CHAPTER 1 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. What is a contract of sale? By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of, and to deliver, a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale is a consensual contract and, thus, is perfected by mere consent which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Until the contract of sale is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties. The essential elements of a contract of sale are: a) consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b) determinate subject matter; and c) price certain in money or its equivalent. The absence of any of the essential elements shall negate the existence of a perfected contract of sale. Stages of a contract of sale The stages of a contract of sale are: 1. Negotiation It covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected. 2. Perfection It takes place upon the concurrence of the essential elements of the Sale, which is the meeting of the minds of the parties as to the object of the contract and upon the price. 3, Consummation It begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof. SALE IS A TITLE The perfection ofa contract of sale should not, however, be confused with its consummation. In relation to the acquisition and transfer of ownership, it should be noted that sale is not a mode, but merely a title. A Mode is the legal means by which dominion or ownership is created, transferred or destroyed, but title is only the legal basis by which to affect dominion or ownership. Under Article 712 of the Civil Code, “ownership andCHAPTER NALURS Oe, nts over property are acquired and transmitted by law, by otherreat 0 te and intestate succession, and in consequence of certain donation, by tesias* ." Contracts only constitute titles or rights to the contracts, by tract fownership, while delivery or tradition is the mode transfer oF acquis''en te. Therefore, sale by itself does not transfer oy of, accomplishing the most that sale does is to create the obligation to Se I enarstiP It is tradition or delivery, as a consequence of sale, that tran. > actually transfers ownership.” ‘Two kinds of a contract of sale 1. Absolute ‘There are no conditions attached to the contract. 2, Conditional ‘There are certain conditions attached to the contract. Acontract of sale may be absolute or conditional. Under Article 1458 of the New Civil Code, in a contract of sale, whether absolute or conditional, one of the contracting parties obliges himself to transfer the ownership of and deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and the price. From the averment of perfection, the parties are bound, not only to the fulfillment of what has been expressly stipulated, but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. On the other hand, when the contract of sale or to sell is not perfected, it cannot, as an independent source of obligation, serve as a binding juridi ‘i between the parties. inding juridical relation Note: I ay ie a fe considered absolute in nature where there is neither Unt the full paymene oy yeu 2 the property sold is reserved in the seller ayment of the price, nor one giving the vendor the right to Untlaterally resolve th fixed periods © contract the moment the buyer fails to pay within a epcneal contract because it is perfected ents of a contract of sale are the ting of the minds the price; ae isac following: he essential a) Consent or mee inexchange for * San Lor : Bane BE Corporation YS. Men Gonezve.ca otase”® Pera al, ”Manalo W GR No. droge malo and Ch f € v c fCHAPTER I ~'NATURE AND FORM OF THE CONTRACT b) Determinate subject matter; and ©) Price certain in money or its equivalent. Contract to'sell not a contract of sale A~ ContracttoSell may not be considered as a Contract of Sale because the first essential element is lacking, Ina contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.> 1. CONSENT Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the agreement. Acceptance As to the matter of acceptance, the same may be evidenced by some acts, or conduct, communicated to the offeror, either in a formal or an informal manner, that clearly manifest the intention or determination to accept the offer to buy or sell. Example: In one case, acceptance on the part of the vendee was manifested through a plethora of acts, such as payment of the purchase price, declaration of the property for taxation purposes, and payment of real estate taxes thereon, and similar acts showing vendee's assent to the contract. IL OBJECT The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, Without the need of a new contract between the parties. A thing is determinate when itis particularly designated and/or physically segregated from all others of the same class. In general, the cause is the why of the contract or the essential reason which moves the contracting parties to enter into the contract. For the cause 2,t it is not contrary to law, morals, 0 be valid, it must be lawful such He ~~ tustoms, public order or public policy: uae ent as to the price is an essential element ofa i eeme + & a Serer sell personal or real property because it Serious}, binding agreem: fons rties. Price is an essential eleme; fi ations of the par ment affects the rights eu Sag and enforceable contract of sale. The fixing of in the forma never be left to the decision of one of the contracting parties thepnice Rea one of the contracting parties, if accepted by the other, But a pric ives ris erfected sale. Fi oa on - aa enough for the parties to agree on the price of the Property, Recit also agree on the manner of payment of the Price of the ee give rise to a binding and enforceable contract of sale or contract i sell. This is so because the agreement as to the manner of payment Boes into the price, such that a disagreement on cee manner of payment is tantamount to a failure to agree on the price. Gross inadequacy of price, its effect ; In Hulst v. PR Builders, Inc, we further elaborated on this principle: Gross inadequacy of price does not nullify an execution sale. In an ordinary sale, for reason of equity, a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one’s conscience as to justify the courts to interfere; such does not follow when the law gives the owner the right to redeem as be harmed by the | low sale y; Possesses the Tight alue of the au of redemption, Xxx’ Note:CHAPTER T-\NATURE AND! FORM OF THE CONTRACT Characteristics of a contract of sale 1. Consensual The contract is perfected by mere consent. 2. Bilateral ‘The seller and the buyer are bound by obligations dependent upon each other. 3. Onerous It imposes a valuable consideration, which is a price certain in money or its equivalent, 4, Commutative The thing of value is exchanged for equal value. 5. Nominate The Civil Code refers to it by a special name, “contract of sale.” 6. Principal It can stand on its own and does not depend on another contract for its validity. Contract of sale is consensual Acontract of sale is classified as a consensual contract, which means that the sale is perfected by mere consent. No particular form is required for its validity. Upon perfection of the contract, the parties may reciprocally demand performance, ie. the vendee may compel transfer of ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold? Contract of sale is Commutative and Onerous A contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the Price), but each party anticipates performance by the other from the very start. While in a sale, the obligation of one party can be lawfully subordinated to.an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so; hence, the contingent character of the obligation must clearly appear.1© Problem: On January 19, 1985, A, B, and C executed a document entitled Receipt of Down Payment in favor of R which is reproduced hereunder:CHAPTERI- NATURE AND FORM Oe NEALE RECEIPT OF DOWN PAYMENT. P1,240,000.00 - Total amount 50,000.00 - Down payment 190,000 - Balance i o Received from Miss R, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot, in the total amour, of P1,240,000. i We bind ourselves to effect the transfer in our names from oy, deceased father, the transfer certificate of title immediately upoy receipt of the down payment above-stated. On our presentation of the TCT already in our name, we wil, immediately execute the deed of absolute sale of said property and Mis. Rshall immediately pay the balance of the P1,190,000. On January 15, 1985, Q mother of R, paid the down payment of 50,000. On February 6, 1985, the property originally registered in the name of A, B, and C's father was transferred in their names. On February 18, 1985, A, B, and C sold the property to Y for 1,580,000 after the latter has paid P300,000. For this reason, A, B, and C canceled and rescinded the contract with R by depositing the down payment paid by Q in the bank in trust for R. On February 22, 1985, Q filed a complaint for a specific performance against A, B, and C. Is the Receipt of Down Payment a perfected contract of sale? Answer: What may be perceived from the respective undertakings of the Parties to the contract is that A, B, and C had already agreed to sell the house and lot they inherited from their father, completely willing to transfer ownership of the subject house and lot to the buyer if the documents were then in order. It just so happened, however, that the transfer certificate of title was then still in the name of their father, It was more expedient to first effect the chan, CHAP" to | 50 | Awe toons eenCHAPTER I= NATURE AND FORM OF THE CONTRACT to enter into a contract of absolute sale by reason of the fact that the certificate of title to the property wasstill in the name of their father. Itwas the sellers in this case who, asit were, had the impediment which prevented, so to speak, the execution of a contract of absolute sale. What is clearly established by the plain language of the subject document is that when the said Receipt of Down Payment was prepared and signed by A, B, and G, the parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of A, B, and C’s father to their names. ‘The Court significantly notes that this suspensive condition was, in fact, fulfilled on February 6, 1985. Thus, on said date, the conditional contract of sale between A, B, and C and R became obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which A, B, and C unequivocally committed themselves to do as evidenced by the Receipt of Down Payment. Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at bench. Thus, 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, Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. Since the condition contemplated by the parties which is the issuance of a certificate of title in A, B, and C’s names was fulfilled on February 6, 1985, the respective obligations of the parties under the contract of sale became mutually demandable, that is, A, B, and C, as sellers, were obliged to present the transfer certificate of title already in their names to R, the buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to 21,190,000. The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated as Receipt of Down Payment, the parties entered into a contract of sale subject to the suspensive condition that the sellers shall effect the issuance of new certificate of title from that ofCHAPTERT- NATURE ‘AND FOR! to their names and that, on February 6, 1985, this : ame their fathers’ name to condition was fulfille¢ es "? OO mala! ae sales, isa continuing offer or contrag, An oP io stipulates with another that the latter shall have the righ, by vihicl the oie ea fixed price within al certain thie, o-under, o in to buy the property in terms and conditions, or which gives ta the Winer Cee peta tosell or demand a sale, It is also sometimes calleg oi eiactepted offer.” An option is not of itself a purchase, but merely or ec seariitene to buy. It is not a sale of property buta sale of the right eG purchase. [tis simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sel} it; but he does sell something, that is, the right or privilege to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it is not, properly speaking, contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is merely a contract by which the owner of property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms.12 Whatis option ©) OPTION VS. CONTRACT OF SALE Option aS Contract of sale An option isan unaccepted offer. | Fixes definitely the relative rights and obligations of both parties at the time of its execution, It states the terms and conditions | ‘The offer and the acceptance are on which the owner is willing to sell concurrent, since the minds of the the land, if the holder elects to contracting parties meet in the accept them within the: pt ie limited. | terms of the agreement, If the holder does so elect, he must CSE Tae? 2 Bive notice to the other party, and aa the accepted offer thereitpon becomes a valid and binding | contract. Ian acceptance is not made within the time fixed, the owner is no longer bound by his offe ee " Option is at an end.13 fete see RomuloA,Corone a a Letal.vs.cA, 2 Adelfa Properties, ne etaly GR No, 10357; " Adelis Properteg, re CAL G.R No 141298 Jen, 7, October 7, 1996, ary 25, TSCA ON NG 13h rime Se eS M OF THE CONTRACT = CHAI What purcl purck spect decla and s oblig agree has 1 contr payn paid purc forfe Earn cont perf then thet disti tran for t Piec cont Wade AdeCHAPTER J - NATURE AND FORM OF THE CONTRACT What is the test in determining whether it is a “contract of sale or purchase or a mere option”? The test in determining whether a contract is a "contract of sale or purchase" or a mere “option” is whether or not the agreement could be specifically enforced. This is not a case where no right is as yet created nor an obligation declared, as where something further remains to be done before the buyer and seller obligate themselves. An agreement is only an "option" when no obligation rests on the party to make any payment except such as may be agreed on between the parties as consideration to support the option until he has made up his mind within the time specified. An option, and not a contract to purchase, is effected by an agreement to sell real estate for payments to be made within specified time and providing forfeiture of money paid upon failure to make payment, where the purchaser does not agree to purchase, to make payment, or to bind himself in any way other than the forfeiture of the payments made." Earnest money It Is a statutory rule that 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. It constitutes an advance payment and must, therefore, be deducted from the total price. Also, earnest money is given by the buyer to the seller to bind the bargain.15 EARNEST MONEY vs. OPTION MONEY Earnest money | _Option money _ 1. Part of the purchase price. 1, Money given as a distinct consideration for an option contract. 