DEFINITION (Art. 1458)

PARTIES OBLIGATIONS

SELLER

BUYER

(1) TO TRANSFER OWNERSHIP

(2) TO DELIVER POSSESION

(3) TO PAY

SUBJECT MATTER

PRICE

GENERAL PRINCIPLES

CONSENT

“Meeting of Minds”Real Obligation

Real Obligations

SALE

1

ESSENTIAL CHARACTERISTICS OF SALE:

NOMINATE

PRINCIPAL

CONSENSUAL

BILATERAL/

RECIPROCAL

ONEROUS

COMMUTATIVE

vs.

TITLE

vs.

vs.

vs.

vs.

vs.

vs.

Innominate

Solemn Real

Unilateral

vs.

Gratuitious

“Mode”

Accessory

Aleatory

vs.

Prefaratory

2

ESSENTIAL CHARACTERISTICS OF SALE:

NOMINATE

PRINCIPAL

CONSENSUAL

BILATERAL/

RECIPROCAL

ONEROUS

COMMUTATIVE

vs.

TITLE

vs.

vs.

vs.

vs.

vs.

vs.

Innominate

Solemn Real

Unilateral

vs.

Gratuitious

“Mode”

Accessory

Aleatory

vs.

Prefaratory

3

CONTRACTS TO SELL

Versus

CONDITIONAL CONTRACTS OF SALE

Art. 1458 Defines a Sale to covered both “Absolute and Conditional”

Both Contracts are usually bound by same condition: Full payment of the Price

Both Contracts are consensual, onerous, commutative, and cover bilateral obligations

4

K TO SELL VS. K OF SALE cont’d

Power to Rescind is inherently Judicial

Non-fulfillment of Condition ipso jure destroys contract

Substantial Breach Relevant to Contract of Sale, Irrelevant to Contracts to Sell

Rescission requires a positive act

5

K TO SELL VS. K OF SALE cont’d

1. In Contract to Sell Ownership if Reserved by Seller, while in a Contract to Sell ownership transfers to Buyer upon delivery.

Ergo: K to Sell must have express reservation of ownership

• To execute a formal Deed of Sale

• Only receipt of payment evidences sale

• Seller retained original titles

6

K TO SELL VS. K OF SALE cont’d

2. “Rescission” of Contract to Sell is a matter of right upon non-happening of the condition

Ergo: K to Sell must have express right to rescind the contract upon default of the Buyer

A written notice of “cancellation” must be served upon Buyer even when Contract to Sell

UP v. Delos Angeles, 35 SCRA 103 (1970)

7

SUBJECT MATTER(OBLIGATION to Transfer Ownership and Deliver Possession)

1. POSSIBLE THING

2. LICIT

3. DETERMINATE DETERMINABLE

vs.

vs.

vs.

Impossible things

Illicit

Non-Determinable GENERICS

RATIONALE: Transfer of Ownership/Possession of the Subject Matter is the ESSENCE of SALE

Obligation should therefore not be illusory To comply with the “Obligatory Force” principle

in Contract Law

8

SALES vs. AGENCY TO SELL/BUY

AGENCY

REPRESENTATIVE

FIDUCIARY Essentially revocable Fruits and of principal

AGENT

NOT PERSONNALY LIABLE FOR THE OBLIGATION CREATED BY THE SALE CONTRACT

NOT OBLIGED TO PAY THE PRICE

DOES NOT ASSUME THE RISKS OF OWNERSHIP TO

THE OBJECT OF SALE

9

SALES vs. AGENCY TO SELL/BUY Cont’d

THEREFORE:

“AGENT” is deemed to be Seller/Buyer when contracted to assume Risks and Obligations contrary to his representative/ fiduciary role:

(a) HE ASSUMES OBLIGATION TO PAY THE PRICE

(b) SUBJECT MATTER

RISKS OF LOSS

INSURABLE INTEREST

MAINTENANCE

10

SALES vs. CONTRACT FOR PIECE-OF-WORK:

“Ineluctably, whether the contract be one of sale or one for a Piece of Work, a transfer of ownership is involved and a party necessarily walks away with an object.”

