Zarah Notes (Contract of Sale; Object of Sale)

SALES AND LEASE Atty. Zarah Villanueva-Castro I. CONCEPTS; CONTRACT OF SALE (Art. 1458) By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent. Characteristics:  Consensual (Art. 1475) – perfected by mere consent.  Bilateral (Art. 1458) – imposes obligation on both parties; obligation to transfer ownership and deliver on the part of the seller and to pay the price on the part of the buyer.  Onerous (Art. 1350) – with valuable consideration.  Commutative (Art. 2010) – each party gives and receives an equivalent.  Nominate (Art. 1458) – has given a special name or designation in the Civil Code.  Principal – can stand on its own and does not depend on other contracts for its existence and validity. Essential Requisites/Elements:  Consent of the contracting parties  Subject matter (things and rights)  Cause (price)

Jurisprudence: Leabres v. CA G.R. No. L-41847; 12 December 1986 DOCTRINE: An examination of the receipt reveals that the same can neither be regarded as a contract of sale or a promise to sell. The requisites of a valid contract of sale namely: (1) consent or meeting of the minds of the parties; (2) determinate subject matter; (3) price certain in money or its equivalent; - are lacking in said receipt and therefore the "sale" is not valid nor enforceable. Distinguished from other contracts:  Barter (Art. 1468, 1638, 1954) – In barter, the consideration is the giving of a thing; In sale, it is giving of money as payment. – Both are governed by law on sales. – If consideration consists partly in money and partly by thing, look at manifest intention. – Depends on the intention of the parties if they consider their transaction as barter or sale. – If the value of thing is equal or less than amount of money, it is sale.

SALES AND LEASE Atty. Zarah Villanueva-Castro – If the value of thing is more than amount of money, it is barter.  – – –

Donation (Art. 725) Donation is gratuitous while sale is onerous. Donation is formal contract; sale is consensual. Donation is governed by law on donation; sale is governed by law on sales.

 Contract for a Piece of Work (Art. 1467) – Also known as Massachusetts Rule. – If the 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, it is a sale. – If goods are to be manufactured especially for a customer and upon special order and not for the general market, it is a contract for piece of work. Jurisprudence: CO v. CIR G.R. No. L-8506; 31 August 1956 The important thing to remember is that Celestino Co & Company habitually makes sash, windows and doors, as it has represented in its stationery and advertisements to the public. That it "manufactures" the same is practically

admitted by appellant itself. The fact that windows and doors are made by it only when customers place their orders, does not alter the nature of the establishment, for it is obvious that it only accepted such orders as called for the employment of such material-moulding, frames, panels-as it ordinarily manufactured or was in a position habitually to manufacture. CIR v. Arnoldus Carpentry Shop GR No. 71122; 25 March 1988 DOCTRINE: Based on Article 1467, what determines whether the contract is one of work or of sale is whether the thing has been manufactured specially for the customer and “upon his special order.” Thus, if the thing is specially done at the order of another, this is a contract for a piece of work. If, on the other hand, the thing is manufactured or procured for the general market in the ordinary course of one’s business, it is a contract of sale. The distinction between a contract of sale and one for work, labor and materials are tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other persons even if the order had not been given.

SALES AND LEASE Atty. Zarah Villanueva-Castro The one who has ready for the sale to the general public finished furniture is a manufacturer, and the mere fact that he did not have on hand a particular piece or pieces of furniture ordered does not make him a contractor only. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the – general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work  Agency to sell (Art. 1466) – In agency to sell, agent is not obliged to pay for price but merely obliged to deliver price received from buyer; in sale, the buyer pays for the price of the object. – In agency, the principal remains the owner even if object is delivered to agent; in sale, buyer becomes owner of thing. – In agency, agent assumes no risk/liability as long as within the authority given; In sale, seller warrants. – In agency, may be revoked unilaterally because fiduciary and even revoked it without ground; in sale, not unilaterally revocable. – In agency, agent is not allowed to profit; in sale, seller receives profit.

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Agency is a personal contract; sale is a real contract (to give), rescission is not available in agency.

Jurisprudence: Quiroga v. Parsons G.R. No. L-11491; 23 August 1918 RULING: The Court ruled that the contract by and between the plaintiff and the defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by agreement or by law. In order to classify a contract, due attention must be given to its essential clauses. In the contract in question, what was essential, as constituting its cause and subject matter, is that: The plaintiff was to furnish the defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to pay the price in the manner stipulated. Payment was to be made at the end of sixty days, or before, at the plaintiff’s request, or in cash, if the defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt payment.

SALES AND LEASE Atty. Zarah Villanueva-Castro – These are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds. In respect to the defendant’s obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his own free will.  Lease – In sale, obligation is to absolutely transfer ownership of thing; in lease, use of thing is for a specified period only with an obligation to return.

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In sale, consideration is price; in lease, consideration is rent. In sale, seller needs to be the owner of the thing to transfer ownership; in lease, lessor need not be the owner for ownership does not pass to the lessee. Contract of Lease with Option to Buy (Art. 1485) Really a contract of sale but designated as lease in name only. It is a lease of personal property where rents are considered as payment on installments.

