Chapter1 – Nature and Form of the Contract Articles 1458 to

1488
 Elements of the Contract of Sale ENA
Article 1458. Sale Defined 1) Essential elements – those without which there can be
no valid sale
 Sale is a CONTRACT where one party obligates himself to transfer 1) Consent or meeting of the minds
ownership of and to deliver a determinate thing, while the other 2) Determinate subject matter
party obligates himself to pay for said thing a price certain in 3) Price certain in money or its equivalent
money or its equivalent.
2) Natural elements – those which are inherent in the
contract, and which in the absence of any contrary
Vendor/Seller Vendee/Buyer provision, are deemed to exist in the contract
→ To transfer → To pay price certain in 1) Warranty against eviction – deprivation of
ownership(fundamental money or its equivalent property brought
aim of the contract of 2) Warranty against hidden defects
sale); and
3) Accidental elements – those that may be present or
→ To deliver a determinate absent in the stipulation, such as the place or time of
thing payment, or the presence of conditions

 Essential Characteristics of the Contract of Sale COP-CBN  Stages in the Contract of Sale NPC
1) Generation or Negotiation
2) Perfection – meeting of the minds
C Consensual Perfected by mere consent 3) Consummation – when the object is delivered and the
O Onerous To acquire the rights, valuable price is paid
consideration must be given
P Principal For the contract of sale to validly exist,  People’s Homesite v. Court of Appeals, L-61623, Dec. 26, 1984
there is no necessity for it to demand upon If subdivision lot is sold to a buyer on condition that the higher
the existence of another valid contract. authorities would approve the same, there is as yet NO perfected
C Commutative The values exchanged are almost sale.
equivalent to each other
B Bilateral Both parties are bound by obligations  Sps. VivicencioBabasa and Elena Cantos Babasa v. CA, et.al. GR
reciprocal dependent upon each other 124045, May 21, 1993
N Nominate Code refers to it by a special designation or A deed of sale is ABSOLUTE in nature although a “conditional
name sale” absent such stipulation. In such cases, ownership of the
thing sold passes to the vendee upon the constructive or actual
delivery thereof.

 Heirs of RomanaIngjutiro, et. al. v. Sps Leon Casals and Lilia C.

Casals, et. al GR 134718, Aug. 20, 2001
 It is essential that the vendors be the owners of the property seller to deliver and
sold, otherwise they cannot dispose that which does not belong to transfer ownership
to them.Nemodat quod non habet (No one can give more than never became
what he has) effective and binding
Ownershi 2. Title over generally 2. Ownership is retained
 Sale Distinguished from Dation in Payment p passes to the buyer by the seller,
upon delivery regardless of delivery
and is not to pass
Sale Dation in Payment until full payment of
1. There is NO pre-existing 1. There is a pre-existing the price.
credit credit Effect of 3. After delivery has 3. Despite delivery, the
2. Gives rise to obligation 2. Extinguishes obligation delivery been made, the seller is enforcing and
3. The cause or consideration 3. The cause or consideration seller has lost not rescinding the
here is the PRICE, from here, from the viewpoint of ownership and contract if he seeks to
the viewpoint of the seller, the person offering he cannot recover oust the buyer for
or the obtaining of the dation in payment, is the unless the contract is failure to pay , since
OBJECT, from the extinguishment of his debt; resolved or rescinded he retains the
viewpoint of the buyer. from the viewpoint of the ownership.
creditor, it is the acquisition
of the object offered in lieu  “Sale” Distinguished from “Assignment of Property in Favor of
of the original credit Creditors (Cession)”
4. There is greater freedom 4. There is less freedom in
in the determination of the determining the price Art. 1255 of the Civil Code provides the concept of cession that
price. “debtor may cede or assign his property to pay his creditors in
5. The giving of the price 5. The giving of the object in payment of hide debts. This cession, unless there is a stipulation
may generally end the lieu of the credit may to the contrary, shall only release the debtor from responsibility
obligation of the buyer extinguish completely or of the net proceeds of the thing assigned. The agreements
partially the credit which, on the effect of cession, are made between the debtor
and his creditors shall be governed by special laws.”

