ESSENTIAL ELEMETS OF CONTRACT OF SALE

LAW ON SALES 1. Consent or meeting of minds

-refers to a consent of both parties ;
-no consent or no meeting of mind, no contract of sale ;
CHAPTER 1 : NATURE AND FORM OF THE CONTRACT -acceptance of payment indicates of contract of sale precluding from rejecting bind effect

 Legal Capacity to give consent except :

ARTICLE 1458 -Minor (except necessary needs)
 By the contract of sale: -Have mental disorder / demented person (contract is valid the time before he/she became insane
VENDOR- transfer the ownership and to deliver a determinate thing or the range of time that he/she lucid.

VENDEE- pay price certain in money or its equivalent -deaf-mutes (who do not know how to write)

 A contract of sale may be: -Married Couples or Live in partner (not to deceived creditors ; conjugal)

ABSOLUTE- the sale is not subject to any condition whatsoever and where title passes to the buyer  In case of expropriation, 3 Kinds of Sale under the law :
upon delivery of the thing sold. - Ordinary execution Sale -  method of enforcing payment of a personal judgment for money out of
CONDITIONAL- any nonexempt property of the debtor

- Judicial foreclosure Sale - refers to foreclosure proceedings that take place through the court
system
CONCEPT OF CONTRACT OF SALE
- Extra-judicial foreclosure Sale - an action in against about a thing and thus requires only notice by
Contract of Sale – agreement or meeting of minds between vendor and vendee publication and posting to bind the parties in the foreclosed property

CHARACTERISTICS OF CONTRACT OF SALE 2. Object or Subject Matter

- determinate thing (specific / capable / present existing/maybe personal or real property)
1. Consensual - perfected by mere consent without any further act
- determinable thing ( future thing / capable)
2. Bilateral - contracting parties are bound to fulfill correlative obligations - Legal (licit)
- Sale of hope (ex. Lotto)
3. Onerous - the thing sold is conveyed in consideration of the price and vice versa

4. Commutative - the thing sold is considered the equivalent of the price paid
5. Nominate – special name designated or given by law which is “SALE”
6. Principal - can exist by itself without being dependent upon another contract.
3. Cause or Consideration
-Price (money or equivalent ; check or promissory notes)
-must be real & not fictitious ; otherwise, sale is void and transaction been donation

