SALES Chapter 1 Nature and From of The Contract Art.

1458: By the contract of sale one of the contracting parties obliges 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. A contract of sale may be absolute or conditional. COMMENT: 1) SALE is a contract where one party obligates himself to transfer the ownership of a determinate thing, while the other party obligates himself to pay for said thing a price certain in money or its equivalent. 2) Roman law avenditio French/ Spanish venta Definition was taken under Art. 1445 of the Spanish Civil Code wherein the only difference is that the seller need not to be the owner of the determinate thing or the thing which is due. 3) Essential Characteristics of the Contract of Sale: a) Consensual contract is perfected by mere consent. b) Bilateral Reciprocal- bound by the obligations dependent upon each other. c) Onerous- to acquire rights, valuable consideration must be given. d) Commutative- values exchanged are almost equivalent to each other. e) Principal- for a contract of sale to validly exist, it is not necessary for it to depend on another contract. f) Nominate- the Code refers to it by a special designation or name. 4) Elements of the Contract of Sale: a) Essential (w/o w/c there can be no valid sale): 1) Consent or meeting of the minds 2) Determinate subject matter 3) Price certain in money or its equivalent

e.g. Aguinaldo v. Esteban Leabres v. CA b) Natural (w/c are inherent in the contract): 1) Warranty against (deprivation of the property bought) 2) Warranty against hidden defects c) Accidental (w/c may be present or absent in the stipulation e.g. place, time, or presence of conditions) 5) Stages in the Contract of Sale: a) Generation or negotiation b) Perfection- meeting of the minds c) Consummation- when the object is delivered and the price is paid 6) Kinds of Sale: a) As to the nature of the subject matter: 1) Sale of real property 2) Sale of personal property b) As to the value of the things exchanged: 1) Commutative sale 2) Aleatory sale c) As to whether the object is tangible or intangible: 1) Sale of property (tangible or corporeal) 2) Sale of right (assignment of a right or credit, or some other intangibles such as copyright, a trademark or goodwill) Note: Tangible Chose in possession; Intangible- Chose in action d) As to the validity or defect of the transaction: 1) Valid sale 2) Recissible sale 3) Voidable sale 4) Unenforceable sale 5) Void sale e) As to the legality of object: 1) Sale of a licit object 2) Sale of an illicit object f) As to the presence or absence of conditions: 1) Absolute sale (no condition) 2) Conditional sale (pacto de retro)

g) As to whether wholesale or retail 1) Wholesale, if to be resold for a profit the goods being unaltered when resold, the quantity being large. 2) Retail, if otherwise h) As to the proximate inducement for the sale: 1) Sale by description 2) Sale by sample 3) Sale by description and sample i) As to when the price is tendered: 1) Cash sale 2) Sale on installment plan 7) Sale distinguished from Dation in Payment SALE 1) There is no preexisting credit. 2) Gives rise to obligations. 3) The cause or consideration here is the price, from the viewpoint of the seller; or the obtaining of the object, from the viewpoint of the buyer. DATION IN PAYMENT 1) There is a preexisting credit. 2) Extinguishes obligation. 3) The cause or consideration here, from the viewpoint of the person offering the dation in payment, is the extinguishing of his debt; from the viewpoint of the creditor, it is the acquisition of the object offered in lieu of the original credit. 4) There is less freedom in determining the price. 5) The giving of the object in lieu of the credit may extinguish completely or partially the credit.

