I SALES INTRODUCTION Nature and Form of the Contract Art. 1458.

. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. Definition: Contract of Sale - A contract whereby one of the parties (SELLER/VENDOR) obligates himself to deliver something to the other (BUYER/PURCHASER/VENDEE) who, on his part, binds himself to pay therefor a sum of money or it equivalent (PRICE). KINDS 1. Absolute - Where the sale is not subject to any condition whatsoever and where title or ownership passes to the buyer upon delivery of the thing sold 2. Conditional - Where the sale contemplates a contingency (1461, 1462(2), 1465) and in general where the contract is subject to certain conditions (1503 (1), usually the full payment of the purchase price (1478) Art. 1461. Things having a potential existence may be the object of the contract of sale. The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence.xxx Art. 1462. xxx There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen. Art. 1465. Things subject to a resolutory condition may be the object of the contract of sale. Art. 1503. When there is a contract of sale of specific goods, the seller may, by the terms of the contract, reserve the right of possession or ownership in the goods until certain conditions have been fulfilled. The right of possession or ownership may be thus reserved notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer. Art. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price. DISTINCTION Contract of sale (absolute) real obligation obligation to give remedies available: specific performance; SP w/ damages; rescission; R w/ damages; damages Contract to sell (conditional) personal obligation obligation to do remedies available: resolution or damages

4.

5.

6.

- Consequence: power to rescind is implied in bilateral contracts Onerous with valuable consideration - Consequence: all doubts in construing contract to be resolved in greater reciprocity of interest Commutative equal value is exchanged for equal value - Test: subjective as long as parties in all honesty that he is receiving equal value then it complies with test & would not be deemed a donation; but must not be absurd. - Inadequacy of price or aleatory character not sufficient ground to cancel contract of sale; inadequacy can show vitiation of consent & sale may be annulled based on vice but not on inadequacy Consensual meeting of minds sufficient to perfect a contract of sale but delivery is required to consummate. - Title & not a mode gives rise to an obligation to transfer; it is delivery w/c actually transfers ownership;

ESSENTIAL REQUISITES OF A CONTRACT OF SALE 1. Consent o Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.xxx o Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. xxx o seller: agrees to transfer and deliver; buyer: agrees to pay o parties must have legal capacity to give consent and to obligate themselves 2. Subject matter/object determinate thing or at least capable of being made determinate o specific/ determinate thing : particularly designated or physically segregated from all others of the same class; identified by its individuality cannot be substituted 3. Cause or consideration price; must be in money or its equivalent (check, promissory note, Negotiable instrument); does not include goods or merchandise may be barter STAGES OF CONTRACT OF SALE 1. Negotiation 2. Perfection 3. Consummation PERFECTION 1. parties are face to face: offer is accepted without conditions and without qualifications -negotiated thru phone it is as if the parties are face to face 2. thru correspondence/telegram: offeror receives knowledge or has knowledge of the acceptance of the offeree 3. sale is made subject to a suspensive condition: perfection is had from the moment the condition is fulfilled Consent: reciprocal obligations of the parties arise Ownership, however, of the thing is transferred only upon delivery

CHARACTERISTICS OF CONTRACT OF SALE 1. 2. 3. Nominate - law gave it a name Principal - can stand on its own; unlike accessory contract Bilateral - imposes obligation on both parties a. obligation of seller transfer ownership & deliver b. obligation of buyer pay for price

Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. Parties can demand fulfilment of others obligation, subject to compliance with Statute of Frauds If a party fails to comply with his obligation: Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. CONSUMMATION Death of contract or when the contract is fully executed delivery of the thing; payment of the price Form: Art. 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract of sale may be made in writing, or by word of mouth, or partly in writing and partly by word of mouth, or may be inferred from the conduct of the parties. Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised statute of frauds: applies only to executory contracts Art. (1403(2)) right to compel the other party to observe/execute formalities: Art. 1357 (contract must be valid and enforceable) II CONTRACT OF SALE Distinctions with Other Contracts A. CONTRACT OF SALE vs BARTER Barter - one of the parties binds himself to give one thing in consideration of the others promise to give another thing Art. 1468. If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale. - both are governed by law on sales; both are species of the genus sales Sales Payment: Money Interpretation: Amount of Money is equal to or more than the thing Barter Payment: Thing Interpretation: Value of thing is more than amount of money