7. Reciprocal - fulfill correlative obligations toward each other *Note: Absence of any elements negates existence of perfected contract of sale
 NATURAL AND ACCIDENTAL ELEMENTS
1. Natural - which are deemed to exist in certain contracts, in the absence of any contrary stipulations,
like warranty against eviction (Art. 1548.) or hidden defects (Art. 1561.)
2. Accidental - which may be present or absent depending on the stipulations of the parties, like
conditions, interest, penalty, time, or place of payment, etc.
EFFECT OF ABSENCE OF PRICE / NON-PAYMENT OF PRICE
1. No sale without a price
- cause in sale if both parties performed their obligations.
- contract of sale is void & no effect without cause (promise to do obligation) or consideration (price)
2. Non-payment of the purchase price
- resolutory condition for which the remedy is either : rescission or specific performance
- will null and void for lack of consideration if there’s a failure to pay the price in full w/in fixed period
ESSENCE OF SALE : TRANSFER OF TITLE TO PROPERTY FOR A PRICE
1. Obligations to deliver and to pay - transfer of title to property or agreement to transfer title for a
price actually paid or promised, not a mere physical transfer of the property, is the essence of sale
2. Where transfer of ownership not intended by the parties – A contract for the sale or purchase of
goods/commodity to be delivered at a future time.
KINDS OF CONTRACT OF SALE
1. As to presence or absence of conditions - A sale may be either:
a. ABSOLUTE - the sale is not subject to any condition whatsoever and where title passes to the buyer
upon delivery of the thing sold.
b. CONDITIONAL - the sale contemplates a contingency, the contract is subject to certain conditions
usually, in the case of the vendee, the full payment of the agreed purchase price
2. Other Kinds - depending on one’s point of view as to :
a. NATURE OF SUBJECT MATTER – real or personal ; tangible or intangible
b. MANNER OF PAYMENT OF PRICE – cash or intallment
c. VALIDITY - valid, rescissible, unenforceable, void
CONTRACT OF SALE AND CONTRACT TO SELL WITH RESERVED TITLE DISTINGUISHED
1. Transfer of title
a. In CONTRACT OF SALE – title passes to the buyer upon delivery of the thing sold
b. In CONTRACT TO SELL - ownership shall not pass to the purchaser until he has fully paid the price
2. Payment of price
a. In FIRST CASE - non-payment of the price is a negative resolutory condition, and the remedy of the
seller is to exact fulfillment or to rescind the contract
b. In SECOND CASE - full payment is a positive suspensive condition, the failure of which is not a
breach, casual or serious, of the contract but an event that prevents the
obligation of the vendor to convey title from acquiring binding force
3. Ownership of vendor
a. In FIRST CASE - vendor has lost and cannot recover the ownership of the thing sold and delivered,
actually or constructively until and unless the contract of sale itself is resolved and set aside.
b. In SECOND CASE – title remains in the vendor if the vendee does not comply with the condition
precedent of making payment at the time specified in the contract
CONTRACT TO SELL AND CONDITIONAL SALE DISTINGUISHED
1. Transfer of title to the buyer - contract to sell not even be considered as conditional contract of sale
a. Contract to Sell - upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, ownership will not automatically transfer to the buyer although the property may have
been previously delivered to him
b. Conditional Sale - element of consent is present, although it is conditioned upon the happening of
a contingent event which may or may not occur
> If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated
> , if the suspensive condition is fulfilled, contract of sale is thereby perfected. If there had already
been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically
transfers to the buyer by operation of law without any further act having to be performed by the seller.
2. Sale of subject property to a third person - distinguish between a contract to sell and conditional
contract of sale esp in cases the subject property is sold by owner not to the party the seller contracted
with, but to a third person.
 a. Contract to sell - no previous sale of the property, a third person buying such property despite the him. The other, who is not at fault, may demand the return of what he has given
fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, without any obligation to comply with his promise.”
cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of
2. Rights - All rights which are not intransmissible or personal may also be the object of sale, like the
reconveyance of the property.
right of usufruct, the right of conventional redemption, credit etc.
b. Conditional Contract of Sale - upon the fulfillment of the suspensive condition, the sale becomes
absolute and this will definitely affect the seller’s title thereto. If there had been previous delivery of the
subject property, the seller’s ownership or title to the property is automatically transferred to the buyer, KINDS OF ILLICIT THINGS
such that the seller will no longer have any title to transfer to any third person
1. Illicit Per Se – of its nature (decayed food unfit for consumption)

2. Illicit Per Accidens – because of some provisions of law declaring it illegal (lottery tickets)
OTHER CASES OF CONTRACT TO SELL

