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TITLE VI – SALESChapter 1
Nature and Form of the Contract Article 1458
- Definition of sale: Sale is a contract where one party (seller or vendor) obligates himself to transfer the ownership of and to deliver a determinate thing, while the other party (buyer or vendee) obligates himself to pay for said thing a price certain in money or its equivalent
Q: is the execution of waiver of rights equivalent to a sale?
A: it depends. In the following cases, the issue is the price and not the heirship.
Case: Acap vs. CA
- In this case, execution of waiver of rights is not equivalent to sale because there was no price paid.
Case: Caoibes vs. Pantoja
- In this case, execution of renunciation and transfer of rights and interest is equivalent to sale for there was a consideration. The heirs renounced, transferred their rights to a particular property in favour of a sister who paid for the loans obtained by one of the heirs. In consideration for Pantoja paying the loan obtained by one of the heirs who executed the renunciation, they renounced whatever right they had to the property.
Case: Toyota Shaw, Inc. vs. CA
Q: is the document denominated “Agreement between Mr. Sosa and Popong Bernardo of Toyota Shaw, Inc.” binding as a contract of sale?
A: In this case, there was no binding contract of sale as there was no stipulation in the contract on the mode of payment of the purchase price. If the mode of payment is not stipulated, it is as if there is no agreed price. To determine if a contract of sale exists when you see a document you need to determine whether the three essential elements are present: Consent, Object, and Consideration.
Q: What is the Effect of offer and counter offer?
A:
Case: Manila Metal Container Corporation vs. PNB
- Since during the 10 year period there was a continuous counter offer, there is no perfected contract of sale
- Note that the offer must be definite and acceptance must be absolute. Until the final offer or counter-offer is accepted absolutely without conditions is the point where the contract is perfected.
Essential Characteristics of the Contract of Sale
1. Consensual – contract is perfected by mere consent (as distinguished from real where the contract is one perfected by delivery)
2. Bilateral Reciprocal – both parties are bound by obligations dependent upon each other
3. Onerous – to acquire the rights, valuable consideration must be given
4. Nominate – Code refers to it by a special designation (sale) 5. Principal – for the contract of sale to validly exist, there is no
necessity for it to depend upon the existence of another valid contract
6. Commutative – because the values exchanged are almost equivalent to each other; fulfillment is predetermined in advance upon perfection of contract
- by way of exception, some contracts of sale are aleatory: what one receives may in time be greater or smaller than what he has given; ex. Sweepstakes ticket
Elements of the Contract of Sale
1. Essential Elements – absence of one would result to an invalid sale
a. Consent or Meeting of the minds – consent to transfer ownership in exchange for the price
b. Determinate subject matter - object
c. Price certain in money or its equivalent - cause or consideration
2. Natural Elements – inherent in the contract, and which in the absence of any contrary provision, are deemed to exist in the contract
3. Accidental Elements – not demandable unless specifically stipulated; those which may be present or absent in the stipulation
Distinctions from…
1. Barter - in that the latter’s consideration consists in the giving of another thing rather than a price in money (See 1468, 1638); exchange of goods
- if what was given was both an object and money: if money is bigger from the value of the thing in exchange it is a sale
2. Dation in Payment – there is a pre-existing obligation to pay a sum of money which is thereby extinguished (look at pg. 9 of paras) 3. Lease – there is no transfer of ownership
4. Donation – contract is gratuitous and requires special formalities; unilateral
Promise to Sell: when binding
Article 1479
- A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. (good as perfected sale)
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.
Bilateral
- promise to sell a determinate thing coupled with a correlative promise to buy at a specified price; it is binding as an executory agreement
Unilateral
- given only by one by one party
- can be accepted but you don’t promise to buy
- binding only once option money is paid (consideration distinct from the purchase price)
Note: if the money paid forms part of the purchase price you would have already entered into a perfected contract and you would call the consideration as earnest money.
Q: how is option defined?
A: Case: Eulogio vs. Apeles
- an option is a contract by which the owner of the property agrees with another person that the latter shall have the right to buy the former’s property at a fixed price within a certain time (Note: if option is granted but there was no stipulation on the period, the court will fix the term) - An option is not of itself a purchase, but merely secures the privilege to
buy. It is not a sale of property but a sale of the right to purchase - sometimes called an UNACCEPTED OFFER
- What is accepted is the promise of the seller to sell and not the offer because otherwise, if it is the offer which is accepted, there is a perfected contract of sale.
- The test to determine if it is an option is the test of SEPARATENESS - In the present case, there was no option contract
Q: What constitutes a CONSIDERATION in an option contract?
A: Case:Villamor vs. CA
- Consideration is the “why” of the contract. It is the essential reason why parties enter into a contract
Note that consideration need not be payment of money. It can be anything for as long as it has value. The Court considered as value as sufficient consideration for that option between the Reyes spouses and the Villamor spouses the discrepancy in the purchase price. The Court said whether you say it is P18/sq m or P25/sq m, the difference between the actual market value and the purchase price is considered as the consideration for the option.
- There was a valid option contract entered into between the two spouses but the Villamor spouses were not allowed to exercise the option because they exercised it long after they executed the deed which was after 10 years. The Court said that under the law actions on written documents prescribe in 10 years and the Villamor spouses opted to exercise the option long after the 10 year period has lapsed. Plus the Court may have also considered the fact that the value of the property appreciate rapidly.
Case: Bible Baptist Church vs. CA
In this case, there was no distinct consideration for the option as the payment of the P84,000 which Bible Baptist paid the bank for the loan obtained by the Villanuevas was actually applied for the first year of the lease.
- If there is no distinct consideration the offeror can withdraw the option anytime even if the offeree has accepted the option
- In this case it was sited that if the consideration is not monetary, it should still be onerous in nature and should be specified as such
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Q: In a valid option contract, what is the remedy of the optionee if the optioner refuses to honor the option money?
