8. Sales and Credit Transactions

The following are the essential elements of a contract of sale, except

• Consent of the contracting parties

• Subject matter which should be determinate

• Price which is certain in money or its equivalent

• Warranty against eviction and against hidden defects

Answer explanation

Elements of a Contract of Sales

Essential elements/requisites - Those without which a contract of sale would not exist.

a. Consent of the contracting parties

b. Subject matter which should be a determinate thing.

c. Price certain in money or its equivalent.

A contract of sale is perfected

• Upon compliance with the requirements of the law as to form

• Upon delivery of the object of the contract

• Upon the meeting of the minds on the thing which is the object of the contract and upon the price

• Upon demand

Answer explanation

Art. 1475. 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.

Can future inheritance be the subject of a contract of sale?

• No, since it will put the predecessor at the risk of harm from a tempted buyer, contrary to public policy

• Yes, since the death of the decedent is certain to occur

• No, since the seller owns no inheritance while his predecessor lives

• Yes, but on the condition that the amount of inheritance can only be ascertained after the obligations of the estate have been paid

Answer explanation

All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. The exception is that no contract may be entered into with respect to future inheritance, and the exception is the partition inter vivos referred to in Article 1080. (Perillo v. Perillo, (CA), 48 0. G. 4444).

Statement 1: In a contract of sale, the buyer becomes owner upon delivery of the thing sold as a rule. Non-payment of price is a resolutory condition.

Statement 2: In a contract to sell, the buyer becomes owner only after he has fully paid the price.

Payment of the price is a suspensive condition.

• First statement is true, second is false

• First is false, second is true

• Both are false

• Both are true

Answer explanation

CONTRACT OF SALE DISTINGUISHED FROM CONTRACT TO SELL; EFFECT OF NON PAYMENT OF PURCHASE PRICE; EFFECT OF DELIVERY ON OWNERSHIP OF OBJECT OF CONTRACT. - In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligations created thereunder. On the other hand,

"the parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price." In such a contract to sell, the full payment of the price is a positive suspensive condition, such that in the event of non-payment, the obligation of the seller to deliver and transfer ownership never arises. G.R No. 83851

The Recto Law applies to which of the following examples of sale?

• Sale of a car on straight term

• Sale of house and lot on installment

• Sale of car on installment where the buyer constituted a mortgage on his truck

• Sale of a piano on installments where the buyer constituted a chattel mortgage on the piano

Answer explanation

It is stated in the Article 1484 about a contract of sale of personal property in which the price is payable in installment having a chattel mortgage attached to the thing sold.

This kind of contract of sale is covered by the Recto Law. This article is applicable to this question since the thing being sold, which is piano, is a personal property having a chattel mortgage and it is under an installment basis of payment. The Recto Law does not apply to a straight term of sale.

On March 1, A orally sold to B his watch worth 400.00. A delivered to B the watch on March 15. B paid for the watch on March 30.

• The contract is perfected on March 15, when the ring is delivered by S to B.

• The contract is perfected on March 1, when the parties had a meeting of minds on the object and the price.

• The contract is perfected on March 30, when the price is paid, since both parties would by then have performed their obligations in the contract.

• There is no perfected contract because the sale was made orally.

Answer explanation

Art. 1475. 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.

S and B entered into a contract whereby S transferred to B a specific car for the price of P200,000.00, while B gave to S P90,000.00 cash and a diamond ring worth P110,000.00. The heading of the written contract reads, “Contract of Sale”

• The contract is void because the intention of the parties is void since the value of the diamond ring is more than the monetary consideration given.

• The contract is a valid contract of sale as intended by the parties regardless of whether the monetary consideration is more or less than the value of the property consideration.

• The contract is a valid contract of barter since the value of the property is more than the monetary consideration. The intention of the parties is immaterial.

• The contract is partly a contract of barter and partly a contract of sale.

Answer explanation

Art. 1468. If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered a barter if the value of the thing given as part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale.

The following are exceptions to the rule that gross inadequacy of the price does not affect the contract of sale, except:

• If consent is vitiated.

• If the parties intended the contract to be some other contract.

• If the price is so low as to be shocking to the conscience.

• None of the above.

Answer explanation

Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act of contract.

Statement 1: Option money is part of the purchase price.

Statement 2: Earnest money is proof of the perfection of the contract of sale.

• Both statements are true.

• Both statements are false.

• Only Statement I is true.

• Only Statement II is true.

Answer explanation

Option Money does not bind the would-be buyer to pay the balance. It is a distinct consideration for an option contract. (Statement I - False)

Art. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. (Statement II - True)

Under the “Realty Installment Buyer Act”, the buyer of real estate on installment payments may pay an installment defaulted without additional interest if he has paid at least two years of installments. The law is applicable to sales/transactions involving:

• Industrial lots

• Commercial buildings

• Residential lots

• Sales to tenants under the Land Reform Law.

Answer explanation

R.A. 6552 - REALTY INSTALLMENT BUYER ACT

Section 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants.