Sales

Sales and LeaseAUF School of Law (outline by Atty. Marianne Beltran-Angeles)

Part 11. Essential Requirements of Contractual

Obligations(Art. 1305, 1306, 1316, 1318, 1356)

ARTICLE 1305. 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. (1254a)

Contract (cum traho)- meeting of the minds between 2 persons whereby one binds himself, with respect to the other, to give something or to render some service.

– agreement– limited exclusively to those agreements

which produce patrimonial obligations– specie– juridical convention manifested in legal

form, by virtue of which one or more persons bind themselves in favor of another or others, or reciprocally to the fulfillment of a prestation to give, to do, or not to do.

convention – includes any kind of agreement which may create,modify, or extinguish patrimonial and even family relations

– genus

Contract distinguished from other terms:Source of rights and obligations

Contract – agreement of the parties

Others – law

Nature of the rights and obligations

Contract- concrete, limited, and transitory

others- elastic, absolute, permanent

Elements of contracts:Essential elements- without which there can be no contracts

Common – present in all contracts (consent of both parties, object of the contract, cause of

the obligation, parties)special – present only in certain contracts (delivery in real contracts, form in solemn contracts)

extraordinary – unique to a specific contract (price in a contract of sale)

Natural elements derived from the nature of the contract and ordinarily accompany the same

presumed by law although can be excluded by the contracting parties

Accidental elements Exist only when the parties expressly provide for them for the purpose of limiting or modifying the normal effects of the contract.

auto-contract – there is only one party involved but said party merely acts in the name and for the account of two distinct contracting parties.

1. When a representative of another contracts with himself

2. when as representative of 2 persons brings about contract with himself and the principals

characteristics of contracts (OMAR)1st: obligatory force or character

– contracting parties are bound, not only to the fulfillment of what has been expressly stipulated, but also to all of the consequences thereof.

2nd mutuality of contracts– contracts are binding upon both of the

parties3rd autonomy of contracts

– parties may establish such agreements as they may deem convenient, provided they

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are not contrary to law, morals, good customs, public order, or public policy.

4th relativity of contracts– take effect only between the parties, their

assigns and heirs.

3 phases or stages of the life of contract1st stage:GENERATION

– preliminary preparation, conception of generation, period of negotiation, ending at the moment of agreement of the parties

2nd stage: PERFECTION– moment when parties come to agree on

the terms of the contracts

3rd stage: CONSUMMATION– fulfillment or performance of the terms

agreed upon in the contract

Classification of contracts:Accdg to their relation to other contracts

• Preparatory – necessary as a preliminary step towards the celebration of another subsequent contract

• principal – can subsist independently

• accessory – can exist only as a consequence of another prior contract.

Accdg. to their perfection

• Consensual – perfected by mere agreement of the parties

• real – perfected with the consent of the parties and the delivery of the object by one party to the other.

Accdg. To form

• Common or informal – no particular form

• special or formal – require some particular form

Accdg. To their purpose

• Transfer of ownership• conveyance of use• rendition of service

Accdg. To subject matter

• Things• services

Nature of the vinculum which they produce

• Unilateral – gives rise to an obligation for only one of the parties

• bilateral – gives rise to reciprocal obligation

Accdg. To cause

• Onerous – 1 of the parties aspire to procure for himself a benefit through the giving of an equivalent or compensation

• gratuitous – 1 of the parties proposes to give to the other a benefit without equivalent or compensation.

Accdg. To risk involved

• Commutative – each of the parties acquires an equivalent of his prestation and such equivalent is pecuniarily appreciable and already determined.

• aleatory – which each of the parties has to his account the acquisition of an equivalent of his prestation although pecuniarily appreciable and such is not yet determined.

Accdg. to norms

• Nominate – have their own individuality, regulated by special provisions of law

• innominate – lack individuality, not regulated by special provisions of law



ARTICLE 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (1255a)

***right of the contracting parties to establish any stipulation, clause, term or condition as they may deem convenient. (constitutional and statutory right)

limitations: stipulation, clause, term or condition established must not be contrary to:

• law– mandatory or prohibitive in character– expressive of fundamental principles of

justice– impose essential requisites

• morals– principles which are incontrovertible

and are universally admitted and which have received social and practical recognition

• good customs– includes even those moral precept not

recognized universally but is sanctioned by the practice of a certain community

• public order– safety, peace and order of the country

or of any particular community• public policy

– no person can lawfully do that which has a tendency to be injurious to the public or against public good.

test: WON restraint is reasonably necessary for the protection of the parties

ARTICLE 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected until the delivery of the object of the obligation. (n)

perfection of contracts – moment in the life of the contract where the parties come to an agreement

with respect to the object or cause of the contract.– signifies the birth of the contract as

obligatory tie, resulting from the concurrence of the wills of the contracting parties.- Manresa

General rule: Perfection of a contract is produced by mere consent.Exception:

• contracts of commodatum, pledge, and deposit are perfected upon delivery of the object by one of the contracting parties.

consensuality – some submit that this is one of the fundamental characteristic of a contract But this does not hold water in those Real contracts which requires delivery before its perfection.

Consensual contracts – perfected by mere consent of the partiesreal contracts – perfected after delivery of the object (pledge, commodatum, depositum, mutuum)

It is only when there is a complete manifestation of the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.

ARTICLE 1318. There is no contract unless the following requisites concur: (1) Consent of the contracting parties; cdtai(2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. (1261)

bases of contract:elements law will of the

contracting parties

Essential are... Imposed Conformed to.

Natural are... presumed Accepted or repudiated

Accidental are... Authorized established



ARTICLE 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised. (1278a) spiritual system of the Spanish Code – the law looks more at the spirit/intent rather than at the forms of the contract.

General Rule: contracts shall be obligatory, provided all the essential elements of a contract are present. Exceptions:

• when the law requires that the contract must be in a certain form in order to be valid◦ must appear in writing

▪ donation and acceptance of personal property whose value exceeds P5,000.00

▪ sale of a piece of land or any interest therein through an agent

▪ agreements regarding payment of interest in contract of loan

▪ antichresis◦ must appear in public document

▪ donations of immovable properties regardless of value

▪ partnerships where immovable property or real rights are contributed to the common fund

◦ must be registered▪ chattel mortgages▪ sales or transfer of large cattle

• when the law requires that the contract must be in a certain form in order to be enforceable.◦ Covered by the Statutes of Frauds

Case: BF Corp vs CA – contract may not be limited in a single document or writing

forms of contracts:• necessary for the convenience of the

contracting parties or for the efficacy of the contract (Arts. 1356-1358)

• necessary for the validity of the contract (scattered provisions of the Code and some special laws)

• necessary for the enforceability of the contract (Statute of Frauds)

2. Sales distinguished from other contracts

a. Sale vs. Piece of work contract for a piece of work – 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.(Art. 1713)

Similarity between sale & piece of work“Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale. Ineluctably, whether the contract be one of sale or one of piece of work, a transfer of ownership is involved and a party necessarily walks away with an object. (CIR vs CA & ADMU)

Statutory rule on distinguishing sale for contact-for-piece of work (Art. 1467)

Sale - Manufacturing in the ordinary course of business- workman or contractor furnishes both labor and the materials (Tolentino, Civil Code Book V, pp. 11)

Contracts for piece-of-work – manufacturing upon special order of customers.

“Special order” under Art. 1467 is not one of timing, or habit, but actually must be drawn from the nature of the work to be performed and the products to be made; it must be of the nature that the products are not ordinary products of the manufacturer, and they would require extraordinary skills or equipment, if to be performed by a manufacturer. (Celestino Co. vs Collector of



Internal Revenue)

the main distinguishing factor between a sale and a contract for a piece-of-work is the essence of why the parties enter into it, if the essence is:

• object – sale• service, knowledge or even reputation of

the person who executes or manufactures the object – piece-of work

practical needs for being able to distinguish sale and piece-of-work:

Aspect Sale Piece-of-workwarranty of the contractor

Covered by Art. 1714

tax Higher Much lower

Type of obligation

Real obligation (to give)

Personal obligation (to do)

Action for specific performance

proper Not allowed (against involuntary servitude) apply Art. 1715

Applicability of Art. 1165

Only when the subject matter is indeterminate or generic

Applicability of the Statute of Frauds

Covered by Statute of Frauds

Not covered by Statute of Frauds

Schools of Thought:• Masschusetts Rule – if especially done at

the order of another, this is a contract for a piece of work. (we follow this rule in the Philippines)

• New York Rule – if the thing already exists, it is a SALE; if not, WORK

• English Rule – if material is more valuable, SALE; if skill is more valuable, WORK

b. Sale vs. Agency to Buy and Sell

Agency – a person binds himself to render some service or to do something in representation or on behalf of the principal, with the consent of authority of the latter (Art. 1868) - a principal, nominate, bilateral, preparatory, commutative, and generally onerous contract.