1. Subject matter is not determinate or Price is not certain - agreement is merely a contract to sell
RIGHT TO TRANSFER OWNERSHIP
2. Sale of future goods - even though the contract is in the form of a present sale operates as a contract
to sell the goods. 1. Seller must be owner or authorized by owner of thing sold - It is essential in order for a sale to be
valid that the vendor must be able to transfer ownership; must be the owner or at least must be
3. Stipulation of the parties – deed of sale and corresponding certificate of sale would be issued only authorized by the owner of the thing sold
after full payment of the purchase price, the contract is a contract to sell and not a contract of sale
2. Right must exist at time of delivery - does not require that the vendor must have the right to transfer
ownership of the property sold at the time of the perfection of the contract.
a. Perfection per se - does not transfer ownership which occurs upon the actual or constructive
ARTICLE 1459
delivery of the thing sold
 The thing must be licit or legal
3. Where property sold registered in name of seller who employed fraud in securing his title - the
 The vendor must have a right to transfer the ownership thereof at the time it is delivered.
certificate of title was already transferred from the name of the true owner to the forger, and while it
remained that way, the land was subsequently sold to an innocent purchaser for value.
ELEMENTS/REQUISITES CONCERNING OBJECT
4. Where properly sold in violation of a right of first refusal of another person - The prevailing doctrine
1. Things – determinate ; licit or lawful ; determinable
is that a contract of sale entered into in violation of a right of first refusal of another person, while valid
 Art 1411 When the nullity proceeds from the illegality of the cause or object of the contract, is rescissible. In contracts of sale, the basis of the right of first refusal must be the current offer of the
and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no seller to sell or the offer to purchase of the prospective buyer.
action against each other, and both shall be prosecuted.
5. Where real property, subject of unrecorded sale, subsequently mortgaged by seller which mortgage
 Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a
was registered - The mortgagee’s registered mortgage right over the property is inferior to that of the
criminal offense, the following rules shall be observed:
buyer’s unregistered right. The unrecorded sale between the buyer and the seller is preferred for the
 When the fault is on the part of both contracting parties, neither may recover what he
reason that if the seller the original owner, had parted with his ownership of the thing sold then, he no
has given by virtue of the contract, or demand the performance of the other’s
longer had ownership and free disposal of that thing so as to be able to mortgage it again.
undertaking;
 When only one of the contracting parties is at fault, he cannot recover what he has
given by reason of the contract, or ask for the fulfillment of what has been promised
ARTICLE 1460
 Thing is determinate when it is particularly designated or physically segregated from all others of
the same class
 Requisite that a thing be determinate is satisfied if at the time the contract is entered into
 Thing is capable of being made determinate without the necessity of a new or further agreement
between the parties.
SUBJECT MATTER MUST BE DETERMINATE
1. When thing determinate - A thing is determinate or specific (not generic) when it is particularly
designated or physically segregated from all others of the same class
2. Sufficient if subject matter capable of being made determinate - It is sufficient that the thing is
determinable or capable of being made determinate without the necessity of a new or further
agreement between the parties
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.
SALE OF THINGS HAVING POTENTIAL EXISTENCE
 Future thing not existing at the time the contract is entered into. Object of sale provided has
possible existence that is certain to come into existence as something in existence already
belonging to the seller, and the title will vest in the buyer the moment the thing comes into
existence.
SALE OF MERE HOPE OR EXPECTANCY
 Deemed subject to the condition that the thing contemplated or expected will come into existence.
Sale of a mere hope or expectancy is valid even if the thing hoped or expected does not come into
existence, unless the hope or expectancy is vain in which case, the sale is void
SALE OF THING EXPECTED AND SALE OF HOPE ITSELF DISTINGUISHED
1.)
 Emptio rei speratae (sale of things expected ) - sale of a thing not yet in existence subject to the
condition that the thing will exist and on failure of the condition, the contract becomes ineffective
and hence, the buyer has no obligation to pay the price. Future thing is certain as to itself but
uncertain as to its quantity and quality. Such sale is subject to the condition that the thing will come
into existence whatever its quantity or quality
 Emptio spei – (sale of the hope) itself that the thing will come into existence, where it is agreed
that the buyer will pay the price even if the thing does not eventually exist. Not certain that the
thing itself will exist, much less its quantity and quality.
2.)
 In the first, the contract deals with a future thing
 The second, the contract relates to a thing which exists or is present — the hope or expectancy
3.)
 In the first, the sale is subject to the condition that the thing should exist, so that if it does not,
there will be no contract by reason of the absence of an essential element
 The second produces effect even though the thing does not come into existence because the object
of the contract is the hope itself, unless it is a vain hope or expectancy
PRESUMPTION IN CASE OF DOUBT
 In case of doubt, the presumption is in favor of emptio rei speratae which is more in keeping with
the commutative character of the contract.
ARTICLE 1462
 FUTURE GOODS - goods which form the subject of a contract of sale 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
 There may be a contract of sale of goods, whose acquisition by the seller depends upon a
contingency which may or may not happen.
GOODS WHICH MAY BE THE OBJECT OF SALE
 Goods which form the subject of a contract of sale may be either:
a. Existing goods or goods owned or possessed by the seller
b. Future goods or goods to be manufactured
 FUTURE GOODS AS OBJECT OF SALE
 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
ARTICLE 1463
