Sales and Lease Midterm Reviewer

Sales and Lease Reviewer Contract 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. A contract of sale may be absolute or conditional. (Art. 1458) - Sale is a contract and is, therefore, a source of obligations. It has the force of law between the contracting parties, which should be complied with in good faith (Art. 1159) Characteristics of a Contract of Sale 1. Nominate – nominate because it was given a particular name by law “Sale” 2. Principal – principal because it can stand on its own and does not depend on another contract for its validity or existence as opposed to an accessory contract. 3. Consensual – consensual because it is perfected by mere consent. A offered to sell a parcel of land to B for P500,000. B accepted the offer, manifested to A. Is there a perfect contract of sale? Yes. There is meeting of minds (offer and acceptance) 4. Bilateral – bilateral because it imposes obligations on both parties. I. Obligations of the parties a. Obligations of the seller are to transfer ownership of and to deliver the thing which is the object of the contract. b. Obligation of the buyer is to pay the price.

1 II.

Legal Effects of Sale being Bilateral a. Power to rescind is implied (Art. 1191) b. Neither party incurs in delay if the other party does not comply (Art. 1169) c. From the moment one of the parties fulfils his obligation, default by the other begins without need of prior demand (Art. 1169)

5. Reciprocal – reciprocal because the obligations of both parties arise from the same cause; each party is a debtor and a creditor of the other. 6. Onerous – sale imposes a valuable consideration as a prestation, which ideally is a price certain in money or its equivalent. 7. Commutative – commutative because a thing of value is exchanged for a thing of equal value; the test for compliance is subjective not objective. Subjective test – inadequacy of price does not affect the validity of the contract of sale so long as the party believes that he is receiving good value for what he transferred then it complies with the commutative character of sale. Note: Inadequacy of price, while not a sufficient ground for the cancellation of a voluntary contract of sale otherwise free from invalidating effects, it may nevertheless show vice in consent. 8. Title, not mode – Sale is not a mode that transfers ownership but merely title that creates the obligation to transfer ownership and deliver possession; delivery is the mode of transferring ownership.

Written and Edited by: APAYA, Edrian; ARIATE, Eunice; BARTOLATA, Edgar; BERNARDO, Jansen; LIM, Robert; and MAGHIRANG, Ariel | REFERENCES: Casiño, De Leon, Jurado, Paras, Pineda, Tolentino, Villanueva. | Please notify the author/s concerned for corrections, suggestions, and comments.

Sales and Lease Reviewer a. Mode – Mode is the legal means by which dominion or ownership is created, transferred or destroyed. b. Title – Title constitutes the legal basis by which to affect dominion or ownership.

A offered to sell a parcel of land to B for P10 which has an actual value of P 500,000.00 Is there a valid contract of sale? Suggested Answer: Yes. Under Article 1306 (Autonomy of Contracts), the contracting parties may establish such stipulations as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Also, inadequacy of price does not affect the validity of the contract of sale so long as the party believes that he is receiving good value for what he transferred then it complies with the commutative character of sale. Alternative Answer: No. Value of price is grossly inadequate. It is way below the market value of the thing sold. Elements of Sale I. Accidental Elements – those which may be present or absent in the stipulation, such as the time or place of payment, or the presence of condition. II. Natural Elements – those which are inherent in the contract and which in the absence of any contrary provision are deemed to exist in the contract. 1. Warranty against eviction 2. Warranty against hidden defects III. Essential Elements – those without which there can be no valid sale. 1. Consent 2. Subject Matter 3. Price certain in money or its equivalent

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I. From Conditional Sale Conditional Sale – there is conditional sale when the parties stipulate that ownership on the thing sold shall not pass to the purchaser until he has fully paid the price (Art. 1478) Absolute Contract of Sale There is no condition imposed upon the contract or there is condition imposed but only upon the buyer’s obligation to pay the price. Transfer of ownership is vested upon delivery

Conditional Sale There is a condition imposed upon the seller’s obligation to transfer ownership of and to deliver a determinate thing.

Delivery does not transfer ownership until the condition is fulfilled

 A deed of sale is absolute in nature although denominated as a "Deed of Conditional Sale" where nowhere in the contract in question is a proviso or stipulation to the effect that title to the property sold is reserved in the vendor until full payment of the purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period. (Dignos v. Court of Appeals)  As to the conditional nature of the sale, Article 1181 of the NCC states that ― in conditional obligation, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. (People's Homesite & Housing Corp v. Court of Appeals)

Contract of Sale distinguished from Other Contracts “That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer A sold a parcel of land to B for P500,000. Said land is to be delivered on July 30, 2011. The payment is to be made on December 31, 2011. As of July 15, 2011, who is the owner of the parcel of land? Suggested Answer: A is still the owner of the said land. On July 30, 2011, who is the owner of the parcel of land? Suggested Answer: B is the new owner of the land, unless the parties stipulated that ownership in the thing shall not pass to the purchaser until he has fully paid the price (Art. 1478). A will sell his land to B for P 500,000.00 once C dies. Is the sale absolute or conditional? Suggested Answer: It is absolute, because death is a certain event. A binds himself to sell a parcel of land to B on the condition that B passes the 2011 Bar Exams. Is there an absolute contract of sale? Suggested Answer: No. The contract is conditional. It is subject to an uncertain and future event.  Can a past event be a condition in a contract of sale? No. An event, to constitute a condition, must be future and uncertain. It is the knowledge of past event that may be considered as a condition and not the past event itself.  If there is a condition on the perfection of contract, and the condition is not fulfilled, is there a perfected contract? No. No perfection because condition was not fulfilled. Condition was attached to the perfection of contract (People’s Homesite Case).

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On January 1, 2011, A and B entered into a contract of sale for the sale of a parcel of land for P500k. A binds himself to deliver the land upon perfection, while B binds himself to pay P 250,000.00 upon perfection, and the remaining balance on Dec 31, 2011. Who owns the land as of today (July 1, 2011)? Suggested Answer: B owns the land. The ownership was transferred upon delivery of the land. Will your answer be the same if the ownership be transferred upon payment? No. A is still the owner of the land. A offered to sell a lot to B. B accepted the offer on the condition that A must first eject informal settlers. Until now, A has not filed ejectment cases. Can B demand specific performance? Suggested Answer: Yes. B may refuse to proceed or waive the condition. Is A entitled to rescind? No. A is not the aggrieved party. II. From Contract to Sell Absolute Contract of Sale Title passes to the vendee upon delivery of the thing sold.

Failure to pay is a negative resolutory condition which puts an end to the transaction. Remedies: 1. Specific performance with damages; or 2. Rescission with

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Contract to Sell Ownership is reserved in the vendor and is not passed until full payment of the price. Failure to pay is a positive suspensive condition; such failure is not a breach of the obligation but it prevents the obligation of the vendor to convey title from arising.

Sales and Lease Reviewer damages (Art. 1191) Seller loses Title over the thing ownership over the remains in the thing upon delivery. vendor even after delivery.  A contract to sell does not transfer ownership ipso facto. The seller reserves the transfer of title to the buyer until the happening of an event, such as full payment of the purchase price. What the seller obliges himself to do is to sell the subject property only when the entire amount of the purchase price has already been delivered to him. (Luzon Dev’t Bank v. Enriquez) III. From Dation in Payment Dation en pago – the transmission of the ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. - Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales (Art. 1245) Contract of Sale There is no pre-existing obligation. Sale gives rise to obligation. The cause or consideration is: a. Price – from the viewpoint of the seller. b. Acquisition of the object – from the viewpoint of the buyer.

There

is

Dation in Payment There is a pre-existing obligation. Extinguishes obligations. The cause or consideration is: a. Extinguishment of his debt – from the viewpoint of the person offering dation in payment. b. Acquisition of the object offered in lieu of the original credit – from the viewpoint of the creditor. greater There is less freedom in

4 freedom in the determination of the price. Payment of the price may generally end the obligation of the buyer.

determining the price.

Giving of the object in lieu of the credit may extinguish completely or partially the obligation.

Chitae bound himself to give B a chedeng car. Months after, the car was lost. Instead of paying Tarzan a certain amount of money, Chitae transferred his parcel of land to Tarzan. Is there a dacion en pago? Suggested Answer: Yes, the property is alienated to the creditor in satisfaction of debt in money (Art. 1245).

A owes P500k to B which is due and demandable on June 1, 2011. Also, A owes P7M to C which is due and demandable on June 15, 2011. Both B and C demanded on June 15, 2011. A said that he does not have money but he has a parcel of land worth 8M to pay for his obligation. A asked whether he may alienate his land in favor of his creditors. Is it valid? Suggested Answer: Yes, there can be a plurality of creditors in dation in payment.

Mango entered into a contract of sale with Apple for the sale of a car. However, Mango delivered parcel of land instead of the car agreed upon. Does this constitute dacion en pago? Suggested Answer: No, this is a novation, not dacion en pago. IV. From Payment by Cession Payment by cession – the abandonment of the universality of the debtor for the benefit of his creditors, in order that from the proceeds thereof, the latter may obtain payment of their credits.

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer

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- The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws (Art. 1255) Note 1: Sale differs from cession in the same way that sale differs from dation in payment. Note 2: However, unlike in dation in payment, the creditors in payment by cession do not acquire ownership over the things assigned, but only the right to sell said things. Payment by Cession of There must be two not or more creditors. one (DBP v. Cuba) is

Dation in Payment Plurality creditors is required; creditor sufficient. Not all of properties of debtor conveyed. Insolvency of debtor is required.

the All of the properties the of the debtor are are conveyed. the Debtor must not insolvent.

be

Creditor becomes The creditors do the owner of the not acquire thing conveyed. ownership over the things conveyed. What the creditors acquire is the right to sell the properties so that the proceeds

The obligation is totally extinguished unless there is agreement to the contrary.

thereof can be applied to their credit. The obligation is extinguished only up to the extent of the net proceeds of the properties.

 Can there be an involuntary payment by cession? Yes, in bankrupt/ insolvency proceedings V. From Contract of Agency to Sell Contract of Agency to Sell – by the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of the principal, with the consent or authority of the latter (Art. 1868) - A contract of agency to sell is one that essentially establishes a representative capacity in the person of the agent on behalf of the principal, and one characterize as highly fiduciary. Contract of Agency to Sell Buyer pays the Agent does not pay price the price Buyer acquires Agent does not ownership over the acquire ownership. object of the contract. Seller warrants. Agent does not warrant unless he agrees. Generally, buyer Agent can return cannot return the the goods in case object sold. he is unable to sell the same to a third person. Buyer can deal Agent in dealing with the thing sold with the thing as he pleases received must act Contract of Sale

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer being the owner.

The essence of sale is the transfer of title or agreement to transfer it for the price paid or promised.

according to the instructions of the principal. The essence of agency is the delivery to the agent of the goods not as the agent’s property but of the principal who remains the owner and has the rights to control the sales by the agent, fix the price and terms, demand and receive the proceeds of the sales less the agent’s commission.

