SALES
Articles / Laws to Remember: 1458, 1467, 1477 transfer of ownership, 1505, 559 who can transfer xxx, 1504, 1544, 1484 Recto Law, R.A. 6552, 1602, 1606, 1620, 1623, Redemption xxx
Q: A obliged himself to deliver a certain thing to B. Upon delivery, B would pay a sum of money to A. Is that a contract of sale?
A: Not necessarily. Even if there is an obligation to deliver, if there is no obligation to transfer ownership, it will not be a contract of sale. It may be a contact of lease.
Memorize: Art. 1458
Note: Sale is a contract, so the general principles in oblicon are applicable to sale but note that there are provisions which are contrary.
Characteristics of Contract of Sale (COS) 1. Consensual (1475) – COS is consensual, it is perfected by mere meeting of the minds of the parties as to the object and price.
Note: There is 1 special law which requires a particular form for the validity of a contract of sale – in that sale, it can be said that kind of sale is a formal contract → Cattle Registration Decree. In a sale of large cattle, the law provides that the contract of sale of large cattle must be: in a public instrument, registered and a certificate of title should be obtained in order for the sale to be valid. But otherwise, the other contracts are perfected by mere consent or mere meeting of the minds. 2. Principal – sale is a principal contract, it can stand on its own. It does not depend on other contracts for its existence and validity.
3. Bilateral (1458) – necessarily in a COS, both parties will be obligated. It is not possible that only 1 party is obligated because a contract of sale is essentially onerous.
4. Onerous (1350) – COS is essentially onerous. Otherwise, it may be another contract or any other
act like it may be a donation if there is no compensation for the transfer of ownership to the other party.
5. Commutative (2010) – meaning there is equivalency in the value of the prestation to be performed by both parties. Normally, the thing sold would be equal to the price paid by the other party (buyer).
Exception: a contract of sale which is an aleatory contract like sale of hope. In sale of hope, the obligation of 1 party will arise upon the happening of a certain event or condition.
Example Sale of Hope: Sale of a lotto ticket, PCSO will have the obligation to pay you only if you got all the 4 or 6 numbers which are drawn
Another Example of Aleatory: Insurance 6. Nominate (1458)
Classification of Contract of Sale 1. As to Nature of Subject Matter
a. Movable b. Immovable
Q: Why there is a need to determine?
A: Because some concepts will apply if the object is movable or some laws will apply if the object is immovable.
Examples: Under the Statute of Frauds, you have to determine if the object if movable or immovable in order that statute of frauds will apply. The Recto law will apply if the object is movable. The Maceda law will apply if the object is realty. Article 1544 or Double Sale will require you to determine the nature of the subject matter.
2. As to Nature a. Thing b. Right
Q: Why there is a need to determine? A: Relevant in the mode of delivery
Distinctions
1. Deed of Absolute Sale (DAS) vs. Conditional Sale (CS) vs. Contract to Sell (CTS)
2. Dation in Payment (DIP) vs. COS
3. Contract for a Piece of Work (CPW) vs. COS 4. Barter vs. COS
5. Agency to Sell (ATS) vs. COS
CIVIL LAW REVIEW II
Sales, Lease, Agency, Partnership, Trust and
Credit Transactions
Deed of Absolute Sale (DAS) vs. Conditional Sale (CS) vs. Contract to Sell (CTS)
DAS – seller does not reserve his title over the thing sold and thus, upon delivery of the thing, ownership passes regardless of whether or not the buyer has paid.
CS - condition/s are imposed by the seller before ownership will pass. Normally, the condition is the full payment of the price. In CS, ownership automatically passes to the buyer from the moment the condition happens. There is no need for another contract to be entered into.
BE: Receipt was issued by A to B. The receipt’s tenor “Date of the receipt xxx Received from B the sum of P75,000.00 as partial payment for the car xxx the balance to be paid at the end of the month xxx”. Contract to Sell?
SA: No. It does not pertain to a CTS because in a CTS ownership is reserved by the seller despite delivery to the buyer. The buyer does not acquire ownership. This is an Absolute Sale.
Q: In a CTS, upon the happening of the condition/s imposed by the seller, would ownership automatically pass to buyer?
A: No. While a CTS is considered a special kind of conditional sale, it is a peculiar kind of sale because despite the happening of the condition and actual delivery, the buyer does not automatically acquire ownership. In CTS, if condition/s happen, the right of the buyer is to compel the seller to execute a final deed of sale. So ownership does not automatically pass.
Dation in Payment (DIP) vs. COS
DIP (1245) – whereby property is alienated to the creditor. It is provided that the law on sales shall govern such transaction. It is specifically provided that the pre-existing obligation must be in money. If not in money and there is DIP, it will not be governed by the law on sales but by the law on novation because practically there is a change in the object of the contract.
Example 1: If A owes B P100,000.00 instead of paying P100,000, he offers B and B accepts the car of A as an equivalent performance → this is DIP and will be governed by the law on sales. Example 2: If the pre-existing obligation is to deliver a specific horse but instead of delivering the horse, the debtor told his creditor and the creditor accepted, that he will instead deliver his car → it is still DIP but it will not fall on 1245 but on novation because there is a change in the object of the obligation which would extinguish the obligation.
Note: A guide to distinguish one concept from another is to know the nature, requisites and effects.
1. As to Nature
DIP – a special form of payment COS - it is a contract
2. As to Requisites
DIP – with a pre-existing obligation COS – not a requirement
3. As to Effect
DIP – to extinguish the obligation either wholly or partially.
COS – obligation will arise instead of being extinguished.
Contract for a Piece of Work (CPW) vs. COS BE: A team if basketball players went to a store to buy shoes and out of the 10 members, 5 of them were able to choose the shoes. They agreed to pay the price upon delivery. The other 4 members were able to choose but the shoes were not available at that time but they are normally manufactured. The last member could not find shoes that could fit his 16 inches feet and therefore he has to order for such kind of shoes. What transactions were entered into by these players?
SA: 1467 → the first 2 transactions involving a total of 9 players would be considered a COS because the shoes which they ordered are being manufactured or procured in the ordinary course of business for the general market. However, the last transaction which will be manufactured only because of the special order of the player and is not ordinarily manufactured for the general market will be considered a CPW which is known as the Massachusetts rule.
Massachusetts rule – rule in determining whether the contract is a COS or a CPW.