 The sole owner of a thing may sell an undivided interest therein
SALE OF UNDIVIDED INTEREST IN A THING
 The sole owner of a thing may sell the entire thing; or only a specific portion thereof; or an
undivided interest therein and such interest may be designated as an aliquot part of the whole
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 is
undetermined
 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.
SALE OF AN UNDIVIDED SAHRE OF SPECIFIC MASS
1. Meaning of fungible goods. — It means goods of which any unit is, from its nature or by mercantile
usage, treated as the equivalent of any other unit (ex. Oil)
2. Effect of sale - The owner of a mass of goods may sell only an undivided share thereof, provided the
mass is specific or capable of being made determinate
a. By such sale - the buyer becomes a co-owner with the seller of the whole mass in the proportion in
which the definite share bought bears to the mass
b. It must follow that the aliquot share of each owner - can be determined only by the measurement
of the entire mass. If later on it be discovered that the mass of fungible goods contains less than what
was sold, the buyer becomes the owner of the whole mass and furthermore, the seller shall supply
whatever is lacking from goods of the same kind and quality, subject to any stipulation to the contrary.
3. Risk of loss - If the buyer becomes a co-owner, with the seller, or other owners of the remainder of
the mass, it follows that the whole mass is at the risk of all the parties interested in it, in proportion to
their various holdings.
4. Subject matter - Sale of an undivided share, either of a thing or of that of mass of goods, the subject
matter is an incorporeal right. Here, ownership passes to the buyer by the intention of the parties
5. Applicability of Article 1464 to non-fungible goods. —Article 1464 speaks of “fungible goods,” also
apply to goods not strictly fungible in nature. But in the cases under consideration, the parties had
virtually agreed to act on the assumption that all were alike and it can be seen that this is really the
essential thing.
ARTICLE 1465
 Things subject to a resolutory condition may be the object of the contract of sale
SALE OF THING SUBJECT TO RESOLUTORY CONDITION
 Resolutory condition - uncertain event upon the happening of which the obligation (or right)
subject to it is extinguished. Hence, the right acquired in virtue of the obligation is also
extinguished.
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
SALE DISTINGUISHED FROM AGENCY TO SELL
CONTRACT OF AGENCY - person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter
Sale may be distinguished from an agency to sell, as follows:
1. In a sale - buyer receives goods as owner
In an agency to sell - agent receives the goods as the goods of the principal who retains his ownership
over them and has the right to fix the price and the terms of the sale and receive the proceeds less the
agent’s commission upon the sales made.
2. In a sale - the buyer has to pay the price;
In agency to sell - agent simply to account for proceeds of sale he may make on the principal’s behalf
3. In a sale- the buyer as a general rule, cannot return the object sold
In an agency to sell- agent can return the object in case he is unable to sell the same to a third person
4. In a sale- the seller warrants the thing sold
In an agency to sell - agent makes no warranty for he assumes personal liability as long he acts within
authority & in name of the seller
5. In a sale - the buyer can deal with the thing sold as he pleases being the owner
In an agency to sell - the agent in dealing with the thing received, must act and is bound according to
the instructions of his principal
CONTRACT CREATING BOTH A SALE AND AGENCY RELATIONSHIP
 CONTRACT OF SALE - transfer of title or agreement to transfer it for a price paid or promised is the
essence of sale. If such transfer puts the transferee in the position of an owner and makes him
liable for the agreed price
 AGENCY TO SELL - , the essence of an agency to sell is the delivery to an agent, not as his property,
but as the property of his principal, who remains the owner and has the right to control sales, fix
the price and terms, demand and receive the proceeds less the agent’s commission upon sales
made.
 In some circumstances, however, a contract can create both a sale and an agency relationship.
Example: An automobile dealer receives title to the cars he orders from the manufacturer and that
transaction is a sale; but he is an agent to the extent that he is authorized to pass on to the ultimate
purchaser the limited warranty of the manufacturer. In any event, the courts must look at the
entire transaction to determine if it is a principal-agent relationship or a buyer-seller relationship
ARTICLE 1467
 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 especially for the customer and upon his special order, and
not for the general market, it is a contract for a piece of work.
SALE DISTINGUISHED FROM CONTRACT FOR A PIECE OF WORK
CONTRACT FOR PIECE OF WORK - contractor binds himself to execute a piece of work for the employer,
in consideration of a certain price or compensation. The contractor may either employ his labor or skill,
or also furnish the material
1. FIRST CASE - contract is one for work, labor and materials
SECOND CASE - one of sale
2. FIRST CASE - the risk of loss before delivery is borne by the worker or contractor, not by the employer
(the person who ordered). A contract is for a piece of work if services dominate that contract even
though there is a sale of goods involved.
SECOND CASE - e primary objective of a contract is a sale of a manufactured item, it is a sale of goods
even though the item is manufactured by labor furnished by the seller and upon previous order of the
customer
3. The importance of marking the line that divides contracts for a piece of work from contracts of sale
arises from the fact that the former is not within the Statute of Frauds.
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
SALE DISTINGUISHED FROM BARTER
CONTRACT OF BARTER OR EXCHANGE - one of the parties binds himself to give one thing in
consideration of the other’s promise to give another thing
CONTRACT OF SALE - one of the parties binds himself to give one thing in consideration of the other’s
promise to give another thing
SALE DISTINGUISHED FROM LEASE
LEASE OF THINGS - Landlord or lessor transfers merely the temporary possession and enjoyment of the
thing leased.
IN A SALE - the seller transfers ownership of the thing sold.
 SALE DISTINGUISHED FROM DATION IN PAYMENT Under the above article, the price is certain if:

DATION IN PAYMENT (dacion en pago) - alienation of property to the creditor in satisfaction of a debt in 1. The parties have fixed or agreed upon a definite amount
money.
2. It be certain with reference to another thing certain
The distinctions are the following:
3. The determination of the price is left to the judgment of a specified person or persons and even
1. In sale - there is no preexisting credit before such determination
In dation in payment - there is pre-existing credit
Note:
2. In sale - obligations are created It must be understood that the last two cases are applicable only when no specific amount has been
In dation in payment - obligations are extinguished stipulated by the parties.

3. In sale - the cause is the price paid from POV of the seller; the thing sold from POV of the buyer
In dation in payment - the extinguishment of the debt from POV of debtor; the object acquired in lieu
EFFECT WHERE PRICE FIXED BY THIRD PERSON DESIGNATED
of the credit from POV of creditor
FIXED PRICE BY THIRD PERSON DESIGNATED – a general rule e price fixed by a third person designated
4. In sale - more freedom in fixing the price than in dation in payment
by the parties is binding upon them. There are, however, exceptions such as:
In dation in payment – less freedom in fixing price than in sale.
1. When the third person acts in bad faith or by mistake as when the third person fixed the price having
5. In sale - the buyer has still to pay the price
in mind not the thing which is the object of the sale, but another analogous or similar thing in which
In dation in payment - the payment is received by the debtor before the contract is perfected
case the court may fix the price. But mere error in judgment cannot serve as a basis for impugning the
price fixed
ARTICLE 1469
2. When the third person disregards specific instructions or the procedure marked out by the parties or
 In order that the price may be considered certain, it shall be sufficient that it be so with the data given him, thereby fixing an arbitrary price
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, EFFECT WHERE PRICE NOT FIXED BY THIRD PERSON DESIGNATED
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. 1. If the third person designated by the parties to fix the price refuses or cannot fix it (without fault of
 Where such third person or persons are prevented from fixing the price or terms by fault of the the seller and the buyer), the contract shall become ineffective, as if no price had been agreed upon
seller or the buyer, the party not in fault may have such remedies against the party in fault as unless, of course, the parties subsequently agree upon the price.
are allowed the seller or the buyer, as the case may be. 2. If such third person is prevented from fixing the price by the fault of the seller or the buyer, the party
not in fault may obtain redress against the party in fault which consists of a choice between rescission
WHEN PRICE CONSIDERED CERTAIN or fulfillment, with damages in either case. If the innocent party chooses fulfillment, the court shall fix
PRICE IN A CONTRACT OF SALE - ought to be settled for there can be no sale without a price. ) It must the price.
be certain or capable of being ascertained in money or its equivalent:
Money - is to be understood as currency
Equivalent - means promissory notes, checks and other mercantile instruments generally accepted as
representing money.
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.
EFFECT OF GROSS INADEQUANCY OF PRICE IN VOLUNTARY SALES
1. General rule. — While a contract of sale is commutative, mere inadequacy of the price or alleged
hardness of the bargain generally does not affect its validity when both parties are in a position to form
an independent judgment concerning the transaction.
 In determining whether the price is adequate or not, the price obtaining at the date of the
execution of the contract, not those obtaining a number of years later, should be considered.
2. Where low price indicates a defect in the consent. — The inadequacy of price, however, may indicate
a 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.
3. Where price so low as to be “shocking to conscience”. —where the price is so low that “a man in his
senses and not under a delusion” would not accept it, the sale may be set aside and declared an
equitable mortgage to secure a loan. But where the price paid is much higher than the assessed value
of the property and the sale is effected by a father to his daughter in which filial love must be taken into
account, the price is not to be construed “as so inadequate to shock the court’s conscience.
EFFECT OF GROSS INADEQUACY OF PRICE IN INVOLUNTARY SALES
1. General rule. — A judicial or execution sale is one made by a court with respect to the property of a
debtor for the satisfaction of his indebtedness
2. Where price so low as to be “shocking to the conscience.” — If the “price is so inadequate as to shock
the conscience of the Court”, “such that the mind revolts at it and such that a reasonable mind would
neither directly or indirectly be likely to consent to it,’’ a judicial sale, say, of real property, will be set
aside
3. Where seller is given the right to repurchase - The validity of the sale is not necessarily affected
where the law gives to the owner the right to redeem, as when a sale is made at public auction, upon
the theory that the lesser the price, the easier it is for the owner to effect the redemption. He may
reacquire the property or also sell his right to redeem and thus recover the loss he claims he suffered by
reason of the price obtained at the execution sale.
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
EFFECT WHERE PRICE IS SIMULATED
1. If the price is simulated or false such as when the vendor really intended to transfer the thing
gratuitously, then the sale is void but the contract shall be valid as a donation.
2. If the contract is not shown to be a donation or any other act or contract transferring ownership
because the parties do not intend to be bound at all, the ownership of the thing is not transferred. The
contract is void and inexistent. The action or defense for the declaration of the inexistence of a contract
does not prescribe.
3. 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
 Its requisites are:
a. an outward declaration of will different from the will of the parties
b. the false appearance must have been intended by mutual agreement;
c. the purpose is to deceive third persons
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
 When an amount is fixed above or below the price on such day, or in such exchange or market,
provided said amount be certain
PRICE ON A GIVEN DAY AT PARTICULAR MARKET
 Price is considered certain if it could be determined with reference to another thing certain.
 The last phrase of the above article: “provided said amount be certain”.
 When an amount is fixed above or below the price on a given day or in a particular exchange or
