~ 7 ele ta CHAPTER I- NATURE AND FORM OF THE CONTRACT CHAPTER 1 NATURE AND FORM OF THE CONTRACT Are 1488. By the contract of sale one of the contracting parties obligates self to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. What is a contract of sale? 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. Acontract of sale is a consensual contract and, thus, is perfected by mere consent which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Until the contract of sale is perfected, it cannot, as an independent source of obligation, serve as @ binding juridical relation between the parties. The essential elements of a contract of sale are: a) consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b) determinate subject matter; and c) price certain in money or its equivalent. The absence of any of the essential elements shall negate the existence of a perfected contract of sale. Stages of a contract of sale The stages of a contract of sale are: 1. Negotiation It covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected. 2. Perfestion It takes place upon the concurrence of the essential elements of the sale, which is the meeting of the minds of the parties as to the object of the contract and upon the price. 3. Consummation It begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof. SALE IS A TITLE ‘The perfection of a contract of sale should not, however, be confused with its consummation. In relation to the acquisition and transfer of ownership, it should be noted that sale is not a mode, but merely a title. A mode is the legal means by which dominion or ownership is created, transferred or destroyed, but title is only the legal basis by which to affect dominion or ownership. Under Article 712 of the Civil Code, “ownership cal ——— + Rogelio Dantis vs. Julio Maghinang, Jr, G.R. No. 191696, April 10, 2013, 1CHAPTER | - NATURE AND FORM OF THE CONTRACT ights over property are acquired and transmitted by law, by by testate and intestate succession, and in consequence of certain contracts, by tradition.” Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the same. Therefore, sale by itself Cee ee mone or affect ownership; the most that sale does is to create the o! igat jon to transfer ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership. Two kinds of a contract of sale 1, Absolute ‘There are no conditions attached to the contract. 2. Conditional ‘There are certain conditions attached to the contract. Acontract of sale may be absolute or conditional. Under Article 1458 of the New Civil Code, in a contract of sale, whether absolute or conditional, one of the contracting parties obliges himself to transfer the ownership of and deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and the price. From the averment of perfection, the parties are bound, not only to the fulfillment of what has been expressly stipulated, but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. On the other hand, when the contract of sale or to sell is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.3 Note: A deed of sale is considered absolute in nature where is neit | i deer there is neither @ stipulation in the deed that title to the Property sold is reserved in the seller until the full payment of the price, nor one giving the vendor the rig) - the right to unilaterally resolve the contra rv ay wi € contract the moment the buyer fails to pay within a Essential elements of a contract of sale Sale, by its very nature, is a consensu contract because it is pe a 01 y by sual col ferted following: ntial elements of a contract of sale are the a) Consent or meetin, ii g of the m i i in exchange for the price inds, that is, consent to transfer ownership #San Lorenzo Development Corporatio 2 Boston Bankof the Philipines vs. Perla Memeo ho. 124242, January 21,2005. ; [Link] los Vicente Gomez [Link], etal, GR. No. 120727, Sore Ew teh cuaal Jr. G.R. No. 158149, February 9, 2006. 2CHAPTER I - NATURE AND FORM OF THE CONTRACT b) Determinate subject matter; and ©) Price certain in money or its equivalent. Contract to sell not a contract of sale cai fontract toSell may not be considered as a to salt fe fale because the first essential element is lacking. In a contract , the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.5 1. CONSENT Consentis manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the agreement. Acceptance As to the matter of acceptance, the same may be evidenced by some acts, or conduct, communicated to the offeror, either in a formal or an informal manner, that clearly manifest the intention or determination to accept the offer to buy or sell. Example: Tn one case, acceptance on the part of the vendee was manifested through a plethora of acts, such as payment of the purchase price, declaration of the property for taxation purposes, and payment of real estate taxes thereon, and similar acts showing vendee's assent to the contract. Il. OBJECT ‘The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. A thing is determinate when itis particularly designated and/or physically segregated from all others of the same class. In general, the cause is the why of the contract or the essential reason which moves the contracting parties to enter into the contract. For the cause ee Jeee Romulo A. Coronel, etal. vs. CA, etal, GR No. 103577, October 7,1996. tYteente Gomez [Link], etal. GR. No, 120727, September 21, 2000. 3CHAPTER I - NATURE AND FORM OF THE CONTRACT iti , Morals, to be valid, it must be lawful such that it is not contrary to law, morals, good customs, public order or public policy. |. PRICE i i ae definite agreement as to the price is an essential element of a indi it to sell personal or real property because it seriously in the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the one reti pate But a price fixed by one of the contracting parties, if accepted by the other, ives ri sale. ; = mt a a for the parties to agree on the price of the property, The parties must also agree on the manner of payment of the price of the property to give rise to a binding and enforceable contract of sale or contract to sell. This is so because the agreement as to the manner of payment Boes into the price, such that a disagreement on the manner of payment is tantamount to a failure to agree on the price? Gross inadequacy of price, its effect In Hulst v. PR Builders, Inc., we further elaborated on this principle: Gross inadequacy of price does not nullify an execution sale. In an ordinary sale, for reason of equity, a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one's conscience as to justify the courts to interfere; such does not follow when the law gives the owner the right to redeem as when a sale is made at obtained at the execution sale. Thus, respondent stood to gain rather than be harmed by the low sale val i i : ue of the auctioned properties because it Possesses the right of redemption. x x x8 he Note: Consideration and ce ‘onsent ic i i ee peo are essential elements in a contract of . ‘onsent to a co; fe vit, there is lack of consi ideration a ntract of sale is vitiated or where void ab initio, ue to a simulated Price, the contract is null and ; Boston Bank ofthe Philippines vs, py * Spouses France ee Pe P Mana and Carts Manalo, Ir, 9,206. Ba. Pilipine na Tana: [Link]. 158149, February No. 158755. lune 18.2012.CHAPTER I - NATURE AND FORM OF THE CONTRACT Characteristics of a contract of sale 1. Consensual ‘The contract is perfected by mere consent. 2. Bilateral The seller and the buyer are bound by obligations dependent upon each other. 3. Onerous It imposes a valuable consideration, which is a price certain in money or its equivalent. 4. Commutative The thing of value is exchanged for equal value. 5. Nominate The Civil Code refers to it by a special name, “contract of sale. 6. Principal It can stand on its own and does not depend on another contract for its validity. Contract of sale is consensual A contract of sale is classified as a consensual contract, which means that the sale is perfected by mere consent. No particular form is required for its validity. Upon perfection of the contract, the parties may reciprocally demand performance, ie., the vendee may compel transfer of ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold? Contract of sale is Commutative and Onerous A contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the price), but each party anticipates performance by the other from the very start. While ina sale, the obligation of one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so; hence, the contingent character of the obligation must clearly appear.0 Problem: BN On January 19, 1985, A, B, and C executed a docum: i Receipt of Down Payment in favor of R which is repro Faea duced hereunder: + Ace Foods, Inc. v. Micro Pacific Technologies Co.. LTD. G.R. N see Fernando A Gaite vs. Isabelo Fonacier, etal, GR. No. L-1 5 ‘0.200602, December 1 1827. July 34 1961 2019CHAPTER I - NATURE AND FORM OF THE CONTRACT RECEIPT OF DOWN PAYMENT 1,240,000.00 - Total amount 50,000.00 - Down payment P1,190,000 - Balance e° Received from Miss R, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot, in the total amount of 1,240,000. : We bind ourselves to effect the transfer in our names from our deceased father, the transfer certificate of title immediately upon receipt of the down payment above-stated. , On our presentation of the TCT already in our name, we will immediately execute the deed of absolute sale of said property and Miss Rshall immediately pay the balance of the P1,190,000. On January 15, 1985, Q, mother of R, paid the down payment of 50,000. On February 6, 1985, the property originally registered in the name of A, B, and C's father was transferred in their names. On February 18, 1985, A, B, and C sold the property to Y for 1,580,000 after the latter has paid P300,000. For this reason, A, B, and C canceled and rescinded