A: You can demand for specific performance. You can compel him to sell the property to you
Right of First Refusal
- There is no price stipulation even if there is a determinate thing
- The undertaking of the offeror is merely to sell to you the property first before he sells it to another person (if I sell, I offer it to you first. If you refuse, I sell it to another)
- There is NO promise to sell
- This is not considered as a perfected sale or a perfected option contract
Q: what is the remedy of the person to whom the right of first refusal is given if the offeror instead of offering the property to him sells it to another person?
A: the Court said that if the right of first refusal is granted under a contract of lease, the remedy of the lessee is to sue for the rescission of the contract. As far as the lessee is concerned he is the creditor because the privilege is given to him therefore he can demand that the property be first offered to him before it is offered to another person. But if the right of first refusal is not embodied or is not included on a contract of lease then the remedy of the person is to sue for damages. However, before you can sue for damages make sure that the promise or the right of first of refusal must be in writing otherwise it is unenforceable.
OPTION MONEY vs. EARNEST MONEY
OPTION MONEY EARNEST MONEY
Not part of the purchase price
It is part of the purchase price (sort of a down payment)
Proof of the perfection of the option contract
Proof of the perfection of the contract (parties are already bound)
applies to a sale not yet perfected
given when there is already a sale Would be buyer is not
required to buy
Buyer is bound to pay the balance
CONTRACT TO SELL vs. CONTRACT OF SALE
Case: Nabus vs. Pacson; Ong. Vs. CA
CONTRACT TO SELL CONTRACT OF SALE
It is a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery therof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is full payment of the purchase price The payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force
The title to the property passes to the vendee upon the delivery of the thing sold. The vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded
The non-payment of price is a resollutory condition
The Contract of Sale may be… Case: Ramos vs. Heruela
1. Absolute
a. ownership is transferred to the buyer upon delivery regardless of when payment of price is made (note: it is not payment of the price that transfers ownership, it is the delivery of the thing which may be real or constructive)
b. there is no stipulation in the contract that title to the property remains with the seller until full payment of the purchase price c. there is no stipulation giving the vendor the right to cancel
unilaterally the contract the moment the vendee fails to pay within a fixed period
Case: Prudential Bank vs. Kim Hyeun Soon
- Kim Hyeun Soon, a Korean national, entered into a contract with the Stratchan spouses for the purchase of a condominium unit. The purchase price was P3.7M and Soon paid a partial payment of more than P2M. They agreed that the condominium certificate of title would be delivered to her upon full payment of the price. About one month after they entered into the agreement, the Stratchan spouses obtained a loan from Prudential Bank and secured the loan with a mortgage over the condo unit. In the meantime, Kim Hyeun Soon already took possession of the condo unit. The Stratchan spouses failed to pay the loan. Kim Hyeun
Soon also fully paid the price so she was demanding for the delivery of the title. The Stratchan spouses cannot deliver the condominium certificate of title because it was delivered to the bank.
- The bank insisted that it had better right to the property because it was a mortgagee in good faith. The bank inspector admitted that he did not go to the property and inspected because if he did he would have discovered that somebody else was occupying the property.
- The bank claimed that the contract between Kim Hyeun Soon and the Stratchan spouses was a contract to sell and she has not complied with their contract. Kim Hyeun Soon said that it is an absolute sale although she has not paid the purchase price. Prudential says that the title was not even delivered to her therefore it could not be an absolute sale. However, as a general rule, ownership is transferred upon delivery which may be either real or constructive delivery. What happened in the case is that there was actual delivery of the property.
- The Court said that this is not a contract to sell or a conditional sale but actually an absolute sale. While the title of the property is retained by the sellers, there was actual delivery of the property to the buyer and therefore ownership would transfer to the buyer upon delivery of the property. The court may have also taken into consideration the bad faith of the Stratchan spouses. You could also fault the bank for not acting in good faith because it failed to determine whether there was another person occupying the property. The nature of the business of the bank requires that it observe and perform extraordinary diligence. - They did not expressly reserve their ownership over the property. - Even if the purchase price has not been fully paid and even if the
title is retained by the sale, this is a case of absolute sale because there was actual delivery of the property to the buyer. Note: But this is not always the rule because there are cases that there was actual delivery to the buyer, there was retention of the title to the seller and the Court said that it is a contract to sell and not an absolute sale.
2. Conditional
- may either be an executed contract or an executory contract and usually a contract to sell
a. Executed Contract
- which property (ownership) in the thing is transferred from seller to buyer, and nonpayment of the price is a negative resolutory condition which entitles the seller to the rescission or cancellation of the contract
- ownership is already transferred
- one of the party has performed his part (ex. Partial payment; earnest money is already paid)
b. Executory Contract
- (an “agreement or contract to sell”) when ownership does not pass until –
i. Some future time, or
ii. The fulfillment of some condition, such as full payment of the purchase price when said payment then becomes a positive suspensive condition
EXECUTED CONTRACT vs. EXECUTORY CONTRACT
Case: Ong vs. CA
- Interpretation of document denominated “agreement of Purchase and Sale” is equivalent to that of a contract to sell
- The contract they entered into was that the seller undertakes to execute the absolute deed of sale only upon full payment of the purchase price. The sellers are retaining ownership over the property even if the property is in the possession of the buyer.
EXECUTED CONTRACT EXECUTORY CONTRACT
Property (ownership) is conveyed
No property is conveyed If buyer defaults, seller may sue
for the price
If buyer defaults, seller is only entitled to damages
Risk of loss is generally borne by the buyer
Risk of loss is generally borne by the seller
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- The Court said that in a contract of sale ownership is transferred upondelivery of the property. In a contract to sell, ownership is by agreement reserved by the vendor until full payment of the purchase price. Moreover, full payment of the purchase price is a positive suspensive condition. Therefore, the failure to fulfill the condition is not a breach of the contract. It prevents the obligation of the vendor to convey title from acquiring an obligatory force. The obligation of the vendor to transfer ownership and to convey title does not arise.