Sale Agency to sell/BuyNot unilaterally revocable

Essentially revocable even in the presence of an irrevocability clause

The buyer himself pays for the price of the object which constitutes his main obligation

The agent is not obliged to pay the price, and is merely obliged to deliver the price which he may receive for the buyer

After delivery, the buyer becomes the owner of the subject matter

The agent does not become the owner of the thing subject of the agency.

The seller warrants The agent who effects the sale assumes no personal liability as long as he acts within his authority and in the name of the principal.

Contract of sale is valid and enforceable in whatever form it may be entered into.Exception: Sale of a piece of land or any interest therein through an agent (Art. 1874)

Must comply with the Statute of Frauds for its enforceability

The buyer who obtains a discount does not have to reveal such facts to its own buyer.

The agent must account for all benefits or discounts received from the seller.

***because of the highly fiduciary nature of agency, the agent is disqualified from receiving any personal profit from the transaction covered by the agency, and any profit received should pertain to



the principal

***the essential clauses of the whole instrument shall be considered in construing contracts containing provisions characteristic of both sales and agency to sell. (Art. 1466)***It is legally impossible for an agent or a broker to voluntarily bind himself to the warranties of the seller. (Schmid & Oberly, Inc. vs. RJL Martinez)

***The essence of an agency to sell is the delivery to an agent, not as his property, but as a property of the principal, who remains the owner and has the right to control the sale, fix the price and terms, demand and receive the proceeds less the agent's commission upon sales made. (Tolentino, Civil Code Book V pp.10 quoting Kerr & Co. vs Lingad)

c. Sale vs. Barter or Exchange

Sale Barter One of the parties binds himself to deliver a thing in consideration of the other’s undertaking to pay the price in money or its equivalent

One of the parties binds himself to give one thing in consideration of the other’s promise to give another thing (Art. 1638)

Barter• consensual contract• consummated only from the time the

parties mutually take possession of the things exchanged

e.g.bills of local currency to coins – barterlocal currency for foreign currency – sale

Rules to determine whether contract is sale or barter: (Art. 1468)

Manifest intention of the parties

When Intention does not appear and consideration consists partly in money and partly in another thing

o Barter – when the value of the thing given as part of the consideration exceeds the amount

of money given or its equivalento Sale – where the value of the thing

given as part of the consideration equals or is less than the amount of money given

Article 1641 provides that barter shall be governed by the Law on Sales. - if one party fails to perform, the other can demand resolution of the contract.

Where difference between barter and sales is critical:

Rules on Statute of Frauds which apply to the sale of real or personal property bought at P500.00 or more, do not apply to barter

The right of legal redemption granted by law to an adjoining owner of an urban land covers only resale and does not cover exchanges of properties.

d. Sale vs. Dacion en Pago

Dation in payment – property is alienated to the creditor in full satisfaction of a debt in money.

- constitutes the delivery and transmission of a thing by the debtor to the creditor as an accepted equivalent of the performance of an obligation.- Governed by the Law on Sales since it essentially involves the transfer of ownership of a subject matter.- Consent of both the debtor and creditor in this special mode of payment to extinguish the existing obligation is an essential requisite. - As a special mode of payment, dacion en pago falls on the stage of consummation of the contract.

Requisites:• 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 3rd person.

• Some differences between the prestation due and that which is given in substitution (aliud pro alio)



• agreement between creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due.

Sale Dacion En PagoThere is no pre-existing credit

There is a pre-existing credit

Gives rise to obligations Extinguishes the obligation

The cause or consideration here is the price, from the point of view of the seller; or the obtaining of the object, from the viewpoint of the buyer

The cause or consideration here, from the viewpoint of the person offering the dation in payment, is the extinguishment of his debt; from the viewpoint of the creditor, it is the acquisition of the object offered in lieu of the original credit.

There is greater freedom in the determination of the price

There is less freedom in determining the price

The giving of the price may generally end the obligation of the buyer

The giving of the object in lieu of the credit may extinguish completely or partially the credit (depending on the agreement)

e. Sale vs. Chattel Mortgage

Sale Chattel MortgagePrincipal contract or obligation

Accessory contract, Security for the performance of an obligation

Does not require registration to be binding upon 3rd

persons; entry in the Book of Entry will suffice

Must be registered in the Chattel Mortgage Register

Sale vs. Loanin a loan, the amount is substantially smaller than the value of the security given.

Sale vs. Leasein sale, the seller transfers ownership; in a lease, the lessor or landlord transfers merely the temporary possession and use of the property.

3. Definitiona. Contract of Sale

sale – venditio; do ut desARTICLE 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. (1445a) 2 obligations of the Seller:

Transfer the ownership Deliver the possession of the subject

matter

Obligation of the Buyer: accept the delivery Pay the price

***Both are real obligation which can be the proper subject of actions for specific performance

***in the delivery of a determinate thing, the buyer in addition to the right to recover damages may compel the seller to make the delivery.

Essential characteristics of sale (npcbroct)1. nominate and principal

nominate – it has been given a particular name by law; governed by a set of rules in the Civil Codeprincipal – it can stand on its own and does not depend on another contract for its validity or existence ***the Court looks at the intent not the nomenclature to determine the nature of



the contract***all other contracts which have or their objective the transfer of ownership and delivery of possession of a determinate subject matter for a valuable consideration are governed necessarily by the Law on sales.

2. consensual- contract of sale is perfected by mere consent (Art. 1475)- contract of sale becomes a valid and binding contract upon the meeting of the minds as to the price. (Buenaventura vs CA)– Art. 1358 (requirement for certain contracts to be in a public instrument) is only for convenience and registration only affects 3rd persons. Non-compliance to formal requirements does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder (Fule vs CA)

modalities that affect the characteristic of consensuality

o suspensive term or conditiono incomplete meeting of the minds

3. bilateral and reciprocal sale imposes obligations on both parties…the obligation or promise of each party is the cause or consideration for the obligation or promise of the other

obligations in a contract of sale are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other.

Effects: The power to rescind is implied 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 From the moment one of the parties fulfill his obligation, the default by the other

begins, without the need of prior demand

**A party cannot simply just choose not to proceed with the sale by offering also the other party not to be bound by his obligation**Each party has the remedy of specific performance **rescission or resolution cannot be enforced by defaulting party upon the other party who is ready and willing to proceed with the fulfillment of his obligation

4. onerouscontract of sale imposes a valuable consideration as a prestation, which ideally is a price certain in money or its equivalent

5. commutativeequivalencein contract of sale, a thing of value is exchanged for equal value

commutativeness is an essential characteristics of a sale, but the test for compliance therewith is not objective but rather subjective (Gaite vs Fonacier)

belief of the parties that they are receiving the appropriate and proper value for what they each in turn gave up is enough to comply with the characteristics of commutativeness.

Inadequacy of price does not affect ordinary sale

Inadequacy of price may show vice of consent, in which case the sale may be annulled, but such annulment is not for inadequacy of price but rather for vitiation of consent. (Art. 1470)

6. sale is title and not modedelivery or tradition – mode to transfer ownership and possession to the buyer

mode- legal means by which dominion or ownership is created, transferred, or



destroyed

title- transfer of ownership

**Sale does not by itself transfer or affect ownership, the most that sale does is to create the obligation to transfer ownership, it is tradition or delivery as a consequence of sale, that actually transfers ownership.

Essential Elements of contract of sale consent- meeting of the minds to transfer

ownership in exchange for the price determinate subject matter price- certain in money or its equivalent

Natural elements of contract of sale:• warranty against eviction• warranty against hidden defects

***perfected/valid contract of sale – all 3 elements are present***void contract of sale – some of the essential element are not present; or

– as mandated by Article 1409***voidable contract of sale – vitiation of consent

Stages in the life of Sale policitacion – negotiation or preparation

stage;o time the prospective contracting

parties indicate their interests in the contract to the time the contract id perfected

perfection – conception or birtho takes place upon the concurrence

of the essential elements of the sale

consummation – deatho parties perform their respective

undertaking under the contract of sale, culminating in the extinguishment thereof

wholesale vs retail sale: wholesale – if to be resold for a profit the goods being unaltered when resold, the quantity being large

***It is not the bulk or quantity of the goods sold but rather, the use to which the goods sold is put by the buyer, that should control

contracts to sell:• power of the promisor to refuse the

conveyance and retain the sums of installments already received

• positive suspensive condition not happening is not breach, but simply an event that prevented the obligation of the vendor to convey title

• property may be delivered with the understanding that the title thereto shall not pass until the performance of some condition, and such understanding or intention must be given effect as between parties.

