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Category Archives: law on sales

Contract of Sale
March 4, 2016 law on sales

What is a contract of sale?

According to Art. 1458 of the New Civil Code, it is

defined as:

Article 1458. By the contract of sale one of the

contracting parties obligates himself 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.

*It is an agreement between two parties where-

by one, who is the seller or vendor, obligates
himself to deliver something to the other party
who is the buyer or vendee who is bound to pay
a sum of money or its equivalent.

What are the essential elements of a contract

of sale?

In general, the rules governing a simple contract

also apply to a contract of sale. The following
must be present:

1. Consent or meeting of the minds wherein

the contract of sale is perfected at the mo-
ment there is a meeting of minds upon the
thing which is the object of the contract
and upon the price thereof. This is when
the seller agrees to deliver the thing subject
of the contract and the buyer, the price
thereof. The essence of this is that the par-
ties agree to the terms of the contract
which will bind them.

2. Object or subject matter or the determi-

nate thing, as what the law referred to
which the seller is bound to deliver and the
buyer is bound to receive upon payment of
its sum.

3. Cause or consideration or the price cer-

tain in money or its equivalent which does
not include goods or merchandise although
they have their own value in money. Its
equivalent may mean any goods given as
the token of payment and where these are
assessed and evaluated as its price equiva-
lent. The price however must not be ficti-
tious or else it would be void.

What are the characteristics of a contract of

sale?

Consensual because it can be perfected by the

mere giving of consent and meeting of the minds
of the parties;

Bilateral because both of the parties are bound

to fulfil correlative obligations such as the seller
is to deliver the thing which is the subject of the
contract and the buyer, to pay the price;

Onerous because the thing sold is conveyed in

exchange for the purchase price and the price is
in consideration of the thing sold;

Nominate because it is given a name in the Civil

Code

Principal because it does not require the exis-

tence of another contract for it to be valid and
existing.

What are the types of Sales Agreement?

1. Absolute Sale- one wherein there is no con-

dition whatever and imposes upon the ven-
dor the obligation to deliver the real estate,
subject matter of the agreement to the
vendee who upon the receipt of the proper-
ty hands over and pays the purchase price
that has been previously agreed upon with
the vendor.

The Deed of Absolute Sale where both par-

ties agree on and accept the real estate to
be or being conveyed and price therefore
that the vendee should pay for it. This
transaction is the most common where the
title of the real estate, subject sale, is free
from and clear of any alien or encum-
brance whatever. No other condition is nec-
essary except the actual delivery and trans-
fer of the property to the vendee without
delay. The deed will then be registered to
the proper Registry of Deeds as required by
the Torrens Registration Law.

Sale in Exchange or Barter where the real

properties is subject to the transaction is
deeded in exchange of and for another real
property that is acceptable to the vendor
without any additional monetary consider-
ation. It is essential in the transaction that
the title of both properties in the exchange
is valid and unencumbered or free from
any liens or encumbrances of any nature.

2. Conditional Sale-This is an agreement to

sell or buy real estate with certain condi-
tions that must be accomplished by either
or both the parties so as to extinguish and
or create ownership over the subject prop-
erty. This is merely an executory contract
in contemplation of the law and the right of
ownership is withheld for the meantime. In
other words, the certificate of title of the
real property is not turned over to the
vendee until and after certain conditions
have been accomplished by either or both
the parties. Then it becomes an executed
contract.

It may be:

Sale on installments- commonly adopted

for the sale of lots in a land subdivision or
units in a condominium or townhouse
project. Its principal feature is that the pur-
chase price is fixed at a certain amount that
shall be paid in equal monthly or yearly in-
stallments for a period of five or ten years.

Contract to Sell- This is similar to sale on in-

stallments except that the period allowed
for the final payment of the purchase price
is much shorter in duration.

Pacto de Retro- The sale in which the ven-

dor is granted the right to repurchase the
property sold on a certain date fixed in the
Contract. This is done by returning to the
vendee the entire purchase price including
the expenses for the preparation of the con-
tract and the necessary and useful expens-
es on the property sold. This is termed as
conventional redemption under Article
1691 of the New Civil Code.

There are other forms of Conditional Sale where

ownership and possession of subject property
are transferred to the vendee upon execution of
the contract such as:

1. Sale with mortgage- A portion of the pur-

chase price is initially paid by the vendee
and the vendor delivers possession and
ownership of subject property tot eh ven-
dor who, thereafter, execute a Deed of
Mortgage on the same property in favor of
the vendor to guarantee payment in full of
the balance of the purchase price.

2. Sale with assumption of mortgage- The

Vendor pays in cash a portion of subject
property to the vendee who assumes the
payment of the existing mortgage on the
property that represents the balance of the
purchase price.

