court Even a court-approved sale would not stand against the inhibition of Art1491. Hereditary Rights are Not Included in the Coverage Because hereditary rights pertain immediately to the heirs upon death of the decedent and do not form part of the estate under administration. CLV disagrees: If the administrator or executor were not disqualified from purchasing or having interests in the hereditary rights, once he validly acquires the hereditary rights of any of the heirs, such administrator or executor would already be in clear conflict of interest. Previously, there was a need to prove collusion or actual mediation on the part of the guardian. Now, there is no need. Intention is immaterial, even if there is no fraud, malice, greed it could still be void JUDGES, JUSTICES, THOSE INVOLVED IN ADMINISTRATION OF JUSTICE Gan Tingco v Pabinguit For the prohibition to apply to judges, it is NOT required that some contest or litigation over the property itself should have been tried by the judge. Such property is in litigation from the moment it became subject to the judicial action of the judge, such as levy on execution. Macariola v Asuncion Sale must not only be of property under litigation, but must also be sale during litigation involving the property. Thus, even when the main cause is a collection of a sum of money, the properties levied are still subject to the prohibition. ATTORNEYS Reason for prohibition: Intended to curtail any undue influence of the lawyer upon his client. Any violation of this prohibition would constitute malpractice. But if counsel withdraws sale is valid. Requisites: Applies to property subject of litigation Property is owned by client who is the defendant Lawyer in fact represented the client Prohibition only applies DURING the period when litigation is pending. Even if on appeal or certiorari Rules: Prohibition applies only to sale to a lawyer of record, Does not cover assignment of the property given in judgment made by a client to an attorney, who has not taken part in the case, and made in payment of professional services in other cases. Prohibition does not apply to sale of a land, acquired by a client to satisfy a judgment in his favor, to his attorney as long as the property was not the subject of the litigation. Prohibition applies only while litigation is pending, The pendency of a certiorari proceeding even after final judgment is still covered by the restriction. Prohibition does not apply to lawyer who acquired property prior to the time he intervened as counsel in an ejectment suit involving such property. Contingency Fee Arrangements The prohibition does not apply to a contingent fee based on the value of property involved in litigation and does not prohibit a lawyer from acquiring a percentage of the value of properties in litigation that may be awarded to his client. Does not apply to a contingency fee arrangement which grants the lawyer of record proprietary rights to the property in litigation since the payment of said fee is not made during the pendency of litigation but only after judgment has been rendered in the case. Contingent Fee Arrangements Involves contingent fee based on the value of property involved in litigation Is an obligation subject to a suspensive condition. Law does not prohibit a lawyer from acquiring a certain percentage of the value of the properties in litigation that may be awarded to his client. 2 Kinds of Contingency fees: Entitled to a percent of the land or property under litigation Direct Ownership Interest
14
SALES LAW

Entitled to the value of a certain percent of the property not ownership, the property is merely a basis of determining what the attorneys fees are These are not sales but contracts for service Therefore they should not be governed by art1491. BUT there is still a transfer of property therefore it is a genus of sale. So it is governed by the law on sales. Note: perhaps, the reason why there is a distinction between the rules for lawyers and other court officials is because the rules of court allow supervision while in other cases, contract is the law between the parties and it cannot be re-written by the court. Fabillo v IAC Payment of contingency fee is made after judgment has been rendered, so contingency fees are valid. As long as the lawyer does not [a] exert undue influence [b] or fraud on his client or the [3] compensation is not excessive, a contract of a contingent fee is enforceable and valid. Courts can temper or reduce attorneys fees if there is undue influence/fraud or excessive compensation As opposed to guardians and administrators where the court cannot temper or reduce their fees.
CHAP TE R 3 S UBJ E CT MATTE R [O BJ E CT O F KoS ]
REQUISITES OF VALID SUBJECT MATTER [Art1409, (3) and (4)] Subject matter is the essence of sale The SM must follow these requisites at the time of perfection EXISTING, or it may be future or even contingent = POSSIBLE thing LICIT DETERMINATE or at least DETERMINABLE Lack of Any requisite results in non-existent Sale No contract of sale results For Reference:
Art. 1409. The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; (2) Those which are absolutely simulated or fictitious; (3) Those whose cause or object did not exist at the time of the transaction; (4) Those whose object is outside the commerce of men; (5) Those which contemplate an impossible service; (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained; (7) Those expressly prohibited or declared void by law. These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
POSSIBLE THING v IMPOSSIBLE THING If the SM is impossible NO CONTRACT SITUATION There would be complete absence of SM because it does not exist at all The minimum requirement is POTENTIAL EXISTENCE A sale creates an obligation to transfer ownership. What is essential at the time of perfection of the contract is the existence of the OBLIGATION to transfer ownership of the thing and not the object of the contract. So long as the SM has potential existence, it is possible. Significance: Future things may be subject of sale. 15
SALES LAW
Test to Determine if SM is possible By type and nature of SM, taking into consideration the state of TECHNOLOGY and SCIENCE at the time of perfection of the contract, that it exists or could be made to exist to allow the seller reasonable certainty of being able to comply with his obligations under the contract. It is not part of the requisites of a valid SM that at the time of the perfection of the contract, the seller be the owner of the SM. Shows that sale is merely a title and not a mode. Perfection of a sale is not per se affected by the title ownership over the SM. Although in the Gaite case, it was held that the obligation of a party may be subordinated to an uncertain event, so that the party may assume the risk that he receives nothing, this covers only PRICE and NOT SUBJECT MATTER. The SM must be either [Art1462]: Existing goods, owned/possessed by the seller Goods to be manufactured, raised or acquired by the seller after the perfection of the KoS [called future goods]; what is important is potential existence Sale of goods whose acquisition depends upon a contingency which may or may not happen. Remember: Although SM may be subject to a suspensive condition, Any condition that the buyer would not receive the SM is void and does not constitute a valid contract of sale, although it may be some other contract If there is a stipulation a party will not receive the SM, this goes against the very essence of sale, it is not possible to take the risk the SM will not be delivered Examples: EMPTIO REI SPERATAE a contract covering future things purchase made in the hope of an uncertain future profit / or when the thing is not yet un the possession of the seller In emptio rei speretae, you buy what you see in front of you, it is particularly designated. You more or less know what you want. subject to a suspensive condition that the SM will come into existence If the SM does not come into existence, as any conditional obligation, the contract is deemed extinguished as soon as the time expires or it has become indubitable that the event will not take place. Covers only contracts whose SMs are generic-determinable. EMPTIO SPEI Involves a present thing Price is fixed, it is to be paid whether or not gain results In emptio spei, you are buying the risk, the possibility. You buy the lump sum. Look at the risk, look to the future. An aleatory contract Versus a commutative contract You either get something or nothing Sale of hope to be valid: must not be vain hope or expectancy Otherwise, contract will be void Example: Sweepstake ticket the object of the sale is not the prize but the ticket, or the chance to win. If the ticket does not win, the sale is still valid. Typifies a situation where the commutative nature of a contract of sale seems not to have been complied with. Law seems not to acknowledge risks Sale of thing subject to Resolutory Condition Things subject to resolutory condition may be subject of sale When the condition have for their purpose the extinguishment of an obligation to give, the parties, upon fulfillment of said conditions, shall return to each of them what they have received. Gaite v Fonacier: a contract of sale being an onerous and commutative contract, the rules of interpretation would incline the scales in favor of the greater reciprocity of interests, and unless the stipulation is clear, a clause should be interpreted as a term than as a condition.
16
SALES LAW

Subject Matter is Nexus of Sale The SM must be existing or must come into existence to be delivered to the buyer, otherwise the contract of sale would be void, or an existing contract of sale is extinguished, with the obligation on the part of the seller to return the price he has received thereby.
LICIT v ILLICIT If it is illicit VOID CONTRACT Remember: a void contract is still a contract, whereas a no contract situation involves complete absence of a contract. A thing is licit when it is NOT outside the commerce of men, and all rights which are not intransmissible. Examples of illicit SMs Sale of animals suffering from contagious diseases Sale of animals whose use has been stipulated and they have been found to be unfit for it Sale of future inheritance But waiver of hereditary rights is permitted. Waiver of hereditary rights is not equivalent to sale of hereditary rights. Waiver is a mode of extinction of ownership, where there is abdication or relinquishment of a known right, with knowledge of its existence and intention to relinquish it in favor of the other persons who are co-heirs. The sale of hereditary rights presumes the existence of a contract or deed if Sake between parties. Following this doctrine, a non-heir cannot claim ownership over an estate on the basis of a waiver document, unless it has the elements of a sale, donation or any other mode of acquiring ownership.
DETERMINATE OR AT LEAST DETERMINABLE If not at least Determinable VOID Contract Determinate and Determinable Determinate / Specific Particularly Designated Physically segregated from others of the same class Determinable If at the time the contract is entered into, the thing is capable of being made determinate. Without the necessity of a new or further agreement between the parties. Determinable and Generic A Determinable is ALWAYS Generic. A Determinate is ALWAYS Specific A Generic is NOT ALWAYS Determinable [may either be determinable or non-determinable] A Determinate/Specific is NEVER determinable Why must SM be Determinate/Determinable? So that the contract is capable of being enforced. The SM must be certain. Otherwise, any party can demand whatever he wants. The obligatory nature of the contract would not be complied with. Therefore the SM must be objective. If it is not determinate or determinable, it would be impossible to determine the intent of the parties. Court may determine if SM is capable of being determinate The moment you need to get back at any of the parties to ascertain their intention, it is NOT Determinable. Sale is a consensual contract, not a formal one. So regardless of designation in the contract, the intent or meeting of the minds of the parties is what counts. Cases Melliza v City of Iloilo A sale must have for its object a determinate thing, and this requirement is fulfilled as long as, at the time the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties.
17
SALES LAW

