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SALES LAW CHAP TE R 1 I NTRO DUCTI O N

DEAN CESAR VILLANUEVA

DEFINITION OF SALE  Art1458 of the Civil Code  A contract whereby one of the contracting parties [seller] obligates himself to transfer ownership of, and to deliver, a determinate thing; and the other part [buyer] obligates himself to pay therefore a price certain in money or its equivalent.  “Sale” includes both absolute sale [KoS] and conditional sale [Contract to Sell] • Contract to sell – ownership is reserved until suspensive condition of full payment of purchase price is fulfilled. A subsequent contract is needed to transfer ownership. However, it is already a valid sale. Again, sale is consensual so transfer of ownership is not required for a perfected sale.  Common law concept of sale is embodied in New Civil Code under Art1458  Requires transfer of ownership of the subject matter of the sale as a principal obligation of seller.  Remember: Common law concept refers to the OBLIGATION TO TRANSFER ownership of SM – and not actual physical transfer/delivery to perfect contract of sale.

Nature of Obligations Created
2 SETS OF OBLIGATIONS IN SALE Obligations of SELLER Obligations of BUYER a. b. a. Transfer Ownership Deliver Possession of Subject Matter Pay the Price

  

Both sets of Obligations are REAL obligations, meaning they are obligations to give, meaning they may be subject of SPECIFIC PERFORMANCE Distinguished from Personal Obligations, which are • Obligations to do or not to do Why distinguish kind of obligations? • To know the remedies ► Personal Obligations cannot be subject of Specific Performance because it would be violation of public policy against Involuntary Servitude ► Personal Obligations can be executed by another at the cost of the obligor and refusal to comply can bring action for damages. ► Real Obligations are subject to specific performance
ELEMENTS OF CONTRACT OF SALE [Coronel v CA] CONSENT - meeting of the minds to transfer ownership in exchange of the price SUBJECT MATTER – must be determinate/determinable PRICE – certain in money or its equivalent.

1. 2. 3.

 

Once all three concur, there is automatically a perfected contract of sale. NO CONTRACT v VOID/VOIDABLE • According to CLV, when one of the essential elements is COMPLETELY ABSENT, there is a NO CONTRACT situation and not merely a void contract. • When all 3 elements are present, but there is a DEFECT or ILLEGALITY constituting any of such elements, the resulting contract can either be VOID or VOIDABLE ► Voidable – when defect constitutes vitiation of consent ► Void – when it falls under Art1409 of NCC

Subject Matter of Sale  Subject Matter is the essence of sale • Of all 3 elements, it’s the most important!  SM must be Determinate or Determinable [Art1458] • Meaning generic things can also be covered by sale, provided they are at least Determinable

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SALES LAW

DEAN CESAR VILLANUEVA
Satisfied if at the time the contract is entered into, thing is capable of being made determinate w/o necessity of a new or further agreement between the parties [Art1460] ► Minimum Requirement: Determinable Generic SM ► If it’s Determinable Generic, then it must mean SM becomes determinate at point of performance. • Requirement that SM is Determinate ► Means that SM is required to be: 1. Physically Segregated 2. Particularly Designated • Why must it be determinate? ► Has to do with the performance of the obligation of the seller to transfer ownership and deliver possession [consummation stage] ► If SM was not determinate, seller could not transfer and deliver, therefore he could not perform contract of sale. ► The issues of “Risk of Loss” do not apply to determinable SM because being generic, it is not susceptible to loss, there will always be something existing of the same kind. Although Art1458 uses the term “determinate” to describe SM of sale, it does not exclude generic things which are determinable. Art1458 only emphasizes that the obligation to transfer/deliver can only be performed if SM is specific or determinate. Note: Term “determinate” in Art1458 only refers to the time when contract of sale is to be performed or consummated already. Since we already know that a valid contract of sale exists at the stage of perfection, even w/o delivery, and is consensual, then the SM of the sale can include those which are generic-determinable. This is because as to generic-determinable objects, they may not be determinate now, but when the time to perform the contract comes, what was determinable becomes determinate.

Stages in Life of Sale 1. Negotiation, Preparation or Policitacion stage ► Time of indication of interest until perfection ► Involves offers, counter-offers and acceptance 2. Perfection or “birth” ► Upon concurrence of the 3 essential elements of KOS ► Involves meeting of the minds of the parties as to the object of the contract and upon the price. 3. Consummation or “death” ► Begins when the parties perform their respective undertakings under the contract ► Ends upon extinguishment of contract ► Note: Even after performance of obligations, the KOS is not automatically extinguished because there are still warranties to worry about. Inclusion of Concept of “Contract to Sell”  2nd par of Art1458 provides that the term “sale” includes: • Absolute sale – Contract of Sale • Conditional sale – Contract to Sell  CLV: sale being merely a title and not a mode, contract to sell is technically included in the term sale because transfer of ownership is not required in a perfected contract of sale.

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SALES LAW

DEAN CESAR VILLANUEVA

7 CHARACTERISTICS OF CONTRACT OF SALE 1. NOMINATE v innominate Has been given a particular name by law BUT the substance of the contract is what determines it to be a sale, not the title given to it by the parties. However, intent of parties is also considered as shown by terminology used and contemporaneous acts can stand on its own and does not depend on validity of another for its existence perfected by mere meeting of the minds upon the thing which is the object of the contract and upon the price Real – requires delivery of object to be valid, example is pledge Solemn – Requires certain formalities to be valid, example is agency to sell real property/estate or interest therein. Bilateral – imposes obligations on both parties, whereby the obligation or promise of each party is the cause or consideration for the obligation or promise of the other. Reciprocal – arises from same cause, and in which each party is a debtor and a creditor of the other, such that the obligations of one is dependent upon the obligations of the other. Burdensome because it imposes a valuable consideration as a prestation, which is a price certain in money or its equivalent. A thing of value is exchanged for equal value, consequence of equal bargaining. Involves relative value between what is given and what is received. Sale is merely a title that creates the obligation on the part of the seller to transfer/deliver, it would be delivery or tradition that would legally be the mode to transfer ownership and possession to the buyer. Mode is a process of ownership and possession. Since Sale is consensual in nature, possession is not essential for a perfected sale. Perfection confers title and not ownership. Sale does not in itself confer ownership, it only creates OBLIGATION to transfer ownership. At perfection of KoS, one is not yet the owner, it is delivery that consummates sale.

2. PRINCIPAL v accessory 3. CONSENSUAL v real/solemn

4. RECIPROCAL & BILATERAL v unilateral 5. ONEROUS v gratuitous 6. COMMUTATIVE v aleatory 7. TITLE, NOT MODE

So what if Consensual? 1. Form – generally, KoS needs no certain form to be valid, but certain formalities must be satisfied to make it binding upon 3rd parties only. But as between parties to the KoS, even an oral contract of sale is valid and binding. 2. Delivery - From the moment all 3 essential elements concur, any party to the KOS may demand performance, no need for delivery 3. Non-performance - merely gives rise to remedy of specific performance or rescission, both with damages. Even if not performed, there is valid KoS binding between 2 parties. 4. Ownership - by seller of SM is not an element for perfection. Law only requires that seller has right to transfer ownership at time of consummation. 5. Obligations – from the moment all 3 elements concur, parties are bound not only to fulfill obligations stipulated, but also all the consequences which, according to their nature, may be in keeping with good faith, usage and law. [Art1315] 6. Force of Law between parties – from the time all 3 elements concur, the contract of sale has the force of law between the contracting parties. [MUTUALITY OF CONTRACTS] So what if Bilateral and Reciprocal? 1. To be performed simultaneously such that the obligation to of one party to perform his part is conditioned upon the simultaneous fulfillment of the other 2. Power to rescind is implied and such power need not be stipulated 3. A party cannot simply choose not to proceed with sale by offering SM to another buyer. 4. Each party may avail of remedy of specific performance 5. General rules on default do not apply to a contract of sale because latter is a reciprocal obligation 6. Default in Sale: By performance, mere performance by 1 party, the other party is automatically placed in default Why is it important to know if it is reciprocal? • To know when obligation starts [conditioned upon performance of 1 party] • A party is in default if he did not perform his obligation, or demand is made via notice of demand.

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SALES LAW
• • • 

DEAN CESAR VILLANUEVA
General rules on default do not apply to a KoS because latter is a reciprocal obligation ► Default in Sale: By performance, mere performance by 1 party, the other party is automatically placed in default Not every non-performance merits rescission, rescission is not proper when there is substantial compliance. RESCISSION is a natural remedy in sale by virtue of its reciprocal and bilateral nature.

NOT every Bilateral contract is Reciprocal • Bilateral contracts may impose non-reciprocal obligations, while reciprocal obligations must contain a bilateral contract. CASES: • Polytechnic University case ► Civil Code provision on sales is a “catch-all” provision which includes a whole gamut of transfers whereby ownership of thing is ceded for a consideration. • ONG v CA ► Reciprocal obligations arise from the same cause, where each party is debtor and creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other.

ONEROUS v Gratuitous  Onerous – burdensome because it imposes a valuable consideration as a prestation, which is a price certain in money or its equivalent.  Gratuitous – act of pure liberality  OBJECTIVE TEST: Whether or not there is a valuable consideration? • Must have real value on its own – valuable consideration means more than just nominal or negligible but economic value. • Consideration itself does not make KoS onerous. Consideration must have value. • But even if consideration has value, it may cease to be valuable if it is already ridiculous. For example, a price of 1 peso for a brand new jaguar is ridiculous and at some point the law enters. This is considered a void sale but may be a valid donation.  Gaite v Fonacier case – in contracts of sale, any ambiguity should be resolved in favor of the greatest reciprocity of rights or interests because sale is essentially onerous. Whether a stipulation in a contract of sale is a suspensive term rather than a condition, it shall be interpreted as a suspensive term in light of the greatest reciprocity of rights. COMMUTATIVE v Aleatory  Commutative – a thing of value is exchanged for equal value, consequence of equal bargaining. Involves relative value between what is given and what is received.  Aleatory – chance determines the value received  SUBJECTIVE TEST: Whether parties believe they are receiving equal value for what they give. • Limit: Must not be absurd or ridiculous • In the Gaite case, the court recognized that obligations in a contract of sale may be subordinated to a suspensive condition with the parties fully aware that they assume the risk that they may receive nothing for what they give. [Ex. Emptio Spei involving sale of hope or expectancy] • CONTRACT TO SELL ► Ownership is reserved subject to a suspensive condition ► Even though a contract to sell may be subordinated to a suspensive condition, the condition must: 1. Only refer to the PRICE and 2. Must be clearly stipulated ► Suspensive condition cannot refer to the SM. ► The obligation to transfer ownership also cannot be subject to a suspensive condition – because this is the very essence of sale [the obligation to transfer] • Although this may be contrary to the commutative nature of obligations [because party may get nothing for what he gave], it only proves that commutativeness involves a SUBJECTIVE test. Even if he runs the risk of getting nothing in the end, if the party believes in all honesty that he is receiving equal value for what he gave up, then it is a commutative contract.  Limit of Subjectivity • Completely ridiculous sales, but if no 3rd party complains, then the KoS is valid.

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• Art726 NCC: ► When the value of the burden placed upon the donee is more than the value of the thing given. taking into consideration the essential elements and not what the contracting parties call it. ownership of the thing sold is acquired only upon its delivery to the buyer. TITLE Only constitutes the legal basis by which to affect dominion or ownership Title [such as sale] is the juridical justification  CASES: • ALACANTARA-DAUS v DE LEON “While a contract of sale is perfected by mere consent.  From Donation  Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another person.  A contract is what the law defines it to be.  Donation is gratuitous and is a solemn contract. it becomes an “onerous” donation.SALES LAW  DEAN CESAR VILLANUEVA Illustration: Barbara sells her car to Filbert for 100k. Mode is the actual process of acquisition or transfer of ownership over a thing. as long as both parties believe they are getting an appropriate value.  Whether Contract is Sale or Barter 5  . but the real right of ownership is transferred only ‘by tradition’ or delivery thereof to the buyer. • Inadequacy of price does not affect an ordinary sale. all that sellers believed was that they received the commutative value of what they gave. transferred or destroyed Ownership and real rights are acquired pursuant to a legal mode or process. [if price is ridiculous] void KoS but may be a valid donation or other contract • Different rules apply to a KoS and a K of Donation – there are still formalities to be fulfilled in the latter. commutative in nature.”  SALE DISTINGUISHED FROM OTHER CONTRACTS  The courts look at the intent of the parties and the elements of the contractual relationship and not at the nomenclature used to describe it. which may be equivalent to a Barter or Sale. the seller assumes the obligation to transfer ownership and to delivery the thing sold. CASES • BUENAVENTURA v CA ► No proof was shown of the instances mentioned in Articles 1355 and 1470 of the Civil Code which would invalidate or even affect the Deeds of Sale.  Why distinguish? • Important in situations when the price to be paid for the SM is not certain as to ensure valuable consideration in money. who accepts it. which in both cases. It may be an indication of vitiated consent. Indeed. one party binds himself to give one thing in consideration of another party’s promise to give another thing [Art1638]  In contract of sale. are governed by the Law on Sales. From Barter  In barter. it would still be a valid KoS.  TITLE and NOT a mode MODE Legal means by which dominion or ownership is created. but does not necessarily make K voidable. Upon the perfection of the sale. there is no requirement that the price be equal to the exact value of the subject matter of sale. • Even if Filbert haggles with Barbara and does not stop until Barbara agrees to give him a discount and decrease the price to 50k. one party binds himself to deliver a thing in consideration of the other’s undertaking to pay the price in money or its equivalent. This is still a valid KoS because Barbara believes honestly that she is getting the appropriate value for her car. and really governed by the Law on Contracts. • If price is simulated. The real value of the car is 200k.

[Art1639 NCC] 2. if the essence is the service. the contractor may either employ only his labor or skill. • If it can be produced ahead of an order = SALE • If it cannot be produced ahead of demand = PIECE OF WORK • There is never a contract for PoW for Past Work. with a right to damages. This is a constant rule. Transaction is considered Barter because the Rolex is more valuable than the P20k money component. and the intention of the parties does not appear in instrument. having received the promised thing via barter.SALES LAW 1. the former cannot be compelled to deliver that which he offered in exchange. distinction between barter or sale is academic [almost useless] because the same law applies to both contracts. the contract is for a Piece of Work. Or he can only make use of the right to recover the thing which he has delivered while the same remains in the possession of the other party. but he shall be entitled to damages. it is essentially a contract of sale and not a contract for labor 6 . it may be a sale if such was the intention of the parties Intention does not appear and the consideration consists partly of money and partly in another thing. and w/o prejudice to the rights acquired in good faith in the meantime by a 3 rd person. Manufacturing in the ordinary course of business to cover sales contracts ii. 2. in consideration of a certain price or compensation.  But remember. Example: If Jobert gives Edgar a car in exchange for P20k and a Rolex watch worth 100k. and which at the time are not made or finished. irrespective of the party giving or executing it. should prove that it did not belong to the other party who gave it.  Whether Sale or Contract for Piece of Work • The main distinguishing factor between a contract of sale and a contract for PoW is the essence of why parties enter into it. it never changes. Even if the same. Rules on Barter 1. the contract is a sale. TIMING / HABITUALITY Provided by Art1467 of NCC i. distinction is critical because: • Rule on Statute of Frauds applies to sale of real and personal property worth more than 500pesos. PoW is always for future service. the contractor binds himself to execute a piece of work for the employer. knowledge or reputation who executes or manufactures the object. That is why the TIMING TEST always prevails. • Barters are governed by Law on Sales – it is a species of the genus of sales. or also furnish the material. If the essence is the object. One who losses by eviction the thing received in barter may recover that which he gave in exchange. If one of the contracting parties.  Barter – value of thing given as part of consideration exceeds amount of money given or its equivalent  Sale – value of thing given as part of consideration equals or is less than the amount of money given. Manufacturing upon special order of customer Inchausti & Co v Cromwell When a person stipulates for the future sale of articles which he is habitually making. • Evolution of Tests: TESTS FOR DETERMINATION IF CONTRACT FOR PIECE OF WORK 1. but does not apply to BARTER • The right of legal redemption granted by law to an adjoining owner applies only to resale and not to exchange of properties [Barter] –[Art1621-22 NCC]     From Contract for Piece of Work  By the contract for a piece of work. DEAN CESAR VILLANUEVA Manifest intention of the parties  Even if acquisition of the thing is paid for by an object of greater value than the money component.

