Posted by: Elmer Brabante | August 28, 2009

Pointers in Contract of Sale


I.  NATURE AND FORM OF THE CONTRACT

Sources of the Law on Sales 

Sales are governed by the provisions of the Civil Code: 

1. Book IV, Title VI, Articles 1458-1637 (Sales)

2. Title I, Arts. 1156-1422 (Obligations and Contracts)

3. Opinions of Commentators 

4. Jurisprudence

Concept of Contract of Sale 

The contract of sales is an agreement whereby one of the parties (called the seller or vendor) obligates himself to deliver something to the other (called the buyer or purchaser or vendee) who, on his part, hinds himself to pay therefore a sum of money or its equivalent (known as the price). 

The transfer of title to property or the agreement to transfer title for a price paid or promised, not mere physical transfer of the property, is the essence of sale. 

Characteristics of a Contract of Sale 

1. Consensual – perfected by mere consent of the parties without further acts.
2. Bilateral – both the contracting parties are bound to fulfill correlative obligations towards each other (the seller to deliver and transfer ownership of the thing sold, and the buyer to pay the price).
3. Onerous – the thing sold is conveyed in consideration of the price and vice versa.
4. Commutative – the thing sold is considered the equivalent of the price paid and vice versa.
5. Aleatory – in the case of sale of hope, one of the parties or both reciprocally bind themselves to give or to do something in consideration of what the other shall give or do upon the happening of an event which is uncertain, or which is to occur at an indeterminate time.
6. Nominate – the contract is given a special name or designation in the Civil Code.
7. Principal – the contract does not depend for its existence and validity upon another contract. 

 

Essential Requisites of a Contract of Sale

1.   Consent or meeting of the minds – refers to the conformity of the parties to the terms of the contract, the acceptance by one of the offer made by the other.  As a bilateral contract, the acceptance of payment by a party is an indication of his consent to a contract of sale, thereby precluding him from rejecting its binding effect [Clarin vs. Rulova, 127 SCRA 512]. 

  • There may be a sale against the will of the owner in case of expropriation and the three different kinds of sale under the law – ordinary execution sale, judicial foreclosure sale, and extra-judicial foreclosure sale.

2.  Object or subject matter – refers to the determinate thing which is the object of the contract; 

  • Even a future thing not existing at the time the contract is entered into may be the object of sale, provided it has a potential or possible existence, that is, it is reasonably certain to come into existence as the natural increment or usual incident of something in existence already belonging to the seller, and the tile will vest the buyer the moment the thing comes into existence (Art. 1461). 
Emptio rei speratae

(sale of thing expected)

Rei spetae
– the sale of a thing not yet in existence, subject to the condition that the thing will exist and on failure of the condition, the contract becomes ineffective and hence, the buyer has not obligation to pay the price; – the sale of hope itself that the thing will come into existence, where it is agreed that the buyer will pay the price even if the thing does not eventually exist;
– the future thing is certain as to itself but uncertain as to its quantity and quality; – like the sale of a sweepstake ticket, it is not certain that the thing itself (winning a prize) will exist, much less it quantity and quality;
– contract deals with a future thing; – contract relates to a thing which exists or is present – the hope or expectancy;
– sale is subject to the condition that the thing should exist, so that if it does not, there will be no contract by reason of the absence of an essential element. produces effect even though the thing does not come into existence because the object of the contract is the hope itself, unless it is a vain hope or expectancy (like the sale of a falsified sweepstakes ticket which can never win).

 3.   Cause or consideration – refers to the price certain in money or its equivalent. 

Natural Elements – those which are deemed to exist in certain contracts, in the absence of any contrary stipulations, like warranty against eviction; 

Accidental Elements – those which may be present or absent depending on the stipulations of the parties, like conditions, interest, penalty, time or place of payment. 

Kinds of a Contract of Sale

1.  As to presence or absence of conditions 

Absolute – where the sale is not subject to any condition whatsoever and where the title passes to the buyer upon delivery of the thing sold.

Conditional – where the sale contemplates a contingency and where the contract is subject to certain conditions, usually in the case of the vendee, for the full payment of the agreed purchase price. 

2.  Other kinds 

As to the nature of the subject matter – real or personal, tangible or intangible

As to the manner of payment – cash or installment

As to its validity – valid, rescissible, unenforceable, void 

Contract of Sale Distinguished from Contract to Sell 

 

Contract of Sale

Contract to Sell

Transfer of title:

– passes to the buyer upon delivery of the thing sold.

– remains with the seller until full payment of the agreed price.