B. CONTRACT OF SALE vs. CONTRACT FOR A PIECE OF WORK Contract for piece of work - contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work. Test in article 1467: contract for delivery of an article which the vendor in the ordinary course of business manufactures or procures for general market ( whether on hand or not ) sale goods are to be manufactured specially for a customer and upon special order and not for the general market contract for piece of work. jurisprudence: Habituality test enunciated in Celestino v CIR; contract of sale if manufacturer engages in activity without need to employ extraordinary skills and equipment; contract for piece of work is sale of service; contract of sale is sale of things. Nature of the object test enunciated in EEI v CIR; each products nature of execution differs from the others; products are not ordinary products of manufacturer. main factor in decision of the SC: essence of why parties enter into it: o essence is object contract of sale o essence is service contract for piece of work C. CONTRACT OF SALE vs. AGENCY TO SELL Agency to Sell Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. Art. 1466. In construing a contract containing provisions characteristic of both the contract of sale and of the contract of agency to sell, the essential clauses of the whole instrument shall be considered TEST: essential clauses of whole instrument ( art 1466 motherhood statement, not good law ) SALE buyer becomes owner of thing buyer pays for price of object AGENCY TO SELL principal remains owner even if object delivered to agent agent not obliged to pay for price, merely obliged to deliver price received from buyer agent can return if he is unable to sell agent in dealing with the thing received , must act and is bound according to the instructions of his principal agent assumes no risk/liability as long as within authority given may be revoked unilaterally because fiduciary & even w/o ground agent not allowed to profit

as a general rule cannot return the object sold buyer can deal with the thing sold as he pleases

seller warrants not unilaterally revocable

seller receives profit

D. CONTRACT OF SALE vs. DONATION Sale Consideration Form Governing Law Onerous Consensual Sale Donation Gratuitous Formal Donation

Art. 1462. The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale, in this Title called "future goods." There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen. ESSENTIAL REQUISITES OF OBJECTS OF SALE 1. Determinate or determinable 2. Licit 3. Existing/ Future/ Contingent A. DETERMINATE Art. 1409 If there is subject matter but the intention regarding subject matter can not be ascertained VOID 1. Specific - Particularly designated or segregated from all others of the same class 2. Generic - Determinable o Test: reach a point of description where both minds concur o At the time the contract is entered in to the thing is capable of being made determinate without the necessity of a new or further agreement between parties to ascertain its identity, quantity or quality o Exact quantity not essential o Sale of generic things VALID; still executory o There can only be contract of sale when subject is finally chosen for delivery already segregated or designated; but before designation, valid contract of sale already exists 3. Undivided interest (BUYER becomes co-owner) (1463) 4. Undivided share in mass of fungible goods (BUYER becomes co-owner) (1464) B. LICIT Lawful: not contrary to law, morals, good customs, public order and public policy Must be within the commerce of men Must not be impossible Art. 1347. All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts. No contract may be entered into upon future inheritance except in cases expressly authorized by law. All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. Art. 1348. Impossible things or services cannot be the object of contracts. Art. 1409. The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; xxx (3) Those whose cause or object did not exist at the time of the transaction; (4) Those whose object is outside the commerce of men; (5) Those which contemplate an impossible service; xxx Void for having a void subject matter: (6) Contrary to law (7) Simulated/fictitious (8) Did not exist at a time of transaction (9) Outside commerce of men (10) Impossible service (11) Intention can not be ascertained (12) By provision of law