 “Contract of Sale” Distinguished from “Contract to Sell” Manresa Definition: “consists in the abandonment of all the
property of the debtor for the benefit of his creditors in order that
the latter may apply the proceeds thereof to the satisfaction of
Contract of Sale Contract to Sell heir credits.
Non- 1. Non-payment of 1. The payment of the
payment price is a resolutory price is a positive
of price condition; contract of suspensive condition. Dation in Payment Cession
sale put an end to a Hence, if the price is 1. One creditor is sufficient 1. There must be 2 or more
transaction that once not paid, it is as if the creditors
upon a time existed obligation of the 2. Not all properties of the 2. All the debtor’s properties
 debtor are conveyed are conveyed c) If the object of the sale is illicit, the contract is null and
3. Debtor may be solvent or 3. Cession takes place only if void. (Art. 1409), and cannot, therefore, be ratified.
insolvent the debtor is insolvent d) The right of redemption may be sold. So also may
4. The creditor becomes the 4. The creditors do not literary, artistic, and scientific works. A usufruct may also
owner of the thing become owners of the thing be sold.
conveyed conveyed.
 Artates and Pojas v. Urbi, et. al. L-29421, January 30, 1971
 Sale Distinguished from Lease Under Section 118 of the Public Land Act (Com. Act 141), such
In a sale, the seller transfers ownership; in a lease, the lessor or homestead generally cannot be sold, cannot be encumbered and
landlord transfers merely the temporary possession and use of cannot be held liable for the satisfaction of any debt
the property. CONTRACTED prior to the expiration of the period of 5 years
from and after the date of the issuance of the patent or grant.
 Kinds of Extrajudicial Foreclosure Sale The sale, therefore of a homestead patent which was made less
1) Ordinary execution sale – governed by the pertinent than 4 years after the acquisition of the couple of the land is NOT
provisions of Rule 39 of the Rules of Court VALID.
2) Judicial foreclosure sale – governed by the pertinent
provisions of Rule 68 of the Rules of Court
3) Extrajudicial foreclosure sale – governed by Act 3135,  Transfer of ownership
amended by Act 4118, “An Act to Regulate the Sale of a) It is essential for a seller to transfer ownership (Art.
Property Under Special Powers Inserted In or Annexed to 1458) and, therefore, the seller must be the owner of the
Real Estate Mortgages.” subject sold. (Nobody can dispose of that which does not
belong to him – nemodat quad non habet)
b) Although the seller must be the owner, he need not be
the owner at the time that he is the owner at the time of
Article 1459. Lawfulness of the Object and Right to Transfer Ownership the perfection of the contract. It is sufficient that he is he
owner at the time the object is delivered.
c) The seller need not be the owner at the time of
The thing must be licit and the vendor must have a right to transfer the perfection because, after all, “future things or goods,”
ownership thereof at the time it is delivered. inter alia, may be sold.
→ There can be a sale of future property, there can
 2 rules: generally be no donation of future property. (Aer.
a) The object must be LICIT 751, CC)
b) The vendor must have the RIGHT to transfer OWNERSHIP d) A person who has a right over a thing (although he is not
at the time the object is delivered the owner of the thing itself) may sell such right. Hence,
a usufructuary may generally sell his usufructuary right.
 Licit object
a) Word licit means lawful, i.e., within the commerce of man  Santos v. Macapinlac and Pinlac, 51 Phil. 224
b) Things may be illicit: FACTS: A mortgaged his land to B, but sold the land to C. give
1) Per se (of its nature) the effect of the transaction.
