Business law an overview


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Business law an overview

  1. 1. TABLE OF CONTENTS I Law on Business Transactions Obligations contracts Sales Assignment Agency Deposit 108 Guaranty & Suretyship 117 Pledge 131 seal Mortgage 141 Chattel Mortgage 150 Antichresis 156 II Law on Business Entities Partnerships 158 Private Corporations 179 III Law on Negotiable Instruments 202 vii OBLIGATIONS 1156 TO 1304The basic law governing obligations in Republic Act 356, the “Civil code”, in Articles 1156 to 1304. A. Nature, Sources and types of Obligations
  2. 2. 1. Nature. An obligation is juridical necessity to give, to do or not to do. [1157]2. Sources of obligations. These five sources are: (a) Law (1) Our legal system consists of constitution, statues and administrative rules andregulations and orders. (2) Obligations of this type arise upon enactment of particular law. (3) Obligations derived from law are not presumed. [1158] (b) Contract (1) A contract is a juridical convention manifested in legal form, by virtue of whichone or more persons bind themselves in favour of another or others, or reciprocally, to thefulfilment of a prestation to give, to do, or not to do. (2) Obligations of this type arise upon perfection of contract. They are either. A] Obligations implied by law, or B] Obligations stipulated by parties. (3) Contracts have force of law between contracting parties. [1154] This “circle oftwo is expanded to include their heirs and assignees.[1311] (c) Quasi-contract (1) It is a contract implied in law, whereby a person performs a lawful, voluntary andunilateral act which benefits another, who is deemed by law to have given consent thereto and tohave assumed obligations arising from it.[ 2142] Examples: A] Negotiorum Gestio. A person voluntarilt takes charge of the agency ormanagement of the neglected or abandoned business or property of another, without any powerfrom the latter. The other party shall be liable for obligations incurred in his interest and shallreimburse the officious manager for the necessary and useful expenses and for the damages whichthe latter may have suffered in the performance of his duties. [ see 2144 and 2150] B] Solutio Indebiti. A person pays or delivers a thing to another, where the latter hasno right to demand it and it was unduly delivered through mistake. The other party is obliged toreturn it. [2154] 1] If an obligor, who is under an obligation with a period, but who is not aware ofthe period or believes that the obligation has become due and demandable, pays or delivers the thething to his oblige, before it is due, is conferred by law the right to recover it, with the fruits andinterests [see 1195] 2] If a borrower pays interest to the lender when there is no stipulation thereof, thelender is obliged to return it.[1960] (2) Obligations of this type arise upon performance of unilateral and voluntary set.(d) Delict(1) it is an act or omission, usually attended by malice, and punished by law.(2) Obligations of this type arise upon commission or omission of the act.(e) Quasi- delict1. it is an act or omission, attended by fault or negligence, which causes damage to another. [2176]2. Obligations of this type arise upon commission or omission of the act.
  3. 3. B. GENERAL TYPES OF OBLIGATIONS1.A personal obligation is an obligation either to do or not to do. (a) A positive personal obligation is an obligation to do. (b) A negative personal obligation is an obligation not to do.2. A real obligation is an obligation to give. (a) A specific obligation is an obligation to deliver determinate when it is particularlydesignated or physically segeregated from all others of the same class.[ 1459] (2) A determinate thing is a concrete[ly] particularized object, indicated by its ownindividuality , while a generic thing is one whose determination is confined to that of its nature , tothe genus (genero) to which it pertains , such as horse, a chair.4(b) A generic real obligation is an obligation to deliver a generic object.3. An obligation “to do”includes all kinds of work or service, while an obligation”to give”isprestation which consists in the delivery of a movable or an immovable thing in order to create areal right, or for the use of the recipient, or for its simple possession, or in order to return itsowner.” C. STANDARD OF CARE AND FORTUITOUS EVENTS1. The standard of care required in obligations.(a) obligation to give (1) The standard of care to be observed by an obligor in his obligation to deliver aspecific thing is the diligence of a good father of a family, unless is a specific lawor his contractrequires a different standard of care. [1163] (2) There is understandable no standard in an obligation to deliver a generic thing.(b) Obligation to do. The standard is the diligence of a good father of a family, unless a specific lawor contract requires a different standard of care. [1173, par.2](c) Obligation not to do. There is understandably no standard in an obligation not to do.2. Fortuitous event. (a) A Fortuitous event is an act accident independent of the obligor‟s will to carry outsome stipulation. For him to escape the imputation of not performing his obligation to must beplaced in a situation A arising from an unforeseen event, not have avoided it, by reason of the factthat its unexpectedness and inevitability place it beyond human control. (b) No person is responsible for a fortuitous event, except (1) When the law says so a. Examples: 1. An obligor who has been in delay or has promised to deliver the specificthing to two persons who do not have the same interest is liable for the loss of the thing to fortuitiosevent. [ 1165, par. 3]2. A depository , who uses he thing without the depositor‟s permission, who delays its return, orwho allows others to use it even though he himself may have been authorized to use it is liable forthe loss of the thing to a fortuitous event. [1979(3);1979(2);1979(4)]2. when the contract says so.A) example : a depository is liable for the loss of the thing through a frortuitous event if it is sostipulated.[ 1979(1)]
  4. 4. 3. when the nature of the obligation requires the assumption of risk. a. Example: a dog trainer who contracted to train someone else‟s dog assumes the risk ofdog-bites. D. Specific Types of obligations1. As to their immediate demand ability and extinguishment based on the occurrence of an event.a. A pure obligation is one without any condition or term. It is demandable at once.[1179,par.1]b. An obligation with either a condition or a term 1. A condition is a future and uncertain event.[see 1179,par.1] 2. A term is duration of time culminating in a future and certain event.[ see 1193]2. As to number of prestations —(a) A simple obligation is one which contains only one prestation.(b) A compound obligation is one which contains more than one prestation.(1) In an obligation with conjunctive prestations, all the prestations must be done.(2)In an obligation with alternative prestations, only one prestation needs to be done. [see 11991(3) In an obligation with facultative prestations, the one prestation agreed upon may be substitutedwith an-other, which obligor may do. [1206]3. As to number of persons, and extent of rights and liability of the parties. (a) Individual (b) Collective (1) In a joint obligation, each obligor answers only for a part of the whole liability and toeach obligee belongs only a part of the correlative rights.8 (2) A solidary (also called joint and several) obligation is one in which each debtor is liablefor the entire obligation, and each creditor is entitled to demand the whole obligation.Kinds of solidarity:1] It is active, if solidarity is in favor of the creditors. It is passive, if solidarity is imposed on thedebtors.2] It is passive, if solidarity is imposed on the deptors3] Mixedb] The existence of solidarity between or among debtors determines the amount each of theircreditors are entitled to, and conversely, the kind of solidarity between or among creditorsdetermines the amount each of their debtors are liable for.c] Solidarity arises when: 1] the law says so. Examples: [a] The partners and their partnership are liable solidarily to a third person who, by anywrongful act or omission of a partner acting in the ordinary course of the partnership business orwith authority from his co-partners, suffers loss or injury [see 1822 and18241 [b] The partners and the partnership are liable solidarily where a partner acting within thescope of his apparent authority receives money or property of a third person and misapplies it, orwhen the partnership in the course of its business receives money or property of a third person andsuch money or property is misapplied by any partner while it is in partners hip‟s custody. [1823 and1824]
  5. 5. [c] The principal is solidarily liable with his agent, if the principal allowed his agent toact as though he had full powers, even when the agent has exceeded his authority.[1911] [d] Two or more persons who appoint an agent for a common transaction or undertakingare solidarily liable to the agent for consequences of the agency. [1915] [e] Responsibility of two or more persons who are liable for a quasi-delict issolidary.[2194] Directors or trustees who willfully and knowingly vote for or assent to patentlyunlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing theaffairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty assuch direc-tors or trustees are solidarily liable to the corporation, its stockholders or members andother persons for damages resulting from their acts.° [g] Directors and officers who consent to the issuance of watered stocks or who having knowledgethereof do not forthwith express objection in writing and file the same with the corporate secretaryshall be solidarily liable with the stockholder concerned to the corporation and its creditors for thedifference between the fair value received by the corporation at the time of issuance of the stockand the par or issued value of the same."2] the contract says so.3] the nature of the obligation requires it. [1207]En4. As to divisibility. An obligation may either be divisible or indi-visible.(a) An obligation to give a definite thing or an obligation to do which is not susceptible to partialperformance is indivisible.(b) The divisibility of an obligation to give and an obligation to do, whose object or service may bephysically divisible is determined by —(1) law a] A mortgage is indivisible. [2090] ) b] A stock subscription contract is indivisible.12 (2) intent of the parties. (c) The divisibility or indivisibility of an obligation not to do in is determined by the character ofthe prestation. [1225] E. Conditional Obligations1. Types of conditions(a) A suspensive condition is a future and certain event the happening of which gives rise to thedemandability of the obligation [or right]. It is also known as a condition precedent. Until andunless the event happens, the demandability of the obligation is "suspended," i.e., deferred.(1) A potestative condition [also called a facultative condition], whether suspensive or resolutoryin nature, is a future and uncertain event, the happening of which depends upon the sole will of oneof the contracting parties.A] If the condition is potestative on the part of debtor, the obligation itself is void [1182, firstsentence; 1186], unless the obligation is pre-existing.b] If the condition is potestative on the part of creditor, the obligation remains valid.C] If the condition is potestative on the part of a third person, the obligation remains valid. [1182]
  6. 6. d] If the condition depends upon chance, the obligation remains valid. [1182](2) Positive, and negative(3) Possible, and impossible [1183] (a) A positive impossible condition renders the ob-ligation void. [1183, first sentence] (b) A negative impossible condition renders the ob-ligation pure, and therefore demandableat once. [1183, par. 2](4) With a determinate time, and without a determinate time [1184)a] A condition that an event will not happen at a determinate time renders the obligation effectivefrom the moment the said time has elapsed or if it has become evident that the event cannot occur.[1185](b) A resolutory condition is a future and uncertain event the happening of which causes theextinguishment of the obligation or right. It is also known as a condition subsequent. Before ithappens, the obligation is demandable. [1181; 1179] F. Obligations with a Term1. Types of term (a) Suspensive term (ex die) (1) When its duration depends upon debtors will, the court will fix the duration. [1197, par.2] (2) Obligations for whose fulfillment a day certain has been fixed, shall be demandable onlywhen the day comes. [1198, par. 1]. But the rule admits of exceptions, such as:A] A thing deposited must be returned to the depositor upon demand, even though a specifiedperiod or time for such return may have been fixed. [1989, par. 1].B] Unless the deposit is for a valuable consideration, the depositary who may have justifiablereasons for not keeping the thing deposited may, even before the time designated, return it to thedepositor; and if the latter should refuse to receive it, the depositary may secure its consignationfrom the court. [1989](b) Resolutory term (in diem) G. Obligations with a Penal Clause 1. An obligation with a penal clause is actually a composite of two obligations: the principal obligation and the accessory contingent obligation.2. Kinds of penal clauses(a) As to origin (1) It is denominated legal, when its existence is due to a law. (2) It is conventional, when its existence is due to the stipulation of the parties.(b) As to its purpose (1) It is compensatory, when its purpose is restitutory. (2) It is punitive, when its purpose is retributive.(c) As to its demandability or effect (1) It is subsidiary (also called alternative), when only the penalty can be enforced. (2) It is joint (also called cumulative), when both the principal obligation and the penalclause can be enforced.
