SALE
Is a contract where one party (SELLER OR VENDOR)
obligates himself to transfer the ownership of and to
deliver a determinate thing, while the other party (BUYER
OR VENDEE) obligates himself to pay for said thing a
price certain in money or its equivalent.
Can be availed of:
a. If the Contract is Valid;
b. The contract is ENFORCEABLE, that is, it does
not violate the Statute of Frauds.
To determine whether a contract is a SALE, the intent
of the parties shall govern.
Essential Characteristics of a Contract of Sale:
1. Consensual – contract is perfected by mere
consent;
Delivery or payment is not essential for
perfection. However, the contract of sale is
consummated upon delivery and payment. (Art.
1475)
2. Bilateral reciprocal – both parties are bound by
obligations dependent upon each other;
3. Onerous – because to acquire rights, valuable
considerations must be given;
4. Commutative – the values exchanged are almost
equivalent to each other;
5. Principal – for the contract of sale to validly exist,
there is no necessity for it to depend upon the
existence of another contract;
6. Nominate – the Code refers to it by a special
designation or name that is the contract of sale.
DATION IN PAYMENT – (DACION EN PAGO)
-A mode of extinguishing an obligation whereby the
debtor pays a monetary obligation with property.
Essential Elements of the Contract of Sale: (COC)
a. Consent - A contract of sale is consensual hence,
it is perfected by mere consent as to the price and
subject matter.
General Rule: Being consensual, noncompliance with the formal requirements does
not affect the validity of sale.
EXP: When form (should be in writing and not
merely verbal) is important:
1. A contract not to be performed in 1 year
Example: A sale agreement which by its
terms is not to be performed within a year;
2. Sale at a price of PHP 500 and above;
3. Sale of land
b. Object
c. Consideration or Price certain in money or its
equivalent.
Formalities for Perfection: Under the Statutes of
Frauds, the sale of;
a. Real property (regardless of the amount must be
in writing) public instrument;
b. Personal property – if P500 or more must be in
writing to be enforceable.(either public or private
instrument)
If the law requires a document or other special form, as in
the acts and contracts enumerated in the following article,
the contracting parties may compel each other to observe
that form, once the contract has been perfected. This right
may be exercised simultaneously with the action upon the
contract. (Art. 1357)
EXAMPLE: Dation in payment in a mortgage happens
when the debtor cannot pay his installments. Then he
proceeds to deliver the house to the banking institution
and in this way liquidates the debt. Using this method,
the delivery of the house will be enough to pay off the
mortgage loan.
SALES
DATION IN PAYMENT
1) T h e r e i s n o p r e - e x i s t i n g 1) There is a pre-existing credit;
credit;
2) Give rise to obligations;
2) Extinguishes obligations;
3) The c au s e o r c o n s id er at io n
h er e i s t h e p r i c e, f r o m t h e
v i ew p o i n t o f t h e s el l er ; o r t h e
obtaining of the object, from the
viewpoint of the buyer;
3) The cause or consideration
here, from the viewpoint of the
p er s o n o f f er i n g t h e d at i o n i n
payment, is the extinguishment
of his debt; from the viewpoint
of the c r edi tor, i t i s t h e
acquisition of the object offered
in lieu of the original credit;
4) Ther e is g r eat er f r eed o m i n 4 ) T h e r e i s l e s s f r e e d o m i n
the determination of the price;
determining the price;
5) The giv ing of t he pr ic e may 5) Th e g i v i n g o f t h e o b j ec t i n
generally end the obligation of lieu of the credit may extinguish
the buyer;
c o m p l et el y o r p ar t i al l y t h e
c r ed i t (d ep en d i n g o n t h e
agreement.
BARTER OR EXCHANGE
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A contract by virtue of which one of parties binds
himself to give one thing in consideration of the
other’s promise to give another thing.
If there is no acceptance of the offer there is no
perfected contract of barter.