 Where the price of the objects is paid within the terms fixed without any other consideration and regardless as to whether the objects are sold, the contract is one of sale. (In order to classify a contract, due regard must be given to its essential clauses. A contract is what the law defines it to be, and not what it is called by the contracting parties.) (Quiroga v. Parsons Hardware)  The transfer of title or agreement to transfer it for a price paid is the essence of sale. If such transfer puts the transferee in the position of an owner and makes him liable for the agreed price, the transaction is a sale. On the other hand, the essence of an agency to sell is the delivery to an agent, not as his property, but as the property of his 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. (Kerr v. Lingad)

6 VI. From Contract for a Piece of Work Contract for a piece of work – by the contract of a piece of work the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. The contractor may either employ only his labor or skill or also furnish the material (Art. 1713)  There is a contract for a piece of work if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market (Art. 1467)  BUT there can be no contract for a piece of work for past service resulting in the creation of the object; in such case, there is a contract of sale.  The contractor renders service in the course of an independent occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished.

Contract of Sale

Contract for a piece of work Goods are to be manufactured specially for a customer and upon special order and not for the general market.

Contract for delivery of an article, which the vendor in the ordinary course of business manufactures or procures for general market (whether on hand or not). Essence is object. Essence is service. Governable by the Not within the Statute of Statute of Frauds Frauds

Tests: 1. Timing Test (under Art. 1467) – whether the thing transferred would have never existed but for the order.

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer 2. Habituality Test – if manufacturer engages in activity with need to employ extraordinary skills and equipment (Celestino Co. v. CIR) 3. Nature of the Object Test – each product’s nature of execution differs from the others; products are not ordinary products of the manufacturer.  When a factory accepts a job that requires the use of extraordinary or additional equipment, or involves services not generally performed by it, it thereby contracts for a piece of work. (Celestino Co. v. Collector of Internal Revenue)  If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made at defendant's request, it is a contract of sale, even though it may be entirely made after, and in consequence of, the defendants order for it. (Commissioner v. Engineering and Supply Company) VII.

From Barter Barter – by the contract of barter or exchange, one of the parties binds himself to give one thing in consideration of the other’s promise to give another thing (Art. 1638) Rules to determine whether contract is sale or barter a. Manifest intention of the parties  If the consideration of the contract consists partly in money and partly in another thing, and the manifest intention of the parties is to enter into a contract of sale, then the transaction is a contract of sale.  Manifest intention – judged by the parties’ contemporaneous and subsequent acts.

7 Sale Value of the money is greater than or equal to the value of the thing.

Barter Value of the money is less than the value of the thing.

Floyd delivered 100 pieces of one peso coins to Ryan in consideration of the latter’s One Hundred Peso Bill. Is it a sale or barter? Suggested Answer: It is Barter, which the law defines as one where one of the contracting parties binds himself to give one thing in consideration of other’s promise to give another thing. (Art. 1638) Mimay delivered her IPAD worth 50K to Rea in consideration of the latter’s laptop which costs 50k. Is it a sale or barter? Suggested Answer: Sale (Atty. Casiño’s answer), Barter (Art. 1638) David delivered 500Php coins to Chong in consideration of Chong’s 500 Yuan. Is it barter or a sale? Suggested Answer: Sale, the parties buy the currency at the rate of exchange.

A and B are adjoining owners of land. A sold his parcel of land to C for 500K. May B redeem the parcel of land? Suggested Answer: Yes. Under the law, B can redeem the parcel of land by cancelling the sale and paying C the purchase price.

Pen and Rye are adjoining owners of land. Rye exchanged his parcel of land with Ina’s Laptop. Pen wants to redeem the parcel of land. Is she allowed by law to do so? Suggested Answer: No. The right of legal redemption has no application in barter.

b. When intention does not appear:

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer Essential Elements of a Contract of Sale I. Consent – consent is the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract (Art. 1319) Elements: 1.1. Concurrence of the offer and acceptance. 1.2. Plurality of contracting parties. 1.3. Legal capacity of the contracting parties. 1.4. Consent must be intelligent, free, spontaneous, and real.  A person can sell only what he owns or is authorized to sell; the buyer can as a consequence acquire no more than what the seller can legally transfer (Conchita Nool v. Court of Appeals) Comment: The ruling in Nool has been criticized as not being in cadence with Article 1459 of the Civil Code. Article 1459 states that “The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered”. Hence, Article 1459 implies that the vendor need not be the owner of the thing sold at the time of the perfection of the contract of sale. To resolve this issue, some authorities believe that Article 1459 should be treated as the general rule, and Nool its exception.  In order for a contract to be perfected by mere consent, such consent must be absolute; otherwise, the same constitutes a counter-offer and has the effect of rejecting the offer. (XYST Corp. v. DMC Urban Properties)  A definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. Definiteness

8 as to the price is an essential element of a binding agreement to sell personal property. (Toyota Shaw, Inc v. Court of Appeals) Offer and Acceptance A. Offer – a unilateral proposition which one party makes to the contracting parties for the celebration of the contract. Requisites: i. Definite – the offer must be definite, so that upon acceptance an agreement can be reached on the whole contract. ii. Complete – the offer must be complete indicating with sufficient clearness the kind of contract intended and definitely stating the essential conditions of the proposed contract, as well as the nonessential ones desired by the offeror. iii. Intentional – an offer without seriousness made in such manner that the other party would not fail to notice such lack of seriousness, is absolutely without juridical effects and cannot give rise to a contract. Withdrawal of the offer – the offeror may still withdraw his offer or proposal so long as he still has no knowledge of the acceptance by the offeree. B. Acceptance – the signification of the assent of the offeree to the proposition of the offeror.  The acceptance must not qualify the terms of the offer; a qualified acceptance constitutes a counter-offer (Art. 1319) Requisites: i. Clear. ii. Absolute. iii. Directed to the offeror. iv. Made known to the offeror within a reasonable time. v. Communicated to the offeror and learned by him

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer Madame Sheila offered her IPAD2 for sale in the class. She said that whoever is interested to buy it may simply leave a note and a downpayment worth P10k in her bag. Clau showed her interest by doing exactly as per Madame’s instruction. After an hour, Utol Ella approached Madame personally and asked the latter to sell her IPAD2 with her. When Madame Sheila sold it to Utol Ella, Clau complained and insisted her right over the property of Madame. Does Clau have the right to demand? Suggested Answer: No. No knowledge of acceptance yet.

Ariel offered to sell his laptop to Anjojo for P40k. Anjojo accepted the offer as signified by a small piece of paper indicating his acceptance and a reminder from Ariel of their friendship so as the latter to give him discount. Is there a perfected contract of sale? Suggested Answer: No. Acceptance is not absolute. Acceptance by correspondence 1. Manifestation theory – contract is perfected from the moment the acceptance is declared or made (followed by the Code of Commerce) 2. Expedition theory – the contract is perfected from the moment the offeree transmits the notification of acceptance to the offeror, as when the letter of acceptance is place in the mailbox. 3. Reception theory – the contract is perfected from the moment that the notification of acceptance is in the hands of the offeror in such a manner that he can, under ordinary conditions, procure the knowledge of its contents, even if he is not able to actually acquire such knowledge due to some reason. 4. Cognition theory – the contract is perfected from the moment the acceptance comes to the knowledge of the offeror (followed by the Civil Code)

9 Exception: Constructive knowledge. When the offeror already has a constructive knowledge of the contents of the letter or telegram, it is but logical that he shall be bound by the acceptance made by the offeree. Goku offered to sell his dragon balls to Vegeta. Vegeta accepted the offer. However, Goku died. So Vegeta communicated his acceptance to Goku’s son, Gohan. Is there a perfected contract of sale? Suggested Answer: No. Because acceptance did not come to the knowledge of the offeror who made the offer. The offer became ineffective upon Goku’s death because acceptance was not yet conveyed (Art. 1323) What if acceptance came to the knowledge of the offeror before he died? Suggested Answer: There is a perfected contract of sale. Thus, Gohan, as heir of Goku, shall be bound by the contract entered into by his father, based on the principle of the relativity of contracts (Art. 1311) Forms of acceptance – acceptance may be expressed or implied. Implied acceptance – implied acceptance may arise from acts or facts which reveal the intent to accept, such as the consumption of the things sent to the offeree. Right of the offeror The offeror has the right to prescribe the manner, conditions, and terms of sale, and where these are reasonable and are and made known to the buyer, they are binding upon the latter; an acceptance which is not made in the manner prescribed by the offeror is not effective, but constitutes a counter-offer which the offeror may accept. Withdrawal of the acceptance – acceptance may be revoked before it comes to the

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer knowledge of the offeror because in such case there is still no meeting of the minds. Note: both the offer and acceptance can be revoked before the contract is perfected; a contract is perfected only from the time the acceptance is known to the offeror. Option Contract – 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 a principal contract. It must be supported by an independent consideration and the grant must be exclusive (Tolentino) Option Contract in Sales – a contract by virtue of which, the offeree, in consideration of the payment of a certain sum to the offeror, acquires the privilege of buying from the latter certain properties within a limited time at a specified price. Option contract and distinguished Option Contract Can stand on its own (principal contract)

Right of First Refusal,

Right of First Refusal Cannot stand on its own (accessory contract) Requires a separate Does not require a consideration distinct separate consideration from that of the contract of sale in order to be valid Not conditional Conditional Not subject to specific Can be subjected to performance since specific performance there is no perfected contract of sale yet Option money and Earnest money, distinguished Option Money Earnest Money Money given as a Money which is part of distinct consideration the purchase price for an option contract Applies to contract of Applies to contract of sales not yet perfected sales already

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The would-be buyer who gives the option money is not bound to buy

perfected The buyer who gives the earnest money is bound to pay the balance

 Upon accepting the offer, a bilateral promise to sell and to buy ensues; the buyer assumes ipso facto the obligations of a purchaser, and not merely the right subsequently to buy or not to buy. The concurrence of both acts – the offer and the acceptance – generates a binding contract of sale. (Atkins Kroll and Co. v. Cua Hien Tek)  A consideration in an option to buy is essential for a perfection of a contract. (Navarro v. Sugar Producers, Inc.)  If acceptance is made before withdrawal, it constitutes a binding contract of sale although the option is given without consideration. Before acceptance, the offer may be withdrawn as a matter of right provided that the offeror communicated such withdrawal to the offeree before acceptance. (Sanchez v. Rigos and Art. 1324)  The commitment by a bank to resell a property within a specified period, although accepted by the party in whose favour it was made, was considered an option not supported by a consideration. (Rural Bank of Paranaque v. Court of Appeals) Rules where a period is given to the offeree within which to accept: 1. If the period itself is not founded upon or supported by a separate consideration, the offeror is still free and has the right to withdraw the offer before its acceptance, or if an acceptance has been made, before the offeror’s coming to know of such fact, by

