Sales and Lease- reviever

Sales and Lease AUF School of Law

(outline by Atty. Marianne Beltran-Angeles)

Part 1 1. Essential Requirements of Contractual Obligations (Art. 1305, 1306, 1316, 1318, 1356)

the obligation, parties) special – present only in certain contracts (delivery in real contracts, form in solemn contracts)

ARTICLE 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. (1254a)

extraordinary – unique to a specific contract (price in a contract of sale)

Contract (cum traho)- meeting of the minds between 2 persons whereby one binds himself, with respect to the other, to give something or to render some service. – agreement – limited exclusively to those agreements which produce patrimonial obligations – specie – juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another or others, or reciprocally to the fulfillment of a prestation to give, to do, or not to do.

Natural elements

presumed by although can excluded by contracting parties

Exist only when the parties expressly provide for them for the purpose of limiting or modifying the normal effects of the contract. auto-contract – there is only one party involved but said party merely acts in the name and for the account of two distinct contracting parties. 1. When a representative of another contracts with himself 2. when as representative of 2 persons brings about contract with himself and the principals

Contract distinguished from other terms: Source of rights Contract – agreement of the and obligations parties Others – law

characteristics of contracts (OMAR) 1st: obligatory force or character – contracting parties are bound, not only to the fulfillment of what has been expressly stipulated, but also to all of the consequences thereof. 2nd mutuality of contracts – contracts are binding upon both of the parties 3rd autonomy of contracts – parties may establish such agreements as they may deem convenient, provided they

Nature of the rights Contract- concrete, limited, and obligations and transitory absolute,

Elements of contracts: Essential elements- Common – present in all without which there can contracts (consent of be no contracts both parties, object of the contract, cause of

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law be the

Accidental elements

convention – includes any kind of agreement which may create,modify, or extinguish patrimonial and even family relations – genus

others- elastic, permanent

derived from the nature of the contract and ordinarily accompany the same

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1st Sem/A.Y. 2010-2011

Sales and Lease AUF School of Law

(outline by Atty. Marianne Beltran-Angeles)

are not contrary to law, morals, good customs, public order, or public policy. 4th relativity of contracts – take effect only between the parties, their assigns and heirs. 3 phases or stages of the life of contract 1st stage:GENERATION – preliminary preparation, conception of generation, period of negotiation, ending at the moment of agreement of the parties

Accdg. To subject matter

• •

Things services

Nature of the vinculum which they produce

•

Unilateral – gives rise to an obligation for only one of the parties bilateral – gives rise to reciprocal obligation

Accdg. cause

•

To

2nd stage: PERFECTION – moment when parties come to agree on the terms of the contracts

•

•

3rd stage: CONSUMMATION – fulfillment or performance of the terms agreed upon in the contract Accdg. To risk involved

Classification of contracts: Accdg to their • Preparatory – necessary relation to as a preliminary step other towards the celebration of contracts another subsequent contract • principal – can subsist independently • accessory – can exist only as a consequence of another prior contract. Accdg. to their perfection

•

•

Accdg. form

To

Accdg. To their purpose

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•

Consensual – perfected by mere agreement of the parties real – perfected with the consent of the parties and the delivery of the object by one party to the other.

•

Common or informal – no particular form special or formal – require some particular form

• • •

Transfer of ownership conveyance of use rendition of service

•

•

Accdg. norms

to

•

•

2

Onerous – 1 of the parties aspire to procure for himself a benefit through the giving of an equivalent or compensation gratuitous – 1 of the parties proposes to give to the other a benefit without equivalent or compensation. Commutative – each of the parties acquires an equivalent of his prestation and such equivalent is pecuniarily appreciable and already determined. aleatory – which each of the parties has to his account the acquisition of an equivalent of his prestation although pecuniarily appreciable and such is not yet determined. Nominate – have their own individuality, regulated by special provisions of law innominate – lack individuality, not regulated by special provisions of law

1st Sem/A.Y. 2010-2011

Sales and Lease AUF School of Law

(outline by Atty. Marianne Beltran-Angeles) with respect to the object or cause of the contract. – signifies the birth of the contract as obligatory tie, resulting from the concurrence of the wills of the contracting parties.- Manresa

ARTICLE 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (1255a)

General rule: Perfection of a contract is produced by mere consent. Exception: • contracts of commodatum, pledge, and deposit are perfected upon delivery of the object by one of the contracting parties.