A contract of agency is unilaterally revocable by principal. Whether the things are ordinarily available 2. and they would require the use of extraordinary skills or equipment. Test of that which is extraordinary – as to the test of the general populace  Why distinguish? • It’s confusing – in both sale and contract for piece of work. INVENTORY TEST From the nature of the product. with the consent or authority of the latter. NATURE OF PRODUCT/ TEST OF NECESSITY Take into consideration the nature of execution of each order. or through another. the specifications of the customer do not transform the nature of the product as acceptable to the general public. even though it may be entirely made after. CIR v Arnoldus . w/o considering the work or labor of the party bound to deliver. If one accepts a job that requires the use of extraordinary or additional equipment. this is a contract for a piece of work. 2 Things to Consider 1. ► It must be of the nature that the products are not ordinary products of the manufacturer. • Because of the Remedies ► SUBJECT MATTER – In piece of work. Even if the wanted to mass-produce. taking into account the work he will employ personally. with damages. In Sale. there is a contract for a piece of work. and no 2 plants are identical. it is a sale.   SALE Principal Contract Buyer himself pays purchase price which constitutes his main obligation Buyer becomes owner of thing after delivery Seller warrants and is personally liable to the buyer Not unilaterally revocable     7 . but actually must be drawn from the Nature of the Work to be performed. may be done by another at expense of party who refused. even if work is done habitually. But if one of the parties accepts the undertaking on the basis of some plan.What determines whether the contract is one of work or of sale is whether the thing has been “manufactured specially for the customer and upon his special order. SM is object ► OBLIGATION – Sale is involves real obligation while Piece of work involves personal obligation to do ► In POW.SALES LAW 2. SM is service. Capacity to stockpile or mass-produce products [not actual mass-production] 4. If the thing is manufactured or procured for the general market in the ordinary course of business.” If the thing is specially done at the order of another. No specific performance. or involves services not generally performed by it – it contracts for a piece of work – filling special orders w/in the meaning of Art1467. and no change pr modification is necessary. INTENTION TEST Tolentino: The distinction depends on the intention of the parties. 5. ► 3. CIR v Engineering Equipment and Supply Co . CLV: Celestino basically says to forget 1467 – judicial interpretation ► The test of “special orders” is not one of timing or habit. [Art1868 NCC]  Distinctions: AGENCY     Preparatory contract Agent is not obliged to pay purchase price and is merely obliged to deliver the price which he received from the buyer Agent does not become owner of thing even if it is delivered to him Agent who effects the sale assumes no personal liability over the thing. NATURE OF WORK Celestino Co v CIR ► DEAN CESAR VILLANUEVA The essence of a PoW is the sale of service. so many factors have to be considered. it is a contract of sale. can the producer build an inventory and dispose of the products? Although he produces upon the special orders of customers. the contract is one of sale. if refused. Each product was unique and always different from other orders it had serviced in the past. a transfer of ownership is involved and a party necessarily walks away with an object. they couldn’t. the products are individually created.  From Agency to Sell  A person binds himself to render some service or to do something in representation or on behalf of the principal. as long as he is acting w/in his authority and in the name of the principal – but it is acceptable for agent to bind himself to warranties made by his principal. If they intended that at some future date an object has to be delivered. as opposed to the sale of an object.If the thing ordered is exactly that which the company makes and keeps on hand for everyone. and in consequence of the order.

unlike a sale contract which must comply with the Statute of Frauds for enforceability [remember. who remains the owner and has the right to control the sale. the agent is never personally liable. ► The essence of an agency to sell is the delivery to an agent. demand and receive proceeds less the agent’s commission upon sales made.  Shall be governed by the law on Sales [Art1245. • That is why it is always revocable. all that exists is the arrangement by which an existing obligation may be extinguished. • Gonzalo Puyat v Arco ► If the price is clearly stipulated. and not one enumerated under Statute of Fraud in Art1403. not as his property. Once an Agent is subject to personal liability.SALES LAW  DEAN CESAR VILLANUEVA Agency is a fiduciary relationship based on trust and confidence. all proceeds must accrue and be accounted for to the principal Agent is the instrumentality of the principal. not perfection/validity]. despite stipulations to the contrary • It is inequitable/illegal for the agent to receive profit. ► Hence. but as the property of the principal. except as to sale of real estate or property and any interest therein. then it is a sale Statutory Rule • In construing a contract containing provisions characteristic of both a sale and a contract of agency. • Victorias Milling v CA ► One of the factors that clearly distinguishes agency from other legal concepts is control. then it is a contract of sale. relationship ceases to be agency and it becomes sale. • Lim v CA ► Practical Value of knowing distinctions ► The applicability of the Statute of Frauds ► A contract of agency to sell on commission basis does not belong to any of the 3 categories of contracts covered by Art1357 and 1358 requiring them to be in a particular form. the essential clauses of the whole instrument shall be considered. it would be a sale and not an agency. In an agency. despite unforeseen events and any changes in price would be shouldered by the party selling. he has no legal separate existence [must be capacitated] • The agent has no legal standing per se but acts only as representative of principal • AGENT CANNOT BE SUED. The only exception is sale of a piece of land or any interest therein through an agent under Art1874. Any product not solid is usually returned to the principal. • Ker & Co v Lingad ► Transfer of title or agreement to transfer it for a price is the essence of sale. dominion. Because in a contract of agency.  REAL Contract which requires DELIVERY. • Look at Liabilities – if there is a stipulation that the agent is liable for risk. it constitutes delivery and transmission of a thing by the debtor to the creditor as an accepted equivalent of the performance of an obligation. then it is a sale. he is in breach of the agency. is not covered under Statute of Frauds and is valid in any form. If such transfer puts the transferee in the position of an owner and makes him liable to the transferor as debtor for the agreed price. other than that agreed upon by principal and agent. • Prior to delivery. the agent is not liable for any change in price and he cannot receive profit because only the principal can receive profit. a contract of agency to sell is valid and enforceable whatever its form. one person – the agent – agrees to act under the control or direction of another – the principal. and not merely as an agent who must account for the proceeds of a resale. Cases • Quiroga v Parsons ► When one party is to pay for the products delivered at a specified time. The agreement does not necessarily constitute a separate contract. NCC] 8 . in general. [Art1466 NCC] Why Distinguish? • A contract of agency. the transaction is a sale.         From Dacion En Pago  One whereby property is alienated to the creditor in satisfaction of a debt in money. ONLY THE PRINCIPAL If agent becomes a double-agent. Indicators of Sale • Look at the Subject Matter – if any obligation is assumed by the agent. so the principal has the right to take profits. ownership or change of price. to fix the price and terms.

9 .    From Lease  Lease contemplates the use of a thing for a price certain. Delivery and transfer of ownership over thing is for payment – not merely security 4. In order that there be a valid dation in payment. as a special mode of payment.  Case: FILINVEST CREDIT CORPORATION v CA • When a lease clearly shows that the rentals are meant to be installment payments. as when the repossession of the SM of a trust receipt is only by way of Security. • PHILIPPINE LAWIN BUS CO v CA ► It is essential that the transfer of property must be accompanied by a meeting of the minds between the parties on whether the loan would be extinguished by Dacion En pago. The price/consideration of the sale becomes the previous monetary obligation. debtor offers another thing to the creditor who accepts it as equivalent of payment of a debt.” a device used to circumvent the provisions of Art1484-1485 NCC.SALES LAW  DEAN CESAR VILLANUEVA Characteristics: 1. it may be stipulated that the lessee has the option to buy the leased property for a small consideration at the end of the term of lease. or if the rent throughout the term has been paid. provided that the rent has been duly paid.  Such contracts are really conditional sales. • In such contract. and are leases in name only. the following are the requisites: (1) There must be the performance of the prestation in lieu of payment ( animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person. perfected by delivery 3. Therefore. there is no dation • LO v KJS ECO-FRAMEWORK SYSTEM ► In dacion en pago.  Sale involves the obligation to absolutely transfer title or ownership of the SM  A conditional sale may be made in the form of a “lease with option to buy. A species of the genus of sale Dation in Payment is actually a novation of the original contract of LOAN into A CONSUMMATED SALE • In dation. Cases • PNB v PINEDA ► When there is no transfer of ownership in favor of the creditor. is actually a Novation 2. it is to be considered a SALE by installments. and to return the same upon the expiration of the period agreed upon. Extinguishes a pre-existing obligation. despite the nomenclature given by the parties. (3) There must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a presentation different from that due. the debtor assumes the roles and obligations of a SELLER while the creditor assumes the role of the BUYER. the debtor transfers the property to the creditor in payment of a debt. (2) There must be some difference between the prestation due and that which is given in substitution (aliud pro alio). title shall vest in the lessee. A Real contract.

Minors 2. Administrator. CONSIDERATION/PRICE 5 types of contract under Civil Law 1. may enter into a contract of sale.   GENERAL RULE  Any person who has capacity to contract or to enter into obligations. Judges & Lawyers  MINORS. Sale Between Spouses 3. associations and cooperatives • A juridical personality separate and distinct from that of the shareholders. EXCEPTIONS  4 Exceptions Giving Rise to 2 kinds of Contracts I. VOID CONTRACTS 1. INSANE OR DEMENTED PERSONS. As to consent as element of contract. voidable or void contract. Unenforceable  Both parties have no authority to give consent  Statute of Frauds 4. Agent. Valid 2. 3. VOIDABLE CONTRACTS 1. Void  When any one of the 3 elements is missing or illegal  Or when all three are present but is against public policy There are only 4 types of contracts because void/inexistent contracts are technically NOT CONTRACTS. DEAF-MUTES WHO DON’T KNOW HOW TO WRITE 10 . whether as seller or buyer. with full capacity for such juridical persons to obligate themselves and enter into valid contracts. Deaf-Mutes who cannot Write 4. Guardian. Rescissible  When there is either DURESS or LESION  Remedies: Specific Performance or Rescission 5.SALES LAW DEAN CESAR VILLANUEVA CHAP TE R 2 P ARTIE S TO A CO NTRACT O F S ALE [CO NS E NT i n KoS ]  Review:     Valid contract: CONSENT. partners or members is recognized by law. [Entered in a state of Drunkenness or during a Hypnotic Spell] II. CAUSE/SM. Sale by spouse to 3rd person w/o authorization 2. [Art1489]  For Natural Persons : 18 years old  For Juridical Persons : such as corporations. it could be either a valid. Voidable  Because of vice of consent  Valid until annulled  Remedies: Annulment. Insane or Demented – BUT those entered into during lucid interval are valid contracts. Public Official. Specific Performance. partnerships. Ratification 3.

etc. w/o the consent of the other spouse. shall belong to both spouses jointly.  SALES BETWEEN SPOUSES • VOID because no consent 11 . if necessaries are sold and delivered. enter into sales transactions in the regular or normal pursuit of their profession. including validly entering into contracts of sale. [Art73FC] • If the benefits accrued before the objection. not voidable. In case of disagreement.  Both may ask for rescission but only incapacitated party may ask for annulment.  EXCEPTIONS TO THE EXCEPTIONS  When contracts entered by Minors.  SALES BY AND BETWEEN SPOUSES  CONTRACTS WITH THIRD PARTIES  VOID because no consent  Either spouse may exercise any profession. the husband’s decision shall prevail but the wife may seek remedy from the courts w/in 5 years from the date of the contract. • These contracts are valid but the 2 requisites of sale must be present  Perfection and Delivery • The necessities must be sold and delivered. who shall then be qualified and responsible for all acts of civil life. subject to annulment or ratification by incapacitated party or his guardian  Any action cannot be instituted by the capacitated party  When annulled. • In such case. and in case of disagreement. and the other may only object on valid/serious/moral grounds.  The disposition or encumbrance of community or conjugal property shall be void without authority of the court or the written consent of the other spouse.  While the general rule is that these contracts should be considered VOID:  These contracts are VOIDABLE. • Art1489 says that where necessaries are sold and delivered to a minor or other person w/o capacity to act. clothing. Insane/Demented.  Under the law on sales. the incapacitated party is not obliged to make restitution. education and transportation.SALES LAW   DEAN CESAR VILLANUEVA No capacity to enter into a contract of sale due to vitiated consent Why merely voidable? • Because there was consent to begin with. the courts shall decide. are VALID  Necessaries • Everything which is: ♦ Indispensable ♦ Pertains to sustenance. medical attendance. a spouse may. and may be perfected as a binding contract upon acceptance by the other spouse or authorization from the courts before the offer is withdrawn. trade or vocation. otherwise the contract is voidable.  Emancipation • Emancipation would terminate parental authority over the person and property of the minor.  Arts 96 and 124 of the FC also provide that the administration and enjoyment of the Community property or conjugal property. he must pay for them. it’s just that they have no capacity to act so the consent given is defective. and make rulings on the benefit. dwelling. Education includes schooling or training fro some profession. it will be considered as a continuing offer on the part of the consenting spouse and the 3rd person. ♦ In keeping with the financial capacity of the family. the obligation shall be enforced against the separate property of the spouse who has not obtained consent • Otherwise. and the resulting contract of sale is valid. vocation or trade. except insofar as he has been benefited. Transportation includes expenses to and from school or place of work. the resulting obligation shall be chargeable against the community property. he must pay a reasonable price therefore. even beyond age of majority. As opposed to a void contract where there is NO consent at all. • Although a minor/incapacitated person has no capacity to contract. • 18 years old is age of emancipation.

