THE LAW ON SALES

MODULE

CHAPTER 1
Nature and Form of the Contract
Article 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.

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

NOTES:

• This article provides the definition of a contract of sale.

• Parties to a contract of sale:
o Vendor/Seller – one who obligates himself to transfer the ownership and to
deliver a determinate thing
o Vendee/Buyer – one who obligates himself to pay a price certain in money or its
equivalent
• Characteristics of a contract of sale:
o Consensual – perfected by mere consent of the parties
o Bilateral – both contracting parties are bound to fulfill reciprocal obligations to
each other
o Onerous – the thing sold is given in consideration of the price
o Commutative – the thing sold is considered equivalent of the price paid
o Nominate – it is given a special name in the Civil Code i.e. “Sale”
o Principal – it does not depend for its existence and validity upon another contract
• Essential requisites of contract of sale – without which there can be no contract of sale
o CONSENT
o OBJECT/SUBJECT MATTER – the determinate thing which is the object of the
contract of sale
▪ Thing must be DETERMINATE or at least CAPABLE OF BEING
MADE DETERMINATE
▪ Subject matter may be real property (e.g. land) or personal/movable
property (e.g. car)
o CAUSE OR CONSIDERATION – the price certain in money or its equivalent
• Natural elements of a contract of sale – deemed to exist in the absence of any contrary
stipulations (e.g. warranty against eviction or warranty against hidden defects)
• Accidental elements of a contract of sale – those which may be present or absent
depending on the stipulations of the parties (e.g. conditions, interest, penalty, time or
place of payment, etc.)
• Two Kinds of a Contract of Sale, as to presence or absence of conditions:
o Absolute – not subject to any condition whatsoever; title or ownership passes to
the buyer upon delivery of the thing sold
o Conditional – sale contemplates a contingency; subject to certain conditions.
Here, the delivery of the thing sold does not transfer ownership until the condition
is fulfilled
Article 1459. The thing must be licit and the vendor must have a right to
transfer the ownership thereof at the time it is delivered. (n)

NOTES:

• Requisites Regarding Object of Contract of Sale: (object of sale may be

(a) things or (b) rights) – absence of any of the following will make the contract
VOID/INEXISTENT and cannot be ratified
o (a) Things – must be within the commerce of men
▪ Determinate
▪ Licit or lawful
• Things may be illicit (illegal)
o per se – by its nature (e.g. decayed food)
o per accidens – because some provision of law declares it
illegal (e.g. illegal drugs)
▪ Not be impossible
o (b) Rights – must be transmissible (i.e. capable of being transmitted to
other persons; not strictly personal)
▪ Examples of transmissible rights – right to usufruct, right of conventional
redemption
▪ Examples of intransmissible rights – right to vote, right to custody over
children, marital rights
▪ Services cannot be the subject of a contract of sale (not a determinate THING)
• Right of vendor to transfer ownership
o One can only sell what he owns – seller must be the owner or at least
authorized by the owner of the thing sold
o Sufficient if right exists at time of delivery – not required that the vendor
must have the right to transfer ownership at the perfection of the contract.

Article 1460. A thing is determinate when it is particularly designated or

physical segregated from all others of the same class. The requisite that a thing
be determinate is satisfied if at the time the contract is entered into, the thing is
capable of being made determinate without the necessity of a new or further
agreement between the parties. (n)

NOTES:

• Subject matter must be DETERMINATE (first paragraph Art. 1460) or

DETERMINABLE (Second paragraph Art. 1460). Otherwise, contract is VOID.

Article 1461. Things having a potential existence may be the object of the
contract of sale. The efficacy of the sale of a mere hope or expectancy is deemed
subject to the condition that the thing will come into existence. The sale of a
vain hope or expectancy is void. (n)

NOTES:
• Future things not existing at the time the contract has been entered into may be the
subject of a contract of sale PROVIDED:
 o It is reasonable certain that the thing will come into existence; and
o The title will vest in the buyer the moment the thing comes into existence

Example: The sale of all the rice that may be harvested from the seller’s ricefield
within a given period of time is a valid sale

• Sale of hope or expectancy – 2nd par. Art. 1461

o The sale of hope or expectancy itself is valid even if the thing hoped or
expected does not come into existence, unless the hope or expectancy is in vain,
in which case, the sale is void

Example: If Berto buys a lotto ticket in the hope of winning the grand prize, the
object of the contract is not the prize, but the hope itself. Thus, the sale is valid
even if Berto does not win the prize. However, if Berto buys an expired lotto ticket
in the hope of winning the prize, the hope is in vain, and thus, the sale is void.

