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SALES: ART.

1458 – 1503
www.freewebs.com/homerpablo/.../Sales%20Finals%20Reviewer.doc; Edited by: CCC © 2010

Contract of Sale. 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.

Contract of Sale Contract to Sell


Title over the property passes to the Ownership is retained by the seller
buyer upon delivery unless there is a whether or not there is delivery.
contrary agreement Ownership passes to the buyer only upon
full payment of the price
Non-payment of the purchase price is a The payment in full is a positive
negative resolutory condition, meaning suspensive condition, meaning, if the
the sale becomes ineffective upon the purchase price is not paid, the obligation
happening of such condition to deliver and to transfer ownership on
the part of the seller does not become
effective
After delivery of the objective, the seller Whether there is delivery or not, the
loses ownership over it. Unless, the seller retains the ownership of the object.
contract is set aside, he cannot recover If the seller, due to non-payment of the
the object price is ousting the buyer from the
property, he (seller) is not rescinding the
contract of sale but is precisely enforcing
it.

Pactum Reservatii Domini Contract to Sell


Conditional Sale there is already a No contract to sale only, a preparatory
contract of sale contract
There is already delivery but ownership No delivery yet. No sale yet
retain by seller
Specific Performance/Rescission No specific performance/rescission—no
contract yet
Payment completes the transaction Payment will not complete transaction

Phases or Stages of A contract of Sale


1. Preparation, conception or generation—the period of negotiation and bargaining, ending
at the moment of agreement of the parties
2. Perfection or Birth of the Contract
3. Consummation or death—which is the fulfilment or performance of the terms agreed upon

Characteristics or Features of Contract of Sale (NBC-COP)


1. Nominate—It has a specific name given by law.
2. Bilateral—both parties are obliged to fulfil reciprocal obligations to one another.
3. Consensual—It is perfected by mere consent
4. Commutative—The thing sold is equivalent of the price paid
5. Onerous—The thing sold is conveyed in consideration of the purchase price and the purchase
price is paid in consideration of the conveyance of the thing.
6. Principal—Its existence does not depend upon the existence and validity of another contract

Elements of Contract of Sale


1.Essential Elements—necessary for the validty of the sale.
a. Meeting of the minds of the seller and the buyer
b. Object which is certain and determinate
c. Price certain
2. Natural Elements—those which are inherent in the contract and are deemed to exist in the
contract of sale in the absence of clear contrary agreement.
a. Warrant against eviction
b. Warranty against hidden defects
3. Accidental Elements—May or may not exist depending on the stipulations of the parties like
conditions, payment of interest, place and time of payment.

Object Must be Licit or Lawful. There are two kinds of illicit things:
a. Illicit per se—when by its nature it is heinous, immoral or wrongful
b. Illicit per accidens—when it is prohibited by law

David also said to Solomon his son, "Be strong and courageous, and do the work. Do not be afraid or
discouraged, for the LORD God, my God, is with you. He will not fail you or forsake you until all the work for the
service of the temple of the LORD is finished. --1 Chron. 28:20
SALES: ART. 1458 – 1503
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When is a thing determinate?


a. When it is particularly designated or physically segregated from all others of the same class.
b. The thing is capable of being made determinate, at the time the contract is entered into, w/o
the necessity of a new or further agreement between the parties.

Emptio rei speratae—a sale of an expected thing subject to the condition that the thing will
come to existence. If the thing did not come into existence, the contract is not effective and the
buyer has no obligation to pay the price. Presumption is in favor of this kind of sale, because it
is more in keeping with the commutative character of a sale.

Emptio spei—a sale of a hope or expectancy. The contracting parties intended that contract of
sale to exist at all events, whether or not the expected thing will come into existence such that
the buyer will have to pay the purchase price, such that the contract becomes aleatory in
nature.

