Contract of Sale is an agreement where one of the parties (seller or vendor) obligates himself to deliver something to other (buyer and vendee) who in return, binds himself to pay a sum of money or its equivalent (price).
What are the essential elements of the Contract of Sale?
- § Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price
- § Determine subject matter generally, there is no sale of generic thing; moreover, if the parties differ as to the object, there can be no meeting of minds
- § Price certain in money or its equivalent (this is the cause or consideration; the price need not necessarily be in money).
Generally, all persons who are authorized in the New Civil Code to obligate themselves may enter into a contract of sale.
Who cannot enter into a Contract of Sale?
- § Unemancipated minors (majority age: 18)
- § Insane or demented persons, and deaf-mutes who do not know how to read or write
- § As a rule, all persons, natural or juridical, who are authorized by the constitution to lands, and by the New Civil Code to obligate themselves, may buy or sell real estate
- § Only Filipino citizens or corporations at least 60% of the capital of which is owned by Filipino citizens can acquire lands in the Philippines
- § A Filipina married to a foreigner retains her Philippine citizenship and thus, also retains the right to acquire land in the Philippines
- § A Filipino citizen, who acquires citizenship of another country can retain ownership of land acquired by him prior to his change of citizenship
- § The husband and the wife cannot sell property to each other except: (1) when separation of property was agreed upon in the marriage settlement, (2) when there has been judicial separation of property
- § The guardian, with regards to the property of the person under his guardianship
- § Agent, with respect to the property whose administration or sale have been entrusted to him, unless the principal was informed before the purchase
- § Executor and administrator, with respect to the property under their administration
- § Public offers and employees, with respect to government properties entrusted to them; this provision shall apply to judges and government experts who take part in the sale
- § Justices, judges, prosecuting attorneys, clerks of superior courts, and other officers and employees connected with the administration of justice, with respect to the properties in litigation before the court within their jurisdiction; this prohibition shall apply to lawyers, with respect to the property under litigation which they handle by virtue of their profession
- § Other person disqualified by law
- § Consensual – it is perfected by mere consent without any further act;
- § Bilateral – both contracting parties are bound to fulfill obligations towards each other, the seller, to deliver and transfer ownership of the thing sold and the buyer, to pay the price;
- § Onerous – the thing sold is conveyed in consideration of the price and vice versa;
- § Commutative - the thing sold is considered the equivalent of the price paid and vice versa;
- § Nominative – it is given a special name or designation in the Civil Code;
- § Principal – it does not depend for its existence and validity upon another contract.
- § Absolute - An Absolute Contract of Sale is one where the property is sold, transferred and conveyed to the vendee in fee simple, ownership transferred irrevocably upon the consummation of the contract and subject to no other condition whatsoever.
- § Conditional - While a Conditional Contract of Sale is one where property sold, transferred or conveyed to the vendee is less than fee simple, ownership thereto although already transferred to the vendee is subject to the conditions agreed upon.
As to transfer of title
§ In contract of sale, title passes to the buyer upon delivery of the thing sold, while in contract to sell, the title is not yet passed until the full payment of the purchase price.
As to payment of price
§ In contract of sale, non-payment of the price is a negative resolutory condition, while in contract to sell, full payment is a positive suspensive condition
As to ownership of seller
§ In contract of sale, seller lost ownership of the thing sold, while in contract to sell ownership stays with the seller.
What is the difference between the sale and the agency to sell?
- In sale, buyer receives goods as owner, while in agency to sell, agent receives goods but ownership remains with principal.
- In sale, buyer pays the price, while in agency to sell, agent accounts proceed of sale in behalf of the principal
- In sale, buyer cannot return goods, while in agency to sell, an agent can return goods in case it was not sold.
- In sale, seller guarantees the thing sold, while in agency to sell, agent assumes to personal liability on things sold.
- In sale, buyer can do whatever he wants on the goods, while in agency to sell, agent must follow instruction of the principal.
- In sale, no pre-existing debt before the agreement, while in dation in payment, there is pre-existing debt.
- In sale. Obligation to pay is created after the agreement, while in dation in payment, obligation to pay is satisfied.
- In sale, the price is not fixed prior to the agreement, while in dation in payment, the price is already determined which is the debt.
- In sale, buyer had to pay the price after the contract, while in dation in payment, payment is already received in the form of loan.
Option contract is an agreement which gives a person the right to buy a certain specified property from another person within the agreed period and agreed price. It is distinct from the contract the parties may later enter into upon the consummation of the option. A consideration of an option contract is just as important as that of any other contract. An option without consideration is void.
What is an Offer to Buy or Offer to Sell?
When an offer is made, and accepted by the offeree within the stipulated period before it was withdrawn by the offerer, there is constituted binding contract of sale although the option is given without consideration.
