LAW 4: SALES, AGENCY AND

OTHER SPECIAL CONTRACTS

By: ATTY. RAYMIEJELLA R. SUSUSCO-VIAGEDOR
COURSE OUTLINE
LAW 4 SALES, AGENCY AND OTHER SPECIAL CONTRACTS

COURSE DESCRIPTION: Sales, Agency and Other Special Contracts is a course closely-related to the Law on Obligations and Contracts. The subject, however, specifically
deals with special contracts such as, but not limited to, sale, agency, mortgage, pledge and antichresis—particularly sales transactions including its nature, forms, and
requisites—as distinguished from ordinary contracts; rights and obligations of vendor/vendee and their respective remedies. It also covers the law on agency—its
nature, forms, and kinds, modes of extinguishments, and the rights and obligations of the principal and his agent.
SALES

I. Nature and Form of Contract of Sale

a) Definition
b) Essential Elements
c) Natural Elements
d) Accidental Elements
e) Essential Characteristics
f) Kinds of Sales
g) Contract of Sale vs. Other related contracts
h) Form of Contract of Sale
i) Related laws:
i. Sale in installments of Real Property (R.A. 6552)/Maceda Law
ii. Personal Property: Recto Law
iii. PD 957 on Condominium Law
II. Right and Obligations of the parties
III. Concept of Double Sale
IV. Conditions and Warranties
V. Actions for breach of contract of sale of goods
VI. Modes of extinguishing contracts of sale
V. Special forms of sale
a) Conventional redemption/pacto de retro sale
b) Legal redemption
AGENCY

I. Nature, Form and Kinds of Agency

II. Obligations of the Parties
III. Modes of extinguishing agency

OTHER ALLIED LAWS

(Mortgage, Pledge)

A. Real Estate Mortgage (REM)

I. Concept, purpose, characteristics

II. Parties and essential requisites and effects of mortgage
III. Rights of the parties
i. Foreclosure (Definition, Classes)

B. Chattel Mortgage

I. Concept, purpose and characteristics

II. Parties, requisites
III. Rights of the Parties
IV. Restrictions

C. Pledge

I. Concept, purpose and characteristics

II. Elements
III. Effects as to the pledge and pledgor
IV. Rights and obligations of the parties
V. Extinguishment of pledge
REFERENCES:

Codal Provision: (1) The New Civil Code of the Philippines

(2) Republic Act No. 6552, otherwise
known as the “Realty Installment Buyer Act”
(3) Republic Act No. 4726 amended by Republic
Act No. 7899, otherwise known as the “The Condominium
Act”

Textbook: (1) Sales, Agency and Bailments

Atty. Andrix D. Domingo, CPA, MBA, Latest
Edition, Rex Bookstore
(2) Civil Code of the Philippines, Book V,
Annotated, Edgardo L. Paras, Latest Edition, Rex Bookstore
Reviewer: (1) Pointers in Business Law
Carlos B. Suarez, Latest Edition
Rex Bookstore

Jurisprudence: (1) www.sc.gov.judiciary

CONTRACT OF SALE
• 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.(Art. 1458, NCC)
PARTIES TO A CONTRACT OF SALE
SELLER OR VENDOR who obligates Buyer or purchaser or vendee who
himself to deliver something to the binds himself to pay therefor a
other sum of money or its equivalent
(known as the price)
What is status of contract of sale if
entered into by the following?
• Minors (Art. 1489, NCC)
• By and between spouses (Art. 1490, NCC)
• Guardian, Agents, Executors or administrators, Public officers and
employees, Judges and government experts who take part in the sale of
the property and rights under litigation (Art. 1491, NCC)
• Aliens, Unpaid seller having a right of lien or having estopped the goods
in transit, Officer holding the execution or his deputy
Kinds of sale
• As to nature of object/subject matter (Movable and
Immovable or Personal and Real or Tangible and
Intangible)
• As to what can be subject matter (Thing, Right)
• As to status (Valid, Rescissible, Voidable, Unenforceable,
Void)
• As to manner of payment of the price (cash or installment)
• Absolute vs. Conditional (Art. 1458, NCC)
Contract of Sale distinguished from the
following concepts:
• Contract to Sell
• Conditional Sale
• Dacion en pago
• Option contract
• Contract for a piece of work (Art. 1467)
• Barter (Art. 1468)
• Agency to sell (Art.1466)
 CHARACTERISTICS OF A
CONTRACT OF SALE
(1) Consensual, because it is perfected by mere consent without any
further act;
(2) Bilateral 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;
(3) Onerous, because the thing sold is conveyed in consideration of
the price and vice versa (see Gaite vs. Fonacier, 2 SCRA 820 [1961].);
(4) Commutative, because the thing sold is considered the equivalent
of the price paid and vice versa. However, the contract may be
Aleatory as in the case of the sale of a hope (e.g., sweepstakes
STAGES OF THE CONTRACT OF SALE:

1. Negotiation (Policitacion) - when the prospective contracting parties indicate

interest in the contract to the time the contract is perfected.
2. Perfection- concurrence of the essential elements of the sale which is the
meeting of the minds of the parties as to the object of the contract and upon
the price.
3. Consummation- when the parties perform their respective undertakings under
the contract of sale, culminating in the extinguishment thereof.
ESSENTIAL ELEMENTS OF A
CONTRACT OF SALE
1. Consent
2. Determinate subject matter
3. Price certain

• Consent or meeting of the minds. — This refers to the consent on the part of the
seller to transfer and deliver and on the part of the buyer to pay. (see Art. 1475.)
• Object or subject matter. — This refers to the determinate thing which is the
object of the contract (Art. 1460.) or rights (under Chapter 8 of the NCC)
• Price. — This refers to the “price certain in money or its equivalent” (Art. 1458.)
such as a check or a promissory note, which is the consideration for the thing
sold.
 Absence of any essential elements negates the existence of a perfected contract of sale.
Sale, being a consensual contract (see Art. 1475.), he who alleges it must show its existence
by competent proof. xDizon v. CA, 302 SCRA 288 (1999),5 even when earnest money
(downpayment) has been paid. xManila Metal Container Corp. v. PNB, 511 SCRA 444
(2006). xDel Prado v. Caballero, 614 SCRA 102 (2010); xMontecalvo v. Heirs of Eugenia T.
Primero, 624 SCRA 575 (2010); xDavid v. Misamis Occidental II Electric Cooperative, Inc.,
676 SCRA 367 (2012); xDantis v. Maghinang, Jr., 695 SCRA 599 (2013).

 They are to be distinguished from:

(1) Natural elements or those which are deemed to exist in certain contracts, in the absence
of any contrary stipulations, like warranty against eviction (Art. 1548.) or hidden defects
(Art. 1561.); and

(2) Accidental elements or those which may be present or absent depending on the
stipulations of the parties, like conditions, interest, penalty, time or place of payment, etc.
 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. (1445a)

• 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 is a
consensual contract and, thus, is perfected by mere consent which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. Until the contract of sale is perfected,
it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties. The
essential elements of a contract of sale are: a) consent or meeting of the minds, that is, consent to transfer
ownership in exchange for the price; b) determinate subject matter; and c) price certain in money or its equivalent.
The absence of any of the essential elements shall negate the existence of a perfected contract of sale. (Dantis vs.
Maghinang, Jr. G.R. No. 191696, April 10, 2013)
• 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).
• Sale is not a mode of ownership but is merely a title.
KINDS OF SALE

(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.

Thus, it has been held that a deed of sale is absolute in nature although denominated as a “Deed of
Conditional Sale” in the absence of any stipulation that the title to the property sold is reserved in the vendor until
full payment of the purchase price nor a stipulation giving the vendor the right to unilaterally rescind the contract
the moment the vendee fails to pay within a fixed period. (Dignos vs. Court of Appeals, 158 SCRA 375 [1988];
Pingol vs. Court of Appeals, 44 SCAD 498, 226 SCRA 118 [1995]; People’s Industrial and Commercial Corporation
vs. Court of Appeals, 88 SCAD 559, 281 SCRA 206 [1997].) In such case, ownership of the property sold passes to
the vendee upon the actual or constructive delivery thereof. (see Art. 1497.)

(b) Conditional. — where there are certain conditions attached to the contract or the sale contemplates a
contingency (Arts. 1461, 1462, par. 2; Art. 1465.), and in general, where the contract is subject to certain
conditions (see Art. 1503, par. 1.), usually, in the case of the vendee, the full payment of the agreed purchase price
(Art. 1478; see People’s Homesite & Housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984].) and in the case of
the vendor, the fulfillment of certain warranties, e.g., the timely eviction of squatters on the property sold.
(Romero vs. Court of Appeals, 65 SCAD 621, 250 SCRA 223 [1995].)
Contract of sale vs. Contract to sell:

(1) Transfer of title. — In a contract of sale, title passes to the buyer upon delivery of the thing sold, while in a
contract to sell (or of “exclusive right and privilege to purchase”), where it is stipulated that ownership in the thing
shall not pass to the purchaser until he has fully paid the price (Art. 1478.), ownership is reserved in the seller and
is not to pass until the full payment of the purchase price. In the absence of such stipulation, especially where the
buyer took possession of the property upon execution of the contract, indicates that what the parties
contemplated is a contract of absolute sale.

