Contract of Sale

Nature and Form of Contract

Contract of Sale Defined –
Art. 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.
Essential Elements of a Contract of Sale
1. Consent to transfer ownership in exchange for the price;

2. Determinate subject matter;

3. Price certain in money or its equivalent.

Natural Elements of a Contract of Sale
1. Warranty against eviction

2. Warranty against hidden defects

Accidental Elements
• Depend on the autonomy of the will of the parties.
 B offers to buy S’s blue Mitsubishi
Application: Lancer with plate number WLS 727
Contract of for P 200,000. S accepts the offer
and gives B its key. Is there a
Sale contract of sale? Why?
Simulated Contract of Sale
1. Absolute – do not intent to be bound at all;
• Effect is void; cannot be rescinded under Art. 1191 of the NCC.
• Parties may recover from each other what they may have been given under
the contract.

2. Relative – conceal the true agreement;

• Effect is valid, provided not prejudicial to third parties and not contrary to law,
morals, good custom, public order or public policy.
Application: Simulated Contract of Sale
FACTS: Avelina Rebusquillo was supposedly made to sign two
documents by her daughter Emelinda Rebusquillo-Gualvez
and her son-in-law Domingo Gualvez on the pretext
documents were needed to facilitate the titling of the lot. Two
years later, Avelina realized that she signed was a Deed of
Absolute Sale in favor of the spouses Gualvez. (Rebusquillo vs. Gualvez)

Issue: Can Avelina declared the sale void?

Characteristics of a Contract of Sale
1. Nominate – special contract;
2. Principal
3. Consensual
4. Bilateral – reciprocal obligations;
5. Onerous
6. Commutative – price is the equivalent value of the thing;
7. Title – perfection of the contract; ownership – delivery;
8. Aleatory (e.g. lotto tickets)
Kinds of Sale
As to presence or absence of conditions:

1. Absolute – title to the property passes to the vendee upon delivery

of the thing sold.

2. Conditional – title do not pass to the vendee until full payment of

the purchase price.
Kinds of Sale
As to standing or status of the sale.

1. Valid sale – all the essential elements are present;

2. Rescissible sale – With economic and financial injury or prejudice to
either party or third person;
3. Voidable sale – consent is vitiated;
4. Unenforceable sale – done without or in excess of authority or does
not comply with statute of fraud;
5. Void sale – absence of any of the essential elements.
Kinds of Sale
As to the nature or object of sale:

1. Sale of movable or personal property

2. Sale of immovable or real property

Sale Distinguished from Other Contracts
Rule: It is not the title of the contract, but its express terms or stipulations
that determine the kind of contract entered into by the parties.

1. Agency to sell
2. Contract for a piece of work
3. Barter
4. Contract to sell
5. Dacion en pago
6. Donation
7. Lease
Rules on Barter
• Thing > money = barter;

• Thing < money = sale;

• Thing = money = sale;

Contract to Sell vs. Contract of Sale
Contract to Sell Contract of Sale
As to title Title remain to the seller until Title passes to the buyer upon
full payment of the purchase perfection of contract.
price.
As to ownership Remains to the seller despite Passes to the buyer upon
delivery until full payment of delivery of the thing.
purchase price.
As to effect of non-payment Title remains to the seller. Seller has lost and cannot
recover the ownership of the
property unless he takes action
to set aside the contract of sale.
As to remedy of the seller in Damages only. Art. 1191 of NCC.
case of default of payment Maceda Law also applies (RA
6552)
Conditional Sale vs. Contract to Sell
Conditional Sale Contract to Sell
Buyer automatically acquires title to the Not automatic; the seller must convey
property upon full payment of the title to the property through a deed of
purchase price. conditional sale.
Law on Sale applies. Civil Code of the Philippines applies –
Law on Conditional Obligations.
Art. 1191 of NCC applies. Art. 1191 does not apply. Return of
property and reimbursement is
necessary except reasonable
compensation.
Effect to Third Person
• Contract to sell – Third person is in good faith; reconveyance is not
applicable.

• Conditional Sale – Third person is in bad faith; reconveyance is

applicable.
Application: What Kind of Contract?

Chris bound himself to sell his parcel of land to Manuel for P 10M
payable in annual installments over a period of five years, but the title
would remain with him (Chris) until the purchase price is fully paid. To
enable Manuel to pay the price, Chris gave him a special power of
attorney authorizing him to subdivide the land, sell the individual lots,
and deliver the proceeds to Chris, to be applied to the purchase price.

