TITLE Vl SALES NATURE AND FORM OF THE CONTRACT PDF

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CIVIL CODE OF THE PHILIPPINES TITLE Vl SALES Chapter 1 NATURE AND FORM OF THE CONTRACT Article 1458. By the contract of sale one of the contract- ing parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or i...

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CIVIL CODE OF THE PHILIPPINES

TITLE Vl SALES Chapter 1 NATURE AND FORM OF THE CONTRACT

Article 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of 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. COMMENT: (1) ‘Sale’ Defined Sale is a contract where one party (seller or vendor) obligates himself to transfer the ownership of and to deliver a determinate thing, while the other party (buyer or vendee) obligates himself to pay for said thing a price certain in money or its equivalent. (See Art. 1458, Civil Code). (2) Historical Notes Under Roman Law, a sale was termed avenditio. Today, the French refer to the contract as a venta, while the Spaniards call it a venta. The definition of the contract of sale in Art. 1458 is taken from Art. 1445 of the Spanish Civil Code, except that under said Spanish Code, the obligation of the vendor was merely to “deliver” the thing sold, so that even if the seller was not the owner, he might still validly sell, subject to the warranty to maintain the buyer in the legal and peaceful possession of the thing sold. The Civil Code requires 1

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not only delivery but also the transfer of the ownership of the thing sold. (Report of the Code Commission, p. 141). However, the vendor need not be the owner at the time the sale is perfected. It is sufficient that he is the owner at the time the thing sold is delivered. (See Art. 1459, Civil Code). Query: Suppose Art. 1458 did not specify that the seller must transfer the ownership of the object, does he still have this obligation? Answer: Yes, for after all, this transfer of ownership is clearly the fundamental aim of the contract. A buyer is not interested in a mere physical transfer: he is after ownership. (See 3 Castan 12-13). (3) Essential Characteristics of the Contract of Sale (a)

Consensual (as distinguished from real), because the contract is perfected by mere consent. (NOTE: A real contract is one perfected by delivery, e.g., the contract of deposit or commodatum.)

(b)

Bilateral reciprocal, because both parties are bound by obligations dependent upon each other.

(c)

Onerous, because to acquire the rights, valuable consideration must be given.

(d)

Commutative, as a rule, because the values exchanged are almost equivalent to each other. (NOTE: By way of exception, some contracts of sale are aleatory, i.e., what one receives may in time be greater or smaller than what he has given. Example: The sale of a genuine sweepstakes ticket.)

(e)

Principal (as distinguished from an accessory contract), because for the contract of sale to validly exist, there is no necessity for it to depend upon the existence of another valid contract. (Examples of accessory contracts are those of pledge and mortgage.)

(f)

Nominate (as distinguished from an innominate contract) because the Code refers to it by a special designation or name, i.e., the contract of sale. 2

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(4) Elements of the Contract of Sale (a)

Essential elements (those without which there can be no valid sale): 1)

Consent or meeting of the minds, i.e., consent to transfer ownership in exchange for the price.

2)

Determinate subject matter (generally, there is no sale of generic thing; moreover, if the parties differ as to the object, there can be no meeting of the minds).

3)

Price certain in money or its equivalent (this is the cause or consideration). (The price need not be in money.) (Republic v. Phil. Resources Dev. Corp., L-10414, Jan. 31, 1958). Aguinaldo v. Esteban GR 27289, Apr. 15, 1985 A contract of sale of property, without consideration, and executed by a person who is of low intelligence, illiterate, and who could not sign his name or affix his thumbmark, is void. Leabres v. CA GR 41837, Dec. 12, 1986 A receipt which merely acknowledges the sum of P1,000, without any agreement as to the total purchase price of the land supposedly purchased, nor to the monthly installment to be paid by the buyer lacks the requisites of a valid contract sale, namely: (a) consent or meeting of the minds of the parties; (b) determinate subject matter; (c) price certain in money or its equivalent, and, therefore, the “sale” is not valid nor enforceable.

