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D EFINITION ( Art . 1458)

G ENERAL P RINCIPLES. D EFINITION ( Art . 1458). O BLIGATIONS. P ARTIES. (1) TO T RANSFER O WNERSHIP. S ELLER. S UBJECT M ATTER. Real Obligations. (2) TO D ELIVER P OSSESION. C ONSENT. S ALE. “Meeting of Minds”. Real Obligation. (3) TO P AY. B UYER. P RICE. 2.

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D EFINITION ( Art . 1458)

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  1. GENERAL PRINCIPLES DEFINITION(Art. 1458) OBLIGATIONS PARTIES (1)TO TRANSFEROWNERSHIP SELLER SUBJECT MATTER Real Obligations (2)TO DELIVERPOSSESION CONSENT SALE “Meeting of Minds” Real Obligation (3)TO PAY BUYER PRICE 2

  2. ESSENTIAL CHARACTERISTICS OF SALE: NOMINATE vs. Innominate PRINCIPAL vs. Accessory Prefaratory vs. CONSENSUAL vs. Solemn Real vs. BILATERAL/ RECIPROCAL vs. Unilateral ONEROUS vs. Gratuitious Aleatory COMMUTATIVE vs. “Mode” TITLE vs. 3

  3. SALESversusDONATION SOLEMN CONSENSUAL (i.e., 4th Requisite of “Form” for validity) ONEROUS/ COMMUTATIVE GRATUITOUS (i.e., “Pure Liberality” as consideration) BOTH INVOLVE THE TRANSFER OF OWNERSHIP/POSSESSION OF SUBJECT MATTER ESSENCE: 4

  4. SALES versusBARTER: BARTER IS SALE, BUT WITH THE PRICEBEING REPLACED WITH AN OBLIGATION TO TRANSFER OWNERSHIP/POSSESSION OF ANOTHER SUBJECT MATTER THEREFORE: BARTER GOVERNED BY LAW ON SALES BUT: NOTCOVEREDBY STATUTE OF FRAUDS 5

  5. SALESversusDACION EN PAGO: • DACION IS PROCESS OF EXTINGUISHMENT OF PRE-EXISTING OBLIGATION (CONTRACTS) • (a) There must be delivery of subject matter in lieu of an pre-existing obligation; • (b) There must be difference between prestation due and what is give in substitute; • There must be a clear “meeting of minds” that the pre-existing obligation is extinguished by reason of the prestation substituted. • Lo v KJS Eco. Formwork System Phil., Inc., 413 SCRA 182 (2003) • DACIONNOVATES THE ORIGINAL CONTRACTUAL RELATIONS INTO A FULLY EXECUTED SALE ESSENTIALLY: DACIONGOVERNEDBY LAW ON SALES 6

  6. SALES vs. CONTRACT FOR PIECE-OF-WORK: K for Piece-of-Work: Service is the Subject Matter “Ineluctably, whether the contract be one of sale or one for a Piece of Work, a transfer of ownership is involved and a party necessarily walks away with an object.” Commission of Internal Revenue v. Court of Appeals, 271 SCRA 605 (1997) Although there is the primary obligation to pay fee (or price), the main motivation is the “reputation, skill, mastery” of contractor. Engineering & Machinery Corp. v. Court of Appeals, 252 SCRA 156 (1996) BUT: THERE CAN BE NO CONTRACT FOR PIECE-OF-WORK FOR PAST SERVICE RESULTING IN THE CREATION OF THE OBJECT (ALWAYS A SALE) 7

  7. SALES vs. AGENCY TO SELL/BUY REPRESENTATIVE AGENCY • Essentially revocable • Fruits and of principal FIDUCIARY NOT PERSONNALY LIABLE FOR THE OBLIGATION CREATED BY THE SALE CONTRACT AGENT NOT OBLIGED TO PAY THE PRICE DOES NOT ASSUME THE RISKS OF OWNERSHIP TO THE OBJECT OF SALE 8

