Professional Documents
Culture Documents
TOPIC 1
CONTRACT OF SALE – One of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in
money or its equivalent.
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SALES
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Donation Sale
Gratuitous or onerous Onerous
Formal contract Consensual contract
Governed by law on Governed by law on sale
donation
Barter Sale
Consideration: giving of a Consideration: giving of
thing money as payment
Governed by law on sales: species of the genus
sales
If consideration consists party in money
and partly by thing –
look at manifest intention;
If intention is not clear: If intention is not clear:
value of thing is equal or less than amount
value of thing is more than the amount of money of money
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SALES
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Lease Sale
Use of thing is for a Obligation to absolutely
specified period only with transfer ownership of
an obligation to return thing
Consideration is rent
NOTE: Lease with option to buy: really a contract of sale but designated as lease in name
only; it is a sale by installments
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SALES
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Notes:
Option - also called unaccepted offer. Not itself a purchase but merely secures the
privilege to buy. It is a contract by which the owner of the property agrees with the buyer
that he shall have the right or privilege to buy his property at a fixed price within a certain
time.
Tests in determining whether it is contract of sale or an option contract? Whether the
agreement could be specifically enforced
NOTE: GENERAL RULE - All persons who are authorized in this Code to obligate
themselves may enter into a contract of sale
EXC.
I. MINORS, INSANE AND DEMENTED PERSONS, AND DEAF-MUTES
1. Contracts are voidable, subject to annulment or ratification
2. Also includes:
- State of drunkenness
- Hypnotic spell
- Where necessaries are those sold and delivered to a minor or other person
without capacity to act, he must pay a reasonable price therefore
II. SPOUSES - A spouse may, without the consent of the other spouse, enter into sales
transactions in the regular pursuit of their profession, vocation, or trade
Art. 1490. The husband and the wife cannot sell property to each other, except:
(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation or property under Article 191.
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SALES
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Art. 1492. The prohibitions in the two preceding articles are applicable to sales in legal
redemption, compromises and renunciations.
1. REQUISITES:
1. Things
a. “Possible” - existing, future, and contingent
i. whether the subject matter is of a type and nature that exists or could be
made to exist to allow the seller reasonable certainty of being able to
comply with his obligations
b. Licit
i. not outside the commerce of man
ii. if illicit, contract is void
c. Determinate or determinable
i. determinate: particularly designated or physically segregated from all
others of the same class
ii. determinable:
1. thing is capable of being made determinate
2. without the necessity of a new further contract
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SALES
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PRICE
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SALES
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b. ascertainable:
i. by third persons
ii. by the courts – in cases where the third person fixes the price in bad
faith or by mistake
iii. by reference to a definite day, particular exchange or market
iv. by reference to another thing certain
NOTE:
It is not the act of payment of price that determines the validity of a contract of sale.
Payment of the price has nothing to do into the performance of the contract.
Failure to pay consideration VS lack of consideration. In the first, such gives rise to
demand fulfillment, while in the other, such prevents the existence of a valid contract.
Price cannot be left to the will of one of the parties, except when accepted by the other.
A perfected contract of sale cannot be challenged on the ground of seller’s non-ownership
of the thing sold at the time of the perfection of the contract 2
Failure to pay price does not BAR transfer ownership. Such only gives vendor option to
rescind sale judicially or by notarial demand.
NOTE: Mere inadequacy of the price does not affect the validity of the sale, except (1) When
there is fraud, mistake, or undue influence indicative of a defect in consent is present, (2)When
it shows that the parties really intended a donation or some other act or contract.
Art. 1474. Where the price cannot be determined in accordance with the preceding articles,
or in any other manner, the contract is inefficacious. However, if the thing or any part
thereof has been delivered to and appropriated by the buyer he must pay a reasonable price
therefore. What is a reasonable price is a question of fact dependent on the circumstances of
each particular case.
2
Daus vs Sps De Leon, GR No. 149750, June 16, 2003.
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SALES
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OPTION CONTRACT - a contract granting an exclusive right in one person, for which
he has paid a separate consideration, to buy a certain object within an agreed period
1. no presumption of consideration, needs to be proven
2. characteristics of Option Contract:
a. not the contract of sale by itself, separate and distinct
b. nominate
c. principal; but can be attached to other principal contracts
d. onerous
e. commutative
f. unilateral – versus contract of sale which is bilateral
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SALES
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Right of First
Option Contract Refusal
Principal contract; Accessory; can not
stands on its own stand on its own
Does not need
Needs separate separate
consideration consideration
Subject matter and There must be subject
price must be valid matter but price not
important
Not conditional Conditional
Not subject to
specific Subject to specific
performance performance
Notes: also in option contract, offeree is granted an option for a fixed period and at a
determinate price. Lacking these, there is only right of first refusal.
Notes: a unilateral promise to buy or sell, even if accepted by optionee, is not binding
unless there is a consideration distinct from the price. Without consideration, option can
still be withdrawn. The consideration need not be monetary as long as it is something of
value. Actual cash need not be exchanged for option. It may be any thing or undertaking
of value. This is what happens to a Contract of Lease with option to purchase, where
lessee cannot enforce his option to buy unless there is a consideration. 3
Notes: remedy of optionee-offeree is there was consideration is SPECIFIC
PERFORMANCE. In case optioner-offeror breaches a perfected option contract, he is
liable for damages.
Note: Option money or consideration should at least be given by optionee.
