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The Fraternal Order of UTOPIA

Ateneo de Manila University School of Law Est. 1964

CHAPTER I INTRODUCTION I. Definition of Sales BUYER SALE 1.) Meeting of the Minds SELLER *It may be absolute or conditional. Note: The condition should only refer to the obligation to pay the price and NOT: a. The obligation concerning the subject matter (a&b above)which is the essence of a K of sale. (Gaite) b. The whole contractin which the case it is K to sell (Villanueva believes that a K to sell and the K of sale are of the same genus and both covered by Art. 1458. However, recent rulings in the SC hold that they are different.) Genius of Villanueva: Gaite gave 2 parameters in order for a condition in K of sale to be valid: a. The condition must go into the payment of the price, and NOT the subject matter because you will be put as under the essence of K of sale. b. The only time it can exist is when it is clearly stipulated. II. Elements 3.) Price 2.) Subject Matter a) transfer ownership b) delivery c) pay

1. Consent or meeting of the minds (to transfer of ownership in exchange for price) 2. Determinate subject matter 3. Price certain in money or its equivalent (Coronel) III. Stages

1. Negotiation 2. Perfection 3. Consummation Note: Technically, only 2 and 3 are the only lives of a K, since in negotiation there is no K yet. IV. Nature of the Contract Created

1. Buyer to give Price 2. Seller to give Deliver Transfer ownership

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The Fraternal Order of UTOPIA


Ateneo de Manila University School of Law Est. 1964

Note: It is important to know that a sale is the obligation to give because being such, a breach of it can have the remedy of (a) specific performance and (b) rescission. An obligation to do cannot be subject to specific performance, ONLY rescission. Because specific performance in to do may amount to involuntary servitude, which is prohibited in the Constitution. V. Characteristics of a K of Sale (it is enough that these characteristics exist at perfection)

1. Nominate and Principal Nominate means it has a particular name by law and governed by specific provision (Title on Sale) Title given to a K is not significant; rather its the substance which is. Although a K of sale may be attached to another K, the test of being a principal is whether it can stand on its own and does not depend on another K for its validity or existence. 2. Consensual This is a very important characteristic. Every K has two lives, perfection and consummation. What perfects a K of sale is mere consent or meeting of the minds. Performance (e.g. paying the price or delivering the subject matter) goes into the consummation and is totally irrelevant to perfection. As distinguished from: 1. Solemn K which requires not only consent, but also a particular form of the K 2. Real K which requires not only consent, but also delivery Upon the perfection of a K of sale, only the 3 obligations (2 for buyer and 1 for the seller) begin to exist. It doesnt matter if there is no payment made yet nor transfer of ownership by delivery, nor ownership itself of the subject matter. Being consensual, he who alleges the existence must prove it by competent evidence, as well as essential element thereof. 3. Bilateral As distinguished from unilateral, both parties here are obligated. (Seller: transfer and deliver; Buyer: pay) The importance of this is that the power to rescind un a K of sale is implied and need not be stipulated in the K. 4. Onerous Means that the consideration given is a valuable consideration (as distinguished from donation where the obligation is gratuitous) Test of being onerous: It is objective. Any consideration in the normal commercial transaction, supports and transaction. In other words, valuable consideration is one which, from the objective point of view, on its own has rent values. 5. Commutative As distinguished from aleatory, it means that equal value is exchanged for equal value. It refers to consideration as compared to the subject matter, in contrast to onerous which refers only to consideration. Commutativeness is a subjective test. But it must not go into absurdity, otherwise even if you feel that it is commutative, the substance of the K may say otherwise. Inadequacy of the price may show vice in consent, in which

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The Fraternal Order of UTOPIA


Ateneo de Manila University School of Law Est. 1964

the said sale may be annulled, but such annulment is not for inadequacy of price, but rather for vitiated consent. Art. 14. 6. Title and Mode Title legal basis by which to affect dominion or ownership Mode legal means by which dominion or ownership is created, transferred, destroyed, or modified. Sale, by its creation, is just a title. It does not even touch dominion. Sale only provides the legal justification in the future on the part of the buyer to be able to claim ownership. Sale by itself does not transfer or affect ownership; the most a sale does is to create the obligation to transfer ownership. It is tradition or delivery, as a consequence of sale that actually transfers ownership. VI. As Distinguished From

1. Donation Sale Onerousconsideration is which is valuable Consensualperfected by consent Donation Gratuitousconsideration is liberality Solemnmust comply with the formalities by law for perfection

Consideration Type

price mere

2. Barter One of the parties binds himself to give one thing in consideration of the others promise to give another thing. Rules to determine whether its a K of sale or a barter: i. It is a barter where the value of the thing given as part of consideration exceeds the amount of money given or its equivalent. ii. It is a sale, where the value of the thing given as part of the consideration equals or is less than the amount of the money given. For practical legal purposes, the distinction between a sale or barter are practically academic since aside from the two separate rules applicable to barter (Arts. 1639-1640), as to all matter specifically provided for, barter shall be governed by the provision on sales. Instance when knowing the differences is important: i. Statute of Frauds does not apply to barter ii. Right to legal redemption to an adjoining owner covers only resale iii. Tax purpose 3. Contract for Piece of Work (POW) Sale Buyer and seller a) to pay (buyer) b) to deliver possession (seller) c) to transfer ownership (seller) To give Can be subject to specific POW Principal client and contractor Service a) to pay (principal) b) to perform service (contractor) To do Cannot be subject to specific

Parties Subject Matter Obligations Kind of Obligation Breach

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performance

performance

How will you differentiate a sale from a K of POW? (Here you will see the genius of Villanueva, makes you proud to be a brotherEXCELLENCE) i. Art. 1467 gives us two sets of distinction: Habituality test manufacturing in ordinary course of business makes it a sale. When the manufacturer engages in the same activity in the ordinary course of business and does not need to apply extra ordinary skills and equipment that would classify the underlying transaction as a K of sale. Timing test manufacturing upon special order of customers makes it a K of POW. ii. In Celestino, the habituality test was upheld. BUT the SC interpreted that the test in 1467 is not one of timing or habit but a nature of work to be performed test. It must be of the nature that the products are not ordinary products of the manufacturer, and they would require the use of extraordinary skills or equipment to make it a K of POW. iii. In EEL, the SC held that the habituality test is not controlling. The business of EEI was a staple undertaking, one that was considered ordinary and usual in their operations, and yet what they did was a POW. Then they held that the timing test in 1467 is actually a nature of the object test, meaning could the company manufacture the product in mass, would it make business sense to do so. iv. In CIR, Tolentino talked about the intent test (more important test). If the parties intend that an object will be delivered without considering the work or labor of the part bound, it is a sale. But if the basis is the work that will be employed, it is a POW. v. With all the tests enumerated, what should be used? vi. The habituality and timing tests seem to have been abandoned. What is controlling then is the nature of the object test and the intent test. Both must be applied. vii. HOWEVER, what if a seller offers 10,000 inclined erasers to a buyer who buys them because of the sellers reputation, and upon agreement, the seller reaches under the table and offer the erasers, would that be a sale or a POW? (The tests seems to answer that it is the POW, because it does not make business sense to manufacture 10,000 erasers and obviously the intent here is for the sellers skills.) viii. Genius: The answer is a Sale. Why? Because a breach of a K of POW looks at the service, obviously, you cannot pay for service which has already been done as in this case. So that means that we are back to the timing test in 1467 (only if it is manufactured upon special order, will it become a POW). We have come into a full circle.

4. Agency to Sell Sale Buyer himself pays for the objects price. Seller warrants Agency to Sell The agent is not obliged to pay the price, merely to deliver the price received from the buyer. No personal liability as long as acting within his authority and the name of the principal (however, an agent may bind himself to the

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warranties of the seller). Not unilaterally irrevocable. Profits belong to the seller. Must comply with the Statute of Frauds to be enforceable. Nothing that is not written within the 4 corners of the K can bind the parties or can be the basis for damages. Essence: Transfer of title, and such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as debtor for the agreed price. Essentially revocable even in the presence of an irrevocability clause. Any profit received must pertain to the principal, the agent disqualified from receiving personal profits. Valid and enforceable in whatever from it may be entered into. Agent must always follow the principal. Essence: delivery into an agent is not as his property, but as property of the principal who remains the owner and has the right to control the sale and the proceeds.

Characteristics of an Agency 1. Prepatory meaning it is entered into in order to achieve other ends and other relationships a. Types of Prepatory Ks 1. Agency to sell and agency to buy give rise to a K of sale 2. Distributorship agreement or an agreement to enter into a series of Ks of sale in this case, there is no price yet so it is NOT a K of sale 2. Involves a personal obligation therefore, it is not subject to specific performance (like distributorship agreement) 3. Fiduciary based on confidence and trust, so it is not transmissible. (Death extinguishes the K, except in agency coupled with an interest.) 4. Revocable because of its fiduciary nature. Any attempt to make it irrevocable is void. Except in an agency coupled with an interest (when an agency is constituted as part of the mechanism for mortgage). Principal in a K of Agency These are essential clauses contemplated by law, such as if these are present the name of the K is not controlling. The acts of the agent bind the principal, the agent acts beyond his commission. Agent has no legal basis to receive anything on his own. Everything an agent receives must be accounted for and returned to the principal. Agent is never liable for the price. An agent cannot two principals, for this would violate the agency relationship. Genius: To determine whether it is a sale or one of agency, look at 2 things: delivery and transfer of ownership. If these are made to be assumed in whole or in part by the agent, meaning if he bears the risk with regard to it, he cannot be an agent. An agent is never liable in whole or in part of the subject matter. The price of any stipulation makes the price the liability of the supposed agent or makes him exposed to the risk of the price (e.g. an increase), then he could not have been an agent since an agent is not liable for any portion of the price. 5. Dacion en Pago A genus of sale and is governed by the law on sales. Shows us that a sale is both perfected and consummated. Dacion en pago represents a perfected and consummated contract of sale.