 In sale.ward 12 .  For CPG – they are careful enough to enter pre-nuptial agreement so why is it still prohibited? Because the default rule before was CPG and the law on Sales has not been revised to accommodate ACP as default rule. Based on the fact that a pre-nup must be executed to have separation of property.  Complete Separation of property – in fact this is where there may be greater risk of defrauding creditors. common-law relationships must have the same prohibitions as marriage. ♦ Why Prohibit Donation but Allow Sale in Complete Separation regime?  Because sale is an ONEROUS and COMMUTATIVE contract while DONATION is gratuitous. who have been prejudiced ♦ Prior Creditors ♦ The State. Sale would be void. husband can’t sell to wife because it requires consent of 2 parties but the spouses are of the same estate. Spouses cannot sell property to each other.SALES LAW • DEAN CESAR VILLANUEVA Under Art1490. compromises and renunciations. Status of Prohibited Sales Between Spouses • Null and Void • Who can Question the Sale? ♦ Heirs of the spouses.  Also because of the PSYCHOLOGY of the situation. except:  When a separation of property was agreed upon in the marriage settlements  When there has been a judicial separation of property agreed upon between them. value was exchanged for equal value and there would be no deficiency in property of each spouse.  Unless the consent of the principal has been given  GUARDIAN . the hardness of heart between the spouses makes it unlikely that one spouse would allow the other to influence him or her. as to taxes due on the transactions • The spouses themselves cannot question the sale because they are parties to an illegal act [Pari Delicto] Rationale for Prohibition ♦ To prevent a spouse from defrauding his creditors by transferring his properties to the other spouse ♦ To avoid a situation where the dominant spouse would unduly take advantage of the weaker spouse ♦ To avoid an indirect violation of the prohibition against donations between spouses under Art133 of the Civil Code.  Whereas in donation. • The prohibition applies even to sales in legal redemption. influence weaker spouse and circumvention of rule against donations between spouses.”      SPECIFIC INCAPACITY MANDATED BY LAW  Art1491 prohibits the following persons from entering into contracts of Sale under the following circumstances:  May be RATIFIED  AGENT – principal  As to property whose administration or sale may have been entrusted to him. Applicability of Prohibition to Common Law Spouses • For as long as marriage is the cornerstone of society. Rationale for Exceptions to Prohibition under Art1490 • Difference between Donation And Sale as Between Spouses ♦ Spouses may sell to each other if their regime is complete separation of property ♦ BUT spouses may not DONATE to each other even if they are under Complete Separation of Property. a basic social institution which public policy cherishes and protects. • Calimlim-Canullas v Fortun ♦ Sale by husband of conjugal land to his concubine is null and void for being contrary to morals and public policy and “was subversive of the stability of the family. ♦ Why only if there is complete separation of property?  In ACP – one hand can’t sell to other hand. the estate of the donor would necessarily be reduced and increase the estate of the Donee.

• Ratification in Oblicon retroacts but ratification in Sales starts only upon execution of new contract and is prospective. and therefore cannot be ratified. mere existence of relation would render the contract void  Public policy in 1491 is of the highest order  To avoid even an opportunity to abuse the relationship The following are not factors to the prohibition. or of any governmentowned or controlled corporation or institution. SC applied remedy of RATIFICATION to Void Contracts • BUT in the first 3 instances [agent.state  As to property of the State or any subdivision thereof. Even if their commission is dependent upon contract of sale.  AGENTS  Brokers do not come within the coverage of the prohibition. PROSECUTING ATTORNEYRS. • Private contracts may not cure private wrongs. GUARDIAN and ADMINISTRATOR may be ratified • Because they involve public policy that is only aimed at a private entity. term of “ratification” is neither Express nor Implied Ratification applicable to voidable. the contract would still be void:  Absence of fraud  Absence of damage or lesion  Tremendous Benefit  Court Approval Rubias v Batiller  Once prohibited contracts are entered into = VOID and inexistent  Regardless of whether case is adversarial or not. • Any person may invoke the contract’s inexistence/nullity whenever affected or whenever juridical effects are asserted against them.  For the first time. rescissible and unenforceable contracts. administrator]. they cannot invoke pour autrui principle.      13 . The last 3. • The “Ratification” referred to here is the execution of a NEW CONTRACT of sale after the relationship ceases ♦ Requires new consent: new offer and new acceptance ♦ But same subject matter and same or old price. the administration of which has been entrusted to them  Includes judges & government experts who in any manner whatsoever take part in the sale  JUSTICES. JUDGES. Exceptions  Agents if with consent of principal  Lawyers as to contingent fees Public policy behind Art1491 is: UNDUE ADVANTAGE BY BREACH OF FIDUCIARY RELATION. require adherence to public policy against undue advantage. as public officers. their existence is not a defense against the nullity of the contract. as long as the client-lawyer relationship exists. sale is absolutely prohibited  Contracts entered into by AGENT. & OTHER OFFICERS & EMPLOYEES CONNECTED WITH THE ADMINISTRATION OF JUSTICE – under litigation/ levied upon  As to property and rights under litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions  LAWYERS – client during litigation  As to property and rights which may be the object of any litigation in which they may take part by virtue of their professions. CLERKS OF COURTS.  Despite lack of undue advantage. as their authority consist merely in looking for a buyer or seller  Agents do not have individual standing to maintain action on a sale • They cannot file specific performance. guardian.estate  As to property of estate under their administrations Cannot be RATIFIED  PUBLIC OFFICERS & EMPLOYEES .SALES LAW DEAN CESAR VILLANUEVA  As to property of the person under his guardianship  EXECUTOR / ADMINISTRATOR .

even if there is no fraud. ATTORNEYS  Reason for prohibition: Intended to curtail any undue influence of the lawyer upon his client. ♦ Prohibition does not apply to sale of a land. greed – it could still be void JUDGES. the properties levied are still subject to the prohibition. acquired by a client to satisfy a judgment in his favor. once he validly acquires the hereditary rights of any of the heirs.  Macariola v Asuncion • Sale must not only be of property under litigation.  Any violation of this prohibition would constitute malpractice.  Contingent Fee Arrangements • Involves contingent fee based on the value of property involved in litigation • Is an obligation subject to a suspensive condition. • Prohibition applies only while litigation is pending. JUSTICES. • 2 Kinds of Contingency fees:  Entitled to a percent of the land or property under litigation – Direct Ownership Interest   14 . • CLV disagrees: If the administrator or executor were not disqualified from purchasing or having interests in the hereditary rights. Now. ♦ Prohibition does not apply to lawyer who acquired property prior to the time he intervened as counsel in an ejectment suit involving such property. there is no need. and made in payment of professional services in other cases. ♦ The pendency of a certiorari proceeding even after final judgment is still covered by the restriction. ♦ Does not apply to a contingency fee arrangement which grants the lawyer of record proprietary rights to the property in litigation since the payment of said fee is not made during the pendency of litigation but only after judgment has been rendered in the case.  Hereditary Rights are Not Included in the Coverage • Because hereditary rights pertain immediately to the heirs upon death of the decedent and do not form part of the estate under administration. it is NOT required that some contest or litigation over the property itself should have been tried by the judge. • Thus. ♦ Does not cover assignment of the property given in judgment made by a client to an attorney.  But if counsel withdraws – sale is valid. such administrator or executor would already be in clear conflict of interest. to his attorney as long as the property was not the subject of the litigation. who has not taken part in the case. • Law does not prohibit a lawyer from acquiring a certain percentage of the value of the properties in litigation that may be awarded to his client. Such property is in litigation from the moment it became subject to the judicial action of the judge. even when the main cause is a collection of a sum of money. but must also be sale during litigation involving the property. THOSE INVOLVED IN ADMINISTRATION OF JUSTICE  Gan Tingco v Pabinguit • For the prohibition to apply to judges. • Contingency Fee Arrangements — The prohibition does not apply to a contingent fee based on the value of property involved in litigation and does not prohibit a lawyer from acquiring a percentage of the value of properties in litigation that may be awarded to his client. Intention is immaterial. such as levy on execution.  Previously.  Requisites:  Applies to property subject of litigation  Property is owned by client who is the defendant  Lawyer in fact represented the client  Prohibition only applies DURING the period when litigation is pending. there was a need to prove collusion or actual mediation on the part of the guardian.SALES LAW  DEAN CESAR VILLANUEVA GUARDIANS/ADMINISTRATORS/EXECUTORS  Considered officers of the court  Even a court-approved sale would not stand against the inhibition of Art1491.  Even if on appeal or certiorari  Rules: • Prohibition applies only to sale to a lawyer of record. malice.

morals. (7) Those expressly prohibited or declared void by law. 15 . or it may be future or even contingent = POSSIBLE thing  LICIT  DETERMINATE or at least DETERMINABLE  Lack of Any requisite results in non-existent Sale  No contract of sale results  For Reference:  Art. (2) Those which are absolutely simulated or fictitious. (5) Those which contemplate an impossible service. • • • CHAP TE R 3 S UBJ E CT MATTE R [O BJ E CT O F KoS ]  REQUISITES OF VALID SUBJECT MATTER [Art1409. public order or public policy.  POSSIBLE THING v IMPOSSIBLE THING  If the SM is impossible  NO CONTRACT SITUATION • There would be complete absence of SM because it does not exist at all  The minimum requirement is POTENTIAL EXISTENCE • A sale creates an obligation to transfer ownership. it is possible. object or purpose is contrary to law. Fabillo v IAC ♦ Payment of contingency fee is made after judgment has been rendered. contract is the law between the parties and it cannot be re-written by the court. So it is governed by the law on sales. • What is essential at the time of perfection of the contract is the existence of the OBLIGATION to transfer ownership of the thing and not the object of the contract. (4) Those whose object is outside the commerce of men. (3) and (4)]  Subject matter is the essence of sale  The SM must follow these requisites at the time of perfection  EXISTING. so contingency fees are valid. good customs. Note: perhaps. ♦ As long as the lawyer does not [a] exert undue influence [b] or fraud on his client or the [3] compensation is not excessive. (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained. The following contracts are inexistent and void from the beginning: (1) Those whose cause. These contracts cannot be ratified. (3) Those whose cause or object did not exist at the time of the transaction. the property is merely a basis of determining what the attorney’s fees are These are not sales but contracts for service ♦ Therefore they should not be governed by art1491.SALES LAW  DEAN CESAR VILLANUEVA Entitled to the value of a certain percent of the property – not ownership. ♦ BUT there is still a transfer of property – therefore it is a genus of sale. • Significance: Future things may be subject of sale. the reason why there is a distinction between the rules for lawyers and other court officials is because the rules of court allow supervision while in other cases. • So long as the SM has potential existence. Neither can the right to set up the defense of illegality be waived. ♦ Courts can temper or reduce attorney’s fees if there is undue influence/fraud or excessive compensation ► As opposed to guardians and administrators where the court cannot temper or reduce their fees. 1409. a contract of a contingent fee is enforceable and valid.

 EMPTIO SPEI  Involves a present thing  Price is fixed. The SM must be either [Art1462]: • Existing goods.  An aleatory contract  Versus a commutative contract  You either get something or nothing  Sale of hope to be valid: must not be vain hope or expectancy  Otherwise. it is particularly designated. You more or less know what you want.   16 . shall return to each of them what they have received. It is not part of the requisites of a valid SM that at the time of the perfection of the contract. the rules of interpretation would incline the scales in favor of “the greater reciprocity of interests. raised or acquired by the seller after the perfection of the KoS [called future goods]. the parties. or the chance to win. as any conditional obligation. Look at the risk. • Gaite v Fonacier: a contract of sale being an onerous and commutative contract. this goes against the very essence of sale. owned/possessed by the seller • Goods to be manufactured. contract will be void  Example: Sweepstake ticket – the object of the sale is not the prize but the ticket.  subject to a suspensive condition that the SM will come into existence  If the SM does not come into existence. Remember: Although SM may be subject to a suspensive condition. you are buying the risk. the contract is deemed extinguished “as soon as the time expires or it has become indubitable that the event will not take place. so that the party may assume the risk that he receives nothing. that it exists or could be made to exist to allow the seller reasonable certainty of being able to comply with his obligations under the contract. it is not possible to take the risk the SM will not be delivered Examples:  EMPTIO REI SPERATAE  a contract covering future things  purchase made in the hope of an uncertain future profit / or when the thing is not yet un the possession of the seller  In emptio rei speretae. If the ticket does not win.” and unless the stipulation is clear. what is important is potential existence • Sale of goods whose acquisition depends upon a contingency which may or may not happen. it was held that the obligation of a party may be subordinated to an uncertain event. you buy what you see in front of you. a clause should be interpreted as a term than as a condition. You buy the lump sum.SALES LAW DEAN CESAR VILLANUEVA      Test to Determine if SM is possible • By type and nature of SM.  Law seems not to acknowledge risks Sale of thing subject to Resolutory Condition • Things subject to resolutory condition may be subject of sale • When the condition have for their purpose the extinguishment of an obligation to give.”  Covers only contracts whose SMs are generic-determinable. it is to be paid whether or not gain results  In emptio spei.  Typifies a situation where the commutative nature of a contract of sale seems not to have been complied with. although it may be some other contract • If there is a stipulation a party will not receive the SM. Although in the Gaite case. the possibility. • Any condition that the buyer would not receive the SM is void and does not constitute a valid contract of sale. upon fulfillment of said conditions. • Shows that sale is merely a title and not a mode. look to the future. • Perfection of a sale is not per se affected by the title ownership over the SM. the sale is still valid. this covers only PRICE and NOT SUBJECT MATTER. taking into consideration the state of TECHNOLOGY and SCIENCE at the time of perfection of the contract. the seller be the owner of the SM.

any party can demand whatever he wants. a non-heir cannot claim ownership over an estate on the basis of a waiver document. otherwise the contract of sale would be void.  Court may determine if SM is capable of being determinate • The moment you need to get back at any of the parties to ascertain their intention. and this requirement is fulfilled as long as.  Determinable and Generic • A Determinable is ALWAYS Generic. it would be impossible to determine the intent of the parties.  Examples of illicit SMs • Sale of animals suffering from contagious diseases • Sale of animals whose use has been stipulated and they have been found to be unfit for it • Sale of future inheritance ♦ But waiver of hereditary rights is permitted. and all rights which are not intransmissible. ♦ Waiver is a mode of extinction of ownership. The SM must be certain. Therefore the SM must be objective.SALES LAW  DEAN CESAR VILLANUEVA Subject Matter is Nexus of Sale • The SM must be existing or must come into existence to be delivered to the buyer.  Cases • Melliza v City of Iloilo ♦ A sale must have for its object a determinate thing. the intent or meeting of the minds of the parties is what counts.  A thing is licit when it is NOT outside the commerce of men. where there is abdication or relinquishment of a known right.  Without the necessity of a new or further agreement between the parties. ♦ The sale of hereditary rights presumes the existence of a contract or deed if Sake between parties. • If it is not determinate or determinable. or an existing contract of sale is extinguished. whereas a no contract situation involves complete absence of a contract. 17 . ♦ Waiver of hereditary rights is not equivalent to sale of hereditary rights.  DETERMINATE OR AT LEAST DETERMINABLE  If not at least Determinable  VOID Contract  Determinate and Determinable • Determinate / Specific  Particularly Designated  Physically segregated from others of the same class • Determinable  If at the time the contract is entered into. The obligatory nature of the contract would not be complied with. it is NOT Determinable. ♦ Following this doctrine. with knowledge of its existence and intention to relinquish it in favor of the other persons who are co-heirs. • A Determinate is ALWAYS Specific • A Generic is NOT ALWAYS Determinable [may either be determinable or non-determinable] • A Determinate/Specific is NEVER determinable  Why must SM be Determinate/Determinable? • So that the contract is capable of being enforced. at the time the contract is entered into.  LICIT v ILLICIT  If it is illicit  VOID CONTRACT  Remember: a void contract is still a contract. donation or any other mode of acquiring ownership. So regardless of designation in the contract. Otherwise. with the obligation on the part of the seller to return the price he has received thereby. unless it has the elements of a sale. the thing is capable of being made determinate. the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties. not a formal one. • Sale is a consensual contract.