  7. 7. 3. In case of non-compliance, the penalty shall substitute: (i) the indemnity for damages, and (ii)the payment of interests. [1226, par. 1].(a) The creditor however may recover damages and/or interests in addition to the penalty: (1) when so stipulated by the parties 111226, par. 1] (2) When the obligor refuses to pay the penalty [1226, par. 2] (3) When the obligor is guilty of fraud in the fulfilment of the obligation.[1226,par1]H. Extinguishment of Obligations13The debtor is liable with all his property, present‟4 and future,15 for the fulfilment of his obligations,subject to the exemptions provided by law. [2236]General Types(a) By act of the parties(1) By act of the debtor(2) By act of the creditor(3) By acts of both debtor and creditor(b) By operation of law, e.g., compensationI. Performance and Payment1.Performance in good faith (a) Good faith consists of the honest intention to abstain from taking an unconscionable andunscrupulous advantage of another. 16 (b) As a general principle, the creditor who is the victim of performance which has beenattended by fraud, negligence, and delay is entitled to damages from the debtor. [11701A debtor who is guilty of fraud, negligence or default in the performance of obligations and adebtor who fails in the performance of his obligation is bound to indemnify for the losses anddamages caused thereby.‟7(1) Incidental fraud is the deliberate or intentional evasion of the normal fulfillment of anobligation‟8 (2) The fault or negligence of the obligor consists in the omission of that diligence which isrequired by the nature of the obligation and corresponds with the circumstances of the persons, ofthe time and of the place. [11731(3) Those obliged to deliver or to do something incur in delay from the time the obligee judiciallyor extrajudicially demands from them the fulfillment of their obligation.a] Demand is not necessary, however, in the following three instances:1] when the obligation or the law expressly do declares.2] when from the nature and circumstances of the obligation it appears that the designation of thetime when the thing is to be delivered or the service to be rendered was a controlling motive for theestablishment of the contract.3] when demand would be useless, as when the obligor has rendered it beyond hispower to perform.b] In reciprocal obligations‟9 neither party incurs in delay if the other does not comply or is notready to comply in a proper manner with what is incumbent upon him. From the moment one of theparties fulfills his obligation, delay by the other begins. [1169](4) The phrase “in any manner contravene the tenor” of the obligation, which is found in 1170,includes any illicit act which impairs the strict and faithful fulfillment of the obligation, or every
  8. 8. kind [of] defective performance.2°(c) Payment(1) Parties to paymenta] Payment by an incapacitated person is generally not a valid payment. [1239]bi Payment may be made by a third person, but the creditor is not bound to accept it, if the thirdperson has no interest in the fulfillment of the obligation, unless the parties have a stipulation to thecontrary. [see 1236]11 Such third person who pays is entitled to reimbursement from the debtor, except that if he paidwithout the knowledge or against the will of the debtor, he can recover only insofar as the paymenthas benefited the debtor. [see 1236]2] Such third person who pays without the knowledge or against the will of the debtor cannotcompel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty,or penalty.[1237]3] Payment made by a third person, who does not intend to be reimbursed by the debtor, is validpayment as to the creditor who accepts it. The payor‟s act shall be deemed to be a donation, whichrequires the debt. or‟s consent. [see 1238]c] Payment shall be made to the person in whose favor the obligation has been constituted or hissuccessor in interest or any person authorized to receive it [12401.1] Payment to an incapacitated person is valid payment, if he keeps the thing delivered or insofar asthe payment has been beneficial to him. [1241]21 Payment to a third person is valid payment insofar as it has redounded to thebenefit of the creditor. [see 1241]d] Payment made in good faith to any person in possession of the credit shall release the debtorfrom his obligation. [12421(2) The obligation to pay money is a generic obligation.21(3) Currency of payment. The repeal of RA 529 by RA 8183 has the effect of removing theprohibition on the stipulation of currency other than Philippine currency, such that obligations ortransactions may now be paid in the currency agreed upon by the parties22(4) Special forms of payment:a] Dacion en pago (or Dation in payment) [1245]. Dacion en pago is the delivery and transmissionof ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance ofthe obligation.23bi Cession. Payment by cession is assignment by the debtor of all his property in favor of his creditors. [1255]11 1255 contemplates the existence of two or more creditors and involves the assignment of all thedebtor‟s Tender of payment and consignation11 Tender of Payment.[a] Tender is the antecedent of consignation, that is, an act preparatory to the consignation which isthe principal and from which are derived the immediate consequence which the debtor desires orseeks to obtain. Tender may be extrajudicial, while consignation is necessarily judicial?[b] A tender of payment, to be valid must be unconditional. The effect of a valid tender of paymentis merely to exempt the deptor from payment of interest and or damage[c] If the creditor to whom tender of payment has been made refuses withoutjust cause to accept it, the debtor
  9. 9. shall be released from responsibilityby the consignation of the thing orsum due. [12561 [1] A tender of payment, even if valid, does not by itself producelegal payment, unless it is completed by consignation. Tenderof payment alone is not a modeof extinguishing obligations.[1]Consignation must follow, supplement or complete the tenderof payment if discharge of theobligation is to be obtained.2] Consignation is the act of depositing thething due with the court or judicial authorities whenever the creditor cannot acept or refuses to accept the payment, andit is generally requires prior tender of payment.3] When tender alone is sufficient Tender is sufficient if it is done in the exercise orenforcement of a right (such as a right of repurchase) not in settlement of a debt.4] When consignation alone is sufficient. Consignation alone shall release the debtorfrom responsibility:[a] when the creditor is absent or unknown, or does not appear at theplace of payment.[b] when the creditor is incapacitated to receive the payment at the time it isdue.[c] when, without just cause, the credit or refuses to issue a receipt.[d] when two or more persons claim thesame right to collect.[e] when the title of the obligation has been lost. [1256]dl Application of payments3° [125211] The rules on application of payments giving preference to secured obligations, are only operativein cases where there are several distinct debts.3‟J. Loss of the Object1. A thing is said to be lost when it perishes, or goes out of commerce, or disappears in such a waythat its existence is unknown or it cannot be recovered. [1189(2)]2. A generic obligation is not extinguished by the loss of a thing belonging to a particular genus.323. Impossibility of performance(a) The Civil Code authorizes the release of an obligor when the service has become so difficult asto be manifestly beyond the contemplation of the parties.33 When the service required by thecontract has become so manifestly beyond the contemplation of the parties, the obligor may also bereleased therefrom, in whole or in part.(1) The law recognizes exceptions to the principle of obligatory force of contracts. One exception islaid down in Article 1266. This article applies only to obligations “to do”, and not to obligations “togive.”35 K. Condonation or Remission of the Debt1.Condonation is the creditor‟s gratuitous release of the debtor from his obligation to him. L. Confusion or Merger of Rights
  10. 10. 1. Confusion or merger of rights arises when characters of credit or and debtor are merged in thesame person (e.g., a promiss ory note is, after a series of transactions, assigned or negotiated to itsmaker)(a) In confusion, there is one person, who is creditor and debtor of himself. M. Compensation1. Compensation takes place when two persons, in their own right, are creditors and debtors of eachother. [1278].(a) In compensation, there are two persons, who are credit ors and debtors of each other. N. Novation1. Novation is the extinguishment of an obligation by substitution or change of the obligation by asubsequent one which extinguishes or modifies or principal conditions or by substituting another inplace of the debtor, or by subrogating a third person in the rights of the creditor.36(a) Novation, unlike the modes of extinction of obligations, is a juridical act with a dual function,namely, it extinguishes an obligation and creates a new one in lieu of the old.372. types(a) As to its nature or how it is reached(1) Express novation(2) Implied novation. The issue as to whether novation has indeed arisen arises in this type, in lightof precept that novation is not presumed. [1292] The issue as to whether there is implied novationarises in cases of: (i) change in principal obligations, and (ii) legal subrogation.(b) Objective (or Real)(1) Change in the Object [1291(1)](2) Change in the Principal Conditions [1291(1)](c) Subjective (or Personal)(1) Substitution is the change in debtors. It may be through either delegacion or expromision.[1291(2)]a] Delegacion (“ex delegatio”) requires the consent of the old and new debtors and the creditor.1] If the new debtor pays, he will have rights to reimbursement [1236, par. 21 and subrogation.[123712] If the new debtor becomes insolvent, an action against original debtor is revived, except whenthe insolvency was already existing and of public knowledge, or known to the debtor when hedelegated his debt.[12951b] .Expromision (“ex promisio”)1] with consent of the old debtor [12931[a] If the new debtor pays, he will have rights to reimbursement [1236, par.2] and subrogation. [1237][b] If the new debtor becomes insolvent, an action against original debtor is revived, except whenthe insolvency was already existing and of public knowledge, or known to the debtor when hedelegated his debt. [1295]2] without consent or against will of the old debtor [1293][a] If the new debtor pays, he will have a right to beneficial reimbursementonly. [1236, par. 2][b] If the new debtor becomes insolvent or fails to fulfill obligation, it shall not give rise to liabilityof old debtor.[1294](2) Subrogation is the change in creditors. It transfers to the person subrogated, the credit and allrights appertaining to the old creditor, either against (i) the debtor, or (ii) third persons, who may be
