SALES MIDTERMS COVERAGE

I.   Introduction

A.   Governing lawB.   History of law on salesC.  Source of law on sales

II. Concept of contract of sale

A.   Concept of sale (Art. 1458)

B.   Characteristics of contract of sale

C.    Essential elements of contract of sale: an overview (Art. 1318)

i.   Consent (Art. 1319)

ii.  Object (Arts. 1347-1349)

iii   Cause  (Art. 1350)

D.   Kinds of contract of sale

i.    Absolute

ii     Conditional

III. Parties to the contract of sale

A.   Persons who may enter into a contract of sale (Art. 1489)

B.   Type of incapacity

i.     Absolute

ii.    Relative

C.   Rules applicable to specific sellers

i.     Minors (Art. 1327, 1390; Family Code, art. 290)ii.   Husband and wife (Arts. 1409, 1490, 1492)iii.   Persons disqualified to buy specific properties (Art.

1409, 1491, 1492)iv    Other persons

D.   Practice notes: parties to contract of sale

i.     Husband or wife

ii.    Corporation

IV.  Formation and perfection of contract of sale

A.   Consent/offer and acceptance

i.     In general (Arts. 1319-1326)

a)   Offer- certain (Art. 1319)- fixing terms of offer (Art. 1321)- when offer becomes ineffective (Art. 1323)- period for acceptance (Art. 1324)- when offer accepted when acceptance made by letter or telegram or offer made through agent (Arts. 1319, 1322)- business advertisements (Arts. 1325-1326)

b)   Acceptance- absolute vs. qualified acceptance (Art. 1319)- express or implied (Art. 1320)

ii.   Practice notes: offer and acceptance- counterpart signing-

B. Object or subject matter

i. Thing must be determinate (Arts. 1318[2], 1349, 1458, 1460)

ii. Thing must be licit (Art. 1459)

a) In general

b) Illicit things (Art. 1409)

iii. Thing must be within the commerce of men (Art. 1347)

iv.  Thing must not be impossible (Art. 1348)

v.   Thing must be an existing good or a future good (Arts.

1347, 1461, 1462)

a) Sale of things having a potential existence (Arts. 1461)

b)   Sale of mere hope of expectancy (Art. 1461)

b) Sale of vain hope or expectancy (Art. 1461)

vi. Sales of specific things

a) Sale of things in litigation (Art. 1381(4))

b)  Sale of an undivided interest in a thing (Art. 1463)

c)  Sale of undivided share of a specific mass (Art. 1464)

c) Sale of things subject to a resolutory condition (Art. 1465)

vii. Practice notes: object or subject matter of the contract

a)   Sale of shares – sale of nominee shares, sale at less than fair market value, sale of shares in a corporation engaged in a partly-nationalized activity, right of first refusal, pre-emptive rights, tag-along rights, drag-along rights, tax requirements, registration requirements

b)   Sale of land -   sale of land to aliens, tax requirements, registration requirements, sale of land acquired by homestead or free patent

c)  Sale of assets – sale of all or substantially all of the assets, sale in bulk

d) Sale of motor vehicles – registration requirements

C.   Cause or consideration

i. Price certain (Art. 1469, 1472, 1473, 1474)

a) When price certain (Art. 1469, 1472, 1473)

b) Effect when price not certain (Art. 1474)

ii. Lack of cause or consideration (Art. 1409(3))

iii. Inadequacy of the price (Art. 1470)

a) When price inadequate

b) Effect  of inadequate price- on voluntary sales- on involuntary sales

iv. Simulated price (Art. 1471)

a) When price simulated

b) Effect of simulated price

vi. Practice notes: cause or consideration

- how payment effected:  cash, check, wire transfer, etc.