3
See page 33. Sales and Agency by Atty. Andrix D. Domingo 2017 Edition
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SALES
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Equatorial realty Dev’t Inc. v Mayfair Theater, the right of first refusal is only subject to
specific performance insofar as it is attached to a valid written principal contract (e.g. lease)
RFR becomes one of the considerations in the contract.]
3. Effect of new doctrine: turned the world of policitacion upside down because while
valid option contract is not subject to specific performance, right of first refusal which
does not even have a separate consideration may be subject to specific performance
GENERAL RULE: A contract of sale is perfected at the moment there is a meeting of the
minds upon the thing which is the object of the contract and upon the price; consensual
contract
Exception: When the sale is subject to a suspensive condition
I. REQUIREMENTS:
1. When parties are face to face – when there is absolute acceptance of an offer that is
certain
2. When thru correspondence or telegram – when the offeror receives or had
knowledge of the acceptance
3. When the sale is subject to a suspensive condition – from the moment the condition is
fulfilled
NOTES: Qualified acceptance: mere counter-offer which needs to be absolutely
accepted to give rise to perfected contract of sale. Business ads are mere invitations to
make an offer except when it appears to be otherwise
II. RULES GOVERNING AUCTION SALES:
1. Sales of separate lots by auction are separate contracts of sale
2. Sale is perfected by the fall of the hammer
3. Seller has the right to bid at the auction provided such right was reserved and notice
was given to that effect
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SALES
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Notes: It is true that Article 1482 of the Civil Code provides that "Whenever earnest money is
given in a contract of sale, it shall be considered as part of the price and proof of the perfection
of the contract." However, this article speaks of earnest money given in a contract of sale. In this
case, the earnest money was given in a contract to sell. The earnest money forms part of the
consideration only if the sale is consummated upon full payment of the purchase price. Now,
since the earnest money was given in a contract to sell, Article 1482, which speaks of a contract
of sale, does not apply. 4
Art. 1483. Subject to the provisions of the Statute of Frauds and of any other
applicable statute, a contract of sale may be made in writing, or by word of mouth, or partly
in writing and partly by word of mouth, or may be inferred from the conduct of the parties.
(n)
FORM OF SALES
II. When form is important for validity; exception by specific provision of law;
a. Power to sell a piece of land granted to an agent – otherwise VOID
b. Sale of large cattle; must also be registered with Municipal treasurer – otherwise
VOID
4
Serrano and Herrera vs Caguiat GR No. 139173, Feb. 28, 2007.
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SALES
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III. When form is important for enforceability (STATUTE OF FRAUDS Article 1403
(2))
a. A sale agreement which by its terms is not to be performed within a year from the
making
Thereof;
b. An agreement for the sale of goods,. chattels or things in action, at a price not less than
P500.00; and
c. A sale of real property or of an interest therein.
IV. EXCEPTIONS TO COVERAGE OF
STATUTE IN SALES CONTRACTS:
1. When there is a note or memorandum in writing and subscribed to by party or his
agent (contains essential terms of the contract)
2. When there has been partial performance/execution (seller delivers with intent to
transfer title/receives price)
3. When there has been failure to object to presentation of evidence (oral)
4. When sales are effected through electronic commerce
I. Condition
1. When a contract contains a condition, the non happening of which would not constitute
a breach but extinguishes the obligation
2. However, if party to the sales contract has promised that the condition should happen or
be performed, the non-performance of which may be treated by parties as breach
II. Warranties
A statement or representation made by the seller contemporaneously and as a part of the
contract of sale, having reference tot eh character, quality, or title of the goods, and by
which he promises or undertakes to insure that certain facts are or shall be as he then
represents. May either be express or implied.
Note: If the condition is in the nature that it should happen (positive conditions), the
non‐performance may be treated as a breach of warranty.
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SALES
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A. EXPRESS WARRANTIES
B. IMPLIED WARRANTIES
Warranties deemed included in all contracts of sale by operation of law. (Art. 1547)
The ff are implied warranties:
1. Warranty that seller has right to sell – refers to consummation stage. Not applicable to sheriff,
auctioneer, mortgagee, pledge
Note: For eviction – disturbance in law is required and not just trespass in fact.
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SALES
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b. Defect is Hidden
d. Buyer gives Notice of the defect to the seller within reasonable time
e. Action for rescission or reduction of the price is brought within the proper period
6 months – from delivery of the thing sold
Within 40 days – from the delivery in case of animals
Q: Is there a waiver of warranty against hidden defects when the lessee inspected the premises
and pushed through with the contract?
A: Yes. Under Arts. 1561 and 1653 of the Civil Code, the lessor is responsible for warranty
against hidden defects, but he is not answerable for patent defects or those, which are visible
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SALES
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2. Warranty of merchantability – That goods are reasonably fit for the general purpose for
which they are sold.
1. Accept goods & set up breach of warranty by way of recoupment in diminution or extinction
or the price.
2. Accept goods & maintain action against seller for damages
3. Refuse to accept goods & maintain action against seller for damages
4. Rescind contract of sale & refuse to receive goods/return them when already received.
A: No. The vendee's remedies against a vendor with respect to the warranties against hidden
defects of or encumbrances upon the thing sold are not limited to those prescribed in Article
1567 where the vendee, in the case of Arts. 1561, 1562, 1564, 1565 and 1566, may elect either
to withdraw from the contract or demand a proportionate reduction of the price, with damages in
either case. The vendee may also ask for the annulment of the contract upon proof of error or
fraud, in which case the ordinary rule on obligations shall be applicable.
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