Article 1462. The goods which form the subject of a contract of sale may be
either existing goods, owned or possessed by the seller, or goods to be manufactured,
raised, or acquired by the seller after the perfection of the contract of sale, in this
Title called "future goods."

There may be a contract of sale of goods, whose acquisition by the seller depends
upon a contingency which may or may not happen.

NOTES:

• A sale of future goods even though the contract is in the form of a present sale, is
valid only as an executory contract to be fulfilled by the acquisition and delivery of the
goods specified. Hence, no actual sale and transfer of ownership has yet taken place as
long as the future goods are not yet in the hands of the seller. Upon acquisition by the
seller of the goods, either party then acquires the right to demand the execution of the
contract of sale.
• The first paragraph of the above article does not apply if the goods are to be
manufactured especially for the buyer and not readily saleable to others in the
manufacturer’s ordinary course of business. This is a contract for a piece of work, and not
a contract of sale (see Art. 1467)

Article 1463. The sole owner of a thing may sell an undivided interest therein.

NOTES:

• Example: Sidro, the sole owner of a one-hectare parcel of land located in Dipolog City,
sells one-half thereof to Brenda, without specifying which particular part of the parcel of
land is being sold. Here, Sidro is selling an undivided interest in the thing (the ½ share of
the parcel of land). The sale is valid, and the effect thereof is to make the buyer a co-
owner in the thing sold.
o If Sidro specifies which particular part (by metes and bounds) of his one-hectare
parcel of land is to be sold to Brenda, the sale is not of an undivided interest of the land.
Hence, there is no co-ownership between Sidro and Brenda. Sidro becomes the full owner
of his portion while Brenda becomes the absolute owner of her portion of the land.

Article 1464. In the case of fungible goods, there may be a sale of an

undivided share of a specific mass, though the seller purports to sell and the buyer to
buy a definite number, weight or measure of the goods in the mass, and though the
number, weight or measure of the goods in the mass, and though the number, weight
or measure of the goods in the mass is undetermined. By such a sale the buyer
becomes owner in common of such a share of the mass as the number, weight or
measure bought bears to the number, weight or measure of the mass. If the mass
contains less than the number, weight or measure bought, the buyer becomes the
owner of the whole mass and the seller is bound to make good the deficiency from
goods of the same kind and quality, unless a contrary intent appears.

NOTES:

• Fungible goods as used in this article is meant to be synonymous to “consumable”

goods of which any unit is, from its nature or by mercantile usage, treated as the
equivalent of any other unit
• Example: In a stock of rice, the exact number of sacks of which is still unknown,
Jose buys 100 sacks. If there are really 150, Jose becomes the co-owner of the whole
lot, his own share being 2/3 thereof. If it turns out that there were really only 90
sacks of rice in the stock, Jose becomes the sole owner of the whole lot, and the
seller is bound to make good the deficiency of 10 sacks to Jose.

Article 1465. Things subject to a resolutory condition may be the object of the
contract of sale. (n)

NOTES:

• Resolutory condition – an uncertain event upon the happening of which the

obligation (or right) subject to it is extinguished.
• Example: Susan (vendor a retro) sold a parcel of land to Bugoy (vendee a retro)
subject to the condition that Susan can repurchase the land within two years from the
date of sale. If within the said two-year period, Bugoy sells the land to Charlie, who
knows of Susan’s right to repurchase, and Susan exercises her right to repurchase,
Charlie is bound to respect Susan’s right.

Article 1466. In construing a contract containing provisions characteristic of

both the contract of sale and of the contract of agency to sell, the essential
clauses of the whole instrument shall be considered. (n)

NOTES:
• Distinctions Between a ‘Contract of Sale’ and an ‘Agency to Sell’ (like a
Consignment for Sale):
(a) In sale, the buyer pays the price; the agent delivers the price which in turn he got
from his buyer.
(b) In sale, the buyer after delivery becomes the owner; the agent who is supposed to
sell does not become the owner, even if the property has already been delivered to
him.
(c) In sale, the seller warrants; the agent who sells assumes no personal liability as
long as he acts within his authority and in the name of the principal.

Article 1467. A contract for the delivery at a certain price of an article which
the vendor in the ordinary course of his business manufactures or procures for
the general market, whether the same is on hand at the time or not, is a contract
of sale, but if the goods are to be manufactured specially for the customer and
upon his special order, and not for the general market, it is a contract for a
piece of work. (n)

NOTES:
• Contract for a piece of work – here, the contractor binds himself to execute a piece
of work for the employer, in consideration of a certain price or compensation.
• Distinctions between a Contract for a Piece of Work and a Contract of Sale:
o In the former, 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; while in the
latter, the thing transferred is one which would have existed and been the subject of
sale to some person, even if the order had not been given.

