CIVIL LAW REVIEW II (REFRESHER)

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TITLE VI – SALES

Chapter 1
NATURE AND FORM OF THE CONTRACT
ARTICLE 1458 to 1488

CONTRACT OF SALE – 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
certain money or its equivalent. A contract of sale may be absolute or conditional. (ART.
1458, CC)

CONTRACT OF SALE vs. CONTRACT TO SELL

1. Contract of sale (absolute) – not subject to condition. Ownership is transferred upon
constructive or actual delivery.
• real obligation – obligation to give
Remedies available:
a. specific performance
b. rescission
c. damages

2. Contract to sell (conditional) - subject to contingency. Ownership is reserved to the

vendor until fulfillment of a suspensive condition or extinguished upon the happening
of a resolutory condition.
• personal obligation – obligation to do
Remedies available:
a. resolution
b. damages

ESSENTIAL REQUISITES OF A CONTRACT OF SALE

1. consent or meeting of minds (ART.1475)
2. object or subject matter – must be licit and determinate (ART.1459, 1460, 1459, 1462,
1349)
3. cause or consideration - price (ART.1458, 1469, 1470,1471, 1472, 1473)

CHARACTERISTICS OF CONTRACT OF SALE:

1. Consensual – meeting of minds makes a perfect contract of sale but needs delivery
to consummate
2. Bilateral/Reciprocal - imposes obligation on both parties
a. obligation of seller – transfer ownership & deliver
b. obligation of buyer – pay for price
Consequence: power to rescind is implied in bilateral contracts
3. Principal - can stand on its own; its existence & validity does not depend upon another
contract
4. Onerous – with valuable consideration
5. Commutative – equal value is exchanged for equal value
• Test: subjective – as long as parties in all honesty that he is receiving equal value
then it complies with test & would not be deemed a donation; but must not be
absurd.
• Inadequacy of price or aleatory character not sufficient ground to cancel contract
of sale; inadequacy can show vitiation of consent & sale may be annulled based
on vice but not on inadequacy
6. Nominate - given a special name & designation

STAGES IN LIFE OF CONTRACT OF SALE:

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1. negotiation
2. perfection – by mere consent; performance may be demanded (specific performance)
3. consummation

SUBJECT MATTER OF SALE

UNDER ART.1459, 1460, 1461, 1462 correlated to 1349

TO BE A VALID & BINDING SUBJECT MATTER, THE FOLLOWING MUST CONCUR:

1. Licit
2. Determinate or determinable
3. Existing, Future & Contingent

ART. 1459: LICIT & VENDOR MUST HAVE A RIGHT TO TRANSFER

SUBJECT MATTER

1. LICIT – must be within the commerce of men, it is VOID if the SUBJECT MATTER:
a. Contrary to law
b. Simulated/fictitious
c. Did not exist at a time of transaction
d. Outside commerce of men
e. Impossible service
f. Intention cannot be ascertained
g. By express provision of law

NOTE: SELLER MUST BE OWNER – only at a time of consummation since tradition

transfers ownership but to have a perfected contract of sale, Vendor need not be
owner of thing; can be validated/ratified by subsequent acquisition of title by seller

ART. 1460: DETERMINATE & DETERMINABLE

• Absence: VOID;
• There is subject matter but Intention regarding subject matter cannot be
ascertained – VOID

Kinds of subject matter:

1. Specific - Determinate
• Particularly designated or segregated from all others of the same class
2. Generic - Determinable
• 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
parties
• Exact quantity not essential
• Sale of generic things – VALID; still executory
• There can only be contract of sale when subject is finally chosen for delivery
– already segregated or designated; but before designation, valid K of sale
already exists

ART. 1461, 1462: EXISTING, FUTURE, CONTINGENT

Refers to subject matter that are existing & not existing but capable of existence
1. if this is present, status of contract: VALID
2. if absent: NO CONTRACT SITUATION, THEREFORE NO CAUSE OF ACTION
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3. if vain hope or expectancy: VOID

DISTINGUISH SALE EMPTIO RES SPERATAE FROM EMPTIO SPEI

a. SALE OF THINGS HAVING POTENTIAL EXISTENCE (Emptio Rei Speratae)