What is an Earnest Money?
It is money given by the buyer to the seller, as a proof of the perfection of the contract. Actually, it is a partial payment of the purchase and it must be deducted therefrom.
What is the difference between option money and earnest money?
- Earnest money is part of the purchase price, while option money is given as distinct consideration for an option contract.
- Earnest money is given only when there is already a sale, while there is an option money even the sale is not yet perfected.
- § Sale of personal property at a price not less than P500.00.
- § Sale of real property or an interest therein regardless of the price involved; and
- § Sale of property not to be performed within a year from the date thereof regardless of the nature of the property and the price involved.
It depends of the stipulation in the contract. If for instance, land is promised to be sold, and title given only the down-payment and the monthly installments therefore shall have been fully paid, then the agreement is a Contract to Sell.
(i.e.) the following contract by stipulating that “for and in consideration of P10,000.00 of which P5,000.00 is hereby received and the balance payable in two equal installments, I promise to sell and convey unto the vendee the land described herein upon full payment of the purchase price”, is a Contract to Sell.
On the other hand, in the same example above, after the word received—“and the balance payable in two equal installments, I hereby sell, transfer and convey the said parcel of land”—then this is a Conditional Contract of Sale or, in short, Contract of Sale.
If the contract authorizes the vendor to automatically rescind the contract upon the failure of the vendee to pay there or more equal installments, may the vendor actually treat the contract as automatically rescinded if the vendee failed to pay the installments?
If it is a Contract to Sell, Yes. Failure to make the needed payment is failure to comply with the suspensive condition. Hence, the promissor is not obliged to convey title and after an unsuccessful demand for the said price, there would be nothing wrong if he sells the property to another. He can also forfeit the installment payments already made to be considered as rental for the use of the property subject of the Contract to Sell.
On the other hand, if the contract is a Conditional Contract of Sale and/or a Contract of Sale, the vendor cannot rescind the contract even if it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place. The vendee may pay, even after the expiration of the period, as long as no demand for the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term.
What are the obligations of the vendor?
- § To deliver a determine thing
- § To transfer its ownership (seller/ vendor need not to be the owner at the time of perfection of the contract; however, to the owner at the time of delivery
- § To warrant against eviction and against hidden defects
- § To pay for the expenses of the deed of sale
- What are the obligations of the vendee/ buyer?§ To accept the property sold
§ To pay the price of the property
In a Contract of Sale, unless a contrary intention appears, there is: (1) an implied warranty that the thing shall be free from any hidden faults or defects, or any charge or encumbrances not declared or made known to the buyer, (2) an implied warranty against eviction by virtue of which if the vendee is deprived of the whole or part of the things purchased by a final judgment based on a right prior to the sale or an act imputable to the vendor, such vendor shall answer for the eviction although nothing has been said in the contract on the subject
Who pays for the documentation and registration of the property Sale?
There are two parts of the whole paperwork: (1) Documentation of Sale and (2) Registration of Property to New Owner. Documentation includes Notarization of Deed of Sale, Documentary Stamp Tax of the Deed of Sale Document, Capital Gains Tax, Ad-Valorem Tax, Real Estate Tax Declaration. Documentation is supposed to be paid by the vendor. When the BIR issues the Certificate of Authority to Register, documentation of sale is already complete. The next step is the legal obligation of the vendee to Register the Property and pay all expenses related to it including Transfer Tax, new Real Estate Tax Declaration, and Title Registration. But there are times that both parties make special agreement to the contrary.
How do you resolve an issue wherein the area of the land sold should later turn out to be greater or smaller than that stated in the contract?
- § If the sale is for a lump sum, (not for a certain price per square meter) there shall be no increase or decrease of the price, although there be a greater or lesser area than that stated in the contract
- § If the sale be made with statement of its area at the rate of a per-price per square meter, the following rules shall apply: (1) if the actual area is bigger, the vendee may Accept the area included in the contract and reject the excess, or Accept the whole area, but must PAT the excess area at the contract price; (2) if the actual area is smaller the vendee may choose to have a proportional reduction of the price, or Rescind the contract provided: (a) That the lack in the area be not less than 10% of that in the contract, or (b) That he would not have bought had he known of its smaller area
- § The buyer in good faith who first registered the property with the Register of Deeds has the better right
- § In case neither registered, the buyer in good faith who was first in possession, and
- § Should there be neither registration nor possession, then the buyer in good faith who can present the oldest title.
- For Example: John sold his land through a public document to Peter. John then sold the same land to Joseph, also through a public instrument. Neither Peter nor Joseph registered the sale in their favor, but Joseph was the first who actually took physical possession of the land by building a house thereon. Who has the better right then? The Answer is JOSEPH. Joseph. Since there was no registration, the test is who was first in possession.