Payment of price:

– non-payment of the price is a negative resolutory condition, and the remedy is to exact fulfillment or to rescind the contract.

full payment is a positive suspensive condition, the failure of which is not a breach, casual or serious, of the contract but simply an event that prevents the obligation of the vendor to convey title from acquiring binding force.

Ownership of vendor:

– vendor loses and cannot recover ownership of the thing sold and delivered, actually or constructively until and unless the contract of sale itself is resolved and set aside.

– title remains in the vendor until full payment of price.

Sale Distinguished from Dation in Payment

Sale

Dation in Payment

– no pre-existing credit – there is pre-existing credit
– gives rise to obligation – extinguishes obligation
– cause or consideration is the price, or the acquisition of title to the property – cause of consideration is extinguishment of the debt (from the point of view of the offeror), and the acquisition of the object offered (from the point of view of the creditor) in lieu of the original credit
– there is greater freedom in the determination of the price – less freedom
– giving of the price may generally end the obligation of the buyer – the giving of the object in lieu of the credit may extinguish completely or partially the credit (depending on the agreement)

 

Sale of goods by description

Sale of goods by sample

 –      occurs where the purchaser has not seen the article sold and relies on the description given him by the vendor, or has seen the goods but the want of identity is not apparent on inspection.-          If the bulk of the goods delivered  does not correspond with the description, the contract may be rescinded. (Art. 1481.)  

– the parties contracted solely with reference to the sample, with the understanding that the bulk was like it.-  the vendor warrants that the thing sold and to be delivered by him shall conform with the sample in kind, charater, and quality.

Form of Contract of Sale 

Generally, a contract may be entered into in any form provided all the essential requisites for its validity are present (Art. 1356).  It may be in writing, oral, or partly in writing and party oral.  It may even be inferred from the conduct of the parties, since sale is a consensual contract that is perfected by mere consent. 

However, in case the contract of sale should be covered by the Statute of Frauds, the law requires that the agreement be in writing subscribed by the party charged, or by his agent; otherwise, the contract cannot be enforced by action [see Art. 1403]. 

  • Under the Statute of Frauds (Art. 1403 [2, a, d, e].) of the Civil Code, the following contracts must be in writing to be enforceable:

(a)    sale of personal property at a price not less than P500;

(b)    sale of real property or an interest therein regardless of the price involved; and

(c)    sale of property not to be performed within a year from the date thereof regardless of the nature of the property and the price involved.

  • The Statute Frauds specifies three (3) ways in which contracts of sales of goods within its terms may be made binding: 

(a)    the giving of a memorandum;

(b)    acceptance and receipt of part of the goods (or things in action) sold and actual receipt of the same (Art. 1585); and

(c)    payment or acceptance at the time some part of the purchase price. 

  • The Statute of Frauds is applicable only to executory contracts (where no performance, i.e., delivery and payment, has as yet been made by both parties), and not to contracts which are totally consummated or partially performed [Vda. De Espiritu vs. CFI of Cavite, 47 SCRA 354]. 

Recto Law (Art. 1484) – Remedies of Vendor in Sale of Personal Property Payable in Installments

(a)    elect fulfillment upon the vendee’s failure to pay;

(b)    cancel the sale, if the vendee shall have failed to pay two or more installments;

(c)    foreclose the chattel mortgage, if one has been constituted, if the vendee shall have failed to pay two or more installments. 

  • These remedies are alternative and are not to be exercised cumulatively or successively and the election of one is a waiver of the right to resort to the others [Pacific Commerial Co. vs De la RAma, 62 Phil. 380; Nonato vs. IAC, 140 SCRA 255]. 
  • In transactions involving the sale of financing of real estate on installment payments, including residential condominium apartments, the following are the rights given to the buyer who has paid at least two (2) years of installments in case he defaults in the payment of succeeding payments

(a)    to pay without additional interest the unpaid installments due within the total grace period earned by him fixed at the rate of one-month grace period for every one year of installment payments made – this right shall be exercised by him only once in every five (5) years of the life of the contract and its extension, if any; and

(b)   if the contract is cancelled, 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 and, after 5 years of installments, an additional 5% of every year but not to exceed 90% of the total payments made. [Sec. 3, RA 6552 or the Realty Installment Buyer Protection Act; see Layug vs. IAC, 67 SCRA 627].

(c)    The buyer has the right to sell his right or assign the same before actual cancellation of the contract and to pay in advance any unpaid installment anytime without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property. 

