Contract of Sale. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing and the other to pay therefore a price certain in money or its equivalent.

Contract of Sale Contract to SellTitle over the property passes to the buyer upon delivery unless there is a contrary agreement

Ownership is retained by the seller whether or not there is delivery. Ownership passes to the buyer only upon full payment of the price

Non-payment of the purchase price is a negative resolutory condition, meaning the sale becomes ineffective upon the happening of such condition

The payment in full is a positive suspensive condition, meaning, if the purchase price is not paid, the obligation to deliver and to transfer ownership on the part of the seller does not become effective

After delivery of the objective, the seller loses ownership over it. Unless, the contract is set aside, he cannot recover the object

Whether there is delivery or not, the seller retains the ownership of the object. If the seller, due to non-payment of the price is ousting the buyer from the property, he (seller) is not rescinding the contract of sale but is precisely enforcing it.

Pactum Reservatii Domini Contract to SellConditional Sale there is already a contract of sale

No contract to sale only, a preparatory contract

There is already delivery but ownership retain by seller

No delivery yet. No sale yet

Specific Performance/Rescission No specific performance/rescission—no contract yet

Payment completes the transaction Payment will not complete transaction

Phases or Stages of A contract of Sale1. Preparation, conception or generation—the period of negotiation and bargaining, ending at the moment of agreement of the parties2. Perfection or Birth of the Contract3. Consummation or death—which is the fulfilment or performance of the terms agreed upon

Characteristics or Features of Contract of Sale (NBC-COP)1. Nominate—It has a specific name given by law.2. Bilateral—both parties are obliged to fulfil reciprocal obligations to one another.3. Consensual—It is perfected by mere consent4. Commutative—The thing sold is equivalent of the price paid5. Onerous—The thing sold is conveyed in consideration of the purchase price and the purchase price is paid in consideration of the conveyance of the thing.6. Principal—Its existence does not depend upon the existence and validity of another contract

Elements of Contract of Sale1.Essential Elements—necessary for the validty of the sale.

a. Meeting of the minds of the seller and the buyerb. Object which is certain and determinatec. Price certain

2. Natural Elements—those which are inherent in the contract and are deemed to exist in the contract of sale in the absence of clear contrary agreement.

a. Warrant against evictionb. Warranty against hidden defects

3. Accidental Elements—May or may not exist depending on the stipulations of the parties like conditions, payment of interest, place and time of payment.

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

When is a thing determinate? a. When it is particularly designated or physically segregated from all others of the

same class.b. The thing is capable of being made determinate, at the time the contract is

entered into, w/o the necessity of a new or further agreement between the parties.

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

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

Emptio rei speratae vs. Emptio speiEmptio rei speratae Emptio spei

Sale of a thing having a potential existence

Sale of a mere hope or expectancy

The uncertainty is with regard the quantity and quality but not with regard the existence of the thing

The uncertainty is with regard the existence of the thing

The contract deals with a future thing The contract deals with a present thing—the hope or expectancy

The sale is subject to the condition that the thing should exist, so that if it does not, there is no contract for lack of an essential requisite

The sale produces effects eventhough the thing itself does not come into existence, since the subject matter is the hope itself

Future Goods that may be subject of a contract of sale1. Goods to be manufactured yet2. Goods to be acquired by the seller after the perfection of contract of sale3. Goods that depends upon a contingency that may or may not happen

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

Sale vs. AgencySALE AGENCYThe buyer pays for the price of the goods/property purchased

The agent does not pay for the price. He merely accounts for the proceeds of the sale.

The buyer becomes the owner of the goods/property purchased

The agent does not become the owner of the goods/property delivered to him for sale.

Buyer cannot return the goods/property when the sale is defective

The agent returns the goods/property if he was not able to sell the same

The seller warrants the goods/property sold

The agent does not make any warranty as long as he acts within his authority and in the name of the principal

The seller has full freedom to enter into any terms or conditions on the contract of sale

The agent must follow the instructions of the principal

Contract for a Piece of Work—The article sold is specially manufactured and upon the special order of the customer. Article is not sold in the ordinary course of business. (See. Concrete Aggregates vs. CTA)

Contract for a piece of work Contract of SaleThe thing transferred is one not in existence and w/c never would have existed but for the order of the party desiring to acquire it

The thing transferred is one which would have existed and would have been the subject of sale to some other person, even if the order had not been given

The services dominate the contract eventhough there is a sale of goods involved

The primary objective of the contract is a sale of the manufactured item; it is a sale of goods eventhough the item is manufactured by labor furnished by the seller and upon previous order of the customer

Not w/in the Statute of Frauds Governable by the Statute of Frauds

Rules if Consideration is partly Money and Partly Goods1. Determine the intention of the parties.2. If intention could not be determined, consider the value of the thing given:

a. If value of the thing more than value of the money, it is BARTERb. If value of the thing less than value of the money, it is SALEc. If both values are the same, SALE

Money Exchange. If local currency is exchanged for foreign currency—there is purchase and sale.

