Governing law | Course Paper

Unlock access to all the studying documents.

View Full Document

1

1

Part I

SALES

(Title VI, Arts. 1458-1637)

INTRODUCTION

Governing law.

The provisions of the Code of Commerce relating to sales have

been repealed by the Civil Code. (Art.* 2270[2].) Today, sales are

governed by the provisions of the Civil Code on the subject. (Book

IV, Title VI, Arts. 1458-1637.) The distinction between the so-called

civil sales and commercial sales is eliminated.

The provisions of the Civil Code on Obligations (Title I, Arts.

1156-1304.) and Contracts (Title II, Arts. 1305-1422.) are applica-

ble to the contract of sale, but Articles 1458 to 1637 are special rules

which are peculiar to sales alone.

Sources of our law on sales.

(1) The Philippine law on sales, as it exists today, is an admix-

ture of civil law and common law principles. According to the

Code Commission:

“A majority of the provisions of the Uniform Sales Law

which is in force in 31 States and Territories of the American

Union have been adopted in the Civil Code with modifications

to suit the principles of Philippine Law.” (Report of the Code

Commission, p. 60.)

*Unless otherwise indicated, refers to article in the Civil Code.

2SALES

In incorporating some provisions of the Uniform Sales Act of

the United States, the Commission states:

“This incorporation of a goodly number of American rules

on sale of goods has been prompted by these reasons:

(1) The present [old] Code does not solve questions aris-

ing from certain present-day business practices. Among them

are: the sale of “future goods” (Art. 1482.); sale of goods by

description or by sample (Art. 1501.); when goods are deliv-

ered “on sale or return” (Art. 1522.); sale of goods by negotia-

tion or transfer of a document of title (Arts. 1527 to 1540.); and

the rights of the unpaid seller of goods. (Arts. 1545 to 1555.)1

(2) The present Code fails to regulate many incidents and

aspects of delivery and acceptance of goods, of warranty of

title and against hidden defects, and of payment of the price.

(3) It is probable that a considerable portion of the foreign

trade of the Philippines will continue for many years with the

United States. In order to lessen misunderstanding between

the merchants on both sides of the Pacific, their transactions

should, as far as possible, be governed by the same rules. This

desirable condition will not only facilitate trade but will also

perpetuate sentiments of esteem and goodwill between the

two peoples. It is but a truism to say that fair and mutually

beneficial trade incalculably enhances international friend-

ship.” (Ibid., pp. 60-61.)

(2) In addition:

“The Title on ‘Sales’ has been enriched by the addition of new

provisions based on the opinions of commentators (Arts. 1479,

1480, 1481, 1485, 1490, 1491, 1497, 1498, 1512, 1516, 1558, 1561,

1569, 1570, 1571.2) and on judicial decisions (Arts. 1486, 1487.3) and

of new rules adopted with modifications to suit the philosophy

and framework of Philippine Law, from the Uniform Sales Act of

1The articles mentioned are now Arts. 1462, 1481, 1502, 1507-1520, 1525-1935, re-

spectively, in the new Code.

2Now, Arts. 1459, 1460, 1461, 1465, 1470, 1471, 1477, 1478, 1492, 1496, 1538, 1541,

1549, 1550, 1551, respectively.

3Now, Arts. 1466, 1467, respectively.

3

the United States, Arts. 1482 to 1484, 1494, 1496, 1501, 1503, 1514,

1522 to 1526, 1527 to 1540, 1541 to 1543, 1545 to 1555, 1565, 1566,

1567, 1582 to 1585, 1602 to 1608, 1614 to 1617, 1618 to 1619, 16574

x x x.”

Many of the original articles were also amended for clarifica-

tion or improvement.” (Ibid., p. 141.)

— oOo —

4Now, Arts. 1462 to 1464, 1474, 1476, 1481, 1483, 1494, 1502-1506, 1507-1520, 1521-

1523, 1525-1535, 1545, 1546, 1547, 1562-1565, 1582-1586, 1594-1597, 1598-1599, 1637, re-

spectively.

INTRODUCTION

4SALES

Chapter 1

NATURE AND FORM OF THE

CONTRACT

ART. 1458. By the contract of sale one of the con-

tracting parties obligates himself to transfer the own-

ership 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.