• BUT! CLV says ♦ Quantity is NECESSARY for Determinate SMs ♦ For determinable.” and therefore complies with the requisite of being determinable. even when the exact quantity of the SM of the KoS has not been agreed upon. which cannot be determine w/o a new agreement.SALES LAW • DEAN CESAR VILLANUEVA Atillano v Atillano ♦ When one seeks to sell or buy a real property. then the deed must give way to the real contract of the parties. but the parties have agreed on the quality and price. one sells or buys the property as he sees it in its actual setting and by its physical metes and bounds. Nature and Quality of SM are what are essential for perfection. and not by the mere lot number assigned to it in the certificate of title. it is sufficient. that they fulfill the characteristic of being “determinable” at the point of perfection. • Remember: A sale may involve a generic-determinable SM. [Art1246] ♦ But this cannot mean that even when SM is not determinable. ♦ Art1246 only covers “quality” of a generic SM and not the kind and quantity. either by physical segregation or particular designation. any generic SM would support a valid sale. either through physical segregation or particular designation. • When the obligation consists in the delivery of an indeterminate or generic thing. provided. without the need of a new contract between the parties. provided it is possible to determine the same. which will be determinate only upon consummation of the sale. but the parties have in fact come into an agreement as to the quality thereof and the price. there is already a valid and binding contract of sale. there is already a binding contract. provided they are determinable at the point of perfection. only then does the KoS begin to exist with respect to the Chosen SM. the buyer cannot demand a thing of superior quality. • Cases support the doctrine that certain generic objects may be the proper object of a contract of sale. Quantity of SM is NOT essential for perfection • Determination of Identity. Even when the exact quantity of the SM has not been agreed upon. the obligation to deliver the SM can only be complied with when the SM has been made determinate. • Londres v CA ♦ As long as the true intentions of the parties are evident. or affect the validity and binding effect of the contract between them. ♦ The deed of sale is merely evidence of the contract. ♦ Specific quantity of the SM is not important when it is still possible to determine the quantity without the need of a new contract between the parties. Neither can the seller deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration. for as long as there is no need for a new agreement. • National Grains Authority v IAC ♦ The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract. the mistake will not vitiate the consent of the parties. ♦ Determinable-Generic objects may be the SM of a KoS   Generic Objects • Although the sale of determinable generic thing is valid. ♦ The true concept of a contract of sale is intangible or properly a legal concept. and terms of payment. whose quality and circumstances have not been stated. ♦ When SM is determinable-Generic  Force Majeure is not a defense because generic things do not vanish 18 . Thus. because Art1409 specifically states that a contract is void if the intention of the parties relative to the principal object of the contract cannot be ascertained. although a valid contract of sale existed between the parties even before the choosing of the particular SM for delivery.  Generic objects may be the subject of sale. ♦ But when the originally generic SM is finally chosen for delivery. And when the deed fails to cover the real contract or the true meeting of the minds of the parties.

there may be a sale of an undivided share of a specific mass • If the mass contains less than the number. and actual transfer of ownership is not required at perfection [because only obligation to transfer ownership is required]. • Also.  Seller’s Obligation to Transfer Ownership Required at Time of Delivery  Although the seller must be the owner of the thing in order to transfer ownership to the buyer. weight or measure to be bought. True or False? Both. Otherwise. he will be liable for breach • There are some SMs which are prohibited. therefore. then answer is False. contracts are inexistent and void from the beginning when the “cause or object did not exist at the time of transaction.” • But the literal meaning of this provision does not apply to sales • Remember: Sale is consensual. he need not be the owner of the thing at the time of perfection  It is sufficient that he is the owner at the time of the delivery of the object of the contract  Otherwise. then it is completely VOID and NON-EXISTENT  In Loyola v CA. the SM is a determinate object [the mass] and not the actual number of units contained therein. You can’t transfer ownership over what you don’t own.SALES LAW  DEAN CESAR VILLANUEVA Sale of Undivided Share in Mass • Result: Proportional co-ownership. • In sale of fungible goods.  Provided there has been previous delivery of the SM by the seller to the buyer. and not the existence of the SM is the essence of sale. the seller is not the owner. • If by sell.  Re-cap: • SM that has at least potential existence is valid • SM that is not owned by seller at time of perfection is valid. plus previous physical delivery of the SM  LEGALITY OF SALE  As to SM  Under Art1409(3). • GAITE CASE ♦ When parties to sale involving a specific mass have not provided for the measuring/weighing of SM & price is not based on such measurement. because Art1458 defines a KoS as an obligation to transfer the ownership of and deliver a determinate thing. [Tralse] • If by sell. whether such an obligation exists or not. he will be liable for breach of warranty against eviction. wild birds or mammals.  Exception where Seller must be owner at Time of Sale  The exception to the rules that ownership by the seller is not essential at the time of perfection would be in the case of a JUDICIAL SALE  Art2085 provides the essential requisites of the contract of mortgage that the mortgagor or pledgor be the absolute owner of the thing mortgaged. • For transfer of ownership ipso jure to happen under Art1434. the court defined simulation as 19 . even if it is less than the amount estimated. but he must own it at consummation stage in order to deliver it to the buyer. the buyer becomes owner of the whole mass and the seller is bound to make good the deficiency from goods of the same kind and quality. • No one can sell what does not belong to him. [Nemo Dat Quod Non Habet] • But since sale is consensual. You mean to enter into a contract of sale. ♦ All that is required is to deliver in good faith the mass. the subsequent acquisition of title by a seller validates the sale and title passes to the buyer by operation of law. etc. answer is False. in anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan. it is essential that there be a valid contract. you mean transfer ownership.  Sale is Completely Simulated  When a sale is absolutely simulated. Examples are narcotics.  Subsequent Acquisition of Title by Seller  When at the time. unless a contrary intent appears. the answer is true. You can.

it would be a violation of the Obligatory Force [MUTUALITY] of a KoS REQUISITES FOR VALID PRICE  20 . such as the prestation or promise of a thing or service by another. (1277)  MEANING OF PRICE  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. the appearances of a juridical act which does not exist or is different with that which was really executed.  CHAP TE R 4 P RI CE [CAUS E or CO NSI DE RATI O N O F KoS ]  PRICE IS ONE FORM OF CONSIDERATION  Under Art1458. for the purposes of deception. The false appearance must have been intended by mutual agreement 3. it is presumed that it exists and is lawful. The purpose is to deceive third persons.   When Motive Nullifies Sale  As a rule.SALES LAW • DEAN CESAR VILLANUEVA The declaration of a fictitious will. the sale is void because the illegal motive predetermined the purpose of the contract.  Under Art1354 of the CC. The parties have no intention to be bound by the contract REQUISITES FOR SIMULATION 1.  A seller cannot unilaterally increase the price previously agreed upon with the buyer  Otherwise. [may be a prestation or promise]  Consideration or cause can take different forms. consideration is different from motive of the parties  When primary motive is illegal.  Art. consideration is presumed to exist. unless the debtor proves the contrary. Contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties 2. deliberately made by the agreement of the parties. in order to produce. Although the cause is not stated in the contract.  Contract of Sale v CONTRACT TO SELL   Contract to Sell is an Agreement to Agree A contract to sell has the same essential elements of:  Consent  SM – to enter into a KoS  Price The only difference is that in a contract to sell. the ideal consideration for a contract of sale would be “PRICE”  As a sum certain in money or its equivalent  HOWEVER. the Subject Matter is a promise/agreement to enter into a contract to sell. 1354. it is possible that a sale may still be valid when it has for its cause or consideration an item other than price.  Characteristics of a Simulation 1. An outward declaration of will different from the will of the parties 2.

MANNER OF PAYMENT  But: absence of one of these requisites does not always make this contract void. it is a void contract o Since there was in fact no intention to enter into a sale. REAL 2. TEST OF INTENTION – whether or not the parties intended to give/receive a price 2. it would have to be a “valuable consideration”  Complies with the commutative nature of KoS o Price of P1 for land is simulated. the Court found the deed void ab initio and not merely voidable. what is meant by a contract that states a false consideration is one that has in effect a real consideration but the same is not the one stated in the document. there is every intention by the buyer to pay and every expectation by the seller to receive payment Does not show true intention of the parties to receive price or pay it Stipulation and intention differ One price on the document. Concept of Valuable Consideration • MUST BE VALUABLE! o Pursuant to Onerous character of KoS o Contract with Nominal Consideration is a Void KoS • Ong v Ong o Philippine jurisprudence has not accepted the Anglo-Saxon concept that “any“ consideration is enough to support a contract o What prevails is the Roman Law concept that for consideration to support an onerous contract such as Sale.  Adequacy of Price to Make it real. especially when the interest of the government or third parties would be adversely affected by the reformation of the instrument. 21 . then there is no real price Meeting of the Minds as to price • According to Manresa. TEST OF VALUABLE CONSIDERATION – if price is nominal [merely titular]. and more importantly.  • Mapalo v Mapalo o SC differentiated between a contract with no consideration and a contract with a false consideration o If there is no consideration. Absolutely no intention to give or receive payment  SIMULATED FALSE VOID KoS but may be other contract like donation VALID KoS but may be subject to Reformation NO PRICE VOID contract for lack of cause or consideration    Every simulated price is a VOID contract – FALSE – may be some other K or Donation Every simulated price is a VOID KoS – TRUE. parties may be held bound by the false price in the instrument. may be a donation but is a void KoS • Bagnas v CA o Gross disproportion between consideration stipulated and the value of the property would show that the price stated was “false and fictitious consideration. MONEY OR ITS EQUIVALENT 3. 2 Tests to Determine if Price is REAL: 1.” and no other true and lawful cause having been shown. there was no consent at all.SALES LAW  DEAN CESAR VILLANUEVA The price of a contract of sale must have the following requisites: 1. there was no consideration or price agreed upon. MUST BE CERTAIN OR ASCERTAINABLE AT THE TIME OF PERFECTION 4. PRICE MUST BE REAL PRICE REAL STATUS VALID KoS Notes Shows the true intention of the Parties When at the time of perfection. but the true price agreed upon does not appear on the document Nevertheless.

drafts. This shows that the essence of a true KoS is the existence of the obligation of the seller to transfer ownership and deliver possession of the SM. did not render the sale void for having a fictitious consideration. whether it is Dacion or Barter. take note: o Art. and failure of the vendee to pay the price after the execution of the contract does not make the sale void for lack of consideration but results at most in default on the part of the vendee. • Delivery of the SM pursuant to a KoS that is void for lack of consideration therefore does not transfer ownership to the buyer.  Consideration does not have to be in MONEY. 1355. However. o Failure to deliver the price may be an indication of a simulated price. o The presumption of a lawful cause did not attach in this case because evidence was adduced to indicate that there was no real intention to pay any valuable consideration. distinction must be made between a simulated price that affects delivery and the failure to deliver or pay the price.  This shows that the consideration for a valid KoS can be the price and other additional consideration  At the very least. as there was no consideration for the same. but it must have PRICE at least as part of the consideration. the requisite that the price must be in money or its equivalent is one that has not been held steadfast by the SC as determinative of the validity of Sale. mistake or undue influence. the other party may rescind. • May be in paper [check. Except in cases specified by law. (n) •  Effect of Non-Payment of Price • Balatbat v CA o Delivery of the thing bought or payment of the price is not necessary for the perfection of the contract. a true KoS must have price [money or its equivalent – like checks. it would still be considered fictitious and render the sale void if it is a MERE NOMINAL PRICE. even promissory note] • May be in plastic [credit card] PRICE MUST BE CERTAIN OR ASCERTAINABLE • CERTAIN: Expressed and agreed in terms of Specific Persons and/or Centavos 22  . Simulation of Price affects Delivery of SM • When a contract of sale is fictitious. • Perez v Flores o There was never any real price agreed upon and the failure to deliver the price was one of the indications to show its simulation. • BUT! Take note. although an essential element of a valid contract. Consideration may be the price and other additional considerations. no title over the SM of the sale can be conveyed.  CLV: In all. and therefore void and inexistent. the transaction can still be considered a contract of sale when this is the manifest intention of the parties. lesion or inadequacy of cause shall not invalidate a contract.SALES LAW o DEAN CESAR VILLANUEVA Even though a consideration is REAL in the sense that it was agreed upon and there was every intention of the parties to pay and receive such price. whereas the price. It is plain that consideration existed at the time of the execution of the deed of sale with right of repurchase. unless there has been fraud. being essentially a generic obligation. o No payment of price. may be subject to variations.    PRICE MUST BE IN MONEY OR ITS EQUIVALENT  If not in money or its Equivalent  Still VALID • This is not an essential requisite. it is still governed by the law on Sales  Art1468 recognizes that if the consideration of the contract consists partly in money and partly in another thing. Accommodation does not make Sale Void for Lack of Price • Mate v CA o The fact that checks intended for payment bounced. etc] as part of its consideration.

o On the other hand. price must be determinable w/o need of further agreement at the moment of the meeting of the minds for price to be valid. an enforceable contract has not arisen. By mistake 3. or that the determination thereof be left to the judgment of a specified person or persons. 1. Since there was no fixed price. •  PRICE FIXED BY 3RD PARTY • Designation of a 3rd party to fix the price is valid • Such designation makes the price Ascertainable • Mere designation of 3rd party. etc. when the price fixed is that which the thing could have on a: o Definite day o Particular Exchange o Particular Market 23 •   . The price which is essentially generic.SALES LAW • DEAN CESAR VILLANUEVA ASCERTAINABLE: Sufficient that it be so with reference to another thing certain. When it may be determine by a formula [another certain thing] 2. the obligation to deliver the SM and the title thereto can only be complied with at the point when the thing is either physically segregated or particularly designated. • When 3rd party is prevented from fixing price or terms by fault of either buyer or seller. In such case. When a 3rd party fixes the price 3. therefore the designation of a 3rd party to set the price is allowed. and courts cannot create a contract between the parties. grains. makes contract valid. the condition imposed on the KoS has not happened  Meaning it extinguished the underlying contract and consequently. PRICE CERTAIN IN REFERENCE TO OTHER THINGS • Price of securities. When buyer has appropriated the thing sold. the law declares the KoS INEFFICACIOUS. 4. • If designated party fixes price in BAD FAITH or by MISTAKE o These are the only 2 instances where the parties to the contract can seek court remedy to fix the price • If designated party is UNABLE or UNWILLING  Inefficacious KoS o Parties do not have a cause of action to seek from the court the fixing of the price o If the 3rd party does not fix the price. When it is in reference to a particular market/exchange. When determine by the courts In all cases. In bad faith 2. • But remember: Fixing of the price cannot be validly left to the discretion of one of the contracting parties  Suspensive Potestative Condition? • Even before the fixing of the price by the designated 3 rd party. because of 2 reasons: 1. liquids and other things shall also be considered certain. so there is no contract upon which courts have jurisdiction to fix the price 2. RECAP: Price determined by the Courts o When courts may fix: only if designated 3rd party fixes the price: 1. any money can be used to pay the price. • The difference in rules between SM and Price on designation of 3rd party springs from essence of obligations they pertain to: o The obligation to pay the price is essentially a fungible obligation. and it is NOT a generic obligation. and therefore its designation cannot be left to the will of the seller to comply with his obligations to deliver the same. Condition imposed on the contract does not happen. a contract of sale is deemed to be perfected and existing albeit conditional. FIXING OF SM BY 3RD PARTY • 3RD Party may be designated to fix the price. parties cannot ask court to fix the price. even without his acceptance. but a 3rd party cannot be allowed to determine the SM of a sale. he must pay a reasonable price o When designated 3rd party is either unwilling or unable to fix the price. but rather a SPECIES obligation. party not at fault may have such remedies against the party in fault as are allowed. there is no longer a contract upon which the courts have any jurisdiction to fix the price.