  11. 11. guarantors, or mortgagors, subject to stipulation in conventional subrogation [1291(3); 1303].Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him inall his rights.38 It may either be legal or conventional.39a] Conventional subrogation. [1300] It is that which takes place by agreement of the parties;4°henceconsent of old and new creditors and debtor is necessary. [see 1301]b] Legal subrogation. Legal subrogation is that which takes place without agreement of the parties,but by operation of law because of certain acts.411] when legal subrogation exists:[a] The guarantor who pays is subrogated by virtue thereof to all the rights which the creditor hadagainst the debtor. [20671[b] If a person‟s property has been insured and he has received indemnity from the insurancecompany for the injury or loss arising out of the wrong or breach of contract, the insurancecompany shall be subrogated to the rights of the insured person against the wrongdoer or the personwho violated the contract. [see 220712] when legal subrogation is presumed to exist:[a] when the creditor pays another credit or who is preferred, with or withoutthe debtor‟s knowledge.[b] when a third person, not interestedin obligation, pays with the debtor‟sexpress or tacit approval.[ci when a person, interested in the fulfillment of obligation, pays with or without the debtor‟sknowledge, without prejudice to the effects of confusion as to said person‟s share. [1302] Contracts 1305 to 1422The basic law governing contracts is the Civil Code, in articles 1305 to 1422.A. Nature and Types of Contract1.Nature.(a) A contract is a meeting of the minds between two persons whereby one binds himself, withrespect to the other, to give something or to render some service. [13051(b) A contract is a juridical convention manifested in legal form, by virtue of which one or morepersons bind thems elves in favor of another or others, or reciprocally, to the fulfillment of aprestation to give, to do, or not to do.‟2. Types of contracts. The classification of contracts have for their purpose the determination ofapplicable provisions of law. An example would be the dichotomy between executory and executedcontracts; the Statute of Frauds apply to the former only.(a) As to method of offer and acceptance, i.e., how offer and acceptance are manifested.(1) Unilateral. A unilateral contract is one in which only one party makes a promise, in exchangefor an act or a forbearance by the other party.a] One party agrees to fulfill his promise(s) if the other performs his requested act or forbearance.b] A loan, whether commodatum or mutuum, is a unilateral contract.2(2) Bilateral. A bilateral contract is one in which each of the parties makes a promise.a] A sale is a bilateral contract, as the seller promises to deliver and transfer ownership over the
  12. 12. object, while the buyer promises to pay the price.[1458]b] Both parties agree to fulfill his promise(s) if the other performs his promise.(b) As to nature of agreement or how it is reached.(1) Express. An express contract is one in which the intent of the parties is disclosed by their words,oral or written.a] An express contract is a contract entered into by means of letters, in which the offer and theacceptance have been manifested by appropriate words.3(2) Implied. An implied contract is one in which the intent of the parties is inferred from theirconduct, as when a person operates and opens to the public a soft drinks dispenser, and anotherinserts a bill to retrieve a soft drink can.a] An implied contract is that which the consent of the parties is implied.4bi An implied contract, in the proper sense, arises where the intention of the parties is notexpressed, but an agreement in fact, creating an obligation, is implied or presumed from their acts,or as it has been otherwise stated, where2 Some jurisprudence have held that a loan is not a unilateral contract. However, some authoritieshave proffered the opinion loan is a unilateral contract. I share this view. This characteristic flowsfrom the fact that it is a real contract, i.e., it is perfected by delivery of the object to the borrower. Inexchange for the lender‟s act, the borrower makes a promise: to repay there are circumstanceswhich, according to the ordinary course of dealing and the common und erstanding of men, show amutual intent to contract.51] A contract of sale can be express or imp lied. [1483]2] There is no implied contract of guaranty; a contract of guaranty can only be express.[see 20551(c) As to manner of perfection. The perfection or birth of the contract takes place when the partiesagree upon the essential elements of the contract.6(1) Consensual contracts [13181a] A consensual contract is perfected by mere consent (on the object and cause of the contract) bythe parties.(2) Formal (or Solemn) contractsa] A formal contract is perfected upon consent of parties and execution of the required writing.11 A contract of partnership whereby immovables or real rights are contributed as capital needs tobe a formal contract. [see17711b] A contract partly in writing and partly oral, is in legal effect, an oral contract.7(3) Real contracts [13161a] A real contract is perfected upon consent of the parties and delivery of object.b] Deposit, loan8 and pledge are real contracts. [see1316](4) Contracts are enforceable only from the moment of perfection.9(d) As to their consideration. [1350, 1378](1) Onerous. In onerous contracts, the cause is understood to be, for each contracting party, theprestation or promise of a thing or service by the other. [1350](2) Remuneratory. In remuneratory contracts, the cause is the service or benefit which isremunerated. [1350](3) Purely beneficent or gratuitous. In contracts of pure beneficence, the cause is the liberality of the
  13. 13. benefactor. [13501(e) As to their enforceability in court(1) Enforceable. An enforceable contract is one which a party can sue upon.(2) Unenforceable. An unenforceable contract is either a valid contract which a party cannot sueupon, bec use it lacks some legal requirement, or a void contract which a court will not enforce.(0 As to stage of completion(1) Executed. An executed contract is one where both parties have performed their promises.(2) Executory. An executory contract is one where one party has not fully performed his promise.(g) As to their independence(1) Principal(2) AccessoryB. Two Important Principles Relating to Contracts Principle of mutuality of contracts(a) The contract must bind both parties; its validity or cornpliance cannot be left to the will of oneof them. [13081(1) A contract is the law between the parties.‟°(b) Independent of their motives and the value of their bargain, both parties must be bound to thecontract.2. Principle of relativity of contracts(a) Contracts take effect only between the parties, their assigns and heirs, except in case where therights and obligations arising from the contract are not transmissible by their nature, or bystipulation or by provision of law. [13111(1) The heir is not liable beyond the value of the property he received from the decedent. [1311](b) It is a basic principle in civil law that, with certain except ions, a contract can only bind theparties who had entered into it or their successors who assumed their personalities or their juridicalpositions, and that, as a consequence such contract can neither favor nor prejudice a third person.‟(1) There are two sets of exceptions to the above rule:a] The contract does not take effect insofar as the assigns or heirs, when the rights and obligationsare not transmissible because of11 the nature of the right or obligation,2] stipulation of the parties, or3] provision of law (e.g., 1939 which provides that a contract of cominodatum is purelypersonal)hi The following contracts affect third persons, even if they are neither parties, assigns nor heirs:11 a pour autrui contract [1311, par. 2]2] a contract creating real rights [1312]3] a contract which defrauds creditors of either party [131214] a contract which has been violated at the inducement of a third person [1314], and5] a contract done on behalf of a person who has authorized a third person, to do so, orwho by law is represented. [1317] C. Essential Requisites of a Valid Contract C-i. Consent.