8) Bar Question 9) Contract of Sale Distinguished from Contract to Sell a) In a contract of sale, the non-payment of a price is a resolutory condition while in a Contract to Sell the payment in full of the price is a positive suspensive condition. b) In the first, title over the property generally passes to the buyer upon delivery. In the second, ownership is retained by the seller, regardless of delivery and is not to pass until the full payment of the price. c) In the first, after delivery the seller has lost ownership and cannot recover it unless the contract lost ownership. In the second, the seller retains the ownership despite delivery. 10) Sale distinguished from Assignment of Property in Favor of Creditors (Cession) Sale differs from cession in much the same way as sale, differs from dation in payment. In cession, the creditor does not acquire ownership over the things assigned, but only the right to sell said things. The proceeds from such sale, the creditor shall be paid what is due to them. DATION IN PAYMENT 1) One creditor is sufficient. 2) Not all the properties of the debtor are conveyed. 3) Debtor maybe solvent or insolvent. 4) The creditor becomes the owner of the thing conveyed. CESSION 1) There must be 2 or more creditors. 2) All the debtors properties are conveyed. 3) Cession takes place only if the debtor is insolvent. 4) The creditors do not become owners of the thing conveyed.

4) There is greater freedom in the determination of the price. 5) The giving of the price may generally end the obligation of the buyer.

11) Sale distinguished from a Loan In a loan, the amount is substantially smaller than the security given. 12) Sale distinguished from a Lease In a sale, the seller transfers the ownership; in a lease, the lessor or landlord transfers temporary possession to the lessee. 13) Kinds of Extrajudicial Foreclosure Sale These are: 1) Ordinary execution sale (Rule 39 of the Rules of Court) 2) Judicial foreclosure (Rule 68 of RoC) 3) Extrajudicial foreclosure (Art. 3135 amended to Art. 4118) Art. 1459: The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered. COMMENT: 1) Lawfulness of the Object and Right to Transfer Ownership 2 rules are given here: a) The object must be LICIT. b) The vendor must have the RIGHT to transfer the OWNERSHIP at the time the object is delivered. 2) Licit object a) The word LICIT means LAWFUL b) Things may be ILLICIT: 1. Per se (of its nature) e.g. Sale for human flesh for human pleasure 2. Per accidents (made illegal by provision of the law) e.g. Sale of illegal lottery tickets. c) If the object of sale us illicit, the contract is null and void, and cannot, therefore, be ratified. d) The right of redemption may be sold. 3) Transfer of Ownership a) It is essential for the owner to transfer ownership and, therefore, the seller must be the owner of the subject sold. This is based upon the principle that nobody can dispose of that which does

not belong to him- nemo dat quat non habet. b) But although the seller must be the owner it does not necessarily mean that he is the owner at the time of the perfection of the contract. It is enough that he is the owner at the time of the delivery of the object. c) The seller does not have to be the owner of the object upon the perfection of the contract because, after all, future things or goods, inter alia, may be sold. d) A person who has a right over a thing may sell such right. Hence, a usufructuary may generally sell his usufructuary right. e) Of course, if the buyer was already the owner of the thing sold at the time of sale, there can be no valid contract. 4) Comment of the Code of Commission It is required in the Proposed Code that the seller transfer the ownership over the thing sold The Commission considers the theory of the present law (old Code) unsatisfactory from the moral point of view. 5) Illustrative Cases Santos v. Macapinlac and Pinlac Lihauco v. Olegario and Olegario Uy Piaco v. McMicking, et al. Martin v. Reyes, et al. Delpher Trades Corp. v. IAC Art.1460: A thing is determinate when it is particularly designated or physically segregated from all others of the same class. The requisite that a thing be determinate is satisfied if at the time the contract id entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties. COMMENT:

1) Meaning of Determinate a) The object of sale must be determinate or specific but it does not necessarily mean that it is so during the perfection of the contract. It is enough that it be capable of being determinate without the need of a new contract/ agreement. b) However, from the viewpoint of RISK or LOSS, not until the object has really been determinate can we say that the object has been lost (genus nunquam perit). 2) Rule if New Agreement is Needed If there is a necessity of making a new agreement to determine the amount and quality of the object sold, this necessarily constitutes an obstacle to the perfection of the contract. Art. 1461: Things having potential existence may be the objects of the contract of sale. The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that thing will come into existence. The sale of a vain hope or expectancy is void. COMMENT: 1) Things with a potential existence Sale of a thing having potential existence: This is a future thing that may be sold. e.g. all my rice harvest next year Other examples of thing possessed of a potential existence: a) young animals not yet in existence or still ungrown fruits b) yhe wine that a particular vineyard is expected to produce c) the wool that shall, thereafter, grow upon a sheep d) the expected goodwill of a business enterprise