(2) Payment of price. — In the first case, non-payment of the price is a negative resolutory condition (see Art.
1179.), and the remedy of the seller is to exact fulfillment or to rescind the contract (see Arts. 1191, 1592.), while
in the second case, full payment is a positive suspensive condition, the failure of which is not a breach, casual or
serious, of the contract but simply an event that prevents the obligation of the vendor to convey title from
acquiring binding force. (Manvel vs. Rodriguez, 109 Phil. 1 [1960]; Roque vs. Lapuz, 96 SCRA 741 [1980]; Jacinto vs.
Kaparaz, 209 SCRA 246 [1992]; Adelfa Properties, Inc. vs. Court of Appeals, 58 SCAD 462, 240 SCRA 565 [1995].)
Where the seller promises to execute a deed of absolute sale upon full payment of the purchase price, the
agreement is a contract to sell. (Rayos vs. Court of Appeals, 434 SCRA 365 [2004].)
(3) Ownership of vendor. — Being contraries, their effect in law cannot be identical.

In the first case, the vendor has lost and cannot recover the ownership of the thing sold and delivered, actually or
constructively (see Art. 1497.), until and unless the contract of sale itself is resolved and set aside.

In the second case, however, the title remains in the vendor if the vendee does not comply with the condition
precedent of making payment at the time specified in the contract. (see Heirs of P. Escanlar vs. Court of Appeals, 88
SCAD 532, 281 SCRA 176 [1997]; People’s Industrial and Commercial Corporation vs. Court of Appeals, 281 SCRA 206
[1997]; Luzon Brokerage Co. vs. Maritime Bldg. Co., Inc., 43 SCRA 93 [1972] and 86 SCRA 305 [1978]; Katigbak vs. Court
of Appeals, 4 SCRA 243 [1962]; Lim vs. Court of Appeals, 182 SCRA 564 [1990]; Tuazon vs. Garilao, 152 SCAD 699, 362
SCRA 654 [2001].)
There is no actual sale until and unless full payment of the price is made (see Bowe vs. Court of Appeals, 220 SCRA
158 [1993].) and a contract of sale is entered into to consummate the sale. If the vendor should eject the vendee for
failure to meet the condition precedent he is enforcing the contract and not rescinding it. Article 1191 is not applicable.
A contract to sell is commonly entered into so as to protect the seller against a buyer who intends to buy a property in
installments by withholding ownership over the property until the buyer effects full payment therefore. (City of Cebu vs.
Heirs of C. Rubi, 106 SCAD 61, 306 SCRA 408 [1999].) A stipulation in a contract providing for automatic rescission upon
non-payment of the purchase price within the stipulated period is valid. (see Art. 1191.) It is in the nature of an
agreement granting a party the right to rescind a contract unilaterally in case of breach without need of going to court.
(Pangilinan vs. Court of Appeals, 87 SCAD 408, 279 SCRA 590 [1997].)
Contract to sell and conditional sale distinguished.
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.

(1) Transfer of title to the buyer. — A contract to sell as defined above may not even be considered as a conditional
contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of the
suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is
conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not
fulfilled, the perfection of the contract of sale is completely abated. (cf. Homesite and Housing Corp. vs. Court of
Appeals, 133 SCRA 777 [1984].) However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected,
such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. In
a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price,
ownership will not automatically transfer to the buyer although the property may have been previously delivered to him.
The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale to
consummate the transaction.
(2) Sale of subject property to a third person. — It is essential to distinguish between a contract to sell and a
conditional contract of sale specially in cases where the subject property is sold by the owner not to the party
the seller contracted with, but to a third person. In a contract to sell, there being no previous sale of the
property, a third person buying such property despite the fulfillment of the suspensive condition such as the
full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective
buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the
property will transfer to the buyer after registration because there is no defect in the owner-seller’s title per
se, but the latter, of course, may be sued for damages by the intending buyer. In a conditional contract of sale,
however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely
affect the seller’s title thereto. In fact, if there had been previous delivery of the subject property, the seller’s
ownership or title to the property is automatically transferred to the buyer, such that the seller will no longer
have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the
property who may have had actual or constructive knowledge of such defect in the seller’s title, or at least was
charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer
cannot defeat the first buyer’s title. In case a title is issued to the second buyer, the first buyer may seek
reconveyance of the property subject of the sale. (Coronel vs. Court of Appeals, 75 SCAD 141, 263 SCRA 15
[1996].)
Dacion en pago vs. Contract of sale
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. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the
thing or property of the debtor, payment for which is to be charged against the debtors debt. As such, the vendor in good
faith shall be responsible, for the existence and legality of the credit at the time of the sale but not for the solvency of the
debtor, in specified circumstances.

Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal property,[19] produced
the effects of a dation in payment which may extinguish the obligation.[20] However, as in any other contract of sale, the
vendor or assignor is bound by certain warranties. [SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM PHIL., INC.,
respondent, G.R. No. 149420. October 8, 2003]
 Similarities: Delivery, transfer of ownership,

In dacion en pago, if the pre-existing debt is in money and the debtor

delivered a thing then Art. 1245 may be governed by the Law on Sales

 Difference: Sale results in an obligation while Dacion en pago is a special

form of payment that extinguishes an obligation.
 Contract for a Piece of Work vs. Contract of Sale

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. (n)
• "A contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as
to whether the thing transferred is one not in existence and which would never have existed but for the order of
the person desiring it. In such case, the contract is one for a piece of work, not a sale. On the other hand, if the
thing subject of the contract would have existed and been the subject of a sale to some other person even if the
order had not been given then the contract is one of sale."
• Schools of thought/Doctrines
1. Massachusetts rule: If specifically done at the order of another, this is a contract for a piece of work.(Philippine
application)
2. New York rule: If thing already exists-SALE; if not-WORK
3. English rule: If material is more valuable-SALE; if skill is more valuable-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.)

The distinction between a contract of sale and one for work, labor or materials or for a piece of work is tested by the
inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the
party desiring to acquire it, or a thing which would have existed and been the subject of sale to some other person, even if
the order had not been given.

(1) In the first case, the contract is one for work, labor and materials and in the second, one of sale. (Inchausti & Co. vs.
Cromwell, 20 Phil. 345 [1911]; see Celestino Co. & Co. vs. Coll., 99 Phil. 841 [1956]; Comm. vs. Engineering Equipment and
Supply Co., 64 SCRA 590 [1975]; Comm. vs. Arnoldus Carpentry Shop, Inc., 159 SCRA 199 [1988]; Engineering & Machinery
Corp. vs. Court of Appeals, 67 SCAD 113, 252 SCRA 156 [1996].)

(2) In the first case, the risk of loss before delivery is borne by the worker or contractor, not by the employer (the person
who ordered). (Arts. 1717, 1718.) A contract is for a piece of work if services dominate that contract even though there is a
sale of goods involved. Where the primary objective of a contract is a sale of a manufactured item, it is a sale of goods even
though the item is manufactured by labor furnished by the seller and upon previous order of the customer. (see 1 Williston,
4th ed., p. 23.)

(3) The importance of marking the line that divides contracts for a piece of work from contracts of sale arises from the
fact that the former is not within the Statute of Frauds. (see Art. 1483.)
Contract for a piece of work Contract of Sale

The thing transferred is one not in existence and w/c never The thing transferred is one which would have existed and
would have existed but for the order of the party desiring to would have been the subject of sale to some other person,
acquire it even if the order had not been given

The services dominate the contract eventhough there is a The primary objective of the contract is a sale of the
sale of goods involved manufactured item; it is a sale of goods eventhough the
item is manufactured by labor furnished by the seller and
upon previous order of the customer

Not w/in the Statute of Frauds Governed by the Statute of Frauds

EXAMPLE:

If B is buying a pair of shoes of a particular style and size from S which the
latter ordinarily manufactures or procures for the general market but the
same is not available, an order for one would be a contract of sale, since the
article would have existed and been the subject of sale to some other person
even if the order had not been given.

On the other hand, if B places an order for a pair of shoes of a particular

shape because his feet are deformed or if his feet are extremely big, the fact
that such kind of shoes is not suitable for sale to others in the ordinary course
of the seller’s business and is to be manufactured especially for B and upon
his special order, makes the contract one for a piece of work.
 CONTRACT OF SALE VS. BARTER
Sale distinguished from 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 a part of the consideration exceeds the amount of the money or its equivalent;
otherwise, it is a sale. (1446a)
• By the contract of barter or exchange, one of the parties binds himself to give one thing in consideration of the
other’s promise to give another thing. (Art. 1638.) On the other hand, in a contract of sale, the vendor gives a thing in
consideration for a price in money. (Art. 1458.)
(1) The above distinction is not always adequate to distinguish one from the other. Hence, the rule in Article 1468 for those
cases in which the thing given in exchange consists partly in money and partly in another thing.
(a) In such cases, the manifest intention of the parties is paramount in determining whether it is one of barter or of sale
and such intention may be ascertained by taking into account the contemporaneous and subsequent acts of the parties.
(Art. 1371.)
(b) If this intention cannot be ascertained, then the last sentence of the article applies. But if the intention is that the
contract shall be one of sale, then such intention must be followed even though the value of the thing given as a part
consideration is more than the amount of the money given.
(2) The only point of difference between the two contracts is in the element which is present in sale but not in barter,
namely: “price certain in money or its equivalent.” (see Art. 1641.)
Rules if Consideration is partly Money and Partly Goods