  14. 14. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the causewhich are to constitute the contract. [see 1319, par. 1](a) “Meeting of minds.” The term “minds” refers to the capacity of parties to act, or capacity toenter into contract [381(1) Legal Capacity, i.e., capacity of parties to act, or capacity to enter into contracta] Minority1] Age of majority starts at eighteen years. [see 1327(1)1122] Minors are protected by law from contracts they enter into.b] Mentality. Soundness of mind is affected by —II Insanity21 Imbecility3] State of being a deaf-mute4] Prodigality [see 1327(2)]c] Civil interdiction1] Civil interdiction is an accessory penalty that deprives the criminal offender duringthe time of his sentence of the rights of parental authority, or guardianship, either as to the person orproperty of any ward, of marital authority, of the right to manage his property and of the right todispose of such property by any act or any conveyance inter vivos.132] Those civilly interdicted are prohibited by law to enter into any contract of conveyance ofproperty.(b) “Meeting of minds.” The word “meeting” in the term “meeting of minds” refers to the presenceof genuine consent.(1) Consent may be express or implied14a] Absence of consent renders the contract inexistent (and void).(2) Consent, albeit purportedly present, is not genuine, if it had been vitiated by any of the five“vices of consent”a] Mistakehi Violencec] Intimidationdl Undue influencee] Fraud1] Vitiation of consent, by any of the five vices, renders the contract voidable.(3) Simulated or fictitious contractsa] Absolutely simulated contracts are void. [13461b] Relatively simulated contracts:1] Those that do not prejudice a third person bind the parties to their real agreements.[1346]2] Those that prejudice a third person are rescissible. [see 1381(3)]3] Those that are not intended for any purpose are void.2. Offer and Acceptance(a) The offer must be certain.(1) Offer, distinguished from invitations to make an offer.a] An advertisement is not an offer; it is an invitation to persons to make an offer.b] An invitation to bid is not an offer, but is an invitation to make an Auction is also an invitation to make an offer. dl A purchase order is merely an offer to buy.‟6(b) Revocation or withdrawal(1) By the offerora] It can be withdrawn anytime, unless it is an option, which was granted in exchange for a
  15. 15. consideration, either paid or promised. [see 1324](2) By operation of lawa] Death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyedterminates the offer. [see 13231b] The loss or destruction of the determinate object during the offer period terminates the offer.c] The supervening illegality of the object during the offer period terminates the offer.(c) Rejection, by the offeree(1) Counteroffera] A qualified acceptance or one that involves anew proposal constitutes a counteroffer and isa rejection of the original offer.‟6 [see 1319, par. 1](d) Acceptance, by the offeree (1) It may be express or implied. [13201 (2) It must be absolute. [1319, par. 1] It must be unqualified.a] Only an absolute and unqualified acceptance of a definite offer manifests the consent necessaryto perfect a contract.‟73. Mistake(a) The concept of error must include both ignorance, which is the absence of knowledge withrespect to a thing, and mistake, which is a wrong conception about said thing, or a belief in theexistence of some circumstance, fact or event, which in reality does not exist.18(b) In order that mistake may invalidate consent, it should refer to —(1) the substance of the thing which is the object of the contract, or(2) those conditions which have principally moved one or both parties to enter into the contract.[1331, par. 1](c) Mistake as to identity or qualifications of a party does not vitiate consent, unless such identity orqualifications were the principal cause of the contract. [see 1331, par. 2](d) Mistake of law, distinguished from mistake of fact.(1) There is a question of law when the doubt or differences arise as to what the law is on a certainstate of facts. There is a question of fact when the doubt or differences arise as to the truth or thefalsehood of alleged facts.‟9(2) Mistake of fact — but not mistake of law — can vitiate consent; ignorance of law does notexcuse anyone from compliance with it.2°(e) There is no mistake if party alleging it knew the doubt, contingency or risk affecting the objectof the contract.[1333](f) Simple mistake of account does not give right to annual contract but only to correct it. [1331,par. 3]4. Violence(a) Violence is any serious or irresistible force exerted on a person to obtain his consent to thecontract. [13351(b) Violence which may have been employed by a third person is sufficient to vitiate consent.[133615. Intimidation(a) There is intimidation when a person is compelled by a reasonable and well-grounded fear of animminent and grave evil upon his person or property, or upon the person or property of his spouse,descendants or ascendants, to give his consent to a contract. [13351
  16. 16. (b) It must consist of specific acts, and not “collective” or “general” duress that coax consent.21 Itshould be based on real, imminent, or reasonable fear for one‟s life and limb. It should not beinspired by speculative, fanciful, or remote fear.22(c) Duress, which may have been employed by a third person is sufficient to vitiate consent. [133616. There is undue influence when a person takes improper advantage of his power over the will ofanother, depriving the latter of a reasonable freedom of choice. [1337](a) In the absence of a confidential or fiduciary relationship between the parties, the law does notpresume that one person exercised undue influence upon the other. A confidential or fiduciaryrelationship may include any relation between persons, which allows one to dominate the other,with the opportunity to use that superiority to the other‟s disadvantage. Included are those ofattorney and client, physician and patient, nurse and invalid, parent and child,guardian and ward,member of a church or sect and spiritual adviser, a person and his confidential adviser, or whenevera confidential relationship exists as a fact.237. Fraud(a) In general. Fraud consists of intentional acts to deceive and deprive another of his right or insome manner injure him.24 The essence of fraud is the intentional and wilful employment of deceitdeliberately done or resorted to in order to induce another to give up some right.25(1) Causal Fraud. The kind of fraud that will vitiate a contract refers to those insidious words ormachinations resorted to by one of the contracting parties to induce the other to enter into a contractwhich without them he would not have agreed to. Simply stated, the fraud must be the determiningcause of the contract, or must have caused the consent to be given.26a] It should be distinguished from1] Fraud in the execution of the instrument. [1170] When there has been a meeting of the minds butthe parties‟ true intention is not expressed in the instrument, due to mistake, fraud, inequitableconduct or accident, a party may ask for reformation of the instrument. [see 1359]21 Fraud in the performance of the contract. This is known as “incidental fraud” andgives right to damages. [1344, par. 2]bi Concealment. Failure to disclose facts, when there is a duty to reveal them as when the partiesare bound by confidential relations, constitutes fraud. [1339]1] Silence or concealment, by itself, does not constitute fraud, unless there is a specialduty to disclose certain facts, or unless according to good faith and the usages of commerce thecommunication should be made.27c] Misrepresentation is leading someone to believe something untrue to be true or something notexisting to be existing.1] A mere expression of an opinion does not signify fraud, unless made by an expert and the otherparty has relied on the former‟s special knowledge. [1341121 The usual exaggerations in trade, when the other party had an opportunity to know the facts, arenot in themselves fraudulent. [1340]3] Misrepresentation by a third person does not vitiate consent, unless such misrepresentation hascreated substantial mistake and the same is mutual. [1342][a] In a contract of sale, only the sellers and buyers are held chargeable with misrepresentation asagainst each other.28dl The fraud must not have been employed by both contracting parties. [1344, par. 1]a] Fraud employed by both parties on each other results in a valid contract?(f) Simulation is “the declaration of a fictitious will, deliberately made by agreement of the parties,in order to produce, for the purposes of deception, the appearances of a juridical act which does notexist or is different from what that which was really executed. The requisites of simulation are: (a)an outward declaration of will different from the will of the parties; (b) the false appearance must
  17. 17. have been intended by mutual agreement; and (c) the purpose is to deceive third persons.3°C-2. ObjectIt must exist.2. It must be within commerce of man.(a) All rights which are not intransmissible may be the object of contracts.(1) Political rights conferred upon citizens, like, one‟s right to vote, the right to present one‟scandidacy to the people and to be voted to public office, are rights of individuals, which the law andpublic policy have deemed wise to exclude from the commerce of man.3‟(b) A river, which is part of the public domain, is outside the commerce of men.323. It must not be contrary to law, morals.4. If it is service, it must be possible.(a) Impossible service [1409(5)1, should be distinguished from impossibility of performance.[1266, 1267]C-3. ConsiderationConsideration is presumed to exist and is lawful. [see 13541(a) But the absence or illegality of the consideration renders the contract inexistent or void. [see1352, 1409(3)](b) The cause is unlawful if it is contrary to law, morals, good customs, public order or publicpolicy. [1352]2. The statement of a false cause in a contract renders the cont ract void, unless it is proved that thecontract was founded upon another consideration which is true and lawful. [see 1353]3. Inadequacy of consideration shall not invalidate a contract, except in cases specified by law orunless there has been fraud, mistake or undue influence. [see 13551C-4. Delivery (in addition to consent, object and consideration),in few occasions, is necessary for perfectionIn a real contract, in addition to the three essential requisites of consent, object and consideration,delivery of the object to the other contracting party is the act that perfects the contract.(a) Commodatum, deposit, mutuum (or simple loan), and pledge are real contracts. [1316; 19331(b) Mortgages, whether the object is real estate or chattel, are not real contracts.C-5. Form (in addition to consent, object and consideration),in few occasions, is necessary for perfectionIn a formal or solemn contract, in addition to the three essential requisites of consent, object andconsideration, the execution of the required writing by the contracting parties is the act that perfectsthe contract.(a) A partnership contract where contribution consists of immovables or real rights, must be in apublic instrument; otherwise it is void. [17731(b) Contract for the sale of ships and vessels.332. The requirement of a writing for the validity of a contract is different from the requirement of awriting for the enforceability of a contract.D. Defective ContractsRescissible contracts2. Voidable contracts3. Unenforceable contracts4. Void or inexistent contracts