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer communicating that withdrawal to the offeree. (This is in accordance with Sanchez doctrine) 2. The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code. 3. If the period has a separate consideration, a contract of option is deemed perfected, and it would be a breach of that contract to withdraw the offer during the agreed period. 4. The option, however, is an independent contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise of option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract (object of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the option. 5. In these cases, care should be taken of the real nature of the consideration given, for if in fact, it has been intended to be part of the consideration for the main contract with a right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar instance would be an earnest money in contract of sale that can evidence its perfection. (Ang Yu Asuncion v. Court of Appeals)

11 Naruto offered to sell his 10 boxes of instant ramen to Sasuke for 5,000 yen. He gave the latter five days to decide whether to buy it or not which the Sasuke accepted. On the 3rd day, Sasuke went to Naruto to buy the ramen and consequently pay for it. However, Naruto cooked and ate all the ramen already. Can Sasuke claim for damages? Suggested Answer: Yes. While it is true that there is neither a perfected contract of sale nor a valid option contract for lack of a separate consideration, the option will constitute as a continuing offer which the offeror may withdraw only by communicating such withdrawal to the offeree before acceptance. In the case at bar, Naruto did not withdraw the offer before acceptance by Sasuke (Art. 1324 and Sanchez v. Rigos)

On June 1, 2011 Jose offered to sell a parcel of land to Angelo for 500k, Angelo asked Jose a period of time to accept offer. The period given was until August 7, 2011. Can Jose withdraw the offer before August 7, 2011? Suggested Answer: Yes, unless it is supported by a consideration distinct and separate from the purchase price. Supposing, no option money was given, the offer was accepted on July 14, 2011. Can Angelo withdraw the offer after July 14, 2011? Suggested Answer: No, although the contract was not supported by a distinct and separate consideration, there is a subsisting valid offer.  Villanueva: Offeror cannot withdraw if founded on consideration. Atty. Casiño: Offeror may withdraw an offer even though supported by an option money, but the offeror will be liable for damages. Different views  Villanueva: With an Independent Without Consideration Independent

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

an

Sales and Lease Reviewer The offeror cannot withdraw his offer before the lapse of the period of the option.

Consideration The offeror may withdraw his offer by communicating such withdrawal to the offeree at any time before acceptance.

 Casiño: in an option contract with or without an independent consideration, the offeror may still sell to another person the thing which is the subject of the supposed contract of sale, provided that the offeror sold the thing to another person before the acceptance by the offeree comes to the knowledge of the offeror. This is because there is no perfected contract of sale yet.

Parties to a contract of sale  General rule: any person who has capacity to contract or enter into obligations may enter into a contract of sale, whether as partyseller or as party-buyer. Kobe owns a parcel of land. Kidd, Kobe’s agent, sold such land to Pierce. Is there a valid contract of sale? Yes. What an agent can do, the principal can (Art. 1322). Persons Incapacitated to give consent to a contract a. Absolute incapacity – in the case of persons who cannot bind themselves. b. Relative incapacity (disqualification) – where the incapacity exists only with reference to certain persons or a certain class of property; persons who are merely relatively incapacitated are enumerated in Articles 1490 and 1491. Incapacity Disqualification Impairs the exercise Prohibition to contract

12 of the right to contract; the incapacitated person may still enter into a contract but with consent of his parent or guardian. Based upon subjective circumstances of certain persons which compel the law to suspend for a definite period, their right to contract. Contract entered into by an incapacitated person is merely voidable.

the very right itself; the disqualified person cannot enter into a contract with respect to certain types of properties. Based upon public policy and morality.

Contract entered into by a disqualified person is void.

Incapacitated persons: 1. Minors – a minor is without capacity to give consent to a contract, and since consent is an essential requisite of every contract, the absence thereof cannot give rise to a valid sale. Exceptions: 1. Where the contract involves the sale and delivery of necessaries to the minor. Minors – minors are those who have not attained the age of majority. In this jurisdiction, majority commences at the age of eighteen years (Art. 234, Family Code). Necessaries (in sales) – those things which are indispensable for sustenance, dwelling, clothing and in some cases medical attendance and education, according to the financial capacity of the family of the incapacitated person (Art. 194, Family Code)

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer Requisites: i. Perfection of the contract of sale. ii. Delivery of the subject matter. 2.

Where a contract is entered into by a minor who misrepresents his age, applying the doctrine of estoppels.

 The sale of real property made by minors who have already passed the ages of puberty and adolescence and are near the adult age when they pretend to have already reached their majority, while in fact they have not, is valid, and they cannot be permitted afterwards to excuse themselves from compliance with the obligation assumed by them or to seek their annulment. (Mercado and Mercado v. Espiritu) 3. Insane or demented persons – insane or demented persons have no capacity to contract, and are therefore disqualified from being parties to a contract of sale. Nevertheless, contracts entered into by such incapacitated persons are not void but merely voidable subject to annulment or ratification.  The action for annulment cannot be instituted by the person who is capacitated since he is disqualified from alleging the incapacity of the person whom he contracts. 4. Deaf-mutes who do not know how to write – same with insane or demented persons. 5. Married women in cases specified by law 6. Persons suffering from civil interdiction 7. Incompetents under guardianship Disqualified Persons 1. The spouses with respect to contract of sale between them. Sales by and between spouses I.1 Sales between spouses

13 The husband and the wife cannot sell property to each other (Art. 1490 (1)) Exceptions: a. When a separation of property was agreed upon in the marriage settlements; or b. When there has been a judicial decree of separation of property (Art. 1490)  Contracts entered into in violation of Article 1490 of the Civil Code are null and void (not merely voidable). However, not anyone is given the right to assail the validity of the transaction. W, wife of H, received a parcel of land as a donation from her grandfather. Can H buy paraphernal property from W if the regime governing their marriage is absolute community of property? No. If Complete separation of property? Yes (Art. 1490). Examples of persons who cannot assail the validity of such contract: a. The spouses themselves cannot assail the validity of the contract since they are parties to an illegal act under the principle of pari delicto, the courts will generally leave them as they are. b. The creditors who became such only after the transaction (the illegal contract of sale), for it cannot be said that they have been prejudiced by the transaction. Persons who can assail the validity of contracts entered in violation of Article 1490: a. The heirs of either of the spouses who have been prejudiced b. Creditors who became such prior to the transaction c. The State when it comes to payment of the proper taxes due on the transaction. Rationale for Prohibition: a. To prevent commission of fraud or prejudice to third persons;

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer b. To prevent one from unduly influencing the other; c. To avoid indirect donations under Article 133 of the Civil Code (now Article 87, FC). Article 87, FC seeks to prevent the first two rationales. In addition, Article 87, FC declares that the prohibition shall apply to persons living together as husband and wife without a valid marriage.  Prohibition applies to common-law spouses (Calimlim-Canulas v. Fortun) 1.2 Sales with third parties The spouses may, without the consent of the other spouse, enter into a sale transaction in the regular or normal pursuit of their profession, vocation or trade and the latter may object only on valid, serious and moral grounds (Art. 73, FC) The administration and enjoyment of the community property shall belong to both spouses jointly. In case of disagreement, the husband's decision shall prevail, subject to recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision. (Art. 96, FC) 2. Guardians with respect to the property of the person under guardianship. Prohibition applies even if the guardian did not acquire the property of the ward from the ward directly as when there was a third person who bought the property from the ward and that third person sold the property in question to the guardian. Proof that the third-party buyer was a mere intermediary buyer is not necessary for the prohibition to apply (Philippine Trust Co. v. Roldan)

14  Can a ward acquire properties of guardian? Yes. However the transaction is Voidable (Art. 1390)  Can a guardian acquire properties of a ward? No. The transaction is Void (Art. 1491) Jansen, 10 years old, sold his land to AC, his guardian, for P500,000. The RTC granted such transaction. Can there be a valid contract of sale? Suggested Answer: No. the rule is absolute. Contract is void, despite approval of court, as provided by the law. Gwy, a minor, owns a parcel of land worth 1 million pesos. Nice, his guardian, bought such land for P10 million. Is there a valid contract of sale? Suggested Answer: No. the rule is absolute. Even if it be highly beneficial to the ward, the contract is void as provided by the law. Effect of contract is immaterial. What matters is the relationship existing between the contracting parties. A, 10 years old, owns a parcel of land under the guardianship of G. A stabbed X. Can A be held civilly liable? Suggested Answer: Yes. A has to pay the damages. To compensate the victim, A’s land was sold at public auction. Writ of execution on property. G was the highest bidder, property was awarded to him. Is the sale at public auction of A’s land to G, the former’s guardian, valid? Suggested Answer: No it is not valid, as per subsection 1 of Article 1491. As A’s guardian, G cannot acquire by purchase even at a public or judicial auction, either in person or through the mediation of another, the property of the person or persons under hid guardianship. 3. Agents with respect to property to whose administration or sale may have been entrusted to them.

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer Exception: when the consent of the principal have been given.  “Brokers” do not come within the coverage of the prohibition as their authority consist merely in looking for a buyer or a seller, and to bring the former and the latter together to consummate the transaction.  An agent of a principal is not automatically disqualified from acquiring property from the principal. For the prohibition to apply, the property which is the subject of the contract must be the property entrusted to the principal. Hence if the principal owns two parcels of land and the agent was entrusted with one these properties, the agent can acquire from the principal the other property. Kris Aquino is an actress. Boy Abunda, a TV host is Kris Aquino’s agent. Kris Aquino is the owner of two parcels of land, lots A and B. Kris Aquino and Boy Abunda entered into a contract of sale whereby the ownership of lot A will be transferred to Boy Abunda in consideration of 2 million pesos. Is the contract valid? Suggested Answer: Yes. The contract is valid because Boy Abunda is not an agent entrusted with the administration or sale of the property which he acquired from Kris Aquino. R is the owner of two parcels of land. R, prior to obligating A, the agent of R, owed X one million pesos. X filed a motion for execution. Sheriff offered for sale at a public auction. A purchased the property. Is the sale valid? Suggested Answer: Yes. The property’s administration or sale has not been entrusted to A. 4. Executors and administrators with respect to the property of the estate under administration.

15  But an executor can acquire the hereditary rights of an heir to the estate under his administration (Naval v. Enriquez) A owns a parcel of land. When A died, X and Y were declared heirs of A’s estate. Y ceded all his interests to G, the administrator of the land, for P500k. Is the contract valid? Suggested Answer: Yes. Whatever right Y has does not form part of the estate. A owns two parcels of land. The first parcel of land is under G’s administration, while the second is under H’s administration. When A died, his heirs, X and Y, ceded the first parcel of land to G. Is the sale valid? Suggested Answer: Void. The administrator cannot acquire by purchase the property under his administration.