Kinds of Sale (1) Absolute – seller does not reserve his title over the thing sold and thus, upon delivery, ownership passes regardless of WON buyer has paid. (2) Conditional – condition/s are imposed by the seller before ownership will pass *CONDITION – An event may may give rise or extinguish and obligation as agreed by the contracting parties. May be a past event if the knowledge there of is unknown yet. Contract to Sell – Ownership is reserved by the seller despite delivery; considered as a special kind of conditional sale; the

SALES AND LEASE Atty. Zarah Villanueva-Castro buyer has the right to compel the seller to execute a final deed of sale. – A preparatory stage before the perfection of Contract of sale Jurisprudence: Dignos v. CA G.R. No. L-59266; 29 February 1988 Held: The Court ruled that there is an absolute contract of sale. That 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 Rayos v. CA G.R. No. 135528, 14 July 2004 Held: The Court ruled that the parties executed a contract to sell and not a contract of sale.

The petitioners retained ownership without further remedies by the respondents until the payment of the purchase price of the property in full. Such payment is a positive suspensive condition, failure of which is not really a breach, serious or otherwise, but an event that prevents the obligation of the petitioners to convey title from arising, in accordance with Article 1184 of the Civil Code. The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition to the obligation of the petitioners to sell and deliver the title to the property, rendered the contract to sell ineffective and without force and effect. The parties stand as if the conditional obligation had never existed. Clemeno, Jr. v. Lobregat G.R. NO. 137845; 9 September 2004 Held: The Court ruled that the contract between the parties was a perfected verbal contract of sale and not a contract to sell over the subject property, with the petitioner as vendor and the respondent as vendee. Sale is a consensual contract and is perfected by mere consent, which is manifested by a meeting of the minds as to the offer and acceptance thereof on three elements: subject matter, price and terms of payment of the price.

SALES AND LEASE Atty. Zarah Villanueva-Castro

II. OBJECT OF SALE (Art. 1306) (a) Subject matter must be LICIT (Art. 1459) – within the commerce of man.  Illicit per se – refers to its nature.  Illicit per accidens – made illegal by provisions of law.  Illicit contracts are null and void. (b) Subject matter must be DETERMINATE (Art. 1460) – not essential at the time of perfection; particularly designated or physically segregated from all others of the same class. The requisite that a thing must be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new further agreement between the parties (c) Sale of things having POTENTIAL EXISTENCE (Art. 1461) – animals not yet born, fruits of trees, rice to be harvested.  Thus, a valid sale may be made of “the wine a vine is expected to produce; or the grain a field may grow in a given time; or the milk a cow may yield during the coming year; or the wool that shall thereafter grow upon a sheep; or what may be taken at the next cast

of a fisherman’s net; or the goodwill of a trade, or the like. The thing sold, however, must be specific and identified. They must be also owned by the vendor at the time.” (d) Sale of HOPE or EXPECTANCY (Art. 1461)  Emptio rae speratae – sale of an expected thing; if does not materialize, the sale is not effective (future thing). Depends on the existence  Emptio spei – sale of mere hope; does not matter whether it materializes or not, as long as the hope itself validly existed (present thing). Ex: lottery ticket  it is the “chance” which the buyer actually buys  Mere hope or expectancy – VALID as long as it will come into existence.  Vain hope or expectancy – VOID (e) Sale of EXISTING and FUTURE GOODS (Art. 1462)  The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale, in this Title called "future goods."

SALES AND LEASE Atty. Zarah Villanueva-Castro  There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen. (n)  This is an EXECUTORY contract – already perfected but to be performed or complied with by the seller. (f) Sale of UNDIVIDED INTEREST (Art. 1463)  A sole owner of a thing may sell an undivided interest. Jurisprudence: Almendra v. IAC G.R. No. 75111; 21 November 1991 The owner of a thing may sell his interest in the land but with now specification as to what specific part since the property is still not yet partitioned. Thus, the sale is valid as regard 50% of the property and the rights therein (g) Sale of FUNGIBLE GOODS (Art. 1464)  It means goods of which any unit is, from its nature or by mercantile usage, treated as the equivalent of any other unit (Uniform Sales Act, Sec. 76.), such as grain, oil, wine, gasoline, etc.

(h) Sale of THINGS subject to RESOLUTORY CONDITION (Art. 1465)  A resolutory condition is an uncertain event upon the happening of which the obligation (or right) subject to it is extinguished. Hence, the right acquired in virtue of the obligation is also extinguished.  Example: For failure to pay his debt, the land of S (mortgagor) was sold to B, the highest bidder and purchaser in an extrajudicial foreclosure of a real estate mortgage. Under the law (Act No. 3135, as amended.), the mortgagor may redeem the property at any time within one year from and after the date of the registration of the sale. If S redeems the property, then the sale made to B is extinguished.  One of the obligations of the vendor is to transfer the ownership of the thing object of the contract. (Art. 1458.) If the resolutory condition attaching to the object of the contract, which object may include things as well as rights (Arts. 1427, 1347, par.1.), should happen, then the vendor cannot transfer the ownership of what he sold since there is no object.