  18. 18. D-1. Rescissible Contracts1. Types(a) Those entered into by guardians on behalf of their wards, who suffer lesion of more than aquarter of the value of the latter‟s property.(b) Those entered into by agents on behalf of absent principals, who suffer lesion of more than aquarter of the value of the latter‟s property(c) Those in fraud of creditors.(d) Those whose objects are under litigation.(e) Others (e.g., see 1526, 1534)2. Rescissible contacts are valid until they are rescinded.3. Presumptions of fraud.(a) Gratuitous alienation, if debtor did not reserve sufficient property to pay debts prior to suchalienation, is presumed fraudulent.(b) Onerous alienation, by a person against whom a court judgment has been made or against whoma writ of attachment has been issued, is presumed fraudulent.4. The person who files a suit for rescission must have suffered damage.5. The relief of rescission is subsidiary or secondary (i.e., cannot be a principal remedy)(a) Prescriptive period to bring action is four years.6. Rescission requires mutual restitution.D-2. Voidable Contracts1. Types:(a) A contract where one of the parties is without capacity to give consent.(b) A contact where consent of one of the parties is vitiated by mistake, violence, intimidation,undue influence or fraud.2. Voidable contracts are valid unless they are annulled.3. A voidable contract may be ratified.(a) Ratification means that one under no disability voluntarily adopts and gives sanction to someunauthorized act or defective proceeding, without which his sanction would not be binding on him.It is this voluntary choice, knowingly made, which amounts to a ratification of what was theretoforeunauthorized, and becomes the authorized act of the party so making the ratification.34 Thissubsequent approval validates contract from its inception and extinguishes action to repudiatecontract.(b) Period within which to ratify:(1) within four years after reaching age of majority or from termination of guardianship(2) within four years after intimidation, violence or undue influence has ceased or after mistake orfraud was discovered.(3) Inaction and lapse of prescriptive period results in a “ratified” contract.(c) Effects of ratification. Ratification cleanses “defective” contract and extinguishes the action toannul. [1396 and 1392]4. Even without suffering damage, the incapacitated party or the party whose consent had beenvitiated may ask for annulment.5. Mutual restitution is required by annulment. [1398]
  19. 19. (a) Exceptions to this requirement are:(1) When the defect of the contract consists in the incapacity of one of the parties, the incapacitatedperson is not obliged to make restitution except insofar as he has been benefited by the thing orprice he received. [1399](2) The person who, is obliged by the decree of annulment to return the thing cannot do so becauseit has been lost through his fault, shall return the fruits received and the value of the thing at thetime of the loss, with interest from the same date. [14001(3) As long as one of the parties does not restore what he is bound, by the decree of annulment, toreturn, the other cannot be compelled to comply with what is incumbent upon him. [1402]D-3. Unenforceable ContractsAn unenforceable contract is one which the law, through the courts, will not enforce, either becauseit is void, or because, though valid, its enforcement is barred for some statutory norm.2. Types:(a) Void contracts (include those which are required to be in writing to be valid, but are not).(b) Contracts enumerated under 1403.(1) Contracts entered into on behalf of a person by another who has not been given such authorityor who having been given such authority has acted beyond his authority. [1403(1)](2) An oral contract, valid in all other respects, required by the Statute of Frauds to be in writing.[1403(2)]a] A contract partly in writing and partly oral, is in legal effect, an oral contract.35(3) Contracts between persons who lack capacity to contract. [1403(3)](c) Valid contracts which have prescribed.2. Contracts required by the Statute of Frauds to be in writing:(a) Types(1) A contract not to be performed within a year.(2) A collateral contract, i.e., a special promise to answer for someone else‟s debt or default.(3) A contract in consideration of marriage, except a mutual promise to marry(4) A contract of sale of goods, personal property or chooses in action, where price is PhP500 ormore.(5) A contract of lease for more than a year or of sale of real property or an interest therein.(6) A representation as to the credit of a third person. This is actually not a contract.(b) These contracts must be in writing and signed by the party being sued or his agent.(1) This requirement does not apply if contract has been totally or partially performed.a] Stated differently, the requirement applies only to executory A contract partially executed or one where one party has performed his obligation is an“executed” contract.37(c) Contracts not within the coverage of the Statute of Frauds (these contracts can be oral):(1) Setting up boundaries on land38(2) Partition of real property39(3) Agreement creating a right of way3°(4) Agreement granting right of first refusal to buy land4‟(d) The writing need not be notarized.42 It may be done in several writings, not necessarily in onedocument.(e) Ratification(1) Void or inexistent contracts cannot be ratified. [1409](2) Contracts which had been entered into on behalf of persons without their authority or in excess
  20. 20. of their authority may be ratified by these persons.(3) Contracts within the Statute of Frauds which are not in writing may be ratifieda] by acceptance of benefits from these by failure to object or waiver to presentation of oral evidence to prove them. [1405](4) Contracts between incapacitated parties may be ratified by the parents or guardians of bothparties. A contract ratified by guardian or parent of one of the parties results in a voidable contract.(f) Unenforceable contracts cannot be assailed by third persons. [14081(g) The defense of prescription or statute of limitations may be waived.D-4. Void or Inexistent ContractsSome of the void contracts are enumerated in 1409. They include:(a) Those whose cause, object, or purpose is contrary to law, morals, good customs, public order orpublic policy.(1) An agreement, whereby one will be paid a commission based on sales for his actual or supposedinfluence with a public official in order that the principal‟s import dollar allocation will not bereduced, is contrary to public policy.(2) All agreements the purpose of which is to create a situation which tends to operate to thedetriment of the public interest are against public policy and void, whether in the particular case thepurpose .of the agreement is or is not effectuated.45(b) Those which are absolutely simulated or fictitious.(1) The characteristic of simulation is the fact that the apparent contract is not really desired orintended to produce legal effects nor in any way alter the juridical situation of the parties. Thus,where a person, in order to place his property beyond the reach of his creditors, simulates a transferof it to another, he does not really intend to divest himself of his title and control of the property;hence, the deed of transfer is but a sham.(c) Those whose cause or object did not exist at the time of the transaction.(1) A contract of purchase and sale is null and void and produces no effect where the same iswithout cause or consideration, in that the purchase price which appears thereon as paid had in factnever been paid by the purchaser to the vendor.47(d) Those whose object is outside the commerce of men.(d) Those which contemplate an impossible service.(e) Those where the intention of the parties relative to the principal object of the contract cannot beascertained.(f) Those expressly prohibited or declared void by law.(1) Some contracts declared void by other provisions of law are:(a) Partnership contract which provides for contrib ution of immovables or real rights but which isnot in a public instrument. [1771, 1773](b) Contract of sale of a piece of land by an agent whose authority to sell it is not in writing. [1874]2 Since void contracts cannot lapse into valid ones, the defense of nullity does not prescribe. [1410]4. The right to set up the defense of illegality cannot be waived.[140915. The defense of illegality of contracts is not available to third persons whose interests are notdirectly affected. [142116. The principle of in pan delicto non oritur action denies all recovery to the guilty parties inter applies to cases where the nullity arises from the illegality of the consideration or the purpose ofthe contract. When two persons are equally at fault, the law does not relieve them. The exception tothis general rule is when the principle is invoked with respect to inexistent contracts.
  21. 21. Sales 1458 to 1637The Law on Sales, which is found in the Civil Code, is a branch of the Law on Obligations and theLaw on Contracts. However some principles in the law on sales deviate from the principles ofobligation and contract law to accommodate commercial needs. Many new provisions on the Titleof Sales (including Assignment) are taken from the Uniform Sales Act, of the U.S.A. Nature, Purpose, Characteristics and TypesNature and Purpose. By the contract of sale a contracting party obligates himself to deliver, and totransfer the ownership of, a determinate thing, and the other party to pay therefore a price certain inmoney or its equivalent. [1458, par. 1]‟2. Characteristics of sale(a) Sale is a consensual contract, because it is perfected by mere consent. [see 1475](1) Contracts are enforceable from the moment of perfection.2(2) A contract of sale may be (i) in writing, or (ii) by word of mouth, or (iii) partly in writing orpartly by word of mouth. [1483]a] It is subject to the statute of frauds. [14831(b) It may be an express contract, or an implied contract, as it may be inferred from the conduct ofthe parties. [14831(c) It is bilateral because both parties exchange promises.(d) It is onerous because the thing sold is conveyed in consideration of the price and vice versa.4 Inonerous contracts, the cause is understood to be, for each contracting party, the prestation orpromise of a thing or service by the other.[13501(e) It is commutative because the thing sold is considered the equivalent of the price paid and viceversa.5(1) It may be aleatory, in exceptional cases, as in the case of a sale of a hope, e.g., sweepstakesticket.(f) It is nominate because it is given a special name or designation in the Civil Code.(g) It is principal because it does not depend on another contract for its own existence and validity.(h) It is subject to other applicable statutes. [14831(1) Examples:al RA9211 “An Act regulating the packaging, use, sale, distribution and advertisements of tobaccoproducts.”Sahi RA 8970 “An Act prohibiting the manufacture, importation, distribution and sale of laundry andindustrial detergents containing hard surfactants and providing penalties for violation thereof.”63. A contract of sale may be either absolute or conditional. [1458, par. 2](a) It is absolute if none of the three principal obligations is subject to an express condition, whethersuspensive or resolutory.(b) A sale is conditional if either the obligation of seller to transfer ownership of a thing7 or theobligation of buyer to pay the price8 is subject to a condition. [see 1545, par. 21 A sale may also beconditional if there is an obligation of buyer to resell the thing to seller, if the seller a retroexercises his redemption right.9(1) An example of a sale subject to a suspensive condition is a contract to sell.(2) An example of a sale subject to a resolutory condition is apacto de retro sale.B. Parties, Requisites of the Contract and FormL The parties are the seller, who obligates himself to deliver and to transfer ownership of a thing
  22. 22. and the buyer who obligates to pay a price certain in money or its equivalent therefore.I Requisites of validity(a) Consent, freely and actually given to an offer and an acceptance by parties who have legalcapacity.(1) Sale is a consensual contract, because it is perfected by mere consent. [see 1475]a] A sale by auction is perfected when auctioneer announces its perfection by the fall of the hammer, or in other customary manner. [1476(2)1 In an auction, while there is a public invitation to bid,the buyer through the auctioneer may withhold acceptance until and unless certain conditions, e.g.,a price level, are acceptable to A sale of large cattle however must be evidenced by a certificate of registration to be valid.10(2) Capacity of the partiesa] A person who is authorized in the Civil Code to obligate himself can enter into a contract of sale.[see 1489, par. 1]bi Age of majority begins at eighteen years.1] Purchase by a minor or other incapacitated person of his necessaries11 is valid. He must pay areasonable price for them. [1489, par. 2]2] Certain persons, despite their capacity to act, are prohibited by law to buy specificproperty.[a] A guardian cannot buy his ward‟s property. [1491(1)112[hi An agent cannot buy his principal‟s property whose administration or sale has been entrusted tohim.[1491(2)][c] An executor or administrator cannot buy property under administration.[1491(3)][d] Public officers and employees cannot buy property of the state, and of its subdivision, or of anygovernment owned or controlled corporation, whose administration has been entrusted to them.[1491(4)]Eel Justices, judges, court employees and prosecuting attorneys cannot buy the property and rightsunder litigation or levied upon. [1491(5)113Contracts under 1491, being prohibited transactions, are therefore void.143] Husband and wife cannot sell to each other, except:[a] when there is a prenuptial separation of property, or[b] when there has been a judicial separation of property [1490]Contracts violative of 1490 are void. 1541 The prohibitions in 1490 and 1491 apply to sales in legal redemption, compromises andrenunciations. [14921 Contracts violative of 1492 are void.‟651 The civil interdiction deprives a person of the right to dispose of his property by anyact or any conveyance inter vivos.17c] A private corporation cannot purchase alienable lands of the public domain.dl A foreign organization, despite its legal capacity, if it fails to meet or comply with statutoryrequirements, like capitalization levels — cannot sell on retail.18(b) Object(1) It may be existing, or future, or contingent.a] Things having a potential existence are valid objects. A mere hope or expectancy may be anobject, but the efficacy of the sale is subject to the condition that the hope or expectancy will comeinto existence. A vain hope or expectancy is not a valid object and makes the sale void. [see 14611b] Goods which are existing, “future goods,” i.e., to be manufactured, raised or acquired by theseller after the sale,19 and goods whose acquisition by seller depends on a contingency which may
