Law on Sales

 Contract of sale

v  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 therefor a price certain in money or its equivalent. (PUP vs CA)

ª        Nature of Obligations created

1.      Seller

a.     To transfer ownership; and

b.     To deliver possession of the subject matter

2.     Buyer

a.     To pay the Price.

ª        Elements of Contract of Sale

1.      Consent

ü  The meeting of minds to transfer ownership in exchange for the price.

2.     Determinate subject matter

3.     Price certain in money or its equivalent.

ª        Stages in the Life of Sale

1.      Negotiation (Politacion or preparation)

ü  It covers from the time the prospective contracting parties indicate their interests in the contract to the time the contract is perfected.

ü  Legal matters arising prior to the perfection of sale.

ü  Dealing with the concepts of invitation to make offer, offer, acceptance, right of first refusal, option contract, supply agreement, mutual promises to buy and sell or contracts to sell, and even agency to sell or agency to buy.

ü  There is a freedom to contract.

ü  Article 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer.

ü  An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either offeror or offeree, before the acceptance is conveyed and received by the offeror.

ü  Options

§   Article 1479. Par 2. An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promissory if the promise is supported by a consideration distinct from price.

§   A privilege existing in one person, for which he had paid a consideration and which gives him the right to buy certain merchandise or certain specified property, from another person, if he chooses, at any time within the agreed period at a fixed price.

§   Unaccepted offer

§   It is not of itself a purchase, but merely secures privilege to buy

§   It is not a sale of property, but a sale of the right to purchase.

§   Elements of a valid option contract

a.     Consent or the meeting of the minds upon

b.     Subject matter

-       An option right to an accepted unilateral offer to sell/accepted promise to sell, or unaccepted unilateral offer to buy/accepted promise to buy

i.  A determinate or determinable object;

ii. For a price certain, including the manner of payment thereof.

c.      Prestation

-       A consideration separate and distinct from the purchase price for the option given.

§   Article 1144 (1). Upon a written contract actions must be brought within 10 years from the time the right of action accrues

-       The right of option would prescribe.

§        Separate consideration

ü  It may be anything or undertaking value.

§        Sanchez Doctrine

ü  The option contract not supported by a separate consideration is void.

2.     Perfection (Conception or birth)

ü  It takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price.

3.     Consummation (death)

ü  It begins when the parties perform their respective undertaking under the contract of sale, culminating in the extinguishment thereof.

ª        Characteristics of Sale

1.      Nominate

ü  Since it has been given a particular name by law.

ü  Its nature and consequences are governed by a set of rules in the Civil Code, “Law on Sales.”

2.     Principal

ü  It can stand on its own and does not depend on another contract for its validity or existence.

3.     Consensual

v  Article 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.

4.     Bilateral and Reciprocal

ü  Bilateral contract embodying reciprocal obligations.

ü  It imposes obligations on both parties to the relationship, and whereby the obligation or promise of each party is the cause or consideration for the obligation or promise of the other.

ü  As distinguished from unilateral contract.

ü  Reciprocal obligations

§   Those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that obligation of one is dependent upon the obligation of the other.

§   They are to be performed simultaneously such that performance of one is conditioned upon simultaneous fulfilment of the other.

ü  Legal effects and consequences:

a.     The power to rescind is implied.

b.     Neither party incurs delay.

c.      From the moment one of the parties fulfils his obligation, the default by the other begins, without the need of prior demand.

5.     Onerous

ü  It imposes a valuable consideration as a prestation, which ideally is a price certain in money or its equivalent.

ü  As distinguished from a gratuitous contract.

6.     Commutative

ü  A thing of value is exchange for equal value.

ü  As distinguished from an aleatory contract.

ª        Sale is title not a mode

ü  Title only constitutes the legal basis by which to affect dominion or ownership. It is the juridical justification.

ü  Mode is the legal means by which dominion or ownership is created, transferred or destroyed. It is the actual process of acquisition or transfer of ownership over a thing.

ª        Contract to sell vs Contract of sale

ü  Contract to sell

§   A bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the sad property exclusively to the prospective buyer upon fulfilment of the condition agreed upon, that is full payment of the purchase price. (Coronel vs CA)

ª        Capacity of the parties

ü  General Rule: Any person

a.     Capacity to act;

b.     The power to do acts with legal effects; or

c.      The power to obligate himself.

ü  Natural persons or individuals

§   The age of majority begins at 18 years.

ü  Juridical persons

§   Corporations, partnerships, associations and cooperatives.

ü  Disqualified from being parties:

a.     Minors;

b.     Insane;

c.      Demented persons;

d.     Deaf-mutes who do not know how to read and write

§   Voidable subject to annulment or ratification.

§   Valid during lucid intervals by insane or demented persons.

1.      Necessaries

ü  FC. Article 194. Sustenance, dwelling, and clothing, and perhaps medicine and educational books and materials.

ü  Minor is without legal capacity to give consent. (voidable)

ü  Minor sale to be valid:

a.     Perfection of the sale (consummated); and

b.     Delivery of the subject necessaries.

2.     Emancipation

ü  Moot by RA 6809

ü  It takes place by the attainment of majority (21 years, now 18 years).

a.     By marriage of the minor; or

b.     By the voluntarily emancipation by recording in the Civil Register of an agreement in a public instrument executed by the parent exercising parental authority and the minor at least 18 years old. (Inutile since 18 years of age is no longer a minor).

3.     Senility and serious illness

ü  Advanced years or by reason of physical infirmities have impaired mental faculties so as to prevent the person from properly, intelligently, and firmly protect his rights.

ü  Void ab initio:

a.     Incapacity to give consent (voidable);

b.     Price was never paid to and received (rescission or specific performance); and

c.      The consideration was grossly and shocking inadequate.

v  Article 1490. The husband and the wife cannot sell property to each other, except;

1.      When a separation of property was agreed upon in the marriage settlements; or

2.     When there has been judicial separation of property under Article 191.

ü  The sale in violation of Art. 1490 is inexistent and void from the beginning (expressly prohibited by law).

ü  Art. 87. FC. They are also prohibited from making donations to each other during the marriage except moderate gifts.

ü  Rationale for prohibition

a.     To prevent a spouse defrauding his creditors by transferring his properties to the other spouse;

b.     To avoid a situation where the dominant spouse would unduly take advantage of the weaker spouse, thereby effectively defrauding the latter; and

c.      To avoid an indirect violation of the prohibition against donations between spouses under Article 133 of the NCC.

v  Article 1491. The following persons cannot acquire by purchase, even at public or judicial auction, either in person or through mediation of another:

1.      The guardian, the property of the person or persons who may be under his guardianship;

2.     Agents, the property whose administration or sale may have been intrusted to them, unless the consent of the principal have been given;

3.     Executors and administrators, the property of the estate under administration;

4.     Public officers and employees, the property of the State or of any subdivision thereof, or of any government owned or controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever take part in the sale;

5.     Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property in rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession.

6.     Any others specially disqualified by law.

ª        Prohibited from acquiring property directly or indirectly: GAEPJO

1.      Guardians;

2.     Agents;

3.     Executors and administrators;

4.     Public officers and employees;

5.     Judicial officers, employees and lawyers; and

6.     Others

Subject Matter

ª        Requisites of valid subject matter

a.     Possible thing;

ü  Article 1461. Things having a potential existence may be the object of the contract of sale.

The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence.

The sale of a vain hope or expectancy is void.

ü  It must be existing, having potential existence, a future thing, or even contingent or subject to resolutory condition.

ü  It has capacity, not certainty of coming into existence.

ü  Future things provided it has potential or possible existence.

b.     It must be licit;

ü  Article 1347. All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts.

ü  Illicit: Contract is void: Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy.

c.      It must be determinate or at least determinable.

ü  Determinate subject matter (Specific)

§   Article 1460. A thing is determinate when it is particularly designated or physically segregated from all others of the same class.

§   Defense of force majeure is applicable

ü  Determinable subject matter (generic)

§   Article 1460. Par 2.

§   If at the time the contract is entered into, the thing is capable of being determinate

§   Without necessity of a new or further agreement between the parties.