  8. SALES vs. AGENCY TO SELL/BUYCont’d THEREFORE: “AGENT” is deemed to be Seller/Buyer when contracted to assume Risks and Obligations contrary to his representative/ fiduciary role: (a) HE ASSUMES OBLIGATION TO PAY THE PRICE RISKS OF LOSS INSURABLE INTEREST MAINTENANCE (b) SUBJECT MATTER 9

  9. SALE versusLEASE: LEASE ESSENTIALLY INVOLVES THE TEMPORARY ENJOYMENT OF POSSESSION OF THE SUBJECT MATTER FEW INSTANCES: TREATED AS SALE ON INSTALLMENTS WHEN LEASE STRUCTURED IN SUCH A WAY AS TO AVOID APPLICATION OF THE RECTO LAW 10

  10. PARTIES TO A SALE (The Essential Element of CONSENT) GENERAL RULE: All Parties Having Capacity to Contract Can Be Valid Parties To a Sale EXCEPTIONS: (a) Minors, Demented, Deaf-Mutes – Sale is Voidable - Purchase of Necessaries - Emancipation (b) Spouses (Art. 1490) - Sales to Third Parties – Sale by One Spouse Void - Sales to Each Other – Void Except: When marriage governed by Complete Separation of Property Regime • By Pre-nuptials • By Judicial decree 11

  11. OTHER RELATIVE DISQUALIFICATIONS(Art. 1491) Guardian Wards Principal Agent Except: When granted express power to buy principal’s property Administrator/Executor Estate under administration BUT NOT: Purchase of Inheritance Rights Government property under their jurisdiction Public Officers Judges/Justices/Court Officers Property falling in their jurisdiction Lawyers Client’s property in litigation Except: Contingency fee arrangement 12

  12. 3. DETERMINATE DETERMINABLE SUBJECTMATTER (OBLIGATION to Transfer Ownership and Deliver Possession) vs. Impossible things 1. POSSIBLE THING vs. Illicit 2. LICIT Non-Determinable GENERICS vs. RATIONALE: Transfer of Ownership/Possession of the Subject Matter is the ESSENCE of SALE • Obligation should therefore not be illusory • To comply with the “Obligatory Force” principle in Contract Law 13

  13. 3.CERTAIN ASCERTAINABLE PRICE & OTHER CONSIDERATION (The Obligation to Pay) 1. REAL/TRUE vs. FALSE (Reformation) vs. SIMULATED (Void) 2. “Money or its Equivalent” vs. PUREvs. NOMINAL VALUABLE CONSIDERATION LIBERALITYCONSIDERATION vs. UNASCERTAINABLE UNASCERTAINABLE vs. 4. MANNER OF PAYMENT RATIONALE: • Must comply with “Obligatory Force” principle in Contract Law • Must meet Onerous and Commutative characteristics of SALE 14

  14. STAGES IN LIFE OF SALE NEGOTIATION • Covers the period from the time the prospective contracting parties indicate interest in the contract up to the time immediate before the contract is perfected. PERFECTION • Takes place upon the concurrence of the essential elements of the Sale which are: • the meeting of the minds of the parties • as to the object of the contract • upon the price. CONSUMMATION It begins when the parties perform their respective undertaking under the perfected contract of sale, culminating in the extinguishments thereof. • Jovan Land, Inc. v. CA, 268 SCRA 160 (1997) • San Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000) 15

  15. POLICITACIONSTAGE • Invitations to make Offers (“Proposals”) • OFFERS • ACCEPTANCES • AGENCY TO SELL/TO BUY • OPTION CONTRACTS • RIGHTS OF FIRST REFUSAL • AGREEMENTS TO ENTER INTO SERIES OF SALES • MUTUAL PROMISES TO BUY AND SELL (Contracts to Sell of the First Type) 16

