Topic 1

Coverage
- Nature of the Contract
- Form of the Contract
- Capacity to Buy or Sell

SALES, Defined
Art. 1458- In a contract of sale, one of the contracting parties obligates himself to transfer ownership of and to
deliver a determinate thing, and the other party obligates himself to pay therefore a price certain in money or its
equivalent.

A contract of sale may be absolute or conditional.

Absolute Sale vs. Conditional Sale

Absolute Sale- there is no condition agreed upon by the parties in relation to the transfer of ownership to the buyer,
such that upon delivery of the thing sold, the ownership passes to the buyer.

Conditional Sale- the ownership does not pass upon delivery (even upon physical delivery of the thing sold) when
there is a condition agreed upon by the parties as to when ownership would pass.

Sale Distinguished with other Legal Relations

- Contract to Sell
- Agency to Sell
- Dacion en pago
- Contract for a Piece of Work
- Barter

Contract of Sale vs. Agency to Sell

A contract of agency is one that essentially establishes a representative capacity in the person of the agent on behalf
of the principal, and one characterized as highly fiduciary.

a. In a sale, title to the goods is transferred to the buyer upon delivery of the thing sold. In an agency to sell,
title to the goods is retained by the owner despite the delivery of the goods to the agent.
b. In a sale, the buyer is required to pay the price. In an agency to sell, the agent is required to turn over to the
principal the price of the goods which he received from the buyer. In a sale, the recipient (i.e., the buyer) of
the property may do with the property as he pleases. In the agency to sell, the principal retains control of
the property.

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

Juan granted Maria the exclusive right to sell his brand of Maong pants in Pampanga, the price of his merchandise
payable within 60 days from delivery, and promised Maria a commission of 20% on all sales. After the delivery of
the merchandise to Maria but before she could sell any of them, Maria’s store in Pampanga was completely burned
without her fault, together with all of Juan’s pants. Must Maria pay Juan for his lost pants?

In a contract between U.S. 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.
What kind of contract transpired between the parties? (Ker and Co., Ltd. Vs. Lingad, L-20871, April 30, 1971)

Contract of Sale vs. Dacion en Pago

Art. 1245- Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall
be governed by the law on sales.

Contract of Sale vs. Contract for a Piece of Work

a. Massachusetts Rule
If the object is available and regularly carried on stock = sales
b. New York Rule
If the object is available = sales
If the object is not available (although regularly carried on stock) and specially manufactured = contract for
a piece of work
c. English Rule
Material cost > or = to the labor cost = sales
Labor cost > material cost = contract for a piece of work

Juan wants to buy a Large-sized hoodie from Bench Shoppe Garments. There is no available stock at the moment for
the said size. The hoodie is still to be manufactured. Juan is willing to wait and pays Bench Shoppe Garments half
the price.

Contract of Sale vs. Barter

a. Check the manifest intention of the parties, otherwise:
b. Check what the parties will get by virtue of the contract

Object – Object = Barter

Object – Money = Sales

Combination of money and thing:

Thing > Money = Barter
Thing < Money = Sales
Thing = Money = Sales

Formalities Required

General Rule:
Art. 1463. Subject to the provisions of the Statute of Frauds and any 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.

Exceptions
- Sale of personal property at a price not less than P500.00;
- Sale of real property or an interest therein;
- Sale of property not to be performed within a year from the date thereof;
- When an applicable statute requires that the contract of sale be in a certain form.

Elements
1. Essential Elements/ Requisites
 a. Consent of the contracting parties (meeting of the minds)
b. Object or subject matter (which should be a determinate thing)
c. Cause or consideration (price certain in money or its equivalent)
2. Natural Elements
a. Warranty against eviction
b. Warranty against hidden defects
3. Accidental Elements

Essential Elements or Requisites

A. Consent of the contracting parties (meeting of the minds)
- 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. (Art. 1475)
- Delivery or payment is not essential for the contract’s perfection
- Contract of sale is consummated upon delivery and payment
- Absolute Incapacity
- Relative Incapacity
- Purchase by minors
GR: Voidable
Except: Purchase of necessaries

Necessaries
Include everything that is indispensable for sustenance, dwelling, clothing, and medical attendance, according to the
social position of the family.

Art. 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 Art. 191.

Art. 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 entrusted 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 entrusted
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.

B. Subject Matter
- Sale may pertain to things or rights
- The thing must be within the commerce of men
 - The thing must be licit
- The thing must be determinate

Art. 1460. 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.

Sale of a Generic Things

- It must be capable of being made determinate at the time the contract was entered into
- Without the need of a new or further agreement between the parties

Art. 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.

Emptio rei sperati

- sale of a future thing

Emptio spei
- sale of a present thing (the hope or expectancy)

Goods that may be the object of a contract of sale:

- Existing goods owned and possessed by the seller
- Goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale
(future goods)
- Goods whose acquisition by the seller depends upon a contingency which may or may not happen (Art.
1462)

Art. 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 thisTitle 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. (n)

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

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

C. Cause or consideration (price certain in money or its equivalent)

Price certain
- If the parties have agreed upon a definite amount for the sale
- If it be certain with reference to another thing certain
- If the determination of the price is left to the judgment of a specified person or persons
- If 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 on such day, or in such exchange or market, provided
said amount is certain.
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.