2) Per accidens (made illegal by provision of the law)
 HELD: A, being the owner, could sell the property to C who after
delivery became the owner, subject to B’s right to foreclose the
mortgage upon non-payment of the mortgage credit. B does not
have to give C anything, even if the mortgage is foreclosed, for
the simple reason that B did not sell the property to him. Neither
did B receive the purchase price.
Note: B has no right to nullify the contract between A and C
provided that C is in good faith.
 Lichauco v. Olegario and Olegario, 43 Phil. 540
FACTS: A owed B, and was declared a judgment debtor. To pay
the debt, A’s properties were attached. At the auction sale, B was
the highest bidder. Now then, under the law, the debtor, A, has
the right to redeem the property sold within a certain period. A,
however, sold his right of redemption to C. B now seeks a court
declaration to the effect that the sale of the right of redemption
to C be considered fraudulent and void.
HELD: The sale of the right of redemption to C is perfectly valid,
since A, the seller, was the owner of the right.
Note: B has no right to question the sale of the right of
redemption of A to C, unless what was sold was the property.
 UyPiaco v. Micking, et. al., 10 Phil. 286
FACTS: A corporate stockholder sold his share to another, but the
sale has not yet been recorded in the books of the corporation. Is
the sale valid?
HELD: As between the seller and the buyer, the sale is perfectly
valid since the seller was the owner of the corporate shares.
However, as between the corporation and the buyer, the latter
has acquired only an EQUITABLE TITLE which may eventually
ripen into a legal title after he presents himself to the corporation
and performs the acts required to effectuate the transfer.
 Martin v. Reyes, et. al, 91 Phil. 666
HELD: The vendor need not own the property at the time of
perfection, it is being sufficient that he be the owner at the time
he is to deliver the object. The contention that there is no sale is
rather too technical a viewpoint. The deed of sale may be placed
in the same category as a promise to convey the land not yet
owned by the vendor – an obligation which nevertheless may be
enforced.
Article 1460. Meaning of Determinate
A thing is determinate when it is particularly designated or physically
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.
 Meaning of determinate:
a) The object of the sale must be determinate, i.e., specific,
but it is not essential really that at the time of perfection,
the object be already specific. It is sufficient that it ne
capable of being determinate without the need of any
new agreement
b) However, from the viewpoint of risk or loss, not until the
object has really been made determinate can we say that
the object has been lost, for as is well known, “generic
things cannot be lost.”
 Yu Tek v. Gonzales, 29 Phil. 384
FACTS: Seller sold 600 piculs of sugar to buyer. Because seller
was not able to produce 600 piculs on his sugar plantation he
was not able to deliver. Is he liable?
HELD: Yes, because no specific lot of sugar can be pointed out
as having been lost. Sugar here was still generic.
Note: Understood correctly, however, there can sometimes be
 the sale of a generic thing but the obligations till specific
designation is made naturally different.
Article 1461. Things with Potential Existence
Things having 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.
 Sale of a “mere hope or expectancy”
The hope or expectancy already exists; what does not yet exist is
the expected thing. Therefore, for the 2nd paragraph to have
some sense, it should refer to a sale of “an expected thing,” not
to the “hope or expectancy”
 Emptio Rei Speratae and Emptio Spei
a) Emptio Rei Speratae – the sale of an expected thing
b) Emptio Spei – the sale of the hope itself
EmptioReiSperatae EmptioSpei
If the expected thing does not materialize:
The sale is not effective It does not matter whether the
expected thing materialize or
not; what is important is that
the hope itself validly existed.
What it deals:
Deals with a future thing – Deals with a present thing –
that which is expected for certainly hope or
expectancy already exists
Note: The presumption is in favour of an emptio rei speratae.
 Vain Hope or Expectancy
If the hope or expectancy itself is vain, the sale is itself VOID. Be
it noted that this is NOT an aleatory contract for while in an
aleatory contract there is an element of chance, here, there is
completely NO CHANCE.
Example: Sale of a losing ticket for a sweepstakes already run.
Exception: If the ticket be a collector’s item.