***right of the contracting parties to establish any stipulation, clause, term or condition as they may deem convenient. (constitutional and statutory right) limitations: stipulation, clause, term or condition established must not be contrary to: • law – mandatory or prohibitive in character – expressive of fundamental principles of justice – impose essential requisites • morals – principles which are incontrovertible and are universally admitted and which have received social and practical recognition • good customs – includes even those moral precept not recognized universally but is sanctioned by the practice of a certain community • public order – safety, peace and order of the country or of any particular community • public policy – no person can lawfully do that which has a tendency to be injurious to the public or against public good.

consensuality – some submit that this is one of the fundamental characteristic of a contract But this does not hold water in those Real contracts which requires delivery before its perfection. Consensual contracts – perfected by mere consent of the parties real contracts – perfected after delivery of the object (pledge, commodatum, depositum, mutuum) It is only when there is a complete manifestation of the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. ARTICLE 1318. There is no contract unless the following requisites concur: (1) Consent of the contracting parties; cdtai (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. (1261) bases of contract: elements

test: WON restraint is reasonably necessary for the protection of the parties ARTICLE 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected until the delivery of the object of the obligation. (n)

law

will of the contracting parties

Essential are... Imposed

Conformed to.

Natural are...

presumed

Accidental are... Authorized

Accepted repudiated

or

established

perfection of contracts – moment in the life of the contract where the parties come to an agreement Jmvdg

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1st Sem/A.Y. 2010-2011

Sales and Lease AUF School of Law

(outline by Atty. Marianne Beltran-Angeles) forms of contracts: • necessary for the convenience of the contracting parties or for the efficacy of the contract (Arts. 1356-1358) • necessary for the validity of the contract (scattered provisions of the Code and some special laws) • necessary for the enforceability of the contract (Statute of Frauds)

ARTICLE 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised. (1278a) spiritual system of the Spanish Code – the law looks more at the spirit/intent rather than at the forms of the contract.

2. Sales distinguished from other contracts a. Sale vs. Piece of work contract for a piece of work – 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)

General Rule: contracts shall be obligatory, provided all the essential elements of a contract are present. Exceptions: • when the law requires that the contract must be in a certain form in order to be valid ◦ must appear in writing ▪ donation and acceptance of personal property whose value exceeds P5,000.00 ▪ sale of a piece of land or any interest therein through an agent ▪ agreements regarding payment of interest in contract of loan ▪ antichresis ◦ must appear in public document ▪ donations of immovable properties regardless of value ▪ partnerships where immovable property or real rights are contributed to the common fund ◦ must be registered ▪ chattel mortgages ▪ sales or transfer of large cattle • when the law requires that the contract must be in a certain form in order to be enforceable. ◦ Covered by the Statutes of Frauds

Similarity between sale & piece of work “Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale. Ineluctably, whether the contract be one of sale or one of piece of work, a transfer of ownership is involved and a party necessarily walks away with an object. (CIR vs CA & ADMU) Statutory rule on distinguishing sale for contact-for-piece of work (Art. 1467)  Sale - Manufacturing in the ordinary course of business - workman or contractor furnishes both labor and the materials (Tolentino, Civil Code Book V, pp. 11)  Contracts for piece-of-work manufacturing upon special order customers.