Atillano v Atillano When one seeks to sell or buy a real property, one sells or buys the 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. The true concept of a contract of sale is intangible or properly a legal concept. The deed of sale is merely evidence of the contract. And when the deed fails to cover the real contract or the true meeting of the minds of the parties, then the deed must give way to the real contract of the parties. Londres v CA As long as the true intentions of the parties are evident, the mistake will not vitiate the consent of the parties, or affect the validity and binding effect of the contract between them. Quantity of SM is NOT essential for perfection Determination of Identity, Nature and Quality of SM are what are essential for perfection. BUT! CLV says Quantity is NECESSARY for Determinate SMs For determinable, for as long as there is no need for a new agreement, it is sufficient. Generic objects may be the subject of sale, provided they are determinable at the point of perfection. Even when the exact quantity of the SM has not been agreed upon, but the parties have agreed on the quality and price, there is already a binding contract. National Grains Authority v IAC The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. Specific quantity of the SM is not important when it is still possible to determine the quantity without the need of a new contract between the parties, and therefore complies with the requisite of being determinable. Cases support the doctrine that certain generic objects may be the proper object of a contract of sale, provided, that they fulfill the characteristic of being determinable at the point of perfection. Thus, even when the exact quantity of the SM of the KoS has not been agreed upon, but the parties have in fact come into an agreement as to the quality thereof and the price, and terms of payment, there is already a valid and binding contract of sale. Determinable-Generic objects may be the SM of a KoS
Generic Objects Although the sale of determinable generic thing is valid, the obligation to deliver the SM can only be complied with when the SM has been made determinate, either by physical segregation or particular designation. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the buyer cannot demand a thing of superior quality. Neither can the seller deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration. [Art1246] But this cannot mean that even when SM is not determinable, any generic SM would support a valid sale, because Art1409 specifically states that a contract is void if the intention of the parties relative to the principal object of the contract cannot be ascertained. Art1246 only covers quality of a generic SM and not the kind and quantity, which cannot be determine w/o a new agreement. Remember: A sale may involve a generic-determinable SM, which will be determinate only upon consummation of the sale. But when the originally generic SM is finally chosen for delivery, either through physical segregation or particular designation, only then does the KoS begin to exist with respect to the Chosen SM, although a valid contract of sale existed between the parties even before the choosing of the particular SM for delivery. When SM is determinable-Generic Force Majeure is not a defense because generic things do not vanish
18
SALES LAW

Sale of Undivided Share in Mass Result: Proportional co-ownership. In sale of fungible goods, there may be a sale of an undivided share of a specific mass If the mass contains less than the number, weight or measure to be bought, the buyer becomes owner of the whole mass and the seller is bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent appears. GAITE CASE When parties to sale involving a specific mass have not provided for the measuring/weighing of SM & price is not based on such measurement, the SM is a determinate object [the mass] and not the actual number of units contained therein. All that is required is to deliver in good faith the mass, even if it is less than the amount estimated.
Sellers Obligation to Transfer Ownership Required at Time of Delivery Although the seller must be the owner of the thing in order to transfer ownership to the buyer, he need not be the owner of the thing at the time of perfection It is sufficient that he is the owner at the time of the delivery of the object of the contract Otherwise, he will be liable for breach of warranty against eviction. No one can sell what does not belong to him, True or False? Both. [Tralse] If by sell. You mean to enter into a contract of sale, answer is False. You can. If by sell, you mean transfer ownership, the answer is true. You cant transfer ownership over what you dont own. [Nemo Dat Quod Non Habet] But since sale is consensual, and actual transfer of ownership is not required at perfection [because only obligation to transfer ownership is required], then answer is False.
Exception where Seller must be owner at Time of Sale The exception to the rules that ownership by the seller is not essential at the time of perfection would be in the case of a JUDICIAL SALE Art2085 provides the essential requisites of the contract of mortgage that the mortgagor or pledgor be the absolute owner of the thing mortgaged, in anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan.
Subsequent Acquisition of Title by Seller When at the time, the seller is not the owner, the subsequent acquisition of title by a seller validates the sale and title passes to the buyer by operation of law, Provided there has been previous delivery of the SM by the seller to the buyer. For transfer of ownership ipso jure to happen under Art1434, it is essential that there be a valid contract, plus previous physical delivery of the SM
LEGALITY OF SALE As to SM Under Art1409(3), contracts are inexistent and void from the beginning when the cause or object did not exist at the time of transaction. But the literal meaning of this provision does not apply to sales Remember: Sale is consensual. Also, because Art1458 defines a KoS as an obligation to transfer the ownership of and deliver a determinate thing, therefore, whether such an obligation exists or not, and not the existence of the SM is the essence of sale. Re-cap: SM that has at least potential existence is valid SM that is not owned by seller at time of perfection is valid, but he must own it at consummation stage in order to deliver it to the buyer. Otherwise, he will be liable for breach There are some SMs which are prohibited. Examples are narcotics, wild birds or mammals, etc.
Sale is Completely Simulated When a sale is absolutely simulated, then it is completely VOID and NON-EXISTENT In Loyola v CA, the court defined simulation as
19
SALES LAW

The declaration of a fictitious will, deliberately made by the agreement of the parties, in order to produce, for the purposes of deception, the appearances of a juridical act which does not exist or is different with that which was really executed.
Characteristics of a Simulation 1. Contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties 2. The parties have no intention to be bound by the contract REQUISITES FOR SIMULATION 1. An outward declaration of will different from the will of the parties 2. The false appearance must have been intended by mutual agreement 3. The purpose is to deceive third persons.
When Motive Nullifies Sale As a rule, consideration is different from motive of the parties When primary motive is illegal, the sale is void because the illegal motive predetermined the purpose of the contract.
Contract of Sale v CONTRACT TO SELL

Contract to Sell is an Agreement to Agree A contract to sell has the same essential elements of: Consent SM to enter into a KoS Price The only difference is that in a contract to sell, the Subject Matter is a promise/agreement to enter into a contract to sell.
CHAP TE R 4 P RI CE [CAUS E or CO NSI DE RATI O N O F KoS ]
PRICE IS ONE FORM OF CONSIDERATION Under Art1458, the ideal consideration for a contract of sale would be PRICE As a sum certain in money or its equivalent HOWEVER, it is possible that a sale may still be valid when it has for its cause or consideration an item other than price. [may be a prestation or promise] Consideration or cause can take different forms, such as the prestation or promise of a thing or service by another. Under Art1354 of the CC, consideration is presumed to exist.
Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. (1277)
MEANING OF PRICE Signifies the sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the fixing of the price put to the debit of the buyer and agreed to by him. A seller cannot unilaterally increase the price previously agreed upon with the buyer Otherwise, it would be a violation of the Obligatory Force [MUTUALITY] of a KoS REQUISITES FOR VALID PRICE
20
SALES LAW

The price of a contract of sale must have the following requisites: 1. REAL 2. MONEY OR ITS EQUIVALENT 3. MUST BE CERTAIN OR ASCERTAINABLE AT THE TIME OF PERFECTION 4. MANNER OF PAYMENT But: absence of one of these requisites does not always make this contract void. PRICE MUST BE REAL
PRICE REAL STATUS VALID KoS Notes Shows the true intention of the Parties When at the time of perfection, there is every intention by the buyer to pay and every expectation by the seller to receive payment Does not show true intention of the parties to receive price or pay it Stipulation and intention differ One price on the document, but the true price agreed upon does not appear on the document Nevertheless, parties may be held bound by the false price in the instrument, especially when the interest of the government or third parties would be adversely affected by the reformation of the instrument. Absolutely no intention to give or receive payment
SIMULATED
FALSE
VOID KoS but may be other contract like donation VALID KoS but may be subject to Reformation
NO PRICE
VOID contract for lack of cause or consideration
Every simulated price is a VOID contract FALSE may be some other K or Donation Every simulated price is a VOID KoS TRUE. 2 Tests to Determine if Price is REAL: 1. TEST OF INTENTION whether or not the parties intended to give/receive a price 2. TEST OF VALUABLE CONSIDERATION if price is nominal [merely titular], then there is no real price Meeting of the Minds as to price According to Manresa, what is meant by a contract that states a false consideration is one that has in effect a real consideration but the same is not the one stated in the document.
Mapalo v Mapalo o SC differentiated between a contract with no consideration and a contract with a false consideration o If there is no consideration, it is a void contract o Since there was in fact no intention to enter into a sale, there was no consent at all, and more importantly, there was no consideration or price agreed upon.
Adequacy of Price to Make it real, Concept of Valuable Consideration MUST BE VALUABLE! o Pursuant to Onerous character of KoS o Contract with Nominal Consideration is a Void KoS Ong v Ong o Philippine jurisprudence has not accepted the Anglo-Saxon concept that any consideration is enough to support a contract o What prevails is the Roman Law concept that for consideration to support an onerous contract such as Sale, it would have to be a valuable consideration Complies with the commutative nature of KoS o Price of P1 for land is simulated, may be a donation but is a void KoS Bagnas v CA o Gross disproportion between consideration stipulated and the value of the property would show that the price stated was false and fictitious consideration, and no other true and lawful cause having been shown, the Court found the deed void ab initio and not merely voidable.
21
SALES LAW
o

Even though a consideration is REAL in the sense that it was agreed upon and there was every intention of the parties to pay and receive such price, it would still be considered fictitious and render the sale void if it is a MERE NOMINAL PRICE. o The presumption of a lawful cause did not attach in this case because evidence was adduced to indicate that there was no real intention to pay any valuable consideration. However, take note:
o Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. (n)
Effect of Non-Payment of Price Balatbat v CA o Delivery of the thing bought or payment of the price is not necessary for the perfection of the contract, and failure of the vendee to pay the price after the execution of the contract does not make the sale void for lack of consideration but results at most in default on the part of the vendee. Accommodation does not make Sale Void for Lack of Price Mate v CA o The fact that checks intended for payment bounced, did not render the sale void for having a fictitious consideration. It is plain that consideration existed at the time of the execution of the deed of sale with right of repurchase. Simulation of Price affects Delivery of SM When a contract of sale is fictitious, and therefore void and inexistent, as there was no consideration for the same, no title over the SM of the sale can be conveyed. Delivery of the SM pursuant to a KoS that is void for lack of consideration therefore does not transfer ownership to the buyer. BUT! Take note, distinction must be made between a simulated price that affects delivery and the failure to deliver or pay the price. Perez v Flores o There was never any real price agreed upon and the failure to deliver the price was one of the indications to show its simulation. o Failure to deliver the price may be an indication of a simulated price. o No payment of price, the other party may rescind.
PRICE MUST BE IN MONEY OR ITS EQUIVALENT If not in money or its Equivalent Still VALID This is not an essential requisite, whether it is Dacion or Barter, it is still governed by the law on Sales Art1468 recognizes that if the consideration of the contract consists partly in money and partly in another thing, the transaction can still be considered a contract of sale when this is the manifest intention of the parties. This shows that the consideration for a valid KoS can be the price and other additional consideration At the very least, a true KoS must have price [money or its equivalent like checks, drafts, etc] as part of its consideration. CLV: In all, the requisite that the price must be in money or its equivalent is one that has not been held steadfast by the SC as determinative of the validity of Sale. This shows that the essence of a true KoS is the existence of the obligation of the seller to transfer ownership and deliver possession of the SM, whereas the price, although an essential element of a valid contract, being essentially a generic obligation, may be subject to variations. Consideration does not have to be in MONEY. Consideration may be the price and other additional considerations, but it must have PRICE at least as part of the consideration. May be in paper [check, even promissory note] May be in plastic [credit card] PRICE MUST BE CERTAIN OR ASCERTAINABLE CERTAIN: Expressed and agreed in terms of Specific Persons and/or Centavos 22
SALES LAW