2. Is given only where there is | 2. Applies to a sale not yet perfected. already a sale. 3. When earnest money is given, | 3. When the would-be buyer gives the buyer is bound to pay the | option money, he is not required to balance. buy. CONTRACT FOR A PIECE OF WORK VS, CONTRACT OF SALE ____ “A contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order of the person desiring it. In such case, the contract is one for a Piece of work, not a sale, On the other hand, if the thing subject of the Contract would have existed and been the subject of a sale to some other Properties: incive CAvahu\ nie Mn schoo,CHAPTER I= NATURE AND FORM OF THE CONTRACT if the order had not been given then the contract is one of even i person sale."16 maha i i tract that Y would manufacture upon X and Y stipulated in their contra M a ie 1d 20,000 pieces of vinyl mooseheads ‘20,000 pieces of vinyl frogs and 20; f d ete ae the samples specified and approved by X. Ydid not ordinarily a these products, but only upon order of X and at the price agreeq Co Clearly, the contract executed by and between X and Y was a contract for apiece of work. DACION EN PAGO vs. CONTRACT OF SALE In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt.In order that there be a valid dationin payment, the following are the requisites: (1) There must be the performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) There must be some difference between the prestation due and that which is given in substitution (aliud pro alio); (3) There must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor’s debt.17 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. (n) Note: Licit means lawful. The thing object of sale should not be contrary to law, morals, good customs, public order or public policy. been stated in the contract, and th are found 7" 3. Sale of future inheritance: ang 1° Fund t0 be unfit therefor 4. Sale of land in Violation of th itutic e constitu ibitic i transfer of lands to alien, tional prohibition against theCHAPTER I~ NATURE AND FORM OF THE CONTRACT Problem: Sometime in January 1980, X, Y, and Z appointed C as their agent to sell 3 parcels of land adjoining each other. Sometime in April 1980, R learned that the properties were for sale. Accordingly, he approached C and told the latter to offer these parcels of land to his brother, E. Pursuant thereto, C and R went to E’s office to convince the latter to buy the properties. At first, E was reluctant, but upon R's prodding, E was finally convinced to buy them. In that meeting between C and Eat the latters office, it was agreed that each parcel of land would cost 2100,000. Having reached an agreement of sale, E then instructed C to bring the owners of these parcels of land to his ancestral house. On May 2, 1980, C, together with X, Y, and Z went to E's house. At around 5:00 o clock in the afternoon, the above-named persons and E went to Atty. M’s house for the preparation of the appropriate deeds of sale. At Atty. M’s house, it was learned that X failed to bring the tax declarations relating to his property. Also, Y had mortgaged her property. Further, Z did not have a Special Power of Attorney from his sister to evidence her consent to the sale. In view thereof, no deed of sale was prepared on that day. However, despite the fact that no deed of sale was prepared by Atty. M, X, Y, and Z asked E to pay a 50% downpayment for the properties, The latter acceded to the request and gave P50,000 each to the 3 above named persons for a total of P150,000. This was witnessed by Cand Atty. M. After giving the down payment, E instructed C and Atty. M to place the name of Ras vendee in the deeds of sale to be subsequently prepared. This instruction was given to enable R to mortgage these properties at the PNB, for appropriate funds needed for the development of these parcels of land as fishponds. Subsequently, the appropriate deeds of sale were finally prepared by Atty. M and signed by X, Y and Z. In all these deeds of sale, R was named as vendee pursuant to the verbal instruction of E. C, the agent. in the sale, signed in these 3 deeds of sale as a witness. Thereafter, C paid X, Yand Z, the balance due them from E. On April 29, 1989, R, without the knowledge and consent of E, sold to Spouses Hand W 500 square meters of the land previously owned by X. At the time of sale, H and W were aware that the portion of the land they bought was owned by E, not R. May H and W acquire ownership over the said property? Answer: Hand W did not acquire absolute ownership over the property since the apparent vendor, R, did not have the right to transfer ownership thereof, Whether or not H and W are in good faith is entirely immaterial, because no valid sale in the first place was made. The fact is Ris not the 41CT, RI- NATURE AND FORM OF THE CONTRA CHAPTE! stee thereof, and could puta mere trustee Tot le, to H an ed ownership of said lands, by way Se ioe a w. have transferred “'jnciple in the law on sales, @ pers a ‘ansfer. a mater Fea ofsale, of something over which he has no right ¢, ownership, t a aoe transfer. Thus, Article 1459 ‘of the Civil Code provides: j a 4459. The thing must be licit and the vendor must have a right t, rt, 1459. transfer the ownership thereof at the time itis delivered. owner of the lands in question, Since R is not the owner of the lands in question, which are not istered under the Torrens system, he could not by way of sale have eetered: ashe has no right to transfer, ownership of a portion thereof, at the time of delivery.1® Note: ‘ f The seller need not be the owner at the time of perfection of the contract. It is sufficient that he Is the owner at the time the object is delivered; otherwise, he may be held liable for breach of warranty against eviction. 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, DETERMINATE THING Athing is determinate when it is particularly desi; ated ll Segregated from all others of the same class. ‘ ea guava Examples: “My only car’, “The onl ly lapto : . house located at #129 poy ie 1am using at present’, My fale ta 123 Bray. Lagawa, Municipality of La Requisites; 1. Atthe time the contract i 2g : Hb saeermate ou 'sentered into, the thing is capable of being made - There is no Necessity of an ‘ew or further agreem, i - igreement between the parties. C was the own een ler of Lot 261. On jul Risnee ee for legal Services ates Basan ee den " Agreement is worded as Be as a "Contract of cHCHAPTERI- NATURE AND FORM OF THE CONTRACT “xxx That I, Cis the registered owner of Lot No. 261, has secured the legal services of Atty. B to perform the following: 1. To negotiate with the Municipal Government of X so that the above-mentioned lot shall be the site of the proposed X Public Market; 2, To sell 1200 sq. m. for the sum of P24,000 right at the Market Site; 3, And to perform all the legal phase incidental to this work. That for and in consideration of this undertaking, I bind myself to pay Atty. B 5,000 sq.m. of the said lot, for which in no case I shall not be responsible for payment of income taxes in relation hereto, this area located also at market site. That |, B, is willing to undertake the above-enumerated undertaking. 2x" Is there an object of the contract? Answer: The object of the contract is still certain despite the parties’ failure to indicate the specific portion of the property to be given as compensation for services. Articles 1349 and 1460 of the Civil Code provide the guidelines in determining whether or not the object of the contract is certain: Article 1349, The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties, XXXX Article 1460. A thing is determinate when it is particularly designated and/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, In this case, the object of the contract is the 5,000-sq-m portion of Lot 261. The failure of the parties to state its exact location in the contract is of no moment; this is a mere error occasioned by the parties’ failure to describe with particularity the subject property, which does not indicate the absence of the principal object as to render the contract void. Since C bound herself to deliver a portion of Lot 261 to Atty. B, the 413FORM OF THE CONTRACT, D) CHAPTER I= NATURE AN! erty subject of the contract is sufficient to validate iption of the prop description of t same.!? ‘. os ing a potential existence may be the object of the ings havi LE ectancy is deem contractofsale- se sale of amere hope or exp a ous ied The efficacy O°" sat the thing will come into existence, ition ‘ e subject a coer vain hope or expectancy is void. The t tial existence Things a aE areene that can be the object of sale. his “Still ungrown fruits’, “wine thata particular: vineyard isexpected to peayoie produce! “young of animals not yet in existence. re hope or expectancy y : 7 a cern is Bet to the condition that the thing will come into existence, Example: Sale of sweepstakes ticket or lotto ticket, The object of sale is the hope or the chance to win. Note: The sale of vain hope or expectancy is void, Example is sale of ‘sweepstakes ticket or lotto ticket that was already run. EMPTIO REI SPERATAE vs, EMPTIO SPEI Emptio Rei Speratae _____Emptio Spei_ Sale of a thing with potential | Sale of a mere hope or expectancy existence, that the thing will come to existence. Sale of the hope itself, Sale is subject to the condition that Sale is effective even if the thing the thing will exist; If it does not, | does not come into existence unless there is no contract, itis a vain hope. The object is a future thing, The object is a present thing which is the hope or expectancy, General Rule: A Person cannot sell or convey what he does not have ‘or own. Exceptions: Sale ofa thin 2.Saleof une ane potenti existence; Pochean eae 88° Aurora Feb, macho vs. CA, 44 Baszon.G.,t27599 Feby muary 9, 2007, 14 Ck SEaS KiCHAPTER T~NATURE AND FORM OF THE CONTRACT: 3. Contract for delivery at a certain price of an article which the vendor in the ordinary course of business manufactures or procures for the general market, whether the same is on hand at the time or not. 