X and Y ceded the first parcel of land to H. Is the sale valid? Suggested Answer: Yes. H is not the administrator of the first parcel of land. He is not prohibited to acquire the same. 5. Public officers and employees with respect to the property of the State or any of its subdivisions, any Government-owned and controlled corporations, or institution the administration of which has been entrusted to them.  Intended not only to remove any occasion for fraud but also to surround them with the prestige necessary to carry out their functions by freeing them from all suspicion which although unfounded, tends to discredit the institution by putting into question the honor of said functionaries.  It is a policy of the law that public officers who hold positions of trust may not bid directly or indirectly to acquire prop properties foreclosed by their offices and sold at public auction. (Maharlika Pub. Co. v. Tagle)

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer

16

The Mayor of the City of San Pablo wanted to acquire the City Hall of Batangas. Batangas City Mayor, as authorized by the Sanggunian of said City, sold the City Hall to Mayor of San Pablo City. Is the contract of sale valid? Suggested Answer: No. The contract is void for valid object is wanting. Object is for public use and is thus property of public dominion of the local government. Properties of public dominion are inalienable.

 When is the object considered under litigation? When subject of judicial action of judge. Upon filing of answer, it is considered in litigation.

City of Manila, through Mayor Lim, sold the City’s patrimonial property to PNoy for P500,000. Is the contract of sale valid? Suggested Answer: The contract of sale is void. PNoy, as the President of the Philippines, is entrusted with the administration of the properties of the State and is therefore included in the prohibition. The sale is void notwithstanding the fact that the property in question is the patrimonial property of the City of Manila.

A and B both claim ownership over a single parcel of land. A filed a case before RTC branch 43 of Manila. During pendency of the trial, A sold the said land to X, RTC judge Branch 150 of Laguna. Is the sale valid? Suggested Answer: Yes. The land in litigation is not within the jurisdiction and territory of RTC of Laguna.

What if a senator buys the land? Suggested Answer: The sale is void. Under the Constitution, members of Congress are prohibited from being financially interested, directly or indirectly, in any contract with the government (Sec. 14, Art. VI, 1987 Constitution) 6. Justices, judges, prosecuting attorneys and other court officers and employees connected with the administration of justice with respect to property and rights in litigation or levied upon on execution before the court within whose jurisdiction or territory they exercise their respective functions.  It is not required that some contest or litigation over the property itself should have been tried by the judge; such property is in litigation from the moment it became subject to the judicial action of the judge, such as levy on execution.

A and B both claim ownership over a single parcel of land. During pendency of the trial, A sold the said land to S for P500k. Is there a perfected contract of sale? Suggested Answer: Yes. There is meeting of minds. The contract is only rescissible.

A and B both claim ownership over a single parcel of land. A filed a case before RTC branch 43 of Manila. During pendency of the trial, A sold the said land to X, RTC judge branch 42 of Manila. Is the sale valid? Suggested Answer: No. The land in litigation is within the jurisdiction and territory of RTC of Manila.  Supposing the Sandiganbayan Justice bought the land levied upon execution before RTC branch 43 of Manila. Is there a valid contract of sale? Yes. The case is not appealable before the Sandiganbayan. It is not under his jurisdiction or territory.  Supposing Justice Lopez of CA bought the land levied upon execution before RTC of Batangas. Is the sale valid? No. The case may be appealed to the CA and is thus under his jurisdiction and territory. 7. Lawyers Prohibition applies only to a sale to a lawyer of record, and does not cover assignment of the property given in judgment made by a client to an attorney, who has not taken part

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer in the case nor to a lawyer who acquired property prior to the time he intervened as counsel in the suit involving such property. Exceptions to prohibition: a. To sale of a land acquired by a client to satisfy a judgment in his favor, to his attorney as long as the property was not the subject of the litigation; or b. To a contingency fee arrangement which grants the lawyer of record proprietary rights to the property in litigation since the payment of said fee is not made during the pendency of litigation but only after judgment has been rendered.  The purchase by a lawyer of the property in litigation from his client is categorically prohibited by Article 1491, paragraph (5) of the Philippine Civil Code, and that consequently, plaintiff's purchase of the property in litigation from his client (assuming that his client could sell the same since his client's claim to the property was defeated and rejected) was void and could produce no legal effect. (Rubias v. Batiller)  The fact that the property in question was first mortgaged by the client to his lawyer and only subsequently acquired by the latter in a foreclosure sale long after the termination of the case will not remove it from the scope of the prohibition for at the time the mortgage was executed the relationship of lawyer and client still existed, the very relation of trust and confidence sought to be protected. (Fornilda v. RTC)  A contract for a contingent fee is not covered by Article 1491 because the transfer or assignment of the property in litigation takes effect only after the finality of a favorable judgment. (Director of Lands v. Abada)

17

B filed a case against A’s lot no. 50 before RTC of Marikina. During the pendency of the case, atty. De, the lawyer of B bought the said lot. Is there a valid contract of sale? Suggested Answer: No. A lawyer who takes part by virtue of his profession in any litigation is prohibited to acquire subject property. B filed a case against A’s lot no. 50 before RTC of Marikina. During the pendency of the case, atty. Do, the lawyer of A bought his client’s lot no. 49. Is there a valid contract of sale? Suggested Answer: Yes. The property bought is not in litigation.  Aliens are disqualified to purchase agricultural lands (Secs. 3 and 7, Art. XII, 1987 Consitution). (Krivenko v. Register of Deeds)  Where a land is sold to an alien who later sold it to a naturalized Filipino, the sale to the latter cannot be impugned. (Sarsosa vda. de Barsobia v. Cuenco)  Prescription may never be invoked to defend that which the Constitution prohibits. (Vicente Godinez v. Fong Pak Luen)  Under Republic Act (R.A.) No. 4726, otherwise known as the Condominium Act, foreign nationals can own Philippine real estate through the purchase of condominium units or townhouses constituted under the Condominium principle with Condominium Certificates of Title. It expressly allows foreigners to acquire condominium units and shares in condominium corporations up to not more than 40% of the total and outstanding capital stock of a Filipino-owned or controlled corporation. Under this set up, the ownership of the land is legally separated from the unit itself. (Jacobus Bernard Hulst v. PR Builders, Inc.)

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer H, an alien, married T, a Filipina, during their marriage, they acquired land in the Phils. Upon dissolution of their marriage, H claims his share in the said land. Is he entitled to a share? Suggested Answer: No. An alien cannot acquire land in the Phils. F, an alien, bought the building of J for 1 million pesos. Is the sale valid? Suggested Answer: Yes. There is meeting of minds. Aliens are prohibited only to acquire lands in the Philippines. Ryan, an Iranian, bought a condominium unit at Mezza residences. Is there a valid contract of sale? Suggested Answer: Yes, under the Condominium Act, aliens may acquire units in a condominium project for as long as it does not exceed the 40% of the total number of shares. A charitable institution wholly owned by aliens acquired by purchase a condo unit. Can it acquire a condominium unit? Suggested Answer: Yes, aliens are allowed by law to own a condominium unit. II. Subject Matter Requisites: 1. It must be licit 2. It must be existing, or it may be future, or even contingent 3. It must be determinate or at least determinable. 1. Licit – a thing is licit and may be the object of a contract when it is not outside the commerce of men, and includes rights which are not intransmissible (Art. 1347, par. 1). All services which are not contrary to law, morals, public order, or public policy may be the object of a contract (Art. 1347, par. 3). The thing must be licit, and the vendor must have the right to transfer the ownership thereof at the time it is delivered (Art. 1459)

18 Ed and Honey Rose are college sweethearts. After graduation, Ed sold his most expensive car to Honey Rose in consideration of his love to the latter. Is there a valid and perfected contract of sale? Suggested Answer: No. Love and affection is not a valid consideration. Illicit objects: a. Future inheritance – no contract may be entered into upon future inheritance except in cases expressly authorized by law (Art. 1347, par. 2) b. All services which are contrary to law, morals,, good customs, public order, or public policy cannot be the object of a contract (Art. 1347, par. 3) 2. Existing, or future thing  Existing goods – goods owned or possessed by the seller (Art. 1462)  Future goods – goods to be manufactured, raised or acquired by the seller after the perfection of the contract of sale (Art. 1462)  Future things – those which do not belong to the obligor at the time the contract is made.  Things having a potential existence (Emptio rei speratae) may the object of the contract of sale. The efficacy of a mere hope or expectancy (Emptio spei) is deemed subject to the condition that the thing will come into existence. The sale of a vain hope or expectancy is void (Art. 1461)  Emptio rei speratae – sale of a thing with potential existence, subject to a suspensive condition that the thing will come into existence. If the subject matter does not come into existence, the contract is deemed extinguished as soon as the time expires or if it has become indubitable that the event will not take place (Art. 1184).

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer Example: sale of pending crops which have potential existence may be a valid object of sale (Sibal v. Valdez)  Emptio spei – sale of a mere hope or expectancy. Example: sale of a sweepstake ticket for P100 where the buyer purchases the ticket with the hope that upon the draw the ticket would win him a million pesos. The object of sale here is not the prize, but rather the ticket or the chance to win.  Sale of a thing subject to a resolutory condition – things subject to a resolutory condition may be the object of a contract of sale (Art. 1465). When the condition have for their purpose, the extinguishment of an obligation to give, the parties, upon fulfilment of said conditions, shall return to each other what they have received (Art. 1190)  Future things may be the object of a contract of sale, exception: Sale of future inheritance Future inheritance – inheritance includes all the properties, rights, and obligations of a person which are not extinguished by his death (Art. 776). The inheritance of a person includes not only the property and transmissible rights and obligations existing at the time of his death, but also those which have accrued thereto since the opening of the succession (Art. 781) Requisites for the exception 1. The succession has not yet been opened. 2. The object of the contract forms part of the inheritance. 3. That the promissory has, with respect to the object, an expectancy of a right which is purely hereditary in nature.

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3. Determinate or determinable The object of every contract must be determinate as to its kind (Art. 1349)  Determinate – a thing is determinate when it is particularly designated or physically segregated from all others of the same class (Art. 1460)  Determinable – a thing is determinable if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new contract or further agreement between the parties (Art. 1460) Quantity of subject matter not essential for perfection The object of every contract must be determinate as to its kind. The fact that the quantity is not determine shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties (Art. 1349) However, the quantity of the subject matter is not important only when it is still possible to determine the quantity without the need of a new contract between the parties (National Grains Authority v. Intermediate Appellate Court)  The requirement of the law that a sale must have for its object a determinate thing, is fulfilled as long as, at the time the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties. (Melizza v. City of Iloilo)  The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer new contract between the parties. (National Grains Authority v. Intermediate Appellate Court )  The object of a contract, in order to be considered as "certain," need not specify such object with absolute certainty. It is enough that the object is determinable in order for it to be considered as "certain." (Domingo Realty v. Court of Appeals) Madam Sheila sold 50Kg of rice to Clau for 4K. Is there a valid contract of sale? Suggested Answer: No, the object is not determinate or determinable. Irene sold 4kg of wagwag rice to Ela for 400. Is there a valid contract of sale? Suggested Answer: Yes, the object is determinable without the need of a new or further agreement between the parties.