Effect if giver was not the Owner of the thing
delivered: The aggrieved person is freed from his
own duty to deliver. Moreover, he can claim
damages.
Barter is similar to a sale with the only difference that
instead of paying a price in money, another thing is given
in lieu of the purchase price.
A RULE to Determine Whether Contract is One of Sale
or Barter:
contract of sale by itself is not a mode of acquiring
ownership.
1. First Rule – INTENT;
2. If intent does not clearly appear
2.1. If the thing is more valuable than money –
BARTER;
2.2. If 50-50 – SALE;
2.3. If thing is less valuable than the money –
SALE
Can Future Goods be Subjects of a Contract of
Sale? -YES.
Example: If I give my car worth P25, 000.00 to Jose in
consideration of Jose’s giving to me P10, 000 cash and
a diamond ring worth P15,s000, is the transaction a
sale or a barter?
ANSWER: It depends on the mutual intent of parties. If
the intent is not clear, the transaction is BARTER
because the ring is more valuable than the P10,
000.00.
Art. 1459. Two Rules pertaining to Right to Transfer
Ownership:
a. The object must be licit (lawful or within the
commerce of man)
b. The vendor must have the right to transfer
ownership at the time the object is delivered.
PIECE OF WORK - exist if the goods are to be
manufactured especially for the customer and upon his
special order, and not for the general market.
RULES TO DETERMINE IF THE CONTRACT IS ONE
OF SALE OR A PIECE OF WORK:
a. If ordered in the ordinary course of business –
SALE;
b. If manufactured specially and not for the market
–
PIECE OF WORK CONTRACT.
OBJECT
REQUISITES OF A VALID OBJECT (SUBJECT
MATTER)
1. Existing and future things;
a. EXISTING GOODS - Goods owned or
possessed by the seller at the time of
perfection.
b. FUTURE THINGS - Goods to be
manufactured raise or acquired by the
seller after the perfection of the contract.
2. Licit or lawful
3. Determinate of determinable
DOES THE SELLER NEED TO BE THE OWNER
AT THE TIME OF THE PERFECTION OF THE
SALE? NO.
Transfer of Ownership – Although the seller must be the
owner, he need not be the owner at the time of the
perfection of the contract. It is sufficient that he is the
owner at the time the object is delivered
(CONSUMMATION), otherwise he may be held liable for
breach of warranty against eviction. Be it noted that the
Future Goods which may be the subject of a Contract
of Sale:
a. Those which still to be manufactured;
b. Still to be raised or future agricultural products;
c. Acquired by seller after the perfection of the
contract; (Ex. Land which the seller expects to
buy);
d. Things whose acquisition depends upon
contingency which
may or may not happen.
(Ex. Selling of a car which the seller
expected to receive)
NOT VALID SUBJECT OF SALE:
Future inheritance (one where the source of property is
still alive) cannot be the subject of a contract.
LICIT OR LAWFUL - The thing must be licit and the
vendor must have a right to transfer the ownership thereof
at the time it is delivered (Art. 1459)
Not outside the commerce of man (can be sold)
Examples:
*Narcotics/ drugs
*Things of public ownership (public places, streets,
sidewalks)
*Human body
DETERMINATE - always specific; particularly designated
or physically segregated from all others of the same class;
Example: Honda Civic Car with plate no. XYZ827
DETERMINABLE - always generic; Thing is capable of
being made determinate. Example: 20 kg of sugar
CONSIDERATION (PRICE) - The sum stipulated as the
equivalent of the thing sold and also every incident taken
into consideration for the fixing of the price.
REQUISITES OF A VALID CONSIDERATION
(SUBJECT MATTER)
1. REAL - Not simulated; there is every intention on
the buyer to pay the price.
2. IN MONEY OR ITS EQUIVALENT Consideration for a valid contract of sale can be
the price and other valuable consideration;
Sale is valid when consideration is partly in
money and partly in another thing.
3. CERTAIN - expressed and agreed in terms of
specific pesos and/or centavos.