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. Kinds of goods 1. Existing goods Those goods that are owned by the seller, 2. Future goods Those goods that are to be manufactured (like a future table, chairs or bicycle to be manufactured), raised (like the young of animals) or acquired (like a cellular phone which the seller expects to buy) by the seller after the perfection of the contract of sale. Note: There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen. Example: F obliged himselfto deliver and transfer ownership of his only car to ifthe latter will pass the CPA board exam next month. At present, S can sell the Said car to B. Art. 1463. The sole owner of a thing may sell an undivided interest therein. (n) Example: B owns a parcel of land with an area of 400 sq.m. If B decides to sell 100 sq.m. to C then they will become co-owners of the said land. Thus, B owns 500 sqm. (3/4) while C owns 100 sq.m. (1/4). Art. 1464, In the case of fungible goods, there may be a sale of an undivided share ofa 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 goodsin 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 45TRAC CHAPTERI-=NATURE AND FORM OF THE CONTRACT good the deficiency from goods of the same kind and quality, Unless contrary intent appears. le: : FAa is engaged in the business of buy and sell of rice and he owns : jined sacks of rice. Subsequently, B buys 100 sac, cena Mics en a ofrice stored in the bodega, then S and B wil, eer where S owns 200 sacks of rice while B owns 100 sacks of rice ante ifthere are only 95 sacks of rice stored in the bodega, § is liabie fo, the deficiency of 5 sacks of rice to B because the contract of sale is stil} valid, The 5 sacks of rice should be of the same kind and quality. Art. 1465. Things subject to a resolutory condition may be the object oj the contract of sale, Resolutory condition A condition that upon fulfillment terminates an already enforceable obligation and entitles the parties to be restored to their. original positions, 4 conditional obligation that may be immediately enforced but will come to an end when an uncertain event that is specified occurs.20 Note: It is a condition the happening obligation, Example; of which will extinguished the repurchase the said parcel of land within 1 year, In the meantime, h B ean sell this parcel of land to C. a third person, oncwener, ives the: goods as Principal who retains The agent d B0t from his ipal. livers the price, which buyer, to hisCHAPTER I~ NATURE AND FORM OF THE CONTRACT ‘The buyer, as a general rule, cannot | The agent can return the goods in return the object sold. case he is unable to sell the same to athird person. 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, itis a contract for a piece of work. As can be clearly seen from the wordings of Art. 1467, what determines whether the contract is one of work or of sale is whether the thing has been manufactured specially for the customer and upon his special order. Thus, if the thing is specially done at the order of another, this is a contract for a piece of work. If, on the other hand, the thing is manufactured or procured for the general market in the ordinary course of one's business, it is a contract of sale. As held by the Court, "the distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, ora thing which would have existed and has been the subject of sale to some other persons even if the order had not been given."21 Problem: Hand Ware engaged in the business of manufacturing and selling shirts. $ is part owner and general manager of another manufacturing corporation. H and W and S entered into a contract whereby the latter would manufacture for H and W 20,000 pieces of vinyl frogs and 20,000 pieces of vinyl mooseheads at P7.00 per piece in accordance with the sample approved by H and W. These frogs and mooseheads were to be attached to the shirts H and W would manufacture and sell. S delivered in several installments the 40,000 pieces of frogs and mooseheads. H and W fully paid the agreed price. Subsequently, H and W returned to $ 29,772 pieces of frogs and mooseheads for failing to comply with the approved sample. H and W then demanded from S a refund of the purchase price of the returned goods in the amount of P208,404. As S refused to pay, H and W filed an action for collection of a sum of money. Is the contract executed by and between H and W and Sacontract for a piece of work? 2.CIR ys, Amnoldus Carpentry Shop, Inc.and CTA, GR_No.71122, March 25, 1988,HE CONTRACT ERI-=NATURE AND FORM OF T CHAPT! 2 ivil Code are apropos: ae a ng provisions of the New Civil Co lowin 1 e ! pe the delivery at a certain price of an artic, “Art 1467. Contra er course of his business manufacture, the ordi Z tte aie the general market whether the same is on hand at the or procure: i ids are to be manufacturoq is tofsale, but ifthe good: aaa en and upon his special order, and not for the special itis iece of work.” .arket, it is a. contract for api i ara By the contract for a piece of work the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. The contractor may either employ only his labor or skill, or also furnish the material.” tim As this Court ruled in Engineering & Machinery Corporation y, Court of Appeals, et al.,"a contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order of the person desiring it. In such Case, the contract is one for a piece of work, not a sale. On the other hand, if the thing subject of the contract would have existed and been the ‘subject of e word “contractor” las co} . in the pursuit of me to be used With special reference to i i sbecific Job o piece of work ae ougPendent business, undertakes to doa eee iin ler persons, using his own means and mself to Control as to the Petty details, true test of Course of Contractor Would ‘eyer on| independent occa ee to be that he tehders service ly MIS accomplished as ° TeSUlt of his ". Tepresenting the will of his ed, Work, ang a °tas'to the means by which 2 a aecle ds of v. Ss r = f CHAPTER I-NATURE AND FORM OF THE CONTRACT 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 isa sale. SALE VS. BARTER [ Sale Barter A thing is given in exchange of a| A thing is given in exchange of price certain in money or its | another thing | equivalent. Ifthe consideration is partly in money and partly in another thing: 1, The transaction is characterized by the manifest intention of the parties. 