3. Dacion en Pago- This is an agreement

where the encumbered property of the
vendor is sold by the latter to his creditor
or mortgagee as vendee to satisfy or in pay-
ment of his existing loan and other charges.

What is the difference between a contract to

sell and a conditional sale?

1. Transfer of title– In a contract to sell, the

title does not automatically pass to the buy-
er upon payment of the price, a contract of
absolute sale still has to be entered into by
the parties.

In a conditional sale, the sale will be deemed

fulfilled upon the happening of the condition
which may or may not occur. If the condition
do not happen then the contract of sale will
be abated.

2. Sale of property to a third person– In a

contract to sell, a third person not an imme-
diate party to the contract cannot be con-
sidered a buyer in good faith despite pay-
ment of the price and the prospective buy-
er cannot recover the property. This in ef-
fect will cause defect in the title of the
buyer.

In a conditional sale, upon the happening of

the suspensive condition, the title of the sell-
er or ownership to the thing sold will auto-
matically transfer to the buyer and will bar
the seller to transfer it to any other person.
In this case, the first buyer may seek recon-
veyance of the property since the second
buyer will be deemed a buyer in bad faith
and will have a defect in his title

References:
De Leon, H. (2010). Comments and Cases on Sales.
Quezon City: Rex Printing Company, Inc.

Leabres V. Court of Appeals, 146 SCRA 158, 1986

The New Civil Code of the Philippines

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Parties to a Contract of Sale

March 4, 2016 law on sales

Who has the capacity to capacity to buy or to

sell?

In general all persons who may enter into a sim-

ple contract may also enter into a contract of
sale. All persons either natural or juridical is giv-
en the legal capacity to buy and sell. However
there are those given by law an absolute and rel-
ative incapacity to enter into a contract of sale.

Art. 1489. All persons who are authorized in this

Code to obligate themselves, may enter into a
contract of sale, saving the modifications con-
tained in the following articles.

Where necessaries are those sold and delivered

to a minor or other person without capacity to
act, he must pay a reasonable price therefor.
Necessaries are those referred to in Article 290.
(1457a)

*This provision of the New Civil Code mentioned

about necessaries which is defined in Art. 194 of
the Family Code as everything indispensable for
sustenance, dwelling, clothing, medical, atten-
dance, education, and transportation.

Kinds of Incapacity:

1. Absolute incapacity
2. Relative incapacity
3. Specific incapacity

Who are those with absolute incapacity ac-

cording to the law?

Those that are considered absolutely incapable

of entering into a contract of sale are those that
cannot bind themselves because of reasons for
example like age, defect intellect and mental ca-
pacity.

Article 1327: The following cannot give consent to

a contract:

Unemancipated minors

*Those which have not yet reached the age

of majority which is 18 years old.

Insane or demented persons and

Deaf-mutes who do not know how to write

Article 1328: Contracts entered into during a

lucid interval are valid. Contracts agreed to in
a state of drunkenness or during a hypnotic
spell are voidable.

*Lucid interval is the period wherein the

person suffering from mental illness is
restored to his normal intellectual capacity,
intelligence, judgment and reason.

Article 1390: The following contracts are void-

able or annullable, even though there may
have been no damage to the contracting
parties:

One of the parties is incapable of giving con-

sent (want of capacity)

Consent is vitiated by mistake, violence, in-

timidation, undue influence or fraud (vitiat-
ed consent)

These contracts are binding, unless they are

annulled by a proper court action. They are
susceptible of ratification.

Who are those with relative incapacity ac-

cording to the law?

Those that are considered relatively incapable of

entering into a contract of sale are in relation
only to certain persons and classes of property.

Articles 1490: Husband and wife cannot sell prop-

erty to each other, except

1. When separation of property was agreed

upon in marriage settlements

2. When there has been judicial separation of

property under Art 191

*This is to prevent commission of fraud or

prejudice to third persons, the other taking
undue influence over the other and to avoid
indirect donations. However the husband
and wife cannot sell property to each other
except when a separation of property was
agreed upon in the marriage settlements and
where there has been a judicial separation of
property as provided by law.

Who are those with specific incapacity ac-

cording to the law?

Those that are considered specifically inca-

pable of entering into a contract of sale are
in relation only to their occupation and rela-
tion to other persons due to public policy,
public order, public morals and so forth.

Art. 1491. The following persons cannot ac-

quire by purchase, even at a public or judicial
auction, either in person or through the medi-
ation of another:

The guardian, the property of the person or

persons who may be under his guardianship;

*The relationship of the guardian and ward

is so intimate that the influence is so great
which might cause highly suspicious and
fraudulent contract of sale. This influence is
assumed to last while the guardian is still
functioning in its capacity, the property is
still under his control and accounts have fi-
nally been settled.