Are there nominate contracts entered into between Chris and Manuel?
If in affirmative, what are they? Explain.
Application: What Kind of Contract?

The shoe manufacturer granted the shoe shop owner the exclusive
right to sell his brand of shoes. The price of the shoes is payable within
60 days from delivery, and the shoe shop owner gets a commission of
10% on all sales. After the delivery of the shoes to the shoe shop
owner, but before he could sell any of them, the Mall where the shoe
shop is located was completely burned without his fault, together with
all the shoe manufacturer’s shoes.

Should the shoe shop owner pay the shoe manufacturer for his lost
shoes? Why?
Application: What Kind of Contract?
Chris Furniture Company had an agreement to deliver to Ms. De
Guzman a specified pieces of living room and dining room furniture, all
made of narra, for a price stated in the contract.

What is the contract entered into by the parties?

If the furniture is for general public in the ordinary course of business,

what contract is entered into by the parties?
Application: What Kind of Contract?

Chris agreed to deliver his property to Manuel amounting to P 100,000.

Manuel will pay the amount partly in cash and in kind. The cash to be
paid by Manuel is 40% of the purchase price and the remaining 60%, he
will give his motorcycle to Chris. What kind of contract entered into by
the parties?
Right to Transfer Ownership
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.

• Title passes to the vendee– perfection; Ownership – delivery;

• Non-delivery, the seller will be liable for breach of contract;
• “one cannot give what one does not have”
• Exception: Art. 1434 of the NCC.
Exception:
Art. 1434. When a person who is not the owner of a thing sells or
alienates and delivers it, and later the seller or grantor acquires title
thereto, such title passes by operation of law to the buyer or grantee.
 Application:

Peter purchased a 200 square meter lot in Empire East Subdivision from Empire
East Corporation for a price of P 1.2M which is payable in this manner: P 50,000
down payment and a monthly installment of P 50,000 in 24 months. They
executed a contract to sell wherein Empire East Corporation reserved the
ownership over the lot until full payment of the purchase price. Peter paid the
monthly installments faithfully but on the 15th month, he failed to pay.
Juan, wanted to have a lot in Empire East Subdivision, offered to buy the
lot for P 1.5M. They agreed and executed a deed of sale subject to the condition
that delivery should be made after the title should have been issued to Peter.
Peter paid the remaining balance to Empire East Corporation which
executed a deed of absolute sale in favor of Peter.
Is there a valid contract of sale?
Object of Sale
Art. 1460. A thing is determinate when it is particularly designated or
physically segregated from all other of the same class.
The requisite that a thing be determinate is satisfied if at the
time of 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.
Requisites of a Valid Object of Sale
1. It must be determinate or determinable;

2. It must be licit or lawful; and

3. It must not be impossible.

Example:
Capable of being determinate
without the necessity for a new
agreement.
B agrees to purchase 100 sacks of
rice from S at a stated price which to be
paid at a fixed time. The kind of rice is
not clear at the time of the agreement
but it is agreed that B should send the
sacks of rice and that S should put the
rice into them. B sends the sacks and S
fills them with rice. S deliver the sacks of
rice to B who accepts them.
Examples of Illicit Object
• Future inheritance (Art. 1347);
• Animals suffering from contagious disease (Art. 1575);
• Sale of animals and found to be unfit (Art. 1575);
• Dangerous Drugs under RA 9165;
• Property of public dominion;
• Political rights;
• Sale of land under RA 6657 (within 10 years);
• Sale of land by a grantee of homestead patent (within 5 years).
Object of Sale
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.
Object of Sale
1. Sale of potential existence (Emptio Rei Speratae)
• Future goods (Art. 1462)
• Contingent goods (Art. 1462)

2. Sale of mere hope (Emptio Spei)

• Lotto tickets

3. Sale of vain hope or expectancy

• Effect is void.
Emptio Rei Speratae vs. Emptio Spei
Emptio Rei Speratae Emptio Spei
Object is future things; Object of sale is present thing
Uncertainty is with regard to quantity Uncertainty is with regard to the
and quality; but not with the existence existence of the thing.
of the thing;

The contract produces no effect if the The sale produces effect even though
thing does not come into existence the thing does not come into existence,
because the sale is subject to the unless it is a vain hope.
condition that the thing should exists.
Application:
• S agrees to sell to B, for stated price, all the succeeding crops which
shall be produced at S’s farmland during the ensuing year. Is the
contract of sale valid?

