THE LAW ON SALES, AGENCY, AND CREDIT TRANSACTIONS DE LEON & DE LEON 2010
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Part 1: Sales
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Chapter 1 – Nature and Form of Contract
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Definitions
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Contract of Sale – a contract whereby one of the parties (called the seller or vendor) obligates himself to deliver something to the other (called the buyer or purchaser or vendee) who, on his part, binds himself to pay therefore a sum of money or its equivalent Natural Elements – those which are deemed to exist in certain contracts, in the absence of any contrary stipulations like warranty against eviction or hidden defects Sale by description – occurs where a seller sells things as being of a particular kind, the buyer not knowing whether the seller’s representations are true or false. o Note: If the bulk of the goods delivered do not correspond with the description, the contract may be rescinded Fungible goods – goods of which any unit is, from its nature or by mercantile usage, treated as the equivalent of any other unit such as grain, oil, wine, gasoline, etc. Conditional Sale – sale contemplates a contingency and in general where the contract is subject to certain conditions, usually the full payment of the purchase price o Note: The delivery of the thing sold does not transfer ownership until the condition is fulfilled
Contracts of sale that must be in writing to be enforceable by court action (Under Statute of Frauds): o Sale of personal property at a price not less than P500 o Sale of real property or an interest therein regardless of the price involved o Sale of property not to be performed within a year from the date thereof regardless of the nature of the property and the price involved Distinctions between a Contract of Sale and a Contract of Agency Contract of Sale Contract of Agency Buyer receives the goods as owner Agent receives the goods as the goods of the principal who retains his ownership over them Buyer has to pay the price Agent has simply to account for the proceeds of the sale he may make on the principal’s behalf Buyer, as a general rule, cannot Agent can return the object in case return the object sold he is unable to sell the same to a third person Seller warrants the thing sold Agent makes no warranty for which he assumes personal liability as long as he acts within his authority and in the name of the seller Buyer can deal with the thing sold The agent in dealing with the thing as he pleases received, must act and is bound according to the instructions of his principal
Discussions: Difference between Earnest Money and Option Money
Earnest Money Part of Purchase Price Given only where there is a sale When earnest money is given, buyer is bound to pay the balance
Option Money Money given as distinct consideration for the option contract Applies to a sale not yet perfected Would-be-buyer is not required to buy when he gives option money
Remedies available to a vendor in sale of personal property payable in installments o Elect fulfillment upon the vendee’s failure to pay o Cancel the sale, if the vendee shall have failed to pay two or more installments o Foreclose the chattel mortgage, if one has been constituted, if the vendee shall have paid to pay two or more installments Characteristics of a contract of sale: o Consnsual – perfected by mere consent without further act
Bilateral – because both contracting parties are bound to fulfill obligations reciprocally towards each other Onerous - thing sold is conveyed in consideration of price and vice versa Commutative - thing sold is considered the equivalent of the price paid and vice versa Nominate – it is given a designation in the Civil Code, namely “Sale” Principal – does not depend for its existence and validity upon another contract
Chapter 2 – Capacity to Buy or Sell I.
Definitions Necessaries – things which are needed for sustenance, dwelling, clodting and medical attendance, in keeping with the financial capacity of the family of the incapacitated person. Compromise - a contract whereby the parties, by reciprocal concessions, avoid a litigation or put an end to one already commenced
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Discussions Relative incapacity of husband and wife o Husband and wife are prohibited by the above article from selling property to each other People who may enter into a contract of sale o As a general rule, all persons, whether natural or juridicial, who can bind themselves by contract have also legal capacity to buy and sell
Chapter 3 – Effect of the Contract When The Thing Sold Has Been Lost I.
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Discussions When a thing is considered lost o When it perishes or goes out of commerce “perishes” – material deterioration or complete change in the nature of the thing o Dissappears in such a way that its existence is unknown or it cannot be recovered Effect of loss of thing at the time of sale o Lost totally: Contract is inexistent and void because there is no object o Lost partially: Vendee may: Withdraw from the contract or Demand the remaining part, paying its proportionate price
Chapter 4 – Obligations of the Vendor I.
Definitions Specific goods – goods identified and agreed upon at the time a contract of sale is made Divisible contract – its consideration is made up of several parts
Definitions Unpaid Seller of Goods – one who has not been paid or tendered the whole price Traditio Brevi Manu – mode of legal delivery which happens when the vendee has already the possession of the thing sold by virtue of another title as when the lessor sells the thing leased to the lessee Sale or Return – A contract by which property is sold but the buyer (who becomes the owner of the property on delivery), has the option to return the same to the seller instead of paying the price. o Option to ‘sale or return’ rests on the buyer Tradition – a derivative mode of acquiring ownership by virtue of which one who has the right and intention to alienate a corporeal thing, transmits it by virtue of a just title to one who accepts the same Redhibitory defect – a defect in the article sold against which defect the seller is bound to warrant o Defect must be hidden; and
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It must be of such nature that expert knowledge is not sufficient to discover it o If veterinarian acts in bad faith (through ignorance or failure of disclosure), he shall be liable for damages *Article only applies tosale of animals Implied Warranty of Fitness – seller guarantees that the thing sold is reasonably fit for the known particular purpose for which it was acquired by the buyer o If bought by description, it should be reasonably fit on its merchantable quality Eviction – judicial process whereby the vendee is deprived of the whole or part of the thing purchased by virtue of a final judgement based on a right prior to the sale or an act imputable to the vendor Caveat venditor – doctrine that states that the vendor is liable to the vendee for any hidden faults or defects in the thing sold, even though h was not aware thereof.