Emptio rei speratae vs. Emptio spei


Emptio rei speratae Emptio spei
Sale of a thing having a potential Sale of a mere hope or expectancy
existence
The uncertainty is with regard the The uncertainty is with regard the
quantity and quality but not with regard existence of the thing
the existence of the thing
The contract deals with a future thing The contract deals with a present thing—
the hope or expectancy
The sale is subject to the condition that The sale produces effects eventhough
the thing should exist, so that if it does the thing itself does not come into
not, there is no contract for lack of an existence, since the subject matter is the
essential requisite hope itself

Future Goods that may be subject of a contract of sale


1. Goods to be manufactured yet
2. Goods to be acquired by the seller after the perfection of contract of sale
3. Goods that depends upon a contingency that may or may not happen

Purchase of an Undivided Share in Specific Mass of Fungible Goods. Rules:


1. If the aliquot part purchased from the seller is more than the whole undetermined mass after
it had been weighed or measured, then the buyer becomes the owner of the entire mass.
2. If the aliquot part purchased is less than the whole undetermined mass, the purchaser will
become the co-owner of the whole mass in the proportion in which the number, weight or
measure of what had been purchased bears to the number, weight or measure of the mass or
stock.

Sale vs. Agency


SALE AGENCY
The buyer pays for the price of the The agent does not pay for the price. He
goods/property purchased merely accounts for the proceeds of the
sale.
The buyer becomes the owner of the The agent does not become the owner of
goods/property purchased the goods/property delivered to him for
sale.
Buyer cannot return the goods/property The agent returns the goods/property if
when the sale is defective he was not able to sell the same
The seller warrants the goods/property The agent does not make any warranty
sold as long as he acts within his authority
and in the name of the principal
The seller has full freedom to enter into The agent must follow the instructions of
any terms or conditions on the contract the principal
of sale

David also said to Solomon his son, "Be strong and courageous, and do the work. Do not be afraid or
discouraged, for the LORD God, my God, is with you. He will not fail you or forsake you until all the work for the
service of the temple of the LORD is finished. --1 Chron. 28:20
SALES: ART. 1458 – 1503
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Contract for a Piece of Work—The article sold is specially manufactured and upon the
special order of the customer. Article is not sold in the ordinary course of business. (See.
Concrete Aggregates vs. CTA)

Contract for a piece of work Contract of Sale


The thing transferred is one not in The thing transferred is one which would
existence and w/c never would have have existed and would have been the
existed but for the order of the party subject of sale to some other person,
desiring to acquire it even if the order had not been given
The services dominate the contract The primary objective of the contract is a
eventhough there is a sale of goods sale of the manufactured item; it is a sale
involved of goods eventhough the item is
manufactured by labor furnished by the
seller and upon previous order of the
customer
Not w/in the Statute of Frauds Governable by the Statute of Frauds

Rules if Consideration is partly Money and Partly Goods


1. Determine the intention of the parties.
2. If intention could not be determined, consider the value of the thing given:
a. If value of the thing more than value of the money, it is BARTER
b. If value of the thing less than value of the money, it is SALE
c. If both values are the same, SALE

Money Exchange.
 If local currency is exchanged for foreign currency—there is purchase and sale.
 If the local currency is exchanged with other denominations of the local currency also,
there is barter (Same rule if Foreign Currency exchanged in the Philippines for another
foreign currency)

PRICE
- the sum stipulated as the equivalent of the thing sold and also every incident taken into
consideration for the fixing of the price, which was agreed upon by both parties.

Rules if there is no specific amount stipulated as purchase price


1. It is still certain if it is determinable by making reference to another thing which is itself
certain
2. It is still certain if determination is entrusted to the judgment of a specified person or persons
3. By reference to certain fact or facts (such as in Art. 1472—when the price is fixed is that
which the thing sold would have on a definite day or a particular exchange)

Effect if 3rd Person fixed the price


General Rule: It is binding upon the parties
Exceptions:
1. When the 3rd person acts in bad faith
2. When the 3rd person disregards the specific instructions or the procedure marked out
by the parties

Effect when the price is not fixed by the 3rd person designated
1. If the 3rd person refuses or cannot fix the price, the contract shall become ineffective, unless
the parties subsequently agree upon the price
2. If the 3rd person is prevented from fixing the price by the fault of the seller or buyer, the party
not in fault may obtain redress against the party in fault.

