SALES

Professor: Atty. Amado Paolo C. Dimayuga

Source: Villanueva, Cesar L. (2009). LAW ON SALES. Quezon City: Rex Printing Company, Inc.

Title VI. - SALES The use of the word “determinate” to describe the subject
matter emphasizes more specifically the fact that the obligation
Chapter 1 – NATURE OF SALE to deliver and transfer ownership can be performed only with
the subject matter becoming specific or determinate, and is not
Art. 1458. By the contract of sale one of the contracting parties meant to exclude certain generic things from validly becoming
obligates himself to transfer the ownership and to deliver a the proper subject matter of sale, at the point of perfection.
determinate thing, and the other to pay therefor a price certain
in money or its equivalent. 3. Elements of Contract of Sale

A contract of sale may be absolute or conditional. (1445a) CORONEL V. CA

Art. 1460. A thing is determinate when it is particularly

Sale, by its very nature, is a consensual contract because it is perfected
designated or physical segregated from all other of the same by mere consent. The essential elements of a contract of sale are the
class. following:

The requisite that a thing be determinate is satisfied if at the

time the contract is entered into, the thing is capable of being a) Consent or meeting of the minds, that is, consent to transfer
made determinate without the necessity of a new or further ownership in exchange for the price;
agreement between the parties. (n)
________ b) Determinate subject matter; and

Definition of Sale
c) Price certain in money or its equivalent.
Article 1458 defines “sale” as a contract whereby one of the
contracting parties (Seller) obligates himself to transfer the When all three elements are present, there being a meeting of
ownership and to deliver a determinate thing; and the other the minds, then a perfected contract of sale arises, and its
party (Buyer) obligates himself to pay therefor a price certain in validity is not affected by the fact that previously a fictitious
money or its equivalent. deed of sale was executed by the parties, or by the fact of non-
performance of the obligation thereafter.
1. Nature of Obligations Created in a Sale
Unfortunately, the Supreme Court has considered in a number
Two Obligations of the Seller to: of decisions that the resulting sale is “void: when some of the
(i) Transfer the Ownership, and essential requisites are not present. To the author, the more
(ii) Deliver the Possession of the Subject Matter appropriate term to use when an essential element is not
present as meeting of the mind is to declare a “no contract”
An obligation for the Buyer to: situation.
(i) Pay the Price
On the other hand, when all three elements are present, but
Both sets of obligations, are real obligations or obligations “to there is a defect or illegality constituting any of such elements,
give,” as contrasted from personal obligations “to do” and “not the resulting contract is either voidable when the defect
to do,” and can be the proper subject of actions for specific constitutes a vitiation of consent, or void as mandated under
performance. In contrast, obligations to do or not to do, cannot Article 1409 of the Civil Code.
be enforced through actions for specific performance because
of the public policy against involuntary servitude; although the 4. Stages in the Life of Sale
creditor can have the same executed by another at the cost of
the obligor, and the obligor’s refusal to comply can be the basis (a) Policitacion, negotiation, or preparation stage;
for claims for damages.
(b) Perfection, conception or “birth;” and
2. Subject Matter of Sale
(c) Consummation or “death.”
Although Article 1458, in defining sale, uses the word
“determinate” to describe the subject matter of the sale, the Policitacion or negotiation covers the period from the time the
present Law on Sales has expanded the coverage to include prospective contracting parties indicate their interests in the
generic objects which are at least “determinable.” Article 1460 contract to the time the contract is perfected; perfection takes
states that the “requisite that a thing be determinate is place upon the concurrence of the essential elements of the
satisfied if at the time the contract is entered into, the thing is sale which are the meeting of the minds of the parties as to the
capable of being made determinate without the necessity of a object of the contract and upon the price; and consummation
new or further agreement between the parties,” which begins when the parties perform their respective undertaking
includes “determinable” albeit generic objects as valid subject under the contract of sale, culminating in the extinguishment
matters of sale. thereof.
________
Art. 1475. The contract of sale is perfected at the moment FULE V. CA
there is a meeting of minds upon the thing which is the object
of the contract and upon the price.
A contract of sale is perfected at the moment there is a meeting of the
minds upon the thing which is the object of the contract and upon the
From that moment, the parties may reciprocally demand price. Being consensual, a contract of sale has the force of law between
performance, subject to the provisions of the law governing the the contracting parties and they are expected to abide in good faith by
form of contracts. (1450a) their respective contractual commitments. Article 1358 of the Civil
________ Code which requires the embodiment of certain contracts in a public
instrument, is only for convenience, and registration of the instrument
Essential Characteristics of Sale only adversely affects third parties. Formal requirements are, therefore,
for the benefit of third parties. Non-compliance therewith does not
adversely affect the validity of the contract nor the contractual rights
1. Nominate and Principal and obligations of the parties thereunder.

Sale is a nominate contract since it has been given a particular

name by law, more importantly, its nature and consequences a. Modalities That Affect the Characteristic of Consensuality
are governed by a set of rules in the Civil Code, which
euphemistically we refer to as the “Law on Sales.” The consensual characteristic of sale can be affected by
modalities that by stipulation may be added into the
Sale is a principal contract, as contrasted from accessory or contractual relationship, such as a suspensive term or
preparatory contracts, because it can stand on its own, and condition.
does not depend on another contract for its validity or
existence; more importantly, that parties enter into sale to 3. Bilateral and Reciprocal
achieve within its essence the objectives of the transaction, and
simply not in preparation for another contract. Sale is a bilateral contract embodying reciprocal obligations, as
distinguished from a unilateral contract, because it imposes
In one case, the Court held that in determining the nature of a obligations on both parties to the relationship, and whereby
contract, the courts look at the intent of the parties and not at the obligation or promise of each party is the cause or
the nomenclature used to describe it, and that pivotal to consideration for the obligation or promise of the other.
deciding such issue is the true aim and purpose of the
contracting parties as shown by the terminology used in the ONG V. CA
covenant, as well as “by their conduct, words, actions and
deeds prior to, during and immediately after executing the Reciprocal obligations are those which arise from the same cause, and
agreement.” in which each party is a debtor and a creditor of the other, such that
the obligation of one is dependent upon the obligation of the other.
2. Consensual They are to be performed simultaneously such that the performance of
one is conditioned upon the simultaneous fulfillment of the other.
Sale is consensual contract (as contrasted from solemn and real
contracts), since by mere consent, at the moment there is a The legal effects and consequences of sale being bilateral
meeting of the minds upon the thing which is the object of the contract composed of reciprocal obligations are as follows:
contract and upon the price.
(a) The power to rescind is implied, and such power need not
Once there is a meeting of the minds as to the price, the sale is be stipulated in the contract in order for the innocent party to
valid, despite the manner of its actual payment, or even when invoke the remedy;
there has been breach thereof. If the real price is not stated in
the contract, then the sale is valid but subject to reformation; if (b) Neither party incurs delay if the party does not comply, or
there is no meeting of the minds as to the price, because the is not ready to comply in a proper manner, with what is
price stipulated is simulated, then the contract is void. incumbent upon him; and

Under Article 1475, from the moment of perfection of the sale, (c) From the moment one of the parties fulfils his obligation,
the parties may reciprocally demand performance, even when the default by the other begins, without the need of prior
the parties have not affixed their signatures to the written form demand.
of such sale, but subject to the provisions of the law governing
the form of contracts. Consequently, the actual delivery of the 4. Onerous
subject matter or payment of the price agreed upon are not
necessary components to establish the existence of a valid sale; Sale is an onerous contract, as distinguished from a gratuitous
and their non-performance do not also invalidate or render contract, because it imposes a valuable consideration as a
“void” a sale that has began to exist as a valid contract at prestation, which ideally is a price certain in money or its
perfection; non-performance, merely becomes the legal basis equivalent.
for the remedies of either specific performance or rescission,
with damages in either case. GAITE V. FONACIER

The binding effect of a deed of sale on the parties is based on

If the contract is onerous, the doubt shall be settled in favor of the
the principle that the obligations arising therefrom have the
greatest reciprocity of interests.
force of law between them.

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 completed by fulfilling certain conditions imposed by law. Hence,
There can be no question that greater reciprocity obtains if the buyer's ownership and real rights are acquired only pursuant to a legal mode or
obligation is deemed to be actually existing, with only its maturity (due process. While title is the juridical justification, mode is the actual
process of acquisition or transfer of ownership over a thing in question.
date) postponed or deferred, that if such obligation were viewed as
non-existent or not binding until the ore was sold.
Mode is the legal means by which dominion or ownership is
5. Commutative created, transferred or destroyed (e.g., succession, donation,
discovery, intellectual creation, etc.); title only constitutes the
Sale is a commutative contract, as distinguished from an legal basis by which to affect dominion or ownership.
aleatory contract, because a thing of value is exchanged for Therefore, sale by itself does not transfer or affect ownership;
equal value, i.e., ideally the value of the subject matter is the most that sale does is to create the obligation to transfer
equivalent to the price paid. Nevertheless, there is no ownership; it is tradition or delivery, as a consequence of sale,
requirement that the price be equal to the exact value of the that actually transfers ownership.
subject matter; all that is required is for the seller to believe ________
that what was received was of the commutative value of what
he gave. Art. 1466. In construing a contract containing provisions
characteristic of both the contract of sale and of the contract of
GAITE V. FONACIER agency to sell, the essential clauses of the whole instrument
shall be considered. (n)

A contract of sale is normally commutative and onerous: not only does Art. 1467. A contract for the delivery at a certain price of an
each one of the parties assume a correlative obligation (the seller to
article which the vendor in the ordinary course of his business
deliver and transfer ownership of the thing sold and the buyer to pay
the price),but each party anticipates performance by the other from
manufactures or procures for the general market, whether the
the very start. While in a sale the obligation of one party can be lawfully same is on hand at the time or not, is a contract of sale, but if
subordinated to an uncertain event, so that the other understands that the goods are to be manufactured specially for the customer
he assumes the risk of receiving nothing for what he gives (as in the and upon his special order, and not for the general market, it is
case of a sale of hopes or expectations, emptio spei), it is not in the a contract for a piece of work. (n)
usual course of business to do so; hence, the contingent character of
the obligation must clearly appear. Art. 1468. If the consideration of the contract consists partly in
money, and partly in another thing, the transaction shall be
Although “commutativeness” is an essential characteristic of a characterized by the manifest intention of the parties. If such
sale, the test for compliance therewith is not objective but intention does not clearly appear, it shall be considered a
rather subjective; i.e., so long as the party believes in all barter if the value of the thing given as a part of the
honesty that he is receiving good value for what he transferred, consideration exceeds the amount of the money or its
then it complies with the commutative character of a sale, and equivalent; otherwise, it is a sale. (1446a)
would not be deemed a donation nor an aleatory contract.
Art. 1471. If the price is simulated, the sale is void, but the act
The subjective test of the commutative nature of sale is further may be shown to have been in reality a donation, or some
bolstered by the principle that inadequacy of price foes not other act or contract. (n)
affect ordinary sale. Inadequacy of price may be a ground for ________
setting aside an execution sale but is not a sufficient ground for
the cancellation of a voluntary contract of sale otherwise free Sale Distinguished from Other Similar Contracts
from invalidating effects. Inadequacy of price may show vice on
consent, in which case the sale may be annulled, but such A contract is what the law defines it to be, taking into
annulment is not for inadequacy of price, but rather vitiation of consideration its essential elements, and not what the
consent. contracting parties call it. The transfer of ownership in
exchange for a price paid or promised is the very essence of a
6. Sale is Title and Not Mode contract of sale.

The perfection of a sale gives rise to the obligation on the part 1. From Donation
of the seller to transfer ownership and deliver possession of the
subject matter; nevertheless, it would be delivery or tradition Donation is an act of liberality whereby a person disposes
that is the mode to transfer ownership and possession to the gratuitously of a thing or right in favor of another person, who
buyer. Although in one case of the Court defined a “sale” as a accepts it.
“contract transferring dominion and other real rights in the
thing sold,” sale is merely title that creates the obligation on SALE DONATION
the part of the seller to transfer ownership and deliver Onerous Gratuitous
possession, but on its own sale is not a mode that transfers
ownership. Perfected by mere consent. Being a solemn contract,
although consent is also
ACAP V. CA required, must comply with
the formalities mandated by
law for its validity.
An asserted right or claim to ownership or a real right over a thing
arising from a juridical act, however justified, is not per se sufficient to
give rise to ownership over the res. That right or title must be

3|P LATON
Under Article 1471, when the price of a sale is simulated, the (b) Manufacturing upon special order of customers, to cover
sale itself may be void, “but the act may be shown to have been contracts for piece-of-work.
in reality a donation, or some other act or contract.”
CELESTINO V. CIR
2. From Barter
The important thing to remember is that Celestino Co & Company
SALE BARTER habitually makes sash, windows and doors, as it has represented in its
One of the parties binds One of the parties binds stationery and advertisements to the public.
himself to deliver a thing in himself to give one thing in
consideration of the other’s consideration of the other’s That it "manufactures" the same is practically admitted by appellant
undertaking to pay the price promise to give another thing. itself. The fact that windows and doors are made by it only when
in money or its equivalent. customers place their orders, does not alter the nature of the
establishment, for it is obvious that it only accepted such orders as
called for the employment of such material-moulding, frames, panels-
a. Rules to Determine Whether Contract is Sale or Barter as it ordinarily manufactured or was in a position habitually to
manufacture.
(a) Manifest intention of the parties – even if the acquisition of
a thing is paid for by another object of greater value than the
money component, it may still be a sale and not a barter, when Any builder or homeowner, with sufficient money, may order windows
or doors of the kind manufactured by this appellant. Therefore it is not
such was the intention of the parties;
true that it serves special customers only or confines its services to
them alone. And anyone who sees, and likes, the doors ordered by Don
(b) When intention does not appear and consideration Toribio Teodoro & Sons Inc. may purchase from appellant doors of the
consists partly in money and partly in another thing: same kind, provided he pays the price. Surely, the appellant will not
refuse, for it can easily duplicate or even mass-produce the same
(i) It is a barter, where the value of the thing given as part of doors-it is mechanically equipped to do so.
the consideration exceeds the amount of money given or its
equivalent CIR V. ENGINEERING EQUIPMENT

(ii) It is a sale, where the value of the thing given as part of

the consideration equals or is less than the amount of money The distinction between a contract of sale and one for work, labor and
given materials is tested by the inquiry 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
“Art. 1641. As to all matters not specifically provided for in this Title,
and has been the subject of sale to some other persons even if the
barter shall be governed by the provisions of the preceding Title
order had not been given. If the article ordered by the purchaser is
relating to sales. (1541a)
exactly such as the plaintiff makes and keeps on hand for sale to
anyone, and no change or modification of it is made at defendant's
“Art. 1639. If one of the contracting parties, having received the thing
request, it is a contract of sale, even though it may be entirely made
promised him in barter, should prove that it did not belong to the
after, and in consequence of, the defendants order for it.
person who gave it, he cannot be compelled to deliver that which he
offered in exchange, but he shall be entitled to damages. (1539a)
Taken together, both Celestino Co and Engineering Equipment
“Art. 1640. One who loses by eviction the thing received in barter may established the proper application of the “upon special order”
recover that which he gave in exchange with a right to damages, or he
test under Article 1467, as not merely one of timing of the flow
may only demand an indemnity for damages. However, he can only
make use of the right to recover the thing which he has delivered while
of the transactions, but one that goes into the nature of the
the same remains in the possession of the other party, and without product involved when it was possible for the manufacturer or
prejudice to the rights acquired in good faith in the meantime by a third producer to be able to produce the product ahead of any
person. (1540a)” special order given by a customer or client.