D. Perfection of contract (Art. 1475)

i. Offer and Acceptance (Arts. 1319-1326)

- stages of a contract of sale- concept of perfection; perfection in consensual contracts vs. real contracts- necessity for payment or delivery of thing- necessity for written agreement- requirements for offer and acceptance- how perfection may be proved- manner of payment as a requirement for perfection- effect of non-payment on perfected contract

ii. Payment of earnest money as proof of perfection (Art. 1482)

iii. Perfection of sale by auction (Art. 1476)

iv. Expropriation (Art. 1488)

E. Consummation of contract

V. Formalities of contract of sale

A. In General (Arts. 1356, 1483)

i. Verbal

ii.  Written

B.    Form required for enforceability: Statute of Frauds (Art. 1403, 1405, 1406)

i. concept

ii. purpose

iii. scope

iv.   ratification of contract

C. Form required for validity (Art. 1356)

i. Sale of a piece of land or any interest therein is made through an agent (Art. 1874)

D.   Form required for convenience of the parties (Art. 1358)

E.   Items to note: Electronic Commerce Act

F.   Practice notes: formalities of contract of sale

-notarization- consularization or authentication

VI. Covenants: obligations of the seller

A. Obligations under the Civil Code

i. Take care of thing pending delivery (Art. 1163)

ii. Pay for expenses for the execution and registration of the sale, unless there is stipulation to the contrary (art. 1487)

-     practice notes: payment of income tax, stamp tax, local transfer tax, legal fees, Register of Deeds expenses

iii.  Transfer ownership (Arts. 1458, 1495)

a) Owner must have right to transfer ownership (Arts. 1459)

b) When right to transfer ownership must exist (Art. 1459)

c) How effected (Arts. 1477, 1478, 1496)

iv. Deliver the thing with accessions and accessories (Art. 1537)

a)   Concept of delivery; intention to deliver

b)   Consequence of delivery

c)   Delivery and non-payment of the price

d) Ways of effecting delivery (Arts. 1497-1501)- actual delivery- constructive (execution of public instrument, traditio symbolica,traditio longa manu, traditio brevi manu, traditio constitutum possesorium)

e) When seller not bound to deliver (Arts. 1524, 1536, 1198)

f)    Incidents of delivery

- Place of delivery (Art. 1521)

- Time of delivery (Arts. 1521)

- Expenses of delivery (Art. 1521)

- proof of delivery-

g) Special rules

- Contract of sale or return (Art. 1502)

- Contract of sale or approval (Art. 1502)

- Delivery to carrier (Arts. 1503, 1523)

B. Practice notes: usual covenants of the seller

i. Pre-closing covenants:

(a) access; (b) conduct of operations prior to closing; (c) approvals;

(d) notification to buyer;  (e) others

ii. Post-closing covenants:

(a) confidentiality; (b) covenant not to compete; (c) anti-poaching covenant; (d) payment of income tax; (e) others

iii. Affirmative covenants and negative covenants

SALES POST-MIDTERMS COVERAGE

VIII.       Conditions

A. Meaning of condition (Art. 1545)

B. Types of conditions

i. Conditions precedent vs. conditions subsequent

ii. Conditions for perfection vs. conditions for performance

C. Effect of non-fulfillment of condition

D. Practice notes: conditions in contract of sale

i. Usual contractual conditions

a)  Conditions precedent:

(i) accuracy of representations;

(ii) performance of all covenants/no breach;

(iii) consents;

(iv) no litigation/suit;

(v) delivery of documents;

(vi) others

b) Conditions subsequent

ii. Time frame for meeting conditions: drop dead date/long stop date

iii.Result if closing condition not satisfied:

(a) no closing;

(b) closing delayed;

(c) condition waived and closing occurs;

(d) condition changed to post-closing covenant and closing

occurs;

(e) others

IX. Representations and warranties

A. Meaning of representations and warranties

B. Type of warranties

i. Express – meaning, effect

ii. Implied – meaning, effect, nature, when not applicable

C. Categories of representations and warranties

i. Relating to the contract itself

ii.  Relating to the subject matter of the contract

iii. Relating to the parties

D. Distinguished from other terms

i. Conditions

ii. Opinion, dealer’s talk

E. Representations and warranties of the seller

i. Express – Art. 1546

a) meaning

b) terminology used

c) time of warranty, form, seller’s good faith

ii. Implied

a) implied warranty of title (Art. 1547)

warranty in case of eviction (Art. 1548-1560)

meaning of eviction (Art. 1548)

essential elements of warranty against eviction

eviction vs. trespass in fact

requirement of final judgment; duty to appeal (Arts.