(b)

Natural elements (those which are inherent in the contract, and which in the absence of any contrary provision, are deemed to exist in the contract). 3

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(c)

1)

warranty against eviction (deprivation of the property bought)

2)

warranty against hidden defects

Accidental elements (those which may be present or absent in the stipulation, such as the place or time of payment, or the presence of conditions).

(5) Stages in the Contract of Sale (a)

generation or negotiation

(b)

perfection –– meeting of the minds

(c)

consummation –– when the object is delivered and the price is paid

(6) Kinds of Sales (a)

(b)

(c)

As to the nature of the subject matter: 1)

sale of real property

2)

sale of personal property

As to the value of the things exchanged: 1)

commutative sale

2)

aleatory sale

As to whether the object is tangible or intangible: 1)

sale of property (tangible or corporeal)

2)

sale of a right (assignment of a right or a credit, or some other intangibles such as a copyright, a trademark, or goodwill) (NOTE: If the object is tangible, it is called a chose in possession; if the object is intangible, as the case of a right, it is a chose in action.) [NOTE: The term “goods” as used in the Uniform Sales Act does not ordinarily include choses in action (things in action). Neither does the term include money. (See Comment of the Code Commission).] 4

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[NOTE: There can be a sale of “foreign exchange,” and sale is consummated upon payment to the creditor by the bank concerned of the amount in foreign currency authorized to be paid under the letter of credit. The exchange tax is, therefore, determined as of the date of such payment or delivery. (Marsman and Co., Inc. v. Central Bank, et al., L-13945, May 31, 1960). However, the sale of said foreign exchange is perfected as of the moment the Bangko Sentral authorizes the purchase, even if the foreign bank has not yet honored the letter of credit. The margin fee — at the time this was still enforced — accrues as of this moment of perfection. (Pacific Oxygen and Acetylene Co. v. Central Bank, L-21881, Mar. 1, 1968, cited in the comments under Art. 1475).] (d)

(e)

(f)

As to the validity or defect of the transaction: 1)

valid sale

2)

rescissible sale

3)

voidable sale

4)

unenforceable sale

5)

void sale

As to the legality of the object: 1)

sale of a licit object

2)

sale of an illicit object

As to the presence or absence of conditions: 1)

absolute sale (no condition)

2)

conditional sale (as when there is a sale with a pacto de retro, a right to repurchase or redeem; or when there are suspensive conditions, or when the things sold merely possess a potential existence, such as the sale of the future harvest of a designated parcel of land; or when, for example, all the personal properties in an army depot would be sold “except all combat materials” that may be found therein. 5

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Such a stipulation is necessarily valid and, therefore, such combat materials should be excluded from sale. (Celestino v. Aud. Gen., L-12183, May 29, 1959). People’s Homesite v. Court of Appeals L-61623, Dec. 26, 1984 If subdivision lot is sold to a buyer on condition that higher authorities would approve the same, there is as yet no perfected sale. Zambales v. Court of Appeals GR 54070, Feb. 28, 1983 If during the 5-year period when a homestead cannot be sold, it is promised to be sold (in a compromise agreement), will this promise be regarded as valid? HELD: The promise will be void sale is actually made after the 5-year even if the Minister (now Secretary) of approves the same after the lapse of period.

even if the period, and Agriculture said 5-year

Almendra v. IAC GR 76111, Nov. 21, 1991 FACTS: Petitioners contend principally that the appellate court erred in having sanctioned the sale of particular portions of yet undivided real properties. HELD: While petitioners’ contention is basically correct, there is, however, no valid, legal and convincing reason for nullifying the questioned deeds of sale. Petitioner had not presented any strong proof to override the evidentiary value of the duly notarized deed of sale. Moreover, the testimony of the lawyer who notarized the deeds of sale that he saw not only Aleja (the mother) signing and affixing her thumbmark on the questioned deeds but also Angeles (one of the children) and Aleja “counting 6