Example:

o Juan buys a pair of size 11 Nike Air Force One shoes from a Jose, whose
business it is to sell Nike shoes. But at the moment, Jose does not have the shoes of
Juan’s size. Thus, Jose orders size 11 Nike Air Force One shoes from his supplier to
sell to Juan. This order will still be considered a contract of sale, as Jose would have
otherwise ordered and sold the same shoes regardless of Juan’s intention to buy.
o Pedro’s feet are deformed, such that he cannot wear normal shoes. He goes
to Penduko, a local shoemaker, to order shoes that will particularly fit his feet. This
is a contract of a piece of work, as Penduko would not have otherwise made the
special shoes had it not been for Pedro’s order.

Article 1468. If the consideration of the contract consists partly in money, and
partly in another thing, the transaction shall be characterized by the manifest
intention of the parties. If such intention does not clearly appear, it shall be
considered a barter if the value of the thing given as a part of the consideration
exceeds the amount of the money or its equivalent; otherwise, it is a sale. (1446a)

NOTES:

• Barter or exchange – one of the parties binds himself to give one thing in
consideration of the other’s promise to give another thing.
o On the other hand, in sale, the vendor gives a thing in consideration for a
price in money.
• Rules to Determine Whether Contract is One of Sale or Barter
(a) First Rule — Intent. (The manifest intention of the parties shall prevail. Thus, if
the parties intend the transaction to be one of SALE, then regardless of whether the
value of the thing given exceeds the amount of the money or equivalent, the
transaction will be considered a sale.)

(b) If intent does not clearly appear —

1) if thing is more valuable than money — BARTER
2) if 50-50 — SALE
3) if thing is less valuable than the money — SALE

Article 1469. In order that the price may be considered certain, it shall be
sufficient that it be so with reference to another thing certain, or that the
determination thereof be left to the judgment of a special person or persons.
Should such person or persons be unable or unwilling to fix it, the contract shall
be in efficacious, unless the parties subsequently agree upon the price. If the
third person or persons acted in bad faith or by mistake, the courts may fix the
price. Where such third person or persons are prevented from fixing 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 are allowed the seller or the buyer, as the
case may be. (1447a)

NOTES:

• There is no sale if price is not certain or ascertainable in money (currency) or its

equivalent (promissory notes, checks, and other mercantile instruments generally
accepted as representing money.)

if no specific amount has been agreed upon, the price is still considered
certain:
o if it be certain with reference to another thing certain (e.g. the price is the
tuition fee charged at the JRMSU College of Law for the first year, first semester of
the Juris Doctor degree);
o if the determination of the price is left to the judgment of a specified person
or persons; o in the cases provided for under Art. 1472, Civil Code. Article 1470.
Gross inadequacy of price does not affect a contract of sale, except as it may indicate
a defect in the consent, or that the parties really intended a donation or some other
act or contract.

Article 1471. If the price is simulated, the sale is void, but the act may be
shown to have been in reality a donation, or some other act or contract.

NOTES:

• Effect of Gross Inadequacy of Price in Voluntary Sales:

o General Rule: Mere inadequacy of the price or the alleged hardness of the
bargain does not affect the validity of the sale where both parties are in a position to
form an independent judgment concerning a transaction.
Example: If a member of the Subanen tribe sells his parcel of land for a
ridiculously low sum, admits the fact of sale, does nothing about it for a number of
years, he should not be allowed now to claim that the contract was invalid. The fact
that the bargain was a hard one is not important, the sale having been made freely
and voluntarily. (Askay v. Cosolan, 46 Phil. 179). The rule holds true even if the
price seems too inadequate as to shock the conscience of man. (Alarcon v. Kasilag,
40 O.G. Sup. No. 16, p. 203).

o EXCEPTION:
Where low price indicates defect in the consent, such as when fraud, mistake,
or undue influence is present, in which case the contract may be annulled not
because of the inadequacy of the price, but because the consent is vitiated (recall
lesson on vices of consent in your Obligations and Contracts)

• Example of Art. 1471:

o Sokka wants to transfer his parcel of land to Katara, his sister, but he wants
to minimize the payment of his taxes on the transfer (assume this is before the
effectivity of the train law, when the tax on donation was higher than the tax on sale
of land by an individual). Thus, instead of executing a deed of donation, Sokka,
cunning as he is, executes a deed of sale to Katara, for the amount of P1,000,000,
and then registered the sale. But in reality, Sokka had no intention to receive money
from Katara, as he just wanted to give the land to her. The price in this case is
therefore simulated (i.e. false). The legal effect is that the sale is void, but the
contract shall be valid as a donation.

