For this second handout, let us talk about promises.

Do you believe in
the cliché phrase, “promises are meant to be broken”? If your answer is yes,
that rule cannot apply to a contract of sale. Under Article 1479 of your Civil
Code(CC), it is stated that “a promise to buy and sell a determinate thing for
a price certain is reciprocally demandable.”
Why is that? Because there is already a perfected contract of sale when
one party promises to buy and the other party promises to sell a determinate
thing at an agreed price.
For enforceability, however, the proper form must be observed. For
example, the Statute of Frauds requires that sale of movables with a price of
at least P500.00, or real property or an interest therein, regardless of the
price, be in writing. In other words, the promises should be in writing. So, if
you are offering to sell something to another, and the other agreed to buy,
make sure it’s in writing, if the transaction is covered under the Statute of
Frauds.
Now, what if the promise is made by only one of the parties? Is the
acceptance of that unilateral promise by the other party to buy/sell, enough
to bind him to that promise? The answer is no. Under the second paragraph
of Article 1479 of the CC, “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.”
This is where the concept of “option money” enters the picture.
Q: What is an option money?
A: Option money is the consideration paid for the purpose of holding
one to his promise to buy or sell a determinate thing for a certain period of
time, which consideration is separate and distinct from the purchase
price(Dizon vs. Lustre) However, the consideration for an option contract is
not always monetary but could consist of other things or undertakings. If the
consideration is not monetary, there must be things or undertakings of value
in view of the onerous nature of the option contract. Furthermore, when a
consideration for an option contract is not monetary, said consideration must
be clearly specified as such in the option contract or clause.( Bible Baptist
Church vs. CA)
Q: What is the effect of having an option money?
A: The offeror cannot withdraw the offer until after the expiration of
the option

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Example:
Ji-Pyeong a.k.a Goodboy promised to sell his car to Dal-mi for
P1,000,000, giving Dal-mi one week to decide whether to buy or not. Dal-mi
accepted the promise and gave Goodboy P1,000 to hold the offer for a week.
Q:May Goodboy withdraw his promise to sell to Dal-mi?
A: No, he is bound thereto because there is a contract of option that was
perfected, when Dal-mi gave the P1,000 consideration.
Q: By giving option money, is Dal-mi obliged to buy the car?
A: No, she is merely given the option to buy it.
Q: How much will Dal-mi pay if she eventually decides to buy the car?
1,000,000 or 999,000?
A: 1,000,000 because the amount paid by Dal-mi as option money is not
part of the purchase price
Relative to the discussion of option money, is the concept of earnest
money.
Q: What is earnest money?
A: Earnest money is the money given as part of the purchase price
and as proof of the perfection of the contract.(Dizon vs. Lustre) It is also
called “arras” or something of value to show that the buyer was really in
earnest and given to the seller to bind the bargain.(Soriano, 2011)
Note: Earnest money is part of the purchase price and a proof of the
perfection of the contract (Art. 1482)
Example:
Lebron offered to buy Stephen’s car for P500,000, to which the latter
agreed. To show that he is in earnest, Lebron gave Stephen P10,000 upon the
execution of this agreement, which Stephen accepts. Since there is already a
perfected contract of sale, Lebron will only pay Stephen P490,000 on the due
date of the payment.
Note: Since there is already a perfected contract of sale, any of the parties
cannot refuse to continue with the sale on the ground that the transaction
appears to be disadvantageous to them.
Q: Based on the foregoing, what is the difference between an option money
and earnest money?

