Sales Lecture

SALES Atty. Irvin Joseph Fabella

Extinguishment of the principal carries with it automatically the extinguishment of the accessory.

Q: What are the obligations created under the contract of s`ale? A: On the part of the SELLER: (1) To deliver the determinate thing. (2) To transfer ownership. On the part of the BUYER: To pay a price certain in money or its equivalent.

In a real obligation, the remedy is specific performance. Q: Can you also file an action for specific performance in a personal obligation? A: NO. Nobody can be can be compelled to do a personal obligation because that would amount to involuntary servitude which is prohibited under the Constitution. However in a contract of sale, aside from rescission, specific performance is a remedy because obligations created under this contract are real obligations. Q: What are the essential characteristics of a Contract of Sale? A: (1) CONSENSUAL – meeting of the minds on the thing and on the price; GENERAL RULE: Perfected upon consent which is an essential element of sale. EXCEPTION: Involuntary sale (2) PRINCIPAL – existence does not depend on other contract;

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OPPOSITE: ALEATORY – the value of the thing you received may be lower or greater; Example: lotto ticket (4) RECIPROCAL and BILATERAL – parties are bound by the obligation which is dependent upon each other;

Q: What kind of obligations are these? A: Real Obligation - obligation “to give”

OPPOSITE: ACCESSORY – existence dependent on other contract; Example: mortgage

(3) COMMUTATIVE - exchange values are almost the same. As long as the seller believes that what he received is the commutative value of what he gave.

(5) 5. NOMINATE –given specific name under the law OPPOSITE: INNOMINATE “I give that you give.” “I give that you do.” “I do that you do.” “I do that you give.” Q: What is burdensome in a contract of sale? A: Payment of valuable consideration OPPOSITE: GRATUITOUS Q: What are the legal effects and consequences of a contract being reciprocal? A: (1) When a party fulfilled his obligation default by the other begins without a need of prior demand; (2) Power to rescind is implied in reciprocal obligations; Even without stipulation, the parties may rescind the contract. Basis: Law itself (3) Neither party incurs delay when neither party performs his obligation;

is Q: Can there be a valid sale without meeting of the minds? A: YES. Example is foreclosure.

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Q: What are the kinds of contracts according to status? A: VALID VOIDABLE RESCISSIBLE UNENFORCEABLE VOID OR INEXISTENT Q: When the price is not paid, is the contract void? A: NO. Q: What are the elements of a contract of sale? A: ESSENTIAL NATURAL ACCIDENTAL Q: What are the essential elements of a contract of sale? A: CONSENT OR MEETING OF THE MINDS AS TO THE THING AND AS TO THE PRICE; DETERMINATE SUBJECT; A thing is determinate when it can be particularly designated or physically segregated from all the others of the same class. PRICE CERTAIN IN MONEY OR ITS EQUIVALENT; Q: Can you have a perfected contract of sale even without a determinate subject matter? A: YES. The object, even if it’s not determinate, if it can be determinable at the time the contract is entered into. (Art. 1460) Q: What are the natural elements? A: Inherent in the contract even without the need of stipulation. It will remain in the absence of a contrary stipulation. (1) WARRANTY AGAINST EVICTION – deprivation of the property bought (2) WARRANTY AGAINST HIDDEN DEFECTS Q: What are accidental elements? A: It can there be or not, depending on the stipulation of the parties.

3. What are the kinds of illicit objects? 4. What are the remedies of a buyer in case the seller fails to transfer ownership? 5. What are the kinds of sale of things with potential existence? 6. What are the kinds of future goods? 7. What are the kinds of goods based on intention? 8. What are the tests to determine whether one is a sale or an agency to sell? 9. What are the requisites of a valid price? 10. What is the status of a contract when the price is simulated? Q: What are the stages of the contract? A: NEGOTIATION – covers the period from the time two parties indicate their interests in the contract PERFECTION – takes place upon the concurrence of the essential elements of sale which are meeting of the minds of the parties as to the object of the contract and upon the price certain in money or its equivalent CONSUMMATION – when the parties perform their respective undertaking under the contract of sale Q: When is a contract of sale deemed consummated? A: Upon delivery and transfer of ownership to the buyer and upon payment of the price certain in money or its equivalent. Q: What are the kinds of sale based on the nature of the subject matter? A: SALE OF REAL PROPERTY SALE OF PERSONAL PROPERTY Based on the value of the thing exchanged: COMMUTATIVE ALEATORY (1) Sale of Tangible (Real) (2) Sale of Intangible (Personal) Q: Can you sell a right? A: YES. Under Article 1347, all rights which are not intransmissible may also be the object of contracts.

