Contract of Sale

March 4, 2016law on sales

What is a contract of sale?

According to Art. 1458 of the New Civil Code, it is defined as:

Article 1458. 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.

*It is an agreement between two parties whereby one, who is the seller or vendor, obligates himself to
deliver something to the other party who is the buyer or vendee who is bound to pay a sum of money or
its equivalent.

What are the essential elements of a contract of sale?

In general, the rules governing a simple contract also apply to a contract of sale. The following must be
present:

Consent or meeting of the minds wherein 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 thereof. This is
when the seller agrees to deliver the thing subject of the contract and the buyer, the price thereof. The
essence of this is that the parties agree to the terms of the contract which will bind them.

Object or subject matter or the determinate thing, as what the law referred to which the seller is bound
to deliver and the buyer is bound to receive upon payment of its sum.

Cause or consideration or the price certain in money or its equivalent which does not include goods or
merchandise although they have their own value in money. Its equivalent may mean any goods given as
the token of payment and where these are assessed and evaluated as its price equivalent. The price
however must not be fictitious or else it would be void.

What are the characteristics of a contract of sale?

Consensual because it can be perfected by the mere giving of consent and meeting of the minds of the
parties;

Bilateral because both of the parties are bound to fulfil correlative obligations such as the seller is to
deliver the thing which is the subject of the contract and the buyer, to pay the price;

Onerous because the thing sold is conveyed in exchange for the purchase price and the price is in
consideration of the thing sold;

Nominate because it is given a name in the Civil Code

Principal because it does not require the existence of another contract for it to be valid and existing.

What are the types of Sales Agreement?

Absolute Sale- one wherein there is no condition whatever and imposes upon the vendor the obligation
to deliver the real estate, subject matter of the agreement to the vendee who upon the receipt of the
property hands over and pays the purchase price that has been previously agreed upon with the vendor.

The Deed of Absolute Sale where both parties agree on and accept the real estate to be or being
conveyed and price therefore that the vendee should pay for it. This transaction is the most common
where the title of the real estate, subject sale, is free from and clear of any alien or encumbrance
whatever. No other condition is necessary except the actual delivery and transfer of the property to the
vendee without delay. The deed will then be registered to the proper Registry of Deeds as required by
the Torrens Registration Law.

Sale in Exchange or Barter where the real properties is subject to the transaction is deeded in exchange
of and for another real property that is acceptable to the vendor without any additional monetary
consideration. It is essential in the transaction that the title of both properties in the exchange is valid
and unencumbered or free from any liens or encumbrances of any nature.

Conditional Sale-This is an agreement to sell or buy real estate with certain conditions that must be
accomplished by either or both the parties so as to extinguish and or create ownership over the subject
property. This is merely an executory contract in contemplation of the law and the right of ownership is
withheld for the meantime. In other words, the certificate of title of the real property is not turned over
to the vendee until and after certain conditions have been accomplished by either or both the parties.
Then it becomes an executed contract.

It may be:

Sale on installments- commonly adopted for the sale of lots in a land subdivision or units in a
condominium or townhouse project. Its principal feature is that the purchase price is fixed at a certain
amount that shall be paid in equal monthly or yearly installments for a period of five or ten years.

Contract to Sell- This is similar to sale on installments except that the period allowed for the final
payment of the purchase price is much shorter in duration.

Pacto de Retro- The sale in which the vendor is granted the right to repurchase the property sold on a
certain date fixed in the Contract. This is done by returning to the vendee the entire purchase price
including the expenses for the preparation of the contract and the necessary and useful expenses on the
property sold. This is termed as conventional redemption under Article 1691 of the New Civil Code.

There are other forms of Conditional Sale where ownership and possession of subject property are
transferred to the vendee upon execution of the contract such as:

Sale with mortgage- A portion of the purchase price is initially paid by the vendee and the vendor
delivers possession and ownership of subject property tot eh vendor who, thereafter, execute a Deed of
Mortgage on the same property in favor of the vendor to guarantee payment in full of the balance of
the purchase price.

Sale with assumption of mortgage- The Vendor pays in cash a portion of subject property to the vendee
who assumes the payment of the existing mortgage on the property that represents the balance of the
purchase price.

Dacion en Pago- This is an agreement where the encumbered property of the vendor is sold by the latter
to his creditor or mortgagee as vendee to satisfy or in payment of his existing loan and other charges.

What is the difference between a contract to sell and a conditional sale?

Transfer of title– In a contract to sell, the title does not automatically pass to the buyer upon payment of
the price, a contract of absolute sale still has to be entered into by the parties.

In a conditional sale, the sale will be deemed fulfilled upon the happening of the condition which may or
may not occur. If the condition do not happen then the contract of sale will be abated.

Sale of property to a third person– In a contract to sell, a third person not an immediate party to the
contract cannot be considered a buyer in good faith despite payment of the price and the prospective
buyer cannot recover the property. This in effect will cause defect in the title of the buyer.

In a conditional sale, upon the happening of the suspensive condition, the title of the seller or ownership
to the thing sold will automatically transfer to the buyer and will bar the seller to transfer it to any other
person. In this case, the first buyer may seek reconveyance of the property since the second buyer will
be deemed a buyer in bad faith and will have a defect in his title.

Parties to a Contract of Sale

Who has the capacity to capacity to buy or to sell?

In general all persons who may enter into a simple contract may also enter into a contract of sale. All
persons either natural or juridical is given the legal capacity to buy and sell. However there are those
given by law an absolute and relative incapacity to enter into a contract of sale.

