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NATURE AND FORM OF CONTRACT

Q: Define the contract of sales.


A: By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to
deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A
contract of sale may be absolute or conditional. (Art. 1458, CC)

Q: Is an installment sale considered a contract to sell?

A: No. In an installment sale, it is considered a contract of sale and not contract to sell when the seller did not
reserve ownership until full payment. (2001 Bar)

Q: Distinguish contract of sale and contract to sell

A: Lim vs Hon. Court of Appeals, G.R. No. 85733, February 23, 1990

Contract of Sale Contract to Sell


Title passes to the buyer upon delivery of the thing Where by the agreement the ownership is reserved
sold. in the seller and is not to pass until the full payment
of the purchase price is made.
Non-payment of the price is a negative resolutory Full payment is a positive suspensive condition.
condition.
The vendor has lost and cannot recover the Title remains in the vendor if the vendee does not
ownership of the land sold until and unless the comply with the condition precedent of making
contract of sale is itself resolved and set aside. payment at the time specified in the contract.

Q: What is a simulated sale?

A: It is apparent from the admissions of respondents and the records of this case that Avelina had no intention
to transfer the ownership, of whatever extent, over the property to respondents. Hence, the Deed of Absolute
Sale is nothing more than a simulated contract. An absolutely simulated or fictitious contract is void. (Orosco,
v. Sps. Domingo, 2014) A relative simulation, when it does not prejudice a third person and is not intended for
any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their real
agreement. (Art. 1346, NCC)

Q: What is an option contract?

A: It is a contract granting a privilege to one person, for which he has paid a consideration separate and distinct
from the price, giving him the right to buy certain property at any time within the agreed period at a fixed price.
(Enriquez de la Cavada v. Diaz, G.R. No. L-11668, April 1, 1918)

Q: Is an option a separate contract from the contract which is the subject of the offer?

A: An option is a separate contract from the contract which is the subject of the offer and if not supported by
any consideration, the option contract is not deemed perfected. The option is a separate contract and if founded
on consideration is a perfected option contract and must be respected by the parties. (2005 Bar)

Q: Jackie, 16, inherited a townhouse. Because she wanted to study in an exclusive school, she sold her
townhouse by signing a Deed of Sale and turning over possession of the same to the buyer. When the
buyer discovered that she was still a minor, she promised to execute another Deed of Sale when she
turns eighteen (18). When Jackie turned twenty-five (25) and was already working, she wanted to annul
the sale and return the buyers money to recover her townhouse. Was the sale contract void, voidable
or valid? Can Jackie still recover the property? Explain.
A: The contract of sale is voidable. Where one of the parties is incapable of giving consent to a contract, the
contract is voidable. (Art. 1290, CC). Jackie was incapable of giving consent because of minority. Further, Jackie
had 4 years from the time she attained the age of majority to bring the action for annulment of the contract.
(Art. 1391, CC)

Q: Sara borrowed P50, 000.00 from Julia and orally promised to pay it within six (6) months. When Sara
tried to pay her debt on the eight (8th) month, Julia demanded the payment of interest of 12% per
annum because of Saras delay in payment. Sara paid her debt and the interest claimed by Julia. After
rethinking, Sara demanded back from Julia the amount she has paid as interest. Julia claims she has no
obligation to return the interest paid by Sara because it was a natural obligation which Sara voluntarily
performed and can no longer recover. Do you agree? Explain.

A: I do not agree with Julia. To be entitled to compensatory interest, the debtor must be in delay and as a rule,
no demand, no delay.

Q: Z, a gambler, wagered and lost Two Million pesos (P2,000,000.00) in baccarat, a card game. He was
pressured into signing a Deed of Absolutue Sale in favor of the winner covering a parcel of land with
improvements worth Twenty Million Pesos (P20,000,000.00). One month later, the supposed value of
the property demanded that he and his family vacate the property was subject of the deed of the sale.
Was the deed of sale valid? What can Z do? (Bar Question 2015)

A: The deed of sale is not valid because no action can be maintained by the winner for the collection of what he
has won in a game of chance. (Art. 2014, CC)

Q: Mr. and Mrs. Roman and Mr. and Mrs. Cruz filed an application for registration of a parcel of land
which after due proceedings was granted by the RTC acting as a land registration court. However,
before the decree of registration could be issued, the spouses Roman and the spouses Cruz sold the lot
to Juan. In the notarized deed of sale, the sellers expressly undertook to submit the deed of sale to the
land registration court so that the title to the property would be directly issued in Juans name. Is such
a stipulation valid? (Bar Question 2015)

A: The stipulation is valid because Section 22 of P.D. No. 1529 states that after the filing of the application and
before the issuance of the decree of registration, the land therein described may still be the subject of dealings
in whole or in part, in which case the interested party shall present to the court the pertinent instruments
together with a subdivision plan approved by the director of lands in case of transfer of portions thereof and
the court, after notice to the parties, shall order such land registered subject to the conveyance or encumbrance
created by said instrument, or order that the decree of registration be issued in the name of the person to whom
the property has been conveyed by said instruments.