1. Determine the intention of the parties.

2. If intention could not be determined, consider the value of the thing

given:
a. If value of the thing more than value of the money, it is BARTER
b. If value of the thing less than value of the money, it is SALE
c. If both values are the same, SALE
EXAMPLES: (1) S, a sugar miller, and B, a manufacturer and dealer of whisky, entered into an agreement whereby S was
to deliver sugar worth P20,000.00 to B who was to give 100 bottles of whisky worth also P20,000.00. This is a contract
of barter.
(2) Suppose at the date of delivery, B had only 25 bottles of whisky. With the consent of S, S paid the difference of
P15,000 in cash. In this case, the contract is still barter. The consideration for the sugar is not cash but the whisky, and
the amount of P15,000.00 paid by B is in consideration for the 75 bottles of liquor.
(3) Suppose, in the same example, B had no whisky at the stipulated date of delivery and he paid S P20,000.00
instead of giving whisky. Did the contract become one of sale? No, because the payment is in consideration of the
value of the whisky, and not of the sugar. The manifest intention of the parties was to enter into a contract of barter.
But if B had whisky at the date of delivery and he paid P20,000.00 with the consent of S, the contract would become
one of sale.
(4) Assume now that the contract between S and B was for S to deliver sugar to B who agreed to give 100 bottles
of whisky or to pay P20,000.00 cash. If B, instead of whisky, paid P20,000.00 cash, it is clear that the resulting contract
is that of sale, and not barter.
(5) If the obligation of B is to deliver 50 bottles of whisky and pay P10,000.00 cash, or 75 bottles of whisky and
P5,000.00 cash, or 25 bottles of whisky and P15,000.00 cash, the transaction shall be considered a barter or sale
depending on the manifest intention of the parties. Under Article 1468, if such intention does not clearly appear, the
contract shall be considered a barter, where the cash involved is P5,000.00, or a sale, in case it is P15,000.00, or either
in case it is P10,000.00.
 SALE VS. AGENCY TO SELL
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. (n)
• 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.) In order to classify a contract, due regard must be given to its
essential clauses. A contract is what the law defines it to be, and not what it is called by the contracting parties. (Quiroga vs.
Parson Hardware Co., 38 Phil. 501 [1918]; Baluran vs. Navarro, 79 SCRA 309 [1977].) Sale may be distinguished from an agency
to sell, as follows:
(1) In a sale, the buyer receives the goods as owner; in an agency to sell, the agent receives the goods as the goods of the principal
who retains his ownership over them and has the right to fix the price and the terms of the sale and receive the proceeds less the
agent’s commission upon the sales made;
(2) In a sale, the buyer has to pay the price; in an agency to sell, the agent has simply to account for the proceeds of the sale he
may make on the principal’s behalf;
(3) In a sale, the buyer, as a general rule, cannot return the object sold; in an agency to sell, the agent can return the object in case
he is unable to sell the same to a third person;
(4) In a sale, the seller warrants the thing sold (see Arts. 1547, 1548, 1561.); in an agency to sell, the agent makes no warranty for
which he assumes personal liability as long as he acts within his authority and in the name of the seller; and
(5) In a sale, the buyer can deal with the thing sold as he pleases being the owner; in an agency to sell, the agent in dealing with
the thing received, must act and is bound according to the instructions of his principal.
Contract creating both a sale and an agency relationship:

The transfer of title or agreement to transfer it for a price paid or promised is the essence of sale.
If such transfer puts the transferee in the position of an owner and makes him liable for the agreed
price, the transaction is a sale. On the other hand, the essence of an agency to sell is the delivery to an
agent, not as his property, but as the property of his principal, who remains the owner and has the
right to control sales, fix the price and terms, demand and receive the proceeds less the agent’s
commission upon sales made. (Ker & Co., Inc. vs. Lingad, 38 SCRA 524 [1971]; Schmid and Oberly, Inc.
vs. RJL Martinez Fishing Corp., 166 SCRA 493 [1988].)