(1445a)

Concept of contract of sale.

The contract of sale is an agreement whereby one of the parties

(called the seller or vendor) obligates himself to deliver something

to the other (called the buyer or purchaser or vendee) who, on

his part, binds himself to pay therefor a sum of money or its

equivalent (known as the price).

Under the Spanish Civil Code, the contract was referred to as

a contract of “purchase and sale.” As every “sale” necessarily

presupposes a “purchase,” this name was regarded as redundant.

Hence, the name of Title VI has been simplified by calling it “sales”

and the name of the contract has been changed for the same rea-

son to “contract of sale.” (Report of the Code Commission, p. 141.)

“It is required in the proposed Code that the seller trans-

fers the ownership of the thing sold. (Arts. 1458, 1459, 1495,

1547.) In the present Code (Art. 1445.), his obligation is merely

to deliver the thing, so that even if the seller is not the owner,

he may validly sell, subject to the warranty (Art. 1474.) to

maintain the buyer in the legal and peaceful possession of the

4

5

thing sold. The Commission considers the theory of the

present law unsatisfactory from the moral point of view.”

(Ibid.)

Characteristics of a contract of sale.

The contract of sale is:

(1) Consensual, because it is perfected by mere consent with-

out any further act;

(2) Bilateral,1 because both the contracting parties are bound

to fulfill correlative obligations towards each other — the seller,

to deliver and transfer ownership of the thing sold and the buyer,

to pay the price;

(3) Onerous, because the thing sold is conveyed in considera-

tion of the price and vice versa (see Gaite vs. Fonacier, 2 SCRA 820

[1961].);

(4) Commutative, because the thing sold is considered the

equivalent of the price paid and vice versa. (see Ibid.) However,

the contract may be aleatory2 as in the case of the sale of a hope

(e.g., sweepstakes ticket);

(5) Nominate, because it is given a special name or designa-

tion in the Civil Code, namely, “sale”; and

(6) Principal, because it does not depend for its existence and

validity upon another contract.

ILLUSTRATIVE CASES:

1. Trial Court decided that there was no payment by buyer of

lumber covered by invoices of seller but Court of Appeals held that

1Obligations are bilateral when both parties are mutually bound to each other. They

are reciprocal when the performance one is designed to be the equivalent and the condi-

tion for the performance of the other. In a contract of sale, in the absence of any stipula-

tion, the obligations of the seller and buyer are reciprocal, the obligation or promise of

each party is the cause or consideration for the obligation or promise by the other. The

reciprocal obligations would normally be, in the case of the buyer, the payment of the

agreed price and in the case of the seller, the fulfillment of certain express warranties.

2Art. 2010. By an aleatory contract, one of the parties or both reciprocally bind them-

selves to give or to do something in consideration of what the other shall give or do

upon the happening of an event which is uncertain, or which is to occur at an indetermi-

nate time.

Art. 1458 NATURE AND FORM OF THE CONTRACT

6SALES

delivery of lumber was not duly proved because counter-receipts is-

sued by buyer merely certified to receipt of certain statement on claims

for the lumber allegedly delivered.

Facts: S filed a complaint for collection of a sum of money

against B for lumber purchased on credit and received by B. B

denied all the material allegations of the complaint. The trial

court rendered judgment in favor of S. On appeal, the Court of

Appeals reversed the judgment on the ground that the deliv-

ery of the lumber to B was not duly proved.

S asserts that the case having been tried and decided by

the trial court on the issue of whether or not there was pay-

ment by B of the lumber covered by invoices of S and counter–

receipts issued by B, it is alone on this issue that the Court of

Appeals should have decided the case and not on the issue of

whether or not there was delivery of the lumber in question.

The Court of Appeals found that the counter-receipts merely

certified the fact of having received from S certain statements

on claims for lumber allegedly delivered.

Issue: Did the Court of Appeals decide the case on a new

issue not raised in the pleadings before the lower court?

Held: No. The issue of delivery is no issue at all. For deliv-

ery and payment in a contract of sale, or for that matter in quasi-

contracts, are so interrelated and interwined with each other

that without delivery of the goods there is no corresponding

obligation to pay. The two complement each other. (see Art.

