Sales Midterms
Sales Midterms
Sales Midterms
1
LAW ON SALES (MIDTERM)
Lectures and Notes (Atty. Gaviola)
I. NATURE OF SALE
Contract
- A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to
give something or to render some service. (Art. 1305)
- its purpose is to create an obligation
Contract of sale
- sale as a contract whereby one of the contracting parties (Seller) obligates himself to transfer the ownership,
and to deliver the possession, of a determinate thing; and the other party (Buyer) obligates himself to pay therefor a
price certain in money or its equivalent. (Art. 1458)
A. Obligations created under the contract
(a) OBLIGATIONS OF SELLER
a) Transfer the ownership
b) Deliver possesion
(b) OBLIGATIONS OF BUYER
a) Pay the price
B. Valid contract of Sale
Cases:
Robern Development v. PLA
Thus, for a contract of sale to be valid, all of the following essential elements must concur: "a) consent or
meeting of the minds; b) determinate subject matter; and c) price certain in money or its equivalent."
As for the price, fixing it can never be left to the decision of only one of the contracting parties. "But a price
fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale."
As regards consent, "when there is merely an offer by one party without acceptance of the other, there is no
contract." The decision to accept a bidders proposal must be communicated to the bidder. However, a binding
contract may exist between the parties whose minds have met, although they did not affix their signatures to any
written document, as acceptance may be expressed or implied. It "can be inferred from the contemporaneous
and subsequent acts of the contracting parties."
There is no perfected contract of sale between PELA and Al-Amanah for want of consent and agreement on
the price.
After scrutinizing the testimonial and documentary evidence in the records of the case, we find no proof of a
perfected contract of sale between Al-Amanah and PELA. The parties did not agree on the price and no consent
was given, whether express or implied.
PUP v CA
The preponderance of evidence shows that NDC sold to PUP the whole NDC compound, including the leased
premises, without the knowledge much less consent of private respondent FIRESTONE which had a valid and existing
right of first refusal.
All three (3) essential elements of a valid sale, without which there can be no sale, were attendant in the
"disposition" and "transfer" of the property from NDC to PUP - consent of the parties, determinate subject
matter, and consideration therefor.
Consent to the sale is obvious from the prefatory clauses of Memorandum Order No. 214 which explicitly states
the acquiescence of the parties to the sale of the property WHEREAS, PUP has expressed its willingness to
acquire said NDC properties and NDC has expressed its willingness to sell the properties to PUP (underscoring
supplied).
Binan Steel v. CA (deed of sale with assumption of mortgage)
Sale is a principal contract, as contrasted from accessory or preparatory contracts, because it can stand on
its own, and does not depend on another contract for its validity or existence; more importantly, that parties
enter into sale to achieve within its essence the objectives of the transaction, and simply not in preparation
for another contract.
Sale is a nominate contract since it has been given a particular name by law;20 more importantly, its nature
and consequences are governed by a set of rules in the Civil Code, which euphemistically we refer to as the
Law on Sales.
Santos v. CA
The nominate and principal characteristics of sale leads to the doctrine held by the Supreme Court that in
determining the real character of the contract, the title given to it by the parties is not as signicant as its
substance.
2. Consensual
Sale is consensual contract (as contrasted from solemn and real contracts), since it is perfected by mere
consent, at the moment there is a meeting of the minds upon the thing which is the object of the contract
and upon the price.
The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price. From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form of contracts. (Art. 1475)
Sale is a bilateral contract embodying reciprocal obligations, as distinguished from a unilateral contract,
because it imposes obligations on both parties to the relationship,44 and whereby the obligation or promise
of each party is the cause or consideration for the obligation or promise of the other.
Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a
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
fulllment of the other.
The legal effects and consequences of sale being a bilateral contract composed of reciprocal obligations are
as follows:
(b) Neither party incurs delay if the other party does not comply, or is not ready to comply in a proper
manner, with what is incumbent upon him; and
(c) From the moment one of the parties ful lls his obligation, the default by the other begins, without the
need of prior demand
Agro-conglomerate v. CA
- once one source is extinguished, the source of others obligation is also extinguished
- Wonderland does not need to pay anymore because there was no longer a contract of sale
4. Onerous
Sale is an onerous contract, as distinguished from a gratuitous contract, because it imposes a valuable
consideration as a prestation, which ideally is a price certain in money or its equivalent.