Art. 1489. All persons who are authorized in this Code to obligate themselves, may enter into a contract
of sale, saving the modifications contained in the following articles.

Where necessaries are those sold and delivered to a minor or other person without capacity to act, he
must pay a reasonable price therefor. Necessaries are those referred to in Article 290. (1457a)

*This provision of the New Civil Code mentioned about necessaries which is defined in Art. 194 of the
Family Code as everything indispensable for sustenance, dwelling, clothing, medical, attendance,
education, and transportation.

Kinds of Incapacity:
Absolute incapacity

Relative incapacity

Specific incapacity

Who are those with absolute incapacity according to the law?

Those that are considered absolutely incapable of entering into a contract of sale are those that cannot
bind themselves because of reasons for example like age, defect intellect and mental capacity.

Article 1327: The following cannot give consent to a contract:

Unemancipated minors

*Those which have not yet reached the age of majority which is 18 years old.

Insane or demented persons and

Deaf-mutes who do not know how to write

Article 1328: Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of
drunkenness or during a hypnotic spell are voidable.

*Lucid interval is the period wherein the person suffering from mental illness is restored to his normal
intellectual capacity, intelligence, judgment and reason.

Article 1390: The following contracts are voidable or annullable, even though there may have been no
damage to the contracting parties:
One of the parties is incapable of giving consent (want of capacity)

Consent is vitiated by mistake, violence, intimidation, undue influence or fraud (vitiated consent)

These contracts are binding, unless they are annulled by a proper court action. They are susceptible of
ratification.

Who are those with relative incapacity according to the law?

Those that are considered relatively incapable of entering into a contract of sale are in relation only to
certain persons and classes of property.

Articles 1490: Husband and wife cannot sell property to each other, except

When separation of property was agreed upon in marriage settlements

When there has been judicial separation of property under Art 191

*This is to prevent commission of fraud or prejudice to third persons, the other taking undue influence
over the other and to avoid indirect donations. However the husband and wife cannot sell property to
each other except when a separation of property was agreed upon in the marriage settlements and
where there has been a judicial separation of property as provided by law.

Who are those with specific incapacity according to the law?

Those that are considered specifically incapable of entering into a contract of sale are in relation only to
their occupation and relation to other persons due to public policy, public order, public morals and so
forth.

Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either
in person or through the mediation of another:

The guardian, the property of the person or persons who may be under his guardianship;
*The relationship of the guardian and ward is so intimate that the influence is so great which might
cause highly suspicious and fraudulent contract of sale. This influence is assumed to last while the
guardian is still functioning in its capacity, the property is still under his control and accounts have finally
been settled.

Agents, the property whose administration or sale may have been entrusted to them, unless the
consent of the principal has been given;

*This incapacity rests on the principle that the agent and principal rest on one juridical person. The
agent stands on fiduciary relationship with his principal. He is prohibited to buy the property he is
supposed to sell unless the principal consented thereto.

Executors and administrators, the property of the estate under administration;

*The prohibition applies to properties under the administration of the executor and administrator.
Executors do not administer the hereditary rights of any heir and thus not part of the property
administered by them.

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;

*This prohibition applies to properties belonging to the State or any subdivision thereof or any
government-owned or controlled corporations or institutions and those administered by these public
officials.

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.

*The prohibition applies to properties subject of litigation to the persons disqualified by virtue of this
provision. It applies during the pendency of litigation involving the property. Such as when the property
is subject to the judicial action of the judge or a lawyer, who by virtue of his profession, takes part on
the purchase of the property.
Any others specially disqualified by law. (1459a)

*These are for example, aliens who cannot purchase agricultural lands prohibited by the Constitution,
an officer managing an execution sale cannot purchase the subject property as prohibited by the Rules
of Court or an unpaid seller who prohibited in buying the goods in the resale of the same at a public or
private sale as barred by the New Civil Code of the Philippines.

Subject Matter

March 4, 2016law on sales

What can be the objects of a contract of sale?

1. Things which should be determinate as well as licit or lawful so as not to be contrary to public law,
morals, public order, good customs and so forth. It must also be within the commerce of men or
susceptible of appropriation and transmissible from one person to the other.

The thing must be determinate; specifically separated and particularly designated; determinable

The thing must be licit-must not be contrary to law, morals, good customs, public order or public policy;
not outside the commerce of men and not impossible

The vendor must have the right to transfer ownership thereof, at the time it is delivered since delivery
transfers ownership

The thing or object of sale may be presently existing or it may exist in the future provide in the latter
case it has potential existence

The sole owner of the thing may sell an undivided interest therein.

2. Rights which can even be personal or not intransmissible. However there are objects which is by law
prohibited to be sold such as those that involves transmissible rights like right to vote, right to public
office and services

What are the goods which may be the objects of sale?

Existing goods or those owned or already possessed by the seller

Future goods or those which are still to be manufactured, raised or acquired. No contract may be
entered into upon future inheritance except in cases expressly authorized by law.

Contract to Sell; Absolute Sale; Conditional Sale

1. What is a contract to sell?

A contract to sell is a kind of sale whereby payment of the contract price is made at some future date
and that ownership of the property shall be retained by the owner until full payment thereof is made. It
is a bilateral contract whereby the prospective seller binds himself to sell a thing to a prospective buyer
upon the fulfillment of the payment of the price. The transfer of title to the buyer will only happen not
by the fact of payment but by entering into another contract which is the contract of absolute sale. The
prospective buyer reserves the ownership to the object which is the subject matter of the sale.