market, the said amount must be certain;
 Otherwise, the sale is inefficacious because the price cannot be determined
  This article is especially applicable to fungible things like securities, grain, liquids, etc. the price
of which are subject to fluctuations of the market.
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
FIXING OF PRICE BY ONE OF THE CONTRACTING PARTIES, NOT ALLOWED
 The reason for the rule is obvious:
1. If consent is essential to a contract of sale, the determination of the price cannot be left to the
discretion of one of the contracting parties; otherwise, it cannot be said that the other consented to a
price he did not and could not previously know. The validity or compliance of the contract cannot be
made to depend upon the will of one party.
2. To be just, the price must be determined impartially by both parties or left to the judgment of a
specified person or persons. However, where the price fixed by one party is accepted by the other, the
contract is deemed perfected because in this case, there exists a true meeting of minds upon the price.
ARTICLE 1474
 Where the price cannot be determined in accordance with the preceding articles, 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.
EFFECT OF FAILURE TO DETERMINE PRICE
1. Where contract executory. — If the price cannot be determined or in any other manner, and the
bargain is still executory, the contract is without effect. Price certain is an essential element of the
contract of sale. Consequently, there is no obligation on the part of the vendor to deliver the thing and
on the part of the vendee to pay
2. Where delivery has been made. — If the thing or any part thereof has already been delivered and
appropriated by the buyer, the latter must pay a reasonable price therefor. This obligation of the buyer
is sometimes contractual (if the agreement omits any reference to price), and sometimes, quasi-
contractual (if the agreement provides that the parties are thereafter to agree on the price.)
a. If a buyer, for example, orders a cavan of rice from a store, nothing being said as to the price, the
parties intend and understand that a reasonable price shall be paid. The obligation here is contractual.
The law merely enforces the intention of the parties.
b. Article 1474 applies only where the means contemplated by the parties for fixing the price have,
for any reason, proved ineffectual
CONCEPT OF REASONABLE PRICE
 REASONABLE PRICE OR VALUE OF GOODS - market price at the time and place fixed by the
contract or by law for the delivery of the goods
 Under special circumstances of unnatural conditions in the market, the market price does not
furnish the only test.
 In the leading case upon this point, the court said:
 A reasonable price may or may not agree with the current price of the commodity at the port
of shipment when such shipment is made.
 The current price of the day may be highly unreasonable from accidental circumstances, as
on account of the commodity having been purposely kept back by the vendor himself, or
with reference to the price at the other ports in the immediate vicinity, or from various other
causes.
 This doctrine has been applied in cases where the market has been monopolized.
DETERMINATION OF FAIR MARKET VALUE
 Offers to sell are not competent evidence of the fair market value of a property, because they
are no better than offers to buy, which have been held to be inadmissible as proof of said values
 MARKET VALUE –
 The author of a well-known treatise on the subject of damages observes that to make a
market there must be both buying and selling.
 ‘reasonable’ sum which property would bring on a fair sale by a man willing but not
obliged to sell to a man willing but not obliged to buy.”
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
 PERFECTION OF CONTRACT OF SALE EFFECT OF FAILURE TO PAY PRICE
 Failure to pay the consideration of contract - results in a right to demand fulfillment or cancellation of
 General rule - contracts are perfected by mere consent. the obligation under an existing valid contract
 Lack of consideration - prevents the existence of a valid contract
1. Conduct of the parties - sufficient to establish an agreement. There may be instances where
interchanged correspondence does not disclose the exact point at which the deal was closed, the 1. The failure to pay the stipulated price after the execution of the contract does not convert the
actions of the parties may indicate that a binding obligation has been undertaken. contract into one without cause or consideration as to vitiate the validity of the contract. It not being
essential for the existence of cause that payment or full payment be made at the time of the contract.
2. Transfer of ownership. — The ownership is not transferred until the delivery of the thing.
Non-payment of the purchase price is not among the instances where the law declares a contract of sale
3. Form of contract - contract of sale is binding regardless of its form. However, in case the contract of
to be null and void.
sale should fall within the provisions of the Statute of Frauds or of any other applicable statute which
requires a certain form for its enforceability or validity then that form must be complied with. 2. A contract of sale is null and void where the purchase price, which appears thereon as paid, has, in
fact, never been paid by the buyer to the seller. In such case, the sale is without cause or consideration.
4. Consent reluctantly given. — There is no difference in law where a person gives his consent
reluctantly and even against his good sense and judgment as when he acts voluntarily and freely. Sale is non-existent or cannot be considered consummated. It produces no effect whatsoever
5. Notarized deed of sale states receipt of price - To overcome a public document solemnly executed
before a notary public, the evidence to the contrary must be clear, strong, and convincing.
RIGHT OF OWNER TO FIX HIS OWN PRICE
6. Applicant’s qualification to buy still subject for investigation - the application was subject to
1. The owner of a thing has the right to quote his own price, reasonable or unreasonable. It is up to the
revocation in case the applicant was found not to possess the qualifications necessary
prospective buyer to accept or reject it. He may even impose a condition hard to fulfill and name a price
7. Chattel mortgage of car by mortgagor-buyer prior to transfer of title to his name - as at the time of quite out of proportion to the real value of the thing offered for sale.
the sale wherein the parties agreed over the car and the price, the contract became perfected, and
2. He is also well within his right to quote a small or nominal consideration and such consideration is
when part of the purchase price was paid and the car was delivered, upon the execution of the
just as effectual and valuable a consideration as a larger sum stipulated or paid
promissory note and the mortgage by the mortgagors, the sale became consummated