• Sale of future things; no physical existence yet
• A resolutory condition that thing will come into existence
• Non happening of condition: RESULUTORY: EXTINGUISH THE CONTRACT
• Remedy: can recover what has been paid

b. SALE OF MERE HOPE OR EXPECTANCY (Emptio Spei)

• Every sale of future thing is subject to condition that they will come into
existence
• If hope does not come true – NO RECOVERY OF PAYMENT/NO
RESCISSION
• Aleatory character but valid

ART. 1462: DISTINGUISH SALE OF EXISTING GOODS FROM FUTURE GOODS

EXISTING GOODS – goods owned or possessed by the seller

FUTURE GOODS – goods to be manufactured, raised, or acquired by the seller

• the seller assumes the risk of acquiring the title (to the future goods) & making
the conveyance, or responding in damages for the buyer’s loss of his bargain

NOTE:
1. ART. 1462 does not apply if the goods are to be manufactured ESPECIALLY
for the buyer because it is considered as a contract for a piece of work and
not of sale.
2. Sale of future goods is valid only as an executory contract to be fulfilled by
the acquisition & delivery of goods specified.

ART. 1463 and 1464: SALE OF UNDIVIDED INTEREST OR SHARE

a. Sole owner may sell an undivided interest. (Art. 1463) - Legal effect of the sale of an
undivided interest in a thing is to make the buyer a co-owner in the thing sold

Ex. A fraction or percentage of such property

b. Sale of an undivided share in a specific mass of fungible goods makes the buyer a
co-owner of the entire mass in proportion to the amount he bought. (Art. 1464)

ART. 1465. Things subject to a resolutory condition may be the object of the contract of
sale.

NOTE: Resolutory condition – an uncertain event upon the happening of which the
obligation (or right) subject to it is extinguished.

DISTINGUISHED FROM OTHER CONTRACTS:

1. Agency to sell (ART. 1466)

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• in sale, buyer pays for price of object; in agency to sell, agent not obliged to pay
for price, merely obliged to deliver price received from buyer.
• in sale, buyer becomes owner of thing; in agency; principal remains owner even if
object delivered to him
• in sale, seller warrants; in agency, agent assumes no risk/liability as long as within
authority given
• in sale, not unilaterally revocable; in agency, may be revoked unilaterally because
fiduciary & even without ground
• in sale, seller receives profit; in agency, agent not allowed to profit
• TEST: essential clauses of whole instrument (ART. 1466)
• Agency is a personal contract; sale is real contract (to give) – rescission not
available in agency
• By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, w/ the consent or authority of
the latter. (ART.1868)

2. Contract for piece of work: test in article 1467:

a. contract for delivery of an article which the vendor in the ordinary course of
business manufactures or procures for general market (whether on hand or
not) – sale
b. goods are to be manufactured specially for a customer and upon special order
and not for the general market – contract for piece of work.
• Essence of why parties enter into it:
a. essence is object – contract of sale
b. essence is service – contract for piece of work

3. Barter (ART. 1468)

• in barter, the consideration is the giving consist partly in money and partly a thing;
in sale, it is giving of money as payment
• both are governed by law on sales; both are species of the genus sales
• if consideration consists party in money & partly by thing – look at manifest
intention; if intention is not clear (1468 ):
a. value of thing is equal or less than amount of money – sale
b. value of thing is more than amount of money – barter

4. Dacion en pago
• dacion: contract where property is alienated to satisfy/extinguish obligation to pay
debt
• in dacion: novates creditor-debtor relationship into seller-buyer
• in dacion: delivery is required (real contract)

5. Lease
• in sale: obligation to absolutely transfer ownership of thing; in lease: use of thing
is for specified period only with obligation to return
• in sale: consideration is price; in lease: consideration is rent
• in sale: seller needs to be owner of thing to transfer ownership; in lease: lessor
need not be owner
• lease with option to by: really a contract of sale but designated as lease in name
only; it is a safe by installments

6. Donation
• donation is gratuitous; sale is onerous
• donation is formal contract; sale is consensual
7. donation is governed by law on donation; sale is governed by law on sales
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CAUSE OR CONSIDERATION – PRICE

UNDER ART.1458, 1469, 1470,1471, 1472, 1473, 1474
– signifies the sum stipulated as equivalent of the thing sold