ü  Doctrine in National Grains Authority vs Intermediate Appellate Court

§   The specific quantity of subject matter is not important when it is possible to determine the quantity without the need of a new contract between the parties and therefore complies with the requisite of being determinable.

ª        Sale of thing expected vs Sale of hope itself

	Sale of thing expected (emptio rei separate)	Sale of hope itself (emptio rei)
	Sale of a thing not yet in existence subject to the condition that the thing will exist and on the failure of the condition, the contract becomes ineffective and hence, the buyer has no obligation to pay the price.	The thing will come into existence, where it is agreed that the buyer will pay even if the thing does not eventually exist.
	The future thing is certain as to itself but uncertain as to its quantity and quality.	It is not certain that the thing itself will exist, much less its quantity and quality.
	Future thing	The contract relates to a thing which exists or is present.
	The sale is subject to the condition that the thing should exist, so that if it does not, there will be no contract by reason of the absence of an essential element.	It produces no effect even though the thing does not come into existence because the object of the contract is the hope itself, unless it is a vain hope or expectancy.
Presumption in case of doubt	In favor: It is more in keeping with the commutative character of the contract

Price and other consideration

§        Price

ü  It 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.

ª        Requisites for valid price

a.     It must be real;

§   Real

-       When at the perfection of sale, there is legal intention on the part of the buyer to pay the price, and legal expectation on the part of the seller to receive such price as the value of the subject matter he obligates himself to deliver.

§   Simulated

-       Neither the party had any intention whatsoever that the amount will be paid.

-       Based on contemporaneous and subsequent acts of the parties.

-       The sale is void.

§   False

-       When there is a real price upon which the minds of the parties had met, but not declared, and what is stated in the covering deed is not the one intended to be paid.

-       Contract of sale is valid but the underlying deed is subject to reformation.

-       The parties may be bound by the false price indicated in the instrument under estoppel principle.

-       False consideration is one that has in effect of a real consideration but the same is not the one stated in the document.

b.     It must be in money or its equivalent (Valuable consideration); and

§   Article 1458

§   Article 1468

c.      It must be certain or ascertainable.

§   Article 1469. 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.

§   Price is certain when it has been expressed and agreed in terms of specific pesos and/or centavos. This affirms the proposition that money represents the best model of valuable consideration.

§   Article 1472. The price of securities, grain, liquids, and other things shall also be considered certain, when the price is fixed is that which the thing sold would have on a definite day, or a particular exchange or market, or when an amount is fixed above or below the price on such day, or in such exchange or market, provided said amount be certain.

§   Inefficacious (Art. 1474)

-       Where the price cannot be determined in any other manner.

-       Preceding articles (Art. 1469-1473).

-       Inefficacious rather than void.

-       It means the inability to produce the effect wanted; inability to get things done.

-       It was not meant to exclude void sales, but more to be able to include valid conditional contracts of sale in the same group as void contracts, from the focal point of price.

-       Two important points:

a.     Principle of unjust enrichment (against the buyer)

b.     Applies even when there is a “no contract”

-       Twin concepts of delivery and appropriation.

-       Elements for an action for specific performance would prosper for the recovery of price:

a.     There was a meeting of minds of the parties of sale and purchase as to the subject matter;

b.     There was an agreement that price would be paid which fails to meet the criteria of being certain or ascertainable; and

c.      There was delivery by the seller and appropriation by the buyer of the subject matter of the sale.

§        Inadequacy of price

ü  Article 1355. 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.

ü  Article 1470. 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.

ü  It will not result in a void contract, and it does not even affect the validity of a contract of sale, unless it signifies a defect in the consent or that the parties actually intended a donation or some other contract.

ü  It is a ground for rescission of conventional sale (Article 1381).

ü  Sale with a right to repurchase:

§   Seller: Reformation or declared a  mortgage contract

§   Buyer: Foreclose on the quitable mortgage (not to appropriate subject matter: pactum commissorium).

ª        Failure to pay the consideration vs lack of consideration

ü  Failure to pay

§   It results in a right to demand the fulfilment or cancellation of the obligation under an existing valid contract.

ü  Lack of consideration

§   It prevents the existence of a valid contract