Barter vs. COS
Q: A obliged himself to deliver a determinate car with a market value of P250,000.00. B obliged himself to deliver his watch and P150,000.00 in cash. What kind of contract? A: First, you have to consider the intention of the parties. They may want this transaction to be considered as a sale or barter and that will prevail. But if the intention of the parties is not clear from their agreement then the nature of the contract will depend on the value of the watch. If the value of the watch is greater than P150,000 then this is barter. If the value of the watch is equal or less than P150,000 then this is sale. The value of the car is irrelevant. What is only relevant is the value of the thing (watch) in relation to the cash to be given by one of the parties.
BE: A gave B the exclusive right to sell his maong pants (he has his own brand of maong pants) in Isabela. It was stipulated in the contract that B has to pay the price of maong within 30 days from delivery to B. It was stipulated that B will receive 20% commission (discount) on sale. The maong pants were delivered to B. However, before B could sell the goods, the store was burned without fault of anyone. Can B be compelled to pay the price? From the wordings of the problem you may have an idea that this is an agency to sell. If this is an ATS, the fact that the agent has not yet sold the maong pants when they were burned will not result in a liability on his part, there being no negligence on his part because with the delivery of the thing from the principal to the agent, ownership does not pass. Under the principle in the Civil Code – res perit domino – it will be the seller (owner) who will bear the loss. But if this transaction is sale then with the delivery of the maong pants to B, ownership passed to B because he did not reserve ownership over the pants despite the fact that the other party has not paid the price. So when the pants were burned, it would now be B as the owner who will bear the loss.
SA: This is exactly the case of Quiroga vs. Parsons. Article 1466 – in construing a contract containing provisions characteristics of both a COS and ATS, you have to go into the essential clauses of the whole instrument. In this problem, one of the clauses “B has to pay the price within 30 days”. That would make the contract COS and not ATS because in 30 days from delivery, whether or not B has already sold those pants to other persons, he is already obliged to pay a price. That is not an ATS. Being a COS, therefore, after having been delivered, ownership passed to the buyer and hence under res perit domino rule, the buyer bears the loss and therefore he can be compelled to pay the price.
Essential Elements of a Contract of Sale 1. Consent of the Contracting Parties
2. Object or Subject Matter – which is a determinate thing or right
Note: Service cannot be the subject matter of sale. 3. Cause or Consideration – as far as seller is concerned, it is the price in money or the equivalent of the payment of the price.
CONSENT OF THE CONTRACTING PARTIES A. No consent of one or both of the parties → the contract is void. Under the law on sales, it is a fictitious contract where the signature of one of the parties was forged. Normally, the seller’s signature is forged. If the signature of the seller is forged, that would be a fictitious contract. The alleged seller will not have participation in the execution of the contract. But another kind of
contract recognized in the Civil Code is a simulated contract.
Simulated – parties to this contract actually would have participation. They would voluntarily sign in the deed of sale. However, they do not intend to be bound at all or they may intend to be bound to another contract but they executed a deed of sale. Thus, the law would ratify these contracts considering there is a simulated sale.
Kinds of Simulated Contracts
1. Absolutely Simulated – they do not intend to be bound at all.
Q: Why would they enter into this kind of sale? A: (a) To defraud creditors. The debtor would sell his remaining assets to make it appear that he has no more assets which may be reached by his creditors.
(b) Applicants for residency abroad would normally be required to present certificate of title over parcels of land so that the applicant will appear to have assets. Therefore, hindi mag TNT yung applicant. These applicants would normally ask his brother or sister or friends na kunwari that land would be sold to them. They will have the property registered in their name. They will present the title to the Embassy. But actually the parties do not intend to be bound. Take note that this may be a root of a valid title as far as 3rd persons are concerned. These 3rd persons who relied on the transfer certificate of title in the name of the seller even if that seller is not the owner because the sale is simulated may acquire ownership.
2. Relatively Simulated – sale where they actually intended another contract which normally would be a donation.
Q: Why would they execute a deed of sale instead of executing a deed of donation? A: (a) To minimize tax liabilities. Donor’s tax is higher than capital gains tax or final income tax and documentary stamp tax.
(b) To circumvent the provisions on legitimes and collation under succession. This may be questioned if you can prove that there was no consideration.
B. If consent was given
→ If consent was given, it does not necessarily mean that the COS is valid. The consent may be given by an incapacitated person or one with capacity to give consent. If given by an incapacitated person, consider the nature of the incapacity. It may be:
a. Absolute Incapacity – the party cannot give consent to any and all contracts. b. Relative Incapacity – the party is
prohibited from entering sometimes with specific persons and sometimes over specific things.
Kind of Capacity
1. Juridical Capacity – it is the fitness to be the subject of legal relations. If a party to a sale has no juridical capacity, the contract is void. Note that all natural living persons have juridical capacity. Even if he is a 1 day old baby, he has juridical capacity. The baby can be the subject of donation. Even if he is conceived, he has provisional personality. Example: One example of a party to a sale without juridical capacity would be a corporation not registered with the SEC. The contract entered by this corporation is a void contract because one of the parties has no juridical capacity to enter into that contract.
2. Capacity to Act – it is the power to do acts with legal effects. If the incapacity only pertains to capacity to act, the contract would normally be voidable. Without capacity to act or there are restrictions with one’s capacity to act such as minority, insanity, deaf mute and does not know how to write and civil interdiction.
Note: Under R.A. 6809 (December 1989) there is no more creature known as “unemancipated minor”. Before 1989, the age of majority was 21. C. If both parties are incapacitated
→ not only voidable but unenforceable.
Q: What if one of the parties in a COS is a minor and the minor actively misrepresented as to his age?
A: The SC said that the minor will be bound to such contract under the principle of estoppel. Active misrepresentation, can be seen from the deed itself. In a deed of sale, normally after the name, the words “of age” were stated. If the minor signed that contract, he will be bound. If no statement in the deed of sale as to his age, in one case, the fact he misrepresented to the notary public when he appeared before the notary public for the notarization of the document and he was asked by the notary public as to his age and he again misrepresented, he will be bound to such contract. Atty. Uribe’s Comment: Estoppel is not a good ground because the minor is not aware.
Sale of Necessaries
In sale of necessaries such as food, clothing and medicine to a minor, the minor has to pay a reasonable price. This contract is not voidable. The sale of necessaries will bind the minor and he will be compelled to pay not really the contract price but only to reasonable price.