  23. 23. or may not happen [1462] are valid objects.c] Things subject to a resolutory condition [see 1465] are valid objects.1] A piece of land sold a retro is subject to a resolutory condition because the sale is rescindedwhen the vendor exercises his right to repurchase the thing.2°(2) It must be licit. [see 1459](3) It must be determinate, or at least determinable. A thing is determinate if particularly designatedor physically segregated from all others of the same class; it is determinable if at the time thecontract is entered into there will be no need of a new or further agreement between the parties toidentifies it. [see1460]a] Quantity1] The sale of fungible goods maybe at a price fixed according to weight, number or measure.[1480, par. 3]21 The sale of real estate with a statement of its area, may be at the rate of a certain price for a unitof measure or number. [see1539, 1540, 1542]31 An undivided interest in a thing may be a valid object. [see 1463]4] An undivided share of a specific mass of fungible goods may sold by number, weight ormeasure. [see 1464]51 A share in property which seller co-owns with other persons is a valid object. [4931b] Quality1] A sale of goods may be by description or by sample. [see 14811(4) Service is not a proper object of sale; it is a proper object of a contract of labor (i.e., for a pieceof work). [see 1642 and 1700 et seq.](5) Risk of loss (i.e., “benefit to, injury, or loss of the object”)a] The total loss of the thing, before perfection of the contract, does not give rise to contract. [1493,par. 1]b] The partial loss of the thing gives the buyer the choice between —1] withdrawing from contract, and21 demanding the remaining part, paying a proportionate price. [see 1493, par. 2]c] The partial perish, total or partial deterioration in quality of specific goods gives the buyer achoice between considering the sale —1] as avoided, or2] as valid insofar as the existing goods or those which have not deteriorated, paying aproportionate price. [see 14941d] The benefit to or injury to the thing sold, after2] The sale of real estate with a statement of its area, may be at the rate of a certain price for a unitof measure or number. [see1539, 1540, 1542]31 An undivided interest in a thing may be a valid object. [see 1463]4] An undivided share of a specific mass of fungible goods may sold by number, weight ormeasure. [see 1464]51 A share in property which seller co-owns with other persons is a valid object. [4931b] Quality1] A sale of goods may be by description or by sample. [see 14811(4) Service is not a proper object of sale; it is a proper object of a contract of labor (i.e., for a pieceof work). [see 1642 and 1700 et seq.]
  24. 24. (5) Risk of loss (i.e., “benefit to, injury, or loss of the object”)a] The total loss of the thing, before perfection of the contract, does not give rise to contract. [1493,par. 1]b] The partial loss of the thing gives the buyer the choice between —1] withdrawing from contract, and21 demanding the remaining part, paying a proportionate price. [see 1493, par. 2]c] The partial perish, total or partial deterioration in quality of specific goods gives the buyer achoice between considering the sale —1] as avoided, or2] as valid insofar as the existing goods or those which have not deteriorated, paying aproportionate price. [see 14941d] The benefit to or injury to the thing sold, after the perfection of the contract, shall be governed by1163 to 1165, and 1262. [14801e] All fruits from time of perfection of contract pert ain to buyer and shall be delivered togetherwith the other accessions and accessories of the object. [1537]f] The loss, improvement or deterioration, with or without seller‟s fault shall be governed by 1189.[15381(c) Consideration. Price signifies the sum stipulated as the equivalent of the thing sold and alsoevery incident taken into consideration for the fixing of the price, put to the debit of the buyer andagreed to by him.21(1) It must be in money or its equivalent. [1458 and 14681a] An antecedent or pre-existing claim, whether for money or not, constitutes “value” where goodsor documents of title are taken either in satisfaction thereof or as security therefor. [see1636(1)](2) It must be actuala] If the price is simulated, the sale is void, although the contract may be shown to have been adonation or some other act or contract. [1471]b] Gross inadequacy of price does not affect contract, unless11 there is a defect in the consent, or2] the parties intended a donation or some other act22 or contract. [1470](3) It must be certain or ascertainable at time of perfect ion of contract.a] Price is certain if it is so, even if it is with reference to another thing certain or if itsdetermination is left to judgment of a specified third person. [14691 The fixing of price cannot beleft to discretion of one of contracting parties. [see147311] If the third person is unable or unwilling to fix price, contract shall be inefficacious unless partiessubsequently agree upon the price.2] If the third person acts in bad faith or by mistake, the courts may fix price.3] If the third person is prevented from fixing the price or terms by fault of the seller or buyer, theparty not in fault may resort to reliefs allowed by law. [see 1469]b] If the price is not determinable, the contract is inefficacious.1] However if the thing or a part of it has been delivered to and appropriated by the buyer, he mustpay a reasonable price. [see1474]c] The price of securities,23 grain, liquids, and other things is certain when the price fixed is thatwhich the thing sold would have on a definite day, or in a particular exchange or market, or whenan amount is fixed above or below the price on such day, or in such exchange or mark et, providedsaid amount is certain. [1472]
  25. 25. (4) Payment terma] Earnest money is something of value to show that buyer was really in earnest, and given to sellerto bind bargain?4 The amount is given as a part of purchase price and as proof of perfection ofcontract of sale. [1482125b] Option money1] Option money must be distinguished from earnest money. Earnest money is part of the purchaseprice, while option money is the money given as a distinct consideration for an option contract;earnest money is given only where there is a sale, while option money applies to a sale not yetperfected; and when earnest money is given, the buyer is bound to pay the balance, while when thewould-be buyer gives opt ion money, he is not required to buy, but may forfeit it depending on theterms of the option.26ci Terms or manner of payment.27 Although the Civil Code does not expressly state that the mindsof the parties must also meet on the terms or manner of payment of the price, the same is needed,otherwise there is no sale.28(5) Buyer bears expenses for the execution of the sale, unless there is a contrary stipulation.[1487]293. Form (and Recording or Registration)(a) Subject to the provisions of the Statute of Frauds and any other applicable statute, a contract ofsale may be: (i) in writing, or (ii) by word of mouth, or (iii) partly in writing or partly by word ofmouth, or may be inferred from the conduct of the parties. [see 1483]°(1) A sale of large cattle however must be evidenced by a certificate of registration to be valid.31(2) Under the statute of frauds, the following executory contracts of sale must be in writing,otherwise they cannot be enforced in a litigation:a] sale of property at a price of PhP500.00 or more,bi sale of real property or an interest therein regardless of the price, andc] sale of property not to be performed within a year from its date regardless of the nature of theproperty and its price.32(b) Documents of title. A document of title is written acknowledgement by the party who issues itof the rights of ownership and control of another party over the goods said writing represents anddescribes.It includes a bill of lading, dock warrant, quedan or warehouse receipt or order for the delivery ofgoods, or any other document used in the ordinary course of business in the sale or transfer ofgoods, as proof of the possess ion or control of the goods, or authorizing or purporting to authorizethe possessor of the document to transfer or receive, either by endorsement or by delivery; goodsrepresented by such document. [1636(1)1(1) Types.a] Bill of lading. [see 15031 A bill of lading is a written acknowledgment of the receipt of goodsand an agreement to transport and to deliver them at a specified place to a person named or on hisorder.33bi Warehouse receipt. A warehouse receipt is a written acknowledgment by a person who takesgoods for storage of the rights of ownership and control of the person to whom he issued it.(2) Features and Incidentsa] A document of title may be negotiable, i.e., when it states that the goods referred to therein willbe deliverable to the bearer, or to the order of the person named therein [see 15071, ornonnegotiable.b] A negotiable bearer document of title can be negotiated by delivery [1508(1)1c] A negotiable order document of title can be negotiated by delivery, if the person to whose ord erit was issued or a subsequent indorsee indorses it in blank or to bearer. [1508(2)1
  26. 26. dl A negotiable document of title either issued to bearer or issued to order which has been ind orsedto the order of a specified person shall be negotiable only by the endorsement of such indorsee. [see1508, last par.]el A person to whom a document of title is negotiated acquires the title to the goods which theperson negotiating had and the obligation of the bailee to hold possession of the goods for him [see1513], while a person to whom a document has been transferred but not negotiated acquires title tothe goods as against the transferor only and the right to notify bailee of the transfer. [see 1514]f] A person who for value negotiates, transfers or assigns a document of title warrants that: (i) thedocument is genuine, (ii) he has a legal right to transfer it,34 (iii) he has no knowledge of no factwhich would impair the validity or worth of the document, and (iv) he has a right to transfer title tothe goods and that the goods are merchantable and fit for a particular purpose. [see 1516]11 But the indorser of a document of title will not be liable for failure of the bailee who issued thedocument or its previous indorsers to fulfill their respective obligations.[15171g] A negotiable document of title shall neither be rendered nonnegotiable by words “not negotiable”or the like placed upon it, nor the obligat ions of the carrier, warehouseman or other bailee belimited thereby. [1510] C. Imp1ied Obligations of the Parties2. Obligations of the Seller(a) To deliver the thing.(1) To deliver the accessions and accessories of the object. [1537](2) The obligation to deliver is an obligation to give;therefore in case of breach, specific performance isavailable.(b) To transfer ownership of the thing. [1495](1) This is an obligation to give a thing; therefore in case of breach, specific performance isavailable.(c) To preserve the thing from time of perfection of the contract of sale to time of delivery.Otherwise he can be held liable for damages. [1163; see 14941(d) To put goods into a deliverable state. [1521, par. 5](e) To warrant the object. [1545, et seq.](f) To bear expense for the execution and registration of the sale, unless otherwise stipulated.[1487]2. Obligations of the Buyer:(a) To pay a price certain of its equivalent. [1582 par. 11(1) To pay interest on the price, in specific instances.[1589](2) The obligation to pay price is an obligation to give a generic thing therefore in case of breach,specific performance is available.(b) To examine the goods. [1584](c) To accept the goods. [1584]D. Performance by the Seller of His Obligations1. The thing is delivered when it is placed in the control and possession of buyer. [1497](a) The obligation to deliver is performed by(1) Actual delivery [14971a] Where by the contract the seller is bound to send
