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BA 161
(Law on Business and Transactions)

COMPILED NOTES NO. 1

PART I: SALES

Sales are governed by the provisions of the Civil Code, particularly Book IV, Title VI, Articles 1458 – 1637 thereof. The
provisions of the Civil Code pertaining to Obligations (Title I, Articles 1156 – 1304) and Contracts (Title II, Articles 1305
– 1422) are also applicable to the contract of sale.

CHAPTER 1
NATURE AND FORM OF THE CONTRACT
(Articles 1458 – 1488, Civil Code)
Topics Target Learning Outcomes

A. Definition  Explain the meaning of the contract of sale.

B. Characteristics  Describe the characteristics and elements of the
C. Elements contract of sale.
D. Stages  Discuss the stages and form of the contract of sale.
E. Kinds  Identify the different kinds of sales.
F. Form  Distinguish sale from other contracts.
G. Sale Distinguished from Other Similar Contracts

A. DEFINITION

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership 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.

The contract of sale is an agreement whereby one of the parties (called the seller or vendor) obligates himself to
deliver something to the other (called the buyer or purchaser or vendee) who, on his part, binds himself to pay
therefor a sum of money or its equivalent (known as the price). (de Leon)

B. CHARACTERISTICS

1. Consensual (as distinguished from real), because the contract is perfected by mere consent.
(Note: A real contract is one perfected by delivery, e.g., the contract of deposit or commodatum.)

Art. 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.

Under Article 1475 of the Civil Code, from the moment of perfection of the sale, the parties may reciprocally
demand performance, even when the parties have not affixed their signatures to the written form of such sale,
but subject to the provisions of the law governing the form of contracts. Consequently, the actual delivery of
the subject matter or payment of the price agreed upon are not necessary components to establish the existence
of a valid sale; and their non-performance do not also invalidate or render “void” a sale that has began to exist
as a valid contract at perfection; non-performance, merely becomes the legal basis for the remedies of either
specific performance or rescission, with damages in either case. (Villanueva, 2009)

A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object
of the contract and upon the price. Being consensual, a contract of sale has the force of law between the
contracting parties and they are expected to abide in good faith by their respective contractual commitments.
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Article 1358 of the Civil Code which requires the embodiment of certain contracts in a public instrument, is
only for convenience, and registration of the instrument only adversely affects third parties. Formal
requirements are, therefore, for the benefit of third parties. Non-compliance therewith does not adversely affect
the validity of the contract nor the contractual rights and obligations of the parties thereunder. (Fule vs. CA, et. al.,
G.R. No. 112212, March 2, 1998)

2. Bilateral and reciprocal, because both the contracting parties are bound to fulfill correlative obligations towards
each other — the seller, to deliver and transfer ownership of the thing sold and the buyer, to pay the price.

A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the ownership of and deliver a
determinate thing, and the buyer obligates itself to pay therefor a price certain in money or its equivalent. The
non-payment of the price by the buyer is a resolutory condition which extinguishes the transaction that for a
time existed, and discharges the obligations created thereunder. Such failure to pay the price in the manner
prescribed by the contract of sale entitles the unpaid seller to sue for collection or to rescind the contract.
(Carrascoso, Jr. vs. CA, et. al., G.R. No. 123672, December 14, 2005)

The legal effects and consequences of sale being a bilateral contract composed of reciprocal obligations are as
follows:
(a) The power to rescind is implied, and such power need not be stipulated in the contract in order for the
innocent party to invoke the remedy; (Art. 1191, Civil Code)
(b) Neither party incurs delay if the other party does not comply, or is not ready to comply in a proper manner,
with what is incumbent upon him; (Art. 1169, last paragraph, Civil Code) and
(c) From the moment one of the parties fulfills his obligation, the default by the other begins, without the need
of prior demand. (Art. 1169, last paragraph, Civil Code)

3. Onerous, because the thing sold is conveyed in consideration of the price and vice versa.

Sale is an onerous contract, as distinguished from a gratuitous contract, because it imposes a valuable
consideration as a prestation, which ideally is a price certain in money or its equivalent. (Art. 1458, Civil Code)

4. Commutative, as a rule, because the values exchanged are almost equivalent to each other.
[Note: By way of exception, some contracts of sale are aleatory (Art. 2010), i.e., what one receives may in time be
greater or smaller than what he has given. Example: The sale of a genuine sweepstakes ticket.]

