Session No. 07

SALESSales, definedBy 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 (Art. 1458).

Essential Elements - necessary for the validity of the sale.Meeting of the minds of the seller and the buyerObject which is certain and determinatePrice certain in money or its equivalent

Natural Elements - those which are inherent in the contract and are deemed to exist in the contract of sale in the absence of clear contrary agreement.

Warrant against evictionWarranty against hidden defects and encumbrancesAccidental Elements - may or may not exist depending on the stipulations of the parties like conditions, payment of interest, place and time of payment.

Characteristics or Features of Contract of Sale (NBC-COP)

Nominate - It has a specific name given by law.

Bilateral - both parties are obliged to fulfil reciprocal obligations to one another.

Consensual - It is perfected by mere consent

Commutative - the thing sold is equivalent of the price paid

Onerous - The thing sold is conveyed in consideration of the purchase price and the purchase price i spaid in consideration of the conveyance of the thing.

Principal - Its existence does not depend upon the existence and validity of another contract

Phases or Stages of a Contract of Sale

Preparation, conception or generation - the period of negotiation and bargaining, ending at the moment of agreement of the parties

Perfection or Birth of the Contract the meeting of minds between parties

Consummation or deathwhich is the fulfilment or performance of the terms agreed upon

Sale distinguished from Contract to Sell

Contract of SaleContract to SellTitle over the property passes to the buyer upon delivery unless there is a contrary agreementOwnership is retained by the seller whether or not there is delivery. Ownership passes to the buyer only upon full payment of the priceNon-payment of the purchase price is a negative resolutory condition, meaning the sale becomes ineffective upon the happening of such conditionThe payment in full is a positive suspensive condition, meaning, if the purchase price is not paid, the obligation to deliver and to transfer ownership on the part of the seller does not become effectiveAfter delivery of the objective, the seller loses ownership over it. Unless, the contract is set aside, he cannot recover the objectWhether there is delivery or not, the seller retains the ownership of the object. If the seller, due to non-payment of the price is ousting the buyer from the property, he (seller) is not rescinding the contract of sale but is precisely enforcing it.

Conditional Sale (Pactum Reservatii Domini) distinguished from Contract to Sell

Conditional SaleContract to SellConditional Sale there is already a contract of saleNo contract to sale only, a preparatory contractThere is already delivery but ownership retain by sellerNo delivery yet. No sale yetSpecific Performance/RescissionNo specific performance/rescissionno contract yetPayment completes the transactionPayment will not complete transaction

Sale distinguished from Dacion en Pago

Contract of SaleDacion en PagoThere is no pre-existing debtThere is a pre-existing debtSale creates obligationDacion extinguishes an obligation The cause or consideration is the price (for sellers point of view) and the delivery of the object (from the buyers point of view) The cause or consideration is the extinguishment of the obligation (from the debtors point of view) and the delivery of the object given as payment for credit (from the point of view of creditor )There is greater freedom in fixing the priceLess freedom in fixing the price because the amount of the pre-existing debt the parties seek to extinguish.

Sale distinguished from Payment by Cession

SalePayment by CessionThere is no pre-existing debtThere is a pre-existing debtIt creates obligations between partiesIt extinguishes an obligationThe cause or consideration is the price (for sellers point of view) and the delivery of the object (from the buyers point of view) The cause or consideration is the extinguishment of the obligation (from the debtors point of view) and the assignment of the things to be sold (from the point of view of creditors )There is greater freedom in fixing the priceLess freedom in fixing the price because the amount of the pre-existing debt the parties seek to extinguish.Ownership is transferred to the buyerCreditors do not become the owners of the properties assigned but merely given the right to sell such properties and apply the proceeds to their claims

Sale distinguished from Agency to Sell

SaleAgency to SellThe buyer pays for the price of the goods/property purchasedThe agent does not pay for the price. He merely accounts for the proceeds of the sale.The buyer becomes the owner of the goods/property purchasedThe agent does not become the owner of the goods/property delivered to him for sale.Buyer cannot return the goods/property when the sale is defectiveThe agent returns the goods/property if he was not able to sell the sameThe seller warrants the goods/property soldThe agent does not make any warranty as long as he acts within his authority and in the name of the principalThe seller has full freedom to enter into any terms or conditions on the contract of saleThe agent must follow the instructions of the principal