In some circumstances, however, a contract can create both a sale and an agency relationship. For
example: An automobile dealer receives title to the cars he orders from the manufacturer and that
transaction is a sale; but he is an agent to the extent that he is authorized to pass on to the ultimate
purchaser the limited warranty of the manufacturer. In any event, the courts must look at the entire
transaction to determine if it is a principal-agent relationship or a buyer-seller relationship. (1 Williston
on Sales, 4th ed., pp. 16-17.)
Essential Elements:
1. Consent
2. Determinate subject matter
3. Price certain
 CONSENT

This refers to the consent on the part of the seller to transfer and deliver and on the part of the buyer to pay. (see Art.
1475.)

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

CHAPTER 2
CAPACITY TO BUY OR SELL

Art. 1489. All persons who are authorized in this Code to obligate themselves, may enter into a contract of sale, saving the
modifications contained in the following articles.
Where necessaries are those sold and delivered to a minor or other person without capacity to act, he must pay a reasonable
price therefor. Necessaries are those referred to in Article 290. (1457a)

Art. 1490. The husband and the wife cannot sell property to each other, except:
(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation or property under Article 191. (1458a)
Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or
through the mediation of another:
(1) The guardian, the property of the person or persons who may be under his guardianship;

(2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the
principal has been given;

(3) Executors and administrators, the property of the estate under administration;

(4) Public officers and employees, the property of the State or of any subdivision thereof, or of any government-owned or
controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to
judges and government experts who, in any manner whatsoever, take part in the sale;

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees
connected with the administration of justice, the property and rights in litigation or levied upon an execution before the
court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of
acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of
any litigation in which they may take part by virtue of their profession.

(6) Any others specially disqualified by law. (1459a)

Art. 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises and
renunciations. (n)
Person who may enter into a contract of sale.

As a general rule, all persons, whether natural or juridical, who can bind themselves have also legal capacity to buy and
sell. There are exceptions to this rule in those cases when the law determines that a party suffers from either absolute or
relative incapacity.

Kinds of incapacity.

(1) Absolute Incapacity- These are the persons who cannot enter into a contract of sale in all circumstances, otherwise, the
contract of sale is defective, either voidable or unenforceable.
Examples: Minors, insane, demented persons, and deaf mutes who do not know how to write

- Contracts entered into by a minor and other incapacitated persons are voidable. However, where the necessaries are
sold and delivered to him (without the intervention of the parent or guardian), he must pay a reasonable price therefor.
The contract is therefore valid, but the minor has the right to recover any excess above a reasonable value paid by him.

Sale of real property by minors who have already passed the ages of puberty and adolescence and are now in the adult
age, when they pretended to have already reached their majority, while in fact they have not, is valid, and they cannot be
permitted afterwards to excuse themselves from compliance with the obligations assumed by them or to seek their
annulment. This is in accord with the doctrine of estoppel[Mercado and Mercado vs. Espiritu, 37 Phil. 265].
(2) Relative Incapacity- These are certain persons under certain circumstances, cannot buy certain property. The prohibition
extends to sales by virtue of legal redemption, compromises, and renunciations.

(a) Husband and wife to each other – except when a separation of property was agreed upon in the marriage settlements,
or when there has been a judicial separation of property
(b) Guardian – as to the property of his ward
(c) Agents – as to the property whose administration or sale has been entrusted to them, unless consent of the principal
is given
(d) Executors or administrators – as to the state under their administration
(e) Public officers and employees – as to the property of the State or any subdivision thereof, or of the government-
owned or controlled corporations, the administration of which is entrusted to them
(f) Judges and government experts who take part in the sale of the property and rights under litigation
- The prohibition is based on the fiduciary relationship (based on trust), to prevent fraud and undue and improper
influence.
With respect to (b) to (d), the sale shall only be voidable because in such cases only private interests are affected. The
defect can be cured by ratification by the seller. With respect to (e) and (f), the sale shall be null and void, public interests
being involved therein.
(g) Aliens who are disqualified to purchase private agricultural lands under Art. XII, Secs. 3 and 7 of the Constitution
(h) Unpaid seller having a right of lien or having estopped the goods in transit
(i) Officer holding the execution or his deputy
Liability for necessaries of minor or other person without capacity to act.

Necessaries are those things which are needed for sustenance, dwelling, clothing, medical attendance,
education and transportation according to the financial capacity of the family of the incapacitated person. (see Art.
194, Family Code.) Whether the nature of the contract is such that it can under any circumstances, be regarded as a
contract for necessaries, is a question which depends upon the facts of the particular case. Generally, the contracts
entered into by a minor and other incapacitated persons (e.g., insane or demented persons, deafmutes who do not
know how to write), are voidable. (Arts. 1327, 1390.) However, where necessaries are sold and delivered to him
(without the intervention of the parent or guardian), he must pay a reasonable price therefor. (Art. 1489, par. 2.) The
contract is, therefore, valid but the minor has the right to recover any excess above a reasonable value paid by him.