Article 1472. The price of securities, grain, liquids, and other things shall
also be considered certain, when the price fixed is that which the thing sold
would have on a definite day, or in a particular exchange or market, or when an
amount is fixed above or below the price on such day, or in such exchange or
market, provided said amount be certain. (1448)

Article 1473. The fixing of the price can never be left to the discretion of
one of the contracting parties. However, if the price fixed by one of the parties is
accepted by the other, the sale is perfected. (1449a)

NOTE:

• Reason why price fixing cannot be left to the discretion of one of them: the other
could not have consented to the price, for he did not know what it was.

Article 1474. Where the price cannot be determined in accordance with the
preceding articles, or in any other manner, the contract is in efficacious.
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 price is a question of fact dependent on the circumstances of each
particular case. (n)

Article 1475. The contract of sale is perfected at the moment there is a meeting
of minds upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject
to the provisions of the law governing the form of contracts. (1450a)
NOTES:
• The contract of sale being consensual, it is perfected upon the meeting of the minds
of the parties, without the necessity of any other circumstances.
• But the ownership is not transferred until the delivery of the thing. (see Art. 1477)
• Requirements for perfection:
o (a) When parties are face to face, when an offer is accepted without
conditions and without qualifications. (A conditional acceptance is a counter-offer.)

NOTE:
If negotiated thru a phone, it is as if the parties are face to face.)
o (b) When contract is thru correspondence or thru telegram, there is
perfection when the offeror receives or has knowledge of the acceptance by
the offeree.

NOTE:

If the buyer has already accepted, but the seller does not know yet of the
acceptance, the seller may still withdraw. (Laudico v. Arias, 43 Phil. 270).]
o (c) When a sale is made subject to a suspensive condition, perfection is had
from the moment the condition is fulfilled.
• Advertisements are mere invitations to make an offer (Art. 1325, Civil Code) and,
therefore, one cannot compel the advertiser to sell.

Article 1476. In the case of a sale by auction:

(1) Where goods are put up for sale by auction in lots, each lot is the subject of a
separate contract of sale.

(2) A sale by auction is perfected when the auctioneer announces its perfection
by the fall of the hammer, or in other customary manner. Until such
announcement is made, any bidder may retract his bid; and the auctioneer may
withdraw the goods from the sale unless the auction has been announced to be
without reserve.

(3) A right to bid may be reserved expressly by or on behalf of the seller, unless
otherwise provided by law or by stipulation.

(4) Where notice has not been given that a sale by auction is 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 person to bid at such sale on his behalf or for the
auctioneer, to employ or induce any person to bid at such sale on behalf of the
seller or knowingly to take any bid from the seller or any person employed by
him. Any sale contravening this rule may be treated as fraudulent by the buyer.
(n)
Article 1477. The ownership of the thing sold shall be transferred to the vendee
upon the actual or constructive delivery thereof. (n)

Article 1478. The parties may stipulate that ownership in the thing shall not
pass to the purchaser until he has fully paid the price. (n)

NOTES:

• GENERAL RULE: It is only after delivery of the thing sold that the purchaser
acquires a real right or ownership over it. In other words, ownership of the thing sold
is transferred only upon delivery.

o EXCEPTION: Where the parties otherwise stipulate. (e.g. the parties may
stipulate that despite the delivery, the ownership of the thing shall remain with the
seller until the purchaser has fully paid the price.)

Article 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable. An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the promise or if the
promise is supported by a consideration distinct from the price. (1451a)

NOTES:
• A unilateral promise or offer to sell or to buy a thing which is not accepted creates
no judicial effect or legal bond. Such an unaccepted offer is called policitation.
• Option – a privilege existing in one person for which he has paid a consideration
which gives him the right to buy/sell, if he chooses, at any time within the agreed
period at a fixed price, or under, or in compliance with certain terms and conditions.
This is what is being referred to in the second paragraph of the above article.
• Effect of accepted unilateral promise (2ndparagraph):
o A unilateral promise to sell or to buy a determinate thing for a price certain
does not bind the promisor even if accepted and may be withdrawn at any time. It is
only if the promise is supported by a consideration distinct and separate from the
price that its acceptance will give rise to a perfected contract.

Article 1480. Any injury to or benefit from the thing sold, after the contract has
been perfected, from the moment of the perfection of the contract to the time of
delivery, shall be governed by articles 1163 to 1165, and 1262.

