1:53:35
Law on Sales by Atty. Mae Diane Azores (PUPFJIA)
REO Philippines Channel
Overview
This video provides a comprehensive overview of the Law on Sales, a crucial subject for aspiring CPAs. It defines a contract of sale, outlines its essential and accidental elements, and details its characteristics. The lecture covers the form requirements for sales contracts, distinguishing between absolute and conditional sales, and elaborating on contracts to sell. It also discusses the parties involved, their capacities, and disqualifications, as well as the subject matter and the essential element of price. Key concepts like option money, earnest money, and the implications of the loss of the subject matter are explained. Finally, the video delves into the obligations of the vendor and vendee, various types of delivery, remedies for defective deliveries, and implied warranties against eviction and hidden defects, concluding with a discussion on breach of contract and the Recto Law.
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Chapters
- The Law on Sales governs transactions where ownership of a determinate thing is transferred for a price certain in money or its equivalent.
- Contracts of sale are encountered daily, even without formal legal knowledge.
- Understanding sales law is vital for knowing one's rights and obligations as a buyer or seller.
This chapter establishes the relevance of sales law in everyday life and its importance for future CPAs by highlighting the need to understand contractual rights and responsibilities.
Everyday purchases like groceries or online shopping during sales events are examples of contracts of sale.
- A contract of sale requires three essential elements: consent (meeting of the minds on the object and price), object (a determinate thing), and cause (a price certain in money or its equivalent).
- Natural elements (like warranties) are presumed, while accidental elements are agreed upon by the parties.
- Key characteristics include being consensual (perfected by consent), bilateral (reciprocal obligations), commutative (equivalent values exchanged), principal (independent existence), onerous (involves consideration), and nominate (has a specific legal name).
Understanding these foundational elements and characteristics is crucial for determining the validity and enforceability of any sales agreement.
A Facebook conversation where one person offers to sell mango graham and the other agrees to buy and have it delivered demonstrates the need for clear consent to a sale.
- Generally, contracts of sale can be oral, written, or inferred from conduct, as long as the essential elements are present.
- Exceptions requiring specific forms include sales of land through an agent (must be in writing), sales of movables over 500 pesos (must be in writing under the Statute of Frauds), and sales of large cattle (require specific documentation).
- Sales can be absolute (no conditions) or conditional (subject to a contingency, often full payment).
- A contract to sell is a preparatory agreement where the seller promises to sell exclusively upon fulfillment of a condition, typically full payment, requiring a subsequent contract of sale.
This section clarifies when a sale is valid regardless of form and when specific legal formalities are required, preventing contracts from being void or unenforceable.
A sale of land through an agent is void if not in writing, illustrating a situation where form is critical for validity.
- The parties are the vendor (seller) and the vendee (buyer), both requiring legal capacity.
- Vendors must have the right to transfer ownership at the time of delivery, not necessarily at the perfection of the contract.
- Absolute incapacity (minors, insane persons) prevents contracts by themselves, while relative incapacity (spouses, agents) restricts sales with specific individuals to prevent fraud and protect interests.
- Special disqualifications apply to certain relationships like guardians and wards, or principals and agents.
Understanding who can legally enter into a sales contract and the specific restrictions ensures that agreements are valid and protects vulnerable parties.
Husband and wife cannot sell property to each other to prevent one spouse from defrauding the other.
- The subject matter must be legal, capable of having potential existence, determined (specifically designated or segregated), and can be subject to a resolutory condition.
- The price must be certain, either agreed upon, referenced to another certain thing, or determined by a specified third person.
- Failure to pay consideration results in a perfected contract with a remedy for the seller, while lack of consideration means no valid contract exists.
- Gross inadequacy of price can void a sale if it's shocking to the conscience or intended as a donation; a simulated price (no intention to pay) also voids the sale.
These elements are fundamental to a valid sale; ambiguity or illegality in the subject matter or price can render the entire transaction void.
A contract to sell one of 'A's cars for P100,000 is void because the specific car is not determined.
- Option money is paid for the right to decide whether to buy or sell within a specific period; it's separate from the purchase price and binds the offeror not to withdraw.
- Earnest money is part of the purchase price, serves as proof of contract perfection, and binds the bargain.
- Option money is not recoverable if the buyer decides not to proceed, while earnest money is generally returned if the sale doesn't materialize.
- Option money does not perfect a sale, whereas earnest money signifies a perfected contract of sale.
Distinguishing between these two types of payments is crucial for understanding when a contract is perfected and the rights and obligations of both parties regarding the money exchanged.
Giving P1,000 to hold an offer for a car for one week is option money; giving P10,000 as part of a P500,000 car purchase price is earnest money.
- If the thing is lost before perfection, the sale is void (complete loss) or the buyer can withdraw/demand a proportionate price (partial loss).