Sale by minors.

The courts have laid down the rule that the sale of real estate effected by minors who have already passed the
ages of puberty and adolescence and are now in the adult age, when they pretended to have already reached their
majority, while in fact they have not, is valid, and they cannot be permitted afterwards to excuse themselves from
compliance with the obligations assumed by them or to seek their annulment. (see Mercado and Mercado vs.
Espiritu, 37 Phil. 265 [1917].) The doctrine is entirely in accord with the provisions of the Rules of Court (see Rule
131, Sec. 1.) and the Civil Code (see Art. 1431.) which determine cases of estoppel.
Certain cases where minors can also give valid consent:

1. When necessaries such as food, are sold and delivered to a minor or other person without capacity to act, he
must pay a reasonable price therefor (Art. 1489, par 2, NCC).
2. When it is a life, health or accident insurance taken on the life of the minor, provided the minor is 18 years
old or more and the beneficiary is the minor’s estate, or the minor’s father, mother, husband, wife, child,
brother or sister (Insurance Code)
3. A contract is entered into through a guardian or legal representative (Art. 1381)
4. A contract is valid where the minor misrepresented his age and convincingly led the other party to believe in
his legal capacity, applying the doctrine of estoppel(Mercado & Mercado vs. Espiritu, 37 Phil. 125; Sia Suan vs.
Alcantara, 47 Off. Gaz. 456; Hermosa vs. Zobel, 104 Phil. 768)
5. Where the contract involves a natural obligation and such natural obligation is voluntarily fulfilled by the
minor provided the minor is between 18 and 21 (Art. 1427, NCC)

 Relative incapacity of husband and wife.

(1) The husband and the wife are prohibited by the above article from selling property to each other. A
sale between husband and wife in violation of Article 1490 is inexistent and void from the beginning because
such contract is expressly prohibited by law. (Art. 1409[7]; Uy Siu Pin vs. Chua Hue vs. Cantollas, 70 Phil. 55
[1940]; Camia de Reyes vs. Reyes de Ilano, 63 Phil. 629 [1936]; Medina vs. Collector of Internal Revenue, 1 SCRA
302 [1961].)
(2) They are also prohibited from making donations to each other during the marriage except moderate gifts on the occasion of any family
rejoicing. (Art. 87, Family Code.) However, if there has been a separation of property agreed upon in the marriage settlements, or when
there has been a judicial separation of property decreed between them by the court, the sales between husband and wife are allowed.
They have, therefore, in the two cases mentioned, capacity to buy from or to sell to each other. Incidentally, a marriage settlement (also
called “ante-nuptial contract”) is an agreement entered into by persons who are about to be united in marriage, and in consideration
thereof, for the purpose of fixing the property relations that would be followed by them for the duration of the marriage. (see Arts. 74-80,
Ibid.)
Reason for prohibition under Article 1490.

The reason for the law is not based so much on the union of the personality of the husband and wife nor on the weakness of the sex
and on the possibility that the husband will induce his wife to engage in ruinous operations, but primarily, for the protection of third
persons1 who, relying upon supposed property of either spouse, enters into a contract with either of them only to find out that the
property relied upon was transferred to the other spouse. (see 10 Manresa 95-96.)

Persons permitted to question sale.

(1) Although certain transfers between husband and wife are prohibited under Article 1490, such prohibition can be taken
advantage of only by persons who bear such relation to the parties making the transfer or to the property itself that such transfer
interferes with their rights or interests. Unless such a relationship appears, the transfer cannot be attacked. Thus, the heirs of either
spouse, as well as creditors at the time of the transfer, can attack the validity of the sale but not creditors who became such only after the
transaction. (Cook vs. McMicking, 27 Phil. 10 [1914].)