“Special order” under Art. 1467 is not one of timing, or habit, but actually must be drawn from the nature of the work to be performed and the products to be made; it must be of the nature that the products are not ordinary products of the manufacturer, and they would require extraordinary skills or equipment, if to be performed by a manufacturer. (Celestino Co. vs Collector of

Case: BF Corp vs CA – contract may not be limited in a single document or writing

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1st Sem/A.Y. 2010-2011

Sales and Lease AUF School of Law

(outline by Atty. Marianne Beltran-Angeles)

Internal Revenue)

b. Sale vs. Agency to Buy and Sell

the main distinguishing factor between a sale and a contract for a piece-of-work is the essence of why the parties enter into it, if the essence is: • object – sale • service, knowledge or even reputation of the person who executes or manufactures the object – piece-of work

Agency – a person binds himself to render some service or to do something in representation or on behalf of the principal, with the consent of authority of the latter (Art. 1868) - a principal, nominate, bilateral, preparatory, commutative, and generally onerous contract. Sale Not unilaterally revocable

practical needs for being able to distinguish sale and piece-of-work: Aspect Sale Piece-of-work warranty of the contractor tax Type obligation

The buyer himself pays for the price of the object which constitutes his main obligation

Covered by Art. 1714 Higher

Much lower

of Real obligation Personal (to give) obligation do)

Action for proper specific performance

(to

After delivery, the buyer becomes the owner of the subject matter The seller warrants

Not allowed (against involuntary servitude) apply Art. 1715

Applicability of Only when the Art. 1165 subject matter is indeterminate or generic Applicability of Covered the Statute of Statute Frauds Frauds

Contract of sale is valid and enforceable in whatever form it may be entered into. Exception: Sale of a piece of land or any interest therein through an agent (Art. 1874) The buyer who obtains a discount does not have to reveal such facts to its own buyer.

by Not covered by of Statute of Frauds

Schools of Thought: • Masschusetts Rule – if especially done at the order of another, this is a contract for a piece of work. (we follow this rule in the Philippines) • New York Rule – if the thing already exists, it is a SALE; if not, WORK • English Rule – if material is more valuable, SALE; if skill is more valuable, WORK

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Agency to sell/Buy Essentially revocable even in the presence of an irrevocability clause The agent is not obliged to pay the price, and is merely obliged to deliver the price which he may receive for the buyer The agent does not become the owner of the thing subject of the agency. The agent who effects the sale assumes no personal liability as long as he acts within his authority and in the name of the principal. Must comply with the Statute of Frauds for its enforceability

The agent must account for all benefits or discounts received from the seller.

***because of the highly fiduciary nature of agency, the agent is disqualified from receiving any personal profit from the transaction covered by the agency, and any profit received should pertain to 5

1st Sem/A.Y. 2010-2011

Sales and Lease AUF School of Law

(outline by Atty. Marianne Beltran-Angeles)

the principal o

***the essential clauses of the whole instrument shall be considered in construing contracts containing provisions characteristic of both sales and agency to sell. (Art. 1466) ***It is legally impossible for an agent or a broker to voluntarily bind himself to the warranties of the seller. (Schmid & Oberly, Inc. vs. RJL Martinez)

Article 1641 provides that barter shall be governed by the Law on Sales. - if one party fails to perform, the other can demand resolution of the contract.

***The essence of an agency to sell is the delivery to an agent, not as his property, but as a property of the principal, who remains the owner and has the right to control the sale, fix the price and terms, demand and receive the proceeds less the agent's commission upon sales made. (Tolentino, Civil Code Book V pp.10 quoting Kerr & Co. vs Lingad)

Where difference between barter and sales is critical:  Rules on Statute of Frauds which apply to the sale of real or personal property bought at P500.00 or more, do not apply to barter  The right of legal redemption granted by law to an adjoining owner of an urban land covers only resale and does not cover exchanges of properties.

c. Sale vs. Barter or Exchange Sale One of the parties binds himself to deliver a thing in consideration of the other’s undertaking to pay the price in money or its equivalent

Barter One of the parties binds himself to give one thing in consideration of the other’s promise to give another thing (Art. 1638)

d. Sale vs. Dacion en Pago Dation in payment – property is alienated to the creditor in full satisfaction of a debt in money. - constitutes the delivery and transmission of a thing by the debtor to the creditor as an accepted equivalent of the performance of an obligation. - Governed by the Law on Sales since it essentially involves the transfer of ownership of a subject matter. - Consent of both the debtor and creditor in this special mode of payment to extinguish the existing obligation is an essential requisite. - As a special mode of payment, dacion en pago falls on the stage of consummation of the contract.