In Gaite v. Fonacier,56 the Court ruled that the stipulation in a contract of sale on the payment of the balance
of the purchase price must be deemed to cover a suspensive period rather than a condition since there can
be no question that greater reciprocity obtains if the buyers obligation is deemed to be actually existing,
with only its maturity (due date) postponed or deferred, than if such obligation were viewed as non-existing
or not binding until the ore was sold.57 The Court held that the rules of interpretation would incline the
scales in favor of the greater reciprocity of interests, since sale is essentially an onerous contract
5. Commutative
Sale is a commutative contract, as distinguished from an aleatory contract, because a thing of value is
exchanged for equal value, i.e., ideally the value of the subject matter is equivalent to the price paid.
Nevertheless, there is no requirement that the price be equal to the exact value of the subject matter; all
that is required is for the seller to believe that what was received was of the commutative value of what he
gave.
Only recently Buenaventura v. Court of Appeals,64 held that: 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. All the respondents believed that they received the commutative
value of what they gave.
A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his
business manufactures or procures for the general market, whether the same is on hand at the time or not,
is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special
order, and not for the general market, it is a contract for a piece of work. (Art. 1467)
Sale is constituted of real obligations and would be the proper subject of an action for speci c performance.
On the other hand, a contract for a piece-of-work, where the main subject matter is the service to be
rendered (obligation to do), would not allow an action for speci c performance in case the contractor refuses
to comply with his obligation.
Tests for distinction:
3. Barter
By barter or exchange, one of the parties binds himself to give one thing in consideration of the others
promise to give another thing; whereas, by sale, one of the parties binds himself to deliver a thing in
consideration of the others undertaking to pay the price in money or its equivalent.
Dation in payment is one whereby property is alienated to the creditor in full satisfaction of a debt in
money;133 it constitutes the delivery and transmission of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation. By express provision of law, dation in payment is
governed by the Law on Sales,135 since it essentially involves the transfer of ownership of a subject matter.
In Vda. De Jayme v. Court of Appeals, the Court observed that in its modern concept, what actually takes
place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted
equivalent of the performance of an obligation is considered as the object of the contract of sale while the
debt is considered as the purchase price; that is why the elements of sale must be present, including a clear
agreement that the things offered is accepted for the extinguishment of the debt.
Lo v. KJS Eco-Formwork System Phil., Inc., holds that in order that there be a valid dation in payment, there
must be:
(a) 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;
(b) Some difference between the prestation due and that which is given in substitution (aliud pro alio); and
(c) 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.
The third requisite that there must be an agreement that the delivery of the property is in lieu of payment is
best demonstrated in Philippine Lawin Bus Co. v. Court of Appeals, where the Court held that a transfer of
property between debtor and creditor does not automatically amount to a dacion en pago, since it is
essential that the transfer must be accompanied by a meeting of the minds between the parties on whether
the loan ... would be extinguished by dacion en pago.
5. Contract to Sell
Conditional Sale
Contract to sell
As to reservation of title to the subject property
In both cases the seller may reserve the title to the subject property until fulfillment of the suspensive condition i.e.
full payment of the price
As to effect of fulfillment of suspensive condition
Upon fulfillment of the suspensive condition, the contract
Upon fulfillment of the suspensive condition, which is the
of sale is thereby perfected, such that if there had been
full payment of the purchase price, ownership will not
previous delivery of the subject property to the buyer,
automatically transfer to the buyer although the property
ownership thereto automatically transfers to the buyer by
may have been previously delivered to him. The
operation of law without any further act by the seller.
prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute
sale.
As to effect of sale of the subject property to 3rd persons
Constructive /actual knowledge on the part of the 2nd
Third person buying the property despite fulfilment of the
buyer of the defect in the sellers title renders him not a
suspensive condition cannot be deemed a buyer in bad
registrant in good faith. Such second buyer cannot defeat faith and prospective buyer cannot seek the relief of
the first buyers title. Ratio: Fulfilment of the suspensive
reconveyance of property. Exception: If There was no
conditions affects the sellers title to the property and
previous sale of the property.
previous delivery of the property automatically transfers
ownership/title to the buyer.
David v. Misamis Occidental
In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer,
meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of
the contract to sell until the happening of an event, such as, in most cases, the full payment of the purchase
price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the
entire amount of the purchase price is delivered to him. In other words, the full payment of the purchase price
partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and,
thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.