  16. RULES ON OFFERS: • Offer is at the complete will of Offeror, who may destroy it at will prior to acceptance • Will “disappear” or lapse upon the happening of the condition or period placed upon it • When floated unconditionally, will be extinguished through the passage of reasonable time • Cannot be accepted partially or even substantially • Counter-offer extinguishes original Offer • 5. Legal effect of acceptance is taken only from point of view of Offeror • Offeror may still extinguish Offer at any time before he has knowledge of Acceptance • Only a “certain” Offer when met by an “Absolute” Acceptance will give rise to a valid SALE. 17

  17. “CERTAIN”OFFER • (a)CONTAINS A CLEAR PROMISE TO SELL/TO BUY • (b)COVERS A SUBJECT MATTER THAT IS: • Possible thing • Licit • Determinate or Determinable • (c) COVERS A PRICE OR CONSIDERATION • Real • Valuable • Certain or Ascertainable • With Manner of Payment/Performance agreed upon 18

  18. “ABSOLUTE” ACCEPTANCE (a)NO CONDITION OR AMENDMENT OF THE TERMS OF THE OFFER (b) MAY CLARIFY (c)BUT NEVER TOUCH ON THE TERMS/COVERAGE OF SUBJECT MATTER AND TERMS/COVERAGE OF PRICE 19

  19. OPTION CONTRACT: ACCEPTANCE of OFFERto give on Option to Buy/to Sell SUBJECT MATTER: Option or Privilege to Sell/ Purchase: • AN OBJECT: AT A PRICE: • Possible - Real • Licit - Valuable • Determinate/ - Certain/ • Determinable Ascertainable CONSIDERATION: Anything separate and distinct from Price 20

  20. Ang Yu Asuncion v. Court of Appeals 238 SCRA 602 (1994) • If no separate consideration, Option Contract void, but may constitute certain Offer which can be withdrawn by Offeror, but if accepted before withdrawal would give rise to a valid Sale (Sanchez v. Rigos doctrine) • If withdrawal of option/offer whimsical or arbitrary, could give rise to damage claim under Art. 19 of Civil Code • 3.When there is separate consideration, an Option Contract deemed perfected: (a) If exercised within option period, gives rise to Sale, which can be enforced by specific performance 21

  21. Ang Yu Asuncion v. Court of Appealscont’d (b) Would be a breach of the Option Contract, for Offeror to withdraw the offer during the agreed period, but withdrawal destroys nevertheless the Option (c) But if, however, Optioner-Offeror withdraws Offer even during option period before its acceptance (i.e., exercise): • Optionee-Offeree may not sue for specific performance on the Sale since it has failed to reach its own perfection stage • Optioner-Offeror, however, renders himself liable for damages for breach of option 22

  22. Possible thing SUBJECT MATTER Licit Determinate/Determinable RIGHT OF FIRST REFUSAL OFFEROR BOUNDS HIMSELF TO FIRST OFFER SUBJECT MATTER TO OFFEREE FOR SALE ESSENCE: CONDITION: IN THE EVENT OFFEROR EVER DECIDES TO SELL IT PRICE: THAT WILL THEN (HAPPENINGOF CONDITION) BE AGREED UPON 23

  23. DOCTRINES ON RIGHTS OF FIRST REFUSAL Ang Yu Asuncion v. Court of Appeals • Generally, RFRs would be “none” contracts, for lack of cause or consideration, or failure to agree the valid Price for the expectant contract • Merely “innovative juridical relation” • RFR • Cannot be enforced by specific performance • Not being a Contract, it lacks essence of “consensuality,” “obligatory force” or “mutuality” • Breach allows recovery of damage based on Art. 19 principle of “Abuse of right” 24

