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Midterms notes for Sales Basics 1. Obligations created: 1 a. Seller (to give ): iv. Transfer ownership v.

Deliver possession of the subject matter 2 b. Buyer (to give ): pay the price Elements: a. Consent iv. Meeting of minds to transfer ownership in exchange for price b. Subject Matter iv. Upon perfection: determinable 1. Capable of being made determinate without further agreement between the parties 2. Generic-determinable: not subject to loss. v. Upon delivery (consummation): determinate 1. Which requires physical segregation or particular designation c. Price Stages in life of sale: a. Negotiation b. Perfection iv. Contract to sell: already perfected, but is conditional, with a suspensive condition c. Consummation








Consensual a. Non-performance does not void a contract; just leads to remedies b. Ownership of thing not needed upon perfection of the contract, only upon consummation Bilateral and Reciprocal a. Obligations on both parties, to be performed simultaneously upon the performance of the other b. The obligation of one party is the cause of the other c. Delay of the other begins when one party fulfills his consideration d. Power to rescind implied Onerous a. Interpret towards greatest reciprocity of rights i. Ex. conflict between suspensive term and suspensive condition favor suspensive term (more reciprocity) Commutative a. Parties anticipate performance of the other from the start b. Subjective equivalence, rather than objective (if the parties believe he is getting value, then it is fine) c. Inadequate price does not invalidate sale, but may only indicate possible vitiation of consent Title, not mode a. Tradition is the mode to transfer ownership b. Sale merely creates the obligation to transfer and deliver

Distinctions 1. Donation a. This is gratuitous; sale is onerous b. This is solemn; sale is consensual c. Implication a simulated sale may still be a valid donation i. A donation with a burden less than the value of donation is still a donation ii. A donation with a burden equal or greater than the value of donation is an onerous donation Barter a. This is thing for thing; sale is thing for money

Characteristics 1. Nominate and Principal a. Intent over nomenclature b. It can stand on its own 2.

Thus, SPECIFIC PERFORMANCE is a remedy 2 Likewise


How to determine if sale or barter i. Manifest intention of the parties ii. When intention does not appear: 1. Barter if thing > money 2. Sale if thing <= money c. Only distinct rules between barter and sale for barter: i. Received the thing in barter and found out not to be the other partys cannot be compelled to deliver what he offered ii. Lost by eviction the thing received in barter may recover was he gave in exchange, with damages 1. As long as it remains with the other party, and not a third person in GF d. Only distinct rules between barter and sale for sale: i. Statute of frauds (sale of real property and personal property more than P500) ii. Right of legal redemption granted by the law to an adjoining owner of an urban land Piece-of-work a. Does NOT include research output no transfer of ownership (CIR v CA) b. Ordinary/special test (according to 1467): i. Sale: manufactures in ordinary course of business, or procures from the general market (whether on hand or not) ii. Piece of work: manufactures specially upon special order (timing test) c. Nature of work performed (Celestino-Co v CIR): i. Piece of work: if manufacture is made always upon or after orders of customers based on specifications (sale of service) ii. Sale: even if made to order, if there was (sale of object): 1. Habitualness 2. Ability to duplicate or mass produce the items d. EEI v Engineering Equipment abandoned timing test b.


i. Sale: article order is exactly what plaintiff makes and keeps on hand for sale to anyone and no change or modification made e. CONSOLIDATE Celestino-Co and EEI: i. Check if it is possible to produce the product ahead of any special order 1. Ex. aircon specifically fitting building space Piece of Work 2. Ex. Window sashes that can be customized Sale ii. By nature unique and always different from other orders iii. Essence of sale is object; essence of piece of work is service 1. If intention is that in some future date, an object must be delivered, without regard for the labor to be undertaken SALE 2. If intention is that there is a plan and the labor is regarded PIECE OF WORK f. Value of distinction: i. Sale is subject to specific performance ii. Piece of work is obligation TO DO 1. Poor work: remove defect or do it again rd 2. Or have it executed by 3 party at cost of obligor Agency to sell a. Agency fiduciary, thereby unilaterally revocable b. The agent does not become owner of the thing turnover to principal i. Quiroga v Parsons deemed as SALE, not agency, because Parsons had to pay the price for the beds, and Quiroga supplied the beds (two reciprocal obligations in SALE) ii. Gonzalo Puyat v Arco Gonzalo was to sell to Arco beds at a fixed price; even if Gonzalo was able to acquire equipment from the US company for a lower price, no obligation to also sell for a



lower price to Arco. There was SALE, not agency. c. No personal liability as long as he acts within the scope of authority d. Agent disqualified from getting personal profit from transaction (all profit must pertain to the business) e. Value of distinction: i. Sale has to comply with Statute of Frauds ii. Agency is valid in any form it may be entered to 1. Except for sale of piece of land or interest by agent must be in writing Dacion en Pago a. Dation novates the relationship into a SALE i. REAL contract (there has to be transfer of ownership to creditor) b. Also, there must be agreement between parties to extinguish the original obligation i. THERE MUST BE A PRIOR CONTRACT ii. Dation already applies to consummation of the obligation Lease a. Bind self to give another enjoyment or use of a thing for a period, whether definite or indefinite. b. Lease with option to buy is actually conditional sale.