Q: Do you need to sue for the cancellation of the contract if the buyer fails to comply with his obligation in a contract to sell?
A: No. Unless the contract is covered by the Maceda Law.
Case: Serrano vs. Caguiat
- Interpretation of document denominated “receipt of partial payment” is equivalent to contract to sell (thus, earnest money does not apply) - Absence of deed of sale is a great indicator that contract was only a
contract to sell
- Failure to pay full payment on the agreed dates render the contracet ineffective without force and effect
CONDITIONAL SALE vs. CONTRACT TO SELL
Case: Coronel vs. CA
- Note: contract to sell is a bilateral contract while expressly reserving ownership, binds himself to sell
Stages in the Contract of Sale
1. Generation or negotiation 2. Perfection – meeting of the minds
3. Consummation – when the object is delivered and the price is paid
Kinds of Sales
a. As to the nature of the subject matter i. Sale of real property
ii. Sale of personal property b. As to the value of the things exchanged
i. Commutative sale ii. Aleatory Sale
c. As to whether the object is tangible or intangible i. Sale of Property – chose in possession ii. Sale of a Right – chose in action d. As to the validity or defect of the transaction
i. Valid Sale ii. Rescissible Sale iii. Voidable Sale iv. Unenforceable Sale
v. Void Sale
e. As to the legality of the object i. Sale of a licit object ii. Sale of an illicit object
f. As to the presence of absence of conditions i. Absolute sale
ii. Conditional sale
g. As to the proximate inducement for the sale i. Sale by description
ii. Sale by sample
iii. Sale by description and sample h. As when the price is tendered
i. Cash Sale
ii. Sale on the installment plan
Article 1459
- 2 rules to take into consideration:
1. The object must be licit – lawful; within the commerce of man 2. The vendor must have the RIGHT to transfer OWNERSHIPS at the
time the object is delivered Things may be ILLICIT
a. Per se (of its nature)
b. Per accidens (made illegal by provisions of the law Note: services can be an object of a contract
Q: Are all things which are in the commerce of man be an object of sale? Can rights be an object of transmission, be an object of sale?
A: Rights may be transferred but cannot be an object of sale. Services can be an object of contract but not of contract of sale
Q: What objects cannot be an object of sale?
A: Real properties which are under the homestead and free patent, and is still within the prohibition period, cannot be an object of sale
Case: Agustino vs. CA
- In this case, the lot was NOT VALIDLY sold to Cruz because Luarca, from whom Cruz bought the land, had an invalid contract of sale with Loren.
- The sale of the lot by Loren to Luarca was within the 5-year prohibition against alienation of homesteads thus all subsequent transactions with the said property is void abinitio and cannot be perfected by laches.
Case: Manlapat vs. CA
- In this case, before given he was given the patent, Manlapat already sold the land to Ricardo Cruz.
- Prior to the issuance of a patent, the land can be validly sold Thus it was only the sale of the 50 sq. m. which was void as it was sold after the issuance of the patent
- Note: the mortgagor must be the owner of the property otherwise the mortgage is void.
Case: Hermosilla vs. Remoquillo
- It was ruled that any sale made during the pendency or before the issuance of a patent is considered invalid
Q: Why is it there a difference in the ruling in the Manlapat and Hermosilla case?
A: The difference in the ruling was die to the different laws that governed in the case. In the first case, the law used was based on the homestead law provided under CA 141. On the other hand, in the Hermosilla case, what was used as basis for the decision was Land Authority Administration #4. In Patent, there is no in pari de licto
- You or your heirs can recover the land even if you committed the mistake of selling it within the 5 years prohibitory period
Q: Can you execute a confirmatory deed of sale which will take effect after the 5 year period?
A: No, for there is nothing to confirm because you cannot ratify a void contract.
Case: Daclag vs. Macahilig
- Sale by a non owner results to a nullity of the sale
- Since Maximo who sold the lot to petitioner was not the real owner of the property, attack to ownership is imprescriptible - Being an absolute nullity , the deed is subject to attack anytime
Q: When can the defense of good faith in purchasing properties be availed of?
A: You can invoke good faith if (1) the land is registered and (2) if there is a double sale
Remember the following:
- Future Inheritance cannot be an object of sale
- Future destruction or with potential destruction can be an object of sale
- Mere expectancy can be subject of sale as long as HOPE is not VAIN
- While there can be a sale of future property, there can generally be no donation of future property
- A person who has a right over a thing (although he is not the owner of the thing itself) may sell such right. (ex. A usufructuary may generally sell his usufructuary right)
CONDITIONAL SALE CONTRACT TO SELL
- First element of consent is present (consent to transfer ownership in exchange for a price)
- If condition is not fulfilled, contract is ABATED
- If condition is fulfilled, contract is PERFECTED (ownership automatically transfer to buyer by operation of law without any further act)
- First element is lacking as transfer of ownership is reserved
- Upon fulfillment, ownership will not automatically transfer to the buyer although property may have been delivered
- Needs to further enter a contract of ABSOLUTE SALE to convey title
- Upon fulfillment of suspensive condition, sale becomes absolute and will definitely affect title, causing 3rd person buying to be in BAD FAITH
- There is nothing to transfer to 3rd
person as title is automatically transferred to buyer
- 3rd person buying cannot be deemed in bad faith and prospective buyer cannot seek relief or reconveyance of property
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Case: Tanedo vs. CA
- In this case, Tanedo executed another deed of sale to another person of whatever share he has over a parcel of land
- Sale of future inheritance is invalid, thus any act confirming the sale cannot be considered a ratification because it is void from the very beginning
Transferability of Ownership
- Valid transfer of ownership cannot take place if the party who is transferring ownership is not the real owner of the property
Case: Cavite Development Band vs. Lim
- Courts are not bound by the name or title given to the contract by the contracting parties. In this case, circumstances would tell us that there was really a contract of sale perfected and partly consummated.