Commission of Internal Revenue v. Court of Appeals, 271 SCRA 605 (1997)

K for Piece-of-Work: Service is the Subject Matter

Although there is the primary obligation to pay fee (or price), the main motivation is the “reputation, skill, mastery” of contractor.

Engineering & Machinery Corp. v. Court of Appeals, 252 SCRA 156 (1996)

BUT: THERE CAN BE NO CONTRACT FOR PIECE-OF-WORK FOR

PAST SERVICE RESULTING IN THE CREATION OF THE OBJECT

(ALWAYS A SALE)

11

SALES versus BARTER:

BARTER IS SALE, BUT WITH THE PRICE BEING REPLACED WITH AN OBLIGATION TO TRANSFER OWNERSHIP/POSSESSION OF ANOTHER SUBJECT MATTER

THEREFORE: BARTER GOVERNED BY LAW ON SALES

BUT: NOT COVERED BY STATUTE OF FRAUDS

12

SALE versus LEASE:

LEASE ESSENTIALLY INVOLVES THE

TEMPORARY ENJOYMENT OF POSSESSION OF THE SUBJECT MATTER

TREATED AS SALE ON INSTALLMENTS WHEN LEASE STRUCTURED IN SUCH A WAY AS TO AVOID APPLICATION OF THE RECTO LAW

13

FEW INSTANCES:

SALES versus DACION EN PAGO:

DACION IS PROCESS OF EXTINGUISHMENT OF PRE-EXISTING OBLIGATION (CONTRACTS)

ESSENTIALLY: DACION GOVERNED BY LAW ON SALES

DACION NOVATES THE ORIGINAL CONTRACTUAL RELATIONS INTO A FULLY EXECUTED SALE

(a) There must be delivery of subject matter in lieu of an pre-existing obligation;

(b) There must be difference between prestation due and what is give in substitute;

(c) There must be a clear “meeting of minds” that the pre-existing obligation is extinguished by reason of the prestation substituted. Lo v KJS Eco. Formwork System Phil.,

Inc., 413 SCRA 182 (2003)

14

PRICE & OTHER CONSIDERATION

(The Obligation to Pay)

1. REAL/TRUE vs. FALSE(Reformation)

vs. SIMULATED(Void)

2. “Money or its Equivalent” vs. PURE vs. NOMINAL VALUABLE CONSIDERATION LIBERALITY CONSIDERATION

4. MANNER OF PAYMENT

vs. UNASCERTAINABLEASCERTAINABLE

3. CERTAIN

RATIONALE: Must comply with “Obligatory Force” principle in Contract Law

Must meet Onerous and Commutative characteristics of SALE

15

UNASCERTAINABLEvs.

STAGES IN LIFE OF SALENEGOTIATION

Covers the period from the time the prospective contracting parties indicate interest in the contract up to the time immediate before the contract is perfected.

PERFECTION

Takes place upon the concurrence of the essential elements of the Sale which are:

the meeting of the minds of the parties as to the object of the contractupon the price.

CONSUMMATION

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

Jovan Land, Inc. v. CA, 268 SCRA 160 (1997)San Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000)

16

PERFECTION STAGE

• PERFECTION HAPPENS WHEN A “CERTAIN OFFER” HAS BEEN MET BY AN “ABSOLUTE ACCEPTANCE”

• THE ONLY POINT IN TIME TO DETERMINE THE VALIDITY OR INVALIDITY OF A CONTRACT OF SALE

• ESTABLISHES THE CONTRACTUAL PRINCIPLES OF:

CONSENSUALITY

MUTUALITY OR OBLIGATORY FORCE RELATIVITY

17

“Birth” sets the essence of the Sale

CONSUMMATION STAGE

EFFECTS OF CONDITIONS

EXPRESS WARRANTIES

IMPLIED WARRANTIES

(3) REMEDIES

(1) PERFORMANCE DELIVERY OF

SUBJECT MATTER PAYMENT OF PRICE

(5) EXTINGUISHMENT

CONVENTIONAL REDEMPTION (SALE A RETRO)