• Reservation of ownership (pactum reservati dominii)

Contract of sale Contract to sellNon-payment of the price is a resolutory condition

payment in full of the price is a positive suspensive condition

Title over the property passes to the buyer upon delivery

Ownership is retained by the seller, regardless of delivery and is not to pass until full payment of the price.

After delivery has been made, the seller has lost ownership and cannot recover it unless the contract is resolved or rescinded

Since the seller retains ownership, despite delivery, he is enforcing and not rescinding the contract if he seeks to oust the buyer for failure to pay.

Jus in rem is created Jus in personam is created

Option Contract➢ accepted unilateral promise supported by a

consideration distinct from the price➢ preliminary contract to a contract of sale.➢ Consideration in an option contract is just



as important as the consideration for any other kind of contract.

➢ Does not pass title or dominion over the property but only gives a right to demand the fulfillment of the contract in proper cases or damages for a breach where it is not possible to carry it out.

➢ In the event of breach, the injured party cannot sue for the delivery of the thing or the payment of the price because the obligations arising from the contract are to do hence, the obligation is converted into one for indemnity for damages.

➢ “A contract granting privilege to buy or sell within an agreed time and at a determined price. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by a consideration.” (Limson vs CA, 375 SCRA 209)

Option contract Saleonerous

Consideration may be anything of value

Consideration must be the price certain in money or its equivalent, or essentially a “valuable consideration.

ConsensualUnilateral contract Bilateral contractSubject matter is the option to purchase the subject matter (accepted promise to sell or the accepted promise to buy) of the sale

Subject matter is the subject matter of the sought sale.

Earnest money – considered payment of part of the price and as a proof of perfection of the contract. It may be given as a guarantee that the vendee will not back out.

Converting the option money into an earnest money WILL NOT violate the definition that option money must be separate and distinct from

purchase price if it is stipulated that it will not be forfeited. There is a different period for the option money & earnest money, thus there is no conflict with regard the two. <3

PARTIES TO A CONTRACTCapacity to Contract: (Arts. 1327, 1489-1492)

General rule: Any person who has the capacity to act or the power to do acts with legal effects, or with the power to obligate himself, may enter into a contract of sale, whether as seller or buyer.

Natural persons – age of majority is 18 y.oJuridical persons – a juridical personality separate, and distinct from that of the shareholders, partners or members is expressly recognized by law, with full juridical capacity and capacity to act to such juridical persons to obligate themselves and enter into a valid contract.

capacity of the contracting parties – essential element of a contract; indispensable requisite of a consent

Incapacity to contract may be absolute or relative incapacity.

• Absolute incapacity – their personality is restricted; these persons cannot enter into a contract by themselves, but only through their legal representatives.◦ Except: for necessaries delivered to

them, they are obliged to pay a reasonable price (Art. 1489)

• Relative incapacity – incapacity by reason of the parties' relation to each other or their relation to the thing which is the object of the sale.

Incapacitated to give consent:1. unemancipated minors – absolute

incapacityexception:• when it is entered into by a minor who

misrepresents his age▪ based on the principle of estoppel▪ must be active not merely

constructive

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• when it involves the sale and delivery of necessaries to the minor (Art.1449)

***there are no more emancipated minors since the age of majority has been raised to 18 y.o.

Necessaries – everything indispensable for sustenance, dwelling, clothing, medical attendance, education and transportation, in keeping with the financial capacity of the family… [and education] includes his schooling or training for some profession, trade, or vocation, even beyond the age of majority. Transportation shall include expenses in going to and from school, or to and from place of work. (Art. 194, Family Code)

2. insane or demented persons – absolute incapacity• contracting parties are unable to

understand the nature and consequences of the contract at the time of its execution by reason of any cause affecting his intellectual or sensitive faculties. (includes drunkenness, or under hypnotic spell)

• contracts entered into during lucid interval is valid.

• A question of act which must be decided by the court

3. deaf-mutes who do not know how to write – absolute incapacity• there is no way that the stipulations in

the contract be explained to them to insure that they understand what they are entering into.

4. Husband and wife to each other – relative incapacity• General rule: (Art. 1490, Civil Code)

Spouses cannot sell property to each other.◦ Exception:

▪ When a separation of property was agreed upon in the marriage settlement

▪ When there had been a judicial decree for the separation of the property

• Prohibition relating to spouses selling to one another is applicable even to sales in legal redemption, compromises and renunciations. (Art. 1492)

• Said transactions are null and void. (Medina vs Colector, 1 SCRA 302) The prohibition is a matter of public policy

• Who may assail the validity of the contract?◦ Heirs of either spouses who have

been prejudiced◦ Prior creditors◦ State when it comes to the

payment of the proper taxes due on the transactions.

• Who may NOT assail the validity of the contract?◦ Spouses – because of pari delicto◦ Creditors after the transaction – it

cannot be said that they have been prejudiced

• Rationale for prohibition: (Medina vs Collector, 1 SCRA 302)◦ To prevent a spouse 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, thereby effectively defrauding the latter; and

◦ To avoid an indirect violation of the prohibition against donations between spouses under Art. 133, CC (now Art. 87, Family Code)

• Art. 87 of the Family Code added the provision “The prohibition shall also apply to persons living together as husband and wife without a valid marriage.”

Read Matabuena vs Cervantes, 38 SCRA 284, (1971)

“And this is so because if transfers or conveyances between spouses were allowed during the marriage, that would destroy the system of conjugal

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partnership, a basic policy in civil law. It was also designed to prevent the exercise of undue influence by one spouse over the other, as well as to protect the institution of marriage, which is the cornerstone of family law. The prohibition apply to a couple living as husband and wife without the benefit of marriage, otherwise, “the condition of those who incurred guilt would turn out to be better than those in legal union.” Those provisions are dictated by public interest and their criterion must be imposed upon the will of the parties.” (Calimlim-Canullas vs Fortun, 129 SCRA 675)

Cruz vs CA (281 SCRA 491) reiterated the Calimlim-Canullas ruling but further held that, when registered property has been conveyed subsequently to a third-party-buyer in good faith and for value, the reconveyance is no longer available to common-law spouses, since under the Torrens system every buyer has a right to rely upon the title of his immediate seller.

Art. 1490Civil Code

Art. 133(now Art. 87, FC)

Exempts from its prohibition sales between spouses governed by the complete separation of property regime

Do not make such exception in case of donations

Reason: Donation between spouses governed by CSP regime, being a gratuitous contract, would necessarily reduce the estate of the donor and increase the estate o the donee, while a sale between such spouses, being an onerous and commutative contract, would result in the separate estates of the spouses being of the same value as before the sale and no fraud could result, either to the spouses or to their creditors.

5. Specific Incapacity to enter into a contract of sale as mandated by law

(Art. 1491) – relative incapacity• 1st group

◦ Agent – with respect to the property whose administration or sale had been entrusted to him, unless the consent of the principal has been given.

◦ Guardian – with respect to the property of the person who is under his guardianship

◦ Executor or administrator – with respect to the property of the estate under his administration except the sale of hereditary rights of an heir to the executor or administrator as rights of an heir is not subject to administration.

• 2nd group◦ Public officers or employees – with

respect to the property of the State or any subdivision thereof, or of any government-owned or controlled corporation or institution, the administration of which has been entrusted to them; it includes judges and government experts who in any manner take part in the sale.

◦ Justices, judges, prosecuting attorneys, COCs, and other officers and employees connected with the administration of justice – with respect to the property and rights in litigation or levied upon an execution before the court within whose jurisdiction of territory they exercise their respective functions;▪ this is to avoid fraud and to free

such official from any suspicion which may cause discredit to the judicial system.

◦ Lawyers – with respect to the property and tights which may me the object of any litigation in which they may take part by virtue of their profession. ▪ Consequence in case of violation

are voidable contract of sale and subject of the lawyer to disciplinary action for malpractice.

• Such prohibitions apply to sales in legal

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redemption, compromises and renunciations (Art. 1492)

• Only sales by agents are valid when made with the express consent of their principals and no such exception is granted in all the other instances covered by the article.

• Contracts entered into in violation of Art. 1491 are ◦ Villanueva: “inexistent and void from

the beginning.” (Art. 1409, CC; Rubias vs Batiller, 51 SCRA 120)

◦ Tolentino: are not void but voidable• incapacity is based on moral reasons, and

is intended to avoid situations where a person may find his personal interests conflicting with the interests of those whom they represent.