Relative Incapacity (Articles 1490 and 1491) 1. Sale between spouses – it is void except:
a. The spouses executed a marriage settlement and in the marriage settlement they agreed for a complete separation of
property regime. Then they can sell to each other.
b. If no marriage settlement, they may have obtained judicial declaration of separation of property. After that, they can sell to each other.
2. Those mentioned in Article 1491
a. A guardian cannot buy the property of the ward. The guardian is not actually prohibited from entering into any and all contracts. It is just that he cannot be the buyer of a property of his ward.
b. An agent cannot buy without the consent of the principal a property which he was supposed to sell or administer.
c. The executors and administrators of the estate cannot buy a property which is part of the estate.
d. Public officers, judges, their staff, clerk of court, stenographers and lawyers are prohibited from buying those properties which are the subject of litigation during the pendency of the case.
Q: What is the status of the contracts under 1491?
A: Prof. Tolentino – voidable
Justice Vitug & Prof. Baviera – void Prof. Pineda & Prof. de Leon – the first 3 are voidable and the last 3 are void. The better answer is void because these persons are prohibited from entering into these contracts. Under Article 1409, if the contract is prohibited, it is void.
Discussion of Prof. De Leon’s Answer
The first 3 are voidable because these contracts may be the subject of ratification. If you will read his discussion, he based his discussion in the case of Rubias vs. Batiller wherein the guardian bought the property of his ward. So the contract is voidable because if the ward becomes of age, he can enter a COS over the thing to his guardian and that sale would be a valid sale. (Pls. read the full text of Prof. De Leon’s comment)
Atty. Uribe: It is correct that it is a valid sale. But does that mean that the sale ratified the 1st contract? I disagree because ratification under the Civil Code has the effect of cleansing the contract from all its defects from the very beginning as if the contract was entered into during the first agreement that the agreement was valid from the very start. In fact, the SC said in Rubias vs. Batiller “ratification” (quote and quote), because the effect of the second contract will not retroact to the first contract. It will only be valid from the time the second contract was entered into. After all, there is no ratification in that sense under the Civil Code. Thus, since it does not retroact to the first, the second contract is void. Otherwise, if voidable then it can be ratified. The defect on the first
contract would have been cleansed with the execution of the second contract.
2. Aliens are prohibited from acquiring by purchase private lands – Take note “acquiring” which means buying not selling. They can sell.
Exceptions / when aliens can buy:
a. Former natural born Filipino citizen. Under the Constitution they are allowed to buy small land which they can use for residential purpose.
b. Another way of acquiring is by succession but this is not a sale
D. Even if consent was given by one with capacity to give consent but if the consent is vitiated
→ voidable. FIVUM
E. If the party gave such consent in the name of another without authority of that person or no authority of law
→ unenforceable. Take note may be authorized by the person or by law.
Example of authorized by law: notary public has the right to sell in pledge because he has the authority to sell under the law.
OBJECT OR SUBJECT MATTER
The requisites in sale as to thing would almost be the same as the requisites of contracts in general. 1. The thing must be within the commerce of men Examples: sale of a navigable river is void, sale of a cadaver is void but donation of a cadaver is allowed, sale of human organs is void, things which are not appropriated like air is void but if appropriated it can be the object of a valid sale. 2. The thing must be licit – not contrary to law Examples: sale of prohibited drugs or shabu is void, sale of marijuana is void, sale of wild flowers or wild animals is void
3. Must be determinate
Q: Sale of a car without agreement as to the features for P1M. On the other hand, another transaction would be a sale of Mitsubishi Lancer, 2007, GSL and color black for P1M. Are these 2 transactions, valid sale?
Both would pertain to generic thing. Under the law, a thing is considered determinate only when it is particularly designated or physically segregated from all others of the same class. Both transactions pertain to generic so both transactions are void? A: No. The first transaction is void. The second transaction is valid because Article 1460 requires that the requirement of the law that a thing should be determinate would be sufficiently complied with if the thing which is the object of the sale is capable of being made determinate without a need of a new or further agreement.
Example: Sale of 1 gallon Minola pure coconut oil. Though generic, it is valid under Article 1460. RULES AS TO OBJECT OF COS
Q: A obliged himself to deliver and transfer ownership over the palay that will be harvested from a specific parcel of rice land in May 2008. What if by May 2008, no palay was harvested?
a. What is the status of the sale?
b. May the seller “A” be held liable for damages for failure to comply with his obligation?
A:
a. Always consider that in a COS there are only 3 requisites. As long as these 3 were complied, there is a valid sale. In fact, by express provision of law, sale of things having potential existence (emptio rei sperati) is valid.
b. Not necessarily because there are excuses to non-performance such as pestilence, typhoon, flood and therefore his failure to comply is an excuse. But if the reason of the seller is because of his negligence, he cannot find support under Art. 1174.
Sale of Hope (Emptio Spei) Example: Sale of a lotto ticket
Q: Assuming the sale of a lotto ticket happened the day after it was drawn, what is the status of the sale?
A: It will depend whether the ticket is a winning or losing ticket. What the law provides is that the sale of a vain hope is a void sale. If the ticket is a winning ticket, it is not a vain hope hence, it is a valid sale.
Q: Why would a person sell a winning ticket? A: He may need the money immediately. Parang discounted yung ticket. Nanalo ng P1M, ibebenta nya ng P990,000 because he needs the money immediately.
Q: Sale of a land to B with a right to repurchase within 1 year which A delivered. On the 3rd
month, B sold the land to C. However, on the 9th
month, A offered to repurchase the land. (a) What is the status of the sale between A and C?
(b) Who will have a better right over the land? (Sale with a right to repurchase)
A: (a) Be guided by the fact that a COS is a consensual contract. The mere meeting of the minds as to the object and the price, then there is a valid and perfected sale. Hence, this is a valid sale even if the object of the sale is a sale with a right to repurchase. Article 1465 provides that things subject to a resolutory condition may be the object of a COS.
Atty. Uribe: Mas tamang sabihin – since the ownership thereof is subject to a resolutory condition. Hindi naman yung thing is the subject of
resolutory condition, it is the ownership over the thing.