Sale is a commutative contract, as distinguished from an aleatory contract, because a thing of value is exchanged
for equal value, i.e., ideally the value of the subject matter is equivalent to the price paid. Nevertheless, there is
no requirement that the price be equal to the exact value of the subject matter; all that is required is for the seller
to believe that what was received was of the commutative value of what he gave. (Buenaventura, et. al. vs. CA, et.
al., G.R. No. 126376, November 20, 2003)

A contract of sale is normally commutative and onerous: not only does each one of the parties assume a
correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the
price), but each party anticipates performance by the other from the very start. While in a sale the obligation of
one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes
the risk of receiving nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei), it
is not in the usual course of business to do so; hence, the contingent character of the obligation must clearly
appear. (Fernando A. Gaite vs. Isabelo Fonacier, et. al., G.R. No. L-11827, July 31, 1961)

5. Principal (as distinguished from an accessory contract), because for the contract of sale to validly exist, there is
no necessity for it to depend upon the existence of another valid contract. (Examples of accessory contracts are
those of pledge and mortgage.)

Sale is a principal contract, as contrasted from accessory or preparatory contracts, because it can stand on its
own, and does not depend on another contract for its validity or existence; more importantly, that parties enter
into sale to achieve within its essence the objectives of the transaction, and simply not in preparation for another
contract. (Villanueva, 2009)

6. Nominate (as distinguished from an innominate contract) because the Code refers to it by a special designation
or name, i.e., the contract of sale.
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C. ELEMENTS

1. Essential elements (those without which there can be no valid sale):

The elements of a contract of sale are consent, object, and price in money or its equivalent. It bears stressing
that the absence of any of these essential elements negates the existence of a perfected contract of sale. (Dizon vs.
CA, et. al., G.R. No. 122544, January 28, 1999)

When all three elements are present, but there is defect or illegality constituting any of such elements, the
resulting contract is either voidable when the defect constitutes a vitiation of consent, or void as mandated
under Article 1409 of the Civil Code. (Villanueva, 2009)

(a) Consent or meeting of the minds, i.e., consent to transfer ownership in exchange for the price. This refers
to the consent on the part of the seller to transfer and deliver and on the part of the buyer to pay. (Art. 1475)

The parties must have legal capacity to give consent and to obligate themselves. (Arts. 1489, 1490, 1491)

The sale of a conjugal property requires the consent of both the husband and the wife. The absence of the
consent of one renders the sale null and void, while the vitiation thereof makes it merely voidable. Only in
the latter case can ratification cure the defect. (Guiang vs. CA, G.R. No. 125172, June 26, 1998)

There may, however, be a sale against the will of the owner in case of expropriation (Art. 1488) and the three
different kinds of sale under the law, namely: an ordinary execution sale (Rules of Court, Rule 39, Sec. 15),
judicial foreclosure sale (Rules of Court, Rule 68), and extra-judicial foreclosure sale. (Act No. 3135, as
amended) A different set of law applies to each class of sale mentioned. (Fiestan vs. CA, et. al., G.R. No. 81552,
May 28, 1990)

Art. 1488. The expropriation of property for public use is governed by special laws.

Expropriation is involuntary in nature, that is, the owner may be compelled to surrender the property
after all the essential requisites have been complied with.

The procedure for the exercise of the power of eminent domain is provided for in Rule 67 of the Rules
of Court. Expropriation must be decreed by competent authority and for public use and always upon
payment of just compensation. (Art. 435, par. 1, Civil Code; Art. III, Sec. 9, Constitution)

Just compensation in expropriation cases is defined "as the full and fair equivalent of the property taken
from its owner by the expropriator. The Court repeatedly stressed that the true measure is not the
taker's gain but the owner's loss. The word 'just' is used to modify the meaning of the word
'compensation' to convey the idea that the equivalent to be given for the property to be taken shall be
real, substantial, full and ample. (Evergreen Manufacturing Corporation vs. Republic of the Philippines, G.R. No.
218628, September 06, 2017)

(b) Object or subject matter, refers to the determinate thing which is the object of the contract.

Requisites of a valid subject matter:

(1) It must be existing, having potential existence, a future thing, or even contingent or subject to a
resolutory condition; in other words, it must be a “POSSIBLE THING;”
(2) It must be LICIT; and
(3) It must be DETERMINATE or at least DETERMINABLE.

DISCUSSION ON REQUISITE NO. 1

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.

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Sale of things having potential existence (de Leon)

Even a future thing (Arts. 1461, par. 1; 1347, par. 1) not existing at the time the contract is entered into may
be the object of sale provided it has a potential or possible existence, that is, it is reasonably certain to
come into existence as the natural increment or usual incident of 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 a mere hope or expectancy (de Leon)

The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing
contemplated or expected will come into existence. (par. 2) The sale really refers to an “expected thing”
which is not yet in existence, and not to the hope or expectancy which already exists, in view of the
condition that the thing will come into existence. But the 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. (par. 3)

Sale of thing expected and sale of hope itself distinguished.