2. What is an absolute sale?

An absolute sale is defined as an agreement without any stipulated conditions to be complied by either
the seller or buyer. It is where there are no other conditions which need to be fulfilled before the
ownership of the thing sold be transferred. Mere delivery of the thing already passes the title to the
buyer. The payment of the purchase price is not essential to transfer ownership, so long as the property
has already been delivered. Non-payment would only give the seller the right to demand for the sum.

3. What is a conditional sale?

A conditional sale is a bilateral contract whereby the element of consent is present although
conditioned upon the happening of a contingent event which may or may not occur. If the suspensive
condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been
previous delivery of the property subject of the sale to the buyer, ownership thereto automatically
transfers to the buyer by operation of law without any further act having to be performed by the seller.
Obligations of the Parties

March 4, 2016law on sales

What are the Obligations of the vendor?

1) To transfer the ownership of the thing sold to the buyer

2) To deliver the thing

3) To warrant the thing sold

What are the Obligations of the vendee?

1.) To accept delivery;

2.) To pay the price of the thing; and

3.) To bear the expenses for the execution and registration and putting the goods in a deliverable state,
if such is the stipulation.

In an ordinary contract for the sale of goods, the buyer has no right to pay the price in installments.
Neither can he be required to make partial payments. The buyer is also obliged to pay interest for the
period between delivery of the subject matter of the sale and the purchase price or in case the subject
property produce fruits or income and in cases of default from the buyer, from the time of judicial or
extra-judicial demand for payment of the price.
What are the rules on transfer of ownership?

General rule:

Only the owner of the property can pass ownership to it.

But the seller is not required to have ownership at the time of the perfection of the sale. It is sufficient
that he has ownership at the time of the thing sold I delivered because it is delivery that transfers
ownership.

Where goods are sold by a person who is not the owner thereof and who does not sell them under the
authority or with the consent of the owner, the buyer acquires no better title to the goods than the
seller had, unless the owner of the goods is by his conduct precluded from denying the seller’s authority.

Exceptions:

Where the owner by his conduct is precluded from denying the seller’s authority or estopped

Where the sale is made under the provisions of any factor’s acts, recording laws or any provision of the
law enabling the apparent owner of goods to dispose of them as if he was the true owner thereof such
as sale by an agent

Where the sale is made under a statutory power of sale or under the order of the court of competent
jurisdiction

Where the purchase is made in a merchant’s store, fairs or markets

Where the seller of goods has a voidable title thereto, but his title has not been avoided at the time of
the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for value and
without notice of the seller’s defects.

What are the obligations regarding delivery of the thing?

The ownership of the thing sold is transferred to the vendee upon the actual or constructive delivery
thereof. The thing sold shall be understood as delivered when it is placed in the control and possession
of the vendee.

What are the kinds of delivery?

The law on sales admits four kinds of delivery/ tradition (tradicio):

Real Tradition- from hand to hand by certain material or possessory acts by the vendee done in the
presence with the consent of the vendor

Legal or Constructive- when the delivery is not actual but represented by other signs or acts indicative of
delivery

Legal- sale made through a public instrument

Symbolic- delivery of keys to the place when goods are stored

Traditio longa manu

Traditio brevi manu

Traditio constitutum possessorium

Quasi tradition- which is used to indicate the transfer of rights or incorporeal property and may be
defined as the exercise of the right by the grantee with the acquiescence of the vendor or the placing of
the title of the ownership in the possession of the vendee.

Tradition by operation of law- which covers all other cases not already enumerated and in which the
delivery is effected solely by virtue of an express provision of the law

Where the parties have stipulated that ownership in the things shall not pass until full purchase price is
paid.
What are the rules on delivery in cases of sale of real estate?

The seller is bound to deliver what is in the contract.

If the sale is made with a statement of its area, at the rate of a certain price per unit of measure or
number and the seller cannot deliver all the area stated in the contract, the buyer has the right to
proportionately reduce the price or rescind the contract provided the lack in the area is at least 1/10 or
more of the area contracted.

If the sale was made with a statement of the area at the rate of a certain price for a unit of measure or
number and a portion of the land delivered is of an inferior quality that that agreed upon in the contract
through the land measures exactly the are upon, the buyer has the right to proportionately reduce the
price or rescind the contract provided the lack in the area is at least 1/10 or more of the area
contracted.

If the buyer could not prove that he would not have brought the land had he known of the smaller area
or its inferior quality, he may still rescind the contract even though the lack in area is less that 1/10 of
the area agreed upon, or the inferior value of the property sold does not exceed 1/10 of the price
agreed upon.

If the sale was made with a statement of the area and at the rate of a certain price for a unit of measure
or number and the land delivered was greater in area or number than that stated in the contract, the
buyer may accept the area included in the contract and reject the rest. If he accepts the whole are, he
must pay for the same at the contract price.

If the sale is for lump sum and not at the rate of a certain sum for a unit of a measure or number, there
shall be no increase or decrease in the price, although there be a greater or less area or number than
that stated in the contract.

When two or more real estate are sold for a single price, the rule is the same as when the real estate is
sold for a lump sum. There shall be no increase or decrease in the price irrespective of any difference in
the area actually delivered and the area in the contract.

The right of the buyer to a proportionate reduction if the price or rescission of the contract of sale must
be exercised within 6 months from delivery date.

Price and Delivery

March 4, 2016law on sales

What are the rules regarding the price?

Price certain in money:

When the parties have fixed it

When it is certain with reference to another certain thing

When the determination of the price is left to the judgment of a specified person or persons

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 contract.

If the price is simulated or pretended the sale is void but the act may be shown to have been in reality a
donation or some other contract.