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 OPTION MONEY EARNEST MONEY
As to Money Given Money given as distinct Forms part of the
consideration for an purchase price.
option contract.
As to Perfection Applies to a sale not Given only when there
yet perfected. is already a sale.
Obligation of the Prospective buyer is When given, the buyer
buyer upon payment not required to buy. is bound to pay the
of consideration balance.
As to Recovery If buyer does not
decide to buy, it cannot If sale did not
be recovered. materialize, it must be
returned. (Villanueva,
2014; Pineda, 2010).
As to Transfer of Ownership is reserved Title passes to the
Ownership to the seller and is not buyer upon delivery of
to pass until full the thing sold.
payment
Effect of Non- Specific performance. Specific performance
payment and rescission.
(UST Golden Notes
Stages of Formation of Contract of Sale
1. Negotiation/Preparatory offer
2. Perfection
3. Consummation

Negotiation occurs upon the communication of the offer to buy/sell to the

other party. Prior to acceptance of the offer, no contract of sale is perfected.
Perfection
You have learned that a contract of sale is a consensual contract, meaning it
is perfected at the moment there is meeting of the minds upon the thing
which is the object of the contract and upon the price. From that moment,
the parties may reciprocally demand performance, subject to the provisions
of the law governing the form of contracts.
The acceptance of the offer must be absolute. It must be plain, unequivocal,
unconditional and without variance of any sort from the proposal.(Rabuya,
2017)

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Effect of a qualified acceptance
It constitutes merely a counter-offer which must in turn be accepted to give
rise to a valid and binding contract (Villanueva, 2009)

Yesterday, I saw this post on Facebook:

What do you think is the status of the contract?

Of course, it is void. There was no meeting of the minds to enter into a

contract of sale between the parties. There was no clear indication of the offer
to sell on the part of the seller, and more importantly, there was no intent on
the part of the other party to buy.

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Consummation
Consummation stage in a contract of sale takes place by the delivery of the
thing together with the payment of the price.
Rules on preservation of, injury to or benefit from the thing sold
before or after perfection.
1. Duty of seller to preserve thing after perfection but before delivery
The seller is obliged to take care of the thing with the diligence of
a good father of a family unless the law or the stipulation of the
parties requires another standard of care(Art. 1163)

2. Right of the buyer to the fruits

The buyer has a right to the fruits of the thing from the time of
the perfection of the contract(Art. 1537) (Note: Compare this
with the general rule in your Oblicon under Art. 1164, which states
that the creditor shall have a right to the fruits of the thing from
the time the obligation to deliver the thing arises), unless a
contrary stipulation has been agreed upon or a later date is set by
the parties when such right will accrue such as when the obligation
to deliver arises at some future date. However the buyer shall
acquire no real right over the thing and its fruits until the same
have been delivered to him. (Art. 1164)
3. Loss of or injury to the thing

a. Loss before perfection(including deterioration in quality)

1. In case of complete loss, the sale is void because of the
absence pf the object.
2. In case of partial loss, the buyer may choose between:
a. Withdrawal from the contracts(rescission), and
b. Demanding the remaining part and paying its
proportionate price(Arts. 1493, 1494)

b. Loss after perfection but before delivery- seller bears the risk of
loss(Art. 1504)i.e., the buyer is not obliged to pay the price.
After perfection, the goods remain at the seller’s risk until
the ownership of the goods is transferred to the buyer by
actual or constructive delivery. However, notwithstanding

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 that the ownership is not transferred to the buyer, the goods
are at the buyer’s risk:
a. If there is an agreement to that effect
b. If the ownership of the goods is retained by the seller
merely to secure the performance by the buyer of his
obligation under the contract
c. When actual delivery has been delayed through the fault
of the buyer. (Soriano, 2011)
OBLIGATIONS OF THE VENDOR
The Law on Sales imposes the following obligations on vendors
(Art.1495):
1. To transfer the ownership of the thing sold.

The ownership of the thing sold is acquired by the vendee from

the moment the thing is delivered to him(Art. 1496)

2. To deliver the thing sold.

The vendor is bound to deliver the thing sold and its accessions
accessories in the condition in which they were upon the perfection
of the contract. All the fruits shall pertain to the vendee from the day
on which the contract is perfected. (Art. 1537)

3. To warrant the thing sold.

The vendor is liable for breach of warranty against eviction and

warranty against hidden defects or encumbrances.(Art. 1547)

4. To take care of the thing sold with the diligence of a good

father of a family, unless the parties agreed to a different
standard of care.