Effect of Gross Inadequacy of Price. No effect.


Exceptions: (meaning, sale is set aside)
1. If consent is vitiated, such as VIMFU (Violence, Intimidation, Mistake, Fraud, Undue influence)
2. If the parties intended a donation or some other act or contract
3. If the price is so low as to be shocking to the conscience

David also said to Solomon his son, "Be strong and courageous, and do the work. Do not be afraid or
discouraged, for the LORD God, my God, is with you. He will not fail you or forsake you until all the work for the
service of the temple of the LORD is finished. --1 Chron. 28:20
SALES: ART. 1458 – 1503
www.freewebs.com/homerpablo/.../Sales%20Finals%20Reviewer.doc; Edited by: CCC © 2010

Effect of Simulated Price. Sale is void, unless it could be shown that the parties intended a
donation or some other act of liberality.
Price Simulated- No price to support a contract of sale, such that neither party had any
intention that the amount will be paid—void
Price is False- there is a real price not declared—contract is valid, but the underlying
deed is subject to reformation to indicate the real price upon which the minds of the
parties have met.

When Price Cannot be determined, effect: Sale is inefficacious. (1474)


Is appropriation of the thing delivered in an inefficacious contract allowed? Yes, buyer
must pay a reasonable price to that part delivered. (Reasonable price is generally the market
price at the time and place fixed by the contract or by law for the delivery of the goods)

PERFECTION OF CONTRACT OF SALE. Meeting of the minds upon the thing and price.
Effect: Parties may reciprocally demand performance

RULES ON AUCTION SALES


1. Each lot is subject of a separate contract of sale

2. Auction sale is perfected when the auctioneer announces its perfection by the fall of the
hammer or in other customary manner.

* Pending announcement:
 Any bidder may retract his bid
 Auctioneer may withdraw the goods, unless auction is w/o reserve

3. A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise
provided by law or stipulation

4. Notice is essential for the seller or his representative to be able to bid.


By-bidders or puffers: persons employed by auctioneer who will bid w/o being bound
but whose bids will have a tendency to induce or provoke higher bids from interested
buyers, thus misleading the latter because of the inflated bid price.

**It is the secrecy of the puffing and not the authorized bidding by the seller which
makes it fraudulent.

OPTION CONTRACT. A Privilege existing in one person, for which he had paid a consideration,
which gives him the right to buy, certain merchandise or property from another person at
anytime within the agreed period at a fixed price. In case of breach of promise to buy or to sell,
injured party can only seek damages. (See Art. 1479)

Test to Determine whether a Contract is A contract of Sale or An Option. Whether or


not the agreement could be specifically enforced. If such stipulation could be independently
enforced from the contract, then such stipulation is an option.

EARNEST MONEY vs. OPTION MONEY


Earnest Money Option Money
It is part of the purchase price It is given as a distinct consideration for
an option contract which gives the buyer
a specific period within which to purchase
the thing
It is given only when there is already a It is given at a time when the sale had
perfected sale not yet been perfected. What had been
perfected only is the option contract
When it is given, the buyer is bound to Even if option money is paid by the
pay the balance of the agreed purchase would-be-buyer he is not bound to buy
price the thing

David also said to Solomon his son, "Be strong and courageous, and do the work. Do not be afraid or
discouraged, for the LORD God, my God, is with you. He will not fail you or forsake you until all the work for the
service of the temple of the LORD is finished. --1 Chron. 28:20
SALES: ART. 1458 – 1503
www.freewebs.com/homerpablo/.../Sales%20Finals%20Reviewer.doc; Edited by: CCC © 2010

If the sale does not materialize, the If the buyer decides not to buy the thing,
earnest money paid must be returned, he cannot recover the option money he
unless a contrary agreement had been paid as consideration for the contract of
stipulated option

LOSS, DETERIORATION OF THING

BEFORE PERFECTION. No contract to talk about. Would-be-seller bears the loss.