II.                CAPACITY TO BUY OR SELL 

Persons Who May Enter Into a Contract of Sale 

As a general rule, all persons, whether natural or juridical, who can bind themselves, have the legal capacity to buy and sell. 

Persons Who Are Incapacitated to Enter Into a Contract of Sale 

1. Absolute Incapacity – pertains to persons who cannot bind themselves 

(a)    Minor

(b)    Insane or demented persons

(c)    Deaf-mutes who do not know how to read and write 

  • Contracts entered into by a minor and other incapacitated persons are voidable.  However, where the necessaries are sold and delivered to him (without the intervention of the parent or guardian), he must pay a reasonable price therefor.  The contract is therefore valid, but the minor has the right to recover any excess above a reasonable value paid by him. 
  • Sale of real property by minors who have already passed the ages of puberty and adolescence and are now in the adult age, when they pretended to have already reached their majority, while in fact they have not, is valid, and they cannot be permitted afterwards to excuse themselves from compliance with the obligations assumed by them or to seek their annulment.  This is in accord with the doctrine of estoppel [Mercado and Mercado vs. Espiritu, 37 Phil. 265]. 

 2. Relative Incapacity – where it exists only with reference to certain persons or class of property (Art. 1490-1491).  The prohibition extends to sales by virtue of legal redemption, compromises, and renunciations. 

(a)    Husband and wife to each other – except when a separation of property was agreed upon in the marriage settlements, or when there has been a judicial separation of property

(b)    Guardian – as to the property of his ward

(c)    Agents – as to the property whose administration or sale has been entrusted to them, unless consent of the principal is given

(d)    Executors or administrators – as to the state under their administration

(e)    Public officers and employees – as to the property of the State or any subdivision thereof, or of the government-owned or controlled corporations, the administration of which is entrusted to them

(f)     Judges and government experts who take part in the sale of the property and rights under litigation 

  • The prohibition is based on the fiduciary relationship (based on trust), to prevent fraud and undue and improper influence.
  • With respect to (b) to (d), the sale shall only be voidable because in such cases only private interests are affected.  The defect can be cured by ratification by the seller. With respect to (e) and (f), the sale shall be null and void, public interests being involved therein.   

(g)    Aliens who are disqualified to purchase private agricultural lands under Art. XII, Secs. 3 and 7 of the Constitution

(h)   Unpaid seller having a right of lien or having estopped the goods in transitu

(i)      Officer holding the execution or his deputy 

III.             EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN LOST 

  • Where the thing is entirely lost at the time of perfection, the contract is inexistent and void because there is no object.  There being no contract, there is no necessity to bring an action for annulment.
  • Where the thing is only partially lost, the vendee may elect between withdrawing from the contract and demanding the remaining part, paying its proportionate price.
  • The thing is lost when it perishes or goes out of commerce or disappears in such a way that its existence is unknown or it cannot be recovered. 

IV.              OBLIGATIONS OF THE VENDOR 

Principal Obligations of the Vendor 

to transfer the ownership of the determinate thing sold (Art. 1495);

  • The vendor need not be the owner of the thing at the time of perfection of the contract; it is sufficient that he has a right to transfer the ownership thereof at the time it is delivered (Art. 1459).
  • If the seller promised to deliver at a stipulated period and such period is of the essence of the contract but did not comply with his obligation on time, he has no right to demand payment of the price.  The vendee-buyer is fact may ask for the rescission or resolution of the sale.
  • If the failure of the seller to deliver on time is not due to his fault, as when it was the buyer who failed to supply the necessary credit for the transportation of the goods, delay on the part of the seller may be said to be sufficiently excused.

to deliver the thing, with its accessions and accessories, if any, in the condition in which they were upon the perfection of the contract (Art. 1537);

to warrant against eviction and against hidden defects (Arts. 1495, 1547);

to take care of the thing, pending delivery, with proper diligence (Art. 1163);

to pay for the expenses of the deed of sale, unless there is a stipulation to the contrary (Art. 1487).

Delivery or Tradition 

Tradition or delivery is a derivative mode of acquiring ownership by virtue of which one has the right and intention to alienate a corporeal thing, transmits it by virtue of a just title to one who accepts the same. 

  • Duty to Deliver at Execution Sale: a judgment debtor is not obliged to deliver right away; he has one (1) year within which to redeem the property.