the contract with R by depositing the down payment paid by Q in the bank in trust for R. On February 22, 1985, Q filed a complaint for a specific performance against A, B, and C. Is the Receipt of Down Payment a perfected contract of sale? Answer: What may be perceived from the respective undertakings of the parties to the contract is that A, B, and C had already agreed to sell the house and lot they inherited from their father, completely willing to transfer ownership of the subject house and lot to the buyer if the documents were then in order. It just so happened, however, that the transfer certificate of title was then still in the name of their father. Itwas more expedient to first effect the change in the certificate of title so as to bear their names. That is why they undertook to cause the issuance of a new transfer of the certificate of title in their names upon receipt of the down payment in the amount of P50,000. As soon as the new certificate f title is issued in their names, A, B, and C were committed to Sree bail the deed of absolute sale. Only then will the rie Tae en the remainder of the purchase price arise. naa eae ube that unlike in a contract to sell which is most intends to buy the ee 4% to protect the seller against a buyer we the property until on ed in installment by withholding ownership ae entered into in the case eal Payment therefor, in the Chis at bar, the sellers were the ones who were unab 6CHAPTER I - NATURE AND FORM OF THE CONTRACT f0 enter into a contract of absolute sale by reason of the fact that the ae of title to the property was still in ihe name of their father. It was e sellers in this case who, as it were, had the impediment which prevented, ‘50 to speak, the execution of a contract of absolute sale. What is clearly established by the plain language of the subject document is that when the said Receipt of Down Payment was prepared and signed by A, B, and C, the parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of A, B, and C's father to their names. The Court significantly notes that this suspensive condition was, in fact, fulfilled on February 6, 1985. Thus, on said date, the conditional contract of sale between A, B, and C and R became obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which A, B, and C unequivocally committed themselves to do as evidenced by the Receipt of Down Payment. Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at bench. Thus, Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the. form of contracts. ‘Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. Since the condition contemplated by the parties which is the issuance of a certificate of title in A, B, and C’s names was fulfilled on February 6, 1985, the respective obligations of the parties under the contract of sale became mutually demandable, that is, A, B, and C, as sellers, were obliged to present the transfer certificate of title already in their names to R, the buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000. The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated as Receipt of Down Payment, the parties entered into a contract of sale subject to the suspensive condition that the sellers shall effect the issuance of new certificate of title from that ofTRACT CHAPTER I - NATURE AND FORM OF THE CON’ heir fathers’ name to their names and that, on February 6, 1985, this their fai condition was fulfilled.1! ee fer"? aon i a eee ee An option, as it that the latter shall have the right ey acai a certain time, or under, or in to buy the property at s terms and conditions, or which gives to the owner Sree ¢ right to sell or demand a sale It also sometimes calleq of the property the jer." An option is not of itself a purchase, but merely se Rene rote buy. It is nota sale of property but a sale of the Tight eee Wie a ly a contract by which the owner of property agrees with eae that he shall have the right to buy his property at a fixed price een time. He does not sell his land; he does not then agree to sell it but he does sell something, that is, the right or privilege to buy at the election or option of the other party. Its distinguishing Characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it is not, Properly Speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is merely a contract by which the owner of property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms, 2 OPTION VS. CONTRACT OF SALE Option Contract of sale An option is an unaccepted offer, Fixes definitely the relative rights and obligations of both parties at the time ofits execution, The offer and the acceptance are Concurrent, since the minds of the contracting parties meet in the terms of the agreement. It states the terms and conditions on which the owner is willing to sell the land, if the holder elects to accept them within the time limited, If the holder does So elect, he must Bive notice to the other Party, and the accepted offer thereupon becomes a valid and binding contract, Ifan acceptance is not the time fixed, the longer bound by his oj i fier, and t Option is at an end.13 he Jo oh 8 eee oma Corel ta etal GR No. 103577, october 7,196, "Adela Properties, ne vs casero No tata SREY. 1558, * January 25, 1995, t made withinCHAPTER I- NATURE AND FORM OF THE CONTRACT What is the test in determining whether it is a “contract of sale or Purchase or a mere option"? The test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is whether or not the agreement could be Specifically enforced. This is not a case where no right is as yet created nor an obligation declared, as where something further remains to be done before the buyer and seller obligate themselves, An agreement is only an “option” when no obligation rests on the party to make any payment except such as may be agreed on between the parties as consideration to support the option until he has made up his mind within the time specified. An option, and not a contract to purchase, is effected by an agreement to sell real estate for payments to be made within specified time and providing forfeiture of money paid upon failure to make Payment, where the purchaser does not agree to purchase, to make payment, or to bind himself in any way other than the forfeiture of the payments made.1+ Earnest money It is a statutory rule that whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. It constitutes an advance payment and must, therefore, be deducted from the total price. Also, earnest money is given by the buyer to the seller to bind the bargain.'5 EARNEST MONEY vs. OPTION MONEY Earnest money Option money 1. Part of the purchase price. 1. Money given as a distinct consideration for an option contract. 2. Is given only where there is | 2. Applies toa sale not yet perfected. already a sale. 3. When earnest money is given, | 3. When the would-be buyer gives the buyer is bound to pay the | option money, he is not required to balance. buy. CONTRACT FOR A PIECE OF WORK VS. CONTRACT OF SALE contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order of the person desiring it. In such case, the contract is one for a piece of work, not a sale. On the other hand, if the thing subject of the contract would have existed and been the subject of a sale to some other —_ SS 1 Adelfa Properties, [Link]. CA, etal.G.R. No. 111238, January 25, 1995. wo aaeta Properties Ine [Link],GR No. 111236, January 25, 1995, 9 aeRACT CHAPTER I - NATURE AND FORM OF THE CONT i e contract is one of person even if the order had not been given then th sale."16 caine and Y stipulated in their contract that Y would manufacture upon order of X of 20,000 pieces of vinyl frogs and 20,000 pieces af ving moosehead according to the samples srecfed and approved 2 2 Yel wt ortnary ‘ture these products, but only uj ence the esas executed by and between X and ¥ was a contract for a piece of work. N PAGO vs. CONTRACT OF SALE In dation cn go as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of Payment of an outstanding [Link] order that there be a valid dation in Payment, the following are the requisites: (1) There must be the performance of the Prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) There must be some difference between the prestation due and that which is given in substitution (aliud pro alio); (3) There must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation nature of sale, that is, the creditor is really buying i debtor, payment for which is to be charged against the debtor’s debt.17 Art. 1459, The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered, (n) Note; Licit means lawful. The thing object of sale should not be contrary to law, morals, good custom: eae 7 Public order or public policy, Pyne (Micit object) . Sale o, animals suffer ‘om contagi : 2 Sale of animals if ing from contagious diseases, the use or service for which they are acquired has been stated in the Contract, aj if : ind thi tee 3. Sale Of future inheritance; and eared be ae 4. Sale of land in violation Of the constituti ibitic jinst the transfer of lands ty aliens 'stitutional prohibition aga ocencia Yu Dino and her husband, etal vs, ‘ee Sonny Lovs. KIS ECO-FORMWORK ‘S¥Steng and R joman Sio, R. No. 113564, June 20. 