2. If there is no manifest intention: a. Barter if the value of the thing is more valuable than money. b, Sale if the value of the thing is equal or less than the amount of money. Example: Sand B agreed that S will deliver his only parcel of land to B and Bwill deliver his only car worth P500,000 and P500,000 cash to S. What is the nature of their agreement? The nature of their agreement will depend on their intention. If their intention is a contract of sale then it is Sale or if their intention is a contract of barter, then itis Barter. Assuming that in the case at bar, there is no manifest intention then it isa Sale because the value of the car and cash are equal. What ifthe car is worth P600,000? Then it is Barter because the value of the car is more than the money. Art. 1469. In order that the price may be considered certain, it shall be sufficient that it be so with reference to another thing certain, or that the determination thereof be left to the judgment of a special person or Persons, Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the parties subsequently agree upon the price. Ifthe third person or persons acted in bad faith or by mistake, the courts may fix the price. Where such third person or persons are prevented from fixing the price or terms by fault of the seller or the buyer, the party not in fault may have such remedies against the party in fault as are allowed the seller or the buyer, as the case may be.CHAPTER [-Naeee f the New Civil Code, the Be ‘dered certain if it be 2 ith ree a See cones Tiree ae oo aly ae ‘i yoni iemay he rendered certain; or jf it ‘ it tain ned with cert raul isions by which A - b express or implied provisions OY tion by which it can be defintely ; some provides SO} ethod or ri ine 's terms, the contr. The bree is considered certain i Pa Bee ure ce ‘act ascertained ae eoecasure for ascertaining the a ; furnishes a ba 1469 o! Irrefragably, under A erty $0 be con: mai s Oe 2a at is sufficie! Requisites for a valid price J ave pene price is not simulated or not fictitious. 2 Se een expressed and agreed in terms of specific amount of money or its equivalent. It is ascertainable if it is sufficient that itbe so with reference to another thing certain, or that the determination thereof be left to the judgment of a special person or persons, 3. In money or its Equivalent 4, Manner of payment must be agreed upon The agreement on the manner of payment goes into the price, such that a disagreement on the manner of payment is tantamount toa failure to agree on the price, xcept as it may indicate a defect in the consent, i really intended a donation or sone , or that the parties ther act or contract, The mere inadequacy of the r ri i ae both parties are in a position to ae does not affect its validity when the transaction, unle: ithe dependent judgment concerning L unless frau 2 . defect in consent ig BReSne Mh Inistake or undue influence indicative of a Sround re consent and morte ae Consequently be annulled on the urthermore, ma e inadequacy of the Price.25 it qi alleged i neces at Ver dacontact eran inadequacy ef the price does ba ‘quacy may indicate that © parties Teally intended a ct. Finally, unless the price is © asale is not set aside. » although the j Onsent, or that pad 4 defect in the ¢RM OF THE CONTRACT FO) ApreR[- NATURE ANP CH of the New Civil cae the Price g in if it be so with reference Irrefragably, be considered Ce variant Svea the property SO! Tg suclentifitean be determines 9) Me at anotherthing certar™ | the parties thereto or Be UsIBE (nies capite t of the contract Pee eontiae of sale or a Z SLES eat eorporated In i id contract; t : incorperertained with certainty in Be amet ; ons it can be definitely ; isions by whic Z implied provisions by wh bes SS me method or tera eo 4 Fy neice iced! idere , ascertained The price is conside aining the amount agreed upon.24 furnishes a basis or measure for ascert: under Article 1469 Requisites for a valid price 1. Real LP ‘The price is not simulated or not fictitious. 2. Certain or Ascertainable : It is certain if it is expressed and agreed in terms of specific amountof money or its equivalent. It is ascertainable if it is sufficient that itbe so with reference to another thing certain, or that the determination thereof be left to the judgment of a special person or persons. 3. In money or its Equivalent 4, Manner of payment must be agreed upon ‘The agreement on the manner of Payment goes into the price, such that a disagreement on the manner of payment is tantamount to a failure to agree on the price, AIt. 1470. Gross inadequacy of Price does not affe i fect a contract of sale, «xcept as it may indicate a defect in the consent, or that the Parties Teally intended a donation or some other act or contract, We donation, mortgact 2 ‘He consent adequacy may indicate that | Mortgage, o, » OF that the ‘ n Ee, inadequate, rains other act op contract, Fie fe ay Peed «xing to the Conscience, 3 aie a unless the price s Not Set aside,© of © to ons lent * of ‘ins fit ely act ic CHAPTER -NATURE. AND FORM OF THE CONTRACT. Example; S:sold to B his 5-year old car for P500,000 not knowing that the fair market value of which is P650,000, Is the sale valid? The sale is valid because gross inadequacy of the selling price does not invalidate a contract of sale. Art. 1471. If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or some other act or contract. Whatis simulated price? A simulated price is a fictitious price. A contract of sale is not a real contract, but a consensual contract. As a consensual contract, a contract of sale becomes a binding and valid contract upon the meeting of the minds as to price. If there is a meeting of the minds of the parties as to the price, the contract of sale is valid, despite the manner of payment, or even the breach of that manner of payment. If the real price is not stated in the contract, then the contract of sale is valid but subject to reformation, If there is no meeting of the minds of the parties as to the price, because the price stipulated in the contract is simulated, then the contract is void. Article 1471 of the Civil Code states that if the price in a contract of sale is simulated, the sale is void. Itis not the act of payment of price that determines the validity of a contract of sale. Payment of the price has nothing to do with the perfection of the contract. Payment of the price goes into the performance of the contract. Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract.26 Problem: Ris the owner ofa Jot with an area of 448 square meters. In 1981, R sold 185 square meters of the said lot to H and W who built their residential house thereon, Ralleged that on March 1, 1984, she signed a Deed of Sale of the lotin favor of M. R, being illiterate, signed by affixing her thumb-mark on the document. M promised to pay the agreed P47,000 purchase price within one month from the signing of the Deed of Sale. R further alleged that M failed to pay the purchase price after the lapse of the one-month period, prompting R to demand from M the return of the Deed of Sale. Since M refused to return the Deed of Sale, R executed a document unilaterally revoking the sale and gave a copy of the document to M. eee Spouses Bernardo Buenaventura and Consolacion Joaquin, etal. vs. CA, etal, GR.No. 126376, November 20, 1003,RACT E CONT! :oRM OF TH! ‘AND FOR! TURE ae R signed a Deed of sy, 1984 same time confirming the dies portion of the lot. 5 ne! June 18, 1984 they receive d Certificate of Title in the ae ire lot, subsequen aA nd W e at Miggt ofa 185 square me ein 5s Ww allege’ " aH and ater of Deeds issue i imply rescissible, imply rescissible Jor fi beginning or si d from the .d of Sale void transferrin revious sl a R an hi information name of forthe Isthe Dee: sts i R received, the P47,099 a that M paid, and F Bee re signing of the Deed of Sale. Pease ce on Marek epet eee of carla Perec mon See ea ic resented b oa eae d on the evidence p : ion. However, base‘ fe aah Na RenIM ue taalcbur found tat Mnever paid to are ever reece fom M, the B47,000 purchase price. Ther epariuay oe total absence of consideration contrary to what is s a Where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration. a : The Court reiterated this rule in Vda. De Catindig v. Heirs of Catalina Roque, to wit: “The Appellate Court's finding that the price was not paid or that the Statement in the supposed contracts of sale as to the Payment of the rice was simulated fortifies the view that the alleged sales were void. “If the price is simulated, thesaleis void... “(Art 1471, Civil Code) . ‘A contract of