AT THE TIME OF PERFECTION OF CONTRACT OF SALE—1493


*contract without any effect: it never came to existence. Tthere could be no contract of
sale without a thing to be sold. Would-be-seller bears the loss.

AFTER PERFECTION BEFORE DELIVERY.


I. 1480 Applicability, correlate to: (Fungibles sold independently and for a single price covered
by the law)

Art. 1163. 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. 1164. 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. 1165. When what is to be delivered is a determinate thing, the creditor, in
addition to the right granted him by Article 1170, may compel the debtor to
make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more
persons who do not have the same interest, he shall be responsible for any
fortuitous event until he has effected the delivery
Art. 1262. An obligation which consists in the delivery of a determinate thing
shall be extinguished if it should be lost or destroyed without the fault of the
debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events, the
loss of the thing does not extinguish the obligation, and he shall be responsible
for damages. The same rule applies when the nature of the obligation requires
the assumption of risk.

II. 1504 Applicability. Principle of Res Perit Domino. Vendor bears risk of loss until ownership is
transferred by delivery.

Exceptions:
a) Where delivery of goods has been made but ownership is retained by the seller merely to
secure performance of buyer’s obligation
b) Where actual delivery is delayed through fault of the buyer.

Sale of Goods By Description- where a seller sells a thing as being of a certain kind verbally
describing them and the buyer simply relies on the seller’s descriptions of the things, not
knowing whether the seller’s representations are true or not.

Sale by Sample- Where the seller warrants that the bulk of goods being sold correspond with
the sample or samples exhibited not only in kind but also in quality and character.

Sale by Description and Sample- Where the seller has to satisfy the requirements in sale by
description and sample. There are two-fold warranty here: (a) the goods purchased matched
with the description and (b) the goods also matched in kind, quality and character with that of
the sample or samples exhibited to the buyer or his representative

David also said to Solomon his son, "Be strong and courageous, and do the work. Do not be afraid or
discouraged, for the LORD God, my God, is with you. He will not fail you or forsake you until all the work for the
service of the temple of the LORD is finished. --1 Chron. 28:20
SALES: ART. 1458 – 1503
www.freewebs.com/homerpablo/.../Sales%20Finals%20Reviewer.doc; Edited by: CCC © 2010

RECTO LAW (ART. 1484)


Applicability: Sales of Personal Property in Installments and Leases of Personal Property w/
Option to Buy

Remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.

 The stipulation that the instalments or rents shall not be returned to the vendee or
lessee shall be valid as long as it is not unconscionable. (1486)

David also said to Solomon his son, "Be strong and courageous, and do the work. Do not be afraid or
discouraged, for the LORD God, my God, is with you. He will not fail you or forsake you until all the work for the
service of the temple of the LORD is finished. --1 Chron. 28:20
SALES: ART. 1458 – 1503
www.freewebs.com/homerpablo/.../Sales%20Finals%20Reviewer.doc; Edited by: CCC © 2010

Chapter 2. – Capacity to Buy or Sell


ART. 1489.
Two Kinds of Incapacity:
1. Absolute Incapacity- Party cannot bind himself in any case.
2. Relative Incapacity- Certain Persons under certain circumstances cannot buy certain
property.

** Minors in contract for necessaries must pay reasonable price.

Necessaries—those things which are needed for sustenance, dwelling, clothing and medical
attendance, in keeping with the financial capacity of the family of the incapacitated person.

ART. 1490. Prohibition against Husband and Wife. Exceptions.


Rationale: PID
a. To avoid Prejudice to 3rd Persons
b. To prevent one spouse from unduly influencing the other.
c. To avoid by indirection the violation of the prohibition against donations.

Who may assail illegality?


a. Creditors prior to the sale
b. Heirs of either spouse.

** Either spouse may not assail illegality because they are parties thereto.
** A spouse designated as agent of the other spouse may sell the latter’s exclusive
property.