QUIZ 1. What is the primary purpose of a contract of sale? 2. What are the requisites of a valid subject matter? ©jms2015 and ©eac2015

Intransmissible rights – rights recognized by law itself and can be enforced but cannot be transferred. Example is right to vote Page 2

Only TRANSMISSIBLE RIGHTS can be subject of sale.

Q: What is the remedy of the seller if the buyer fails to pay the contract price? A: Civil Liability - Article 1191

Sale of rights is called ASSIGNMENT OF RIGHTS.

SPECIFIC PERFORMANCE plus DAMAGES

Q: In sale of Real property, notarization is not required for its validity. Contracts are only binding to the privy, so why bind third person? A: Notarization is required only for convenience and for other purposes required by law. It converts the documents into a public document. It removes additional evidentiary effort when it is notarized or a public document. Notarized Deed of Sale of Land is a requirement to be honored by the RD and subsequently to transfer ownership. Q: Sale vs. Dacion En Pago SALE Creates obligations which are to deliver; to transfer ownership; to pay a price certain in money or its equivalent

DACION EN PAGO Extinguishes obligation – upon delivery of the object the obligation is extinguished partially or completely depending on the value of the property exchanged *Partial – value of the property exchanged is less than the value of the debt , then the obligation is only extinguished in so far as the value covers , the balance remains to be outstanding *Complete - value of the property exchanged is equivalent to the value of the debt Payment is Either in Always in kind (object money or its equivalent other than money) (more leeway in fixing the (bound with the value of price) the property) Q: What is the primary purpose of the contract of sale? A: To transfer ownership (delivering of the object transfers ownership)

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RESCISSION OF THE CONTRACT plus DAMAGES - Rescission is built-in right; no need for stipulation for rescission -

In a reciprocal obligation like in a contract of sale, before rescission may be effected, one party have already performed/ complied with his obligation while the other defaults.

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The intervention of the court is not needed in rescission. No need for stipulation. Right to rescind is implied in reciprocal obligation, such that, if rescission is proper party may rescind without court intervention.

Criminal Liability: ESTAFA (if there is deceit) Q: What is the remedy of the buyer if the seller fails to deliver the object of the contract? A: Ask for damages on the ground of BREACH OF WARRANTY AGAINST EVICTION One has to perform the obligation incumbent upon him to put the other in default. If the buyer does not pay yet, there’s no obligation to speak of. Rescission cannot come into play. Q: What are the requisites of a valid subject matter? A: LICIT DETERMINATE OR AT LEAST DETERMINABLE EXISTENT OR HAS A POTENTIAL EXISTENCE OR EXISTENCE BASED ON CONTINGENCY POTENTIAL EXISTENCE – if it can reasonably come into existence for being the natural increment of something which already exists. Example: Future crops, young of an animal Q: Kinds of Illicit subject matter A: ILLICIT PER SE – by its nature illegal Page 3

ILLICIT PER ACCIDENCE - illegal because of provisions of law Q: Can you sell something which you do not own? A: YES. Transfer of ownership is not required in perfection. Therefore, you need not be the owner at the time of perfection. Future goods may be objects of contract. (potential existence) Q: Can services be the object of sale? A: NO. Services are not determinate. There is no transfer of ownership of services by the person conducting the service. Q: What if the status of the contract of sale if the thing is not determinate? ATE ELAINE: Ang alam ko INEFFICACIOUS. Haha. Difference of void and inefficacious: Inefficacious contract is a perfected contact, however, it merely failed to produce it effects. Q: What are the kinds of sale based on potential existence? A: EMPTIO SPEI EMPTIO REI SPERATAE Q: What is the basis of validity of both sales? A: INTENTION OF THE PARTIES. Q: How is it dependent on intention? A: If the parties intend that the sale of expected thing will only be valid if the thing comes into existence, then it will only be valid if the thing comes into existence. Otherwise, it will not. On the second kind, if the intention of the parties is that it is valid in the sense regardless of whether or not the thing comes into existence, then you are not buying the expected thing. You are just buying that hope that it will come into existence. Therefore, in all instances, that the sale of hope is valid per intention. ©jms2015 and ©eac2015