EQUITABLE MORTGAGES

LEGAL REDEMPTION

(2) RISK OF LOSS

(4) CONDITIONS AND

WARRANTIES

SPECIFIC PERFORMANCE

RESCISSION

DOUBLE SALES RULE SUBDIVISION LOTS & CONDO UNITS RULES

RECTO LAW

MACEDA LAW

19

OBLIGATIONS OF SELLER

1. TO PRESERVE THE THING WITH DILIGENCE OF A GOOD FATHER OF A FAMILY

2. TO DELIVER THE SUBJECT MATTER

3. To DELIVER FRUITS, ACCESSORIES AND ACCESSIONS

4. To COMPLY WITH WARRANTIES

OBLIGATIONS OF BUYER

1. TO PAY THE PRICE

2. TO ACCEPT DELIVERY OF SUBJECT MATTER

20

DELIVERY OF SUBJECT MATTER

TRADITION AS THE MODE TO

TRANSFER OWNERSHIP

- Actual or Physical Delivery- Constructive Delivery

21

MAGIC OF

TRADITION

Fulfillment of the Primary Obligation of the Seller

Transfer Ownership/ Possession to the Buyer

EXECUTION OF PUBLIC INSTRUMENT

- No Contrary Stipulation/ Intention- Seller Must Have “Control”- Passage of Reasonable Time

EXCEPTION: WHEN BUYER TAKES THE RISK

DOCTRINES ON CONSTRUCTIVE DELIVERY

Produces the Same “Magic” of Actual Delivery

CONSTRUCTIVE DELIVERY

CONSTITUTUM POSSESORIUMTRADITIO BREVI MANUTRADITIO LONGA MANU OR SYMBOLIC DELVERY

23

DELIVERY THROUGH CARRIER - FAS - FOB - CIFDOCUMENTS TO TITLE

DELIVERY FOR INTANGIBLES

Public Instrument

Transfer/Negotiation of the “Title” Evidences the Intangible

Enjoyment of Rights and Privileges with the consent of the Seller

OPTION CONTRACT:

ACCEPTANCE of OFFER to give on Option to Buy/to Sell

CONSIDERATION: Anything separate and distinct from Price

SUBJECT MATTER: Option or Privilege to Sell/ Purchase:

AN OBJECT: AT A PRICE:- Possible - Real- Licit - Valuable- Determinate/ - Certain/ Determinable Ascertainable

24

1. If no separate consideration, Option Contract void, but may constitute certain Offer which can be withdrawn by Offeror, but if accepted before withdrawal would give rise to a valid Sale (Sanchez v. Rigos doctrine)

2. If withdrawal of option/offer whimsical or arbitrary, could give rise to damage claim under Art. 19 of Civil Code

3. When there is separate consideration, an Option Contract deemed perfected:

Ang Yu Asuncion v. Court of Appeals238 SCRA 602 (1994)

25

(a) If exercised within option period, gives rise to Sale, which can be enforced by specific performance

(b) Would be a breach of the Option Contract, for Offeror to withdraw the offer during the agreed period, but withdrawal destroys nevertheless the Option

Ang Yu Asuncion v. Court of Appeals cont’d

26

Optionee-Offeree may not sue for specific performance on the Sale since it has failed to reach its own perfection stageOptioner-Offeror, however, renders himself liable for damages for breach of option

(c) But if, however, Optioner-Offeror withdraws Offer even during option period before its acceptance (i.e., exercise):

RIGHT OF FIRST REFUSAL

OFFEROR BOUNDS HIMSELF TO FIRST OFFER SUBJECT MATTER TO OFFEREE FOR SALE

IN THE EVENT OFFEROR EVER DECIDES TO SELL IT

SUBJECT MATTER

Possible thing

Licit

Determinate/Determinable

PRICE: THAT WILL THEN (HAPPENING OF CONDITION) BE AGREED UPON

27

ESSENCE:

CONDITION:

DOCTRINES ON RIGHTS OF FIRST REFUSAL

Ang Yu Asuncion v. Court of Appeals

• Generally, RFRs would be “none” contracts, for lack of cause or consideration, or failure to agree the valid Price for the expectant contract

• Merely “innovative juridical relation”RFR

• Cannot be enforced by specific performance Not being a Contract, it lacks essence of “consensuality,”

“obligatory force” or “mutuality”• Breach allows recovery of damage based on Art. 19 principle

of “Abuse of right”

28

Equatorial Realty Dev., Inc. v. Mayfair Theater264 SCRA 483 (1996)

DOCTRINES ON RFR cont’d

• When RFR attached to a valid principal contract (e.g. Lease), its enforcement takes its vitality from the obligatory force of the principal contract

• Such RFR, when breached may be enforced, at the Price at which Subject Matter sold to Third Party

• The Third-Party Buyer’s purchase may be rescinded under accion pauliana, i.e., entered into in breach and in fraud of Optionee’s contractual right

29

Parañaque Kings Enterprises v. CA268 SCRA 727 (1997)

DOCTRINES ON RFR cont’d

• RFR is complied with by first offering the Subject Matter to the Optionee and negotiating for a Sale

There is no obligation to reach a sale, obligation is to negotiate in good faith

• Only when negotiations do not ripen into a Sale, can Subject Matter be offered to Third-Party Buyer, but at same price and terms asked of the Optionee

• Otherwise, must re-offer under new terms to Optionee

30

FORM OF SALE

GENERALLY: None, because Sale is consensual contract

FOR ENFORCEABILITY: STATUTE OF FRAUDS

1. Sale which by its terms is not to be performed within one (1) year.

2. Sale of Movables, at least P500

3. Sale of Immovables, at any price

Must be in writing signed by the “party sought to be bound”

31

RULES FOR DETERIORATION, FRUITS AND IMPROVEMENTS

RULES HAVE NO APPLICATION IF SUBJECT MATTER IS MERELY DETERMINABLE (Art. 1263)

ROMAN LAW DOCTRINE: Buyer bears the consequences of Deterioration, but benefits from the Fruits and Improvements

Arts. 1480, 1163-1262Arts. 1189, 1537 and 1538

32

RULES WHEN SUBJECT MATTER LOST:

1. BEFORE PERFECTION: Res Perit Domino Roman v. Grimalt, 6 Phil. 96 (1906)

2. AT TIME OF PERFECTION: Seller (Arts. 1493 and 1494)

“Sale is rendered inefficacious”

33

General Rule: For Goods, risk borne by Seller under Res perit domino rule

Chrysler Phil. v. CA, 133 SCRA 567 (1984)Union Motor Corp v. CA, 361 SCRA 506 (2001)

Loss by Fault of a Party (Arts. 1480, 1504, 1538)

LOSS BY FORTUITOUS EVENT: Two Schools of Thought

Arts. 1480, 1163, 1164, 1165Arts. 1504, 1538, and 1189

SUBJECT MATTER LOST: cont’d

34

3. AFTER PERFECTION BUT BEFORE DELIVERY Arts. 1164, 1189, and 1262(

SUBJECT MATTER LOST: cont’d

4. AFTER DELIVERY: BUYER BEARS RISK, UNDER Res Perit Domino

Art. 1504Song Fo & Co. v. Oria, 33 Phil. 3 (1915)

Lawyer's Coop v. Tabora, 13 SCRA 762 (1965)Lawyer's Coop v. Narciso, 55 O.G. 3313)

EXCEPT: When retention of Possession by Seller for purpose of securing payment of the Purchase Price

35

FORM OF SALE cont’d

Memo must contain Description of:

(a) SUBJECT MATTER Possible thingLicitDeterminate/Determinable

(b) PRICE

realvaluable

certain/ascertainablemanner of payment provided

OR PARTIALLY EXECUTED (Estoppel) OR WAIVER OF ADDUCEMENT OF ORAL EVIDENCE AT

TRIAL

36

(c) SIGNED BY THE PARTY SOUGHT TO BE CHARGED

Exception: Electronic Document

FORM OF SALE cont’d

What Constitutes “Partial Execution”?