ASCERTAINABLE: Sufficient that it be so with reference to another thing certain, or that the determination thereof be left to the judgment of a specified person or persons. 1. When it may be determine by a formula [another certain thing] 2. When a 3rd party fixes the price 3. When it is in reference to a particular market/exchange, etc. 4. When determine by the courts In all cases, price must be determinable w/o need of further agreement at the moment of the meeting of the minds for price to be valid.
PRICE FIXED BY 3RD PARTY Designation of a 3rd party to fix the price is valid Such designation makes the price Ascertainable Mere designation of 3rd party, even without his acceptance, makes contract valid. But remember: Fixing of the price cannot be validly left to the discretion of one of the contracting parties Suspensive Potestative Condition? Even before the fixing of the price by the designated 3 rd party, a contract of sale is deemed to be perfected and existing albeit conditional. If designated party fixes price in BAD FAITH or by MISTAKE o These are the only 2 instances where the parties to the contract can seek court remedy to fix the price If designated party is UNABLE or UNWILLING Inefficacious KoS o Parties do not have a cause of action to seek from the court the fixing of the price o If the 3rd party does not fix the price, the condition imposed on the KoS has not happened Meaning it extinguished the underlying contract and consequently, there is no longer a contract upon which the courts have any jurisdiction to fix the price. In such case, the law declares the KoS INEFFICACIOUS. When 3rd party is prevented from fixing price or terms by fault of either buyer or seller, party not at fault may have such remedies against the party in fault as are allowed. RECAP: Price determined by the Courts o When courts may fix: only if designated 3rd party fixes the price: 1. In bad faith 2. By mistake 3. When buyer has appropriated the thing sold, he must pay a reasonable price o When designated 3rd party is either unwilling or unable to fix the price, parties cannot ask court to fix the price, because of 2 reasons: 1. Condition imposed on the contract does not happen, so there is no contract upon which courts have jurisdiction to fix the price 2. Since there was no fixed price, an enforceable contract has not arisen, and courts cannot create a contract between the parties. FIXING OF SM BY 3RD PARTY 3RD Party may be designated to fix the price, but a 3rd party cannot be allowed to determine the SM of a sale. The difference in rules between SM and Price on designation of 3rd party springs from essence of obligations they pertain to: o The obligation to pay the price is essentially a fungible obligation, any money can be used to pay the price. The price which is essentially generic, therefore the designation of a 3rd party to set the price is allowed. o On the other hand, the obligation to deliver the SM and the title thereto can only be complied with at the point when the thing is either physically segregated or particularly designated, and it is NOT a generic obligation, but rather a SPECIES obligation, and therefore its designation cannot be left to the will of the seller to comply with his obligations to deliver the same. PRICE CERTAIN IN REFERENCE TO OTHER THINGS Price of securities, grains, liquids and other things shall also be considered certain, when the price fixed is that which the thing could have on a: o Definite day o Particular Exchange o Particular Market 23
SALES LAW
o

Amount is fixed above or below price on such day, exchange or market, provided such amount is certain. Price of a thing is certain at point of perfection by reference to another thing certain, such as invoices then in existence and clearly identified or known factors or stipulated formula.
EFFECT OF UNASCERTAINABILITY Contract of Sale is INEFFICACIOUS contract
When there is sale even when no price agreed upon Art1474: Where the price cannot be determined in accordance with the preceding articles [Arts14691473], or in any other manner, the contract is inefficacious. However, if the thing or any part thereof has been DELIVERED TO and APPROPRIATED BY THE BUYER , he must pay a reasonable price therefore, what is a reasonable price is a question of fact dependent on the circumstances of each particular case. In such cases, courts have authority to fix the reasonable price for the SM appropriated by the buyer This is the only exception where there would still be a valid KoS even when there has been no meeting of the minds as to price. CLV: Art1474 should apply only to contracts of sale which are valid because the price is ascertainable, but which turn out to be inefficacious because the formula eventually did not materialize into a certain price. Art1474 should not apply to contracts which are void from the time of perfection because the price was neither certain nor ascertainable.
2 Important Points on Art1474: 1. Doctrine is based on principle of Unjust enrichment directed against buyer who is not allowed to retain SM of sale w/o being liable to pay price even when no such agreement on price is previously made 2. Doctrine applies even when there is a no contract situation because of no meeting of the minds as to the price, although there was a meeting of the minds as to the SM, and therefore may also apply to Void Sale contract situation where defect is the price. 3. Art1474 is mean to cover all sale contract situations where there must have been at least a meeting of the minds or an agreement to buy and sell the SM, which is coupled with tradition, and that it is meant to be a remedy clause in favor of the seller. Requisites for Art1474 to apply: 1. Meeting of the minds as to SM 2. Agreement that price would be paid which fails to meet criteria of being certain or ascertainable 3. Delivery by the seller and appropriation by the buyer, of the SM of sale
MANNER OF PAYMENT OF PRICE MUST BE AGREED UPON If manner of payment has not been agreed upon NO CONTRACT unless there has already been appropriation by the buyer
Considers the Time Value of Money If you dont agree on manner of payment, then there is no meeting of the minds as to price, because you havent agreed on the same value of money. There is no contract here, therefore there can be no action for Specific Performance Velasco v CA Although part of the down-payment has been paid, a definite agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and enforceable KoS Terms of payment, being an integral part of the price, would have the same requisites that the law imposes on price to support a valid contract of sale: Certain or at least Ascertainable. When the manner of payment of the purchase price is discussed after acceptance, then such acceptance does not produce a binding and enforceable KoS, there was no complete meeting of the minds, so there is no basis to sue on a contract that does not exist. However, terms of payment need not always have to be expressly agreed, when the law supplies by default such term. Art1179: price is deemed to be demandable at once. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once. Therefore, in the absence of any stipulation or agreement or actuation indicating that a different term of payment would be applicable and for which a meeting of the minds must be achieved, the price is deemed to be, by operation of law, immediately demandable upon perfection of the contract. 24
SALES LAW
FAILURE TO PAY THE PRICE DOES NOT MAKE THE CONTRACT VOID It is not the payment of the price which determines the validity of the contract If the minds never met on the price, then the sale is VOID. If the minds have met on the price, the sale is valid irrespective of the manner of payment agreed upon, or even by the breach of that manner of payment. CLV: Payment has nothing to do with price. RULINGS ON RECEIPTS AND OTHER DOCUMENTS EMBODYING PRICE Since sale is a consensual contract, and if upon the meeting of the minds of the parties, all the essential requisites are present, then it does not matter if the written evidence issued pursuant thereto [be it an agreement or a receipt] does contain all of the requisites, then a valid contract of sale should exist and the only issue would be its unenforceability under the Statute of Frauds. The fact of having received part of the purchase price would place the contract outside of the SoF as partially executed contracts, and therefore, oral evidence presented to prove the other elements of the KoS would have been the order of the day. SoF is not applicable to completed, executed or partially execute contracts, INADEQUACY OF PRICE Under Art1355, except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake, or undue influence. Art1470 provides that gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract. In the following cases, inadequacy of price affects the status of the Contract: 1. Judicial Sale Gross inadequacy of price may make judicial sale VOID Because the KoS is not the result of negotiations and bargaining but in fact, the property is sold without the owner/sellers actual intervention BUT 2 requisites: A. Inadequacy must be Shocking to the Conscience of Man B. Showing that in event of resale, a better price can be obtained. Courts will not set aside judicial sale if there is a right of redemption [because this would mean the seller can recover the property at the same inadequate price] 2. Rescissible Contracts of Sale [Art1381] Those entered into by guardians whenever the ward whom they represent would suffer lesion by more than the value of the object of sale Those agreed upon in representation of absentees, if the latter should suffer lesion by more than of the value of the object of sale 3. Sales with Right to Repurchase In a conventional sale with a right to repurchase, the gross inadequacy of price raises the presumption of Equitable Mortgage. Proper remedy of seller is to have it reformed or declared a mortgage contract.
CHAP TE R 5 FO RMATI O N O F CO NTRACT OF S ALE
PREPARATION
STAGES IN LIFE OF SALE [Limketkai Sons Milling, Inc. v. CA] also conception or generation stage which is the period of negotiation and bargaining, ending at the moment of agreement of the parties [negotiation or policitacion stage]. Negotiation covers the period from the time the prospective buyers indicate interest to the time the contract is perfected. or birth of the contract, which is the moment when the parties come to agree on the terms of the contract. Perfection takes place upon the concurrence of the essential elements of the contract. or death of the contract, which is the process of fulfillment or performance of the terms agreed upon in the contract. Consummation begins when the parties perform their respective undertakings under the contract, culminating in the extinguishment thereof.
PERFECTION
CONSUMMATION
25
SALES LAW
PREPARATORY STAGE Policitacion or negotiation actually deals with matters arising prior to the perfection of the KoS and deals with concepts of offers, acceptances, rights of first refusal and option contracts. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable An accepted unilateral promise to buy or sell a determinate thing fro a price certain is binding upon the promissory if the promise is supported by a consideration distinct from the price.
POLICITACION An unaccepted unilateral promise to buy or sell prior to acceptance, does not give rise to any obligation or right Legal matters arising prior to perfection deals with offers, acceptances, rights of first refusal and options. The rule is that policitacion or unaccepted unilateral promise to buy or sell, prior to acceptance, do not give rise to any obligation or right. Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. The contract is perfected when the seller obligates himself, for a price certain, to deliver and to transfer ownership At policitacion stage, there is freedom to contract, which signifies the right to choose with whom to contract. Gabelo v CA In the law on Sales, an owner of property is free to offer the subject property for sale to any interested person, and is not duty bound to sell the same to the occupant thereof, absent any prior agreement vesting the occupants the right of first priority to buy. OFFERS An offer, prior to acceptance, is subject to the complete will of the offeror and may be withdrawn or destroyed by the offeror prior to its acceptance, and it is not even necessary that the offeree learns of the withdrawal. RULES: 1. 2. 3. 4. 5. 6. An offer is the creation of the offeror The offer is within the absolute discretion of the offeror One cannot modify or change an offer A non-absolute acceptance or an attempt to modify the offer destroys the original offer When the offer has a period, the expiration of the period destroys the offer; When the offer is subject to a condition, the happening of the condition extinguishes the offer. When there is a period given within which an offer may be accepted, it must be accepted within a reasonable time
If the offer is given for a period, the expiration of the period or its withdrawal prior to acceptance would destroy the offer. When an offer given with condition or period will be extinguished 1. by the happening of the resolutory condition or the 2. certainty that the suspensive condition will not happen, or 3. after the lapse of the period; and in all cases, without need of further action on the part of the offeror. Offer becomes ineffective upon the: 1. Death 2. Civil Interdiction 3. Insanity 4. Insolvency Of either party before the acceptance is conveyed and received by the offeror.
OPTION CONTRACTS Essence and Location of Option 2 TYPES OF ACCEPTED OFFERS [ART1479] offers that have already been accepted and have given rise to valid contracts, although not essentially the contract of Sale. 1. OPTIONS According to Art1479 which governs options, An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding
26
SALES LAW