• S agrees, on January 15, 2020, to sell to B 100 shares of stocks in ABC

Sports Club, Inc. which will be delivered and paid on March 17, 2020.
S, at the time of perfection of the contract with B, is still negotiating
the said shares of stock with ABC Sports Club, Inc. Is the contract of
sale valid?
Application:
A had a contract with B, stipulating that B will deliver gold that will be
extracted from the particular mining site. Is the contract of sale is valid?

Is the sale valid when B knows from the beginning that no gold will be
extracted from the said mining site?
Particular Kinds of Thing
1. Goods (Art. 1462) – existing; future goods; contingent goods
2. Undivided share in a specific mass of fungible goods (Art. 1464);
3. Undivided interest of a co-owner (Art. 1463);
4. Things subject to a resolutory condition (Art. 1465);
5. Things in litigation.
Object of Sale - Goods
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
• Includes all chattels personal (tangible or intangible) but not things in
action or money legal tender in the Philippines.
• Philippine money vs. foreign money? Which one can be an object of
sale?
• Collector’s item can be an object of sale;
• But excludes the commodity future contract (under Art. 2018 of NCC).
Undivided Interest of Co-Owner
Art. 1463. The sole owner of a thing may sell an undivided interest
therein.
Undivided Share of Specific Mass of Fungible Goods

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.
Fungible Goods Defined
• These are goods that cannot be used or utilized without consuming
them, and can be substituted by other goods of the same kind and
quality.
Application:
A, believing that the he had more than 1,000 sacks of rice in their
family rice mill, sold to B 1000 sacks of rice at P 1,000 per sack. When B
was to pick up the 1,000 sacks of rice from the rice mill on a particular
date, it turned out that there were only 900 sacks. Out of dismay, B
informed A that he was rescinding the sale.

Can B rescind the sale?

Thing Subject to Resolutory Condition
Art. 1465. Things subject to a resolutory condition may be the object of
the contract of sale.
Application:
A bound himself to sell to B his only red Ferrari Car if the latter returns
to the Philippines on or before December 31, 2014. B accepts the offer
and returns on December 25, 2014. Suspensive

If A would sell his red Ferrari Car to C who knows the agreement
between A and B before December 25, 2014, would the sale be valid?
A – C- resolutory – extinguish
Things in Litigation
Art. 1381. The following contracts are rescissible:
xxxx.

(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval of
the litigants or of competent judicial authority.
Agency to Sell
Art. 1466. In construing a contract containing provisions characteristics
of both the contract of sale and of the contract of agency to sell, the
essential clauses of the whole instrument shall be considered.
Sales Through an Agent
• Contract of agency may be oral except when the law requires specific form.
• Agent binds the principal provided the former acted within the scope of
authority conferred by the latter.
• An agent who acted beyond the scope of his authority makes the contract
unenforceable, unless ratified by the principal.
• Sale of an immovable property through an agent requires the authority of
the agent be in writing, otherwise, the sale is void, and it cannot be ratified.
• SPA must express the powers of the agent in clear and unmistakable
language.
Application:
Andeng bought herself to sell her land in Rizal to Doc Jun for P50M
payable in annual installments over a period of ten years. The title
would remain with Andeng until the purchase price is fully paid. To
enable Doc Jun to pay the price, Andeng gave him a special power of
attorney authorizing him to subdivide the land, sell the individual lots,
and deliver the proceeds to her, to be applied to the purchase price.
Five years later, Andeng revoked the special power of attorney and took
over the sale of the subdivision lots. Is there a nominate contract
entered into by Andeng and Doc Jun? In the affirmative, what is it?
Explain.
Is the revocation valid or not? Why?
Application:
Prince Pal, who was working in Oman, phoned his brother, Pen Pal,
authorizing him to sell his parcel of land in Binangonan, Rizal. Prince
sent the title to Pen by courier service. Acting on behalf of his brother,
Pen sold the land to Thirdy and executed a notarized deed of absolute
sale after receiving payment.
What is the status of the sale?
Application:
Ahente was authorized by Prince Pal through a special power of
attorney to sell the land of the latter in Angono, Rizal. Ahente
succeeded in selling the same to Bummy Lee in accordance with the
instructions given to him. Ahente executed the deed of absolute sale
on behalf of Prince Pal three days after the latter’s death, an event that
neither the Ahante nor Bummy Lee knew at the time of the sale.