sale is void and produces no effect whatsoever ae Balch appears thereon as Paid, has in fact Never been ie purchaser to the vendor, ii ieee mine Such a sale is non "existent or cannot Applying this well-entrenched do. Tile that M's Deed of ctrine to the instant case, we : ale ji F consideration © Is null and voig Gb initio for lack of Masse manner of payment te OY issue i on i ‘ Paym n controversy i » ines thar ft 24/or wher a ayment he mode and/or Consideration and des, oY Manner of payment iS ics “a ade iM the validity arate from the ct (Quel Properties Philippines ie patTact. In the recent he manne, Mang, We ruled that clement hop. Ff Paymeng Of th : re : e purch 2 cone and binds = Price is an essential 8 ‘ode do, “ontract Pe the same 0 Met on the not eXPressly State tacne eee me is needed, Other or manner of bay le ao i Se there is Ment o n 22 0 sale. As held xxx,ale the ed he e? CHAPTERT—-NATURE AND FORM OF THE CONTRACT agreement on the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price.” One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the contract. In a contract of sale, the parties must agree not only on the price, but also on the manner of payment of the price, An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus preventing the existence of a valid contract for lack of consent. This lack of consent is separate and distinct from lack of consideration where the contract states that the price has been paid when in fact it has never been paid.?7 Art. 1472. The price of securities, grain, liquids, and other things shall also be considered certain, when the price fixed is that which the thing sold would have on a definite day, or ina particular exchange or market, or when an amount is fixed above or below the price on such day, or in such exchange or market, provided said amount be certain. Art. 1473. The fixing of the price can never be left to the discretion of one of the contracting parties. However, if the price fixed by one of the parties is accepted by the other, the sale is perfected. Rationale: Reason why price fixing cannot be left to the discretion of one of them: the other could not have consented to the price, for he did not know what it was.?8 Art. 1474, Where the price cannotbe determined im accordance with the preceding articles, or in any other manner, the contract is inefficacious. However, if the thing or any part thereof has been delivered to and appropriated by the buyer he must Pay a reasonable price therefor. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. General Rule: Where the price cannot be determined in accordance with the Preceding articles, or in any other manner, the contract is inefficacious. Hence, the sale is void. Exception: If the thing or any part thereof has been delivered to and ppropriated by the buyer, he must Pay a reasonable price therefor. sate wets he is tt Rido Monteclov.Igacia Reynes and Spouses Redemptor and Elisa Abucay,G.R.No, 138018, July 26, 2002, **10Manresase, iarF CONTRACT JAPTER I - NATURE AND. FORM OF THE cH t there j r d at the moment isa sale is Laerarn object of the contract ang Sf 5. The contract ching which f 1475. peeting of minds upon the t e price. nee re that moment, the Ps nerd performance, subject to the provision contracts. arties may reciprocally demang ne law governing the form of fal e onsen! tract; thus, it is perfected p) i sual contract; thus, it is pe ‘Take note that sale is a consensi ; spe mere consent meaning the moment there Is a sm: i ie X Corp. is a domestic corporation engaged in the trading and holesale and retail bases, while y distribution of consumer goods in w! i Corp. is one engaged in the supply of computer hardware and equipment, “ ¥. Corp. sent a letter-proposal for the delivery and sale of the subject products to be installed at various offices of X Corp. On October 29, 2001, X Corp. accepted Y's proposal and accordingly issued a Purchase Order for the subject products amounting to R646,464. Thereafter, Y Corp. delivered the said products to X Corp. The fine print of the invoice states, inter alia, that "title to sold property is reserved in ¥ Corp. until full compliance of the terms and conditions of above and payment of the price’. After delivery, the subject products were then installed and configured in X Corp.'s premises. Y Corp's demands against X Corp. to pay the purchase price, however, remained unheeded, Instead of paying the purchase price, X Corp. sent Y Corp. a fae sung thatit pon nine the subject products to Y Corp. ruts sales representative who has agreed to pull out the said products but had failed to do so up to now." E B Should X Corp. pay Y Corp. the purchase pri prodiicte7 Price for the subject Answer: The very essence of a contract of i sale is the fer of ownership in exchange for a Price paid or rere one of the contracting parties ownership and to deliver @ money or its equivalent, Pay therefor a price certain Acontract of sale may be absolute or Conditional, In this case, the parti the parties h toa contract to sell, Bea ind (eet? & contract of sale and not age iring in mind its Consensual nature, a contract oCHAPTER I - NATURE AND FORM OF THE CONTRACT sale had been perfected at the precise moment X Corp, as evinced by its act of sending Y Corp. the Purchase Order, accepted the latter's proposal to sell the subject products in consideration of the purchase price of 646,464. From that point in time, the reciprocal obligations of the parties , on the one hand, Y Corp. to deliver the said products to X Corp. and, on the other hand, X Corp. to pay the purchase price therefor within 30 days from delivery - already arose and consequently may be demanded, Article 1475 of the Civil Code makes this clear: 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.?9 Note: In general, a perfected contract of sale cannot be challenged on the ground of the seller's non-ownership of the thing sold at the time of the perfection of the contract Further, even after the contract of sale has been perfected between the parties, its consummation by delivery is yet another matter. It is through tradition or delivery that the buyer acquires the real right of ownership over the thing sold.2 Art. 1476, In the case of a sale by auction: (1) Where goods are put up for sale by auction in lots, each lot is the subject of a separate contract of sale. (2) Asale 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. (3) A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise provided by law or by stipulation. (4) Where notice has not been given that a sale by auction is subject to aright to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ or induce any person to bid at such sale on his behalf or for the auctioneer, to employ or induce any person to bid at such sale on behalf of the seller or knowingly to take any bid from the seller or any person employed by him. Any sale contravening this rule may be treated as fraudulent by the buyer.pneu CHAPTERI~ NATURE AND FORM OF? a jon isperfected the auctioneer announces j Sale by aucti d when its is ctet duction is perfected auetioneer anno f an ifthe fall the hammer, or in other customary perfe er core the fall ofthe hammer Say bidder may retract his bid; and 4 Tn auctioneer may withdraw the g00 “has been announced to be without reserve. ds from the sale unless the auction Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. In a contract of sale, the title to the property passes to the vendee upon the constructive or actual delivery thereof, as provided for in Article 1477 of the New Civil Code. The vendor loses ownership over the property and cannot recover it until and unless the contract is rescinded by a notarial deed or by judicial action as provided for in Article 1592 of the New Civil Code. A contract of sale is absolute, absent any stipulation therein reserving title over the property to the vendee until full payment of the purchase price nor giving the vendor the right to unilaterally rescind the contract in case of