upon the promissory if the promise is supported by a consideration distinct from the price. 2. CONTRACTS TO SELL On the other hand, the 2 nd paragraph of Art1479 governs Contracts to Sell and provides that, A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. In the same way, the provision for Mutual Promises to Buy and Sell makes them reciprocally demandable, meaning they may be subject to Specific Performance. An Option Contract constitutes an offer to enter into a contract of sale, and not a promise to buy or sell Upon acceptance by the offeree, it creates a valid contract of sale General Rule: Offer, prior to acceptance, is completely subject to the will of the offeror and may be withdrawn anytime. Exception: When the option is founded upon a consideration, then the offer may not be withdrawn at any time during the option period; it has essentially become a CONTRACTED OFFER.
ESSENTIAL ELEMENTS OF A VALID OPTION CONTRACT 1. 2. CONSENT SUBJECT MATTER - Option right or accepted unilateral offer to buy/sell A. DETERMINATE OBJECT B. PRICE CERTAIN, INCLUDING MANNER OF PAYMENT PRESTATION - A consideration separate and distinct from the purchase price for the option given.
3.
Definition of Option Contract A privilege existing in one person, for which he had paid a consideration and which gives him the right to buy certain merchandise or certain specified property from another person if he chooses, at any time within the agreed period, at a fixed price. To be valid, the option contract must indicate the definite price at which the person granting the option is willing to sell. An option contract is an unaccepted offer. It 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 limit. If the holder does so elect, he must give notice to the other party and the accepted offer becomes a valid and binding contract. If acceptance is not made within the time fixed, the owner is no longer bound by his offer and the option ends. 2 Types of Option Contracts 1. Option to Buy 2. Option to Sell
Comparison with Contract of Sale 1. Unilateral 2. Not necessarily commutative since the option contract need not be supported by a valuable consideration, merely a separate one 3. Preparatory 4. Remedy for breach: damages as opposed to specific performance or rescission The obligation to enter into a contract of sale is an obligation TO DO, while an offer to buy or sell is an obligation TO GIVE Since the obligation is to do, it can never be the subject of specific performance
An Option Contract is not a Species of the Genus Sales does not have the same characteristics
NOMINATE PREPARATORY CONSENSUAL similar to a KoS
Given a specific name by law. Executed in order to eventually enter into a consummated KoS Since the meeting of the minds as to the SM and the price would also give rise to the option contract, even when the separate consideration for the option itself has not been paid yet. Art1324 describes the separate consideration of an option contracts as something paid or promised, meaning delivery or payment is not essential.
27
SALES LAW
ONEROUS Not Necessarily COMMUTATIVE

Must have a separate consideration from the purchase price to be valid. Like a contract of sale, it is burdensome because it imposes a valuable consideration as a prestation, which is a price certain in money or its equivalent. Since the option contract need not be supported by a valuable consideration, merely a separate one In an option contract, consideration may be ANYTHING or UNDERTAKING of value. Only the optioner is obliged under an option contract, even when the optionee has not paid the separate consideration. Even if the optionee is also obligated to pay separate consideration, remember that an option contract is also Consensual, payment does not go into its validity. Moreover, some option contracts do not even have, formally, a separate consideration, as in option contracts attached to Real mortgage or lease Not covered by Statute of Frauds But according to CLV, this gives rise to a problem when there is exercise of an oral option, because resulting sale would still be subject to the SOF. It states the terms and conditions on which owner is willing to sell, if the holder elects to accept w/in the period. Holder must give notice to the seller and the accepted offer thereupon becomes a valid and binding contract. If an acceptance is not made within the fixed time, the owner is no longer bound by his offer, and the option is at an end. On the other hand, a KoS fixes definitely the rights and obligations of both parties at the time of its execution and leaves no choice to either party whether to withdraw or to proceed with the contract. Offer and the acceptance are concurrent since the minds of the parties meet in terms of the agreement
UNILATERAL
Can be proved by Parol Evidence An option is an unaccepted or unexercised contractual offer.
Ang Yu Asuncion v CA Once the option is timely exercised, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. Adelfa Properties v CA In a KoS, title passes to buyer on delivery, while in a K to Sell, ownership remains with the vendor, and does not pass until full payment of the purchase price. The case involved a contract to sell, since the option contract does not mention that petitioner is obliged to return possession or ownership of the property as a consequence of non-payment. The absence of such a stipulation shows that there was never any intention to transfer ownership prior to full payment. Moreover, there was no delivery, either actual or constructive, of the property to the petitioner. An option is a continuing offer by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time or under certain terms and conditions. An option is not itself a purchase, but merely secures the privilege to buy; it is not a sale of property but a sale of the right to purchase. The test in determining whether a contract is a sale or an option is whether or not the agreement could be specifically enforced. The obligation in the case was definite, certain, binding and enforceable. This was not a case where no right or obligation is created, and something further remains to be done. An Agreement is only an option when no obligation rests on the party to make any payment, except the consideration to support the option, until he makes up his mind within the time specified. Distinctions between Earnest Money and Option Money 1. Earnest money is part of the purchase price while option money is money given as a distinct consideration for an option contract 2. Earnest money is given only when there is already a sale while option money applies to a sale not yet perfected. 3. When earnest money is given, the buyer is bound to pay the balance, while there is no requirement to buy with option money. Meaning of Separate Consideration In an option contract, consideration may be ANYTHING or UNDERTAKING of value. Villamor v CA The consideration of the deed of option is the why of the contracts: the essential reason which moves the contracting parties to enter into the contract. Vda. De Quirino v Palarca An option to buy the leased premises at a stipulated price in the lease contract is not without a separate consideration for in reciprocal contracts like lease, the obligation or promise of each party is the consideration for that of the other. Soriano v Bautista The mortgagors promise to sell is supported by the same consideration as that of the mortgage itself.
28
SALES LAW