ASCERTAINABLE
If not certain, at least ascertainable
i.
Set by third persons (Ex: Price decided by a
friend)
ii.
Set by the courts – only in cases where the third
person designated to fix the price, fixes the same
in bad faith or by mistake.
iii.
iv.
Set by reference to a definite day, particular
exchange or market (Ex: Tomorrow’s exchange
rate)
Set by reference to another thing certain (Ex:
Price of another laptop with similar specs)
CERTAINTY OF THE PRICE
The price must be certain; otherwise there is no true
consent between the parties. There can be no sale
without a price. If the price is fixed but is later on remitted
or condoned, this is perfectly all right, for the price would
not be fictitious. The failure to pay the agreed price does
not cancel a sale for lack of consideration, for the
consideration is still there, namely the price.
What is the Effect of Gross Inadequacy of Price in
a Contract of Sale? The Price is Right
Effect of Gross Inadequacy of Price
Sale remains valid even if the price is very low except if
there is vitiated consent. (Applies only to voluntary sale)
Simulated Price
The price must not be fictitious. Therefore if the price is
merely simulated, the contract as a sale is void. It may
however be valid as a donation or some other agreement
provided the requirements of donations or other
agreements have been complied with. If these
requirements do not exist, then as a sale, the contract is
absolutely void, not merely voidable.
EFFECT IF PRICE CANNOT BE DETERMINED:
a. If the price cannot really be determined, the sale
is VOID for the buyer cannot fulfil his duty to pay;
b. If the buyer has made use of it, he should not be
allowed to enrich himself unjustly at another’s
expense. So he must pay a “reasonable price.”
The seller’s price however must be the one paid
if the buyer knew how much the seller was
charging and there was an acceptance of the
goods delivered. Here, there is an implied
assent to the price fixed.
EFFECT OF NON-PAYMENT OF THE PRICE:
Non-payment of price does not cancel the sale, as the
sale is considered perfected. But it is a cause for either:
(a) Specific performance; or
(b) Rescission (Cancellation)
STAGES OF THE CONTRACT OF SALE:
a. Generation or negotiation;
- Period from the time the prospective contracting
parties indicate their interest in the contract to the
time the contract is perfected.
b. Perfection
- Birth; as a general rule, contracts are perfected
by mere consent of the parties regarding the
subject matter and the cause of the contract.
They are obligatory in whatever form they may
have been entered into, provided all the essential
requisites (COC) for their validity is present.
c.
Consummation.
- Period when the parties perform their respective
undertaking under the contract, culminating in the
extinguishment thereof.
Contract of SALE is a consensual contract hence; it is
perfected by mere consent of parties. It is consummated
upon delivery and payment.
Transfer of Ownership: Mere perfection of the contract
does not transfer ownership. Ownership of the object sold
is transferred only after delivery. The rule is therefore this:
After delivery of the object, ownership is transferred. (Art.
1477)
HOW DO YOU DELIVER A REAL PROPERTY
(LAND)?
General Rule: Execution of Public Instrument is
equivalent to constructive delivery.
WHAT IF OBJECT IS LOST BEFORE/AFTER
DELIVERY?
Who bears the Risk of Loss? (Art. 1480)
a. If the object has been lost before perfection (no
contract yet), the seller bears the loss;
b. If the object was lost after delivery to the buyer,
clearly the buyer bears the loss;
c. If the object is lost after perfection but before
delivery, the buyer bears the loss, only if seller is
without fault or is not delayed.
Complete loss distinguished from Partial Loss at the
time of perfection: (Art. 1493)
a. When the object has been COMPLETELY LOST
- Contract shall be without effect;
b. When the object has been PARTLY or
PARTIALLY LOST;
b.1.
Withdrawal (or rescission);
b.2.
Specific performance as to remainder by
payment of proportional price.
Earnest Money
- called “arras” is something of value to show that
the buyer was really in earnest, and given to the
seller to bind the bargain.