E. CONTRACT OF SALE vs. DACION EN PAGO Dacion en pago - contract where property is alienated to satisfy/extinguish obligation to pay debt novates creditor-debtor relationship into seller-buyer delivery is required ( real contract ) SALE No pre-existing credit/debt Gives rise to obligations Cause/consideration: seller price; buyer - object DATION IN PAYMENT Pre-existing credit/debt Extinguishes obligations Cause or consideration: person offering dation payment of debt; creditor: acquisition of the object offered in lieu of the original credit Giving of the object in lieu of credit: may extinguish partially or completely the credit

Giving of the price: generally ends the obligation of the buyer

F. CONTRACT OF SALE vs. LEASE Sale Obligation Transfer Ownership Lease Use for a specified period with the obligation to return Rent Lessor need not be the owner

Consideration Ownership

Price Seller has to be the owner to transfer ownership

Rent-to-own Is really a contract of sale by instalments

III SUBJECT MATTER/OBJECT CODAL PROVISIONS Art. 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered. Art. 1460. A thing is determinate when it is particularly designated or physically segregated from all others of the same class. The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties. Art. 1461. Things having a potential existence may be the object of the contract of sale. The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. The sale of a vain hope or expectancy is void.

Kinds of Illicit Things: 1. illicit per se (of its nature) e.g. sale of human flesh for human pleasure 2. illict per accidens (because of some provisions of law declaring it as illegal) e.g. sale of land to an alien SALE AND OWNERSHIP Seller must be the owner of the thing rationale: one can sell only what he owns nemo dat quad non habet nobody can dispose of that which does not belong to him only at a time of consummation since tradition transfers ownership but to have a perfected contract of sale, vendor need not be owner of thing; can be validated/ratified by subsequent acquisition of title by seller reason: since future goods or goods whose acquisition by the seller depends upon a contingency may be the subject matter of sale, it would be inconsistent to require that it must be owned at the time of sale (not possible to own a thing or right not in existence) C. EXISTING/FUTURE/CONTINGENT subject matter: may be existing; not existing but capable of existence (under present technology) Art. 1462 a. EXISTING GOODS - Goods owned or possessed by the seller b. FUTURE GOODS o Goods to be: manufactured (future airplane)/printed (subscription to a newspaper), raised (young of animals, future agricultural products), acquired (land the seller is expected to buy) things whose acquisition depends upon a contingency which may or may not happen (one can sell a specific car which will be given by ones parent if one passes the bar exam this year) Sale of future goods executory contract (to be fulfilled by the acquisition and delivery of the goods specified Art. 1461 a. SALE OF THINGS HAVING POTENTIAL/POSSIBLE EXISTENCE (Emptio Rei Sperati sale of an expected thing) o Sale of future things; no physical existence yet o Potential/possible existence: reasonably certain to come into existence as the natural increment or usual incident of something in existence already belonging to the seller, and title will vest on the buyer the moment the thing comes into existence o Non happening of condition: RESOLUTORY: EXTINGUISH THE CONTRACT o Remedy: can recover what has been paid b. SALE OF HOPE (Emptio Spei) o Every sale of future thing is subject to condition that they will come into existence o If hope does not come true NO RECOVERY OF PAYMENT/NO RESCISSION o Aleatory character but valid o e.g. sale of a valid sweepstakes ticket, whether the ticket wins or not o BUT sale of vain hope is void e.g. sale of a losing ticket for a sweepstakes already run (except if for collectors item); sale of falsified ticket