2001.CHAPTER I - NATURE AND FORM OF THE CONTRA Problem: Sometime in January 1980, X, Y, and Z appointed Cas their agent to sell 3 parcels of land adjoining each other. Sometime in April 1980, R learned that the properties were for sale. Accordingly, he approached C and told the latter to offer these parcels of land to his brother, £ Pursuant thereto, C and R went to E's office to convince the latter to buy the properties. At first, E was reluctant, but upon R's prodding, was finally convinced to buy them. In that meeting between Cand Eat th Jatters office, it was agreed that each parcel of land would c¢ P100,000. Having reached an agreement of sale, £ then instructed C to bring the owners of these parcels of land to his ancestral hou: On May 2, 1980, C, together with X, Y, and Z went to E's house. At around 5:00 o clock in the afternoon, the above-named persons and E Ge to Atty. M’s house for the preparation of the appropriate deeds of sale. At Atty. M’s house, it was learned that X failed to bring the tax declarations relating to his property. Also, Y had mortgaged her property. Further, Z did not have a Special Power of Attorney from his sister to evidence her consent to the sale. In view thereof, no deed of sale was prepared on that day. However, despite the fact that no deed of sale was prepared by Atty. M, X, ¥, and Z asked E to pay a 50% downpayment for the properties. The latter acceded to the request and gave P50,000 each to the 3 above named persons for a total of P150,000. This was witnessed by Cand Atty. M. After giving the down payment, E instructed C and Atty. M to place the name of Ras vendee in the deeds of sale to be subsequently prepared. This instruction was given to enable R to mortgage these properties at the PNB, for appropriate funds needed for the development of these parcels of land as fishponds. Subsequently, the appropriate deeds of sale were finally prepared by Atty. M and signed by X, Y and Z. In all these deeds of sale, R was named as vendee pursuant to the verbal instruction of E. C, the agent in the sale, signed in these 3 deeds of sale as a witness. Thereafter, C paid X, Y and Z, the balance due them from E. On April 29, 1989, R, without the knowledge and consent of E, sold to Spouses H and W 500 square meters of the land previously owned by X. At the time of sale, H and W were aware that the portion of the land they bought was owned by E, not R. May H and W acquire ownership over the said property? Answer: - treabesi H and W did not acquire absolute ownership over the property si the apparent vendor, R, did not have the right to transfer ees Pp thereof. en : : Whether or not H and W are in good faith is entire! i because no valid sale in the first place was made. The fact is Wie "1CHAPTER I - NATURE AND FORM OF THE CONTRA ore trustee thereof, and could no by way of sale, to Hand W, As a person cannot transfer or which he has no right to owner of the lands in question, but am i have transferred ownership of sad lands. a matter of basic principle in the law on sa ownership, by way of sale, of amet Oe ‘Thus 1459 of the Civil C pee reea cate vededasa the ene must be licit and the Dd armuse hay ea right to ; Z , 0 e itis vered, transfer the ownership thereof at the time it is deliv e lands in question, which are not Since R is not the owner of the h ist Snir Torrens system, he could not by way of sale have transferred, as hehas no right to transfer, ownership of a portion thereof, at the time of delivery.2" Note: The seller need not be the owner at the time of perfection of the contract. It is sufficient that he is the owner at the time the object is delivered; otherwise, he may be held liable for breach of warranty against eviction. Art. 1460. A thing is determinate when it is particularly designated or physically segregated from all others of the same class. The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties, DETERMINATE THING Athing is determinate when it is particularly designated or physically Segregated from all others of the same class, Examples: “My only car”, “The only laptop that I am using at present’, My Li ete at #123 Brgy. Lagawa, Municipality of La inidad,” Requisites: 1 Atthe time the contracts ent ing i frets he con ‘ered into, the thing is capable of being made 2. There is no necessity of anew or further agreement Problem: C was the owner of Lot patered into a contract for legal service. yu 4 1968, Cand ty B P Services denominated as a "Contract of Attorney's Fee, The agreement is Worded as follows: : between the parties. 1 see Rodolfo Tigno and 5 8, 1997, ewsesEdualino and Evel Csi ys, CAand Eduardo Tigno, GR No. 110115, October 12CHAPTER I - NATURE AND FORM OF THE CONTRACT “xx That I, Cis the registered owner of Lot No. 261, has secured the legal services of Atty. B to perform the following: 1. To negotiate with the Municipal Government of X so that the above-mentioned lot shall be the site of the proposed X Public Market; 2, To sell 1200 sq.m. forthe sum of #24,000 right at the Market jite; 3. And to perform all the legal phase incidental to this work. That for and in consideration of this undertaking, I bind myself to pay Atty. B 5,000 sq.m. of the said lot, for which in no case | shall not be responsible for payment of income taxes in relation hereto, this area located also at market site. That I, B, is willing to undertake the above-enumerated undertaking. XXX Is there an object of the contract? Answer: The object of the contract is still certain despite the parties’ failure to indicate the specific portion of the property to be given as compensation for services. Articles 1349 and 1460 of the Civil Code provide the guidelines in determining whether or not the object of the contract is certain: Article 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. XXXX Article 1460. A thing is determinate when it is particularly designated and/or physically segregated from all others of the same class. The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties. In this case, the object of the contract is the 5,000-sq-m portion of Lot 261. The failure of the parties to state its exact location in the contract is of no moment; this is a mere error occasioned by the parties’ failure to describe with particularity the subject property, which does not indicate the absence of the principal object as to render the contract void. Since C bound herself to deliver a portion of Lot 261 to Atty. B, the 13 eeCHAPTER I - NATURE AND FORM OF THE CONTRACT description of the property subject of the contract is sufficient to validate the same.!9 Art. 1461. Things having a potential existence may be the object of the contract of sale. The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. The sale of a vain hope or expectancy is void. ‘Things having a potential existence ; = This is a future thing that can be the object of sale. Example: “Still ungrown fruits’, “wine that a particular vineyard is expected to produce’, “young of animals not yet in existence.” Sale of a mere hope or expectancy mee aii This is subject to the condition that the thing will come into existence, Example: Sale of sweepstakes ticket or lotto ticket. The object of sale is the hope or the chance to win. Note: The sale of vain hope or expectancy is void. Example is sale of sweepstakes ticket or lotto ticket that was already run, EMPTIO REI SPERATAE vs. EMPTIO SPEIL Emptio Rei Speratae Emptio Spei Sale of a thing with potential | Sale of a mere hope or expectancy existence, that the thing will come to existence. Sale of the hope itself, Sale is subject to the condition that Sale is effective even if the thing the thing will exist; If it does not, 7 does not come into existence unless there is no contract, ¢ - itis a vain hope. The object is a future thing. The object is a present thing which is the hope or expectancy. General Rule: Apperson cannot sell or convey what he does not have or own. Exceptions: 1. Sale of a thing having potential xi: 2 2. Sale of future goods; an; d existence; "see Aurora Fe B. Camacho [Link] and Angeline Banzon, GR. No. 127520, February 9, 2007. 14a a 6 ke CHAPTER I - NATURE AND FORM OF THE CONTRACT 3. Contra 7 the onto delivery at a certain price of an article which the vendor in Bene natY Course of business manufactures or procures for the ‘arket, whether the same is on hand at the time or not. rater ean goods which form the subject of a contract of sale may be manfactui Ered owned or possessed by the seller, or goods to be 7 red, raised, or acquired by the seller after the perfection of e contract of sale, in this Title called "future goods." en There may be a contract of sale of goods, whose acquisition by e seller depends upon a contingency which may or may not happen. Kinds of goods 1. Existing goods Those goods that are owned by the seller. 2. Future goods Those goods that are to be manufactured (like a future table, chairs or bicycle to be manufactured), raised (like the young of animals) or acquired (like a cellular phone which the seller expects to buy) by the seller after the perfection of the contract of sale. Note: There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen. Example: F obliged himself to deliver and transfer ownership of his only car to S ifthe latter will pass the CPA board exam next month. At present, § can sell the said car to B. ‘Art. 1463. The sole owner of a thing may sell an undivided interest therein. (n) Example: B owns a parcel of land with an area of 400 sq.m. If B decides to sell 100 sqm. to C then they will become co-owners ofthe said land. Thus, B owns +300 squm. (3/4) while C owns 100 sq.m. (1/4). Art. 1464. In the case of fungible goods, there may be a sale of an undivided share of a specific mass, though the seller purports to sell and the buyer 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. By such a sale the buyer becomes owner in common of such a share of the mass as the number, weight or measure bought bears to the number, weight or measure of the mass. If the mass contains less than the number, weight or measure bought, the buyer tontmes the owner of the whole mass and the seller is bound to makeCHAPTER I = NATURE AND FORM OF THE CONTRACT lity, unl g00d the deficiency from goods of the same kind and quality, unless contrary intent appears. Example: ice and he o eae aged in the business of buy and sell of rice and he owns q ic y, B buys 100 s bodega filled with undetermined sacks of rice. Subsequently B buns 10 sal of rice. If there are 300 sacks of rice stored in he odena, shen Sand pei co-owners where § owns 200 sacks of ree will B owns 700 sack ee However, if there are only 95 sacks of rice stored in the 5 ae the deficiency of 5 sacks of rice to B because the contract ofa valid The § sacks of rice should be of the same kind and quality. Art. 1465. Things subject to a resolutory condition may be the object of the contract of sale. Serer upon fulfillment terminates an already enforceable obligation and entitles the parties to be restored to their original Positions. A conditional obligation that may be immediately enforced but will come to an end when an uncertain event that is specified occurs.20 Note: It is a condition the happening of which will extinguished the obligation. Example: Sand B entered into a Contract of Sale with a Right to Repurchase within 1 year over the formers’ parcel of land. S then delivered said parcel of land to B. In this case, the condition or uncertain event is whether S will repurchase the said parcel of land within 1 year. In the meantime, however, B can sell this parcel of land to C, a third person. Art. 1466. In construing a contract contain of both the contract of sale ai essential clauses of the whole ing provisions characteristic ind of the contract of agency to sell, the instrument shall be considered. 