Q: To which kind of sale do these kinds refer to? Which one is a future sale? Which one is present sale? A: EMPTIO REI SPERATAE - sale of the future thing; sale of the expected thing EMPTIO SPEI – sale of a present thing because hope exists already, whether it’s validated by the existence of the thing is out of the question. It is already a sale of a present thing. Q: How many sales are we talking about here? A: ONE SALE ONLY. Q: If there is a doubt as to whether it is a sale of an expected thing or a sale of a mere hope, in whose favor it should be resolved? A: EMPTIO REI SPERATAE. That presumption presupposes just one contract. You do not apply that presumption to two kinds. Each will just have their own presumption and therefore, they will just acquire their own presumption. The fact that there is a presumption and it is resolved in favor one means it is but one sale. It is further explained by the fact that we are not talking about two kinds of sale when we are talking about validity. We are just talking about one sale but the validity depends on intention. If in that one sale, the parties intend that the object to exists, then it is a sale of an expected thing. But if the parties did not intend the object to exist but is perfectly valid as it is now, then you classify that as a sale of hope. But it does not create two kinds of two sales. Q: Why is it therefore, that the doubt is resolved in favor of the sale of the expected thing? A: Because the sale of the expected thing is consistent with the commutative characteristic of sale. Exchange is of equivalent value. Therefore, if you don’t know whether the parties intended it to be a sale of mere hope or an expected thing, you go to the expected thing because it will give parties the commutative characteristic of sale. They will get something which is almost equivalent to what they parted. Hope, there’s none, because it’s just a hope. It may or may not happen. The other party will not get anything equivalent to what he parted. Page 4

On the other hand, if the expected thing comes into existence, then he will acquire the object and he gets the equivalent of the value of what he parted. Q: What do you mean by goods? A: Goods are chattels, personal but does not include money of legal tender in the Philippines. Q: What are the kinds of goods based on intention? A: FUNGIBLE – are goods which by intention of the parties may be substituted. NON-FUNGIBLE – goods which by intention of the parties cannot be substituted. Q: Classification of goods. A: FUTURE GOODS Kinds: goods that are manufactured; goods that are raised; goods that are acquired; goods whose acquisition depends upon a contingency which may or may not happen; EXISTING GOODS Q: Example of sale of fungible goods. A: In case of fungible goods, there may be a sale of an undivided share in the mass although the seller purports to sell or the buyer purports to buy specific number or measure. This provision contemplates sale of specific mass that is yet to be determined. Example: any bulk sale of specific mass The number or measure is undetermined. Example in a warehouse, you have a mass amounted to newly harvested palay or grains, then a contract of sale may be entered into for specific weight, number or measure. Even if you don’t know how much is that entire bulk is. Q: Contract of Sale vs. Agent to Sell A: In Contract of Sale, the ownership is transferred to the buyer but in Agency to Sell, it’s not. The agent does own the property. ©jms2015 and ©eac2015

In sale, the buyer pays for the price. The agent does not pay the price. In sale, the warranty is provided by the seller. There is no warranty provided by the agent. But the warrant is the warranty coming from the principal who is also the seller. In sale, theirs is freedom to negotiate as to terms and conditions. In agency, there’s none. The agent has to conform and comply with the instructions of the seller. Q: What are the tests to determine whether one is a contract of sale or a contract of agency to sell? A: (1) RELATIONSHIP OF THE PARTIES If the relationship created is that of a sellerbuyer, it’s a contract of sale. If the relationship created is a principal-agent, it’s a contract of agency to sell. (2) OWNERSHIP In the contract of the sale, the ownership is transferred to the buyer. However, in contract of agency to sell, ownership does not transfer to the agent. Q: What is the sale on consignment? A: Sale on consignment is the sale of goods through a dealer or agent. The agent on the other hand, remits what has been sold without obligation to acquire any liability other than the liability of the agent. Q: What is a contract for a piece-of-work? A: If the goods are manufactured especially for a customer and upon special order, and is not readily available for general market, it is a contract for a piece-of-work. Otherwise, it is a contract of sale. Example: Shoemaker who manufactures shoes based on demand. But in the ordinary course of business, he only produces size 7, 8, and 9 nothing beyond that. If someone goes to him and ask for a 12, that is a contract for a pieceof-work because that’s not available for general public. It will be specifically manufactured for Page 5

