arts. 1458 - 1494 reviewer -sales

SALESChapter 1 – Nature and Form of the Contract

CHAPTER 1

NATURE AND FORM OF THE CONTRACT

Article 1458 . By contract of sale one of the contracting parties obligate himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent.

Sales – a contract where one party (seller or vendor) obligates himself to transfer the ownership of and to deliver a determinate thing, while the other party (buyer or vendee) obligates himself to pay for said thing a price certain in money or its equivalent.

Under Roman Law, sale was termed avenditio. Today the French refer to the contract as a venta

The vendor need not be the owner at the time the sale is perfected. It is sufficient that he is the owner at the time the thing sold is deliver.

Suppose Art. 1458 did not specify that the seller must transfer the ownership of the object, he still have this obligation for after all the transfer of ownership is the fundamental aim of the contract. A buyer is not interested in a mere physical transfer, he is after the ownership.

Essential Characteristics of the Contract of Sale

a. Consensual – perfected by mere consent.

b. Bilateral reciprocal – both parties are bound by obligations dependent upon each other.

c. Onerous – to acquire the rights, valuable consideration must be given.

d. Commutative – the values exchanged are almost equivalent to each other.

Note: By way of exception, some contracts are aleatory. Ex: Sale of a genuine sweepstakes ticket.

e. Principal (as distinguished from accessory contract) – there is no necessity for it to depend upon the existence of another valid contract. (Ex: Contracts of pledge and mortgage)

f. Nominate (as distinguished from an innominate contract) – a special designation or name. (Ex: the contract of sale)

Elements of the Contract of Sale

a. Essential elements (those without which there can be no valid sale)

1. Consent or meeting of the minds – (Ex: consent to transfer ownership I exchange for the price.

2. Determinate subject matter (generally there is no sale of generic thing; moreover, if the parties differ as to the object, there can be no meeting of the minds.

3. Price certain in money or its equivalent – (This is the cause or consideration) (The price need not be in money.)


b. Natural elements (those which are inherent in the contract, and which in the absence of any contrary provision, are deemed to exist in the contract.)

1. warranty against eviction (deprivation of the property bought)

2. warranty against hidden defects

c. Accidental elements (those which may be present or absent in the stipulation, such as the place or time of payment, or the presence of conditions.)

Stages in the Contract of Sale

a. Generation or negotiation

b. Perfection – meeting of the minds

c. Consummation – when the object is delivered and the price is paid.

Kinds of Sales

a. As to the nature of the subject matter

1. sale of real property

2. sale of personal property

b. As to the value of the things exchanged

1. commutative sale

2. aleatory sale

c. As to whether the object is tangible or intangible

1. sale of property (tangible or corporeal)

2. sale of a right (assignment of a right or a credit, or some other intangibles such as a copyright, a trademark, or goodwill.)

tangible – chose of possession.

intangible – chose of action.

The term “goods” as used in the Uniform Sales Act does not ordinarily include choses in action (things in action). Neither does the term include money.

d. As to the validity or defect of the transaction

1. valid sale

2. rescissible sale

3. voidable sale

4. unenforceable sale

5. void sale

e. As to the legality of the object

1. sale of a licit object

2. sale of an illicit object


f. As to the presence or absence of conditions

1. absolute sale (no condition)

2. conditional sale (as to whether there is a sale with a pacto de retro, a right to repurchase or redeem; or when there are suspensive conditions, or when the things sold merely possess a potential existence, such as the sale of the future harvest of a designated parcel of land; or when, for example, all the personal properties in an army depot would be sold “except all combat materials” that may be found therein. Therefore such combat materials should be excluded from sale.)

g. As to whether wholesale or resale

1. wholesale –if to be resold for a profit the goods being unaltered when resold, the quantity being large.

2. retail – if otherwise (also sold to tailors)

h. A to the proximate inducement for the sale

1. sale by description

2. sale by sample

3. sale by description and sample

i. As to whether the price is tendered

1. cash sale

2. sale on the installment plan

Sale distinguished from “Dation in Payment” (Adjudicacion en Pago, or Dacion en Pago or Dacion en Solutum)

SALE DATION IN PAYMENT

1. There is no pre-existing credit.

2. Gives rise to obligations.

3. The cause or consideration here is the price, from the viewpoint of the seller, or the obtaining of the object, for the viewpoint of the buyer.

4. There is greater freedom in the determination of the price.

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

1. There is a pre-existing credit.

2. extinguishes obligations.

3. The cause or consideration here, from the viewpoint of the person offering the dation in payment, is the extinguishin of his debt; from the viewpoint of the4 creditor, it is the acquisition of the object offered in lieu of the original credit.

4. There is less freedom in the determination of the price.

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


Contract of Sale distinguished from Contract to Sell

CONTRACT OF SALE CONTRACT TO SELL

1. The non-payment of price is a resolutory condition. (ex: the contract of sale may by such occurrence put an end to a transaction that once upon a time existed.)

2. Title to the property generally passes to the buyer upon delivery.

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

1. The payment in full of the price is a positive suspensive condition. Hence, if the price is not paid, it is as if the obligation of the seller to deliver and to transfer ownership never became effective and binding.

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

3. 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.