If A exercises the right to repurchase and such would be a valid exercise of such right then the ownership of B would be extinguished. The exercise of the right is considered a resolutory condition as to the ownership of B. The fact that the object of the sale is subject to a repurchase will not affect the validity of the sale.
(b) As a rule, it would be A as a seller a retro because he has the right to repurchase assuming his repurchase is valid. C may have a better right if he can claim that he is an innocent purchaser for value. Example: maybe the right to repurchase was not annotated at the back of the title of the land and he has no actual knowledge. If that is the case, C may have a better right.
SALE OF RIGHT / ASSIGNMENT OF RIGHT Assignment of right is not necessarily a sale. If there is a valuable consideration for the assignment, it is a sale. If there is no valuable consideration, it may be a donation or dacion en pago.
Examples of right: credit, shares of stock
Requisite of a right → the only requirement is that the right must not be intransmissible
Q: Why or when a right would not be transmissible?
A: If it is intransmissible by nature or by stipulation or by provision of law.
G.R.: As a rule, rights and obligations arising from contracts are transmissible.
Exceptions:
1. Intransmissible by Nature – Examples: right as a legitimate child cannot be sold. Any contract where the personal qualifications has been considered .
2. Intransmissible because of Stipulation – Example: The parties stipulated in a lease contract that the right to sublease cannot be transferred if it is prohibited by the lessor.
3. Intransmissible because of Law – Example: In partnership, the right in specific partnership property without all the partners making the assignment cannot be validly assigned.
Q: Sale of a right, also perfected by mere consent?
A: Yes. To bind 3rd persons, it must be in a public instrument. Recorded in the Registry of Property. CAUSE OR PRICE CERTAIN IN MONEY OR ITS EQUIVALENT
Q: A deed of sale was entered into by A and B. The price agreed upon was 1M yen.
(a) May that be a valid sale?
(b) Can the seller compel the buyer to pay in yen?
A: (a) Yes, it is valid. Basis is Article 1458 because the only requirement of the law is “in money”. Even Japanese yen is in money. The law states that it may not even be in money, it may be “equivalent” like promissory notes whether or not negotiable or letters of credit.
(b) If the contract was entered into today, yes it is valid because of R.A. 8183 which repealed R.A. 529 in 1996. If COS was entered before R.A. 8183, the seller cannot compel even though the contract is valid. The payment has to be made in Philippine money.
Consider the date of the sale. If parties failed to stipulate as to which currency, it has to be in Philippine currency.
Q: Can there be a valid payment in P10,000 - P1 coins?
A: Yes.
Q: Can you compel the seller to accept?
A: No. Under the Philippine law, P1 will have legal tender power only up to P1,000. He may accept but he cannot be compelled.
Note: P1, P5, P10 up to P1,000 less than P1 up to P100 Price Must be Certain
Q: Sale of shares of stocks but there was no date as to the value of the share, valid?
A: The value of the shares as to what date is material because the value of the shares changes almost everyday depending on the shares. Shares of companies who are active in trading would change every now and then. In fact, even if the date as to the value of the shares has been fixed but the time was not considered, maybe the opening or the closing in a particular exchange would affect the validity of the sale. For example, in the opening, the value of the share is P50 but in the closing it is P39. So again, it has to be certain. Q: If you will fix the price by considering the tuition fee of a student per unit, would that be a certain price?
A: No because different schools would have different tuition fees and even in a certain school, fees per college are different.
Q: Who can fix the price?
A: (1) The best way is for the parties to agree as to the price. (2) They may agree that one of them will fix the price.
Q: May the sale be perfected if the agreement of the parties was for one of them to fix the price?
A: Yes, it may be perfected only if the price fixed by the party who was asked to fix the price was
accepted by the other party. If not accepted, there was no meeting of the minds.
Note: The perfection will only be considered at the time of the acceptance of the price fixed by the other party not from the time of the first agreement of the parties.
Q: What if a 3rd person was asked to fix the
price – A and B agreed that X will fix the price, may the sale be void?
A: Yes, the sale may be void if the third person does not want to fix the price or unable to fix the price. Hence, there was no meeting of the minds. Q: If the 3rd person fixed the price but it was too
high or too low or maybe there was fraud committed by the 3rd person or he was in
connivance with one of the parties, may the sale be void?
A: No, because the remedy of the other party is to go to court for the court to fix the price.
Q: Sale of a car, the price of the car is P1, valid?
A: Yes, it is valid. It can be a valid sale. Lesion or gross inadequacy of the price does not as a rule invalidate a contract unless otherwise specified by law.
Exception: when otherwise provided by law. Example: Article 1381 – when the guardian sells the property of the ward and there is lesion of more than 25% or more than ¼ of the value of the thing. Take note that the buyer must not be the guardian otherwise 1491 will apply → void. But if the guardian sold it to another person there being lesion of more than ¼ like when the value of the property is P100,000 was sold for P65,000, the contract is rescissible.
Note: Under the law on sales, if there is gross inadequacy, it may reflect vitiation of consent so the SC would normally enjoin the lower courts to be warned of the possibility of fraud in case of lesion. Lesion must be proven as a fact. It is not presumed.
If there is gross inadequacy, it maybe because actually they intended another contract and that would make the sale a simulated sale and therefore the sale is void.
Example: The value of the property is P1M but only P10,000 was written in the contract because they intended it to be a donation → void.
TIME OF THE PERFECTION OF THE CONTRACT
Auction Sale
Auction sale is perfected upon the fall of the hammer or any other customary manner. Thus, before the fall of the hammer in an auction sale, the bidder even if he has already made a bid, he
can still withdraw the bid as long as he would do that before the fall of the hammer. Otherwise, (if after the fall of the hammer), there is already a perfected sale.
Q: Can the auctioneer withdraw the goods before the fall of the hammer?
A: As a rule, yes because the sale has not been perfected at the moment unless the bidding or auction has been announced to be without reserve. Note: Before perfection, there is one contract which maybe perfected. Before perfection meaning in the negotiation stage → this contract is known as the option contract.
Option Contract Sanchez vs. Rigos
Facts: Mrs. Rigos offered to sell her land to Sanchez for a certain price. Rigos gave Sanchez 2 years within which to decide. (Note: The optionee or promisee or offeree is not bound to purchase but he has the option to buy or purchase). In this case, Sanchez has the option. Before the lapse of 2 years, Sanchez told Rigos that he is buying and offered the price agreed upon but Rigos refused claiming that she was not bound by the written option agreement because no option money (consideration) was given by Sanchez. According to Rigos, the option contract is void.