DELIVERY
Q: When is a thing considered to be delivered?

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 A: The thing sold shall be understood as delivered, when it is placed in
the control and possession of the vendee.(Art. 1497)
Kinds of Delivery/Tradition

1. ACTUAL or REAL – thing sold is placed under the physical control and
possession of buyer/agent;

2. CONSTRUCTIVE or LEGAL – does not confer physical possession of

the thing, but by construction of law, is equivalent to acts of real
delivery.

Requisites:
a. The seller must have control over the thing;
b. The buyer must be put under control;
c. There must be intention to deliver the thing for purposes of
ownership.

i. Traditio Simbolica – delivery of certain symbols representing the

thing. Example: Delivery of keys of a house

ii. Traditio Longa Manu – Delivery of thing by mere agreement;

when seller points to the property without need of actually delivering

NOTE: The thing to be transferred must be within sight at that time

(Rabuya, 2017).

iii. Tradicion Brevi Manu – the buyer, being already in possession of

the thing sold due to some other cause, merely remains in possession
after the sale is effected, but now in concept of owner. e.g. From
lessee to becoming an owner

iv. Constitutum Possessorium– the seller remains in possession of

the property in a different capacity. e.g. From owner to lessee

3. QUASI-TRADITIO – delivery of rights, credits or incorporeal

property, made by:

a. When sale is made through a public instrument

b. Placing titles of ownership in the hands of the buyer;
c. Allowing buyer to make use of rights.

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 4. TRADITION BY LEGAL FORMALITIES – Execution of a public
instrument is equivalent to delivery. But to be effective, it is necessary
that the seller have such control over the thing sold that, at the
moment of sale, its material delivery could have been made.

GR: There is presumption of delivery

XPN:
a. Contrary stipulation;
b. When at the time of execution, subject matter was not subject to the
control of seller;
c. Seller has no capacity to deliver at time of execution;
d. Such capacity should subsist for a reasonable time after execution
of instrument.

Effect of delivery through a carrier

GR: Delivery of specific goods to a carrier or other bailee for the purpose
of transmission to the buyer transfers ownership to the buyer.
NOTE: Here, the carrier is deemed the bailee of the buyer and the seller
is deemed the agent of the buyer in employing the carrier (Rabuya,
2017).
Exceptions,i.e. ownership of specific goods is retained by the seller
despite delivery to carrier or other bailee in the following cases:
1. When there is a stipulation to that effect.
2. When by the terms of the bill of lading,the goods are to be
delivered to the seller or his agent or to the order of the seller
or his agent
3. When by the terms of the bill of lading, the goods are to be
delivered to the order of the buyer or his agent, but the bill of
lading is retained by the seller or his agent.
4. When the seller draws on the buyer a bill of exchange for the
price of goods and transmits the bill of exchange and the bill of
lading to the buyer to secure acceptance or payment of the bill
of exchange, but the buyer dishonors such bill of exchange(Art.
1503)
However, if the bill of lading is negotiated to a purchaser for
value in good faith, ownership of the goods is passed on to him.

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 So, when you are ordering from Shopee or Lazada, delivery through
Ninjavan is generally considered as delivery to you.