Parties GENERAL RULE: any person with capacity to contract may enter into sale contract o Minors/incapacitated VOIDABLE Only the minor/incapacitated party may allege minority Duty to restitute: to extent of benefit o Necessaries need PERFECTION and DELIVERY to make it valid. NOT anymore voidable. If just PERFECTED, voidable. Spouses o Spouses can engage in any activity/business Only objection: on valid, serious, and moral grounds

Before objection obligation charged to one spouse After objection obligation charged to conjugal property o Lack of one spouses consent VOID (lack of consent) o Spouses cannot sell to each other Except: CSP JSP Prohibition on sale between spouses also applies to common law spouses. rd Except: if there is 3 person in GF who bought it Sale includes legal redemption, compromises, and renunciations Who can assert: Heirs prejudiced Prior creditors State o Rationale: Prevent fraud to creditors Prevent dominant spouse from taking advantage of weaker spouse Avoid indirect violation of the prohibition against donations 3 Specific Incapacity o Relationships contemplated Agent principals UNLESS consent of the principal has been given This is the ONLY relationship where consent validates it Does NOT include brokers Guardian wards Executor or administrator of estate under administration

Sale includes legal redemption, compromises, and renunciations

Rodriguez v Mactal: Prohibited only if there was prior agreement that the third person would sell to the administrator to circumvent the prohibition. There was no prior agreement that Choco would buy for the benefit of Mactal. (More than 2 years have passed.) Philippine Trust v Roldan: There was a short time between the sales. Unlike in Rodriguez v Mactal, where there was 2 years. There is a higher burden of proof in that case to prove collusion. BUT even if in this case there was no clear collusion, equity demands the sale should be annulled. o Benefit or disadvantage is of no matter. Naval v Enriquez: Questionably excluded hereditary rights from prohibition of purchase by administrator or executor o Although technically, it is true that hereditary rights pass directly to the heirs, and not through the administrator but these still derive value from the assets of the estate Public officers and employees property of State, subdivision, or GOCC Entrusted to them Officers of the court property and rights in litigation or levied Before COURT within jurisdiction or territory they exercise their functions in Macariola v Asuncion distinguishes: o If it were offered before, it cannot be ratified after o But if was offered the first time, then its valid Lawyers property and rights as object of litigation Must be the subjection of litigation

Prohibition applies during pendency of litigation includes certiorari proceedings CONTINGENT FEES are valid o Transfer of property only happens after favorable judgment o Also valid, because this is a risk for the lawyer (equally uncertain) Also, to benefit pauper litigants o But courts may nullify if with undue influence this safeguard removes possibility of vitiation

Others Rubias v Batiller all violations of these are VOID as against public policy Thus, no ratification per se Does not retroact Valid as long as the specific incapacity does not exist anymore Different form of ratification: in the form of a new contract Only applies to agent, guardian, executor/administrator For the public officers, et. al. no ratification even when the prohibition does not exist anymore Who has standing: anybody, when juridical effects are asserted against him Court approval cannot validate violations of these obligations

Subject Matter Requisites: 1. Possible subject matter a. Existing

b. c. d. e. 2. 3.

Having potential existence A future thing Contingent Subject to resolutory condition

Licit Determinate or at least determinable

Differentiate: d. If there is NO subject matter, there is NO contract. o Neither party may seek for specific performance o No party may be in breach (because there is no contract to speak of) o Mutual restitution If there is a defect in the subject matter, there is a VOID contract. o 1411 illegality of object or cause arises from criminal offense: Innocent one may claim what he has given Not bound to comply with promise If in pari delicto: no action against each other o 1412 illegal, but not criminal Both at fault neither may recover, and neither may demand from the other One at fault cannot recover Innocent party may demand return of what he has given, with no obligation to comply Possible Thing a. Need not be the owner of the subject matter b. Just that upon delivery, the seller must have a right to transfer ownership of the thing sold to the buyer c. 1409(3) sale whose cause or object did not exist at the time of the transaction void i. INTERPRETATION OF THIS PROVISION: whether the subject is of type and nature, taking into account technology and science, that exists ii. Contra: impossible things e.



I will sell you for P5,000 a potion of youth. For the potion of youth or some other impossible thing, there is ostensibly a subject matter. It is not up to the parties to determine that there is no subject matter. The court will do it. It is, therefore, VOID even if there is NO subject matter. All things not outside the commerce of men i. Hopes or things with potential existence included Emptio Rae Speratae i. Condition: must come into existence ii. Future things determinate 1. Because determinable things technically are never lost Emptio Spei i. Mere hope or expectance valid 1. VAIN hope or expectancy is VOID 2. Situation where commutativity of the contract is relaxed Subject to resolutory condition i. When resolutory condition occurs: 1. Extinguish the obligation 2. Mutual restitution ii. Fruits and interests of reciprocal prestations mutually compensate 1.



Licit a. b. c. d. e.


Not outside the commerce of men All rights not intransmissible Sale of animals with contagious disease Animals unfit for stipulated use Sale of future inheritance i. Contra: waiver of hereditary rights valid Determinate or at least determinable a. Distinguish: i. Determinable: 1. Upon perfection of contract, the thing was capable of being made determinate


Without necessity of a new or further agreement between the parties a. Melliza v City of Iloilo Deemed a lot determinate, when it made reference to the Arellano plan, which was in existence when the contract was perfected b. Atilano v Atilano Deed of sale is evidence of the agreement. The intentions of the parties must be written in the contract. If the contract is not faithful to the intents of the parties, then it can be reformed. ii. Determinate: particularly designated or physically segregated from all others of the same class Re: quality and quantity i. Identity/nature and quality of the subject matter ESSENTIAL for perfection ii. Re: quantity: Not as important, BUT there is a standard involved: there must be no need to enter into a new contract. 1. National Grains Authority v IAC: quantity not needed as long as determinable w/o new contract and not exceeding 2640 cavans 2. Johannes Schuback v CA: exceptional decision; not doctrinal. The SC held that on Dec 24, when there was no agreement on the number of parts yet, and no quota was set, there was already a perfected contract of sale. BUT, on December 29, there had to be an extra agreement on quantity to consummate the sale. So there must have been NO th perfected contract on the 24 yet!