ART. 1491. Persons Relatively Incapacitated to Buy. (PAGEJO)

1. Public Officers and employees—Property Of State.


2. Agents—Property of Principal unless with consent.
3. Guardian—Property of Ward.
4. Executors and administrators—Estate
5. Justices, Judges, Prosecuting Attorneys, Clerks and employees of court—Property/Rights
under litigation.
6. Others disqualified by law. (Ex. *aliens who are disqualified to purchase private agricultural
lands; *an unpaid seller having a right of lien or having stopped the goods in transitu, who is
prohibited from buying the goods either directly or indirectly in the resale of the same at a
public or private sale w/c he may make. Art. 1533, par.5)

Rationale: Fiduciary relationship


Status of Sale: Voidable (1-3); Void (4-6)

ART. 1492. 1490 and 1491 Applicable to Legal Redemption, Compromises and
Renunciations.

Chapter 3. – Effects of Contract when the Thing Sold has been Lost
ART. 1493. Loss of Object Before Sale. Complete and Partial Loss.
Partial Loss Rules:
1. Vendee may withdraw from the contract
2. Demand the remaining part, paying its price in proportion to the total sum agreed
upon

ART. 1494. Loss/Substantial Deterioration of Specific Goods without seller’s


knowledge.
1. Buyer may avoid the sale or
2. May treat sale as valid w/ respect to the existing goods

David also said to Solomon his son, "Be strong and courageous, and do the work. Do not be afraid or
discouraged, for the LORD God, my God, is with you. He will not fail you or forsake you until all the work for the
service of the temple of the LORD is finished. --1 Chron. 28:20
SALES: ART. 1458 – 1503
www.freewebs.com/homerpablo/.../Sales%20Finals%20Reviewer.doc; Edited by: CCC © 2010

Chapter 4. – Obligations of the Vendor


ART. 1495. Obligations of Vendor. (TDWP)
1. Transfer Ownership (not waivable)
2. Deliver (not waivable)
3. Warrant Object (waivable and may be modified)
4. Preserve Thing from perfection to delivery (Art. 1163)
5. Pay for the execution and registration of the sale unless there is a contrary agreement

**Execution sales do not require the delivery of thing since a one year period of redemption is
available to seller.

ART. 1496. Delivery Transfers Ownership.

ART. 1497. Control and Possession necessary in Delivery.


Exception: Art. 1478. Stipulation as to full payment of price.

Delivery- a mode of acquiring ownership as a consequence of a contract of sale by


virtue of which actually or constructively the object is placed in the control and possession of
the vendee.

KINDS OF DELIVERY

1. Actual or Real. (1497)


2. Legal or Constructive
a. Legal Formalities (1498); execution of public instrument.
b. Symbolical Tradition (1498 par 2)- keys delivered.
c. Traditio Longa Manu- by mere consent /agreement. If the movable sold cannot yet be
transferred to the possession of the buyer at the time of the sale. (1499)
d. Traditio Brevi Manu- if the buyer had already the possession of the object even before
the purchase. (lessee becomes owner)
e. Traditio constitutum possessorium- possession as owner changed. (Owner becomes
lessee)

3. Quasi-Tradition- Delivery of Rights, credits or incorporeal property made by:


a. Execution of public instrument
b. Placing titles of ownership in the hands of a lawyer.
c. Allowing the buyer to make use of the rights (1501)

ART. 1498. Constructive delivery.


Requirements:
1. Seller’s Control.
2. Seller’s Control transferred to buyer.
3. Intention to deliver for ownership.

ART. 1499. Traditio Longa and Brevi Manu


ART. 1500. Traditio Constitutum Possessorium.
ART. 1501. Delivery of Incorporeal Property. (Constructive and Quasi-Tradition)

ART. 1502.
Transaction on Sale or Return. Subject to Resolutory Condition.
Difference with “Delivery with option to purchase”- Ownership is transferred in Sale
or Return

Transaction on Approval or Trial/Satisfaction. Subject to Suspensive Condition.