2) Emptio Rei Sperati and Emptio Spei There is a difference between: a) The sale of an expected thing (emptio rei sperati) b) The sale of the hope itself (emptio spei) EMPTIO REI SPERATI EMPTIO SPEI 1) If the expected 1) It does not matter thing does not if the expected materialize, the thing materialize sale is not or not; what is effective. important is that the hope itself validly existed. 2) Deals with a future 2) Deals with a thing- that which present thing- for is expected. certainly the hope or expectancy already exists. e.g. Sale of a valid sweepstakes ticket. Note: The presumption is in favor of emptio rei sperati. 3) Vain hope or Expectancy If the hope or expectancy itself is vain then the sale itself is void. This is NOT an aleatory contract where there is an element of chance, here; there is completely NO CHANCE. Art.1462: The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale, in this Title called future goods. There may be a contract of sale of goods whose acquisition by the seller depends upon a contingency, which may or may not happen. COMMENT: 1) Sale of Goods Goods may be future or existing goods.

2) Future Goods a) Manufactured b) Raised c) Acquired by the seller after the perfection of the contract d) Things whose acquisition depends upon a contingency, which may or may not happen. Art.1463: The sole owner of a thing may sell an undivided interest therein. COMMENT: 1) Sale of Undivided Interest Examples: a) Sale of an aliquot part of the house where the parties become co-owners. b) A full owner may sell the usufruct of his land leaving the naked ownership to himself. 2) Source of Article This was taken from Sec. 1 of the Uniform Sales Act. Art.1464: In the case of fungible goods, there may be a sale of an undivided share of a specific mass, though the seller purports to sell and the buyer to buy a definite number, weight or measure of the goods in the mass, and though the number, weight, or measure of the goods in the mass is undetermined. By such sale the buyer becomes owner in common of such a share of the mass as the number, weight or measure bought bears to the number, weight or measure of the mass. If the mass contains less than the number, weight or measure bought, the buyer becomes the owner of the whole mass and the seller is bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent appears. COMMENT: Sale of Share in Specific Mass Example: In a stock of rice, the exact number of cavans of which is still unknown, Jose buys 100 cavans. If there are really 150, Jose becomes the co-

owner of the whole lot, his own share being 2/3 thereof. Note: The sale is of a specific object since the mass is specific Art. 1465: Things subject to a resolutory condition may be the object of the contract of sale. COMMENT: Sale of Things Subject to a Resolutory Condition Examples: a) A property subject to a reserve troncal may be sold. b) A usufruct that may end when the naked owner becomes a lawyer may be sold. c) A sold B the formers land a retro. After delivery to B, B becomes an absolute owner to the right of redemption. This land may be sold by B to C, a stranger, subject to the right redemption; i.e., C must respect the right of A to redeem the property within the stipulated period if: 1) As right is registered; 2) Or even if not, if C had actual knowledge of the right of redemption. Art.1466: In construing a contract containing provisions characteristic of both the contract of sale and of the contract of agency to sell, the essential clauses of the whole instrument shall be considered. COMMENT: 1) Distinctions Between a Contract of Sale and an Agency to Sell (like a Consignment for Sale) a) In sale, the buyer pays the price; b) In sale, the buyer after delivery becomes the owner; c) In sale, the seller warrants; 2) Bar Question

