Law on SALES Midterm Exams

Atty. Teodoro A. Pastrana Law on Sales Chapter 1 – Nature of Sale Definition – Article 1458 – By the contract of sale on of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent

I.

Nature of the obligations created in sale

(a) Two obligations of the seller to: 1. Transfer the ownership 2. Deliver the possession of the subject matter (b) Obligation of the buyer to: 1. Pay the price

II.

Subject matter of Sale

(a) Possible thing that is: 1. Existing goods – Article 1462 – The goods which form the subject of a contract of sale may be existing goods 2. Having potential existence – Article 1461 – Things having potential existence may be the object of the contract of sale 3. Future goods – Article 1462 – Goods to be Manufactured, Raised or Acquired by the seller after the perfection of the contract of sale, In this title called “future goods” 4. Subject to a Contingency – 1462 – There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen 5. Subject to a resolutory condition- Article 1465 – Things subject to a resolutory condition may be the object of the contract of sale. (b) It must be licit: -

Article 1459 – The thing must be licit

(c) It must be Determinate or at least Determinable 1. Determinate – Article 1460 – A thing is determinate when it is particularly designated or physically segregated from all others of the same class 2. Determinable – Article 1460 – The requirement that the thing be determinate is satisfied if at the time the contract is entered into, the

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thing is capable of being made determinate without the need of a new or further agreement between the parties.

III.

Elements of Contract of Sale 1. Consent 2. Subject Matter 3. Price

IV.

Stages in the life of Sale

1. Policitacion – Negotiation or preparation stage, period of negotiation and bargaining 2. Perfection – Birth of the contract, point in time when the parties come to agree on the terms of the sale 3. Consummation – Death of the contract, process of fulfilment or performance of the terms agreed upon in the contract, whereby by each party fulfils his undertaking resulting to the extinguishment of the contract

V.

Essential Characteristics of Sale

1. Nominate – it has been given a particular name by law 2. Principal – it can stand on its own and its existence and validity does not

depend upon another contract 3. Consensual – it is perfected by mere consent 4. Bilateral – it imposes obligations on both parties to the relationship 5. Reciprocal – the obligation arises from the same cause 6. Onerous – it imposes a valuable consideration as a prestation 7. Commutative – a thing of value is exchange for another thing of equal

value. Buenaventura vs CA: “ There is no requirement that the price be equal to the exact value of the subject matter, all that is required is for the seller to believe that what was received was the commutative value of what he gave” 8. Title not Mode – Creates an obligation on the part of the seller to transfer

the ownership of and to the deliver possession.

VI.

Sales Distinguished from other Contracts

1. Donation – Article 726 - When the donor imposes upon the donee a burden which is less than the value of the thing given there is a donation - Gratuitous – Article 725

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2. Barter – Article 1468 – If the consideration of the contract consists partly in money and partly in another things, the transaction shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered barter if the value of the thing given as a part of the consideration exceeds the amount of money or its equivalent, otherwise it is sale. 3. Contract for a Piece of Work – Article 1467 – A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufacture or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work. Celestino Co. vs CIR – “The essence of a contract for a piece-of-work is the sale of service unlike in a sale where the essence is the sale of an object” Prevailing Doctrine: Engineering & Machinery Corp. vs CA – “If the essence is the object, irrespective of the person giving or executing it, the contract is sale, If the essence is service, knowledge or even reputation of the person who executes or manufactures the object, the contract is for a piece-of-work” 4. Sale and Agency to Sell/Buy Sale

Agency

Not unilaterally revocable

Unilaterally revocable

Buyer pays for the price

Agent does not pay for the price

Buyer becomes owner after delivery

Does not become owner of the thing delivered

Seller warrants

No personal liability if acted within scope of Authority and in the name of the principal

Parties Profit from the transaction

Disqualified to profit from the transaction

5. Dacion en Pago – Article 1245 - whereby property is alienated to the creditor in satisfaction of a debt in money Requisites: 1. Animo Solvendi, Performance of a prestation in lieu of payment 2. Aliud Pro alio, Some difference between the prestation due and that which is given in substitution

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3. Agreement between the debtor and creditor that the obligation shall be extinguished by reason of the performance of the prestation different from that due 6. Lease - Art. 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain, and for a period which may be definite or indefinite. However, no lease for more than ninety-nine years shall be valid.

