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Chapter 1 - NATURE AND FORM OF THE CONTRACT

1. Contract of Sale. It is a contract whereby one of the contracting parties (called the seller r vendor) obligates himself to transfer the ownership and to deliver a determinate thing, and the other (called the buyer or purchaser or vendee) to pay therefore a price certain in money or its equivalent. (Art. 1458) 2. Two kinds of contract of sale. i. Absolute. If the contract of sale is not subject to any condition and title or ownership passes to the buyer upon delivery of the thing sold. ii. Conditional. If the contract of sale contemplates a contingency, and in general, where the contract is subject to certain conditions. The delivery of the thing sold does not transfer ownership until the condition is fulfilled 3. Characteristics of a Contract of sale iii. Consensual - perfected by mere consent iv. Bilateral - the parties are bound by reciprocal obligations v. Onerous - valuable considerations are given by both parties to acquire rights vi. Commutative - the parties exchange almost equivalent values vii. Nominate - it has a special name given to it by law viii. Principal - it can exist by itself without being dependent upon another contract 4. Essential requisites of a contract of sales a. Consent (or meeting of the minds). This refers to the consent on the part of the seller to transfer and deliver, and on the part of the buyer to pay. b. Object or subject matter. This refers to the determinate thing which is the object of the contract. c. Cause or Consideration (Price). This refers to price certain in money or its equivalent such as check or a promissory note. 5. Requisites in order that a thing may be the object of a contract of sale: a. The thing must be determinate or at least capable of being determinate. b. The thing must be licit or lawful. (Art. 1459) c. The thing must not be impossible. d. The thing must be within the commerce of men. e. The vendor must have a right to transfer ownership of the thing at the time it is delivered. (Art. 1459) 6. Goods which may be the object of contract of sale: a. Existing goods owned or possessed by the seller. b. Future goods or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale. There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen. (Art. 1462) Things having a potential existence may be the object of the contract of sale. The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. The sale of a vain hope or expectancy is void. (Art. 1461) Emptio rei sperati Emptio spei Sale of an expected thing Sale of the hope itself If the expected thing does not materialize the It does not matter whether the expected sale is not effective. materialized or not; what is important is that the hope itself validly existed. Refers to future thing that which is expected Refers to present thing - for certainly the hope or expectancy already exists 7. When is a thing determinate. A thing is determinate when it is particularly designated or physical segregated from all other of the same class. The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties. (Art. 1460) 8. The sole owner of a thing may sell an undivided interest therein. (Art. 1463). The legal effect of the sale of an undivided interest in a thing is to make the buyer a co-owner in the thing sold. As such co-owner, he acquires full ownership of his part and he may, therefore, sell it. 9. Sale of fungible goods.

Chapter 1 (Nature and Form of Contracts)

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Fungible goods - are goods of which any unit, from its nature or by commercial usage, is regarded as the equivalent of any other such unit such as oil, grain, etc. a. If the quantity, i.e., the number, weight or measure, of the mass is more than the quantity sold, the parties shall become co-owners of the mass. (Art. 1464) b. If the quantity of the mass is less than the quantity sold, the buyer becomes the owner of the whole mass, with the seller being bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent appears. (Art. 1464) 10. Things subject to a resolutory condition may be the object of the contract of sale. ( Art. 1465) Example: S (vendor a retro) sold a parcel of land to B (vendee a retro) subject to the condition that S can repurchase the property within two years from the date of sale. If S exercises the right to repurchase, then the sale made by B to C before the lapse of the 2-year period falls. 11. Sale distinguished from agency to sell. Contract of sale Buyer pay the price Buyer becomes the owner after delivery Buyer cannot return the object sold There is warranty by the seller Agency to sell Agent remit the price to his principal Agent does not become the owner after delivery to him Agent can return the object in case he is unable to sell it No warranty by the agent