Emptio rei speratae Emptio spei
 the sale of a thing not yet in existence subject to  the sale of the hope itself that the thing will
the condition that the thing will exist and on come into existence, where it is agreed that the
failure of the condition, the contract becomes buyer will pay the price even if the thing does
ineffective and hence, the buyer has no not eventually exist.
obligation to pay the price.
 the future thing is certain as to itself but  like the sale of a sweepstake ticket, it is not
uncertain as to its quantity and quality; certain that the thing itself (winning a prize)
will exist, much less its quantity and quality;
 contract deals with a future thing;  contract relates to a thing which exists or is
present – the hope or expectancy;
 sale is subject to the condition that the thing  produces effect even though the thing does
should exist, so that if it does not, there will be not come into existence because the object of
no contract by reason of the absence of an the contract is the hope itself, unless it is a vain
essential element. hope or expectancy (like the sale of a falsified
sweepstakes ticket which can never win).

Presumption in case of doubt. (de Leon)

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.

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 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.

Goods which form the subject of a contract of sale may be either:

(a) Existing goods or goods owned or possessed by the seller; or
(b) Future goods or goods to be manufactured (like the sale of milk bottles to be manufactured with
the name of the buyer pressed in the glass), raised (like the sale of the future harvest of palay from
a ricefield), or acquired (like the sale of a definite parcel of land the seller expects to buy)

Paragraph 1 of Article 1462 does not apply if the goods are to be manufactured especially for the buyer
and not readily saleable to others in the manufacturer’s regular course of business. The contract, in such
case, must be considered as one for a piece of work. (Art. 1467)

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

A resolutory condition is an 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.
(Arts. 1179, 1181)
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DISCUSSION ON REQUISITE NO. 2

Art. 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it
is delivered.

Requisites concerning object (de Leon)

(1) Things — Aside from being (a) determinate (Arts. 1458, 1460), the law requires that the subject matter
must be (b) licit or lawful, that is, it should not be contrary to law, morals, good customs, public
order, or public policy (Arts. 1347, 1409[1, 4]), and should (c) not be impossible. (Art. 1348) In other
words, like any other object of a contract, the thing must be within the commerce of men.

If the subject matter of the sale is illicit, the contract is void and cannot, therefore, be ratified. (Art.
1409)

Kinds of illicit things:

 per se (of its nature) (example: decayed food unfit for consumption)
 per accidens (made illegal by provision of the law) (example: sale of land to an alien as
prohibited by the Constitution)

(2) Rights — All rights which are not intransmissible or personal may also be the object of sale (Art.
1347), like the right of usufruct (Art. 572), the right of conventional redemption (Art. 1601), credit (Art.
1624). Examples of intransmissible rights are the right to vote, right to public office, marital and
parental rights.

No contract may be entered upon future inheritance except in cases expressly authorized by law.
(Art. 1347, par. 2) While services may be the object of a contract (Art. 1347, par. 3), they cannot be the
object of a contract of sale. (Art. 1458; see Art. 1467)

Right to transfer ownership (de Leon)

(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 (Art. 1458.) and, therefore, he must be the owner
or at least must be authorized by the owner of the thing sold. This rule is in accord with a well-
known principle of law that one cannot transmit or dispose of that which he does not have — nemo
dat quod non-habet. Accordingly, one can sell only what one owns or is authorized to sell, and the
buyer can acquire no more than what the seller can transfer legally. (Tangalin vs. CA, et. al., G.R. No.
121703. November 29, 2001; for exceptions, see Art. 1505.)

(2) Right must exist at time of delivery. — Article 1459, however, 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.
Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery
of the thing sold. Sale, being a consensual contract, it is perfected by mere consent, and ownership
by the seller of the thing sold is not an element for its perfection. It is sufficient if the seller has the
“right to transfer the ownership thereof at the time it is delivered.” Thus, the seller is deemed only
to impliedly warrant that “he has a right to sell the thing at the time when the ownership is to pass.”
(Art. 1547[1])

The reason for the rule is obvious. Since future goods (Arts. 1461, par. 1; 1462 par. 1) or goods whose
acquisition by the seller depends upon a contingency (Art. 1462, par. 2) may be the subject matter of
sale, it would be inconsistent for the article to require that the thing sold must be owned by the
seller at the time of the sale inasmuch as it is not possible for a person to own a thing or right not
in existence.

In general, a perfected contract of sale cannot be challenged on the ground of the sellers’ non-
ownership of the thing sold at the time of the perfection of the contract. (Alcantara-Daus vs. de Leon,
G.R. No. 149750, June 16, 2003)

In contracts of sale, the vendor need not possess title to the thing sold at the perfection of the
contract. However, the vendor must possess title and must be able to transfer title at the time of
delivery. (Heirs of Severina San Miguel vs. CA, et. al., G.R. No. 136054, September 5, 2001)
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DISCUSSION ON REQUISITE NO. 3

Art. 1460. A thing is determinate when it is particularly designated or physical segregated from all other 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.