Held: Since Sanchez accepted the offer and decided to buy within the period before the offer was withdrawn, a perfected COS was created even without option money. In this case, there was no option contract because it was merely an option agreement. Therefore, there was merely an offer on the part of Rigos and once the offer was accepted before it was withdrawn, regardless of whether option money was given and in this case no option money was given, a perfected COS was created.
Note: Iba pag may option money
Q: 2 years within which to decide – assuming there was option money, before the offeree could decide to buy, the offeror withdraw on the 6th month.
(a) Can the offeree on the 10th month
say “I would like to buy”?
(b) Can the buyer compel the seller to sell?
A: (a) No.
(b) No, an action for specific performance will not prosper because when he said he will but there was not more offer to be considered. Na-withdraw na eh.
Q: If the offeree files an action for damages, may that action prosper there being option money given?
A: Yes, because with the option money, an option contract is perfected, the offeror is bound to give the offeree, 2 years within which to decide and failure to that he is liable not based on perfected COS but on perfected contract of option.
Option Money (OM) vs. Earnest Money (EM) OM is not part of the price while EM is part of the price and at the same time, it is a proof of the perfection of the contract.
Q: Can the parties themselves agree that there would be a perfected COS and then the OM would be treated as part of the price?
A: The SC said that this is binding between the parties. Though it is an OM, it can be considered as part of the price as long as it is stipulated. Without stipulation, the OM cannot be considered as partial payment because it is a consideration for the option and therefore not part of the price. Q: With EM, does it mean that there is already a perfected COS?
A: Not necessarily. Under the law, it is only a proof of the perfection of the sale. In fact, there may not be a perfected sale even if there was EM given, being merely a part of the purchase price or total contract price. The parties may not have actually agreed as to the total price, therefore, even if they agreed that a certain amount is part of the price, they have not agreed on the total price or if they agreed on the total price, they have not agreed on the object of the sale. So no perfected COS. EM goes into only 1 of the essential elements, that is not the only element in COS. That is only a proof of the perfection of the contract. Take note, a proof does not necessarily establish a fact, it may not be sufficient to establish a fact.
Q: With a perfected COS, does it mean it is already enforceable?
A: Not necessarily. Note that upon perfection, the parties may compel the other party to perform their respective obligations. But the perfection is subject to the formalities prescribed by law for that contract. Therefore, even under 1475, the perfection of the contract is subject to the provisions of law on the formalities of COS like the statute of frauds. There may be meeting of the minds but if it is not in the form prescribed by law, it may be unenforceable.
G.R.: A COS may be in any form. Article 1483 provides that a COS may be in writing, partly in writing xxx. This provision is exactly the same as Article 1356 in contracts which provides that contracts may be obligatory in whatever form they may have been entered into provided all the essential requisites are present. But then again even Article 1356 just like Article 1475 would provide for exceptions.
Exceptions: The law may require a particular form for its validity. The Cattle Registration Decree is an example - where the law itself provides for a particular form for the validity of the sale. But the law may require particular form for its enforceability of the sale and that would be 1403 or the statute of frauds. Concretely, the sale of a parcel of land if not in writing is valid but unenforceable. It is not void. Note that the price of the land is irrelevant if immovable.
Example: Before, the sale of a land for P300 is valid and enforceable even if not in writing. But presently, it has to be in writing to be enforceable. The price is still irrelevant.
If the object of the sale is movable, you have to consider not the value of the thing but the price agreed upon. The value may be different from the price. You can sell a thing worth P1,000 for P400 but the law provides for the price. If the price is at least P500 and the sale is not in writing, it will be unenforceable.
Q: Sale of a watch P450, not in writing, may it be unenforceable?
A: It may be unenforceable if by the terms of such agreement, the obligation therein is not to be performed within 1 year. If they agreed that the watch will be delivered 2 years after and the payment will also be made upon delivery, it would be unenforceable.
Paredes vs. Espino
Facts: Paredes was a prospective buyer. Espino owns a land in Palawan. Paredes is from Northern Luzon. Their negotiation was thru letters and telegrams. Espino sent a letter to Paredes stating that he and his wife agreed to sell the land to Paredes, that the deed of sale will be executed upon the arrival of Paredes in Palawan. When Paredes arrived, Espino said he is no longer interested in selling. Paredes filed a case to compel Espino to sell the land. Espino contended that the contract is unenforceable because it is not in writing. He contended that under the statute of frauds it is unenforceable. His contention was sustained by the trial court.
Held: This contract is no longer covered by the statute of frauds because there was a letter. Article 1403 provides that a note or memorandum signed by the part charged would be sufficient to take that contract out of the operation of the statute of frauds. In this case, the defendant wrote a letter with his signature on it. The letter took that contract out of the operation of the statute of frauds and therefore he may be compelled to execute the final deed of sale.
RIGHTS AND OBLIGATIONS OF THE VENDOR In a deed of sale (DOS), there can be hundreds of obligations of the vendor but those
obligations would be because of the stipulation. But there are only few obligations imposed by law. The 3 most important:
1. To transfer ownership 2. To deliver
3. To warrant the thing There are other obligations:
4. Obligation to take care of the thing sold with the diligence of a good father of a family prior to delivery.
5. From the time of the perfection up to the time of delivery then there would be obligation to pay for the expenses for the execution and registration of the sale and obligation to pay the capital gains tax would be on the seller as a rule.
6. Obligation to deliver the fruits which is related to the obligation to deliver the thing OBLIGATION TO DELIVER THE FRUITS
BE: A sold a mango plantation to B but they stipulated that delivery will be after the signing of the deed of sale. After the expiration of the 6-month period, B demanded for the delivery. The vendor was able to deliver 1 month after the date when he was supposed to deliver the mango plantation. During this period, the vendor harvested mango fruits and sold them to X. The vendor was able to deliver only after the other fruits were harvested and sold to Y. Can B recover the mango fruits from Y during the 6th month period?
SA: Determine first whether B is entitled to the fruits because if he is not entitled, then he cannot recover the fruits. Is he entitled to the fruits after 6-month period during the 1-6-month period prior to delivery? Yes, in fact, under 1537, the fruits of the thing sold from the time of perfection shall pertain to the buyer.
