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Civil Law Review Sales and Leases

1. A. Essential elements are those without which the sale cannot be valid, These are: 1. Consent or meeting of the minds, i.e., consent to transfer ownership in exchange for the price. - This refers to the consent on the part of the seller to transfer and deliver and on the part of the buyer to pay. 2. Determinate subject matter (generally, there is no sale of generic thing; moreover, if the parties differ as to the object, there can be no meeting of the minds). - The thing must be determinate or at least capable of being made determinate because if the seller and the buyer differ in regard to the thing sold, there is no meeting of the minds 3. Price certain in money or its equivalent (this is the cause or consideration). B. Natural elements are those which are inherent in the contract, and which in the absence of any contrary provision, are deemed to exist in the contract. These include: 1. warranty against eviction (deprivation of the property bought) 2. warranty against hidden defects C. Accidental elements are those which may be present or absent in the stipulation, such as the place or time of payment, or the presence of conditions 2. Essential Characteristics of the Contract of Sale include: 1. Consensual (as distinguished from real), because the contract is perfected by mere consent. 2. Bilateral reciprocal, because both parties are bound by obligations dependent upon each other. 3. Onerous, because to acquire the rights, valuable consideration must be given. 4. Commutative, as a rule, because the values exchanged are almost equivalent to each other. 5. Principal (as distinguished from an accessory contract), because for the contract of sale to validly exist, there is no necessity for it to depend upon the existence of another valid contract. (Examples of accessory contracts are those of pledge and mortgage.) 6. Nominate (as distinguished from an innominate contract) because the Code refers to it by a special designation or name, i.e., the contract of sale. 3. Distinctions between Contract of Sale and Contract to Sell. 1. As to Transfer of title. In a contract of sale, title passes to the buyer upon delivery of the thing sold, while in a contract to sell (or of exclusive right and privilege to purchase), where it is stipulated that ownership in the thing shall not pass to the purchaser until he has fully paid the price, ownership is reserved in the seller and is not to pass until the full payment of the purchase price. In the absence of such stipulation, especially where the buyer took possession of the property upon execution of the contract, indicates that what the parties contemplated is a contract of absolute sale. 2. As to Payment of price. In a contract of sale, non-payment of the price is a negative resolutory condition, and the remedy of the seller is to exact fulfillment or to rescind the contract, while in Contract to Sell, full payment is a positive suspensive condition, the failure of which is not a breach, casual or serious, of the contract but simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. 3. As to Ownership of vendor. In a contract of sale, the vendor has lost and cannot recover the ownership of the thing sold and delivered, actually or constructively, until and unless the contract of sale itself is resolved and set aside. In Contract to Sell, however, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract. 4. Emptio Rei Sperati is the the sale of an expected thing while Emptio Spei is the sale of the hope itself. If the expected thing in Emptio rei sperati does not materialize, the sale is not effective. In the second, it does not matter whether the expected thing materialized or not; what

is important is that the hope itself validly existed. The first deals with a future thing that which is expected; the second deals with a present thing for certainly the hope or expectancy already exists. 5. 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. Future goods are those still to be: (a) manufactured (like a future airplane) (b) raised (like the young of animals, whether already conceived or not at the time of perfection of the contract) (c) acquired by seller after the perfection of the contract (like land which the seller expects to buy) (d) things whose acquisition depends upon a contingency which may or may not happen. 6. It is a contract for a piece of work if the goods are to be manufactured especially for the customer and upon his special order, and not for the general market. By the contract for a piece of work the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. The contractor may either employ his labor or skill, or also furnish the material. 7. Sale may be distinguished from an agency to sell, as follows: (1) In a sale, the buyer receives the goods as owner; in an agency to sell, the agent receives the goods as the goods of the principal who retains his ownership over them and has the right to fix the price and the terms of the sale and receive the proceeds less the agents commission upon the sales made; (2) In a sale, the buyer has to pay the price; in an agency to sell, the agent has simply to account for the proceeds of the sale he may make on the principals behalf; (3) In a sale, the buyer, as a general rule, cannot return the object sold; in an agency to sell, the agent can return the object in case he is unable to sell the same to a third person; (4) In a sale, the seller warrants the thing sold; in an agency to sell, the agent makes no warranty for which he assumes personal liability as long as he acts within his authority and in the name of the seller; and (5) In a sale, the buyer can deal with the thing sold as he pleases being the owner; in an agency to sell, the agent in dealing with the thing received, must act and is bound according to the instructions of his principal 8. If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be characterized by the manifest intention of the parties. 9. 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. 10. In a right of first refusal, while the object might be made determinate, the exercise of the right would be dependent not only on the grantors eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that are yet to be firmed up. In order to have full compliance with the contractual right granting the lessee first option to purchase, the sale of the properties for the price for which they are finally sold to a third person should have likewise been first offered to the lessee. Further, there should be identity of terms and conditions to be offered to the buyer holding a right of first refusal if such right is not to be rendered illusory. Lastly, the basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of any prospective buyer. Simply stated, that should the lessor decide to sell the leased property during the term of the lease, such sale should first be offered to the lessee.

11. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: (1) The guardian, the property of the person or per- sons who may be under his guardianship; (2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given; (3) Executors and administrators, the property of the estate under administration; (4) Public ofcers and employees, the property of the State or of any subdivision thereof, or of any government- owned or controlled corporation or institution, the administration of which has been entrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale; (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other ofcers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession; (6) Any others specially disqualied by law. 12. Obligations of Vendor: (a) to transfer ownership (cannot be waived) (b) to deliver (cannot be waived) (c) to warrant the object sold (this can be waived or modied since warranty is not an essential element of the contract of sale) (d) to preserve the thing from perfection to delivery, other- wise he can be held liable for damages. The vendee is bound to accept delivery and to pay the price of the thing sold at the time and place stipulated in the contract. If the time and place should not have been stipulated, the payments must be made at the time and place of the delivery of the thing sold. 13. Kinds of Delivery or Tradition: (a) Actual or real. (b) Legal or constructive 1) legal formalities 2) symbolical tradition or traditio simbolica (such as the delivery of the key of the place where the movable sold is being kept). 3) traditio longa manu (by mere consent or agreement) if the movable sold cannot yet be transferred to the possession of the buyer at the time of the sale 4) traditio brevi manu (if the buyer had already the possession of the object even before the purchase, as when the tenant of a car buys the car, that is, his possession as an owner). 5) traditio constitutum possessorium (opposite of traditio brevi manu) possession as owner changed, for example, to possession as a lessee. (c) Quasi-tradition delivery of rights, credits, or incorporeal property, made by: 1) placing titles of ownership in the hands of a lawyer; 2) or allowing the buyer to make use of the rights. 14. Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the cases provided for in Article 1503, rst, second and third paragraphs or unless a contrary intent appears. Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable, having regard to the nature of the goods and the other circumstances of the case. If the seller omits so to do, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself, or may hold the seller responsible in damages.

Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances in which the seller knows or ought to know that it is usual to insure, the seller must give such notice to the buyer as may enable him to insure them during their transit, and, if the seller fails to do so, the goods shall be deemed to be at his risk during such transit. 15. Kinds of Delivery to Carrier: (a) C.I.F. (cost, insurance, freight) (Since the selling price includes insurance and freight, it is understood that said insurance and freight should now be paid by the seller.) (b) F.O.B. (free on board) - The sale may be: 1) f.o.b. at the place of shipment (here, the buyer must pay the freight). 2) f.o.b. alongside (the vessel) (here, also from the moment the goods are brought alongside the vessel, the buyer must pay for the freight or expenses). 3) f.o.b. at the place of destination (here, the seller must pay the freight, since the contract states free on board till destination 16. A Cuerpo Cierto is a sale for a lump sum. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price, although there be a greater or less area or number than that stated in the contract. 17. The warranty in case of eviction is a natural element in the contract of sale; hence, the vendor answers for eviction even if the contract be silent on this point. Essential Elements for Eviction: (a) There is a nal judgment; (b) The purchaser has been deprived in whole or in part of the thing sold; (c) The deprivation was by virtue of a right prior to the sale (or one imputable to the seller) effected by the seller; (d) The vendor has been previously notied of the complaint for eviction at the instance of the purchaser. 18. Where the seller has broken a contract to deliver specic or ascertained goods, a court may, on the application of the buyer, direct that the contract shall be performed specically, without giving the seller the option of retaining the goods on payment of damages. The judgment or decree may be unconditional, or upon such terms and conditions as to damages, payment of the price and otherwise, as the court may deem just. Where there is a breach of warranty by the seller, the buyer may, at his election: (1) Accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment in diminution or extinction of the price; (2) Accept or keep the goods and maintain an action against the seller for damages for the breach of warranty; (3) Refuse to accept the goods, and maintain an action against the seller for damages for the breach of warranty; (4) Rescind the contract of sale and refuse to receive the goods or if the goods have already been received, return them or offer to return them to the seller and recover the price or any part thereof which has been paid. (5) In the case of breach of warranty of quality, such loss, in the absence of special circumstances showing proximate damage of a greater amount, is the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty. 19. Article 1484 of the Civil Code provides for the remedies of a seller in contracts of sale of personal property by installments, and incorporates the provisions of Act No. 4122, known as the Installment Sales Law or the Recto Law, which then amended Article 1454 of the Civil Code of 1889.

