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Appendix B
Topical Index
(The Topical Index presents in outline form the manner by which the Law on Sales is discussed in the book, and serves as a syllabus for classroom discussions. The x’s in the outline represent cases which need no extended discussions either because the essence of their rulings are already summarized in the outline or they contain similar rulings as other cases to be discussed. Unless otherwise indicated, the numbered articles refer to articles of the Civil Code of the Philippines)
I. The Nature of Sale
A. Definition of Sale (Art. 1458)
Sale is a contract by which one of the contracting parties obligates himself to transfer the ownership[1] and to deliver possession, of a determinate thing, and the other to pay therefor a price certain in money or its equivalent. xCruz v. Fernando, 477 SCRA 173 (2005).[2]
1. Elements of Sale
Elements of sale: (a) consent or meeting of the minds; (b) determinate subject matter; and (c) price certain in money or its equivalent. xNavarra v. Planters Dev. Bank, 527 SCRA 562 (2007).[3]
Absence of any essential elements negates a sale xDizon v. CA, 302 SCRA 288 (1999),[4] even when earnest money has been paid. Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006).
Sale being a consensual contract, its essential elements must be proven xVillanueva v. CA, 267 SCRA 89 (1997); but once proven, a sale’s validity is not affected by a previously executed fictitious deed of sale xPeñalosa v. Santos, 363 SCRA 545 (2001); and the burden is on the other party to prove otherwise. xHeirs of Ernesto Biona v. CA, 362 SCRA 29 (2001).
2. Stages of Contract of Sale
Policitacion covers period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected. Perfection takes place upon the concurrence of the essential elements, which are the meeting of the minds of the parties as to the object of the contract and upon the price. Consummation begins when the parties perform their respective undertakings, culminating in the extinguishment thereof. xSan Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000).[5]
3. Sale Creates Real Obligations “To Give” (Art. 1165)
4. Essential Characteristics of Sale:
a. Nominate and Principal
A contract of sale is what the law defines it to be, taking into consideration its essential elements, and not what the contracting parties call it. xSantos v. Court of Appeals, 337 SCRA 67 (2000).[6]
b. Consensual (Art. 1475)
A contract of sale is not a real, but a consensual contract, and becomes valid and binding upon the meeting of the minds of the parties as to the object and the price[7], that:
· Upon its perfection, the parties may reciprocally demand performance. xHeirs of Venancio Bejenting v. Bañez, 502 SCRA 531 (2006);[8] subject only to the provisions of the law governing the form of contracts. xCruz v. Fernando, 477 SCRA 173 (2005).
· It remains valid even if parties have not affixed their signatures to its written form xGabelo v. CA, 316 SCRA 386 (1999), or the manner of payment is breached. xPilipinas Shell Petroleum Corp v. Gobonseng, 496 SCRA 305 (2006).
The binding effect of sale is based on the principle that the obligations arising therefrom have the force of law between the parties. xVeterans Federation of the Philippines v. Court of Appeals, 345 SCRA 348 (2000).
Perfection Distinguished from Demandability – Not all contracts of sale become automatically and immediately effective. In sales with assumption of mortgage, there is a condition precedent to the seller’s consent and without the approval of the mortgagee, the sale is not perfected. xBiñan Steel Corp. v. Court of Appeals, 391 SCRA 90 (2002).
“No Contract Situation” versus “Void Contract” – Absence of consent (i.e., complete meeting of minds) negates the existence of a perfected sale. xFirme v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003). The contract then is null and void ab initio, absolutely wanting in civil effects; hence, it does not create, modify, or extinguish the juridical relation to which it refers. xCabotaje v. Pudunan, 436 SCRA 423 (2004).
When there is no meeting of the minds on price, the contract “is not perfected” and does not serve as a binding juridical relation between the parties. xManila Metal Container Corp. v. PNB, 511 SCRA 444 (2006),[9] and should be more accurately denominated as inexistent, as it did not pass the stage of generation to the point of perfection. xNHA v. Grace Baptist Church, 424 SCRA 147 (2004).
c. Bilateral and Reciprocal (Arts. 1169 and 1191)
A contract of sale gives rise to “reciprocal obligations”, which arise from the same cause with each party being a debtor and creditor of the other, such that the obligation of one is dependent upon the obligation of the other; and they are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other. xCortes v. Court of Appeals, 494 SCRA 570 (2006).[10]
The power to rescind is implied in reciprocal ones in case one of the obligors should not comply with what is incumbent upon him, and without need of prior demand. xAlmocera v. Ong, 546 SCRA 164 (2008).[11]
d. Onerous (√Gaite v. Fonacier, 2 SCRA 830 [1961]).
e. Commutative (But see: Arts. 1355 and 1470)
In a contract of sale, there is no requirement that the price be equal to the exact value of the subject matter of sale; all that is required is that the parties believed that they will receive good value in exchange for what they will give. √Buenaventura v. CA, 416 SCRA 263 (2003).
f. Sale Is Title and Not Mode
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. Sale by itself does not transfer or affect ownership; the most that sale does is to create the obligation to transfer ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership. xSan Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005),[12] citing Villanueva, Philippine Law on Sales, 1995 ed., at p. 5.
Seller’s ownership of the thing sold is not an element of perfection; what the law requires is that seller has the right to transfer ownership at the time the of delivery. xQuijada v. CA, 299 SCRA 695 (1998).[13]
But See: xTitong v. CA, 287 SCRA 102 (1998), which defined a “sale” as “a contract transferring dominion and other real rights in the thing sold.”
B. Sale Distinguished from Similar Contracts
A contract is what the law defines it to be, taking into consideration its essential elements, and the title given to it by the parties is not as much significant as its substance.[14] The transfer of ownership in exchange for a price paid or promised is the very essence of a contract of sale. xSantos v. Court of Appeals, 337 SCRA 67 (2000).