Q: What are the requisites of price under a contract of sale?

A: The requisites are as follows:

(a) It must be real;


(b) In money or its equivalent;
(c) For valuable consideration;
(d) Certain or ascertainable at the time of the perfection; and
(e) Contract. (Art. 1469, CC)

Q: Mr. and Mrs. X migrated to the US with all their children. As they had no intention of coming back,
they offered their house and lot for sale to their neighbors, Mr and Mrs. A (the buyers) who agreed to
buy the property for 128 Million. Because Mr. and Mrs. A needed to obtain a loan from a bank first, and
since the sellers were in a hurry to migrate, the latter told the buyers that they could already occupy
the house, renovate it as it was already in a state of despair, and pay only when their loan is approved
and released. While waitying for the loan approval, the buyers spent P1 Million in repairing the house.
A month later, a person carrying an authenticated SPA from the sellers demanded that the buyers
either immediately pay for the property in full now or vacate it and pay damages for having made
improvements on the property without a sale having been perfected.

What are the buyers options or legal rights with respect to the expenses they incurred in improving
the property under the circumstances?

A: The sale was perfected because the spouses acquired ownership upon delivery. As owners, they have the
right to make improvements on the said properties, and to retain the same.

FORMATION OF CONTRACT OF SALE

Q: What are the stages involved in the formation of a contract of sale?

A: The stages involved are as follows:


a. Negotiation/Preparatory Offer/ Solicitation (Art. 1479, CC);
b. Perfection;
c. Consummation.

CAPACITY TO BUY OR SELL

Q: Who can be a party in a contract of sale?

A: All persons (natural/juridical) who have the capacity to enter into obligations may enter into a contract of
sale. (Art. 1489, CC)

Q: Can the husband and wife sell property with each other?

A: As a general rule they are prohibited from selling property with each other except:

(a) When a separation of property was agreed upon in the marriage settlements; or
(b) When there has been a judicial separation of property under Article 191. (Art. 1490, CC)

Q: Who are the persons that cannot acquire a property by purchase, even at a public or judicial auction,
either through in person or through the mediation of another?

A: 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 persons who may be under his guardianship;
(2) Agents, the property whose administration or sale may have been intrusted to them, unless the
consent of the principal has been given;
(3) Executors and administrators, the property of the estate under administration;
(4) Public officers 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
intrusted 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 officers 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 disqualified by law. (Art. 1491, CC)

EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN LOST

Q: What is the effect if at the time of the perfection of the contract of sales, the thing is entirely lost?

A: If at the time the contract of sale is perfected, the thing which is the object of the contract has been entirely
lost, the contract shall be without any effect. (Art. 1493, CC)

Q: What if the thing lost in part only?

A: But if the thing should have been lost in part only, the vendee may choose between withdrawing from the
contract and demanding the remaining part, paying its price in proportion to the total sum agreed upon.
(Ibid.)

Q: What will the buyer do if the goods without knowledge of the seller have perished in part or have
wholly or in a material part so deteriorated in quality as to be substantially changed in the character?

A: Where the parties purport a sale of specific goods, and the goods without the knowledge of the seller have
perished in part or have wholly or in a material part so deteriorated in quality as to be substantially changed
in character, the buyer may at his option treat the sale:
(1) As avoided; or
(2) As valid in all of the existing goods or in so much thereof as have not deteriorated, and as binding
the buyer to pay the agreed price for the goods in which the ownership will pass, if the sale was
divisible. (Art. 1494, CC)

OBLIGATIONS OF THE VENDOR


Q: What is the seller bound to do in a contract of sale?

A: The seller is bound to transfer the ownership and deliver, as well as warrant the thing which is the object of
the sale. (Art. 1495, CC)

Q: What should the seller deliver to the buyer?

A: The seller shall deliver the following:

(a) The things sold (Art. 1495, CC);


(b) Fruits, they belong to the buyer from the day the contract of sale is perfected (Arts. 1458-1459, CC);
(c) Accessions and accessories (Arts. 1166 & 1537, CC)

Q: What is the duty of the seller at the time of the perfection of the contract of sale?