Kinds of Delivery or Tradition

  1.   Actual or Real (Art. 1497) – the thing sold is placed in the control and possession of the vendee or his agent.  This involves the physical delivery of the thing and is usually done by the passing of a movable thing from hand to hand.
  2.   Legal or Constructive (Arts. 1498-1501) – through the execution of a public instrument 

Legal formalities – applies to real and personal properties, where the delivery is made through the execution of a public document;

Traditio simbolica – to effect delivery, the parties make use of a token symbol to represent the thing delivered;

Traditio longa manu – movable property is delivered by mere consent by the contracting parties if the thing sold cannot be transferred to the possession of the vendee at the time of the sale;

Traditio brevi manu – the vendee already has the possession of the thing sold by virtue of another title as when the lessor sells the thing leased to the lessee;

Constitotum possessorium – the vendor continues in possession of the property sold not as owner but in some other capacity (e.g., as tenant of the vendee). 

        3.   Quasi-Traditio (Art. 1501) – delivery of rights, credits or incorporeal real property, made by placing the titles of ownership in the hands of the vendee or lawyer, by execution of a public instrument, or by allowing the vendee to use his rights as new owner with the consent of the vendor. 

  • Requisites in constructive delivery before ownership may be transferred:

(a)    Seller must have control over the thing; otherwise, can he put another in control?

(b)    Buyer must be put under control;

(c)    There must be the intention to deliver the thing for purposes of ownership. 

  • Rules of constructive delivery

1. If a seller has an actual possession, he cannot transfer ownership by constructive delivery.

2. There can be no constructive delivery by means of a public instrument if there is a stipulation to the contrary.

3. The execution of a deed or contract is only presumptive delivery. 

An Unpaid Seller is one who has not been pair or rendered the whole price or who has received a bill of exchange or other negotiable instrument as conditional payment and the condition on which it was received has been broken by reason of the dishonor of the instrument.

Rights of an unpaid seller

1. A lien on the goods or right to retain them for the price while in his possession

2. A right of stopping the goods in transitu in case of insolvency of the buyer; requisites:

(a)    the seller must be unpaid;

(b)    the buyer must be insolvent;

(c)    the goods must be in transit;

(d)    the seller must either actually take possession of the goods sold or give notice of his claim to the carrier or other person in possession;

(e)    the seller must surrender the negotiable document of title, if any, issued by the carrier or bailee; and

(f)     the seller must bear the expenses of delivery of the goods after the exercise of the right.

3. A right of resale

4. A right to rescind the sale

Rules in case of loss, deterioration, or improvement of thing before delivery  

  1. If the thing is lost without the fault of the debtor, the obligation shall be extinguished.
  2. If the thing is lost through the fault of the debtor, he shall be obliged to pay damages, if is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered.
  3. When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor.
  4. If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case.
  5. If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor.
  6. If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. 

Rules as to preference of ownership in case of double sale  

  1. If the property sold is movable, the ownership shall be acquired by the vendee who first takes possession in good faith [Villa Rey Transit, Inc. vs Ferrer, 25 SCRA 861].
  2. If the property sold is immovable, the ownership shall belong to:

(a)    the vendee who first registers the sale in good faith in the Registry of Deeds has preferred right over another vendee who has not registered his title even if the latter is in actual possession of the immovable property – governed by the principle prius tempore, patior jure (first in time, stronger in right) – knowledge by the first buyer of the  second sale cannot defeat the first buyer’s right except when the second first registers in good faith the second sale;

(b)    in the absence of registration, the vendee who first takes possession in good faith; and

(c)    in the absence of both registration and possession, the vendee who presents the oldest title (who first bought the property) in good faith. 

  • Article 1544 has no application to lands not registered with the Torrens system. 

V.    CONDITION AND WARRANTIES 

Condition means an uncertain event or contingency on the happening of which the obligation (or right) of the contract depends. 

Warranty is a statement or representation made by the seller of goods, contemporaneously and as a part of the contract of sale, having reference to the character, quality, or title of the goods, and by which he promises or undertakes to insure that certain facts are or shall be as he then represents them. 

If the obligation of either party is subject to any condition and such condition is not fulfilled, such party may either (1) refuse to proceed with the contract, or (2) proceed with the contract, waiving the performance of the condition. 

If the condition is in the nature of a promise that it should happen, the non-performance of such condition may be treated by the other party as a breach of warranty. 

Implied warranty as to seller’s title (Art. 1548) – that the seller guarantees that he has a right to sell the thing sold and to transfer ownership to the buyer who shall not be disturbed in his legal and peaceful possession thereof. 

Implied warranty against hidden defects or unknown encumbrance (Art. 1562) – that the seller guarantees that the thing sold is reasonably fit for the known particular purpose for which it was acquired by the buyer or, where it was bought by description, that it is of merchantable quality. 