What is the status of the sale?

Application:
Ahente was the exclusive agent of Subdivision Developer in the sale of
lots of the latter’s newly developed subdivisions. Subdivision Developer
instructed Ahente that he could not collect or receive payment from
the buyer. Ahente was able to sell 20 lots to Bummy Lee and collect the
down payment for the said lots. He, however, did not turn over the
collections to Subdivision developer.

Who should bear the loss for Ahente’s act?

Note:
• In the case of Pahud vs. CA, the Court upholds the validity of the sale
entered into on behalf of the principal by an agent who has no
written authority to sell. The basis of the ponencia is the common law
principle of estoppel.
• It is the basic principle in the law of agency that a principal is subject
to liability for loss caused to another by the latter’s reliance upon a
deceitful representation by an agent in the course of his employment:
(1) if the representation is authorized; (2) if it is within the implied
authority of the agent to make for the principal; or (3) if it is
apparently authorized, regardless of whether the agent was
authorized by him or not to make the representation.
Contract for a Piece of Work
Art. 1467. A contract for the delivery at a certain price of an article
which the vendor in the ordinary course of 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.

Parties involved: Contractor and Employer

The contractor may either employ only his labor or skills, or also
furnish the material (Art. 1713).
Barter
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
part of the consideration exceeds the amount of money or its
equivalent; otherwise, it is a sale.

• Barter is governed by Article 1638 – 1641. When matters not

specifically provided in these Articles, law on sales applies (Art. 1641).
Barter
• Thing received in barter does not belong to the person who gave it –
that person cannot compel the other party to deliver what he offered
in exchange and he is liable to damages (Art. 1639)

• Loss due to eviction - may recover what he gave in exchange with a

right to damages or may only demand indemnity for damages. The
right to recover must not be prejudiced to the right of the third
person who acquired the thing in good faith. (Art. 1640)
Requisites for a Valid Price
1. It must be real;
2. It must be in money or its equivalent;
3. It must be certain or determinable at the time of the perfection of
the contract; and
4. The manner of payment must be agreed upon.

What is the effect in the absence of any of the requisites?

Price Must be Real -
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.

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.

• However, the Court nullified the foreclosure sale due to inadequacy of

the price because the selling price is shockingly low and
unconscionable.
Simulated Price
1. (Absolute) In a deed of sale, it was not intended to transfer the title
(there is no price agreed upon);

2. (Relative) In a deed of sale, the price in the deed is different from

the agreement.
Rescissible Contracts (Art. 1381 of NCC)
1. Those which are entered into by guardians whenever the wards
whom they represent suffer lesion by more than ¼ of the value of
the things which are the object thereof;
2. Those agreed upon in representation of absentees, if the latter
suffer the lesion stated in the preceding number;
3. Xxxx.
Price must be in Money or Its Equivalent
• Payment must be made in legal tender. Check is not legal tender.

• The parties may agree that the obligation shall be settled in any other
currency at the time of payment.

• In the absence of stipulation, the buyer may pay or settle his

obligation in Philippine currency.

• Partly in money and partly in thing – either sale or barter.

Price must be Certain or Determinable
• Price is certain if “it be so with reference to another thing certain, or
that the determination thereof be left to the judgement of a specified
person or persons (Art. 1469)
• Even before the fixing of the price by the designated third party, a
contract of sale is deemed perfected and existing (Art. 1469)
• 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.
Who can determine the price?
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.
(Law on Contracts – Art. 1308 to 1310)
• Art. 1474. When the price cannot be determined in accordance with
the preceding article, 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.
Who can determine the price?
Art. 1469. xxx be left to the judgement of a specified person or
persons.
Should such person or persons be unable or unwilling to fix it,
the contract shall be inefficacious, unless the parties subsequently
agree upon the price.
If the third person or persons acted in bad faith or by mistake,
the courts may fix the price.
Where such third person or persons are prevented from fixing
the price or terms by fault of the seller or the buyer, the party not in
fault may have such remedies against the party in fault as are allowed
the seller or the buyer, as the case maybe.
Manner of Payment Must be Agreed Upon
• Effect if not agreed upon – no contract of sale is perfected.