CHARACTERISTICS OF VALID PRICE

1. Must be real
2. Must be in money or its equivalent
3. Must be certain or ascertainable at the time of the perfection of the contract
4. Manner of payment provided for

REAL
1. When price stated is one intended by parties
• If fictitious: no intention with respect to price - VOID
• If False/simulated: what appears in contract is not the true price
a. VALID if there is true consideration
b. VOID but if none (because it is fictitious)
2. Valuable
• When not valuable – VOID
• When contract is onerous, presumed to have valuable consideration
• Nominal consideration w/c is common law concept does not apply (P1.00)
• Gross inadequacy of price in ordinary sale does not render contract void unless it
is shocking to conscience of man.
Except:
a. Judicial sale
• Shocking to conscience of man
• Higher price can be obtained at re-sale
b. Rescissible contracts due to lesion
c. Sales with right to repurchase (raises presumption of equitable mortgage) –
Remedy is reformation

PRICE : CERTAIN OR ASCERTAINABLE

ART. 1469. The price is certain if:

a. The parties have fixed or agreed upon a definite amount
b. It be certain w/ reference to another thing certain (relate to 1472)
c. The determination of the price is left to the judgment of a specified person/s *(b)
and (c) apply only in absence of (a).

General rule: Price fixed by a 3rd person is binding upon the parties

Exceptions:
1. When the 3rd person acts in badfaith or by mistake. In such a case, the
courts may fix the price;
2. When the 3rd person disregards specific instructions or procedure or data
given him;
3. When the 3rd person refuses or cannot fix it. If this happens, the contract
is void unless the parties subsequently agree upon the price;
4. When the 3rd person is prevented from fixing the price either by the seller
or the buyer. In this case, innocent party may choose between rescission
and fulfillment, with damages in either case. (De Leon)
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ART. 1470. Gross inadequacy of price does not affect a contract of sale, except as it
may indicate a defect in the consent, or that the parties really intended a donation, or
some other act or contract.

ART. 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.

NOTE: Simulation – occurs when an apparent contract is a declaration of a fictitious

will deliberately made by agreement of the parties, in order to produce, for
the purpose of deception, the appearance of a juridical act which does not
exist or is different from that which was really executed.

ART. 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.

ART. 1474. Where the price cannot be determined in accordance with the preceding arts,
or in any other manner, 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 price is a question of fact dependent on the
circumstances of each particular case.

NOTE: Reasonable price is generally (but not necessarily) market price at the time and
place fixed by the contract or by law for the delivery of goods.

ART 1475, 1476: PERFECTION: OFFER & ACCEPTANCE

• Sale is a consensual contract, perfected by meeting of minds regarding subject matter
& price
• Meeting of Minds:
1. Offer – certain
2. Acceptance – absolute
• Qualified acceptance – merely a counter-offer which needs to be absolutely accepted
to give rise to perfected contract of sale
• Acceptance by letter/telegram – binds only at time it came to knowledge of SELLER;
prior thereto – offer may still be withdrawn
• Must be exact terms to be considered absolute
• When deviations allowed:
a. anything that refers to price is material
b. small items are insignificant, does not make acceptable unconditional
• when sale is subject to suspensive condition, no perfected contract of sale yet;
becomes perfected only upon happening of condition
• In sales at auction, perfected when auctioneer announces its perfection by the fall of
the hammer or in other customary manner may impose terms under bidder may retract
his bid; owner of property sold at auction may impose terms under w/c the auction will
proceed & it shall be binding w/n the bidders are aware
• Place of perfection: where the meeting of minds happen; when acceptance sent by
mail, perfection is deemed where the offer is made
• Performance has nothing to do with perfection stage

ART. 1477, 1478: DELIVERY OF THE THING

• Different kinds of delivery:

1. Actual - when thing sold is placed in the control & possession of the buyer
2. Constructive
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DIFFERENT FORMS OF CONSTRUCTIVE DELIVERY:

1. Traditio Longa Manu
• Delivery of thing by mere agreement; when SELLER points to the property without
need of actually delivering
2. Traditio Brevi Manu
• Before contract of sale, the would be buyer was already in possession of the would
be subject matter of sale (ex: as lessee)
3. Symbolic delivery
• As to movables – ex: delivery of the keys to a car
4. Constitutum possessarium
at the time of perfection of contract, seller continues to hols possession merely as
a holder

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

ART. 1479.