- If lost after perfection but before delivery, the seller bears the loss ('res perit domino') unless there's an agreement, retained ownership for security, or buyer's delay.
- The vendor's primary obligations are to transfer ownership (at time of delivery), deliver the thing (including accessions and accessories), warrant the thing sold, and take care of it pending delivery with the diligence of a good father of a family.
This section clarifies who bears the risk when the subject matter is lost and outlines the fundamental duties of the seller to ensure a valid and complete transaction.
If a car is sold but destroyed in an accident before the seller delivers it, the seller bears the loss because they are still the owner.
- Delivery means placing the thing in the control and possession of the vendee, either actually or constructively (e.g., by symbolic delivery of keys, pointing out the property, or legal formalities).
- If the quantity delivered is less than agreed, the buyer can reject, accept and pay proportionally, or pay fair value if goods were used before discovering the shortage.
- If the quantity is more, the buyer can accept the excess and pay proportionally or reject it (or reject all if indivisible).
- The vendee's obligations include accepting the delivery, paying the price, bearing expenses of execution and registration, and taking care of rejected goods.
Proper delivery is essential for transferring ownership and completing the sale, while understanding the buyer's obligations ensures the transaction proceeds smoothly.
Giving the key to a house is considered constructive delivery, symbolizing the transfer of possession and ownership.
- Express warranties are specific promises made by the seller to induce a sale.
- Implied warranties, inherent in sales, include warranty against eviction (seller has right to sell and buyer will have peaceful possession) and warranty against hidden defects (thing is free from unknown faults).
- Eviction occurs when a buyer is deprived of the property by a final judgment based on a prior right or vendor's act.
- Hidden defects must be significant, undiscoverable by ordinary inspection, present at sale, and not waived, allowing remedies like price reduction or contract cancellation.
- Breach of contract by the vendor can lead to actions for payment, damages, or rescission; breach by the vendee allows the vendor remedies like specific performance, damages, or rescission.
Warranties protect buyers from defects and claims against ownership, while understanding breach remedies provides recourse when contractual obligations are not met.
If a buyer is evicted from a property due to a prior sale to someone else, the seller is liable under the warranty against eviction.
- The Recto Law applies to installment sales of personal property.
- It provides three alternative remedies for the vendor if the buyer defaults on two or more installments: exact fulfillment, cancellation of the sale, or foreclosure of the chattel mortgage (if constituted).
- Choosing one remedy bars the vendor from pursuing the others.
- The law aims to protect buyers from oppressive collection practices.
This law provides specific protections and remedies in installment sales, preventing vendors from unfairly seizing the property and demanding the full price simultaneously.
If a buyer defaults on two monthly payments for an installment-purchased iPhone, the seller can either demand full payment, cancel the sale, or foreclose the chattel mortgage on the iPhone.
Key takeaways
- A contract of sale is perfected by the meeting of the minds on a determinate object and a certain price, regardless of the form, unless the law requires a specific form.
- Both parties must have legal capacity; certain individuals have relative or absolute incapacities to enter into sales contracts.
- The subject matter must be legal and determined, and the price must be certain; otherwise, the sale is void.
- Option money grants a period to decide and is separate from the price, while earnest money is part of the price and perfects the sale.
- The seller is obligated to transfer ownership and deliver the item, and bears the risk of loss before delivery unless otherwise agreed.
- Delivery can be actual or constructive, and the buyer has specific remedies if the quantity or quality of goods delivered is defective.
- Implied warranties against eviction and hidden defects protect buyers, providing recourse if the seller lacks title or the goods are faulty.
- The Recto Law offers specific, alternative remedies for sellers in installment sales of personal property to prevent unjust enrichment or double recovery.
Key terms
Contract of SaleConsentObjectCause (Price)Determinate ThingPrice CertainAbsolute SaleConditional SaleContract to SellVendorVendeeOption MoneyEarnest MoneyRes Perit DominoActual DeliveryConstructive DeliveryWarranty Against EvictionWarranty Against Hidden DefectsRecto LawChattel Mortgage
Test your understanding
- What are the three essential elements required for a contract of sale to be valid?
- How does the law distinguish between an absolute sale and a conditional sale, and what is the role of a contract to sell?
- What specific restrictions apply to spouses, agents, and principals regarding contracts of sale?
- Explain the difference between option money and earnest money, and how does each affect the perfection of a contract of sale?
- Under what circumstances does the seller bear the risk of loss for the subject matter after the contract of sale is perfected but before delivery?
- What are the buyer's remedies if the quantity of goods delivered is less than what was agreed upon in the contract?
- What is the purpose of a warranty against eviction, and what are the requisites for a buyer to enforce it?
- How does the Recto Law limit the remedies available to a vendor in installment sales of personal property?