Significance: A real estate mortgage itself, as being merely an accessory contract, does not have its own consideration and is supported by the same consideration that pertains to the principal contract of mutuum. That shows clearly the wide range of consideration that can validly support an option contract
When Option is WITHOUT Separate Consideration It becomes a VOID CONTRACT but a VALID OFFER So that if the option is exercised prior to its withdrawal, that is equivalent to an offer being accepted prior to withdrawal and would give rise to a valid and binding contract of sale. Consideration may be any reason or motivation, as long as it is separate from the purchase price. It does not necessarily have to be a valuable consideration. Sanchez v Rigos In an accepted unilateral promise to sell [option contract], since there may be no valid contract w/o a cause or consideration, the promissory is NOT bound by his promise and may, accordingly withdraw it. Pending notice of its withdrawal, his accepted promise partakes of the nature of an Offer to Sell which, if accepted, results in a perfected contract of sale. In an option contract, the burden of proof to show that such was supported by a separate consideration is with the party seeking to show it. The presumption of valid cause or consideration in Art1354 does not apply to option contracts. Expressly overturned Southwestern Sugar Molasses Co v Athlantic Gulf & Pacific Co. which held that when an option is not supported by a separate consideration, it is void and can be withdrawn notwithstanding the acceptance made previously by the offeree. HOWEVER, it seems that lately, the SC decisions are moving towards the Molasses ruling. Montilla v CA Oral promise to sell is NOT BINDING upon the offeror in view of the absence of any consideration therefore distinct from the stipulated price. Yao Ka Sin Trading v CA Even if the promise is accepted, the optioner is not bound thereby in the absence of a distinct consideration But the case did not even refer to Sanchez
Acceptance of Offer to Create Option Contract is Necessary to Apply Sanchez Doctrine Vazquez v CA Held that the Sanchez Doctrine [that an option w/o separate consideration is a void contract but a valid Offer to Sell] can only apply if the option has been accepted and such acceptance is communicated to the offeror. Not even the annotation of the option contract on the title to the property is considered proper acceptance of the option. Period of Exercise of Option Villamor v CA When the option contract does not contain a period when the option can be exercised, it cannot be presumed that the exercise thereof can be made indefinitely. Under Art1144[1], actions upon written contract must be brought within 10 years, and thereafter, the right of option would prescribe. Remember: Option Contract may be subject to Specific Performance. But the action for SP must be filed within 10years, even when the option is exercised w/in the option period by the proper tender of the amount due. Proper Exercise of Option Nietes v CA Notice of the exercise of the option need not be coupled with actual payment of the price, so long as this is delivered to the owner of the property upon performance of his part of the agreement. 29
SALES LAW
Carceller v CA Substantial compliance with the exercise if an option; court allowed exercise of option beyond the original option period. Few days before expiration of period, optionee sent written notice requesting for extension to raise sufficient funds. Request was denied only after expiration of the period and the optionee sent notice exercising his option to purchase. SC held that there was every intention to exercise the option and exercise of option within reasonable period, immediately after notice of denial of request should be considered still a valid exercise of the option. Significance: sort of recognized that notice w/in the option period of clear intention to purchase, with request for extension to raise funds is a valid or at least substantial exercise of the option. Option contract may be subject of Specific Performance. [contrary to Ang Yu Asuncion ruling] Effects of Exercise of Option Bacus v CA Once an option is exercised, the obligations under the option are reciprocal obligations. The performance of one obligation is conditional on the simultaneous fulfillment of the other obligation. Limson v CA When there is an option contract, the timely affirmative and clear acceptance of the offer would convert the option contract into a bilateral promise to sell and to buy where both parties were then reciprocally bound to comply with their respective undertakings. Option to purchase in a contract of lease when not exercised w/in the original period is extinguished and cannot be considered included in the implied renewal of the lease.
SUMMARY RULES WHEN PERIOD IS GRANTED TO OFFEREE According to Ang Yu Asuncion v CA A. If option period does not have separate consideration, offeror is free to withdraw anytime before acceptance, or if acceptance has been made, before offeror comes to know of fact of withdrawal when it is communicated to him. Right to withdraw should not be exercised whimsically or arbitrarily, subject to action for abuse of right [Art19] If option period has separate consideration, an Option Contract is deemed perfected and it would be breach to withdraw offer during period. The option contract is an independent contract to be distinguished from the eventual KoS. If offeror withdraws offer before acceptance by the optionee, the latter may not sue for Specific Performance of the KoS since it failed to reach its own stage of perfection. The optioner is liable for damages for breach of the option. Take note of real nature of consideration given: if intended to be part of consideration for main contract w/ a right of withdrawal by optionee, main contract could be deemed perfected. A similar instance would be Earnest Money in contract of sale that can evidence its perfection.
B. C. D.
E.
30
SALES LAW
Points on Ang Yu Asuncion In an option contract, the granting of a consideration separate and distinct from the purchase price DOES NOT GUARANTEE to the optionee that he has the absolute right to exercise the option. The separate consideration merely guarantees that within the option period, before the optioner breaches his obligation and withdraws the offer, an acceptance by the optionee would give rise to a valid and binding contract of sale; and that an acceptance within the option period after the optioner withdrew would not give rise to a contract of sale. Insofar as the optionee is concerned, whether or not he gives a separate consideration for the option, he would be saddles with the same dilemma: if the optioner withdraws the offer prior to the time the optionee shall have exercised the option, his acceptance could not give rise to a valid and binding contract of sale. CLV: Ang Yu does not provide a commercially sound doctrine because it removes any motivation for the optionee to give a separate consideration Is an Option Contract Enforceable by Specific Performance or Not? If exercised within the option period, it gives rise to the Contract of Sale which can be enforced by SP If Optioner-offeror withdraws the offer BEFORE its acceptance, or before the option is exercised, the offeree may not sue for SP on the sale since it has failed to reach its own stage of perfection. Optioner however renders himself liable for damages for breach of the option. RIGHT OF FIRST REFUSAL Definition: a promise on the part of the owner that if he decides to sell the property in the future, he would sell it to the promise. In Ang Yu Asuncion [again], the SC classified the right of first refusal as an innovative juridical relation and pointed out that it cannot be deemed a perfected contract of Sale under Art1458, nor an option contract because it merely pertains to a specific property w/o containing an agreement as to the price or the terms of payment in case of exercise of the right. In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantors eventual intention to enter into a binding juridical relation with another, but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be described as merely belonging to a class of preparatory juridical relations not governed by law on contracts [since the essential elements to establish the vinculum juris would still be indefinite and inconclusive], but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on Human Conduct [Art19, etc.] Equatorial Realty Devt Inc. v Mayfair Theater Inc. In a contract of lease where the lessee is given a 30day exclusive option to purchase the leased property in the event that the lessor should desire to sell the property, such contractual stipulation which does not provide for a price certain nor the terms of payment, actually grants a right of first refusal and is not an option clause or an option contract. Where the right of first refusal was violated and the property was sold to abuyer who was aware of the existence of such right, the resulting contract is RESCISSIBLE by the person whose favor the right of first refusal was given. And although no particular price was given in the covenant granting the right of 1 st refusal, the same price by which the 3 rd party buyer bought the property shall be deemed the price by which the right of first refusal shall be exercisable. There need not be a separate consideration in a right of first refusal since such stipulation is part and parcel of the entire contract of lease to which it may be attached to. Limited Application of Equatorial Realty Ruling Ruling applies only to rights of first refusal attached to a valid principal contract, like a contract of lease Ruling has NO application to rights of first refusal constituted as a separate contract Ang Yu Asuncion doctrine applies in this case. Right of first refusal may be provided for in a lease contract, however, when such right is not stipulated in the lease contract, it cannot be exercised, and verbal grants of such right cannot be enforceable since the right of first refusal must be clearly embodied in a written contract.
31
SALES LAW

In order to have full compliance with the contractual right granting a lessee the first option to purchase the property leased, the price for which they were finally sold to a 3 rd party should have likewise been first offered to the party entitled to the option. Sublessee may not take advantage of Right of First refusal of Sublessor Right of First Refusal Must be Contained in a Written Contract
Proper Doctrine on option Contracts v Right of First Refusal Rulings According to CLV, the SC should revisit the Ang Yu decision. The better rule would be that in case an option is supported by a separate consideration, the optionee shall have the right to exercise the option or accept the offer at anytime during the option period and the same would give rise to a valid and binding contract of sale. In the same manner, if separate consideration has been received by the optioner for the grant of the option, he cannot withdraw the offer during the option period, and any attempt to withdraw the offer during the option period should be void. [A position affirmed by Carceller case] In any event, the Ang Yu ruling would suggest that the best scheme for a prospective buyer to rake if he is interested in a specific property but wants to maintain an option to be able to get out of it later on, would be the Earnest Money Scheme. MUTUAL PROMISES TO BUY AND SELL - BINDING Promise to Sell a determinate thing coupled with a correlative Promise to buy at a specified price is binding as an executory agreement. Note: even in this case, the certainty of the price must also exist. According to Ang Yu, an unconditional mutual promise to buy and sell can be subject of Specific Performance. Discussed More in Detail in Chap11
PERFECTION: OFFER AND ACCEPTANCE A KoS is born from the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. Consent may be VITIATED by any of the following: 1. Mistake 4. Undue Influence 2. Violence 5. Fraud 3. Intimidation These make the contract VOIDABLE, binding upon parties unless annulled by proper court action. Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. The contract is perfected when the seller obligates himself, for a price certain, to deliver and to transfer ownership In Sales, contract is perfected when a person [seller] obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another [buyer], over which the latter agrees and obligates himself to pay the price. From the moment of perfection, the parties may reciprocally demand performance Acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance. So long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not, the contract is formed. The form of the contract [not signed or notarized] is not essential, but merely for greater convenience Important: While a counter-offer / conditional acceptance destroys an offer, it does not destroy a valid sale that has already been perfected. A contract of sale can only be destroyed by rescission or mutual withdrawal. Note: Under the CC, acceptance only binds the offeror from the time it comes to his knowledge. Therefore, if a letter of acceptance has been mailed, but the offeror has not yet read the acceptance, he is still free to withdraw his offer. However, under the Code of Commerce, which governs commercial sales, acceptance occurs from the time of the mailing or sending of the acceptance letter, even before it comes to the knowledge of the offeror. This has been held to apply even to sales under the Civil Code. So if there is acceptance made by telegram or letter, and the offeror is already in possession of the letter but refuses to open it, the acceptance is entirely valid. It is not possible to frustrate the acceptance by refusing to open the letter.
CONSENT THAT PERFECTS CONTRACT OF SALE CERTAIN OFFER & ABSOLUTE ACCEPTANCE Art1319 defines consent or meeting of the minds as manifested by the meeting of the offer and the acceptance upon the thing and the cause of which are to constitute the contract. 32
SALES LAW

Offer must be CERTAIN Acceptance must be ABSOLUTE A Qualified acceptance constitutes merely a counter-offer which must in turn be absolutely accepted to give rise to a valid and binding contract. Note: National Grains Authority v IAC case held that a KoS is also perfected even when the exact quantity or quality of the SM is not known, so long as the source of the subject is certain and fixed. STATUS OF ADVERTISEMENTS MERE INVITATIONS TO MAKE OFFER
GENERAL RULE Business advertisements of things for sale are Mere Invitations to Make an Offer Not definite offers EXCEPTION When it appears otherwise When the advertisement specifies a determinate SM, the price and terms of payment, as to be equivalent to an offer certain, then it constitutes an offer covered by the phrase unless it appears otherwise and no longer a mere invitation to make an offer.
CLV Comment: By virtue of the exception, the general rule became meaningless. The general rule says that advertisements are not definite offers. Exception is when the advertisement is for a determinate SM, price and terms of payment. The general rule was rendered useless since even without the general rule, the situation would be exactly the same since such an advertisement lacking at least one of the three requisites would always not constitute a valid offer. So when does the exception apply? 1. The offer must have all the requisites of a valid SM and price 2. The language must clearly indicate that the advertisement is not merely an invitation to make an offer, but a definite offer by itself
ACCEPTANCE MUST BE ABSOLUTE PLAIN & UNCONDITIONAL In order for an acceptance to have the effect of converting an offer to sell into a perfected contract, it must be PLAIN and UNCONDITIONAL It will not be so if it involves any new proposition Promises are binding when and so long as there are accepted in the exact terms in which they are made, and that it would not be legally proper to modify the conditions imposed by the offeror without his consent. Fact that the deed of sale still had to be signed & notarized did not mean that no contract had already been perfected since a sale of land is valid regardless of the form it may have been entered into. Cases Yuvienco v Dacuycuy o Use of term to negotiate in acceptance letter indicates there was no absolute acceptance of the offer made yet. Limketkai Sons Milling Inc v CA o If buyer inquires if it is possible to pay on credit terms the purchase price even after there had already been an agreement to pay in cash, there was already a perfected contract between the seller and the buyer despite the inquiry. o This is because there was already mutual consent between the parties, the SM was definite and the consideration was determined. o An acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance. So long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not, a contract is formed. Uruca v CA o From the moment of acceptance of the original offer of the sellers by the buyers, there arose a valid and binding contract of sale since undisputedly, the contractual elements of consent, object certain and cause occurred. o The subsequent bargaining for an increase in price did not result into a novation since there was no final agreement nor was there a resulting new contract WHEN DEVIATION ALLOWED NOT MATERIAL AT ALL
33
SALES LAW