Policitacion - a unilateral promise of offer to sell or to buy a thing w/c is not accepted
creates no juridical effect or legal bond. Policitacion

Option – a contractual privilege existing in one person for which he has paid a
consideration which gives him the right to buy/sell from/to another person, if he chooses,
at any time within the agreed period at a fixed price, or under, or in compliance with certain
terms & conditions.

3 STAGES IN LIFE OF A CONTRACT OF SALE

1. Policitacion/negotiation Stage – offer is floated, acceptance is floated but they do not
meet; time parties indicate their interest but no concurrence of offer & acceptance
2. Perfection – concurrence of all requisites; meeting of the minds
3. Consummation – parties perform their respective undertakings

Nature of Option Contract:

1. Preparatory contract separate & distinct from the main/principal contract.
2. Gives one party to the right to decide whether or not to enter into principal contract,
while it binds the other: a) not to enter into the principal contract w/ any other person
during the agreed time; & b) to enter into the principal contract w/ the party to whom the
option was granted if the latter should decide to use the option w/in the agreed period.
3. It imposes no binding obligation on the person holding the option aside from the
consideration for the offer.
4. Must be supported by a consideration distinct from the price (in order to bind the
promissor the obligation stated in No.2), else it is void. (read: Atkins v Cua Hian Tek,
Sanchez v Rigos, Sps. Trinidad v IAC)
5. Consideration need not be money or actual cash. It must be something of value though.
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Option Contract Right of 1st Refusal

rd
Promissor cannot sell the prop to a 3 person UNLESS the Promissor cannot sell the prop to a 3rd person UNLESS he
period agreed upon the option contract expires allows the promisee to exercise his right of 1st refusal, i.e.
giving the promisee a similar offer, allowing the latter to
choose whether or not to accept such offer
Promisee may compel promissor to enter into principal Promisee cannot compel promissor to enter into principal
contract if he decides to exercise the option w/in the contract since right of 1st refusal arises only when promissor
agreed period decides to sell
If promisee elects to buy, the price of the object of sale is If promisee elects to buy, the price is subject to negotiations
FIXED
The consideration is DISTINCT from the purchase price Usually found in contracts of lease, the consideration is
INTEGRAL in the contract
Sale to a 3rd person in violation of Option: Sale to a 3rd person in violation of Right of 1st Refusal is
a. is Valid IF 3rd person is in GF. Buyer may only hold RESCISSIBLE
seller liable for damages;
b. is Rescissible (by original buyer) if 3rd person is in BF

ART. 1480.

• Nature of diligence required: diligence of good father of family unless other

requirement is stipulated
• Both parties must comply with their obligation
• Consequence: Seller will guilty of breach if thing is lost through his fault

Who bears the loss:

1. Before perfection – seller (in accordance w/ res perit domino)
2. At the time of perfection – contract is void & inexistent, therefore seller (1493)
3. After perfection, before delivery – if basis is 1480, buyer, regardless of ownership has
been transferred. But if 1504, seller, if ownership is yet to be transferred. If ownership
has been transferred, buyer.
4. After delivery – buyer

ART. 1482: EARNEST MONEY

1. money given as part of purchase price
2. its acceptance is proof that contract of sale exists
• nothing in law prevents parties from treating earnest money differently
• old concept: subject to forfeiture when BUYER backs out
• new concept: cannot be forfeited – part of purchase price; must be restored
• qualification: if old concept is stipulated – VALID
• presumption of perfection of contract of sale and such earnest money as art of
purchase price is disputable

ART. 1483: FORM OF SALES

Form not important in validity of sale

a. Sale being consensual, may be oral or written, perfected by mere consent as to
price & subject matter
b. If particular form is required under the statute of frauds:
• valid & binding between parties
• not binding to 3rd persons only
c. Reason: purposes of convenience only & not for validity & enforceability; cause of
action is granted to sue & compel other party to execute the document
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ART. 1484: REMEDIES OF UNPAID SELLER