he must pay a reasonable price therefore.SALES LAW o DEAN CESAR VILLANUEVA Amount is fixed above or below price on such day. Delivery by the seller and appropriation by the buyer. However. being an integral part of the price. or in any other manner. there was no complete meeting of the minds. which is coupled with tradition. immediately demandable upon perfection of the contract. so there is no basis to sue on a contract that does not exist. what is a reasonable price is a question of fact dependent on the circumstances of each particular case. therefore there can be no action for Specific Performance Velasco v CA  Although part of the down-payment has been paid. Doctrine is based on principle of Unjust enrichment directed against buyer who is not allowed to retain SM of sale w/o being liable to pay price even when no such agreement on price is previously made 2. provided such amount is certain. 24 .  There is no contract here.  2 Important Points on Art1474: 1. is demandable at once. such as invoices then in existence and clearly identified or known factors or stipulated formula. but which turn out to be inefficacious because the formula eventually did not materialize into a certain price. and therefore may also apply to Void Sale contract situation where defect is the price. in the absence of any stipulation or agreement or actuation indicating that a different term of payment would be applicable and for which a meeting of the minds must be achieved. and that it is meant to be a remedy clause in favor of the seller. a definite agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and enforceable KoS Terms of payment. Agreement that price would be paid which fails to meet criteria of being certain or ascertainable 3. •   EFFECT OF UNASCERTAINABILITY • Contract of Sale is INEFFICACIOUS contract When there is sale even when no price agreed upon  Art1474: “Where the price cannot be determined in accordance with the preceding articles [Arts14691473].  In such cases. Meeting of the minds as to SM 2. Art1474 is mean to cover all sale contract situations where there must have been at least a meeting of the minds or an agreement to buy and sell the SM. courts have authority to fix the reasonable price for the SM appropriated by the buyer  This is the only exception where there would still be a valid KoS even when there has been no meeting of the minds as to price. exchange or market. by operation of law. would have the same requisites that the law imposes on price to support a valid contract of sale: Certain or at least Ascertainable. the contract is inefficacious. although there was a meeting of the minds as to the SM.  CLV: Art1474 should apply only to contracts of sale which are valid because the price is ascertainable. if the thing or any part thereof has been DELIVERED TO and APPROPRIATED BY THE BUYER . “Every obligation whose performance does not depend upon a future or uncertain event. terms of payment need not always have to be expressly agreed. Art1474 should not apply to contracts which are “void” from the time of perfection because the price was neither certain nor ascertainable. the price is deemed to be. of the SM of sale   MANNER OF PAYMENT OF PRICE MUST BE AGREED UPON  If manner of payment has not been agreed upon  NO CONTRACT  unless there has already been appropriation by the buyer      Considers the Time Value of Money  If you don’t agree on manner of payment. 3. Doctrine applies even when there is a “no contract” situation because of no meeting of the minds as to the price. when the law supplies by default such term. then there is no meeting of the minds as to price. or upon a past event unknown to the parties. Price of a thing is certain at point of perfection by reference to another thing certain.” then such acceptance does not produce a binding and enforceable KoS. When the manner of payment of the purchase price is discussed after “acceptance. Requisites for Art1474 to apply: 1. because you haven’t agreed on the same value of money. However.  Art1179: price is deemed to be demandable at once.  Therefore.

SALES LAW DEAN CESAR VILLANUEVA  FAILURE TO PAY THE PRICE DOES NOT MAKE THE CONTRACT VOID  It is not the payment of the price which determines the validity of the contract  If the minds never met on the price. Consummation begins when the parties perform their respective undertakings under the contract. or “birth” of the contract. Rescissible Contracts of Sale [Art1381]  Those entered into by guardians whenever the ward whom they represent would suffer lesion by more than ¼ the value of the object of sale  Those agreed upon in representation of absentees. Negotiation covers the period from the time the prospective buyers indicate interest to the time the contract is perfected.  Courts will not set aside judicial sale if there is a right of redemption [because this would mean the seller can recover the property at the same inadequate price] 2. Showing that in event of resale. or “death” of the contract. except in cases specified by law. or that the parties really intended a donation or some other act or contract. then it does not matter if the written evidence issued pursuant thereto [be it an agreement or a receipt] does contain all of the requisites. executed or partially execute contracts. PERFECTION CONSUMMATION 25 . which is the process of fulfillment or performance of the terms agreed upon in the contract.   CHAP TE R 5 FO RMATI O N O F CO NTRACT OF S ALE PREPARATION STAGES IN LIFE OF SALE [Limketkai Sons Milling.  CLV: Payment has nothing to do with price. the property is sold without the owner/seller’s actual intervention  BUT 2 requisites: A. and therefore. then a valid contract of sale should exist and the only issue would be its unenforceability under the Statute of Frauds. then the sale is VOID. inadequacy of price affects the status of the Contract: 1. which is the moment when the parties come to agree on the terms of the contract.  Proper remedy of seller is to have it reformed or declared a mortgage contract. Sales with Right to Repurchase  In a conventional sale with a right to repurchase. RULINGS ON RECEIPTS AND OTHER DOCUMENTS EMBODYING PRICE  Since sale is a consensual contract. or undue influence. the gross inadequacy of price raises the presumption of Equitable Mortgage. CA] also conception or generation stage which is the period of negotiation and bargaining. lesion or inadequacy of cause shall not invalidate a contract. ending at the moment of agreement of the parties [negotiation or policitacion stage]. or even by the breach of that manner of payment. If the minds have met on the price. unless there has been fraud. mistake. if the latter should suffer lesion by more than ¼ of the value of the object of sale 3.  SoF is not applicable to completed. except as it may indicate a defect in the consent. v.  The fact of having received part of the purchase price would place the contract outside of the SoF as partially executed contracts.  Art1470 provides that gross inadequacy of price does not affect a contract of sale.  In the following cases. and if upon the meeting of the minds of the parties. culminating in the extinguishment thereof. oral evidence presented to prove the other elements of the KoS would have been the order of the day. Judicial Sale  Gross inadequacy of price may make judicial sale VOID  Because the KoS is not the result of negotiations and bargaining but in fact. all the essential requisites are present. Perfection takes place upon the concurrence of the essential elements of the contract. Inc. a better price can be obtained. the sale is valid irrespective of the manner of payment agreed upon. INADEQUACY OF PRICE  Under Art1355. Inadequacy must be Shocking to the Conscience of Man B.

When an offer given with condition or period will be extinguished 1. 6. the expiration of the period or its withdrawal prior to acceptance would destroy the offer. An offer is the creation of the offeror The offer is within the absolute discretion of the offeror One cannot modify or change an offer A non-absolute acceptance or an attempt to modify the offer destroys the original offer When the offer has a period. there is freedom to contract. absent any prior agreement vesting the occupants the right of first priority to buy. acceptances.  RULES: 1. OPTIONS  According to Art1479 which governs options. “An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding 26 . 1. When the offer is subject to a condition. and is not duty bound to sell the same to the occupant thereof.  OPTION CONTRACTS  Essence and Location of Option • 2 TYPES OF ACCEPTED OFFERS [ART1479] – offers that have already been accepted and have given rise to valid contracts. The contract is perfected when the seller obligates himself. and it is not even necessary that the offeree learns of the withdrawal.  POLICITACION  An unaccepted unilateral promise to buy or sell – prior to acceptance.  Gabelo v CA  In the law on Sales. by the happening of the resolutory condition or the 2. Until the contract is perfected. Offer becomes ineffective upon the: 1. 5. although not essentially the contract of Sale. after the lapse of the period. the expiration of the period destroys the offer. an owner of property is free to offer the subject property for sale to any interested person. rights of first refusal and option contracts. do not give rise to any obligation or right.  A promise to buy and sell a determinate thing for a price certain is reciprocally demandable  An accepted unilateral promise to buy or sell a determinate thing fro a price certain is binding upon the promissory if the promise is supported by a consideration distinct from the price. 3. the happening of the condition extinguishes the offer. OFFERS  An offer. rights of first refusal and options.SALES LAW DEAN CESAR VILLANUEVA  PREPARATORY STAGE  Policitacion or negotiation actually deals with matters arising prior to the perfection of the KoS and deals with concepts of offers. it cannot. When there is a period given within which an offer may be accepted. Insolvency Of either party before the acceptance is conveyed and received by the offeror. certainty that the suspensive condition will not happen. serve as a binding juridical relation. without need of further action on the part of the offeror. or 3. prior to acceptance. Insanity 4. as an independent source of obligation. and in all cases. for a price certain. Civil Interdiction 3. 2. The rule is that policitacion or unaccepted unilateral promise to buy or sell. which signifies the right to choose with whom to contract. Death 2. to deliver and to transfer ownership At policitacion stage. is subject to the complete will of the offeror and may be withdrawn or destroyed by the offeror prior to its acceptance. it must be accepted within a reasonable time        If the offer is given for a period. prior to acceptance. acceptances. does not give rise to any obligation or right  Legal matters arising prior to perfection – deals with offers. 4.

INCLUDING MANNER OF PAYMENT PRESTATION .” In the same way. Option to Sell   Comparison with Contract of Sale 1. even when the separate consideration for the option itself has not been paid yet.  An Option Contract constitutes an offer to enter into a contract of sale. 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. if the holder elects to accept them within the time limit. • To be valid. CONTRACTS TO SELL  On the other hand. Unilateral 2. “A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. Not necessarily commutative – since the option contract need not be supported by a valuable consideration. it can never be the subject of specific performance An Option Contract is not a Species of the Genus Sales – does not have the same characteristics NOMINATE PREPARATORY CONSENSUAL – similar to a KoS Given a specific name by law. the provision for Mutual Promises to Buy and Sell makes them reciprocally demandable. it creates a valid contract of sale General Rule: Offer. at any time within the agreed period.A consideration separate and distinct from the purchase price for the option given.” meaning delivery or payment is not essential. Exception: When the option is founded upon a consideration. while an offer to buy or sell is an obligation TO GIVE  Since the obligation is to do. at a fixed price.  Definition of Option Contract • A privilege existing in one person. the option contract must indicate the definite price at which the person granting the option is willing to sell. DETERMINATE OBJECT B. PRICE CERTAIN. Preparatory 4. is completely subject to the will of the offeror and may be withdrawn anytime. ESSENTIAL ELEMENTS OF A VALID OPTION CONTRACT 1. 2. and not a promise to buy or sell  Upon acceptance by the offeree.Option right or accepted unilateral offer to buy/sell A. it has essentially become a CONTRACTED OFFER. CONSENT SUBJECT MATTER . Option to Buy 2. 27 . merely a separate one 3. meaning they may be subject to Specific Performance. 2 Types of Option Contracts 1. If the holder does so elect. It states the terms and conditions on which the owner is willing to sell his land. Remedy for breach: damages – as opposed to specific performance or rescission  The obligation to enter into a contract of sale is an obligation TO DO. • An option contract is an unaccepted offer. prior to acceptance. Executed in order to eventually enter into a consummated KoS Since the meeting of the minds as to the SM and the price would also give rise to the option contract. the 2 nd paragraph of Art1479 governs Contracts to Sell and provides that.” 2. • • • 3. Art1324 describes the separate consideration of an option contracts as “something paid or promised. then the offer may not be withdrawn at any time during the option period.SALES LAW DEAN CESAR VILLANUEVA upon the promissory if the promise is supported by a consideration distinct from the price. he must give notice to the other party and the accepted offer becomes a valid and binding contract. If acceptance is not made within the time fixed. the owner is no longer bound by his offer and the option ends.

and does not pass until full payment of the purchase price. this gives rise to a problem when there is exercise of an oral option. This was not a case where no right or obligation is created. Only the optioner is obliged under an option contract. When earnest money is given. merely a separate one In an option contract. Earnest money is part of the purchase price while option money is money given as a distinct consideration for an option contract 2. title passes to buyer on delivery. the buyer is bound to pay the balance. Earnest money is given only when there is already a sale while option money applies to a sale not yet perfected. Holder must give notice to the seller and the accepted offer thereupon becomes a valid and binding contract. it is not a sale of property but a sale of the right to purchase.  Villamor v CA • The consideration of the deed of option is “the why of the contracts: the essential reason which moves the contracting parties to enter into the contract. a KoS fixes definitely the rights and obligations of both parties at the time of its execution and leaves no choice to either party whether to withdraw or to proceed with the contract. An Agreement is only an option when no obligation rests on the party to make any payment. and the option is at an end. the owner is no longer bound by his offer. binding and enforceable. consideration may be ANYTHING or UNDERTAKING of value. consideration may be ANYTHING or UNDERTAKING of value. • Meaning of Separate Consideration  In an option contract. a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. the obligation or promise of each party is the consideration for that of the other. The case involved a contract to sell.SALES LAW ONEROUS Not Necessarily COMMUTATIVE DEAN CESAR VILLANUEVA Must have a separate consideration from the purchase price to be valid. If an acceptance is not made within the fixed time. An option is not itself a purchase. of the property to the petitioner. as in option contracts attached to Real mortgage or lease Not covered by Statute of Frauds But according to CLV. • The test in determining whether a contract is a sale or an option is whether or not the agreement could be specifically enforced. since the option contract does not mention that petitioner is obliged to return possession or ownership of the property as a consequence of non-payment. Adelfa Properties v CA • In a KoS. The obligation in the case was definite. It states the terms and conditions on which owner is willing to sell. Moreover. which is a price certain in money or its equivalent. certain.” 28 . while there is no requirement to buy with option money. De Quirino v Palarca • An option to buy the leased premises at a stipulated price in the lease contract is not without a separate consideration for in reciprocal contracts like lease. 3. • An option is a continuing offer by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time or under certain terms and conditions. until he makes up his mind within the time specified. even when the optionee has not paid the separate consideration. Offer and the acceptance are concurrent since the minds of the parties meet in terms of the agreement UNILATERAL Can be proved by Parol Evidence An option is an unaccepted or unexercised contractual offer. but merely secures the privilege to buy. Since the option contract need not be supported by a valuable consideration. and something further remains to be done. some option contracts do not even have. either actual or constructive. except the consideration to support the option.  Soriano v Bautista • “The mortgagor’s promise to sell is supported by the same consideration as that of the mortgage itself. Moreover. Even if the optionee is also obligated to pay separate consideration. ownership remains with the vendor. remember that an option contract is also Consensual. if the holder elects to accept w/in the period. there was no delivery. formally.”  Vda. it is burdensome because it imposes a valuable consideration as a prestation. while in a K to Sell. a separate consideration. • Distinctions between Earnest Money and Option Money 1. On the other hand. because resulting sale would still be subject to the SOF. Like a contract of sale. Ang Yu Asuncion v CA Once the option is timely exercised. payment does not go into its validity. The absence of such a stipulation shows that there was never any intention to transfer ownership prior to full payment.