The object of every contract must be determinate as to its kind. The fact that the quantity is not
determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine
the same without the need of a new contract between the parties. A thing is determinate when it is
particularly designated and/or physically segregated from all others of the same class. (Domingo, 2019)

A thing is determinable only when two (2) requisites are present:

(1) If at perfection of the sale, the subject matter is capable of being made determinate (the “capacity
to segregate” test); and
(2) Without the necessity of a new or further agreement between the parties (the “no further
agreement” test).

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

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.

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. (Article 493)

Art. 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.

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. (Art. 1460)
(1) 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.
(2) 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.

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.

(c) Price certain in money or its equivalent (this is the cause or consideration).

Requisites for a valid price:

(1) It must be REAL;
(2) It must be in MONEY OR ITS EQUIVALENT, (i.e., it must be VALUABLE CONSIDERATION); and
(3) It must be CERTAIN or ASCERTAINABLE.
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DISCUSSION ON REQUISITE NO. 1

The price must be real, not fictitious; otherwise, the sale is void although the transaction may be shown
to have been in reality a donation or some other contract. (Art. 1471)

Art. 1471. If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation,
or some other act or contract.

Effect where price is simulated. (de Leon)

(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. (Arts. 1471, 1345, 1353.)

(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 (Art. 1345), the ownership of the thing is not
transferred. The contract is void and inexistent. (Art. 1409[2]) The action or defense for the
declaration of the inexistence of a contract does not prescribe. (Art. 1410)

(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; and (c) the purpose is to deceive third persons.

The non-payment of the price does not prove simulation; at most, it gives the seller the right to sue
for collection. Generally, in a contract of sale, payment of the price is a resolutory condition and the
remedy of the seller is to exact fulfillment or, in case of a substantial breach, to rescind the contract.

Effect of absence of price/non-payment of price. (de Leon)

(1) There can be no sale without a price. (Art. 1474) Technically, the cause in sale is, as to the seller, the
buyer’s promise to pay the price, and as to the buyer, the seller’s promise to deliver the thing sold.
A contract of sale is void and produces no effect whatsoever where the same is without cause or
consideration (Art. 1409[3]) in that the purchase price, which appears thereon as paid, has, in fact,
never been paid by the buyer to the seller. Such sale is nonexistent and cannot be considered
consummated.

(2) Non-payment of the purchase price is a resolutory condition for which the remedy is either
rescission or specific performance under Article 1191 of the Civil Code. It constitutes a very good
reason to rescind a sale, for it violates the very essence of the contract of sale.

But the failure to pay the price in full within a fixed period does not, by itself, dissolve a contract
of sale in the absence of any agreement that payment on time is essential, or make it null and void
for lack of consideration, but results at most in default on the part of the vendee for which the
vendor may exercise his legal remedies.

DISCUSSION ON REQUISITE NO. 2

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.

Effect of gross inadequacy of price in voluntary sales. (de Leon)

(1) General rule — While a contract of sale is commutative, mere inadequacy of the price generally
does not affect its validity when both parties are in a position to form an independent judgment
concerning the transaction. A valuable consideration, however small or nominal, if given or
stipulated in good faith is, in the absence of fraud, sufficient.

(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 (Art. 1355) in
which case the contract may be annulled not because of the inadequacy of the price but because the
consent is vitiated.
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(3) Where price so low as to be “shocking to conscience” — While it is true that mere inadequacy of
price is not a sufficient ground for the cancellation of a voluntary contract of sale, it has been held
that 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.

Effect of gross inadequacy of price in involuntary sales. (de Leon)

(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. Like in a voluntary sale, mere inadequacy of price
is not a sufficient ground for the cancellation of an execution sale if there is no showing that in the
event of a resale, a better price can be obtained.

(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.

DISCUSSION ON REQUISITE NO. 3

If no specific amount has been agreed upon, the price is still considered certain:
(1) if it be certain with reference to another thing certain;
(2) if the determination of the price is left to the judgment of a specified person or persons;
(3) in the cases provided for under Art. 1472, Civil Code.

Art. 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 be left to the judgment of a special 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.

Art. 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.

Art. 1473. The fixing of the price can never be left to the discretion of one of the contracting parties. However, if
the price fixed by one of the parties is accepted by the other, the sale is perfected.

Art. 1474. Where the price cannot be determined in accordance with the preceding 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.