Q: Does it mean that the fruits from the time of perfection shall pertain to the buyer?
A: Hindi naman. 1537 should be considered in relation to 1164. Under 1164, the fruits shall pertain to the creditor only from the time the obligation to deliver the thing arises. Thus, B is entitled to the fruits only from the time of the expiration of the 6-month period. Di ba may agreement sila that the mango plantation will be delivered only after 6 months? Upon the arrival of this period, the obligation to deliver the thing arose, therefore, B, consistent with 1164 and 1537 will have the right to the fruits.
Q: Can he recover the fruits from X?
A: No. Under 1164, 2nd paragraph, the buyer or the creditor will have no real right over the fruits after the delivery of the thing.
Q: What is the remedy of the buyer?
A: The remedy is to go after the seller for selling these fruits na hindi naman sya entitled. The buyer
is already entitled although again he will have no real right over the fruits until the delivery of the thing to him.
OBLIGATION TO TAKE CARE OF THE THING G.R.: The thing sold should be determinate because if generic (1460, 2nd paragraph) then there is nothing to be taken cared of. It will become determinate only upon delivery.
Exceptions: There are sales transactions wherein the vendor would not have this obligation:
a. Constructive delivery - brevi manu – There would be no obligation on the part of the seller to take care of the thing from the time of perfection because at the time of perfection, the buyer was already in possession of the thing. Maybe he borrowed the thing. Example: he borrowed the car and he decided to buy it – the thing was already in his possession.
b. “Kaliwaan” ang bentahan → upon perfection may delivery na then there is nothing to be taken cared of. OBLIGATION TO PAY EXPENSES / TAXES
These obligations may be the subject of stipulation. By agreement, it would be the buyer who will pay xxx Normally, dito hindi natutuloy ang sale dahil hindi magkasundo kung sino magbabayad ng tax.
OBLIGATION TO TRANSFER OWNERSHIP BE: May a person sell something which does not belong to him? Would the sale be valid? Would the buyer acquire ownership over the thing sold, if seller does not own the thing? SA: Yes. Ownership over the thing sold is not an essential requisite for the sale to be valid. But if the seller does not own the thing, he may have a problem on his obligation to transfer ownership. The problem would be whether or not the buyer would acquire ownership over the thing sold if the person who sold the thing is not the owner.
Q: Who can transfer ownership by way of sales?
A: Only those who have the right to sell.
Q: Who would have the right to sell and therefore they can transfer ownership by way of sale?
A: First, is the owner. Even if he is not the owner, he may have the right to sell because:
(1) He was given the authority by the owner. Example: Agent
(2) He may be the owner but he may have the authority of the law to sell, known as “Statutory Power to Sell” (Article 1505). Examples: Notary public in pledge, liquidators, guardians and receivers.
(3) Those who have the authority of the court. Example: Sheriff. Note: it is as if they have the authority of law because not even the judge can validly sell something if it is not consistent with the law.
Q: May a buyer acquire ownership over the thing sold if the seller has no right to sell? A: The answer by way of exception is yes. But the general rule here is under 1505 – the buyer acquires no better title than what the seller had. If the seller is neither the owner nor does he have the authority to sell, the buyer acquires no better title than what the seller had. If his right is only as a lessee that is the most that can be transferred to the buyer. If he has no title then no title can be transferred to the buyer.
Exceptions: (When the buyer can acquire a better title than what the seller had. Even if the seller does not have the right to sell, the buyer may acquire ownership over the thing sold because the law so provides and not because the seller was able to transfer ownership to the buyer.)
1. By Estoppel 2. Estoppel by Deed 3. Estoppel by Record 4. Sale by an Apparent Owner
5.
Negotiable Document of Title6. Purchases from a Merchant’s Store xxx 1. By Estoppel – by the principle of estoppel, a person is precluded from denying that another person has authority to sell because of his acts. Also known as “Estoppel in Pais” which is a kind of equitable estoppel because of the acts / representation of the owner, he may not later on deny the authority of the 3rd person.
2. Estoppel by Deed
BE: A and B co-owners of land sold (sale is verbal) to X their land. X subsequently sold the land to Y. Would Y be considered to have acquired ownership over the land?
SA: Under 1434 which is considered as “Estoppel by Deed” (technical estoppel) – when the seller who was not the ownerat the time of the sale, acquires ownership, automatically, ownership passes to the buyer by operation of law. However, Article 1434 requires delivery to the buyer. And under the facts, 1434 would not apply because:
a) There was no showing there was payment
b) No showing that there was delivery of the land to X.
It cannot be said that by operation of law, Y likewise acquired ownership by way of estoppel by deed.
3. Estoppel by Record
Jurisprudence: Sale by nephew of the owner of the land. Since the nephew could not deliver the land, the buyer sued the nephew for estafa. For the
accused to be acquitted, he asked his uncle to testify that he actually had the authority to sell. When the uncle testified in court, the nephew is acquitted. After acquittal, the buyer demanded from the uncle the delivery of the land. The uncle refused, claiming that “sa totoo land, I did not authorized my nephew”.
Q: Case was filed against the uncle, would that action prosper?
A: SC said yes because he cannot be allowed now to claim that his nephew was not authorize to sell after he testified in court that he gave such authority.
This is estoppel by record which is considered a technical estoppel.
4. Sale by an Apparent Owner A. Factor’s Act
B. Recording Laws
C. Any other provision of law enabling the apparent owner of the goods to dispose of them as if he was really the owner.
A. Factor’s Act
Factor is an old name for agent. Even if agent has no right to sell, a third person may acquire ownership because he may rely on the power of attorney as written.
Example: Special Power of Attorney (SPA) – agent was authorized to sell a car. However, in a verbal instruction when the SPA was delivered, the principal authorized the agent to sell that car to 1 of the members of a certain organization but the agent did not sell that car to one of the members of a certain organization.
Q: Would the buyer acquire ownership?
A: Yes. Article 1900 provides that so far as 3rd persons are concerned, they only have to rely on the SPA as written, even if agent has no authority or right to sell.