Discussions Sale by a person not the owner o Where the owner of the goods is, by his conduct, precluded from denying the seller’s authority to sell. o Where the law enables the apparent owner to dispose of the goods as if he were the true owner thereof o Where the sale is sanctioned by statutory or judicial authority o Where the sale is made at merchant’s stores, fairs or markets o Where the seller has a voidable title which has not been avoided at the time of the sale o Where seller subsequently acquires title. Ways of effecting delivery o By actual or real delivery o By constructive or legal delivery Execution of a public instrument or document Symbolic delivery Traditio Longa Menu Takes place by mere consent or agreement of the contracting parties as when the vendor merely points to the thing sold which shall thereafter be at the control/disposal of the vendee. o Only qualifies if the thing sold cannot be delivered to the vendee at time of sale Traditio Brevi Manu Traditio Constitutum Posessorium Quasi-Traditio o By delivery in any other manner signifying an agreement that the possession is transferred to the vendee Requisites for the exercise of right of stoppage in transit o Seller must be unpaid o Buyer must be insolvent o Goods must be in transit
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II. Implied warranties in sale o Implied warranty as to seller’s title Seller guarantees that he has a right to the the sell the thing sold and transfer ownership o Implied warranty against hidden defects or unknown encumbrances Seller guarantees that the thing sold is free from any hidden defects o Implied warranty as to fitness or merchantability “Sale or return” distinguished from “Sale on Trial” Sale or Return Sale on Trial Sale subject to a resolutory Subject to a suspensive condition condition Depends entirely on the will of Depends on the character or the buyer quality of the goods Ownership of the goods passes Ownership remains in the seller to the buyer on deliveryand until the buyer signifies his subsequent return of the goods approval or acceptance to the revert ownership in the seller seller Risk of loss or injury rests upon Risk remains with the seller the buyer
Place of delivery of goods sold (with no agreement) o Place of delivery is that determined by usage of trade o When there is also no prevalent usage, the place of delivery is the seller’s place of business Principal Obligations of the Vendor o To transfer ownership of the determinate thing sold o To deliver the thing o To warrant against eviction and hidden defects o To take care of the thing, pending delivery, with proper diligence o To pay for the expenses for the execution and registration of the deed of sale, unless there is stipulation to the contrary Risk of loss by fortuitous event after perfection but before delivery o Borne by the buyer (as an exception to the rule of res perit domino)
Chapter 5 – Obligations of the Vendee I.
Seller must either actually take possession of the goods sold or give notice of his claim to the carrier or other person in possession Seller must surrender the negotiable instrument of title, if any, issued by the carrier or bailee Seller must bear the expenses of delivery of the goods after the exercise of the right
Definitions
Acceptance of the goods – assent to become owner of the specific goods when delivery of them is offered to the buyer Wrongful refusal of buyer to accept – when buyer refuses to accept the goods without just cause o Risk of loss is borne by him from the moment they are placed in his disposal
Discussions Implied acceptance by the vendee of the goods sold o After delivery of goods: When buyer does any act inconsistent with the seller’s ownership (as when he sells or attempts to sell the goods, uses or makes alteration in them in a manner proper only for an owner) o After the lapse of reasonable time: When buyer retains the goods without intimating his rejection
When vendee can suspend payment of price o If he is disturbed in the possession or ownership of the thing bought o If he has a well-grounded fear that his possession or ownership would be disturbed by a vindicatory action or foreclosure of mortgage
Chapter 6 – Actions for Breach of Contract of Sale of Goods I.
Definitions Goods – includes all chattels personal but not things in action or money of legal tender in the Philippines. This term also includes growing fruits or crops Recoupment – accept the goods and set up the seller’s breach to reduce or extinguish the price
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Discussions Actions available to the buyer in case of breach of warranty by the seller of the goods: o Recoupment: Accept the goods and set up the seller’s breach to reduce or extinguish price o Action or counterclaim for damages: Accept the goods and maintain an action for damages Refuse to accept the goods and maintain an action for damages for the breach of the warranty o Rescission: Rescind the contract of sale by returning or offering the return of the goods and recover the price Cases where rescission by the buyer is not allowed although the seller has committed a breach of warranty:
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If the buyer accepted the goods knowing of the breach of warranty without protest o If the buyer fails to notify the seller within a reasonable time of his election to rescind o If the buyer fails to return or offer to return the goods in substantially as good condition as they were in at the time of the transfer of ownership to him Situations where the seller is given the right to bring an action for damages against the buyer o If the buyer, without lawful cause, neglects or refuses to accept and pay for the goods he agreed to buy (damages for non-acceptance) o In an executory contract, where the ownership in the goods has not passed, and the seller cannot maintain an action to the price, seller’s remedy will be also an action for damages o If the goods are not yet identified at the time of the contract or subsequently, the seller’s right is necessarily confined to an action for damages Situations where the seller of specific goods is given the right to be paid notwithstanding that delivery to the buyer has not been effected: o When the price is payable on a certain day, and the buyer wrongfully neglects or refuses to pay such price, irrespective of delivery or transfer of title o When the buyer wrongfully refuses to accept delivery
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Chapter 7 – Extinguishment of Sale I.