1557,  1558, 1559, 1549)

vendor as party to the suit for eviction (Art. 1559)

effect of prescription (Art. 1550)

rights and liabilities in case eviction occurs; rights in

case of partial eviction (Arts. 1555, 1556)

waiver of warranty in case of eviction; kinds; effect;

presumption (Arts. 1548, 1553, 1554)

eviction for nonpayment of taxes (Art. 1551)

judicial sales (Art. 1552)

encumbrance with non-apparent burden (Art. 1560)

b) implied warranty against hidden encumbrances and

defects (Art. 1547(b), 1561, 1566, 1572-1581)

requisites for warranty against hidden defects (Arts.

1561, 1566)

remedies:  accion redhibitoria, accion quanti minoris

(Arts. 1567, 1570)

warranty in sales of animals (Arts. 1572- 1581)

judicial sales (Art. 1570)

c) implied warranty as to fitness or merchantability or

merchantable quality  (Art. 1562, 1563, 1564, 1565, 1570)

implied warranty of quality/fitness – particular

purpose of goods, test, sale under trade name, usage

of trade, sale by sample, remedies (Art. 1562-1564,

1565)

implied warranty of merchantability/merchantable

quality (Art. 1562)

remedies:  accion redhibitoria, accion quanti minoris

(Arts. 1567, 1570)

F.   Representations of the buyer

G. Practice notes: representations of the seller and the buyer

i.   Typical contractual representations of the seller:

(a) corporate existence, power and authority,

(b) consents, no violation;

(c) financial statements, no undisclosed liability;

(d) material adverse change;

(e) title;

(f) litigation;

(g) others

ii. Typical contractual representations of the buyer

iii. When representations made (e.g., time of execution, time of

closing, etc.)

iv. Bring-down representations – concept, why required

v. Survival of representations

X. Rules on risk of loss and deterioration

A. Theories of risks of loss

i. Theory of tradition vs. theory of perfection

ii. Theory followed by the Spanish Civil Code and the Philippine

Civil Code

B. Principle of res perit domino

C. Rules on risk of loss and deterioration

i. Prior to perfection of contract

ii. At time of perfection (Arts. 1409(3), 1493, 1494)

iii. After perfection of contract but before delivery

-  Fortuitous event (Art. 1480, 1163-1165, 1262-1263,

1269, 1504, 1537-1538, 1189[1,3])

- Seller’s fault  (Arts. 1480, 1165, 1262-1263, 1504[2],

1538, 1189)

iv. After delivery (Arts. 1504, 1568, 1569)

D. Practice notes: risk of loss and deterioration

-  drafting notes to address issues of loss and deterioration

XI. Actions and remedies for breach of agreement

A. In general (Art. 1594)

i. Actions available to seller

a) payment of price (Art. 1595)

b) damages (Arts. 1596)

c) rescission of contract (Art. 1597)

ii. Actions available to the buyer

a) specific performance (Art. 1598)

b) damages (Art. 1599)

B. Remedies available

i. Remedies available to the seller

a) lien on the goods (Arts. 1525-1529, 1535)

b) right of stoppage of goods in transitu (Art. 1530-1532,

1535)

c) right of resale (Art. 1533)

d) right of rescission (Art. 1534)

e) rescission in case of loss of immovable property (Art.

1591)

(f) rescission in case of sale of movable property (Art.

1593)

ii. remedies available to buyer

a) remedies in sale of goods by description and/or sample

(Art. 1481)

b) remedies in case of loss of specific goods (Art. 1494)

c) remedies in case of delivery of goods less than the

quantity contracted (Art. 1522)

d) remedies in case of a sale of real property by unit of

measure (Arts. 1539, 1540, 1541, 1543)

e) remedies in case of sale of real property made of a lump

sum (Arts. 1542, 1543)

f) suspension of payments (Art. 1590)

g) remedies in sale of immovable property (Art. 1592)

C. Special Laws

i. The Recto Law (Arts. 1484-1486) re sale of personal property

payable in installments

a) Transactions covered and not covered

b) Purpose of the law

c) Remedies available to the vendor

d) Election of remedies

ii. The Maceda Law  (R.A. No. 6552)

a) Transactions covered and not covered (Sec. 3)

b) Purpose of the law (Sec. 2)

c) Rights granted to the buyer

- at least two years of installments (Sec. 3)