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The Fraternal Order of UTOPIA


Ateneo de Manila University School of Law Est. 1964

Differences Sale Principal Consensual Title Dacion en pago Accessory Real Mode

6. Lease Sale Dominion is absolutely disposed by the seller in favor of the buyer upon the payment of the price. Lease Temporary disposition in favor of the lessee with the payment of rentals, but after the period of lease, the things revert back to the owner.

CHAPTER II PARTIES TO A CONTRACT OF SALE General Rule: Any person who is authorized under the law to oblige himself, may enter into a contract of sale. Exceptions: 1. Minors and incapacitated persons They do not have capacity to obligate themselves Effect of sale: Voidable Consequences: o Capacitated person cannot seek annulment on the basis of the other partys incapacity o The incapacitated person, when properly represented is one who has legal standing to annul the contract. Remedies for a voidable contract: o Specific performance o Ratification o Rescission can be availed of by both parties; but minors need only to restitute up to the extent he has been benefited Exceptions: necessaries (everything that is indispensable for sustenance and refers only to things) To be a valid contract, it is required that: o The K was perfected o There was delivery of the necessaries o The minor must be the buyer o Social standing must be considered 2. Sale by Married Couple Sale to third party Void if done without the consent of the other spouse. Sale between spouses o Void (this applies even in legal redemption, compromises and renunciation) o Exception

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When a separation of property was agreed upon in marriage settlement When there has been a judicial separation of property agreed upon between them o Rational To prevent defraudation of creditors by transferring property to another spouse. So dominant spouse wont take advantage of the weaker spouse. Avoid an indirect violation of the prohibition against donation between spouse. Note: This also applies between common law spouses. 3. Relative incapacity mandated by law. (This applies even to sale on legal redemption, compromises and renunciation because what you cant do directly, you cannot do directly.) Applies to: o Guardian with respect to the property of the ward o Agents with respect to the property under his administration (unless consented) o Administrator and executor with respect to the property of the estate o Public officer or employees with respect to the property of the state o Public officer or employees with respect to property rights under litigation o Lawyers with respect to the property of his client who is the subject of litigation Effect of sale: Void because it is against against public policy (Rubias) The first 3 cases are ratifiable and the ;last 3 are non-ratifiable o Ratifiable by entering into a new K after relationship is ended; allowed because after the relationship is ended, the remaining evil is a private one. o Non-ratifiable even if prohibited relationship is not there, they cannot be allowed to agree into a new K because there is still public interest involving the sale reflecting the public institution itself. Philtrust doctrine: o When a property is sold to a third person and it goes back to the person prohibited, that transaction is presumed void. But you can show proof that there was no collusion, making the sale valid. (Lapse of time is material but not conclusive.) o Even if the courts allow the sale which is prohibited, it is still void. o Even if the sale is beneficial to the other party, it is still void because what is considered is merely the relationship in the K not the existence of fraud or advantage. Naval doctrine: Hereditary rights are vested entirely in the heirs upon the death of the decedent. They are not among those covered under the prohibition since with regard to administrators and executors, the property must be property of the estate. o Genius rebuttal of the Naval doctrine: o Although they are vested directly on the heirs and not under the estate, the value of these rights are inextricably necessary to the value of the estate under the administration of the administrator. Therefore if he squanders or destroys the value of the estate, he actually destroys the value of the rights.

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Ateneo de Manila University School of Law Est. 1964

Hereditary rights are never within the estate being administered because these are right pertaining directly to the heir. But even if you are buying just the right, its like buying the property already. You must not be allowed to do indirectly, what you cant do directly. The SC based its decision that a hereditary right is technically not property itself. With regard to lawyer-client relationship, the requisites are: o Lawyer-client relationship o Object is property under litigation o Any kind of litigation whether adversarial or not o Does not necessarily mean actual litigation o During the pendency of the case o This also applies to the case of judges o The period is from the filing of the complaint until there is absolutely no judicial proceeding of whatever nature pending with respect to the property. Even if it is final, executory and unappealable but there is something pending before the courts even a motion for execution, the period has not ended. Note: Contingency fee arrangements (always subject to the supervision of the courts): o Payment based on a certain percentage of the property in litigation valid. No property is being assigned here. o Payment is a portion of the value of the propertiesvalid. Held to be so by the SC because the greater good it advances is greater than the public policy sought to be protected by Art. 1491. This contingency arrangement is in the nature of a dacion en pago, and is therefore under the law on sales. o

CHAPTER III SUBJECT MATTER OF THE SALE Requisites (these must exist at the time of PERFECTION): 1. It must be existing, or it may be future or even contingent a. Requisites: i. Must be existing; or Present object Emptio speisale of a mere hope or expectancy (BUT the sale of a vain hope or expectancy is void.) Present object subject to a resolutory conditionupon the happening of the condition, the parties shall return to each other what they have received ii. Must come to existence (TEST: must be of such that it can come about under the present technological and scientific conditions of man) Future thing having a potential of existence Emptio rei speretaefuture thing subject to a suspsensive condition (but if thing does NOT come into existence, the K is extinguished) b. The absence of this requisite makes the K void under Art. 1409 (3). Remember that said provision talks about the QUALITY of the object, whether it has the capability to exist, and not necessarily that it is existing.

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2. It must be licit. a. Licitlegal, when it is not outside the commerce of man and includes all rights which are not intransmissible. b. Absence of this requisite makes the K void under Art. 1409 (1). 3. It must be determinate or at least determinable a. Determinatespecific or that which has been: i. physically segregated ii. Particularly designated b. Determinablea generic thing which has: i. The capacity of being made determinate ii. Without need of further/new agreement between the parties In accordance with the principle of the obligatory force of Ks, that it is free from the whims and caprices, imagination or lack of it on the part of the parties When both parties can imagine the same type of SM in their minds, almost the same in all other descriptions even as to a 3rd party, then it satisfies this requirement. Quantity is NOT important, ONLY when it is still possible to determine the quantity without the need of a new K between the parties (National Grains which was fucked up by Johannes Schuback) Seller may NOT be the owner of the thing at the time of perfection. It is only at the time of delivery that it is essential that the owner owns the thing. If a seller is NOT the owner of the thing he sold, the buyer cannot ask for specific performance because obviously, the seller here cannot perform. The only remedy left is rescission. BUT when at the time of perfection, the seller sells a subject matter over which he is not the owner, the subsequent acquisition of title by a seller validates the sale and title passes to the buyer by operation of law, provided there has been previous delivery of the subject matter by the seller to the buyer.

Yu Tek doctrine: Justice Trent ruled that there was no K of sale, even though the thing was obviously determinable. BUT he was speaking in the point of view of the SM (To understand this, imagine yourself to be a SM, and not one of the parties in the sale). Such that there can be no K of sale as to any genus of the thing until it is physically segregated from the rest. In short, there was no sale as to the SM, but there was a sale between the parties. Legality of Sale: 1. As to subject matter: a. Various special laws declare certain sales of things illegal and therefore VOID (e.g. drugs) 2. Simulation of SM makes the K of sale VOID (when there is no intention whatsoever to give or receive the SM) When motive nullifies the sale: Consideration is, as a rule, different from the motive of the parties, and when the primary motive is illegal, such as when the sale was executed over a parcel of land to illegally frustrate a persons right to inheritance and to avoid payment of estate tax, the sale is void because illegal motive predetermines the purpose of the K. (Olegario) CHAPTER IV PRICE

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1. Consideration in a K of sale which plays a secondary role to the SM. 2. Seller cannot unilaterally increase previously agreed purchase price. Requisites: a. It must be real a. When at the time the minds of the parties met, the seller expected and intended to receive the price and the buyer intended to pay for it b. Must be with valuable consideration (NOT NOMINAL) If this is not present, it might be another K (e.g. donation) There is a presumption that every K of sale entered into is with valuable consideration. BUT if the party whos saying there s no true consideration, the burden of proof SHIFTS. (Ong and Bagnas) When price is simulated/fictitious, or there is the absence of an expectation to receive payment by the seller and an intention to pay on the buyer, the K of sale is VOID, but it might be another kind of K. When there is a false price, or there is a price but it is not the one agreed to by the parties but another price, the K of sale is VALID, but subject to reformation. b. Must be in money or its equivalent a. or its equivalent must mean having the same characteristics as money b. If not in money, its a VOID K of sale, but it may be another K like barter or dacion, which is still governed by the law on sales, so it is as if there is a valid K of sale (this shows that price merely plays a secondary role). c. In Republic vs. Phil. Resources Development , the buyer was allowed to pay in GI sheets. Did the SC do away with requirement no. 2? NO. The payment of the thing other than money was done at the consummation of the K of sale. At the time of perfection, it was only in money. c. Must be certain or ascertainable a. Certainwhen the amount is designated in pesos and centavos b. Ascertainableto be ascertainable, the price must be: i. Fixed in reference to other things. ii. Can be mathematically computed using a formula. iii. Must have been designated to be fixed by a 3 rd party (this is a suspensive condition, so if the 3rd party refuses to fix the price, the K is inefficacious). a. If the 3rd person: i. Acted in bad faith ii. Acted by mistake .the courts can fix the price (this is the only time the courts can fix the price). Note: Absence of 1 & 2 makes the K a no contract situation and the absence of 3 makes it inefficacious or it cannot be given effect, unless the party mutually agree on a new price. But if the other party has already sued the other party, the court cannot compel the parties to agree to a price.