7 CONTRACT OF SALE VS. AGENCY TO SELL ‘ontract of Sale Agency to Sell The buyer receives the goods as | The agent receives the goods as owner. 800ds of the principal who retains a ; his ownership over them. 1 buyer pays the price. The agent delivers the price, which he got from his buyer, to his rincipal, 's Law Dictionary, Tenth Edition, 16- ee CHAPTER I = NATURE AND FORM OF THE CONTRACT "The buyersasa go eyeeue as a general rule, cannot | The agent can return the goods in ne object sold. he is unable to sell the same to Sas A contract for the delivery at a certain price of an article the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work. As can be clearly seen from the wordings of Art. 1467, what determines whether the contract is one of work or of sale is whether the thing has been manufactured specially for the customer and upon his special order. Thus, if the thing is specially done at the order of another, this is a contract for a piece of work. If, on the other hand, the thing is manufactured or procured for the general market in the ordinary course of one's business, it is a contract of sale. As held by the Court, "the distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other persons even if the order had not been given."*! Problem: Hand Ware engaged in the business of manufacturing and selling shirts, § is part owner and general manager of another manufacturing corporation. Hand WandS entered into a contract whereby the latter would manufacture for H and W 20,000 pieces of vinyl frogs and 20,000 pieces of vinyl mooseheads at P7.00 per piece in accordance with the sample approved by H and W. ‘These frogs and mooscheads were to be attached to the shirts H and W would manufacture and sell. § delivered in several installments the 40,000 pieces of frogs and mooseheads. H and W fully paid the agreed price. Subsequently, H and W returned to S 29,772 pieces of frogs and mooseheads for failing to comply with the approved sample. H and W then demanded from S a refund of the purchase price ofthe returned goods in the amount of P208,404. As $ refused to pay, H and W filed an action for collection of a sum of money. Is the contract executed by and between H and W and Sa contract for apiece of work? and CTA, GR. No.71122, March 25, 1988, 17 2 CIR vs. Arnoldus Carpentry Shop. esCHAPTER I = NATURE AND FORM OF THE CONTRACT Answer: ss ‘The following provisions of the New Civil Cod! Apropo “Art, 1467. A contract for the delivery ata hte these trea ants le which the vendor in the ordinary cou F el busing 7 pees re or procures forthe general market, whether the same is he time or not, He contract of sale, but ifthe goods are id be manufacture specially for the customer and upon i peel order, and not for the , e of work. jeneral market, it is a contract for a piece i “are 1713. By the contract for a piece of work the contractor bing, himself to execute a piece of work for the employer, in consideration o 4 certain price or compensation. The contractor may either employ only his labor or skill, or also furnish the material. As this Court ruled in Engineering & Machinery Corporation y, Court of Appeals, et al,, "a contract fora piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order of the person desiring it. In such case, the contract is one for a piece of work, not a sale. On the other hand, if the thing subject of the contract would have existed and been the subject of a sale to some other person even if the order had not been given then the Contract is one of sale." The contract between H and W and § stipulated that S would manufacture upon order of H and W 20,000 Pieces of vinyl upon. Clearly, the contract executed by and between H and W and S$ Who is a contractor? The word "contractor" has come to 4 person who, in the Pursuit of the indepen Specific job or piece of work for other pel methods without submitting himself to con} be used with special reference to dent business, undertakes to doa Tsons, using his own means and trol as to the petty details. Test ofa contractor The true test ofa pattactor would seem to be that he renders service in the course of an independent o, re g the wi . cupation, representing the will of employer only as to the result of hi rr] i jeans by wh a fais tof his work, and Not as to the means i 22 see Inocencia Yu Dino vs. CA and Roman Sio, G. R.N¢ : .RNo. 113564, jun 2 Civ. Enginering Equipment and Supny Company and the Cra oo, No.U-2706,)une30, 1995. 18CHAPTER I- NATURE AND FORM OF THE CONTRACT and mea i the consideration of the contract consists partly in money, the manife in another thing, the transaction shall be characterized by appear est intention of the parties. If such intention does not cleanly appear, it shall be considered a barter if the value of the thing given a5 Part of the consideration exceeds the amount of the money or its equivalent; otherwise, it isa sale. SALE VS. BARTER. “Sale Barter A thing is given in exchange of a| A thing is given in exchange of price certain in money or its | another thing. equivalent. If the consideration is partly in money and partly in another thing: __| 1. The transaction is characterized by the manifest intention of the parties. 2. Iftthere is no manifest intention: a. Barter if the value of the thing is more valuable than money. b, Sale if the value of the thing is equal or less than the amount of money, _ Example: Sand B agreed that S will deliver his only parcel of land to B and B will deliver his only car worth P500,000 and P500,000 cash to S. What is the nature of their agreement? The nature of their agreement will depend on their intention. If their intention is a contract of sale then it is Sale or if their intention is a contract of barter, then it is Barter. Assuming that in the case at bar, there is no manifest intention then it is a Sale because the value of the car and cash are equal. What if the car is worth P600,000? Then it is Barter because the value of the car is more than the money. Art. 1469. In order that the price may be considered certain, it shall be sufficient that it be so with reference to another thing certain, or that the determination thereof be left to the judgment of a special person or persons. Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the parties subsequently agree upon the price. If the third person or persons acted in bad faith or by mistake, the courts may fix the price. Where such third person or persons are prevented from fixing the price or terms by fault of the seller or the buyer, the party not in fault may have such remedies against the party in fault as are allowed the seller or the buyer, as the case may be. 19' CHAPTER I~ NATURE AND FORM OF THE CONTRACT o Code, the Irrefragably, under Article 1469 of lene Cet cs ce . Hie ot the property sold may be considered certain s anotherthingeertaln ufficient ifit SE ET eee of the contract made by the parties the OE Beit ele capablen incorporated in the contract of sale or contra OO a 7 bela tasersaiiee with certainty in said contract; at i dead ernie express or implied provisions by which it may bara es cert i provides some method or criterion by ileal aan tie ute ascertained. The price is considered certain if, by = ae : tract furnishes a basis or measure for ascertaining the amount agree: pon. ! Requisites for a valid price 1. Real 2 The price is not simulated or not fictitious. 2. Certain or Ascertainable It is certain if it is expressed and agreed in terms of Specific amount of money or its equivalent. It is ascertainable if it is sufficient that it be so with reference to another thing certain, or that the determination thereof be left to the judgment of a special person or persons. 3. In money or its Equivalent 4. Manner of payment must be agreed upon The agreement on the manner of payment goes into the price, such that a disagreement on the manner of payment is tantamount to a failure to agree on the price, Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as It may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract, The mere inadequacy of the pri : 1 both parties are in a cy of the price does not affect its validity whe Position to form an indepen j rnin the transaction, unless fraud, mi: ite Insen tanare istake or un i indicative of a defect in consent is present. A cm undue influence indicative : tract may the ground of vitiated consent and not d 'y consequently be annulled on ue to the inadequacy of the price.25 paces ee mere, alleeed inadequacy of the price does not there was defect iatiea ae although the inadequacy may indicate that Bere the consent, or that the Parties really intended 4 nation, mortgage, or some other act or contract. Finally, unless the prices Brossly inadequate or shocking to the conscience, a sale ienat set aside. 