The fixing of the price cannot be left to the will of one of the parties unless it is accepted by the other.

There will be no contract of sale if the price cannot be fixed which will give no obligations to the parties.

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What constitutes delivery in a sale?

Delivery of the thing together with the payment of the price, marks the consummation of the contract
and sale. The act of delivery must be coupled with the intention of delivering the thing and putting the
buyer under control. Without the intention, the act is insufficient. Such effect is supported by this
provision in the New Civil Code:

Art. 1496. The ownership of the thing sold is acquired by the vendee from the moment it is delivered to
him in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an
agreement that the possession is transferred from the vendor to the vendee. (n)

What are the kinds of delivery?Actual or Real delivery happens when the thing sold falls under the
control and possession of the buyer. This can be done through passing of the movable thing hand to
hand. The law evidenced such definition by this provision:
Art. 1497. The thing sold shall be understood as delivered, when it is placed in the control and
possession of the vendee. (1462a)

2. Legal or Constructive is understood as those acts which are taken as equivalent of delivery despite
lack of non-physical possession of the thing itself and considered as having the same effects to that of a
real or actual delivery. This kind of delivery may be affected in certain ways as laid down in following
provisions:

Art. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent
to the delivery of the thing which is the object of the contract, if from the deed the contrary does not
appear or cannot clearly be inferred.

*The mere execution of the public instrument gives the presumptive delivery of the property such as
when a deed is notarized or the sale of registered land, the title is transferred. The possession of the
documents also means possession of the whole property.

With regard to movable property, its delivery may also be made by the delivery of the keys of the place
or depository where it is stored or kept. (1463a)

*This type of constructive delivery is called symbolic tradition. To effect delivery, a token, object or part
of the property may be given to constitute delivery of the whole. Like when even just a key is delivered,
it may mean to deliver the entire house or car that the key represents.

Art. 1499. The delivery of movable property may likewise be made by the mere consent or agreement of
the contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the
time of the sale, or if the latter already had it in his possession for any other reason. (1463a)

*The first part of this provision refer to a kind of constructive delivery called tradition longa manu (long
hand delivery). This takes place by the mere consent or agreement of the parties that when the seller
points or directs the buyer to the property, it may already mean that he is placing it under the buyer’s
control and possession. Another type is traditio brevi manu (short hand delivery) where delivery is
effected by the buyer already possessing the thing sold by virtue of another title. For example, when the
buyer is possessing the property as a lessee but buys it and attains control and possession by the
complete turnover to him by the seller.

Art. 1500. There may also be tradition constitutum possessorium. (n)

*This type is the opposite of tradio brevi manu since the delivery happens when the seller continues in
possession of the property already sold not as the owner but in another capacity. The delivery of the
buyer already takes place by mere agreement of the parties. Such as when the seller remains a tenant of
the buyer.

Art. 1501. With respect to incorporeal property, the provisions of the first paragraph of article 1498 shall
govern. In any other case wherein said provisions are not applicable, the placing of the titles of
ownership in the possession of the vendee or the use by the vendee of his rights, with the vendor’s
consent, shall be understood as a delivery. (1464)

*This type is called quadi-tradio and can only be made with respect to corporeal things. Those
incorporeal things may only be delivered by execution of a public document and when this is
inapplicable, by placing the titles of ownership in the possession of the vendee or by allowing the buyer
to use his rights as new owner with the seller’s consent.

Warranties and Formalities in a Contract of Sale

March 4, 2016law on sales

What are the warranties in a contract of sale?

Express Warranty- any affirmation of fact or any promise by the seller relating to the thing is an express
warranty if the natural tendency of such affirmation or promise is to induce the buyer to purchase the
same, and if the buyer purchases the thing relying thereon.

The vital question is express warranty is: whether or not a statement or affirmation accompanying as
sale is a warranty depends upon whether the conditions were such that the buyer had a right to
understand and did not understand that was said by the seller was meant as a warranty.
Implied warranty-arises from the mere fact that a contract of sale is perfected. It does not apply to one
who sells by virtue of an authority in fact or in law (sheriff sale). There are two kinds of implied
warranty:

Warranty against eviction- An implied warranty on the part of the seller that he has a right to sell at the
time when ownership is to pass and that the buyer shall from that time have and enjoy the legal and
peaceful possession of the thing

Warranty against hidden defects-An implied warranty that the thing shall be free from any hidden
defects or any change or encumbrances not declared or known to the buyer

-Hidden defects are those which are not visible to vendee who is not an expert and to a vendee who is
an expert but even with the use of his trade or profession could not detect such defect.

-Requisites of hidden defects: The defect must exist at the time of the sale, must be important or
serious, notice was given to the vendor within a reasonable time and within prescriptive period and no
waiver was made

Warranty against eviction- Eviction is the judicial process whereby the vendee by virtue of a final
judgment based on a right prior to the sale or an act imputable to the vendor, is deprived of the whole
or a part of the thing purchased.

In order for the vendor to be liable for his warranty, the vendor must be summoned in the suit for
eviction at the instance of the vendee and there is no waiver on the part of the vendee.

What are the formalities of a contract of sale?

As a general rule, the form of a contract is manner of how it would be executed or manifested. A
contract of sale may take any general form of a simple contract.

What does the law say about the forms of a contract of sale?
The New Civil Code has recognized the need for a certain form for a contract of sale for its validity and
enforceability in this provision:

Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all
the essential requisites for their validity are present. However, when the law requires that a contract be
in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way,
that requirement is absolute and indispensable. In such cases, the right of the parties stated in the
following article cannot be exercised. (1278a)

Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated
in the following article, the contracting parties may compel each other to observe that form, once the
contract has been perfected. This right may be exercised simultaneously with the action upon the
contract. (1279a)

*The requisites of validity referred in this provision refer to essential to perfect a simple contract as
already discussed in this post (insert link for the post about what is a contract of sale).