- However, contract of sale is void as CDB was not the owner of the property at the time of consummation of contract. Although it is not required that at the perfection stage the seller be the owner of the ting sold, such requirement becomes necessary at the consummation stage of the sale (general rule).
- Exception to the general rule is a Mortgagee in GOOD FAITH. However, CDB cannot be considered as such as it failed to observe the kind of diligence required from a banking institution
Case: Heirs of Arturo Reyes vs. Beltran
- The contract to sell on which the petitioners based their claim over the subject property was executed by Miguel Socco who was not the owner of the property, therefore had NO right to transfer the same. Article 1459 provides that the thing must be licit and vendor must have a right to transfer ownership at the time of delivery.
Article 1460
- A thing is determinate when it is particularly designated or physically segregated form all others of the same class
- The object of sale must be determinate or is capable of being determinate without need of any new agreement
Case: Vagilidad vs. Vagilidad
- Contemplates on a sale by co-heir of undivided portion of estate - Loreto has a right to transfer in whole or in part his undivided
interest in the lot even without the consent of his co-heirs - The subject parcel, being an inherited property is subject to the
Rules of co-ownership
- In this case, the lot was sold despite the fact that there was no adjudication of property yet. However, upon adjudication, the same lot sold was what was adjudicated to the seller, thus making the sale of such property valid
- There was a determinate object because there is no need to enter into subsequent contract to identify the subject of the contract Article 1461
- Sale of a thing having a potential existence: this is a future thing that may be sold
Sale of an expected thing or Emptio Rei Sperati
- If the expected thing does not materialize, the sale is not effective Sale of the Hope itself or Emptio Spei
- It does not matter whether the expected thing materialized or not; what is important is that the hope itself validly existed - Ex. Sale of a valid sweepstakes ticket. Whether the ticket wins or
not, the sale itself is valid
- If the hope or expectancy itself is vain, the sale is itself void Article 1462
- Goods may be
o Future goods – still to be manufactured or raised or acquired by seller after the perfection of the contract (like land which the seller expects to buy)
o Existing goods Article 1463
- The sole owner of a thing may sell an undivided interest therein - Ex. Selling a portion of your house to somebody else in which case
the two parties become co-owners
- Ex. A full owner may sell the usufruct of his land leaving the naked ownership to himself
Article 1464
- Sale of Share in a Specific Mass
- Ex. In a stock of rice, the exact number of cavans oh which is still unknown, Jose buys 100 cavans. If there are really 150, Jose becomes the co-owner of the whole lot, his own share being 2/3 thereof (read paras pg. 23)
Case: National Grains Authority vs. IAC
- If you enter into a certain contract to deliver a certain amount of product, and what was delivered was lesser, it does not invalidate a contract
- When exact number of goods is fixed in a contract, as long as you don’t exceed the maximum, the contract is perfected
- In this case, NGA accepted to purchase cavans of rice not exceeding 2, 640 cavans and what was delivered to them was less than the said quantity – there was a perfected contract of sale Article 1465
- Things subject to a resolutory condition may be the object of the contract of sale
Article 1466
- In distinguishing a contract of sale and an agency to sell, the essential clauses of the whole instrument shall be considered CONTRACT OF SALE vs. AGENCY TO SELL
CONTRACT OF SALE AGENCY TO SELL The buyer pays the
price
The agent delivers the price which in turn he got from his buyer
The buyer after delivery becomes the owner
The agent who is supposed to sell does not become the owner, even if the property has already been delivered to him
The seller warrants Agent who sells assumes no personal liability as long as he acts with his authority and in the name of the principal
Case: Quiroga vs. Parsons Hardware
- In determining whether there was a breach in contract, one should first determine whether there was a contract of sale or merely an agency to sell
- In this case, there is clearly a contract of sale> there was an obligation to supply the beds, and a reciprocal obligation to pay their price.
- An agent does not pay the price, he merely delivers it. If he is not able to sell, he returns the goods
Case: Commissioner of Internal Revenue vs. Constantino
- Answers the question on how to determine a contract of agency to sell
o Such is tested by the criterion that is such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is that of a sale. But if the delivery is to another, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price and terms, demand and receive the proceeds less the agent’s commission upon sales made, the transaction is that of an agency to sell Article 1467
- Distinguishes contract of sale and contract for a piece of work - Rules to determine the difference:
o If ordered in the ordinary course of business – SALE o If manufactured specially and not for the market;
specially done at the order of another – PIECE OF WORK CONTRACT
Case: Commissioner of Internal Revenue vs. Engineering Equipment and Supply Co.
- Engineering is a contractor rather than a manufacturer as the machines were made especially for each customer and installed upon special order. They design each unit to meet the requirements of each customer. Further, units were not intended for sale to the general public
- The distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed but has been the subject of sale to some other persons even if the order had not been given
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Case: Del Monte Phil. Inc. vs Aragones
- Interpretation of supply agreement
- Considering that that the S shape blocks was a piece of work, Del Monte is liable for the payment of orders done by Mega-Watt - The supply agreement is replete with specifications, terms or
conditions showing that it was one for a piece of work
Q: Why is it necessary to distinguish sale and contractor?