2+ Boston Bank ofthe Philippines vs. Pera P, Manalo ay “eared ea ht hom a. 8 ay 2AR ea TE ase Saas CHAPTER I = NATURE AND FORM OF THE CONTRACT Example: S sold to B his 5-year old car for P500,000 market value of which is P650,000. Is the sale valid gross inadequacy of the selling price does not invalidate a co not knowing that the fair ? The sale is valid because ntract of sale. Art. 1471. If the price is simulated, the sale is void, but the act may B® shown to have been in reality a donation, or some other act or contract. What is simulated price? Asimulated price is a fictitious price. ‘A contract of sale is not a real contract, but a consensual contract As a consensual contract, a contract of sale becomes @ binding and valid contract upon the meeting of the minds as to price. If there is a meeting of the minds of the parties as to the price, the contract of sale is valid, despite the manner of payment, or even the breach of that manner of payment. If the real price is not stated in the contract, then the contract of sale is valid but subject to reformation. If there is no meeting of the minds of the parties as to the price, because the price stipulated in the contract is simulated, then the contract is void. Article 1471 of the Civil Code states that if the price in a contract of sale is simulated, the sale is void. It is not the act of payment of price that determines the validity of a contract of sale. Payment of the price has nothing to do with the perfection of the contract. Payment of the price goes into the performance of the contract. Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract.26 Problem: Ris the owner ofa lot with an area of 448 square meters. In 1981, R sold 185 square meters of the said lot to H and W who built their residential house thereon. Ralleged that on March 1, 1984, she signed a Deed of Sale of the lot in favor of M. R, being illiterate, signed by affixing her thumb-mark on the document. M promised to pay the agreed P47,000 purchase price within one month from the signing of the Deed of Sale. R further alleged that M failed to pay the purchase price after the tapse of the one-month period, prompting R to demand from M the return of the Deed of Sale, Since M refused to return the Deed of Sale, R executed a document unilaterally revoking the sale and gave a copy of the document to M. OE Tepoues Bernardo Buenaventura and ConsolacionJoagin tal ws. CA, [Link] No, 126376, Novembe 2003. 1 November 20, 21CHAPTER I - NATURE AND FORM OF THE CONTRACT ‘i d of Sal Subsequently, on May 23, 1984, R signed 2 Baraca Pe transferring to H and W the entire lot, at the ane cedalot! previous sale in 1981 of a 185-square meter ae 1984 they received R and H and W alleged that on se Cerilcate of Title in the information that the Register of Deeds issue M for the Lot. vt F a rar or he Deed of Sale votd from the begining or simply rescissibler Answer: i Mis Deed of ale states that Meal ane oie peice i h 1, 1984, the date Furshave price Pe naren sad of Absolute Sale appears supported by a Valuable consideration. However, based on the evidence presented by both R and M, the trial court found that M never paid to R, an never received from M, the P47,000 purchase price. There was indisputably a total absence of consideration contrary to what is stated in M’s Deed of Sale. 7 a Where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration. “s The Court reiterated this rule in Vda. De Catindig v. Heirs of Catalina Roque, to wit: “The Appellate Court’s finding that the price was not paid or that the ‘statement in the supposed contracts of sale as to the payment of the price was simulated fortifies the view that the alleged sales were void. “Ifthe price is simulated, the sale is void..." (Art. 1471, Civil Code) A contract of sale is void and Produces no effect whatsoever hens i ae appears thereon as paid, has in fact never been y the purchaser to the vendor. Such a sale i - jot be considered consummated," ugh etic Applying this well-entrey i i rule that Mea Bt a nched doctrine to the instant case, we mae © Is null and void ab initiofor lack of Masserts that the only issue j Y issue in controvey is" d/or implies that the mode or manner ii consideration and does not aff i ayare fey ie contract. In the rec lect the validit case of San Miguel Properties Philippines ine ¥. Huang, we ruled that 9 contract of sale fof t ress) ds 0 the parties must also meet on the terms or inate adie the price, the same is needed, otherwise there is no aie Hs held x% 22CHAPTER I - NATURE AND FORM OF THE CONTRACT agreement on the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price.” One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the contract. Ina contract of sale, the parties must agree not only on the price, but also on the manner of payment of the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus preventing the existence of a valid contract for lack of consent. This lack of consent is separate and distinct from lack of consideration where the contract states that the price has been paid when in fact it has never been paid.?7 Art. 1472. The price of securities, grain, liquids, and other things shall also be considered certain, when 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 be certain. Art. 1473. The fixing of the price can never be left to the discretion of one of the contracting parties. However, if the price fixed by one of the parties is accepted by the other, the sale is perfected. Rationale: Reason why price fixing cannot be left to the discretion of one of them: the other could not have consented to the price, for he did not know what it was.28 Art. 1474. Where the price cannot be determined in accordance with the preceding articles, or in any other manner, the contract is inefficacious. However, if the thing or any part thereof has been delivered to and appropriated by the buyer he must pay a reasonable price therefor. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. General Rule: Where the price cannot be determined in accordance with the preceding articles, or in any other manner, the contract is inefficacious. Hence, the sale is void. Exception: If the thing or any part thereof has been delivered to and appropriated by the buyer, he must pay a reasonable price therefor. — > see Rido Montcilo ws: lgaciaReynes and Spouses Redemptor and Elsa Abucay. GR. No. 138010, uly 26,200; 2 10 Manresa 58. 2002,CHAPTER TD © NATURE AND FORM OF THE CONTRACT oh pon the thing whieh is the object of U of minds e price, From ance contracts, ly demang law governing the form gf the parties may ree t ment, bject to the provisions of the hat sale is a consens 1 ing the moment th mere con’ ke note nt Problem: corporation engaged in the trading and tail bas , while Y nd equipment, nd sale of the upply of comput I for the delivery subject produ On October 29, 2001, X accordingly issu to P646,464, Th id products to X Corp. ‘The fine print of the invoice states, inter alia, that “title to sold property is reserved in Y Corp. until full compliance of the terms and conditions of above and payment of the price". After delivery, the subject products were then installed and configured in X Corp.'s premises. Y Corps demands against X Corp. to pay the purchase price, however, remained unheeded. Instead of paying the purchase price, X Corp. sent Y Corp. a letter, stating that it "has been returning the subject products to Y Corp. thru its sales representative who has agreed to pull out the said products but had failed to do so up to now." Should X Corp. pay Y Corp. the purchase price for the subject products? Answer: The very essence of a contract of sale isthe transfer of ownership in exchange for a price paid or promised. This may be gleaned from Article 1458 of the Civil Code which defines a contract of sale as follows: nounting Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership and to deliver @ determinate thing, and the other to pay therefor a price certain ! money or its equivalent. A contract of sale may be absolute or conditional, In this case, the parties have agreed to a contract of sale and 0% to a contract to sell. Bearing in mind its consensual nature, a contract 24an CHAPTER I - NATURE AND FORM OF THE CONTRACT sale had been perfected at the precise moment X Corp,, as evinced by its act of sending Y Corp. the Purchase Order, accepted the latter's proposal to sell the subject products in consideration of the purchase price of P646,464. From that point in time, the reciprocal obligations of the Parties - ie, on the one hand, Y Corp. to deliver the said products to X Corp, and, on the other hand, X Corp. to pay the purchase price therefor within 30 days from delivery - already arose and consequently may be demanded. Article 1475 of the Civil Code makes this clear: Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts? Note: In general, a perfected contract of sale cannot be challenged on the ground of the seller's non-ownership of the thing sold at the time of the perfection of the contract. Further, even after the contract of sale has been perfected between the parties, its consummation by delivery is yet another matter. It is through tradition or delivery that the buyer acquires the real right of ownership over the thing sold.3° Art. 1476. In the case of a sale by auction: (1) Where goods are put up for sale by auction in lots, each lot is the subject of a separate contract of sale. (2) A sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer, or in other customary manner. Until such announcement is made, any bidder may retract his bid; and the auctioneer may withdraw the goods from the sale unless the auction has been announced to be without reserve. (3) A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise provided by law or by stipulation. (4) Where notice has not been given that a sale by auction is subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ or induce any person to bid at such sale on his behalf or for the auctioneer, to employ or induce any person to bid at such sale on behalf of the seller or knowingly to take any bid from the seller or any person employed by him. Any sale contravening this rule may be treated as fraudulent by the buyer. a logies Co., LTD, G.R. No. 200602, December » see Ace Foods, Inc. vs. Micro Pacific Technologies C ember 11,2013. 