- Like a “Deposit”
Significance of Earnest Money:
a. Part of the purchase price;
b. As proof of perfection of the contract.
Option Money
- an amount distinct from the purchase price, in
order to secure for the buyer the opportunity to
make up his mind. Given when sale is not yet
perfected.
EARNEST MONEY VIS-À-VIS OPTION MONEY
EARNEST MONEY
OPTION MONEY
Given as part of the purchase
price
Given as distinct consideration
for an option contract
Given only when there is
already a sale
Given when sale is not yet
perfected (no sale yet)
When given, buyer is bound to
pay the balance
When given, the option holder
(buyer or seller) is not
required to exercise the
option (either to buy or sell.
Buyer manifests his earnest
desire to buy the property
Grantee of option is still
undecided whether or not to
buy or sell the property
CAPACITY TO BUY AND SELL
B. RELATIVE INCAPACITY
- Spouses
- Others – Trust relationship
*Guardian/Agent/Executor/Administrator
*Public officers and employees/ Justices and
Judges/ Officers of court/ Lawyers
Art. 1490. The husband and the wife cannot sell
property to each other.
EXCEPT:
a. When a separation of property was agreed upon
in the marriage settlements; or
b. When there has been a judicial separation of
property.
Is the prohibition under Article 1490 applicable to
common-law relationships? -YES
Although under Art. 1490 the husband and wife cannot
sell property to one another as a rule which, for policy
consideration and the dictates of morality require that the
prohibition apply to common-law relationships, petitioner
can no longer seek reconveyance of the property to her
as it has already been acquired by respondent Vizconde
in good faith and for value from her own transferee.
GENERAL RULE: All persons who are authorized by the
Civil Code to obligate themselves may enter into a
contract of sale as long as these persons are with civil
capacity.
WHO ARE NOT ALLOWED TO ENTER INTO A
CONTRACT OF SALE?
Two Types of Incapacity:
a. Absolute Incapacity – When a party cannot bind
himself in any case;
b. Relative Incapacity – When certain persons,
under certain circumstances, cannot buy certain
property.
A. ABSOLUTE INCAPACITY
- Minors
- Insane and Demented persons
- Deaf-mutes who do not know how to write.
- Also includes state of drunkenness and hypnotic
spell.
When minors buy, the contract is generally voidable, but
in the case of necessaries, where necessaries are sold
and delivered to a minor or other person without capacity
to act, he must pay a reasonable price therefore.
Necessaries include everything that is indispensable for
sustenance, dwelling, clothing and medical attendance,
according to the social position of the family. Support also
includes the education of the person entitled to be
supported until he complete his education or training for
some profession, trade, or vocation, even beyond the age
of majority.
Generally a sale by one spouse to another is VOID.
However, not everybody can assail the validity of the
transaction. Thus, creditors who became such after the
transaction cannot assail its validity for the reason that
they cannot be said to have been prejudiced. But (i) prior
creditors as well as (ii) the heirs of either spouse may
invoke the nullity of the sale.
RELATIVE INCAPACITY TO BUY
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:
a. The guardian, the property of the person or
person who may be under his guardianship;
b. Agents, the property whose administration or sale
may have
been entrusted to them, unless
the consent of the principal has been given;
c. Executors and administrators, the property of the
estate under administration;
d. 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
entrusted to them; this provision shall apply to
judges and government experts who, in any
manner whatsoever, take part in the sale;
e. Justices, judges, prosecuting attorneys, clerks of
superior and
inferior courts, and other officers
and employees connected
with
the
administration of justice, the property and rights
in litigation or levied upon an execution before the
court within whose jurisdiction or territory they
exercise their respective functions; this
prohibition includes the act of acquiring by
assignment and shall apply to lawyers, with
respect to the property and rights which may be
the object of any litigation in which they may take
part by virtue of their profession;
Any others specially disqualified by law.