This rule shall apply to the sale of fungible things, made independently and for a
single price, or without consideration of their weight, number, or measure.
Should fungible things be sold for a price fixed according to weight, number, or
measure, the risk shall not be imputed to the vendee until they have been weighed,
counted, or measured and delivered, unless the latter has incurred in delay. (1452a)

NOTES:

• Rules on risk of loss or deterioration (for paragraph 1 and 2 of Art. 1480):

o If thing lost before perfection – seller bears the loss (res perit domino)
o If thing lost at the time of perfection – contract void; no object
o If thing lost after perfection but before delivery – buyer bears the loss
o If thing lost after delivery – buyer bears the loss

Article 1477. The ownership of the thing sold shall be transferred to the vendee
upon the actual or constructive delivery thereof.

Article 1478. The parties may stipulate that ownership in the thing shall not
pass to the purchaser until he has fully paid the price.

NOTES:

• GENERAL RULE: It is only after delivery of the thing sold that the purchaser
acquires a real right or ownership over it. In other words, ownership of the thing sold
is transferred only upon delivery.

o EXCEPTION: Where the parties otherwise stipulate. (e.g. the parties may stipulate
that despite the delivery, the ownership of the thing shall remain with the seller until
the purchaser has fully paid the price.)

Article 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable. An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the price. (1451a)

NOTES:

• A unilateral promise or offer to sell or to buy a thing which is not accepted creates
no judicial effect or legal bond. Such an unaccepted offer is called policitation.
• Option – a privilege existing in one person for which he has paid a consideration
which gives him the right to buy/sell, if he chooses, at any time within the agreed
period at a fixed price, or under, or in compliance with certain terms and conditions.
This is what is being referred to in the second paragraph of the above article.
• Effect of accepted unilateral promise (2nd paragraph):

o A unilateral promise to sell or to buy a determinate thing for a price certain

does not bind the promisor even if accepted and may be withdrawn at any time. It is
only if the promise is supported by a consideration distinct and separate from the
price that its acceptance will give rise to a perfected contract.

Article 1480. Any injury to or benefit from the thing sold, after the
contract has been perfected, from the moment of the perfection of the contract
to the time of delivery, shall be governed by articles 1163 to 1165, and 1262.
This rule shall apply to the sale of fungible things, made independently and for
a single price, or without consideration of their weight, number, or measure.
Should fungible things be sold for a price fixed according to weight, number, or
measure, the risk shall not be imputed to the vendee until they have been
weighed, counted, or measured and delivered, unless the latter has incurred in
delay. (1452a)
 NOTES:
• Rules on risk of loss or deterioration (for paragraph 1 and 2 of Art. 1480):
o If thing lost before perfection – seller bears the loss (res perit domino)
o If thing lost at the time of perfection – contract void; no object
o If thing lost after perfection but before delivery – buyer bears the loss
o If thing lost after delivery – buyer bears the loss

• Rule for paragraph 3:

o the risk shall not be imputed to the vendee until they have been weighed, counted, or
measured and delivered, unless the latter has incurred in delay. Par. 3 is an exception to
the rule that vendee bears the risk of loss after perfection but before delivery.

Article 1481. In the contract of sale of goods by description or by sample, the

contract may be rescinded if the bulk of the goods delivered do not correspond with
the description or the sample, and if the contract be by sample as well as description,
it is not sufficient that the bulk of goods correspond with the sample if they do not
also correspond with the description.

The buyer shall have a reasonable opportunity of comparing the bulk with the description
or the sample. (n)

NOTES:
• bulk of the goods – denotes the goods themselves, as distinguished from the sample
and/or description with which they must correspond
• Sale by description – occurs when a seller sells things as being of a particular kind, the
buyer not knowing whether the seller’s representations are true or false, but relying on
them as true
• Sale by sample – it must appear that the parties contracted solely with reference to the
sample, with the understanding that the bulk was like it
• In either case (description/sample), if the bulk of the goods do not correspond with the
description/sample, the contract may be rescinded
• Sale by sample and by description – the goods must satisfy BOTH the sample and
description.

Article 1482. Whenever earnest money is given in a contract of sale, it shall be

considered as part of the price and as proof of the perfection of the contract. (1454a)

NOTES:
• Earnest money is money given by the buyer to the seller to bind the bargain. It is a
partial payment and is considered proof of the perfection of the contract.