VOID if kind and quantity cannot be determined without a new agreement

iii. Generic things 1. Upon perfection: determinable a. Capable of being made determinate without further agreement between the parties b. Generic-determinable: not subject to loss. c. Obligation to deliver generic thing: i. Buyer cannot demand superior quality ii. Seller cannot deliver inferior quality iii. Courts also have power to set appropriate quality 2. Upon delivery (consummation): determinate a. Which requires physical segregation or particular designation 3. If neither determinable or determinate: intention of the parties relative to the principal object cannot be determined NO CONTRACT v. Sale of undivided interest turns into coownership vi. Sale of undivided share in mass (fungible goods) 1. Proportional co-ownership over the mass (not particulars) 2. If mass is less than measure bought, buyer owns the entire mass and seller bound to make up for the deficiency 3. Gaite v. Fonacier: sale of specific mass without weighing the subject matter is a definite object, where delivery of the


entire mass is in good faith even with some minor differences in measure. Compare: public auction in mass of separate lots/parcels VALID a. Unless it can be proven that a larger sum could be realized b. Or that a sale of less than the whole can satisfy the debt

Failure to deliver: o Does not affect perfection/validity of the contract Failure to deliver does not amount to estafa Just civil obligations o If a person sells what is not his: buyer does not acquire better title to the goods, unless the real owner is estopped. o Nool v CA: wrong ruling Deemed sale of one who is not the owner as void (when it should be valid) Deemed failure to deliver as failure to do (impossible service) and that the sale contract is void Could have kept it valid, but rescind with damages which also takes away right to repurchase o Noel v CA: this should only pertain to consummation o EXCEPTION to rule that seller must be owner at time of sale: JUDICIAL SALE Must be owner at time of perfection Which is why mortgagor needs to be the absolute owner of the thing mortgaged o When seller sells to the buyer something he does not own: Getting the title subsequently passes on to the buyer by operation of law But there must be physical delivery first Ex. seller sold to the buyer land whose title is still with the government when the seller receives the title, it automatically passes onto the buyer by operation of law Legality of sale

Re: subject matter Even if the thing only has potential existence valid There are certain sales contracts that are illegal VOID Narcotics Wild birds/mammals Rare wild plants Poisonous plants/fruits Dynamited fish Gunpowder and explosives Firearms and ammunitions Sale of realty by non-Christians Sale of friar land without Secretary of Agricultures approval Those outside the commerce of man Sale absolutely simulated Absolutely simulated sale: NON-EXISTENT contract Badges of simulation o If buyers did not take possession of property sold to them o Or if sellers collected rentals from the buyer Requisites: 1. Outward declaration of will different from real will of parties 2. False appearance intended by mutual agreement 3. Purpose is to deceive third persons When motive can nullify GENERALLY: motive is different from cause Cause essential reason for the contract Motive particular reason by one party that does not affect the other

BUT if illegal motive pre-determined the cause of the contract, the sale is VOID Ex. sale is to illegally frustrate a persons right to inherit Or to avoid payment of estate tax In the same way, when motive pre-determines the cause, then motive becomes the cause Ex. Uy, where the NHA bought lands for housing and the lands became unsuitable


d. e.

Price Definition of price: Ideally sum certain in money or its equivalent o But there can be a valid sale also, supported by causes other than price o Because sale is a catch-all provision for the transfer of ownership in exchange for consideration

Requisites for valid price: 1. Real a.


When price is real i. Buyer: has every intention to pay, regardless of source ii. Seller: has every expectation to receive When price is simulated i. NO PRICE AT ALL: no contract, because there is lack of cause/consideration ii. SIMULATED PRICE: May be proven that it is actually a donation or some other contract iii. Pari delicto rule (where neither party can recover): 1. APPLIES When the cause or purpose of contract is ILLEGAL


DOES NOT APPLY if just simulated, without being illegal When price is false i. Real price not declared VALID contract ii. But subject to reformation 1. EXCEPT when the interest of the government or third parties will be adversely affected by the reformation of the instrument NO CONSENT or intention to enter into sale no contract Adequacy of price i. Ong v. Ong P1 and other valuable considerations 1. No evidence was adduced to prove the consideration was not paid, thus presumed to exist 2. There is usual Anglo-Saxon practice that a nominal amount is indicated but there is more valuable consideration given 3. BUT under Philippine jurisdiction, it is not any consideration but valuable consideration that is needed to make it valid ii. Bagnas v. CA P1 and services rendered, being rendered, and to be rendered 1. Ruled as NO CONTRACT because there is no valuable consideration 2. Not because of the stipulation per se (because see Ong v Ong), but the fact that it was proven by evidence that there was no real intention to pay any valuable consideration Effect of non-payment of price: i. Condonation or remission price is still valid ii. Failure to pay not in perfection but CONSUMMATION iii. Remedies available: 1. Specific performance




2. Rescission Contra: lack of consideration no contract (different from failure to pay) g. Accommodation does not make sale void for lack of price h. Subject matter delivered, even if there is no price: i. CONVEYANCE IS INVALID Must be in money or equivalent a. When the consideration consists partly in money and partly in another thing: can still be a contract of sale when this is manifest intention of the parties i. But must have price (money or its equivalent) as part of the consideration b. Republic v. Phil Resources Development: i. Debtor paid goods belonging to Phil Resources in lieu of price stipulated ii. Corporation was held to have the right to intervene, because it would be adversely affected iii. But this case is NOT authority to say that equivalent can mean things other than money or media of exchange 1. This case applies in consummation stage already 2. There can be mutual arrangements or dation after perfection, after all c. Bottom-line: price is a generic obligation subject to variations, unlike subject matter where it has to be determinable/determinate Certain or ascertainable at time of perfection a. Certain = specifically expressed and agreed upon in terms of pesos and/or centavos b. Ascertainable = with reference to another thing certain or judgment of person/specific persons i. Price fixed by third party 1. Contra: price cannot be left up to the determination of either party 2. Already perfected, albeit conditional: rd determination of price by 3 person 3. ONLY instances when court can fix price: iv.

