Regulatory Framework and Business Transactions Soriano _SALES107 PDF

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REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONSLaw on Sales1. Contract of Sales is a contract whereby one of the contracting parties, known as the seller or vendor , obligates himselfto transfer the ownership of and to deliver a determinate thing , and the other party, known as the buyer or vendee , ...

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REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS Law on Sales 1. Contract of Sales is a contract whereby one of the contracting parties, known as the seller or vendor, obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party, known as the buyer or vendee, obligates himself to pay therefore a price certain in money or its equivalent. I.

Essential elements of the contract of sale – These are elements necessary for validity and perfection of contract of sale. (Consent, Price, Determinate subject) a. Subject matter or object which should be a determinate thing i. Requisites of subject matter of a contract of sale 1. It must be within the commerce of men. 2. It must be licit and not contrary to law, morals, good customs, public order or public policy. 3. It must be determinate. 4. It must be owned by the vendor at the time of delivery. ii. Things that may become the subject matter of a contract of sale (The vendor must have the right to transfer the ownership of the thing at the time it is delivered; not necessarily at the time of sale)

1. Existing goods owned or possessed by the seller. 2. Goods to be manufactured, raised or acquired by the seller after the perfection of the contract of sale or “future goods”/ Emptio rei speratae subject to the condition that it must materialize. If the future things do not materialize, the contract of sale will become inefficacious or void for absence of subject matter which is an essential element of contract of sale. 3. Goods whose acquisition by the seller depends upon the contingency which may or may not happen. 4. Things subject to resolutory condition which if happens, the contract of sale will be extinguished. 5. Hereditary rights 6. Undivided interest in co-owned property which will result to co-ownership on the part of buyer and seller. 7. Fungible goods which refer to interchangeable goods such as grain, oil, etc. that allow to be replaced by another without loss of value. A. Principles on sale of an undivided share of a specific mass of fungible goods though the seller purports to sell and the buyer purports to buy a definite number, weight or measure of the goods in the mass, and though the number, weight or measure of the goods in the mass is undetermined. i. If the quantity, number, weight or measure, of the mass is more than the quantity sold, the parties shall become co-owners of the mass. ii. If the quantity of the mass is less than the quantity sold, the buyer becomes the owner of the whole mass, with the seller being bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent appears. iii. Things not allowed to become the subject matter making the contract null and void

1. 2. 3. 4.

Those contrary to law, morals or public policy. Those outside the commerce of men. Future inheritance Vain hope

iv. Distinctions between emptio rei speratae and emptio spei Emptio rei speratae (Sale of Future Thing) The thing expected will definitely come into existence, but its quality or quantity unknown. (Sale of future thing)

Emptio spei (Sale of Hope or Expectancy) It is not certain that the thing will exist much less its quantity or quality. (Sale of present thing which is the hope itself)

Subject to the condition that the thing should exist, so that if it does not, there will be no contract of sale by reason of the absence of an essential element of subject matter Ex: Sale of future harvest

Produces effects even though the thing does not come into existence because the subject matter is the hope itself, however, the sale of vain hope or expectancy is void. Ex: Sale of lottery ticket No. 113 Ex of vain hope: Sale of a losing sweepstake ticket already drawn

b. Price certain in money or its equivalent: the sum stipulated, put to the debit of the vendee, and agreed by him. i. Requisites of price in a contract of sale 1. It must be certain. 2. It must be real 3. It must not be fictitious.