INCORPOREAL RIGHTS (Arts. 1463, 1464) Art. 1463. The sole owner of a thing may sell an undivided interest therein. Sole owner may sell the entire or a specific portion thereof or an undivided interest therein and such interest may be designated as an aliquot part of the whole Legal effect of sale of undivided interest: buyer becomes a co-owner FUNGIBLE GOODS Art. 1464. In the case of fungible goods, there may be a sale of an undivided share of a specific mass, though the seller purports to sell and the buyer to buy a definite number, weight or measure of the goods in the mass, and though the number, weight or measure of the goods in the mass is undetermined. By such a sale the buyer becomes owner in common of such a share of the mass as the number, weight or measure bought bears to the number, weight or measure of the mass. If the mass contains less than the number, weight or measure bought, the buyer becomes the owner of the whole mass and the seller is bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent appears. FUNGIBLE GOODS - Goods of which any unit, is from its nature and mercantile usage, treated as the equivalent of any other unit IV PRICE Definition: Sum stipulated as equivalent for the thing sold - What is considered equivalent? It is a relative and subjective determination Characteristics of Valid Price 1. Must be in money or its equivalent 2. Must be certain or ascertainable at the time of the perfection of the contract 3. Must be real 1. Money or its equivalent Money = currency Or its equivalent = promissory notes, checks and other mercantile instruments generally accepted as representing money 2. Certain or Ascertainable A. parties have fixed or agreed upon a determinate amount If the determination of the price is left to the discretion of only one of the parties, it cannot be said that the other consented to the price he did not or could not previously know BUT: if fixed by one and accepted by the other, there is a meeting of minds B. sufficient that it is fixed with reference to another thing certain Price that the thing will have on a definite day in a particular exchange or market when an amount is fixed above or below the price on such day when an amount is fixed above or below the price in such exchange or market provided said amount be certain C. Determination of the price is left to the judgment of specified person/s rd If contract states that price is to be determined by 3 party, contract is already perfected (there is just a suspensive condition actual fixing of price)

Parties are bound by the decision of said person EXCEPT if he acted in bad faith or mistake rd 3 party fixes price in bad faith or mistake court will fix the price rd EFFECT if 3 party is unable or unwilling to fix price : Without the fault of the seller/buyer: parties have no cause of action Reason: suspensive condition does not happen yet Result: INEFFICACIOUS/ contract shall become ineffective EXCEPT: parties subsequently agree upon the price rd 3 party is prevented from fixing the price by the fault of the seller or buyer: party not in fault may obtain redress from the courts

IV FORMATION OF CONTRACT OF SALE 3 Stages in Life of a Contract of Sale 1. Policitacion/Negotiation/ Preparation/Conception Stage offer is floated or acceptance is floated but they do not meet; the time when parties indicate their interest but no concurrence of offer & acceptance 2. Perfection/Birth concurrence of all requisites; meeting of the minds 3. Consummation/Termination/Death parties perform their respective undertakings/obligations Rules in Policitacion: offer is floated prior to acceptance, may be withdrawn at will by offeror offer floated with a period without acceptance, extinguished when period has ended & may be withdrawn at will by offeror; right to withdraw must not be arbitrary otherwise, liable to damage under Art 19, 20, 21 of civil code offer floated with a condition extinguished by happening/non-happening of condition offer floated without period/without condition continues to be valid depending upon circumstances of time, place & person offer is floated & there is counter-offer original offer is destroyed, there is a new offer; can not go back to original offer Provisions Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. Art. 1479. par. 1 bilateral promise to buy and sell reciprocally accepted parties can exact fulfillment/ demand the fulfillment of the obligations Art. 1479, par.2 1. unilateral promise to sell in which the promisee (acceptor) elects to buy 2. accepted unilateral promise to buy in which the promisee (acceptor) elects to sell acceptance of unilateral promise must be plain, clear and unconditional A unilateral promise to sell or to buy a determinate thing for a price certain does not bind the promissor even if accepted and may be withdrawn at any time It is only if the promise is supported by a consideration separate and distinct from the price that its acceptance will give rise to a perfected contract Option Contract A contract granting a person the privilege to buy or not to buy certain objects at any time within the agreed period at a fixed price floats in the policitacion stage offer with a period but founded upon a separate consideration distinct from the price no presumption of consideration, needs to be proven

3.

