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Contract of Sale

What is a contract of sale?

According to Art. 1458 of the New Civil Code, it is defined as:

Article 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

*It is an agreement between two parties whereby one, who is the seller or vendor, obligates himself to deliver something to the other party who is the buyer or vendee who is bound to pay a sum of money or its equivalent.

What are the essential elements of a contract of sale?

In general, the rules governing a simple contract also apply to a contract of sale. The following must be present:

  1. Consent or meeting of the minds wherein the contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price thereof. This is when the seller agrees to deliver the thing subject of the contract and the buyer, the price thereof. The essence of this is that the parties agree to the terms of the contract which will bind them.
  1. Object or subject matter or the determinate thing, as what the law referred to which the seller is bound to deliver and the buyer is bound to receive upon payment of its sum.
  1. Cause or consideration or the price certain in money or its equivalent which does not include goods or merchandise although they have their own value in money. Its equivalent may mean any goods given as the token of payment and where these are assessed and evaluated as its price equivalent. The price however must not be fictitious or else it would be void.

What are the characteristics of a contract of sale?

Consensual because it can be perfected by the mere giving of consent and meeting of the minds of the parties;

Bilateral because both of the parties are bound to fulfil correlative obligations such as the seller is to deliver the thing which is the subject of the contract and the buyer, to pay the price;

Onerous because the thing sold is conveyed in exchange for the purchase price and the price is in consideration of the thing sold;

Nominate because it is given a name in the Civil Code

Principal because it does not require the existence of another contract for it to be valid and existing.

What are the types of Sales Agreement?

  1. Absolute Sale- one wherein there is no condition whatever and imposes upon the vendor the obligation to deliver the real estate, subject matter of the agreement to the vendee who upon the receipt of the property hands over and pays the purchase price that has been previously agreed upon with the vendor.

  • The Deed of Absolute Sale where both parties agree on and accept the real estate to be or being conveyed and price therefore that the vendee should pay for it. This transaction is the most common where the title of the real estate, subject sale, is free from and clear of any alien or encumbrance whatever. No other condition is necessary except the actual delivery and transfer of the property to the vendee without delay. The deed will then be registered to the proper Registry of Deeds as required by the Torrens Registration Law.

  • Sale in Exchange or Barter where the real properties is subject to the transaction is deeded in exchange of and for another real property that is acceptable to the vendor without any additional monetary consideration. It is essential in the transaction that the title of both properties in the exchange is valid and unencumbered or free from any liens or encumbrances of any nature.

  1. Conditional Sale-This is an agreement to sell or buy real estate with certain conditions that must be accomplished by either or both the parties so as to extinguish and or create ownership over the subject property. This is merely an executory contract in contemplation of the law and the right of ownership is withheld for the meantime. In other words, the certificate of title of the real property is not turned over to the vendee until and after certain conditions have been accomplished by either or both the parties. Then it becomes an executed contract.

It may be:

  • Sale on installments- commonly adopted for the sale of lots in a land subdivision or units in a condominium or townhouse project. Its principal feature is that the purchase price is fixed at a certain amount that shall be paid in equal monthly or yearly installments for a period of five or ten years.
  • Contract to Sell- This is similar to sale on installments except that the period allowed for the final payment of the purchase price is much shorter in duration.
  • Pacto de Retro- The sale in which the vendor is granted the right to repurchase the property sold on a certain date fixed in the Contract. This is done by returning to the vendee the entire purchase price including the expenses for the preparation of the contract and the necessary and useful expenses on the property sold. This is termed as conventional redemption under Article 1691 of the New Civil Code.

There are other forms of Conditional Sale where ownership and possession of subject property are transferred to the vendee upon execution of the contract such as:

  1. Sale with mortgage- A portion of the purchase price is initially paid by the vendee and the vendor delivers possession and ownership of subject property tot eh vendor who, thereafter, execute a Deed of Mortgage on the same property in favor of the vendor to guarantee payment in full of the balance of the purchase price.
  1. Sale with assumption of mortgage- The Vendor pays in cash a portion of subject property to the vendee who assumes the payment of the existing mortgage on the property that represents the balance of the purchase price.
  1. Dacion en Pago- This is an agreement where the encumbered property of the vendor is sold by the latter to his creditor or mortgagee as vendee to satisfy or in payment of his existing loan and other charges.

What is the difference between a contract to sell and a conditional sale?

  1. Transfer of title– In a contract to sell, the title does not automatically pass to the buyer upon payment of the price, a contract of absolute sale still has to be entered into by the parties.

In a conditional sale, the sale will be deemed fulfilled upon the happening of the condition which may or may not occur. If the condition do not happen then the contract of sale will be abated.

  1. Sale of property to a third person– In a contract to sell, a third person not an immediate party to the contract cannot be considered a buyer in good faith despite payment of the price and the prospective buyer cannot recover the property. This in effect will cause defect in the title of the buyer.

In a conditional sale, upon the happening of the suspensive condition, the title of the seller or ownership to the thing sold will automatically transfer to the buyer and will bar the seller to transfer it to any other person. In this case, the first buyer may seek reconveyance of the property since the second buyer will be deemed a buyer in bad faith and will have a defect in his title

References:

De Leon, H. (2010). Comments and Cases on Sales. Quezon City: Rex Printing Company, Inc.

Leabres V. Court of Appeals, 146 SCRA 158, 1986

The New Civil Code of the Philippines

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