Third party in bad faith By mistake Contra: third party is unable or unwilling cannot resort to courts i. Contract is inefficacious ii. Because failure of condition to happen extinguished the contract 4. Contra: subject matter cannot fix the subject matter a. Because it is a species obligation, not a generic obligation (price) ii. Price in reference to other things certain 1. When price cannot be determined according to thing certain: contract is inefficacious 2. Meaning, there was a valid contract at one point When there is sale even without a price agreed upon: o Requisites: 1. Meeting of minds on sale and purchase of SUBJECT MATTER 2. Agreement that price would be paid fails to meet the criteria that it is certain/ascertainabie 3. Delivery by the seller and appropriation by the buyer o 1474: 1. Price cannot be determined according to preceding articles or in any other manner contract is INEFFICACIOUS 2. But delivered to buyer 3. And appropriated by buyer who must pay REASONABLE PRICE o PRECEDING ARTICLES (1474)

a. b. c.

Applies to Articles 1469 to 1473 1469: formula refers to thing certain (INEFFICACIOUS) 1470: gross inadequacy still valid, but may show vitiated consent 1471: completely simulated, but may be saved as pure liberality (VOID) 1472: price based on securities, grain, liquids based on trading price (INEFFICACIOUS) 1473: up to discretion of seller or buyer (VOID) inefficacious here includes both valid but inefficacious and void contracts Basis of doctrine: Unjust enrichment allowing buyer to retain subject matter even if no price is paid for it Estoppel May apply to both: No contract situation And void contract where defect is price APPROPRIATION: Acceptance, and treating the subject matter as ones own Even without transformation In this case, cannot ask for return of the thing unilateral rescission of contract (because the contract is binding already and there violation of mutuality)

o o

Leabres v. CA: receipt indicating acknowledgement of sum of P1,000 does not indicate valid sale, because there is no indication of total purchase price of the land Manner of payment also has to be CERTAIN or ASCERTAINABLE In the abovementioned cases, there was understanding between the parties that the terms of payment were anything other than immediate payment. In all other cases: presume that the terms of payment = demandable at once. Another presumption: subsequent payments made in same amount as first

Manner of payment of price o Part of the prestation of the contract, thus ESSENTIAL Navarro v. Sugar Producers Corporation: manner of payment discussed after acceptance, then the acceptance did not produce a valid contract of sale yet Velasco v. CA: agreed on purchase price but not on manner of payment, and down-payment was made still, no valid sale

Re: receipts and other documents embodying price: o Leabres v. CA: (see above, re: P1,000 receipt) HOWEVER, while this case seems to refer to the Statute of Frauds, it cannot apply here because there has already been partial payment and delivery of the land not anymore an EXECUTORY contract o Toyota Shaw v. CA: The authority of Popong Bernardo to bind the company was put into question, when it is weird, because all transactions usually happen through sales agents! BA Finance did not approve the loan, then the manner of payment was unclear. BUT, there was a portion that Toyota itself admitted that when Luna Sosa paid for the car in full, they would have delivered the car already. Santiagos opinion: that the BA Finance approval was merely a suspensive condition, not something that vitiates manner of payment. The BA Finance approval simply applies to the consummation stage. o Coronel v. CA: The memorandum that would evidence a contract, to remove it from the Statute of Frauds, must evince all the essential requisites of the contract Need not be technical or perfect, but present

But since sale is a consensual contract, this written memorandum is really just for the Statute of Frauds, which is merely for executory contracts

Inadequacy of price: o Inadequacy of price does NOT affect validity of a contract of sale But may evince defect in consent or show intention to donate o Test of commutativeness not objective, but subjective belief of parties o Inadequacy only applicable for execution sale, but NOT voluntary sale Threat of eminent domain proceedings not considered imminent, serious, and wrongful injury that vitiates consent Requisites to avoid a judicial sale: 1. Price is SHOCKING TO THE CONSCIENCE 2. Can get better price Contra: with right to redeem, this does not apply because it makes it easier to redeem the property o Inadequacy of price may rescind a contract of sale by: 1. Guaradian, where the war suffers lesion of more th than 1/4 value of the thing 2. Representative of absentee, if absentee suffers th lesion of more than 1/4 value of the thing o Sales with right to repurchase: inadequacy raises presumption of EQUITABLE MORTGAGE Remedy for seller to reform it into equitable mortgage contract Remedy for buyer foreclose the equitable mortgage

Policitacion or unaccepted unilateral promise to buy or to sell Offer starts negotiation o Public advertisements are not offers mere invitations to make offers; not binding st Right to contract: with anyone except when there is 1 priority to buy 1. Offers a.


Offer may be withdrawn prior to acceptance i. Not even necessary that the offeree learns of the withdrawal ii. If with a period, expiration of the period destroys the offer 1. Of if with a suspensive or resolutory condition Offeror may fix time, place, and manner of acceptance i. The offeree must comply with all requirements ii. The offeree must accept all the terms cant sever acceptance iii. Counter-offer is a rejection of the offer iv. When an offer has not been accepted, it cannot be accepted subsequently

Option Contracts o 1479 two types Par. 2 An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. (Option contracts) Par. 1 A promise to buy and sell a determinate thing for a prince certain is reciprocally demandable. (Contract to sell) Both Option Contracts and Contracts to Sell are accepted offers valid contracts, but not the contract of sale per se Both are subjects of specific performance Option founded upon a proper consideration: offer may not withdrawn at any time during the option period Called a contracted offer

o Formation of Contract of Sale o Preparatory Stage

Elements of a valid option contract: Consent or meeting of the minds Subject matter: option right or accepted offer to buy or an option right or accepted unilateral offer to sell o A determinate object o For a price certain + manner of payment Prestation: consideration separate and distinct from the purchase price for the option contract Definition of option contract: Privilege existing in one person to buy certain merchandise from another person if he chooses at any time within the agreed period Securing the privilege to buy Adelfa Properties v CA Sale of a right to purchase Equatorial Realty In order to be valid and enforceable: Agreed time Determined price Other party: obligation not to enter into contract with another Preparatory contract Comparison with Contract of Sale: Must have a separate consideration to be valid Also a consensual contract like sale it is consensual need not actually pay the separation consideration to be perfected: even promise is enough But option contract not in the Statute of Frauds Although the resulting sale will be in the ambit of the S.O.F. So this will be very difficult. Unilateral contract because only the optioner is obliged in the option contract Effect: if accepted before breach of the option a bilateral contract to sell and to buy ensues