Barter • consensual contract • consummated only from the time the parties mutually take possession of the things exchanged e.g. bills of local currency to coins – barter local currency for foreign currency – sale Rules to determine whether contract is sale or barter: (Art. 1468)  Manifest intention of the parties

Requisites: • performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against 3rd person. • Some differences between the prestation due and that which is given in substitution (aliud pro alio)

 When Intention does not appear and consideration consists partly in money and partly in another thing o Barter – when the value of the thing given as part of the consideration exceeds the amount Jmvdg

of money given or its equivalent Sale – where the value of the thing given as part of the consideration equals or is less than the amount of money given

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1st Sem/A.Y. 2010-2011

Sales and Lease AUF School of Law •

(outline by Atty. Marianne Beltran-Angeles)

agreement between creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due. Sale

Sale vs. Loan in a loan, the amount is substantially smaller than the value of the security given.

Dacion En Pago

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

There is no pre-existing There is a pre-existing credit credit Gives rise to obligations Extinguishes obligation The cause or consideration here is the price, from the point of view of the seller; or the obtaining of the object, from the viewpoint of the buyer

the

3. Definition

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

a. Contract of Sale sale – venditio; do ut des ARTICLE 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. (1445a) 2 obligations of the Seller:  Transfer the ownership  Deliver the possession of the subject matter

There is greater There is less freedom in freedom in the determining the price determination of the price The giving of the price The giving of the object may generally end the in lieu of the credit may obligation of the buyer extinguish completely or partially the credit (depending on the agreement)

Obligation of the Buyer:  accept the delivery  Pay the price

e. Sale vs. Chattel Mortgage

***in the delivery of a determinate thing, the buyer in addition to the right to recover damages may compel the seller to make the delivery.

Sale Principal contract obligation

***Both are real obligation which can be the proper subject of actions for specific performance

Chattel Mortgage

Essential characteristics of sale (npcbroct) 1. nominate and principal nominate – it has been given a particular name by law; governed by a set of rules in the Civil Code principal – it can stand on its own and does not depend on another contract for its validity or existence ***the Court looks at the intent not the nomenclature to determine the nature of

or Accessory contract, Security for the performance of an obligation

Does not require Must be registered in registration to be the Chattel Mortgage binding upon 3rd Register persons; entry in the Book of Entry will suffice

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1st Sem/A.Y. 2010-2011

Sales and Lease AUF School of Law

(outline by Atty. Marianne Beltran-Angeles)

the contract ***all other contracts which have or their objective the transfer of ownership and delivery of possession of a determinate subject matter for a valuable consideration are governed necessarily by the Law on sales.

begins, without the need of prior demand **A party cannot simply just choose not to proceed with the sale by offering also the other party not to be bound by his obligation **Each party has the remedy of specific performance **rescission or resolution cannot be enforced by defaulting party upon the other party who is ready and willing to proceed with the fulfillment of his obligation

2. consensual - contract of sale is perfected by mere consent (Art. 1475) - contract of sale becomes a valid and binding contract upon the meeting of the minds as to the price. (Buenaventura vs CA) – Art. 1358 (requirement for certain contracts to be in a public instrument) is only for convenience and registration only affects 3rd persons. Non-compliance to formal requirements does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder (Fule vs CA)  modalities that affect the characteristic of consensuality o suspensive term or condition o incomplete meeting of the minds

4. onerous contract of sale imposes a valuable consideration as a prestation, which ideally is a price certain in money or its equivalent 5. commutative equivalence in contract of sale, a thing of value is exchanged for equal value commutativeness is an essential characteristics of a sale, but the test for compliance therewith is not objective but rather subjective (Gaite vs Fonacier) belief of the parties that they are receiving the appropriate and proper value for what they each in turn gave up is enough to comply with the characteristics of commutativeness.