2 gee Aurora Alcantara-Daus vs. Spouses Hermoso and Socorro De Leon, GR. No. 149750, June 16, 2003,CHAPTER I - NATURE AND FORM OF THE CONTRACT by is perfected F £ an Y aval by auction is perfected when the auctioneer announces its i ary manner, perfection by the fall of the hammer, or in other customary BEFORE the fall of the hammer 1. Any bidder may retract his bid; and 2. The auctioneer may withdraw the goo has been announced to be without reserve. ds from the sale unless the auction Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. In a contract of sale, the title to the property passes to the vendee upon the constructive or actual delivery thereof, as provided for in Article 1477 of the New Civil Code. The vendor loses ownership over the property and cannot recover it until and unless the contract is rescinded by a notarial deed or by judicial action as provided for in Article 1592 of the New Civil Code. A contract of sale is absolute, absent any stipulation therein reserving title over the property to the vendee until full payment of the purchase price nor giving the vendor the right to unilaterally rescind the contract in case of non-payment. In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time existed, and discharges the obligations created thereunder.31 Art. 1592. In the sale o mmovable property, even though it ma of le erty, ig! y ie to pay the price at the time agreed may pay, even perth contract shall of right take place, the vendee {for rescission of the conn ei" ¥ the period, as long as no demand After eh as been made upon him elther judicial = 2 RhodoraG. Blas vs. Linda Angeles-Hutalla, GR. N Septem :RNo. 155594, Arra Realty Corporation and Spouses Carlee i er 27,2004 Arguelles and Remed a Development Corporation and Insurance Agency and Engr. Erlinda Petalocs, on No azo peer 20,2 26ee en CHAPTER I - NATURE AND FORM OF THE CONTRACT Problem: oad oo ape complaint, R averred that she bought the hereditary shares 3 anaes 5 a lots) of X and the heirs of L; that said vendors execute 7 “ sie sale dated April 10, 1990 in her favor; that X and the heirs of of F102. 169. a down payment or earnest money in the amoul 169.86 and P450,000, respectively; that it was agreed in the contract of sale that the vendors would secure certificates of title covering their respective hereditary shares; that the balance of the purchase Price would be paid to each heir upon presentation of their individual certificates of title; that X refused to receive the other half of the down payment which is P100,000; that X refused and still refuses to deliver to R the certificates of title covering his share on the two lots; that with respect to the heirs of L, they also refused and still refuse to perform the delivery of the two certificates of title covering their share in the disputed lots; that R was and is ready and willing to pay X and the heirs of L upon presentation of their individual certificates of title, free from whatever lien and encumbrance. As to C, in spite of her knowledge that the disputed lots have already been sold by X to R, it is alleged that a simulated deed of sale involving said lots was effected by X in her favor; and that the simulated deed of sale by X to C has raised doubts and clouds over R's title. X and the heirs of L argue that the contract is a contract to sell, not a contract of sale. The real character of the contract is not the title given, but the intention of the parties. They intended to reserve ownership of the property to X and the heirs of L pending full payment of the purchase price. Further, R failed to faithfully fulfill her part of the obligation. Thus, X had the right to sell his properties to C who exercised due diligence in ascertaining ownership of the properties sold to her. Is the contract of sale between X and the heirs of L and R valid? Answer: Indeed, they have entered into a contract of sale. Not only has the title to the subject properties passed to R upon delivery of the thing sold, but there is also no stipulation in the contract that states the ownership is to be reserved in or "retained by the vendor until full payment of the price.” In fact, earnest money has been given by R. "Itshall be considered as part of the price and as proof of the perfection of the contract. It constitutes an advance payment to "be deducted from the total price. "Article 1477 of the same Code also states that "the ownership of the thing sold shall be transferred to the vendee upon actual or constructive delivery thereof." In the present case, there is actual delivery as manifested by acts simultaneous with and subsequent to the contract of sale when R not only took possession of the subject Properties but also allowed their use as parking terminal for jeepneys and buses, 27NTRACT CHAPTER I - NATURE AND FORM OF THE CON e contract of sale is constructiy, longer sell the subject properties ty @ contract of sale, the vendor lose, recover it until and unless th, x" The records do not show that x ntract. What he adduced was a belates f attorney he executed. "In the sale of h it may have been stipulated that upon agreed upon the rescission Of the place, rendee may Pay, even after the as long as no demand for rescission of the contrac: ither judicially or by a notarial act."33 Two aspects of delivery ‘The term “delivery” or tradition has two aspects: The de jure delivery or the execution of deeds of conveyance; and 2. The delivery of the material Possession.3+ Art. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price. Under the Civil Code, 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, ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. In other words, Payment of the purchase Price is not essential to the transfer of ownership as long as the property sold has been delivered. Such delivery (traditio) operated to divest the vendor of title to th unl e © Property which may not be Tegained or es .lrt( te contract is resolved or rescinded in accordance with law.35 78 of the civil a Stipulation be exprescd cil code does not require that such f b wg made. Consequently, an implied stipulation to that effectis rruaidered Valid and, therefore, binding and enforceable between the —— t sl hould be Noted that under the law and jurisprudence, a contract which contains this king of stipulation is Considered a contract to sell36 Art. 1479, A Promise to buy and sell i io certain is reciprocally demandable. * determinate aeomind voided etal Reba Lim GR Na 1746 Fs : 2, | * Natividad Ariaga Vé[Link] Gurrea, ‘tal vs. Enrique Suplica Ga ney2t ak " Puippine ‘National Bank vs. Court of Appeals and ara 006. "Adelfa Properties, Inc vs CA. ea hee 111238 jena 25 19g EER N13, May 6197Tee a ge CHAPTER I~ NATURE AND FORM OF THE CONTRACT An accepted unilateral zag lateral pr . to sell a determina thing for a price certain Ing upon the promisso is binding upon the promissor if the promise is supported by a consideration distinct from the price. Whatis contract to sell? A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject Property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. __ A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening ofa contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated. However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. Inacontract to sell, upon the fulfillment of the suspensive condition wl is ip_will_not automatically transfer to the buyer although the property may have been tonshy duit fi : 7 aver Contract to sell vs. Conditional contract of sale Contract to sell Conditional contract of sale In a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the fll payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer_after_registration because In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the sellers’ title thereto. In fact, if there had been previous delivery of the subject property, the sellers’ ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. 2” see Romulo A. Coronel, etal. vs. CA, etal, G.R. No. 103577, October 7, 1996, 29CHAPTER I - NATURE AND FORM OF THE CONTRACT Article 1544 of the Ciyj d buyer of the Code, such secon! roperty who may have had actya) or constructive knowledge of such the intending buyer. defect in the sellers’ title, or at least s charged with the obligation to discover such defect, cannot be a, registrant in good faith. Such | second buyer cannot defeat the first | buyers title. In case a title is issued | to the second buyer, the first buyer may seek reconveyance of the property subject of the sale.