Whereas in contract of sale: the relative obligations and rights of the parties are fixed no choice to either party to leave or proceed Meaning of separate consideration ANY UNDERTAKING OF VALUE, need not be cash or its equivalent Ex. buying the lands in half a property for a higher price can be separate consideration for sale of the other half Ex. can be supported by the same consideration that a mortgage or mutuum When no separate consideration Sanchez v. Rigos no separate consideration means its a VALID offer but a VOID contract Acceptance before withdrawal would give rise to a valid and binding contract of sale Separate consideration burden of proof is with party seeking to show it THIS APPLIES WHEN THERE HAS BEEN A PERIOD STIPULATED FOR THE OFFER o And this option was accepted o And communicated to the offeror Yao Ka Sin Trading void option contract and can be withdrawn even with prior acceptance THIS APPLIES WHEN THERE HAS BEEN NO PERIOD STIPULATED FOR THE OFFER Period of exercise of the option Villamor v CA If no period stipulated TEN YEARS upon written contract of option Proper exercise of option Nietes v CA actual exercise of the option is through MERE ADVISING OF THE OFFEROR of the decision to buy No need to actually pay the stipulated price upon exercise of the option so long that this is delivered upon performance of the part of the agent

o o

Carceller v CA substantial compliance with the exercise of an option, and may even justify exercise of option (reasonable) beyond the original period As long as there was clear intent within the period to purchase the property pursuant to such option Offeree may use specific performance as remedy (CONTRARY to Ang Yu Asuncion) Not part of renewal of lease under tacita reconduccion (tacit renewal) RULES WHEN PERIOD IS GRANTED TO OFFEREE (Ang Yu Asuncion v. CA) If the period is NOT supported by a separate consideration, the offeror may withdraw the offer before acceptance or before communication thereof Right to withdraw must not be whimsical or arbitrary, or offeror is liable under Article 19 of the Civil Code If with a separate consideration, the contract of option is perfected, Withdrawal constitutes a breach Problematic: because whether or not there was separate consideration, if the offeree withdraws before the optionee exercised the option, his acceptance does not give rise to a valid contract of sale. Option is an independent contract. If optioner withdraws the offer before acceptance, there can be no specific performance on the proposed contract (not yet perfected). Withdrawal offeror liable for damages Assess: if separate consideration is actually given as part of the main contract the main contract will be perfected (like earnest money) CLVS SUGGESTION: If the option has separation consideration optionee shall have the right to exercise the option ANYTIME DURING THE PERIOD

and this will bring about a valid contract of sale o Any attempt to withdraw the option during the period will be void If the optioner withdraws AND sells it to a third person: o If the third party is in bad faith (knew of the option) optionee can exercise option AND compel specific performance from third person o If the third party is in good faith and for value optionee can recover damages from breach of contract of sale not just option contract

Right of First Refusal Promise on part of the owner the will sell it first to the promisee should he decided to sell it in the future o Guerrero v Ynigo failure to honor RFR leads to damages only, no specific performance o Difference from option contract: no price, manner of payment, etc. yet ONLY the object is ascertained as of now o Governed by preparatory juridical relations Equatorial Realty contract of lease where there is 30-day exclusive option to purchase which does NOT provide for a price certain nor the terms of payment: RFR and not option contract o Resulting contract in violation of the RFR is rescissible o The price offered to the third party must be the price by which the RFR is exercisable o Apply only to RFR attached to valid principal contract There must be consideration but NEED NOT BE SEPARATE If the RFR must be in a written contract o Else, unenforceable o Part of lease contract Paranaque Kings v CA SAME PRICE must be offered too o Under same terms and conditions previously offered

3 party-buyer has standing (because he steps into the shoes of the owner-lessor)


Formation of K of sale (continued) Offer = certain, acceptance = absolute o Yuvienco v Dacuycuy: to negotiate no absolute acceptance o Limketkai: acceptance already absolute, but asked for request for changes as long as there is compliance regardless, there is absolute acceptance o Bormaheco: if the deviations are immaterial, it is not a counter-offer Acceptance by letter binding upon receipt of offeror Sale by auction perfected upon fall of hammer o Each lot separate sale K o Seller may express right to bid: but must give notice, else unlawful Or if seller employs another person to bid for him o Seller sets terms of auction binding upon bidders, even those who didnt know these conditions Earnest money o Part of purchase price o Given only when there is already a sale o Buyer bound to pay balance Not forfeited when there is failure to pay balance must be returned upon rescission Place of perfection where meeting of offer and acceptance are o If in letter place where offer was made Execution, registration of sale and delivery presumed to be sellers duty