  24. DOCTRINES ON RFRcont’d Equatorial Realty Dev., Inc. v. Mayfair Theater 264 SCRA 483 (1996) • When RFR attached to a valid principal contract (e.g. Lease), its enforcement takes its vitality from the obligatory force of the principal contract • Such RFR, when breached may be enforced, at the Price at which Subject Matter sold to Third Party • The Third-Party Buyer’s purchase may be rescinded under accion pauliana, i.e., entered into in breach and in fraud of Optionee’s contractual right 25

  25. DOCTRINES ON RFRcont’d Parañaque Kings Enterprises v. CA 268 SCRA 727 (1997) • RFR is complied with by first offering the Subject Matter to the Optionee and negotiating for a Sale • There is no obligation to reach a sale, obligation is to negotiate in good faith • Only when negotiations do not ripen into a Sale, can Subject Matter be offered to Third-Party Buyer, but at same price and terms asked of the Optionee • Otherwise, must re-offer under new terms to Optionee 26

  26. Obligations “to do” To enter into a Contract of Sale AGREEMENTS TO ENTER INTO FUTURE SALE OR SERIES OF SALES: ESSENCE: (1) DISTRIBUTION/ SUPPLY AGREEMENT • An Agreement to enter into a series of Contracts of Sale • National Grains Authority v. IAC,171 SCRA 131 (1989) • Johannes Schuback v. Court of Appeals, 227 SCRA 719 (1993) (2) MUTUAL PROMISESTO BUYANDTO SELL (CONTRACTS TO SELL) 27

  27. MUTUAL PROMISES TO BUY AND SELL (CONTRACTS TO SELL) • AGREEMENTSTO ENTERINTO CONTRACTOF SALEUPON HAPPENINGOF THE CONDITIONS • Essentially, contains Obligations “to do”: to enter into a Sale • 2. CONDITIONAL CONTRACT OF SALE WHERE THE BILATERAL OBLIGATIONS TO BUY AND SELL HAVE BEEN AGREED UPON, BUT SUBJECT TO SUSPENSIVE CONDITION • Condition usually is the full payment of the price 28

  28. PERFECTION STAGE • PERFECTION HAPPENS WHEN A “CERTAIN OFFER” HAS BEEN MET BY AN “ABSOLUTE ACCEPTANCE” • THE ONLY POINT IN TIME TO DETERMINE THE VALIDITY OR INVALIDITY OF A CONTRACT OF SALE • “Birth” sets the essence of the Sale • ESTABLISHES THE CONTRACTUAL PRINCIPLES OF: • CONSENSUALITY • MUTUALITY OR OBLIGATORY FORCE • RELATIVITY 29

  29. FORM OF SALE GENERALLY: None, because Sale is consensual contract FOR ENFORCEABILITY: STATUTE OF FRAUDS 1. Sale which by its terms is not to be performed within one (1) year. 2. Sale of Movables, at least P500 3. Sale of Immovables, at any price • Must be in writing signed by the “party sought to be bound” 30

  30. Possible thing Licit Determinate/Determinable real valuable (b) PRICE certain/ascertainable manner of payment provided FORM OF SALEcont’d • Memo must contain Description of: (a) SUBJECT MATTER (c)SIGNED BY THE PARTY SOUGHT TO BE CHARGED Exception: Electronic Document • OR PARTIALLY EXECUTED (Estoppel) • OR WAIVER OF ADDUCEMENT OF ORAL EVIDENCE AT TRIAL 31

  31. Subject Matter Price Cannot Cover “Other Consideration” FORM OF SALEcont’d What Constitutes “Partial Execution”? (a) Performance Must Touch Upon (b) Must Involve/Compromise “Party Sought to be Charged” 32

  32. FORMS THAT VOID CONTRACT OF SALE: 1. SALE OF REALTY THROUGH AGENT: • AGENT’S AUTHORITY MUST BE IN WRITING OTHERWISE: • SALE VOID: • EVEN IF DEED OF SALE IN WRITING and/or NOTARIZED • EVEN IF THERE HAS BEEN PARTIAL/ FULL PAYMENT • EVEN IF THERE HAS BEEN DELIVERY OF SUBJECT MATTER • EVEN IF SALE REGISTERED 33

  33. SALES OF IMMOVABLES • PRIVATE DOCUMENT NEEDED TO BE ENFORCEABLE BETWEEN PARTIES EXCEPT: PARTIAL EXECUTION/WAIVER 2.MUST BE IN A PUBLIC INSTRUMENT • TO BIND THE PUBLIC • TO BE REGISTRABLE WITH REGISTRY OF DEEDS 3. FOR REAL ESTATE, MUST BE REGISTERED TO BE VALID AND BINDING AGAINST THE WORD • Authority of Agent must be in writing – VOID • Bound by actual possession situation, otherwise not in good faith 34

  34. CONSUMMATION STAGE (5)EXTINGUISHMENT (3)REMEDIES • SPECIFIC PERFORMANCE • RESCISSION • DOUBLE SALES RULE • SUBDIVISION LOTS & • CONDO UNITS RULES • RECTO LAW • MACEDALAW • CONVENTIONAL REDEMPTION (SALE A RETRO) • EQUITABLE MORTGAGES • LEGAL REDEMPTION (1)PERFORMANCE • DELIVERY OF SUBJECT MATTER • PAYMENT OF PRICE (4)CONDITIONS AND WARRANTIES (2)RISK OF LOSS • EFFECTS OF CONDITIONS • EXPRESS WARRANTIES • IMPLIED WARRANTIES 35

  35. OBLIGATIONS OF SELLER 1. TO PRESERVE THE THING WITH DILIGENCE OF A GOOD FATHER OF A FAMILY 2. TO DELIVER THE SUBJECT MATTER 3. To DELIVER FRUITS, ACCESSORIESAND ACCESSIONS 4. To COMPLYWITH WARRANTIES OBLIGATIONS OF BUYER 1. TO PAY THE PRICE 2. TO ACCEPT DELIVERY OF SUBJECT MATTER 36

  36. DELIVERY OF SUBJECT MATTER TRADITION AS THE MODE TO TRANSFER OWNERSHIP • Actual or Physical Delivery • Constructive Delivery Fulfillment of the Primary Obligation of the Seller MAGICOF TRADITION Transfer Ownership/ Possession to the Buyer 37

  37. DOCTRINES ON CONSTRUCTIVE DELIVERY EXECUTION OF PUBLIC INSTRUMENT • No Contrary Stipulation/ Intention • Seller Must Have “Control” • Passage of Reasonable Time EXCEPTION: WHEN BUYER TAKES THE RISK • Produces the Same “Magic” of Actual Delivery

  38. CONSTRUCTIVE DELIVERY CONSTITUTUM POSSESORIUM TRADITIO BREVI MANU TRADITIO LONGA MANU OR SYMBOLIC DELVERY Public Instrument DELIVERYFOR INTANGIBLES Transfer/Negotiation of the “Title” Evidences the Intangible Enjoyment of Rights and Privileges with the consent of the Seller DELIVERYTHROUGHCARRIER - FAS - FOB - CIF DOCUMENTSTO TITLE 39

  39. RULES ON DOUBLE SALES UNDER ART. 1544 1. FOR MOVABLES: • First to Possess, in good faith • Oldest Title, in good faith • Then: “First in time, priority in rights” 2. FOR IMMOVABLES: • First to Register, in good faith • First to Possess, in good faith • Oldest Title, in good faith • Then: “First in time, priority in rights” 40

  40. REQUISITES FOR ART. 1544 TO APPLY Cheng v. Genato,300 SCRA 722 (1998) (a) The two (or more) sales transactions must constitute valid Sales; (b) The two (or more) sales transactions must pertain to exactly the same Subject Matter; (c) The two (or more) Buyers at odds over the rightful ownership of the Subject Matter must each represent conflicting interests; and (d) The two (or more) Buyers at odds over the rightful ownership of the Subject Matter must each have bought from the very same Seller Consolidated Rural Bank (Cagayan Valley), Inc. v. CA, 448 SCRA 347 (2005) 41

  41. EFFECTS OF ART. 1544REQUISITES • Not applicable where one of the Sales is Void • Not applicable to Contracts to Sell • Not applicable if first sale is the Subject Matter and the second sale is the redemption right to the Subject Matter 42

  42. DOCTRINES ON ART. 1544DOUBLE SALES RULES (a) Rules under Art. 1544 are addressed to the Second Buyer, who is mandated to do positive things if he hopes to win at all First Buyer wins by being first (first in time) and does not need the benefits of Art. 1544 Carbonell v. CA, 69 SCRA 99 (1976) Uraca v. CA, 278 SCRA 702 (1997) Consolidated Rural Bank (Cagayan Valley), Inc. v. CA, 448 SCRA 347 (2005) 43

  43. DOCTRINES ON ART. 1544cont’d (b) First Buyer wins by virtue of greater doctrine of “first in time, priority in rights” (c) Second Buyer must register his purchase while in good faith if he hopes to win: (d) First Buyer, who is always in good faith, when he registers ahead, wins became second buyer in hopeless (e) Even if Second Buyer was first to possess in good faith, the subsequent registration by First Buyer prevails Tañedo v. CA, 252 SCRA 80 (1996) 44

  44. DOCTRINES ON ART. 1544cont’d (f) Knowledge of the First Buyer of the second sale does not adversely affect First Buyer, nor does it constitute registration in favor of the Second Buyer (g) However, knowledge of the Second Buyer of the first sale, would place him not only in bad faith, but would constitute registration in favor of the First Buyer Cruz v. Cabana, 129 SCRA 656 (1984) 45

  45. DOCTRINES ON ART. 1544cont’d (h) It seems that Second Buyer must have paid in full the Price to gain the benefit under Art. 1544, as the Court defines the meaning of “good faith” to include having paid full value Heirs of Aguilar-Reyes v. Spouses Mijares, 410 SCRA 97 (2003) Tanongon v. Samson, 382 SCRA 130 (2002) Balatbat v. CA, 261 SCRA 128 (1996) Agricultural and Home Extension Dev. v. CA, 213 SCRA 536 (1992) 46

  46. GLOBAL RULES ON DOUBLE SALE FOR REAL ESTATE • First to Register, in Good Faith and for Value, his Purchase of Land registered under the Torrens System wins, for registration is the “Operative Act” (Does not matter whether he is First or Second Buyer) • For Unregistered Land, as between a conventional prior purchase, and a second purchase at public auction, the first Conventional Buyer wins, since the Buyer at public sale is bound by the provisions of the Rules of Court that says he only takes whatever is the remaining title of the judgment debtor. 47

  47. GLOBAL RULES ON DOUBLE SALE cont’d • The Rules of Double Sale under Art. 1544 shall apply, only when the requisites under Cheng v. Genato are present, as follows: • First to Register in good faith • But this can only apply to unregistered land, because Rule I applies to registered land. • First to Possess in good faith, or • Oldest Title, in good faith • “First in time, priority in rights” applies last 48

  48. SALE AND DELIVERY BY NON-OWNER GENERAL RULE: Nemo Dat Quod Non Habet SPECIAL RULES: • Sale and Delivery, with subsequent acquisition of title by owner (Art. 1434), ipso jure transfers title to Buyer • Sale by Co-Owner • - particular portion • - whole property • Estoppel on the Part of the True Owner (Art. 1426) 49

  49. SALE AND DELIVERY BY NON-OWNERcont’d • “Chain of Title Theory” under the Torrens System • Sales by Court Authority • Sales in Merchant Stores • Sales by One Having Voidable Title Prior to Annulment • Sale under Documents of Title 50

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