However, the contract may be required by law to follow a certain form depending on its subject and
manner of execution. The law has required that the following should be in a public instrument:

Art. 1358. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property; sales of real property or of an interest therein a
governed by Articles 1403, No. 2, and 1405;

(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership
of gains;
(3) The power to administer property, or any other power which has for its object an act appearing or
which should appear in a public document, or should prejudice a third person;

(4) The cession of actions or rights proceeding from an act appearing in a public document.

All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even
a private one. But sales of goods, chattels or things in action are governed by Articles, 1403, No. 2 and
1405. (1280a)

Likewise, the contracts of sale are also governed by the Statute of Frauds which may prohibit its
enforceability and bar its ratification if not complied with. The Statue of Frauds, however only apply to
executory contracts or where there are no performance yet and not to those already consummated
even if partially. These rules aim to avoid injustice to the party who has not yet performed his obligation
so as not to enable him to keep the benefits he received without doing his obligation. (omitted
provisions done purposely for sake of discussion).

Art. 1403. The following contracts are unenforceable, unless they are ratified:

x xx

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or
memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
contents:

(a) An agreement that by its terms is not to be performed within a year from the making thereof;

x xx
(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred
pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of
them, of such things in action or pay at the time some part of the purchase money; but when a sale is
made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the
amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose
account the sale is made, it is a sufficient memorandum;

(e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of
an interest therein;

x xx

*In summary the following must be in writing to be enforceable: sale of personal property at a price not
less than P500.00, sale of real property or an interest therein, sale of property not to be performed
within a year from the date thereof and “Applicable statute” requires that the contract of sale be in a
certain form.

What is reformation of instrument?

Reformation of instrument means that there having a meeting of the minds of the parties to a contract,
however, their true intention thereof is not expressed in the instruments purporting to embody the
agreement by reason of fraud, accident, mistake, and inequitable conduct. This is done to reveal the
true intentions of the party and only applicable to written contracts.

Option Money v Earnest Money

March 4, 2016law on sales

What is an option contract?

An option contract is a contract granting a privilege in one person, for which he has paid a consideration,
which gives him the right to buy certain merchandise at anytime within the agreed period, at a fixed
price. It is separate and distinct from the main contract itself which the parties may enter into upon the
consummation of the option. An option contract should have a consideration at all times or else it would
be void.

What is an option in a contract of sale?

Option is a mere promise or offer to buy or sell real estate. An option to purchase, for instance is a right
of election of a prospective buyer to purchase which when exercised by him becomes a contract of sale.

What does the law say about option contract?

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon
the promissor if the promise is supported by a consideration distinct from the price. (1451a)

*The second paragraph in this provision is referred to as option. This unilateral promise to sell or buy a
determinate thing does not bind the promissor though accepted until a consideration distinct from the
price supports this perfected contract.

Example would be when A promises to sell to B a car which B accepts. S is not bound to sell his car if
there is not promise on the part of B to buy. However if the promise is supported by a consideration
distinct from the price, as when B paid or promised to pay a sum of money to A for giving him the right
to buy the car whenever he pleases during a certain period of time, then a perfected option contract is
entered in to.
What is earnest money?

An earnest money is something of value to show that the buyer was really in earnest, and given to the
seller to bind the bargain. It is a partial payment or a part of the purchase price and may prove to show
the perfection of a contract.

What does the law say about earnest money?

Art. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the
price and as proof of the perfection of the contract. (1454a)

*This payment function as the consideration to be paid by the buyer and is given to show interest in the
sale. In law, it is considered a part of the purchase price and give rise to a consummated contract of sale.

What is the difference between option money and earnest money?

In paying earnest money it forms part of the purchase price, given when there is already a perfected
sale, and the buyer must pay the balance.

While an option money is distinct and separate from the purchase price of the principal contract, may
apply to a sale not yet perfected and the buyer is not bound to buy despite payment of option money.
However an option money can become an option money so long as the parties agree to it.

Maceda Law

March 4, 2016law on sales

What is the Maceda Law? (R.A. 6552)

R.A. 6552 or “An Act to Provide Protection to Buyers of Real Estate on Installment Payments” is also
known as the Maceda Law. It governs the sale or financing of real estate on instalment payments. It is
for the purpose of public policy to protect buyers of real estate on installment payments against
onerous and oppressive conditions.

Where does the Maceda Law apply?

Section 3. In all transactions or contracts involving the sale or financing of real estate on installment
payments, including residential condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as
amended by Republic Act Numbered Sixty-three hundred eighty-nine, x x x

*This would apply to transactions or contracts involving the sale OR financing of real estate on
instalment payments, including residential condominium apartments; and buyer defaults in payment of
succeeding instalments.

What re the rights of the buyer under the Maceda Law?

If buyer has paid at least two (2) years of installments

Section. 3 x x x where the buyer has paid at least two years of installments, the buyer is entitled to the
following rights in case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace period earned
by him which is hereby fixed at the rate of one month grace period for every one year of installment
payments made: Provided, That this right shall be exercised by the buyer only once in every five years of
the life of the contract and its extensions, if any.

(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty per cent of the total payments made, and, after five years
of installments, an additional five per cent every year but not to exceed ninety per cent of the total
payments made: Provided, That the actual cancellation of the contract shall take place after thirty days
from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value to the buyer.