3. From Contract for a Piece-of-Work The consistent theme in the decisions of the Supreme Court on
the matter is that the main distinguishing factor between a sale
By the contract for a piece-of-work, the contract binds himself and a contract for a piece-of-work is the essence of why the
to execute a piece of work for the employer, in consideration of parties enter into it: if the essence is the object, irrespective of
a certain price or compensation; the contractor may either the party giving or executing it, the contract is sale; if the
employ only his labor or skill, or also furnish the material. essence is the service, knowledge or even reputation of the
person who executes or manufactures the object, the contract
a. Statutory Rule on Distinguishing Sale from Contract for a is for piece-of-work, which is essentially the sale of service or
Piece-of-Work labor.

Article 1467 gave the statutory rules in distinguishing a sale ENGINEERING MACHINERY V. CA
from a contract for a piece-of-work, which gives two tests for
distinction:
To Tolentino, the distinction between the two contracts depends on
the intention of the parties. Thus, if the parties intended that at some
(a) Manufacturing in the ordinary course of business to cover future date an object has to be delivered, without considering the work
sales contracts; and or labor of the party bound to deliver, the contract is one of sale. But if
one of the parties accepts the undertaking on the basis of some plan,
taking into account the work he will employ personally or through

4|P LATON
another, there is a contract for a piece of work. contract of agency to sell, the essential clauses of the whole
instrument shall be considered.’ The Supreme Court has
B. Practical Needs for Being Able to Distinguish identified what constitutes the “essential clauses” to warrant a
conclusion as to the proper nature of the contract in issue.
Sale is constituted of real obligations and would be the proper
QUIROGA V. PARSONS
subject of an action for specific performance. On the other
hand, a contract for a piece-of-work, where the main subject
matter is the service rendered (obligation to do), would not These features exclude the legal conception of an agency or order to
allow an action for specific performance in case the contractor sell whereby the mandatory or agent received the thing to sell it, and
refuses to comply with his obligation. does not pay its price, but delivers to the principal the price he obtains
from the sale of the thing to a third person, and if he does not succeed
“Art. 1715. x x x Should the work be not of such quality, the employer in selling it, he returns it. By virtue of the contract between the plaintiff
may require that the contractor remove the defect or execute another and the defendant, the latter, on receiving the beds, was necessarily
work. If the contract fails or refuses to comply with this obligation, the obliged to pay their price within the term fixed, without any other
employer may have the defect removed or another work executed, at consideration and regardless as to whether he had or had not sold the
the contractor's cost.” beds.

4. From Agency to Sell or to Buy PUYAT AND SONS V. ARCO AMUSEMENT

By the contract of agency, a person binds himself to render

In the first place, the contract is the law between the parties and
some service or to do something in representation or on behalf
should include all the things they are supposed to have been agreed
of the principal, with the consent or authority of the latter.
upon. What does not appear on the face of the contract should be
regarded merely as "dealer's" or "trader's talk", which can not bind
a. Distinguishing Sale and Agency to Sell/Buy either party.

A contract of agency is one that essentially establishes a

representative capacity in the person of the agent on behalf of We agree with the trial judge that "whatever unforseen events might
have taken place unfavorable to the defendant (petitioner), such as
the principal, and one characterized as highly fiduciary.
change in prices, mistake in their quotation, loss of the goods not
Involving obligations to do (i.e., to represent the principal), covered by insurance or failure of the Starr Piano Company to properly
contracts of agency to sell or to buy are essentially different fill the orders as per specifications, the plaintiff (respondent) might still
from sales. Nevertheless, because the object of the agency legally hold the defendant (petitioner) to the prices fixed of $1,700 and
arrangement is the purchase or sell of a determinate object, $1,600." This is incompatible with the pretended relation of agency
there is a tendency to confuse one with the other. between the petitioner and the respondent, because in agency, the
agent is exempted from all liability in the discharge of his commission
SALE AGENCY TO SELL/BUY provided he acts in accordance with the instructions received from his
principal (section 254, Code of Commerce), and the principal must
Not unilaterally revocable Because it covers an indemnify the agent for all damages which the latter may incur in
underlying fiduciary carrying out the agency without fault or imprudence on his part (article
relationship, is essentially 1729, Civil Code).
revocable
The buyer himself pays for the The agent is not obliged to The transfer of title or agreement to transfer it for a price paid
price of the object, which pay the price, and is merely or promised is the essence of sale. If such transfer puts the
constitutes his main obliged to deliver the price transferee in the attitude or position of an owner and makes
obligation which he may receive from him liable to the transferor as a debtor for the agreed price,
the buyer and not merely as an agent who must account for the proceeds
of a resale, the transaction is a sale; while the essence of an
The buyer, after delivery, The agent does not become agency to sell is the delivery to an agent, not as his property,
becomes the owner of the the owner of the thing subject but as the property of the principal, who remains the owner
subject matter of the agency, even if the and has the right to control sales, fix the price, and terms,
object is delivered to him demand and receive the proceeds less the agent's commission
The seller warrants The agent who effects the upon sales made.
sale assumes no personal
liability as long as he acted c. Other Practical Value of Being Able to Distinguish
within his authority and in the
name of the principal Knowing whether the contract is one of sale or an agency to sell
is also important in considering the applicability of the Statute
of Frauds.
Finally, because of the fiduciary nature of the relationship, in an
agency to sell, the agent is disqualified from receiving any
5. From Dacion En Pago
personal profit from the transaction covered by the agency, and
any profit received should pertain to the principal.
Dation is payment is one whereby property is alienated to the
creditor in full satisfaction of a debt in money; it constitutes
b. Statutory Rule
“the delivery and transmission of a thing by the debtor to the
creditor as an accepted equivalent of the performance of the
Article 1466 provides that “in construing a contract containing
obligation.” By express provision of law, dation in payment is
provisions characteristic of both the contract of sale and of the

5|P LATON
governed by the Law on Sales, since it essentially involves the (1) When a separation of property was agreed upon in the
transfer of ownership of a subject matter. marriage settlements; or
(2) When there has been a judicial separation or property
In order that there be a valid dation in payment, the following under Article 191. (1458a)
are the requisites:
Art. 1492. The prohibitions in the two preceding articles are
(a) There must be the performance of the prestation in lieu of applicable to sales in legal redemption, compromises and
payment (animo solvendi) which may consist in the delivery of a renunciations. (n)
corporeal thing or a real right or a credit against the third ________
person;
General Rule on Capacity of Parties
(b) There must be some difference between the prestation
due and that which is given in substitution (aliud pro alio); and When it comes to the issue as to who can be the proper parties
to a sale, the general rule is that any person who has “capacity
(c) There must be an agreement between the creditor and to act,” or “the power to do acts with legal effects,” or more
debtor that the obligation is immediately extinguished by specifically with the power to obligate himself, may enter into a
reason of the performance of a prestation different from that contract of sale, whether as seller or as buyer.
due.
For natural persons or individuals, the age of majority begins at
The undertaking really partakes in one sense of the nature of 18 years, upon which age they have the capacity to act. For
sale, that is, the creditor is really buying the thing or property of juridical persons, such as corporations, partnerships,
the debtor, payment for which is to be charged against the associations and cooperatives, a juridical personality separate
debtor’s debt. As such, the vendor in good faith shall be and distinct from that of the shareholders, partners or
responsible, for the existence and legality of the credit at the members, is expressly recognized by law, with full “juridical
time of the sale but not for the solvency of the debtor, in capacity” to obligate themselves and enter into valid contracts.
specified circumstances.
Minors, Insane or Demented Persons, and Deaf-Mutes
The legal effects of a dacion en pago come into effect only
when both the debtor and creditor agree to the terms thereof, Generally, minors, insane and demented persons, and deaf-
for consent to dacion is an essential element. But once the mutes who do not know how to write, have no legal capacity to
creditor agrees to a dacion, it ought to know especially when it contract, and therefore are disqualified from being parties to a
is a bank, and must abide by the legal consequence thereof; sale. Nonetheless, contracts entered into by such legally
that the pre-existing obligation is thereby extinguished. incapacitated persons are not void, but merely voidable,
subject to annulment or ratification. The action for annulment
In its modern concept, what actually takes place in dacion en cannot be instituted by the person who is capacitated since he
pago is an objective novation of the obligation where the thing is disqualified from alleging the incapacity of the person with
offered as an accepted equivalent of the performance of an whom he contracts.
obligation is considered as the object of the contract of sale,
while the debt is considered as the purchase price. In any case, Contracts entered into during lucid intervals by insane or
common consent is an essential prerequisite, be it sale or demented persons are generally valid; whereas, those entered
novation, to have the effect of totally extinguishing the debt or into in a state of drunkenness, or during a hypnotic spell, are
obligation. merely voidable.

6. From Lease When the defect of the contract consists in the incapacity of
one of the parties, the incapacitated person is not obliged to
In a contract of lease, the lessor binds himself to give to make any restitution, except insofar as he has been benefitted
another (the lessee) the enjoyment or use of a thing for a price by the thing or price received by him.
certain, and for a period which may be definite or indefinite.
________ 1. Necessaries

Chapter 2 – PARTIES OF SALE A minor is without legal capacity to give consent to a sale, and
since consent is an essential requisite of every contract, the
Art. 1489. All persons who are authorized in this Code to absence thereof cannot give rise to a valid sale; nonetheless,
obligate themselves, may enter into a contract of sale, saving the defective consent gives rise to a voidable sale, meaning
the modifications contained in the following articles. “valid until annulled.”

Where necessaries are those sold and delivered to a minor or The Title on Sales in the Civil Code specifically provides that
other person without capacity to act, he must pay a reasonable although a minor is not capacitated to validly enter into a sale,
price therefor. Necessaries are those referred to in Article 290. “where necessaries are sold and delivered to a minor or other
(1457a) person without capacity to act, he must pay a reasonable price
therefore,” and the resulting sale is valid, and not merely
Art. 1490. The husband and the wife cannot sell property to voidable.
each other, except:
“Necessaries,” are now defined by Article 194 of the Family
Code to cover “everything indispensable for sustenance,

6|P LATON
dwelling, clothing, medical attendance, education and the offer is withdrawn by either or both offerors. (165a)
transportation, in keeping with the financial capacity of the
family...and education includes his schooling or training for 2. Sales Between Spouses
some profession, trade or vocation, even beyond the age of
majority. Transportation shall include expenses in going to and a. Status of Prohibited Sales Between Spouses
from school, or to and from place of work.” Since sales cover
only the obligation to deliver a thing, the sale of “necessaries” Contracts entered into in violation of Articles 1490 and 1492
considered valid under Article 1489 can only covers sales are not merely voidable, but have been declared by the
pertaining to sustenance, dwelling and clothing, and perhaps Supreme Court as being null and void. However, not anyone is
medicine and educational books and materials. given the right to assail the validity of the transaction.

In order for the sale of necessaries to minors to be valid, and Practically, the only persons who can question the sale are the
not merely voidable, two elements need to be present: (a) following: the heirs of either of the spouses who have been
perfection of the sale; and (b) delivery of the subject prejudiced; prior creditors; and the State when it comes to the
necessaries. If there is only perfection at the time the case payment of the proper taxes due on the transactions.
reaches litigation, the sale of course is not void, but voidable
for vice of consent, and the rules on voidable contracts apply. b. Rationale for Prohibition

2. Emancipation (a) To prevent a spouse defrauding his creditors by

transferring his properties to the other spouse;
3. Senility and Serious Illness
(b) To avoid a situation where the dominant spouse would
The general rule is that a person is not incompetent to contract unduly take advantage of the weaker spouse, thereby
merely because of advanced years or by reason of physical effectively defrauding the latter; and
infirmities. However, when such age or infirmities have
impaired the mental faculties so as to prevent the person from (c) To avoid indirect violation of the prohibition against
properly, intelligently, and firmly protecting her property rights donations between spouses under Article 133 of the Civil Code.
then she is undeniably incapacitated. Given these
circumstances, there is in our view sufficient reason to seriously Article 133 of the Civil Code, which declares void every
doubt that she consented to the sale of and the price for her donation between spouses during marriage seeks to prevent
parcels of land. Moreover, there is no receipt to show that said the first two evils enumerated above. Article 133 has been
price was paid to and received by her. Thus, we are in replaced by Article 87 of the Family Code which added the
agreement with the trial court’s finding and conclusion on the provision “The prohibition shall also apply to persons living
matter. together as husband and wife without a valid marriage.”