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A entered into a contract of sale of a mazda car zjn 245 with B for P500k. Is there a perfected contract? Suggested Answer: Yes. All the elements of a contract of sale are present. Is there a valid object? Suggested Answer: Yes. The object is determinate. A entered into a contract of sale of a mazda car zjn 245 or lot with B for P500k. Is there a perfected contract? Suggested Answer: Yes. All the elements of a contract of sale are present. Is there a valid object? Suggested Answer: Yes. As to the car, the object is valid as to the lot not valid object for it is not a determinate or determinable object.

Tracy bought one of the 10 horses of Joy for 50K. Is there a valid contract of sale? Suggested Answer: Yes, the object can be ascertained or determinable.

A entered into a contract of sale of a mazda car zjn 245 and lot with B for P500k. Is there a perfected contract? Suggested Answer: No. Not all the elements of a contract of sale are present.

 Why does the law require the object to be determinate/ determinable? Because of mutuality of contract.

Is there a valid object? Suggested Answer: No. The object is not determinate. Only the car is determinate.

 If there is a need for further agreement, there is no sale.

 Is it necessary that the object be in existence at the time of perfection of contract? No. Art 1462.

 If the object is generic, there is no sale. A entered into a contract of sale with B a dog for P5k. Is there a perfected contract? Suggested Answer: No. Not all the elements of a contract of sale are present. Is there a valid object? Suggested Answer: No. The object is not determinate or determinable.

A owns a parcel of land worth P500k. S son of A, entered into a contract of sale with B for the sale of the said parcel of land. Is there a perfected contract of sale? Suggested Answer: No as to A and B as they don’t have privity of contracts. Yes as between S and B (privity of contracts). Is there a valid object? No. Future inheritance cannot be a valid object of contract of sale.

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer F has a paraphernal land. During his lifetime, F divided the land to W, A, B, and C. A entered into a contract of sale with H for his share of land for P500k. Is there a perfected contract? Suggested Answer: Yes. All the elements of a contract of sale are present. Is there a valid object? Yes. Upon the division of the land, A is already the owner of the land. F owns a parcel of land. During his lifetime, his wife and three children executed a partition of the said land and sold their shares to H. Is the partition valid? Suggested Answer: No, the partition was executed during the lifetime of F and without his consent. Is there a valid contract? No, the sellers have no right to sell the property.  Quantity of things to be delivered or agreed upon is not stated in the contract. Is the contract valid? Yes. Quantity can be ascertained by simple mathematical computation.  Is the sale of losing lottery ticket valid? It depends upon the intention of the buyer. It is valid if the losing lottery ticket was sold for collection or memorabilia, otherwise, it is void. III. Price – price signifies the sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the fixing of the price put to the debit of the buyer and agreed to by him (Inchausti & Co. v. Cromwell) Requisites: 1. It must be real 2. It must be in money or its equivalent (Arts. 1458 and 1468) 3. It must be certain or ascertainable at the time of the perfection of the contract 1. Price must be real Since a contract of sale is an onerous and commutative contract, it is essential that the

21 price agreed upon is real. If there is no price to support a contract of sale, the contract is void for lack of cause or consideration. 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 (Art. 1471). If the price is false, the contract is valid, but subject to reformation. Meeting of minds as to price – if the minds of the parties have met as to the price, the contract of sale is valid, irrespective of the manner of payment they agreed upon, or even by the breach of that manner of payment agreed upon. This is because payment of the price is not necessary for the perfection of the contract of sale. Adequacy of price to make it real – Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary (Art. 1454) 2. Price in money or its equivalent Money – a medium that can be exchanged for goods and services and is used as a measure of their values in the market. “its equivalent” a. Something representative of money like a check (Bagnas v. Court of Appeals) b. “Its equivalent” means that there is certainty as to the price but what is given as payment is an object. It does not refer to negotiable instruments. A negotiable instrument, by its form, is intended as a substitute for money (Casino and Rabajante) Example: a 5 thousand pesos worth of magi noodles was given as a consideration for a 5 thousand pesos worth of pure foods corned beef. This is a contract of sale and not a contract of barter.

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer Comment: this has no basis in law. In such case, the contract is barter and not a contract of sale. The law expressly provides that it is only when the consideration of a contract consists partly in money and partly in another thing should the manifest intention of the parties be considered in determining whether the contract is that of barter or that of a sale. The consideration in the given definition of “its equivalent” does not consists partly in money and partly in another thing, it is consists wholly by a thing. 3. Price must be certain or ascertainable at the time of perfection a. Certain – expressed and agreed in terms of specific pesos and centavos b. Ascertainable – in order that the price may be considered certain, it shall be sufficient that it be so with reference to another thing certain, or that the determination thereof be left to the judgment of a specified person or persons. i. By third persons – only the designation of a third party to fix the price is valid and such designation by itself makes the price certain or ascertainable as to give rise to a valid contract of sale. The fixing of the price cannot be left to the discretion of one of the contracting parties. However, if the price fixed by one of the parties is accepted by the other, the sale is perfected (Art. 1473) ii. By the courts – if the designated third party fixes the price in bad faith or by mistake, those are the only two instances where the parties to the contract can seek court remedy to fix the price

22 iii. By reference to a particular day, particular exchange or market iv. By reference to another thing certain. Inadequacy of price Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence (Art. 1355) Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract (Art. 1470)  Inadequacy of price may be a ground for setting aside an execution sale but is not a sufficient ground for cancellation of a voluntary contract of sale otherwise free from invalidating effects. (Alarcon v. Kasilag)  There is complete failure of proof that the price for which the properties were sold was unreasonably low, or in any way unfair, if the parties presented no evidence of the market value of the lots as of the time of the sale. (Goquilay v. Sycip)  A contract of sale is void and produces no effect whatsoever where the price, which appears therein as paid, has in fact never been paid by the purchaser to the vendor. Such a sale is inexistent and cannot be considered consummated. (Ladanga v. Court of Appeals) Sum certain in money Certain sum of money The price is known or The price is not determinate determined or uncertain

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer A sold his lot, which has an assessed value of P500k, to B for P10. Is the contract of sale valid as to price? Suggested Answer: Yes. (Autonomy of contracts)

Simulated Price Simulated Contract Cause is absent, The contract is therefore the contract inexistent is void  A donated to B a parcel of land but executed a contract of sale.  What is the effect of statement of false cause? It is void unless founded upon a cause which is valid. A and W are married with a complete separation of property regime. If and when A dies, W may inherit the land, to prevent this, A and B simulated a contract whereby A sells his property to B. Nothing was paid by B. Is there a valid contract of sale? Suggested Answer: No. the contract is simulated. There was no cause or consideration.

23  Is it necessary that the exact price be stated in the contract in order to be valid? No, as long as the price can be ascertained.  What if the parties did not agree as to the manner of payment? Is the sale valid? No, one of the requisites of price is that the manner of payment must be agreed upon. A and B entered into a contract of sale of a land, the contract merely states that the price will be based on the price of the adjoining lot. Is the sale valid? Suggested Answer: Yes. In order that the price may be considered certain, it shall be sufficient that it be so with reference to another thing certain or that the determination thereof to the judgment person or persons. A sold his land to B for P500K. They agreed that the price be paid on installment, A agreed but the manner of payment was not specified. No. The manner of payment must be agreed upon.

Forms B was able to register the sale. Then, B sold the property to X for P50K. Later on A dies. As between X and W, who has a better right? Suggesed Answer: X has the better right. X acquired the property in good faith for value without notice of the defect of B’s title. What if X obtained from B through donation? Suggested Answer: W will have the better right for X paid nothing. “Or its equivalent” A sold his car to B for 10K USD. Is the contract valid as to price? Yes, Uniform Currency Act repealed R.A. 8183 which requires the money paid to be of legal tender.

Article 1874 of the Civil Code is explicit that: "When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void." (Regina Dizon v. Court of Appeals) Vincent orally told Ari to sell his parcel of land located in Mendiola. The latter then entered in to a Contract of Sale with Johnny and subsequently issued a “Deed of Absolute Sale”. Vincent then contested the sale. Can Johnny raise the defense that the contract of agency between Vincent and Ari binded the former? Suggested Answer: No. The law requires that the authority to sell a piece of land given by the principal to the agent must be in writing. The requirement is absolute and indispensable.

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer  The sale of a land or of an interest therein has to be in a public document and the contracting parties may compel each other to observe that form once the contract has been perfected. (Zaide v. Court of Appeals)  The requirement that a sale be through public instrument is not an essential requisite for the validity of the contract as between contracting parties. It is only required for the purpose of making it effective as against a third person. (Tapec v. Court of Appeals)  Existence of a written note or memorandum evidencing the contract is sufficient to prove the elements of a perfected contract. (Limketkai Sons Milling Inc. v. Court of Appeals)  The failure of the parties to specify with absolute clarity the object of a contract by including its technical description is of no moment. What is important is that there is, in fact, an object that is determinate or at least determinable, as subject of the contract of sale. The form of a deed of sale provided in Section 127 of Act No. 496 is only a suggested form. It is not a mandatory form that must be strictly followed by the parties to a contract. (Naranja vs. Court of Appeals)  Is oral contract of sale of an immovable property valid? Yes. The legal bases are Arts. 1483 and 1356  Enforceable? Unenforceable in court.

24

AC has a parcel of land. Gwy entered into a contract with AC regarding the sale of the lot for 500k. Can Gwy compel AC to execute the “Deed of Sale”? Suggested Answer: Generally, No. Since it is unenforceable. But Gwy can demand extrajudicially to AC. If Gwy resorted to a judicial action but the same was not granted, can she file an action for damages against AC? Suggested Answer: Yes. Based from Art. 19, not from the contract itself.  May there be a valid right from a contract absolutely simulated? Yes. Kinds of Formalities 1. Validity – Public instrument ex. Donation 2. Efficacy – to bind third persons Art 1358 Public document 3. For purpose of evidence  Contract of sale involves transmission of real rights. What is a personal right? Is ownership over movable property a real or personal right? This is a real right. Real right is a right of a person over a specific thing and is enforceable against the whole world.  Contract of sale must appear in a public instrument to bind third persons. What is a real right? Rights over a real or personal property enforceable against the whole world.  Art 1403 (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer

25

in writing, and subscribed by the party charged, or by his agent; B wrote on his journal “I, B, thereby bound myself to pay A 500k pesos for the Mazda Car with plate number ZXN 215.” Is the journal entry sufficient memorandum to comply with the Statute of Frauds? Suggested Answer: No. B is not the party charged.