  27. 27. the goods to the buyer, but no time is fixed, hemust send them within a reasonable time. [1521par. 2]b] Where the goods are at time of sale in the possession of a third person, only when the thirdperson acknowledges to the buyer that he holds the goods for the buyer, will obligation to deliver bedeemed fulfilled. [1521, par. 31(2) Constructive or Legal deliverya] Quasi -traditio or quasi-delivery, is accomplished by the execution or negotiation and delivery ofa document of title or public instrument. [1498, par. 1, 1501]bi Traditio symbolica or symbolic delivery, happens such as when the keys of the place ofdepository or storage of the movable property are delivered. [see 1498, par. 21c] Traditio longa manu, happens by mere consent or agreement of the parties if the thing cannot betransferred to buyer‟s possession at time of sale [14991, as when seller transfers possession to buyerby merely pointing to the object sold.dl Traditio brevi manu [14991, occurs when the buyer acquires the owner‟s title to the object whichat the time of the sale is already in buye r‟s possession by virtue of another title, e.g., as lessee.el Thaditio constitutum possessorium, occurs when the seller after the sale continues in possessionof the object sold, not as owner anymore but in some other capacity. [1500]. This kind howeverruns the risk of being presumed an equitable mortgage. [see 1602(2)1(b) The execution of a public instrument is equivalent to the delivery of the thing if from the deedthe contrary does not appear or cannot clearly be inferred. [1498, par. 1](1) There is symbolic delivery when the sale is made in a public document and nothing appearstherein to the contrary either expressly or impliedly.a] But no such symbolic delivery can be deemed to take place, when there is in the document astipulation to the contrary, such as “the vendors would continue in possession of the house” for fourmore months.37(c) Delivery of goods to carrier for transmission to buyer pursuant to the contract is deemeddelivery to buyer, exceptin cases provided for in 1503, pars. 1, 2 or 3, or unless acontrary intent appears. [1523, par. 1138(d) Buyer bears expenses for putting goods into deliverable state, unless otherwise agreed. [1521,par. 51(e) Seller is not bound to deliver, if buyer has not paid him price or if no period for payment hasbeen fixed in contract. [152412. The ownership of the thing is transferred to buyer upon actual or constructive delivery. [1477;14961(a) The seller must have the right to transfer ownership at time object is delivered. [see 1459](1) A person who sells goods, which he does not own, or which he has no authority to sell, conveysto buyer no better title than he (seller) had, unless the owner is precluded from denying the seller‟sauthority to sell. The following sales are excluded from this general rule:a] Sales made by the apparent owner of goods, which under provisions of factors‟ acts, recordinglaws, or any other provision of law, enable him to dispose of them as if he were the true owner.b] Contracts of sale under statutory power of sale or under order of a court of competentjurisdiction.c] Purchases made in a merchant‟s store, or in fairs, or markets, in accordance with the Code ofCommerce and special laws. [see 1505111 1434 supports the ruling that the seller‟s “title passes by operation of law to thebuyer.”39
  28. 28. (2) A seller who has a voidable title, which has not been avoided at time of sale, conveys to buyer agood title to the goods, provided the buyer buys them in good faith, for value and without notice ofseller‟s defect of title. [see 1506](3) A buyer in good faith at a public sale of a movable, which its owner has lost or has beenunlawfully deprived of, can only be dispossessed by its owner upon reimbursement of the price hehas paid. [see 559, par. 2](4) It the same thing should have been sold to different buyers, the ownership shall be transferredto:a] the person who first takes possession of the movable property in good faith.b] in case of immovable property1] the person who in good faith first records his acquisition in the Registry of Property;2] should there be no inscription, the person who in good faith was first in possessionof the property;3] should there be no possession, the person who presents the oldest title, in good faith.[1544](b) Parties may stipulate however that ownership shall not pass until payment of the price. [see1478](1) Seller may reserve right of possession or ownership even if the goods have been delivered to acarrier or other bailee who will transmit them to buyer. [see1503](2) Until ownership of goods is transferred to buyer, the risk remains with seller, unless otherwiseagreed. But when ownership is transferred to buyer, goods are at his risk, whether actual deliveryhas been made or not, except under two circumstances. [see 1504 further]3. A warranty, in the law on sales, is an affirmation of certain facts about the quality of thing beingsold or about the title the seller holds over it. A condition which one party has promised to the othershall happen or be performed may be treated as a warranty.4°(1) An express warranty is one created by the seller through his words, oral or written. An expresswarranty is any affirmation of fact or any promise [made] by seller relating to the goods, if naturaltendency of such affirmation or promise is to induce buyer to purchase the goods, and if buyerpurchases the goods relying thereon. [see 15461(2) Implied warranties are those imposed by law or annexed by usage of trade. [see 1564] Theimplied warranties of the seller are:a] as to his right to sell and against buyer‟s eviction.b] against hidden defects or encumbrances [see 15611 refers to merchantability and fitness.4‟E. Performance by Buyer of his Obligations1. The buyer must pay the price of the thing sold at the time and place stipulated.(a) In the absence of stipulation, buyer must pay the price at the time and place of the delivery ofthe thing sold. [158212. Inspection of the goods sold(a) Buyer may inspect the goods before perfection of the contract.(b) Where buyer has not previously examined the goods which are delivered to him, he is notdeemed to have accepted them, unless and until he has had a reasonable chance to examine them toascertain whether they conform to the contract. [see 1584, par. 1](1) Parties may however stipulate to the contrary. [see 1584, par. 1].3. Acceptance of the goods sold
  29. 29. (a) The buyer is deemed to have accepted the goods(1) when the goods have been delivered to him and he does any act in relation to them which isinconsistent with the ownership of the seller, or(2) when, after the lapse of a reasonable time, he retains the goods without intimating to the sellerthat he has rejected them.(b) Unless otherwise agreed, where the goods have been de-, livered to buyer and he refuses toaccept them, having the‟ right to do so, it is sufficient if he notifies the seller that he refuses toaccept them.(1) The buyer is not bound to return them to seller.(2) The buyer shall be liable as a depositary however, if he voluntarily constitutes himself as such.[15871(c) If buyer refuses, without just cause, to accept the goods, title passes to him from the momentthey are placed at his disposal.(1) Parties may however stipulate to the contrary [see15881d) Acceptance by the buyer shall not discharge the seller from liability in damages or other legalremedy for breach of any promise or warranty. [1586](1) Parties may however expressly or impliedly agree on a discharge. [1586 1(2) If the buyer fails to notify the seller of the breach in the promise or warranty within areasonable‟ time after buyer knows, or ought to know of such breach, seller may not be held liablefor it. [1586]F. Breach by the Seller, and Remedies of the Buyer1.In general. The buyer may ask the court for either:(a) Specific performance plus damages(1) without an option given to seller to retain the goodson payment of damages. [15981(b) Rescission of the contract, plus damages. [119112. If seller does not perform the condition upon which buyer‟s obligation is subject or subordinatedto, buyer may(a) refuse to proceed with the contract, or(b) waive performance of the condition [see 1545], or(c) also treat the non performance as a breach of warranty, if seller has promised that such conditionshall happen or be performed [see 154513. If it is a sale of goods by description or by sample or by sample and description, and the bulk ofthe goods delivered do not correspond with description or the sample, or with the sample anddescription, buyer may rescind the contract. [14811 Where seller delivers to buyer goods, which hehad contracted to sell, mixed with goods of a different description, buyer may accept the goodswhich conform to the contract and reject the rest. [see 1522, par. 314. If seller delivers goods less than quantity agreed upon, buyer may either(a) reject the goods, or(b) knowing that seller is not going to perform contract in full, accept or retain the goods delivered,but must pay for them at the contract rate [see 1522, par. 1]5. If seller delivers a larger quantity, buyer may(a) accept the goods included in contract and reject the rest, or
  30. 30. (b) accept the whole delivery, which he must pay for at the contract rate [see 1521, par. 2]6. If the sale of real estate is with a statement of its area, at the rate of a certain price for a unit ofmeasure or number, buyer may (i) demand all that may have been stated in the contract and sellershall be obliged to deliver it all, or (ii) choose, if such delivery is not possible, between aproportional reduction of the price and the rescission of the contract provided that in the case ofrescission, the lack in area should not be less than 1/10 of that stated [see 15391If there is a greater area or number than that stated in the contract, buyer may either(a) accept the area included in the contract and reject the rest, or(b) pay for the same at the contract rate, if he accepts the whole area. [see 15401But if the sale of real estate is for a lump sum, there shall neither be an increase of the pricealthough it is a greater area or number than that stated in the contract, nor a decrease of the pricealthough the area or number is less than that stated in the contract. [see 1542, par. 1]7. In the case of double sale(a) of movable property, ownership passes to the person who took possession in good faith(b) of immovable property, ownership passes: (i) to the person who acquires it in good faith andfirst records it in the Registry of Property, (ii) if there is no inscription, to the person who firstpossesses it, or (iii) if there is no possess ion, to the person who presents the oldest title, in goodfaith. [1544]8. If the buyer should be disturbed in the possession or owners hip of the thing or should havereasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage,he may suspend payment of the price until the seller has caused the disturbance or danger to cease,unless:I a) the latter gives security for the return of the price in a proper case, or(b) it has been stipulated that, notwithstanding any such contingency, the buyer shall be bound topay the price. [1590]G. Breach by the Buyer, and Reliefs of the Seller1.In general. The seller may ask the court for either:(a) Specific performance plus damages(b) Rescission of the contract, plus damages [1191](1) If the vendor should have reasonable grounds to fear the loss of immovable property sold and itsprice, he may immediately sue for the rescission of the sale.[1591](2) In the sale of immovable property, even though it may have been stipulated that upon failure topay the price at the time. agreed upon the rescission of the contract shall of right take place, thebuyer may pay, even after the expiration of the period, as long as no demand for rescission of thecontract has been made upon him either judicially or by a notarial act. [1592](3) In the sale of real estate on installment payments,42 the buyer,a] in case he has paid at least two years of installments, has the right to pay the unpaid installmentswithin the total grace period earned by him.1] If the buyer fails to pay within the period, the seller may cancel the contract but shall refund tothe buyer the cash surrender value of the payments equivalent to fifty per cent of the total paymentsmade, and after five years of installments, an additional five per cent every year but not to exceedninety percent of the total payments made.b] in case he has paid less than two years of installments, has the right to pay within a grace periodof not less than sixty days from the date the installment became due.1] If the buyer fails to pay within the period, the seller may cancel the contract.