Sales By and Between Spouses c. Rationale for Exception to Prohibition under Article 1490

1. Sales With Third Parties 3. Applicability of Incapacity to Common Law Spouses

In one case, even when the property regime prevailing was the CALIMLIM-CANULLAS V. FORTUN
conjugal partnership of gains, the Court held that the sale by
the husband of a conjugal property without the consent of the
wife to be not merely voidable but void, under Article 124 of And this is so because if transfers or con conveyances between spouses
the Family Code, since the resulting contract lacked one of the were allowed during marriage, that would destroy the system of
conjugal partnership, a basic policy in civil law. It was also designed to
essential elements of “full consent.”
prevent the exercise of undue influence by one spouse over the other,
as well as to protect the institution of marriage, which is the
GUIANG V. CA cornerstone of family law. The prohibitions apply to a couple living as
husband and wife without benefit of marriage, otherwise, "the
condition of those who incurred guilt would turn out to be better than
Art. 124. The administration and enjoyment of the conjugal
those in legal union." Those provisions are dictated by public interest
partnerhip properly shall belong to both spouses jointly. In case of
and their criterion must be imposed upon the will of the parties.
disgreement, the husband's decision shall prevail, subject recourse to
the court by the wife for proper remedy, which must be availed of ________
within five years from the date of the contract implementing such
decision. Art. 1491. The following persons cannot acquire by purchase,
even at a public or judicial auction, either in person or through
In the event that one spouse is incapacitated or otherwise unable to the mediation of another:
participate in the administration of the conjugal properties, the other
spouse may assume sole powers of administration. These powers do (1) The guardian, the property of the person or persons who
not include the powers of disposition or encumbrance which must have may be under his guardianship;
the authority of the court or the written consent of the other spouse. In
the absence of such authority or consent, the disposition or (2) Agents, the property whose administration or sale may have
encumbrance shall be void. However, the transaction shall be construed
been entrusted to them, unless the consent of the principal has
as a continuing offer on the part of the consenting spouse and the third
person, and may be perfected as a binding contract upon the been given;
acceptance by the other spouse or authorization by the court before

7|P LATON
(3) Executors and administrators, the property of the estate the execution of such new contract. The causes of nullity which have
under administration; ceased to exist cannot impair the validity of the new contract. Thus, the
object which was illegal at the time of the first contract, may have
already become lawful at the time of the ratification or second
(4) Public officers and employees, the property of the State or
contract; or the service which was impossible may have become
of any subdivision thereof, or of any government-owned or possible; or the intention which could not be ascertained may have
controlled corporation, or institution, the administration of been clarified by the parties. The ratification or second contract would
which has been intrusted to them; this provision shall apply to then be valid from its execution; however, it does not retroact to the
judges and government experts who, in any manner date of the first contract."
whatsoever, take part in the sale;
The functional difference between the two groups of contracts
(5) Justices, judges, prosecuting attorneys, clerks of superior
declared void under Article 1491, is that in the first group after
and inferior courts, and other officers and employees
the inhibition has ceased, the only real wrong that subsists is
connected with the administration of justice, the property and
the private wrong to the ward, principal or estate; and
rights in litigation or levied upon an execution before the court
therefore, if private parties wish to condone the private wrongs
within whose jurisdiction or territory they exercise their
among themselves, the State would not stand in the way.
respective functions; this prohibition includes the act of
When it comes to the second group, however, even when the
acquiring by assignment and shall apply to lawyers, with
inhibition has ceased, there exists not only the private wrong,
respect to the property and rights which may be the object of
but in fact a public wrong, which is damage to public service or
any litigation in which they may take part by virtue of their
to the high esteem that should be accorded to the
profession.
administration of justice in our society. Therefore, in the
second group, even when the private parties seek to “ratify”
(6) Any others specially disqualified by law. (1459a)
the private wrong by executing a new contract between
themselves when the inhibition no longer exists. Such cannot
Art. 1492. The prohibitions in the two preceding articles are
resurrect and validate a relationship, which continues to be
applicable to sales in legal redemption, compromises and
tainted with a public wrong. As the policy goes, private parties
renunciations. (n)
cannot ratify or compromise among themselves matters
________
contrary to public interests.
Specific Incapacity Mandated by Law
What remains at issue with respect to the “ratification” by the
execution of a “new contract” in the cases of purchases by the
1. Legal Status of Contracts Entered Into In Violation of Articles
guardian, agent, administrator or executor, is whether such
1491 and 1492
ratification involves only a new meeting of the minds with
respect to the same subject matter and the same price, or it
Based on the wordings of Article 1491, only purchases made by
would require in addition the payment of a new price or
agents of the property covered by the agency are valid and
consideration as part of the new meeting of the minds when
binding when made with the express consent of their principals;
the inhibition no longer prevails. These are issues yet to be
and no such exception is granted in all the other instances
addressed by the Court.
covered by said article. That would mean that, apart from the
said case of the agents, in all cases covered under Article 1491,
b. Proper Party to Raise Issue of Nullity
consent or knowledge by the persons who is sought to be
protected by the law, cannot validate any of the transactions Parties Affected. — Any person may invoke the in existence of the
covered. contract whenever juridical effects founded thereon are asserted
against him. Thus, if there has been a void transfer of property, the
RUBIAS V. BATILLER transferor can recover it by the accion reinvindicatoria; and any
prossessor may refuse to deliver it to the transferee, who cannot
enforce the contract. Creditors may attach property of the debtor
The reason thus given by Manresa in considering such prohibited which has been alienated by the latter under a void contract; a
acquisitions under Article 1459 of the Spanish Civil Code as merely mortgagee can allege the inexistence of a prior encumbrance; a debtor
voidable at the instance and option of the vendor and not void — "that can assert the nullity of an assignment of credit as a defense to an
the Code does not recognize such nullity de pleno derecho" — is no action by the assignee.
longer true and applicable to our own Philippine Civil Code which does
recognize the absolute nullity of contracts "whose cause, object, or Action On Contract. — Even when the contract is void or inexistent, an
purpose is contrary to law, morals, good customs, public order or public action is necessary to declare its inexistence, when it has already been
policy" or which are "expressly prohibited or declared void by law" and fulfilled. Nobody can take the law into his own hands; hence, the
declares such contracts "inexistent and void from the beginning." intervention of the competent court is necessary to declare the
absolute nullity of the contract and to decree the restitution of what
has been given under it. The judgment, however, will retroact to the
a. A Different Form of “Ratification”
very day when the contract was entered into.
RUBIAS V. BATILLER
c. Fraud or Lesion Not Relevant for Nullity

In this aspect, the permanent disqualification of public and judicial PHILIPPINE TRUST CO. V. ROLDAN
officers and lawyers grounded on public policy differs from the first
three cases of guardians, agents and administrators (Article 1491, Civil
Code), as to whose transactions it had been opined that they may be The rationale for the absolute disqualifications set by Article 1491, is in
"ratified" by means of and in "the form of a new contact, in which cases line with “the general doctrine that each of such relationships is a trust
its validity shall be determined only by the circumstances at the time of the highest order, and the trustee cannot be allowed to have any

8|P LATON
inducement to neglect his ward’s interest;” and therefore to avoid “The
temptation which naturally besets a person holding such a fiduciary As long as the lawyer does not exert undue influence on his
position so circumstanced, necessitates the annulment of the client, that no fraud is committed or imposition applied, or that
transaction.
the compensation is clearly not excessive as to amount to
extortion, a contract for contingent fee is valid and enforceable.
2. Agents
The time-honored legal maxim that a lawyer shall at all times
“Brokers” do not come within the coverage of the prohibition uphold the integrity and dignity of the legal profession so that
as their authority consist merely in looking for a buyer or a his basic ideal becomes one of rendering service and securing
seller, and to bring the former and the latter together to justice, not money-making. For the worst scenario that can ever
consummate the transaction; therefore, they are not happen to a client is to lose the litigated property to his lawyer
prohibited to buy for themselves. in whom all trust and confidence were bestowed at the very
inception of the legal controversy.
3. Guardians, Administrators and Executors ________

Guardians, administrators and executors are necessarily Chapter 3 – SUBJECT MATTER

officers of the courts since they are appointed or confirmed to
such position pursuant to judicial proceedings. Art. 1459. The thing must be licit and the vendor must have a
right to transfer the ownership thereof at the time it is
Precisely to avoid such temptation and quibbling, Article 1491 delivered. (n)
has entirely shut the door to such persons occupying fiduciary
positions, to even desire to acquire, directly or indirectly, Art. 1460. A thing is determinate when it is particularly
properties of their ward, estate or principal, as the case may be. designated or physical segregated from all other of the same
class.
a. Hereditary Rights Not Included in Coverage
The requisite that a thing be determinate is satisfied if at the
Hereditary rights pertain immediately to the heirs upon the time the contract is entered into, the thing is capable of being
death of the decedent and do not form part of the estate under made determinate without the necessity of a new or further
the administration of the administrator or executor; agreement between the parties. (n)
nevertheless, from both the practical and equity points of view,
such hereditary rights derive their value only from the assets Art. 1461. Things having a potential existence may be the
that constitute the estate of the decedent, which is clearly object of the contract of sale.
within the fiduciary control of the administrator or executor.
The efficacy of the sale of a mere hope or expectancy is
Since the particular provision relating to judges covered only deemed subject to the condition that the thing will come into
“property and rights in litigation,” the article applies only to the existence.
sale or assignment of the property under litigation which must
take place “during the pendency of the litigation involving the The sale of a vain hope or expectancy is void. (n)
property.”
Art. 1462. The goods which form the subject of a contract of
5. Attorneys sale may be either existing goods, owned or possessed by the
seller, or goods to be manufactured, raised, or acquired by the
Public policy prohibits the transactions in view of the fiduciary seller after the perfection of the contract of sale, in this Title
relationship involved. It is intended to curtail any undue called "future goods."
influence of the lawyer upon his client. Greed may get the
better of the sentiments of loyalty and disinterestedness. Any There may be a contract of sale of goods, whose acquisition by
violation of this prohibition would constitute malpractice and is the seller depends upon a contingency which may or may not
a ground for suspension. happen. (n)

The nullity of such prohibited contracts is definite and Art. 1463. The sole owner of a thing may sell an undivided
permanent and cannot be cured by ratification. The public interest therein. (n)
interest and public policy remain paramount and do not permit
of compromise or ratification. Art. 1464. In the case of fungible goods, there may be a sale of
an undivided share of a specific mass, though the seller
a. Contingent Fee Arrangements purports to sell and the buyer to buy a definite number, weight
or measure of the goods in the mass, and though the number,
A contract between a lawyer and his client stipulating a weight or measure of the goods in the mass is undetermined.
contingent fee is not covered by said prohibition under Article By such a sale the buyer becomes owner in common of such a
1491 (5) of the Civil Code because the payment of said fee is share of the mass as the number, weight or measure bought
not made during the pendency of the litigation but only after bears to the number, weight or measure of the mass. If the
judgment has been rendered in the case handled by the lawyer. mass contains less than the number, weight or measure
In fact, under the 1988 Code of Professional Responsibility, a bought, the buyer becomes the owner of the whole mass and
lawyer may have a lien over funds and property of his client the seller is bound to make good the deficiency from goods of
and may apply so much thereof as may be necessary to satisfy the same kind and quality, unless a contrary intent appears. (n)
his lawful fees and disbursements.

9|P LATON
Art. 1465. Things subject to a resolutory condition may be the existence or non-existence or whether the seller had or did not
object of the contract of sale. (n) have ownership thereof at the time of perfection, but whether
________ the subject matter is of a type and nature, taking into
consideration the state of technology and science at the time
Requisites of Valid Subject Matter the sale is perfected, that it exists or could be made to exist to
allow the seller reasonable certainty of being able to comply
A valid contract of sale would result from the meeting of the with his obligations under the contract.
minds of the parties on a subject matter that has at the time of
perfection the following requisites: The concepts perhaps are best embodied in terms of “possible
things” as contrasted from “impossible things.” Thus when the
(a) It must be existing, having the potential existence, a future existence of a thing is subject to a condition, then it remains a
thing, or even contingent or subject to a resolutory condition; “possible thing,” for it has the capacity, not certainty, of coming
in other words, it must be a “possible thing” into existence if subject to a suspensive condition, or it already
exists but may or may cease to exist if it is subject to a
(b) It must be licit; and resolutory condition.

(c) It must be determinate or at least determinable Even when the subject matter does not exist at the time of
perfection of the sale, the contract is still valid under Article
a. Lack of Any Requisite Results in Non-existent Sale 1461 and 1409(3); however, when the subject matter is of such
nature that it cannot come into existence—an impossible
When the subject matter agreed upon fails to meet the thing—the contract is indeed void.
requisites above-enumerated, the situation would engender a
“no contract” situation, or the resulting contract of sale would “Art. 1347. All things which are not outside the commerce of men,
be void under various cases provided under Article 1409 of the including future things, may be the object of a contract. All rights which
Civil Code. are not intransmissible may also be the object of contracts.

No contract may be entered into upon future inheritance except in

“Art. 1411. When the nullity proceeds from the illegality of the cause or
cases expressly authorized by law.
object of the contract, and the act constitutes a criminal offense, both
parties being in pari delicto, they shall have no action against each
All services which are not contrary to law, morals, good customs, public
other, and both shall be prosecuted. Moreover, the provisions of the
order or public policy may likewise be the object of a contract. (1271a)”
Penal Code relative to the disposal of effects or instruments of a crime
shall be applicable to the things or the price of the contract.
Requiring that the proper subject of a valid sale is a possible
This rule shall be applicable when only one of the parties is guilty; but thing would ensure demandability and enforceability of the
the innocent one may claim what he has given, and shall not be bound underlying obligation of the seller to deliver.
to comply with his promise. (1305)
a. Emptio Rei Speratae
“Art. 1412. If the act in which the unlawful or forbidden cause consists
does not constitute a criminal offense, the following rules shall be
Under Article 1461, things having a potential existence may be
observed:
the object of the contract of sale; however, such a sale is
(1) When the fault is on the part of both contracting parties, neither subject to the condition that the thing will come into existence.
may recover what he has given by virtue of the contract, or demand the Therefore, a sale emptio rei speratae is strictly a contract
performance of the other's undertaking; covering future things, and subject to a suspensive condition
that the subject matter will come into existence. If the subject
(2) When only one of the contracting parties is at fault, he cannot matter does not come into existence, as in the case of
recover what he has given by reason of the contract, or ask for the conditional obligations, the contract is deemed extinguished”
fulfillment of what has been promised him. The other, who is not at
as soon as the time expires or if it has become indubitable that
fault, may demand the return of what he has given without any
obligation to comply his promise. (1306) the event will not take place.”