- less than two years of installments (Sec. 4)

- other rights of the buyer (Secs. 5, 6)

d) Cancellation of sale by the seller

- requirements

- period

e) Calculation of installment payments

f) Stipulation to the contrary (Sec. 7)

D. Practice notes: actions and remedies

i. Typical contractual stipulations in case of breach

ii. Breach of covenant

iii. Breach of warranty

XII. Extinguishment of sale

A. In general

B. Causes of extinguishment (Art. 1600)

C. Conventional redemption

i. Concept of conventional redemption (Art. 1601)

ii. Subject matter of conventional redemption

iii. Distinguished from option to buy

iv. Period to redeem (Art. 1606)

a) express agreement

b) no express agreement

c) court judgment: true sale with right to repurchase

iv. Exercise of right to redeem

a) how right exercised (Art. 1616)

- manner of exercise

- amounts that should be paid

- requirement of tender of payment and consignation

b) who exercises right

- vendor, his assigns and heirs

- vendor’s creditor (Art. 1610)

- co-owners and co-heirs (Arts. 1612, 1613, 1614)

c) from whom to redeem (Arts. 1608, 1615,

- vendee

- vendee’s assigns (Art. 1608)

- vendee’s heirs (Art. 1615)

v. Effect of redemption and non-redemption (Art. 1617, 1618,

1607, 1609, 1611)

-  consolidation of ownership (Art. 1607)

-  subrogation of vendee (Art. 1609)

-  redemption of entire property (Art. 1611)

-  distribution of fruits (Art. 1617)

-  return free from liens and encumbrances (Art. 1618)

D. Legal redemption

i. Concept

ii. When applicable

a) Co-owners (Art. 1620)

b) Adjoining land-owners of rural land (Art. 1621)

c) Adjoining land-owners of urban land (Art. 1622)

iii. Period to redeem (Art. 1623)

iv. Exercise of right to redeem (Art. 1623)

v. Redemption/pre-emption under special laws

a) land acquired under free patent or homestead (C.A. No.

141, sec. 119)

b) extra-judicial foreclosure of mortgage (Act No. 3135,

sec. 6)

c) agricultural land (R.A. No. 3844, sec. 12)

E. Practice notes: termination of contract of sale

i. Grounds for termination

ii. Manner of termination

XIII. Special problems in sales        

A.  Sale by non-owner (Arts. 559, 1505, 1434)

i.  rule on acquisition of ownership by the buyer; principle

behind the rule

ii. exceptions to the rule

B. Sale by owner with voidable title non-owner (Arts. 1506)

-   rule on acquisition by ownership by the buyer; principle

behind the rule

C. Double sales (Art. 1544)

XIV. Sale contract distinguished from other contracts

A. Contract for a piece of work (Art. 1467)

B. Lease (Art. 1463)

C. Agency to buy and sell (Art. 1466)

D. Barter and exchange (Arts. 1638-1641, 1468)

E. Dacion en pago  (Arts. 1619, 1245)

F. Chattel mortgage

G. Assignment of credits and incorporeal rights (Arts. 1624-1637)

H. Bilateral promise to buy and sell (Art. 1479)

I. Options

J. Contract to sell

K. Equitable mortgage (Arts. 1602-1605)

K. Right of first refusal

XV.  Documents of title

A. Concept (Arts. 1507-1520)

B. Negotiable

C. Non-negotiable

XVI. Special Laws

A. Bulk Sales Law

B. Consumer Act

XVII.  Other matters relating to contract of sale

A.  Governing law

B.  Counterpart signing

C.  Severability

D.  Waivers

E.   Amendments

F.   Assignments

G.  Cost and expenses

XVIII.  Practice notes: overview of the typical sale transaction /

contract

A. What happens in a typical sale transaction

i. Due diligence

ii. Negotiation and drafting of contract

iii. Execution of contract

iv. Compliance with (or waivers of) conditions precedent

v. Closing

vi. Performance of post-closing covenants

B. Overview: how a typical sale and purchase agreement looks like

i.   Parties

ii. Recitals

iii. Operative provisions on sale

iv. Conditions for closing

v.   Covenants

vi. Representations and warranties

vii. Termination

viii. Miscellaneous provisions

ix. Signature page

x.  Notarization