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Definitions Legal Redemption – is the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by any transaction whereby ownership is transmitted by onerous title Equitable Mortgage – is one which, although it lacks the proper formalities of a mortgage, shows the intention of the parties to make the property subject of the contract as a security for the fulfillment of an obligation Conventional Redemption – is the right which the vendor reserves to himself, to reacquire the property sold provided he reimburses the vendee of the price, the expenses of the contract, any other legitimate payments made therefor and the necessary and useful expenses made on the thing sold and fulfills other stipulations which may have been agreed upon Discussions Requisites for the right of legal redemption of a co-owner to exist o There must be co-ownership
There must be alienation of all or of any of the shares of the other co-owners Sale must be to a third person or stranger Sale must the before partition Right must be exercised within the period provided in Article 1623 Vendee must be reimbursed for the price of the sale
Cases when the contract shall be presumed to be an equitable mortgage: o When the price of a sale with right to repurchase is unusually inadequate o When the vendor remains in possession as lesee or otherwise o When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed o When the purchaser retains for himself a part of the purchase price o When the vendor binds himself to pay the taxes on the thing sold o In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation Obligations of a vendor a retro in case of redemption o The vendor must return to the vendee: Price of the sale (not the value of the thing) Expenses of contract and other legitimate expenses Necessary expenses – those incurred for the preservation of the thing Useful expenses – those which increase the value of the thing or create improvements thereon
Chapter 8 – Assignment of Credits and Other Incorporeal Rights I.
Definitions Assignment of credit – a contract by which one person transfers to another his rights and actions against a third person (debtor) in consideration of a price certain in money or its equivalent
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Discussions Warranties of the assignor of credit o The assignor of credit only warrants the existence and legality of the credit at the perfection of the contract o There is no warranty as to solvency of the debtor unless expressly stipulated or unless the insolvency was already
existing (and of public knowledge) at the time of the assignment Liabilities of the assignor of credit o The liability of the assignor in good faith is limited only to the price received and to the expenses of the contract, and any other legitimate payments by reason of the assignment o The assignor in bad faith is liable not only for the payment of the price and all expenses, but also for damages. Nature of assignment of credit o It is really a sale Subject matter: credit or right assigned Consideration: Price paid for the credit or right Consent: The agreement of the parties to the assignment at the agreed price
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Discussions Similarities to Sale and Barter o Barter is similar to sale with the only difference is that instead of paying a price in money, another thing is given in lieu thereof Perfection and Consummation of the Contract of Barter o Perfected from the moment there is a meeting of minds upon the things promised by each party in consideration of the other o It is consummated from the time of mutual delivery by the contracting parties of things they promised Chapter 11 – The Bulk Sales Law I.
Chapter 9 – General Provisions I.
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Definitions Legal tender – is that currency which a debtor can legally compel a creditor to accept in payment of a debt in money when tendered by the debtor in the right amount Thing or chose in action – is any claim or right which may be pleaded in a suit at law, such as claim of reparation for a tort or right guaranteed under certain types of contracts Discussions Objects included in the phrase “document of title to goods” according to Art. 1636: Any o Bill of Lading; o Dock Warrant; o Warehouse receipt or; o Order for the delivery of goods or; o Any other document used in the ordinary course of business as proof of the possession and control of the goods A person is deemed insolvent when: o A person who was ceased to pay his debt in the ordinary course of business Goods are in a deliverable state when: o They are in such a state that the buyer would, under the contract, be bound to take delivery of them
Chapter 10 – Barter or Exchange I.
Definitions Barter – one of the parties binds himself to give one thing in consideration of the other’s promise to give another thing.
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Definitions Fixtures – merchandise usually possessed and annexed to the premises occupied by merchants to enable them better to store, handle, and display their wares Merchandise – must be construed to mean such things as are usually bought and sold in trade by merchants Discussions When sale or transfer in bulk o Sale, transfer, mortgage or assignment of A stock of goods, wares, and merchandise otherwise than in the ordinary course of trade and the regular prosecution of the business All or substantially all, of the business or trade All or substantially all, of the fixtures and equipment used in the business of the vendor, mortgagor, transferor, or assignor Purpose of the Law o Designed to prevent defrauding of creditors by the secret sale in bulk of all or substantially all of a merchant’s stock of goods Scheme of the law o That such Bulk Sales are fraudulent and void as to creditors of the vendor, or presumptively so, unless specified formalities are observed such as Demanding and giving list of creditors Giving of actual or constructive notice to such creditors Making of an inventory