“Art. 1416. When the agreement is not illegal per se but is merely Necessarily also, an emptio rei speratae covers only contracts of
prohibited, and the prohibition by the law is designated for the sale whose subject matter are determinate or specific, and has
protection of the plaintiff, he may, if public policy is thereby enhanced, no application to determinable generic things since the
recover what he has paid or delivered.” condition that they must come into existence is wholly
irrelevant, for generic subject matters are never lost.
b. Legal Requisites of Subject Matter Intended to Govern
Underlying Obligations of Seller b. Emptio Spei

The underlying policy is really to safeguard the realizability and Although the second paragraph of Article 1461 states the “the
enforceability of the primary obligations of the seller to transfer efficacy of the sale of a mere hope or expectancy is deemed
the ownership, and deliver the possession, of the subject subject to the condition that the thing will come into
matter. existence,” it should be noted that such condition does not
really refer to emptio spei, but rather to emptio rei speratae.
1. Subject Matter Must Be “Possible Thing” The only condition for a sale of hop to be a valid contract is
provided by the last paragraph of Article 1461: that the sale of
The proper consideration of the first requisite, if it is to have a a vain hope or expectancy is void, affirming the requisite of
legal significance, is to consider it not in terms of physical

10 | P LATON
“possibility” of the subject matter as contrasted from an A thing is determinate or specific when it is particularly
impossible subject matter. designated or physically segregated from all others of the same
class.
c. Sale of Things Subject to Resolutory Condition
When the subject matter of a sale is determinate, the basis
If the resolutory condition happens to extinguish the thing, upon which to enforce seller’s obligation to deliver, as well as
what happens to the contract of sale itself? The rule would be the basis upon which to demonstrate breach, are certain and
the same as applied to all obligations subject to a resolutory unequivocal. It is also when the subject matter is determinate
condition under Article 1190: “When the conditions have for or specific that the defense of force majeure is applicable to
their purpose the extinguishment of an obligation to give, the legally relieve the seller from the consequence of failure to
parties, upon the fulfillment of said conditions, shall return to deliver the subject matter of the sale.
each other what they have received.” This default rule will thus
preserve the commutative nature of sale. b. Determinable Subject Matter

d. Subject Matter is Nexus of Sale On the other hand, a thing is determinable only when two (2)
requisites are present:
From the foregoing discussion it can be deduced that whether
the contract of sale involves a present object (such as a hope or (a) If at perfection of the sale, the subject matter is capable of
expectancy in emtio spei) or a future thing subject to a being made determinate (the “capacity to segregate” test); and
suspensive condition (emptio rei speratae), or a present object
subject to a resolutory condition, the subject matter must be (b) Without the necessity of a new or further agreement
existing or must come into existence to be delivered to the between the parties (the “no further agreement” test)
buyer; otherwise, the contract of sale is void, or an existing
contract of sale is extinguished, with the obligation on the part By its very definition, a determinable subject matter is a generic
of the seller to return the price he has received thereby. object, because it has neither been physically segregated nor
particularly designated at the point of perfection from the rest
“Transfer of title or an agreement to transfer it for a price paid of its kind.
or promised to be paid is the essence of sale”
MELLIZA V. CITY OF ILOILO
2. Subject Matter Must Be Licit
The requirement of the law that a sale must have for its object a
The subject matter of the contract of sale must be licit. A thing determinate thing, is fulfilled as long as, at the time the contract is
is licit and may be the object of a contract when it is not outside entered into, the object of the sale is capable of being made
the commerce of men, and all rights which are not determinate without the necessity of a new or further agreement
intransmissible. When the subject matter is illicit, the resulting between the parties.
contract of sale is void.
In essence, the requisite of being “determinable” is met at
a. Sales Declared Illegal by Law
perfection, the agreement between parties included a formula
which can be used by the courts to establish the subject matter
There are various special laws that declare certain slaes upon which the obligation to deliver can be enforced, without
contracts as illegal and therefore void. needing to get back to any one or both the parties of the object
of their intention. When the formula requires the court to have
QUIJADA V. CA
to go back to the parties to determine their confirmation, then
it would undermine the very enforceability and demandability
There is also no merit in petitioners' contention that since the lots were of the underlying obligation to deliver; it would actually render
owned by the municipality at the time of the sale, they were outside the sale void under Article 1409(6) because the original
the commerce of men under Article 1409 (4) of the NCC; thus, the contractual intention of the parties cannot be determined, and
contract involving the same is inexistent and void from the beginning. would run counter to the principle of mutuality or obligatory
However, nowhere in Article 1409 (4) is it provided that the properties
force of every valid contract.
of a municipality, whether it be those for public use or its patrimonial
property are outside the commerce of men. Besides, the lots in this
case were conditionally owned by the municipality. To rule that the c. Test of Determinability is the Meeting of Minds of Parties and
donated properties are outside the commerce of men would render Not the Covering Deed
nugatory the unchallenged reasonableness and justness of the
condition which the donor has the right to impose as owner thereof. The doctrine the “one sell or buys real property as he sees it, in
Moreover, the objects referred to as outsides the commerce of man are its actual setting and by its physical metes and bounds, and not
those which cannot be appropriated, such as the open seas and the by the mere lot number assigned to it in the certificate of title,”
heavenly bodies.
has been reiterated in Londres v. CA, and presents a clear and
contemporary exception to the almost sacrosanct doctrine
3. Subject Matter Must Be Determinate or at Least under the Torrens system that the public can deal with
Determinable registered land exclusively on the basis of the title thereto.

a. Determinate Subject Matter d. When Quantity of Subject Matter Not Essential for Perfection

The meeting of the minds on the identity, the nature and

quality of the subject matter is essential for the purpose of
11 | P LATON
perfection of sale; it is what makes the subject matter the risk of loss over the subject matter does not arise, since by
determinate or at least determinable. This is borne by the fact definition generic objects are never lost.
that when the nature and quantity of the subject matter is
agreed upon, the subject matter, although essentially generic YU TEK V. GONZALES
or fungible, has complied with the characteristic of being
determinable, since the parties know more or less the exact
In the case at bar the undertaking of the defendant was to sell to the
nature of the object or objects which will become the subject plaintiff 600 piculs of sugar of the first and second classes. Was this an
matter of performance “without need of further agreement.” agreement upon the "thing" which was the object of the contract
Such characteristic prevents the seller from delivering within the meaning of article 1450? Sugar is one of the staple
something not within the contemplation of the buyer and commodities of this country. For the purpose of sale its bulk is weighed,
perhaps much inferior than the price agreed upon; and at the the customary unit of weight being denominated a "picul." There was
same time, it prevents the buyer from demanding the delivery no delivery under the contract. Now, if called upon to designate the
of an object not contemplated by the seller, and perhaps article sold, it is clear that the defendant could only say that it was
"sugar." He could only use this generic name for the thing sold. There
superior compared to the price agreed upon.
was no "appropriation" of any particular lot of sugar. Neither party
could point to any specific quantity of sugar and say: "This is the article
The meeting of minds on the quantity of the goods as subject which was the subject of our contract." How different is this from the
matter is necessary for the validity of the sale, because such contracts discussed in the cases referred to above! In the McCullough
aspect go into the very core of such contract embodying the case, for instance, the tobacco factory which the parties dealt with was
essential characteristic of mutuality or obligatory force. specifically pointed out and distinguished from all other tobacco
factories. So, in the Barretto case, the particular shares of stock which
“Art. 1349. The object of every contract must be determinate as to its the parties desired to transfer were capable of designation. In the Tan
kind. The fact that the quantity is not determinate shall not be an Leonco case, where a quantity of hemp was the subject of the contract,
obstacle to the existence of the contract, provided it is possible to it was shown that that quantity had been deposited in a specific
determine the same, without the need of a new contract between the warehouse, and thus set apart and distinguished from all other hemp.
parties. (1273)”
“Art. 1246. When the obligation consists in the delivery of an
NATIONAL GRAINS ADMINISTRATION V. IAC indeterminate or generic thing, whose quality and circumstances have
not been stated, the creditor cannot demand a thing of superior
quality. Neither can the debtor deliver a thing of inferior quality. The
In the case at bar, Soriano initially offered to sell palay grains produced purpose of the obligation and other circumstances shall be taken into
in his farmland to NFA. When the latter accepted the offer by noting in consideration. (1167a)”
Soriano's Farmer's Information Sheet a quota of 2,640 cavans, there
was already a meeting of the minds between the parties. The object of
the contract, being the palay grains produced in Soriano's farmland and
f. Status of Sale Not Complying with Third Requisite
the NFA was to pay the same depending upon its quality. The fact that
the exact number of cavans of palay to be delivered has not been When the minds of the parties have met upon a subject matter
determined does not affect the perfection of the contract. Article 1349 which is neither determinate nor determinable, the resulting
of the New Civil Code provides: "...The fact that the quantity is not contract would be void. Again, the impetus of the law declaring
determinate shall not be an obstacle to the existence of the contract, sales covering subject matters which are neither determinate
provided it is possible to determine the same, without the need of a nor determinable is based on the fact that the “enforceability”
new contract between the parties." In this case, there was no need for
or “demandability” of the underlying obligation of the seller to
NFA and Soriano to enter into a new contract to determine the exact
number of cavans of palay to be sold. Soriano can deliver so much of his
deliver the subject matter is at grave risk. The situation would
produce as long as it does not exceed 2,640 cavans. then precisely be the one covered by Article 1409(6) of the Civil
Code which declares such contract as void and inexistent:
“Those where the intention of the parties relative to the
JOHANNES SCHUBACK V. CA
principal object of the contract cannot be ascertained.”

While we agree with the trial court's conclusion that indeed a g. Sale of Undivided Interest
perfection of contract was reached between the parties, we differ as to
the exact date when it occurred, for perfection took place, not on h. Sale of Undivided Share in Mass
December 29, 1981. Although the quantity to be ordered was made
determinate only on December 29, 1981, quantity is immaterial in the GAITE V. FONACIER
perfection of a sales contract. What is of importance is the meeting of
the minds as to the object and cause, which from the facts disclosed,
show that as of December 24, 1981, these essential elements had The subject matter of the sale is, therefore, a determinate object, the
already occurred. mass, and not the actual number of units or tons contained therein, so
that all that was required of the seller Gaite was to deliver in good faith
to his buyer all of the ore found in the mass, notwithstanding that the
e. Generic Non-Determinable Objects quantity delivered is less than the amount estimated.

Since “determinable” objects may be the valid subject matter

of sale, then even generic things that fall within said definition i. Sale of Mortgaged Property
can validly support a contract of sale. Although the sale of
determinable generic thing is valid, the obligation to deliver the A prior mortgage of the property does not prevent the
subject matter can only be complied with when the subject mortgagor from selling the property, since a mortgage is merely
matter has been made determinate, wither by physical encumbrance on the property and does not extinguish the title
segregation or particular designation; before such time, even of the debtor who does not lose his principal attribute as owner
to dispose of the property.

12 | P LATON
4. Seller’s Obligation to Transfer Ownership Required at Time of
Delivery Art. 1472. The price of securities, grain, liquids, and other
things shall also be considered certain, when the price fixed is
In general, a perfected contract of sale cannot be challenged on that which the thing sold would have on a definite day, or in a
the ground that seller had no ownership of the thing sold at the particular exchange or market, or when an amount is fixed
time of perfection. above or below the price on such day, or in such exchange or
market, provided said amount be certain. (1448)
Although the seller must be the owner of the thing in order to
transfer ownership to the buyer, he need not be the owner Art. 1473. The fixing of the price can never be left to the
thereof at the time of perfection; it is sufficient that he be the discretion of one of the contracting parties. However, if the
owner at the time of the delivery; otherwise, he may be held price fixed by one of the parties is accepted by the other, the
liable for breach of warranty against eviction. sale is perfected. (1449a)

a. Conflicting Rules Art. 1474. Where the price cannot be determined in

accordance with the preceding articles, or in any other manner,
QUIJADA V. CA the contract is inefficacious. However, if the thing or any part
thereof has been delivered to and appropriated by the buyer he
must pay a reasonable price therefor. What is a reasonable
Sale, being a consensual contract, is perfected by mere consent, which
is manifested the moment there is a meeting of the minds 17 as to the price is a question of fact dependent on the circumstances of
offer and acceptance thereof on three (3) elements: subject matter, each particular case. (n)
price and terms of payment of the price. 18 Ownership by the seller on ________
the thing sold at the time of the perfection of the contract of sale is not
an element for its perfection. What the law requires is that the seller By definition under Article 1458, the ideal consideration for a
has the right to transfer ownership at the time the thing sold is contract of sale would be “price” as a “sum certain in money or
delivered. 19 Perfection per se does not transfer ownership which its equivalent.” However, it is possible that a “sale” may still be
occurs upon the actual or constructive delivery of the thing sold. 20 A
valid when it has for its cause or consideration an item other
perfected contract of sale cannot be challenged on the ground of non-
ownership on the part of the seller at the time of its perfection; hence, than price.
the sale is still valid.
TORRES V. CA

b. Exception: When Seller Must Be Owner at Time of Sale

Consideration, more properly denominated as cause, can take different
The exception to the rule that ownership by the seller is not forms, such as the prestation or promise of a thing or service by
another.
essential at the time of perfection would be in the case of
judicial sale.
In this case, the cause of the contract of sale consisted not in the stated
c. Subsequent Acquisition of Title by Seller peso value of the land, but in the expectation of profits from the
subdivision project, for which the land was intended to be used.
“Art. 1434. When a person who is not the owner of a thing sells or
alienates and delivers it, and later the seller or grantor acquires title
The concept of “contract of sale” under Article 1458 of the Civil
thereto, such title passes by operation of law to the buyer or grantee.”
________ Code is “in effect, a ‘catch-all’ provision which effectively brings
within its grasp a whole gamut of transfers whereby ownership
Chapter 4 – PRICE AND OTHER CONSIDERATION of a thing is ceded for a consideration.”

Art. 1469. In order that the price may be considered certain, it Meaning of “Price”
shall be sufficient that it be so with reference to another thing
certain, or that the determination thereof be left to the “Price” signifies the sum stipulated as the equivalent of the
judgment of a special person or persons. thing sold and also every incident taken into consideration for
the fixing of the price put to the debit of the buyer and agreed
Should such person or persons be unable or unwilling to fix it, to by him.
the contract shall be inefficacious, unless the parties
subsequently agree upon the price. Requisite for Valid Price

If the third person or persons acted in bad faith or by mistake, (a) It must be real;
the courts may fix the price.
(b) It must be in money or its equivalent, (i.e., it must be
Where such third person or persons are prevented from fixing valuable consideration); and
the price or terms by fault of the seller or the buyer, the party
not in fault may have such remedies against the party in fault as (c) It must be certain or ascertainable.
are allowed the seller or the buyer, as the case may be. (1447a)
1. Price Must Be Real
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 Since a contract of sale is an onerous and commutative
the parties really intended a donation or some other act or contract, it is essential that consideration agreed upon, namely
contract. (n) the price, must be real.

13 | P LATON
 e. Effect of Non-Payment of Price
a. When Price Is Real
If the price is fixed but is later on remitted or condoned, this is
Price is “real” when at the perfection of sale, there is legal perfectly all right, for then the price would not be fictitious. The
intention on the part of the buyer to pay the price, and legal failure to pay the price does not cancel a sale for lack of
expectation on the part of the seller to receive such price as the consideration, for there is still consideration. The failure to pay
value of the subject matter he obligates himself to deliver. a real price goes not into perfection of the sale but into its
consummation. The failure to pay the price or the balance
b. When Price Is Simulated thereof does not render the sale inexistent or invalid, but
merely gives rise to a right in favor of the seller to either
In absolute simulation, there is colourable contract but without demand specific performance or rescission of the contract of
any substance, because the parties have no intention to be sale.
bound by it. An absolutely simulated contract is void, and the
parties may recover from each other what they may have given In a contract of sale, the non-payment of the full consideration
under the ‘contract.’ did not invalidate the contract of sale. Under settled doctrine,
non-payment is a resolutory condition that extinguishes the
When the price is completely simulated, then the principle of in transaction existing for a time and discharges the obligations
pari delicto nonovitar actio should apply, which denies all created thereunder. The remedy of the unpaid seller is to sue
recovery to the guilty parties inter se. However, such principle for collection or, in case of a substantial breach, to rescind the
applies to cases where the nullity arises from the illegality of contract.
the consideration or the purpose of the contract, but does not
apply to inexistent and void contracts where the price is merely Failure to pay the consideration is different from lack of consideration.
simulated. The former results in a right to demand the fulfillment or cancellation
of the obligation under an existing valid contract while the latter
prevents the existence of a valid contract. Where the deed of sale
c. When Price Is False
states that the purchase price has been paid but in fact has never been
paid, the deed of sale is null and void ab initio for lack of consideration.
Price is “false” when there is a real price upon which the minds
of the parties had met, but not declared, and what is stated in f. Accommodation Does Not Make Sale Void for Lack of Price
the covering deed is not the one intended to be paid.
Mate is a prime example to show that even when undoubtedly
If the price indicated in the covering instrument is false, the the price stipulated in the covering instrument is simulated (i.e.,
contract of sale is valid, but the underlying deed is subject to false) the underlying sale would still be valid and enforceable
reformation to indicate the real price upon which the minds of provided there is another consideration (apart from the false
the parties have met. price) to support the sale.