Contract for a Piece of WorkThe article sold is specially manufactured and upon the special order of the customer. Article is not sold in the ordinary course of business. (See. Concrete Aggregates vs. CTA)

Contract for a piece of workContract of SaleThe thing transferred is one not in existence and w/c never would have existed but for the order of the party desiring to acquire itThe thing transferred is one which would have existed and would have been the subject of sale to some other person, even if the order had not been givenThe services dominate the contract even though there is a sale of goods involvedThe primary objective of the contract is a sale of the manufactured item; it is a sale of goods even though the item is manufactured by labor furnished by the seller and upon previous order of the customerNot w/in the Statute of FraudsGovernable by the Statute of Frauds

Barter is a contract wherein parties trade goods or commodities for other goods. In sale, the consideration is money. In barter, the consideration is another thing.

Rules if Consideration is partly Money and Partly Goods

Determine the intention of the parties.If intention could not be determined, consider the value of the thing given:If value of the thing more than value of the money, it is BARTERIf value of the thing less than value of the money, it is SALEIf both values are the same, SALE

Money Exchange

If local currency is exchanged for foreign currencythere is purchase and sale.

If the local currency is exchanged with other denominations of the local currency also, there is barter (Same rule if Foreign Currency exchanged in the Philippines for another foreign currency)

Rules on the object of the contract of sale

The thing must be licit ( i.e. not be contrary lo law, morals, good customs, public order or public policy).

There are two kinds of illicit things:a. Illicit per se - when by its nature it is heinous, immoral or wrongful ( such as sale of prohibited drugs, sale of animal suffering contagious disease, etc.)

b. Illicit per accidens - when it is prohibited by law (such as selling narra lumber when the government passed a law prohibiting sale of such things)

The thing must be within the commerce of men.

- Within the commerce of men means that the thing or object of the contract of sale must be available for commercial transactions. Those that are outside the commerce of men, such as public plaza, public monuments, seashores, bridges and other public infrastructures, cannot be made object of the contract of sale.

The thing must be determinate. A thing determinate

- When it is particularly designated or physically segregated from all others of the same class.

- The thing is capable of being made determinate, at the time the contract is entered into, w/o the necessity of a new or further agreement between the parties.

The vendor must have a right to transfer the ownership thereof at the time it is delivered.

Things having a potential existence may be the object of the contract of sale.

The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. The sale of a vain hope or expectancy is void

Sale of expected thing (Emptio rei speratae) - a sale of an expected thing subject to the condition that the thing will come to existence.

If the thing did not come into existence, the contract is not effective and the buyer has no obligation to pay the price. Presumption is in favor of this kind of sale, because it is more in keeping with the commutative character of a sale.

(example: the rice that may be harvested from the Riceland, the wine that will be produced from the grape vineyard, the dairy products that may be produced from farm with cow-breeds)

Sale of hope itself (Emptio spei) - a sale of a hope or expectancy.

The contracting parties intended that contract of sale to exist at all events, whether or not the expected thing will come into existence such that the buyer will have to pay the purchase price, such that the contract becomes aleatory in nature.

(example: sale of the hope to win in the lotto, sale of hope to win in raffles).

Note: sale of vain hope or expectancy shall be void, such as when tickets are sold today when the raffle was made yesterday.

The goods which form the subject of a contract of sale may be either

Present goods - existing goods, owned or possessed by the seller

Future goods are goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale. The following future goods that may be subject of a contract of saleGoods to be manufactured yet

Examples: the house to be build, the rice that will be harvested in farmland, the table that will be made from lumber

Goods to be acquired by the seller after the perfection of contract of sale

Goods that depends upon a contingency that may or may not happen

The sole owner of a thing may sell an undivided interest therein (Art. 1463). Such sale shall produce the effect of making the seller and the buyer the co-owner of the thing sold.