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Note: Also, even if the price has NOT been agreed upon, but the SM has already been delivered and appropriated, the buyer has to pay a reasonable price, depending on the circumstances of each case. d. Manner of payment a. Applies only when it is clearly implied in perfection that the money is NOT present value. The general rule is that it is presumed that the manner of payment is the present value. b. Because if you do not agree upon the terms of payment, your minds have not met because you have not agreed upon the same value. Inadequacy of price (Erenote vs. Bezone) 1. Does not make the K void, EXCEPT: a. Gross inadequacy to the point of being nominal (there is therefore no real price). b. Judicial sales i. Requisites: Inadequacy must be so gross to the point of being unconscionable There must be proof that had the thing been resold, there would be a better price. ii. Exception: when there is a right of redemption. 2. In sales a retro, gross inadequacy of price raises a presumption of equitable mortgage. CHAPTER V FORMATION OF CONTRACT OF SALE I. Policitacion of Preparatory Stage Heirarchy of species in policitacion

1. Invitations An advertisement is an invitation to make an offer unless it appears otherwise, which would make it an offer. 2. Offer/Acceptance It creates no relationship until it is accepted. Kinds: a. General an offer to sell or an offer to buy direct ed to everybody b. Specific an offer made to a particular person and cannot be taken advantage of or availed of by any other person other than the offeree Characteristics (it is important to remember this shit!) a. It is within complete control of the offeror b. It cannot exist indefinitely c. An offer with a period expires after the period d. An offer with a condition ceases to exist when the condition happens e. An offer can ONLY be accepted absolutely and is indivisible

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f.

A modification is a counter-offer and destroys the first offer

3. Right of First Refusal a. Under Ang Yu: A transaction covering a specific property wherein a lessee is given an option to purchase the leased property in the event the lessor should desire to sell the same It is similar to an option contract because it has a SM and consent. But different because it lacks price and separate consideration. Furthermore, in an option contract, the prospective buyer has the option. In right of first refusal, the person who has the right cannot exercise it at will. He must wait for the future sale. It is always conditional. The condition being sale of the property in the future. It is not even a contract, therefore not subject to specific performance and a breach of the right may only amount to recovery of damages under Art 19. b. Under Equatorial and Paranaque: However, if the right of the first refusal is embedded to a contract of lease, they become enforceable and therefore, subject to specific performance. Even though there is no price, upon breach of the right (when it is sold to a 3rd person), the price will be based on the price it was sold. The lessee will have the right to specific performance and ask for rescission of the sale. Provided there is a ground for rescission which is bad faith on the part of the buyer (if the buyer was in good faith, he will be protected) NOTE: Paranaque further held that a buyer cannot be in good faith when there is a right of first refusal in a property because everybody who buys the property must examine it first. 4. Option Contracts A unilateral promise that grants to the optionee the privilege or right to purchase the SM at a certain price within a period, for a separate consideration. An option is not a Contract to Sell. It is only half a K to sell because it is either a unilateral obligation to sell or a unilateral obligation to purchase. The consideration in an option contract must be separate and distinct from the purchase price. It can be anything of value. Nietes Doctrine: An option contract is exercised by mere notice3 to the seller. Tender and consignation by the optionee is not needed. 2 Kinds of Option Contracts (the SM and price must have all the requisites): a. Valid option contract i. Supported by a consideration separate and distinct from the price

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ii. If it is accepted prior to the time it was withdrawn, it will give rise to a valid K of sale b. Void option contract i. There is lack of separate consideration ii. Although it is void as an option contract, it is valid as an offer (Sanchez doctrine) NOTE: However, in Montilla and Diamante, the SC held that an option contract without a separate consideration creates no contract. Principle of Double Acceptance in order that a void option contract will give rise to a sale: 1st acceptance this is needed to give rise to a void contract while it is valid as an offer 2nd acceptance giving rise to the contract of sale since the offer was accepted Pre-Ang Yu doctrine: When an option K is supported by a separate consideration, and is accepted as an option, the moment the option is exercised within the period, it gives rise to a K of sale. If the offeror withdraws the offer within the period, it will give rise to damages for breach of K. Post-Ang Yu doctrine (plus the stupid cases of Equitable, Paranaque Kings): An offeror can withdraw the offer anytime within the option period regardless of the fact if there is a separate consideration or not. If it is with consideration it will give rise to damages under breach of K. If there is no consideration, it will give rise to tort under Art. 19 because there was no valid option K. Therefore, Ang Yu actually reduces the option K to mean nothing because a valid option contract and a void option contract ahs been placed in the same category which can be destroyed at the will of the offeror. NOTE: Although Ang Yu fucked up option contracts, its all obiter. 5. Mutual promise to buy and sell This is a Contract to Sell II. Perfection :Offer and Acceptance

Perfection of a K of Sale Upon the meeting of the minds as to a valid SM and price which has all the requisites The offer must be certain and the acceptance absolute: 1. Certain offer Price and SM with all the requisites 2. Absolute acceptance: a. Absolute absolute offer is accepted without any qualification or counter-offers b. Non-absolute (Villonco doctrine): i. Do minimis the change in acceptance is so insignificant that there is substantial absolute acceptance (e.g. Offer is pay in 2,000 days but acceptance is 1,999 days); or ii. Nature of change - the change does NOT go into the SM or consideration (e.g. Offer is that payment should be done with the buyer in long pants but the acceptance is that buyer will pay in shorts)

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NOTE: However, if the offer was pay and then cut your hair, and the acceptance did not include cutting the fair, this already goes into consideration and constitutes a counter-offer When there is a suspensive condition, there is no perfected K of sale until the condition is fulfilled, In Romero, the SC held that an injured party can waive the condition and ask for specific performance or sue for rescission and refuse to proceed if the condition is imposed on the performance of an obligation. In sale by auction, only when the auctioneer announces by the fall of the hammer or in customary manner is the sale perfected. Earnest Money 1. Part if the purchase price which is proof of the perfection of the contract 2. However, in Spouses Doromal, the SC held that the proof is rebuttable and evidence can be shown that the parties intended to treat earnest money differently. Genius Villanueva: This is because under Roman Law, earnest money served as liquidated damages such that withdrawing from the sale means forfeiture of the earnest money now is still acceptable. This is why Doromal provides that earnest money is not a conclusive proof of the perfection of the contract, because the parties might intend it to be earnest money under the concept of Roman Law. Differences between earnest money and option money: Earnest Money Part of the purchase price Given already while there is a sale (but take note of Spouses Doromal) When given, buyer is bound to pay the balance III. Form of Sales Option Money Given as a distinct consideration Applies to a sale not yet perfected When given, buyer is not required to buy

General Rule: Form is not important for the validity of sale. Exceptions: 1. Power to sell a piece of land or interest therein must be in writing, otherwise the sale thereof by the agent (even if the sale itself is written) is void 2. Sale of large cattle must be in writing 3. Sale of land by non-Christians is void if not approved by the Provincial governor Statute of Frauds General Rule: Form is important for enforceability Coverage: 1. A sale agreement which by its terms is not to be performed within a year from the making thereof 2. An agreement for the sale of foods, chattels, or things in action, at a price not less than P500 3. The sale of real property or of an interest therein

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Exceptions to the Coverage 1. Note or memorandum (it may be contained in 2 or more documents) Requisites for a note or memorandum a. In writing b. Must contain the signature of the contracting party against whom the contract is sought to be enforced c. Must describe the SM and Price which has all requisites NOTE: In an auction sale, even if the 2 nd requisite is not met, if the auctioneer enters the sale in the entry book, the sale is taken out of the provisions of the Statute of Frauds 2. Partial performance The partial performance must either go to the SM or the price (not the consideration!!!) Tender of payment is not considered partial performance because there is no involvement of the party against whom the sale is to be enforced (this is an important element for partial performance to be valid) However, tender of payment, accompanied by other acts such as building of improvements, possession and payment of taxes, may be considered partial performance (Ortega doctrine) Claudel Doctrine: If the rights of the 3rd parties are involved, partial execution is not good enough for the sale to be taken out of the Statute of Frauds. There must be a memorandum. Why? Because there is no complicity on the part of 3rd parties who were not involved in the original transaction. NOTE: Claudel applies only to movables where possession is presumed ownership unlike in immovables where title is the basis. 3. Waiver This refers exclusively to the failure of the party to object to oral testimony presented in court. The cross-examination on the contract is deemed a waiver NOTE: In case the transaction falls under the exceptions, parol or oral evidence may be introduced to prove the existence of the contract.