ii. The third person acted in bad faith or by mistake. Ø The injured party may ask the court to fix the reasonable price. iii. The third person is prevented from fixing the price by fault of the seller or the buyer. Ø The injured party may ask for damages 4. If the price is fixed by the court which price may no longer be changed by the contracting parties. 5. If the price fixed is that which the thing sold would have on a definite day, or in a particular exchange or market, or when an amount is fixed above or below the price on such day, or in such exchange or market, provided said amount is certain. 6. If the price is fixed by one of the contracting parties and accepted by the other. iii. Effects of gross inadequacy of price in a contract of sale 1. It does not affect a contract of sale, except as it may indicate a defect in the consent which makes the contract voidable requiring annulment of contract. 2. It renders the contract one of donation if that is the real intention of parties. Thus, it will require reformation of instrument. iv. Effects of simulated price in a contract of sale 1. If the price is absolutely simulated, the contract of sale is null and void requiring declaration of nullity. 2. It the price is relatively simulated, the intent of the parties is hidden requiring reformation of instrument. c. Consent of the contracting parties on the determinate thing and the price certain in money i. Moment of perfection of contract of sale 1. At the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. ii. Moment of perfection of contract of sale by auction 1. When the auctioneer announces its perfection by the fall of the hammer or in any other manner. a. Rights of auctioneer and highest bidder before the perfection of contract of sale by auction i. Before perfection, any bidder may retract his bid. ii. Before perfection, the auctioneer may generally withdraw the goods from the sale unless the auction has been announced without reservation by auctioneer. b. Rights of auctioneer and highest bidder after the perfection of contract of sale by auction i. After perfection, the winning bidder cannot retract his bid. ii. After perfection, the auctioneer cannot withdraw the goods. c. Requisites before auctioneer may participate in bidding or auction i. The right to bid must have been reserved expressly by or on behalf of the seller. ii. The right to bid must not be prohibited by law or stipulation. iii. Notice must be given that the sale is subject to a right to bid by or on behalf of the seller. d. By bidders or puffers refer to persons employed by the seller to bid in his behalf, the purpose of which is to raise the price, but the said persons are not in themselves bound by their bids. The employment by the seller of by-bidders or puffers without notice to the other bidders may make the perfected contract of sale voidable because the consent of the highest bidder is vitiated by causal fraud. II.

Natural elements of the contract of sale – These are elements which are presumed to exist in a contract of sale unless validly waived by the contracting parties. Note: (Persons professing to sell by virtue of authority is not liable for breach of warranty. Ex.: Sheriff, auctioneer) a. Warranty against eviction: enjoy the legal and peaceful possession of the thing b. Warranty against hidden defects: free from any hidden faults or defects c. Warranty against non-apparent and unregistered servitude or encumbrance d. Warranty for merchantability

III.

Accidental elements in the contract of sale – These are elements which do not exist in a contract of sale unless provided by the contracting parties. a. Place of delivery and payment b. Time of delivery and payment c. Terms or conditions of payment d. Interest of the price

IV.

Characteristics of a contract of sale a. Principal – It can exist by itself without being dependent upon another contract. b Consensual – It is perfected by mere consent upon the price certain and determinate thing except in case

V.

Sale vs Dacion en pago vs payment by Cession

Sale No pre-existing credit Creates obligations Greater freedom in fixing the price

Buyer becomes the owner of the thing transferred upon delivery

Dacion en pago There is pre existing credit Extinguishes obligations Less freedom because of the amount of pre-existing credit which the parties seek to extinguished Cause/consideration: extinguishment of obligation (D), delivery of the object given in place of credit (C) Creditor become the owner of the property assigned

Governed by Law on Sales

Governed by Law on Sales

Cause/consideration: price (S), delivery of object (B)

VI.

Cession There is pre-existing credits Extinguishes obligations Less freedom because of the amount of pre-existing credit which the parties seek to extinguished Cause/consideration: extinguishment of the obligation (D), assignment of the things to be sold (C) Creditors do not become the owners of the property assigned to them but are merely given the right to sell such property and apply the proceeds to their claims. Governed by special law: Financial Rehabilitation and Insolvency Act (FRIA)

Contract of sale vs contract for a piece of work vs contract of barter

Sale It is for the delivery at a certain price of an article which the vendor in the ordinary course of business, manufactures or procures for the general market, whether the same is on hand or not a price of at least P500 or sale of immovable regardless of price is covered by Statute of Fraud The cause is cash

Piece It is for the goods especially for the special order and market.