Article 1462. Sale of Goods
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.
 Sale of goods may be future or existing.
 Future goods are those still to be:
a) Manufactured or printed
b) Raised or future agricultural products
c) Acquired by the seller after the perfection of the contract
→ This is also referred to as the sale of “hereafter-
acquired” property
d) Things whose acquisition depends upon a contingency
which may or may not happen
Article 1463. Sale of Undivided Interest
The sole owner of a thing may sell an undivided interest therein.
 Fergusin v, Northern Bank of Ky., 14 Buck [Ky] 555, 29 Am. Rep.
418)
If I own a house, I may sell an aliquot part thereof (say ½ or
1/3) to somebody, I which case he and I will become co-owners.
 A full owner may sell the usufruct of his land leaving the naked
ownership to himself.
  Asian Terminals, Inc. v. Philam Insurance Co., Inc. 702 SCRA 88
A letter of credit (L/C) is a financial device developed by Things subject to a resolutory condition may be the object of the contract
merchants as a convenient and relatively safe mode of dealing of sale.
with sale of goods to satisfy the seemingly irreconcilable interests
of a seller, who refuses to part with his goods before he is paid, Examples:
and a buyer, who wants to have control of his goods before a) A property subject to reservatroncal may be sold.
paying b) A usufruct that may end when the naked owner becomes a lawyer
may be sold
Article 1464. Sale of Share in a Specific MassGoods c) A sold B the former’s land a retro. After delivery to B, B becomes an
absolute owner subject to the right of redemption. This land may be
sold by B to C, a stranger, subject to the right of redemption; i.e., C
In the case of fungible goods, there may be a sale of an undivided share must respect the right of A to redeem the property within the
of specific mass, though the seller purports to sell and the buyer to buy a stipulated period if:
definite number, weight or measure of the goods in the mass, and 1) A’s right is registered
though the number, weight or measure of the goods in the mass in 2) Or even if not, if C had actual knowledge of the right of
undetermined. By such sale the buyer becomes owner in common of redemption. (It has been held that actual knowledge is
such a share of the mass as the number, weight or measure bought equivalent to registration)
bears to the number, weight or measure of the mass. If the mass
contains less than the number, weight or measure bought, the buyer Article 1466. Distinctions Between a ‘Contract of Sale’ and an ‘Agency
becomes the owners of the whole mass and the seller s bound to make to Sell’ (like a Consignment for Sale)
good the deficiency from goods of the same kind and quality, unless a
contrary intent appears.
In construing a contract containing provisions characteristic of both the
 Example: In a stock of rice, the exact number of cavans of which contract of sale and of the contract of agency to sell, the essential
is still unknown, Jose buys 100 cavans. If there are really 150, clauses of the whole instrument shall be considered.
Jose becomes the co-owner of the whole lot, his own share being
2/3 thereof.
Contract of Sale Agency to Sell
 Forest Hills Golf and Country Club v. Vertox Sales and Trading, Price The buyer pays the price The agent delivers the price
Inc., 692 SCRA 706 which in turn he get from his
The corporation whose shares of stocks are subject of a transfer buyer
transaction (through sale, assignment, donation or any other Ownershi The buyer after delivery The agent who is supposed
mode of conveyance) need not be a party to the transaction. p becomes the owner to sell does not become the
owner, even if the property
However, to bind the corporation as well as third parties, it is has already been delivered to
necessary that the transfer is recorded in the books of the him
corporation. Warranty The seller warrants The agent who sells assumes
no personal liability as long
Article 1465. Sale of Things Subject to a Resolutory Condition as he acts within his
authority and in the name of
 the principal.
 Example:
X acquired a booklet of 10 sweepstakes tickets directly from the
office of the PCSO. X paid P1,800 for the booklet, less the customary
discount. What was the legal nature of X’s act in acquiring the
tickets? Did he enter into a contract of purchase and sale? Briefly
explain your answer.