1st group 2nd groupdisqualification is for the interest of the principal, ward and estate

Disqualification is grounded on public policy and interest

Private wrong to the ward, principal or estate

Public wrong which is damage to public service or to the high esteem that should be accorded to the administration of justice in our society

May be ratified by means of and in the form of a new contract

Even when the parties seek to ratify the private wrong by executing a new contract, such cannot resurrect and calidate a relationship, which continues to be tainted with a public wrong

6. other incapacitated persons• aliens as to real property – mandated

by Sec. 5, Art. XIII of the Constitution▪ a sale made in violation of the

provision is null and void but although void, the vendor cannot

recover back the land sold even if an offer to pay back the purchase price is made.

• married woman in cases specified by law

• incompetent (Sec. 2 of Rule 92 of the New Rules of Court) includes:▪ persons suffering from civil

interdiction▪ hospitalized lepers▪ prodigals▪ deaf and dumb who are unable to

read▪ who are of unsound mind▪ those who by reason of age, weak

mind or other similar cases, cannot, without aid from other, take care of themselves and manage their property becoming thereby easy prey fro deceit and exploitation.

Purchase made by Intermediary:To set aside a purchase made by an intermediary, it is necessary to prove that there is an agreement between the intermediary and the disqualified person person that the former will make the purchase for the benefit of the latter.

Effects:• Defective contract – effect of incapacitated

persons entering into a contract not through a parent or agent.

• Voidable contracts – only one of the contracting parties is incapacitated to give consent.

• Unenforceable contracts – when both parties are incapacitated to give consent..

OBJECT OF CONTRACTSrequisites:

1. it must be a possible thing2. it must be licit3. it must be determinate or at least

determinable

lack of any requisite enumerated would either engender a “no contract” situation (buyer can still recover the amount based on the principle of unjust enrichment) or the resulting contract of sale

Jmvdg 13 1st Sem/A.Y. 2010-2011


would be void (no remedy can be maintained and generally the courts will leave the party where they are).

Licit• The illegality of the subject matter

undermines the demandability of the underlying obligation of the seller to deliver, and renders the sale void.

• Prohibition : Public land & homestead (within the 5-year prohibition) cannot be the object of sale, even if the buyer is in good faith.

Determinate • particularly designated or physically

segregated from all others of the same class (Art. 1460)

• Includes generic objects which are at least “determinable”

• in case of determinable object, the requisite that the thing be determinate is satisfied 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 (Art. 1460)

Nature of the Object:• Future Goods (Art. 1462)

o property or goods, which at the time of the sale are not yet owned by the seller, but which are thereafter to be acquired by him

o cannot be subject of an executed SALE

o such contract for the future sale and delivery of goods which seller has not in possession but which he intends to acquire is valid as an executory contract to be fulfilled by acquiring and delivering the goods specified in the contract.

***things with potential existence (Art. 1461)

o things which though not yet in existence, is reasonably certain to come into existence as the natural

increment or usual incident of something already in existence, then belonging to the vendor

o the title will pass to the buyer the moment the thing comes into existence.

o Validity of the sale of things with potential existence depends upon the intention of the parties.

Emptio rei speratae – (purchase of an expected thing) if the parties make a contract depend upon the existence of the thing, so that of the thing DOES NOT come into existence the contract is considered as not made and there is no obligation to pay the price.

Emptio spei – (purchase of a hope or expectancy); the parties intend the contract to exist at all events, so that the buyer will have to pay the price even if the thing does not actually come into existence; the contract is aleatory. Sale of a vain hope or expectancy is void.

• Undivided interests of share • things in litigation • things subject to conditions

◦ Whether the contract of sale involves a present object, or a future thing subject to a suspensive condition, or a present object subject to a resolutory condition, the subject matter must be existing or must come to existence to be delivered to the buyer, otherwise the contract of sale is void, or an existing contract of sale is extinguished with the obligation on the part of the seller to return what he has received thereby.

PRICE AND OTHER CONSIDERATIONby definition under Art. 1458, the ideal consideration for a sale would be a “price” as a

Jmvdg 14 1st Sem/A.Y. 2010-2011


sum certain in money or its equivalent.However, sale may still be valid when it has for its cause or consideration an item other than the price.

Price – a sum certain in money or its equivalent– Ideal consideration in contract of sale– 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. (Inchausti & Co. vs Cromwell, 20 PHIL 345)

A seller cannot unilaterally increase the price previously agreed upon with the buyer, even when the need to adjust the price of sale is due to increased construction cost (GSIS vs CA, 228 SCRA 183); otherwise, it would be a violation of the essential characteristics of “obligatory force” of contracts of sale (Art. 1308, CC).

Requisites: must be real

o There must be a legal intention on the part of the buyer to pay the price, and legal expectation on the part of the seller to receive such price as the value of the subject matter he obligates himself to deliver. Otherwise, the price is simulated and the sale is void for lack of consideration.

o Remedy for simulated contracts: parties may recover form each other what they may have given under the contract. (Heirs of Sps. Balite vs Lim, 446 SCRA 54)

o Principle of in pari delicto nonovitar actio applies only to cases where the nullity arises from the illegality of the consideration or the purpose of the contract (Modina vs CA, 317 SCRA 696) but does not apply to inexistent and void contracts where the price is merely simulated (Yu Bun Guan vs Ong, 367 SCRA 559).

o False price – there is a real price upon which the minds of the parties

had met, but not declared, and when what is stated in the covering deed is not the one intended to be paid.

o Instrument with false consideration are valid but subject to reformation to reveal the real intent of the parties.

o Failure to pay the price or the balance thereof does not render the sale inexistent or invalid, but merely gives rise to a right in favor of the seller to either demand specific performance or rescission of the contract of sale.(Province of Cebu vs. Heirs of Morales, 546 SCRA 315)

o “A contract of sale being consensual, it is perfected by mere consent of the parties. 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 null and void for lack of consideration but results at most in default on the part of the vendee, for which the vendor may exercise his legal remedies.” (Balatbat vs CA, 261 SCRA 128)

o delivery of the subject matter made pursuant to a sale that is void for lack of consideration therefore does not transfer ownership to the buyer

must be in money or its equivalento valuable considerationo Art. 1468 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.

o Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. (Art. 1354)

Philippine jurisprudence has not accepted the Anglo-Saxon concept that “any”

Jmvdg 15 1st Sem/A.Y. 2010-2011


consideration is enough to support a contract, what prevails in Philippine jurisprudence is that for a consideration to support an onerous contract, such as a contract of sale, it wold have yo be a valuable consideration under the Roman Law concept.

must be certain or ascertainable. o Certain – expressed and agreed in

term of specific pesos and/or centavos.o Ascertainable – it shall be 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.

o Designation of a 3rd party to fix the price is valid.

o Even before the fixing of the price by the designated 3rd party, a contract of sale is deemed perfected and existing, albeit conditional. (Barretto vs. Santa Marina, 26 Phil 200)

o Fixing of the price cannot be validly left to the discretion of one of the contracting parties.

o 2 instances where the parties can seek court remedy to fix the price designated to 3rd party. (Art. 1469)

Designated 3rd party acted in bad faith

Designated 3rd person acted by mistake.

o Inefficacious contract – when price cannot be ascertained with any of the rules stated in Art. 1474

- inability to produce the effect wanted

- does not exclude void sale contracts when the sale is neither certain or ascertainable.

o When the 3rd party designated is prevented from fixing the price by fault of either the buyer or the seller, the party not at fault may have such remedies against the party at fault as are allowed the seller or buyer, as the

case may be. (Art. 1469, cross refer to Art. 1186)

o Designation of a 3rd party to fix the subject matter of the contract is not provided by law.

Designation to 3rd

party as to the priceDesignation to 3rd

party as to the subject matter

Obligation to pay the price is a fungible obligation

Obligation to deliver the subject matter is a species obligation

Price, subject of the obligation of the buyer is generic and generally cannot be extinguished by a fortuitous event

A 3rd party may choose a subject matter beyond the capacity of the seller to comply with his obligation to deliver the same.

o Art. 1472o Manner of payment of the price

goes into the essence of what makes price certain or ascertainable.

o The buyer was free to decide on the manner of payment of the purchase price. (Bortikey vs. AFP retirement and Separation benefits System, 477 SCRA 511)

o When the manner of the purchase price is discussed after the acceptance, then such acceptance did not produce a binding and enforceable contract of sale; there was therefore no complete meeting of the minds and there is no basis to sue on a contract that does not exist. (Navarro vs Sugar Producer’s Corp., 1 SCRA 511)

o Although a down payment had already been made by the buyer and received by the seller, there was still no valid sale. The court held that although part of the down payment has been paid, a definite agreement on the manner of payment on the purchase price was an essential element in the formation of a binding and enforceable contract of sale. (Velasco vs CA, 51 SCRA 439; Limketkai Sons Milling, Inc. vs. CA, 255 SCRA 626)

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o The 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.

o Fixing of the terms of payment may also be designated to a 3rd party.

o “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.” (Art. 1179)

o 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 the perfection of the contract.

o Art. 1474 present the only exception when there would still be a valid sale even when there has been no meeting of the minds as to the price or any other consideration. “If the thing or any part

thereof has been delivered to and appropriated by the buyer, he must by a reasonable price therefore. x x x the court have authority to fix the reasonable price for the subject matter appropriated by the buyer” (Art. 1474)

o “Preceding article” in Art. 1474 starts at Art. 1469 to Art. 1473

Doctrine of Appropriation (Art. 1474) Based on the principle of unjust enrichment

directed against the buyer who is not allowed to retain the subject matter of the sale without being liable to pay the price even when no such agreement on the price was previously made

Applies even to “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 subject matter, and

may also apply to void sale contract situation where the defect is as to the price.