  31. 31. (4) With respect to movable property, the rescission shall of right take place in the interest of theseller, if the buyer, upon the expiration of the period fixed for the delivery of the thing, should nothave appeared to receive it, or having appeared, he should not have tendered the price at the sametime, unless a longer period has been stipulated for its payment. [1593](5) If it is a sale of goods and the seller: (1) has not been paid or tendered the whole of the price; or(2) has received as conditional payment a bill of exchange or other negotiable instrument, and thecondition on which it was received has been broken by reason of the dishonor of the instrument, theinsolvency43 of the buyer, or otherwise:a] If ownership has passed to buyer, the unpaid seller has:1] a possessory lien on the goods, or right to retain them for the price2] a right of stoppage (resumption of possess ion) of the goods in transit,45 after he has deliveredthe goods to a common carrier for transmission to the buyer or the buyer‟s agent, in the event thebuyer becomes insolvent.463] a limited right of resale4741 a limited right to rescind the sale [see1526; 1531, par. 1(1)]bi If ownership has not passed to buyer, the unpaid seller has a right to withhold delivery also. [see1526]ci If possession has not passed to buyer, unpaid seller has the right to retain possession of the goodsuntil payment or tender of the price1] where there is no stipulation as to credit,2] where sale is on credit but credit term has expired,49 or3] where buyer becomes insolvent. Unpaid seller may also exercise his right of lien even if he, asagent or bailee of buyer, is in possession of the goods. [1527]dl If part delivery has been made, unpaid seller may exercise right of lien, unless part delivery hadbeen made with intent to waive the lien or right of retention. [15281(6) If it is a sale of personal property, where the price is payable in installments, unpaid seller,alternatively, may:a] Exact fulfillment of the obligation, orb] Cancel the sale, if buyer has failed to pay two or more installments, orc] Foreclose the chattel mortgage (if there is one) on the thing sold, if buyer has failed to pay two ormore installments. Seller shall have no further action against buyer to recover unpaid balance. Anyagreement to the contrary is void. [see1484]1] The three remedies have been recognized as alternative, not cumulative, such that the exercise ofone would bar the exercise of the others.5°2] If he chooses the third remedy, 1484 provides that he shall have no further action against thepurchaser to recover any unp aid balance of the purchase price. It even adds that any agreement tothe contrary shall be void.5‟(7) If it is a lease of personal property with option to buy, where the lesson has deprived the lesseeof possess ion or enjoyment of the thing, the same three alternative reliefs in 1484 are available.[1485]a] A stipulation that lesson shall not return to lessee the rentals paid shall be valid if notunconscionable. [14861H. Extinguishment of Contract of Sale1600 to 1623Performance2. Mutual agreement
  32. 32. 3. Return of goods by the buyer to the seller in sale or return or sale on approval. [1502]4. Rescission or Cancellation5. RedemptionI. Absolute Sale, Distinguished from Conditionaland Other Types of Sales2.A contract to sell is one whereby prospective seller explicitly reserves the transfer of title toprospective buyer, until full payment of the price, such payment being a positive suspensivecondition the failure of which is not considered a breach, casual or serious, but simply an eventwhich prevents the obligation from acquiring any obligatory force.52In a sale, seller promises to transfer ownership, subject to no condition, or contemporaneouslytransfers ownership in fulfillment of the promise, while in a contract to sell, seller promises totransfer ownership, upon fulfillment of one or more suspensive conditions.2. An auction is a public sale to one who makes the highest or the best bid. [see 1476]3.Lease of personal property with option to buy. [1485] Such a lease is deemed a contract of sale ofpersonality payable in installments.a) The rentals paid by lessee to lessor are treated as installment payments of the purchase price. Thefull payment is a suspensive condition to the transfer of owners hip.4. A sale or return is an arrangement in which buyer intends to resell the goods and gives him theoption to return the goods instead of paying the price. [see 1502, par. 1]5. A sale on approval is a sale that grants the buyer a period of time to try the goods beforeaccepting them. When goods are sold on approval, title passes: (i) when buyer signifies his approvalor acceptance to seller, or (ii) if he does not signify his approval or acceptance but retains the goodson the expiration of the time to return the goods or of a reasonable time. [see 1502, par. 2].& A sale with right of repurchase is a contract of sale, wherein the seller is granted the right to re-acquire the object within a specified period of time. The right to repurchase or to redeem is in thenature of a resolutory condition.7. Dation in payment (or dacion en pago) involves the alienation by a debtor of his property infavor of his creditor, and is deemed in the nature of a sale. [see 1245] Here, the “price has beenpaid” prior to delivery of the property and transfer of owners hip.J. Sale, distinguished from other Contracts1.Accepted unilateral promise to buy or sell. [1479, par. 2](a) An option is a continuing offer or contract by which the owner stipulates with another that thelatter shall have the right to buy the property at a fixed price within a cert ain time, or under, or incompliance with, certain terms and conditions, or which gives to the owner of the property the rightto sell or demand a sale. It is also sometimes called an “unaccepted offer.”53 It is not a sale ofproperty but a sale of the right to buy said property or to sellit.2. Contract of agency to sell. [see 14661(a) The transfer of title or agreement to transfer it for a price paid or promised is the essence of sale.If such transfer puts the transferee in the attitude or position of an owner and makes him liable tothe transferor as a debtor for the agreed price, and not merely as an agent who must account for the
  33. 33. proceeds of a resale, the transaction is a sale; while the essence of an agency to sell is the deliveryto an agent, not as his property, but as the property of the principal, who remains the owner and hasthe right to control sales, fix the price and terms, demand and receive the proceeds less the agent‟scommission upon sale made.543. Contract for a piece of work. [see 1467] The contract of lease may be of things or of work andservice. [1642] In a lease of work or service, a party binds himself to execute a piece of work or torender to the other party some service for a price certain. [see 1644] Sale has for its object tangiblethings, while a contract for a piece of work, services.4.Donation is an act of liberality whereby a person disposes a thing or right gratuitously in favor ofanother, who accepts its. [725; 1470, 14711 Sale is typically an onerous contract,55 while donationis a gratuitous contract. A sale is a consensual contract, while donation i formal contract.By barter or exchange, a party binds himself to give one thing in consideration of the other party‟spromise to give another thing. [1638](a) If the consideration consists partly in money, and partly in another thing, the transaction shall becharacterized by the manifest intention of the parties. If their intention does not clearly appear, itshall be deemed a barter if the value of the thing given as part of consideration exceeds the amountof money or its equivalent; otherwise, it is a sale. [1468]6. A bailment is the delivery of property by a party to another for some specific purpose, underobligation to redeliver when it has served its purpose or when it is reclaimed, or to otherwise dealwith it in some other way in accordance with the contract.7.Expropriation. [1488] Expropriation is the means or process of taking private property, by thestate in the exercise of its power of eminent domain, for public use upon payment of justcompensation.Assignments1624 to 1635The basic law governing assignment of contractual rights is the Civil Code, in articles 1624 to 1635.A. Nature and Characteristics of a Contractof AssignmentContract of assignment(a) An assignment is a transfer or making over to another of the whole of any property, real orpersonal, in possession or in action, or of an estate or right therein. It includes transfers of all kindsof property, and is peculiarly applicable to intangible personal property and accordingly, it isordinarily employed to describe the transfer of non-negotiable choses in action and of rights in orconnected with property as distinguished from the particular item or property.‟(b) An assignment of credit is an agreement by virtue of which the owner of a credit (known as theassignor), by a legal cause — such as sale, dation in payment, exchange or donation — and withoutthe need of the debtor‟s consent, transfers that credit and the accessory rights to another (known asthe assignee), who acquires the power to enforce it, to the same extent as the assignor could haveenforced it against the debtor.2 To assign a contract is to transfer one‟s rights under it. Such transfermay be effected: (a) by act of parties, as where one person transfers his contract rights to another,and (b) by operation of law, as in the case of death or bankruptcy.2.Characteristics of Assignment(a) A contract of assignment of rights is consensual, bilateral, and nominate. It may be either