3. bilateral and reciprocal sale imposes obligations on both parties… the obligation or promise of each party is the cause or consideration for the obligation or promise of the other

Inadequacy of ordinary sale

obligations in a contract of sale are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other.

does

not

affect

Inadequacy of price may show vice of consent, in which case the sale may be annulled, but such annulment is not for inadequacy of price but rather for vitiation of consent. (Art. 1470)

Effects:  The power to rescind is implied  Neither party incurs delay if the other party does not comply, or is not ready to comply in a proper manner with what is incumbent upon him  From the moment one of the parties fulfill his obligation, the default by the other Jmvdg

price

6. sale is title and not mode delivery or tradition – mode to transfer ownership and possession to the buyer mode- legal means by which dominion or ownership is created, transferred, or 8

1st Sem/A.Y. 2010-2011

Sales and Lease AUF School of Law

(outline by Atty. Marianne Beltran-Angeles)

destroyed ***It is not the bulk or quantity of the goods sold but rather, the use to which the goods sold is put by the buyer, that should control

title- transfer of ownership **Sale does not by itself 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.

contracts to sell: • power of the promisor to refuse the conveyance and retain the sums of installments already received • positive suspensive condition not happening is not breach, but simply an event that prevented the obligation of the vendor to convey title • property may be delivered with the understanding that the title thereto shall not pass until the performance of some condition, and such understanding or intention must be given effect as between parties. • Reservation of ownership (pactum reservati dominii)

Essential Elements of contract of sale  consent- meeting of the minds to transfer ownership in exchange for the price  determinate subject matter  price- certain in money or its equivalent Natural elements of contract of sale: • warranty against eviction • warranty against hidden defects ***perfected/valid contract of sale – all 3 elements are present ***void contract of sale – some of the essential element are not present; or – as mandated by Article 1409 ***voidable contract of sale – vitiation of consent

Contract of sale

Non-payment of the payment in full of the price is a resolutory price is a positive condition suspensive condition

Stages in the life of Sale  policitacion – negotiation or preparation stage; o time the prospective contracting parties indicate their interests in the contract to the time the contract id perfected  perfection – conception or birth o takes place upon the concurrence of the essential elements of the sale  consummation – death o parties perform their respective undertaking under the contract of sale, culminating in the extinguishment thereof

Title over the property Ownership is retained passes to the buyer by the seller, regardless upon delivery of delivery and is not to pass until full payment of the price. After delivery has been made, the seller has lost ownership and cannot recover it unless the contract is resolved or rescinded

Since the seller retains ownership, despite delivery, he is enforcing and not rescinding the contract if he seeks to oust the buyer for failure to pay.

Jus in rem is created

Jus in created

personam

is

Option Contract ➢ accepted unilateral promise supported by a consideration distinct from the price ➢ preliminary contract to a contract of sale. ➢ Consideration in an option contract is just

wholesale vs retail sale: wholesale – if to be resold for a profit the goods being unaltered when resold, the quantity being large Jmvdg

Contract to sell

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Sales and Lease AUF School of Law

(outline by Atty. Marianne Beltran-Angeles)

as important as the consideration for any other kind of contract. ➢ Does not pass title or dominion over the property but only gives a right to demand the fulfillment of the contract in proper cases or damages for a breach where it is not possible to carry it out. ➢ In the event of breach, the injured party cannot sue for the delivery of the thing or the payment of the price because the obligations arising from the contract are to do hence, the obligation is converted into one for indemnity for damages. ➢ “A contract granting privilege to buy or sell within an agreed time and at a determined price. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by a consideration.” (Limson vs CA, 375 SCRA 209)

purchase price if it is stipulated that it will not be forfeited. There is a different period for the option money & earnest money, thus there is no conflict with regard the two.