Real price stated should be the one intended by the parties If fictitious: no intention with respect to price - VOID If false/simulated: what appears in contract is not the true price VALID if there is true consideration (relative simulation) VOID but if none (because it is fictitious) Simulation of a contract: process of intentionally deceiving others by producing the appearance of a contract that really does not exist or which is different from the true agreement

4. Others GR: Although a sale is commutative, gross inadequacy of price in ordinary sale does not render contract void Except: inadequacy of price indicates a defect in consent/ consent is vitiated: contract may be annulled (voidable contract) concerns the property of a ward/absentee in a contract of sale by his guardian/ one in representation of the absentee and there is lesion of more than of the value of the property: contract may be rescinded (rescissible contract) real intention of the parties is a donation or some other act or contract Effect of gross inadequacy of price in involuntary or execution sales Judicial/execution sale: one made by a court with respect to the property of a debtor for the satisfaction of his unpaid indebtedness GR: mere inadequacy of the price is not sufficient ground for the cancellation of the execution sale Exceptions: price is so low as to be shocking to the conscience of the court, sale will be set aside BUT: is the seller has the right to repurchase, validity of sale is not affected upon the theory that the lesser the price, the easier it is for the owner to buy back the property When price can not be determined in accordance with any of the preceding rules, contract of sale is INEFFICACIOUS/ contract is without effect (parties have no obligations to perform) However, when Subject Matter/thing or any part has been delivered: BUYER must pay reasonable price therefore reasonable price/value of goods: the market price at the time and place fixed by the contract or by law for the delivery of the goods Court can fix price

Characteristics: a. not the contract of sale by itself, distinct b. nominate c. principal; but can be attached to other principal contracts d. onerous e. commutative f. unilateral vs contract of sale which is bilateral Requisites: 1. subject matter of sale must be agreed upon 2. price of sale & manner of payment must be agreed upon 3. consideration separate & distinct from price 4. period as per contract; if period not provided prescribes in 10 years (written contract) 5. how exercised: notice of acceptance should be communicated to offeror without actual payment as long as there is delivery of payment in consummation stage PERFECTION Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. Sale is a consensual contract, perfected by meeting of minds regarding subject matter & price Meeting of Minds: Offer certain Acceptance absolute Qualified acceptance merely a counter-offer which needs to be absolutely accepted to give rise to perfected contract of sale Business ads are mere invitations to make an offer except when it appears to be otherwise Acceptance by letter/telegram binds only at time it came to knowledge of SELLER; prior thereto offer may still be withdrawn Must be exact terms to be considered absolute A sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer or in other customary manner. Until such announcement is made, any bidder may retract his bid; and the auctioneer may withdraw the goods from the sale unless the auction has been announced to be without reserve. Place of perfection: where the meeting of minds happen; when acceptance sent by mail, perfection is deemed where the offer is made Performance has nothing to do with perfection stage Ownership, however, of the thing is transferred only upon delivery

Art. 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract of sale may be made in writing, or by word of mouth, or partly in writing and partly by word of mouth, or may be inferred from the conduct of the parties. 2. When form is important for validity; exception by specific provision of law; power to sell a piece of land granted to an agent otherwise VOID sale of large cattle; must also be registered with Municipal treasurer otherwise VOID sale of land by non-Christian if not approved by Governor VOID 3. When form is important for enforceability (STATUTE OF FRAUDS) Art. 1403. The following contracts are unenforceable, unless they are ratified: xxx (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: a) An agreement that by its terms is not to be performed within a year from the making thereof; xxx (d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, UNLESS the buyer accepts and receives part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; (e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein. xxx EARNEST MONEY/ARRAS Art. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. Money given by the buyer to the seller to bind the bargain money given as part of purchase price/ partial payment its acceptance is proof that contract of sale exists/perfected EARNEST MONEY vs OPTION MONEY EARNEST MONEY OPTION MONEY Part of the purchase price Given only when there already a sale When given, buyer is bound to pay the balance Money given is distinct consideration Applies to a sale not yet perfected Would be buyer gives option money, he is not required to buy

Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. Consent: reciprocal obligations of the parties arise Parties can demand fulfilment of others obligation, subject however to the provisions of law on form