non-payment. In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time existed, and discharges the obligations created thereunder.5! In a contract of sale, until and unless the contract is resolved or rescinded in accordance with law, the vendor cannot recover the thing sold even if the vendee failed to pay in full the initial payment for the property. The failure of the buyer to pay the purchase price within the stipulated period does not by itself bar the transfer of ownership or possession of the property sold, nor ipso facto rescind the contract. Such failure will merely give the vendor the option to rescind the contract of sale judicially or by notarial demand as provided for by Article 1592 of the New Civil Code: Art. 1592. In the sale of immovable property, been stipulated that uy i ed that upon failure to pay the pri i ed upon the rescission of the contract a bp n FER pineaitve vend ma) 7 ight take place, the vendee HBS the expiration of the period, as cg as no deman ero a Abra ee ies been made upon him either judicially new term,32 demand, the court may not grant him @ even though it may have pe eae CHECHAPTER I = NATURE AND FORM OF THE CONTRACT Problem: Inher complaint, Raverred that she bought the hereditary shares (consisting of 10 lots) of X and the heirs of L; that said vendors executed acontract of sale dated April 10, 1990 in her favor; that X and the heirs of L received a down payment or earnest money in the amount of P102,169.86 and 450,000, respectively; that it was agreed in the contract of sale that the vendors would secure certificates of title covering their respective hereditary shares; that the balance of the purchase price would be paid to each heir upon presentation of their individual certificates of title; that X refused to receive the other half of the down payment which is 2100,000; that X refused and still refuses to deliver to R the certificates of title covering his share on the two lots; that with respect to the heirs of L, they also refused and still refuse to perform the delivery of the two certificates of title covering their share in the disputed lots; that R was and is ready and willing to pay X and the heirs of L upon presentation of their individual certificates of title, free from whatever lien and encumbrance. As to C, in spite of her knowledge that the disputed lots have already been sold by X to R, it is alleged that a simulated deed of sale involving said lots was effected by X in her favor; and that the simulated deed of sale by X to C has raised doubts and clouds over R's title. X and the heirs of L argue that the contract is a contract to sell, not a contract of sale. The real character of the contract is not the title given, but the intention of the parties. They intended to reserve ownership of the property to X and the heirs of L pending full payment of the purchase price. Further, R failed to faithfully fulfill her part of the obligation. Thus, X had the right to sell his properties to C who exercised due diligence in ascertaining ownership of the properties sold to her. Is the contract of sale between X and the heirs of L and R valid? Answer: Indeed, they have entered into a contract of sale. Not only has the title to the subject properties passed to R upon delivery of the thing sold, but there is also no stipulation in the contract that states the ownership is to be reserved in or "retained by the vendor until full payment of the price.” In fact, earnest money has been given by R. "It shall be considered as part of the price and as proof of the perfection of the contract. It constitutes an advance payment to "be deducted from the total price. "Article 1477 of the same Code also states that "the ownership of the thing sold shall be transferred to the vendee upon actual or constructive delivery thereof." In the present case, there is actual delivery as manifested by acts simultaneous with and subsequent to the contract of sale when R not only took possession of the subject properties but also allowed their use as parking terminal for jeepneys and buses.ct of sale is constructiy wag Cl of the contract e BOF scutio FANG exec a } itself Jd no longer sel] the subject properties to ¢ could n — the vendor los.. nsequently, "in a contract of sale, U loses a ‘ld them to R. "In 1 recover it until and unless t,, aving's no! ate oN over the property and car "phe records do not show that y ownershi ed or rescinded x XX ed or resend eract, What he adduced was a belay sion of resolv -ontract IS resol fa .d for a resciss' f attorney he executed. In the sale o asked Tron of the special Powe n it may have been stipulated that up, revo i ed ¢ immevable property even tneid Mea upon the rescission of the i the vendee may pay, even after the failure to pay the price fe ct shall of right take place, ie aa 0 demand, it : lly or by a notarial act."33 ie iod, as long as n' iration of the period, as. 10 hasbeen made upon him either judicial Two aspects of delivery fy : The term "delivery" or tradition has two aspects: Be 1.The de jure delivery or the execution of deeds of conveyance; an 2, The delivery of the material possession.+ Art, 1478, The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price. Under the Civil Code, unless the contract contains a stipulation that ownership of the thing sold shall not pass to the purchaser until he has fully paid the price, ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof, In other words, i payment of the purchase price is not essential to the transfer of ‘ownership as i long as the property sold has been delivered. Such delivery (traditio) operated to divest the vendor of title to the Property which may not be regained or the contract is resolved or i in accordance with law,35 ae Stpulation Bees nadie tl code does not require that such a effectis considered v a made, Consequently, an implied stipulation to thet Parties, It should be “idand, therefore, binding and enforceable between the Which contains this kind o/h onset the law and jurisprudence, a contrac Kind of stipulation is considered contract to sell.36 Art: 1479. A promise t : srpinl reciprocally sa ell'a determinate thing for a price mca rs Ruin Lim, ne atonal ane "PPSTIES, nes. Cetal,gie ee aie 87162, aotary 24 2007, shales, al eh 144320, Anca 26,2006 Hizey Top 8, RN. 118357, May 6, 1997.CHAPTER I- NATURE AND FORM OF THE CONTRACT 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. What is contract to sell? Acontract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consents present, although it is conditioned upon the happening ofa contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated. However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of Jaw without any further act having to be performed by the seller. Ina contract to sell, upon the fulfillment of the suspensive condition ich i of ir ic ip_will_not wu icall to r a revi delivere im. TI ivi still ha: itle e tive ring into a c te sale.37 Contract to sell vs. Conditional contract of sale Contract to sell Conditional contract of sale In a contract to sell, there being no previous sale of the property, a third Person buying. such property despite the fulfillment of the Suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of Teconveyance of the property. There is no double sale in such case. Title to the property will transfer to the [buyer after registration because In a conditional contract of sale, however, upon the fulfillment ofthe Suspensive condition, the sale becomes absolute and this will definitely affect the sellers’ title thereto. In fact, if there had been previous delivery of the subject property, the sellers’ ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. Soe = AR ER er *'see Romulo A. Coronel, etal. vs. CA, etal, G.R.No. 103577, October 7,1996,ORM OF THE CONTRACT F CHAPTERI- NATURE AND jefoct in the owner Applying At a al va [here is no defect in latter, of | Code, is osm yraveriattueas sellers title per Se 4 for damages by Dee Paee jendtdieeler eye th intend a yer cane the sellers’ title, or at leag, a a < charged with the obligation to discover suchidefect, camnot be 4 registrant in good faith. Such second buyer cannot defeat the first buyers title. In case a title is issueq to the second buyer, the first buyer may seek reconveyance of the | property subject of the sale.38 is option contract? : oat pincer Prieto, the nature of an option contract is explained Same Dictionary, edition of 1897, Bouvier defines an option as in the following language: ‘ sig Sones by wie ofwhich A, in consideration of the payment ofa certain sum to B, acquires the privilege of buying from, or selling to, B certain Securities or properties within a limited time at a specified price. (Story vs Salamon, 71 N. ¥., 420.) From Vol. 6, page 5001, of the work "Words and Phrases,” citing the case of Ide vs. Leiser (24 Pac, 695; 10 Mont, 5; 24 Am. St. Rep., 17) the following quotation has been taken: Price within a certain time. He does not Sell hi to sell it; but he does Sell something: 5 z ean the election or option of the Ng; that is, the right or privilege to buy a aca thing of values tone ; have lands, but he does get a oe Parts with his ‘ora limited Period, Point of view, he ene Sond party receives this ri But the tw, ny Consideration for the obligation x x mae the case where there was cause 0”CHAPTER I — NATURE AND FORM OF THE CONTRACT The rule so early established in this jurisdiction is that the deed of option or the option clause in a contract, in order to be valid and enforceable, must, among other things, indicate the definite price at which the person granting the option, is willing to sell.4® Whatis right of first refusal? On the other hand, inAng Yu Asuncion v. Court of Appeals?° an elucidation on the "right of first refusal" was made thus: In the law on sales, the so-called ‘right of first refusal’ is an innovative juridical relation. Needless to point out, it cannot be deemed a cs sale under Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be brought within the purview of an option under the second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 of the same Code. An option or an offer would require, among other things, a clear certainty on both the ebject and the cause or consideration of the envisioned contract. In aright of first refusal, while the object might be made determinate, the exercise of the right however, would be dependent not only on the grantor’s eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct.ti OPTION CONTRACT VS. RIGHT OF FIRST REFUSAL From the foregoing, itis thus clear that an option contract is entirely different and distinct from a right of first refusal in that in the former, the option granted to the offeree is for a fixed period and at a determined price. Lacking these two essential requisites, whatis involved is only aright of first refusal.# Problem: Hand W leased a house and lot to X.X used the subject property as his residence and place of business, H and W and X allegedly entered into a Contract of Lease with Option to Purchase involving the subject property. The contract purportedly afforded X, before the expiration of the three-year lease period, the option to purchase the subject property fora price not exceedingP1.5 Million, “© ps. Reynaldo K.Litonjuaand Erlinda P.Litonjua and Phil. White House Auto Supply, Inc, vs. L&R Corp, tal,GR. No, 130722, March 27,2000, {, Roberto D, Tuazon vs. Lourdes Q, Del Rosario-Suarez, etal, G.R. No, 168325, December 8, 2010. © Roberta D, Tuazon vs, Lourdes Q, Del Rosario-Suarez, etal, G.R. No. 168325, December 8, 2010, ‘ahCONT RAL NATURE AND FORM OF THE ERI- TI . ¥ CHAP” Ail three-year lease period Provided ; 1 he subject prop, 2 the Oa ed hi to purchase t a nefore Hi qgerased i there eo W his willingness to pay th, secontract, Xexercised ingress pay thetsmnunicating verbally MIT and W supposedly ignored yx, ea purchase Price, manliesta etter to X Hand W dement and vacate the subject property s! ites themselves: neeing tho: demand of Hand’ Wy OS tetituted cee Performance against Hand W.X's case of acto eee Contract of Lease with Option to Purchase vesting hin is founded on the Co hip of the subject property after paying with the right to acquire ownership the agreed amount of consideration. isthere an option contract? ition ded that he pay his rental arreary it would be needed by H and w r i aura option is also sometimes called an "umaccepted offer” and is sanctioned by Article 1479 of the Civil Code: ) i 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 q price certain is binding upon the promissor if the promise is supported bya consideration distinct from the price. The second paragraph of Article 1479 provides for the definition and consequent rights and obligations under an option contract. For an option contract to be valid and enforceable against the promissor, there must be a separate and distinct consideration that ‘Supports it. In the landmark case of Southwestern Sugar and Molasses ie ree, is no Question that under Article 1479 of the new Civil robe vant, ot “a Promise to buy or to sell,” ae used in ‘'pported by a consideration distinct Here it is not disputed It can there i i ‘ore be withdrawn by appellee, : €ntof considerat; at tion in tion emains i ugar ; eee Separate ang distinc, ae inthis day, Without in subsequent the purchase price, ¢niideration that is * GQ option contract ing the acc doc tance made o oeCHAPTER I= NATURE AND FORM OF THE CONTRACT cannot be enforced; that holds true even if the unilateral promise is already accepted by the optionee. ‘The consideration is "the why of the contracts, the essential reason which moves the contracting parties to enter into the contract." However, by the very nature of an option contract, as defined in Article 1479, the same is an onerous contract for which the consideration must be something of value, although its kind may vary. We have painstakingly examined the Contract of Lease with Option to Purchase, as well as the pleadings submitted by the parties, and their testimonies in open court, for any direct evidence or evidence aliunde to prove the existence of consideration for the option contract, but we have found none. The only consideration agreed upon by the parties in the said Contract is the supposed purchase price for the subject property in the amount not exceeding ?1.5 Million, which could not be deemed to be the same consideration for the option contract since the law and jurisprudence explicitly dictate that for the option contract to be. valid, it must be supported by a consideration separate and distinct from the price. In Bible Baptist Church v. Court of Appeals, we stressed that an option contract needs to be supported by a separate consideration. The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not monetary, these must be things or undertakings of value, in view ofthe onerous nature of the option contract. Furthermore, when a consideration for an option contract is not monetary, said consideration must be clearly specified as such in the option contract or clause. In the present case, it is indubitable that no consideration was given by X to H and W for the option contract. The absence of monetary or any material consideration keeps this Court from enforcing the rights of the parties under said option contract.43 Note: There isno question that under Article 1479 of the new Civil Code "an option to sell,” or “a promise to buy or to sell,"as used in said article, to be valid must be “supported by a consideration distinct from the price." This is clearly inferred from the context of said article that a unilateral promise to buy or to sell even if accepted, is only binding if supported by consideration, In other words, "an accepted unilateral promise can only have a binding effect if Supported by a consideration, which means that the option can still be ‘withdrawn, even if accepted, f the same is not supported by any consideration, ‘"4ee Enrico Bulogi vs Spouses Clemente Apeles and Laz Apeles, GR.No. 167804, January 20,2009,