(a) Performance Must Touch Upon

Subject Matter

Price

Cannot Cover “Other Consideration”

(b) Must Involve/Compromise “Party Sought to be Charged”

37

FORMS THAT VOID CONTRACT OF SALE:

1. SALE OF REALTY THROUGH AGENT:

AGENT’S AUTHORITY MUST BE IN WRITING

SALE VOID:- EVEN IF DEED OF SALE IN WRITING

and/or NOTARIZED- EVEN IF THERE HAS BEEN

PARTIAL/ FULL PAYMENT- EVEN IF THERE HAS BEEN

DELIVERY OF SUBJECT MATTER- EVEN IF SALE REGISTERED

38

OTHERWISE:

SALES OF IMMOVABLES

1. PRIVATE DOCUMENT NEEDED TO BE ENFORCEABLE

BETWEEN PARTIES

EXCEPT: PARTIAL EXECUTION/WAIVER

2. MUST BE IN A PUBLIC INSTRUMENT

-TO BIND THE PUBLIC-TO BE REGISTRABLE WITH REGISTRY OF DEEDS

3. FOR REAL ESTATE, MUST BE REGISTERED TO BE VALID AND

BINDING AGAINST THE WORD

39

- Authority of Agent must be in writing – VOID- Bound by actual possession situation, otherwise not

in good faith

REMEDIES FOR CONTRACTS OF SALE

1. REMEDIES OF “UNPAID SELLER” OF GOODS

• Possessory lien (Arts. 1526-1529, 1503, 1535)• Stoppage in transitu (Arts. 1530-1532, 1535, 1636[2])

• Special Right of Resale (Art. 1533)• Special Right to Rescind (Art. 1534)

40

2. RECTO LAW: SALES OF MOVABLES ON INSTALLMENTS

(a) Meaning of “Installment Sale” Levy v. Gervacio, 69 Phil. 52 (1939)

(b) Contracts to Sell Movables Not Covered Visayan Sawmill Co., Inc. v. CA, 219 SCRA 378 (1993)

(c) Nature of Remedies of Unpaid Seller

Remedies under Art. 1484 are not cumulative, but alternative and exclusive.

Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 (1996)

Seeking a writ of replevin consistent with all three remedies

Universal Motors Corp. v. Dy Hian Tat, 28 SCRA 161 (1969)

41

(d) REMEDY OF SPECIFIC PERFORMANCE: No bar to full recoveryTajanglangit v. Southern Motors, 101 Phil. 606 (1957)

RECTO LAW: cont’d

Even when it is mortgaged property that is sold on execution.

Southern Motors v. Moscoso, 2 SCRA 168 (1961)

Even with replevin and recovery of the subject property, the action may still be for specific performance.

Industrial Finance Corp. v. Ramirez, 77 SCRA 152 (1977)

42

(e) NATURE OF REMEDY OF RESCISSION

RECTO LAW: cont’d

• Inherent “Barring” Effect of Rescission• Surrender of mortgaged property not

equivalent to rescission. Vda. de Quiambao v. Manila Motors Co., Inc.,

3 SCRA 444 (1961) • Stipulation on non-return of payments is valid

provided not unconscionable.

Delta Motor Sales Corp. v. Niu Kim Duan, 213 SCRA 259 (1992)

43

(f) REMEDY OF FORECLOSURE

RECTO LAW: cont’d

(i) Third Party Mortgage Ridad v. Filipinas Investment, 120 SCRA 246 (1983)

(ii) Assignor-Assignee; Financing TransactionsZayas v. Luneta Motors, 117 SCRA 726 (1982)

When seller assigns his credit to another, the assignee is likewise bound by the terms of the Recto Law.

Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 (1996).

44

(iii) H-V “Barring” Effects of Foreclosure

Foreclosure on the chattel mortgage prevents further action on the supporting real estate mortgage.

Cruz v. Filipinas Investment & Finance Corp.,23 SCRA 791 (1968)

Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 (1996)

RECTO LAW: cont’d

(iv) Amounts Barred from RecoveryMacondray & Co. v. Eustaquio, 64 Phil. 446 (1937)

(v) Perverse BuyerFilipinas Investment & Finance Corp. v. Ridad, 30 SCRA 564 (1969)

45

(g) PURPORTED LEASE WITH OPTION TO BUY: “Contracts purporting to be leases of personal property with option

to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing.” (Art. 1485)

RECTO LAW: cont’d

When purported Lessor takes possession of subject movable, it is treated legally as a foreclosure and the barring effects applicable to foreclosure remedy, not rescission, are given application.

Vda. de Jose v. Barrueco, 67 Phil. 191 (1939) Filinvest Credit Corp. v. CA, 178 SCRA 188 (1989)

U.S. Commercial v. Halili, 93 Phil. 271 (1953)H.E. Heacock v. Bantal Manufacturing, 66 Phil. 245 (1938)

Manila Gas Corp. v. Calupita, 66 Phil. 747 (19 38)Vda. de Jose v. Barrueco, 67 Phil. 191 (1939)

46

3. MACEDA LAW: SALES OF RESIDENTIAL REALTY ON INSTALLMENTS (R.A. 6552)

(a) “Role” of Maceda LawLagandaon v. CA, 290 SCRA 463 (1998)

BUT SEE: People’s Ind’l and Comm. Corp. v. CA, 281 SCRA 206 (1997)

(b) Transactions Covered

The formal requirements of rescission under the Maceda Law apply even to contracts entered into prior to its effectivity.

Siska Dev. Corp. v. Office of the President, 231 SCRA 674 (1994)

47

The Maceda Law makes no distinctions between “option” and “sale” which under P.D. 957 also includes “an exchange or attempt to sell, an option of sale or purchase, a solicitation of a sale or an offer to sell directly.”

Realty Exchange Venture Corp. v. Sendino, 233 SCRA 665 (1994)

MACEDA LAW cont’d

48

Curiously: No application to Contract to Sell “because said law presupposes the existence of a valid and effective contract to sell a condominium.”

Mortel v. KASSCO, Inc., 348 SCRA 391, 398 (2000)

MACEDA LAW cont’d

Pursuant to Art. 1253 of Civil Code, in a contract involving installments with interest chargeable against the remaining balance of the obligation, it is the duty of the creditor-seller to inform the debtor-buyer of the interest that falls due and that is applying the installment payments to cover said interest. Otherwise, the creditor cannot apply the payments to the interest and then hold the debtor in default for non-payment of installments on the principal.

Rapanut v. CA, 246 SCRA 323 (1995)

(c) How Cancellation of Contract Can Be Effected:Active Realty & Dev. Corp. v. Daroya, 382 SCRA 152 (2002)

49

MACEDA LAW cont’d

(a) To sell/assign his rights to another person(b) To reinstate contract by updating account during

grace period, before actual cancellation of contract (c) To pay in advance installments or in full unpaid

balance of Price any time without interest and have same annotated in title

Any stipulation in any contract entered into contrary to the provisions of the Law, shall be null and void. (Art. 7)

50

OTHER RIGHTS GRANTED TO BUYER

4. OTHER REMEDIES ON SALE OF REAL ESTATE

(a) ANTICIPATORY BREACH (ART. 1591)

(b) RESCISSION ON SALE ON NON-RESIDENTIAL REALTY ON

INSTALLMENTS (Arts. 1191 and 1592)

(c) SEC. 23 AND 24, PRES. DECREE 957

51