• Presumption of Consideration
• Art. 1354. Although the cause is not stated in the contract, it is presumed that
it exists and is lawful, unless the debtor proves the contrary.

• Non-payment of price
• Does not affect the validity of contract of sale; the seller may rescind the
contract or ask for specific performance.
Formation of Contract of Sale
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 the moment the parties may reciprocally demand
performance, subject to the provisions of the law governing the form of
contracts.
Stages in the Life of a Contract of Sale
1. Negotiation – contracting parties indicate interest;

2. Perfection – agree upon all the essential elements of the contract;

3. Consummation – fulfill or perform the term agreed upon.

Perfection
• Perfected when all elements of contract are present;

• Exception: perfection is subject to suspensive condition;

• Conditional sale – when condition is fulfilled, sale is perfected;

Perfection - Consent
Art. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance must be
absolute. A qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offer
except from the time it came to his knowledge. The contract, in such a
case, is presumed to have been entered into in the place where the
offer was made.
Art. 1320. An acceptance may be express or implied
Express and Implied Acceptance
• (Express) B offers to buy S’s red Mitsubishi Mirage BON 177 for P
200,000. S accepts the offer and gives B its key.

• (Implied) S sends his goods to B for sale or return. B sells the same
goods to C.

Implied acceptance can be inferred from the contemporaneous and

subsequent acts of the contracting parties.
Acceptance
Art. 1321. The person making the offer may fix the time, place, and
manner of acceptance, all of which must be complied with.

Art. 1322. An offer made through an agent is accepted from the time
acceptance is communicated to him.

Art. 1323. An offer becomes ineffective upon the death, civil

interdiction, insanity or insolvency of either party before acceptance is
conveyed.
Acceptance Through an Agent
S owns a parcel of land. In need of money, he authorizes his friend, A,
to sell it. A offers the land to B who immediately expresses his
acceptance to A. Unknown to A, at the time he knows of B’s
acceptance, S is already in the ICU and dies an hour thereafter.

Is the contract of sale perfected?

Acceptance
Art. 1324. When the offeror has allowed the offeree a certain period to
accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded
upon a consideration, as something paid or promised.

Option
Money
Application:
• “A” offers to sell his car to “B” amounting to P 1M. A gives B within 1
week to think whether to buy or not the car, otherwise it will be
offered to another buyer. Can the party cancel the offer to sell?

• Assuming that B gives A an option money amounting to 50,000, can A

cancel the offer prior to 1 week?
Exception:
Art. 1325. Unless it appears otherwise, business advertisements of
things for sale are not definite offers, but mere invitations to make an
offer.

Art. 1326. Advertisement for bidders are simply invitations to make

proposals, and the advertiser is not bound to accept the highest or
lowest bidder, unless the contrary appears.
Problem: Perfected or Not?
Medrano offered to sell his shares and the shares of the minority
stockholders of Paragon Paper Industries, Inc. at the price of 65% of the par
value to the Development Bank of the Philippines (DBP). The DBP, through its
BOD, approved the sale under DBP Resolution No. 4270 subject to the
following terms and conditions: (1) that prior to the implementation of the
approval, 57,596 shares of Paragon’s stock issued to the stockholders
concerned shall first be surrendered to the DBP; (2) that all the parties
concerned shall give their written conformity to the arrangement; and (3)
that the transaction shall be implemented within 45 days from the date of
approval; otherwise the sale shall be deemed cancelled. Medrano then
indorsed and delivered to DBP all his 37,681 shares which had a value of P
2,449,265. DBP accepted said shares and took over Paragon. Medrano
indeed tried in good faith but unfortunately failed to do so.
Is there a contract of sale?
Vices of Consent?
• Mistake, violence, intimidation, undue influence, or fraud;

• Makes the contract of sale voidable;

• Fraud is common in the contract of sale; Requisites are:

• Must be dolo causante or causal fraud; the deceit must be serious; and
• Must be proven by clear and convincing evidence.
Application:
• S, intending to deceive B, falsely represents to the latter that his land
is suitable for growing crops. B visits the land and sees the crops
standing thereon. On the basis of this representation, B buys the land.
It turns out that the crops were just placed thereon few days before
the visit. Is the contract voidable?
Delivery - Ownership

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

Real right;
 Delivery: Art. 1496 – Art. 1497 to 1501.
Exceptions – Art. 1478, Art. 1502
Exception:
1. Conditional sale;