Rationale: the object of Recto Law was to remedy the abuses committed in connection with the foreclosure of chattel mortgages and was meant to prevent mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency judgment. Requisites: (a) there must be a contract (b) the contract must be one of sale (absolute sale, not a pacto de retro transaction, where redemption is effected in installments) (c) what is sold is personal property (d) the sale must be on the installment plan (an installment is any part or portion of the buying price, including the down payment) Under Article 1484 of the New Civil Code, in a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following Remedies: 1. Exact fulfillment of the obligation, should the buyer fail to pay any installment; 2. Cancel the sale, should the buyers failure to pay cover two or more installments; 3. Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the buyers failure to pay cover two or more installments. The remedies have been recognized as alternative, not cumulative, in that the exercise of one would also bar the exercise of the others. They cannot also be pursued simultaneously. If the seller should foreclose on the mortgage constituted on the thing sold, 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. The provisions of Recto Law are applicable to financing transactions derived or arising from sales of movables on installments, even if the underlying contract at issue is a loan because the promissory note has been assigned or negotiated by the original seller. 20. The Recto Law will not apply to a straight sale (i.e. a sale where there is a down payment and the balance is payable in the future in a single payment only.) The seller can also assign his credit to another person, making that person the new creditor. 21. The Maceda Law, RA 6552, is the real estate equivalent of the Recto Law. Like the Recto Law, it also covers financing of sales of real property (which is why mortgages also come in.) It doesn't apply, however, to the following sales: 1. Industrial lots 2. Commercial buildings and lots 3. Lands under the CARP Law Depending on when the buyer defaults, there are two (2) possible scenarios: if the buyer paid at least two (2) years' installments and if the buyer paid less than 2 years' installments. If the buyer paid less than 2 years' installments and defaults, he is given a grace period of sixty (60) days starting from the date of his last installment to resume paying. This period can be increased by the seller. If after the grace period the buyer still can't pay, the seller must make a notarial demand to cancel the sale. The cancellation becomes effective thirty (30) days after the buyer was notified. So it's possible that the buyer could be notified two months after the 60day period and then the 30-day period will begin. If the buyer paid at least two years' installments, the buyer can pay the unpaid balance without interest. The grace period is computed at one (1) month per year of installment payments. It also begins from the time the buyer paid his last installment. The grace period can be used only once every five (5) years of the sales contract's life -including its extensions. So it's possible to have a grace period of a year if the buyer had been paying his installments faithfully for 12 years. Once the buyer chooses to use the grace period, he can't get it again until another five years are over.

If the seller wants to cancel the sale, he has to refund the buyer of 50% of the actual payments. If the buyer paid more than five years' installments another 5% for every year is to be added to the refund, but only up to 90% of the total payments made. The payments mentioned here include the down payment, options and deposits. The refund is made in this way: if the buyer paid more 2 to 5 years' installments, he can get back 50% of the cash surrender value. If he paid for more than 5 years, he can get the 50% plus 5% per year up to 90%. The buyer is also allowed to make advanced payments, or even the full price, without interest. He can also assign his rights to another person, making that person the new buyer, but he can only do that with a notarial deed of sale assignment. 22. Maceda Law is not applicable to cases where financing is through bank or Pag-Ibig which is normally the case because the buyer is now transacting with the bank or financial institution and not with the seller. 23. The essential requisites of equitable mortgage are: 1. Parties entered into a contract of sale 2. Their intention was to secure an existing debt by way of a mortgage. 24. Lease is a consensual, bilateral, onerous, and commutative contract by which one person binds himself to grant temporarily the use of a thing or the rendering of some service to another who undertakes to pay some rent, compensation, or price. 25. Characteristics or Requisites for Lease of Things: a) It is consensual (there must be a meeting of the minds). (b) It is a principal contract (not dependent on any other contract). (c) It is nominate (for it is known by a specic name). (d) Purpose is to allow enjoyment or use of a thing (the person to enjoy is the lessee; the person allowing the enjoyment by another is the lessor). (e) The subject matter must be within the commerce of man (hence, there can be no valid lease of properties of public dominion such as roads or plazas). (f) The purpose to which the thing will be devoted should not be immoral (hence, if the intent is to use the house for purposes of harlotry, or narcotics, the contract is void if such use is provided for in the contract; if not so pro- vided for, but the purpose is subsequently made evident, the lessor can put an end to the contract, since clearly an act of immorality cannot be allowed under the law). (g) The contract is onerous (there must be rent or a price certain). 1) The rent must not be ctitious or nominal; other- wise, there is a possibility that the contract is one of commodatum (which is essentially gratuitous). 2) The rent must be capable of determination (since the law says price certain). 3) The rent may be in form of products, fruits, construction the important thing is that what is given should have VALUE. (h) The period is temporary (not perpetual; hence, the longest period is 99 years). (i) The period is either denite or indenite. (j) The lessor need not be the owner (since after all, ownership is not being transferred).