Chapter 1: Nature and Form of contract

A. DefinitionThe seller or vendor obliges himself to deliver a thing to the buyer, purchaser, or vendee. In turn, the buyer has to pay the price of the thing.Price is the equivalent amount of the thing

B. Essential elements of a contract sale1. Consent or meeting of the minds - There must be consent for the seller to transfer and deliver the thing and for the buyer to pay. Both parties must have legal capacity to give consent. 2. Object or subject matter - the determinate thing is the object of the contract. 3. Consent or consideration - refers to the “price certain in money or its equivalent” (Art. 1458). It does not include goods and merchandise. A sale cannot exist without its price.

C. Characteristics of a contract sale1. Consensual - perfected by mere consent of both parties.2. Bilateral - both parties are reciprocally bound to each other.3. Onerous - the thing sold is conveyed in consideration of the price and vice versa4. Commutative - the thing sold has an equivalent value for it’s price vice versa. With the exceptions of aleatory contracts, those which depends on the happening of an uncertain event.5. Nominate - it is designated in the Civil Code as “Sale”6. Principal - its existence and validity does not depend on another contract

D. Consent

General rule: contracts are perfected by mere consent (Art. 1315)Contract of sale is consensual and can be perfected without any other circumstances.Ownership of the thing is not transferred until its delivery.If one of the parties does not comply, the other party may sue for the fulfillment of the obligation or its rescission with payment of damages

Effect of failure to pay price/absence of price

1. Price stipulated - failure to pay the stipulated price after the execution of the contract does not make the contract without cause or consideration. It is not an essential that the payment should be made at the time of the contract .Failure to pay does not ipso facto resolve the contract in the absence of any agreement to that effect. The sellers remedy is to demand specific performance or rescission with damages.Ipso facto - “by the fact itself”

2. No price stipulated - if there is no meeting of the minds regarding the purchase price, there is no contract of sale.If the case is that the price appears to be paid but has never been paid, the sale is void and non-existent.

E. Object

1. Future goods and those with potential existence (empti speratae)- Future goods not existing at the time the contract was made, may be the object of sale as

long as it reasonably certain for it to exist. Once the thing is there, the ownership will now be transferred to the buyer.

- Thing should be specific and identified.- Thing should be owned by the vendor at the time.

2. Sale of hope and vain hope (emptio spei)- Contract can only be valid if the object of sale is expected that it will come into

existence. - Contract is still valid even though the thing hoped or expected does not come into

existence.- Sale is void if there is vain hope. (e.g. making you think that there is a chance that you

could win the raffle)

Remember: Sale of hope: It’s like when a vendor will say that he will sell you his crop in 3 months. Here the crop is EXPECTED that it will come to existence

3. Things subject to a resolutory condition● Art. 1465

Things subject to a resolutory condition may be the object of the contract of sale -Resolutory condition: -It is an uncertain event upon the happening on which the obligation (or right) subject to it is extinguished. Hence, the right acquired in virtue of the obligation is also extinguished.

F. Cause/Price

Cause 1: When price is certain (Art. 1469- 147)● Art. 1469

Certain if: reference to another thing Judgement of a specified person

No one agrees= contract is inefficacious

Third person->acted in bad faith/ by mistake= Courts will fix the price

● When is price considered certain? (1) No sale if price not certain or ascertainable (2) Cases when price considered is certain

-Agreed or fixed upon a definite amount -with reference to another thing certain (see Art. 1472) -Determination of the price is left to the judgement of a specified person/s

● When price is fixed by a third person:GENERAL RULE:The price fixed by the third person is binding upon the parties.

EXCEPTIONS:1. When the third person acts in bad faith2. When the third person disregards specific instructions or the procedure laid down by the parties, or data given to him, fixed an arbitrary price.

● Art. 1470. Gross inadequacy of price does not affect a contract sale, except as it may indicate a defect in consent, or that the parties really intended a donation or some other act of contract. - This just means that the damaged good like a damage in packaging does not affect the contract of sale. (Just like in grocery stores where a canned good is damaged, it is somewhat a donation already where there is discount already for the buyer)

● Art. 1471.

If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or some other act of contract

- This just means if the price is false, the sale is void.

Effect of inadequacy in voluntary sales:

1.2nd general rule: While a contract sale is commutative, mere inadequacy of the price or alleged hardness of the bargain generally do not affect validity when both parties are in position to form an independent judgement concerning the transaction

2. When low price indicates defect in the consent-Fraud, mistake, or undue influence-Anullment

3. Where price is simulated/false-Void but valid for donation

4. Where parties do not intend to be bound at all-Void and inexistent

● Effect of gross inadequacy of price in involuntary or execution sales:3rd general rule: A judicial or execution sale is one made by a court with respect to the property of a debtor for the satisfaction of his unpaid indebtedness.

(2) Where price is low as to be “shocking to the conscience”

(3) Where seller given the right to repurchase

2. Price of securities, grains and liquids (1472)The prices of things (i.e. securities, grains, liquidities) become certain if they can be determined in reference to another thing where the price is certain. Prices can range above or below that of other places and on different days so long as they are certain. (See Art. 1472)

3. Simulated price (1473)Cause 3: The decision to fix a price is never left to one of the parties alone. Both must come to an agreement of a fair price or a different person is tasked to do so. However, if the price given by one of the parties is accepted by the other, the contract becomes perfected for there is a true “meeting of the minds”. (See Art. 1473)

● Fixing of price by one party is not allowed:

(1) Because consent is mandatory in a contract of sale, thus determination must come from both parties.

(2) If price cannot be determined by both parties, a different person shall be entitled by the two fix an acceptable price.

However, if the terms given by one of the parties are accepted by the other, the contract is considered perfected as this becomes a true meeting of the minds

4. Effect of price is not mixed (1474) Cause 4: If the price is not known or cannot be determined (In accordance to the preceding articles), then the contract will be unable to produce a desired effect or simply put, considered as ineffective. However, if the thing or any part thereof has been delivered and assumed by the buyer, then he must pay a reasonable price therefor. The reasonable price depends on the circumstances of each particular case. (See Art. 1474)