A definite agreement as to the price is an essential element of a binding agreement to sell personal or
real property because it seriously affects the rights and obligations of the parties. Price is an essential
element in the formation of a binding and enforceable contract of sale. The fixing of the price can never
be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties,
if accepted by the other, gives rise to a perfected sale. (Domingo, 2019)

It is not enough for the parties to agree on the price of the property. The parties must also agree on the
manner of payment of the price of the property to give rise to a binding and enforceable contract of sale
or contract to sell. This is so because the agreement as to the manner of payment goes into the price,
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such that a disagreement on the manner of payment is tantamount to a failure to agree on the price.
(Domingo, 2019)

2. Natural elements (those which are inherent in the contract, and which in the absence of any contrary provision,
are deemed to exist in the contract).

(a) warranty against eviction (deprivation of the property bought)

(b) warranty against hidden defects

3. Accidental elements (those which may be present or absent in the stipulation, such as the place or time of
payment, or the presence of conditions).

D. STAGES

1. negotiation, covering the period from the time the prospective contracting parties indicate interest in the
contract to the time the contract is perfected;

2. perfection, which takes place upon the concurrence of the essential elements of the sale which are the meeting
of the minds of the parties as to the object of the contract and upon the price; and

3. consummation, which begins when the parties perform their respective undertakings under the contract of
sale, culminating in the extinguishment thereof.

DISCUSSION

A contract of sale is “born” from the moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price and the manner of its payment. (Villanueva, 2009)

The perfection of a contract of sale should not, however, be confused with its consummation. In relation to the
acquisition and transfer of ownership, it should be noted that sale is not a mode, but merely a title. A mode is
the legal means by which dominion or ownership is created, transferred or destroyed, but title is only the legal
basis by which to affect dominion or ownership. Under Article 712 of the Civil Code, "ownership and other real
rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and
in consequence of certain contracts, by tradition." Contracts only constitute titles or rights to the transfer or
acquisition of ownership, while delivery or tradition is the mode of accomplishing the same. Therefore, sale by
itself does not transfer or affect ownership; the most that sale does is to create the obligation to transfer
ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership. (San Lorenzo
Development Corp. vs. CA, et. al., G.R. No. 124242, January 21, 2005)

Art. 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.

Art. 1476. 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.

(2) A sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer, or in other
customary manner. Until such announcement is made, any bidder may retract his bid; and the auctioneer may withdraw
the goods from the sale unless the auction has been announced to be without reserve.

(3) A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise provided by law or by stipulation.

(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.

Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.
 10

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

Kinds of Delivery: (a) actual (Art. 1497); (b) constructive (Arts. 1498-1601), including “any other manner
signifying an agreement that the possession is transferred.” (Art. 1496)

Under the Civil Code, unless the contract contains a stipulation that ownership of the thing sold shall not pass
to the purchaser until he has fully paid the price, ownership of the thing sold shall be transferred to the vendee
upon the actual or constructive delivery thereof. In other words, payment of the purchase price is not essential
to the transfer of ownership as long as the property sold has been delivered. Such delivery (traditio) operated
to divest the vendor of title to the property which may not be regained or recovered until and unless the contract
is resolved or rescinded in accordance with law. (PNB vs. CA, G.R. No. 118357, May 6, 1997)

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price.

A contract to sell may be defined as a bilateral contract whereby the prospective seller, while expressly reserving
the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell
the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is,
full payment of the purchase price. (Domingo, 2019)

A Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. In
a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning,
the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the
contract to sell until the happening of an event, which for present purposes we shall take as the full payment of
the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject
property when the entire amount of the purchase price is delivered to him. In other words, the full payment of
the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to
sell from arising and thus, ownership is retained by the prospective seller without further remedies by the
prospective buyer. (Romulo A. Coronel, et. al. vs. CA, et. al., G.R. No. 103577, October 7, 1996)

An option, as used in the law on sales, is a continuing offer or contract by which the owner stipulates with
another that the latter shall have the right to buy the property at a fixed price within a certain time, or under,
or in compliance with, certain terms and conditions, or which gives to the owner of the property the right to
sell or demand a sale. It is also sometimes called an "unaccepted offer." An option is not of itself a purchase, but
merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. It is simply a
contract by which the owner of property agrees with another person that he shall have the right to buy his
property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he
does sell something, that it is, the right or privilege to buy at the election or option of the other party. Its
distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside
from the consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not vest,
transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is merely a contract
by which the owner of property gives the optionee the right or privilege of accepting the offer and buying the
property on certain terms. (Adelfa Propeties, Inc., vs. CA, et. al., G.R. No. 111238, January 25, 1995)

The distinction between an "option" and a contract of sale is that an option is an unaccepted offer. It states the
terms and conditions on which the owner is willing to sell the land, if the holder elects to accept them within
the time limited. If the holder does so elect, he must give notice to the other party, and the accepted offer
thereupon becomes a valid and binding contract. If an acceptance is not made within the time fixed, the owner
is no longer bound by his offer, and the option is at an end. A contract of sale, on the other hand, fixes definitely
the relative rights and obligations of both parties at the time of its execution. The offer and the acceptance are
concurrent, since the minds of the contracting parties meet in the terms of the agreement. (Ibid.)