that person. But if it is within the items in general market, say, 7, 8 or 9, even if it’s not available at that time, even if he will manufacture it because it’s already out of stock, it remains to be a contract of sale because the fact remains that 7, 8 or 9 are available for the general market. But if you are asking for a 2 or a 12, which is naturally not available, and you are producing it or manufacturing it upon special order for the customer, that is a contract for a piece-of-work. Q: What is barter? A: There is barter if the properties exchanged are a combination of money and object. Q: Is it always the case that the value of the thing is greater than value of the money? The property to be bought is a car, in the amount of P1M and the consideration to be given is a combination of jewelry worth of P600k plus cash of P400K. What do we have there? A: 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. FIRST RULE: Determination of the intention of the parties.

goods is more than the cash, without the intent of the parties, it is considered as BARTER. Whereas, if the value of the cash is equal to value of the goods or if the cash is more than the value of the goods, then that is a considered as a CONTRACT OF SALE, without intention. But if there’s intention, regardless of the valuation, it is always considered as CONTRACT OF SALE, or if the intention is of that BARTER. Q: What are the requisites of a valid price? A: It must be CERTAIN or at least ASCERTAINABLE. It must be REAL. It must be in MONEY or its EQUIVALENT. It must not be UNCONSCIONABLE or it must not be GROSSLY INFERIOR TO THE VALUE OF THE THING. Q: What is a real price? A: The price is real when at the time of the perfection of the contract, there is every intention on the part of the buyer to pay and every expectation in the part of the seller to receive payment. Q: When do you consider a price certain? A: (1) If it is CLEAR and UNEQUIVOCAL.

When the name of the contract given by the parties is different from their manifest intention, the latter shall prevail.

(2) If it is not clear and unequivocal, it is still considered certain when it is reference to another thing certain.

SECOND RULE: If the intention of the parties could not be determined, then, consider the value of the thing given as a part of the consideration.

(3) If the determination is left upon the judgment of a specified person/s.

Without intention of the parties, it would be BARTER. It is CONTRACT OF SALE if the value of the money is greater than or equal to the value of the property. Q: If the value of the jewelry is P500K and the money is P500K, without intent, what kind of contract is that? A: CONTRACT OF SALE. If the value of the property is greater than the value of the money, for example, the property is P600K and the cash is P400K, the value of the ©jms2015 and ©eac2015

Q: Can the parties designate or specify either of them to fix the price? A: YES. Q: Let’s assume that the parties designated a third party to fix the price. If this third party fixes the price, do you need consent for that price? A: NO. If the designated party is a THIRD PARTY, the price fixed is considered certain and no subsequent consent is needed, unless there is a ground to impugn it. Page 6

Q: If the designated party is either of the contracting parties, do you need subsequent consent? A: YES. One of them should consent to the price. The code itself requires a subsequent consent. If one of the contracting parties was designated to fix the price, there is no similar requirement if it is a third party. Q: If a third party fixes the price but the parties do not want to take, what is your remedy? A: PARTIES CAN FIX THE PRICE BY THEMSELVES either by fixing it with an equivocal price or by designating another third person to fix it for them or by designating either of them, subject to consent by the other contracting party as to the price fixed. Q: What are the grounds to impugn the price? A: BAD FAITH MISTAKE VIOLATION OF THE STANDARDS INSTRUCTIONS SET BY THE PARTIES

Q: Will gross inadequacy of price affect the validity of the contract of sale? A: GENERAL RULE: NO. EXCEPTIONS: (1) Donation – it is replace by a contract of donation; (2) Consent is vitiated – voidable contract (3) The price is shocking to conscience of the court; (4) Lesion on the property of the ward (1/4) If the gross inadequacy of price shocks the conscience of the court, the court will reduce the price.