actions upon written contract must be brought within 10 years. it is void and can be withdrawn notwithstanding the acceptance made previously by the offeree. does not have its own consideration and is supported by the same consideration that pertains to the principal contract of mutuum. it seems that lately. It does not necessarily have to be a valuable consideration.  Montilla v CA • Oral promise to sell is NOT BINDING upon the offeror in view of the absence of any consideration therefore distinct from the stipulated price. That shows clearly the wide range of “consideration” that can validly support an option contract • When Option is WITHOUT Separate Consideration  It becomes a VOID CONTRACT but a VALID OFFER  So that if the option is exercised prior to its withdrawal. which held that when an option is not supported by a separate consideration. it cannot be presumed that the exercise thereof can be made indefinitely. so long as this is delivered to the owner of the property upon performance of his part of the agreement. since there may be no valid contract w/o a cause or consideration. accordingly withdraw it. the promissory is NOT bound by his promise and may. the burden of proof to show that such was supported by a separate consideration is with the party seeking to show it.SALES LAW • DEAN CESAR VILLANUEVA Significance: A real estate mortgage itself. But the action for SP must be filed within 10years. that is equivalent to an offer being accepted prior to withdrawal and would give rise to a valid and binding contract of sale. • Expressly overturned Southwestern Sugar Molasses Co v Athlantic Gulf & Pacific Co. Proper Exercise of Option  Nietes v CA • Notice of the exercise of the option need not be coupled with actual payment of the price. if accepted. the right of option would prescribe. as long as it is separate from the purchase price. Under Art1144[1]. and thereafter. 29 • • . his accepted promise partakes of the nature of an Offer to Sell which. • Not even the annotation of the option contract on the title to the property is considered proper acceptance of the option. the SC decisions are moving towards the Molasses ruling. The presumption of valid cause or consideration in Art1354 does not apply to option contracts. the optioner is not bound thereby in the absence of a distinct consideration • But the case did not even refer to Sanchez • Acceptance of Offer to Create Option Contract is Necessary to Apply Sanchez Doctrine  Vazquez v CA • Held that the Sanchez Doctrine [that an option w/o separate consideration is a void contract but a valid Offer to Sell] can only apply if the option has been accepted and such acceptance is communicated to the offeror. even when the option is exercised w/in the option period by the proper tender of the amount due.  Remember: Option Contract may be subject to Specific Performance.  Consideration may be any reason or motivation. results in a perfected contract of sale.  Yao Ka Sin Trading v CA • Even if the promise is accepted. • HOWEVER. Period of Exercise of Option  Villamor v CA • When the option contract does not contain a period when the option can be exercised.  Sanchez v Rigos • In an accepted unilateral promise to sell [option contract]. as being merely an accessory contract. • In an option contract. Pending notice of its withdrawal.

E. D. court allowed exercise of option beyond the original option period. before offeror comes to know of fact of withdrawal when it is communicated to him. SUMMARY RULES WHEN PERIOD IS GRANTED TO OFFEREE According to Ang Yu Asuncion v CA A. or if acceptance has been made. the obligations under the option are reciprocal obligations. the latter may not sue for Specific Performance of the KoS since it failed to reach its own stage of perfection. Right to withdraw should not be exercised whimsically or arbitrarily.  Limson v CA • When there is an option contract. • Few days before expiration of period. If offeror withdraws offer before acceptance by the optionee. C. immediately after notice of denial of request should be considered still a valid exercise of the option. subject to action for abuse of right [Art19] If option period has separate consideration. • B. SC held that there was every intention to exercise the option and exercise of option within reasonable period. main contract could be deemed perfected. 30 . offeror is free to withdraw anytime before acceptance. [contrary to Ang Yu Asuncion ruling] • Effects of Exercise of Option  Bacus v CA • Once an option is exercised. A similar instance would be Earnest Money in contract of sale that can evidence its perfection. an Option Contract is deemed perfected and it would be breach to withdraw offer during period.SALES LAW DEAN CESAR VILLANUEVA  Carceller v CA • Substantial compliance with the exercise if an option. • Option contract may be subject of Specific Performance. with request for extension to raise funds is a valid or at least substantial exercise of the option. The option contract is an independent contract to be distinguished from the eventual KoS. Request was denied only after expiration of the period and the optionee sent notice exercising his option to purchase. the timely affirmative and clear acceptance of the offer would convert the option contract into a bilateral promise to sell and to buy where both parties were then reciprocally bound to comply with their respective undertakings. Option to purchase in a contract of lease when not exercised w/in the original period is extinguished and cannot be considered included in the implied renewal of the lease. If option period does not have separate consideration. The performance of one obligation is conditional on the simultaneous fulfillment of the other obligation. Take note of real nature of consideration given: if intended to be part of consideration for main contract w/ a right of withdrawal by optionee. The optioner is liable for damages for breach of the option. • Significance: sort of recognized that notice w/in the option period of clear intention to purchase. optionee sent written notice requesting for extension to raise sufficient funds.

• The separate consideration merely guarantees that within the option period. among other laws of general application. v Mayfair Theater Inc. it can at best be described as merely belonging to a class of preparatory juridical relations not governed by law on contracts [since the essential elements to establish the vinculum juris would still be indefinite and inconclusive].  31 . • Insofar as the optionee is concerned.  In a right of first refusal. however. RIGHT OF FIRST REFUSAL  Definition: a promise on the part of the owner that if he decides to sell the property in the future. an acceptance by the optionee would give rise to a valid and binding contract of sale. however.  Where the right of first refusal was violated and the property was sold to abuyer who was aware of the existence of such right.  Limited Application of Equatorial Realty Ruling  Ruling applies only to rights of first refusal attached to a valid principal contract. like a contract of lease  Ruling has NO application to rights of first refusal constituted as a separate contract  Ang Yu Asuncion doctrine applies in this case. And although no particular price was given in the covenant granting the right of 1 st refusal.] • Equatorial Realty Dev’t Inc. Optioner however renders himself liable for damages for breach of the option.  In a contract of lease where the lessee is given a 30day exclusive option to purchase the leased property in the event that the lessor should desire to sell the property. etc. actually grants a right of first refusal and is not an option clause or an option contract. he would be saddles with the same dilemma: if the optioner withdraws the offer prior to the time the optionee shall have exercised the option.  In Ang Yu Asuncion [again]. that obviously are yet to be later firmed up.  Prior thereto. but also on terms. but by. whether or not he gives a separate consideration for the option. when such right is not stipulated in the lease contract. the offeree may not sue for SP on the sale since it has failed to reach its own stage of perfection. nor an option contract because it merely pertains to a specific property w/o containing an agreement as to the price or the terms of payment in case of exercise of the right. such contractual stipulation which does not provide for a price certain nor the terms of payment. the resulting contract is RESCISSIBLE by the person whose favor the right of first refusal was given. his acceptance could not give rise to a valid and binding contract of sale. it cannot be exercised. and verbal grants of such right cannot be enforceable since the right of first refusal must be clearly embodied in a written contract. before the optioner breaches his obligation and withdraws the offer. including the price. while the object might be made determinate. • CLV: Ang Yu does not provide a commercially sound doctrine because it removes any motivation for the optionee to give a separate consideration Is an Option Contract Enforceable by Specific Performance or Not? If exercised within the option period. and that an acceptance within the option period after the optioner withdrew would not give rise to a contract of sale. would be dependent not only on the grantor’s eventual intention to enter into a binding juridical relation with another. it gives rise to the Contract of Sale which can be enforced by SP If Optioner-offeror withdraws the offer BEFORE its acceptance. he would sell it to the promise.  There need not be a separate consideration in a right of first refusal since such stipulation is part and parcel of the entire contract of lease to which it may be attached to. the pertinent scattered provisions of the Civil Code on Human Conduct [Art19. the same price by which the 3 rd party buyer bought the property shall be deemed the price by which the right of first refusal shall be exercisable. or before the option is exercised.SALES LAW DEAN CESAR VILLANUEVA  Points on Ang Yu Asuncion • In an option contract. the granting of a consideration separate and distinct from the purchase price DOES NOT GUARANTEE to the optionee that he has the absolute right to exercise the option.  Right of first refusal may be provided for in a lease contract. the SC classified the right of first refusal as an innovative juridical relation and pointed out that it cannot be deemed a perfected contract of Sale under Art1458. the exercise of the right.

if a letter of acceptance has been mailed.SALES LAW DEAN CESAR VILLANUEVA  In order to have full compliance with the contractual right granting a lessee the first option to purchase the property leased. Violence 5. it cannot. the optionee shall have the right to exercise the option or accept the offer at anytime during the option period and the same would give rise to a valid and binding contract of sale. Fraud 3. the SC should revisit the Ang Yu decision.  In the same manner. acceptance only binds the offeror from the time it comes to his knowledge. Note: Under the CC. From the moment of perfection. for a price certain.          CONSENT THAT PERFECTS CONTRACT OF SALE – CERTAIN OFFER & ABSOLUTE ACCEPTANCE  Art1319 defines “consent” or “meeting of the minds” as “manifested by the meeting of the offer and the acceptance upon the thing and the cause of which are to constitute the contract.BINDING  Promise to Sell a determinate thing coupled with a correlative Promise to buy at a specified price is binding as an executory agreement. the parties may reciprocally demand performance Acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance. the price for which they were finally sold to a 3 rd party should have likewise been first offered to the party entitled to the option. The form of the contract [not signed or notarized] is not essential. Until the contract is perfected. the contract is formed. 32 . Consent may be VITIATED by any of the following: 1. even before it comes to the knowledge of the offeror. contract is perfected when a person [seller] obligates himself. Sublessee may not take advantage of Right of First refusal of Sublessor Right of First Refusal Must be Contained in a Written Contract    Proper Doctrine on option Contracts v Right of First Refusal Rulings  According to CLV. if separate consideration has been received by the optioner for the grant of the option. MUTUAL PROMISES TO BUY AND SELL . he is still free to withdraw his offer. an unconditional mutual promise to buy and sell can be subject of Specific Performance. serve as a binding juridical relation. Discussed More in Detail in Chap11   PERFECTION: OFFER AND ACCEPTANCE   A KoS is born from the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. under the Code of Commerce. It is not possible to frustrate the acceptance by refusing to open the letter. would be the Earnest Money Scheme. the acceptance is entirely valid. Undue Influence 2. for a price certain. as an independent source of obligation. Mistake 4. This has been held to apply even to sales under the Civil Code. binding upon parties unless annulled by proper court action. Intimidation These make the contract VOIDABLE. So if there is acceptance made by telegram or letter. the certainty of the price must also exist. it does not destroy a valid sale that has already been perfected. to deliver and to transfer ownership of a thing or right to another [buyer]. whether such request is granted or not. over which the latter agrees and obligates himself to pay the price. he cannot withdraw the offer during the option period. Therefore. but merely for greater convenience Important: While a counter-offer / conditional acceptance destroys an offer. [A position affirmed by Carceller case]  In any event. However. The contract is perfected when the seller obligates himself. but the offeror has not yet read the acceptance. and the offeror is already in possession of the letter but refuses to open it. Note: even in this case.  According to Ang Yu. and any attempt to withdraw the offer during the option period should be void. So long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer. which governs commercial sales. the Ang Yu ruling would suggest that the best scheme for a prospective buyer to rake if he is interested in a specific property but wants to maintain an option to be able to get out of it later on.  The better rule would be that in case an option is supported by a separate consideration. to deliver and to transfer ownership In Sales. A contract of sale can only be destroyed by rescission or mutual withdrawal. acceptance occurs from the time of the mailing or sending of the acceptance letter.

it must be PLAIN and UNCONDITIONAL  It will not be so if it involves any new proposition  Promises are binding when and so long as there are accepted in the exact terms in which they are made. but a definite offer by itself  ACCEPTANCE MUST BE ABSOLUTE – PLAIN & UNCONDITIONAL  In order for an acceptance to have the effect of converting an offer to sell into a perfected contract. o The subsequent bargaining for an increase in price did not result into a novation since there was no final agreement nor was there a resulting new contract WHEN DEVIATION ALLOWED – NOT MATERIAL AT ALL  33 .  Exception is when the advertisement is for a determinate SM. there arose a valid and binding contract of sale since undisputedly. STATUS OF ADVERTISEMENTS – MERE INVITATIONS TO MAKE OFFER GENERAL RULE Business advertisements of things for sale are Mere Invitations to Make an Offer Not definite offers EXCEPTION When it appears otherwise When the advertisement specifies a determinate SM. The offer must have all the requisites of a valid SM and price 2.  Fact that the deed of sale still had to be signed & notarized did not mean that no contract had already been perfected since a sale of land is valid regardless of the form it may have been entered into.  Uruca v CA o From the moment of acceptance of the original offer of the sellers by the buyers. So when does the exception apply? 1.  The general rule was rendered useless since even without the general rule. as to be equivalent to an offer certain. a contract is formed.  The general rule says that advertisements are not definite offers. so long as the source of the subject is certain and fixed. the contractual elements of consent. the situation would be exactly the same since such an advertisement – lacking at least one of the three requisites – would always not constitute a valid offer. o An acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance.  Note: National Grains Authority v IAC case held that a KoS is also perfected even when the exact quantity or quality of the SM is not known. then it constitutes an offer covered by the phrase “unless it appears otherwise” and no longer a mere invitation to make an offer.SALES LAW DEAN CESAR VILLANUEVA  Offer must be CERTAIN  Acceptance must be ABSOLUTE  A Qualified acceptance constitutes merely a counter-offer which must in turn be absolutely accepted to give rise to a valid and binding contract. The language must clearly indicate that the advertisement is not merely an invitation to make an offer.  Cases  Yuvienco v Dacuycuy o Use of term “to negotiate” in acceptance letter indicates there was no absolute acceptance of the offer made yet. the SM was definite and the consideration was determined.    CLV Comment: By virtue of the exception. and that it would not be legally proper to modify the conditions imposed by the offeror without his consent. o This is because there was already mutual consent between the parties. object certain and cause occurred.  Limketkai Sons Milling Inc v CA o If buyer inquires if it is possible to pay on credit terms the purchase price even after there had already been an agreement to pay in cash. price and terms of payment. there was already a perfected contract between the seller and the buyer despite the inquiry. So long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer. the price and terms of payment. whether such request is granted or not. the general rule became meaningless.