Sale distinguished from Assignment of Property in Favor of Creditors (Cession or Cession de Bienes)

SALE CESSION

1. As defined, there is transfer of ownership and delivery of a determinate thing.

1. The assignee or creditor does not acquire ownership over the things assigned, but only the right to sell said things.

Cession – consists in the abandonment of all the property of the debtor for the benefit of his creditors in order that the latter may apply the proceeds thereof to the satisfaction of their credits.

Dacion in payment distinguished from Cession

DATION IN PAYMENT CESSION

1. One creditor is sufficient.

2. Not all properties of the debtor are conveyed.

3. Debtor may be solvent or insolvent.

4. The creditor becomes the owner of the thing conveyed.

1. There must be two or more creditors.

2. All the debtor’s properties are conveyed.

3. Cession takes place only if the debtor is insolvent.

4. The creditors do not become owners of the thing


conveyed.

Sale distinguished from lease

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

Kinds of Extrajudicial Foreclosure Sale

1. Ordinary execution – governed by the pertinent provisions of Rule 39 of the Rules of Court.

2. Judicial foreclosure – governed by Rule 68 of the Rules of Court.

3. Extrajudicia foreclosure – governed by Act 3135, as amended by Act 4118, otherwise known as “An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real Estate Mortgages.”

Article 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered.

Lawfulness of the Object and Right to Transfer Ownership

Two rules:

a. The object must be LICIT.

b. The object must have the RIGHT to transfer OWNERSHIP at the time the object is delivered.

Licit – lawful, within the commerce of man.

Things may be illicit:

1. per se (of its nature) Ex: Sale of human flesh for human pleasure.

2. per accidens (made illegal by provision of the law) Ex: sale of land to an alien after the effective date of the Constitution; Sale of illegal lottery tickets.

* If the object of sale is illicit, the contract is null and void. (Art 1409), and cannot, be ratified.

* The right of redemption may be sold. So also may literary, artistic, and scientific works. A usufruct may also be sold.

Transfer of Ownership

a. It is essential for a seller to transfer ownership (Art. 1458) and, therefore, the seller must be the owner of the subject sold. Nemo dat quad non habet – nobody can dispose of that which does not belong to him.

b. But although the seller must be the owner, he need not be the owner at the time of the perfection of the contract. It is sufficient that he is the owner at the time the object is delivered; otherwise he may be held liable for breach of warranty against eviction.

* The contract of sale by itself, is not a mode of acquiring ownership.


* The contract transfers no real rights; it merely causes certain obligations to arise.

c. The seller need not be the owner at the time of perfection because, after all, “future things or goods” inter alia, ,may be sold.

* While there can be sale of future property, there can generally be no donation of future property.

d. A person has a right over a thing (although he is not the owner of the thing itself) may sell such right. Hence, a usufructuary may generally sell his usufructuary right/

e. If the buyer was already the owner of the thing sold at the time of sale, there can be no valid contract.

Article 1460. A thing is determinate when it is particularly designated or physically segregated from all others of the same class.

The requisite that a 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.

Determinate – specific, but it is not essential really that at the time of perfection, the object be already specific. It is sufficient that it be capable of being determinate without need of any new agreement. Thus, there can be a sale of 20 kilos of sugar of a named quality.

However, from the viewpoint of risk or loss, not until the object has really been made determinate can we

say that the object has been lost, for as is well known, “generic thins cannot be lost.”

Article 1461. 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.

Selling a thing having a potential existence – this is a future thing that may be sold.

Examples:

a. young animals not yet in existence or still ungrown fruits.

b. the wine that a particular vineyard is expected to produce.

c. the wool that shall, thereafter, grow upon a sheep

d. the expected goodwill of a business enterprise

the sale of “a mere hope or expectancy” – should refer to a sale of “an expected thing” not to the hope or expectancy for the hope or expectancy already exists.


Emptio Rei Sperati (Sale of an expected thing)

distinguished form Emptio Spei (Sale of the hope itself)

Emptio Rei Sperati (Sale of an expected thing)

Emptio Spei (Sale of the hope itself)

1. If the expected thing does not materialize, the sale is not effective.

2. Deals with a future thing – that which is expected.

Ex: Sale of a valid sweepstakes ticket whether it wins or not, the sale itself is valid.

1. It does not matter whether the expected thing materialized or not, what is important is that the hope itself validly existed.

2. Deals with a present thing – for certainly the hope or expectancy already exists.

* If the hope or expectancy itself is vain, the sale is itself void. BE it noted that this is not an aleatory contract for while in an aleatory contract there is an element of chance, here, there is completely no chance. (Ex: Sale of a losing ticket for a sweepstakes already run. Except if the ticket be a collector’s item)

Article 1462. The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale, in this Title called “future goods.”

There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen.

Goods may be future or existing goods.

Future goods

a. Those still to be manufactured (like a future airplane) or printed (like a subscription to a newpaper)

b. Those still to be raised (like young animals, whether already conceived or not at the same time of perfection of the contract), or future agricultural products (like copra still to be manufactured.)

c. Those still to be acquired by seller after the perfection of the contract (like land which the seller expects to buy.) This is also referred to as the sale of “hereafter-acquired” property.)

d. Things whose acquisition depends upon a contingency which may or may not happen. Ex: I can sell you now a specific car which my father promised to give me, should I pass the bar next year. The moment I get the car however, in accordance with my father’s promise you do not necessarily become its owner, for before title can pass to you, I must first deliver the car to you, actually or constructively.