1458, par. 1.) It is clear that the two elements cannot be dissoci-

ated, for the contract of purchase and sale is, essentially, a bi-

lateral contract, as it gives rise to reciprocal obligations. (Pio

Barretto Sons, Inc. vs. Compania Maritima, 62 SCRA 167 [1975].)

——— ———— ———-

2. To secure payment of the balance of the purchase price of

iron ore, buyer executed a surety bond in favor of seller, the buyer,

however, claiming that such payment was subject to a suspensive

condition — the sale of the iron ore by buyer.

Facts: B, owner of a mining claim, appointed S as attorney-

in-fact to enter into a contract with any individual or juridical

person for the exploration and development of said claim on a

royalty basis. S himself embarked upon the exploitation of the

claim.

Art. 1458

7

Subsequently, B revoked the authority granted by him to S

who assented thereto subject to certain conditions. As a result,

a document was executed wherein S transferred to B all of S’s

rights and interests over the “24 tons of iron ore, more or less”

that S had already extracted from the mineral claims in consid-

eration of the sum of P75,000.00, P10,000.00 of which was paid

upon the signing of the agreement, and “the balance of

P65,000.00 will be paid from and out of the first letter of credit

covering the first shipment of iron ores and of the first amount

derived from the local sale of iron ore” from said claims.

To secure the payment of the balance, B executed in favor

of S a surety bond. No sale of approximately 24,000 tons of iron

ore had been made nor had the balance of P65,000.00 been paid

to S.

Issue: Is the shipment or local sale of the iron ore a condi-

tion precedent (or suspensive condition) to the payment of the

balance, or only a suspensive period or term?

Held: (1) Obligation of B one with a term. — The words of the

contract express no contingency in the buyer’s obligation to

pay. There is no uncertainty that the payment will have to be

made sooner or later; what is undetermined is merely the exact

date at which it will be made. By the very terms of the contract,

therefore, the existence of the obligation to pay is recognized;

only its maturity or demandability is deferred.

Furthermore, to subordinate B’s obligation to the sale or

shipment of the ore as a condition precedent would be tanta-

mount to leaving the payment at his discretion (Art. 1182.), for

the sale or shipment could not be made unless he took steps to

sell the ore.

(2) A contract of sale is normally commutative and onerous. —

In a contract of sale, not only does each one of the parties as-

sume a correlative obligation, but each party anticipates per–

formance by the other from the very start.

Nothing is found in the record to evidence that S desired

or assumed to run the risk of losing his right over the ore with-

out getting paid for it, or that B understood that S assumed any

such risk. This is proved by the fact that S insisted on a bond to

guarantee the payment of the P65,000.00 and the fact that B did

put such bond, indicated that he admitted the definite exist-

ence of his obligation to pay the balance of P65,000.00. The only

Art. 1458 NATURE AND FORM OF THE CONTRACT

8SALES

rational view that can be taken is that the sale of the ore to B

was a sale on credit, and not an aleatory contract, where the

transferor, S, would assume the risk of not being paid at all by

B. (Gaite vs. Fonacier, 2 SCRA 830 [1961].)

Essential requisites of a contract of sale.

The rules of law governing contracts in general are applica-

ble to sales. Like every contract, “sale” has the following requi-

sites or elements:

(1) Consent or meeting of the minds. — This refers to the con-

sent on the part of the seller to transfer and deliver and on the

part of the buyer to pay. (see Art. 1475.) The parties must have

legal capacity to give consent and to obligate themselves. (Arts.

1489, 1490, 1491.) The essence of consent is the conformity of the

parties on the terms of the contract, the acceptance by one of the

offer made by the other. The contract to sell is a bilateral contract.

Where there is merely an offer by one party without the accept-

ance of the other, there is no consent. (Salonga vs. Farrales, 105

SCRA 359 [1981].) The acceptance of payment by a party is an

indication of his consent to a contract of sale, thereby precluding

him from rejecting its binding effect. (Clarin vs. Rulova, 127 SCRA

512 [1984].)

