CHAPTER 1

NATURE OF SALES

CONCEPT

Definition, Characteristics, and Elements of Sale

ARTICLE 1458

By the 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 in money or its equivalent.

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

Contract of Sale

• It is the transfer of ownership in exchange for the price paid or promised.

• It transfers no real rights; it merely causes certain obligations (REAL OBLIGATION) to arise.

Characteristics of Contract of Sales

1. Consensual - It is perfected by mere consent.

2. Bilateral – The parties are bound by their reciprocal obligations.
• seller – delivers and transfers a determinate thing.
• buyer – pays the price.
3. Commutative – The value the parties exchange almost (considers or presumes) is equivalent to the price.
4. Principal – Its existence does not depend upon another contract.
5. Onerous – The parties give valuable consideration to acquire rights. (MAY KAPALIT)
6. Nominate – The law designates a special name to it.

Essential Elements

1. Consent – when there is a meeting of minds to transfer ownership in exchange for the price.
2. Object – the determinate thing to be delivered.
3. Cause – the price certain in money or its equivalent.

Natural Elements

These are the elements presumed to exist. These are elements that are inherited in the contract of sale even
though the parties didn’t stipulate them.

• Warranty against hidden defects

• Warranty against eviction
Accidental Elements

These refer to the stipulations agreed upon by the parties, such as those pertaining to the terms and manner
of payment, penalty, interest, and other conditions governing the contract of sale.

Kinds of Contracts of Sale

1. Absolute
• The sale is not subject to any condition and the ownership passes to the buyer upon the delivery of
the thing sold.
2. Conditional
• The sale contemplates a contingency (1461, 1462, 1465)
• The contract is subject to certain conditions (1503)
• The delivery of the thing sold does not transfer ownership until the condition is fulfilled.

OBJECT

Requisites
ARTICLE 1459

The thing must be licit, and the vendor must have a right to transfer the ownership thereof at the time it is delivered.

LICIT means “Lawful”

1. illicit per se – by itself

• Selling of human flesh, kidney, spoiled foods, drugs, etc.
2. illicit per accidens – by chance
• Selling of jueteng and land to Foreignors

Requisites Concerning Object

1. Things
• Determinate
• Licit or Lawful
• Not be impossible
2. Rights
• All rights which are not intransmissible or personal may also be the object of sale.

RIGHTS THAN CAN BE THE OBJECT OF SALE INTRANSMISSIBLE OR PERSONAL RIGHTS

• Right of Usufruct (1347) • Right to Vote
• Right of Conventional Redemption (1601) • Right to Public Office
• Credit (1624) • Marital and Parental RIghts
Right to transfer ownership

1. Seller must be owner or authorized by the owner of the thing sold

• The seller can only sell what he owns. It is essential in order for a sale to be valid that the vendor
must be able to transfer ownership (Art. 1458.)
2. Right must exist at the time of delivery
• The seller must own the item or must be the owner at the time of delivery.
• It is also applicable to the
3. Where property sold registered in the name of the seller who employed fraud in securing his title

ARTICLE 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. (n)

DETERMINATE

• distinct, can be define, and limited.

• identified by individuality.
• It can’t be substitute with the same kind or quality.

Subject Matter must be Determinate.

1. When a thing is a Determinate.

• particularly designated (e.g. Car with the licensed NWJ123, Dog named Bruno)
• physically segregated (rice in the warehouse)
2. Sufficient if subject matter is capable of being made determinate.

Emptio rei speratae vs Emptio spei

ARTICLE 1461

Things having a potential existence may be the object of the contract of sale.

The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come
into existence.

The sale of a vain hope or expectancy is void. (n)

Emptio rei speratae - Sale of thing expected / Sale of Thing having potential existence.

Emptio spei– Sale of Hope or Expectancy.

 Emptio rei speratae Emptio spei

• If the expected thing does not materialize, the
sale is not effective or void.
• Subject to a condition that the thing should
exist, otherwise, there will no contract by
reason of the absence of an essential element,
which is the subject matter.
• Deals with future things.
• It doesn’t matter if the expected thing materializes
or not.
• It produces effects even though the thing does not
come into existence, the subject matter is the hope
itself.
• Deals with present thing.

KINDS OF THINGS

1. Goods (Article 1462)

2. Undivided Interest (Article 1463)
3. Undivided Shares in a specific mass of Fungible Goods (Article 1464)
4. Things subjected to Resolutory Condition (Article 1465)

Sale of Existing Goods / Future Goods

ARTICLE 1462

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

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

Traditional specifications of goods are MOVABLE and TANGIBLE

1. Existing Goods – it is owned/possessed by the seller at the perfection of contract.

2. Future Goods - to be manufactured, raised, or acquired by the seller. Some acquisition may also depends
upon a contingency which may or may not happen.

Contingency - a future event or circumstance which is possible but cannot be predicted with certainty.