CHAPTER VI PERFORMANCE OR CONSUMMATION OF THE CONTRACT OF SALE I. Obligations of the Buyer and the Seller

Consummation: the state where either parties begin to perform their respective obligations. On the part of the seller, to deliver the thing and transfer ownership. On the part of the buyer, to pay the price. NOTE: Always remember that in this stage, it is necessary that there is already a VALID contract of sale. In other words, if you have not mustered what constitutes a valid contract of sale, youll get lost. A. Obligations of the Seller 1. To take care of the SM with proper diligence of a good father of the family Unless another standard of care is required Applied only when the SM is determinate

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2. To deliver the fruits and accessories But until actual delivery, the buyer only has a personal right to the fruits (meaning the seller can sell the fruits and the one buying the fruits has a better right) Applied only when the SM is determinate 3. Deliver the SM (Tradicion) Twin effects of tradition: a. transfer of ownership b. seller is deemed to have fulfilled his obligations Note: tradicion is a mode only when there is an underlying valid K of sale Two Types of Delivery a. actual or physical - thing sold is placed in the control and possession of the buyer b. constructive - seller transfers ownership without transferring physical possession (achieved by mere consent of the parties) i. execution of public instrument ii. symbolic delivery - delivery of a thing which is a representation of the SM (both parties must agree that the thing is a representation of the SM) iii. constitutum possesorium - when at the time of perfection, the seller had possession of the SM in the concept of an owner and pursuant to the sale, hold physical possession thereof no longer in the concept of an owner iv. tradition brevi manu - before the K of sale, the would-be buyer was already in the possession of the would be SM, and pursuant to the sale, he would not hold possession in the concept of an owner v. tradition longa manu delivery by agreement such as when the seller points the property vi. delivery by negotiable documents of title vii. seller allows buyer to exercise rights on the property Requisites of a valid constructive delivery (specially in public instruments) a. there must be no stipulation that the execution of a public instrument will not produce the effect of delivery b. at the time of the execution of the public instrument, the SM was subject to the control of the seller (Addison doctrine) c. such capacity, although existing at the time of the execution, must continue within a reasonable time (Villablanca doctrine) Exception to the Addison and Villablanca doctrines: When the public instrument was executed and there was no actual physical possession, constructive delivery would still be ineffective if from the nature of the contract, the buyer knew that there were adverse claims/occupants in the property eh accepted the responsibility to set them out (Power doctrine) Delivery through Carrier 1. FAS Free Alongside Ship Seller pays all charges and is subject to risk until the goods are placed alongside the vessel 2. FOB Free on Board a. shipping point delivery of the goods to the carrier, inside the vessel, is equivalent to delivery of the buyer

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b. destination only when vessel has arrived at the points of destination and actual signals to the buyer that the goods are there that there is deemed to be delivery to the buyer 3. CIF Cost, Insurance Freight The amount quoted by the seller and agreed to by the buyer covers not only the cost of the merchandise but also insurance and freight a. majority school of thought the carrier is an agent of the buyer (like FOB shipping point) b. minority school of thought the seller covers all the insurance and freight making the carrier his agent (like FOB destination) NOTE: These classifications are bullshit. Let me explain. They provide for very weak presumptions. The moment there is anything to the contrary to indicate the real intention of the parties, be it oral or written, then that intention governs regardless of the classification they placed on the transaction (General Foods Doctrine) Types of Tradicion Concepts When it Comes to Immovables: REMEMBER: In every sale of an automobile, it is essential for validity that there be a description (metes and bounds of the area must be given) 1. Sale per unit of measure sale of real estate made with a statement of its area, at the rate of a certain price for a unit measure (e.g. P3000 per square meter) a. Effect: If it turns out that the area delivered is less, there is substantial breach. Remedies would be specific performance or rescission (But lack of area must not be less than 1/10 or else it would be considered substantial compliance 2. Lump sum sale not at a rate of a certain sum for a unit of measure (e.g. P20M for that lot) a. Effect: If it turns out that the area is less, there is not a ground for rescission since the only obligation is to delivery everything within the boundary Sta. Ana Doctrine: Just because a statement of the measurement of the area is given, with the corresponding price, does NOT mean that it is a sale per unit of measure. The default rule is that it is a lump sum sale ONLY when it is expressly provided that the sale is at a certain price per unit of measure is it such kind of a sale. Two Special Species of Sale in Movables 1. Sale on Return There is already a sale but it is subject to a resolutory condition This is an exception to the general rule that once tradicion is effected, ownership is transferred 2. Sale on Approval This is an exception to the general rule that once tradicion is effected, ownership is transferred NOTE: To be construed as a sale on return or sale on approval, there must be a clear agreement to such effect. It must be in writing and cannot be proved by parole evidence (Industrial Doctrine). B. Obligations of the Buyer 1. Pay the price 2. Accept delivery of the thing sold

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If the buyer refuses to accept delivery, the seller only has to place the SM at the disposition of the buyer. Even if the latter has no possession and control, tradition is completed and the risk of loss is on the buyer. Acceptance by the buyer is NOT an integral part of delivery.

II.

Double Sales

A. Movables Ownership shall be confirmed to the person who takes 1 st possession in good faith B. Immovables Ownership shall be confirmed in accordance with the following hierarchy: 1. to the person who 1st registered under PD 1529 (Torrens System) 2. To the person who is 1st in time and has priority in right provide the following requisites concur (Radiowealth and Carumba): 3. In accordance with Art. 1544 of the NCC: 4. 1st in time, priority in right NOTE: The rules on Double Sales do not apply if one of the contracts is a contract to sell. In a contract to sell, the condition goes into the essence of the contract, such that if it doesnt happen, the contract is extinguished. In a contract of conditional sale, to which the rule on double sales apply, the condition attaches to the obligations, and the non-happening of which constitutes a breach which may be a ground for recession. Genius of Villanueva : Theoretically, recession is the only remedy in case there is a breach of the conditions of a conditional contract of sale. This is because specific performance cannot be availed of since the obligation has been extinguished. However, if the nonhappening of the condition is due to the sellers fault, then the condition is deemed fulfilled and specific performance can be a remedy. CHAPTER VII DOCUMENTS OF TITLE Documents of Title: includes any bill of lading, dock warrant, quedan or warehouse receipt or order for the delivery of goods, or any other document used in the ordinary course of business in the sale of transfer of goods, as proof of the possession or control of the goods, or authorizing or purporting to authorize the possessor of the document to transfer or receive, either b endorsement or by delivery, goods represented by such document. A type of constructive delivery It must always be in writing The SM is always fungible Two Functions a. the document itself is a representation of possession and description which are covered thereby b. it is the medium by which the goods described therein are delivered Two Types

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1. Negotiable containing the words of negotiability and written words like nonnegotiable does not destroy its being negotiable 2. Non-negotiable Basic Rule: Protect the purchaser in good faith for value. Even if the negotiation is a violation of the ownership of the principal owner, a purchaser in good faith is always protected. Effects of Negotiation of a Negotiable DT a. acquisition of such title to the goods as the person negotiating the document to him, had or had ability to convey a purchaser in good faith for value b. acquisition of such title to the goods as a person to whose order the goods were to be delivered by the terms of the document had or had ability to convey to a purchaser in good faith and for value c. acquisition of the direct obligation of the bailee issuing the document to hold possession of the goods for him according to terms of the document as fully as if such bailee had contracted with him Effects of transfer or assignment of a non-negotiable DT The assignee acquires thereby as against he transferor: a. title to the goods, subject to the terms of any agreement with the transferor b. the right to notify the bailee who issued the document of the transfer thereof, and thereby to acquire the direct obligation of such bailee to hold possession of the goods for him according to the terms of the document Warranties on negotiation or assignment: a. referring to the DT itself i. DT is genuine ii. Right to negotiate or transfer the DT iii. That there is knowledge of any defect which would impair the validity or worth of the document b. referring to the goods i. the goods exist ii. they are of merchantable quality Note: Other than the breach of these warranties, there is NO cause of action to recover on the seller. Rules on Levy/Garnishment of Goods Covered by DT NEGOTIABLE Judgment creditors of the original owner cannot actually levy or execute upon the goods since ownership and possession of the document itself is equivalent to the holder having actual ownership and possession. NON-NEGOTIABLE Judgment creditors of the original owner can levy or execute upon the goods since possession and ownership of the DT does NOT necessarily bring title over the goods. It is the notification of the bailee of the assignment that it is the operative act that will transfer the goods, not allowing the levy.