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The grounds to impugn are grounds against third person not against either party. Q: When do you go to court to impugn the price fixed by either of the contracting parties? A: Only when there is a disagreement as to the price fixed. Your cause of action is DISPUTE. If one of the parties agrees and the other does not, the remedy is GO TO COURT. Q: Can you designate a person to fix the subject matter? A: NO. The essence is different from the third party fixing a price. In fixing of the price, if a third person is designated to fix the price and the third person fixes the prices, regardless of fortuitous event, the price is fixed. Therefore, the contract is perfected. Since money is generic, you can pay the price. That it not the same in case of subject matter. The subject matter requires that it should be specific to perfect a contract of sale. For price, it has to be certain to perfect the contract of sale. In subject matter, if a third party fixes the subject matter beyond the capacity of the contracting parties to comply, then in effect, it is not a specific subject matter. No perfected contract of sale. In case of fortuitous event, the subject matter is lost, you don’t have a subject matter anymore. ©jms2015 and ©eac2015

Q: What is inadequacy of price? A: Insufficiency to satisfy the real value of the object.

Q: Is that an absolute rule? That when it is shocking to the conscience of the court, then it affects the contract of sale? A: NO. Except when there is a right of redemption. Even if it is unconscionably low, the court will not touch it because it actually gives lieu way to the party to redeem it. Q: When do you consider a price to be grossly inadequate? A: At the PERFECTION OF THE CONTRACT. Q: What is a simulated contract? A: Simulated contract happens when the parties either do not intend to be bound by the agreement or that their true agreement or intention is concealed. Not necessarily fictitious… Therefore from that definition, we classify simulation… Q: What are these? A: Absolute simulation – that’s where the parties do not intend to be bound by their agreement. Relative simulation – where parties conceal their true agreement.

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Q: If the price of the contract is simulated, what is the status of the contract? A: There must be a real price. If it is not the intention of the parties because their intention is concealed, how can you say that there is a real price?

A: Yes. So the contract of sale remains to be void regardless whether it is absolutely or relatively simulated. But the contract may be validated as long as it is either by donation or some other contract or whatever is intended by the parties.

A real price is something that the parties really intend to exchange. If you’re saying that in a contract of sale, a relative simulated contract of sale, it is not the intention of the party to really pay that price, then there’s no real price to speak of. If we don’t have a real price, then we don’t have a valid price for a contract of sale.

Q: What is the status of the contract of sale? A: VOID for being simulated. But the contract can be reformed based on the intention. If it is relatively simulated, it can be validated as a donation or some other contract.

Q: What made you think that this may qualify as still a valid contract of sale? A: In Sales, there are specific requirements that may not be squarely applicable or squarely under the provisions of the Obligations and Contracts. Relative Simulation in the context of the requirements of a contract of sale, and we know that since there is no intention to pay that real price, we don’t have a real price, and if we don’t have a real price, we don’t have a valid price, and if we don’t have a valid price, then we don’t have a valid contract of sale. Q: Do we still have a valid contract of sale? A: NO MORE. And therefore, there is a justification for the law not to qualify simulation into absolute or relative. The law in itself is very clear. If it is simulated in effect... If there is no real price, then we fail to meet one of the essential elements of a valid contract of sale, therefore, there is no perfection. However, some are confused by subsequent paragraph in that same provision which provides that if the price is simulated, the contract is void, but it may be considered as a donation or some other contract to which something is a qualification may be a relatively simulated contract is valid. Q: Is that correct? ©jms2015 and ©eac2015

Q: When do you consider a price certain? A: If it is clear and unequivocal. If it is not clear and unequivocal price, it can still qualify as a certain price. To make it certain, there are rules to follow: (1) It is determinable by making reference to another thing which is certain; or (2) Determination is left to the judgment of a “specified” person or persons; (3) It is certain with reference to certain fact or facts; Q: Give me an example of price made certain by making reference to another thing which is certain. A: You are selling your house for a price equivalent to the selling price of that house across my house. Your price becomes certain as well because that price is certain. You have to specify also the other thing that you want to make reference of with respect to your price. Q: Example of a price made certain with reference to certain fact or facts. A: A particular exchange of market. In sale of shares, you can fix your price by actually making reference to its price that it will have on a particular day on a particular exchange or market. And you can also set either that actual price. It may higher or lower for than what will be fixed on that day. The point is, there may be movement in the prices but you are making it certain by fixing it, depending on your agreement, either higher or lower or the actual price that it will have on that particular day. Page 8