Essential elements of warranty against eviction 

  1. the vendee is deprived in whole or in part of the thing purchased;
  2. the vendee is so deprived by virtue of a final judgment ;
  3. the judgment is based on a right prior to the sale or an act imputable to the vendor;
  4. the vendor was summoned in the suit for eviction at the instance of the vendee; and
  5. there is no waiver on the part of the vendee. 

Kinds of waiver of eviction 

  1. Consciente – the waiver is voluntarily made by the vendee without the knowledge and assumption of the risks of eviction. If the waiver was only conscious, the vendor shall pay only the value which the thing sold had at the time of eviction – this is a case of solution indebiti – the effect is to deprive the purchaser of the benefits mentioned in Nos. 2, 3, 4 and 5 of Article 1555.
  2. Intencionada – the waiver is made by the vendee with knowledge of the risks of eviction and assumption of its consequence. The vendor is exempted from the obligation to answer for eviction, provided he did not act in bad faith [Andaya vs. Manansala, 107 Phil. 1151]. 

Rights of the vendee against the vendor in case eviction occurs (Art. 1555) 

  1. return of the value of the thing sold at the time of eviction;
  2. income or fruits if he has been ordered to deliver them to the party who won the suit against him;
  3. costs of the suit;
  4. expenses of the contract;
  5. damages and interests and ornamental expenses if the sale was made in bad faith. 
Redhibition Redhibitory action Redhibitory vice or defect
 

– the avoidance of a sale on account of some vice or defect in the thing sold, which renders its use impossible, or so inconvenient and imperfect that it must be supposed that the buyer would not have purchased it had he known of the vice.

– an action instituted to avoid a sale on account of some vice or defect in the thing sold which renders its use impossible, or so inconvenient and imperfect that it must be supposed that the buyer would not have purchased it had he known of the vice. The object is the rescission of the contract. If the object is to procure the return of a part of the purchase price paid by the vendee, the remedy is known as accion minoris or estimatoris. – a defect in the article sold against which defect the seller is bound to warrant.  The vice or defect must constitute an imperfection, a defect in its nature, of certain importance; and a minor defect does not five rise to redhibition.  The mere absence of a certain quality in the thing sold which the vendee thought it to contain is not necessarily a redhibitory defect.  One thing is that is positively suffers from certain defects.

Doctrines of caveat venditor and caveat emptor 

Caveat venditor

(Let the seller beware)

Caveat emptor

(Let the buyer beware)

– the vendor is liable to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof (Art. 1566).-  Based on the principle that a sound price warrants a sound article. – applies in sheriff’s sale, sales of animals, and tax sales, for there is no warranty of title or quality on the part of the seller in such sales.

–  Also applies in double sales of property where the issue is who between two vendees has a better right to the property .

–  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 [Solvoso vs. Tanega, 87 SCRA 349].

Alternative remedies of the buyer to enforce warranty (Art. 1567):

  1. Accion redhibitoria – to withdraw from the contract
  2. Accion quanti minoris – demand a proportionate reduction of the price, with a right to damages in either case 

Effect of loss of thing sold on account of hidden defects (Art. 1568) 

If the vendor was aware of the hidden defects in consequence of which the thing sold was lost, he shall bear the loss because he acted in bad faith. In such case, the vendee has the right to recover:

(a)    the expenses of the price paid

b)    the contract; and

(c)    damages.

If the vendor was not aware of them, he shall be obliged only to return:

(a)    the price paid

(b)    interest thereon; and

(c)    expenses of the contract if paid by the vendee.  He is not made liable for damages because he is not guilty of bad faith.

VI.   OBLIGATIONS OF THE VENDEE 

  • The vendee is obliged to (1) accept delivery; and (2) pay the price of the thing sold.
  • The following rules must be borne in mind: 
1. In contract of sale, the vendor is not required to deliver the thing sold until the price is paid nor the vendee pay the price before the thing is delivered in the absence of an agreement to the contrary [La Font vs. Pascacio, 5 Phil. 591].
2. If stipulated, then the vendee is bound to accept delivery and to pay the price at the time and place designated.
3. If there is no stipulation as to the time and place of payment and delivery, the vendee is bound to pay at the time and place of delivery.
4. In the absence also of stipulation, as to the place of delivery, it shall be made wherever the thing might be at the moment the contract was perfected (Art. 1251).
5. If only the time for delivery of the thing sold has been fixed in the contract, the vendee is required to pay even before the thing is delivered to him; if only the time for payment of the price has been fixed, the vendee is entitled to delivery even before the price is paid by him (Art. 1524).