FORM OF SALES 1. Form not important in validity of sale Sale being consensual, may be oral or written, perfected by mere consent as to price & subject matter

**But option money can become earnest money once both parties agree.

V SALE BY INSTALLMENT RECTO LAW Art. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: 1. Exact fulfillment of the obligation, should the vendee fail to pay; 2. Cancel the sale, should the vendee's failure to pay cover two or more installments; 3. Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. Does not apply to the sale of personal property on straight terms Requisites for applicability: a. there must a contract b. contract must be one of sale (absolute) c. what is sold is personal property d. sale must be on installment plan Installment: any part or portion of the buying price including downpayment Remedies are alternative, not cumulative or successive. Election of one is a waiver of the right to resort to the others REMEDIES UNDER THE RECTO LAW 1. SPECIFIC PERFORMANCE seller is not limited to the proceeds of the sale on execution; may still recover from the purchaser the unpaid balance of the price 2. RESCISSION there must be mutual restitution 3. FORECLOSURE mortgaged personal property is sold at public auction and the proceeds of the sale shall be applied to the satisfaction of the claim secured by the mortgage Wisdom of Law If the third remedy is chosen, the vendor shall have no further action against the buyer for the recovery of the unpaid price; any agreement to the contrary is void Prevents mortgagees from buying the mortgaged property at the foreclosure sale for a low price and then bringing suit against the mortgagor for the balance again; prevents a situation where the vendee is without property and still indebted Art. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing. Leases of personal property with option to buy on the part of the lessee who takes possession or enjoyment of the property leased are really sales or personalty payable in installments Purpose of the provision: to prevent vendors from resorting to this form of contract which usually is in reality a sale by instalments in contravention of the provisions of 1484

Art. 1486. In the case referred to in the two preceding articles, a stipulation that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances. Art. 1487. The expenses for the execution and registration of the sale shall be borne by the vendor, unless there is a stipulation to the contrary. THE MACEDA LAW Republic Act 6552 AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL ESTATE ON INSTALLMENT PAYMENTS. a.k.a. "Realty Installment Buyer Act." All transactions or contracts involving the sale or financing of real estate on installment payments, where the buyer has paid at least two years of installments o Including residential condominium apartments Excluding: industrial lots commercial buildings; and, sales to tenants (Under Land Reform Law)

a. b. c.

RIGHTS UNDER THE MACEDA LAW If buyer defaults, (after paying 2 years of installments): 1. To pay, without additional interest, the unpaid installments due within the total grace period earned by him Grace Period = One month for every one year of installment (Therefore the minimum grace period shall be 60 days) However, this right (right to continue paying) shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any. 2. If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments on the property. Cash surrender value = 50% of the total payments made, and, after 5 years of installments, an additional 5 % every year but not to exceed 90% of the total payments made. Provided, That the actual cancellation of the contract shall take place: o After thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. For purposes of applying the remedies under the Maceda Law: Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments made. If installments made are less than two years: The seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

Right of Assignment under Maceda Law Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same to another person or to reinstate the contract by updating the account during the grace period and before actual cancellation of the contract. The deed of sale or assignment shall be done by notarial act. Right to pay in full The buyer shall have the right to pay in advance any installment or the full unpaid balance of the purchase price any time without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property. Prohibitory Character of the Law Any stipulation in any contract hereafter entered into contrary to the provisions of the law shall be null and void Pactum Comisorium Art. 2088 NCC. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void VI CAPACITY TO BUY AND SELL Art. 1489 All persons who are authorized in this Code to obligate themselves, may enter into a contract of sale, saving the modifications contained in the following articles. Where necessaries are those sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefor. Necessaries are those referred to in Article 290. General Rule: All parties with capacity to contract can enter into a valid contract of sale 1. Natural Persons 2. Juridical Persons Incapacity pertains only to those provided for by law; cannot be extended to other cases Kinds of incapacity: 1. Absolute persons who cannot bind themselves in any case 2. Relative exists only with reference to certain persons or certain class of property; when certain persons, under certain conditions, cannot buy certain property Limited capacity under the civil code Art. 39. The following circumstances, among others, modify or limit capacity to act: age, insanity, imbecility, the state of being a deafmute, penalty, prodigality, family relations, alienage, absence, insolvency and trusteeship. The consequences of these circumstances are governed in this Code, other codes, the Rules of Court, and in special laws. Capacity to act is not limited on account of religious belief or political opinion. A married woman, twenty-one years of age or over, is qualified for all acts of civil life, except in cases specified by law. Limited Capacity under the Rules of Court Section 2, Rule 92 of the Rules of Court: Sec. 2. Meaning of word "incompetent." - Under this rule, the word "incompetent" includes persons suffering the penalty of civil interdiction or who are hospitalized lepers, prodigals, deaf and dumb who are unable to read and write, those who are of unsound mind,