A and B entered in to an oral contract of sale. On the same day, A entered in his journal “today, I bound myself to deliver Mazda car with plate no zxn 215 in exchange of P500k payable by B on 07/29/2011” Is this a sufficient memorandum? Suggested Answer: Yes because he is the party charged.  Subscribed by party charged: SELLER – the one who will alienate his property Contract of sale’s essence is transmission of rights of ownership. What constitutes sufficient note or memo? 1. All requirements of a valid contract of sale 2. name of the parties 3. terms and conditions 4. Description of property (Swedish Match v. Court of Appeals)  If one of parties partially performs – not under Statute of fraud. Statute of Frauds applies only to executor contracts, not executed contracts.  Oral testimony without objection is deemed a waiver.  Implied in fact contract  A contract, the existence and terms of which are manifested by conduct and not by direct or explicit words between parties but is to be

deduced from conduct of the parties, language used, or things done by them, or other pertinent circumstances attending the transaction. Note: The Statute of Frauds is only applicable to executory contracts, which means delivery and payment are not yet made by the parties.  What if the offer and acceptance was made thru (1) email? Valid and enforceable thru court action  If thru SMS? Valid and enforceable  May an oral contract be subject to reformation? No. The law speaks of an “instrument” (Art 1359)

Performance or Consummation of the Contract of Sale Extinguishment of obligations Obligations are extinguished by: 1. Payment or performance 2. By the loss of the thing due 3. By the condonation or remission of the debt 4. By the confusion or merger of the rights of creditor and debtor 5. By compensation 6. By novation 7. By other causes of extinguishment of obligations such as annulment, rescission, fulfilment of a resolutory condition, and prescription (Art. 1231) Payment – payment means not only delivery of money but also performance, in any other manner, of an obligation (Art. 1232) A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be (Art. 1233)

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer

26

 Is Delivery the same as payment? Yes. Art 1232 and 1233

the thing which is the object of the sale (Art. 1495)

Obligations of Vendor 1. To preserve the subject matter of the sale Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care (Art. 1163)

Although it may seem that “transfer of ownership” and “delivery” are separate, nonetheless, the means by which the seller can transfer ownership of the subject matter is by the mode of tradition or delivery.

The obligation applies only to obligations to deliver a specific or determinate object. In such case, upon perfection and even prior to delivery, even though the seller still owns the subject matter, he is obliged to exercise due diligence of a good father of a family in preserving the thing. Otherwise, seller becomes liable for breach if the thing is lost or deteriorates through his fault (Art. 1170) Diligence of a good father of a family – the diligence which is required by the nature of the obligation and corresponds with the circumstances of persons, of the time and of the place (Art. 1173) 2. Deliver the thing to the vendee By the contract of sale, one of the contracting parties obligates himself to transfer ownership of and to deliver a determinate thing (Art. 1458) The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale (Art. 1495) 3. Transfer ownership over the thing to the vendee By the contract of sale, one of the contracting parties obligates himself to transfer ownership of and to deliver a determinate thing (Art. 1458) The vendor is bound to transfer the ownership of and deliver, as well as warrant

4. Deliver the fruits and accessories The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him (Art. 1164) The vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which they were upon the perfection of the contract. All the fruits shall pertain to the vendee from the day on which the contract was perfected (Art. 1163) In a sale involving a determinate subject matter, even prior to delivery and transfer of ownership thereof to the buyer, the buyer already has certain rights enforceable against the seller, pertaining to the subject matter. Since the subject matter is intended for delivery to the buyer from the point of the perfection of the sale, then necessarily the accessories and fruits must from then on be held on the account of the buyer. This is in accordance with the principle that accessories always follow the principal. 5. Make warranties The seller is also obliged to warrant the thing which is the object of the sale (Art. 1495) 6. Taking-out insurance coverage (Art. 1523) 7. Expenses for the execution and registration of the sale shall be borne by the vendor, unless there is a stipulation to the contrary (Art. 1487)

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer Delivery The thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee (Art. 1497)  In the absence of an express stipulation to the contrary, the payment of the purchase price of the goods is not a condition precedent to the transfer of title to the buyer, but title passes by the delivery. (Philippine Suburban Development Corp. v. Auditor General) Tradition, or delivery, is a mode of acquiring ownership, as a consequence of certain contracts such as sale, by virtue of which, actually or constructively, the object is placed in the control and possession of the vendee.

27 What if A, on August 1, delivered only the watch without the bracelet? Suggested Answer: The delivery is not complete. The integrity of the object was not complied with. What if another brand of watch was delivered? Suggested Answer: The delivery is not valid because the identity of the object was not complied with.  In the absence of an express stipulation to the contrary, the payment of the purchase price of the goods is not a condition precedent to the transfer of title to the buyer, but title passes by the delivery. (Philippine Suburban Development Corp. v. Auditor General)  What is the essence of the Contract of Sale? The acquisition of ownership.

Delivery is effected pursuant to a valid sale Delivery is a composite act:  One party parts with the title to and possession of the property  The other party acquires the right to and possession of the same Requisites: 1. Intention 2. Integrity 3. Identity On July 1, 2011, A entered into a contract of sale with B to sell the former's gold watch for 1,000 to be delivered on August 1, 2011. B already paid the purchase price on the perfection of the contract. On August 1, while A was walking along Recto to deliver the watch to B, the latter suddenly appeared and forcibly took the watch. Can B be considered a owner? Suggested Answer: No. There was no delivery. Delivery must be intentional and voluntary.

 The perfection of the contract of sale does not depend whether or not the vendor owns the property sold or whether or not he made it under the authority or consent of the owner. It does not also depend whether or not the obligation to pay can be done. This is based in the rule of Estoppel. A is the owner of a parcel of land. X, a third person, sold the land to B. Is there a perfected contract of sale? Suggested Answer: Yes. The remedy of B, in this case, because he cannot compel X to deliver the land, is to rescind the contract and an action for damages against X. Presumption of good faith  Any person who is aware that there is in his title or in the manner of acquiring it any flaw invalidating the same shall be considered a possessor in good faith. Good faith is always presumed, and any person alleging bad faith on the part of the possessor is obliged to prove it. (Tablante v. Aquino)

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer Execution sale and notice of sale in mortgage foreclosure sale  A purchaser of real property at an ordinary execution sale is not entitled to possession at an ordinary execution rents and profits until after the period of redemption has expired and the legal title to the land had become vested in him. (Flores v. Lim)  The effective conveyance of the land is accomplished by the deed which is issued only after the period of redemption has expired. The certificate of sale issued to the purchaser at an auction sale is intended to be a mere memorandum of the purchase. It does not transfer the property but merely identifies the purchaser and the property, states the price and the date when the right of redemption expires. The effective conveyance is made by the deed of absolute sale executed after the expiration of the period of redemption. (Gonzales v. Calimbas) Non-payment of Purchase Price  Non-payment of the purchase price by the impostor, although amounting to fraud, did not amount to unlawful deprivation under Article 559, but merely may be considered vitiation of consent as to make the contract voidable; but that so long as the contract has not been annulled, it remained valid, and the subsequent sale and delivery by the impostor of the books a purchaser in good faith for value effectively transferred ownership to the latter. (EDCA Publishing v. Santos) Kinds of Delivery 1. Actual – when the thing sold is placed in the control and possession of the vendee (Art. 1497) 2. Constructive delivery – constructive delivery can take several forms and may be any

28 manner signifying an agreement that the possession is transferred from the vendor to the vendee. The vendor must have the right to transfer ownership of the thing at the time it is delivered under the rule nemo dat quod non habet (he who does not own the thing cannot dispose the same) Types of constructive delivery a. Execution of public instrument b. Symbolic delivery c. Consitutum possessorium d. Tradition brevi manu e. Tradition longa manu f. Delivery of incorporeal property g. Delivery by negotiable document of title h. Delivery through carrier  A period was stipulated for the making of payment, and this brings the case within the exception provided in the Civil Code, that the sugar should have been delivered even before its price was paid. (Warner, Barnes & Co. v. Inza)  In order that symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had such control over the thing sold that, at the moment of the sale; its material delivery could have been made. (Addison v. Felix) On August 12, 2011, A executed a sale 4 parcels of land for 10,000 to F in a public instrument and in return, F paid 5,000 as earnest money. The parties stipulated that the other payment shall be made on September 12, 2011. On August 20, A accompanied F to the location of the lots. But F found out that the same was full of informal settlers. When September 12 arrived, A asked for the payment of the 5,000 but F refused and instead asked for the rescission of the contract and the return of the money he paid. A filed an action to compel F to pay stating that he already delivered the land to F and that the latter should pay him. Was he

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer correct? Suggested Answer: No. Delivery made through a public instrument requires that the seller abandons the ownership of the object and that the object must be put under the control of the vendee. Since the lots were occupied by informal settlers, the same were not place under the possession of F.  Although it is postulated that the execution of a public document is equivalent to delivery, this legal fiction only holds true when there is no impediment that may prevent the passing of the property from the hands of the vendor into the hands of the vendee. (Bugarin v. Lesaca)  An invoice is nothing more than a detailed statement of the nature, quantity and cost of the thing sold and has been considered not a bill of sale. Execution of sales invoice is not equivalent to delivery nor transfer of ownership and dominion. (Norkis v. Court of Appeals)  Devoid of any stipulation that “ownership in the thing shall not pass to the purchaser until he has fully paid the price”, ownership in the thing shall pass from the vendor to the vendee upon actual or constructive delivery of the thing sold even if the purchase price has not yet been fully paid.  The failure of the buyer to make good the price does not, in law, cause the ownership to revest to the seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Art. 1191. (Balatbat v. Court of Appeals)  A seller’s duty is to deliver the thing sold in a condition suitable for its enjoyment by the buyer for the purposes contemplated. (Consing v. Court of Appeals)  Article 1434 of the New Civil Code which states that the "title passes by operation of law to the buyer" applies not only when the

29 subject matter of the contract of sale is goods, but also to other kinds of property, including real property. (Quijada v. Court of Appeals)  There must have been intention to deliver the thing. The act, without the intention, is insufficient. (Union Motors Corp. v. Court of Appeals)  The,sale by itself does not transfer or affect ownership; the most that sale does is to create the obligation to transfer ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership. (San Lorenzo Dev’t Corp. v. Court of Appeals)  A purchaser of real property at an ordinary execution sale is not entitled to possession at an ordinary execution rents and profits until after the period of redemption has expired and the legal title to the land had become vested in him. (Flores v. Lim)  Where required by the statute or by the terms of the foreclosure decree, public notice of the place and time of the mortgage foreclosure sale must be given, a statute requiring it being held applicable to subsequent sales as well as to the first advertised sale of the property. It has been held that failure to advertise a mortgage foreclosure sale in compliance with statutory requirements constitutes a jurisdictional defect invalidating the sale and that a substantial error or omission in a notice of sale will render the notice insufficient and vitiate the sale. (Tambunting v. Court of Appeals)  If there is already delivery in an absolute contract of sale, the remedy of the vendor in case of non-payment of the vendee is either specific performance or rescission. (Spouses Pingol v. Court of Appeals)