1. Exact fulfillment should the buyer fail to pay
2. Cancel the sale if buyer fails to pay 2 or more installments
3. Foreclose on chattel mortgage if buyer fails to pay 2 or more installments
• If buyer chooses foreclosure, no further action against buyer to recover any unpaid
balance of the price
• When is law is applicable: Sale on movables by installment
• Sale on installment: payment by several partial payments in small amount
• Rationale of the law: Buyer is lulled into thinking that he could afford because of
small amounts per installment & at the same time remedy abuse of commercial
houses
• Nature of remedies: alternative & not cumulative
• Coverage: sale & financing transaction & contracts of lease with option to purchase
• Action : Judicial & Extrajudicial

SPECIFIC PERFORMANCE
• If already chose specific performance, cannot anymore choose other remedies
Except: after choosing, it has become impossible, rescission may be pursued

CHAPTER 2
CAPACITY TO BUY OR SELL
ART. 1489 to 1492

ART. 1489: GENERAL RULE: All parties with capacity to contract can enter into a valid
contract of sale
1. Natural
2. Judicial - corporation/partnership/associations/Cooperatives
• Status of contract valid
• Remedies available therefore are:
a. specific performance
b. rescission
c. damages

EXCEPTION TO GENERAL RULE:

1. Minors
• status of contract: voidable only, therefor ratifiable
• remedy is action for annulment (with partial restitution in so far as the minor is
benefited)
2. ART. 1490: SALE BY & BETWEEN SPOUSES
a. Contract with 3rd parties
• status of contract is valid
b. Sale between spouses
• Status not provided for by law but VOID according to case law

Reason:
a.a. prevent defraudation of creditors
b.b. avoid situation where dominant spouse take advantage of
others
c.c. avoid circumvention on prohibition of donation between
spouses

Exception:
a.a. separation of property agreed (marriage settlement)
b.b. judicial separation of property
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c. Common Law Spouses

• Status of contract: VOID (per case law)
• Rationale: evil sought to be avoided is present

3. ART. 1491: OTHERS PER SPECIFIC PROVISIONS OF LAW

a. Guardian with regards to property of ward during period of guardianship
b. Agent with regards to property of principal
c. Executor/administrator with regards to the estate of the deceased
d. Public officers with regards to the property of the estate
e. Officer of court & employee – with regards to property in litigation

LEGAL STATUS OF CONTRACT:

1. VOID (PER CASE LAW) – guardian/ executor/public officers / officers of the court
2. VOIDABLE (PER CIVIL CODE) – agent; and if with consent, VALID

TWO GROUPS OF PROHIBITED PARTIES FROM ENGAGING IN CONTRACT OF SALE:

1. Guardian / Agent / Executors – ratifiable in the sense that only private wrong is involved
2. Public Officials / Officers of Court – not ratifiable in the sense that public wrong is
concerned

GUARDIAN/AGENT/ADMINISTRATOR
1. Legal status of contract: VOID (case law)
2. Direct or indirect
3. If mediator – no need to prove collusion; inutile
4. Even if court approved sale
5. Reason: fiduciary relationship is based on trust

ATTORNEYS
REQUISITES:
1. Lawyer-client relationship exists
2. Subject matter – property in litigation (all types)
3. Duration – while in litigation (from filing of complaint to final judgment); may be future
litigation
• Reason: due to public policy; ground for mal practice
a. Client is at the mercy of the lawyer
b. Law is a noble profession
c. 2 Masters – 2 interest; one cannot serve 2 masters at the same time
• Exception: CONTINGENT FEE ARRANGEMENT
a. Amount of legal fees is based on a value of property
b. Property itself is involved

CHAPTER 3
EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN LOST
UNDER ART. 1493 to 1494

WHO BEARS RISK OF LOSS/DETERIORATION/FRUITS

1. Before perfection
• Res perit domino
• Owner is seller so seller bears risk of loss
2. At Perfection
• Res perit domino
• Contract is merely inefficacious because loss of the subject matter does not affect
the validity of the sale
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• Seller cannot anymore comply with obligation so buyer cannot anymore be

compelled
3. After Perfection but before delivery
a. Loss – confused state
2 views:
Paras: BUYER
Tolentino: SELLER
b. Deterioration & fruits - Buyer bears loss
4. After delivery
• Res perit domino
• Owner is buyer so buyer bears risk of loss
Delivery extinguish ownership vis-a-vis the seller & creates a new one in favor of the
buyer