of work to be manufactured customer upon his not for the general

a price of Monetary value) ii. The contract is one of sale if the monetary consideration is more than or equal the value of the noncash asset given as part of the consideration. (Noncash =2 yrs) of installments. a

Right to a grace period from the date the installment became due with no interest which can be

c. Right to cash surrender value in case of cancellation by seller. Paid installments Paid less < 2 years of installment Paid 2-5 years of installment Paid more > 5 years of installment

Grace period with no interest Not entitled to any CSV. Entitled to 50% CSV of the total payment th Entitled to 50% + 5% (after 5 yr) per year of total payment but th not to exceed 90% of total payments made (13 yr) Note: Down payments, deposits, or options shall be included in the computation of the total payment.

d. Additional rights: 1) B shall have the right during the grace period before the cancellation of the contract: a. To sell his rights to another by notarial act. b. To assign his rights to another, by notarial act. c. To reinstate the contract by updating the account. 2) To pay in advance any installment or the full unpaid balance any time without interest. 3) To ask for annotation of the full payment of the purchase price in the certificate of title covering the property. II. When cancellation shall take place: the actual cancellation shall take place after thirty (30) days from receipt by B of the notarized notice of cancellation or the demand for rescission of the contract by notarial act and upon the full payment of the CSV to the buyer. III. Maceda law is NOT applicable to a loan transaction, or bank financing. This transaction give rise to a lenderborrower relationship. Maceda law should be construed only as a mode of payment in relation to the seller of the real estate. Here, the real estate is being purchased from another company, not from the bank. 11. Rights of Buyer of Subdivision or condominium unit under PD 957 or Subdivision and Condominium Buyer's Protective Decree I. Transactions covered: “Subdivision lot” shall mean any of the lots, whether residential, commercial, industrial, or recreational, in a subdivision project. II. Rights of Buyer in case of default: Governed by RA 6552, or Realty Installment Buyer Act, or Maceda Law a. In case of noncompliance by the developer with the plan, the buyer may suspend payment of the price and ask for the cancellation of contract with corresponding demand for the return of the price he has paid including amortization interests but excluding delinquency interests. b. The developer shall pay the real property tax before transfer of ownership to buyer. c. The developer can only collect fees for registration of sale from the buyer. 12. Persons incapacitated to enter into a contract of sale a. Those suffering from absolute incapacity i. Minor ii. Insane iii. Demented iv. Deaf-mute who do not know how to write Note: 1. If only one party is incapacitated, the contract of sale is voidable. 2. If both parties are incapacitated, the contract of sale is unenforceable. 3. When necessaries are sold to a minor or other incapacitated person, he must pay a reasonable price thereof and the sale is valid. Necessaries include everything indispensable for sustenance, dwelling, clothing, medical attendance, education and transportation. b. Those suffering from relative incapacity i. Husband and wife 1. General rule: Contract of sale between husband and wife is null and void. 2. Exceptions: when husband and wife may validly sell to each other a. If there is prenuptial or ante-nuptial agreement of complete separation of property b. If there is judicial separation of property by reason of legal separation 13. Persons who are prohibited from acquiring by purchase, even at public or judicial auction, sales in legal redemption, compromises or renunciation a. The guardian, the property of the person or persons under his guardianship. b. Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given. c. Executors and administrators, the property of the estate under administration. d. Public officers and employees, the property of the State or GOCC under their administration. e. Justices, judges, prosecuting attorneys, clerks of court and other officers and employees connected with the administration of justice, the property and rights in litigation. Note:

14. Obligations of the vendor or seller a. To transfer the ownership of the thing sold at the time the subject matter should be delivered. b. To deliver the determinate thing sold including the accessions and accessories in the condition in which they were upon the perfection of the contract. c. To warrant the thing sold against eviction, hidden defects and non-apparent and unregistered encumbrances. d. To take care of the thing sold with the diligence of a good father of a family unless the law or the stipulation of the parties requires another standard of care. Note: General rule: the creditor has a right to the fruits of the thing from the time the obligation to deliver the thing arises. Exception: (for contract of sale) the fruits shall pertain to the buyer (personal right only) from the day on when the contract was perfected, unless stipulated otherwise. 15. Obligation of the vendee or buyer a. To pay the price certain in money or its equivalent on the date agreed upon. 16. Delivery is a mode of acquiring ownership whereby the object of the contract is placed in the control and possession of the vendee or buyer. It is the act that transfers ownership from seller to buyer in a contract of sale. However, the contracting parties may agree that ownership will be transferred from the seller to the buyer by any other acts such as full payment of the price. I. Types of Delivery a. Actual delivery b. Constructive delivery II.