® there is no defect in the owner- | Applying sellers title per se, but the latter, of course, may be sued for damages by | P' wai What is option contract? ie peacmene v. Prieto, the nature of an option contract is explained thus In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following language: ‘A contract by virtue of which A, in consideration of the payment of ¢ certain sum to B, acquires the privilege of buying from, or selling to, B certain securities or properties within a limited time at a specified price. (Story vs Salamon, 71 N. ¥., 420.) From Vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24 Pac, 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken: ‘An agreement in writing to give a person the ‘option’ to purchase lands within a given time at a named price is neither a sale nor an agreement tosell. Itis simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property ata fixed price within a certain time. He does not sell his land; he does not then agree to sell ity but he does sell something; that is, the right or privilege to buy at the election or option of the other party. The second party gets in praesenti, not lands, nor an agreement that he shall have lands, but he does get something of value; that is, the right to call for and receive lands if he elects. The owner parts with his right to sell his land for a limited period. The second party receives hn sen Second Paty point o ve he receives the right weer ae oe right, or rather, from his jut the two definitions al it ': or, what amounts to the same thing ora Cter to the contract of option ; ig, to th . consideration for the obligation x xx37 |” Where there was cause 0 ee 48 see Ronzulo A Coronel etal vs. CA, etal. GR No. 103577, 1 Roberto D. Tuazon vs. Lourdes Q. Del Rosario. Suarez ea Gna dae 30 December 8, 2010.aes ee CHAPTER I- : ERI ~ NATURE AND FORM OF THE CONTRACT The rule so e; option or the opti enforceable, must, a the person granting ‘arly established in this jurisdiction is that the deed of lon clause in a contract, in order to be valid and mong other things, indicate the definite price at which the option, is willing to sell.“ What is aa of first refusal? gore the other hand, in Ang Yu Asuncion v. Court of Appeals,2? an elucidation on the "right of first refusal” was tnade thus: owe Jn the law on sales, the so-called ‘right of first refusal’ is an innovative juridical relation. Needless to point out, i ene under Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be brought within the purview of an option under the second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 of the same Code. An option or an offer would require, among other things,a clear certainty on both the object and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct.4! OPTION CONTRACT VS. RIGHT OF FIRST REFUSAL From the foregoing, it is thus clear that an option contract is entirely different and distinct from a right of first refusal in that in the former, the option granted to the offeree is for a fixed period and at a determined price. Lacking these two essential requisites, what is involved is only a right of first refusal.‘? Problem: H and W leased a house and lot to X. X used the subject property as his residence and place of business. H and W and X allegedly entered into a Contract of Lease with Option to Purchase involving the subject property. The contract purportedly afforded X, before the expiration of the three-year lease period, the option to purchase the subject property for a price not exceedingP1.5 Million. [itonjua and Erlinda P Litonjua and Phil White House Auto Supply, Inc, vs. LAR Corp, March 27, 2000. 7 Del Rosario-Suarez, etal, [Link]. 168325, December @, 2010. Del Rosario-Suarez, etal. G.R No. 168325, December 8, 2010, “Sps. Reynaldo " [Link] No. 1307: + Roberto D. Tuazon vs. Lourdes Q 44 Roberto D. Tuazon vs. Lourdes Q 31 FOr eT tte ere aeCHAPTER I - NATURE AND FORM OF THE CONTRACT Before the expiration of the three-year SE oleteona the lease contract, X exercised his option to Cae oallisaniaas to pay te by communicating verbally and in writing to W his paige agreed purchase price, but H and W_ supp: anlfesration to X, Hand W demanded that he pay his rental arrears and vacate the subject property since it would be needed by H and w tl Ives. wats eee Without heeding the demand of H and W, X instituted a Complaint for Specific Performance against H and W. X’ g ue aH action is founded on the Contract of Lease with Option to Purchase ie ing him with the right to acquire ownership of the subject property after paying the agreed amount of consideration. Is there an option contract? Answer: i woe An option is also sometimes called an "unaccepted offer" and is sanctioned by Article 1479 of the Civil Code: Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is ‘supported bya consideration distinct from the price. The second paragraph of Article 1479 provides for the definition and consequent rights and obligations under an option contract, For an option contract to be valid and enforceable against the promissor, there rted by a consideration, ‘awn, even if accepted, if : n. Here it is not disputed - It can therefore be withdrawn tance made of it by appellee, theca cayment °F consideration in an option cases and remains Controlling to this ae thou ea uae thout consideration that is from the purchase Price, an option contract 32ee ee CHAPTERT- NATURE AND FORM OF THE CONTRACT oe be enforced; that holds true even if the unilateral promise is ready accepted by the optionee. The consideration is "the why of the contracts, the essential reason which moves the contracting parties to enter into the contract.” However, by the very nature of an option contract, as defined in Article 1479, the same is an onerous contract for which the consideration must be something of value, although its kind may vary. _ We have painstakingly examined the Contract of Lease with Option to Purchase, as well as the pleadings submitted by the parties, and their testimonies in open court, for any direct evidence or evidence aliunde to prove the existence of consideration for the option contract, but we have found none. The only consideration agreed upon by the parties in the said Contract is the supposed purchase price for the subject Property in the amount not exceeding P.1.5 Million, which could not be deemed to be the same consideration for the option contract since the law and jurisprudence explicitly dictate that for the option contract to be valid, it must be supported by a consideration separate and distinct from the price. In Bible Baptist Church v. Court of Appeals, we stressed that an option contract needs to be supported by a separate consideration. The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not monetary, these 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. In the present case, it is indubitable that no consideration was given by X to H and W for the option contract. The absence of monetary or any material consideration keeps this Court from enforcing the rights of the parties under said option contract.4? Note: There is no question that under Article 1479 of the new Civil Code "an option to sell," or "a promise to buy or to sell,” as used in said article, to be valid must be "supported by a consideration distinct from the price.” This is clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by consideration. In other words, "an accepted unilateral promise can only have a binding effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted, ifthe same is not supported by any consideration, Sab aia NS a ‘© see Enrico S. Eulogio vs. Spouses Clemente Apeles and Luz Apeles, GR. No. 167884, January 20, 2000, 33CHAPTER I - NATURE AND FORM OF THE CONTRACT this Court further declared thay. which te wt A unilateral promise to buy or sell is a mere offer, which is Not 2 tt at the moment it is converted into a contract except 7: ey accepted, Acceptance is the act that gives life to a juridical obligation, because, In Diamante v. Court of Appeals, r, a bilateral contract . Upon acceptance, howevei ‘i to sell and to buy is eaateal and the offeree ipso facto ae the obligations of a purchaser; the offeror, on the orher hans seu be liable for damages if he fails to deliver the thing he had offeret 7 Hae he wr, that the option is not the contract of sale itself. The He eapaireitert he obligation, to buy. Once the option is optionee has the right, but not the oblig« y Tae th exercised timely, ie, the offer is accepted before a breach of the option, q bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings, Let us elucidate a little. A negotiation is formally initiated by an offer, An imperfect promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily, construed as mere invitations to make offers or only as proposals, These relations, until a contract is perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal, (Laudico vs, Anas, 43 Phil. 270). Where a period is given to the offeree within which to accept the offer, the following rules generally govern, (2) If the period is not itself founded a consideration, the offeror is stil 4 he ight av vtharabr I free and has the right to withdraw the ee its acceptance, or, if an acceptance has been made, before the “om . . ud at on eee to know of such fact, by communicating that withdrawal it could give rise to a damage claim rdains that “Every person must, in tformance of his duties, act with ve honesty and good faith. and obse ite om The option, however, is at reereiine: f IS to be distinguish ym the (ni cl nf st hon ho f, ptioner- it before its acceptance (exercise Of the option) ten seearaes toe of ee-offeree,ene CH. - IAPTER I - NATURE AND FORM OF THE CONTRACT latter object" of the sue for specific performance on the proposed contract perfection. The option) since it has failed to reach its own stage of . The optioner-offeror, however, renders himself liable for 6 a a Any injury to or benefit from the thing sold, after the contract has been perfected, from the moment of the perfection of the contract ne of delivery, shall be governed by Articles 1163 to 1165, and This rule shall a i i d pply to the sale of fungible things, made independently and for a single price, or without consideration of their weight, number, or measure. Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall not be imputed to the vendee until they have been weighed, counted, or measured and delivered, unless the latter has incurred in delay. Object is lost before perfection If the object has been lost before perfection, the seller bears the loss. Object is lost after delivery to the buyer If the object was lost after delivery to the buyer, the buyer bears the loss. Object is lost after perfection but before delivery If the object was lost after perfection but before delivery, the buyer bears the loss. This is an exception to the principle of res perit domino. What is res perit domino? Property lost to the owner.