Rules:
1. Risk of loss to seller until the sale becomes absolute. (Exceptions: Buyer in default;
Buyer agreed to bear the loss)
2. Buyer must give goods a trial except when it is evident that it cannot perform the
work intended.

David also said to Solomon his son, "Be strong and courageous, and do the work. Do not be afraid or
discouraged, for the LORD God, my God, is with you. He will not fail you or forsake you until all the work for the
service of the temple of the LORD is finished. --1 Chron. 28:20
SALES: ART. 1458 – 1503
www.freewebs.com/homerpablo/.../Sales%20Finals%20Reviewer.doc; Edited by: CCC © 2010

3. Period of signifying acceptance commences to run only when all the parts essential for
operation has been delivered.
4. A provision that a 3rd person must satisfy approval is valid but he must be in Good
faith.
5. Generally the Sale and Delivery to an expert buyer is not a sale on approval/trial.

Sale or Return vs. Sale on Approval


Basis Sale or Return Sale on Approval
Condition Subject to Resolutory Subject to suspensive
condition condition
Premise It depends upon the will of It depends upon the
the buyer suitability, quality or
character of the goods
Transfer of ownership Ownership immediately Ownership does not
passes to the buyer on immediately pass to the
delivery buyer. It passes only upon
approval or satisfaction of
the buyer duly manifested
after trial
Revesting of ownership in Ownership is revested in There is no revesting of
the owner the seller if the buyer so ownership because it is
decides retained by the seller until
the sale becomes absolute
Risk of loss or The risk rests on the buyer The risk remains in the
deterioration before the revestment of seller while the goods are
ownership on trial

Art. 1503- RESERVATION OF POSSESSION OR OWNERSHIP BY THE SELLER WHEN


SPECIFIC GOODS ARE SHIPPED.

1. When a contrary intention appears by the terms of the contract.

2. When the goods are shipped, and by the bill of lading(BOL) the goods are deliverable to the
seller or his agent, or to the order of the seller or of his agent.
Exception: Form of bill of lading not conclusive if for security purposes only.

3. When the goods are shipped and by the BOL the goods are deliverable to the order of the
buyer or of his agent, but possession of the BOL is retained by the seller or his agent.

4. Where bill of lading is sent forward to the buyer with bill of exchange attached and the
buyer did not pay the bill of exchange.

EFFECT OF BUYER’S OBTAINING POSSESSION OF BILL OF LADING WITHOUT


HONORING THE DRAFT.
** If the BOL provides that the goods are deliverable to the buyer or to the order of the buyer or
is indorsed in blank or is indorsed to the buyer by the consignee named therein, a
purchaser in GF for value of the BOL or goods from the buyer will obtain the ownership in
the goods although the BOE has not been honored.

Kinds of Delivery to the Carrier


1. C.I.F. (Cost, Insurance, Freight)—signify that the price fixed covers not only the costs of
the goods, but the expense of the freight and the insurance to be paid by the seller

2. F.O.B. (Free on Board)—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 point of shipment or the point of
destination) determines when the ownership passes.

*CIF and FOB merely make rules of presumption.

3. C.O.D. (Collect on Delivery)—the carrier acts for the seller in collecting the purchase price,
which the buyer must pay to obtain possession of the goods.

David also said to Solomon his son, "Be strong and courageous, and do the work. Do not be afraid or
discouraged, for the LORD God, my God, is with you. He will not fail you or forsake you until all the work for the
service of the temple of the LORD is finished. --1 Chron. 28:20
SALES: ART. 1458 – 1503
www.freewebs.com/homerpablo/.../Sales%20Finals%20Reviewer.doc; Edited by: CCC © 2010

David also said to Solomon his son, "Be strong and courageous, and do the work. Do not be afraid or
discouraged, for the LORD God, my God, is with you. He will not fail you or forsake you until all the work for the
service of the temple of the LORD is finished. --1 Chron. 28:20