If the local currency is exchanged with other denominations of the local currency also, there is barter (Same rule if Foreign Currency exchanged in the Philippines for another foreign currency)

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

Rules if there is no specific amount stipulated as purchase price1. It is still certain if it is determinable by making reference to another thing which is itself certain2. It is still certain if determination is entrusted to the judgment of a specified person or persons3. By reference to certain fact or facts (such as in Art. 1472—when the price is fixed is that which the thing sold would have on a definite day or a particular exchange)

Effect if 3rd Person fixed the priceGeneral Rule: It is binding upon the partiesExceptions:1. When the 3rd person acts in bad faith2. When the 3rd person disregards the specific instructions or the procedure marked

out by the parties

Effect when the price is not fixed by the 3rd person designated1. If the 3rd person refuses or cannot fix the price, the contract shall become ineffective, unless the parties subsequently agree upon the price2. If the 3rd person is prevented from fixing the price by the fault of the seller or buyer, the party not in fault may obtain redress against the party in fault.

Effect of Gross Inadequacy of Price. No effect. Exceptions: (meaning, sale is set aside)

1. If consent is vitiated, such as VIMFU (Violence, Intimidation, Mistake, Fraud, Undue influence)2. If the parties intended a donation or some other act or contract3. If the price is so low as to be shocking to the conscience

Effect of Simulated Price. Sale is void, unless it could be shown that the parties intended a donation or some other act of liberality.

Price Simulated- No price to support a contract of sale, such that neither party had any intention that the amount will be paid—void

Price is False- there is a real price not declared—contract is valid, but the underlying deed is subject to reformation to indicate the real price upon which the minds of the parties have met.

When Price Cannot be determined, effect: Sale is inefficacious. (1474)Is appropriation of the thing delivered in an inefficacious contract allowed? Yes, buyer

must pay a reasonable price to that part delivered. (Reasonable price is generally the market price at the time and place fixed by the contract or by law for the delivery of the goods)

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

RULES ON AUCTION SALES1. Each lot is subject of a separate contract of sale2. Auction sale is perfected when the auctioneer announces its perfection by the fall of the hammer or in other customary manner.

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

3. A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise provided by law or stipulation4. Notice is essential for the seller or his representative to be able to bid.

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

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

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

Test to Determine whether a Contract is A contract of Sale or An Option. Whether or not the agreement could be specifically enforced. If such stipulation could be independently enforced from the contract, then such stipulation is an option.

EARNEST MONEY vs. OPTION MONEYEarnest Money Option MoneyIt is part of the purchase price It is given as a distinct consideration for

an option contract which gives the buyer a specific period within which to purchase the thing

It is given only when there is already a perfected sale

It is given at a time when the sale had not yet been perfected. What had been perfected only is the option contract

When it is given, the buyer is bound to pay the balance of the agreed purchase price

Even if option money is paid by the would-be-buyer he is not bound to buy the thing

If the sale does not materialize, the earnest money paid must be returned, unless a contrary agreement had been stipulated

If the buyer decides not to buy the thing, he cannot recover the option money he paid as consideration for the contract of option

LOSS, DETERIORATION OF THING

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

AT THE TIME OF PERFECTION OF CONTRACT OF SALE—1493*contract without any effect: it never came to existence. Tthere could be no contract

of sale without a thing to be sold. Would-be-seller bears the loss.

AFTER PERFECTION BEFORE DELIVERY.

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

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

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

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

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

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

RECTO LAW (ART. 1484)Applicability: Sales of Personal Property in Installments and Leases of Personal Property w/ Option to BuyRemedies:(1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.

Art. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of careArt. 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him.Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the deliveryArt. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay. When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk.

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

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

certain property.

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

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

ART. 1490. Prohibition against Husband and Wife. Exceptions.Rationale: PIDa. To avoid Prejudice to 3rd Personsb. To prevent one spouse from unduly influencing the other.c. To avoid by indirection the violation of the prohibition against donations.

Who may assail illegality?a. Creditors prior to the saleb. Heirs of either spouse.

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

property.