In a contract of sale, on the other hand, the title to the property passes to the vendee upon the delivery of
the thing sold. Unlike in a contract to sell, the first element of consent is present, although it is conditioned upon
the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the
perfection of the contract of sale is completely abated. However, if the suspensive condition is fulfilled, the
contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject
of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any
further act having to be performed by the seller. The vendor loses ownership over the property and cannot
recover it until and unless the contract is resolved or rescinded.
An examination of the alleged contract to sell, "Exhibit A," despite its unconventional form, would show that
said document, with all the stipulations therein and with the attendant circumstances surrounding it, was actually
a Contract of Sale.
Santos v. CA
It must be emphasized from the outset that a contract is what the law defines it to be, taking into
consideration its essential elements, and not what the contracting parties call it.14 Article 145815 of the Civil
Code defines a contract of sale. Note that the said article expressly obliges the vendor to transfer the ownership
of the thing sold as an essential element of a contract of sale.16 We have carefully examined the contents of the
unofficial receipt, Exh. D, with the terms and conditions informally agreed upon by the parties, as well as the
proofs submitted to support their respective contentions. We are far from persuaded that there was a transfer of
ownership simultaneously with the delivery of the property purportedly sold. The records clearly show that,
notwithstanding the fact that the Casedas first took then lost possession of the disputed house and lot, the title to
the property, TCT No. 28005 (S-11029) issued by the Register of Deeds of Paraaque, has remained always in
the name of Rosalinda Santos.17 Note further that although the parties agreed that the Casedas would assume
the mortgage, all amortization payments made by Carmen Caseda to the bank were in the name of Rosalinda
Santos.18 We likewise find that the bank's cancellation and discharge of mortgage dated January 20, 1990, was
made in favor of Rosalinda Santos.19 The foregoing circumstances categorically and clearly show that no valid
transfer of ownership was made by the Santoses to the Casedas. Absent this essential element, their agreement
cannot be deemed a contract of sale. We agree with petitioner's averment that the agreement between Rosalinda
Santos and Carmen Caseda is a contract to sell. In contracts to sell, ownership is reserved the by the vendor and
is not to pass until full payment of the purchase price. This we find fully applicable and understandable in this
case, given that the property involved is a titled realty under mortgage to a bank and would require notarial and
Generally, minors, insane and demented persons, and deaf mutes who do not know how to write, have no
legal capacity to contract, and therefore are disqualied from being parties to a sale. Nonetheless, contracts
entered into by such legally incapacitated persons are not void, but merely voidable, subject to annulment
or ratication. The action for annulment cannot be instituted by the person who is capacitated since he is
disqualied from alleging the incapacity of the person with whom he contracts.
Art. 1490. The husband and the wife cannot sell property to each other, except:
(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation or property under Article 191.
Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in
person or through the mediation of another:
(1) The guardian, the property of the person or persons who may be under his guardianship;
(2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent
of
the principal has been given;
(3) Executors and administrators, the property of the estate under administration;
(4) Public officers and employees, the property of the State or of any subdivision thereof, or of any
government-owned or controlled corporation, or institution, the administration of which has been intrusted to
them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part
in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and
Determinate Subject Matter: A thing is determinate or speci c when it is particularly designated or physically
segregated from all others of the same class.
Determinable Subject Matter On the other hand, a thing is determinable only when two (2) requisites are
present: (a) If at perfection of the sale, the subject matter is capable of being made determinate (the capacity
to segregate test); and
(b) Without the necessity of a new or further agreement between the parties (the no further agreement test).
- when particularly designated or physically segregated from all others of the same class
- when subject matter is capable of being determinate without need of new or further agreement between parties
Melliza v. CA
Melliza sold under a deed several tracts of land to the then Municipality of Iloilo, including lots 1214C and
1214-D. The instrument of sale did not mention lot 1214-B, although it was contiguous to the other two lots, but
stipulated that the area being sold shall include the area needed for the construction of the city hall site,
avenues and parks according to the Arellano plan. The Arellano plan had long been in existence before the
In the case at bar, Soriano initially offered to sell palay grains produced in his farmland to NFA. When
the latter accepted the offer by noting in Sorianos Farmers Information Sheet a quota of 2,640 cavans,
there was already a meeting of the minds between the parties. The object of the contract, being the palay
grains produced in Sorianos farmland and the NFA was to pay the same depending upon its quality. The fact
that the exact number of cavans of palay to be delivered has not been determined does not affect the
perfection of the contract. Article 1349 of the New Civil Code provides: ... 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. In this case, there was no need for NFA and
Soriano to enter into a new contract to determine the exact number of cavans of palay to be sold. Soriano
can deliver so much of his produce as long as it does not exceed 2,640 cavans.