Article 1463. The sole owner of a thing may sell an undivided interest therein.


Example of Sale of undivided interest

a. If I own a house, I may sell an aliquot part thereof (say ½ or 1/3) to somebody, in which case he and I will become co-owners.

b. A full owner may sell the usufruct of his land leaving the naked ownership to himself.

Article 1464. In the case of fungible goods, there may be a sale of an undivided share of a specific mass, though the seller purports to sell and the buyer to buy a definite number, weight or measure of the goods in the mass, and though the number, weight or measure of the goods in the mass undetermined. By such a sale the buyer becomes owner in common of such a share of the mass as the number, weight or measure bought bears to the number, weight or measure of the mass. If the mass contains less than the number, weight or measure bought, the buyer becomes the owner of the whole mass and the seller is bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent appears.

Example of Share in a Specific Mass

In a stock of rice, the exact number of cavans which is still unknown, Jose buys 100 cavans. If there are really 150, Jose becomes co-owner of the whole lot, his own share being 2/3 thereof. The sale is of a specific object since the mass is specific.

Article 1465. Things subject to a resolutory condition may be the object of the contract sale.

Sale of things subject to a Resolutory Condition

a. A property subject to reserve troncal may be sold.

b. A usufruct that may end when the naked owner becomes a lawyer may be sold.

Article 1466. In construing a contract containing provisions characteristic of both the contract of sale and of the contract of agency to sell, the essential clauses of the whole instrument shall be considered.

Contract of Sale distinguished from Agency to Sell (like a Consignment for Sale)

CONTRACT OF SALE AGENCY TO SELL

1. The buyer pays the price.

2. The buyer after delivery becomes the owner.

3. The seller warrants.

1. The agent delivers the price which in turn he got from his buyer.

2. The agent who is supposed to sell does not become the owner, even if the property has already been delivered to him.

3. The agent who sells assumes no personal liability as long as he acts within his authority and in the name of the principal.


Article 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work.

Rules to Determine if the Contract is One of Sale or a Piece of Work

a. If ordered in the ordinary course of business - SALE

b. If manufactured specially and not for the market piece of work contract

Schools of Thought

a. Massachusetts Rule – If specially done at the order of another, this is a contract for a piece of work.

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

c. English Rule – If material is more valuable, sale; if skill is more valuable, work.

Article 1468 – If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale.

Rules to determine whether contract is one of Sale or Barter

a. First rule – Intent.

b. If intent does not clearly appear –

1. If thing is more valuable than money – BARTER

2. If 50-50 – SALE

3. If thing is less valuable than the money – SALE

Article 1469. In order that the price may be considered certain, 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.

Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the parties subsequently agree upon the price.

If the third person or persons acted in bad faith, or by mistake, the courts may fix the price.

Where such third person or persons are prevented from fixing the price or terms by fault of the seller or the buyer, the party in fault as are allowed the seller or the buyer, as the case may be.

Certainty of the Price

The price must be certain; otherwise, there is no true consent between the parties.

There can be no sale without a price.


If the price is fixed but is later on remitted or condoned, this is perfectly all right, for then the price would not be fictitious.

The failure to pay the agreed price does not cancel a sale for lack of consideration, for the consideration is still there, namely, the price.

If the money paid is counterfeit, the sale would still be valid for we cannot say that the consideration or cause of the contract is the illegal currency. The real consideration or caused is still the VALUE or price agreed upon.

When no specific amount is stipulated

If no specific amount has been agreed upon, the price is still considered certain:

a. If it be certain with reference to another thing certain.

b. If the determination of the price is left to the judgment of a specified person or persons.

c. In the cases provided for under Art. 1472, Civil Code.

Article 1470. 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.

Effect of Gross Inadequacy of Price

a. In ordinary sale, the sale remains valid even if the price is very low. If there was vitiated consent (such as fraud, or undue influence is present) the contract may be annulled but only due to such vitiated consent.

b. In execution of judicial sales – While mere inadequacy of price will not set aside a judicial sale of real property, still if the price is so inadequate as to shock the conscience of the Court, it will not be set aside.

In case Contract was really a Donation

It is possible that a donation, not a sale, was really intended. In such a case, the parties may prove that the low price is sufficiently explained by the consideration of liberality.

Article 1471. If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or some other act or contract.

Simulated price

a. The price must not be fictitious. Therefore if the price is merely simulated, the contract as a sale is void. It may however be valid as a donation or some other agreement, provided the requirements of donations or other agreements have been complied with. If these requirements do not exist, then, as a sale, the contract is absolutely void, not merely voidable. An action for annulment is therefore not essential.

b. A simulated price is fictitious. There being no price, there is no cause or consideration; hence, the contract is void as a sale. However, it is enough that the price be agreed on at the time of perfection. A rescission of the price will not invalidate the sale.

Fictitious sale


If the sale of conjugal property is fictitious and therefore non-existent, the widow who has an interest in the property subject of the sale may be allowed to contest the sale, even BEFORE the liquidation of the conjugal partnership, making the executor a party-defendant if he refuses to do so.