Section 6. The buyer shall have the right to pay in advance any installment or the full unpaid balance of
the purchase price any time without interest and to have such full payment of the purchase price
annotated in the certificate of title covering the property.

*The buyer must pay, without additional interest, the unpaid instalments due within the total grace
period earned by him. There shall be one (1) month grace period for every one (1) year of instalment
payments made. Note that this right shall be exercised by the buyer ONLY once in every 5 years of the
life of the contract and its extensions.

In actual cancellation can only take place after 30 days from receipt by the buyer of the notice of
cancellation OR demand for rescission by a notarial act AND upon full payment of the cash surrender
value to the buyer. Note that the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to 50% of the total payments made. After five (5) years of
instalments, there shall be an additional 5% every year but not to exceed 90% of the total payments
made

The buyer shall have the right to sell his rights or assign the same to another person OR to reinstate the
contract by updating the account during the grace period and before actual cancellation of the contract.
The buyer shall have the right to pay in advance any instalment or the full unpaid balance of the
purchase price any time without interest and to have such full payment of the purchase price annotated
in the certificate of title covering the property.

If buyer has paid less than two (2) years of instalments

Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a
grace period of not less than sixty days from the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel
the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act.
Section 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same to
another person or to reinstate the contract by updating the account during the grace period and before
actual cancellation of the contract. The deed of sale or assignment shall be done by notarial act.

*The seller shall give the buyer a grace period of NOT less than 60 days from the date the instalment
became due. If the buyer fails to pay the instalments due at the expiration of the grace period, the seller
may cancel the contract after 30 days from receipt by the buyer of the notice of cancellation or the
demand for rescission of contract by a notarial act. The buyer shall have the right to sell his rights or
assign the same to another person OR to reinstate the contract by updating the account during the
grace period and before actual cancellation of the contract.

The buyer shall have the right to pay in advance any instalment or the full unpaid balance of the
purchase price any time without interest and to have such full payment of the purchase price annotated
in the certificate of title covering the property.

Double Sale

March 4, 2016law on sales

What is a double sale?

A double sale is the selling of the same property by the same seller to different buyers with conflicting
rights.The following instances must be concurring: there are two or more transactions must constitute
valid sales, they must pertain exactly to the same object or subject matter, they must be bought from
the same or immediate seller and two or more buyers who are at odds over the rightful ownership of
the subject matter must represent conflicting interests.

What is the remedy to a double sale according to law?

The New Civil Code has provided for the instance which will constitute a double sale and the manner on
how it would be resolved:
Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in
the possession; and, in the absence thereof, to the person who presents the oldest title, provided there
is good faith. (1473)

*This provision lays down the rules of preference to who shall be given priority in a double sale. When it
involves a personal property, the first possessor in good faith shall be preferred. If it involves a real
property, the first registrant in good faith and if there is nothing to show this fact then the first
possessor in good faith shall follow and if still cannot be determined then the person with oldest title in
good faith shall be given precedence.

Breach of a Contract of Sale

March 4, 2016law on sales, obligations and contracts

What are the remedies of the seller for breach of contract of sale according to the law?

When the seller is prejudiced due to the breach of contract by the buyer, the following provisions of the
law shall govern:

Action for payment of the price

Art. 1595. Where, under a contract of sale, the ownership of the goods has passed to the buyer and he
wrongfully neglects or refuses to pay for the goods according to the terms of the contract of sale, the
seller may maintain an action against him for the price of the goods.

*The seller may maintain an action for payment of the price when the ownership of the goods sold
already passed to the buyer and he fails to pay in a wrongful manner attributable to him.
Where, under a contract of sale, the price is payable on a certain day, irrespective of delivery or of
transfer of title and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain
an action for the price although the ownership in the goods has not passed. But it shall be a defense to
such an action that the seller at any time before the judgment in such action has manifested an inability
to perform the contract of sale on his part or an intention not to perform it.

*The seller may also demand payment when he likewise fails to pay and neglects wrongfully the date
certain for its payments, irrespective of delivery and the transfer of title to the buyer.

Although the ownership in the goods has not passed, if they cannot readily be resold for a reasonable
price, and if the provisions of article 1596, fourth paragraph, are not applicable, the seller may offer to
deliver the goods to the buyer, and, if the buyer refuses to receive them, may notify the buyer that the
goods are thereafter held by the seller as bailee for the buyer. Thereafter the seller may treat the goods
as the buyer’s and may maintain an action for the price. (n)

*The seller may ask for payment of the price if the goods cannot be resold for a reasonable price and
the buyer refuses to accept them even before the ownership to goods has passed.

Action for damages for non-acceptance of the goods

Art. 1596. Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller
may maintain an action against him for damages for nonacceptance.

The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of
events from the buyer’s breach of contract.

Where there is an available market for the goods in question, the measure of damages is, in the absence
of special circumstances showing proximate damage of a different amount, the difference between the
contract price and the market or current price at the time or times when the goods ought to have been
accepted, or, if no time was fixed for acceptance, then at the time of the refusal to accept.
If, while labor or expense of material amount is necessary on the part of the seller to enable him to fulfill
his obligations under the contract of sale, the buyer repudiates the contract or notifies the seller to
proceed no further therewith, the buyer shall be liable to the seller for labor performed or expenses
made before receiving notice of the buyer’s repudiation or countermand. The profit the seller would
have made if the contract or the sale had been fully performed shall be considered in awarding the
damages. (n)

*The seller may demand for damages when the buyer fails to accept the goods without lawful case and
fails to pay the price agreed upon. He may also demand damages when the ownership has not yet
passed and the seller cannot recover the price of the goods. He also has an action for damages when the
goods are not yet identified at the time of the contract. The damages may be measured by the labor
performed and expenses incurred for the materials or the profit that would have been realized have it
not for the non-acceptance of the buyer.