A: Seller has the duty to preserve the thing and its accessions and accessories from the time of the perfection
of the contract of sale. (Ibid.)

Q: What are the consequences in case of loss or deterioration by the seller?

A: The seller is liable for damages or the buyer may seek rescission with damages, unless due to a fortuitous
event where the seller is not liable. (Ibid.)

Q: What is warranty?
A: It is an express or implied statement or representation made by the seller of goods, as part of the contract of
sale, having reference to the character, quality, or title, of the goods, where he promises or undertakes to insure
that certain facts shall be as he represents.

Q: What happens in cases of breach of warranty?

A: The buyer may refuse to proceed with the contract or proceed with the contract and waive the condition.
(Arts. 1545-1547, CC)

OBLIGATIONS OF THE VENDEE

Q: When can the buyer reject the goods delivered?

A: When the seller delivers goods lesser than agreed, the buyer may reject the goods delivered and the latter
shall have no liability. (Art. 1522, CC)

Q: What shall the buyer do when the seller delivers goods greater than that agreed?

A: The buyer may accept only the goods included in the contract and reject the excess or the buyer may accept
the entire goods and pay for them at the contract rate. (Ibid.)

Q: What shall the buyer do when the seller delivers mixed goods of different description not included
in the contract?

A: The buyer may accept some or those acceptable and reject the rest. (Ibid.)

Q: What shall the buyer do when the subject matter is indivisible?

A: The buyer may reject the goods. (Ibid.)

BREACH OF CONTRACT
Q: When is a seller liable for breach of contract?

A: If the seller cannot transfer ownership over the thing sold at the time of delivery because he was not the
owner thereof, he shall be liable for breach of contract. (2003 Bar)

Q: What is breach of contract?

A: It is a failure without legal reason to comply with the terms of contract, to perform any promise which forms
the whole or part of the contract. (Cathay Pacific Airways, Ltd. vs. Vasquez, G.R. No. 150843, March 14, 2003)

Q: What is the remedy of the injured party in case of such breach?

A: The injured party may choose between the following remedies in addition to damages:

(a) Fulfillment; and


(b) Rescission of the obligation. (Arti. 1191, CC)

Q: If fulfillment of the obligation becomes impossible, what is the remedy of the injured party?

A: The injured party may also seek rescission even after he has chosen fulfillment, if the latter should become
impossible. (Ibid.)

Q: Is rescission of contract proper for slight or casual breach?


A: The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only
for substantial and fundamental breach as would defeat the very object of the parties in executing the
agreement. The question of whether a breach of contract is substantial depends upon the attendant
circumstances. (Vermen Realty vs. CA, G.R. No. 101762, July 6, 1993)

EXTINGUISHMENT OF SALE

Q: How is sale extinguished?

A: Sale is extinguished by the same causes as all other obligations. (Art. 1600, CC) It may be through any of the
following:

a. Payment of the performance;


b. Loss of the thing due;
c. Condonation or remission;
d. Confusion or merger of rights;
e. Compensation;
f. Novation;
g. Annulment;
h. Rescission;
i. Fulfillment of a resolutory condition;
j. Prescription; (Art. 1231, CC)
k. Conventional redemption; (Art. 1600, CC)
l. Legal redemption. (Ibid.)

ASSIGNMENT OF CREDITS

Q: Is transfer and delivery implied under a contract of sale?

A: Yes. Obligation to transfer ownership and to deliver is implied in every contract of sale. (Arts. 1458-1459, CC)

Q: When is ownership of the thing sold transferred to the buyer or vendee?

A: Ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery
thereof. (Art. 1477, CC)

Q: Are there exceptions to this?

A: Yes. They are as follows:

(a) Contrary stipulation (Art. 1478, CC);


(b) Contract to sell;
(c) Contract of insurance;
(d) Sale on acceptance/trial (Art. 1502, CC);
(e) When the seller is not the owner or has voidable title (Article 1505, CC).

THE CONDOMINIUM ACT/RECTO LAW/MACEDA LAW (R.A. NO. 4726)

Q: Can condominium units be conveyed or transferred to persons other than Filipino citizens?

A: Yes. Under Sec. 5, R.A. 4726, no condominium unit shall be conveyed or transferred to persons other than
Filipino citizens, or Corporations at least 60% of the capital stock of which belong to a Filipino citizens.

Q: Is there an exception to this rule?

A: Yes. It is through hereditary succession. (Ibid.)