RULES when Quality is Different:
a. Accept the goods which are in accordance with
the contract;
b. And reject the rest: (If the sale is indivisible, the
buyer may reject the whole of the goods.)
Rights or Obligations of the VENDOR/SELLER:
a. To transfer ownership (cannot be waived); As a
rule in the absence of agreement, ownership is
not transferred, even if sold, unless there has
been a delivery.
b. To deliver (cannot be waived);
* Thing sold is understood as delivered, when it is
placed in the control and possession of the
vendee.
c. To warrant the object sold (this can be waived or
modified since warranty is not an essential
element of the contract of sale);
d. To preserve the thing from perfection to delivery,
otherwise he can be held liable for damages.
What is an unpaid seller?
The seller of goods is deemed an unpaid seller under the
following circumstances: (Art. 1525)
f.
ON SALE OR RETURN (Art. 1502 par. 1)
- When goods are delivered to the buyer “on sale
or return to give the buyer the option to return the
goods instead of paying the price, the ownership
passes to the buyer on delivery, but he may
revest the ownership in the seller by returning or
tendering the goods within the time fixed in the
contract, or, if no time has been fixed, within a
reasonable time.
-
-
The buyer has no right to return if he has
materially abused the condition of the thing. The
sale in this case becomes absolute.
If the object deteriorates without the fault of the
buyer, the buyer can still return, provided the
reasonable period for returning has not yet
lapsed.
Ownership is transferred at once.
Reservation of ownership despite delivery Although delivery has been made, seller may
reserve ownership till certain conditions are
fulfilled. Of course the most important controlling
element is the intention. (Shipment by common
carriers) (Art. 1503)
RULES when the Quantity is LESS than that Agreed
Upon: (Art. 1522)
a. The buyer may REJECT;
b. Or buyer may accept what have been delivered,
at the contract rate.
RULES when the Quantity is MORE than the
Agreement:
a. Buyer may reject ALL. He must not be burdened
with the duty of segregation, if he does not so
desire;
b. Buyer may accept the goods agreed upon and
reject the rest;
c. If he gets all, he must pay for them at the contract
rate.
a. When the whole of the price has not been paid or
tendered;
b. When a bill of exchange or other negotiable
instrument has been received as conditional
payment, and the condition on which it was
received has been broken by reason of the
dishonour of the instrument, the insolvency of the
buyer or
otherwise.
The term “seller” includes any person who is in
the position of the seller, such as agent of such
seller whom the bill of lading has been indorsed,
or a consignor or agent who has himself, paid, or
is directly responsible for the price.
What if the buyer only paid or tendered HALF of the
contract price, can the seller still be considered as an
“unpaid seller”?
ANSWER: YES. If only part of the price has been paid
or tendered, the seller is still considered as an unpaid
seller.
- Mere delivery of a negotiable instrument does not
extinguish the obligation of the buyer to pay because it
may be dishonoured.
Remedies / Rights of an unpaid seller: (Art. 1526)
a. A lien on the goods or right to retain them for the
price while he is in possession of them;
b. In case of the insolvency of the buyer, a right of
stopping the goods in intransitu after he has
parted with the possession of them;
c. A right of resale;
d. A right to rescind the sale.
Lien: a right to keep possession of property belonging to
another person until a debt owed by that person
is discharged.
PARTIAL LIEN: Where the unpaid seller has made part
delivery of the goods, he may exercise his right of lien on
the remainder, unless such part delivery has been made
under such circumstances as to show intent to waive the
lien or right of retention.
Right of stoppage in transitu - refers to the right of the
unpaid seller to resume possession of the goods at any
time while they are in transit by virtue of which he will be
entitled to the same rights in regard to the goods as he
would have had if he had never parted with the
possession.
Rescind the sale - Revoke or cancel the sale.
The vendor is bound to deliver the thing sold and its
accessions and accessories in the condition in which they
were upon the perfection of the contract.