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer  Art. 1434 when a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee. (Bucton v. Gabar) A. Execution of public instrument When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot be clearly inferred (Art. 1498, par. 1) Requisites: 1. The seller must have control over the thing 2. The buyer must be put under control 3. There must be the intention to deliver the thing for purposes of ownership A public instrument is a notarized deed of sale in the case of a contract of sale. Functions: 1. Operates as a formal or symbolic delivery of the property sold 2. Authorizes the buyer to use the document as proof of ownership General rule: execution of public instrument has the same legal effect as actual or physical delivery: 1. Transfer the ownership of the subject matter to the buyer 2. Constitutes a valid compliance by the seller of his primary obligations under the sale  Disputable presumption = execution of a public instrument is only presumptive delivery By itself, a deed of sale is merely a species of evidence, and it becomes an integral part of tradition when coupled with other requirements, namely, CONTROL over the

30 subject matter at the time of execution and passage of a reasonable time for the control to remain. Exceptions (execution of public instrument does not produce effects of delivery): 1. Stipulation to the contrary Examples: a. A certain date fixed for buyer to take possession of property b. Stipulation that until last installment is made, title should remain in the seller c. Seller reserves right to use and enjoy property until gathering of pending crops d. Seller has no control over thing sold at the moment of the sale  Execution of the deed of sale, in the absence of any defect, transfers delivery, even if the selling price has not yet been paid. It is not payment that transfers ownership. (exception: If there is a stipulation: Art 1478) 2. When at the time of execution of public instrument, the subject matter was not subject to the control of the seller. (Addison v. Felix Doctrine)  At the moment of sale, its material delivery could have been made (CAPACITY rather than actual physical delivery)  Moment of sale: consummation stage  When there is no impediment whatsoever to prevent the thing sold from passing into the tenancy of the purchaser by the sole will of the vendor  But if the buyer knew that the thing was in possession of a third person and the agreement was for the buyer to take necessary steps to obtain material possession of the thing = agreement is valid Control or ability to transfer physical possession and enjoyment must subsist for a

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer reasonable length of instrument’s execution

time

31 after

the

B. Symbolic delivery There is symbolic delivery when to effect, the delivery, the parties make use of a token symbol to represent the thing delivered With regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is stored or kept (Art. 1498, par. 2) When Bojie and Roger were eating balut outside the gate of Ceu Mendiola while babe watching, Bojie sold his Honda City to Roger for 500k. Bojie told Roger that his car was in the parking lot of San Beda Mendiola near Med Building where many people were caught making out. (madilim daw) Pursuant to the sale, Bojie gave Roger the key of his car. What kind of delivery was made? Suggested Answer: Actual Delivery. Symbolic delivery pertains to the delivery of the key of a depository or a place where the object of the contract was stored.

C. Constitutum possessorium There is consitutum possessorium when at the time of perfection, the seller held possession of the subject matter in the concept of owner, and pursuant to the contract, the seller continues to hold physical possession thereof as lessee or other form of possession other than the concept of owner (Art. 1500) D. Tradition brevi manu There is tradition brevi manu when before the sale, the would-be buyer was already in possession of the would-be subject matter of the sale, and pursuant to the contract of sale, he would now hold possession in the concept of an owner (Art. 1499). Tradition brevi manu is the opposite of constitutum possessorium.

E. Tradition longa manu Tradition longa manu is delivery of the thing by mere agreement. When seller points the property subject matter of the sale by way of delivery without need of actually delivering physical possession thereof (Art. 1499) Because the object cannot be placed yet under the possession of the vendee. Antonia Clarissa (AC) sold her pussy cat to Bojie for 5,000 to be delivered on the next day. However, when the time of delivery arrived, AC told Bojie that her pussy cat was hospitalized for eating too many sausages. Nonetheless, the parties agreed that the ownership of the pussy cat belongs to Bojie. What kind of delivery was made? Suggested Answer: Traditio Longa Manu. By the agreement of the parties, ownership was transferred to the vendee but the object was not yet placed to his possession at the time of delivery.

F. Delivery of incorporeal property With respect to incorporeal property, the provisions of the first paragraph of Article 1498 shall govern. In any other case wherein said provisions are not applicable, the placing of the titles of ownership in the possession of the vendee or the use by the vendee of his rights, with the vendor’s consent, shall be understood as a delivery (Art. 1501) A. Constructive Tradition (Art. 1498) – Execution of a public instrument; Delivery can only be effected by constructive delivery, because incorporeal property has no physical existence B. Quasi-Tradition (Art. 1501) a. Placing of the titles of ownership in the possession of the vendee b. By allowing the vendee to use and enjoy his rights as new owner of the incorporeal property, with the vendor’s consent

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer G. Delivery by negotiable document of title Document title of goods – includes any bill of lading, dock warrant, "quedan," or warehouse receipt or order for the delivery of goods, or any other document used in the ordinary course of business in the sale or transfer of goods, as proof of the possession or control of the goods, or authorizing or purporting to authorize the possessor of the document to transfer or receive, either by endorsement or by delivery, goods represented by such document (Art. 1636, par. 1) Bill of Lading – a document that serves as evidence of receipt of goods for shipment issued by a common carrier Warehouse Receipt – a document of title which is issued by a warehouseman Quedan – a warehouse receipt that covers sugar Dock warrant – a warrant given by dockowners to the owner of merchandise imported and warehoused on the dock upon the faith of the bills of lading, as a recognition of his title to the goods Negotiable document of title – a document of title in which it is stated that the goods referred to therein will be delivered to the bearer, or to the order of any person named in such document is a negotiable document of title (Art. 1507) A person to whom a NDT has been duly negotiated acquires such title to the goods as the transferor had or had ability to convey to a purchaser in good faith for value, and also the title of the person to whom the documents was originally A buyer can by process of negotiation of the covering document acquire a title better than

32 that of his immediate seller. If by assignment, he acquires only his transferor’s title to the goods, and always subject to the terms of any agreement with the transferor. Persons who may negotiate NDT 1. The owner; or 2. Any person to whom the possession or custody thereof has been entrusted by the owner, if by the terms of the document the bailee issuing the document undertakes to deliver the goods to the order of the person to whom the possession or custody of the document has been entrusted or if at the time of such entrusting the document in such form that it may be negotiated by delivery (Art. 1512) Note: If the holder of a BEARER negotiable document of title entrusts the document to a friend for deposit, but the friend betrays the trust and negotiates the document by delivering it to another who is in good faith, the said owner cannot impugn the validity of the negotiation. As between two innocent persons, he who made the loss possible shall bear the loss, without prejudice to his right to recover from the wrongdoer. Rights of a person to whom document has been negotiated: 1. The title of the person negotiating the document, over the goods covered by the document; 2. The title of the person (depositor or owner) to whose order by the terms of the document the goods were to be delivered, over such goods; and 3. The direct obligation of the bailee to hold possession of the goods for him, as if the bailee had contracted with him directly. For a mere transferee to acquire such right, he must notify the bailee. (Art. 1513)

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer W issued a document of title to B stating that it is deliverable to B. B then transferred the document to A for 500k. What does A acquire? Suggested Answer: An assignment of the rights of B plus the rights of a transferee of a non-negotiable document of title.

W issued a document of title to A stating that it is deliverable to A or his order. A negotiated the same to B for 500k and B negotiated it to C for 400k. What rights does C acquire? Suggested Answer: The rights of A and B to the title of the goods and the ability to convey it to a purchaser in good faith for value as well as the direct obligation of W to hold the possession of the goods for C.

W issued a document of title to A stating that it is deliverable to A or his order. A negotiated the same to B for 500k and B transferred it to C for 400k. What rights does C acquire? Suggested Answer: The title to the goods against B and the right to notify W of the said transfer so that the latter will be obligated to hold possession of the goods for him. He also has the right to compel B to indorse the document of title to him. W issued a document of title to A stating that it is deliverable to A or his order. A negotiated the same to B for 500k and B transferred it to C thru a valid donation. Can C compel B to indorse the document to him? Suggested Answer: No. The law speaks of the transferee for value. A executed and gave B a negotiable document of title payable to the order of B. B negotiated the same through indorsement and delivery to C. C, in turn, negotiated it to D, and D to E. Meanwhile, X, A’s creditor was able to obtain a favorable judgment allowing for the attachment of the document of title in question. May X attach the document of title to satisfy A’s indebtedness? Suggested

33 Answer: No, because the subsequent indorsees have a superior right to the NDT as per Article 1513  Unauthorized Negotiation (Art. 1518) As between the owner of a negotiable document of title who indorsed it in blank and entrusted it to a friend, and the holder of such negotiable document of title to whom it was negotiated in good faith and for value, the latter is preferred, under the principle that as between two innocent persons, he who made the loss possible should bear the loss.  Warehouse receipt represents the goods, but the intrusting of the receipt is more than the mere delivery of the goods; it is a representation that the one to whom the possession of the receipt has been so entrusted has the title to the goods. (Siy Cong Bieng v. Hongkong & Shanghai Bank) Warranties: 1. Document is genuine; 2. He has a legal right to negotiate or transfer it; 3. He has knowledge of no fact which would impair the validity or worth of the document; and 4. He has a right to transfer the title to the goods and that the goods are merchantable or fit for a particular purpose. (Art. 1516) Who can defeat the rights of transferee: 1. Creditor of transferor 2. Transferor 3. Subsequent purchaser Negotiable Instrument vs Negotiable Document of Title Negotiable Document Negotiable Instrument of Title Operates as a (to facilitate goods)substitute for money operates as proof of the

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer possession or control of the goods, or – authorizing or purporting to authorize the possessor of the document to transferor receive, either by indorsement or by delivery, goods represented by such document Governed by the Governed by the Civil Negotiable Instruments Code, and in some Law cases, by the Warehouse Receipt Law and Code of Commerce A bearer instrument is always a bearer instrument even if a special indorsement is made

The special indorsement of a bearer instrument has the effect of converting the bearer instrument into an order instrument If words “nonnegotiable” or the like are placed on the document which contains that it should be delivered to the bearer, such document may nevertheless be negotiated by the holder.

H. Delivery through carrier In the absence of stipulation or circumstance to the contrary, delivery to carrier is deemed delivery to the buyer, the premise being that the carrier acts as an agent of the buyer. General Rule: Where the seller is authorized or required to send the goods to the buyer,

34 delivery to the carrier is delivery to the buyer. (Art. 1523) Note: This rule applies only if there is an agreement between the seller and the buyer that the former will ship the goods. On April 1, 2011, Manny sold his BMW X6 car to Virgil for the price of 20M to be delivered on May 5, 2011. The contract stated no place of delivery. Manny lives in Cebu and Virgil lives in Manila. On April 20, Virgil deposited 50% of the amount of the purchase price. On May 3, 2011, Manny delivered the car to the RORO. The RORO, on the course of transportation collided with a huge rock and sank into two. The car was destroyed. On the date of delivery, the car can be no longer delivered to Virgil. He now seeks to rescind the contract and the restitution of the money he paid. Does Virgil has the right to rescind the contract? Suggested Answer: Yes. There being no stipulation of the place where the delivery should be made, Article 1521 must be followed. Manny was neither authorized nor required by Virgil to send the car to Manila. As provided in the law, the place of delivery, aside from the stipulated location or the common usage or trade, should be either the business place or the residence of the seller. Putting the car in the RORO was not stipulated in the contract. Thus, Manny bears the loss and he should return what Virgil gave him. Exceptions: 1. When a contrary intention appears 2. Implied reservation of ownership under pars. 1, 2, and 3 of Art. 1503 Kinds of delivery to the carrier 1. F.A.S (free alongside) sales – the seller pays all charges and is subject to risk until goods are placed alongside the vessel; delivery of the goods alongside the vessel completes the effect of tradition.