Remedy clause in favor of the seller who has delivered the subject matter in accordance with an agreement (though it may not be a full contract yet) with the buyer who has received it and appropriated it.

The gravamen of Art 1474 would mean that in spite of the lack of an agreement as to the price or defect in the agreement as to price, there would nevertheless be a valid contract of sale upon which an action for specific performance would prosper for the recovery of the price when the following elements are present:

(a) There was a meeting of the minds of the parties to a sale and purchase as to the subject matter;

(b) There was an agreement that price would be paid which fails to meet the criteria being certain or ascertainable; and

(c) There was delivery by the seller and appropriation by the buyer, of the subject matter of the sale.

From the rulings of the Supreme Court in Raet vs. CA (295 SCRA 677) and NHA vs. Grace Baptist Church (424 SCRA 147), the concept of “appropriation” under Art 1474 is not applicable to real estate and that the rights of the parties to a purported sale would be under the principles applicable to builders in good faith.

It may also be an indication that “appropriation” under Art 1474, even when applied only to movables, would necessarily entail a “transformation” of the subject matter of sale such that it can no longer be returned to its original state, as to warrant the fixing of reasonable price to prevent unjust enrichment.

“The best evidence to prove payment of the price is the official receipt issued by the seller.” (El Oro Engravers vs. CA, 546 SCRA 42)

“These documents [receipts and invoices] are not mere scraps of paper bereft of probative value but vital pieces of evidence of commercial

Jmvdg 17 1st Sem/A.Y. 2010-2011


transactions. They are written memorials of the details of the consummation of contracts.” (Lagon vs Hooven Camalco Industries Inc., 349 SCRA 363)

INADEQUACY OF PRICELesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake, or undue influence. (Art. 1355)

General rule: “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. (Art. 1470)

***The characteristic that a contract of sale is onerous is met whenever the consideration is a “valuable consideration and the test for its “commutativeness” is met when the parties believe honestly that they received good value or what they have given up in exchange.

Exception: Gross inadequacy of price may avoid judicial sale of real property.Reason: the sale here is not the result of negotiations and bargaining; in fact, the property of the supposed seller would be sold at public auction without his intervention) Requisites: such inadequacy must be such as to be

(a) shocking to the conscience of man (Pascua vs. Simeon, 161 SCRA 1) and

(b) there must be a showing that, in the event of resale, a better price can be obtained (Cu Bie vs. CA, 15 SCRA 307)

Exception to the exception: when there is a right of redemption – since the more adequate the winning bid is, the more easily it is for the owner to redeem the property (De Leon vs. Salvador, 36 SCRA 567)

Simulated price Gross inadequacy of price

Parties do not really intend to be bound by

Parties are bound by the contract based on

the contract their intention.

It has no legal effect (void) as there is no real agreement between the parties

Does not even affect the validity of the contract of sale unless it signifies a defect in th econsent or that the parties actually intended a donation or some other contrac.

Gross inadequacy of price is ground for rescission of conventional sale (Art. 1381, NCC)

Sales with right to repurchase- the gross inadequacy of price raises the

presumption of equitable mortgage (Art. 1602, Civil Code)

- remedy of the seller: have the contract reformed or declare a mortgage contract and to pay the indebtedness which is secured.

- Remedy of the buyer: foreclose on the equitable mortgage (Briones-Vasquez vs. CA, 450 SCRA 644)

MOTIVE- different from the consideration

Cause MotiveEssential reason which moves the contracting parties to enter into a contract

Particular reason of a contracting party which does not affect the other party

Cause is the immediate, direct, and proximate reason which justifies the creation of an obligation through the will of the contracting parties.

General rule: A party’s motive for entering into the contract does not affect the contract.Exception: When the motive predetermines the cause, the motive may be regarded as the cause (Uy vs CA, 314 SCRA 69)

PERFECTION OF THE CONTRACTUntil a sale is perfected, it cannot be an independent source of obligation, nor serve as a binding juridical relation.

General Rule: A contract of purchase and sale is perfected from the moment the parties have

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agreed upon a:• determinate thing, the object of the contract• certain price thereof, whether in money or

its equivalentExceptions:

• when by virtue of the stipulation of the parties or by provision of law, the sale is subject to a suspensive condition

• if the contract of sale is subject to the approval of higher authorities

modification: Art. 1476;• auction sale is perfected when the

auctioneer pounded his hammer• seller in the auction sale cannot bid but he

may do so provided he gives adequate notice that he will participate in the bidding through another.

Effects of Perfection:• gives right to the vendee a right to compel

the vendor to deliver the thing• vendee acquires personal right over the

thing until the delivery is made• if a party refuses to proceed with the sale,

he is guilty of breach of contract.

General rule: the ownership of the thing is transferred only from the time of delivery thereof, either actual or constructive, even if the price is not fully paid.Exception: if the sale is conditional and ownership is transferred, not upon delivery, but upon full payment of the price

pactum reservati dominii – ownership is reserved in the seller and is not to pass until the full payment of the purchase price is made

Art. 1319 defines consent or meeting of minds as manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.

• The offer must be certain ◦ when it is floated by the offeror having

within its terms the description of the subject matter that has all 3 requisites

of possible, licit, determinate or determinable; and with a price that has the requisites of being real, mney or its equivalents, and must be certain or at least ascertainable, including on the terms of the payment thereof.

◦ The absence of either just one of the essential requisites pertaining to either subject matter or price in the terms of the offer makes the offer “not certain”, and cannot give rise to a valid sale, even when such offer is absolutely accepted by the offeree.

• the acceptance must be absolute ◦ the acceptance to have the effect of

converting an offer to sell into a perfected contract, it must be plain and unconditional, and will not be so if involves any new proposition

◦ such acceptance should be unequivocal and unconditional and the acceptance and proposition shall be without any variation whatsoever. Any modification or deviation from the terms of the offer annuls the latter and frees the offeror.

The owner of property offered for sale at public or private auction has the right to prescribe the manner, conditions and terms of such sale.

Assignment • agreement by virtue of which the owner of

a credit (assignor), transfers his credits and its accessory rights to another(assignee), who acquires the power to enforce it to the same extent as the assignor could have enforced it against the debtor.

• legal causes where assignment may be done:◦ sale◦ dation in payment◦ exchange or donation

• covers not only assignment of credits but also other incorporeal rights

• a specie of the genus sale; all the characteristics of and jurisprudential doctrines pertaining to the genus sale must

Jmvdg 19 1st Sem/A.Y. 2010-2011


necessarily pertain to assignment; except to the extent modified by the chapter dealing specifically on assignment.

• Characteristics:◦ consensual◦ reciprocally◦ onerous◦ commutative

• effects:◦ transfers to the assignee the right to

collect the full value of the credit, even if he paid a price less than such value

◦ all the accessory rights (guaranty, mortgage, pledge or preference) are transferred

◦ debtor can set up against the assignee the defenses he could have set up against the assignor

• transfer of right by assignment takes place upon the perfection of the contract.

• Does not affect 3rd persons, including the debtor, unless they have knowledge thereof (must appear in a public instrument)

• exceptions are assignments made:1. To a co-heir or co-owner of the right

assigned; 2. To a creditor in payment of his credit; 3. To the possessor of a tenement or

piece of land which is subject to the right in litigation assigned.

• Reason for the exception:1. the position of the assignee to enforce

the right is merely strengthened

FORMALITIESGeneral rule: a sale being a consensual contract, no form is really required for its validityException:

• the power to sell a piece of land or interests therein must be in writing, otherwise, the sale thereof by the agent (even if the sale its elf be in writing) would be void

• sale of large cattels must be in writing, otherwise the sale would be void; and no sal eof arge cattle shall be valid unless the

sale is registered with the municipal treasurer who shall issue a certificate of transfer; and

• sale of land by “non-muslim hill tribe cultural minorities all throughout the Philippines is void if not approved by the NCIP

Documents of Title• quedan=negotiable instrument=warehouse

receipts• exception to the general rule of nemo dat

quod non habet• includes any bill of lading, dock warrant,

quedan, or warehouse receipt or order for the delivery of goods, or any other document used in the ordinary course of business in the sale or transfer of goods, as proof of the possession or control of the goods

• functions:◦ as evidence of the possession or

control of the goods described therein◦ as the medium of transferring title and

possession over the goods described therein, without having to effect actual delivery thereof.