Sale of fungible goodsFungible goods are those that can readily be estimated and replaced according to weight, measure, and amount.

Fungibilityis the property of agoodor acommoditywhose individual units are capable of mutual substitution, such ascrude oil, shares in a company, bonds,precious metals, orcurrencies.

Rules in purchase of an Undivided Share in Specific Mass of Fungible Goods.

If the aliquot part purchased from the seller is more than the whole undetermined mass after it had been weighed or measured, then the buyer becomes the owner of the entire mass.

If the aliquot part purchased is less than the whole undetermined mass, the purchaser will become the co-owner of the whole mass in the proportion in which the number, weight or measure of what had been purchased bears to the number, weight or measure of the mass or stock.

Things subject to a resolutory condition may be the object of the contract of sale.

Example: P sold to S a parcel of land, giving P the right to repurchase within 4 years from the execution of the Deed of Sale. The sale and the right to repurchase was annotated in the title and registered in the Registry of Deeds. After 1 year, S sold to A the same land, but S must respect the right of repurchase of P annotated in the title.

Price, definedPrice is the sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the fixing of the price, which was agreed upon by both parties

Rules on price The price must be certain. The price of the thing sold must be certain that is, both parties must agree on the monetary value or consideration of the thing of the contract. The price is certain under the following circumstances:

If the parties have agreed upon a definite amount for the sale

If is no specific amount stipulated as purchase price, the price is still considered certain if:it is determinable by making reference to another thing which is itself certainIf determination is entrusted to the judgment of a specified person or persons.

Rule: The fixing of the price can never be left to the discretion of one of the contracting parties. However, if the price fixed by one of the parties is accepted by the other, the sale is perfected (Art. 1473).

Effect if 3rd Person fixed the priceGeneral Rule: It is binding upon the partiesExceptions:When the 3rd person acts in bad faithWhen the 3rd person disregards the specific instructions or the procedure marked out by the parties

Effect when the price is not fixed by the 3rd person designated

If the 3rd person refuses or cannot fix the price, the contract shall become ineffective, unless the parties subsequently agree upon the price

If the 3rd person is prevented from fixing the price by the fault of the seller or buyer, the party not in fault may obtain redress against the party in fault.

If the price fixed is that which the thing sold would have on a definite day, or in a particular exchange or market, or when an amount is fixed above or below the price on such day, or in such exchange or market, provided said amount be certain. (Art. 1472)

Effect if the price cannot be determined

Where the price cannot be determined in accordance with the preceding articles, or in any other manner, the contract is inefficacious. However, if the thing or any part thereof has been delivered to and appropriated by the buyer he must pay a reasonable price therefor. What is a reasonable price is a question of fact dependent on the circumstances of each particular case (Art. 1474).

Note: Reasonable price is generally the market price at the time and place fixed by the contract or by law for the delivery of the goods.

Effect of Gross Inadequacy of PriceGross inadequacy of price does not affect a contract of sale, except:

If consent is vitiated, such as VIMFU (Violence, Intimidation, Mistake, Fraud, Undue influence)

If the parties intended a donation or some other act or contract

If the price is so low as to be shocking to the conscience

Effect of Simulated Price.

Sale is void, unless it could be shown that the parties intended a donation or some other act of liberality.

Price Simulated - No price to support a contract of sale, such that neither party had any intention that the amount will be paid void

Price is False - there is a real price not declared - contract is valid, but the underlying deed is subject to reformation to indicate the real price upon which the minds of the parties have met.

When is a contract of sale perfected?

The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.

Form of contract of sale

A contract of sale may be made orally or in writing, or partly oral and partly in writing, or

maybe inferred from the conduct of the parties

Contacts falling under Statute of Fraud must be in writing, otherwise, it is unenforceable

Sale of real property or any interest therein regardless of price, must be in writing

Sale of goods, chattels or thing in action in the price is P500 or more

The authority of the agent to sell a piece of land must be in writing, otherwise it is void.