it is not significant if there is deviation.  In an auction sale. this does not mean that the sale is perfected. any bidder may retract his bid and the auctioneer may withdraw the goods from the sale. with all the requisites. and in case of non-happening of the condition.99]  ACCEPTANCE MAY BE EXPRESS OR IMPLIED – INTENT & COMMUNICATED  Acceptance may be evidenced by some ACTS or CONDUCT. the sale is perfected when the auctioneer announced its perfection by the fall of the hammer.  Exception: the law will not trifle with insignificant things. If the hammer falls accidentally. the contract is extinguished. communicated to the offeror. the earnest money will earn interest of 10%.  The SC held there was a perfected KoS that arose from the exchange of correspondences. but may be implied. When is a change significant?  When it refers to the SM or consideration – not just the price  But if the place of payment is not meant to be a part of the consideration. latter may still withdraw offer anytime before he has knowledge of the acceptance. such acceptance is binding and gives rise to a valid contract of sale when the deviations are NOT MATERIAL AT ALL. or in any other customary manner. Place of payment goes into performance and not perfection. Buyer replied confirming the terms.  Until such announcement is made. EARNEST MONEY  Function Of Earnest Money  Rebuttable Presumption that earnest money is considered as part of the price of the contract     34 . there results a perfected contract of sale  Exception: if the sale is subject to a suspensive condition. Once again. buyer accepts for P999. there is deemed to be NO PERFECTED KoS if the sale is subject to a Suspensive Condition. as long as it is communicated to the offeror.  Because Perfection takes place only from the moment the CONDITION IS FULFILLED  CLV Comment: It is better to say the when a KoS is subject to a suspensive condition. that clearly manifest the intention or determination to accept the offer to buy or sell.   Villonco v Bormaheco  Illustrates that certain deviations may be made in the acceptance and it would still convert the offer into a valid KoS  When Seller made offer. ACCEPTANCE BY LETTER OR TELEGRAM – KNOWLEDGE OF OFFEROR  Only binds the offeror and gives rise to a valid contract of sale from the time IT CAME TO THE OFFEROR’S KNOWLEDGE. there was a correction or modification contained in the acceptance. [Ex: I will sell this land for 1M. even if literally. Seller then received the confirmation letter with the check. there is already a contract but because the condition has not happened.  Acceptance need not be written nor express. Seller then sent a written response to Buyer that the interest of 10% would be computed on a per annum basis.999. unless the auction has been announced to be without reserve.  The Subsequent Letter response by Seller was equivalent to an Absolute Acceptance that gave rise to a Valid and Binding Contract of sale s ince the deviations or amendments contained in the response were NOT MATERIAL at all. the underlying obligations are not yet demandable.SALES LAW  DEAN CESAR VILLANUEVA Although the acceptance may not be absolute. in that it contains certain deviations or amendments to the offer. NO PERFECTED KoS IF SUSPENSIVE CONDITION  General Rule: If there is concurrence of offer and acceptance. SALES AT AUCTION PERFECTED BY FALL OF HAMMER  Perfected when the Auctioneer announces its perfection by the fall of the hammer or in other customary manner.  Even when there is a meeting of the minds as to the SM and the price. either in a formal or an informal manner. which it encashed. but with the addition that if the sale is not consummated.  Even if acceptance has been mailed or sent to offeror. intent is material to the determination of a valid acceptance.

  PNB v CA  The receipt of earnest money could not lead to the conclusion that there was a valid and binding contract of sale because of documentary evidence showing that the parties entered into a contract to sell.  Varying Treatment of Earnest Money  Parties to the contract of sale may validly treat earnest money differently than that under Art1482  When the amount is given only as a guarantee that the buyer would not back out of the sale.SALES LAW  DEAN CESAR VILLANUEVA Villonco case: even when KoS is subject to a condition. v CA EARNEST MONEY Part of the Purchase Price Given only where there is already a Sale When earnest money is given. On the other hand. especially when at the time the amount was given. but may even forfeit it depending on the terms of the option  Effect of Rescission on Earnest Money Received  General Rule:  Seller of real-estate CANNOT KEEP the earnest money received to answer for the damages sustained in the event the sale falls due to the fault of the prospective buyer. 35   . the parties would stand as if the obligation never existed. the non-fulfillment of which would be a negative reoslutory condition. the acceptance of the earnest money would prove that the sale is conditionally consummated or partly executed subject to fulfillment of the condition. the non-fulfillment of which would be a negative resolutory condition.  There can be payment of Earnest Money but it doesn’t necessarily mean there is a perfected KoS!  Difference Between Earnest money and Option Money  Adelfa Properties Inc. although earnest money under Art1482 can be taken as proof of perfection of a contract of sale. Buyer is bound to pay the balance OPTION MONEY Money given as a Distinct Consideration for an Option Contract A sale not yet perfected Would-be buyer is not required to buy. the same is not conclusive.  When the contract involved is a Contract to Sell. where the efficacy or obligatory force of the vendor’s obligation to transfer title is subordinated to the happening of a future and uncertain event so that if the condition does not take place. which is akin to a conditional sale. but part of the consideration to seller’s promise to reserve the subject property for the buyer. then what was given was not earnest money as defined under Art1482. rescission creates the obligation to return the things object of the contract and fruits and interests.  Exception:  Specific Contrary Stipulation  When the seller seeks to rescind the sale under Art1385. the acceptance of the earnest money would prove that the sale is CONDITIONALLY CONSUMMATED or PARTLY EXECUTED subject to the fulfillment of the condition.  Place of Perfection is where the offer and acceptance as to create a meeting of the minds upon the thing and cause of the contract  Place where the OFFER was made in case of correspondences via mail or letters EXPENSES OF EXECUTION AND REGISTRATION BORNE BY SELLER  Unless otherwise agreed PERFORMANCE SHOULD NOT AFFECT PERFECTION  Ability of parties to perform contract after perfection does not affect the perfection of the contract. the final terms of the purchase had not been agreed upon.  Therefore. Villonco held that even when the sale is subject to a condition. the initial deposit given by the buyer to the seller is not strictly earnest money.

    Art1358 provides that contracts which have for their object the creation. even a private one. 1358. or a secondary evidence of its contents: (d) An agreement for the sale of goods. transmission.  Balatbat v CA  Non-payment of price does not render void the sale  Ownership of the thing shall pass from vendor to vendee upon actual or constructive delivery of thing sold even if purchase price not yet fully paid  Exception: stipulation that ownership shall not pass until fully paid price  Non-payment only creates a right to demand the fulfillment of the obligation or to rescind the contract. still binding between parties. modification or extinguishment of real rights over immovable property must appear in a PUBLIC INSTRUMENT But Art1403 and 1405 governs sales of goods.  WHEN FORM OF SALE AFFECTS ITS VALIDITY CONTRACTS OF SALE WHICH MUST BE IN WRITING TO BE VALID 36 . Article merely grants a cause of action to the party to the contract. terms of sale. No. In the following cases an agreement hereafter made shall be unenforceable by action. but when a sale is made by auction and entry is made by the auctioneer in his sales book. or for the sale of real property or of an interest therein. 2 of Article 1403. it is a sufficient memorandum. 2 and 1405. or the evidences. modification or extinguishment of real rights over immovable property. or by the acceptance of benefit under them.  Deed of Sale as Formal/Symbolic Delivery of Property  Operates as a Formal or Symbolic Delivery of the Property Sold and Authorizes the Buyer to use the Document as Proof of Ownership  However. and non-observance thereof does not affect the validity or enforceability of the contract. 1405. thereof. But the fact that a deed is notarized does not guarantee validity of its contents. or by his agent. of the amount and kind of property sold. The following contracts are unenforceable. unless they are ratified: (2) Those that do not comply with the Statute of Frauds as set forth in this number. of such things in action or pay at the time some part of the purchase money. 1403. All other contracts where the amount involved exceeds five hundred pesos must appear in writing. chattels or things in action are governed by Articles. (e) An agreement of the leasing for a longer period than one year. price. (1280a) Art. sales of real property or of an interest therein a governed by Articles 1403.  Buyer’s immediate taking of possession and occupation corroborates truthfulness and authenticity of deed of sale  Mere fact that Deed was not notarized only makes it a private document. 1403. But sales of goods. chattels or things in action Dalion v CA  The provisions of 1358 are only for purposes of convenience. Contracts infringing the Statute of Frauds. unless the buyer accept and receive part of such goods and chattels. at a price not less than five hundred pesos. Art. Civil Code does not provide that Deed of Sale is conclusive presumption of delivery of POSSESSION. transmission. evidence. The following must appear in a public document: (1) Acts and contracts which have for their object the creation. names of the purchasers and person on whose account the sale is made. or some note or memorandum. at the time of the sale. to sue to compel the other party to have the document covering the contract acknowledged before a notary public. therefore. 2.SALES LAW  DEAN CESAR VILLANUEVA  Johannes Schuback & Sons v CA  Opening of letter of credit is merely a mode of payment and failure to do so does not negate the fact that there was already a perfected contract of sale between the parties. or some of them. and subscribed by the party charged. and 1405. be in writing. referred to in No. of the agreement cannot be received without the writing. chattels or things in action. are ratified by the failure to object to the presentation of oral evidence to prove the same. unless the same. FORM OF SALES  FORM NOT IMPORTANT FOR VALIDITY OF SALE  Requirement for Public Instrument for Immovables under Art1358 Art. No.

When there has been a failure to object to the presentation of evidence aliunde as to the existence of a contract w/o being in writing and which is covered by the SoF When Sales are effected through Electronic Commerce 1. unless the same or some note or memorandum thereof be in writing and subscribed by the party CHARGED[party who claims there was no sale] or by his AGENT  Contracts covered by SoF are unenforceable. Chattels or Things in Action. so long as its existence may be proven. cannot be proven by oral evidence CONTRACTS IN SALES COVERED BY SoF 1. it does not actually constitute an exception to the SoF since the memorandum is necessarily in writing – If the writing is destroyed. and 3. Must be in writing – When an agreement is in a memorandum. POWER TO SELL A PIECE OF LAND OR INTEREST THEREIN  otherwise sale by agent would be void 2. secondary evidence may be presented. 3.  Insofar as applicable to sales.00.SALES LAW DEAN CESAR VILLANUEVA 1. SALE OF LARGE CATTLE otherwise sale would be void Must also register sale w/ municipal treasurer issuing certificate of transfer SALE OF LAND BY NON-MUSLIM HILL TRIBE CULTURAL MINORITIES ALL THROUGHOUT THE PHILIPPINES  Void if not approved by National Commission on Indigenous Peoples  EXCEPTIONS TO GENERAL RULE THAT FORM IS NOT IMPORTANT FOR VALIDITY OF KOS  STATUTE OF FRAUDS [SoF]  Nature and Purpose of SoF  To prevent fraud and perjury in the enforcement of obligations depending for their evidence upon the unassisted memory of witnesses.Requisites 1. which can be oral evidence 2. A sale agreement which by its terms is not to be performed within a year from the making thereof [refers to sales involving personal propert worth less than P500]. An agreement for the SALE OF Goods. 2.   3. 4. A sale of real property or of an interest therein  Partial execution does not take it out of SoF  The following sales would NOT be covered by SoF and would be enforceable: EXCEPTIONS TO COVERAGE OF STATUTE OF FRAUDS IN SALES CONTRACTS When there is a note or memorandum thereof in writing and subscribed by the party charged or his agent When there has been partial consummation of the contract of sale  Art1405: contracts covered by SoF are ratified by acceptance of benefits under them. the ff are UNENFORCEABLE BY ACTION.  Nature of Memorandum . Subscribed by the party charged – either the seller or buyer against whom the sale is sought to be enforced 37 . 2. at a Price not Less than P500.

even when not complete in form. Price and Consent – All the requisites for a valid SM and price must be included – Exception: in auction sales – entry into the book is sufficient memoranda  May be contained in 2 or more documents – Various correspondences when taken together would constitute sufficient memoranda since they include the names of the parties. This follows the rule that for partial performance to be valid. non-compliance therewith does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder. Videos are not permitted. Yuvienco v Dacuycuy  Not enough that total price or consideration is mentioned  Manner of payment must be indicated. Therefore. Movables: 1st to take possession of movables 2. the terms and conditions of the contract. the other party – the oner bringing the suit – necessarily admits the existence of the agreement by bringing the suit 3. the price and a description of the property as the object of the contract.  DIFFERENCE IN TREATMENT / PRINCIPLES INVOLVING MOVABLES AND IMMOVABLES MOVABLES Partial Execution takes out of SoF Possession takes out of SoF Possession of movable property acquired in GF is equivalent to title IMMOVABLES Partial Performance does not take it out of SoF Recoding of Sale or its being evidenced by a written instrument are accepted means of disposition    NOTE: In sales of REAL PROPERTY. 3rd parties cannot claim that they had no knowledge of the transaction.  Effect of Partial Execution on 3rd Parties  NO EFFECT  The doctrine of partial execution when covering sale of real properties cannot be applied to third parties.SALES LAW – DEAN CESAR VILLANUEVA The party charged must sign it. because mere possession constitutes transfer of ownership.  The idea of payment on installments must be in the requisite of a note or memorandum therein contemplated. This is consistent with the rules on double sales: 1. Immovables: 1st to register  Nature and Coverage of Partial Performance  Ortega v Leonardo  It is not only partial payment of the purchase price that is the only manner of partial performance that takes the contract out of the SoF  Other modes include: – Possession 38 . partial performance does not take the agreement out of the SoF because the 3rd party who was not privy to the sale did not participate in the transaction. You can file a case in court even if the contract is covered by the Statute of Frauds  A party to the contract still has the ordinary remedies  But he just cannot present parole evidence  This is why coverage of the Statute of Frauds may be WAIVED     Partial Performance  Would take the contract of sale outside of the coverage of the SoF  Consequently. who are granted legal remedies against the contract  The formal requirements are for the benefit of 3rd parties but as to the immediate parties to the sale. This doesn’t apply to movables. so long as the essential requisites of consent of the contracting parties. object and cause of the obligation concur and they were clearly established to be present – even by parol evidence – the sale is valid and binding. there must be participation by all parties. Must contain all the essential terms of the KoS – 7 Requisites of SM.

then the other party is estopped from denying existence of the contract Under the CC.  Why only goods? Under the law on property. Reliable in the light of the purpose for which it was generated 2. If there is knowledge. 3. If law requires document to be presented or retained in original form requirement is met by an electronic document A. but accompanied by other acts such as building improvements. There exists a reliable assurance as to the integrity of the document B. especially the party charged.  On the other hand. the same may be considered partial performance. the latter is taken out of the SoF.  Must amount to ESTOPPEL against party sought to be charged. When tender is unaccepted. partial performance refers only to goods. validity or enforceability as any other document or legal writing. not to real property. since the other party was not involved. Remained Complete and Unaltered B.  Cross-Examination on the contract is deemed a waiver of the defense of SoF SALES EFFECTED AS ELECTRONIC COMMERCE ACT  Legal Recognition of Electronic Documents  Electronic documents shall have the legal effect.  Following the Ortega ruling. no paper document used to effect such action is valid unless the use of electronic data message or electronic document has been terminated and replaced by the use of paper documents    39 . partial performance must by itself pertain to the SM or to the price of the purported sale. electronic document meets the requirement as long as its INTEGRITY and RELIABILITY and can be AUTHENTICATED A. Mere transfer of possession is considered as evidence of ownership. Electronic document applies even if the law requires the form or only provides consequences if the form is not written. an offer. [Art1405]     Waiver of the Provisions of SoF  When the party against whom such oral contract is sought to be proven fails to object during trial to the presentation of oral evidence to prove the contract. Document is capable of being displayed to person to whom it is to be presented Unless otherwise agreed by parties. If law requires a document to be in writing. Transport Documents: Where one or more electronic data messages are used to effect any action.SALES LAW DEAN CESAR VILLANUEVA – Making of Improvements – Payment of Taxes – Rendition of Services – Relinquishment of Rights  Although tender of payment itself is not considered as partial performance. To constitute an exception to the SoF. possession of immovables does not ripen into ownership. demonstrated and proved by means of electronic data messages or electronic documents. possession in good faith of movable is equal to title [ownership]. and must involve an ACT or COMPLICITY on the party sought to be charged. the acceptance of an offer and such other elements required under existing laws for the formation of contracts may be expressed in. and – 1. it does not constitute partial performance. The inclusion of real property is merely a jurisprudential rule. tender of payment is not equal to partial performance  Why? Because there must be participation by both parties.