Instances when the vendee may suspend the payment of the price: 

a) should he be disturbed in the possession or ownership of the thing sold;

b) should he have reasonable grounds to fear such disturbance by a vindicatory action or by a foreclosure of mortgage; 

These rights do not exist in the following cases: 

(a)    should there be a stipulation to that effect; or

(b)    should the vendor give security for the return of the price; or

(c)    should the vendor have caused the disturbance or danger to cease; or

(d)    should the disturbance consist only of a mere act or trespass. 

VII.           ACTIONS FOR THE BREACH OF CONTRACT OF SALE OF GOODS 

Goods – include all chattels personal but not things in action or money of legal tender in the Philippines. The term includes growing fruits or crops. 

Actions available for breach of the contract of sale of goods

Action by the seller for payment of the price (Art. 1595)

Action by the seller for damages for non-acceptance of the goods (Art. 1596)

Action by the seller for rescission of the contract for breach thereof (Art. 1597)

Action by the buyer for specific performance (Art. 1598)

Action by the buyer for rescission or damages for breach of warranty (Art. 1599) 

Remedies allowed to the buyer when the seller has been guilty of a breach of promise or warranty (Art. 1599): 

1 Recoupment – accept the goods and set up the seller’s breach to reduce or extinguish the price.The theory of recoupment is that the seller’s damages are cut down to an amount which will compensate him for the value of what he has given.
2 Set-off or Counterclaim for damages – accept the goods and maintain an action for damages for the breach of the warranty. Both sides of the contract are enforced in the same litigation.  The buyer (defendant) does not seek to avoid his obligation under the contract but seeks to enforce the seller’s (plaintiff’s) obligation and to deduct it from his liability for the price for breach of warranty.
3 Action for damages – refuse to accept the goods and maintain an action for damages for the breach of the warranty.
4 Rescission – rescind the contract of sale by returning or offering the return of the goods, and recover the price or any part thereof which has been paid. This remedy is not available in the following cases:

(a)    if the buyer accepted the goods knowing of the breach of warranty without protest;

(b)    if he fails to notify the seller within a reasonable time of his election to rescind; and

(c)    if he fails to return or offer to return the goods in substantially as good condition as they were in at  the time of the transfer of ownership to him.  But where the injury to the goods was caused by the very defect against which the seller warranted, the buyer may still rescind the sale.

VIII.        EXTINGUISHMENT OF SALE 

Classification of modes or causes of extinguishing the contract of sale: 

Common – those causes which are also the means of extinguishing all other contracts like payment, loss of the thing, condonation, etc. (Art. 1231).

Special – those causes which are recognized by the law on sales (those covered by Arts. 1484, 1532, 1539, 1540, 1542, 1556, 1560, 1567, and 1591).

Extra-special – conventional redemption and legal redemption. 

Conventional Redemption

(Arts. 1601-1618)

Legal Redemption

(Arts. 1619-1623)

It is the right which the vendor reserves to himself, to reacquire the property sold provided her returns to the vendee the price of the sale, the expenses of the contract, any other legitimate payments made therefore and the necessary and useful expenses made on the thing sold, and fulfills other stipulations which may have been agreed upon. It 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 transmitted by onerous title.  
Nature: 

(a)    it is purely contractual because it is a right created, not by mandate of the law, but by virtue of an express contract [Ordoñez vs. Villaroman, 78 Phil. 116];

(b)    it is an accidental stipulation and, therefore, its nullity cannot affect the sale of itself since the latter might be entered into without said stipulation [Alojado vs. Lim Siongco, 51 Phil. 339];

(c)    it is a real right when registered, because it binds third persons [Mortera vs. Martinez, 14 Phil. 541];

(d)    it is a resolutory condition because when exercised, the right of ownership acquired by the vendee is extinguished [Aquino vs. Deal, 63 Phil. 582];

(e)    it is potestative because it depends upon the will of the vendor;

(f)     it is a power or privilege, not an obligation, that the vendor has reserved for himself [Ocampo vs. Potenciano, CA 48 OG 2230];

(g)    it is reserved at the moment of the perfection of the contract for if the right to repurchase is agreed upon afterwards, there is only a promise to sell which produces different rights and effects and is governed by Art. 1479 [Diamante vs. CA, 206 SCRA 52];

(h)    the person entitled to exercise the right of redemption necessarily is the owner of the property sold and not any third party [Gallar vs. Husain, 20 SCRA 186];

(i)      it gives rise to reciprocal obligation that of returning the price of sale and other expenses, on the part of the vendor, and that of delivering the property and executing a deed of sale therefore, on the part of the vendee [Pandaquilla vs. Gaza, 12 Phil. 663].