Article 1472. The price of securities, grain, liquids, and other things shall also be considered certain, when 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 exhange or market, provided said amount be certain.

Certainty of Price of Securities

Ex: I can sell to you today my Mont Blanc fountain pen at the price equivalent to the stock quotation two days from today of 100 shares of PLDT.

If stock market price cannot be ascertained

If the stock quotation price two days later cannot really be ascertained at that time (2 days later), the sale is inefficacious.

Article 1473. 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.

Price cannot be left to one’s party’s discretion

Reason: The other could not have consented to the price, for he did not know what is was.

Article 1474. 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 therefore. What is a reasonable price is a question of fact dependent on the circumstances of each particular case.

Effect if the price cannot be determined

a. If the price cannot really be determined, the sale is void for the buyer cannot fulfill his duty to pay.

b. If the buyer has made use of it, he should not be allowed to enrich himself unjustly at another’s expense. So he must pay a “reasonable price.” The seller’s price, however, must be the one paid if the buyer knew how much the seller was charging and there was an acceptance of the goods delivered. Here, there is an implied assent to the price fixed.

Article 1475. 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.

Nature of Contract

Sale is a consensual contract (perfected by mere consent). Therefore, delivery or payment is not essential for perfection.


Note: The contract of sale is consummated upon delivery and payment.

Requirements for Perfection

a.When parties are face to face, when an offer is accepted without conditions and without qualifications. (A conditional acceptance is a counter-offer.)

Note: if negotiated thru a phone, it is as if the parties are face to face.

b.When contract is thru correspondence or thru telegram, there is perfection when the offeror receives or has knowledge of the acceptance by the offeree.

Note: If the buyer has already accepted, but the seller does not know yet of the acceptance, the seller may still withdraw.

c.When a sale is made subject to a suspensive condition, perfection is had from the moment the condition is fulfilled.

Before perfection

Before perfection of the contract of sale, no mutual rights and obligations exist between the would-be buyer and the would-be seller. The same thing is true when perfection is conditioned upon something, and that thing is not performed.

Accepted Bilateral Promise to Buy and Sell

In a sense similar to, but not exactly the same as, a perfected contract of sale.

Note: From the moment the parties have agreed upon the kind of rice and the price thereof, they are deemed to have entered into a perfected contract of purchase and sale, the terms and conditions of which may not be held to depend on subsequent events or acts of the parties unless the contrary is stipulated. The mere fact that the seller thereafter sells an object of the same kind to another at a lesser price is no ground for the previous buyer to be entitled to claim the excess, his contract being independent of the other.

Formalities for Perfection

Under the statute of Frauds, the sale of:

a. Real Property (regardless of the amount)

b. Personal Property (if 500 or more must be in writing to be enforceable.

* If orally made, it cannot be enforced by a judicial action, except if it has been completely or partially executed, or except if the defense of the Statute of Frauds is waived.

Note: Also in writing should be sales which are to be performed only after more than one year (from the time the agreement was entered into) – regardless as to whether the property is real or personal, and regardless of the price involved.

Perfection in the Case of Advertisements


Advertisements are mere invitations to make an offer (Art. 1325, Civil Code) and, therefore, one cannot compel the advertiser to sell.

Transfer of Ownership

a.Mere perfection of the contract does not transfer ownership. Ownership of the object sold is transferred only after delivery (tradition), actual, legal or constructive.

The rule is, therefore, this: After delivery of the object, ownership is transferred.

b.It is valid If it is stipulated that even with delivery there will be no change or transfer of ownership till the purchase price has been fully paid. (But the stipulation is not binding on innocent third persons such as customers at a store. The customers must not be prejudiced.

The Sales Tax

Even if the object sold has not yet been delivered, once there has been a meeting of the minds, the sale is perfected and, therefore, the sales tax (15% on the gross) is already due. It accrues on perfection, not on the consummation of the sale.

Retail sales of flour to bakeries to be manufactured into bread are subject to tax; if wholesale, they are not subject to tax.

To determine if a sale is wholesale or retail, we must not consider the quantity sold, but the character of the purchase. If the buyer buys the commodity for

his own consumption, the sale is RETAIL, if for resale, the sale is deemed wholesale, regardless of quantity, and is not subject to the particular tax referred to.

In sales of textiles, if it be bought for resale at a profit, the goods being unaltered when resold, the original sale is wholesale. If he resells the goods only after altering them by using his skill (as when he transforms them to shirts), the original sale is retail. Same rule applies in the case of the retail of the following:

1. Copra for the manufacture of soap or oleomargarine.

2. Hemp used to make twine or rope

3. In general, raw materials that are used in or that entered into the manufacture of finished products.

Effect of Perfection

After perfection the parties must now comply with their mutual obligations. Thus, for example, the buyer can now compel the seller to deliver to him the object purchased. In the meantime, the buyer has only the personal, not a real right. Hence, if the seller sells again a parcel of land to a stranger who is in good faith, the proper remedy of the buyer would be to sue for damages.


Article 1476. In the case of a sale by auction:

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

(2) 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; and the auctioneer may withdraw the goods from the sale unless the auction has been announced to be without reserve.