Nevertheless, the parties may be held bound by the false price g. Simulation of Price Affects Delivery of Subject Matter
indicated in the instrument under estoppels principle,
especially when the interest of the Government or third parties When a contract of sale is fictitious, and therefore void and
would be adversely affected by the reformation of the inexistent, as there was no consideration for the same, no title
instrument. over the subject matter of the sale can be conveyed. Nemo
potest nisi quod de jure potest – no man can do anything except
d. Meeting of Minds as to Price what he can do lawfully
MAPALO V. MAPALO
Delivery of the subject matter made pursuant to a sale that is
void for lack of consideration therefore does not transfer
The rule under the Civil Code, again be it the old or the new, is that ownership to the buyer. But care should be made to distinguish
contracts without a cause or consideration produce no effect between a simulated price that affects delivery, on one hand,
whatsoever. Nonetheless, under the Old Civil Code, the statement of a and the failure to pay the price, on the other hand, which does
false consideration renders the contract voidable, unless it is proven not affect the efficacy of delivery of the subject matter.
that it is supported by another real and licit consideration. And it is
further provided by the Old Civil Code that the action for annulment of
2. Price Must Be in Money or Its Equivalent: “Valuable
a contract on the ground of falsity of consideration shall last four years,
the term to run from the date of the consummation of the contract. Consideration”

Art. 1458 of the Civil Code, in prescribing that a sale be for a

Accordingly, since the deed of sale of 1936 is governed by the Old Civil price certain in money or its equivalent requires that
Code, it should be asked whether its case is one wherein there is no "equivalent" be something representative of money, e.g., a
consideration, or one with a statement of a false consideration. If the check or draft, again citing Manresa, to the effect that services
former, it is void and inexistent; if the latter, only voidable, under the
are not the equivalent of money insofar as said requirement is
Old Civil Code. As observed earlier, the deed of sale of 1936 stated that
it had for its consideration Five Hundred (P500.00) Pesos. In fact, concerned and that a contract is not a true sale where the price
however, said consideration was totally absent. The problem, consists of services or prestations.
therefore, is whether a deed which states a consideration that in fact
did not exist, is a contract without consideration, and therefore void ab The significance of the use of the term “price to be in money or
initio, or a contract with a false consideration, and therefore, at least its equivalent” is for the law to demonstrate the ideal example
under the Old Civil Code, voidable. of the onerous nature of sales, that it must be supported by a
“valuable consideration.” Money being the highest form or
14 | P LATON
representation of commercial value in society, removes any The obligation to deliver the subject matter and the title
doubt as the model of prestation, cause or consideration that thereto can only be complied with at the point when the thing
would promote the onerous nature of the contract of sale. is either physically segregated or particularly designated, and it
There is little doubt, therefore that other forms of cause or is not a generic obligation, but rather a “species” obligation,
consideration which are “valuable” would support a valid and therefore its designation cannot be left to the will of a third
contract of sale. party who may choose a subject matter beyond the capacity of
the seller to comply with his obligation to deliver the same.
a. Adequacy of Price to Make It “Real”; Concept of “Valuable
Consideration” c. Price Ascertainable in Reference to Other Things Certain

ONG V. ONG The price of a thing is certain at the point of perfection by

reference to another thing certain, such as certain invoices the
in existence and clearly identified by the agreement; or known
On June 20, 1984, respondent Intermediate Appellate Court
promulgated its Decision affirming the appealed judgment and held factors or stipulated formula.
that the Quitclaim Deed is a conveyance of property with a valid cause
or consideration; that the consideration is the One (P1.00) Peso which d. Effects of Unascertainability
is clearly stated in the deed itself; that the apparent inadequacy is of no
moment since it is the usual practice in deeds of conveyance to place a Where the price cannot be determined in accordance with any
nominal amount although there is a more valuable consideration given. of the preceding rules, or in any other manner, the contract of
sale is inefficacious.
3. Price Must Be Certain or Ascertainable at Perfection
4. Manner of Payment of Price Must Be Agreed Upon
Price is certain when it has been expressed and agreed in terms
of specific pesos and/or centavos. This affirms the proposition Although the Civil Code provision governing the contract of sale
that money represents the best model of valuable do not explicitly require that a meeting of the minds of the
consideration. parties must include the terms or manner of payment of the
price, the same is deemed to be an essential ingredient before
Under Article 1469 of the Civil Code, in order that the price may a valid and binding contract of sale can be said to exist, since it
be considered ascertainable, it shall be sufficient that it be so is part of the prestation of the contract, and without which
with reference to another thing certain, or that the there can be no valid sale, nor can an action for specific
determination thereof be left to the judgment of a specified performance be made against the alleged seller. Manner of
person or persons. payment of the price goes into the essence of what makes price
certain or ascertainable.
a. Price Fixed by Third Party
VELASCO V. CA
The designation of a third party to fix the price is valid, and such
designation by itself makes the price ascertainable as to give Indeed, this Court has already ruled before that a definite agreement
rise to a valid contract of sale. The fixing of the price cannot be on the manner of payment of the purchase price is an essential
validly left to the discretion of one of the contracting parties; element in the formation of a binding and unforceable contract of sale.
for to consider a contract of sale already existing when the The fact, therefore, that the petitioners delivered to the respondent the
price has not yet to be fixed by one of the parties would render sum of P10,000 as part of the down-payment that they had to pay
the contract to be without characteristics of “mutuality” or cannot be considered as sufficient proof of the perfection of any
purchase and sale agreement between the parties herein under article
“obligatory force.”
1482 of the new Civil Code, as the petitioners themselves admit that
some essential matter — the terms of payment — still had to be
Even before the fixing of the price by the designated third mutually covenanted.
party, a contract of sale is deemed to be perfected and existing,
albeit conditional.
The point being made is this: the “terms of payment,” being an
Under Article 1469, if the designated third party fixes the rice in integral part of the price, would have the same requisites that
bad faith or by mistake, those are the only two instances where the law imposes on price to support a valid contract of sale –
the parties to the contract can seek court remedy to fix the certain or at least ascertainable. If a price, unknown to both
price. parties, can support a valid and binding contract of sale, such as
when the fixing of the price is left to a third party, then also, if
When the third party designated is prevented from fixing the the terms of payment are provided for in a formula or process
price by fault of either the seller or the buyer, the party not at that does not require the agreement of the parties for the
fault may have such remedies against the party in fault as are formula to work, then the terms of payment are deemed to
allowed the seller or buyer, as the case may be. That means have been agreed upon and the sale would be valid, but subject
that the party may demand from the courts for the fixing of the to the same condition affixed to the price.
reasonable price, under the principle that when a party
prevents a condition from happening, that condition can be a. Proper Understanding of Doctrine on Agreement on Terms of
deemed fulfilled by the other party. Payment of Price

b. Fixing of Subject Matter by Third Party The imperative need for the meeting of the minds on the terms
of payment of the price should be qualified by the proper

15 | P LATON
understanding that terms of payment do not always have to be consequently, the “binding effect” of the contract is deemed to
expressly agreed, when the law supplies by default such terms. have kicked-in; and even if the subject matter has remained the
same, the return is not “legally possible,” as it would amount to
5. When There Is Sale Even When No Price Has Been Agreed unilateral withdrawal from the binding effect of the contract.
Upon (Of course, if both buyer and seller agree to the return, that
would be valid since it would constitute “mutual withdrawal”
Article 1474 seems to present the only exception where there which is one of the modes of extinguishing a valid contract.)
would still be a valid sale even when there has been no meeting
of the minds as to the price or any other consideration. The gravamen of Article 1474 would mean that in spite of the
lack of agreement as to price or defect in the agreement as to
a. What Does Article 1474 Mean by “Preceding Articles”? price, there would nevertheless be a valid contract of sale upon
which an action for specific performance would prosper for the
It is posited that the phrase “preceding articles” should start recovery of the price when the following elements are present:
with Article 1469 which provides ascertainable of price with
reference to another thing certain, or a specified formula, etc., (a) There was a meeting of the minds of the parties of sale and
up to Article 1473, which prohibits the fixing of the price by any purchase as to the subject matter;
of the parties.
(b) There was an agreement that price would be paid which
b. What Does Article 1474 Mean by “Inefficacious”? fails to meet the criteria of being certain or ascertainable; and

The standard dictionary definition of “inefficacious” means “the (c) There was delivery by the seller and appropriation by the
ability to produce the effect wanted; inability to get things buyer, of the subject matter of sale.
done.” The use of the word “inefficacious” does not exclude
void sale contracts when the price is neither certain or Rulings on Receipt and Other Documents Embodying Price
ascertainable. In other words, the use of the term
“inefficacious” was not meant to exclude void sales, but more The Supreme Court has followed a particular set of rulings
to be able to include valid conditional contracts of sale (which when it comes to situations where a receipt or some other
have become inefficacious) in the same group as void contracts, written agreement has been entered into by the parties on the
from the focal point of price. issue of whether there is a valid and binding contract of sale
between the parties.
c. Concept of “Appropriation”; Summation
TOYOTA SHAW V. CA
If the terms of a sale are complete except for an agreement
with reference to the price, the law implies a price equivalent
It is not a contract of sale. No obligation on the part of Toyota to
to the reasonable value of the goods in cases where the buyer transfer ownership of a determinate thing to Sosa and no correlative
has appropriated the things sold. And where the buyer accepts obligation on the part of the latter to pay therefor a price certain
delivery knowing the price claimed by the seller, he cannot appears therein. The provision on the downpayment of P100,000.00
thereafter refuse to pay for it at that price, even if there is no made no specific reference to a sale of a vehicle. If it was intended for a
agreement as to price. Hence, where foods used by the buyer contract of sale, it could only refer to a sale on installment basis, as the
who knows the seller’s price for such goods, he is liable for that VSP executed the following day confirmed. But nothing was mentioned
price, and not for the reasonable value of the goods. about the full purchase price and the manner the installments were to
be paid.
There are two important points that can be drawn from the
foregoing, thus: This Court had already ruled that a definite agreement on the manner
of payment of the price is an essential element in the formation of a
(a) The doctrine is based on the principle of unjust enrichment binding and enforceable contract of sale. This is so because the
directed against the buyer who is not allowed to retain the agreement as to the manner of payment goes into the price such that a
subject matter of the sale without being liable to pay the price disagreement on the manner of payment is tantamount to a failure to
agree on the price. Definiteness as to the price is an essential element
even when no such agreement on the price was previously of a binding agreement to sell personal property.
made; and

(b) The doctrine applies even when there is a “no contract” Inadequacy of Price
situation because of no meeting of the minds as to the price,
although there was a meeting of the minds as to the subject “Art. 1355. Except in cases specified by law, lesion or inadequacy of
cause shall not invalidate a contract, unless there has been fraud,
matter, and may also apply to void sale contract situation
mistake or undue influence. (n)”
where the defect is as to the price.
The mere inadequacy of the price does not affect the validity of
If one looks at the dictionary definition of “appropriate” (“to set
the sale when both parties in a position to form an
apart for some special use; to take for oneself’ take possession
independent judgment concerning the transaction, unless
of; use as one’s own”) it seems that the use of such word under
fraud, mistake, or undue influence indicative of a defect in
Article 1474 is meant to cover situation of “acceptance” by the
consent is present.
buyer as the counterpart of delivery on the part of the seller,
and having treated thereafter the subject matter as his own, The fact that one may be worsted by another, of itself, furnishes no
even when it does not involve transformation. A that point a cause of complaint. One man cannot complain because another is more
valid contract of sale is deemed to have come into being, and able, or better trained, or has better sense of judgment than he has;

16 | P LATON
and when the two meet on a fair field the inferior cannot murmur if the In a convention with a right to repurchase feature, the gross
battle goes against him. The law furnishes no protection to the inferior inadequacy of price raises a presumption of equitable
simply because he is inferior, any more than it protects the strong mortgage. The proper remedy of the alleged seller, who is
because he is strong. The law furnishes protection to both alike — to
actually an equitable mortgagor, is not to rescind the contract
one or more or less than to the other. It makes no distinction between
the wise and the foolish, the great and the small, the strong and the of sale, but to have it reformed or declared a mortgage
weak. The foolish may lose all they have to the wise; but that does not contract, and to pay off the indebtedness which is secured. On
mean that the law will give it back to them again. Courts cannot follow the other hand, the remedy of the alleged buyer would not be
one every step of his life and extricate him from bad bargains, protect to appropriate the subject matter as a buyer for that would be
him from unwise investments, relieve him from one-sided contracts, or pactum commussorium, but to foreclose on the equitable
annul the effects of foolish acts. Courts cannot constitute themselves mortgage
guardians of persons who are not legally incompetent. Courts operate
not because one person has been defeated or overcome by another,
When Motive Nullifies Sale
but because he has been defeated or overcome illegally. Men may do
foolish things, make ridiculous contracts, use miserable judgment, and
lose money by them — indeed, all they have in the world; but not for In a contract of sale, consideration is, as a rule, different from
that alone can the law intervene and restore. There must be, in the motive of the parties, and when the primary motive is
addition, a violation of law, the commission of what the law knows as illegal, such as when the sale was executed over a parcel of land
an actionable wrong, before the courts are authorized to lay hold of the to illegally frustrate a person’s right to inheritance and to avoid
situation and remedy it. payment of estate tax, the sale is void because illegal motive
predetermined the purpose of the contract.
1. Distinguished from Simulated Price
UY V. CA
Simulation of contract and gross inadequacy of price are distinct legal
concepts, with different effects. When the parties to an alleged
contract do not really intend to be bound by it, the contract is Cause is the essential reason which moves the contracting parties to
simulated and void. A simulated or fictitious contract has no legal effect enter into it. In other words, the cause is the immediate, direct and
whatsoever because there is no real agreement between the parties. proximate reason which justifies the creation of an obligation through
the will of the contracting parties. Cause, which is the essential reason
In contrast, a contract with inadequate consideration may nevertheless for the contract, should be distinguished from motive, which is the
embody a true agreement between the parties. A contract of sale is a particular reason of a contracting party which does not affect the other
consensual contract, which becomes valid and binding upon the party.
meeting of minds of the parties on the price and the object of the sale.
The concept of a simulated sale is thus incompatible with inadequacy of
________
price. When the parties agree on a price as the actual consideration,
the sale is not simulated despite the inadequacy of the price. Chapter 5 – FORMATION OF SALE