Q: If we fail to make the price certain, what is the status of the contract? A: INEFFICACIOUS or INEFFECTIVE – inability to produce effect. It cannot be considered as VOID because the contract is perfected. Remember, the contract is perfected from the moment there is a certain price or at least the price is ascertainable. That perfected contract of sale is however CONDITIONAL because your price is merely ASCERTAINABLE. You cannot have a void and perfect contract at the same time. To avoid inconsistency, the Code used the word INEFFICACIOUS. Q: If we have an inefficacious contract of sale, what are the remaining obligations by the parties? A: FIRST: If the subject matter was not delivered. SECOND: If the subject matter has been delivered but no there’s no appropriation yet on the part of the buyer. The seller may demand for its return. The cause of action will be unjust enrichment. (Quasi-contract) THIRD: If there’s already appropriation. The buyer will pay for the reasonable price. Fair Market Value Q: When is a contract perfected? A: From the moment of the meeting of the minds upon the thing which is the object of the contract and upon the price certain. Q: If you are in a face to face negotiation, when do you consider a contract to be perfected? A: There must be a definite offer and definite acceptance. There must be ABSOLUTE/UNQUALIFIED/UNCONDITIONAL acceptance. If it is a conditional acceptance, it becomes a COUNTER-OFFER. Q: In case of correspondence, when is the contract deemed perfected? ©jms2015 and ©eac2015

A: It is perfected as long as the acceptance is either received or reached the knowledge of the offeror. Q: What if there is a withdrawal either of the offer or the acceptance? When it is considered a valid withdrawal? A: It can be withdrawn before the knowledge of offer or acceptance. Q: When does withdrawal becomes effective in correspondence? Is it also through receipt of the withdrawal or knowledge of the withdrawal? CASE OF SWEDISH MATCH vs CA – there is no absolute offer, therefore, there can never be an acceptance for an offer which in itself not absolute. No perfected contract of sale. A: It is effective not upon the knowledge of withdrawal or the receipt of withdrawal rather from the mailing itself of the correspondence, saying that the withdrawal has been made. Manifestation of the act to withdraw by correspondence – MAILING. Q: What are the contracts of sale that has to be in writing? A: (1) Sale of real properties, regardless of the value; (2) Sale of personal properties, it has to be in writing if the value of the property is P500.00 or more; (3) Regardless of whether the amount of the property or the nature of the property, if the contact is to be enforced after more than a year, it has to be in writing; Q: If you accept an offer of an advertiser, is there a perfected contract of sale? A: NO. The advertisement is not an offer but merely an invitation to offer. You have to be accepted by the advertiser before you can perfect a contract of sale. Q: When is sale by auction perfected? A: A sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer, or in other customary manner. Page 9

Q: Can the auctioneer withdraw an item on sale? A: Yes, if the auctioneer has the right to reserve. Reservation – reserving it to be withdrawn any time prior to the acceptance or fall of the hammer. If there is no announcement that the auctioneer can withdraw the item any time, the moment it is offered for sale and there are already bidders, the auctioneer has no other choice but to accept them. Q: What do you mean by “puffer”? A: “Puffer” is an agent or any person hired by a seller or auctioneer in an auction sale who bids on behalf of the seller but not bound by the sale. It is not intended for fraud. Q: Can there always be a puffer? A: NO. Q: When can you only have a puffer? A: (1) If there is a notice that there are puffers; (2) If the right to bid on behalf of the seller is reserved and that reservation is announced to all the bidders. PURPOSE: bidders will be forewarned that there are people from this gathering that may jack the price up so that they may have bigger returns. Q: If puffers are hired and the price becomes extravagant, can the sale be void? A: YES on the ground of FRAUD if the winning bidder was not informed of the presence of the puffers. Q: Who administers the auction? A: SHERIFF. (for judicial auction) For extrajudicial sale: NOTARY PUBLIC Q: When do you transfer ownership? A: Ownership is transferred upon the delivery of the thing whether actual or constructive. EXCEPTION: Pactum Reservatii Domini reservation by the parties that the ownership of ©jms2015 and ©eac2015