CHAPTER VIII SALE BY A NON-OWNER OR BY OEN HAVING A VOIDABLE TITLE

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WARNING: In the following discussion, note the difference between the time of perfection (where the seller may not be the owner) and consummation. General Rule: 1505, which states that where the goods are sold by a person who is not the owner thereof, the buyer acquires no better title to the goods than the seller had. In other words, NO title, NO transfer. (The SC even held that a transfer by someone who does not own the SM is void. Exceptions: 1. When the owner is estopped by his conduct from denying the sellers authority to sell. 2. When the contrary is provided for in recording laws (PD 1529) This applies only to registered lands Chain of Title Theory: there must be 2 links in order for this exception to apply. The 1st link is the 1 st sale, where the buyer still has the opportunity to look behind the title of the seller. The 2 nd link is the 2nd sale, where no amount of looking behind the title will a defect be seen since the name of the title corresponds to the person selling. 3. 1434: When the person who is not the owner of a thing sells or alienates or delivers it, and later the seller or grantor acquires title thereto, such title passes by the operation of law to the buyer or grantee 4. When the sale is made under statutory power of sale or under the order of a court of competent jurisdiction Because the seller in these cases is NOT the owner. 5. When the sale is made in a merchants store Requisites to be a merchant store: a. there must be goods stored therein and in display b. the store is actually engaged in buying and selling 6. 1506: Requirements in order that the sale is valid as to the buyer a. seller must have voidable title at the time of execution b. title has not been avoided c. buyer in good faith and for value d. there must have been tradition 7. Special right of resale Even when the title to the goods has already been transferred to the buyer, the unpaid seller can enter into another sale and deliver the goods to a 3 rd person even if the former already lost ownership This will be elaborated under remedies Article 559: Possession of movable property acquired in good faith is equivalent to title. But one who has lost or been unlawfully deprived of a movable may recover it from the person in possession of the same. This rule is in accordance with the general rule in 1505 that when there is no title, there is no title. But if the possessor acquired the movable in a public sale, the owner cannot obtain its return without reimbursing the price. If the buyer acquired the movable from a merchants store, the owner cannot recover anymore even if he was unlawfully deprived or it was lost. Unlawfully deprived does NOT apply if the owner voluntarily participates in a sale and was the victim of fraud (EDCA Doctrine). What it means is the taking without the owners consent or participation (e.g. theft and robbery)

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Rules on Sale by a Co-Owner General Rule: If he sells the entire the sale is void, but valid as to his spiritual share If he sells a definite portion the sale is void, but valid as to his spiritual share (if indeed the buyer would have still bought such share had he known that the definite portion sold would not be acquired by him Exceptions: 1. it does not apply when the SM is indivisible by nature or intent (Mindanao Doctrine) 2. when the sale of a particular portion of a thing owned in common is with the consent of the co-owners (Pamplona Doctrine) 3. A co-owner who sells one of the 2 lands owned in common with another and how does not turn of the proceeds of the sale to the other co-owner, the latter may by law and equity lay exclusive claim to the remaining parcel of land (Imperial Doctrine)

CHAPTER IX LOSS, DETERIORATION, FRUITS AND OTHER BENEFITS Application 1. applies only when the SM is determinate 2. applies to both movables and immovables History Civil Law Ownership is transferred by tradicion Risk of loss is borne by the buyer upon perfection Common Law Ownership is transferred by the perfection of the contract Res perit domino the owner bears the loss

The Bocobo Commission adopted the Res Perit Domino rule and at the same time, retained the civil law concept that ownership is transferred by tradition. The result is a fuck-up. Effects 1. before perfection risk of loss shall be borne by the would-be seller since he owns the thing 2. at the time of perfection if the thing is lost, the contract shall be without any effect and therefore the seller bears the risk of loss 3. after perfection but before delivery a. Loss Tolentino and Baviera Paras and Padilla Loss is with the seller because his estate has Loss is with the buyer since even become less due to the loss. Buyer does not have to though the SM is lost, he is still pay because a sale is reciprocal by nature and the obliged to pay the price. His obligation seller cannot comply with his obligation anymore. to pay was not extinguished. The contract has become inefficacious. Villanueva: The Tolentino & Baviera stance is more logical.

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b. Deterioration, fruits & improvements risk of deterioration and benefits of fruits and improvements shall be borne by the buyer. Although the seller has ownership, the benefits and improvements are for the benefit of the buyer. (So, in effect, the res perit domino rule applies only in loss and not in deterioration, fruits and improvements._ NOTE: Just remember this simple formula by the Genius Villanueva: the risk of loss, deterioration and improvement shall always be for the account of the person who has both title and beneficial interest over the SM. When the title and beneficial interest do not merge in the same party, the risk of loss, deterioration and improvement will be for the account of the person who has beneficial interest. 4. after delivery risk is borne by the buyer who owns the thing Except: a. when the delivery of the goods has been made to the buyer and the ownership has been retained by the seller merely to secure the performance by the buyer of his obligations in the contract (even if the buyer does not own the thing, the risk of loss is still hers) b. actual delivery had been delayed through either partys fault (risk of loss is with the party at fault)

CHAPTER X REMEDIES OF PARTIES FOR BREACH OF CONTRACT OF SALE I. In case of Movables

A. Remedies of the Seller 1. Specific performance and rescission 2. Special remedies of an unpaid seller Definition of an Unpaid Seller a. When the whole of the rice has not been paid or tendered b. When a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has been received has been broken by reason of dishonor of the instrument, the insolvency of the buyer or otherwise. Note: This includes an agent of the seller. Rights of the Unpaid Seller a. applies even if the seller has lost ownership (there has been constructive delivery) b. applies even if the buyer has entered into a 2nd sale c. the first 2 remedies must be first availed of before the next 2 remedies can apply: i. possessory lien Requisites: 1. where the goods have been sold without any stipulation as to credit 2. where the goods have been sold on credit, but the term of credit has expired

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3. where the buyer has become insolvent Instances when unpaid loses his possessory lien 1. he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the ownership in the goods or the right to the possession thereof 2. the buyer or his agent lawfully obtains possession of the goods 3. by waiver thereof Note: there is no need to notify the buyer and the right may be exercised even if the unpaid seller is an agent or bailee

ii. stoppage in transitu allowed only if the buyer becomes insolvent which must be proved (insolvent - buyer is unable to pay his debts as they fall due) When are goods in transit? 1. from the time they are delivered to a carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his agent in that behalf, takes delivery of them from such carrier or bailee 2. if the goods are rejected by the buyer, the carrier or other bailee continues in possession of them, even if the seller has refused to receive them back When are goods not in transit? 1. if the buyer or his agent obtains delivery of the goods before their arrival at the destination 2. if after arrival of the goods, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee of the buyer or his agent; and it is immaterial that further destination for the goods may have been indicated by the buyer 3. if the carrier of other bailee wrongfully refuses to deliver the goods to the buyer or his agent How is the right exercised? 1. by obtaining actual possession of the goods 2. by giving notice of his claim to the carrier or other bailee in whose possession the goods are: a. at the point of notice, the carrier has no choice but to hold the goods for the disposition of the seller b. if the notice was given to the carriers principal, enough time must be given for the principal to inform the carrier When are the rights inapplicable? 1. when the goods are NOT in transit 2. when there is a waiver of the right iii. special right to resell Requisites for the right to apply 1. the goods are of perishable nature 2. where the seller expressly reserves the right of resale in case the buyer should make default 3. where the buyer has been in default in the payment of the price for an unreasonable time Effects 1. destruction of ownership of the 1st buyer even without court intervention

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2. even an innocent 3rd person will not be protected if the 1 st buyer sells the goods to such 3rd person 3. the unpaid seller can sell the goods to another even if he is not the owner of the goods 4. any deficiency in the 2nd sale will be paid by the 1st buyer Unpaid seller cannot directly or indirectly buy the goods (1533) Note: Giving of notice is not essential for the validity of the resale. It is relevant only in an issue involving the question of whether the buyer had been in default for an unreasonable time before the resale was made. iv. special right to rescind Requisites for application 1. it was expressly reserved in case the buyer should make default, or 2. the buyer has been in default in the payment for an unreasonable time Effects 1. destruction of ownership of the 1st buyer even without court intervention 2. even an innocent 3rd person will not be protected if the 1 st buyer sells the goods to such 3rd person 3. seller may recover from the buyer any loss caused by the breached contract Difference between ordinary rescission and special right to rescind: Generally, ordinary rescission needs court intervention. The special right to rescind does NOT need court intervention. Note: Giving of notice is not essential for the validity of the resale. It is relevant only in an issue involving the question of whether the buyer had been in default for an unreasonable time before the resale was made. (However, in view of the UP case, notice must be given every time there is rescission.) B. Remedies of the Buyer 1. Specific performance and rescission 2. Furthermore, the buyer may suspend payments in anticipation of breach unless the seller gives security for the return of the price in a proper case C. Recto Law and Art. 1484 1. Rationale: to remedy the abuses committed in connection with the foreclosure of chattel mortgages and was meant to prevent mortgagees from seizing the mortgaged property, buying it at a foreclosure sale for a low price, and then brining suit against the mortgagor for a deficiency judgment 2. Coverage a. sale of personal property payable on installments b. levy doctrine: to be under Art. 1484, there must be 2 or more installments c. The SC in Zayas applied the Recto Law in financing. However, the peculiar circumstances in Zayas was that there was an original sale contract and the credit was merely assigned to the financing company. In other words, financing per se is not covered by the Recto Law. There must be an underlying contract of sale.