Action for rescission

Art. 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated the
contract of sale, or has manifested his inability to perform his obligations thereunder, or has committed
a breach thereof, the seller may totally rescind the contract of sale by giving notice of his election so to
do to the buyer. (n)

*The remedy afforded by this provision is applicable in the sale of goods which have not yet been
delivered to the buyer and the buyer repudiated the contract of sale, manifested his inability to perform
his obligations or there is mere breach of the provisions of the contract of sale. The notice of rescission
must be given by the seller. The breach must not be slight or casual but must be substantial enough to
defeat the very essence of the contract.

What are the remedies of the buyer for breach of contract of sale according to the law?

When the buyer is prejudiced due to the breach of contract by the seller, the following provisions of the
law shall govern:

Action for specific performance

Art. 1598. Where the seller has broken a contract to deliver specific or ascertained goods, a court may,
on the application of the buyer, direct that the contract shall be performed specifically, 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. (n)

* The buyer may, without giving the seller the option to retain the goods on payment of damages, may
ask for specific performance. However there may be instances in a court decision the judgment maybe
unconditional, or upon such terms and conditions as to the payment of damages, payment of the price
and otherwise, the court may order whatever it may deem just.

Action for rescission or damages for breach of warranty

Art. 1599. 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.

When the buyer has claimed and been granted a remedy in anyone of these ways, no other remedy can
thereafter be granted, without prejudice to the provisions of the second paragraph of Article 1191.
Where the goods have been delivered to the buyer, he cannot rescind the sale if he knew of the breach
of warranty when he accepted the goods without protest, or if he fails to notify the seller within a
reasonable time of the election to rescind, or if he fails to return or to offer to return the goods to the
seller in substantially as good condition as they were in at the time the ownership was transferred to the
buyer. But if deterioration or injury of the goods is due to the breach or warranty, such deterioration or
injury shall not prevent the buyer from returning or offering to return the goods to the seller and
rescinding the sale.

Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to be liable for the
price upon returning or offering to return the goods. If the price or any part thereof has already been
paid, the seller shall be liable to repay so much thereof as has been paid, concurrently with the return of
the goods, or immediately after an offer to return the goods in exchange for repayment of the price.

Where the buyer is entitled to rescind the sale and elects to do so, if the seller refuses to accept an offer
of the buyer to return the goods, the buyer shall thereafter be deemed to hold the goods as bailee for
the seller, but subject to a lien to secure payment of any portion of the price which has been paid, and
with the remedies for the enforcement of such lien allowed to an unpaid seller by Article 1526.

(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.
(n)

* In case of recoupment, the buyer may accept the goods and set up the seller’s breach to reduce or
extinguish the price. He may accept or not the goods and in both cases, maintain an action for damages
for breach of warranty. In rescission, he may do such if there is refusal to receive the goods; or if goods
have already been received, return them and recover what was paid or any part of it concurrently with
return or immediately after it.

These remedies are alternative, without prejudice to paragraph 2 of Art. 1191 (that a party may still seek
rescission after choosing specific performance if the latter is impossible). Buyer cannot rescind if he is
knowledgeable of the breach and still accepted the goods without protest, or fails within reasonable
time to notify the seller of his election to rescind, or fails to return or offer to return the goods in
substantially as good condition as it was. If seller refuses to accept an offer to return the goods and the
buyer elected rescission, buyer shall be deemed to hold the goods as bailee for the seller subject to lien
to secure payment of any portion of the price which has been paid. There is loss, in case of breach of
warranty of quality, when there was a difference between value of the goods at the time of delivery and
value they would have had if they had answered to the warranty.

What are the remedies of the seller in case of default in payment of price?

Anticipatory breach- The seller has reasonable grounds to believe that the property sold will be lost so
he may rescind the sale

Failure of the buyer to pay the purchase price-In the sale of immovable property even though it may
have been stipulated that rescission will only take place upon failure to pay the price, he may still
demand payment until the judicial or extrajudicial rescission of the contract.

What are the remedies of the buyer in case of disturbance in the property and in condominium
projects?

Suspension of payment-If the buyer gets disturbed in the possession and ownership or has a reasonable
grounds to fear such disturbance of the property, by a vindicatory action or a foreclosure of mortgage,
the buyer may suspend payment until the disturbance is removed by the seller or seller gives security
for the return of the price in proper case unless otherwise stipulated.

Subdivision and condominium projects-PD 957 provides that when the owner or developer of the
condominium project fails to develop it according to the approved plan and within the time limit for
complying with the same, the buyer who pays in installment may desist from paying further provided he
gives due notice to the seller. The law also allows the buyer to be reimbursed of all the amount paid.

What is Equitable Mortgage?

Pacto de retro is presumed to be Equitable Mortgage when:

Art. 1602: The contract shall be presumed to be an equitable mortgage, in any of the following cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;

(3) When upon or after the expiration of the right to repurchase another instrument extending the
period of redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation.

What are the effects when the thing sold is lost?

Loss before perfection of the contract- Contract is void

Loss at the time of perfection of contract of sale-Contract is Void

If thing is partially lost-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

Loss after perfection of the contract of sale

After delivery to buyer- buyer bears the loss

Before delivery to the buyer

-Non fungible/ fungible thing without consideration as to its weight, number or measure- buyer bears
the loss

-fungible thing for a price fixed in accordance with its weight, number or measure-seller bears the loss

Extinguishment of Sale
March 4, 2016law on sales

How is a sale extinguished?