A: So that (1) one can determine the tax that one should pay (bigger tax for manufacturer than contractor) and (2) to determine the liability of the owner (refer to article 1729)
Article 1468
- Provides for the rule to determine if one is a contract of sale or of barter
- Rules:
o First rule – determine intent o If intent does not clearly appear –
If thing is more valuable than money – BARTER
If 50-50 – SALE
If thing is less valuable than the money – SALE
Article 1469
- Principles in the agreement as to the price
- Price: must be certain; otherwise, there is no true consent between the parties
- 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
Case: Boston Bank of the Philippines vs. Manalo
- Since there was no agreement on how to pay the balance, there was no perfected contract of sale. If a material element of a contemplated contract is left for future negotiations, the same is too indefinite to be enforceable
If no specific amount is stipulated, the price is still considered certain: 1. If it be certain with reference to another thing certain (par.1) 2. If the determination of the price is left to the judgment of a
specified person or persons
Should such person or persons be unable or unwilling to fix it – CONTRACT SHALL BE INEFFICACIOUS, unless the parties subsequently agree upon the price (par.2)
If third person or persons acted in bad faith or by mistake – COURTS MAY FIX THE PRICE (par.3)
If third persons are prevented from fixing the price by fault of the seller or the buyer – PARTY IN FAULT MAY HAVE SUCH REMEDIES AGAINST THE PARTY IN FAULT (par.4)
3. In the cases provided for under article 1472, Civil Code
Q: How price is determined (other ways)?
A:
1. Determined by third person (par. 1, 2, 4)
Case: Barreto vs. Sta Marina
- It was the appraisers who were appointed to ascertain and fix the total net value of the factory for the purpose of determining the true present value of the interest.
- The appraiser was the one who determined the total net value of the shares of the company and thereafter that of Bareto’s share. 2. By the courts
3. By reference to a definite day, etc. (art. 1472) 4. By reference to invoices
Case: McCuloug vs. Aenlle & Co
- In this case, the price for each article was fixed. By its terms, the appellee agreed to pay therefor the amount named in the invoices then in existence. The price could be made certain by a mere reference to those invoices. Thus, each party could compel the other to fulfill its obligation
5. By application of known facts
- e.g. “in proportion to variations in calories and ash content of coal”
SUMMARY FOR THE REQUISITES OF PRICE
1. Should be of reference to another certain thing (Price must be REAL)
2. Agreement on the DEFINITE price should be present (certain or ascertainable or determinable)
3. Agreement on the MODE OR MANNER of payment is necessary (disagreement on the manner of payment is tantamount to a failure to agree on the price)
4. Price is in MONEY or its EQUIVALENT (article 1458) Article 1470
- GR: INADEQUACY OF PRICE does not necessarily invalidate a contract
- Discusses effects of gross inadequacy of price:
1. In ordinary sale, sale remains valid even if the price is very low. However, if there was vitiated consent (fraud/undue influence) the contract may be ANNULLED but only due to such vitiated consent
2. In execution of judicial sale, if price is so inadequate as to SHOCK THE CONSIENCE of the court, it will be set aside
Note: 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
Case: Askay vs. Cosalan
-the fact that bargain was a hard one, coupled with mere inadequacy of price when both parties are in a position to from an independent judgment concerning transaction, is not a sufficient ground for cancellation of contract
Case: Aguilar vs. Rubiato
- The very low price paid for the property is one very cogent reason which impels us to the conclusion that Rubiato is only responsible to the plaintiff for a loan.
- It is – that the inadequacy of the price which Villa obtained for the eight parcels of land belonging to Rubiato is so great that the minds revolts at it
Case: Sps Buenaventrua vs. CA
- There is no requirement that the price be equal to the exact value of the subject matter
- Petitioner’s failure to prove absolute simulation of price is magnified by their lack of knowledge of their respondent sibling’s financial capacity to buy the questioned lot
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
- A simulated price is fictitious. There being no price, there is no cause or consideration; hence the contract is void as a sale - Thus, price must be real (not fictitious)
- It may only be valid as a donation if the requirements of donations or other agreements have been complied with
Case: Cruzado vs. Bustos
- Simulated contract does not give rise to a consummated contract of sale since there is really NO payment of price and no transfer of possession
Case: Doles vs. Angeles
- In view of the two agency relationships, petitioner and respondent are not PRIVY to the contract of loan between their principals. Since the sale is predicated on the loan then the sale is void for lack of consideration
- In this case, the consideration of the agents was the loan between their principal. Such consideration is ABSENT thus contract of sale is void
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 exchange or market, provided said amount be certain.
Article 1473
- The price cannot be left to one party’s discretion. However, if the price fixed by one of the parties is accepted by the other, the sale is perfected
Article 1474
- Provides for the effect of indeterminability of price:
o the contract is inefficacious (1474) (as when the third party is unable to or refuses to fix the price)
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- However, if the buyer has made use of the object, he should notbe allowed to enrich himself unjustly at another’s expense. So he must pay a “reasonable price”
Case: Robles vs. Lizarraga Hermanos
- Read full text Article 1475
- Sale is a consensual contract thus it is perfected by mere consent - Delivery or payment is not essential for perfection
- Effect of Perfection: the parties must now comply with their mutual obligations
REQUIREMENTS FOR PERFECTION
1. When parties are face to face – when an offer is accepted without conditions and without qualifications (no counter-offer)
2. When contract is thru correspondence or telegram – when the offeror receives or has knowledge of the acceptance by the offeree
3. When a sale is made subject to a suspensive condition, perfection is had from the moment the condition is fulfilled
Note: review STATUTE OF FRAUDS [Article 1403 (2)]
Case: Coronel vs. CA
- Once the condition in a conditional contract of sale is consummated, the respective obligations of the parties under the contract of sale became mutually demandable.
- In this case, the circumstances which prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves (the certificate of title was not in their names) and not the full payment of the purchase price. If it were not for such circumstance, the contract of sale could have been an absolute one. Since the condition contemplated was later on fulfilled, the Coronels are obliged to transfer the certificate to Alcaraz and for Alcaraz to pay the balance. The Coronels cannot rescind the contract and sell it to another person.
- Note: Even if there was no actual deed of sale, it does not negate the perfected contract of sale
Case: Manila Mining Corporation vs. Tan
- The purchase orders constituted accepted offers when Tan supplied the electrical materials to MMC.