Rules in case of sale by auction (Art. 1476)

Auction sale is defined as a sale open to the general public and conducted by an auctioneer, a person empowered to conduct such a sale, at which property is sold to the highest bidder.

Abidis an offer by abidder, a prospective purchaser, to pay a designated amount for the property on sale.

Where goods are put up for sale by auction in lots, each lot is the subject of a separate contract of sale.

A sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer, or in other customary manner. Until such announcement is made,

Any bidder may retract his bid

This is so because a bid is merely an offer, and offer maybe withdrawn at any time before its acceptance

The auctioneer may withdraw the goods from the sale unless the auction has been announced to be without reserve.

Withdrawal of the goods is equivalent to rejection of the offer made by any bidder.

If an auction is without reserve, after the auctioneer calls for a bid on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time.

Highest Bidder is he who, at an auction, offers the greatest price for the property sold.The highest bidder is entitled to have the article sold at his bid

Can the seller bid in the auction sale?

The seller can bid during the auction sale in the following circumstances

A right to bid was reserved expressly by or on behalf of the seller,

If the seller expressly reserved his right to bid on the auctioned item, he is allowed to participate in the bidding process and may even wound up as the highest bidder. This right to bid is allowed unless prohibited by law or stipulations between parties.

The right to bid is not prohibited by law or by stipulation.

Example: in the exercise of unpaid seller of his right to resell the goods, he cannot buy the same goods during the auction sale

Notice must be given that the sale is subject to a right to bid by or on behalf of the seller.

Who are By-bidders or puffers?

By-bidders or puffers are persons employed by auctioneer who will bid without being bound but whose bids will have a tendency to induce or provoke higher bids from interested buyers, thus misleading the latter because of the inflated bid price.

Effects of the employment of by-bidders

If notice was previously given to the public that seller employed by-bidders, the result of auction sale is VALID

If notice was not given to the public that seller employed by-bidders, the result of auction sale is FRAUDULENT, thus maybe annulled.

Note: It is the secrecy of the puffing and not the authorized bidding by the seller which makes it fraudulent.

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Effect to parties after perfection of auction sale

The winning bidder cannot retract his bid, nor the auctioneer withdraw the goods since there is already a perfected contract of sale

When ownership of the thing sold is transferred?

The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof (Art. 1477).

The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price (Art. 1478)

Promise to buy and/or sell

Bilateral promise this takes place when one party promises to buy and the other party promises to sell a determinate thing at an agreed price. This is reciprocally demandable since there is already meeting of minds between parties to perfect a contract of sale.

Unilateral promise - the promise to buy or sell a determinate thing at a certain price made only by one of the parties. The promise has he following effect:

If not accepted by the promisesee, it does not produce any legal effect. This is referred to as policitation.

If accepted by the promissee, it does not produce any binding effect unless it is supported by consideration distinct from the price called option.

What is Option Contract?

An option contract - is a privilege existing in one person, for which he had paid a consideration, which gives him the right to buy, certain merchandise or property from another person at anytime within the agreed period at a fixed price. In case of breach of promise to buy or to sell, injured party can only seek damages.

Earnest Money vs. Option Money

Earnest MoneyOption MoneyIt is part of the purchase priceIt is given as a distinct consideration for an option contract which gives the buyer a specific period within which to purchase the thingIt is given only when there is already a perfected saleIt is given at a time when the sale had not yet been perfected. What had been perfected only is the option contractWhen it is given, the buyer is bound to pay the balance of the agreed purchase priceEven if option money is paid by the would-be-buyer he is not bound to buy the thingIf the sale does not materialize, the earnest money paid must be returned, unless a contrary agreement had been stipulatedIf the buyer decides not to buy the thing, he cannot recover the option money he paid as consideration for the contract of option

Rules on preservation of, injury to or benefit from the thing sold before or after perfection of contract of sale

Duty of the seller to preserve the thing after perfection but before delivery

Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care (Article 1163)

Right of the buyer to fruits

- All the fruits shall pertain to the vendee from the day on which the contract was perfected (Art. 1537).