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3. Remedies Note: The vertical barring effect states that once a remedy is chosen among the 3 enumerated here and it takes effect, the seller cannot choose another remedy a. Specific performance When deemed chosen: Filing of an action for specific performance in court Horizontal barring effect : NONE. You can recover the whole unpaid balance. (This is true even if the action instituted has the same effect as foreclosure, as wherein a mortgage property has been attached and sold, since it is NOT technically a foreclosure.) Choosing specific performance vertically bars the other remedies EXCEPT if after choosing specific performance the same has become impossible, rescission may be availed of. b. Rescission When deemed chosen 1. filing an action for rescission in court 2. taking actual possession or filing replevin coupled with a manifest intention of rescission. Horizontal barring effect 1. Seller cannot seek further action on the purchase price (since he already has possession of the SM and rescission by its nature involves mutual restitution returning any amount previously paid, unless there is a stipulation that the installments paid shall not be returned which is valid insofar as it is not unconscionable under the circumstances. 2. Furthermore, damages may be awarded to the extent of the loss c. Foreclosure When deemed chosen: upon actual sale; before that, the seller can still collect the installments due (specific performance) Horizontal barring effect : once foreclosure is chosen, the seller cannot anymore recover any unpaid balance of the price (that is the essence of the Recto Law) Unpaid balance of the price: is all encompassing and includes not only the purchase price but stipulations in the contract for damages, interests and attorneys fees (Eustaquio Doctrine) Eustaquio Doctrine: does not apply to a perverse buyer-mortgagor or one who refuses to surrender the chattel to the seller to allow the latter to foreclose. In such a case, the seller is allowed to recover expenses and attorneys fees incurred in trying to obtain possession. (Ridad Doctrine). Cruz Doctrine: It is not true that after foreclosure, Art. 1484 prohibits further action only against the purchaser. It applies also against recovering the deficiency (e.g. by foreclosing on the other mortgages made by the buyer) from 3rd parties. Borbon Doctrine: This is a situation which is the reverse in Cruz. To circumvent Cruz, what if foreclosing on the other mortgages is instituted? This CANNOT be done. The reason is not because of the barring effect in 1484, but because of the principal in credit

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transactions that seeking specific performance is deemed a wavier of the foreclosure of the chattel mortgage. II. In case of Immovables

A. Remedies of the Seller 1. Specific performance and rescission 2. An anticipatory breach entitles him to rescission 3. Failure of the buyer to pay the purchase price entitles the seller to rescind the contract of sale upon judicial or notarial demand (1529). But the SC in some cases refused to allow rescission even if proper on equity grounds. B. Remedies of the Buyer 1. Specific performance and rescission 2. Suspension of payment because of disturbance or reasonable grounds to fear such disturbance 3. In case of subdivision and condominium projects, the developer may not forfeit previous payments if the buyer desists from paying installments due to the failure of the developer to develop the subdivision or condominium. The notice of demand for refund and notice of intent not to remit further payments can be made at the same time. C. Maceda Law 1. Rationale: protects buyer of real estate on installment payments against and oppressive conditions 2. Coverage: (both contracts of sale and contracts to sell) a. Residential real estate b. Residential condominium units Note: By express provision of law, the Maceda Law not only covers rates financing. Also, the meaning of installments in the Levy doctrine applies also 3. Items not covered: a. Commercial real estate b. Industrial real estate c. Non-residential condominium units d. Agricultural lands Note: Art. 1529, 1191 and the law on suspensive conditions govern the first governs the last. Rights under the Maceda Law At least 2 years Installment Period Statutory Grace Period: To pay without additional interest, the unpaid installments with a grace period of 30 days for every 1 year of installment paid. Right to make use of the grace period can only be exercised every 5 years of the contracts life and its extension. Less than 2 Years Installment Period Statutory Grace Period: To pay without additional interest, the unpaid installments with a grace period of 60 days from the date of the installment became due. onerous

but also here.

3. CARP

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Jurisprudential Grace Period: The seller could cancel the contract only after 30 days after receipt of the notarial notice of cancellation or rescission by the buyer. Within the 30 days, buyer may still pay. (But in this case, interest and penalties may be included unlike in the statutory grace period.) If the contract is cancelled, seller shall refund 50% of the total payments made after 5 years of installment, an additional 5% every year but not to exceed 90% of total payments. Note: It is cancellation when it is cancellation the lapse of period. only after the refund is the or rescission complete. Unlike less than 2 years where the or rescission is complete upon the jurisprudential 30-day grace

Jurisprudential Grace Period: The seller could cancel the contract only after 30 days after receipt of the notarial notice of cancellation or rescission by the buyer. Within the 30 days, buyer may still pay. (But in this case, interest and penalties may be included unlike in the statutory grace period.)

Any stipulation contrary to the Maceda Law is null and void. The notice of rescission or cancellation may be by notarial act, meaning it need not be judicial. (However, note that the McLaughlin implies that the notarial act is not needed if it is a notice of cancellation). In determining whether it is more or less than 2 years, the number of years is not controlling. What determines the period is the application of payments, whether they cover 2 years or not.

CHAPTER XI RESCISSION: CONTRACT OF SALE VS. CONTRACT TO SELL WARNING: The following discussion is a poor attempt to synthesize the sales on rescission. Proceed at your own risk. Rescission A remedy by the party in reciprocal obligations where there is a breach on the part of the other party This does not cover the rescission which pertains to rescissible contracts where lesion is the main consideration The breach of contract which falls under rescission must be substantial breach because of the doctrine that substantial compliance is deemed to be full compliance The effect of rescission is mutual restitution (but stipulations which say that installments paid shall not be returned is valid insofar as they may not be unconscionable under the circumstances) Only the injured party (which may be a 3rd person) may demand for rescission Distinction between a contract of sale and a contract to sell

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Contract of Sale Perfection gives rise to demandable obligations

reciprocal

Delivery transfers ownership.

Non-payment of the price by the buyer or the non-delivery of the SM by the seller would constitute resolutory conditions and may be a basis for rescission. Rescission can be availed of only in case of substantial breach.

Contract to Sell Perfection only give rise to reciprocal suspensive conditional obligations (non-demandable until the condition happens). Consequently, the nonhappening of the condition extinguishes the obligation. Even after the happening of the suspensive condition (which is full payment of the price) ownership is still not transferred, until a contract of sale is entered into and there is delivery. Non-happening of the suspensive condition, which is payment of the price, prevents the obligation to sell n the part of the seller from materializing at all. Principle of substantial breach has no application since the non-happening of the condition, substantial or not, ipso jure prevents the obligation from arising. NOTE: Remember this concept, it will be relevant in the following discussion. Rescission is irrelevant. Non-happening of the condition of full payment prevents the sale from materializing, so there is nothing to rescind.

Provision granting a party a right to rescind will be superfluous since by law, it is inherent in this contract.

Under the law and jurisprudence, a contract which contains a stipulation that ownership is reserved in the seller and not to pass to the buyer until full payment of the purchase price is a contract to sell. Also, the SC in Dignos, held that in a contract to sell, there must be a right granted to the seller to extra-judicially rescind or cancel the contract in case of default. Absence of such a stipulation makes the contract one of sale.

Note: However, in some cases, the SC held that the contract is a contract to sell even in the absence of such stipulation. Rules on rescission and what law governs 1. 1191 is the general rule in rescission 2. 1191 does NOT apply to contracts to sell. No positive action is required in a contract to sell because the non-happening of the condition destroys the contract. Therefore, there is nothing to rescind. 3. Also the following are NOT under 1191: a. movables under the Recto Law since such law governs b. immovables 4. Immovables are governed generally by 1529 which states that in the sale of immovable properties, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by notarial act. After the demand, the court may not grant him a new term.

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5. However, those immovables covered under the Maceda Law are governed by such laws. Furthermore, the Maceda Law also covers Contract to Sell and allows rescission to such contracts (which is a complete turn-around of the general rules in 1-4 above) Rules on rescission and substantial breach 1. The general rule is that rescission is proper when there is substantial breach 2. Since 1191 and 1529 does NOT apply to a contract to sell, even if there is substantial breach in a contract to sell, rescission is not proper because the non-happening of the condition of full-payment prevents the sale from materializing. There is no contract to rescind at all. 3. However, the SC in cases falling under the Maceda Law (where being a contract of sale and a contract to sell fall under the same law), applied substantial compliance principles to contracts to sell. This is because the Maceda Law promotes a higher value. (So take not of the coverage of the Maceda Law.) 4. We can conclude therefore that only those contracts to sell which fall under the Maceda Law may be rescinded and where substantial compliance principles are applicable. Rules on rescission and when it takes effect 1. it is generally judicial and requires court action except when it is extra-judicial (the contract contains the stipulation: in case of default by 1 party, the other party may rescind by mere written notice (without need of going to court) 2. those under 1529 (take note of this provisions coverage above) require that there be a demand for rescission either by judicial or notarial act) 3. since rescission is not applicable to contracts to sell, logically, notice need not be given when the contract is a contract to sell 4. under the Maceda Law, for rescission to take place, there need only be the expiration of the 30-day grace period after notarial notice of rescission or cancellation has been given to the buyer (but take note that the case value refund must be paid for rescission to take effect when installments have been paid for more than 2 years) 5. Furthermore, since under the Maceda Law, contracts to sell may be rescinded (which is against rule number 3), the SC in UP and Palay held that even in contracts to sell, a minimum requirement for rescission is notice to the buyer (this refers to situations where rescission is allowed in contracts to sell like those under the Maceda Law) Note: The rationale why notice is required even in contracts to sell may be seen in 1545, since the law grants the seller the option to waive the breach, and still accept payments, then notice must be given to the buyer that the seller is not waiving. Note: What complicated matters is that the SC used the principles of justice and equity to make rescission applicable to contracts to sell, even though by their nature, rescission is not a remedy in those types of contracts. Also, the Maceda Law was made applicable to both contracts of sale and to sell, which produced a number of mix-up principles.