ANS.: Yes, X entered into a contract of purchase and sale,
notwithstanding the fact that he may be referred to as “agent” of
the Sweepstakes Office, and the fact that he may be entitled to an
“agent’s prize” should one of the tickets purchased win a principal
prize. The truth is that he is not required to re sell the tickets, and
even if he were to do so, still failure on the part of his purchasers to
pay will not allow him to recover what he himself has paid to the
office. Moreover, the delivery of the tickets to him transferred their
ownership to him; this is not true in the case of an agency to sell.
Furthermore, it has been said that in a contract of sale, the buyer
pays the price; while in agency to sell, the agent delivers the price.
The mere fact that a “discount” or so called commission has been
given is immaterial. (Quiroga v. Parsons Hardware Co., 38 Phil. 501)
 Quiroga v. Pasons Hardware Co., 38 Phil. 501
FACTS: Plaintiff granted defendant the right to sell as an “agent”
Quiroga beds in the Visayas. The defendant was obliged under the
contract to pay for the beds, at a discount of 25% as commission on
the sales. The payment had to be made whether or not the
defendant was able to sell the beds. Is this a contract of sale, or an
agency to sell?
ANS: This is clearly a contract of sale. There was an obligation
to supply the beds, and a reciprocal obligation to pay their price. An
agent does not pay the price, he merely delivers it. If he is not able
to sell, he returns the goods. This not true in the present contract,
for the price was fixed and there was a duty to pay the same
regardless as to whether or not the defendant had sold the beds.
The phrase “commission on sales” means nothing more than a mere
discount on the invoice price. The word “agent” simply means that
the defendant was the only one who could sell the plaintiff’s beds in
the Visayas. At any rate, a contract is what the law defines it to be,
and not what it is called by the contracting parties.
 Ker and Co., Ltd, v. Jose B. Lingad, L-20871, April 30, 1971
FACTS: In a contract between the US Rubber International
Company and Ker and Co., the former consigned to the latter certain
goods to be sold by the distributor. Prior to such sale, the Rubber
Company would remain the owner. The contract, however, stated
expressly that Ker and Co. was not being made an agent, and could
not bind the company.
ISSUE: Between the 2 entities here, was there as contract of
SALE or one of AGENCY TO SELL?
HELD: This was an AGENCY TO SELL despite the disclaimer in
the contract referring to the non-representation. What is important is
that the US Rubber International retained ownership over the goods,
and the price subject to its control, despite the delivery.
Article 1467. Contract of Sale or a Piece of Work
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 manufactures specially for
the customer and upon his special order, and not for the general market,
it is a contract for a piece of work.
 Rules to determine if the contract is one of sale or a piece of work
a) If ordered in the ordinary course of business – SALE
b) If manufactured specially and not for the market – PIECE OF
WORK CONTRACT
 Schools of taught
a) Massachusetts Rule: If specially done at the order of another,
this is a contract for a piece of work
→ We follow Massachusetts Rule in the Philippines
 b) New York Rule: If the thing already exists, it is a SALE, if not,
WORK
c) English Rule: If material is more valuable, SALE; if skill is more
valuable, WORK
 QUERY:
If I ask someone to construct a house for me, is this a contract of
sale or for a piece of work?
ANS: If he will construct on his own land, and I will get both
the land and the house it would seem that this can be very well
treated as a sale.
Article 1468. Contract of Sale or Barter
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 part of the
consideration exceeds the amount of money or its equivalent; otherwise,
it is a sale.
 Rules to determine whether contract is one of sale or barter
a) First rule – intent
b) If the intent does not clearly appear –
1) If the thing is more valuable than money – BARTER
2) If 50-50 – SALE
3) If thing is less valuable than he money – SALE
Article 1469. Certainty of the Price
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 specified person or
persons.
Should such person or persons be unable or unwilling to fix it, the
contract shall be inefficacious, 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.