Q: Where is the Place of Perfection?
A: Where the offer was made (Article 1319, last paragraph) Article 1476
- Discusses sale by AUCTION
- Sales of separate lots are separate contracts of sale
- The sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer or in other customary manner (Case: Dizon vs. Dizon – Considering that the auction sale has been perfected, a supplemental sale with higher consideration at the instance of only one party(herein petitioner) could no longer be validly executed)
- Before the hammer falls:
o The bidder may retract his bid. The reason behind this is that every bidder is merely an offer and therefore, before it is accepted, it may be withdrawn
o The auctioneer may also withdraw the goods from the sale EXCEPT if the auction has been announced to be WITHOUT RESERVE
Case: Leoquinco vs. Postal Savings Bank
- Because of the expressed stipulation that PSB reserved to themselves the right to reject any and all bids, the bid of petitioner may be rejected. Petitioners participation in the auction means submission or being bounded to the rules of auction whether the purchaser knew the rules or not
- Limitations of the seller:
o The seller himself cannot bid
o He cannot employ or induce any person to bid on his behalf (people who bid for the seller, but are not themselves bound, are called “by-bidders” or “puffers”)
o EXCEPTION: if right to bid has been expressly reserved and that notice of such was given
- Limitations of the auctioneer (if he is not the seller) o The auctioneer cannot bid
o He cannot employ or induce to bid on behalf of the seller
o He cannot knowingly take any bid from the seller or any person employed by him
In an execution sale:
Judgment Creditor will have a writ to garnish or attach the property of the debtor and sheriff sells it in a public sale
Judgment debtor has the right to redeem the property within 1 year
Q: Why can’t the seller participate in the bidding?
A: He cannot bid because in doing such he can manipulate the biddings of other participants
Note: it is the seller who will set the terms and condition of the sale. If the seller will bid in the auction without reserving such right and informing the public, the sales will be considered as fraudulent.
Q: Will such fraud affect the perfection of the contract?
A: Yes, the contract will be VOID with NO force and effect Article 1477
- Ownership is not transferred by perfection but by delivery - Delivery may be:
o Actual (article 1497)
o Constructive (article 1498-1601) Article 1478
- Generally, ownership is transferred upon delivery, but even if delivered, the ownership may still be with the seller will full payment of the price is made, if there is a STIPULATION to this effect (technically referred to as a contract to sell).
- But note however that innocent third parties cannot be prejudiced by such agreements
Article 1479
- Already discussed on portion: when promise to sell is binding Article 1480
- Provides for the rules of bears the risk of loss:
1. If the object has been lost before perfection, the seller bears the loss (reason: for there was no contract, for there was no cause or consideration)
2. If the object was lost after delivery to the buyer, clearly the buyer bears the loss (Res perit domino – the owner bears the loss)
Case: Phil Virginia Tobacco Adm vs. de los Reyes
- The defense that the objects were not yet examined thus contract of sale was not perfected is NOT considered tenable.
- Upon delivery of the thing sold and such is placed under the control and possession of the vendee, the contract of sale was perfected. Thus petitioner still needs to pay for the purchase of the tobacco despite the fact that they were not able to use it because it was burned.
- What is required for the perfection of contract of sale is agreement on the subject and upon the price. The delivery only confirms such perfection
3. If the object is lost after perfection but before delivery, the buyer bears the loss, as exception to the rule of res perit domino – in this case, the obligation of the seller to deliver is extinguished, but the obligation to pay is not extinguished
Exception to this rule that the buyer bears the loss: i. If the object sold consists of fungibles
(personal property which may be replaced with equivalent things) sold for a price fixed according to weight, number or measure ii. If the seller is guilty of fraud, negligence,
default, or violation of contractual term iii. When the object sold is generic because
genus does not perish EXPENSES (Article 1487)
A. Of Execution and Registration of the sale are borne by the Seller (however, in real situations, it is usually the buyer who spends for the registration of the sale); there can, however, be a contrary stipulation
B. Of putting the goods in a deliverable state (1521, last par.) are also borne by the Seller
Article 1481
- Discusses Sale by description or by Sample - A sale may be that of:
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SALE BY DESCRIPTION- Where seller sells things as being of a certain kind, the buyer merely relying on the seller’s representations or descriptions
Case: Pacific Commercial Co. vs. Ermita Market and Cold Stores
- The fact that defendant could not use the machines satisfactorily cannot be attributed to Pacific’s fault. The machine was strictly in accordance with the written contract and there was NO deception that took place. Thus, Ermita Market is still liable to pay for the product.
SALE BY SAMPLE
- The seller warrants that the bulk of the goods (the good themselves) shall correspond with the sample in kind, quality and character
- Note: the mere exhibition of the sample does not necessarily make it a sale by sample. This exhibition must have been the sole basis or inducement of the sale
SALE BY DESCRIPTION AND SAMPLE
- Must satisfy the requirements in both, and not in only one Note: the remedy afforded by Article 1481 is rescission. Technically, it should be annulment.
Article 1482
- Earnest money defined: is something of value to show that the buyer was really in earnest, and given to the seller to bind the bargain
- Earnest Money is considered: o Part of the purchase price
o Proof of the perfection of the contract
- This article speaks of earnest money given in a CONTRACT OF SALE.
Case: Serrano vs. Caguiat
- In this case, “receipt of partial payment” shows that the true agreement between the parties is a contract to sell as ownership over the property and certificate of title of the lot was retained by petitioners until full payment of the purchase price and that the agreement between the parties was not embodied in a deed of sale.