2. Contract to sell;

3. Sale or return;

4. Sale on approval or trial.

5. Delivery to the courier or carrier

Promise to Buy or Sell (Negotiation)
Art. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable. (mutual promise)
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promisor if the promise is
supported by a consideration distinct from the price.
(Policitacion – unaccepted offer); or
Option contract.
Mutual Promise
• Mutual Promise – bilateral relationship of a contract to sell; not a
contract of sale which may be absolute or conditional.
• Contract of sale vs. contract to sell
• Conditional sale vs. contract to sell
Option Contract (Unilateral Promise)
• It is a contract by which the owner of the property agrees with
another person that the latter shall have the right to buy the former’s
property at a fixed price within a certain time.

• It is not a sale of property but a sale of right to purchase.

• It is a preparatory contract.

• See Art. 1324

Art. 1324
Art. 1324. When the offerer has allowed the offeree a certain period
to accept, the offer may be withdrawn at any time before acceptance
by communicating such withdrawal, except when the option is
founded upon a consideration, as something paid or promised.
Application:
Chris offered to sell his house and lot to Manuel for P 1,000,000. The
former gives the latter 1 week to decide whether to buy or not the said
house and lot. Prior to 1 week, Chris withdrew from his offer.
(1) What is the effect of the withdrawal of Chris?
(2) Suppose Manuel accepted the offer before Chris could
communicate his withdrawal thereof, what is the effect?
(3) Assuming that Manuel paid Chris P 100,000 as consideration
for the option, what is the effect?
Right of First Refusal
• It is a contractual grant whereby the owner of the determinate thing,
who is known as the grantor, binds himself not to sell his determinate
thing without first offering it to the holder of the right, who is known
as the grantee.
Application:
Thorny, a taxi operator, granted his taxi driver, Thirdy, the right to buy
his taxi the moment he would decide to sell it. It turned out that
Thorny was indebted to Casey for P 100,000. Thorny’s plan was to
convey his taxi to Casey in order to settle his indebtedness.
When Thirdy knew about the plan of Thorny, the former
demanded from the latter to sell the taxi to him since he had the right
of first refusal. Thorny claimed that Thirdy could not exercise his right
of first refusal because he was not selling the taxi but merely giving it to
Casey as payment for a debt.
Can Thirdy exercise his right of refusal?
Right of First Refusal
• Form (need not be written)
• Legal effect (offered first to the grantee)
• Consideration (must be none)
• Price (same price offered to third person)
• Indivisibility (all grantees must agree)
• PD No. 1517 (Lease for 10 years or more)
• Expired lease agreement
• Effect of violation – rescissible; enforceable through an action for specific
performance.
• Except: purchaser in good faith; the aggrieved party may ask for damages under Art.
19
Application:
Cassandra leased her condominium unit to Victoria for a period of one year.
Among the stipulation in the lease contract were: 1) the lessee shall pay
monthly rental of P 30,000 and 2) the lessee shall have an option to purchase
the condominium unit during the period of the lease for the price of P 5M.
The one-year leased period of the lease for the price is P 5M. The one-year
leased period expired but Victoria remained in the condominium unit and
paid to Cassandra the same rental rate. Ten months after the expiration of
the lease period, Victoria informed Cassandra that she would like to exercise
the option to purchase under their lease contract. Cassandra replied that she
(Victoria) no longer had an option to purchase the condominium unit. Can
Victoria still exercise the option to purchase under their one-year lease
contract?
Application:
In a ten-year lease contract over the land, the lessee is expressly
granted a right of first refusal should the lessor decide to sell both the
building and the land. However, the lessor had decided to secretly
dispose the property to a third party.

Can the lessee bring an action against both the lessor-seller and the
buyer to compel specific performance of his right to first refusal in the
sense that the lessor should be ordered to execute a deed of absolute
sale in favor of the lessee at the same price?
Obligation to Preserve the Object of the Sale
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 Art. 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 the 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.
Sale by Sample or Description
Art. 1481. In the contract of sale of goods by description or by
sample, the contract may be rescinded if the bulk of goods delivered
do not corresponds with the description or the sample, and if the
contract be by sample as well as by 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 of the sample.
Requisites:
1. The goods must correspond with the sample in quality (or
description, in case of sale by description);
2. The buyer must have a reasonable opportunity of comparing the
bulk with the sample (or description, in case of sale by description);
3. 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.
Application:
• B agrees to buy from S 100 sacks of flour by sample. The sacks of flour
are delivered to B who pays the price. B, upon examination, finds
them as not equal to the sample provided to him and complains to S.
Can S return the flour?