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

1. Public Officers and employees—Property Of State.2. Agents—Property of Principal unless with consent.3. Guardian—Property of Ward.4. Executors and administrators—Estate5. Justices, Judges, Prosecuting Attorneys, Clerks and employees of court—Property/Rights under litigation.6. Others disqualified by law. (Ex. *aliens who are disqualified to purchase private agricultural lands; *an unpaid seller having a right of lien or having stopped the goods in transitu, who is prohibited from buying the goods either directly or indirectly in the resale of the same at a public or private sale w/c he may make. Art. 1533, par.5)

Rationale: Fiduciary relationshipStatus of Sale: Voidable (1-3); Void (4-6)

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

ART. 1493. Loss of Object Before Sale. Complete and Partial Loss.Partial Loss Rules:1. Vendee may withdraw from the contract2. Demand the remaining part, paying its price in proportion to the total sum agreed

upon

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

1. Buyer may avoid the sale or2. May treat sale as valid w/ respect to the existing goods

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

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

ART. 1496. Delivery Transfers Ownership.ART. 1497. Control and Possession necessary in Delivery.

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

Delivery- a mode of acquiring ownership as a consequence of a contract of sale by virtue of which actually or constructively the object is placed in the control and possession of the vendee.

KINDS OF DELIVERY1. Actual or Real. (1497)2. Legal or Constructive

a. Legal Formalities (1498); execution of public instrument.b. Symbolical Tradition (1498 par 2)- keys delivered.c. Traditio Longa Manu- by mere consent /agreement. If the movable sold cannot yet

be transferred to the possession of the buyer at the time of the sale. (1499)d. Traditio Brevi Manu- if the buyer had already the possession of the object even

before the purchase. (lessee becomes owner)e. Traditio constitutum possessorium- possession as owner changed. (Owner

becomes lessee)

3. Quasi-Tradition- Delivery of Rights, credits or incorporeal property made by:a. Execution of public instrumentb. Placing titles of ownership in the hands of a lawyer.c. Allowing the buyer to make use of the rights (1501)

ART. 1498. Constructive delivery.Requirements:1. Seller’s Control.2. Seller’s Control transferred to buyer.3. Intention to deliver for ownership.

ART. 1499. Traditio Longa and Brevi ManuART. 1500. Traditio Constitutum Possessorium.ART. 1501. Delivery of Incorporeal Property. (Constructive and Quasi-Tradition)

ART. 1502. Transaction on Sale or Return. Subject to Resolutory Condition.

Difference with “Delivery with option to purchase”- Ownership is transferred in Sale or Return

Transaction on Approval or Trial/Satisfaction. Subject to Suspensive Condition.Rules:1. Risk of loss to seller until the sale becomes absolute. (Exceptions: Buyer in default;

Buyer agreed to bear the loss)2. Buyer must give goods a trial except when it is evident that it cannot perform the

work intended.3. Period of signifying acceptance commences to run only when all the parts essential

for operation has been delivered.4. A provision that a 3rd person must satisfy approval is valid but he must be in Good

faith.5. Generally the Sale and Delivery to an expert buyer is not a sale on approval/trial.

Sale or Return vs. Sale on ApprovalBasis Sale or Return Sale on ApprovalCondition Subject to Resolutory

conditionSubject to suspensive condition

Premise It depends upon the will of the buyer

It depends upon the suitability, quality or character of the goods

Transfer of ownership Ownership immediately passes to the buyer on delivery

Ownership does not immediately pass to the buyer. It passes only upon approval or satisfaction of the buyer duly manifested after trial

Revesting of ownership in the owner

Ownership is revested in the seller if the buyer so decides

There is no revesting of ownership because it is retained by the seller until the sale becomes absolute

Risk of loss or deterioration

The risk rests on the buyer before the revestment of ownership

The risk remains in the seller while the goods are on trial

Art. 1503- RESERVATION OF POSSESSION OR OWNERSHIP BY THE SELLER WHEN SPECIFIC GOODS ARE SHIPPED.

1. When a contrary intention appears by the terms of the contract.2. When the goods are shipped, and by the bill of lading(BOL) the goods are deliverable to the seller or his agent, or to the order of the seller or of his agent.

Exception: Form of bill of lading not conclusive if for security purposes only.3. When the goods are shipped and by the BOL the goods are deliverable to the order of the buyer or of his agent, but possession of the BOL is retained by the seller or his agent.4. Where bill of lading is sent forward to the buyer with bill of exchange attached and the buyer did not pay the bill of exchange.

EFFECT OF BUYER’S OBTAINING POSSESSION OF BILL OF LADING WITHOUT HONORING THE DRAFT.** If the BOL provides that the goods are deliverable to the buyer or to the order of the buyer or is indorsed in blank or is indorsed to the buyer by the consignee named therein, a purchaser in GF for value of the BOL or goods from the buyer will obtain the ownership in the goods although the BOE has not been honored.

Kinds of Delivery to the Carrier

1. C.I.F. (Cost, Insurance, Freight)—signify that the price fixed covers not only the costs of the goods, but the expense of the freight and the insurance to be paid by the seller2. F.O.B. (Free on Board)—goods are to be delivered free of expense to the buyer to the point where they are F.O.B. The point of F.O.B. (either at point of shipment or the point of destination) determines when the ownership passes.