- The earnest money was given in a CONTRACT TO SELL. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price. Now, sine the earnest money was given in a CONTRACT TO SEL, Article 1482, which speaks of a contract of sale, does not apply
Note: if merchandise cannot be delivered, the earnest money must be returned. Of course, this right may be renounced since neither the law nor public policy is violated
Case: Oesmer vs. Paraiso
- SC ruled that a careful examination of the words used in the contract indicates that what was referred to as “option money” in this case was actually earnest money as a down payment. Thus, Oesmer is to execute a Deed of Absolute Sale and for Paraiso to pay the balance
Article 1483
- Discusses the FORM of a contract of sale (subject to the provisions of the Statute of Frauds):
o May be made in writing o By word of mouth
Case: Caili vs. CA
- Verbal agreement of sale
- Absence of a formal deed of sale does not render the agreement null and void or without any effect. The necessity of a public document (art. 1358) is only for convenience, not for validity or enforceability
- So long as the essential requisites of consent, object and cause of the obligation concur, there is a valid contract of sale
o Partly in writing and party by word of mouth o May be inferred from the conduct of parties
Q: What is the effect of lack of technical description in the contract?
A: Case: Naranja vs. CA
- Technical description is not necessary for there is no prescribed form of validity of contract of sale of real properties. What is
important is that the subject of the contract of sale is an object that is DETERMINATE or at least DETERMINABLE
Note: if the sale of a piece of land or interest therein when made thru an agent is VOID unless the agent’s authority is in writing.
Article 1484
- Contemplates on a sale of PERSONAL PROPERTY the price of which is payable in INSTALLMENTS
- Remedies:
o Exact fulfillment of the obligation, should the vendee failed to pay
o Cancel the sale, should the vendee’s failure to pay
cover two or more installments (if the remedy of
cancellation is availed of, there must be a MUTUAL RESTITUTION of whatever had been received by either party; except is there is a proviso that installments paid shall be forfeited. Such stipulation is valid, provided it is NOT UNCONSCIONALBE (question of fact) under the circumstance.
o RECTO LAW: 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 purchases to recover any unpaid balance of the price. Any agreement to the contrary shall be VOID.
Q: when is Recto Law applicable?
A:
1. Applicable to personal property on installments 2. Rights of unpaid seller (article 1484)
3. Mortgage is constituted on the VERY OBJECT OF THE SALE
Case: Macondray and Co. vs. De Santos
- There was a mortgage on the Sedan Vehicle
- If the remedy chosen by the vendor is to foreclose the mortgage, he shall have no further action against the purchaser for the recovery of any unpaid balance owing by the same
Case: Levy Hermanos vs. Gervacio
- If the sale is for cash or on STRAIGHT TERMS (also called CASH SALE), Article 1484 does NOT apply
- Straight term: balance, after payment of the initial sum, should be paid in its TOTALITY at the time specified in the promissory note. - In this case, since the sale was that of a cash sale, it is not bound
by the prohibition in Art. 1484 as to its right to recovery of the unpaid balance
Case: Dela Cruz vs. Asian Consumer and Ind’l Finance Corp
- Facts: Asian was not the seller but steps into the shoes of the original creditor
- Dela Cruz did not pay thus Asian foreclosed the mortgages - When sheriff tried to retrieve the property, dela Cruz did not
surrender the property right away.
- It was only 2 weeks after that the petitioner voluntarily surrendered the property
- Asia sued for the price rather than pursue the foreclosure - Issue: Can you first sue for foreclosure then change you r mind
and ask for specific performance
- Ruling: It is only when the vendor did not desist in the continuance of foreclosure in its own initiative that it can still choose to ask for specific performance instead
Case: Magna Financial Services Group Inc. vs. Colarina
- Where the mortgage elects a remedy of foreclosure, the law requires the actual foreclosure of the mortgaged chattel. - It is actual sale of the mortgaged chattel that would bar the
creditor from recovering any unpaid balance.
- Although no actual foreclosure as contemplated under the law has taken place in this case, since the vehicle is already in the possession of Magna and it has persistently avowed that it elects the remedy of foreclosure, the CA, thus, ruled correctly in directing the foreclosure of the said vehicle without more.
Q: Why is it that in the case of dela Cruz, the filing of specific performance was still granted even after the expressed desire to foreclose the mortgage was done, however, in the Magna case, although foreclosure had not yet technically took place because there was still no foreclosure sale, filing for specific performance can no longer be obtained? (difference of Asian and Magna case)
A: In the first case, there was bad faith with dela Cruz because they did not voluntarily surrender the object right away. On the other hand, Elias Colarina
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voluntarily surrendered the object upon the expressed desire of foreclosurewas given.
PURPOSE OF THE RECTO LAW
- This was to remedy the abuses committed in connection with the foreclosure of chattel mortgages. Otherwise, the buyer would find himself without the property and still indebted
Note: The remedies enumerated in this article are NOT CUMULATIVE. They are ALTERNATIVE, and if one is exercised, the others cannot be made use of Article 1485
- Remedies provided for in 1484 shall be the applied to instances of Leases of Personal Property with option to buy
- Why? Because such type of lease may really be considered a sale of personal property in installments
Case: Elisco Tool Mfg. Corp vs. Court of Appeals; PCI Leasing and Finance, Inc vs. Giraffe-X Imaging, Inc.
- Since the lessor has deprived the lessee of possession or enjoyment of the thing by REPLEVIN, he can no longer ask for the purchase value; he is considered to have waived his rights to bring an action to recover unpaid rentals on the said leased item Article 1486
- There can be a valid stipulation that installments or rents paid shall not be returned to the vendee or lessee provided that the same may not be unconscionable under the circumstances MACEDA LAW (RA 6552)
Q: When is this law applicable?
A:
- An act to provide protection to buyers of REAL ESTATE on installment payments
- This includes residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants (under RA 3844/6379), where the buyer has paid at least two years of installments
- It applies to both Contract of Sale and Contract to Sell
Q: What are the Rules when the buyer has paid at least two years of installments but defaults in the payment of succeeding installments?
A:
Default in payment
- To pay without additional interest, the unpaid installments (cash surrender value) within the grace period
Grace period is one month for every year of installment payments made
Limitation: The right can be exercised only once every 5 years
Cancellation of sale/ Cash Surrender Value (how much should seller refund?)