Doctrines to remember: Chapter 1: Nature of Sale See ABOVE and most importantly: Gaite vs Fonacier – In case of doubt (If donation or sale, then sale) “We interpret in favor of the greater reciprocity of interest” Chapter 2: Parties of Sale Domingo vs Court of Appeals - incomptence “The general rule is that a person is not incompetent merely because of advanced years or by reason of physical infirmities. However when such age or infirmities have impaired the mental faculties so as to prevent the person from properly, intelligently and firmly protecting her property rights then she is undeniably incapacitated” Calimlim-Canullas vs Fortun – Live-in “The prohibition shall apply to a couple living as husband and wife without benefit of marriage, otherwise, the condition of those who incurred guilt would turn out to be better than those in legal union” Philippine Trust Co. vs Roldan – Guardians, Executors and Administrators “The general doctrine that each of such relationship is a trust of the highest order, and the trustee cannot be allowed to have any inducement to neglect his ward’s interest” Macariola vs Asuncion – Judges “The doctrine of prohibition under article 1491 is applicable only during the period of litigation should cover not only lawyers by judges as well”

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Fabillo vs IAC “A contingent fee arrangement is not covered by article 1491 because payment of said fee is not made during the pendency of the litigation but only after judgment has been rendered” “As long as the lawyer does not exert undue influence on his client, that no fraud is committed or imposition applied, or that compensation is clearly not excessive as to amount to extortion, a contract for contingent fee is valid and enforceable” Chapter 3 – Subject Matter Sibal vs Valdez – Emptio rei speratae “Pending crops which have potential existence maybe the object of a contract of sale, and may be dealt with separately from the land on which they grow” Polytechnic University vs CA – Coverage of Sale “The civil code provisions on sale are in effect a “catch all” provision which effectively bring within their grasp a whole gamut of transfers whereby ownership is ceded for a consideration” Atilano vs Atilano – Lot no. “One sells or buys property as he sees it in its actual setting and by its physical metes and bounds, and not by the mere lot number assigned to it in the certificate of title” National Grains Authority vs IAC – Quantity “Specific quantity of the subject matter is not important when it is still possible to determine the quantity without a new or further agreement between the parties” Chapter 4 – Price and Other Consideration Price – signifies the sum stipulated as the equivalent of the thing sold and also every incident taken into consideration in fixing the price put to the debit of the buyer and agreed to by him Price is False – When there is a real price upon which the minds of the parties had met, but not declared, and what is stated in the covering deed is not the one intended to be paid Price Simulated Absolutely or Relatively– Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the

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parties do not intend to be bound at all; the latter, when the parties conceal their true agreement.

Montecillo vs Reynes – lack of consideration vs failure to pay consideration “Failure to pay consideration is different from lack of consideration. The former results in a right to demand the fulfilment or cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract” Mater vs CA – Price simulated still valid “When undoubtedly the price stipulated the covering instrument is simulated, the underlying sale would still be valid and enforceable provided there is another consideration to support the sale.” Torres vs CA – Profits as consideration “The expectation of profits constitutes valid cause and consideration to validate the sale” Navarra vs Planter’s Dev. Bank – Manner of payment rationale “Manner of payment goes into the essence of what makes a price certain” 1179 – all obligations without conditions or periods are demandable at once

Tayengco vs CA – Inadequacy of Price “Inadequacy of price may be a ground for setting aside an execution sale, but it is not sufficient grounds for the cancellation of a voluntary contract of sale which is otherwise free of invalidating defects such as vitiated consent, even if shocking to the conscience. Chapter 5 – Formation of Sale Option contract – Carceller vs CA – An option contract is a preparatory contract in which one party grants to the other, for a fixed period and under specified conditions, the power to decide, whether or not to enter into the principal contract Sanchez vs Rigos – Option contract without consideration “Without a consideration separate from the purchase price, an option contract would be void, but would still constitute a valid offer, so that if the option is exercised prior to its withdrawal, it would give rise to a valid and binding sale”

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Right of first refusal – A promise on the part of the owner that if he decides to sell the property in the future, he would first negotiate its sale to the promise Guzman, Bocaling & Co. vs Bonnevie – Right of first refusal prevailing doctrine “A sale entered into in violation of a right of first refusal of another person found in a valid principal contract is recissible” Villonco vs Bormaheco – Clarificatory Changes are allowed Simulation- Loyola vs CA – The declaration of a fictitious will, deliberately made by the agreement of the parties, in order to produce, for purposes of deception, the appearance of a juridical act which does not exist or is different from what which was really executed

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