Earnest money Option money

• Part of the purchase price • Distinct consideration for the option contract
• Given only when there is already a sale • Applies to a sale not yet perfected
• When given, buyer bound to pay the balance
• Would-be buyer is not required to buy
*But option money may become earnest money if the parties so agree
Article 1483. Subject to the provisions of the Statute of Frauds and of any other
applicable statute, a contract of sale may be made in writing, or by word of mouth,
or partly in writing and partly by word of mouth, or may be inferred from the
conduct of the parties. (n)

NOTES:

• GENERAL RULE: Contract of sale may be entered into in any form, provided all the
essential requisites are present.
o EXCEPTION #1: If contract falls under Statute of Frauds (Recall discussion in
your Obligations and Contracts (See Art. 1403 par. 2)) – if not in writing, contract is
unenforceable
▪ Remember that Statute of Frauds applies only to executory contracts and not to
contracts which are totally or partially performed.
o EXCEPTION #2: For a sale of real property to be effective against third persons,
the sale must be registered in the Registry of Deeds of the province or city where the
property is situated. If not registered, sale is still valid as between the parties only. o
EXCEPTION #3: The sale of a piece of land or interest therein when made thru an
agent is void (not merely unenforceable) unless the agent’s authority is in writing. (Art.
1874, Civil Code). This is true even if the sale itself is in a public instrument, or even
registered.

Article 1484. In a contract of sale of personal property the price of which is

payable in installments, the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;

(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)

NOTES:
• This is the Recto Law, which covers on the sale of personal property payable in
installments
• These remedies are alternative and are not to be exercised cumulatively or
successively and the election of one is a waiver of the right to resort to the others.
• Right of vendor to recover unpaid balance of purchase price:
o Remedy of specific performance – the vendor may still recover from the
purchaser the unpaid balance of the price, if any on the real and personal
properties of the purchaser not exempt by law from attachment or execution o
Remedy of cancellation – if the vendor chooses rescission or cancellation of the
contract upon the vendee’s failure to pay two or more installments, the latter can
demand the return of payments already made unless there is a stipulation about
forfeiture.
o Remedy of foreclosure – if the vendor has chosen the third remedy of
foreclosure of the chattel mortgage, he shall have no further action against the
 vendee for the recovery of any unpaid balance of the price and any agreement to
the contrary is void. The foreclosure is effected by selling the mortgaged personal
property at public auction and applying the proceeds of the sale to the satisfaction
of the claim secured by the mortgage.

Article 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)

Article 1486. In the case referred to in the 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)

RELEVANT SPECIAL LAW IN CONNECTION WITH ART. 1486:

AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL ESTATE ON

INSTALLMENT PAYMENTS. (Rep. Act No. 6552 a.k.a. MACEDA LAW)

Section 1. This Act shall be known as the "Realty Installment Buyer Act."
Section 2. It is hereby declared a public policy to protect buyers of real estate on
installment payments against onerous and oppressive conditions.
Section 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding
industrial lots, commercial buildings and sales to tenants under Republic Act Numbered
Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three
hundred eighty-nine, where the buyer has paid at least two years of installments, the
buyer is entitled to the following rights in case he defaults in the payment of succeeding
installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace
period earned by him which is hereby fixed at the rate of one month grace period for
every one year of installment payments made: Provided, That this right shall be
exercised by the buyer only once in every five years of the life of the contract and its
extensions, if any.
(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender
value of the payments on the property equivalent to fifty per cent of the total payments
made, and, after five years of installments, an additional five per cent every year but
not to exceed ninety per cent of the total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty days from receipt by the buyer of
the notice of cancellation or the demand for rescission of the contract by a notarial act and
upon full payment of the cash surrender value to the buyer. Down payments, deposits or
options on the contract shall be included in the computation of the total number of
installment payments made.
Section 4. In case where less than two years of installments were paid, the seller shall
give the buyer a grace period of not less than sixty days from the date the installment
became due. If the buyer fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after thirty days from receipt by the buyer of the
notice of cancellation or the demand for rescission of the contract by a notarial act.
Section 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign
the same to another person or to reinstate the contract by updating the account during the
grace period and before actual cancellation of the contract. The deed of sale or assignment
shall be done by notarial act.
Section 6. The buyer shall have the right to pay in advance any installment or the full
unpaid balance of the purchase price any time without interest and to have such full
payment of the purchase price annotated in the certificate of title covering the property.

Section 7. Any stipulation in any contract hereafter entered into contrary to the provisions
of Sections 3, 4, 5 and 6, shall be null and void.

Section 8. If any provision of this Act is held invalid or unconstitutional, no other

provision shall be affected thereby.

Section 9. This Act shall take effect upon its approval.