- Up to 5 years installments, refund of 50% of payments
- After 5 years of installments, additional 5% per year but shall not exceed 90% of total payments made
When cancellation takes effect:
- After 30 days from receipt by the buyer of (notarized) notice of cancellation; or
- After 30 days from receipt by the buyer of notarial demand for rescission
Note: In both cases after full payment of cash surrender value
Case: Pagtalunan vs. de Manzano
- Actual cancellation of the contract shall take place AFTER 30 DAYS from receipt by the buyer of the (1) notice of cancellation or the demand for rescission of the contracts by a notarial act and upon (2) payment of the cash surrender value (TWIN REQUIRMENT SHOULD BE MADE)
Q: What are the Rules when the buyer has paid less than two years of installments?
A:
The buyer has at least 60 days grace period within which to pay the installment 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
Case: Ramos vs. Heruela
- In this case since there was no notice of cancellation given to the lessee, they are not yet considered to have defaulted in giving the payment as the grace period has not yet been counted. Thus, they are
still given the right to pay for the unpaid installments despite the great lapse of time.
Case: Active Realty & Dev’t Corporation vs. Daroya
- The failure to cancel the contract in accordance with the procedure provided by law (twin requirements), the court held that the contract to sell between the parties remains valid and subsisting.
- As Daroya lost her chance to pay the balance, since the property was sold to a 3rd party, it is only just and equitable that the petitioner be ordered to refund Daroya the actual value of the lot resold or at the value it was sold to the 2nd buyer.
Article 1487
- Already discussed in EXPENSES Article 1488
- Generally, since expropriation is involuntary, it does not result in a sale - It only becomes a transaction of sale if the property owner voluntarily
sells the property to the government Eminent Domain – right given to the state Expropriation – 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 PD No. 957
- Regulating the sale of subdivision lots and condominiums, providing penalties for violations thereof
Section 4. Registration of Projects The registered owner of a parcel of land
who wishes to convert the same into a subdivision project shall submit his subdivision plan to the Authority which shall act upon and approve the same, upon a finding that the plan complies with the Subdivision Standards' and Regulations enforceable at the time the plan is submitted. The same
procedure shall be followed in the case of a plan for a condominium project except that, in addition, said Authority shall act upon and approve the plan with respect to the building or buildings included in the condominium project in accordance with the National Building Code (R.A. No. 6541).
The subdivision plan, as so approved, shall then be submitted to the Director of Lands for approval in accordance with the procedure prescribed in Section 44 of the Land Registration Act (Act No. 496, as amended by R.A. No. 440): Provided, that it case of complex subdivision plans, court approval shall no longer be required. The condominium plan as likewise so approved, shall be submitted to the Register of Deeds of the province or city in which the property lies and the same shall be acted upon subject to the conditions and in accordance with the procedure prescribed in Section 4 of the Condominium Act (R.A. No. 4726).
The owner or the real estate dealer interested in the sale of lots or units, respectively, in such subdivision project or condominium project shall register the project with the Authority by filing therewith a sworn registration statement
The person filing the registration statement shall pay the registration fees prescribed therefor by the Authority.
Thereupon, the Authority shall immediately cause to be published a notice of the filing of the registration statement at the expense of the applicant-owner or dealer, in two newspapers general circulation, one published in English and another in Pilipino, once a week for two consecutive weeks, reciting that a registration statement for the sale of subdivision lots or condominium units has been filed in the National Housing Authority
The subdivision project of the condominium project shall be deemed registered upon completion of the above publication requirement. The fact of such registration shall be evidenced by a registration certificate to be issued to the applicant-owner or dealer.
Section 5. License to sell. Such owner or dealer to whom has been issued a registration certificate shall not, however, be authorized to sell any subdivision lot or condominium unit in the registered project unless he shall have first obtained a license to sell the project within two weeks from the registration of such project.
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Section 7. Exempt transactions. A license to sell and performance bond shallnot be required in any of the following transactions:
(a) Sale of a subdivision lot resulting from the partition of land among co-owners and co-heirs.
(b) Sale or transfer of a subdivision lot by the original purchaser thereof and any subsequent sale of the same lot.
(c) Sale of a subdivision lot or a condominium unit by or for the account of a mortgagee in the ordinary course of business when necessary to liquidate a bona fide debt.
Section 18. Mortgages. No mortgage on any unit or lot shall be made by the owner or developer without prior written approval of the Authority. Such approval shall not be granted unless it is shown that the proceeds of the mortgage loan shall be used for the development of the condominium or subdivision project and effective measures have been provided to ensure such utilization. The loan value of each lot or unit covered by the mortgage shall be determined and the buyer thereof, if any, shall be notified before the release of the loan. The buyer may, at his option, pay his installment for the lot or unit directly to the mortgagee who shall apply the payments to the corresponding mortgage indebtedness secured by the particular lot or unit being paid for, with a view to enabling said buyer to obtain title over the lot or unit promptly after full payment thereto;
Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests, with interest thereon at the legal rate. Section 24. Failure to pay installments. The rights of the buyer in the event of this failure to pay the installments due for reasons other than the failure of the owner or developer to develop the project shall be governed by Republic Act No. 6552.
Where the transaction or contract was entered into prior to the effectivity of Republic Act No. 6552 on August 26, 1972, the defaulting buyer shall be entitled to the corresponding refund based on the installments paid after the effectivity of the law in the absence of any provision in the contract to the contrary.
Section 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or unit. No fee, except those required for the registration of the deed of sale in the Registry of Deeds, shall be collected for the issuance of such title. In the event a mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer, the owner or developer shall redeem the mortgage or the corresponding portion thereof within six months from such issuance in order that the title over any fully paid lot or unit may be secured and delivered to the buyer in accordance herewith.