The test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is whether or
not the agreement could be specifically enforced. (Ibid.)
 11

Art. 1480. Any injury to or benefit from the thing sold, after the contract has been perfected, from the moment of the
perfection of the contract to the time of delivery, shall be governed by Articles 1163 to 1165, and 1262.

This rule shall apply to the sale of fungible things, made independently and for a single price, or without consideration of
their weight, number, or measure.

Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall not be imputed to
the vendee until they have been weighed, counted, or measured and delivered, unless the latter has incurred in delay.

Four rules may be given regarding risk of loss: (de Leon)

(a) If the thing is lost before perfection, the seller and not the one who intends to purchase it bears the loss in
accordance with the principle that the thing perishes with the owner (res perit domino);
(b) If the thing is lost at the time of perfection, the contract is void or inexistent. (Art. 1409[3]) The legal effect is
the same as when the object is lost before the perfection of the contract of sale (Art. 1493);
(c) If the thing is lost after perfection but before its delivery, that is, even before the ownership is transferred
to the buyer, the risk of loss is shifted to the buyer as an exception to the rule of res perit domino (Arts. 1480,
pars. 1 and 2, 1538, 1189, and 1269); and
(d) If the thing is lost after delivery, the buyer bears the risk of loss following the general rule of res perit
domino.

Art. 1481. In the contract of sale of goods by description or by sample, the contract may be rescinded if the bulk of the goods
delivered do not correspond with the description or the sample, and if the contract be by sample as well as description, it
is not sufficient that the bulk of goods correspond with the sample if they do not also correspond with the description.

The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample.

There is a sale of goods by description where "a seller sells things as being of a particular kind, the buyer not
knowing whether the seller’s representations are true or false, but relying on them as true; or as otherwise
stated, where the buyer has not seen the article sold and relies on the description given to him by the seller, or
has seen the goods, but the want of identity is not apparent on inspection." A seller’s description of the goods
which is made part of the basis of the transaction creates a warranty that the goods will conform to that
description. Where the goods are bought by description from a seller who deals in the goods of that description,
there is an implied warranty that the goods are of merchantable quality. (Mendoza vs. David, G.R. No. 147575, October
22, 2004)

There is a sale by sample when a small quantity is exhibited by the seller as a fair specimen of the bulk, which
is not present and there is no opportunity to inspect or examine the same. To constitute a sale by sample, it must
appear that the parties treated the sample as the standard of quality and that they contracted with reference to
the sample with the understanding that the product to be delivered would correspond with the sample. In a
contract of sale by sample, there is an implied warranty that the goods shall be free from any defect which is
not apparent on reasonable examination of the sample and which would render the goods unmerchantable.
(Ibid.)

Art. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of
the perfection of the contract.

It is a statutory rule that whenever earnest money is given in a contract of sale, it shall be considered as part of
the price and as proof of the perfection of the contract. It constitutes an advance payment and must, therefore,
be deducted from the total price. Also, earnest money is given by the buyer to the seller to bind the bargain.
(Ibid.)

There are clear distinctions between earnest money and option money, viz.: (a) earnest money is part of the
purchase price, while option money ids the money given as a distinct consideration for an option contract; (b)
earnest money is given only where there is already a sale, while option money applies to a sale not yet
perfected; and (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-
be buyer gives option money, he is not required to buy. (Ibid.)

Art. 1487. The expenses for the execution and registration of the sale shall be borne by the vendor, unless there is a
stipulation to the contrary.
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E. KINDS

1. As to the presence or absence of conditions:

(a) Absolute. — where the sale is not subject to any condition whatsoever and where title passes to the buyer
upon delivery of the thing sold.
(b) Conditional. — where the sale contemplates a contingency (Arts. 1461, 1462, par. 2; Art. 1465), and in general,
where the contract is subject to certain conditions (Art. 1503, par. 1), usually, in the case of the vendee, the
full payment of the agreed purchase price (Art. 1478) and in the case of the vendor, the fulfillment of certain
warranties, e.g., the timely eviction of squatters on the property sold.

2. As to the nature of the subject matter:

(a) sale of real property
(b) sale of personal property

3. As to the value of the things exchanged:

(a) commutative sale
(b) aleatory sale

4. As to whether the object is tangible or intangible:

(a) sale of property (tangible or corporeal)
(b) sale of a right (assignment of a right or a credit, or some other intangibles such as a copyright, a
trademark, or goodwill)
(NOTE: If the object is tangible, it is called a chose in possession; if the object is intangible, as the case of a
right, it is a chose in action.)