When the object should be delivered

1. Stipulated time
2. If there is none, at a reasonable hour.
Place of delivery (Art. 1521 in relation to Art. 1582 of NCC)
The place of delivery shall be:
1. That agreed upon;
2. Place determined by usage of trade;
3. Seller’s place of business;
4. Seller’s residence;
5. In case of specific goods, where they can be found.
Effects of a sale of goods on installment
1. Goods must be delivered in full except when stipulated;
2. When not examined by the buyer – it is not accepted until examined or at
least had reasonable time to examine
Seller not bound to deliver the thing sold
The seller is not bound to deliver the thing sold:
1. If the buyer has not paid the price;
2. No period for payment has been fixed in the contract;
3. A period for payment has been fixed in the contract but the buyer has lost
the right to make use of the time.
Suspension of payment by the buyer (NCC, Art.1590)
GR:
1. If he is disturbed in the possession or ownership of the thing bought
2. If he has well-grounded fear that his possession or ownership would be
disturbed by a vindicatory action or foreclosure of mortgage.
XPNs:
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1. Seller gives security for the return of the price in a proper case;
2. A stipulation that notwithstanding any such contingency, the buyer must
make payment;
3. Disturbance or danger is caused by the seller;
4. If the disturbance is a mere act of trespass;
5. Upon full payment of the price.
Necessity of payment of the purchase price to transfer ownership
GR: Ownership of the thing sold shall be transferred to the vendee upon the
actual or constructive delivery. XPN: Unless the contract contains a stipulation
that ownership of the thing sold shall not pass to the purchaser until he has
fully paid the price.
Acceptance of delivery by the buyer of the thing sold
1. Express – he communicates or intimates to the seller that he has accepted
(NCC, Art. 1585). 2. Implied (NCC, Art. 1585)
a. Buyer does not act inconsistent with ownership of seller after delivery;
b. Retains the thing without communicating to seller that he has rejected.
Effect if the buyer refuses to accept despite delivery of the object of
the sale
Delivery is completed. Since delivery of the subject matter of the sale is an
obligation on the part of the seller, the acceptance thereof by the buyer is not
a condition for the completeness of the delivery (Villanueva, 2009).
NOTE: Thus, even with such refusal of acceptance, delivery
(actual/constructive), will produce its legal effects (e.g. transferring the risk
of loss of the subject matter to the buyer who has become the owner thereof)
(Villanueva, 2004).

Under Art. 1588 of the Civil Code, when the buyer’s refusal to accept the goods
is without just cause, the title thereto passes to him from the moment they
are placed at his disposal (Villanueva, 2004).(UST, Golden Notes)
“Sale or return” and “sale on approval”
1. Sale or return
The ownership of the goods is transferred to the buyer on delivery, but
the buyer has the option to re-vest their ownership on the seller by

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 returning them within the time fixed in the contract, or if no time has
been fixed, within a reasonable time. (Art. 1502)
Example: On February 1, Shawn delivered to Mariah an air fryer under
a sale or return agreement. Shawn gave Mariah until February 14, to
return the air fryer. Upon delivery, Mariah became the owner of the air
fryer. If on or before February 14, Mariah does not return the air fryer,
she becomes the absolute owner thereof. If she returns it, ownership is
reverted to Shawn. If, for example, the air fryer was destroyed by fire,
on February 13, Mariah is still bound to pay because she became the
owner, thus, she bears the risk of loss. (Res perit domino- The owner
bears the loss of the property). The same rule applies even if the loss
was due to Mariah’s fault.
2. Sale on approval or on trial or on satisfaction

Ownership of the goods remains with the seller despite delivery

but shall be transferred to the buyer in the following cases:

a. When he signifies his approval or acceptance of the goods.

b. When he does an act adopting the transaction.
Thus, the buyer is deemed to have approved of the goods if
he starts consuming or using them.
c. If he 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 a reasonable time, and such time
has expired.(Art. 1502)

Example: On February 1, Shawn delivered to Mariah an air fryer under

a sale on approval agreement. Shawn gave Mariah until February 14, to
decide if she will purchase the air fryer. Upon delivery, Mariah does not
become the owner of the air fryer.

If on or before February 14, Mariah signifies her approval of the air fryer,
she becomes the absolute owner thereof. If Mariah does not signify her
approval but retains possession of the air fryer, ownership is likewise
passed on to her. If, for example, the air fryer was destroyed by fire,
on February 13, Mariah is not bound to pay because she is not yet the
owner, thus, the seller bears the risk of loss. (Res perit domino- The
owner bears the loss of the property). However, if the loss was due to
Mariah’s fault, she is liable to pay.

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