*6 What are fungible goods? Goods that are interchangeable with one another; goods that, by nature or trade usage, are the equivalent of any other like unit, such as coffee or grain’? Example: me; In one case, the sale between the parties is a sale of a specific mass or iron ore because no provision was made in their contract for the measuring or weighing of the ore sold in order to complete or perfect the sale, nor was the price of P75,000 agreed upon by the parties based upon any such measurement. {tonjua and Phil. White House Auto Supply, Inc, vs. LAR Corp, Erlinda P. 0. ‘Tenth Edition. nth Edition. 46 Sps. Reynaldo K. Litonjua and etal,G.R. No. 130722, March 27, 200 46sec p.1505, Black's Law Dictionary, 4 see p.809, Black's Law Dictionary, Tet 35 eee “Ce2 CONTRACT CHAPTER I - NATURE AND FORM OF TE The sl pel er of the sal (see Art. 1480, second par., New Civil Code). The suble : ane eee fun 2 therefore, a determinate object, the mass, and not the Ss 0 the seller was ¢ ° s required of t 0 or tons contained therein, so that all that was required Of Tie A Whe w deliver in good faith to his buyer all of ethan the amount estimateg notwithstanding that the quantity delivered is less by them. Art. 1481. In the contract of sale of goods by Cee eaed dat the contract may be rescinded ite bulk of the goods delivered dos i ‘iption or the sat ya sample, SS enae aeseipdoll it is not sufficient that the bullc af Hoods carreavona with the sample if they do not also correspond with the aeeeraerye buyer shall havea reasonable opportunity of comparing the bulk with the description or the sample. (n) is sale by sample? Pe ot eave a saleby sample when a small quantity is exhibited by the seller as a fair specimen of the bulk, which is not present and there is no opportunity to inspect or examine the same. To constitute a sale by sample, it must appear that the parties treated the sample as the standard of quali and that they contracted with reference to the sample with the understanding i i Ina ) contract of sale by sample, there is an implied warranty that the goods shall be free from any defect which is not apparent on reasonable examination of the sample and which would render the goods unmerchantable.48 What is sale by description? There is a sale of goods by description where "a seller sells things as being of a particular kind, the buyer not knowing whether the seller's but relying on them as true; or as otherwise description from a selle ctintion. Where the goods are bought by * T who deals in the Ba, i i 800ds of th: eis an implied warranty that the goods are of merchantable Pats ee Problem: In h i freee aoe alleged that she ordered three sets of Yand Z agreed on the specif 2" Paid an initial deposit of 240,650. Specifications of the dining set, sofa set and tea set “Te fe eth David, GR. No. 14757: 7 erestaB. Mendoza vs Beth David, GR No, 14 575, October 22, 204 5. 2004, 36CHAPTER I~ NATURE AND FORM OF THE CONTRACT including the material and of P40,000. When Z delivered the dining set to Y, Y rejected the set because of inferior material and poor quality. Y likewise rejected the sala set and the tea set for the same reason. When Y requested a refund of her total deposit of P80,650, Z refused. Y then sent Za letter demanding the refund of her deposit but Z ignored the demand letter. Thus, Y filed a complaint for collection of money. In her Answer, Z admitted that she and Y agreed on the material and quality of the furniture Y ordered since that was the normal practice for "made to order" furniture. Z stated that she delivered some of the furniture which was received by Y's father. However, Y could not pay the balance of the price and requested payment on installment which Z rejected. Asa result of Y's non-payment, Z reclaimed the furniture already delivered and informed Y that she could get the furniture upon payment of the balance of P105,000. In the meantime, Z stored the furniture in her warehouse. When Z received Y's demand letter, she refused to comply with Y's request for a refund of the deposit since all the three sets of furniture Y ordered were already finished and delivered on the agreed date. Z only retrieved the furniture due to non-payment of the balance. Was the transaction between the parties one of sale by description or sample? Answer: The transaction in this case was a "made to order" agreement. There is nothing in the records which would show that the intent of the parties was for a sale by sample or description. Whether a sale is by sample or description depends upon the facts disclosing the intention of the parties. Other than Y's bare allegations that the transaction was a sale by sample or description, Y failed to produce evidence to substantiate her claim. quality. Y paid an additional deposit The sale of furniture in this case is not a sale by sample. The term sale by sample does not include an agreement to manufacture goods to correspond with the pattern. In this case, the three sets of furniture were manufactured according to the specifications provided by the buyer. Y did not order the exact replica of the furniture displayed in Z's shop but made her own specifications on the measurement, material and quality of the furniture she ordered. Neither is the transaction a sale by description. Y did not rely on any description made by Z when she ordered the furniture. Y inspected the furniture displayed in Z's furniture shop and made her own specifications on the three sets of furniture she ordered.CHAPTER 1 = NATURE AND FORM OF THE CONTRACT rerfected contract Of sale of Pose furniture were delivered at there he thre It is undisputed t furniture between the partic or ready for delivery within th Art. 1482. Whenever earnest mot ea be considered as part of the price and as pr contract, fof the perfection of the What is earnest money (“arras”)? ee A deposit paid (often in escrow) by a pros fa estate) to show a good-faith intention to comple ordinarily forfeited if the buyer defaults.° tive buyer (esp. of real te the transaction, and blem: : _ Hin and W, are the registered owners of a specific lot. X, offered to a eter. X then buy the lot. H and W agreed to sell it atP1,500 per square m ae petitioners P100,000 as partial payment. In turn, H and W gave X the corresponding receipt stating that X promised to pay the balance of the purchase price on or before March 23, 1990. On March 28, 1990, X, wrote H and W informing them of his readiness to pay the balance of the contract price and requesting them to prepare the final deed of sale, On April 4, 1990, H and W, sent a letter to X stating that W is leaving for abroad on or before April 15, 1990 and that they are canceling the transaction. H and W also informed X that he can recover the earnest money of P100,000 anytime. Reenieien April Pia and W wrote X stating that they ‘0 his counsel jank Manager’s Check in the amount of 210,000 payable to him, . In view of the cancellation of the contr: ‘act by H and W, X filed a complaint against them for specific performance, a Is the P100,000 an e Answer: n earnest money? Thus, when Payment" that they ~ ouion MT AMOUNT oF 2100.000 Parnas paywryrot jh Teresita B Mendoza vs. Beth David, "see 9620, blacks Law Diclona Tenth 447575, October 22,2004 H and W declared in the said “Receipt for Partialaa STN rial CHAPTER I~ NATURE AND FORM OF THE CONTRACT conionaleontaceterpetation than that they aed, of sale, consummation of which is subject only to the full payment of the purchase price 4 In this case, the "Receipt for Parti + agreement between the foaee fe cata Payment shows that the true First, ownership over the property was retained by petitioners and was not to pass to respondent until full payment of the purchase price. ae the agreement between the parties was not embodied in a deed Third, H and W retained possession of the certificate of title of the lot. This is an additional indication that the agreement did not transfer to X, either by actual or constructive delivery, ownership of the property. : It is true that Article 1482 of the Civil Code provides that Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract." However, this article speaks of earnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price. Now, since the earnest money was given in a contract to sell, Article 1482, which speaks of a contract of sale, does not apply. Problem: X Corp. is a domestic corporation engaged in the real estate business, It is the registered owner of a determinate land with improvements. Y, Corp., on the other hand, isa domestic corporation with offices located beside the subject property. Looking to expand its business and add to its existing offices, Y Corp. - through its General Manager, E-senta letter addressed to X Corp. = through its Executive Vice-President, G - offering to purchase the subject property at 26,000 per square meter. A series of telephone calls ensued, but only between E and G's secretary. E was unable to personally negotiate with G or X Corp's board of directors. Sometime thereafter, E personally went to X Corp.'s office offering to pay for the subject property in cash, which he already brought with him. However, G declined to accept payment, saying that she still needed to secure her sister's advice on the matter. She likewise informed E that prior approval of X Corp.’s Board of Directors was required for the transaction, to which remark E replied that Y Corp. shall instead await such approval. (On February 4, 2005, Y Corp. sent a letter of even date to X Corp. Itwas accompanied by P Bank Check No. 0001, issued for P100,000 and made payable to X Corp. ——— * Spouses Qanie Serrano and Amparo Herrera vs. Codotredo Cagulat, GR No, 139173, February 28, 2007 39