Article 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)

Article 1488. The expropriation of property for public use is governed by special
laws. (1456)

NOTES:
• Expropriation is the exercise of the government of its power of eminent domain.
Essential to the exercise of this power is that the private property must be taken for a
public purpose, and there must be payment of just compensation.
 MODULE ACTIVITIES

I. Key terms. Define or give the meaning of the following:

1) Contract of sale;
2) Natural elements;
3) Sale by description;
4) Fungible goods; and
5) Conditional sale.
II. Discussion. Discuss the following:

1) Distinguish earnest money from option money.

2) What remedies are available to a vendor in sale of personal property payable in
installments? In each of the remedies discussed, is the vendor allowed to recover
the unpaid balance of the price?
3) Give the characteristics of a contract of sale. Explain at least three of them.
4) Under the Statute of Frauds, what contract of sale must be in writing to be
enforceable by court action?
5) Give at least three distinctions between a contract of sale and a contract of
agency.

III. Problems. Answer the questions that follow. Explain briefly the rule or reason for
your answer. A mere YES or NO answer is not allowed.
1) S sold to B certain goods. At the time of the sale, C is not the owner of the good.
May there be a valid sale to B?
2) Same example. The only problem now I that the goods sold have not yet been
identified at the time of the contract. May there be a valid sale to B?
3) The property sold by S is a portion of a parcel of land without indicating the
specific portion thereof. May there be a valid sale to B?
4) Same example. The only problem now is that S and B have not agreed upon a
definite price at the time of sale. May there be a valid contract of sale between
them?
5) Same example. The only problem in the case is that the price was fixed only by
S. Is the sale valid?

CHAPTER I - NATURE AND FORM OF THE CONTRACT

True of False

1. A contract of sale is a consensual contract, thus, is perfected by delivery.

2. A contract of sale is perfected by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract.
3. Sale by itself does not transfer or affect ownership; the most that sale does is to create
the obligation to transfer ownership
4. The perfection of a contract of sale should not, however, be confused with its
consummation. In relation to the acquisition and transfer of ownership, it should be noted
that sale is not a mode, but merely a title.
5. A contract to sell may not be considered as a contract of Sale because the second
essential element is lacking.
6. In contract to sell
7. The object of every contract must be determine as to its kind.
8. The fact that the quantity in contract of sale is not determinate shall not be an obstacle
to the existence of the contract, provided it is possible to determine the same without the
need of a new contract between the parties .
9. In general, the objects the why of the contract or the essential reason which moves the
contracting parties to enter into the contract.
10. For the cause to be valid, it must be lawful such that is not contrary to law, morals,
good customs, public order or public policy.

Multiple Choice

1. One of the contracting parties obligates himself to transfer the ownership of, and to
deliver, a determinate thing and the other to pay therefor a price
A. Barter
B. Sales
C. Partnership
D. Agency

2. S sold his only cat to B. Before delivery and payment, the cat gave birth to a kitten.
A. B should pay the fair market value of the kitten.
B. S is entitled to the fruit as he is the owner.
C. B is entitled to the kitten which was born after the perfection of the sale
D. S in entitled to the fruit because it was born before delivery

3. The essential elements of a contract of sale are, except :

A. Consent or meeting of the minds
B. Determinate subject matter
C. Written contract
D. Price certain in money its equivalent

4. The stages of a contract of sale are the following except;

A. Negotiation
B. Counter-offer
C. Perfection
D. Consummation

5. It is also sometimes called an “unacceptable offer”

A. Option
B. Earnest
C. Absolute
D. Conditional

6. It is not a sale of property but a sale of the right to purchase.

A. Option
B. Earnest
C. Absolute
D. Conditional

7. 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 fixed price within a certain time.
A. Option
B. Earnest
C. Absolute
D. Conditional

8. It constitutes an advance payment and must, therefore, be deducted from the total price
A. Option money
B. Initial Payment
C. Down Payment
D. Earnest money

9. Is given by the buyer to the seller to bind the bargain.

A.Option money
B. Initial Payment
C. Down Payment
D. Earnest money

10. It shall be considered as part of the price and as proof of the perfection of the contract.
A.Option money
B. Initial Payment
C. Down Payment
D. Earnest money
 CHAPTER 2
Capacity to Buy or Sell

Article 1489. All persons who are authorized in this Code to obligate themselves,
may enter into a contract of sale, saving the modifications contained in the following
articles. Where necessaries are those sold and delivered to a minor or other person
without capacity to act, he must pay a reasonable price therefor. Necessaries are
those referred to in article 290. (1457a)

NOTE:

• GENERAL RULE: All persons, whether natural or juridical, who can bind themselves
by contract have also legal capacity to buy and sell.