Gross inadequacy of price by itself will not result in a void contract. Art. 1476. In the case of a sale by auction:
Gross inadequacy of price does not even affect the validity of a contract
of sale, unless it signifies a defect in the consent or that the parties (1) Where goods are put up for sale by auction in lots, each lot
actually intended a donation or some other contract. Inadequacy of
is the subject of a separate contract of sale.
cause will not invalidate a contract unless there has been fraud,
mistake or undue influence.
(2) A sale by auction is perfected when the auctioneer
2. Rescissible Contracts of Sale announces its perfection by the fall of the hammer, or in other
customary manner. Until such announcement is made, any
“Art. 1381. The following contracts are rescissible: bidder may retract his bid; and the auctioneer may withdraw
the goods from the sale unless the auction has been announced
(1) Those which are entered into by guardians whenever the wards to be without reserve.
whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof; (3) A right to bid may be reserved expressly by or on behalf of
(2) Those agreed upon in representation of absentees, if the latter the seller, unless otherwise provided by law or by stipulation.
suffer the lesion stated in the preceding number; x x x”
(4) Where notice has not been given that a sale by auction is
3. Judicial Sale subject to a right to bid on behalf of the seller, it shall not be
lawful for the seller to bid himself or to employ or induce any
Gross inadequacy of price may avoid judicial sale of real person to bid at such sale on his behalf or for the auctioneer, to
property. The difference in ruling for judicial sale is because the
employ or induce any person to bid at such sale on behalf of
contract of sale is not the result of negotiation and bargaining; the seller or knowingly to take any bid from the seller or any
in fact, the property of the supposed seller would be sold at person employed by him. Any sale contravening this rule may
public auction without his intervention. In such a case, the be treated as fraudulent by the buyer. (n)
courts must be allowed to come in to protect the supposed
seller from a bad bargain that is really not of his own doing. Art. 1478. The parties may stipulate that ownership in the thing
shall not pass to the purchaser until he has fully paid the price.
However, for a judicial sale to be set aside on the ground of (n)
inadequacy of price, the inadequacy must be such as to be
shocking to the conscience of man. Art. 1479. A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.
4. Sales with Right to Repurchase

17 | P LATON
An accepted unilateral promise to buy or to sell a determinate acceptance, does not give rise to any obligation or right, and
thing for a price certain is binding upon the promissor if the creates no privity between the purported seller (offeror) and
promise is supported by a consideration distinct from the price. buyer (offerees). These relations, until a contract is perfected,
(1451a) are not considered binding commitments; and at any time prior
to the perfection of the contract, either negotiating party may
Art. 1482. Whenever earnest money is given in a contract of stop the negotiation, and walk away from the situation,
sale, it shall be considered as part of the price and as proof of generally without adverse legal consequences.
the perfection of the contract. (1454a)
1. Advertisements and Invitations
Art. 1483. Subject to the provisions of the Statute of Frauds and
of any other applicable statute, a contract of sale may be made The general rule for advertisements is that they are less than
in writing, or by word of mouth, or partly in writing and partly offers, and constitutes merely invitations to make an offer, or
by word of mouth, or may be inferred from the conduct of the mere proposals; the direct acceptance of such advertisements
parties. (n) thereof do not give rise to a valid and binding sale. The
________ exception to this general rule is when “it appears otherwise,” in
which case such advertisements would constitute offers, and if
Stages in the Life of Sale certain and accepted directly, would give rise to a valid and
binding sale.
The phases that a contract goes through have been
summarized by the Supreme Court as follows: The better view to the author is that even when the
advertisement contains a certain offer, it remains legally a mere
(a) Policitacion, negotiation, preparation, conception or invitation so long as it is addressed to the public at large, and
generation, which is the period of negotiation and bargaining, the exception comes whenever it expressly provides that the
ending at the moment of perfection; first absolute acceptance shall be binding, or when it is
addressed to a particular offeree.
(b) perfection or “birth” of the contract, which is the point in
time when the parties come to agree on the terms of the sale; 2. Offers
and
An offer, prior to its acceptance, is subject to the complete will
(c) consummation or “death” of the contract, which is the of the offeror, it may be withdrawn or destroyed by the offeror
process of fulfillment or performance of the terms agreed upon prior to its acceptance; and it is not even necessary that the
in the contract. oferee learns of the withdrawal. If the offer is given for a
period, the expiration of the period without further act or its
ANG YU V. CA withdrawal prior to acceptance would destroy the offer.

The offeror has the right to attach to an offer any term or

A contract undergoes various stages that include its negotiation or
preparation, its perfection and, finally, its consummation. Negotiation condition he desires, and may fix the time, place and manner of
covers the period from the time the prospective contracting parties acceptance; and the offeree has no authority to treat it as
indicate interest in the contract to the time the contract is concluded consisting of separate and distinct parts, since he must accept
(perfected). The perfection of the contract takes place upon the and comply with all the requirements provided in the offer.
concurrence of the essential elements thereof. A contract which is
consensual as to perfection is so established upon a mere meeting of The offeree has the choice to indicate further negotiations by
minds, i.e., the concurrence of offer and acceptance, on the object and making a counter-offer, which would then replace and repeal
on the cause thereof. A contract which requires, in addition to the
the original offer. A counter-offer is always considered in law a
above, the delivery of the object of the agreement, as in a pledge or
commodatum, is commonly referred to as a real contract. In a solemn rejection of the original offer, and has the effect of
contract, compliance with certain formalities prescribed by law, such as extinguishing the original offer.
in a donation of real property, is essential in order to make the act
valid, the prescribed form being thereby an essential element thereof. An offer which has not been accepted absolutely would thereby
The stage of consummation begins when the parties perform their be extinguished and cannot be further accepted; whereas, the
respective undertakings under the contract culminating in the conditional acceptance will constitute a counter-offer which
extinguishment thereof. must be accepted absolutely in order to give rise to a valid sale.

Policitacion Stage Finally, an offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either offeror or offeree
Policitacion or negotiation stage actually deals with legal before the acceptance is conveyed and received by the
matters arising prior to the perfection of sale, dealing with the offerror.
concepts of invitation to make offer, offer, acceptance, right of
first refusal, option contract, supply agreement, mutual 3. Option Contract
promises to buy and sell or contracts to sell, and event agency
to sell or agency to buy. a. Determining the “Location” of Option

Normally, negotiation is formally initiated by an offer, which, “Art. 1324. When the offerer has allowed the offeree a certain period
however, must be certain; and imperfect promise (policitacion) to accept, the offer may be withdrawn at any time before acceptance
by communicating such withdrawal, except when the option is founded
is merely an offer by an offeror to an offeree. Policitacion, or
upon a consideration, as something paid or promised. (n)”
unaccepted unilateral promise to buy or to sell, prior to

18 | P LATON
 When compared to a sale, an option contract is an onerous
The exception would mean the opposite of what the previous contract like sale, for it must have a separate consideration
phrase provides for, which should property mean: When the from the purchase price, to be valid. An option without a
option is founded upon a proper consideration, then the offer separate consideration from the offered purchase price is void
may not be withdrawn at any time during the option period; it as a contract. Consideration in an option contract may be
has essentially become a “contracted offer,” bounded by the anything of value, unlike in sale where there must be the price
principles of mutuality and obligatory force. certain in money or its equivalent, or essentially a “valuable
consideration.”
b. Definition and Essence of Option Contract
An option contract is also a consensual contract, since the
A privilege existing in one person, for which he had paid a meeting of the minds as to the subject matter and the price
consideration and which gives him the right to buy certain would also give rise to the option contract, even when the
merchandise or certain specified property, from another separate consideration for the option itself has not been paid.
person, if he chooses, at any time within the agreed period at a This is clear from the wordings of Article 1324 which describes
fixed price. the separate consideration of an option as “something paid or
promised.”
ADELFA PROPERTIES V. CA
Although a separate consideration must exist for an option
contract to be valid, unlike a sale, it is essentially a unilateral
It is simply a contract by which the owner of property agrees with
another person that he shall have the right to buy his property at a contract, since only the optioner is obliged under an option
fixed price within a certain time. He does not sell his land; he does not contract, even when the optionee has not paid the separate
then agree to sell it; but he does sell something, that it is, the right or consideration. It is true that the optionee is obliged to pay a
privilege to buy at the election or option of the other party. Its separate consideration for the option right, but his exercise of
distinguishing characteristic is that it imposes no binding obligation on the option does not necessarily depend upon his ability to pay
the person holding the option, aside from the consideration for the the separate consideration, since Article 1324 describes the
offer. Until acceptance, it is not, properly speaking, a contract, and does separate consideration of an option as “something paid or
not vest, transfer, or agree to transfer, any title to, or any interest or
promised.” More importantly, there can be a valid option
right in the subject matter, but is merely a contract by which the owner
of property gives the optionee the right or privilege of accepting the contract even when no separate consideration is paid by the
offer and buying the property on certain terms. optionee, as in the case when the option is included within
another valid contract, such as a lease or a mortgage.
EQUATORIAL REALTY DEVELOPMENT V. MAYFAIR THEATER
The most important distinction with sale, is that the subject
matter of an option contract is actually not the subject matter
As early as 1916, in the case of Beaumont vs. Prieto, unequivocal was of the sought sale, but rather the option to purchase such
our characterization of an option contract as one necessarily involving subject matter, essentially an intangible subject matter or a
the choice granted to another for a distinct and separate consideration right. More pointedly, the subject matter of an option contract
as to whether or not to purchase a determinate thing at a is the accepted promise to sell or accepted promise to buy.
predetermined fixed price. Consequently, unlike in a sale, the main issue on the subject
matter of a valid option contract is whether the option or right
The rule so early established in this jurisdiction is that the deed of secured is on an obligation “to do” (i.e., unaccepted promise
option or the option clause in a contract, in order to be valid and “to sell” or unaccepted promise “to buy”), or an obligation “to
enforceable, must, among other things, indicate the definite price at give” (i.e., unaccepted obligation to transfer ownership and
which the person granting the option, is willing to sell. deliver possession of the subject matter).

The distinction between an "option" and a contract of sale is that an

An option is a contract granting a privilege to buy or sell within an
option is an unaccepted offer. It states the terms and conditions on
agreed time and at a determined price. It is a separate and distinct
which the owner is willing to sell the land, if the holder elects to accept
contract from that which the parties may enter into upon the
them within the time limited. If the holder does so elect, he must give
consummation of the option. It must be supported by consideration.
notice to the other party, and the accepted offer thereupon becomes a
valid and binding contract. If an acceptance is not made within the time
CARCELLER V. CA fixed, the owner is no longer bound by his offer, and the option is at an
end. A contract of sale, on the other hand, fixes definitely the relative
rights and obligations of both parties at the time of its execution. The
An option is a preparatory contract in which one party grants to the offer and the acceptance are concurrent, since the minds of the
other, for a fixed period and under specified conditions, the power to contracting parties meet in the terms of the agreement.
decide, whether or not to enter into a principal contract. It binds the
party who has given the option, not to enter into the principal contract Although a valid option contract has for its subject matter an
with any other person during the period designated, and, within that
option in favor of the offeree, it is also constituted of the
period, to enter into such contract with the one to whom the option
was granted, if the latter should decide to use the option. It is a
following obligations on the part of the offeror:
separate agreement distinct from the contract which the parties may
enter into upon the consummation of the option. (a) personal obligation not to offer to any third party the sale
of the object of the option during the option period;
c. Characteristics and Obligations Constituted in an Option
(b) personal obligation not to withdraw the offer or option
Contract; Compared with Sale
during option period; and

19 | P LATON
 (c) obligation to hold the subject matter for sale to the offeree There is in fact practically no difference between a contract of option to
in the event that offeree exercises his option during the option purchase land and an offer or promise to sell it. In both cases the
period. purchaser has the right to decide whether he will buy the land, and that
right becomes a contract when it is exercised, or, what amounts to the
same thing, when use is made of the option, or when the offer or
d. Elements of Valid Option Contract promise to sell the property is accepted in conformity with the terms
and conditions specified in such option, offer, or promise.
The elements of a valid option contract are therefore as
follows: g. Acceptance of Offer to Create Option Necessary to Apply
Sanchez Doctrine
(a) Consent or the meeting of the minds upon:
The Sanchez doctrine (i.e., that the option contract not
(b) Subject matter: an option right to an unaccepted unilateral supported by a separate consideration; is void as a contract,
offer to sell/accepted promise to sell, or unaccepted unilateral but valid as an offer), can only apply if the option has been
offer to buy/accepted promise to buy: accepted and such acceptance is communicated to the offeror.

(i) a determinate or determinable object; h. Option Not Deem Part of Renewal of Lease

(ii) for a price certain, including the manner of payment An option to purchase attached to a contract of lease when not
thereof; exercised within the original period is extinguished and cannot
be deemed to have been included in the implied renewal of the
(c) Prestation: a consideration separate and distinct from the lease even under the principle of tacita reconduccion.
purchase price for the option given
i. Priod of Exercise of Option
e. Meaning of “Separate Consideration”
When the option contract does not contain a period when the
Unlike a sale where the price refers to cash or its equivalent option can be exercise, it cannot be presumed that the exercise
(“valuable consideration”), in an option contract the thereof can be made indefinitely, and even render uncertain
consideration may be anything or undertaking of value. The the status of the subject matter. Under Article 1144(1) of the
more controlling concept is the “separateness” of such Civil Code, actions upon written contract must be brought
consideration from the purchase price agreed upon. within ten (10) years, and thereafter, the right of option would
prescribe.
VILLAMOR V. CA
j. Proper Exercise of Option
Consideration is "the why of the contracts, the essential reason which
moves the contracting parties to enter into the contract." The cause or Notice of the exercise of the option need not be coupled with
the impelling reason on the part of private respondent executing the actual payment of the price, so long as this is delivered to the
deed of option as appearing in the deed itself is the petitioner's having owner of the property upon performance of his part of the
agreed to buy the 300 square meter portion of private respondents' agreement.
land at P70.00 per square meter "which was greatly higher than the
actual reasonable prevailing price." k. Effects of Exercise of Option

f. When Option Is Without Separate Consideration The obligations under an option to buy are reciprocal
obligations. The performance of one obligation is conditional
SANCHEZ V. RIGOS on the simultaneous fulfilment of the other obligation.

When there is an option contract, then the “timely,

"If the option is given without a consideration, it is a mere offer of a
affirmatively and clearly acceptance of the offer,” would
contract of sale, which is not binding until accepted. If, however,
acceptance is made before a withdrawal, it constitutes a binding convert the option contract “into a bilateral promise to sell and
contract of sale, even though the option was not supported by a to buy where both parties were then reciprocally bound to
sufficient consideration. comply with their respective undertakings.