*CIF and FOB merely make rules of presumption.3. C.O.D. (Collect on Delivery)—the carrier acts for the seller in collecting the purchase price, which the buyer must pay to obtain possession of the goods.

ART. 1505. SALE BY A PERSON NOT THE OWNER/WITHOUT AUTHORITY OF OWNER.General Rule: Buyer acquires no better title to the goods than the seller had.Exceptions: SOLVAM1. Where the sale is sanctioned by statutory or judicial authority. (See Art. 559)2. Where the owner of the goods is by his conduct, precluded from denying the seller’s authority to sell.3. Where the law enables the owner to dispose of the goods as if he were the true owner thereof.

*** Factor’s Acts (Agency); Recording Laws (PD 1529, RA 4136-Land Transportation and Traffic Code, Revised Administrative Code); NIL; Warehouse Receipts Law.

4. Where the seller has a voidable title which has not been avoided at the time of the sale.5. Where seller subsequently acquires title.6. Where the sale is sold at merchant’s stores, fairs or markets.

ART. 1506. SALE BY ONE HAVING A VOIDABLE TITLE-BUYER ACQUIRES GOOD TITLE.1. Bought before the title of seller has been avoided.2. in GF for value3. without notice of the seller’s defect of title.

ART. 1507. DOCUMENTS OF TITLE.

Document of Title of Goods—includes any bill of lading, dock warrant, quedan, or warehouse receipt or order for the delivery of goods, or any other document used in the ordinary course of business in the sale or transfer of goods, or authorizing or purporting to authorize the possessor of the document to transfer or receive, either by indorsement or by delivery, goods represented by such document.

Nature and function:1. Receipts of, or orders upon, a bailee of goods represented.2. Evidence of transfer of title and possession of goods and contract between the parties.

Some Forms of Documents of Title

1. Bill of Lading- It is a contract or receipt for the transport of goods and their delivery to the person named therein, to order or to bearer. It usually involves three persons: the carrier, the shipper and the consignee.2. Dock Warrant- it is an instrument given by dock owners to an importer of goods warehoused on the dock as a recognition of the importers title to the said goods, upon production of the bill of lading.3. Quedan- a warehouse receipt for commodities or goods such as sugar, tobacco, rice or hemp

4. Warehouse Receipt—A receipt wherein it is stated that certain goods were received by the bailee to be delivered to the bearer or to the order of any person named in such receipt or to a specified person5. Letter of Credit—it is nothing more than a commitment by the issuer that the party in whose favor it is issued and who can collect upon it will have his credit against the applicant of the letter duly paid in the amount therein specified.

Classes of Documents of Title:1. Negotiable- those by the terms of which the bailee undertakes to deliver the goods to the bearer and those by the terms of which the bailee undertakes to deliver the goods to the order of a specified person.2. Non Negotiable- those by the terms of which the goods covered are deliverable to a specified person.

ART. 1508. NEGOTIATION OF NEGOTIABLE DOCUMENT BY DELIVERY.1. Where by the terms the carrier, warehouseman or other bailee undertakes to deliver the goods to the bearer.2. Where by the terms the carrier, warehouseman or other bailee undertakes to deliver the goods to a specified person and such person or subsequent indorsee has indorsed it in blank or to bearer.

Where negotiable document of title the goods are deliverable to bearer or where a negotiable document of title has been indorsed in blank or to bearer, any holder may indorse the same to himself or to any specified person, and in such case the document shall thereafter be negotiated only by the indorsement of such indorsee.

ART. 1509. NEGOTIATION OF NEGOTIABLE DOCUMENT BY INDORSEMENT.Indorsement is made by the person to whose the goods are deliverable. It may be in blank, to bearer or to a specified person.

ART. 1510. NEGOTIABLE DOCUMENTS OF TITLE MARKED “NON-NEGOTIABLE”-No effect on negotiability. The obligations of carrier,warehouseman, or bailee not limited.

ART. 1511. TRANSFER OF NON-NEGOTIABLE DOCUMENT.-Though non-negotiable may be transferred but transferee acquires rights under 1514. Even if document indorsed transferee has no additional rights.

ART. 1512. PERSONS WHO MAY NEGOTIATE A DOCUMENT.1. By the owner thereof2. By any person to whom possession or custody has been entrusted by the owner, if bailee undertakes to deliver the goods to the order of the possessor of the document OR document is in such form that it may be negotiated by delivery at the time it is entrusted.

ART. 1513. RIGHT OF PERSON TO WHOM DOCUMENT HAS BEEN NEGOTIATED.1. The title of the person negotiating the document over the goods covered by the document.2. The title of the person(depositor or owner) to whose order by the terms of the document the goods were to be delivered.3. The direct obligation of the bailee (warehouseman or carrier) to hold possession of the goods for him, as if the bailee had contracted with him.