(3) A right to bid may be reserved expressly by on behalf of the seller, unless otherwise provided by law or by stipulation.

(4) Where notice has not been given that a sale by auction is subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ or induce any person to bid at such sale on behalf of the seller or any person employed by him. Any sale contravening this rule may be treated as fraudulent by the buyer.

When Sale by Auction is Perfected

The sale is perfected when the auctioneer announces its perfection by the fall of the hammer or in other customary manner.

Before the Fall of the Hammer

- The bidder may retract hi bid because every bidding is merely an offer and, therefore, before it is accepted, it may be withdrawn. The assent is signified on the part of the seller by knocking down the hammer.

- The Auctioneer may withdraw the goods from the sale, unless the auction has been announced to be without reserve. Reason: The bid is merely an offer, not an acceptance of an offer to sell. Therefore, it can be rejected. What the auctioneer does in withdrawing is merely reject the offer.

Conditions when a seller may bid

a. Provided such a right to bid was reserved;

b. and notice was given that the sale by auction is subject to a right to bid on behalf of the seller.

A seller may employ others to bid for him provided he has notified the public that the auction is subject to the right to bid on behalf of the seller. People who bid for the seller, but are not themselves bound, are called “by-bidders” or “puffers.” In view of the notice, there would not be any fraud, and the transaction with the rest should be considered as valid. Without the notice, any sale contravening the rule may be treated by the buyer as fraudulent. In


other words, the purchaser could be relieved from his bid.

Note: It may happen that the owner is not himself the auctioneer. Now then if the auctioneer employs puffers and gives no notice to the public, the sale would still be fraudulent, whether or not the owner of the goods knew what the auctioneer had don

Rule in case of a Private Sale

A private sale authorized by a probate court (and without objection on the part of the heirs or creditors) cannot be assailed by a person who is not an “interested party” (such as an heir or creditor). One who merely offered a higher price (without actually buying the property) is not “interested party.” It would have been different had there been a public auction.

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

When Ownership is Transferred

Ownership is not transferred by perfection but by delivery.

(This is true even f the sale has been made on credit; payment of the purchase price is NOT essential to the transfer of ownership, as long as the property sold has been

delivered. (Gabriel et. al. v. Encarnacion et. al.) A contrary stipulation is, however, VALID.

KINDS OF DELIVERY

a. Actual (Art. 1497, Civil Code)

b. Constructive (Arts. 1498 – 1601, Civil Code), including “any other manner signifying an agreement that the possession is transferred.” (Art. 1496, Civil Code)

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

When ownership is not transferred despite delivery

Generally, ownership is transferred upon delivery, but even if delivered, the ownership may still be with the seller till full payment of the price is made, if there is a stipulation to this effect. This stipulation is usually known as pactum reservati dominii and is common in sales on the installment plan. But of course, innocent third parties cannot be prejudiced.

Article 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissory if the promise is supported by a consideration distinct from the price.

First paragraph(MUTUAL PROMISE)

Second paragraph(ACCEPTED UNILATERAL PROMISE)


A promise to buy something and B promises to sell it at an agreed price. (This is a promise to buy and sell, clearly a bilateral reciprocal contract.)

Only one makes the promise. This promise is accepted by the other. Hence, A promise to sell to B accepts the promise, but does not in turn promise to buy.

Policitacion – a unilateral promise to buy or to sell which is not accepted. This produces no juridical effect, and creates no legal bond. This is a mere offer, and has not yet been conversed into a contract.

Bilateral Promise – to buy and sell a certain thing for a price certain gives to the contracting parties personal rights in that each has the right to demand from the other the fulfillment of the obligation.

Unilateral Promise – The acceptance of a unilateral promise to sell must be plain, clear, and unconditional. Therefore, if there is a qualified acceptance with terms different from the offer, there is no acceptance, that is, there is no promise to buy and there is no perfected sale.

Option – a contract granting a person the privilege to buy or not to buy certain objects at any time within the agreed period at a fixed price.

The contract of option is a separate and distinct contract from the contract which the parties may enter into upon the consummation of the contract; therefore, an option must have its own cause or consideration.

Contract to SELL is NOT an Absolute Sale

A contract or promise to sell, a parcel of land for example, is not a contract of sale. Such a contract to sell would exist when for instance, land is promised to be sold, and title given only after the down payment and the monthly installment therefor shall have all been paid. Failure to make the needed payment is failure to comply with the needed suspensive condition. Hence, promissor was never really obliged to convey title. Nothing wrong if he sells the property to another, after an unsuccessful demand for said price.

Article 1480.Any injury to or benefit from the thing sold, after the contract has been perfected, from the moment of the perfection of the contract to the time of delivery, shall be governed by Articles 1163 to 1166, and 1262.

(Art. 1163. 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. (1094a))

(Art. 1164. 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. (1095))

(Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 1170, may compel the debtor to make the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.


If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096))

(Art. 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. (1097a))

(Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay.

When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk. (1182a))

This rule shall apply to the sale of fungible things, made independently and for a single price or without consideration of their weight, number, or measure.

Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall not be imputed to the vendee until they have been weighed, counted, or measured, and delivered, unless the latter has incurred delay.