and SM is intended to be delivered to buyer from time of perfection. TO WARRANT SM OBLIGATIONS OF BUYER 1. TRANSFER OWNERSHIP B. TO DELIVER FRUITS AND ACCESSORIES Buyer has right to the fruits of the thing from time the obligation to deliver arises. DELIVER THE THING OBJECT OF THE SALE The only means by which seller can transfer ownership is by TRADITION or DELIVERY. necessarily the fruits must also be from then on for the account of the buyer. and all the fruits shall pertain to buyer from day of perfection Contrary to Principle of RES PERIT DOMINO that owner bears risk of loss and benefits of fruits – because accessory follows principal. whether actual or constructive Where there is no express provision that the title shall not pass until payment of the price and the thing sold has been delivered.SALES LAW DEAN CESAR VILLANUEVA CHAPTER 6 PERFORMANCE OR CONSUMMATION OBLIGATIONS IN A CONTRACT OF SALE OBLIGATIONS OF SELLER 1. PAY THE PRICE 2. however he shall acquire no real right over it until the same has been delivered to him. 3. TO PRESERVE SM OF SALE 2. Seller must deliver SM and Accessions & Accessories in condition they were upon perfection of contract. Discussed in Chapter 12 4. the title passes from the moment the thing sold is placed in the POSSESSION and CONTROL of the buyer. ACCEPT DELIVERY OF SM 40 . TO DELIVER POSSESSION OF SM By observance of the proper diligence of a good father of a family. unless the law or stipulation of the parties requires another standard of care Seller becomes liable to buyer for breach of obligation when thing deteriorates or is lost through the seller’s fault A.

2. Where seller has no control over the thing at the moment of sale. Constructive Delivery shall produce the effects of TRADITION only if at the time such particular form of constructive delivery. it is stipulated that until the last installment is made. ACTUAL DELIVERY  Placed in the control and possession of buyer B. When there is NO IMPEDIMENT to prevent the thing sold from passing into the tenancy of the purchaser by the sole will of the vendor. the SM was not Subject to the CONTROL of the Seller  Seller must have actual control of SM at time of execution  Such control or ability to transfer physical possession and enjoyment must subsist also for a reasonable length of time after execution of instrument – otherwise buyer would literally have to jump into possession  No need for buyer to actually take into control. As a CONSEQUENCE of a VALID CONTRACT OF SALE Delivery is a composite act – no transfer of ownership when buyer is merely accommodated Premise of Delivery Sale is VALID Seller is OWNER at time of DELIVERY All Doctrines are for the benefit of the BUYER  1. ACTUAL INTENTION of the seller to deliver.  TYPES OF DELIVERY A. mere passage of time sufficient     ADDISON v FELIX  In the absence of an express stipulation to the contrary. and its acceptance by the buyer. symbolic delivery through the execution of a public instrument is sufficient. and such capacity should remain for a reasonable period thereafter so as to allow the buyer reasonable opportunity to have taken such control. When at the time of the EXECUTION [CONSUMMATION] of the public instrument. Certain date is fixed for the buyer to take possession of the SM b. In case of Sale by Installments.  Right is transferred not merely by contract but also by TRADITION or DELIVERY  There is delivery when thing sold is “placed in the CONTROL and POSSESSION of the vendee  CRITICAL FACTORS OF TRADITION 1. it is necessary that the vendor shall have such control over the thing sold that. and therefore its material delivery could not have been made 2. If the CONTRARY appears in the deed or cannot be clearly inferred a. CONSTRUCTIVE DELIVERY  Any manner signifying an agreement that the possession is transferred from vendor to vendee  Constructive Delivery has the same legal effect as Actual or Physical Delivery REBUTTABLE PRESUMPTION OF EXECUTION OF PUBLIC INSTRUMENT Execution of PUBLIC INSTRUMENT has same legal effect as ACTUAL or PHYSICAL Delivery EXCEPTIONS TO GENERAL RULE 1. its material delivery could have been made  The thing sold must be placed under the control of the buyer. title to the property remains with the seller c. at the moment of the sale. BUT it is not necessary that buyer actually took control of SM. the mere passage of reasonable time is sufficient. payment of the purchase price is not a condition precedent to transfer of title to buyer  In order that this symbolic delivery may produce the effect of tradition.SALES LAW DEAN CESAR VILLANUEVA  TRADITION AS A CONSEQUENCE OF A VALID SALE  ESSENCE OF TRADITION  Ownership of SM is a real right which the buyer acquires only upon delivery of the thing. 3. the seller had control over SM to have been capable of physically transferring it to the buyer. 2. 41 . When the seller reserves the right to use and enjoy the property until the gathering of the pending crops d.

He must consider nature of the goods and other circumstances of the case in contracting with carrier. and the goods are lost or damaged. buyer may consider there was no delivery and hold seller liable for damages.F.O. F. SALES 2. if from the deed the contrary does not appear or cannot clearly be inferred 2.A. 1. In the meantime. When sale is made through a public instrument. seller continues to hold physical possession as lessee or any other form other than in concept of owner. with the seller’s consent  DELIVERY THROUGH CARRIER  In absence of contrary stipulation / circumstance. Meyer & Co v Yangco  If contract be silent as to person/mode by which goods are to be sent. SYMBOLIC DELIVERY 2. seller held possession of SM as owner and pursuant to the contract.  Seller usually contracts with carrier. TRADITIO LONGA MANU FORMS OF CONSTRUCTIVE DELIVERY Delivery of the keys of the place or depository where the movable is stored When at the time of perfection. even if at the time of sale. 2 theories: 1. provided that at the time of the execution there was no legal impediment on the part of the seller to transfer title to the buyer . Insurance & Freight signify that price fixed covers not only the costs of the goods but the expense of freight and insurance to be paid by seller. COMPLETENESS OF DELIVERY 42 .I. JR. DELIVERY BY DoT  DELIVERY OF INCORPOREAL PROPERTY  Intangibles can never be subject to Actual Delivery since they have no physical existence 3 TYPES OF CONSTRUCTIVE DELIVERY OF INCORPOREAL PROPERTY 1. unless otherwise authorized by buyer.B. the would-be buyer was already in possession of the would-be SM of the sale. control or possession of the SM was not in the hands of the seller. the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract. delivery to carrier is deemed delivery to the buyer. CIF ultimately born by buyer as agent of buyer  More Followed 2.  CIF and FOB merely make rules of presumption which yield to proof of contrary intention. CONSTITUTUM POSSESORIUM 3. if thing sold cannot be transferred to the possession of buyer at time of sale Person to whom a negotiable DoT has been negotiated acquires title to the goods as the endorser or the drawer / person whose order goods were to be delivered If DoT merely transferred [not negotiated] – subject to terms of any agreement with transferor 5. By the placing of the titles of ownership in the possession of the buyer 3. and pursuant to the sale. tractor was foreclosed by another creditor. SALES DELIVERY THROUGH CARRIER Seller assumes risk until goods Free alongside vessel POINT OF SHIPMENT Seller bears expenses until goods are Free on Board at the shipping point POINT OF DESTINATION Seller bears expenses until goods are Free on Board at the destination point Costs.S. as when seller points to property without need of actually delivering physical possession thereof. C. TRADITIO BREVI MANU 4. Before KoS. constructive delivery by the execution of the public instrument would produce the effect of tradition only insofar as title is concerned. F. 1. Use by the Buyer of his rights.SALES LAW  DEAN CESAR VILLANUEVA DY. If seller omits to do so. delivery by vendor to common carrier transfers property to buyer. he would now hold possession in concept of an owner Delivery of thing merely by agreement.  When it comes to a 3rd party and the issue is on title or ownership of the SM of a sale. delivery of movable property may be made by mere consent or agreement of the contracting parties. v CA  Mortgagor sold Mortgaged Tractor to his Brother but mortgagee insisted that delivery be made only upon clearing of check payment on the mortgage debt. Under Art1499. SALES  Behn. Seller takes on responsibility and delivery to carrier is not equivalent to delivery to buyer 3.

provided that lack of area be not less that 1/10 of that stated Same rule applies when any part is not of quality specified in the contract – rescission if inferior value exceeds 1/10 of the price agreed upon If buyer would not have bought the immovable had he known of its smaller area or inferior quality. made independently. he shall suffer a reduction in price. vendor shall be bound to deliver all that is included within the boundaries. Rescission of the contract. buyer may choose between: 1. it is not sufficient that the bulk of the goods correspond / or Sample with the sample if they do not also correspond with the description. Sale in mass of separate known parcels will not be set aside unless it is made to appear that a larger sum could have been realized from a sale in parcels or that a sale of less than the whole would have been sufficient to satisfy the debt. the buyer may reject the whole of the goods. Accessions otherwise buyer may reject them.  SM is specific goods known by parties to be in some other place during perfection of the contract – that place is the place of delivery  Seller is bound to send the goods within a reasonable time  Demand or tender of delivery shall be ineffectual unless made at a reasonable hour. A bill of lading cannot substitute for a delivery receipt. Sale by Sale may be rescinded if the bulk of the goods delivered do not correspond with the description or the sample. But if the boundaries and its area or number is designated in the contract. EFFECTS OF DELIVERY  Ownership is transferred to buyer upon actual or constructive delivery  Rule is that if parties do not stipulate otherwise. Description and And if the contract is by sample as well as description. buyer may reject the goods entirely Goods Held by Seller has not fulfilled his obligation to deliver unless and until such 3 rd person acknowledges to the buyer that he 3rd party holds the goods in the buyer’s behalf Obligation as to Obligation of seller to deliver accessories & accessions in condition in which they were upon PERFECTION Accessories & Seller must deliver to the buyer a quantity of goods that should not be less that what he contracted to sell. but title passes by the delivery of the goods 43  . Foregoing rules do not apply to JUDICIAL SALES. It does not evidence receipt of the goods by the consignee or the person named in the bill of lading. so that all that was required of the seller was to deliver in GF to his buyer all the goods found in the mass. even if it exceeds the area or number in the contract. Sale in Mass of Sale of fungible things. Proportional reduction of price 2. the SM is therefore a determinate object. payment of purchase price is not a condition precedent to transfer of title to the buyer. all that may have been stated in the contract. place of delivery is the SELLER’S place of business or his residence. either actual or constructive delivery will produce its legal effect of transferring ownership over the thing delivered to the buyer. unless the contract is rescinded because the buyer does not accede to the failure to deliver. 4. for a single price or w/o consideration of weight. nor is there a price agreed upon by the parties to be based upon such measurement. If this should not be possible. Same rule applies when 2 or more immovables are sold for a single price. if the latter should demand it.SALES LAW IN CASE OF MOVABLES [Art1522] 1. notwithstanding that the quantity delivered is less than the amount estimated. Where seller delivers LARGER quantity DEAN CESAR VILLANUEVA Buyer may reject or accept and retain but pay for them Buyer not liable for more than fair value to him of the goods received Buyer may accept the goods included in the contract and reject the rest If Buyer accepts the whole of the goods. A factory consignment invoice is not an evidence of actual delivery. Quantity delivered is LESS 2. as in delivery receipts. the MASS and not the actual number of units contained. he must pay for them at the contract rate If the SM is indivisible. IN CASE OF IMMOVABLES Where Sold Per Unit or Number Seller obliged to deliver to the buyer. number or Movables measure. And should the seller fail to do so. Exception: Sale of land under description “more or less” or similar words designating the quantity covers only a reasonable excess or deficiency Exception to Exception: When expressly the buyer assumes the risk on the actual area of the land bought. Written Proof of Delivery is generally evidenced by a written acknowledgement of a person that he has actually received the thing Delivery or the goods. buyer may accept but pay at the contract rate. Seller delivers the goods mixed with Buyer may accept the goods in the contract but reject the rest goods of a different description If the SM is indivisible. If there is a greater area than that stated in the contract. he may rescind the sale. General Rule: there shall be no increase or decrease of the price. Gaite v Fonacier: if there is no provision in the contract for the measuring or weighing of the fungible movables sold in order to complete or perfect the sale. although there be a greater or lesser area or number than that stated in the contract. Buyer disposed of goods delivered before knowledge of seller’s nonperformance of contract in full 3.  Unless stipulated. Where Sold for a Lump Sum Where Sold in Mass  Unless contrary is stipulated or used in trade.

For a sale to be considered as a “sale or return” or a “sale on approval. the seller thereby reserves ownership in the goods. When KoS fictitious. Delivery would produce transfer of ownership only if at the TIME OF DELIVERY. deliverable to the order of buyer or agent but possession of bill of lading is retained by seller C. if BL provides that goods are deliverable to buyer or order of person named therein.” there must be a clear agreement to either of such effect. B. seller still had ownership of the SM 44 . and cannot be proved by parol evidence. Goods are shipped and by a bill of lading are deliverable to seller or seller or order. then if a time has been fixed for the return of the goods. If the buyer does not signify his approval or acceptance but retains the goods w/o giving notice of rejection. ownership will not transfer in case of express reservation such as when parties stipulate that ownership will not transfer until purchase price is fully paid. Despite delivery. as there was no consideration. Ownership passes to buyer only when: A. WHEN DELIVERY DOES NOT TRANSFER TITLE “ON SALE OR RETURN” “SALE ON ACCEPTANCE” FORM OF SUCH SPECIAL SALES RESERVATION OF OWNERSHIP WHEN THE SALE IS NOT VALID WHEN THE SELLER IS NOT OWNER Ownership passes to buyer on delivery but he may re-vest ownership in the seller by returning or tendering the goods w/in the time fixed or if none. Instances where there is an IMPLIED RESERVATION OF OWNERSHIP: [ART1503] A. Buyer is bound to return bill of lading if he does not honor bill of exchange. He signifies approval or acceptance to the seller or does any other act adopting the transaction B. on the expiration of such time. Such stipulation must be in writing. In the last case. or his agent. and therefore void and inexistent. Goods are shipped and by the bill of lading.SALES LAW  DEAN CESAR VILLANUEVA Effects of tradition come into play by either actual or constructive delivery and there is no need for the parties to stipulate or agree upon such effects. w/in reasonable time. no title over the SM can be conveyed. purchaser for value in GF of the BL or goods from buyer will obtain ownership of goods even if the bill of exchange has not been honored. on the expiration of a reasonable time. and if no time has been fixed. Seller of goods draws on buyer for price and transmits bill of exchange and bill of lading together to buyer to secure acceptance or payment of bill of exchange.