B. Recording Laws
*most common question in the bar exam Mapalo vs. Mapalo
Facts: The elder brother, Miguel Mapalo, donated half of his land to his younger brother, Maximo Mapalo, because the latter will get married. But instead of the younger brother asking his elder brother to sign a deed of donation over that land, he asked his elder brother and the latter’s spouse to sign a Deed of Sale over the entire parcel of land. He was able to have the entire property registered in his name. Few years after, he sold the land to the Narcisos. Obviously, he does not have the right to sell the other half. The Narcisos claimed that they are buyers in good faith from an apparent owner because the entire property was in the name of Maximo.
Q: Did the Narcisos acquire ownership?
A: SC Said → no, because the law requires that the sale must not only be a sale by an apparent
owner but the buyer must be a buyer in good faith. The buyers here were in bad faith because before they bought the land, they went to the house of Miguel and asked him whether he would allow Maximo to sell the entire land. SC said they are in bad faith.
BE: The owner of a parcel of land covered by an OCT mortgaged the land to a creditor. The owner delivered the OCT to the creditor. The mortgagee forged the signature of the owner in a deed of sale. He was able to register the property in his name. He sold the land to a third person who had no knowledge of the transaction. Did the mortgagee acquire ownership?
SA: No. A forged deed is a void instrument and cannot convey a valid title to the buyer but under the law the forged deed may actually be the root of a valid title under the “Mirror Principle” – when the buyer bought it from the mortgagee in whose name the property was registered and relied on the TCT, then if he bought the property in good faith, he will be considered the owner under Article 1505 in relation to P.D. 529. He bought the land relying on the TCT and bought the land in good faith then he would have a better right than the real owner. Q: When a buyer may be considered a buyer in good faith?
A: By the mere fact that he had no knowledge at the time of the execution of the deed does not necessarily mean that he is in good faith. The law further requires that he must have fully paid without knowledge of the defect in the title of the seller. So if after execution he is in good faith but before payment he is in bad faith then he is in bad faith. BE: A, the owner of a parcel of land entrusted to his clerk the TCT of the land for safekeeping. This clerk instead forged the signature in the DOS with him as the buyer. Thereafter, he was able to have the property registered in his name. Then he sold the land to a third person. Did the clerk acquire title over the land? Can the owner of the land have the property registered in his name?
SA: The 3rd person being in good faith, he is considered to have acquired ownership over the thing sold even if the seller had no right to sell. By way of exception because the buyer bought it from an apparent owner. An apparent owner who disposed the thing as if it was owned by him. 5. Negotiable Document of Title
If goods are covered by a negotiable document of title and it was thereafter negotiated. If the buyer bought it in good faith and for value, he will be protected under the law. He will acquire ownership even if the seller did not have the right to sell.
Example: The seller may have acquired title by violence. Binugbog nya yung owner ng goods. Pero kung negotiable document of title yan and properly negotiated, lalo na kung bearer document of title, then the buyer may acquire ownership even if the seller has no right to sell.
6. Purchases from a Merchant’s Store / Markets / Fairs
Sun Brothers vs. Velasco
Facts: Sun Brothers was the owner of a refrigerator. Sun Brothers was engaged in the business of selling refrigerator. Sun Brothers sold a ref to Lopez on installment basis. As stipulated, Sun Brothers reserved ownership until full payment. Lopez only paid P300 out of P1,500. The balance to be paid on installment. Lopez then sold the ref to Velasco.
Q: Would Velasco acquire ownership?
A: No because Article 1505 provides that the buyer acquired no better title than what the seller had. However, Velasco was the owner of a store. On the next day, Velasco sold the ref to Ko Kang Chu who paid in full. When Sun Brothers learned this transaction, it filed an action to recover the ref from Ko Kang Chu.
Q: Can Sun Brothers recover the ref from Ko Kang Chu by reimbursing the price?
A: SC Said no. Article 1505 provides that the ownership of the buyer who bought the thing from a merchant’s store and he bought it in good faith is absolute in character. Article 559 does not apply because Sun Brothers was not unlawfully deprived of the ref and the ref was neither lost. 559 will apply if the owner was unlawfully deprived (Example: the thing was lost or stolen). Under 559 he can recover by reimbursing the buyer who bought the thing in good faith. He has to reimburse.
BE: The painting owned by F was stolen from her and later she noticed the painting in the room of B. When asked how he acquired the painting, B said he bought it from a gallery auction. Can the owner F recover the painting from B?
SA: The first consideration here is the nature of the gallery auction. Is it a public sale or not? Some suggested answers of the UP Law Center would claim that a gallery auction is not a public sale. Atty. Uribe: I can agree that some gallery auctions are private – “by invitation”. Thus, in that auction I would definitely agree, hindi yan public sale. If it is not a public sale then the owner who was unlawfully deprived can recover that property even without reimbursement. If the auction sale is considered a public sale, he can recover as long as he is willing to reimburse the buyer of the price paid in that sale. Article 559 is applicable because the owner was unlawfully deprived.
BE: F lost her diamond ring in a hold-up. Later on, this ring was an object of a public sale of one pawnshop. Can F recover the ring from the buyer in that public sale?
SA: Yes, Article 559 provides that even if the buyer is in good faith so long as the owner is willing to reimburse the buyer of the price paid in that sale. Note: Again in 1505, there is no right to recover as long as the buyer bought it in good faith from a merchant’s store, there can be no recovery as a matter of right.
Q: How transfer of ownership is effected? A: Under the law, as far as things are concerned, it is effected by delivery:
(a) Actual (b) Constructive
There can be no transfer of ownership without delivery.
Q: Is it correct to say that every time there is delivery, the buyer acquires ownership upon delivery?
A: Not necessarily. This is not an absolute rule. There are kinds of sale where despite delivery the buyer does not acquire ownership upon delivery:
(1) Conditional Sale – ownership is reserved by the seller such that despite delivery, ownership does not pass.
Q: So when would the buyer acquire ownership in conditional sale?
A: Not upon delivery but upon the happening of the condition which is normally the full payment of the price.
(2) Sun Brothers Case
(3) Sale on Trial / Sale on Satisfaction / Sale on Approval – upon delivery, even if there is actual delivery there is no transfer of ownership at the time of delivery.
Q: When would the buyer acquire ownership?
A: From the moment he signifies his acceptance or approval of the thing.
Q: What if he did not signify his acceptance or approval? May he be considered to have accepted and therefore ownership may be considered to have passed to him?