Nature:  (a)     identical with conventional redemption, except for the source of the right – conventional redemption arises from the voluntary agreement of the parties; legal redemption proceeds from law;

(b)     it is not predicated on proprietary right but on a bare statutory privilege to be exercised only by the person named in the statute – the statute does not make actual ownership at the time of sale or redemption a condition precedent, the right following the person and not the property [Magno vs. Viola and Sotto, 61 Phil. 80];

(c)     it is in the nature of a mere privilege created partly for reason of public policy and partly for the benefit and convenience of the redemptioner to afford him a way out of what might be a disagreeable or inconvenient association into which he has been thrust – it is intended to minimize co-ownership [Basa vs. Aguilar, 117 SCRA 128; Tan vs. CA, 172 SCRA 660].

 

Instances of Legal Redemption:

 

(a)    Under the Civil Code, those found in Arts. 1620-1622, 1634, and 1088;

 

(b)    Under special laws:

(1)    redemption by owner of real property sold for delinquent taxes – period is within 1 year from date of sale;

(2)    repurchase by homesteader of homestead sold under the Public Land Act – period is 5 years [Tupas vs. Damasco, 132 SCRA 593];

(3)    redemption by judgment debtor or redemptioner or real property sold on execution – period is 12 months;

(4)    redemption by mortgagor after mortgaged property has been judicially foreclosed and sold – period is 90 days but before confirmation of sale by the court (in all cases of extra-judicial foreclosure sale, the mortgagor may redeem the property within 1 year from the date of registration of the sale);

(5)    redemption by an agricultural lessee of landholding sold by the landowner – period is 180 days from notice in writing which shall be served by the vendee on all lessees affected by DAR upon the registration of the sale.

An equitable mortgage is one which lacks the proper formalities, form of words, or other requisites prescribed by law for a mortgage, but shows the intention of the parties to make the property subject of the contract as security for a debt and contains nothing impossible or contrary to law [Cachola vs. CA, 208 SCRA 496]

Dacion en pago is the transmission of the ownership of a thing by the debtor to the creditor as the accepted equivalent of the performance of an obligation. 

Pacto de retro

Mortgage

Ownership is transferred but the ownership is subject to the condition that the seller might recover the ownership within a certain period of time. Ownership is not transferred but the property is merely subject to a charge or lien as security for the compliance of a principal obligation, usually a loan.
If the seller does not repurchase the property upon the very day named in the contract, he loses all interest thereon. The mortgagor does not lose his interest in the property if he fails to pay the debt at its maturity.
There is no obligation resting upon the purchaser to foreclose; neither does the vendor have any right to redeem the property after the maturity of the debt. It is the duty of the mortgagee to foreclose the mortgage if he wishes to secure a perfect title thereto, and after the maturity of the debt secured by the mortgage and before foreclosure, the mortgagor has a right to redeem [Basilio vs. Encarnacion, 5 Phil. 360].

Instances when conventional redemption is presumed to be an equitable mortgage:

  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 the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation; and
  7. when there is a doubt as to whether the contract is a contract of sale with right or repurchase or an equitable mortgage. 
  Requisites before legal redemption can be exercised:
1 There must be a sale or assignment of credit.  The concept of sale must be understood in its restricted sense.  The right cannot be exercised if the transaction is exchange or donation.
2 There must be a pending litigation at the time of the assignment.  The complaint by the assignor must have been filed and answered by the creditor before the sale of the credit.
3 The debtor must pay the assignee (a) the price paid by him, (b) the judicial costs incurred by him, and (c) the interests on the price from the date of payment.
4 The right must be exercised by the debtor within 30 days from the date the assignee demands (judicially or extra-judicially) payment from him.

 

 

Redemption

Pre-emption

1 The sale to a third person has already been perfected The sale to a third person has not yet been perfected
2 Has a much broader scope Narrower in scope – may be exercised only where there is a prospective resale of a small piece of urban land originally bought by the prospective vendor merely for speculation
3 Directed against the third person who bought the property Directed against the prospective vendor who is about to resell the property
4 Effect is to extinguish a contract that has already been perfected or even consummated Effect is to prevent the birth or perfection of a contract

IX.   ASSIGNMENT OF CREDITS AND OTHER INCORPOREAL RIGHTS 

Assignment of credit – a contract by which the owner of a credit transfers to another his rights and actions against a third person in consideration of a price certain in money or its equivalent (Art. 1458). 