In determining the real character of sale, courts look at the intent of the parties, their true aim and purpose in entering into the contract, as well as “by their conduct, words, actions and deeds prior to, during and immediately after executing the agreement,” and not at the nomenclature used to describe it, xLao v. Court of Appeals, 275 SCRA 237 (1997).
1. Donation (Arts. 725 and 1471)
Unlike a donation, sale is a disposition for valuable consideration with no diminution of the estate but merely substitution of values, with the property sold replaced by the equivalent monetary consideration; unlike donation, a valid sale cannot have the legal effect of depriving the compulsory heirs of their legitimes. xManongsong v. Estimo, 404 SCRA 683 (2003).
The rules on double sales under Art. 1544 find no relevance to contracts of donation. xHemedes v. Court of Appeals, 316 SCRA 347 (1999).
2. Barter (Arts. 1468, 1638 to 1641)
3. Contract for Piece-of-Work (Arts. 1467, 1713 to 1715)
The Crux: “Ineluctably, whether the contract be one of sale or one for a piece of work, a transfer of ownership is involved and a party necessarily walks away with an object.” xCommissioner of Internal Revenue v. CA, 271 SCRA 605 (1997), citing Villanueva, Law on Sales, pp. 7-9 (1995). In both provisions on warranty of title against hidden defects applies. xDiño v. CA, 359 SCRA 91 (2001).
When a person stipulates for the future sale of articles which he is habitually making, and which at the time are not made or finished, it is essentially a contract of sale and not a contract for labor xInchausti & Co. v. Cromwell, 20 Phil. 345 (1911); even when he executes production thereof only after an order is placed by customers. √Celestino & Co. v. Collector, 99 Phil. 841 (1956).
If the thing is specially done only upon the specific order of another, this is a contract for a piece of work; if the thing is manufactured or procured for the general market in the ordinary course of business, it is a contract of sale. √Commissioner of Internal Revenue v. Engineering Equipment & Supply Co., 64 SCRA 590 (1975).[15]
To Tolentino, the distinction depends on the intention of parties: if parties intended that at some future date an object has to be delivered, without considering the work or labor of the party bound to deliver, the contract is one of sale; but if one of the parties accepts the undertaking on the basis of some plan, taking into account the work he will employ personally or through another, the contract is for a piece of work. xEngineering & Machinery Corp. v. CA, 252 SCRA 156 (1996).
4. Agency to Sell (Art. 1466)
Assumption by “agent” of the risk pertaining to the cost or price of the subject matter makes the relationship that of buyer-seller, for the agent does not assume risk with respect to the price or the property subject of the relationship. xKer & Co., Ltd. v. Lingad, 38 SCRA 524 (1971). Consequently: (a) the contractual relationship is not inherently revocable. √Quiroga v. Parsons, 38 Phil. 501 (1918); or (b) the purported agent does not have to account for the profit margin earned from acquiring the property for the purported principal. √Puyat v. Arco Amusement Co., 72 Phil. 402 (1941).
One factor that most clearly distinguishes agency from other legal concepts, including sale, is control; one person – the agent – agrees to act under the control or direction of another – the principal. xVictorias Milling Co., Inc. v. CA, 333 SCRA 663 (2000).
Commercial broker, commission merchant or indentor is a middleman acting in his own name, and acts as agent for both seller and buyer to effect a sale between them. Although he is neither seller nor buyer to the contract effected he may voluntarily assume warranties of seller. xSchmid and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988).
5. Dacion En Pago (Arts. 1245 and 1934)
Governed by the law on sales, dation in payment is a transaction that takes place when property is alienated to the creditor in full satisfaction of a debt in money—it involves the delivery and transmission of ownership of a thing as an accepted equivalent of the performance of the obligation. xYuson v. Vitan, 496 SCRA 540 (2007).
In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. xAquintey v. Tibong 511 SCRA 414 (2006).
Elements of dation in payment: (a) 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; (b) some difference between the prestation due and that which is given in substitution (aliud pro alio); and (c) agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a presentation different from that due. √Lo v. KJS Eco-Formwork System Phil., Inc., 413 SCRA 182 (2003).[16]
For dacion to arise, there must be actual delivery of the property to the creditor by way of extinguishment of the pre-existing debt. xPhilippine Lawin Bus Co. v. CA, 374 SCRA 332 (2002).[17] But See Obiter: xSSS v. Court of Appeals, 553 SCRA 677 (2008).
There is no dation when there is no such transfer of ownership in favor of the creditor, as when the possession is only by way of security. xPNB v. Pineda, 197 SCRA 1 (1991).
A creditor, especially a bank, which enters into dacion en pago, should know and must accept the legal consequence thereof, that the pre-existing obligation is totally extinguished. xEstanislao v. East West Banking Corp., 544 SCRA 369 (2008).
6. Lease (Arts. 1484 and 1485)
When rentals in a “lease” are clearly meant to be installment payments to a sale contract, despite the nomenclature given by the parties, it is a sale by installments and governed by the Recto Law. xFilinvest Credit Corp. v. CA, 178 SCRA 188 (1989).
II. PARTIES TO A CONTRACT OF SALE (Arts. 1489-1492)
1. General Rule: Every person having legal capacity to obligate himself, may validly enter into a contract of sale, whether as seller or as buyer. (Art. 1489)
2. Minors, Insane and Demented Persons, Deaf-Mutes (Arts. 1327, 1397 and 1399)
A minor cannot be deemed to have given her consent to a contract of sale; consent is among the essential requisites of a contract, including one of sale, absent of which there can be no valid contract. [?] xLabagala v. Santiago, 371 SCRA 360 (2001).