Examples of constructive deliveries a. By legal formalities – When the same is made through a public document, the execution thereof shall be equivalent to the delivery of the thing sold. It applies to both movable and immovable property. The execution of a public instrument gives rise to a prima facie presumption of delivery. Such presumption is destroyed when the delivery is not effected because of legal impediment. b. Symbolic delivery (traditio simbolica or traditio clavium) – This is delivery that takes place by delivering the keys of the place or depository where the movable is stored or kept. c.

Traditio longa manu – It is the delivery of a movable by mere consent or agreement of the parties if the thing cannot be transferred to the possession of the vendee at the time of sale. “Delivery by the long hand.”, usually made by pointing at the thing.

d. Traditio brevi manu – It is a delivery that takes place when the vendee or buyer is already in the possession of the thing sold even before the sale and thereafter continues in possession thereof in the concept of an owner. It applies to movables only. “Delivery by the short hand.” e. Traditio constitutum possessorium – It is a delivery that takes place when the vendor or seller continues in possession of the thing sold after the sale but in another capacity such as that of a lessee or depositary. It applies to both movable and immovable property. “Delivery by agreement of possessors.” f.

Constructive deliveries of intangible assets or incorporeal rights, or quasi-traditio i. By constructive traditio or delivery of incorporeal property by execution of public document. ii. By placing the titles of ownership in the possession of the vendee such as delivering the stock certificate covering the shares of stock sold. iii. Through the use by the vendee of his rights with consent of the vendor such as when the seller authorizes the buyer of shares of stock to vote during the stockholder’s meeting.

17. Distinctions between Sale or return vs. Sale on trial or approval Sale or return Ownership is transferred to the buyer upon delivery, but the buyer has the option to revest their ownership on S by returning within the time fixed or reasonable time. B may return the goods even if he is satisfied of its quality.

Sale on trial or approval delivery does not transfer ownership to the buyer but instead ownership is transferred to the buyer under any of the following instances: (a) when the buyer signifies his approval or acceptance of the goods; (b) when the buyer does an act adopting the transaction; (c) when the buyer does not signify his approval or acceptance of the goods but retains the goods without giving notice of rejection within the time fixed in the contract or within reasonable time, and such time has expired. B has no right to return the goods if he is satisfied of its quality.

18. Delivery to the common carrier (FOB Shipping Point) General rule: The law presumes that the contract of sale is FOB Shipping Point which means that delivery to I. the carrier means delivery to the Buyer. II. Exceptions: Instances which the ownership is retained by Seller despite delivery to carrier or other bailee:

19. I. General rule: A non-owner cannot transfer ownership to his buyer, B acquires no better title than S. II. Exceptions: Instances when the sale of a non-owner transfers ownership to the buyer: a. When the sale is made with authority or consent of the owner. b. When the owner is precluded by his conduct from denying the seller’s authority to sell. c. When the sale is made under the provisions of any factor’s acts, recording laws or any other provisions of law enabling the apparent owner to dispose of the goods as if he were the true owner thereof. d. When the sale is made under a statutory power of sale or under the order of court of competent jurisdiction. e. When the purchase is made in a merchant’s store, or in fairs, or markets. III. If the seller’s title is voidable but the same has not been avoided at the time of sale, the buyer acquires good title to the goods, provided he buys them in good faith, for value, and without notice of the seller’s defect title. 20. Places wherein the things sold should be delivered a. Place stipulated in the contract. b. In case there is no stipulation, place fixed by usage or trade. c. In the absence of a ...