THIS POINT ONWARDS, READ BUNNY NOTES Form of sales General rule: any form of sale is valid Dalion v CA: the requirement in 1358 that sale of immovables must be public document: merely for convenience, and not for perfection

only right conferred: for one party to compel other party to have it brought before N.P. o BUT Secuya v Vda de Selma: unregistered sale does not rd bind 3 persons Deed of sale: presumed regular o But may be controverted with clear and convincing evidence o D.O.S. = proof of delivery of possession o Gomez v CA: even without signatures, as long as meeting of minds exists, there is valid sale When form of sale is important: o Agents sale of land power must be in writing o Large cattle in writing and municipal treasurer issues certificate of transfer o Sale of non-Muslim hill tribe cultural minority w/o NCIP approval Statute of Frauds Art. 1403(2) o When: Sale agreement not to be performed within a year from making Sale of goods, chattels, at price not less than P500 Sale of real property or interest therein o Unenforceable by action unless: IN WRITING AND SUBSCRIBED TO BY THE PARTY CHARGED Yuvienco v Dacuycuy: even manner must be included in memorandum o Except when there has been partial payment already of installments Partial consummation Delivery of deed to agent of buyer without intention to part with title: no partial performance In this case, oral proof can be accepted Claudel: HOWEVER, if there is dispute of rd sale by 3 party, the buyer does not have written proof to controvert the claim Ortega v Leonardo: Not just partial payment, but also other modes possession, making of improvements,

rendition of services as long as it puts the other party in estoppel Failure to object to presentation of evidence not in writing Electronic commerce ELECTRONIC DOCUMENTS read this later. Tamad.

Performance or consummation Obligations of seller o Preserve subject matter (GFF) o Deliver subject matter (transfers ownership) o Deliver fruits and accessories (from perfection) Real right only exists upon delivery o Warrant object of the sale Obligations of buyer o Pay the price Non payment does not prove simulation just gives seller right to sue for collection or rescind o Accept delivery of thing sold Must give sufficient time to examine goods Seller still liable for breach for warranties except if buyer did not give notice of breach in reasonable time Just giving notice that he wont accept is enough; no need to re-deliver goods to seller he then becomes a depositary thereof Tradition o Equatorial Realty: there is delivery when thing sold is placed in control and possession of the vendee o Critical factor: intent to deliver o Must be after valid contract of sale o Types: Actual: control and possession Constructive: any manner signifying transfer of possession Symbolic: by delivery of keys of the place or depository where thing is kept

Execution of public instrument: both for movables and immovables equivalent to delivery of the thing, unless contrary can be inferred Prior physical delivery or possession not required 3 exceptions: 1. Where there is contrary stipulation, ex: o Fixed date of taking possession o Stipulated that in installments, until last installment paid, title remains with seller o Seller reserves use of property until gathering pending crops 2. Seller did not control the subject matter at the time of execution of the public instrument o moment of sale material delivery could have been made o Addison: EXCEPTION TO moment of sale rule: express agreement that purchaser will take necessary steps to obtain material possession of the thing from a third person o PCIC v CA: operative term is control not possession even with squatters, there can be constructive delivery 3. Seller did not have control or ability to transfer physical possession for a reasonable length of time after execution of public instrument (Pasagui v VIllablanca) Modes of constructive delivery: Constitutum Possessorium sold as owner, continue to possess as lessee Traditio Brevi Manu buyer bought as lessee then became owner Traditio Longa Manu delivery by agreement Delivery of incorporeal property: Execution of public instrument Placing titles of ownership in possession of buyer

Use by the buyer of his rights, with sellers consent Delivery through Carrier o Default rule: delivery to carrier to delivery to buyer If seller fails to contract with carrier with regard to nature of goods/other circumstances: Buyer may decline to treat delivery to carrier as to himself o F.A.S. sales (Free alongside ship) Seller pays all charges Seller bears risk until goods placed alongside the vessel o F.O.B. sales (Free on Board) Seller bears all expenses until goods are delivered FOB F.O.B. shipping point delivery to carrier is delivery to buyer F.O.B. destination only when vessel has arrived at destination is there deemed to be delivery to buyer o C.I.F. sales (Costs, insurance, freight) Buyer pays for costs, insurance, freight Two schools of thought: 1. Seller is mere agent for buyer, who has already acquired the goods during shipping (General Foods v NACOCO) 2. Seller bears risk as it is part of its responsibility in picking CIF (Behn Meyer) BUT, generally, in CIF and FOB these are mere default rules and they yield to proof of contrary intention Ex. General Foods: net landed weights means delivery is upon landing o Insurance coverage: If shipped in conditions where insurance is usual seller must inform buyer for buyer to get insurance Failure to do so: seller must bear risk Completeness of delivery: MOVABLES o Where seller delivered less goods than what he contracted to sell:

Buyer may reject But if buyer accepts or retains the goods, knowing K wont be performed in full, must pay at contract rate If buyer used or disposed the goods before he knows seller is not going to perform K in full just pay fair value o Where seller delivered more goods than what he contracted to sell: Buyer may accept goods included in K and reject rest If indivisible subject matter may reject whole of goods But if buyer accepts whole of goods, pay for them at contract rate o Where seller delivers to buyer goods mixed with goods of different description: Buyer may accept goods in accordance with K and reject rest If indivisible may reject whole of goods rd o Where delivered to 3 person not completed unless third person acknowledges holding the goods in buyers behalf o Accessories and accessions deliver too o Sale of specific mass of movables: see Gaite o Sale by description/sample: Sales by description or sample: May rescind if bulk of goods do not correspond with description/sample Sales by description and sample: Goods must correspond with both description and sample o Written proof of delivery: Delivery receipts, etc. Bill of lading NOT a substitute for delivery receipt (simple evidence of receipt by the carrier) Factory consignment notice NOT substitute either (just detailed statement of nature, quantity, cost of thing) Completeness of delivery: IMMOVABLES o If area stated: seller must deliver all that is stated in contract. REMEDIES if not complete:

Proportional reduction of price Rescission of contract (as long lack is more than 1/10 of area) Same remedies if quality not as specified (also 1/10) BUT if the buyer would not have bought the contract had he known the smaller area or inferior quality EVEN if less than 1/10 then he can still rescind OPTIONS if more than what is stated: Reject excess OR accept all but pay contract rate Lump sum No change in price even if area is less or more than in the contract Santa Ana v Hernandez: Sale of two lands and mentioned areas of each land and boundaries lump sum o Absence of price per unit governs over mention of total area; thus, lump sum Roble v Arbasa: exception is mention of the words more or less which only allows reasonable excess or deficiency there, 644 m. is NOT reasonable o Sale of separate parcels in mass will not be set aside, unless: Made to appear larger sum could have been realized from sale in parcels Or sale of less than the whole would be sufficient to satisfy the debt When delivery does not transfer title: o On sale or return Buyer has option to return instead of paying price Delivery vests ownership in buyer BUT buyer may return the goods within time stipulated or reasonable time o Sale on acceptance Delivery is transfer only, UNTIL: Buyer signifies approval

Buyer does not signify approval but retains goods without notice of rejection For both on sale or return or sale on acceptance: there must be WRITTEN and clear agreement o When there is reservation of ownership o When sale is not valid o When seller is not owner Buyers acceptance o Not needed to vest ownership upon delivery Because it is the sellers obligation o If buyer refuses to accept without just cause title passes when goods placed in his disposal Double sales o Torrens system priority rules prevail o Where property covered by two different titles: Earlier prevails o Where property was originally unregistered land: First buyer bought land under Act 3344, and second buyer bought property as registered under Torrens Title Torrens prevails buyer can rely on veracity of title o When first sale is unregistered and second sale is on judicial sale: Carumba and Radiowealth Finance: If the land was registered, but first sale was unregistered, and there was subsequent judicial sale: second buyer wins If the land was unregistered: first buyer wins there are no rights to step in to, as far as the second buyer is concerned o Under Article 1544 If movable: owner is first person who took possession in GF If immovable: To person who first recorded it in ROP in GF If none, to first who possessed in GF If none, to person who presents old title with GF For 1544 to apply:

1. Two valid sales nd o Ratio: so that the 2 sale, while not validated by tradition, can still call for rescission 2. Exact same subject matter 3. Conflicting interests 4. Bought from same seller General rule (but subsidiarily applicable only) primus tempore, potior jure first in time, first in right Cheng v Genato: Applies when one is CTS and one is COS (because technically, the CTS is not yet a valid sale per se) So when there is CTS and CTS buyer fulfilled conditions already, then there was a subsequent COS, the CTS buyer wins by virtue of primus tempore, potior jure Also applies when 1544 does not apply (ex. not same seller, not exact same subject matter, etc.) Purchaser in GF Agricultural and Home Extension v CA: No notice of other persons right/interest Paid FULL and FAIR price upon purchase/before notice If circumstances call forth investigation of flaw in title, he MUST investigate, or else, not in GF Limketkai: lis pendens buyer not considered innocent Same effect for annotation of adverse claim There is constructive knowledge by virtue of relationship Carbonell: Second buyer must show continuing GF until full ownership vests But first buyer can simply end this continuing GF by merely registering Second buyers knowledge of first sale tantamount to registration in favor of first buyer

Remedies for breach of sale K Caveat emptor buyer beware (to check title of seller to goods) o Does not apply to Torrens system o As long as seller did not misrepresent his title Remedies for movables o Ordinary remedies of seller Rescission did not receive the thing OR received but did not tender payment Non payment of price Ownership transferred to buyer o Specific performance for price Ownership NOT transferred to buyer o If cannot readily be resold for reasonable price: S can offer to deliver to B o If B refuses to receive: S holds the goods as bailee for B And ask for specific performance for price Price payable on certain day o Specific performance for price regardless of delivery o Defense if S cannot apparently perform obligation Buyer refuses to accept/neglects to accept Damages for non-acceptance. Consider o Estimated loss directly and naturally resulting from refusal of buyer to accept o In absence of special circumstances showing proximate damage: difference between contract price and market price of goods o If buyer repudiates contract for labor performed/material expenses before notice

Profits seller would have made if contract was performed Special remedies of unpaid seller of goods (self help as long as there is no physical intrusion) [hierarchical] Possessory lien Where ownership has transferred to the buyer: o Seller has lien on goods o Or right to retain the goods for the price, while he still possesses them Where ownership has not transferred to the buyer: o Right to withhold delivery coextensive with his right of lien Not affected by sale/disposition of goods by the buyer unless seller assented o But sellers lien cannot defeat negotiable instrument of title held by possessor in GF When possessory lien of unpaid seller may be exercised: o Where goods were sold without any credit stipulation o Where goods were sold for credit but term of credit expired o Where buyer has become insolvent Loss of possessory lien: o Seller delivers goods to a carrier or other bailee to transmit to buyer without reservation of ownership o Buyer or his agent lawfully obtains possession of the goods o Waiver Stoppage in transitu Right to stop goods in transit may resume possession of the goods Not affected by sale/disposition of goods by the buyer unless seller assented

But sellers lien cannot defeat negotiable instrument of title held by possessor in GF When goods are in transit: o From carrier/other bailee until buyer takes delivery of them o Goods rejected by the buyer and carrier/bailee continues in possession of the goods When goods not in transit: o Buyer acquires goods before destination o Carrier recognizes goods are being held for buyer o Carrier/bailee wrongfully refuses to deliver goods to the buyer Exercise of right: o Actual possession o Giving notice to the carrier If there is negotiable document of title need to cancel first before carrier can deliver the goods to the seller again Special right of resale Requisites: o Perishable goods o Seller expressly reserves right of resale in case of buyers default o Buyer has been in default for unreasonable time Seller may resell even without rescission of original sale K Buyer liable for difference, if sale if for less than K price and damages for breach EVEN if buyer is already owner of the goods No need for seller to give notice to the buyer o If not perishable, need notice to see if unreasonable time Seller cannot buy the goods for himself o