the thing shall not pass to the purchaser until he has fully paid the price. Q: Classification of Constructive Delivery. (1) SYMBOLICA – delivery of certain symbols or things representing the thing being delivered (ex. Keys or titles) (2) INSTRUMENTAL – delivery of the instrument of conveyance to the grantee by the grantor (deeds) (3) TRADICION BREVI MANU – when the grantee’s continuous possession over the thing delivered but now under a title of ownership (4) TRADICION LONGA MANU – pointing of the thing (movable) within the sight by the grantor to the grantee by which at the time of the transaction, the thing could not be placed yet at the hands of the buyer (5) TRADICION CONSTITUTUM POSSESSORIUM – owner’s continuous possession of the property he had sold to another person and his present possession is no longer that of an owner, but under capacity like that of a lessee, pledge or depository (6) BY OPERATION OF LAW – delivery of the things by operation of law such as intestate succession where inheritance is transferred to the heir upon the descendant (7) QUASI-TRADICION – delivery of the incorporeal property like rights and credits Q: Can the seller enforce its right in an option contract? A: NO. Q: What right does the seller have under the option contract? A: NONE. Q: Who can enforce fulfillment in an option contract? A: BUYER. Q: How can the buyer enforce its right in an option contract? Page 10

A: If he accepted the offer within the period given. Q: What if there is no stipulated period, when can the buyer enforce its right? Is the seller forever bound to wait for the buyer to make the decision? A: If there is no stipulated period, time will be fixed by the court so that the seller will not be forever obligated to wait. If there is a stipulated period, then the right or the privilege of the buyer is bound by that time, such that if he exercises his right within the stipulated period, then the seller has no option but to comply. Q: Now, if the buyer, on the other hand, exercises his right after the stipulated period, assuming that the seller has not yet sold the property, can the seller be compelled to sell? A: NO MORE. Because the obligation ends if the time has already lapsed, even if there is a consideration for that purpose. There is only a right of exact fulfillment of the obligation if the time has not expired. Q: What is the right of the buyer, if during the time stipulated, the seller doesn’t want to comply? Can the buyer compel the seller? A: NO. Option to buy is an obligation to do, not to give, therefore, the seller cannot be compelled through specific performance. It may result to an involuntary servitude. The proper remedy is to file an action for damages on the ground of breach of contract. Q: What is the object of an option contract? A: The object of the contract which is property to be bought. Time is not the subject matter. 

Option is a privilege given to a person to buy, not to buy or sell, because the seller has no right under this circumstance except the promise to buy. The only party who can enforce its right under option contract is the buyer.

Q: When the obligation is lost prior to the delivery, who shall bear the loss? A: Seller. The obligation has not yet delivered the thing to the buyer. ©jms2015 and ©eac2015

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If the contract has been perfected and the object has been delivered, the loss will be borne by the buyer who is now the new owner.

Q: The issue is whether who will take the risk of loss after perfection and prior to the delivery if the object is loss? A: SELLER. Since the thing is still in his possession and that the buyer, prior to the delivery, has no real right over the thing. Q: But has the buyer have right at all? A: YES. Right to the fruits. Q: If that is the case, should the buyer also bear some portion of the risk of loss in case of loss of the object prior to the delivery but after perfection of the contract? Who shall bear the risk of loss? A: SELLER. Under the principle or Res Perit Domini which means owner bears the risk of loss. Q: What if the situation is the thing is lost due to fortuitous event, prior to the delivery but after perfection? A: If the thing is lost through a fortuitous event without the fault of the seller/debtor, the obligation of the seller to deliver the object is extinguished. Q: Should the buyer still have to pay? A: NO. Q: Can the seller file an action to compel the buyer to pay? A: NO. Q: Will the extinguishment of the obligation to deliver on the part of the seller carries the extinguishment of the obligation of the buyer to pay? A: YES. Under the law on sales, the general principle is that owner bears the loss. One of the essential characteristics of a contract of sale when it comes to enforcement of the obligation is that it is reciprocally demandable. The parties have corresponding obligations, where the obligation of one is dependent upon the other, such that, without the performance of either party, the other one cannot be compelled to perform. Page 11

Q: Even if the obligation of the buyer is not extinguished, can you compel the buyer to pay? A: NO. Because the seller has not performed and will not be able to perform his obligation and therefore, the buyer cannot be put in default. If that is the case, just reconciling this concept in the Obligations and Contracts, you cannot compel the buyer to pay; in essence, it also carries with extinguishment of the obligation. Under the law on Sales, since the buyer does not own yet the object, then he cannot bear the risk loss of the object. The seller must bear the risk of loss of the object. The buyer cannot be compelled to pay after the extinguishment of the obligation because it will violate the principle of unjust enrichment. The seller cannot unjustly enrich at the expense of the buyer. If the obligation of the party is extinguished, with more reason, he cannot benefit from it by even getting payment from the buyer. Q: What is an earnest money? A: An earnest money is a consideration, an advance payment and is considered part of the consideration. It proves perfection of the contract. It is different from option money. OPTION MONEY – separate and distinct consideration from the purchase price; - Even if option money is paid by the would-be buyer, he is not bound to buy the thing; - If the buyer decides not to buy the thing, he cannot recover the option money he paid as consideration for the contract of option; EARNEST MONEY – part of the purchase price; - When it is given, the buyer is bound to pay the balance of the agreed purchase price; ©jms2015 and ©eac2015

If the sale does not materialize, the earnest money must be returned, unless a contrary agreement had been stipulated.