A Pacto de Retro Sale is a contract of sale with the stipulation that the vendor shall have the right to buy back or redeem the property within an agreed period.
What are other specific conditions of a Pacto de Retro Sale?
- § This is a principal and independent contract
- § Title passes to the vendee; possession is delivered too
- § vendee may dispose of the same as absolute owner
- § vendee is obliged to pay the taxes
- § if the seller does not repurchase the property on the date named in the contract, he losses all his interest therein
- § extension of the period of redemption is not allowed; however, partial redemption is permissible
- § the object may either be movable or immovable
The period of redemption in a “pacto de retro” sale depends on the stipulation of the parties, but cannot exceed ten (10) years. If there is no stipulation, the period of redemption is four (4) years.
When is a Contract of Sale presumed to be an equitable mortgage?
- § When the price of a sale with right to repurchase is usually inadequate
- § When the vendor remains in possession of the property as lessee or otherwise
- § When upon or after the expiration of the right to repurchase, another instrument extending the period of redemption or granting a new period of redemption is executed
- § When the purchaser retains for himself a part of the purchase price
- § When the vendor binds himself to pay the taxes on the property sold
- § In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure payment of a debt or the performance of any other obligation
- § A Deed of Sale with Mortgage is a contract of sale whereby part of the purchase price is paid upon the execution of the contract balance to be paid within a stipulate period, and the property mortgaged by the vendee to the vendor to secure the payment of the said balance.
- § A Deed of Sale with Assumption of Mortgage is a contract of sale whereby the vendee pays a certain amount to the vendor and assumes as well an existing obligation which is secured by a mortgage over the property.
- § When the property relations between the spouses is one of absolute community, or
- § When the property relations between the spouses is one of conjugal partnership and the property involved was required during the marriage at the expense of the common fund
- § When the property relations between the spouse is one of absolute separation, or
- § When the property relations between the spouses is one of conjugal partnership, but the property involved: (1) was brought into the marriage by either of the spouses as husband’s capital or wife’s paraphernal property, (2) was acquired by either spouses by inheritance, (3) was acquired with exclusive funds of either of the spouses.
Under the Realty Installment Buyer’s Act (RA 6552) otherwise known as the Maceda Law, if the buyer has paid less than two (2) years of installments, he is entitled to a grace period of not less than sixty (60) days; if he fails to pay the installments due within the grace period given, he is still entitled to a notarial notice of at least thirty (30) days duration before the seller may cancel or rescind the contract.
If the buyer has paid at least two (2) years of installments, he is entitled to:
- § Pay, without additional interest, unpaid installments due within the total grace period earned by him (i.e.) one (1) month for every year of installments payment effected; provided however, that such right shall be exercised by him only once in every five (5) years during the life of the contract or its extension, if any
- § Refund, if contract is cancelled after the notarial notice of cancellation or rescission of at least thirty (30) days duration, of the cash surrender value of payments made (i.e.) 50% of total payments effected during the first five (5) years but not exceed 90% of total payments made
- § *Downpayments, deposits or options on contract shall be included in the computation of total payments made.
- § Transfer or assign their rights to the contract
- § Pay in full the purchase before the expiration of the contract term without interest
- § Have the contract annotated on their titles
- Same causes as all other obligations; to wit: payment, performance or loss of the thing due, by condonation or remission of the debt, confusion or merger of the rights of the creditor and debtor.
- By compensation and by novation
- By redemption (conventional or legal redemption)
In Pacto de Retro sale, conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with obligation to return the following:
- § Price of the sale
- § Expenses of the contract
- § Other legitimate expenses
- § Necessary expenses on the thing sold
- § Useful expenses on the thing sold
Legal redemption is the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment (dacion en pago), or by any other transaction whereby ownership is transmitted by onerous title.
What are the examples of legal redemption?
- § By a co-owner: each co-owner can redeem in proportion to what he owns
§ By an adjacent owner of rural land provided: (1) the land is one hectare or less, (2) the grantee has rural land already, otherwise, grantee must be given chance to own rural land, preference to owner of smaller area; if the same area, to the first who requested redemption.
- § By an adjacent owner of urban property : if seller had previously bought the small area for speculation; preference is given to adjacent owner with the best intended use for the land. Here also, Right of Pre-emption is granted—right to redeem/ purchase before property is disposed of.
- § Within thirty (30) days from notice in writing by vendor
- § Within thirty (30) days from date assignee demands payment
If there is anything else important that I forgot to include in this article, please email me.
If you want to comment about this article, there is a provision for this purpose that you can find below.
Thank you so much for visiting my site. May God Bless You!