Through the document of title, the seller is allowed, by fiction of law, to deal with the goods described therein as though he had physically delivered them to the buyer; and the buyer may take the document of title as though he had actually taken possession and control over the goods described therein.

Dealings through documents of title represent a species of constructive delivery, and therefore operate under the same premise as other forms of delivery, namely that the seller had ownership of the goods described thereon to effect proper delivery.

Nevertheless when the document of title is negotiable in character, the public policy behind the State's protective mantle on the effects of negotiation, the invalidity of the underlying sale or the actual lack of ownership of the seller of the goods described therein, would still effectively

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transfer ownership to the buyer who takes the document of title in due course.

Types of Documents of Title• Negotiable Documents of Title

◦ goods referred therein are deliverable “to bearer”, or “to order” of any person named in such document

• Non-Negotiable Documents of Title◦ document of title which does not state

that the goods referred to therein are deliverable either to bearer or to the order of any person named therein.

Statute of Fraudsthe purpose of Art. 1403 (Statute of Frauds) is to prevent fraud and perjury in the enforcement of obligations depending for their evidence upon the unassisted memory of witnesses.Since the rules under the SoF pertains not to perfection, but to enforceability and proof, then they operate only when there is an underlying contract that is validly perfected.

The following agreements 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.”

• sale agreement which by its terms is not to be performed within a year from the making thereof

• an agreement for the sale of goods, chattels or things in action, at a price not less than P500.00

• A sale of real property or of an interest therein.

Exceptions to coverage of statute in sales contracts:

• when there is a note or memorandum thereof in writing, and subscribed by the party charged or his agent

• when there had been partial consummation of the sale

• when there has been a failure to object to the presentation of evidence aliunde as to the existence of a contract

• when sales are effected through electronic

commerce

Partial execution under Art. 1403 par. 2 (d) does not cover land.

Sales Effected as Electronic Commerceelectronic document – that information or the representation of information, data, figures, symbols or other modes of written expression, described or however represented, by which a fact may be proved or affirmed, which is received, recorded, transmitted, stored, processed, retrieved or produced electronically.

For evidentiary purposes, an electronic document shall be the functional equivalent of a written document under existing laws.

Under Sec. 16 (1) of the E-Commerce Act, except as otherwise agreed by the 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 and no contract shall be denied on the sole ground that it is in the form of an electronic data message or electronic documents.

Reformation• used when the true intention of the parties

to a perfected and valid contract are not expressed in the instrument purporting to embody their agreement by reason of mistake, fraud, inequitable conduct or accident

• based on justice and equity• requisites:

• meeting of the minds of the contracting parties

• true intention not expressed in the instrument

• such failure to express their true intention is due to mistake, fraud, inequitable conduct, or accident.

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Reformation of contract

Annulment of contract

Presupposes a valid contract in which there has already been a meeting of the mind

Based on a defective contract in which there has been no meeting of the minds because the consent of one or both of the contracting parties has been vitiated.

Remedy when there has been no meeting of the minds because of mistake, fraud, inequitable conduct, or accident

Not a remedy when there has been fraud, mistake, inequitable conduct or accident.

SALE ON INSTALLMENT

Remedies available to Vendor[in case of default in 2 or more payments in a sale by installment: (Art. 1484)]

• Exact fulfillment of the obligation (specific performance); ◦ if this remedy is availed, the vendor is

not limited to the property under Chattel mortgage. The judgment he secures can be enforced by attachment and execution upon the mortgaged property, and in case of deficiency, also upon any other property not exempt from execution.

◦ If the specific performance becomes impossible, the vendor may still choose rescission pursuant to the provisions of Art. 1191, NCC

• Cancel the sale;◦ a stipulation of forfeiture of all amounts

paid in case of cancellation is not unconscionable.

• Foreclose the chattel mortgage on the thing sold, if one has been constituted.

Art. 1484 refers only to sale of PERSONAL property payable in installments.

There remedies are alternative, not cumulative. If

the vendor has elected to avail himself of any of these remedies, he is deemed to have renounced the others.

Recto Law• Art. 1484 specifically provides that if the

seller should foreclose on the mortgage constituted on the thing sold, he shall have no further action against the purchaser to recover “any unpaid balance of the price and any agreement to the contrary shall be void.

• The passage of the Recto Law was meant to remedy the abuses committed in connection with the foreclosure of chattel mortgages and to prevent mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency of judgment.

• The provisions of the Recto law are applicable to financing transactions derived or arising from sales of movables on installment, even if the underlying contract at issue is a loan because the promissory note had been assigned or negotiated by the original seller.

Art. 1485, NCC expressly made the provisions of Art. 1484 applicable to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing.

Maceda Law• prior to the passage of the Maceda law, the

legal provisions governing the remedies of parties covering sales of immovables were Arts. 1191, 1591 and 1592, NCC.

• The Maceda law has declared that whether it be a contract of sale or a contract to sell, the actual rescission or cancellation thereof shall take place “thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.”

Jmvdg 22 1st Sem/A.Y. 2010-2011


OBLIGATIONS OF THE VENDEE• to pay

◦ if the seller delivers the article without asking simultaneous payment, he may demand payment of the price at any time after the delivery.

◦ Mere sending of a letter by the buyer expressing his intention to pay without the accompanying payment is not considered a valid tender of payment

◦ The vendee shall owe interest for the period between the delivery of the thing and the payment of the price, in the following three cases: ▪ Should it have been so stipulated; ▪ Should the thing sold and delivered

produce fruits or income;▪ Should he be in default, from the

time of judicial or extrajudicial demand for the payment of the price.

• to accept delivery◦ place of delivery in case of default of

agreement is the seller's place of business or at his place of residence▪ in case of sale of specific goods,

the place where the goods are is the place of delivery

◦ The buyer is in no obligation to accept the partial tender, but may refuse the same and maintain his action for the breach of the contract as a whole.

◦ The buyer is entitled to a fair opportunity to inspect or examine the goods tendered to determine whether they conform to the contract.

◦ The right to inspect implies the right to reject them if they are not of the quality required by the contract.

◦ A denial of the buyer's right to examine the goods affords a ground for the recover of the buyer of money advanced.

◦ There is acceptance when:▪ the buyer intimates to the seller that

he has accepted the goods; or

▪ when he does an act inconsistent with the ownership of seller• continued possession of the

goods• resale of the goods• offering the goods for sale• mortgaging the goods

▪ when he retains the good without intimating to the seller that he has rejected them.

◦ General rule: acceptance of the goods by the buyer shall not discharge the seller from liability in damages or other legal remedy for breach of any promise or warranty in the contract of sale.

◦ The buyer must give the seller a notice within a reasonable time after he knew or under the circumstances should have known of the breach

The purchaser will not be released from his obligation to accept and pay for the goods by deviations on the part of the seller from the exact terms of the contract, if the purchaser acquiesces in such deviations after due notice thereof.

OBLIGATIONS OF VENDORTo preserve the subject matter

• the goods remain at the sellers risk until the ownership therein is transferred to the buyer (Art. 1502)

To deliver the subject matter• the means by which the seller can transfer

the ownership of the subject matter is by the mode of tradition or delivery, whether actual or constructive.

• As a consequence of a valid sale, the delivery of the subject matter ipso jure transfers its ownership to the buyer.

• Types of delivery:◦ actual delivery (Art. 1497)

▪ when the thing sold is placed in control and possession of the buyer

▪ although possession is the best gauge when there is control, nonetheless, control can take other

Jmvdg 23 1st Sem/A.Y. 2010-2011


forms other than actual physical possession

▪ the keyword is control, not possession

◦ constructive delivery (Art. 1496)***existence of an agreement between seller and buyer that latter is understood to have control over the subject matter of the sale

▪ execution of a public instrument • Art. 1498: in the case of both

movables and immovables, when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the subject matter of sale if in the deed the contrary does not appear or cannot be clearly inferred

▪ symbolic delivery • delivery of the keys of the place

or depository where the movable is stored or kept

• must involve or cover the subject matter and cannot take the form relating to the payment of the purchase price

▪ constitutum possessorium • takes effect when at the time of

the perfection of the sale, the seller held possession of the subject matter in the concept of an owner, and pursuant to the contract, the seller continues to hold physical possession thereof no longer in the concept of an owner, but as a lessee or any other form of possession, other than in concept of owner

• where the seller remains in possession of the property in a different capacity. (San Lorenzo Dev't Corp vs CA)

▪ traditio brevi manu • opposite of constitutum

possessorium• if the buyer already had

possession of the object even before the sale (San Lorenzo Dev't Corp vs CA)

▪ traditio longa manu • delivery by mere agreement• pointing of the hand• by mere consent or agreement

if the movable sold cannot yet be transferred to the possession of the buyer at the time of the sale (San Lorenzo Dev't Corp vs CA)

▪ delivery by negotiable document of title

▪ quasi tradition or delivery of incorporeal property• the placing of the titles of

ownership in the possession of the vendee or the use by the vendee of his rights, with the vendor's consent, shall be understood as a delivery.

▪ On sale or return • Art. 1502: “When goods are

delivered to the buyer "on sale or return" to give the buyer an 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.

• When goods are delivered to the buyer on approval or on trial or on satisfaction, or other similar terms, the ownership therein passes to the buyer:◦ When he signifies his

approval or acceptance to the seller or does any other act adopting the transaction;

◦ If he does not signify his

Jmvdg 24 1st Sem/A.Y. 2010-2011


approval or acceptance to the seller, but retains the goods without 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. What is a reasonable time is a question of fact.

▪ delivery through carrier

To deliver the fruits and accessories• General rule: (Art. 1537) “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 which the contract was perfected.”

• Except: if the thing is loss or destroyed due to a fortuitous event

• the obligation to deliver the thing sold arises upon the perfection of the contract; thus, the fruits of the thing shall belong to the vendee from the time of such perfection

To warrant the subject matter

sale by a person not the owner; (Art. 1505)• a seller without title cannot transfer a better

title than what he has, unless some principle of estoppel comes into operation.

• The purchaser of property which has been stolen from the owner, has been held to acquire no title thereto even though he purchases for value and good faith

• estoppel◦ the owner of goods may by his conduct

be precluded from denying the seller's authority to sell

◦ for this to apply, the owner must by word or conduct have caused or allowed it to appear that the title is in the seller and the buyer must have been thereby misled to his damage

sale of one having voidable title• Art. 1506: Where the seller of goods has a

voidable title thereto, but his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for value, and without notice of the seller's defect of title.

Double sale• considered double sale if the same

property has been sold by the same person who has an existing right over such property, to two different persons

• rules of preference:◦ 1st who recorded it with the the proper

registry of property◦ should there be no entry, the one who

1st took possession thereof◦ the one with oldest title, provided there

is good faith

expenses of sale• Art. 1487: The expenses for the execution

and registration of the sale shall be borne by the vendor, unless there is a stipulation to the contrary.

RISK OF LOSSbefore perfection:

• risk of loss pertains to the purported seller since he owns the thing

at the time of perfection:• Art. 1493, par. 1 :If at the time the contract

of sale is perfected, the thing which is the object of the contract has been entirely lost, the contract shall be without any effect. ◦ Exception: in sale that are aleatory, the

vendor will be entitled to the price, even if the thing had ceased to exist at the time of the contract.

◦ if the loss is by fault of the vendor, or he knew at the time of the contract that it had already been loss, he must pay damages to the vendee.

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• Art. 1493, par. 2 : If the thing should have been lost in part only, the vendee may choose between withdrawing from the contract and demanding the remaining part, paying its price in proportion to the total sum agreed upon. ◦ This applies even when the loss is only

an insignificant part as the law makes no distinction.

• ARTICLE 1494. Where the parties purport a sale of specific goods, and the goods without the knowledge of the seller have perished in part or have wholly or in a material part so deteriorated in quality as to be substantially changed in character, the buyer may at his option treat the sale:

▪ As avoided; or▪ As valid in all of the existing goods

or in so much thereof as have not deteriorated, and as binding the buyer to pay the agreed price for the goods in which the ownership will pass, if the sale was divisible.

◦ Sale of good “as is”, not covered by this provision.

After perfection, but before delivery:• although the SC has held that the general

rule under the Philippine jurisdiction is that after perfection but before delivery, the risk of loss is borne by the seller under the rule of res perit domino, the statutory bases for such doctrine are not clear-cut and sometimes conflicting. ◦ Art. 1504◦ Art. 1163 to 1165, cross refer to Art.

1262◦ Art. 1538, cross refer to Art. 1189

after delivery• under Art.1504, when ownership of the

goods has been transferred to the buyer, the goods shall be at the buyer's risk.

• Exception◦ actual delivery had been delayed

through the fault of either buyer or seller, the goods are at the risk of the

party at fault.

WARRANTIESexpress warranty

• makes the seller liable for damages• requisites

◦ it must be an affirmation of the fact or any promise by the seller relating to the subject matter of the sale

◦ the natural tendency of such affirmation is to induce the buyer to purchase the thing; and

◦ the buyer purchases the thing relying on such affirmation or promise thereon

• a mere expression of an opinion does not signify fraud, unless made by a expert and the other party has relied on the former's special knowledge (Art. 1341)

implied warranty • those which the law constitute parts of

every contract of sale, WON the parties were aware of them, and WON the parties intended them.

• Examples:◦ Warranty that seller has the right to sell◦ warranty against eviction◦ warranty against non-apparent

servitude◦ warranty against hidden defects

buyer's option in case of beach of warranty (Art. 1559)

• accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment in diminution or extinction of the price

• accept or keep the goods and maintain an action against the seller for damages for the breach of warranty

• refuse to accept the goods, and maintain an action against the seller for damages and breach of warranty

• rescind the contract of sale and refuse to receive the goods or ifteh goods have already been received, return them or offer to return them to the seller and recover the

Jmvdg 26 1st Sem/A.Y. 2010-2011


price or any part thereof which has been paid

the retailer shall be subsidiarily liable under the warranty in case of failure of both the manufacturer and distributor to honor the warranty, and that in such case would be to proceed.

The warranty rights can be enforced by presentment to the immediate seller either the warranty card or the official receipt along with the produced to be serviced or returned to the immediate seller. No other documentary requirement shall be demanded from the purchaser. (Art. 68, RA 7394)

implied warranty shall endure not less than 60 days nor more than 1 year following the sale of the new consumer products (Art. 68, RA 7394)

REDEMPTION ANDEXTINGUISHMENT OF SALE

Sales are extinguished by the same causes as all other obligations; and by conventional or legal redemption.

RESCISSIONArt. 1191 Art 1383

While Article 1191 uses the term rescission, the original term used in Article 1124 of the old Civil Code, from which Article 1191 was based, was resolution.Resolution is a principal action that is based on breach of a party,

rescission under Article 1383 is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New Civil Code

the obligor’s failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. Failure to pay, in this instance, is not even a

breach but an event that prevents the vendor’s obligation to convey title from acquiring binding force.

BULK SALES LAWintended as a specie of bankruptcy and

fraudulent transactions law meant to protect suppl creditors or businessmen against preferential or fraudulent transfers done by merchants.

the primary objective of the law is to compel the seller in bulk to execute and deliver a verified lists of his creditors to his buyer, and notice of intended sale to be sent in advance to said creditors, and to use the proceeds to cover outstanding liabilities.

This law is constitutional as being a valid exercise of the State's police power (Liwanag vs Mengraj)

transactions covered by the law• Extraordinary sale of goods. A stock of

goods, wares, merchandise, provisions, or material NOT in the ordinary course of trade and the regular prosecution of the business of the seller, mortgagor, transferor, or assignor

• Extraordinary sale of fixtures and equipments. All or substantially all of the fixtures and equipment used in or about the business of the seller, mortgagor, transferor, or assignor

• Sale of business enterprise. All, or substantially all, of the business or trade theretofore conducted by the seller, mortgagor, transferor, or assignor.

WON the transaction is meant to defraud creditors, or WON the seller is in a state of solvency or insolvency, would be irrelevant; as long as the transaction falls within any of the 3 defined transactions, it s covered by the law.

Obligations of seller/encumbrancers when

Jmvdg 27 1st Sem/A.Y. 2010-2011


transaction is a bulk sale:• to deliver a sworn statement of listing of

creditors• pro-rata application of proceeds• written advance disclosure to creditors• bulk transfer for nominal value

consequences of violation of the law:• imprisonment for not less than 6 months to

more than 5 years or fine in any sum not exceeding P5k or by both such fine and imprisonment, in the discretion of the court.

RETAIL TRADE LIBERALIZATION ACTSection 2. Declaration of Policy. – It is the policy of the State to promote consumer welfare in attracting promoting and welcoming productive investment that will bring down price for the Filipino consumer, create more jobs, promote tourism, assist small manufacturers, stimulate economic growth and enable Philippine goods and services to become globally competitive through the liberalization of the retail trade sector.