• B buys a car from S who described it to be slightly used, having been

driven only for less than 5,000 kilometers. But B finds that the car is
overly used, for having been driven for 200,000 kilometers. Is B
entitled to reject the car?
Earnest Money
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.
Earnest Money vs. Option Money
Earnest Money Option Money
Part of the purchase price; Distinct consideration for option
contract;
Given when there is already a sale; Applies to a sale not yet perfected;
Buyer is bound to pay the balance Not required to buy, but the money may
be forfeited depending on the terms of
the option.
Formalities of a Contract of Sale
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, partly in writing and partly by word of
mouth, or may be inferred from the conduct of the parties.
Exception:
Art. 1403. The following contracts are unenforceable, unless they are
ratified:
(1) Those entered into the name of another person by one who has
been given authority or legal representation, or who has acted beyond
his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in
this number. In the following cases an agreement hereafter made shall
be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party
charged, or his agent; evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence of its contents:
Exception:
(a) An agreement that by its terms is not to be performed within a
year from the making thereof;
(b) A special promise to answer for the debt, default, or
miscarriage of another;
(c) An agreement made in consideration of marriage, other than a
mutual promise to marry;
(d) an agreement for the sale of goods, chattels or things in action, at
a price not less than Five hundred pesos, unless the buyer accept
and receive part of such goods and chattels, or the evidences, or
some of them, of such things in action, or pay at the time some
part of the purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the time of
sale, of the amount and kind of property sold, terms of sale price,
names of the purchasers and persons on whose account the sale is
made, it is a sufficient memorandum;
Exception:
(e) An agreement for the leasing for a longer period of one year,
or for the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.

3. Those where both parties are incapable of giving consent to a

contract.
Exception to the Exception:
Art. 1874. When a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.
Art. 1878. SPA are necessary in the following cases:
xxx
(5) to enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a
valuable consideration;
(15) any other act of strict dominion.
Art. 1581 - Sale of large cattle.
Electronic Commerce Act of 2000
RA 8792 –
Sec. 7. Electronic document shall have the legal effect, validity or enforceability
as any other document or legal writing, and –
(a) xxx maintain its integrity and reliability and can be authenticated so as to
be usable for subsequent reference xxx

Sec. 8. An electronic signature on the electronic document shall be equivalent

to the signature of a person on a written document if that signature is proved
by showing that a prescribed procedure, not alterable by the parties interest in
the electronic document, xxx
Deed of Sale
• It is a written, signed and notarized instrument containing or
embodying the contract of sale between the seller and the buyer
whereby the former conveys the object of the sale to the latter.

• A mere defect in the notarization of the contract or deed of sale shall

not invalidate a perfected and valid contract of sale.

• It is a well settled rule that conveyances by virtue of a forged

signature are void ab initio as the absence of essential elements of
consent and cause or consideration in these cases rendered the
contract inexistent.
Prescription
Art. 1139. Actions prescribe by the mere lapse of time fixed by law.
Art. 1144. The following must be brough within 10 years from the time the
cause of action accrues:
(1) Upon a written contract
(2) Upon an obligation created by law
(3) Upon a judgement
Art. 1145. The following action must be commenced within six years:
(1) Upon an oral contract
(2) Upon a quasi – contract
Art. 1155. The prescription of actions is interrupted when they are filed
before the court, when there is written extra-judicial demand by the
creditors, and when there is any written acknowledgement of the debt by
the debtor.
Application:
Turne sold his land to Bating who paid it in cash. No deed of sale had
been executed since they were relatives. After eight years, Bating asked
the heirs of Turne to execute a deed of absolute sale to formalize the
verbal sale to their father. Since the request was unheeded, Bating’s
heirs filed an action for specific performance against the heirs of Turne.

Would the action prosper?

Recto Law
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.
Recto Law
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.
Expenses of Sale
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.
Reference:
• Civil Code of the Philippines: Art. 1458 – Art. 1487;

• Sualog, Cyrus Victor, Law on Sales, 2016 Edition, Rex Bookstore,

Manila.
References:
• New Civil Code of the Philippines
• Law on Sales, Cyrus Victor T. Sualog, 2016 Edition