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer 2. C.I.F. (cost, insurance, freight) sales – signifies that the price fixed covers the costs of the goods, the expense of the freight and the insurance to be paid by the seller. 3. F.O.B. (free on board) sales – goods are to be delivered free of expense to the buyer to the point where they are F.O.B. The point of F.O.B. (either at the point of shipment or the point of destination) determines when the ownership passes.  F.O.B., point of shipment – delivery of the goods to the carrier is equivalent to delivery to the buyer, and at that point the risk of loss pertains to the buyer  F.O.B., point of destination – there would be delivery to the buyer only when the vessel has arrived at the point of destination, and prior to that point in time, the risk of loss over the subject matter of the sale will be borne by the seller Reservation of ownership despite delivery 1. When there is an express reservation (Art. 1478) 2. Sale on Acceptance, on trial or on satisfaction - Ownership passes to the buyer only when: (a) He signifies his approval or acceptance to the seller or does any act adopting the transaction; or (b) he does not signify his approval or acceptance but retains the goods without giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time. Note: In “Sale or Return” ownership passes to the buyer on delivery but he may revest the ownership in the seller by returning the goods within the time fixed in the contract, or

35 if there is no time fixed, within a reasonable time] 3. Article 1503, first, second and third paragraphs a. Where goods are shipped and by the bill of lading the goods are deliverable to the seller or his agent, or tothe order of seller or agent b. Where goods are shipped and by the bill of lading the goods are deliverable to the order of the buyer or his agent but the possession of the bill of lading is retained by the seller or his agent c. Where the seller of goods draws on the buyer for the price and transmits the bill of lading and bill of exchange to the buyer to secure acceptance or payment of the bill of exchange, and the buyer does not honor the bill of exchange [Here, the drawer is the seller and the drawee is the buyer. If the buyer does not honor the bill of exchange, he shall return the bill of lading. If he retains the same, he acquires no added right thereby. Time and place of delivery (Art. 1521 in relation to Art. 1251) Time = at a reasonable hour (question of fact) Place 1. Stipulation of the parties; or 2. Seller’s place of business if he has one; or 3. Seller’s residence; or 4. In case of sale of specific goods, in the place where the thing is. Sale by non-owner of goods (Art. 1505 in relation to Art. 559) As aforementioned, the seller need not have the title to the goods at the time of perfection of the contract. However, he must have the title at the time of delivery. General rule: In a sale by the non-owner, the buyer acquires no better title to the goodsthan the seller had (he merely steps into the shoes of the seller)

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer Exceptions (in which case the true owner cannot recover the thing): 1. Estoppel or when the owner is precluded, by his own conduct, from denying the seller’s authority to sell (Apply Art. 1438 by analogy) 2. P.D. No. 1529 (Recording Laws; Torrens Title – even when the sale is void, the general rule that the direct result of a previous void contract cannot be valid is inapplicable when it will directly contravene the Torrens system of registration. The Court cannot disregard such rights and order the cancellation of the certificate, since the effect of such outright cancellation will be to impair public confidence in the certificate of title. 3. Statutory power of sale or under the order of a court of competent jurisdiction 4. Sale in merchant’s store, or in fairs, or markets (Arts. 85 – 86, Code of Commerce). To allow recovery would retard commerce Public Sale – one where there has been a public notice of sale in which anyone is allowed to bid for the object he desires to buy.

Art. 1505 in Relation to Rules on Co-ownership a. Co-owner sells whole property prior to partition – sale of property itself is void but valid as to his spiritual share b. Co-owner sells definite portion to partition – sale is void as to other co-owner but valid as to his spiritual share if the buyer would have still bought such spiritual share had he known that the definite portion sold would not be acquired by him. Exceptions to (b): i. Subject matter is indivisible ii. Sale of definite portion is with consent of other co-owners

36 iii. Co-owner sells 1 of 2 commonly-owned lands & does not turn over ½ of the proceeds, other co-owner, by law & equity, has exclusive claim over remaining land. A owns a Rolex watch. B stole A’s watch, and sold the same to C. C does not know that the watch was stolen and he bought the same from B for value. May A recover the watch from C? Suggested Answer: Yes. He may recovery it without the need of reimbursing C. (Art. 559) A owns a Rolex watch. B stole A’s watch, and sold the same to C. C knows that the watch was stolen and he bought the same from B for value. May A recover the watch from C? Suggested Answer: Yes. The requirement that the possessor or the purchaser of the movable thing must be in good faith does not pertain to the right of the owner to recover the property but to the doctrine of irrevindicability (that the possession of movable property is equivalent to title). If A has the right to recover even if C is in good faith, it is but logical to give A the right to recover the property from a possessor in bad faith. Likewise, it may be said that B may be held criminally liable for violating the Anti-Fencing Law. A owns a Rolex watch. B stole A’s watch, and pawned the same to Villarica Pawnshop. For failure to pay the loan, VIllarica Pawnshop sold the watch at a public auction. C was the one who bought the watch. Rule the case. Suggested Answer: A may recover the watch from C. He must, however, reimburse C as C obtained the watch from a public sale. A owns a Rolex watch. B stole A’s watch, and sold the same to C, a merchant’s store. D, who does not know that the watch was stolen, bought the same from C. May A recover the watch from D?

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer Suggested Answer: No. In this case, Article 1505 is applicable. To allow A to recover would retard commerce. A owns a Rolex watch. B stole A’s watch, and sold the same to C, a merchant’s store. D, in bad faith, purchased the watch from C. May A recover the watch from D? Suggested Answer: No. Article 1505 does not require that the purchaser or buyer in a sale by nonowner must be in good faith. A owns a Rolex watch. B stole A’s watch, and sold the same to C, a seller of “bagoong.” D saw the watch from the bagoong-seller while he was buying a “bagoong.” Without knowing that the watch was stolen, he offered to buy the same from C. C accepted the offer. Thereafter, D bought the watch from C for P5k.May A recover the watch from D? Suggested Answer: Yes. The sale is not made in a merchant’s store, or in fairs, or markets. A owns a Rolex watch. B stole A’s watch, and sold the same to C. C sold the same at E-bay. D, in good faith, bought the watch. May A recover the watch from D? Suggested Answer: Yes. He must, however, reimburse D as a sale in E-bay may be considered a public sale. A entered into a contract of sale with B where A engages to deliver 100 sacks of corn for P100k. Before delivery, A became insane. A delivered the sacks of corn to B while A is insane. May the guardian of A recover the goods delivered to B? Suggested Answer: No. The delivery was void pursuant to Article 1239, which provides that “payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid.” However, Article 1427 provides that in payment by incapacitated such as this one, there shall be no right to recover the goods from the obligee who has spent them or consumed them in good faith.

37 Loss of the Thing Due Who bears the risk of loss, deterioration, and the fruits Before perfection  Res perit domino  Seller still owns the thing because there is no delivery or transfer of ownership yet; hence, seller bears the risk of loss At Perfection  Res perit domino  Contract is merely inefficacious because loss of the subject matter does not affect the validity of the sale  Seller cannot anymore comply with obligation so buyer cannot anymore be compelled After Perfection but before delivery a. Loss – confused state 2 Views: a. Justices Paras & Vitug / Padilla (as well as Atty. Casino): BUYER bears the risk of loss (Res perit creditori)  Art. 1504, which embodies res perit domino, only covers goods.  The obligation of the obligor (seller, in a contract of sale) is extinguished in applying Art. 1262.  The obligation to pay on the part of the buyer is not extinguished (as he is not the obligor) b. Tolentino / Jurado / Baviera / Villanueva: SELLER bears the risk of loss (Res perit domino)  In reciprocal obligations, the extinguishment of the obligation due to loss of the thing affects both debtor and creditor; the entire juridical relation is extinguished.

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer

Sales and Lease Reviewer  Deterioration & fruits -Buyer bears loss (Article 1189) After delivery  Res perit domino  The buyer is the owner; hence, buyer bears risk of loss  If no contract of sale was actually executed by the parties the loss of the thing must be borne by its owner and not by a party who only intended to purchase it and who was unable to do so on account of failure on the part of the owner to show proper title to the thing and thus enable them to draw up the contract of sale. (Roman v. Grimalt)  If the contract sets no bounds or limits to the palay to be paid, nor was there even any stipulation that the cereal was to be the produce of any particular land, the alleged failure of crops through alleged fortuitous cause does not excuse performance. (De Leon v. Soriano)  A generic obligation is not extinguish by the loss of a thing belonging to a particular genus. (Bunge Corp. v. Camenforte)  In the absence of an express assumption of risk by the buyer, the things sold remain at seller’s risk until the ownership thereof is transferred to the buyerdoctrine of res perit domino. (Norkis v. Court of Appeals)  Inasmuch as there was neither physical nor constructive delivery of a determinate thing, the thing sold remained at the seller’s risk. (Union Motor Corp v. Court of Appeals)  When the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by the buyer. Accordingly, petitioner bears the risk of loss of the goods delivered. (Gaisano Cagayan v. Insurance Co. of North America)  The ownership of the books purchased on installment were retained by the

38 seller, although they have already been delivered to the buyer, under the condition that ownership thereof will be transferred to the buyer upon his full payment of the purchase price, it was held that despite the loss of the books in a fire, the risk of loss would be borne by the buyer although he was not the owner yet, not only because such was agreed merely to secure the performance by the buyer of his obligation, but also because in the very contract itself, it was agreed that loss or damage to the books after delivery to the buyer shall be borne by the buyer. (Lawyer’s Cooperative Publishing Company v. Tabora)  Gonzales (seller), who received payment, delivered no part of sugar promised. When a suit was brought against him for failure to deliver, he interposed the defense of force majeure (there was a storm). SC held that he was still liable because no specific lot of sugar was segregated and specifically designated to make the subject matter of the contract determinate or specific; sugar being generic, there was no risk of it being lost. (Yu Tek Co v. Gonzales)  It appearing that the obligation of appellants is to deliver copra in a generic sense, this obligation cannot be deemed extinguished by the destruction or disappearance of the copra they had already stored in Samar. Their obligation subsists as long as that commodity is available. A generic obligation is not extinguished by the loss of a thing belonging to a particular genus. Genus nunquam perit. (Bunge Corp. v. Camenforte)

“That in all things, God may be glorified!” San Beda College of Law 2S 2011-2012 Sales and Lease Midterm Reviewer