The controlling doctrine in National Grains Authority is that speci c quantity of the subject matter 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.
2. Licit
Article 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the
time it is delivered.
The subject matter of the contract of sale must be licit. A thing is licit and may be the object of a contract when it
is not outside the commerce of men, and all rights which are not intransmissible. When the subject matter is
illicit, the resulting contract of sale is void.
Again, the illegality of the subject matter, even though it is determinate and existing and capable of actual
delivery, undermines the demandability of the underlying obligation of the seller to deliver, and renders the sale
void.
- Subject matter must be licit or LEGAL.
- means: must not be outside the commerce of man
- must be present at time of perfection
Second paragraph of 1459 (taken separately with first par.)
- Ownership of vendor: is required at the time of transfer or delivery (CONSUMMATION)
Cases:
Quijada v. CA
- did not consider as void the sale by the donor of land previously donated to a local government unit under
a resolutory condition as a sale outside the commerce of men under Article 1409(4) of the Civil Code, in that
patrimonial properties of a local government unit, especially those conditionally owned by said unit, as being
outside the commerce of men. It held that the objects referred to as outside the commerce of man are those
which cannot be appropriated, such as the open seas and the heavenly bodies.
- conditional donation (resolutory)
- ownership is not a requisite for the perfection of contract of sale
- by virtue of Article 1434, Mondejar has the right over the property
Article 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later the
seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee.
Heirs of San Miguel v. CA
Therefore, to insist that Dominador, et al. pay the price under such circumstances would result in Severinas
heirs unjust enrichment.[40] Basic is the principle in law, Niguno non deue enriquecerse tortizamente condano de
otro.[41] The essence of a sale is the transfer of title or an agreement to transfer it for a price actually paid or
Object
If it doesnt exist
Possibility of existence
Emptio spei
Hope or Chance
Uncertain
It is a right of first priority all things and conditions being equal; there should be identity of the terms and
conditions to be offered to the optionee and all other prospective buyers, with optionee to enjoy the right of first
priority. A deed of sale executed in favor of a third party who cannot be deemed a purchaser in good faith, and
which is in violation of the of the right of first refusal granted to the optionee is NOT voidable under the Statute
of Frauds, such contract is valid BUT rescissible under Article 1380 to 1381(3) of the New Civil Code (Guzman
Bocaling & Co. vs. Bonnavie; Riviera Filipina, Inc vs. CA et.al. GR No. 117355, April 5, 2002).
The basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of any
prospective buyer. Only after the optionee fails to exercise its right of first priority under the same terms and
within the period contemplated could the owner validly offer to sell the property to a third person, again, under
the same terms as offered to the optionee (Paranaque Kings Enterprises, Inc. vs. CA GR No. 111538, February
26, 1997)
The lessees right of first option to buy the leased property in case of its sale is but a part of the bigger right to
lease the said property from the lessor. The option was given to the lessee because she was the lessee of the
subject property. It was a component of the consideration of the lease. The option was by no means an
independent right which can be exercised by the lessee. If the lessee is barred by the contract from assigning
her right to lease the subject property to any other party, the lessee is similarly barred to assign her first option
to buy the leased property to another. (Bangayan et.al vs. CA and Lim GR No.123581, August 29, 1997)
Earnest money
or ARRAS is something of value to show that the buyer was really in earnest, and given to the seller to bind the
bargain. It is considered as: a) part of the purchase price b) proof of perfection of the contract *It shall be deducted
from the total price.
Earnest Money
Title passes to the buyer upon delivery of the thing sold.
In case of non-payment, an action for specific
performance or for rescission can be filed by the injured
party
Part of the purchase price
When given, the buyer is bound to pay the balance
Given when there is already a sale
Option Money
Ownership is reserved to the seller and is not to pass until
full paymen
In case of non-payment, there can be action for specific
performance
Money given as a distinct consideration for an option
contract
The would-be buyer is not required to buy
Applies to a sale not yet perfected