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the money between them,” deserves more credence that the self-serving allegations of the petitioners. Such testimony is admissible as evidence without further proof of the due execution of the deeds in question and is conclusive as to the truthfulness of their contents in the absence of clear and convincing evidence to the contrary. The petitioners’ allegation that the deeds of sale were obtained thru fraud, undue influence and misrepresentation and that there was a defect in the consent of Aleja in the execution of the documents because she was then residing with Angeles, had not been fully substantiated. They failed to show that the uniform price of P2,000 in all the sales was grossly inadequate. The sales were effected between a mother and two of her children in which case filial more must be taken into account. The unquestionability of the due execution of the deeds of sale notwithstanding, the Court may not put an imprimatur on the instrinsic validity of all the cases. The Aug. 10, 1973 sale to Angeles of one-half portion of the conjugal property may only be considered valid as a sale of Aleja’s one-half interest therein. Aleja could not have sold the particular hilly portion specified in the deed of sale in the absence of proof that the conjugal partnership property had been partitioned after the death of Santiago (the husband of Aleja). Before such partition, Aleja could not claim title to any definite portion of the property for all she had was an ideal or abstract quota or proportionate share in the entire property. The sale of the one-half portion of land covered by Tax Declaration 27190 is valid because said property is paraphernal. As regards the sale of property covered by Tax Declaration 115009, Aleja could not have intended the sale of the whole property, since said property had been subdivided. She could exercise her right of ownership only over Lot 6366 which was unconditionally adjudicated to her in said case. Lot 6325 was given to Aleja subject to whatever may be the rights of her son Magdaleno Ceno. The sale is subject to the 7

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condition stated above. Hence, the rights of Ceno are amply protected. The rule on caveat emptor applies. Sps. Vivencio Babasa and Elena Cantos Babasa v. CA, et al. GR 124045, May 21, 1993 A deed of sale is absolute in nature although denominated a “conditional sale” absent such stipulations. In such cases, ownership of the thing sold passes to the vendee upon the constructive or actual delivery thereof. Heirs of Romana Ingjugtiro, et al. v. Spouses Leon V. Casals & Lilia C. Casals, et al. GR 134718, Aug. 20, 2001 It is essential that the vendors be the owners of the property sold, otherwise they cannot dispose that which does not belong to them. Nemo dat quod non habet (“No one can give more than what he has”). (g)

(h)

(i)

As to whether wholesale or retail: 1)

Wholesale, if to be resold for a profit the goods being unaltered when resold, the quantity being large.

2)

Retail, if otherwise (also if sold to tailors). (Sy Kiong v. Sarmiento, L-2934, Nov. 29, 1951).

As to the proximate inducement for the sale: 1)

sale by description

2)

sale by sample

3)

sale by description and sample (Art. 1481, Civil Code).

As to when the price is tendered: 1)

cash sale

2)

sale on the installment plan 8

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Ortigas and Co. v. Herrera GR 36098, Jan. 21, 1983 If a lot owner in a subdivision sues for a refund of a certain sum for having complied with certain conditions imposed upon him, the action is one for specific performance incapable of pecuniary estimation (and, therefore, within the jurisdiction of the Regional Trial Court). The suit cannot be regarded as merely one for a sum of money. If no conditions had been imposed, the action would have been merely for a sum of money and, therefore, capable of pecuniary estimation, there being no specific fact or fulfillment of a condition to be proved. (7) ‘Sale’ Distinguished from ‘Dation in Payment’ (Adjudicacion en Pago, or Dacion en Pago or Dacion en Solutum) SALE

DATION IN PAYMENT

1. There is no pre-existing 1. There is a pre-existing credit. credit. 2. Gives rise to obligations. 2. Extinguishes obligations. 3. The cause or consid- 3. The cause or consideration eration here is the price, here, from the viewpoint from the viewpoint of the of the person offering the seller; or the obtaining dation in payment, is the of the object, from the extinguishing of his debt; viewpoint of the buyer. from the viewpoint of the creditor, it is the acquisition of the object offered in lieu of the original credit. 4. There is greater freedom 4. There is less freedom in in the determination of determining the price. the price. 5. The giving of the price 5. The giving of the object in may generally end the lieu of the credit may exobligation of the buyer. tinguish completely or partially the credit (depending on the agreement). 9