 The price must be certain; otherwise, there is no true consent
between the parties
→ There can be no sale without a price
→If the price is fixed but is later on remitted or condoned, this is
perfectly all right, for then the price would not be fictitious
→The failure to pay the agreed price does not cancel a sale for lack
of consideration, for the consideration is still there, namely, the
price.
 If the money is counterfeit, would sale be still valid?
ANS: Yes, for we cannot say that the consideration or cause of
the contract is the illegal currency. The real consideration or cause is
still be the VALUE or price agreed upon.
 Reparations Commission v Judge Morfe, GR 35796, Jan. 31, 1983
If a contract for the acquisition of reparation goods does not specify
the conversion rate of the dollar value of the goods, the conversion
rate shall be the exchange rate of exchange prevailing in the free
market at the time the goods are delivered.
 If no specific amount has been agreed upon, the price is still
considered certain:
a) if it be certain with reference t another thing certain;
b) if the determination of the price is left to the judgment of a
specified person or persons;
c) in the case provided for under Art. 1472, Civil Code
 Robles v. LizarragaHermanos, 50 Phil. 387
If the buyer and seller agreed on a sale and on determining the
price by a joint appraisal, the sale is still valid even if the buyer later
 on refuses to join the appraisal. The bad faith of the buyer holds him
liable for the true value of the object. The true value can be
established by competent evidence.
Article 1470. Gross Inadequacy of Price
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.
 Effect of Gross Inadequacy of Price
a) In ordinary sale, the sale remains valid even if the price is very
low. Of course, if there was vitiated consent, the contract may
be annulled but only due to such vitiated consent.
→ 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. 79)
→ The rule holds true even if the price seems too
inadequate as to shock the conscience of man. (Alarcon v.
Kasilag, 40 OG Sup. No. 16, p.203)
b) In execution of judicial sales – While mere inadequacy of price
will not set aside a judicial sale of real property, still the price
is so inadequate as to shock the conscience of the Court, it will
set aside.
→ As a matter of fact, it may be that the extremely low price
was the result not of a sale but of a contract of loan, with
the price paid as the principal and the object, given
merely as security. In case like this, the contract will be
interpreted to be one of loan with an equitable mortgage.
The remedy would then be the reformation of the
instrument.
→ A buyer at a judicial sale is allowed to resell to others
what he has acquired. The mere fact that he demands a
very high price is of no consequence.
 It is possible that a donation, not a sale, was really intended. In
such a case, the parties may prove that the low price is sufficiently
explained by the consideration of liberality. (Art. 1470, last
paragraph)
Article 1471. Simulated Price
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.
 The price must not be fictitious. Therefore, if the price is merely
simulated, the contract as a sale is void. It may however, be valid as
a donation or some other agreement provided the requirements of
donations or other agreements have been complied with. If these
requirements do not exist, then as a sale, the contract is absolutely
void, not merely voidable. An action for annulment is therefore
essential. (De Belen v. Collector of Customs, 46 Phil. 241)
 A simulated price is fictitious. There being no price, there is no cause
or consideration; hence, the contract is void as a sale. However it is
enough that the price be agreed on at the time of perfection. A
rescission of the price will not invalidate the sale.
 If the sale of conjugal property is FICTITIOUS and therefore non-
existent, the widow who has an interest in the property subject of
the sale may be allowed to contest the sale, even BEFORE the
liquidation of the conjugal partnership, making the executor a party-
defendant if he refuses to do so. (Borromeo v. Borromeo, 98 Phil.
432)
Article 1472. Certainty of Priceof Securities
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 such amount be certain.
 Example: I can sell to you today my Mont Blanc fountain pen at the
price equivalent to the stock quotation 2 days from today of 100
shares of PLDT
 If the stock quotation price 2 days later cannot really be ascertained
at that time, the sale is inefficacious. Note the last clause in the
article – “provided said amounts be certain.”

Article 1473. Price Cannot be Left to One Party’s Discretion

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.

 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.