Pursuant to this policy, the Philippine retail industry is hereby liberalized to encourage Filipino and competitive retail trade sector in the interest of empower the Filipino consumer through lower prices, higher quality goods, better services and wider choices.

Repealed Retail Trade Nationalization Law – nationalized the retail trade system and which allowed only citizens and juridical entities which are 100% Filipinos to engage in retail trade.

RTLA liberalized the Philippine retail industry to encourage Filipino and foreign investors to forge an efficient and competitive retail trade sector in the interest of empowering the Filipino consumer through lower prices, higher quality goods, better services, and wider choices.

A natural born citizen of the Philippines who has lots his Philippine citizenship but who resides in the Philippines shall be granted the same rights as Filipino citizens for purposes of retail trade under the RTLA.

Retail trade• any act, occupation or calling of habitually

selling direct to the general public merchandise, commodities or goods for consumption.

• Exempted transactions◦ sales by a manufactirer, processor,

laborer or worker to the general public of the products manufactured, processed or produced by him if his capital does not exceed P100k

◦ sale by a farmer or agriculturist of the products of his farm, regardless of capital

◦ sales in restaurant operations by a hotel owner or inn-keeper irrespective of the amount of capital, provided that the restaurant is incidental t the hotel business

◦ sales to the general public, through a single outlet owned by a manufacturer of products manufactured, processed or assembled in the Philippines, irrespective of capitalization

◦ sales to industrial and commercial users or consumers who use the products bought by them to render service o the general public and/or produce or manufacture of goods which are in turn sold by them, and

◦ sales to the government and/or its agencies and GOCCs.

Categories of Retail Trade Enterprises• Category A – with paid up capital of the

peso equivalebt of less than US$2.5M• Category B – minimum paid up capital of

the peso equivalent of US$2.5M but less than US$7.5M, procided in no case shall the investments for establishing a store be less than the peso equivalent of US$30,k

• Category C – paid up capital of the peso equialent of US$7.5M or more provided that in no case shall the investments for establishing a store be less than the peso equivalent of US$380k

Jmvdg 28 1st Sem/A.Y. 2010-2011


• Category D – specializing in high end or luxury products with a paid up capital of the peso equivalent of US$250k per store

CONSUMER ACT OF THE PHILIPPINESArticle 2. Declaration of Basic Policy. – It is the policy of the State to protect the interests of the consumer, promote his general welfare and to establish standards of conduct for business and industry. Towards this end, the State shall implement measures to achieve the following objectives:

(a) protection against hazards to health and safety;

(b) protection against deceptive, unfair and unconscionable sales acts and practices;

(c) provision of information and education to facilitate sound choice and the proper exercise of rights by the consumer;

(d) provision of adequate rights and means of redress; and

(e) involvement of consumer representatives in the formulation of social and economic policies.

PART 2: LEASE

The contract of lease may be of a thing, work, or service.Characteristics:

• temporary duration• onerous• the price is fixed according to the duration

of the contract.

Sale LeaseThere is a permanent transmission of ownership of the thing sold

There is a transfer of use or enjoyment of the thing, and only for a determinate period of time

Usufruct LeaseBoth involves the use and enjoyment of the thing

Always is a real right Real right only when it is registered

In order to constitute usufruct, one must be the owner of the thing

Ownership is not required to constitute lease (case of sublease)

Owner allows the usufructuary to use and enjoy the property

Lessor places and maintain the lessee in the enjoyment of the thing

Includes all possible uses and manner of enjoyment of the property

May be limited to particular uses by the contract

May be for an indefinite period of time

Must be for a determinate period

Lease of a thing:• one of the parties binds himself to give to

another the enjoyment or use of a thing for a price certain and for a period which may be definite or indefinite

• subject matter must be within the commerce of man, otherwise it is void

• the lease of a building naturally includes the lease of the lot

• special characteristics◦ essential purpose is to transmit the use

or enjoyment of a thing◦ it is consensual◦ it is onerous◦ its price is fixed in relation to the period

of use or enjoyment◦ it is temporary

• the rent may be paid in money, or in fruits, or in some other useful things

• rent must be serious or substantial• duration of lease must not go beyond 99

years

General rule: consumable goods cannot be the subject of a contract of lease,exceptions:

• when they are merely to be exhibited or• when they are accessory to an industrial

establishment

lease of work or service• one of the parties binds himself to execute

Jmvdg 29 1st Sem/A.Y. 2010-2011


a piece of work or to render to the other some service for a price certain

Lease of services AgencyThere is no representation

Principle of representation is present

There must be a price Gratuitous

Will of both parties is necessary for the extinguishment of the obligation

The will of one party is sufficient to extinguish a contract of agency.

The lessee cannot assign the lease without the consent of the lessor.

Assignment SubleaseTransfer to a 3rd person of the rights and obligations arising from the contract

Merely another contract of lease

Sale of a lessee's right The original lessee becomes in turn a lessor

Original lessee is released from his obligations under the contract

The original lease contract subsists and is binding on the lessee

Consent of the lessor is needed

Consent of lessor may or may not be secured

Obligations of the Lessor• To deliver the thing which is the object of

the contract in such a condition as to render it fit for the use intended; ◦ if the dwelling place or building is in

such a condition that its use brings imminent and serious danger to life or health, the lessee may terminate the lease at one by informing the lessor

◦ the lessor cannot alter the form of the thing leased in such a way as to impair the use to which the thing is devoted under the terms of the leased.

• To make on the same during the lease all

the necessary repairs in order to keep it suitable for the use to which it has been devoted, unless there is a stipulation to the contrary;◦ this obligation of the lessor may be

waived by the lessee thus relieving the former of his duty to make such repairs

◦ lessee shall make notifications to the lessor for the latter to make the necessary repairs

◦ in default of special stipulation, the custom of the place shall be observed with regard to the kinds of repairs on urban property (Art. 1686)

• To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract.◦ The non-fulfillment by the lessor of this

obligation releases the lessee from the obligation to pay what is stipulated in the contract from the date he ceased to occupy the premises

◦ this duty of the lessor is merely a warranty that the lessee shall not be disturbed in his legal, not physical possession

◦ the lessee has the obligation to notify the lessor of the necessity of making the repairs.

◦ The remedy of the tenants where lessor refuses to make an urgent repair is to make the urgent repairs themselves and charge the costs thereof to lessor.

◦ The lessor is not obliged to answer for a mere act of trespass which a third person may cause on the use of the thing leased; but the lessee shall have a direct action against the intruder. (Art. 1664)▪ trespass in fact

• de mero hecho• no juridic intention on the part

of the trespasser• affects only the use of the

property leased and therefore it is incumbent upon the lessee to

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repel it• the lessor is not liable for this

kind of trespass▪ trespass in law

• disturbance of the possession warranted by the lessor

• by judicial or extra-judicial acts3rd person questioned the rights of the lessee to enjoy the property or the lease, and claims it for himself by virtue of a right pertaining to him.

• The lessor is liable to the lessee for the disturbance of the latter's possession

Obligations of the Lessee• To pay the price of the lease according to

the terms stipulated; ◦ this obligation arises only where the

contract has been actually carried into effect by the delivery of the thing leased

◦ only the owner has the right to fix the rent

• To use the thing leased as a diligent father of a family, devoting it to the use stipulated; and in the absence of stipulation, to that which may be inferred from the nature of the thing leased, according to the custom of the place;

• To pay expenses for the deed of lease.

Lease with a fix term• ceases upon the day fixed without need of

demand• when a contract contains a provision that

the term of the lease may be extended for a further similar period, the extension is to be understood as having been promised to the lessee and the latter, without need of further consent of the lessor can continue the lease and occupy the premises on notice to the lessor

• If the lessee continues enjoying the thing after the expiration of the contract, over the lessor's objection, the former shall be subject to the responsibilities of a

possessor in bad faith. (ARTICLE 1671)• In case of an implied new lease, the

obligations contracted by a third person for the security of the principal contract shall cease with respect to the new lease. (ARTICLE 1672)

“If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month”. (ARTICLE 1687)

Payment shall be made in the place designated in the obligation. There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted. In any other case the place of payment shall be the domicile of the debtor. If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him. These provisions are without prejudice to venue under the Rules of Court. (ARTICLE 1251)

Jmvdg 31 1st Sem/A.Y. 2010-2011


Sources:• Civil Code of the Philippines, Book V,

Tolentino, 1992• Civil Code of the Philippines, Book II,

Tolentino, 1992• Law on Sales, 2009 ed., Cesar L.

Villanueva• Civil Code of the Philippines, Book V,

Paras• Comments and Jurisprudence on

Obligations and Contracts, 11th revised Edition, Jurado

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