There may, however, be a sale against the will of the owner in

case of expropriation (see Art. 1488.) and the three different kinds

of sale under the law, namely: an ordinary execution sale (see

Rules of Court, Rule 39, Sec. 15.), judicial foreclosure sale (Ibid.,

Rule 68.), and extra-judicial foreclosure sale. (Act No. 3135,

as amended.) A different set of law applies to each class of sale

mentioned. (see Fiestan vs. Court of Appeals, 185 SCRA 751

[1990].)

The sale of conjugal property requires the consent of both the

husband and the wife. The absence of the consent of one renders

the sale null and void (see Art. 124, Family Code.) while the vitia-

tion thereof (see Art. 1390.) makes it merely voidable. (Guiang vs.

Court of Appeals, 95 SCAD 264, 290 SCRA 372 [1998].)

(2) Object or subject matter. — This refers to the determinate thing

which is the object of the contract. (Art. 1460.) The thing must be

Art. 1458

9

determinate or at least capable of being made determinate because

if the seller and the buyer differ in regard to the thing sold, there

is no meeting of the minds; therefore, there is no sale. The subject

matter may be personal or real property. The terms used in the

law are “thing” (e.g., Art. 1458), “article” (Art. 1467), “goods” (e.g.,

Art. 1462), “personal property” (e.g., Art. 1484), “property” (e.g.,

Art. 1490), “movable property” (e.g., Art. 1498), “real estate” (e.g.,

Art. 1539), “immovable” (e.g., Ibid.), “immovable property” (e.g.,

Art. 1544), and “real property.” (Art. 1607.)

A buyer can only claim right of ownership over the object of

the deed of sale and nothing else. Where the parcel of land de-

scribed in the transfer certificate of title is not in its entirety the

parcel sold, the court may decree that the certificate of title be

cancelled and a correct one be issued in favor of the buyer, with-

out having to require the seller to execute in favor of the buyer an

instrument to effect the sale and transfer of the property to the

true owner. (Veterans Federation of the Philippines vs. Court of

Appeals, 138 SCAD 50, 345 SCRA 348 [2000].)

The sale of credits and other incorporeal rights is covered by

Articles 1624 to 1635; and

(3) Cause or consideration. — This refers to the “price certain

in money or its equivalent” (Art. 1458.) such as a check or a prom-

issory note, which is the consideration for the thing sold. It does

not include goods or merchandise although they have their own

value in money. (see Arts. 1468, 1638.) However, the words “its

equivalent” have been interpreted to mean that payment need not

be in money, so that there can be a sale where the thing given as

token of payment has “been assessed and evaluated and [its] price

equivalent in terms of money [has] been determined.” (see Re-

public vs. Phil. Resources Dev. Corp., 102 Phil. 968 [1958].)

The price must be real, not fictitious; otherwise, the sale is void

although the transaction may be shown to have been in reality a

donation or some other contract. (Art. 1471.) A seller cannot render

invalid a perfected contract of sale by merely contradicting the

buyer’s allegation regarding the price and subsequently raising

the lack of agreement as to the price. (David vs. Tiongson, 111

SCAD 242, 313 SCRA 63 [1999].)

Art. 1458 NATURE AND FORM OF THE CONTRACT

10 SALES

The absence of any of the above essential elements negates

the existence of a perfected contract of sale.3 Sale, being a consen-

sual contract (see Art. 1475.), he who alleges it must show its ex-

istence by competent proof. (Dizon vs. Court of Appeals, 302

SCRA 288 [1999].)

Natural and accidental elements.

The above are the essential elements of a contract of sale or

those without which no sale can validly exist. They are to be dis-

tinguished from:

(1) Natural elements or those which are deemed to exist in cer–

tain contracts, in the absence of any contrary stipulations, like

warranty against eviction (Art. 1548.) or hidden defects (Art.

1561.); and

(2) Accidental elements or those which may be present or ab-

sent depending on the stipulations of the parties, like conditions,

interest, penalty, time or place of payment, etc.

ILLUSTRATIVE CASES:

1. Supposed sale was evidenced by a receipt acknowledging re-

ceipt of P1,000.00.

Facts: B bought on a partial payment of P1,000.00, evidenced

by a receipt, a portion of a subdivision from S, administrator of

the testate estate of his deceased spouse. Subsequently, S was

authorized by the court to sell the subdivision. In the mean-

time, PT Co. became the new administrator. It sold the lot to

another which sale was judicially approved.

B files a complaint which seeks, among other things, for

the quieting of title over the lot in question.

Issue: Was there a valid and enforceable sale to B?

Held: No. An examination of the receipt reveals that the

same can neither be regarded as a contract of sale nor a prom-

3When a contract of sale is void, the possessor is entitled to keep the fruits during

the period for which he held the property in good faith. Good faith of the possessor

ceases when an action to recover possession of the property is filed against him and he

is served summons therefor. (Development Bank of the Phils. vs. Court of Appeals, 316

SCRA 650 [1999]; see Arts. 526, 528.)

Art. 1458

11

ise to sell. There was merely an acknowledgment of the sum

P1,000.00. There was no agreement as to the total purchase price

of the land nor to the monthly installments to be paid by B. The

requisites for a valid contract of sale are lacking. (Leabres vs.

Court of Appeals, 146 SCRA 158 [1986].)

———— ———— ————

2. Buyer did not sign draft of Contract to Sell because it cov-

ered seven (7) lots instead of six (6), but sent to seller five (5) checks

as down payment which the seller did not encash.

Facts: B Company and S, subdivision developer, agreed to

enter into a new Contract to Sell whereby S will sell seven (7)

lots at P423,250.00 with a down payment of P42,325.00 and the

balance payable in 48 monthly installments of P7,395.94. The

draft of the Contract to Sell prepared by S was sent to B Com-

pany but B’s president did not sign it although he sent five (5)

checks covering the down payment totalling P27,542.72. S re-

ceived the checks but did not encash it because B’s president

did not sign the draft contract, the reason given by the latter

was that the draft covered seven (7) lots instead of six (6).

Since no written contract was signed, S sued B to recover

possession of the lots still occupied by the latter.

Issues: (1) May the unsigned draft be deemed to embody

the agreement between the parties?

(2) May the receipt of the five (5) checks by S serve to pro-

duce the effect of tender of down payment by B?

Held: (1) Based on the facts, the parties had not arrived at a

definite agreement. The only agreement they arrived at was

the price indicated in the draft contract. The number of lots to

be sold was a material component of the Contract to Sell. With-

out an agreement on the matter, the parties may not in any way

be considered as having arrived at a contract under the law.

(2) Moreover, since the five (5) checks were not encashed,

B should have deposited the corresponding amount of the said

checks as well as the installments agreed upon. A contract to

sell, as in this case, involves the performance of an obligation,

not merely the exercise of a privilege or a right. Consequently,

performance or payment may be effected not by tender of pay-

ment alone but by both tender and consignation. It is consigna-

tion which is essential to extinguish B’s obligation to pay the

balance of the purchase price. (see Arts. 1256-1258.) B did not

Art. 1458 NATURE AND FORM OF THE CONTRACT

12 SALES

even bother to tender and make consignation of the installments

or to amend the contract to reflect the true intention of the par-

ties as regards the number of lots to be sold. (People’s Industrial

Commercial Corp. vs. Court of Appeals, 88 SCAD 559, G.R. No.

112733, Oct. 24, 1997.)

Effect of absence of price/non-

payment of price.

(1) There can be no sale without a price. (see Art. 1474.) Tech-

nically, the cause in sale is, as to the seller, the buyer’s promise to

pay the price, and as to the buyer, the seller’s promise to deliver

the thing sold. A contract of sale is void and produces no effect

whatsoever where the same is without cause or consideration (Art.

1409[3].) in that the purchase price, which appears thereon as paid,

has, in fact, never been paid by the buyer to the seller. Such sale is

nonexistent and cannot be considered consummated. (Mapalo vs.

Mapalo, 17 SCRA 116 [1966]; Ladanga vs. Court of Appeals, 31

SCRA 361 [1984]; Castillo vs. Galvan, 85 SCRA 526 [1978].)

Where the figures referred to by the buyer as prices are mere

Art. 1458

iv