even though they have lucid intervals, and persons not being of unsound mind, but by reason of age, disease, weak mind, and other similar causes, cannot, without outside aid, take care of themselves and manage their property, becoming thereby an easy prey for deceit and exploitation. Necessaries Art. 290. Support is everything that is indispensable for sustenance, dwelling, clothing and medical attendance, according to the social position of the family. Support also includes the education of the person entitled to be supported until he completes his education or training for some profession, trade or vocation, even beyond the age of majority. Art. 194. Support comprises everything indispensable for sustenance, dwelling, clothing, medical attendance, education and transportation, in keeping with the financial capacity of the family. The education of the person entitled to be supported referred to in the preceding paragraph shall include his schooling or training for some profession, trade or vocation, even beyond the age of majority. Transportation shall include expenses in going to and from school, or to and from place of work. Sale to a minor or incompetent person General Rule: Contracts entered into by a minor or other incapacitated person is voidable Exception Contract is valid where necessaries are sold and delivered to an incapacitated person, even without the intervention of his parent or guardian; the said incapacitated must pay a reasonable price and he has the right to recover any excess above the reasonable value paid Sale between spouses Art. 1490. The husband and the wife cannot sell property to each other, except: 1. When a separation of property was agreed upon in the marriage settlements; or 2. When there has been a judicial separation or property under Article 191. Relative incapacity rd Reason: for the protection of 3 persons who, relying upon supposed property of either spouse, enters into a contract with either of them only to find out that the property relied upon was transferred to the other spouse prevent defraudation of creditors avoid situation where dominant spouse takes advantage of the other avoid circumvention on prohibition of donation between spouses Effect of sale between spouses Void/inexistent because it is expressly prohibited by law BUT not everybody can assail the validity of the transaction 1. prior creditors and heirs of either spouse may invoke the nullity of the sale 2. either spouse; persons who become creditors after the transaction cannot invoke nullity Common Law Spouses (Paramours) Status of contract: VOID (per case law) Rationale: evil sought to be avoided is present

Marriage settlement/ante-nuptial contract Agreement entered into by persons who are about to be united in marriage and in consideration thereof for the purpose of fixing the property relations that would be followed by them for the duration of the marriage Separation of property Other disqualified persons Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: 1. The guardian, the property of the person or persons who may be under his guardianship; 2. Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given; 3. Executors and administrators, the property of the estate under administration; 4. Public officers and employees, the property of the State or of any subdivision thereof, or of any government-owned or controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale; 5. Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession. 6. Any others specially disqualified by law. Incapacity by fiduciary relationship Persons (even through the mediation of another) who because of their position and relation with the persons under their charge or property under control are prohibited from acquiring said property either directly or indirectly and whether in private or public sale Reason of prohibition: to prevent fraud on the part of the persons enumerated and minimize temptations to exert undue and improper influence Effect of sale in violation of provision Par. 1-3 guardian, agent, executor, administrator: VOIDABLE because only private interests are affected Par. 4-6 public officer or employee, judges, government experts, justices, judges, prosecuting attys, clerks, officers and employees: VOID because public interest is involved