LAW 4 (Sales, Agency, Labor and Other Commercial Laws)

Lecture Notes Part I. SALES I – II

TEACHER: Atty. Jo Feliz Marie M. dela Calzada

I. NATURE AND CHARACTERISTICS

1. Definition (Art. 1458)

Art. 1458: By the contract of sale, one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

2. Characteristics
a. Consensual – perfected by mere consent
b. Bilateral – parties are bound to reciprocal prestations
c. Onerous – exchange of equivalent values
d. Nominate – has special designation
e. Principal – may exist alone
f. Commutative – fulfillment is predetermined in advance

3. Distinctions
a. vs. Barter (Arts. 1468, 1638)

Art. 1638: By the contract of barter or exchange, one of the parties binds
himself to give one thing in consideration of the other’s promise to give
another thing.

Art. 1468: If the consideration of the contract consists partly in money

and partly in another thing, the transaction shall be characterized by the
manifest intention of the parties. If such intention does not clearly appear,
it shall be considered a barter if the value of the thing given as a part of
the consideration exceeds the amount of the money or its equivalent;
otherwise, it is a sale.

b. vs. Dation in payment (Art. 1245)

Art. 1245: Dation in payment, whereby property is alienated to the

creditor in satisfaction of a debt in money, shall be governed by the law of
sales.

CONTRACT OF SALE DATION IN PAYMENT

There is no pre-existing credit There is a pre-existing credit
Gives rise to obligations Extinguishes obligations
Cause or consideration is the price (from Cause or consideration is extinguishment
the viewpoint of the seller) or the of debt (from the viewpoint of debtor) or
obtaining of the thing sold (from the acquisition of the object offered in lieu of
viewpoint of the buyer) the original credit (from the viewpoint of
the creditor)
Greater freedom in determination of the Less freedom in determining the price
price
Giving of price ends the obligation Giving of the object in lieu of credit may
not completely extinguish the credit

c. vs. Lease of things – only transfers possession, not ownership

d. vs. Lease of services (Art. 1467)

Art. 1467: A contract for the delivery at a certain price of an article which
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.

e. vs. Donation – gratuitous and requires certain formalities

f. vs. Contract to Sell (Art. 1466)

CONTRACT OF SALE CONTRACT TO SELL

Title passes to vendee upon delivery of the Ownership is not transferred upon delivery
thing sold but only upon full payment of the price
Non-payment of the purchase price is a Payment in full is a positive suspensive
negative resolutory condition, meaning the condition, meaning if the purchase price is
sale becomes ineffective upon the not paid, the obligation to deliver and to
happening of such condition transfer ownership on the part of the
seller does not become effective
After delivery, the seller loses ownership Whether there is delivery or not, the seller
and unless the contract is set aside, he retains ownership of the object. If the
cannot recover the object seller, due to non-payment of the price is
ousting the buyer from the property, the
seller is not rescinding the contract but is
precisely enforcing it
 CONDITIONAL CONTRACT OF SALE CONTRACT TO SELL (Agency to Sell)
(Pactum Reservatii Domini)
There is already a contract of sale No contract of sale, only a preparatory
contract
There is delivery of the thing sold but No delivery, no sale
ownership over it is retained by the seller
until fulfillment of the condition
In case of breach, innocent party may sue In case of breach, innocent party may only
for the purchase price or ask that contract sue for damages
be rescinded
Payment completes the transaction Payment will not complete transaction;
deed of absolute sale must first be drawn

g. vs. Agency
SALE AGENCY
The buyer pays for the price of the Agent does not pay for the price. He
goods merely accounts for the proceeds of
the sale
The buyer becomes the owner of the The agent does not become the owner
goods purchased of the goods delivered to him for sale
Buyer cannot return the goods when Agent returns the goods if he was
the sale is defective unable to sell them
Seller warrants the goods sold Agent does not make warranty as long
as he acts within his authority and in
the name of the principal
Seller has full freedom to enter into Agent must follow the instructions of
any terms and conditions on the the principal
contract of sale

4. Promise to Sell: when binding (1479)

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 promissory if the promise is supported y
a consideration distinct from the price.

- BILATERAL PROMISE TO BUY AND SELL – as good as a perfected sale;

binding and demandable
- UNILATERAL PROMISE TO BUY/SELL – must be accepted for the
promise to be binding and demandable (option contract)
II. ELEMENTS OF A CONTRACT OF SALE
5. Essential Elements
a. Meeting of the minds of seller and buyer – consent to transfer
ownership in exchange for the price

a.1. Capacity to contract (Arts. 1489-1491)

WHO ARE INCAPACITATED:

 minors – except delivery of necessaries
 husband and wife – except if there is separation of
property (judicial or extra-judicial)
 guardian as regards the property of his ward
 agents as regards property of principal
 executors and administrators as to property of the estate
under administration
 public officers and employees as regards property of the
State or GOCCs/institutions the administration of which
has been intrusted to them
 justices, judges, prosecuting attorneys, clerks of superior
and inferior courts, and other officers and employees
connected with the administration of justice as regards
property in litigation or levied upon before the court
within whose jurisdiction or territory they exercise their
respective functions

b. Object
b.1. Qualities – The object must be:
 Existing, Future or Contingent (Art. 1462)
 Potential existence is sufficient (Art. 1461) (Emptio
rei speratae)
 Things under resolutory condition (potential
destruction) may be objects of a valid sale (Art.
1465)
 Sale of a mere hope or expectancy (Art. 1461) is
valid, UNLESS the hope is vain (Emptio spei)
 Lawful – the thing must be licit and the vendor must have
a right to transfer the ownership thereof at the time it is
delivered (Art. 1459)
 FORBIDDEN SALES:
- Of cattle with contagious diseases (Art.
1575)
- Of future inheritance (Art. 1347)
 Transferability of ownership by the vendor is required at
the time of delivery (Art. 1459)
  Determinate or indeterminate (Art. 1460)
 Undivided interest (Art. 1463) may be the object of
sale
 Undivided share in a mass of fungible goods (Art.
1464)
- If the aliquot part purchased from the seller
is more than the whole undetermined mass
after it had been weighed or measured,
then the buyer becomes the owner of the
entire mass
- If the aliquot part purchased is less than the
whole undetermined mass, the purchaser
will become the co-owner of the whole
mass in proportion to which the number,
weight or measure of what had been
purchased bears to the number, weight or
measure of the mass or stock
- Seller must make good any deficiency
c. Price certain

PRICE – the sum stipulated as the equivalent of the thing sold and also
every incident taken into consideration for the fixing of the price,
which was agreed upon by both parties

REQUISITES:
 The price must be real (Art. 1471)
 In money or its equivalent (Art. 1458)
 Certain or ascertainable/determinable

c.1. Earnest money (Art. 1482)

Art. 1482: 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.

• Option money – amount paid as separate consideration for a

unilateral promise to buy or sell a thing within a certain period; it
does not form part of the purchase price

c.2. When consideration is partly money and partly goods

 Determine the intention of the parties
 If intention cannot be determined:
 If value of the thing is more than value of the money, it
is BARTER
  If value of the thing is less than value of the money, it
is SALE
 If both values are the same, SALE

6. Natural Elements
a. Warranty against eviction – warranty on the part of the seller that he
has a right to sell the thing at the time when the ownership is to pass,
and that the buyer shall from that time have and enjoy the legal and
peaceful possession of the thing

b. Warranty against hidden defects – warranty that the thing shall be

free from any hidden faults or defects, or any charge or encumbrance not
declared or known to the buyer

7. Accidental Elements