Who Bears the Risk of Loss

a. If the object has been lost before perfection, the seller bears the loss. Reason: There was no contract, for there was

no cause or consideration. Being the owner, the seller bears the loss. This means that he cannot demand payment of the price.

b. If the object was lost after delivery to the buyer, clearly the buyer bears the loss. (Res perit domino – the owner bears the loss.)

c. If the object is lost after perfection but before delivery, the buyer bears the loss, as exception to the rule of res perit domino.

Exceptions to the rule that between perfection and delivery, the buyer bears the loss:

a. If the object sold consists of fungibles sold for a price fixed according to weight, number, or measure. (Here, if there has been no delivery yet, the seller bears the loss, unless the buyer is in mora accipiendi.) Last par. 1480

b. If the seller is guilty of fraud, negligence, default, or violation of contractual term. Arts. 1165, 1262, 1170)

c. When the object sold is generic because “genus does not perish” (genus nunquam perit) Note: the unfortunate effect of Art. 1504 on the question of the risk of loss is discussed under said article.)

Fungibles – personal property which may be replaced with equivalent things.

Consumables and non-consumables distinguished from fungibles and non-fungibles


The former is based on the nature of the thing, while the latter is based on the intention.

Article 1481. In the contract 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 by 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.

Sale by description – Where seller sells things as being of a certain kind, the buyer merely relying on the seller’s representations or descriptions. Generally, the buyer has not previously seen the good, or even if he has seen them, he believes (sometimes erroneously) that the description tallies with the goods he has seen.

Sale by sample – that where the seller warrants that the bulk (not the major part or the majority of the goods but the goods themselves) of the goods shall correspond with the sample in kind, quality, and character. On the sample is exhibited. The bulk is not present, and so there is no opportunity to examine or inspect it.

Sale by description and sample – must satisfy the requirements in both, and not in only one.

Article 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract.

Earnest money – (“arras”) something of value to show that the buyer was really in earnest, and given to the seller to bind the bargain.

Significance of earnest money

a. Part of the purchase price. (Hence, from the total price must be deducted the arras; the balance is all that has to be paid.)

b. Proof of the perfection of the contract.

Option money – applies to a sale not yet perfected; the money is not part of the purchase price; the would be buyer is not required to buy.

When arras must be returned

If merchandise cannot be delivered, the arras must be returned. Of course, this right may be renounced since neither the law nor public policy is violated.

Article 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract of sale may be made in writing, or by word of mouth, or partly in writing and partly by word of mouth, or may be inferred from the conduct of the parties.

If sale is made thru an Agent


The sale of a piece of land or interest therein when made thru an agent is void. (not merely unenforceable) unless the agent’s authority is in writing. (Art. 1874). This is true even if the sale itself s in a public instrument, or even registered.

Interest therein – refers to easement or usufruct for example.

If notary public is not authorized, the sale would still be valid since for validity of the sale, a public instrument is not even essential.

Article 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies:

(1)Exact fulfillment of the obligation, should the vendee fail to pay;

(2)Cancel the sale, should the vendee’s failure to pay cover two or more installments;

(3)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.

Requisites before Art. 1484 may be applied

a. There must be a contract

b. The contract must be one of sale (absolute sale, not a pacto de retro transaction, where redemption is effected in installments)

c. What is sold is personal property (sale of real property in installments is governed by RA 6552 – the Maceda Law – which took effect on the date of its approval Sept. 14, 1972.

d. The sale must be on the installment plan (an installment – is any part or portion of the buying price, including the down payment)

Purpose of the Rules For Sale of Personal Property on the Installment Plan

- To prevent abuse in the foreclosure of chattel mortagages by selling at a low price and then suing for the deficiency, is the precise purpose of this article. Otherwise, the buyer would find himself without the property, and still indebted.

Cancellation requires mutual restitution

- It is clear that when the remedy of cancellation is availed of, there must be a mutual restitution of whatever had been received by either party.

Ex: When the seller of a car on installment asks for cancellation of the sale, the car must be returned to him, and he in turn must give back all installments he has received, including the downpayment.

Instances when Art. 1484 cannot be applied


a.Real estate mortgage because it can only be foreclosed only in conformity with special provisions.

b. Sale of personal property on straight terms, in which the balance, after the payment of the initial sum should be paid in its totality at the time specified. Therefore, in a sale on straight terms, the mortgagee-seller will still be entitled to recover the unpaid balance.

Article 1485. The preceding article shall be applied 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.

Leases of Personal Property with Option to Buy

- This may really be considered a sale of personal property in installments. Therefore, the purpose of Art. 1485 is to prevent an indirect violation of Art. 1484.

“when the lessor has deprived lessee of the possession or enjoyment of the thing”

For failure to pay, the lessor is apparently exercising the right of an unpaid seller, and has taken possession of the property. This is so even if the property had been given up in obedience to the lessor’s extrajudicial demand, such surrender not really being voluntary.

When lease construed as sale

Even if the word lease is employed, when a sale on installment is evidently intended, it must be construed as a sale.

Article 1486. In the cases referred to in the two preceding articles, 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 be unconscionable under the circumstances.

Non-return of Installments Paid

a. As a general rule, it is required that a case of rescission or cancellation of the sale requires mutual restitution, that is, all partial payments of price or “rents” must be returned.

b. However, by way of exception, it is valid to stipulate that there should be NO returning of the price that has been partially paid or of the “Rents” given, provided the stipulation is not unconscionable.