ANG YU V. CA
"It can be taken for granted, as contended by the defendant, that the
option contract was not valid for lack of consideration. But it was, at
least, an offer to sell, which was accepted by letter, and of the Where a period is given to the offeree within which to accept the offer,
acceptance the offerer had knowledge before said offer was the following rules generally govern:
withdrawn. The concurrence of both acts — the offer and the
acceptance — could at all events have generated a contract, if none
there was before (arts. 1254 and 1262 of the Civil Code)." (1) If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to withdraw the
offer before its acceptance, or, if an acceptance has been made, before
In other words, since there may be no valid contract without a cause or the offeror's coming to know of such fact, by communicating that
consideration, the promisor is not bound by his promise and may, withdrawal to the offeree.
accordingly, withdraw it. Pending notice of its withdrawal, his accepted
promise partakes, however, of the nature of an offer to sell which, if
accepted, results in a perfected contract of sale. (2) The right to withdraw, however, must not be exercised whimsically
or arbitrarily; otherwise, it could give rise to a damage claim under

20 | P LATON
Article 19 of the Civil Code which ordains that "every person must, in
the exercise of his rights and in the performance of his duties, act with EQUATORIAL REALTY DEVELOPMENT V. MAYFAIR THEATER
justice, give everyone his due, and observe honesty and good faith.”

Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court
(3) If the period has a separate consideration, a contract of "option" is stated that there was nothing to execute because a contract over the
deemed perfected, and it would be a breach of that contract to right of first refusal belongs to a class of preparatory juridical relations
withdraw the offer during the agreed period. governed not by the law on contracts but by the codal provisions on
human relations. This may apply here if the contract is limited to the
buying and selling of the real property. However, the obligation of
(4) The option, however, is an independent contract by itself, and it is Carmelo to first offer the property to Mayfair is embodied in a contract.
to be distinguished from the projected main agreement (subject matter It is Paragraph 8 on the right of first refusal which created the
of the option) which is obviously yet to be concluded. If, in fact, the obligation. It should be enforced according to the law on contracts
optioner-offeror withdraws the offer before its acceptance (exercise of instead of the panoramic and indefinite rule on human relations. The
the option) by the optionee-offeree, the latter may not sue for specific latter remedy encourages multiplicity of suits. There is something to
performance on the proposed contract ("object" of the option) since it execute and that is for Carmelo to comply with its obligation to the
has failed to reach its own stage of perfection. The optioner-offeror, property under the right of the first refusal according to the terms at
however, renders himself liable for damages for breach of the option. which they should have been offered then to Mayfair, at the price
when that offer should have been made. Also, Mayfair has to accept
the offer. This juridical relation is not amorphous nor is it merely
(5) In these cases, care should be taken of the real nature of the
preparatory. Paragraphs 8 of the two leases can be executed according
consideration given, for if, in fact, it has been intended to be part of the
to their terms.
consideration for the main contract with a right of withdrawal on the
part of the optionee, the main contract could be deemed perfected; a
similar instance would be an "earnest money" in a contract of sale that In essence, the Equatorial Realty ruling pins the enforceability
can evidence its perfection (Art. 1482, Civil Code). of a right of first refusal on the obligatory force of the main
contract of lease to which it is attached to, and thereby
The optionee has the right, but not the obligation, to buy. Once confirms the Ang Yu Asuncion doctrine that on its own, a right
the option is exercised timely, i.e., the offer is accepted before of first refusal clause or contract cannot be the subject of an
a breach of the option, a bilateral promise to sell and to buy action for specific performance because of lack of an
ensues and both parties are then reciprocally bound to comply agreement on the price.
with their respective undertakings.
a. Limited Application of Equatorial Realty Ruling
3. Rights of First Refusal
It is clear from the decision in Equatorial Realty that the ruling
In the law on sales, the so-called "right of first refusal" is an innovative applies only to right of first refusal attached to a valid principal
juridical relation. Needless to point out, it cannot be deemed a contract, like a contract of lease; that the ruling has no
perfected contract of sale under Article 1458 of the Civil Code. Neither application, and that the Ang Yu ruling would still apply, to
can the right of first refusal, understood in its normal concept, per se be rights of first refusal constituted as separate contracts, which
brought within the purview of an option under the second paragraph of
any way would be considered under the doctrines applicable to
Article 1479 or possibly of an offer under Article 1319 of the same
Code. An option or an offer would require, among other things, a clear
option contracts.
certainty on both the object and the cause or consideration of the
envisioned contract. In a right of first refusal, while the object might be The prevailing doctrine therefore is that a sale entered into in
made determinate, the exercise of the right, however, would be violation of a right of first refusal of another person found in a
dependent not only on the grantor's eventual intention to enter into a valid principal contract is rescissible. The basis of the right of
binding juridical relation with another but also on terms, including the first refusal must be the current offer of the seller to sell or the
price, that obviously are yet to be later firmed up. Prior thereto, it can offer to purchase of a prospective buyer. Only after the lessee
at best be so described as merely belonging to a class of preparatory
grantee fails to exercise its rights under the same terms and
juridical relations governed not by contracts (since the essential
elements to establish the vinculum juris would still be indefinite and
within the period contemplated can the owner validly offer to
inconclusive) but by, among other laws of general application, the sell the property to a third person, again under the same terms
pertinent scattered provisions of the Civil Code on human conduct. as offered to the grantee.

If only a right of first refusal is constituted over a subject parcel b. Various Rulings On Rights of First Refusal Contained in Lease
of land, even if that right is supported by a separate Agreement
consideration, its breach cannot justify correspondingly an
issuance of a writ of execution under judgment recognizing the (1) Rentals Deemed to Be Considered to Support Right
mere existence of such right of first refusal, nor would it
sanction an action for specific performance without thereby (2) Sublesse May Not Take Advantage of Right of First Refusal
negating the indispensable consensual element in the of Sublessor
perfection of contracts. At most, it would authorize the grantee
to sue for recovery of damages under Article 19 of the Civil A right of first refusal granted in the contract of lease in favor of
Code on abuse of right. the lessee cannot be availed of by the sublessee because such
sublessee is a stranger to the lessor who is bound to respect
There need not be a separate consideration in a right of first the right of first refusal in favor of the lessee only; and had the
refusal since such stipulation is part and parcel of the entire contract of lessee granted the right to assign the lease, then the
contract of lease to which it may be attached to; the assignee would be entitled to exercise such right as he steps
consideration for the ease includes the consideration for the into the shoes of the assignor-lessee.
right of first refusal.

21 | P LATON
(3) Right Does Not Extend with the Extension of Lease The better rule would be that in case an option is supported by
a separate consideration, the optionee shall have the right to
A provision entitling the lessee the option to purchase the exercise the option or accept the offer at anytime during the
leased premises is not deemed incorporated in the impliedly option period and the same would give rise to a valid and
renewed contract because it is alien to the possession of the binding contract of sale. In the same manner, if separate
lessee, The right to exercise the option to purchase expired consideration has been received by the optioner for the grant
with the termination of the original contract of lease. of the option, he cannot withdraw the offer during the option
period, and any attempts to so withdraw the offer during the
4. Proposed Doctrine on Option Contract vis-à-vis Right of First option period shall be void.
Refusal Rulings
5. Mutual Promise to Buy and Sell
a. Alternative Doctrine of Enforceability of Rights of First
Refusal ANG YU ASUNCION V. CA

The “Agreement on Right of First Refusal,” would be a binding

An unconditional mutual promise to buy and sell, as long as the object
contract between the promissory and the promise, when is made determinate and the price is fixed, can be obligatory on the
supported by a separate consideration, like much in the case of parties, and compliance therewith may accordingly be exacted.
a valid option contract under Article 1319 and 1479 of the Civil
Code, and a “mutual promise to negotiate a possible contract
VILLAMOR V. CA
of sale over a determinate subject matter” would be akin to the
mutual promise to buy and sell under said Article 1479. The
obligation is not to enter into a sale but rather to negotiate in The acceptance of an offer to sell for a price certain created a bilateral
good faith for the possibility of entering into a sale; and when contract to sell and buy and upon acceptance, the offer, ipso facto
the promissory has in fact negotiated in good faith, but the assumes obligations of a vendee. Demandability may be exercised at
parties’ minds could not meet on the price and the terms of any time after the execution of the deed.
payment, then promissory has complied with his obligation.
However, since the underlying obligation in a “right of first Perfection Stage: Offer and Acceptance
refusal contract” is a personal obligation to do, its breach can
never be remedied by an action for specific performance, A contract of sale is “born” from the moment there is a meeting
because of the underlying public policy against involuntary of minds upon the thing which is the object of the contract and
servitude. upon the price and the manner of its payment. This meeting of
the minds speaks of the intent of the parties entering into the
The “right of first refusal contract” being valid and binding, the contract respecting the subject matter and the consideration
remedy for specific performance is unavailable by reason of the thereof.
nature of the underlying obligation, but that the remedy of
rescission for breach of contract would be available which A sale is at once perfected when a person (the seller) obligates
would allow recovery of damages under the Contract Law, himself for a price certain, to deliver and to transfer ownership
rather than the difficult cause of action for recovery of damages of a specified thing or right to another (the buyer) over which
based on “abuse of right” under Article 19 of the Civil Code on the latter agrees.
Human Relations.
Consent may be vitiated by any of the following: mistake,
b. Enforceability of Option Rights Should Be at Par With, If Not violence, intimidation, undue influence and fraud, but they do
at a Higher Level Than, Rights of First Refusal not make the contract void ab initio but only voidable, and the
contract is binding upon the parties unless annulled by proper
An option is a preparatory contract in which one party grants to court action, which when obtained would restore the parties to
another, for a fixed period and at a determined price, the privilege to the status quo ante insofar as legally and equitably possible.
buy or sell, or to decide whether or not to enter into a principal
contract.

In a right of first refusal, on the other hand, while the object might be Until a sale is perfected, it cannot be an independent source of
made determinate, the exercise of the right would be dependent not obligation, nor serve as a binding juridical relation. In sales
only on the grantor’s eventual intention to enter into a binding juridical particularly, the contract is perfected when the seller obligates
relation with another but also on terms, including the price, that are yet himself, for a price certain, to deliver and to transfer ownership
to be firmed up. of a thing or right to the buyer, over which the latter agrees and
obligated himself to pay the price.
Consequently, the ‘offer’ may be withdrawn anytime by
communicating the withdrawal to the other party. 1. Consent that Perfects a Sale

If an option, constituted of determinate subject matter, certain “Art. 1319. Consent is manifested by the meeting of the offer and the
price, with separate consideration, can be withdrawn within acceptance upon the thing and the cause which are to constitute the
the option period to remove any hope of an action to enforce a contract. x x x”
sale, then more so can the offeror withdraw a right of first
refusal and destroy any chance of there ever coming into being The offer must be certain and the acceptance absolute – it
a sale upon which an action for specific performance could be must be plain, unequivocal, unconditional and without variance
achieved. of any sort from the proposal; A qualified acceptance

22 | P LATON
constitutes a counter-offer which must in turn be absolutely
accepted to give rise to a valid and binding contract To the author, the more appropriate doctrine should be that
when a sale is made subject to a suspensive condition, there is
2. Offer Must Be “Certain” already a contract upon the meeting of the minds, since the
principles of mutuality and obligatory force come into play, but
In the Law on Sales, what makes an offer “certain” is when it is because the condition has not happened, the contract itself and
floated by the offeror having within its terms the description of the underlying obligations are not yet demandable; and in case
the subject matter that has all three requisites of “possible of non-happening of the condition, then the contract is
thing,” licit, and determinate or at least determinable; and with extinguished as though the contract has never been entered
a price that has the requisites of being real, money or its into, as the consequence of the retroactive effect of the non-
equivalent (i.e., constitute valuable consideration), and must be happening of a suspensive condition.
certain or at least ascertainable, including on the terms of
payment thereof. In other words, an offer is “certain” only e. Acceptance in Auction Sales
where there is an offer to sell or an offer to buy a subject
matter and for a price having all the seven essential requisites A sale by auction s perfected when the auctioneer announces
mandated by law for subject matter and price. The absence of its perfection by the fall of the hammer, or in other customary
even just one of the essential requisites pertaining to either manner. Until such announcement is made, any bidder may
subject matter or price in terms of the offer, makes such offer retract his bid, and the auctioneer may withdraw the goods
“not certain,” and cannot give rise to a valid sale, even when from the sale, unless the auction has been announced to be
such offer is absolutely accepted by the offeree. without reserve.

3. Acceptance Must Be “Absolute” A right to bid may be reserved expressly by or on behalf of the
seller. Where notice has not been given that the sale by auction
In order for an acceptance to have the effect of converting an is subject to a right to bid on behalf of the seller, it shall be
offer to sell into a perfected contract, it must be plain and unlawful for the seller to bid himself or to employ or induce any
unconditional, and it will not be so, if it involves any new person to bid at such sale on his behalf. Also, it shall be
proposition, for in that case, it will not be in conformity with unlawful for the auctioneer to employ or induce any person to
the offer, which is what gives rise to the birth of the contract. bid at such sale on his behalf or the seller, or knowingly to take
any bid from the seller or any person employed by him.
It is true that an acceptance may contain a request for certain
changes in the terms of the offer and yet be a binding The owner of the property sold at auction may provide the
acceptance. ‘So long as it is clear that the meaning of the terms under which the auction will proceed and the same are
acceptance is positively and unequivocally to accept the offer, binding upon all bidders, whether they knew of such conditions
whether such request is granted or not, a contract is formed.’ or not.

a. When “Deviation” Allowed 4. Earnest Money

The Court held that there was a perfected sale that arose from a. Function of Earnest Money
the exchange of correspondences, even if literally, there was a
correction or modification contained in the acceptance, the When the sale is subject to a condition, the acceptance of the
changes were not substantial, but merely clarificatory. Such is earnest money would prove that the sale is conditionally
corroborated also by the fact, that upon receipt of the check consummated or partly executed subject to the fulfilment of
covering the earnest money, Bormacheco had encashed the the condition, the non-fulfillment of which would be a negative
same. resolutory condition.

b. Acceptance May Be Expressed or Implied b. Varying Treatments of Earnest Money

Acceptance may be evidenced by some act, or conduct, When the amount is given only as a guarantee that the buyer
communicated to the offeror, either in a formal or an informal would not back out of the sale, then what was given is not
manner, that clearly manifest the intention or determination to earnest money as defined under Article 1482 of the Civil Code,
accept the offer to buy or sell. especially when at the time the amount is given, the final terms
of the purchase had not been agreed upon. The same is also
c. Acceptance by Letter or Telegram true when earnest money is given under the terms of a contract
to sell, in which case the provisions of Article 1482 would also
Acceptance made by letter or telegram does not bind the be inapplicable.
offeror except from the time it came to his knowledge.
Therefore, even if an acceptance has been mailed or sent to the c. Distinguishing Earnest Money and Option Money
offeror, the offeror may still withdraw his offer anytime before
he has knowledge of the acceptance. There are clear distinctions between earnest money and option
money, viz.:
d. Acceptance Subject to Suspensive Condition
(a) earnest money is part of the purchase price, while option
Even when there is a meeting of minds as to the subject matter money ids the money given as a distinct consideration for an
and price, there is deemed to be no perfected sale, if the sale is option contract;
subject to suspensive condition.