• EXCEPTIONS: If the law otherwise states that a party is incapacitated.

• Kinds of Incapacity: o Absolute – persons who cannot bind themselves (e.g. minor or
insane) o Relative – exists only with reference to certain persons or a certain class of
property (e.g. Art. 1490)
• Necessaries – things which are needed for sustenance, dwelling, clothing, and medical
attendance, in keeping with the financial capacity of the family of the incapacitated person
o Generally, contracts entered into by incapacitated persons are voidable. However,
where necessaries are sold to him, he must pay a reasonable price therefor. The contract is,
in such a case, valid.

Article 1490. The husband and the wife cannot sell property to each other, except: (1)
When a separation of property was agreed upon in the marriage settlements; or (2)
When there has been a judicial separation of property under article 191. (1458a)

NOTES:

• A sale between a husband and wife is generally VOID AB INITIO, except in

paragraphs (1) and (2) above.

Article 1491. The following persons cannot acquire by purchase, even at a public
or judicial auction, either in person or through the mediation of another:
(1) The guardian, the property of the person or persons who may be under his
guardianship;

(2) Agents, the property whose administration or sale may have been intrusted to them,
unless the consent of the principal has been given;

(3) Executors and administrators, the property of the estate under administration;

(4) Public officers and employees, the property of the State or of any subdivision
thereof, or of any government-owned or controlled corporation, or institution, the
administration of which has been intrusted to them; this provision shall apply to judges
and government experts who, in any manner whatsoever, take part in the sale;
 (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and
other officers and employees connected with the administration of justice, the property
and rights in litigation or levied upon an execution before the court within whose
jurisdiction or territory they exercise their respective functions; this prohibition includes
the act of acquiring by assignment and shall apply to lawyers, with respect to the property
and rights which may be the object of any litigation in which they may take part by virtue
of their profession;

(6) Any others specially disqualified by law. (1459a)

NOTE: • Status of sale in violation of this article: VOIDABLE only. Can be ratified.

Article 1492. The prohibitions in the two preceding articles are applicable to sales
in legal redemption, compromises and renunciations. (n)

MODULE ACTIVITIES

I. Key Terms. Define or give the meaning of the following:

1. Necessaries;
2. Compromise
II. Discussions. Discuss the following:
1. Are husband and wife allowed to sell property to each other?
2. Under the law, who may enter into a contract of sale?

III. Problems. Answer the questions that follow. A mere YES or NO answer is not
allowed.

1. B, a minor, bought a pair of imported shoes worth P3,000 from a department store.
Can F, father, cancel the sale on the ground of the minority of B?
2. H and W are husband and wife. After selling his property to W, H borrowed a big
amount of money from C. It appears that H is now bankrupt. Has C the right to question
the sale of H’s property to W in order to have said property answer for H’s indebtedness
to him?
 CHAPTER 3
Effects of the Contract
When the Thing Sold Has Been Lost

Article 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)

NOTES:
• Effect of loss of thing at the time of sale (perfection): o Thing entirely lost – contract is
inexistent and void, there being no object
o Thing partially lost – vendee may elect between:
▪ withdrawing from the contract; or
▪ demanding the remaining part, paying its proportionate price.
• Compare this article with Art. 1480 (previously discussed).
• A thing is considered lost when it perishes or goes out of commerce or disappears in
such a way that its existence is unknown or it cannot be recovered.

Article 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)

NOTES:

• While Art. 1493 applies to specific things, this article (1494) deals with specific goods.
Specific goods are goods identified and agreed upon at the time a contract of sale is made.
• Paragraph 2 above applies only if the sale is divisible, that is, its consideration is made
up of several parts. If it is indivisible, apply the rule in Art. 1493, par. 2.

MODULE ACTIVITIES

I. Key Terms. Define or give the meaning of the following:

1. Specific goods; and
2. Divisible contract.

II. Discussions. Discuss the following:

1. When is a thing sold considered lost?
2. Give the effect in case the thing sold is a. Lost totally; and b. Lost partially.
III. Problems. Explain or state briefly the rule or reason for your answer. A mere YES or
NO answer is not allowed.
1. S sold to B 100 bags of sugar at P70.00 per bag for a total price of P70,000. S
was able to deliver only 98 bags because the two (2) bags were stolen without the
fault of S. Has S the right to insist that B pay for the 98 bags since there was no
fault in his part and only two (2) bags are lacking? What rights, if any, are given
by law to B?
2. Same example. The price was fixed at P70,000 for the whole lot, irrespective of
the number of bags which happens to be also 100 bags. Will your answer be the
same? Why or why not?