Art.1467: A contract for the delivery at a certain price of an article, which the vendor in ordinary course of his business manufactures or procures for the general market. Whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer upon his special order, and not for the general market, it is a contract for a piece of work. COMMENT: 1) Rules to determine if the Contract is One for Sale or a Piece of Work a) If ordered in the ordinary course of business- SALE b) If manufactured specially and not for the market- price of work contract 2) Schools of Thought a) Massachusetts Rule: If specially done at the order of another, this is a contract for a piece of work. b) New York Rule: If the thing already exists, it is a SALE; if not, WORK. c) English Rule: If material is more valuable, sale; if skill is more valuable, work. 3) Query If I ask someone to construct a house for me, is this a contract of sale or for a piece of work? ANS: If he will construct on his own land, and I will get both the land and the house it would seem that this can be very well treated as a sale. Art.1468: If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be characterizes by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money or its equivalent; otherwise it is a sale.

COMMENT: Rules to Determine Whether Contract is One of Sale or Barter a) First Rule: Intent. b) If intent does not clearly appear1. If the thing is more valuable than money BARTER 2. If 50-50 SALE 3. If the thing is less valuable than the money SALE Note: In order to judge the intention, we must consider the contemporaneous and consequent acts of the parties. Art. 1469: In order that the price may be considered certain, it shall be sufficient that it be so with reference to another thing certain, or that the determination thereof be left to the judgment of a specified person or persons. Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the parties subsequently agree upon the price. If the third person or persons acted in bad faith or by mistake, the courts may fix the price. Where such third person or persons are prevented from fixing the price or terms by fault of the seller or the buyer, the party not in fault may have such remedies against the party in fault as are allowed the seller or the buyer as the case may be. COMMENT: 1) Certainty of the Price The price must be certain; otherwise there no true consent between the parties. There can be no sale without a price. Price fixed but later remitted is still valid. Failure to pay for the agreed price does not cancel sale for lack of consideration (price). Valid even if money paid is counterfeit.

2) When No Specific Amount is Stipulated If no specific amount has been agreed upon, the price is still considered certain: a) If it be certain with reference to another thing certain; b) If the determination of the price is left to the judgment of a specified person or persons; c) In the cases provided for under Art. 1472, Civil Code. 3) Illustrative Cases 4) Refusal of One Party to Go Ahead with an Agreed Appraisal If the buyer and seller agreed upon a sale and on determining the price by a joint appraisal, the sale is still valid even if the buyer later refuses to join the appraisal. The bad faith of the buyer holds him liable for true value of the object, which can be supported by competent evidence. Art. 1470: Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract. COMMENT: 1) Effect of Gross Inadequacy of Price a) In ordinary sale, the sale remains valid even if the price is very low except if there is vitiated consent. b) In execution of judicial sales While mere inadequacy of price will not set aside a judicial sale of a real property, still if the price is so inadequate as to shock the conscience of the Court, it will be set aside. 2) In Case Contract Was Really a Donation It is possible that a donation, not a sale, was really intended. In such a case, the parties may prove that the low price is sufficiently explained by the consideration of liberality.

Art. 1471: If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation or some other act or contract. COMMENT: 1) Simulated Price a) The price must not be fictitious. If the price is simulated then the sale is void. However it may be a valid donation or some other agreement provided that they have the essential requirements. b) A simulate price is fictitious. No price, no consideration then therefore contract is void. 2) Fictitious Sale Sale of a conjugal property is FICTITIOUS and therefore non-existent, the widow who has an interest in the property subject of the sale may be allowed to contest the sale, even BEFORE the liquidation of the conjugal partnership. Art. 1472: The price of securities, grain, liquids, and other things shall also be considered certain, when the price fixed is that which the thing sold would have on a definite day, or in particular exchange or market, or when an amount is fixed above or below the price on such day, or in such exchange or market, provided said amount be certain. COMMENT: 1) Certainty of Price of Securities e.g. Mont Blanc fountain pen = stock quotation of 100 shares of PLDT 2) If Stock Market Cannot be Ascertained The sale here is inefficacious. Note: The last clause in this article provided said amount be certain