5. As to the validity or defect of the transaction:

(a) valid sale
(b) rescissible sale
(c) voidable sale
(d) unenforceable sale
(e) void sale

6. As to the legality of the object:

(a) sale of a licit object
(b) sale of an illicit object

7. As to whether wholesale or retail:

(a) Wholesale, if to be resold for a profit the goods being unaltered when resold, the quantity being large.
(b) Retail, if otherwise (also if sold to tailors).

8. As to the proximate inducement for the sale:

(a) sale by description
(b) sale by sample
(c) sale by description and sample (Art. 1481, Civil Code).

9. As to when the price is tendered:

(a) cash sale
(b) sale on the installment plan

Art. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may
exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay
cover two or more installments. In this case, he shall have no further action against the purchaser to recover any
unpaid balance of the price. Any agreement to the contrary shall be void.
 13

These remedies are alternative and are not to be exercised cumulatively or successively and the election of
one is a waiver of the right to resort to the others. (de Leon)

Requisites Before Art. 1484 May Be Applied

(a) there must be a contract
(b) the contract must be one of sale (absolute sale, not a pacto de retro transaction, where redemption is
effected in installments)
(c) what is sold is personal property (sale of real property in installments is governed by RA 6552 –the
Maceda Law)
(d) the sale must be on the installment plan (an installment — is any part or portion of the buying price,
including the down payment)

Art. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option
to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing.

Art. 1486. In the case referred to in two preceding articles, a stipulation that the installments or rents paid shall not
be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the
circumstances.

F. FORM

Art. 1483. Subject to the provisions of the Statute of Frauds and 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.

1. General rule. — The form of a contract refers to the manner in which it is executed or manifested. As a general
rule, a contract may be entered into in any form provided all the essential requisites for its validity are present.
(Art. 1356) It may be in writing; it may be oral; it may be partly in writing and partly oral. It may even be inferred
from the conduct of the parties. Sale is a consensual contract and is perfected by mere consent. (Art. 1475.)

2. Where form is required in order that a contract may be enforceable. — In case the contract of sale should be
covered by the Statute of Frauds, the law requires that the agreement (or some note or memorandum thereof)
be in writing subscribed by the party charged, or by his agent; otherwise, the contract cannot be enforced by
action. (see Art. 1403[2])

Under the Statute of Frauds (Art. 1403[2, a, d, e]) of the Civil Code, the following contracts must be in writing;
otherwise, they shall be unenforceable by action:
(a) Sale of personal property at a price not less than P500.00;
(b) Sale of real property or an interest therein regardless of the price involved; and
(c) Sale of property not to be performed within a year from the date thereof regardless of the nature of the
property and the price involved.

3. Where form is required in order that a contract may be valid. — Where the “applicable statute” requires that
the contract of sale be in a certain form for its validity, the required form must be observed in order that the
contract may be both valid and enforceable. (Art. 1356)

4. Where form is required only for the convenience of the parties. — In certain cases, a certain form (e.g., public
instrument) is required for the convenience of the parties in order that the sale may be registered in the Registry
of Deeds to make effective as against third persons the right acquired under such sale. As between the
contracting parties, the form is not indispensable since they are allowed by law to compel each other to observe
that form. (Arts. 1357, 1358[1]) Hence, the fact that the deed of sale of a parcel of land still had to be signed and
notarized does not mean that no contract had already been perfected. A sale of land is valid regardless of the
form it may have been entered into as long as the requisites for a valid contract of sale are present. (de Leon)

Sale of real property or an interest therein. (de Leon)

(a) A sale of a piece of land or interest therein when made through an agent is void unless the agent’s authority
is in writing. (Art. 1874)
(b) For the sale of real property to be effective against third persons, the sale must be registered in the Registry
of Deeds of the province or city where the property is located. The sale must be in a public document (e.g.,
 14

acknowledged before a notary public or any public officer authorized by law to administer oath) for
otherwise, the registration will be refused.
(c) The real purpose of registration of a contract of sale being to give notice to third persons and to protect the
buyer against claims of third persons arising from subsequent alienations by the vendor, it is certainly not
necessary to give efficacy to the deed of sale, as between the parties to the contract and their privies because
actual notice is equivalent to registration. It is settled that registration is not a mode of acquiring ownership.
(d) The sale of land in a private instrument is valid and binding upon the parties, for the time-honored rule is
that even a verbal contract of sale of real estate produces legal effects between the parties, since sale is a
consensual contract and is perfected by mere consent.
(e) The fact that the notarization of a deed of sale of real property is false is of no consequence, for it need not
be notarized; it is enough that it be in writing.