Q: What is the limit of an alien shareholder for common areas in a condominium project?

A: For common areas in condominium project held by a corporation, the 40 % limit of alien shareholder
ownership shall apply. (Ibid.)

Q: What is Recto Law?

A: It covers contracts of sale of personal property by installments. It is also applied to contracts purporting to
be leases of personal property with option to buy, when the lessor has deprived the lessee of the possession of
enjoyment of a thing. (PCI vs. Giraffe-X, G.R. No. 142618, July 12, 2007)

Q: What is the Maceda Law?

A: It is the real estate equivalent of the Recto Law. It doesnt apply to sales of (a) Industrial lots; (b) Commercial
buildings and lots; and (c) Lands under the CARP Law.

Q: Differentiate Recto Law from Maceda Law

A:

RECTO LAW MACEDA LAW


Source Civil Code as amended by Act Republic Act. 655
4122
Scope Covers installment sales of Governs installment sales of real
personal property. property.

Purpose Prevent abuses in the foreclosure Prevent abuses in the foreclosure


of chattel mortgage. of real estate mortgage.

When do you foreclose? Seller can choose among the 3 The law do not apply on sale of:
remedies in case buyer defaults: 1. Industrial lots
2. Commercial buildings and lots
1. Specific Performance: Exact 3. Lands under the CARP Law
fulfilment should the buyer fail to
pay To qualify for the benefit of the
law, the buyer must
2. Rescission: Cancel the sale if have already paid at least 2 years
buyer fails to pay 2 or more of installment payments.
instalments.
Benefits for Buyer:
3. Foreclosure: if buyer fails to pay
2 or more instalments. If seller 1. A grace period of one month to
choose foreclosure, he is bar to pay installment; for every one
recovery balance if any. year of instalments paid; or

The remedies are alternative, not 2. The buyer has the right to opt
cumulative, such that the exercise for a refund of the
of one would bar the exercise of installment payments being made
the others. (includes the
down payments, deposits or
options on the
contract). The buyer is entitled to
50% refund from
his total payments made. After 5
years of
instalment payments, buyer is
entitled to an
additional 5% refund per year on
top of the 50% but not exceeding
90% of the total payments made.

*If buyer has paid less than two


years installment,
he is still entitled to 2 months
grace period.

Q: Distinguish commission agent and guarantee commission.

A:

Commission Agent Guarantee Commission


Is a type of agent which earns a commission Otherwise referred to as del crede, is a fee that is
or a percentage from the sale of the product given in return for the risk which the agent has to
or services of the principal that is consigned bear in the collection of credits. Article 1907. Should
to him. He shall be responsible for the goods the commission agent receive on a sale, in addition
received by him in the terms and conditions to the ordinary commission,
and as described in the consignment, unless another called a guarantee commission, he shall
otherwise agreed upon in writing. (Article bear the risk of collection and shall pay the principal
1903) The commission agent cannot, without the proceeds of the sale on the same terms agreed
the express or implied consent of the upon with the purchaser.
principal, sell on credit.

THE SUBDIVISION AND CONDOMINIUM BUYERS PROTECTIVE DECREE (P.D. No. 957)

Q: What is the primary purpose of P.D. 957?

A: The primary purpose of this decree is to protect the buyers of condominium projects and subdivision
developments against misrepresentations and fraudulent activities of developers, sellers and operators.

Q: How is Sale or Sell defined under this Decree?

A: "Sale" or "sell" shall include every disposition, or attempt to dispose, for a valuable consideration, of a
subdivision lot, including the building and other improvements thereof, if any, in a subdivision project or a
condominium unit in a condominium project. "Sale" and "sell" shall also include a contract to sell, a contract of
purchase and sale, an exchange, an attempt to sell, an option of sale or purchase, a solicitation of a sale, or an
offer to sell, directly or by an agent, or by a circular, letter, advertisement or otherwise.

A privilege given to a member of a cooperative, corporation, partnership, or any association and/or the
issuance of a certificate or receipt evidencing or giving the right of participation in, or right to, any land in
consideration of payment of the membership fee or dues, shall be deemed a sale within the meaning of this
definition. (Sec. 2. P.D. No. 957)

Q: What can the buyer do in case of delay in the delivery of the project under this decree?

A: In case of delay in the delivery of the project, the buyer may:

(a) Desist from further payment of installment after due notice to the developer; and
(b) Choose to be reimbursed with the total amount paid including amortization interests but excluding
delinquency interests, with interests thereon at the legal rate. (Sec. 23. P.D. 957)