Although the acceptance may not be absolute, in that it contains certain deviations or amendments to the offer, such acceptance is binding and gives rise to a valid contract of sale when the deviations are NOT MATERIAL AT ALL.
Villonco v Bormaheco Illustrates that certain deviations may be made in the acceptance and it would still convert the offer into a valid KoS When Seller made offer, Buyer replied confirming the terms, but with the addition that if the sale is not consummated, the earnest money will earn interest of 10%. Seller then received the confirmation letter with the check, which it encashed. Seller then sent a written response to Buyer that the interest of 10% would be computed on a per annum basis. The SC held there was a perfected KoS that arose from the exchange of correspondences, even if literally, there was a correction or modification contained in the acceptance. The Subsequent Letter response by Seller was equivalent to an Absolute Acceptance that gave rise to a Valid and Binding Contract of sale s ince the deviations or amendments contained in the response were NOT MATERIAL at all. When is a change significant? When it refers to the SM or consideration not just the price But if the place of payment is not meant to be a part of the consideration, it is not significant if there is deviation. Place of payment goes into performance and not perfection. Exception: the law will not trifle with insignificant things. [Ex: I will sell this land for 1M, buyer accepts for P999,999.99]
ACCEPTANCE MAY BE EXPRESS OR IMPLIED INTENT & COMMUNICATED Acceptance may be evidenced by some ACTS or CONDUCT, communicated to the offeror, either in a formal or an informal manner, that clearly manifest the intention or determination to accept the offer to buy or sell. Acceptance need not be written nor express, but may be implied, as long as it is communicated to the offeror. Once again, intent is material to the determination of a valid acceptance. ACCEPTANCE BY LETTER OR TELEGRAM KNOWLEDGE OF OFFEROR Only binds the offeror and gives rise to a valid contract of sale from the time IT CAME TO THE OFFERORS KNOWLEDGE. Even if acceptance has been mailed or sent to offeror, latter may still withdraw offer anytime before he has knowledge of the acceptance. NO PERFECTED KoS IF SUSPENSIVE CONDITION General Rule: If there is concurrence of offer and acceptance, with all the requisites, there results a perfected contract of sale Exception: if the sale is subject to a suspensive condition. Even when there is a meeting of the minds as to the SM and the price, there is deemed to be NO PERFECTED KoS if the sale is subject to a Suspensive Condition. Because Perfection takes place only from the moment the CONDITION IS FULFILLED CLV Comment: It is better to say the when a KoS is subject to a suspensive condition, there is already a contract but because the condition has not happened, the underlying obligations are not yet demandable, and in case of non-happening of the condition, the contract is extinguished. SALES AT AUCTION PERFECTED BY FALL OF HAMMER Perfected when the Auctioneer announces its perfection by the fall of the hammer or in other customary manner. Until such announcement is made, any bidder may retract his bid and the auctioneer may withdraw the goods from the sale, unless the auction has been announced to be without reserve. In an auction sale, the sale is perfected when the auctioneer announced its perfection by the fall of the hammer, or in any other customary manner. If the hammer falls accidentally, this does not mean that the sale is perfected. EARNEST MONEY Function Of Earnest Money Rebuttable Presumption that earnest money is considered as part of the price of the contract
34
SALES LAW

Villonco case: even when KoS is subject to a condition, the acceptance of the earnest money would prove that the sale is CONDITIONALLY CONSUMMATED or PARTLY EXECUTED subject to the fulfillment of the condition, the non-fulfillment of which would be a negative reoslutory condition.
PNB v CA The receipt of earnest money could not lead to the conclusion that there was a valid and binding contract of sale because of documentary evidence showing that the parties entered into a contract to sell, which is akin to a conditional sale, where the efficacy or obligatory force of the vendors obligation to transfer title is subordinated to the happening of a future and uncertain event so that if the condition does not take place, the parties would stand as if the obligation never existed. When the contract involved is a Contract to Sell, the initial deposit given by the buyer to the seller is not strictly earnest money, but part of the consideration to sellers promise to reserve the subject property for the buyer. On the other hand, Villonco held that even when the sale is subject to a condition, the acceptance of the earnest money would prove that the sale is conditionally consummated or partly executed subject to fulfillment of the condition, the non-fulfillment of which would be a negative resolutory condition.
Varying Treatment of Earnest Money Parties to the contract of sale may validly treat earnest money differently than that under Art1482 When the amount is given only as a guarantee that the buyer would not back out of the sale, then what was given was not earnest money as defined under Art1482, especially when at the time the amount was given, the final terms of the purchase had not been agreed upon. Therefore, although earnest money under Art1482 can be taken as proof of perfection of a contract of sale, the same is not conclusive. There can be payment of Earnest Money but it doesnt necessarily mean there is a perfected KoS! Difference Between Earnest money and Option Money Adelfa Properties Inc. v CA
EARNEST MONEY Part of the Purchase Price Given only where there is already a Sale When earnest money is given, Buyer is bound to pay the balance OPTION MONEY Money given as a Distinct Consideration for an Option Contract A sale not yet perfected Would-be buyer is not required to buy, but may even forfeit it depending on the terms of the option
Effect of Rescission on Earnest Money Received General Rule: Seller of real-estate CANNOT KEEP the earnest money received to answer for the damages sustained in the event the sale falls due to the fault of the prospective buyer. Exception: Specific Contrary Stipulation When the seller seeks to rescind the sale under Art1385, rescission creates the obligation to return the things object of the contract and fruits and interests.
Place of Perfection is where the offer and acceptance as to create a meeting of the minds upon the thing and cause of the contract Place where the OFFER was made in case of correspondences via mail or letters EXPENSES OF EXECUTION AND REGISTRATION BORNE BY SELLER Unless otherwise agreed PERFORMANCE SHOULD NOT AFFECT PERFECTION Ability of parties to perform contract after perfection does not affect the perfection of the contract. 35
SALES LAW
Johannes Schuback & Sons v CA Opening of letter of credit is merely a mode of payment and failure to do so does not negate the fact that there was already a perfected contract of sale between the parties. Balatbat v CA Non-payment of price does not render void the sale Ownership of the thing shall pass from vendor to vendee upon actual or constructive delivery of thing sold even if purchase price not yet fully paid Exception: stipulation that ownership shall not pass until fully paid price Non-payment only creates a right to demand the fulfillment of the obligation or to rescind the contract. FORM OF SALES FORM NOT IMPORTANT FOR VALIDITY OF SALE Requirement for Public Instrument for Immovables under Art1358
Art. 1358. The following must appear in a public document: (1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed by Articles 1403, No. 2, and 1405; All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by Articles, 1403, No. 2 and 1405. (1280a) Art. 1403. The following contracts are unenforceable, unless they are ratified: (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: (d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; (e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein; Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefit under them.
Art1358 provides that contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property must appear in a PUBLIC INSTRUMENT But Art1403 and 1405 governs sales of goods, chattels or things in action Dalion v CA The provisions of 1358 are only for purposes of convenience, and non-observance thereof does not affect the validity or enforceability of the contract. Article merely grants a cause of action to the party to the contract, to sue to compel the other party to have the document covering the contract acknowledged before a notary public.
Deed of Sale as Formal/Symbolic Delivery of Property Operates as a Formal or Symbolic Delivery of the Property Sold and Authorizes the Buyer to use the Document as Proof of Ownership However, Civil Code does not provide that Deed of Sale is conclusive presumption of delivery of POSSESSION. Buyers immediate taking of possession and occupation corroborates truthfulness and authenticity of deed of sale Mere fact that Deed was not notarized only makes it a private document, still binding between parties. But the fact that a deed is notarized does not guarantee validity of its contents. WHEN FORM OF SALE AFFECTS ITS VALIDITY
CONTRACTS OF SALE WHICH MUST BE IN WRITING TO BE VALID
36
SALES LAW

1. POWER TO SELL A PIECE OF LAND OR INTEREST THEREIN otherwise sale by agent would be void 2. 3. SALE OF LARGE CATTLE otherwise sale would be void Must also register sale w/ municipal treasurer issuing certificate of transfer
SALE OF LAND BY NON-MUSLIM HILL TRIBE CULTURAL MINORITIES ALL THROUGHOUT THE PHILIPPINES Void if not approved by National Commission on Indigenous Peoples
EXCEPTIONS TO GENERAL RULE THAT FORM IS NOT IMPORTANT FOR VALIDITY OF KOS
STATUTE OF FRAUDS [SoF] Nature and Purpose of SoF To prevent fraud and perjury in the enforcement of obligations depending for their evidence upon the unassisted memory of witnesses. Insofar as applicable to sales, the ff are UNENFORCEABLE BY ACTION, unless the same or some note or memorandum thereof be in writing and subscribed by the party CHARGED[party who claims there was no sale] or by his AGENT Contracts covered by SoF are unenforceable, cannot be proven by oral evidence
CONTRACTS IN SALES COVERED BY SoF 1. A sale agreement which by its terms is not to be performed within a year from the making thereof [refers to sales involving personal propert worth less than P500]. 2. An agreement for the SALE OF Goods, Chattels or Things in Action, at a Price not Less than P500.00; and 3. A sale of real property or of an interest therein Partial execution does not take it out of SoF
The following sales would NOT be covered by SoF and would be enforceable:
EXCEPTIONS TO COVERAGE OF STATUTE OF FRAUDS IN SALES CONTRACTS When there is a note or memorandum thereof in writing and subscribed by the party charged or his agent When there has been partial consummation of the contract of sale Art1405: contracts covered by SoF are ratified by acceptance of benefits under them. When there has been a failure to object to the presentation of evidence aliunde as to the existence of a contract w/o being in writing and which is covered by the SoF When Sales are effected through Electronic Commerce
1. 2. 3. 4.
Nature of Memorandum - Requisites 1. Must be in writing When an agreement is in a memorandum, it does not actually constitute an exception to the SoF since the memorandum is necessarily in writing If the writing is destroyed, so long as its existence may be proven, secondary evidence may be presented, which can be oral evidence 2. Subscribed by the party charged either the seller or buyer against whom the sale is sought to be enforced 37
SALES LAW