Sale of Undivided Interest

ARTICLE 1463

The sole owner of a thing may sell an undivided interest therein. (n)

The legal effect of the sale of an undivided interest in a thing is to make the buyer a co-owner in the thing sold. As co-owner,
the buyer acquires full ownership of his part and he may, therefore, sell it. Such sale is, of course, limited to the portion which
may be allotted to him in the division of the thing upon the termination of the co-ownership.
 Sale of Undivided Share of Specific Mass
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. By such a sale the buyer becomes owner in common of
such a share of the mass as the number, weight or measure bought bears to the number, weight or measure of the
mass. If the mass contains less than the number, weight or measure bought, the buyer becomes the owner of the
whole mass and the seller is bound to make good the deficiency from goods of the same kind and quality, unless a
contrary intent appears. (n)

Fungible Goods

• it refers to the goods that can’t be use without consuming it.

• It is also interchangeable because all of them has the same value.

Sale of Shares in Specific Mass

1. If the quantity of the mass is more than the quantity sold, the parties shall become co-owners.
2. If the quantity of the mass is less than the quantity sold, the BUYER becomes the owner of the whole mass,
and the SELLER is bound to make good the deficiency which should be of the same kind and quality.

Sale of a thing subject to a Resolutory Condition

ARTICLE 1465

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

A resolutory condition

• It is an uncertain event upon the happening of which the obligation subject to it is extinguished.
• It is a condition that extinguished the contract if it is fulfilled.

Examples:

• Right of Repurchased
• Usufruct

CONTRACT OF SALE vs. OTHER CONTRACTS

Contract of Agency to Sell

ARTICLE 1466

In construing a contract containing provisions characteristic of both the contract of sale and of the contract of
agency to sell, the essential clauses of the whole instrument shall be considered. (n)
Contract of Agency - a 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.

PRINCIPAL - Right to fix the price and terms of the sale.

CONTRACT OF SALE AGENCY TO SELL

• Buyer receives the goods as owner.
• Buyer becomes the owner after delivery.
• Buyer has to pay the price.
• Buyer cannot return the object sold.
• Seller warrants the thing sold
• Agent delivers the price which he got from the buyer.
• Agent does not become the owner.
• Agent has simply to account for the proceeds of the sale
he may make on the principal’s behalf
• Agent can return unsold products.
• Agent who sells assumes no personal liability as long as
he acts within his authority and in the name of the
principal.

ARTICLE 1403 – UNENFORCEABLE CONTRACT

The sale is entered by the one who have no authority or acted beyond his powers.

Contract For Piece of Work

ARTICLE 1467

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

Contract of Barter or Exchange

ARTICLE 1468

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

BARTER – is a contract wherein one party binds himself to give one thing in consideration on others promise to give
another thing.
 PRICE

Price is Certain Price is Fixed by the Third Person Price is not Fixed by the Designated Third Person

ARTICLE 1469

In order that the price may be considered certain, it shall be sufficient that it be so with reference to another thing
certain, or that the determination thereof is left to the judgment of a specified person or persons.

It must be understood that the last two cases are applicable only when no specific amount has been stipulated by the parties.

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.

GENERAL RULE: Price fixed and determined by a specified third person is binding between the parties.

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 at fault may have such remedies against the party in fault as are allowed the seller or the buyer, as the case
may be. (1447a)

PARTY NOT IN FAULT REMEDIES ARE: may demand fulfillment or rescission of the contract.

If the innocent PARTY chooses fulfillment, the court will fix the price.

NOTE: Failure to pay the agreed price does not consel sales for lack of consideration.

THE PRICE IS CERTAIN WHEN:

1. When it is stipulated
2. When it has reference to another thing certain
3. When it is fixed by a third person
4. When it is fixed by the court

Gross Inadequacy of Price / Lesion

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. (n)

1. GENERAL RULE: Gross inadequacy of price does not affect a contract of sale
2. Where low price indicates a defect in the consent – Fraud, mistake, or undue influence is present.
3. Where price so low as to be “shocking to conscience”
 Price is Simulated
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. (n)

Price on a given market day / Price of Fungible Things

ARTICLE 1472

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

This article is especially applicable to fungible things like securities, grain, liquids,
etc. the price of which are subject to fluctuations of the market.

Fixing of price by one party

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.

GENERAL RULE: The determination of the price cannot be left to the discretion of one of the contracting parties. It
must be determined impartially by both parties or left to the judgment of a specified person or persons.

EXCEPTION: If 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.

Price cannot be determined

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. (n)

If the price cannot be determined, it will considered void. Both parties can’t fulfill his obligation.
Form of Contract of Sale

General Rule

A contract of sale may be made in writing, by word of mouth, or partly by writing, and partly by word of
mouth, or may be inferred from the conduct of the parties.

Exceptions:

1. If the law requires a document or other special form – Article 1357 (Ex. Sale of Land through an Agent)
2. Under the Statute of Frauds, certain contracts must be in writing, otherwise, they shall be unenforceable –
Article 1403 (2) (Ex. Sale of Movables exceeding 500 PHP)
3. Sale of large cattle which requires that the same be recorded with the city/municipal treasurer and that a
certificate of transfer to be issued. Otherwise, the sale is not valid – Article 1581