All the fruits shall pertain to the vendee from the day on
when the contract was perfected. (Art. 1537)
Example of accessions – Fruits
Example of accessories – In the sale of a car, the jack
is considered an accessory.
WARRANTIES
Warranties may be express or implied.
Implied warranties are natural elements of a contract of
sale.
Express Warranty - It is any affirmation of fact, or any
promise by the seller relating to the thing if the natural
tendency of such affirmation or promise is to induce the
buyer to purchase the same and if the buyer purchases
the thing relying thereon. It includes all warranties derived
from the language of the contract, so long as the language
is express. Thus, the warranty may take the form of an
affirmation, a promise or a representation.
Implied Warranties in a Contract of Sale: (Art.1547)
1. An implied warranty on the part of the seller that
he has a right to sell the thing at the time when
the ownership is to pass, and that the buyer
shall from that time have and enjoy the legal
peaceful possession of the thing; and (Warranty
Against
Eviction)
2. An implied warranty that the thing shall be free
from any hidden defects, or any charge or
encumbrance not declared or known to the
buyer. (Warranty against Hidden Defects)
These warranties , however, do not mean that a
sheriff, auctioneer, mortgagee, pledgee, or other
person professing to sell by virtue of authority in
fact or in law, can be held liable for the sale of a
thing in which a third person has a legal or
equitable interest.
What is a Warranty in Case of Eviction / Against Eviction?
Warranty in Case of Eviction: Is an implied warranty in contracts
of sale, by virtue of which if the vendee is deprived of the whole
or a part of thing, such vendor shall answer for the eviction even
though nothing has been said in the contract on the subject. The
contracting parties, however, may increase, diminish, or
suppress this legal obligation of the vendor.
The warranty in case of eviction is a natural element in the
contract of sale, hence, the vendor answers for eviction
even if the contract be silent on this point.
WARRANTY AGAINST HIDDEN DEFECTS
ENCUMBRANCES UPON THE THING SOLD
-
OR
The seller shall be liable for his warranty even
though he himself is unaware of the hidden defect
of the thing sold. (Art. 1566)
The seller, however, shall NOT be answerable for
patent or visible defects, or those that may be
readily perceived. (Art. 1561)
Why is the seller responsible for hidden defects even if
he is in good faith?
ANSWER: Because he has to repair the damage done.
The object of the law is reparation not punishment.
OBLIGATIONS OF THE VENDEE/ BUYER
Principal obligations of the Buyer:
1. Accept delivery;
2. Pay the price.
If the seller delivered but no time has been fixed
for the payment of the price, the seller may
require payment to be made any time after
delivery. The buyer here has the duty to pay the
price immediately upon demand.
General Rule: No delivery by instalments:
Exception: if there is an express provision.
Is the buyer entitled to examine the goods prior to
delivery?
ANSWER: Generally, the buyer is entitled to examine
the goods prior to delivery.
Exceptions:
a. When there is a stipulation to the contrary;
b. When the goods are delivered C.O.D. (Collect on
Delivery) – unless there is an agreement or a
usage of trade permitting such examination.
RULES ON DOUBLE SALE
RULES OF PREFERENCE IN CASE OF DOUBLE
SALE: (Art. 1544):
-
As to movables – The ownership shall be
transferred to the person who may have first
taken possession thereof in good faith;
As to immovable; The ownership shall be
transferred: (Code: RPO)
a. To the person acquiring it who in good faith
first recorded it in the Registry of Deeds;
(First Registrant)
b. In the absence thereof, to the person who in
good faith was first in possession; (First
Possessor)
c. In the absence thereof, to the person who
presents the oldest title, provided there is
good faith. (With Oldest Title)
Possession is either actual or constructive since the law
makes no distinction.
Example: A sold land to B. Subsequently, A sold the
same land to C who in good faith registered it in his
name. Who should be considered the owner?
Answer: C in view of the registration in good faith.
BREACH OF CONTRACT - A breach occurs when either
the seller or the buyer goes against the terms of the sales
contract.