23 | P LATON
 (b) earnest money is given only where there is already a sale, a. Requirement for Public Instrument for Immovables under
while option money applies to a sale not yet perfected; and Article 1358

(c) when earnest money is given, the buyer is bound to pay “Art. 1358. The following must appear in a public document:
the balance, while when the would-be buyer gives option
money, he is not required to buy. (1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest therein a
d. Effect of Rescission on Earnest Money Received governed by Articles 1403, No. 2, and 1405;

In the absence of a specific stipulation, the seller of real estate xxx

cannot keep the earnest money received to answer for the
damages sustained in the event the sale falls due to the fault of All other contracts where the amount involved exceeds five hundred
the prospective buyer. pesos must appear in writing, even a private one. But sales of goods,
chattels or things in action are governed by Articles, 1403, No. 2 and
“Art. 1385. Rescission creates the obligation to return the things which 1405. (1280a)”
were the object of the contract, together with their fruits, and the price
with its interest; consequently, it can be carried out only when he who The provisions thereof on the necessity of public document are
demands rescission can return whatever he may be obliged to restore. for purposes of convenience, not for validity or enforceability.
x x x”
The parties may avail themselves of the right and remedy to
5. Place of Perfection compel the other party to observe such form, and such remedy
may be exercised simultaneously with the action upon the
Generally, the sale’s place of perfection is where there is a contract.
meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. In case of LIMKETKAI SONS MILLING V. CA
acceptance through letter or telegram, it is presumed that the
contract was entered into in the place where the offer was
The fact that the deed of sale still had to be signed and notarized does
made. not mean that no contract had already been perfected. A sale of land is
valid regardless of the form it may have been entered into. The
6. Expenses of Execution and Registration requisite form under Article 1458 of the Civil Code is merely for greater
efficacy or convenience and the failure to comply therewith does not
In general, the expenses for the execution and registration of affect the validity and binding effect of the act between the parties. If
the sale shall be borne by the seller, unless there is a stipulation the law requires a document or other special form, as in the sale of real
to the contrary. In the case of goods, unless otherwise agreed, property, the contracting parties may compel each other to observe
that form, once the contract has been perfected. Their right may be
the expenses of, and incidental to, putting the goods into a
exercised simultaneously with action upon the contract.
deliverable state must be borne by the seller.

The duty to withhold taxes due on the sale is imposed on the B. Function of Deed of Sale
seller.
The deed of sale operates as a formal or symbolic delivery of
the property sold and authorizes the buyer to use the
7. Performance Should Not Affect Perfection document as proof of ownership. The ability to cover all forms
of sale, whether the subject matter is tangible or intangible,
Since sale is a consensual contract, then the ability of the makes the execution of a public document one of the highest
parties to perform the contract (after perfection) does not form of constructive delivery in the Law on Sales.
affect the perfection of the contract, which occurs when the
minds of the parties have met as to the subject matter, price To make it a public document, a deed of sale must be properly
and terms of payment. subscribed and acknowledged before a notary public; and when
so acknowledged, a deed of sale enjoys the presumption of
Devoid of any stipulation that “ownership in the thing shall not pass to regularity and due execution.
the purchaser until he has fully paid the price,” ownership in the thing
shall pass from the vendor to the vendee upon actual or constructive 2. When Form of Sale Affects Its Validity
delivery of the thing sold even if the purchase price has not yet been
fully paid. The failure of the buyer to make good the price does not, in
The general rule is that form is not important for the validity of
law, cause the ownership to revest to the seller unless the bilateral
contract of sale is first rescinded or resolved pursuant to Article 1191 of
a sale, except in the following instances:
the New Civil Code. Non-payment only creates a right to demand the
fulfillment of the obligation or to rescind the contract. “Art. 1874. When a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void. (n)
Form of Sales
“Art. 1581. The form of sale of large cattle shall be governed by special laws. (n)
1. Form Not Generally Important for Validity of Sale
“Section 145 of the Revised Administrative Code of Mindanao and Sulu provides
that any transaction involving real property with said non-Christian tribes shall
Article 1483 stresses that sale being a consensual contract, no bear the approval of the provincial governor wherein the same was executed or
form is really required for its validity. of his representative duly authorized in writing for such purpose, indorsed upon
it. Section 146 of the same code considers every contract or agreement made in
violation of Section 145 as null and void.”

24 | P LATON
 The Statute would no longer apply as long as the total price or
3. Statute of Frauds: When Form Is Important For Enforceability consideration is mentioned in some note or memorandum and there is
no need of any indication of the manner in which such total price is to
be paid.
a. Nature and Purpose of Statute of Frauds
The Statute of Frauds read together with the perfection requirements
The term “Statute of Frauds” is descriptive of statutes which require of Article 1475 of the Civil Code must be understood and applied in the
certain classes of contracts, such as agreements for the sale of real sense that the idea of payment on installments must be in the requisite
property, to be in writing. It does not deprive the parties the right to of a note or memorandum therein contemplated.
contract with respect to the matters therein involved, but merely
regulates the formalities of the contract necessary to render it
enforceable. The purpose of the statute is to prevent fraud and perjury e. Partial Performance
in the enforcement of obligations depending for their evidence on the
unassisted memory of witnesses by requiring certain enumerated Partial performance of the sale would take the same outside
contracts and transactions to be evidenced by a writing signed by the the coverage of the Statute of Frauds. When it comes to sale of
party to be charged. The written note or memorandum, as goods, chattels, or things in action, Article 1403 of the Civil
contemplated by Article 1403 of the Civil Code, should embody the Code specifically states that the Statute of Frauds shall not
essentials of the contract. apply when “the buyer accepts and receives a part of such
goods and chattels, or the evidence, or some of them, of such
The purpose of the Statute is to prevent fraud and perjury in things in action, or pay at the time some part of the purchase
the enforcement of obligations depending for their evidence money.”
upon the unassisted memory of witnesses.
f. Effect of Partial Execution on Third Parties
b. Sales Coverage in Statute of Frauds
The doctrine of partial execution when covering sale of real
“Art. 1403. The following contracts are unenforceable, unless they are
properties cannot be applied to third parties, who are granted
ratified:
legal remedies against the contract.
xxx
A contract of sale of realty cannot be proven by means of witnesses,
(2) Those that do not comply with the Statute of Frauds as set forth in but must necessarily be evidenced by a written instrument, duly
this number. In the following cases an agreement hereafter made shall subscribed by the party charged, or by his agent, or by secondary
be unenforceable by action, unless the same, or some note or evidence of the contents of such document. No other evidence referred
memorandum, thereof, be in writing, and subscribed by the party to, in so far as regards such contracts, and these are valueless as
charged, or by his agent; evidence, therefore, of the agreement cannot evidence unless they are drawn up in writing in the manner aforesaid.
be received without the writing, or a secondary evidence of its
contents: FULE V. CA

(a) An agreement that by its terms is not to be performed within a year

from the making thereof; Formal requirements are, therefore, for the benefit of third parties.
Non-compliance therewith does not adversely affect the validity of the
xxx contract nor the contractual rights and obligations of the parties
thereunder.
(d) An agreement for the sale of goods, chattels or things in action, at a
price not less than five hundred pesos, unless the buyer accept and
Partial performance to constitute as an exception to the Statute
receive part of such goods and chattels, or the evidences, or some of
them, of such things in action or pay at the time some part of the
of Frauds must by itself pertain to the subject matter or to the
purchase money; but when a sale is made by auction and entry is made price of the purported sale, and must involve an act or
by the auctioneer in his sales book, at the time of the sale, of the “complicity” on the party sought to be changed. These
amount and kind of property sold, terms of sale, price, names of the requisites are essential because partial performance must
purchasers and person on whose account the sale is made, it is a amount to estoppels against the party sought to be charged.
sufficient memorandum; This is in accordance with the provision of Article 1405 which
states that contracts covered by the Statute of Frauds “are
(e) An agreement of the leasing for a longer period than one year, or for
ratified by the acceptance of benefits under them.”
the sale of real property or of an interest therein; x x x”

h. Waiver of Provisions of Statute of Frauds

c. Exceptions to Coverage of Statute in Sales Contracts
The third ground by which a covered sale contract would be
(a) When there is a note or memorandum thereof in writing,
enforceable in spite of the fact that it is not contained in a
and subscribed by the party charged or his agent;
deed, or a note or memorandum, is when the party against
whom such oral contract is sought to be proved, fails to object
(b) When there has been partial consummation of the sale;
during trial to the presentation of oral evidence to prove the
contract. This is embodied in Article 1405 of the Civil Code.
(c) When there has been a failure to object to the presentation
of evidence aliunde as to the existence of a contract; and
i. Value of Business Forms to Prove Sale
(d) When sales are effected through electronic commerce.
4. Sale Effected as Electronic Commerce
d. Nature of Memorandum
a. Legal Recognition of Electronic Data Message

25 | P LATON
b. Legal Recognition of Electronic Documents The requisites for simulation are:

c. Legal Recognition of Electronic Signatures

(a) an outward declaration of will different from the will of the parties;

d. Presumption Relating to Electronic Signatures

(b) the false appearance must have been intended by mutual
e. Consummation of Electronic Transactions agreement; and

f. Electronic Commerce in Carriage of Goods (c) the purpose is to deceive third persons. None of these are present in
the assailed transaction.
g. Rule on Transport Documents

5. Forms in Equitable Mortgage Claims When a sale is void, the right to set up its nullity or non-
existence is available to third persons whose interests are
Equitable mortgages occupy such hallowed position in directly affected thereby; and the action for the declaration of
Philippine Jurisprudence such that Rosales v. Suba, held that an the contract’s nullity is imprescriptible. Likewise, the remedy of
equitable mortgage is not different from a real estate accion pauiana is available when the subject matter is a
mortgage, and the lien created thereby ought not to be conveyance, otherwise valid, undertaken in frauds of creditors.
defeated by requiring compliance with the formalities ________
necessary to the validity of a voluntary real estate mortgage.
Other provisions:
6. Forms in “Sales on Return or Approval”
Art. 1477. The ownership of the thing sold shall be transferred
The provision in the Uniform Sales Act and the Uniform Commercial to the vendee upon the actual or constructive delivery thereof.
Code from which Article 1502 was taken, clearly requires an express (n)
written agreement to make a sales contract either a "sale or return" or ________
a "sale on approval". Parol or extrinsic testimony could not be admitted
for the purpose of showing that an invoice or bill of sale that was Art. 1480. Any injury to or benefit from the thing sold, after the
complete in every aspect and purporting to embody a sale without contract has been perfected, from the moment of the
condition or restriction constituted a contract of sale or return. If the
perfection of the contract to the time of delivery, shall be
purchaser desired to incorporate a stipulation securing to him the right
of return, he should have done so at the time the contract was made.
governed by Articles 1163 to 1165, and 1262.
On the other hand, the buyer cannot accept part and reject the rest of
the goods since this falls outside the normal intent of the parties in the This rule shall apply to the sale of fungible things, made
"on approval" situation. independently and for a single price, or without consideration
of their weight, number, or measure.
7. Right of First Refusal Must Be Contained in Written Contract
Should fungible things be sold for a price fixed according to
When the right of first refusal is not stipulated in the lease weight, number, or measure, the risk shall not be imputed to
contract, it cannot be exercised, and verbal grants of such right the vendee until they have been weighed, counted, or
cannot be enforceable since the right of first refusal must be measured and delivered, unless the latter has incurred in delay.
clearly embodied in a written contract. The ruling therefore (1452a)
constituted in effect an addition to the contracts covered by ________
the Statute of Frauds.
Art. 1481. In the contract of sale of goods by description or by
When Sale Completely Simulated sample, the contract may be rescinded if the bulk of the goods
delivered do not correspond with the description or the
When a sale is absolutely simulated, then it is completely void sample, and if the contract be by sample as well as description,
and non-existent. it is not sufficient that the bulk of goods correspond with the
sample if they do not also correspond with the description.
LOYOLA V. CA
The buyer shall have a reasonable opportunity of comparing
the bulk with the description or the sample. (n)
Simulation is "the declaration of a fictitious will, deliberately made by
agreement of the parties, in order to produce, for the purposes of
________
deception, the appearances of a juridical act which does not exist or is
different what that which was really executed." Characteristic of Art. 1484. In a contract of sale of personal property the price of
simulation is that the apparent contract is not really desired or which is payable in installments, the vendor may exercise any
intended to produce legal effect or in any way alter the juridical of the following remedies:
situation of the parties. Perusal of the questioned deed will show that
the sale of the property would convert the co-owners to vendors and (1) Exact fulfillment of the obligation, should the vendee fail to
vendees, a clear alteration of the juridical relationships. This is contrary
pay;
to the requisite of simulation that the apparent contract was not really
meant to produce any legal effect. Also in a simulated contract, the
parties have no intention to be bound by the contract. But in this case, (2) Cancel the sale, should the vendee's failure to pay cover two
the parties clearly intended to be bound by the contract of sale, an or more installments;
intention they did not deny.

26 | P LATON
(3) Foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the vendee's failure to pay cover two
or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of
the price. Any agreement to the contrary shall be void. (1454-A-
a)
________

Art. 1485. The preceding article shall be applied to contracts

purporting to be leases of personal property with option to buy,
when the lessor has deprived the lessee of the possession or
enjoyment of the thing. (1454-A-a)
________

Art. 1486. In the case referred to in two preceding articles, a

stipulation that the installments or rents paid shall not be
returned to the vendee or lessee shall be valid insofar as the
same may not be unconscionable under the circumstances. (n)
________

Art. 1487. The expenses for the execution and registration of

the sale shall be borne by the vendor, unless there is a
stipulation to the contrary. (1455a)
________

Art. 1488. The expropriation of property for public use is

governed by special laws. (1456)
________

Art. 1493. If at the time the contract of sale is perfected, the

thing which is the object of the contract has been entirely lost,
the contract shall be without any effect.

But if the thing should have been lost in part only, the vendee
may choose between withdrawing from the contract and
demanding the remaining part, paying its price in proportion to
the total sum agreed upon. (1460a)
________

Art. 1494. Where the parties purport a sale of specific goods,

and the goods without the knowledge of the seller have
perished in part or have wholly or in a material part so
deteriorated in quality as to be substantially changed in
character, the buyer may at his option treat the sale:

(1) As avoided; or

(2) As valid in all of the existing goods or in so much thereof as

have not deteriorated, and as binding the buyer to pay the
agreed price for the goods in which the ownership will pass, if
the sale was divisible. (n)
________

27 | P LATON