-The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him (Art. 1164)

Loss, injury or deterioration of the thing

Before perfection loss shall be bear of the would-be seller

Complete loss the sale is void, since there can be no contract (absence of object)Partial loss the buyer may choose between

Withdrawal from the contract

Demanding for the remaining price and pay its proportionate price

During the execution of the contract same with loss sustained before perfectionAfter perfection but before delivery seller bears the loss consistent with the principle res perit domino which means the loss of property falls upon its owner. This phrase is used to express that when a thing is lost or destroyed, it is lost to the person who was the owner of it at the time.

Principle of Res Perit DominoVendor bears risk of loss until ownership is transferred by deliver, except in the following cases:When the parties so agreed that the loss shall be borne by the seller Where delivery of goods has been made but ownership is retained by the seller merely to secure performance of buyers obligationWhere actual delivery is delayed through fault of the buyer.

Sale of Goods By Description- where a seller sells a thing as being of a certain kind verbally describing them and the buyer simply relies on the sellers descriptions of the things, not knowing whether the sellers representations are true or not.

Sale by Sample- Where the seller warrants that the bulk of goods being sold correspond with the sample or samples exhibited not only in kind but also in quality and character.

Sale by Description and Sample- Where the seller has to satisfy the requirements in sale by description and sample. There are two-fold warranty here: (a) the goods purchased matched with the description and (b) the goods also matched in kind, quality and character with that of the sample or samples exhibited to the buyer or his representative

Remedies in sale of goods by description, sample and sale by description and sample

In the contract of sale of goods by description or by sample, the contract may be rescinded if the bulk of the goods delivered do not correspond with the description or the sample, and if the contract be by sample as well as description, it is not sufficient that the bulk of goods correspond with the sample if they do not also correspond with the description.

The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample (Art. 1481)

Sale of Personal Property on Installments and Leases of Personal Property with Option to Buy

The vendor may exercise any of the following remedies:

Exact fulfilment of the obligation, should the vendee fail to pay;

Cancel the sale, should the vendee's failure to pay cover two or more installments;

When the sale is cancelled or rescinded, the vendor shall return to the vendee the sums received minus reasonable rent. However, a stipulation that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances

Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.

( this referred to as the Recto Law ).

Notes:

The remedies have been recognized as alternative, not cumulative, in that the exercise of one would also bar the exercise of the others. They cannot also be pursued simultaneously.

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. Any agreement to the contrary shall be void.

the object of Recto Law was to remedy the abuses committed in connection with the foreclosure of chattel mortgages and was meant 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 judgment.

Sale of Real Property in Installments (R.A. No. 6552, otherwise known as Maceda Law)The Maceda Law, RA 6552, is the real estate equivalent of the Recto Law. Like the Recto Law, it also covers financing of sales ofreal propertyon installment payments, including residential condominium apartments.It doesn't apply, however, to the following sales:Industrial lotsCommercial buildings and lotsLands under the CARP Law

Purpose of Maceda LawAlso known as the RealtyInstallmentBuyer Act, they law is hereby declared a public policy to protect buyers of real estate oninstallmentpayments against onerous and oppressive conditions. (Sec. 2, R.A. 6552)

Rights of the buyer under installment terms:

If the buyer paid less than 2 years' installments.

he is given a grace period of sixty (60) days starting fromthe dateof his lastinstallmentto resume payingThis period can be increased by the seller. If after the grace period the buyer still can't pay, the seller must make a notarial demand to cancel the sale. The cancellation becomes effective thirty (30) days after the buyer was notified.

If the buyer paid at least two (2) years' installments

the buyer can pay the unpaid balance without interest. The grace period is computed at one (1) month per year ofinstallment payments. It also begins from the time the buyer paid his lastinstallment. The grace period can be used only once every five (5) years of the sales contract's life -including its extensions. If the seller wants to cancel the sale, he has to refund the buyer of 50% of the actual payments. If the buyer paid more than five years' installments another 5% for every year is to be added to the refund, but only up to 90% of the total payments made.

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