Sales Outline

2010 spring
silver

I. General Concepts

A. Definition of Sales

Article 1458, Civil Code By the contract of sale, one of the contracting parties (seller) obligates himself to (1) transfer the ownership of and (2) to deliver a determinate thing and the other (buyer) to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

COMMERCIAL SALE
· Is the sale of personal property for the purpose of resale, either in the same form or in a different form, with the intention of deriving profit in the resale
· Prior sales law distinguished between commercial sales and civil sales
o e.g. in terms of risk of loss and deterioration and hidden defects
· Such distinction has been abrogated by the provisions of the Code of Commerce on Sales

B. Nature of obligations created
è Reciprocal obligations (contract of purchase and sale)

Article 1458, Civil Code – refer above

Article 1165, Civil Code When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by Art 1170 (damages for breach of obligation), may compel the debtor to make the delivery (specific performance).
If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor (substituted performance)

C. Sales distinguished from other transactions

a. Contract for a piece of work

Article 1713, Civil Code By the contract for a piece of work the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. The contractor may either employ only his labor or skill OR also furnish the material.

Article 1467, Civil Code
CONTRACT OF SALE A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not
CONTRACT FOR A PIECE OF WORK if the goods are to be manufactured specially for the customer AND upon his special order, and not for the general market

Celestino Co. & Co. v. Collector 92 Phil 841 (1956) – Although windows and doors were made only when customers placed their orders, it does not alter the nature of the establishment which accepts orders as called for the employment of materials which it manufactures ordinarily and habitually, it is a contract of sale. If it accepts a job that requires extraordinary or additional equipment or involves services not generally performed by it, it is a contract for a piece of work.

IMPORTANCE OF DISTINCTION
· Difference in the rules governing both contracts (e.g. tax rates and other charges are lower for contractors) and application of SoF
· Inchausti v Cromwell – SC adopted Massachusetts rule that the test whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and been subject of sale to some other person, even if the order had not been given.
· True test of a Contractor – he renders service in the course of an independent occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished (Luzon Stevedoring Co v Trinidad and La Carlota Sugar Central v Trinidad).
· More examples of CONTRACT OF SALE:
o future sale of articles which he is habitually making although at the time not made or finished
o article ordered is exactly such as plaintiff makes and keeps on hand for sale to anyone and no change or modification of it is made at defendant’s request although made after and in consequence of, defendant’s order for it

b. Lease of things

Article 1643, Civil Code In the lease of things, one of the parties binds himself to give to another, the enjoyment or use of a thing for a price certain, and for a period which may be definite or indefinite. However, no lease for more than 99 years shall be valid.

Article 1484, Civil CodeVendor’s alternative remedies in acontract of sale of personal property price of which is payable in installments
1. Exact fulfillment of obligation in case of failure to pay (specific performance)
2. Cancel sale in case of failure to pay two or more installments
3. Foreclose the chattel mortgage
Article 1485, Civil Code Art 1484 also applicable to contracts purporting to be leases of personal property with option to buy, when lessor has deprived lessee of the possession or enjoyment of thing.
· So-called rents must be regarded as payment of prince in installments since due payment of the agreed amount results in the transfer of title to the lessee

Jose v. Barrueco, 67 Phil 747 (1939) – The total rents being equal to the value of the thing leased, the SC considered the transaction as one of sale.

c. Agency to buy or sell

Article 1868, Civil Code By a contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.

Article 1466, Civil Code In construing a contract containing provisions characteristic of both the contract of sale and of the contract of agency to sell, essential clauses of the whole instrument shall be considered.

CONTRACT OF AGENCY TO SELL
· Agent receives the thing to be sold and does not pay for its price, but delivers to the principal the price he obtains form the sale of the thing to a third person, and if he does not succeed in selling it, he returns the thing. (Quiroga v Parsons Hardware Co)
· Agent is exempted from all liability in the discharge of his commission, provided he acts in accordance with the instructions received from his principals, and the latter (principal) must indemnify the agent for all the damages which he may incur in carrying out the agency without fault on his part.
· CIR v Ramcar – Distributor obliged to accept delivery per month and pay price on delivery at wholesale price, without discount, rebate or other deduction; SC held that it was a contract of sale, not agency

SALE

CONTRACT OF AGENCY TO SELL

Buyer pays the price

Agent does not pay

Buyer acquires ownership over the object of the contract

Agent does not acquire ownership

Seller warrants

Agent does not warrant, unless he agrees

Essence of sale: transfer of title or agreement to transfer it for the price paid or promised

Essence of agency: delivery to the agent of the goods not as the agent’s property but of the principal who remains the owner and has the right to control the sales by the agent, fix the price and terms, demand and receive the proceeds of the sales less the agent’s commission

Ker & Co., Ltd v. Lingad, 38 SCRA 524 (1971) – Agent designated as exclusive dealer of manufacturer within prescribed territory, with stipulation that (1) title to goods remain with manufacturer until paid in cash or acceptable security, that (2) price, discounts and terms of sale shall be those established by the manufacturer and that (3) proceeds of the sale shall be held in trust for the manufacturer. Relationship between agent and manufacturer is agency

d. Barter or exchange

Article 1638, Civil Code By a contract of barter or exchange, one of the parties binds himself to give one thing in consideration of the other’s promise to give another thing.

Article 1468, Civil Code 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 value of the thing given as part of the consideration > amount of the money or its equivalent
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