CHAPTER XII CONDITIONS AND WARRANTIES Reason: Why they are lumped together: 1. to provide how each behaves differently in sales 2. to distinguish it from warranties

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Distinguish: Conditions When a condition is imposed in the perfection of the contracts, failure to comply means a failure of the contract to materialize. When the condition is imposed on the performance of the contract, the injured party may either refuse to proceed with the sale or waive the condition. Nonhappening of the condition is not a breach, so there can be no damages. Applies to a buyer and seller Goes into the root of the existence of the obligation Must be stipulated Applicable to other contracts Warranties Non-fulfillment of a warranty constitutes a breach and damages may be awarded

Applies only to the seller because it pertains to the SM Goes into the performance of the obligation May form part of the contract by express provision of the law Applies only to sales contracts

The only time a condition amounts to a breach is when there is an express promise that the condition will happen. The condition becomes a warranty and damages may be awarded in case of breach. It is important to discuss warranties because rescission on the part of the buyer can ONLY happen if there is a breach of the sellers warranties.

Kinds of Warranties 1. EXPRESS (it is essential to look at the wordings to determine the extent of the warranty) a. It must be an affirmation of fact or any promise by the seller relating to the thing, SM of the sale b. The natural tendency of such affirmation or promise is to induce the buyer to purchase the same; and c. The buyer purchases the thing relying thereon Note: A statement of opinion (sellers talk) is not a warranty, UNLESS The seller is an expert and such was relied upon by the buyer. 2. IMPLIED Every contract has these warranties and the 3 requisites in express warranties need not be present By express stipulation, an agent of the seller may bind himself to such warranties a. Warranty that the seller has a right to sell and transfer ownership Applies only in the consummation stage It is an essential warranty and CANNOT be waived It goes into the obligation to transfer ownership b. Warranty against eviction Goes into the obligation to deliver possession

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Warrants that the buyer shall enjoy legal and peaceful possession of the SM Requisites to say that there is a breach of the warranty: i. buyer is dispossessed of the property in whole or in part ii. by final judgment iii. based on a cause of action prior to the sale or an act imputable to the seller iv. seller must be made either a co-defendant or a 3rd party defendant Note: However, even if all the requisites are present, but there is acquisitive prescription prior to the sale and is completed after the transfer, the seller shall not be liable for eviction. This is because the buyer did not do anything to prevent the prescription. Waiver of the warranty: i. Seller in bad faith (aware of the claims) any waiver is VOID ii. Seller in good faith (no knowledge of the risk) - General: seller shall ONLY pay the value of the thing sold at eviction (NO DAMAGES) - Specific: if buyer knew of the specific risk, the seller will not be liable, but only as to that specific risk Genius of Villanueva: In effect therefore, there is no such thing as waiver of this warranty. A general waiver is no waiver at all because the seller still has to pay. In a specific waiver, there is nothing to waive because when you know that a problem exists and you still buy, theres nothing to waive. This warranty applies to judicial sales

c. Warranty against non-apparent servitudes Applies only: i. with the servient estate ii. the immovable sold is encumbered with any non-apparent burden or servitude not mentioned in the agreement iii. the nature of the servitude is such that it must be presumed that the buyer would not have acquired it had he been aware thereof When not applicable: if the non-apparent burden or servitude is recorded in the Registry of Property UNLESS there is an express warranty that the thing is free from all burdens and encumbrances Prescriptive Period (depends on the ground): i. action for rescission or sue for damages 1 year from execution of the deed ii. action for damages 1 year from the knowledge of burden or servitude d. Warranty against hidden defects Applies only when: i. the thing is new ii. it is an intangible iii. the defect is hidden iv. the defect should go to the utility of the thing or it will render the SM unfit for the purpose it was purchased

SALES REVIEWER

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v. had the buyer been aware of the defect, he would not have purchased Effect: Buyer may elect between withdrawing from the contract and demanding a proportionate reduction of the price with damages in either case Loss of the thing i. if due to the defect - seller was aware: seller shall bear the loss, return the price, refund expenses for the contract and damages - seller was not aware: same liability except NO damages ii. if NOT due to the defect - seller was aware: buyer may demand the price he paid less the value which the thing had when it was lost plus damages - seller was not aware: same liability except no damages waiver of the warranty i. seller is in bad faith still liable, the waiver is void ii. seller is in good faith loss will not make the seller liable Prescriptive period: 6 months from the delivery of the thing sold This applies only to judicial sales

e. Redhibitory defects on animals Applies only to movables Redhibitory defect of such nature that expert knowledge is not sufficient to discover it General Rule: defect in one animal does not affect the other even if they were bought as a team UNLESS it appears that the buyer would not have bought if there was a defective one This warranty does NOT apply to animals sold at fairs or public actions or livestock sold as condemned Void sale of animals: i. those suffering from contagious diseases ii. if the use or service which they acquired has been stated an they were found to be unfit Prescriptive period: 40 days from the date of delivery to the buyer Specific Implied Warranties in the Sale of Goods 1. Warranty a. Where buyer makes known to the seller the particular purpose for which the goods are acquired and it appears that the buyer relies on the sellers skill or judgment b. Where the goods are brought by description from a seller who deals in goods of that description Note: In case of breach and in the absence of special circumstances showing proximate damage of a greater amount, the measure of damage is the difference between the value of the goods at the time of delivery and the value they would have had if they had answered to the warranty 2. Sale of Goods by Sample a. There is an implied warranty that the goods shall be free from defect rendering them unmerchantable which would not be apparent on reasonable examination of the sample.

SALES REVIEWER

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Ateneo de Manila University School of Law Est. 1964

CHAPTER XIII EXTINGUISHMENT OF SALE Preliminaries The same grounds for extinguishment of obligations apply to sale. However, payment or performance does not extinguish a contract of sale itself since the relationship between the buyer and seller remains Redemption is a mode of extinguishment to a contract of sale Kinds of Redemption 1. Conventional 2. Legal Conventional Redemption Definition: When the seller reserved for himself the right to repurchase the thing sold with the obligation to return the price of the sale, the expenses of the contract, any other legitimate payments made by reason of the sale, and the necessary and useful expenses made on the thing sold. In short, a right of repurchase or a sale a retro. Distinguished from an Option Contract Option Contract A principal contract Needs a separate consideration Seeks to establish a contract of sale Exercisable by notice of exercise Period may be anytime Right of Repurchase Not even a contract, it cannot exist apart from a main contract of sale The question of consideration is irrelevant since there is not even a contract Seeks to destroy a contact of sale in existence Exercisable by tender of payment or consignation Maximum period cannot exceed 10 years

When does a sale a retro exist? 1. only at the time of perfection a. if at a point other than perfection, it is an option 2. it must be by express stipulation Can the existence of a sale a retro be proved by parole evidence? The SC held that even though a sale a retro is part of the sale, there is no requirement that it must be in a memo. (Remember: all that is required in a memo is SM and price with all the requisites plus the signature of the party upon which the sale is sought to be enforced.) The existence of the memo allows the introduction of parol evidence to prove the existence of the sale a retro. Also, parol evidence may be used if no objection was made to its presentation in trial. Period of Redemption 1. no period agreed upon 4 years from the date of the contract 2. if there is a period agreed upon that period, but it must not exceed 10 years 3. if the period is void for exceeding 10 years period is 10 years

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How Redemption Effected 1. returning to the buyer the price of the sale 2. paying the expenses of the contract, and any other legitimate payments made by reason of the sale 3. paying the necessary and useful expenses made on the thing sold Note: ONLY tender of payment is sufficient. If the buyer is nowhere to be found, the money must be consigned to the court. Effect When No Redemption is Made 1. buyer a retro acquires full ownership ipso jure 2. nothing stops the period of redemption from running (not even non-payment of the rice by the buyer!), EXCEPT a. the pendency of the action brought in good faith and relating to the validity of a sale a retro (Ong Doctrine) b. Art. 1606, which grants a 30-day redemption period after judgment in a case where the issue is: whether a contract is a sale a retro or an equitable mortgage Note: if the issue is whether a contract is a sale a retro or an absolute sale, then there is no 30-day redemption period Equitable Mortgages in Relation to a Sale a Retro Definition: One which although lacking in some formality, or form of words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law. Requisites: i. that the parties entered into the contract denominated as a contract of sale; and ii. their intention was to secure an existing debt by way of mortgage Distinguish: Equitable Mortgages Ancillary to a contract of loan Remedy of non-payment of the loan is foreclosure Sale a Retro Not an ancillary to any contract If the right of repurchase is not exercised, the buyer becomes the owner ipso jure