SALE OF REAL PROPERTY IN INSTALLMENTS

REPUBLIC ACT No. 6552

AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL ESTATE ON INSTALLMENT PAYMENTS. (Rep. Act No. 6552)

Section 1. This Act shall be known as the "Realty Installment Buyer Act."

Section 2. It is hereby declared a public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions.


Section 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any.

(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made, and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments made.lawphi1™

Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a

grace period of not less than sixty days from the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

Section 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same to another person or to reinstate the contract by updating the account during the grace period and before actual cancellation of the contract. The deed of sale or assignment shall be done by notarial act.

Section 6. The buyer shall have the right to pay in advance any installment or the full unpaid balance of the purchase price any time without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property.

Section 7. Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3, 4, 5 and 6, shall be null and void.

Section 8. If any provision of this Act is held invalid or unconstitutional, no other provision shall be affected thereby.lawphi1™

Section 9. This Act shall take effect upon its approval.

Approved: August 26, 1972.

Raison d’ Etre” of the Maceda Law


- To help especially the low income lot buyers, delineating the rights and remedies of lot buyers and protect them from one-sided and pernicious contract stipulations. The Act’s declared public policy is to protect buyers or real estate or installment basis against onerous and oppressive conditions. More specifically, the Act provided for the rights of the buyer in case of default in the payment of succeeding installments, where he has already paid at least two years of installments.

- The act seeks to address the acute housing shortage problem in our country that has prompted thousands of middle or lower class buyers of houses, lots, and condominium units to enter into all sorts of contracts with private housing developers involving installment schemes.

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.

Who Pays for Expenses in Execution and Registration

Observe that as a rule the seller pays for the expenses of:

a.The execution (of the deed) of sale;

b. its registration.

NOTE: There can, however, be a contrary stipulation.

Art. 1488. The expropriation of property for public use is governed by special laws.

Expropriation – involuntary in nature, that is, the owner may be compelled to surrender the property after all the essential requisites have been complied with. Therefore, generally expropriation does not result in a sale.

One exception to the rule

Gutierrez v. CTA – SC held that the acquisition by the government of private properties thru the exercise of eminent domain, said properties being justly compensated, is a sale or exchange within the meaning of the income tax laws and profits derived therefrom are taxable as capital gain; and this is so although the acquisition was against the will of the owner of the property and there was no meeting of the minds between the parties.

When Transaction is one of Sale

If the property owner voluntarily sells the property to the government, this would be a sale, and not an example of expropriation.

Eminent Domain distinguished from Expropriation

Eminent Domain refers to the right given to the state, whereas, expropriation usually refers to the process.

Essential requisites for Expropriation

1. Taking by competent authority

2. Observance of due process of law.


3. Taking for public use.

4. Payment of just compensation.

Just Compensation – market value (the price which the property will bring when it is offered for sale by one who desires but is not obliged to sell it, and is bought by one who is under no necessity of having it) PLUS the consequential damages, if any, MINUS the consequential benefits, if any. BUT the benefits may be set off only against the consequential damages, and not against the basic value of the property taken.

The fixing of just compensation in expropriation proceedings shall be made in accordance with Rule 67 of the Rules of Court and not on the basis of the valuation declared in the tax declaration of the subject property by the owner or assessor which ahs been declared unconstitutional.

CHAPTER 2

CAPACITY TO BUY OR SELL

Art. 1489. All persons who are authorized in this Code to obligate themselves, may enter into a contract of sale, saving the modifications contained in the following articles.

Where necessaries are those sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefor. Necessaries are those referred to in Article 290. (1457a)

Incapacity to Buy may be Absolute or Relative

a.Absolute incapacity – when party cannot bind himself in any case.

b.Relative incapacity – when certain person, under certain circumstances, cannot buy certain property. (Wolfson v. Estate of Martinez)

Note: Among people relatively incapacitated are those mentioned in Arts. 1490 and 491, Civil Code.)

Purchase by Minors

When minors buy, the contract is generally voidable, but in the case of necessaries, “where necessaries are sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefor.

Necessaries – include everything that is indispensable for sustenance, dwelling, clothing, and medical attendance, according to the social position of the family.

Support – also includes education of the person entitled to be supported until he completes his education or training for some profession, trade, or vocation, even beyond the age of majority.” (Art. 290, Civil Code)

Husbands

Under this Code, the husband may sell, alienate, or encumber, even without the consent of his wife, his exclusive property acquired before the effectivity of the Civil Code. The wife cannot even ask for the annulment of the sale on the ground that it is in fraud of her rights when the purpose of the transaction is to benefit the family, that is, to raise money for a business venture. (See Arts. 166 and 173 of the Code)


If the deed of sale of the land lists as purchasers both the husband and the wife, the presumption is that it is paraphernal property. (Castillo v. Castillo)

If a Filipino sells a parcel of land to a Chinese who later sells the same to another Filipino, the second sale is VALID because the purpose of the Constitution of preserving the land in favor of Filipinos has not been frustrated.