12. Sale distinguished from contract for a piece of work. A contract for the delivery at a certain price of an article which the vendor in the 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 and upon his special order, and not for the general market, it is a contract for a piece of work. (Art. 1467) Contract of sale Piece of work Ordinary course of business Not ordinary course of business Produce for the general market Manufactured specially Risk of loss before delivery is borne by the Risk of loss before delivery is borne by the buyer worker or contractor, not by person who ordered Covered by statute of fraud if the sale of Not covered by statute of fraud provided it personal property is P500 or more or sale of will be performed within one year. real property regardless of amount. 13. Rule if the consideration of the contract consists partly in money, and partly in another thing. a. Manifest intention of the parties. b. If such intention does not clearly appear, i. Barter if value of the thing is less than the money paid ii. Sale if value of the thing is equal to or more than the money paid. (Art. 1468) 14. When price is considered certain. a. Specific amount agreed upon b. If there is no specific amount agreed upon i. Certainty with reference to another thing certain ii. Determination of price was left to the judgment of third person. 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. (Art. 1469) 15. Effect of gross inadequacy of price in a contract of sales General rule: Gross inadequacy of price does not affect a contract of sale. Exception: a. If the gross inadequacy may indicate a defect in the consent. Contract may be annulled not because of inadequacy of price but of vitiated consent. (Art. 1470)
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b. 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. (Art. 1471) c. If the parties really do not intend to be bound at all. The contract is void and inexistent 16. The fixing of the price can never be left to the discretion of one of the contracting parties. However, if the price fixed by one of the parties is accepted by the other, the sale is perfected. (Art. 1473) 17. Effect of failure to determine the price. a. Where contract executory. If the price cannot be determined in any other manner, the contract is inefficacious or without effect. b. Where delivery has been made. The buyer must pay a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. (Art. 1474) 18. Perfection of a contract of sale. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. (Art. 1475) a. Parties are face to face - offer must be certain and acceptance be absolute. Qualified acceptance constitute counter offer. b. Negotiated thru phone - As if the parties are face to face. c. Correspondence or thru telegram - Offeror receives or has knowledge of the acceptance by the offeree. d. Subject to suspensive condition - Condition is fulfilled 19. Rules governing auction sales. a. Sales of separate lots by auction are separate sales. b. Sale perfected by the fall of the hammer. c. The seller or his agent may bid in an auction sale provided i. Such right was reserved ii. Notice was given that the sale is subject to a right to bid on behalf of the seller iii. The right to bid by the seller is not prohibited by law or stipulation Where notice has not been given that a sale by auction is subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ or induce any person to bid at such sale on his behalf or for the auctioneer, to employ or induce any person to bid at such sale on behalf of the seller or knowingly to take any bid from the seller or any person employed by him. Any sale contravening this rule may be treated as fraudulent by the buyer. (Art. 1476) 20. When ownership of the thing sold transferred to the vendee. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. (Art. 1477) However, the parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price. (Art. 1478) 21. Kinds of promise to buy and/or sell (Art. 1479) a. Bilateral promise - this takes place when one party promises to buy and the other party promises to sell a determinate thing at an agreed price. This is reciprocally demandable since this is as good as a perfected contract of sale. b. Unilateral promise - the promise to buy or to sell a determinate thing at a certain price is made by only one of the parties. The promise may be accepted or not and shall have the following effects i. If not accepted by the promissee (policitacion) - this does not produce any legal effect. ii. If accepted by the promissee, the promise is binding upon the promissory if it is supported by a consideration distinct from the price 22. Risk of loss or deterioration (Art. 1480) a. Fungible and non fungible things sold independently and for a single price, or without consideration of their weight, number, or measure. i. Lost before perfection - Seller (Res perit domino) ii. Lost at the time of perfection - Seller (Res perit domino) iii. After perfection but before delivery - Buyer (exception to Res perit domino) iv. After delivery - Buyer (Res perit domino) b. Fungible things be sold for a price fixed according to weight, number, or measure. General rule: Vendor shall suffer (Exception to the rule that vendee shall suffer the risk of loss after perfection but after delivery)
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Exception: When the goods have been weighed, counted, or measured and delivered, unless the latter has incurred in delay. 23. Sale of good by description and/or sample a. Sample or Description - the contract may be rescinded if the bulk of the goods delivered do not correspond with the description or the sample. b. Sample and description - the bulk of goods must correspond with the sample and the description. The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample. (n) 24. Earnest money and option money distinguished Earnest money Option money Part of the purchase price Not part of the purchase price It is given only when there is already a sale It applies to sale not yet perfected When earnest money is given, the buyer is When the would-be buyer gives the option bound to pay the balance money, he is not required to buy 25. Forms of contract of sale General rule - 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. (Art. 1483) Exception: a. Contract covered by statute of fraud 1. Sale of property not to be performed within a year from the making thereof; 2. Sale of real property or of an interest therein regardless of the price; 3. Sale of personal property at a price not less than five hundred pesos (P500) b. Contract where form is required for validity Example: Sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing. (Art. 1874) c. Where form is required only for the convenience of the parties 26. Remedies of the vendor in sale of personal property in installments. a. Exact fulfillment of the obligation, should the vendee fail to pay; b. Cancel the sale, if the vendees failure to pay cover two or more installments; c. Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendees failure cover two or more installments. In this case, the vendor may 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. 1484)

Chapter 1 (Nature and Form of Contracts)

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