A: Yes. 2 Scenarios:
(a) There may be a period agreed upon by the parties within which the buyer would have to decide. Even if he failed to signify his acceptance by the mere lapse of the period, he is deemed to have accepted (impliedly accepted) hence, ownership passes to him. (b) Even before the lapse of the period, he may
be considered to have accepted if he did an
act wherein he would be considered to have adopted the transaction then ownership passed to him.
Example: Even if he has 10 days within which to decide but on the 2nd day, he sold the car to another. Obviously, he is deemed to have accepted the thing because he did an act which is inconsistent with the ownership of the seller like he donated or destroyed the thing.
(c) If there is no period agreed upon, the law says if he did not signify his acceptance he will be considered to have accepted after the lapse of a reasonable time. Reasonable time will depend on the circumstances of the sale, purpose of the sale, nature of the thing sold. Example: Perishable goods. Sale or Return
Q: Ownership passes upon delivery?
A: Yes. However, the buyer is given the right to revest the title back to the seller normally within a certain period. Example: Clauses in subscription magazine which says that you can return within 30 days without payment.
BE: A car was sold for P150,000. P75,000 paid upon the execution of DOS. The balance payable on a monthly basis. P75,000 was paid. The car was delivered to the buyer. However, before he could pay the balance, the car was destroyed due to a fortuitous event or was burned xxx Can he still be compelled to pay the balance?
SA: Yes. Upon the delivery of the car to the buyer, there being no retention of ownership by the seller. (Note: Wala sa facts na na-retain ng seller and ownership). Therefore, ownership passed to the buyer. Under the principle of res perit domino – Article 1504 – the owner bears the loss and hence it can be compelled to pay the price.
G.R.: Res perit domino – 1504.
Note: Determination of when ownership passed is important because if at the time of the loss, the buyer is not yet the owner, as a rule, the buyer will not bear the loss like in sale on approval and he has 10 days within which to decide and the thing was lost through a fortuitous event within the 10-day period without fault on his part, the seller will bear the loss.
Exceptions:
1. Lawyers’ Cooperative vs. Tabora
Facts: This pertains to a sale of American Jurisprudence to Atty. Tabora. It was a sale on installment basis. Upon delivery or on the day the books were delivered to the office of Atty. Tabora, the entire block where Atty. Tabora’s office was located (in Naga City) was burned. The office including the books was burned. Atty. Tabora refused to pay the balance. Lawyers’ Cooperative filed a case. Two defenses were raised by Atty.
Tabora: (1) Res perit domino – there was a stipulation in the contract that Lawyers’ Cooperative will retain ownership over the books until full payment. When the books were lost, no full payment so Atty. Tabora was not yet the owner. Hence, Lawyers’ Cooperative should bear the loss. Q: Is this argument correct?
A: SC Said no. Although there was a stipulation that Lawyers’ Cooperative retains ownership over the books until full payment, there was another stipulation in the contract which states that the risk of loss shall pertain to the buyer from the time the books are delivered whatever may be the cause of the loss.
So with that stipulation, that is one of the exceptions.
2. Title was reserved by the seller only to secure the payment of the price by the buyer Q: But even assuming that there was such no stipulation under the contract, would Atty. Tabora have to bear the loss?
A: Yes because it would fall into the other exceptions under 1504 that when the title was reserved by the seller only to secure the payment of the price by the buyer, then by law, risk of loss will already be with the buyer. This title of the seller is known as “Security Title” and therefore by law xxx the buyer will bear the loss.
3. Delay in the Delivery
When there is delay in the delivery due to the fault of one of the parties, whoever was at fault will bear the loss. Note that either buyer or seller may be at fault.
Example 1: The buyer and the seller may have agreed that the goods are to be obtained by the buyer at the warehouse of the seller on a specific date. On the date agreed upon, the seller demanded the buyer to get the goods. Despite such, the buyer failed to get the goods. On the next day, the warehouse was destroyed due to fortuitous event.
Q: Who is the owner at that time?
A: The seller but there was delay on the part of the buyer hence under 1504 it is the buyer who will bear the loss.
Example 2: The seller himself maybe the one at fault. Thus, he is in delay in delivering the goods to the buyer.
Q: Why would this be an exception to the res perit domino rule?
A: Ang premise dito, the ownership has already passed to the buyer but the goods are still with the seller. Can this happen? Yes, because of constructive delivery. If there was constructive delivery, ownership passes to the buyer but physical possession is still with the seller. They may have agreed this time that the seller will be the one to deliver the goods to the buyer at a certain
date. When the date arrived, despite demand from the buyer, there was no delivery on the part of the seller. Even if the goods are destroyed the next day due to fortuitous event, take note ang owner ay ang buyer na but who will bear the loss? The seller because he was in delay in delivering the goods.
DOUBLE SALE (ARTICLE 1544)
BE: F sold a registered parcel of land to R who did not register the sale. Thereafter, F sold the very same parcel of land to C who registered and obtained a new TCT in his name. Who would have a better right?
SA: Atty. Uribe: I fully agree with the UP Law Center’s answer. It depends on whether or not C registered the sale in good faith. Registration is only one of the requirements good faith is equally an important requirement.
Note: In 1544 (double sale), as to which rule applies will depend on the thing sold if movable or immovable.
Q: If the thing is sold twice, who would have the better right?
A: If movable, the buyer who first took possession in good faith will have the better right. If immovable, the buyer, who first registered in good faith, will have the better right. If there was no registration, it will be the first who took possession in good faith. If no possession in good faith, the buyer who has the oldest title in good faith.
Even the 1st buyer is required to be in good faith. Obviously, the first buyer would have the oldest title. Yung good faith ditto obviously would not pertain to absence of knowledge of the 2nd sale kasi syempre 1st buyer sya. He is nonetheless required to have bought the thing in good faith. Good faith means that he had no knowledge of the defect of the title of the seller.
Warning: Please be careful when you recite – you register the sale not the land.
BE: If a thing is sold to 2 or more persons, what would be the effect of:
(a) The first buyer who registered the sale with knowledge of the 2nd sale.
(b) The second buyer who first registered the sale with knowledge of the prior sale. Who would have a better right?
SA: (a) In the first scenario – the first buyer who registered the sale with knowledge of the second sale would that make him a registrant in bad faith? No. Yung knowledge would pertain to the knowledge of the prior sale in order for him to be a bad faith registrant. Eh una naman syang buyer eh so even if he registered, it would not make him a bad faith registrant.