This provision of the New Civil Code has laid down three instances on how a sale can be extinguished:

Art. 1600. Sales are extinguished by the same causes as all other obligations, by those stated in the
preceding articles of this Title, and by conventional or legal redemption. (1506)

What is conventional redemption?

The happening of conventional redemption is best defined under this provision:

Art. 1601. Conventional redemption shall take place when the vendor reserves the right to repurchase
the thing sold, with the obligation to comply with the provisions of Article 1616 and other stipulations
which may have been agreed upon. (1507)

*Conventional redemption isthe right which the vendor reserves to himself, to reacquire the property
sold provided he returns to the vendee the price of the sale, expenses of the contract, any other
legitimate payments made therefore, the necessary and useful expenses made on the thing sold and
fulfills other stipulations which may have been agreed upon.

What is Pacto de Retro sale?

Pacto de Retro sale refers to the sale wherein the seller has the right to repurchase the subject matter
or the property being sold.The essence of a pacto de retro sale is that the title and ownership of the
property sold transfers immediately to the vendee a retro. However it is still subject to the resolutory
condition of repurchase of the subject property by a vendor a retro within the period agreed upon by
them, or, in the absence thereof, as provided by law or else it would vests upon the vendee a retro
absolute title and ownership over the property sold by operation of law.

What is the redemption period for pacto de retro sale?

This period applies to conventional redemption and not to those contracts which involves a sale with a
right of repurchase. The period of redemption laid down by law is expressed in this provision:

Art. 1606. The right referred to in Article 1601, in the absence of an express agreement, shall last four
years from the date of the contract.

Should there be an agreement, the period cannot exceed ten years.

However, the vendor may still exercise the right to repurchase within thirty days from the time final
judgment was rendered in a civil action on the basis that the contract was a true sale with right to
repurchase. (1508a)

*If there is an agreement: period agreed upon cannot exceed 10 years and in the absence of the period,
4 years from the date of the contract. The vendor who fails to repurchase the property within the period
agreed upon may, however, exercise the right to repurchase within 30 days from the time final
judgment was rendered in a civil action on the basis that the contract was a true sale with right of
repurchase.

What is legal redemption?

Legal redemption is the right to be subrogated, upon the same terms and conditions stipulated in the
contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other
transaction whereby ownership is transferred by onerous title. It must be exercised within thirty (30)
days from the notice in writing by the vendor. This does not apply to barter, donation, transmission of
things by hereditary title, mortgage, lease.

What are the instances of legal redemption?

Under the Civil Code

Sale of co-owner of his share to a stranger

When a credit or other incorporeal right in litigation is sold

Sale of an heir of his hereditary rights to a stranger

Sale of adjacent rural lands not exceeding one hectare

Sale of adjacent small urban lands bought merely for speculation

Under special laws

An equity of redemption in cases of judicial foreclosures

A right of redemption in cases of extra-judicial foreclosures

Redemption of homesteads

Redemption of tax sales

Redemption by an agricultural tenant of land sold by the landowner

What is the time provided for the vendor a retro to redeem or repurchase a thing?

If there is no agreement as to the period for redemption- 4 years from date of contract

If there is agreed period, it must be done within the fixed period

If the parties agreed as to the period within which to repurchase but have not fixed a definite period,-
10 years from the date of the contract to redeem but shall not extend beyond 10 years

Vendor a retro may still exercise his right to redeem within 30 days from the time of the final judgment
on the basis that the contract was a true sale with right to repurchase.

What is the rules for legal redemption by co-owner?

Art. 1620: A co-owner of a thing may exercise the right of redemption in case the shares of all the other
co-owners or of any of them, are sold to a third person. If the price of the alienation is grossly excessive,
the redemptioner shall pay only a reasonable one.

Should two or more co-owners desire to exercise the right of redemption, they may only do so in
proportion to the share they may respectively have in the thing owned in common.

Requisites:

There is c-ownership

There is alienation of all or any of the shares

The sale was made to a stranger

The legal redemption was exercised before partition

What is the rules for legal redemption by an adjacent owner?

Art. 1621: The owners of adjoining lands shall also have the right of redemption when a piece of rural
land, the area of which does not exceed one hectare, is alienated, unless the grantee does not own any
rural land.

This right is not applicable to adjacent lands which are separated by brooks, drains, ravines, roads and
other apparent servitudes for the benefit of other estates.

If two or more adjoining owners desire to exercise the right of redemption at the same time, the owner
of the adjoining land of smaller area shall be preferred; and should both lands have the same area, the
one who first requested the redemption.

Requisites:

Both lands are rural

The lands are adjacent to each other

There is an alienation

The land are is less than 1 hectare

Rights of adjacent owners:

Right of pre-emption which the preferential right to buy the urban land before the same is sold to a
third person

In the event the urban land has been sold, the adjacent owners have the right of redemption.

What is the doctrine of caveat emptor (buyer beware)?

Requires the purchaser to be aware of the supposed title of the vendor and one who buys without
checking the vendor’s title takes all the risks and losses consequent to such failure. The actual
possession by people other than the vendor should, at least, put the purchaser upon inquiry. Site
identification and survey are a must also.

An action for reconveyance is a legal and equitable remedy granted to the rightful owner of land which
has been wrongfully or erroneously registered in the name of another for the purpose of compelling the
latter to transfer or convey the land to him.