Exceptions to Coverage of Statute in Sales Contracts: (Villanueva, 2009)

Although a sale transaction may fall under any of the covered transactions under the Statute of Frauds, the
following sales would still not be covered and would be enforceable:
(a) When there is a note or memorandum thereof in writing, and subscribed by the party charged or his agent;
(b) When there has been partial consummation of the sale;
(c) When there has been a failure to object to the presentation of evidence aliunde as to the existence of a
contract; and
(d) When sales are effected through electronic commerce.

5. SALE DISTINGUISHED FROM OTHER SIMILAR CONTRACTS

1. Sale distinguished from agency to sell

Contract of Sale Contract of Agency to Sell
 the buyer pays the price  the agent delivers the price which in turn he got from his
buyer.
 the buyer after delivery becomes the owner  the agent who is supposed to sell does not become the
owner, even if the property has already been delivered
to him
 the seller warrants  the agent who sells assumes no personal liability as long
as he acts within his authority and in the name of the
principal

Art. 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.

By the 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. (Art. 1868)

2. Sale distinguished from contract for a piece of work

Contract of Sale Contract for a Piece of Work
 Goods are manufactured or procured in the ordinary  Goods are manufactured for customer upon his special
course of business order
 For the general market, whether on hand or not  For a specific customer

Art. 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.

By the contract for a piece of work the 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. (Art. 1713)

3. Sale distinguished from barter

Contract of Sale Barter
 one of the parties binds himself to deliver a thing in  one of the parties binds himself to give one thing in
consideration of the other’s undertaking to pay the price consideration of the other’s promise to give another
in money or its equivalent thing
 15

Art. 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.

4. Sale distinguished from contract to sell

Contract of Sale
 the non-payment of price is a resolutory condition, i.e.,
the contract of sale may by such occurrence put an end
to a transaction that once upon a time existed
 title over the property generally passes to the buyer
upon delivery
 after delivery has been made, the seller has lost
ownership and cannot recover it unless the contract is
resolved or rescinded
Contract to Sell
 the payment in full of the price is a positive suspensive
condition. Hence, if the price is not paid, it is as if the
obligation of the seller to deliver and to transfer
ownership never became effective and binding.
 ownership is retained by the seller, regardless of delivery
and is not to pass until full payment of the price
 since the seller retains ownership, despite delivery, he is
enforcing and not rescinding the contract if he seeks to
oust the buyer for failure to pay.

5. Sale distinguished from lease

Contract of Sale Lease
 the seller transfers ownership of the thing sold  the landlord or lessor transfers merely the temporary
possession and enjoyment of the thing leased

In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for a
price certain and for a period which may be definite or indefinite. (Art. 1643)

6. Sale distinguished from dation in payment

Contract of Sale
 There is no pre-existing credit.
 Gives rise to obligations.
 The cause is the price paid, from the viewpoint of the
seller, or the thing sold, from the viewpoint of the buyer
 There is greater freedom in the determination of the
price.
 The giving of the price may generally end the obligation
of the buyer.
Dation in payment (Dacion en pago)
 There is a pre-existing credit.
 Extinguishes obligations.
 The cause is the extinguishment of the debt, from the
viewpoint of the debtor, or the object acquired in lieu of
the credit, from the viewpoint of the creditor
 There is less freedom in determining the price.
 The giving of the object in lieu of the credit may
extinguish completely or partially the credit (depending
on the agreement).

Dation in payment (or dacion en pago) is the alienation of property to the creditor in satisfaction of a debt in
money. (Art. 1619) It is governed by the law on sales. (Art. 1245) As such the essential elements of a contract of
sales, namely, consent: object certain, and cause or considerations, must be present.

In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it
as equivalent of payment of an outstanding debt. In order that there be a valid dation in payment, the following
are the requisites: (1) There must be the performance of the prestation in lieu of payment (animo solvendi)
which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2)
There must be some difference between the prestation due and that which is given in substitution (aliud pro
alio); (3) There must be an agreement between the creditor and debtor that the obligation is immediately
extinguished by reason of the performance of a prestation different from that due. (Sonny Lo vs. KJS Eco-Formwork
System Phil., Inc., G.R. No. 149420, October 8, 2003)

7. Sale distinguished from donation

Contract of Sale Donation
 essentially an onerous contract  a gratuitous contract
 perfected by mere consent,  being a solemn contract, although consent is also
required, must comply with the formalities mandated by
law for its validity
 16

References:

The Law on Sales, Agency and Credit Transactions by Hector De Leon

Law on Sales by Cesar Lapuz Villanueva
Civil Code of the Philippines Annotated (Volume V) by Edgardo L. Paras
Regulatory Framework and Legal Issues in Business Part I by Andrix D. Domingo