Agents, the property whose administration

or sale may have been entrusted to them, un-
less the consent of the principal has been
given;

*This incapacity rests on the principle that

the agent and principal rest on one juridical
person. The agent stands on fiduciary rela-
tionship with his principal. He is prohibited
to buy the property he is supposed to sell un-
less the principal consented thereto.

Executors and administrators, the property

of the estate under administration;

*The prohibition applies to properties under

the administration of the executor and ad-
ministrator. Executors do not administer the
hereditary rights of any heir and thus not
part of the property administered by them.

Public officers and employees, the property

of the State or of any subdivision thereof, or
of any government-owned or controlled cor-
poration, or institution, the administration
of which has been intrusted to them; this
provision shall apply to judges and govern-
ment experts who, in any manner whatsoev-
er, take part in the sale;

*This prohibition applies to properties be-

longing to the State or any subdivision there-
of or any government-owned or controlled
corporations or institutions and those ad-
ministered by these public officials.

Justices, judges, prosecuting attorneys,

clerks of superior and inferior courts, and
other officers and employees connected with
the administration of justice, the property
and rights in litigation or levied upon an ex-
ecution before the court within whose juris-
diction or territory they exercise their re-
spective functions; this prohibition includes
the act of acquiring by assignment and shall
apply to lawyers, with respect to the proper-
ty and rights which may be the object of any
litigation in which they may take part by
virtue of their profession.

*The prohibition applies to properties sub-

ject of litigation to the persons disqualified
by virtue of this provision. It applies during
the pendency of litigation involving the
property. Such as when the property is sub-
ject to the judicial action of the judge or a
lawyer, who by virtue of his profession,
takes part on the purchase of the property.

Any others specially disqualified by law.

(1459a)

*These are for example, aliens who cannot

purchase agricultural lands prohibited by
the Constitution, an officer managing an exe-
cution sale cannot purchase the subject
property as prohibited by the Rules of Court
or an unpaid seller who prohibited in buying
the goods in the resale of the same at a pub-
lic or private sale as barred by the New Civil
Code of the Philippines.

References:

De Leon, H. (2010). Comments and Cases on Sales.

Quezon City: Rex Printing Company, Inc.

Jurado, D. (1999). Civil Law Reviewer. Quezon

City: Rex Printing Company, Inc.

The New Civil Code of the Philippines

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Subject Matter
March 4, 2016 law on sales

What can be the objects of a contract of sale?

1. Things which should be determinate as well

as licit or lawful so as not to be contrary to pub-
lic law, morals, public order, good customs and
so forth. It must also be within the commerce of
men or susceptible of appropriation and trans-
missible from one person to the other.

The thing must be determinate; specifically

separated and particularly designated;
determinable
The thing must be licit-must not be con-
trary to law, morals, good customs, public
order or public policy; not outside the com-
merce of men and not impossible
The vendor must have the right to transfer
ownership thereof, at the time it is deliv-
ered since delivery transfers ownership
The thing or object of sale may be presently
existing or it may exist in the future pro-
vide in the latter case it has potential
existence
The sole owner of the thing may sell an un-
divided interest therein.

2. Rights which can even be personal or not in-

transmissible. However there are objects which
is by law prohibited to be sold such as those that
involves transmissible rights like right to vote,
right to public office and services

What are the goods which may be the objects

of sale?

1. Existing goods or those owned or already

possessed by the seller
2. Future goods or those which are still to be
manufactured, raised or acquired. No con-
tract may be entered into upon future in-
heritance except in cases expressly autho-
rized by law.

Contract to Sell; Absolute Sale; Conditional

Sale

1. What is a contract to sell?

A contract to sell is a kind of sale

whereby payment of the contract price is
made at some future date and that own-
ership of the property shall be retained
by the owner until full payment thereof
is made. It is a bilateral contract where-
by the prospective seller binds himself to
sell a thing to a prospective buyer upon
the fulfillment of the payment of the
price. The transfer of title to the buyer
will only happen not by the fact of pay-
ment but by entering into another con-
tract which is the contract of absolute
sale. The prospective buyer reserves the
ownership to the object which is the sub-
ject matter of the sale.

2. What is an absolute sale?

An absolute sale is defined as an agreement

without any stipulated conditions to be com-
plied by either the seller or buyer. It is
where there are no other conditions which
need to be fulfilled before the ownership of
the thing sold be transferred. Mere delivery
of the thing already passes the title to the
buyer. The payment of the purchase price is
not essential to transfer ownership, so long
as the property has already been delivered.
Non-payment would only give the seller the
right to demand for the sum.

3. What is a conditional sale?

A conditional sale is a bilateral contract

whereby the element of consent is present
although conditioned upon the happening of
a contingent event which may or may not oc-
cur. 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 per-
formed by the seller.

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Obligations of the Parties

March 4, 2016 law on sales

What are the Obligations of the vendor?