Art. 1490. The husband and the wife cannot sell property to each other, except:

(1) When a separation of property was agreed upon in the marriage settlements; or

(2) When there has been a judicial separation or property under Article 191. (1458a)

NOTE: Under these two exceptions, the sale is generally valid, but of course, should there be vitiated consent (as in the case of undue influence) the sale is voidable.

Just as a married couple cannot generally sell to each other, they also generally cannot donate to each other. This prohibition also applies to common-law husband and wife on the theory that here there can be an even greater degree of undue influence.

Reason why Generally a Husband and Wife cannot Sell to Each Other

1. To avoid prejudice to third persons;2. To prevent one spouse from unduly influencing the

other;

3. To avoid by indirection the violation of the prohibition against donations.

Effect of Sale

Generally, a sale by one spouse to another is void. However, not everybody can assail the validity of the transaction.

(Thus creditors who became such after the transaction cannot assail its validity for the reason that they cannot be said to have been prejudiced. But prior creditors (creditors at the time of transfer) as well as the heirs of either spouse may invoke the nullity of the sale.

Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another:

(1) The guardian, the property of the person or persons who may be under his guardianship;

(2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given;

(3) Executors and administrators, the property of the estate under administration;

(4) Public officers and employees, the property of the State or of any subdivision thereof, or of any government-owned or controlled


corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale;

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession.

(6) Any others specially disqualified by law. (1459a)

This article refers to relative incapacity.

Reason for the Law

Public policy prohibits the transactions in view of the fiduciary relationship involved.

Purchase Thru Another

“Thru the mediation of another” - this must be proved, that is, that there was really an agreement between the intermediary and the person disqualified; otherwise, the sale cannot be set aside. (Rodriguez v. Mactual)

Purchase by Agent for Himself

An agent is not allowed, without his principal’s permission, to sell to himself what he has been ordered to buy; or to buy for himself what he has been ordered to sell. (Moreno v. Villones)

-The fiduciary relations between them estop the agent from asserting a title adverse to that of the principal. And therefore such a sale to himself would be ineffectual and void, because it is expressly prohibited by law. The agent may, of course, buy after the termination of the agency.

NOTE: Under Art. 1459 of the old Civil code, an agent or administrator was disqualified from purchasing property in his hands for sale or management. However, under Art. 1491 of the new Civil Code, this prohibition was modified in that the agent may now buy the property placed in his hand for sale or administration, provided the principal gives his consent thereto.

Purchase by Attorney

A lawyer is not allowed to purchase the property of his client which is in litigation. To do otherwise would be a breach of professional conduct, and would constitute malpractice.

But assigning the amount of judgment by the client to his attorney, who did NOT take any part in the case where said judgment was rendered, is valid.

When a thing is said to be in litigation


A thing is said to be in litigation not only if there is some contest or litigation over it in court, but also from the moment that it became subject to the judicial action of the judge.

Art. 1491 does not prohibit a lawyer from acquiring a certain percentage of the value of the properties in litigation that may be awarded to his client. A contingent fee based on such value is allowed.

If however the attorney participates in the sale, not as buyer but as agent for the buyer, there is no violation of the law.

Meaning of “Any others specially disqualified by law”

This refers to prohibited by reason of the fiduciary relationship involved.

Aliens though not allowed to buy land under the Constitution, they do not fall under the above phrase. Thus, while those disqualified under Art. 1490 and 491 may not become lessees (Art. 1646), still aliens may become lessees even if they cannot buy lands.

Status of the Sale

Generally, sales entered into in disregard of the prohibition under this article are not void. They are merely voidable. (Wolfson v. Estate of Martinez)

Art. 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises and renunciations.

Applicability of Relative Incapacity to Legal Redemption, Compromises, and Renunciation

Example:

If a ward’s property is sold, the guardian, even if he be an adjacent owner, and even if all the other requisites for legal redemption are present, cannot exercise the right of legal redemption.

Cross Reference

Legal Redemption – the right to be subrogated upon the same terms and conditions stipulated in the contract. (Art. 1619, Civil Code)

Compromises – Contract whereby the parties, by making reciprocal concessions, avoid a litigation or to put an end to one already commenced. (Art. 2028, Civil Code)

Renunciation – rights may be waived, unless the waiver is contrary to law, public order, public policy, morals or good customs or prejudicial to a third person with right recognized by law. (Art. 6, Civil Code)


Renunciation - condonation or remission is essentially gratuitous and requires the acceptance by the obligor. May be made expressly or impliedly. (Art. 1270, Civil Code)

CHAPTER 3

EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN LOST

Art. 1493. 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.

But 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. (1460a)

Lost of the object before sale

This refers to a case of loss of the object even before the perfection of the contract. It is evident that there would be no cause or consideration; hence, the contract is void. Observe that it is the seller here who naturally will have to bear the loss.

Complete Loss Distinguished from Partial Loss

When the object has been Partly or Partially Lost

REMEDIES:

1. Withdrawal or rescission.2. Specific performance as to remainder by payment of

proportional price.

Art. 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:

(1) As avoided; or

(2) 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.

Loss of Specific Goods


This article practically reiterates the principle involved in the preceding article.s

REMEDIES:

1. Cancellation (avoidance);

2. Specific performance as to the remaining existing goods. (if the sale was divisible).

arts. 1458 - 1494 reviewer -sales

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