Why is this in sales? The practice nowadays is that instead of equitable mortgage, the parties enter into a sale a retro (which in fact is an equitable mortgage in disguise), such that upon failure to pay the loan, foreclosure proceedings need not be instituted. In mortgages, there is a public policy that failure to pay the loan does not automatically transfer ownership to the mortgagee (pactum commisorium). To circumvent this, lenders enter into an equitable mortgage disguised as a sale a retro. That is why a sale a retro is construed to be a true equitable mortgage, the expiration of the purported period of redemption does NOT ipso jure transfer ownership to the purported buyer. There must be a foreclosure proceeding. Furthermore, if there is a subsequent sale to an innocent 3 rd person, the latter will not be protected since there was voidable title on the person who sold to him (But take note of the Chain of Title theory). In case of doubt, a sale a retro is treated as an equitable mortgage. Legal Redemption

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Definition: The right to be subrogate upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by onerous title. Instances of Legal Redemption 1. among co-heirs in sale of hereditary rights 2. among co-owners in sale of the indivisible co-owners share 3. among adjoining owners a. in rural land b. in urban land 4. sale of credit in litigation debtor is given the right to extinguish the assignment of credit by reimbursing the assignee for the price the latter paid, the judicial costs, and interest. 5. other cases by law a. redemption by homestead b. redemption of sales tax c. redemption by judgment debtor d. redemption in extra-judicial foreclosure e. redemption in judicial foreclosure Period in which to exercise the right 30 days which will ONLY begin to run when the following requisites concur: o There is a written notice (which may be in any form) o Given by the seller Note: these are strict requirements such that not even registration in the Register of Deeds will do the trick o The written notice by the seller must pertain to a perfected contract of sale (Spouses Doromal Doctrine) Note: this is a stupid doctrine because the law also talks of a would-be seller which implies an unperfected contract of sale Exceptions (that the running of the period is only upon written notice by the seller): 1. when there is laches (Alonzo and Pilapil Doctrine) 2. if the co-owner himself was the agent to effect the sale to a 3 rd party thereby having knowledge thereof (Distrito Doctrine) Note: The exceptions do not reverse the strict requirements of written notice by the seller. Its just that under the special circumstances in those cases, they were exempted (Alonzo Doctrine).

CHAPTER XIV ASSIGNMENT Assignment the sale of credits and other incorporeal rights Distinguished from sale because of the SM. In sale, the SM is tangible. In assignment it is intangible. Otherwise both are the same. Like sale, assignment includes all accession and accessories. It needs constructive delivery to transfer ownership. Binding Effect

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To bind 3rd persons, an assignment must be in a public instrument. Furthermore, if it covers real rights, there must be registration in the Registry of Deeds. Without public instrument, the assignment would still be valid but enforceable only as between the assignor and assignee and their successors-in-interest. An assignment of a document of title does NOT bind the bailee unless specific notice of transfer is given.

Effect of Assignment of Credit If debtor pays the creditor without knowledge of the assignment, payment shall releases the former from further obligations. If assignment is made w/o the debtors knowledge, debtor may set up against the assignee the compensation which would pertain to him against the assignor of all credits prior to the assignment and also later ones until he has knowledge of the assignment. If the debtor consented to the assignment, compensation cannot be set up unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to compensation. If there is communication of the assignment by the creditor, and the debtor did not consent, the latter may still set up the compensation of debts previous to the assignment but not subsequent ones. Warranties Warranty against hidden defects is NOT applicable There is a warranty of the existence of the credit at the time of the sale EXCEPT if it has been expressly sold as a doubtful account There is NO warranty regarding the solvency of the debtor except: o There is a stipulation to that effect o The insolvency of the debtor was prior to the assignment and of common knowledge Note: Either way, the warranty shall cease 1 year after the maturity of the credit. Effect of Assignment of Credit in Litigation The debtor shall have a right to extinguish it by reimbursing the assignee for the price the latter paid, the judicial costs, and the interest on the price from the day on which the credit was paid Such right can be exercised by the debtor within 30 days from the demand by the assignee for payment The right does not exist in the following: a. assignment of creditor or incorporeal right to the co-heir or co-owner of the rights assigned b. assignment to a creditor in payment for his credit; and c. assignment to the possessor of a tenement of piece of land which is subject to the right in litigation assigned Note: in litigation means from the time a complaint concerning the credit is answered

CHAPTER XV THE BULK SALES LAW

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Rationale: To prevent a situation where merchants would cheat their creditors by hurriedly selling their business and vanish into thin air, with the creditors left holding the bag while the buyer in good faith and for value is protected Coverage (applies only to merchandising concerns) 1. any disposition or encumbrance of a stock of goods, wares, merchandize provisions or materials otherwise than in the ordinary course of trade and the regular prosecution of the STMAer 2. any disposition or encumbrance of all or substantially all of the business or trade theretofore conducted by the STMAer 3. any disposition or encumbrance of all or substantially all of the fixtures and equipments used in the business of the STMAer Note: As long as the transcription fails within any of the 3 transactions, it is a Bulk Sale. Intention of the seller, and good or bad faith is irrelevant. Exceptions 1. if the STMAer delivers a written waiver of the provisions of the law from creditors as shown by verified statements 2. doesnt apply to executors, administrators, receivers, assignees in insolvency, or public officers, acting under process Obligations of the Seller when the transaction is a Bulk Sale 1. prepare an inventory of amount of indebtedness and list of creditors 10 days before the sale 2. send notice to the creditors 10 days before the sale 3. at the STMA, submit to the STMAer a sworn statement of creditors 4. immediately thereafter, apply the proceeds to the creditors 5. within 10 days after the STMA, submit to the DTI 6. going through STMA must not be nominal Effect of failure of doing the obligations (in accordance with the order above)] 1. no criminal and civil consequences 2. void transaction and criminal sanction a. The transaction is void here not because of the Bulk Sales Law but of Common Law Principle that if the price of a sale is nominal, it is not real, making the contract void. Obligations of the Buyer: There is no obligation and generally no criminal liability. However, since non-compliance of the BSL may lead to declaring the sale fraudulent and void, he is not entitled to the goods delivered to him.

CHAPTER XVI RETAIL TRADE LIBERALIZATION ACT OF 2000 Retail 1. 2. 3. Trade Law habitual selling of merchandise, commodities, or goods to the general public for consumption a. By jurisprudence, for consumption des not include sale to industrial and commercial establishments. In effect, the SC says that not only should you

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look at the nature of the goods, but also the purpose for which the goods were brought. (Balmaceda, Goodyear and BF Goodrich) b. However in Marsman, the SC looked at the nature of the goods and the nature of the buyer. Such that diesel, not being a consumer item, is not a consumer good. (It is an auxiliary good because it is a factor in the production of other goods and satisfy wants only indirectly.) Note: Absent one of the elements takes the sale out of the Retail Trade Law. Exempted Transaction 1. sales by a manufacturer, processor, laborer, or worker to the general public of the products manufactured, processed or produced by him is his capital does not exceed P100,000 2. sales by a farmer or agriculturist selling the products of his farm regardless of capital 3. sales in restaurant operations by a hotel owner or inn-keeper irrespective of the amount of capital, provided that the restaurant is incidental to the hotel business 4. sales to the general public, through a single outlet owned by a manufacturer or products manufactured, processed or assembled in the Philippines, irrespective of capitalization 5. sales to industrial and commercial users or consumers who use the products bought by them to render service to the general public and/or produce or manufacture goods which are in turn sold by them; and 6. sales to the government and/or its agencies and government-owned and controlled corporations Categories of Retail Trade Enterprises A. Less than $2.5M B. $2.5M-$7.5M; store not less than $30K C. Above $7.5M; store not less than $830K D. High-end or luxury products with a capital of $250K per store When Aliens May Invest in Retail Trade 1. under category A, beginning 26 March 2002 2. under category B, C, D Grandfather Rule Since the old RTL, prohibited non-100% owned corporations or partnership from engaging in retail trade, how would you determine citizenship of shares of the selling corporation when they are held by another entity? The rule is that shares belonging to corporations or parties at least 60% of the capital is owned by Filipinos, is Filipino. But if it is less, then only the number of shares corresponding to such percentage shall be Filipino. Application of Anti Dummy Law ADL penalizes Filipinos who permit aliens to use them as nominees or dummies to enjoy privileges reserved for Filipinos or Filipino corporations. Aliens are prohibited from employment in retail trade or establishments engaging in such EXCEPT when: a. it is highly technical b. no Filipino can do it c. with the Presidents consent

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Note: Later PD 175 allowed the election of aliens as members of the Board of Directors, in partially nationalized activities in proportion to their allowable participation in the capital of such activities. There in the presence of God, I knew how my love and I could be freed from the powers of darkness - Mina [For Titania]

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