Special right to rescind When right may be exercised: o Reserved right to do so o Default for unreasonable time Buyer liable for breach Manifest notice to B for notice to rescind o Technically, no need only to determine if default is unreasonable Remedies for buyer Failure of seller to deliver Specific performance Breach of sellers warranty Accept goods and set up against seller breach of warranty through diminution of price Accept goods and maintain action against seller for damages Refuse to accept goods and maintain action for breach of warranty Rescind contract of sale mutual restitution Suspension of payments in anticipation of breach If buyer has reasonable fear of disturbance, vindicatory action, foreclosure o Until seller had caused disturbance to cease o Or issues a security for return of the price o Or stipulated that buyer must pay regardless Trespassing =/= ground to suspend payments RECTO LAW Options in 1484: 1. Exact fulfillment of obligation, if buyer fails to pay any installment 2. Cancel the sale, if buyer fails to pay 2 or more installments

o o

3. Foreclose CM on the thing, if buyer fails to pay 2 or more installments o No action to recover unpaid balance Levy Hermanos: car sold for two installments only So there can be no default of 2 or more installments Can foreclose on CM and recover deficiency Industrial Finance v Ramirez: Recto law applies to financing transactions When seller assigns credit to another person he may avail of the remedies May only choose one remedy But failure of one: can avail of another Tanjanlangit v Southern Motors: For specific performance, there can be levy on CM because action is on the note Rescission usually theres no more return of price to compensate for deterioration Stipulation not to return payments = valid as long as not unconscionable Nature of rescission: no further recovery Universal Motors: mere securing of possession is not foreclosure; there has to be actual foreclosure Cruz v Filipinas Investment: Foreclosure cannot foreclose on the guarantee too If mortgagee enforces on ADDITIONAL SECURITIES he loses lien on the CM Filipinas Investment v Ridad When there can be recovery even of attorneys fees or costs: PERVERSE MORTGAGOR/BUYER When the defaulting buyer-mortgagor refuses to surrender to CM to prevent foreclosure Contracts to sell movables no rescission because failure to pay is a failure of a suspensive condition Lease with option purchase: Recto law applies because underlying contract is really a sale on installments

Elisco Tool v CA: taking back possession of subject movable, treated as a foreclosure and there is barring effect Remedies for immovables o Remedies of seller Anticipatory breach If seller has reasonable fear of loss/breach may immediately sue for rescission of sale ELSE, can only rely on substantial breach Failure of buyer to pay price Does not bar transfer of ownership or nullify the contract of sale But can rescind it by judicial/notarial demand Art. 1592: even if it is stipulated that failure to pay the price leads to rescission, there has to be demand for rescission first to grant the buyer every opportunity to comply with the obligation JM Tuason v Javier: if there is substantial performance, there can be recovery as if there has been strict fulfillment, minus damages o Remedies of buyer Suspension of payment Reasonable fear of disturbance or danger, unless seller gives security for return or price Subdivision or condominium projects No forfeiture for failure to develop condominium/subdivision and stopped payment Can ask for refund of what was paid notice and demand for refund can be simultaneous P.D. 957 retroactively applies o MACEDA LAW Applies to COS and CTS First determine if residential, commercial, etc. o Excluded: industrial lots, commercial buildings, sales to

tenants under RA 3844 (land reform) ALSO must be by installment. Covers financing. 60 days grace period Then, from notice of cancellation, another 30 days before actual cancellation happens. Under this period, there is payment for interest Cash surrender value: At least 2 years refund 50% of paid cash Less than 2 years no return of cash surrender value Twin requirements: Notarial act of rescission Cash surrender value THEN you give notice to the buyer of compliance with the notices.

When you deal with an immovable: 1. 2. Determine if covered by RA 6552; if not, apply civil code 1191 or 1592. In both cases, if it involves COS, then judicial rescission or notice of rescission IS IMPORTANT. It must be a notarial act, else it wont take effect. For the Maceda law, it doesnt distinguish between CTS and COS. a. Determine: w/n the buyer has paid for more than 2 years or less than 2 years b. If less than 2 years: 60 days i. Within this period, one can pay the balance w/o interest ii. After 60 days period, there can be notice of cancellation/rescission in both cases, notarized iii. After 30 day period, FINAL iv. McLaughlin: jurisprudence allows additional 30 day grace period wherein one HAS TO PAY INTEREST THIS TIME can salvage obligation c. If more than 2 years: i. Grace period dependent on how many years one has paid


ii. 30 days = 1 year paid 1. Minimum is still 60 days iii. After grace period one has to give notice AND cash surrender value Rescission in sales Ks covering movables Distinguish two kinds of rescission: o Art 1381 reparation of damages, when there is lesion Subsidiary remedy Filed by he with Right to First Refusal which was violated (rescission for lesion) Even third persons may file o Art 1191 reciprocal obligations, and substantial breach (resolution) Restitution As though contract was void in its inception BREACH OF FAITH, not failure for condition to arise Never if there is substantial performance Principal remedy GENERALLY judicial May only extra-judicially rescind if there is express stipulation for it But there still must be judicial declaration to confirm propriety Needs POSITIVE act, never automatic Only injured party may demand for it CTS v COS o CTS, at perfection, must: Have stipulation that the SM remains with seller until full payment of the price Specific right granted to seller to EJ rescind/cancel the contract in case of default If this is missing, it is a COS ALSO, when there is stipulation that the seller executes a deed of absolute sale upon completion of payment of the purchase price by the buyer o Consummation stage: COS title passes upon delivery o

Non payment is a SUBSTANTIAL BREACH CTS not passed to buyer until full payment of purchase price Payment of price is a suspensive condition even which prevents obligatory force of the K from coming about Remedies: COS need to rescind to recover ownership there can be forfeiture of payments, as long as provided and not unconscionable CTS ownership retained, so contract is automatically extinguished Only action: recovery of possession Compare to conditional contract of sale: failure of condition may still lead to specific performance, whereas in CTS, failure of condition NO K Return payments BUT there can be exercise of equity jurisdiction, when sufficient payments have been made