The party charged must sign it, the other party the oner bringing the suit necessarily admits the existence of the agreement by bringing the suit 3. Must contain all the essential terms of the KoS 7 Requisites of SM, Price and Consent All the requisites for a valid SM and price must be included Exception: in auction sales entry into the book is sufficient memoranda May be contained in 2 or more documents Various correspondences when taken together would constitute sufficient memoranda since they include the names of the parties, the terms and conditions of the contract, the price and a description of the property as the object of the contract. Videos are not permitted. Yuvienco v Dacuycuy Not enough that total price or consideration is mentioned Manner of payment must be indicated. The idea of payment on installments must be in the requisite of a note or memorandum therein contemplated. You can file a case in court even if the contract is covered by the Statute of Frauds A party to the contract still has the ordinary remedies But he just cannot present parole evidence This is why coverage of the Statute of Frauds may be WAIVED
Partial Performance Would take the contract of sale outside of the coverage of the SoF Consequently, even when not complete in form, so long as the essential requisites of consent of the contracting parties, object and cause of the obligation concur and they were clearly established to be present even by parol evidence the sale is valid and binding. Effect of Partial Execution on 3rd Parties NO EFFECT The doctrine of partial execution when covering sale of real properties cannot be applied to third parties, who are granted legal remedies against the contract The formal requirements are for the benefit of 3rd parties but as to the immediate parties to the sale, non-compliance therewith does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder.
DIFFERENCE IN TREATMENT / PRINCIPLES INVOLVING MOVABLES AND IMMOVABLES MOVABLES Partial Execution takes out of SoF Possession takes out of SoF Possession of movable property acquired in GF is equivalent to title IMMOVABLES Partial Performance does not take it out of SoF Recoding of Sale or its being evidenced by a written instrument are accepted means of disposition
NOTE: In sales of REAL PROPERTY, partial performance does not take the agreement out of the SoF because the 3rd party who was not privy to the sale did not participate in the transaction. This follows the rule that for partial performance to be valid, there must be participation by all parties. This doesnt apply to movables, because mere possession constitutes transfer of ownership. Therefore, 3rd parties cannot claim that they had no knowledge of the transaction. This is consistent with the rules on double sales: 1. Movables: 1st to take possession of movables 2. Immovables: 1st to register
Nature and Coverage of Partial Performance Ortega v Leonardo It is not only partial payment of the purchase price that is the only manner of partial performance that takes the contract out of the SoF Other modes include: Possession 38
SALES LAW

Making of Improvements Payment of Taxes Rendition of Services Relinquishment of Rights Although tender of payment itself is not considered as partial performance, but accompanied by other acts such as building improvements, the same may be considered partial performance. Following the Ortega ruling, tender of payment is not equal to partial performance Why? Because there must be participation by both parties, especially the party charged. When tender is unaccepted, it does not constitute partial performance, since the other party was not involved. If there is knowledge, then the other party is estopped from denying existence of the contract Under the CC, partial performance refers only to goods, not to real property. The inclusion of real property is merely a jurisprudential rule. Why only goods? Under the law on property, possession in good faith of movable is equal to title [ownership]. Mere transfer of possession is considered as evidence of ownership. On the other hand, possession of immovables does not ripen into ownership. To constitute an exception to the SoF, partial performance must by itself pertain to the SM or to the price of the purported sale, and must involve an ACT or COMPLICITY on the party sought to be charged. Must amount to ESTOPPEL against party sought to be charged. [Art1405]
Waiver of the Provisions of SoF When the party against whom such oral contract is sought to be proven fails to object during trial to the presentation of oral evidence to prove the contract, the latter is taken out of the SoF. Cross-Examination on the contract is deemed a waiver of the defense of SoF SALES EFFECTED AS ELECTRONIC COMMERCE ACT Legal Recognition of Electronic Documents Electronic documents shall have the legal effect, validity or enforceability as any other document or legal writing, and 1. If law requires a document to be in writing, electronic document meets the requirement as long as its INTEGRITY and RELIABILITY and can be AUTHENTICATED A. Remained Complete and Unaltered B. Reliable in the light of the purpose for which it was generated 2. Electronic document applies even if the law requires the form or only provides consequences if the form is not written. 3. If law requires document to be presented or retained in original form requirement is met by an electronic document A. There exists a reliable assurance as to the integrity of the document B. Document is capable of being displayed to person to whom it is to be presented Unless otherwise agreed by parties, an offer, the acceptance of an offer and such other elements required under existing laws for the formation of contracts may be expressed in, demonstrated and proved by means of electronic data messages or electronic documents. Transport Documents: Where one or more electronic data messages are used to effect any action, no paper document used to effect such action is valid unless the use of electronic data message or electronic document has been terminated and replaced by the use of paper documents
39
SALES LAW
CHAPTER 6 PERFORMANCE OR CONSUMMATION
OBLIGATIONS IN A CONTRACT OF SALE OBLIGATIONS OF SELLER 1. TO PRESERVE SM OF SALE 2. TO DELIVER POSSESSION OF SM By observance of the proper diligence of a good father of a family, unless the law or stipulation of the parties requires another standard of care Seller becomes liable to buyer for breach of obligation when thing deteriorates or is lost through the sellers fault A. TRANSFER OWNERSHIP B. DELIVER THE THING OBJECT OF THE SALE The only means by which seller can transfer ownership is by TRADITION or DELIVERY, whether actual or constructive Where there is no express provision that the title shall not pass until payment of the price and the thing sold has been delivered, the title passes from the moment the thing sold is placed in the POSSESSION and CONTROL of the buyer. 3. TO DELIVER FRUITS AND ACCESSORIES Buyer has right to the fruits of the thing from time the obligation to deliver arises, however he shall acquire no real right over it until the same has been delivered to him. Seller must deliver SM and Accessions & Accessories in condition they were upon perfection of contract, and all the fruits shall pertain to buyer from day of perfection Contrary to Principle of RES PERIT DOMINO that owner bears risk of loss and benefits of fruits because accessory follows principal, and SM is intended to be delivered to buyer from time of perfection, necessarily the fruits must also be from then on for the account of the buyer. Discussed in Chapter 12
4. TO WARRANT SM
OBLIGATIONS OF BUYER 1. PAY THE PRICE 2. ACCEPT DELIVERY OF SM
40
SALES LAW
TRADITION AS A CONSEQUENCE OF A VALID SALE ESSENCE OF TRADITION Ownership of SM is a real right which the buyer acquires only upon delivery of the thing. Right is transferred not merely by contract but also by TRADITION or DELIVERY There is delivery when thing sold is placed in the CONTROL and POSSESSION of the vendee CRITICAL FACTORS OF TRADITION 1. ACTUAL INTENTION of the seller to deliver, and its acceptance by the buyer. 2. As a CONSEQUENCE of a VALID CONTRACT OF SALE Delivery is a composite act no transfer of ownership when buyer is merely accommodated Premise of Delivery Sale is VALID Seller is OWNER at time of DELIVERY All Doctrines are for the benefit of the BUYER
1. 2. 3.
TYPES OF DELIVERY A. ACTUAL DELIVERY Placed in the control and possession of buyer B. CONSTRUCTIVE DELIVERY Any manner signifying an agreement that the possession is transferred from vendor to vendee Constructive Delivery has the same legal effect as Actual or Physical Delivery REBUTTABLE PRESUMPTION OF EXECUTION OF PUBLIC INSTRUMENT
Execution of PUBLIC INSTRUMENT has same legal effect as ACTUAL or PHYSICAL Delivery EXCEPTIONS TO GENERAL RULE 1. If the CONTRARY appears in the deed or cannot be clearly inferred a. Certain date is fixed for the buyer to take possession of the SM b. In case of Sale by Installments, it is stipulated that until the last installment is made, title to the property remains with the seller c. When the seller reserves the right to use and enjoy the property until the gathering of the pending crops d. Where seller has no control over the thing at the moment of sale, and therefore its material delivery could not have been made 2. When at the time of the EXECUTION [CONSUMMATION] of the public instrument, the SM was not Subject to the CONTROL of the Seller Seller must have actual control of SM at time of execution Such control or ability to transfer physical possession and enjoyment must subsist also for a reasonable length of time after execution of instrument otherwise buyer would literally have to jump into possession No need for buyer to actually take into control, mere passage of time sufficient
ADDISON v FELIX In the absence of an express stipulation to the contrary, payment of the purchase price is not a condition precedent to transfer of title to buyer In order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have such control over the thing sold that, at the moment of the sale, its material delivery could have been made The thing sold must be placed under the control of the buyer. When there is NO IMPEDIMENT to prevent the thing sold from passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. Constructive Delivery shall produce the effects of TRADITION only if at the time such particular form of constructive delivery, the seller had control over SM to have been capable of physically transferring it to the buyer, and such capacity should remain for a reasonable period thereafter so as to allow the buyer reasonable opportunity to have taken such control. BUT it is not necessary that buyer actually took control of SM, the mere passage of reasonable time is sufficient. 41
SALES LAW