8. Non-fulfillment by one party of his obligation. — In case one of the contracting parties should not
comply with what is incumbent upon him, the injured party may sue for fulfillment or rescission with the ARTICLE 1476
payment of damages in either case
 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.
WHEN DEFINITE AGREEMENT ON MANNER OF PAYMENT ESSENTIAL
2. A sale by auction is perfected when the auctioneer announces its perfection by the fall of
Agreement on the manner of payment goes into the price such that a disagreement on the
the hammer, or in other customary manner. Until such announcement is made, any bidder
manner of payment is tantamount to failure to agree on the price
may retract his bid; and the auctioneer may withdraw the goods from the sale unless the
An agreement on the price but a disagreement on the manner of its payment will not result in
auction has been announced to be without reserve.
consent
3. A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise
This lack of consent is separate and distinct from lack of consideration where the contract states
provided by law or by stipulation.
that the price has been paid when in fact it has never been paid
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.

RULES GOVERNING AUCTION SALES

1. Sales of separate lots by auction are separate sales. — Where separate lots are the subject of
separate biddings and are separately knocked down, there is a separate contract in regard to each lot

2. Sale perfected by the fall of the hammer. — In putting up the goods for sale, the seller is merely
making an invitation to those present to make offers which they do by making bids one of which is
ultimately accepted.

3. Right of seller to bid in the auction. — The seller or his agent may bid in an auction sale provided: (a)
such right was reserved; (b) notice was given that the sale is subject to a right to bid on behalf of the
seller; and (c) the right to bid by the seller is not prohibited by law or by stipulation.