Q: Can the parties stipulate that they can retain whatever they have received, taking into consideration the concept of unjust enrichment? A: YES. GENERAL RULE: If the sale does not materialize, then the earnest money delivered to the seller must be returned. EXCEPTION: stipulation.

Unless

there

is

a

contrary

Q: What are the remedies of the seller in case of sale of personal property payable in installments? A: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) To 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 instituted, 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. Q: When do you exercise exact fulfillment or specific performance? A: When there is a default in one installment. If there is failure to pay two or more installments, not necessarily consecutive, the remedy would be cancellation of sale or foreclosure of mortgage. Q: X entered into a contract of sale of a car with Y in the amount of P1M, downpayment of P500K and the remaining balance is payable in ten equal monthly installments. Now, to ensure the payment of that obligation, Y collateralized the car owned by his parents. He unfortunately failed to pay two monthly Page 12

installments, what are the remedies of X in this circumstance? Can you foreclose that car? A: CANCELLATION OF THE SALE. Foreclosure is not the proper remedy because the law provides that foreclosure on the chattel mortgage constituted on the subject of the sale. The subject of the sale is the car you bought. Chattel mortgage should be constituted on that car so that you can avail the third remedy. If that is not available because you have not constituted that chattel mortgage on the object of the sale, then your option is only cancellation of the sale. Q: Since in the example, the proper remedy is cancellation, the seller went on to cancel the sale. What is the necessary effect of cancellation and or rescission? A: MUTUAL RESTITUTION. Whatever is delivered shall be returned. The car should be returned to the seller and the money should be returned to the buyer. Q: Can the parties stipulate that the installment cannot be returned? A: YES. In case of cancellation of sale and there is a stipulation not to return the installment, that is perfectly acceptable and to be enforced by the parties. Non-return of the installment can be stipulated by the parties as long as the amount is not unconscionable. But even if there is a stipulation of the parties, the installment cannot be returned if the amount is unconscionable. Q: There was cancellation under the circumstance and when the car was returned, it has so deteriorated that the value is already way below its the value at the time it was delivered. Can the seller demand for the deficiency? A: YES. The remedies are alternative. Specific performance is also available because here, ©jms2015 and ©eac2015

there is non-payment of one month. You are still within the range of your remedies. Q: Instead of a collateral owned by the parents, the collateral is now the object of the sale. Therefore, upon non-payment of two or more installments, all the three remedies are now available for you. Instead of availing the third remedy, what you did is you filed for an action for specific performance. Judgment was rendered in favor of the buyer and therefore, a writ of execution was granted in favor of the buyer. Part of the writ and in enforcement of the writ, the buyer foreclosed the mortgage. Can he do that? A: YES. Q: In case of deficiency, can he demand for deficiency judgment? A: YES. Q: Let us assume that the buyer availed the third remedy. Upon foreclosure, the amount is deficient and he asked for a deficiency judgment. A: NOT ANYMORE. Q: What is the difference between the first where you can ask for deficiency judgment in a foreclosure and here, where you are also asking for a deficiency judgment in the foreclosure? A: In the first case, what is availed by the seller is specific performance. In the second case, it is foreclosure that was availed. Q: If you availed the specific performance, can you foreclose? A: YES because that is separate from the foreclosure as a remedy under this provision. When you ask for specific performance and when a judgment is given in your favor, you have all the rights under the law to enforce it which includes the right to foreclose whatever is available for foreclosure not necessarily on the object itself. It just so happens that in the example, what can be foreclosed is also the object. Q: Now, can you get for a deficiency of payment? A: YES because again, deficiency is a consequence of the deed of execution. It would have been a different story if what is available is the third remedy, because you will then be restricted by the restrictions of deficiency there.

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