DY, JR. v CA Mortgagor sold Mortgaged Tractor to his Brother but mortgagee insisted that delivery be made only upon clearing of check payment on the mortgage debt. In the meantime, tractor was foreclosed by another creditor. When it comes to a 3rd party and the issue is on title or ownership of the SM of a sale, constructive delivery by the execution of the public instrument would produce the effect of tradition only insofar as title is concerned, provided that at the time of the execution there was no legal impediment on the part of the seller to transfer title to the buyer , even if at the time of sale, control or possession of the SM was not in the hands of the seller.
1. SYMBOLIC DELIVERY 2. CONSTITUTUM POSSESORIUM 3. TRADITIO BREVI MANU 4. TRADITIO LONGA MANU FORMS OF CONSTRUCTIVE DELIVERY Delivery of the keys of the place or depository where the movable is stored When at the time of perfection, seller held possession of SM as owner and pursuant to the contract, seller continues to hold physical possession as lessee or any other form other than in concept of owner. Before KoS, the would-be buyer was already in possession of the would-be SM of the sale, and pursuant to the sale, he would now hold possession in concept of an owner Delivery of thing merely by agreement, as when seller points to property without need of actually delivering physical possession thereof. Under Art1499, delivery of movable property may be made by mere consent or agreement of the contracting parties, if thing sold cannot be transferred to the possession of buyer at time of sale Person to whom a negotiable DoT has been negotiated acquires title to the goods as the endorser or the drawer / person whose order goods were to be delivered If DoT merely transferred [not negotiated] subject to terms of any agreement with transferor
5. DELIVERY BY DoT
DELIVERY OF INCORPOREAL PROPERTY Intangibles can never be subject to Actual Delivery since they have no physical existence
3 TYPES OF CONSTRUCTIVE DELIVERY OF INCORPOREAL PROPERTY 1. When 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 2. By the placing of the titles of ownership in the possession of the buyer 3. Use by the Buyer of his rights, with the sellers consent
DELIVERY THROUGH CARRIER In absence of contrary stipulation / circumstance, delivery to carrier is deemed delivery to the buyer. Seller usually contracts with carrier, unless otherwise authorized by buyer. He must consider nature of the goods and other circumstances of the case in contracting with carrier. If seller omits to do so, and the goods are lost or damaged, buyer may consider there was no delivery and hold seller liable for damages.
1. F.A.S. SALES 2. F.O.B. SALES DELIVERY THROUGH CARRIER Seller assumes risk until goods Free alongside vessel POINT OF SHIPMENT Seller bears expenses until goods are Free on Board at the shipping point POINT OF DESTINATION Seller bears expenses until goods are Free on Board at the destination point Costs, Insurance & Freight signify that price fixed covers not only the costs of the goods but the expense of freight and insurance to be paid by seller. 2 theories: 1. CIF ultimately born by buyer as agent of buyer More Followed 2. Seller takes on responsibility and delivery to carrier is not equivalent to delivery to buyer
3. C.I.F. SALES
Behn, Meyer & Co v Yangco If contract be silent as to person/mode by which goods are to be sent, delivery by vendor to common carrier transfers property to buyer. CIF and FOB merely make rules of presumption which yield to proof of contrary intention. COMPLETENESS OF DELIVERY
42
SALES LAW
IN CASE OF MOVABLES [Art1522]
1. Quantity delivered is LESS 2. Buyer disposed of goods delivered before knowledge of sellers nonperformance of contract in full 3. Where seller delivers LARGER quantity
Buyer may reject or accept and retain but pay for them Buyer not liable for more than fair value to him of the goods received
Buyer may accept the goods included in the contract and reject the rest If Buyer accepts the whole of the goods, he must pay for them at the contract rate If the SM is indivisible, the buyer may reject the whole of the goods. 4. Seller delivers the goods mixed with Buyer may accept the goods in the contract but reject the rest goods of a different description If the SM is indivisible, buyer may reject the goods entirely Goods Held by Seller has not fulfilled his obligation to deliver unless and until such 3 rd person acknowledges to the buyer that he 3rd party holds the goods in the buyers behalf Obligation as to Obligation of seller to deliver accessories & accessions in condition in which they were upon PERFECTION Accessories & Seller must deliver to the buyer a quantity of goods that should not be less that what he contracted to sell, Accessions otherwise buyer may reject them. Sale in Mass of Sale of fungible things, made independently, for a single price or w/o consideration of weight, number or Movables measure. Gaite v Fonacier: if there is no provision in the contract for the measuring or weighing of the fungible movables sold in order to complete or perfect the sale, nor is there a price agreed upon by the parties to be based upon such measurement, the SM is therefore a determinate object, the MASS and not the actual number of units contained, so that all that was required of the seller was to deliver in GF to his buyer all the goods found in the mass, notwithstanding that the quantity delivered is less than the amount estimated. Sale by Sale may be rescinded if the bulk of the goods delivered do not correspond with the description or the sample. Description and And if the contract is by sample as well as description, it is not sufficient that the bulk of the goods correspond / or Sample with the sample if they do not also correspond with the description. Written Proof of Delivery is generally evidenced by a written acknowledgement of a person that he has actually received the thing Delivery or the goods, as in delivery receipts. A bill of lading cannot substitute for a delivery receipt. It does not evidence receipt of the goods by the consignee or the person named in the bill of lading. A factory consignment invoice is not an evidence of actual delivery.
IN CASE OF IMMOVABLES
Where Sold Per Unit or Number Seller obliged to deliver to the buyer, if the latter should demand it, all that may have been stated in the contract. If this should not be possible, buyer may choose between: 1. Proportional reduction of price 2. Rescission of the contract, provided that lack of area be not less that 1/10 of that stated Same rule applies when any part is not of quality specified in the contract rescission if inferior value exceeds 1/10 of the price agreed upon If buyer would not have bought the immovable had he known of its smaller area or inferior quality, he may rescind the sale. If there is a greater area than that stated in the contract, buyer may accept but pay at the contract rate. Foregoing rules do not apply to JUDICIAL SALES. General Rule: there shall be no increase or decrease of the price, although there be a greater or lesser area or number than that stated in the contract. Exception: Sale of land under description more or less or similar words designating the quantity covers only a reasonable excess or deficiency Exception to Exception: When expressly the buyer assumes the risk on the actual area of the land bought. Same rule applies when 2 or more immovables are sold for a single price. But if the boundaries and its area or number is designated in the contract, vendor shall be bound to deliver all that is included within the boundaries, even if it exceeds the area or number in the contract. And should the seller fail to do so, he shall suffer a reduction in price, unless the contract is rescinded because the buyer does not accede to the failure to deliver. Sale in mass of separate known parcels will not be set aside unless it is made to appear that a larger sum could have been realized from a sale in parcels or that a sale of less than the whole would have been sufficient to satisfy the debt.
Where Sold for a Lump Sum
Where Sold in Mass
Unless contrary is stipulated or used in trade, place of delivery is the SELLERS place of business or his residence. SM is specific goods known by parties to be in some other place during perfection of the contract that place is the place of delivery Seller is bound to send the goods within a reasonable time Demand or tender of delivery shall be ineffectual unless made at a reasonable hour. EFFECTS OF DELIVERY Ownership is transferred to buyer upon actual or constructive delivery Rule is that if parties do not stipulate otherwise, either actual or constructive delivery will produce its legal effect of transferring ownership over the thing delivered to the buyer. Unless stipulated, payment of purchase price is not a condition precedent to transfer of title to the buyer, but title passes by the delivery of the goods 43
SALES LAW

Effects of tradition come into play by either actual or constructive delivery and there is no need for the parties to stipulate or agree upon such effects. WHEN DELIVERY DOES NOT TRANSFER TITLE
ON SALE OR RETURN SALE ON ACCEPTANCE
FORM OF SUCH SPECIAL SALES RESERVATION OF OWNERSHIP
WHEN THE SALE IS NOT VALID WHEN THE SELLER IS NOT OWNER
Ownership passes to buyer on delivery but he may re-vest ownership in the seller by returning or tendering the goods w/in the time fixed or if none, w/in reasonable time. Ownership passes to buyer only when: A. He signifies approval or acceptance to the seller or does any other act adopting the transaction B. If the buyer does not signify his approval or acceptance but retains the goods w/o giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such time, and if no time has been fixed, on the expiration of a reasonable time. For a sale to be considered as a sale or return or a sale on approval, there must be a clear agreement to either of such effect. Such stipulation must be in writing, and cannot be proved by parol evidence. Despite delivery, ownership will not transfer in case of express reservation such as when parties stipulate that ownership will not transfer until purchase price is fully paid. Instances where there is an IMPLIED RESERVATION OF OWNERSHIP: [ART1503] A. Goods are shipped and by a bill of lading are deliverable to seller or seller or order, or his agent, the seller thereby reserves ownership in the goods. B. Goods are shipped and by the bill of lading, deliverable to the order of buyer or agent but possession of bill of lading is retained by seller C. Seller of goods draws on buyer for price and transmits bill of exchange and bill of lading together to buyer to secure acceptance or payment of bill of exchange. Buyer is bound to return bill of lading if he does not honor bill of exchange. In the last case, if BL provides that goods are deliverable to buyer or order of person named therein, purchaser for value in GF of the BL or goods from buyer will obtain ownership of goods even if the bill of exchange has not been honored. When KoS fictitious, and therefore void and inexistent, as there was no consideration, no title over the SM can be conveyed. Delivery would produce transfer of ownership only if at the TIME OF DELIVERY, seller still had ownership of the SM
44

Sales Midterms Reviewer

Uploaded by

Copyright:

Available Formats

Sales Midterms Reviewer

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Sales Midterms Reviewer

Uploaded by

Copyright:

Available Formats

SALES LAW CHAP TE R 1 I NTRO DUCTI O N

DEAN CESAR VILLANUEVA

Nature of Obligations Created

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

2. PRINCIPAL v accessory 3. CONSENSUAL v real/solemn

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

TITLE and NOT a mode

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

3. NATURE OF PRODUCT/ TEST OF NECESSITY

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

CHAP TE R 2 P ARTIE S TO A CO NTRACT O F S ALE [CO NS E NT i n KoS ]

DEAN CESAR VILLANUEVA

SALES BETWEEN SPOUSES VOID because no consent

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

CHAP TE R 3 S UBJ E CT MATTE R [O BJ E CT O F KoS ]

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

Contract of Sale v CONTRACT TO SELL

CHAP TE R 4 P RI CE [CAUS E or CO NSI DE RATI O N O F KoS ]

DEAN CESAR VILLANUEVA

VOID contract for lack of cause or consideration

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

EFFECT OF UNASCERTAINABILITY Contract of Sale is INEFFICACIOUS contract

DEAN CESAR VILLANUEVA

CHAP TE R 5 FO RMATI O N O F CO NTRACT OF S ALE

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

NOMINATE PREPARATORY CONSENSUAL similar to a KoS

DEAN CESAR VILLANUEVA

Can be proved by Parol Evidence An option is an unaccepted or unexercised contractual offer.

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA

CHAPTER 6 PERFORMANCE OR CONSUMMATION

OBLIGATIONS OF BUYER 1. PAY THE PRICE 2. ACCEPT DELIVERY OF SM

DEAN CESAR VILLANUEVA

DEAN CESAR VILLANUEVA