Assignment of credit and other incorporeal rights are consensual, bilateral, onerous, and commutative or aleatory contracts.  The assignment involves no transfer of ownership but merely effects the transfer of rights which the assignor has at the time to the assignee [Casabuena vs. CA, 286 SCRA 594]

It may be done gratuitously, but if done onerously, it is really a sale.  Thus, the subject matter is the credit or right assigned; the consideration is the price paid for the credit or right; and the consent is the agreement of the parties to the assignment of the credit or right at the agreed price. 

Renunciation – the abandonment of a right without a transfer to another. 

Agency – involves representation, not transmission wherein the agent acts for the principal. 

Substitution – the change of a new debtor for the previous debtor with the credit remaining in the same creditor. 

Subrogation – the change in the person of the creditor with the credit being extinguished. 

  Binding effects of assignment:
1 As between the parties, the assignment is valid although it appears only in a private document so long as the law does not require a specific form for its validity.
2 To affect third persons, the assignment must appear in a public instrument, and in case it involves real property, it is indispensable that it be recorded in the Registry of Deeds [Lopez vs. Alvarez, 9 Phil. 28].
3 The assignee merely steps into the shoes of the assignor, the former acquiring the credit subject to defenses (fraud, prescription, etc.) available to the debtor against the assignor.  The assignee is deemed subrogated to the rights as well as to the obligations of the seller.  He cannot acquire greater rights than those pertaining to the assignor. [Koa vs CA, 219 SCRA 541].

 

 X.   BARTER OR EXCHANGE 

Barter – a contract whereby one person transfers the ownership of non-fungible things to another with the obligation on the part of the latter to give things of the same kind, quantity, and quality. 

The contract is perfected from the moment there is a meeting of the minds upon the things promised by each party in consideration of the other.  It is consummated from the time of mutual delivery by the contracting parties of things they promised. 

Effect where the giver is not the lawful owner of the thing delivered:  the aggrieved party cannot be compelled to deliver the thing he has promised.  He is entitled to claim damages (Art. 1639). [Biagtan vs. Viuda de Oller, 62 Phil. 933]

Remedy in case of eviction: the injured party is given the option to recover the property he has given in exchange with damages or only claim an indemnity for damages.  The right to recover is, however, subject to the rights of innocent third persons (Art. 1640). 

 

XI.    THE BULK SALES LAW 

Purpose of the law (Act No. 3952) is to prevent the defrauding of creditors by the secret sale or disposal or mortgage in bulk of all or substantially all of a merchant’s stock of goods. 

The general scheme is to declare such bulk sales fraudulent and void as to creditors of the vendor, or presumptively so, unless specified formalities are observed, such as the demanding and the giving of a list of creditors, the giving of actual and constructive notice to such creditors, by record or otherwise, and the making of an inventory. 

A sale and transfer in bulk under the Bulk Sales Law is any sale, transfer, mortgage, or assignment –  

(a)    of a stock of goods, wares, merchandise, provisions, or materials otherwise than in the ordinary course of trade and the regular prosecution of the business; or

(b)  of all or substantially all, of the business or trade; or

(c)  of all or substantially all, of the fixtures and equipment used in the business of the vendor, mortgagor transferor, or assignor.

 Acts punished by the law: 

  1. knowingly or willfully making or delivering a statement as required by the Act which does not include the names of all the creditors of the vendor, etc. with the correct amount due and to become due or which contains any false or untrue statement; and
  2. transferring title to a any stock of goods, wares, merchandise, provisions or materials sold in bulk without consideration of for a nominal consideration only.

 – – O – –

 Reference: 

  1. De Leon, Comments and Cases on Sales;
  2. Paras, Civil Code of the Philippines Annotated, Book V;
  3. Jurado, Civil Law Reviewer.
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Responses

  1. l greatly appreciate your reasearch and it has answered my part of studies pease with God keep on the good work.

    Like

  2. how does the contract of sale is important to the buyer or seller

    Like

  3. _thank you very much for this post. this is of great help…

    Like

  4. sir…. can you please elaborate more abut the accion quantiminoris

    Like

  5. sir,
    i just want to know if what is a better remedy for breach of contract against hidden defects in terms of practicality.

    Like

  6. can you give some situational problems regarding this contract of sale?kelangan po kasi sa studies ko ngaun ehh. thank you po

    Like

  7. Can you help to known how many classification of goods in contract of sale?

    Like

  8. paano po hahabulin ang property kung may cancellation of contract to sell from HDMF/ Pag-ibig

    Like


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