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(NOTE: Example of dacion en pago: I owe Maria P1 million. But I ask her if she is willing to accept my solid gold Rolex watch, instead of the money. If Maria agrees, my debt will be extinguished. Please observe that in this example, although what has happened is a dation in payment, it is as if I sold my watch for P1 millon. Hence, we have to distinguish between the two kinds of transactions.) (8) Bar Question A has sold a baby grand piano to B, by private instrument for P500,000. In that contract of sale, which is the object, and which is the cause? ANS.: There are at least two viewpoints here, the latter of which appears preferable. First view –– The object (subject matter) of the sale is the piano, while the cause (consideration) is P500,000 (or, as one authority puts it, the giving of the P500,000, at least insofar as the seller A is concerned). Insofar as the buyer B is concerned, the object is the P500,000, while the cause (the consideration for which he parted with his money) is the piano (or, as the same authority puts it, the giving of the piano). Second view –– Insofar as both the seller and the buyer are concerned, there is only one subject matter, namely, the piano. The cause or consideration for the seller is the price paid; for the buyer, it is the delivery to him of the piano. (9) ‘Contract of Sale’ Distinguished from ‘Contract to Sell’ (a)

In a Contract of Sale, the non-payment of price is a resolutory condition, i.e., the contract of sale may by such occurrence put an end to a transaction that once upon a time existed; in a Contract to Sell, the payment in full of the price is a positive suspensive condition. Hence, if the price is not paid, it is as if the obligation of the seller to deliver and to transfer ownership never became effective and binding.

(b) In the first, title over the property generally passes to the buyer upon delivery; in the second, ownership is 10

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retained by the seller, regardless of delivery and is not to pass until full payment of the price. (c)

In the first, after delivery has been made, the seller has lost ownership and cannot recover it unless the contract is resolved or rescinded; in the second, since the seller retains ownership, despite delivery, he is enforcing and not rescinding the contract if he seeks to oust the buyer for failure to pay. (See Santos v. Santos, C.A. 47 O.G. 6372 and Manuel v. Rodriguez, L-13435, Jul. 27, 1960).

(10) ‘Sale’ Distinguished from ‘Assignment of Property in Favor of Creditors’ (Cession or Cesion de Bienes) Sale differs from cession in much the same way as sale, differs from dation in payment. Moreover, in cession the assignee (creditor) does not acquire ownership over the things assigned, but only the right to sell said things. From the proceeds of such sale, the creditors are to be paid what is due them. (NOTE: The concept of cession is found in Art. 1255 of the Civil Code, which provides that “the debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is a stipulation to the contrary, shall only release the debtor from responsibility of the net proceeds of the thing assigned. The agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws.”) [NOTE: Manresa defines cession as that which “consists in the abandonment of all the property of the debtor for the benefit of his creditors in order that the latter may apply the proceeds thereof to the satisfaction of their credits.” (8 Manresa 321).] [NOTE: Dation in payment distinguished from Cession.] DATION IN PAYMENT

CESSION

(1) One creditor is suffi- (1) There must be two or more cient. creditors.

11

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(2) Not all properties of the (2) All the debtor’s properties debtor are conveyed. are conveyed. (3) Debtor may be solvent or (3) Cession takes place only insolvent. if the debtor is insolvent. (4) The creditor becomes (4) The creditors do not bethe owner of the thing come owners of the thing conveyed. conveyed. (11) ‘Sale’ Distinguished from a ‘Loan’ In a loan, the amount is substantially smaller than the value of the security given. (Facundo, et al., CA-GR 833-R, Nov. 13, 1947). If a person, however, borrows a sum of money, and with it purchases in his own name a car, said purchaser would really be considered the buyer, and not the person who lent the money to him. (Collector of Int. Rev. v. Favis, L-11651, May 30, 1960). (12) ‘Sale’ Distinguished from ‘Lease’ In a sale, the seller transfers ownership; in a lease, the lessor or landlord transfers merely the temporary possession and use of the property. (13) Kinds of Extrajudicial Foreclosure Sale These are: 1.

an ordinary execution sale is governed by the pertinent provisions of Rule 39 of the Rules of Court;

2.

a judicial foreclosure sale is governed by Rule 68 of the Rules of Court;
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