(2) The government is always an interested party in all matters involving taxable transactions. It is competent to question their
validity or legitimacy whenever necessary to block tax evasion. It can impugn sales between husband and wife. (Medina vs. Collector of
Internal Revenue, supra.)
 THE PROSCRIPTION AGAINST SALE OF PROPERTY BETWEEN SPOUSES APPLIES EVEN TO COMMON LAW
RELATIONSHIPS.
As held in MARIA B. CHING vs. JOSEPH C. GOYANKO, JR., et al., G.R. No. 165879,November 10, 2006:
The proscription against sale of property between spouses applies even to common law relationships. So this Court ruled in
Calimlim-Canullas v. Hon. Fortun, etc., et al.:[11]

Anent the second issue, we find that the contract of sale was null and void for being contrary to morals and public policy. The sale was
made by a husband in favor of a concubine after he had abandoned his family and left the conjugal home where his wife and children
lived and from whence they derived their support. The sale was subversive of the stability of the family, a basic social institution which
public policy cherishes and protects.
Article 1409 of the Civil Code states inter alia that: contracts whose cause, object, or purposes is contrary to law, morals, good customs,
public order, or public policy are void and inexistent from the very beginning.
Article 1352 also provides that: Contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it
is contrary to law, morals, good customs, public order, or public policy.
Additionally, the law emphatically prohibits the spouses from selling property to each other subject to certain exceptions. Similarly,
donations between spouses during marriage are prohibited. And this is so because if transfers or conveyances between spouses were
allowed during marriage, that would destroy the system of conjugal partnership, a basic policy in civil law. It was also designed to prevent
the exercise of undue influence by one spouse over the other, as well as to protect the institution of marriage, which is the cornerstone of
family law. The prohibitions apply to a couple living as husband and wife without benefit of marriage, otherwise, the condition of those
who incurred guilt would turn out to be better than those in legal union. Those provisions are dictated by public interest and their
criterion must be imposed upon the will of the parties. . . .[12] (Italics in the original; emphasis and underscoring supplied)

As the conveyance in question was made by Goyangko in favor of his common- law-wife-herein petitioner, it was null and void.
Incapacity by reason of relation to property.
The above article enumerates the persons who, by reason of the relation of trust with the persons under their
charge or their peculiar control over the property, are prohibited from acquiring said property either directly or
indirectly and whether in private or public sale. They are the: (1) guardians; (2) agents; (3) executors and
administrators; (4) public officers and employees; (5) judicial officers, employees and lawyers; and (6) others
especially disqualified by law. (Rubias vs. Batiller, 51 SCRA 120 [1973].)

The persons disqualified to buy referred to in Articles 1490 and 1491 are also disqualified to become lessees of the
things mentioned thereon. (Art. 1646.)

Reason for prohibitions under Article 1491.

The disqualifications imposed by Article 1491 on the person enumerated is grounded on public policy
considerations which disallow the transactions entered into by them, whether directly or indirectly, in view of the
fiduciary relationship involved or the peculiar control exercised by these individuals over the properties or rights
covered. (Mananquil vs. Villegas, 189 SCRA 335 [1990].) The prohibitions seek to prevent frauds on the part of such
persons and minimize temptations to the exertion of undue and improper influence. The fear that greed might get
the better of the sentiments of loyalty and disinterestedness is the reason underlying Article 1491. The law does not
trust human nature to resist the temptations likely to arise out of antagonism between the interest of the seller and
buyer. (23 Scaevola 403; Gregorio Araneta, Inc. vs. Tuazon de Paterno, 91 Phil. 786 [1952].)
Prohibition with respect to guardians.
The relation between guardian and ward is so intimate, the dependence so complete and the influence so great
that any transaction between the two parties entered while the relationship exists are, in the highest sense, suspicious
and presumptively fraudulent. This influence is presumed to last while the guardian’s functions are to any extent still
unperformed, while the property is still under his control and until the accounts have been finally settled. (39 Am. Jur.
2d 160.)

Prohibition with respect to agents.

The agent’s incapacity to buy his principal’s property rests on the fact that the agent and the principal form one
juridical person. Like the guardian, the agent stands in a fiduciary relation with his principal. A sale made by an agent to
himself, directly or indirectly, without the permission of the principal is ineffectual. (see Gregorio Araneta, Inc. vs.
Tuazon de Paterno, supra; Barton vs. Leyte Asphalt and Mineral Co., 46 Phil. 938 [1924].) The consent of the principal
removes the transaction out of the prohibition contained in Article 1491(2). (Distajo vs. Court of Appeals, 132 SCAD
577, 339 SCRA 52 [2000].)

(1) The incapacity of the agent is only against buying the property he is required to sell during the existence of the
relationship. Therefore, an agent can buy for himself the property after the termination of the agency (Valera vs.
Velasco, 51 Phil. 695 [1928].) or other properties different from those he has been commissioned to sell. (Moreno vs.
Villonea, [C.A.] 40 O.G. 2322.)
(2) Of course, the agent may buy property placed in his hands for sale or administration if the principal gives his
consent thereto. (Cui vs. Cui, 100 Phil. 913 [1957].)

(3) The prohibition does not apply where the sale of the property in dispute was made under a special power
inserted in or attached to the real estate mortgage pursuant to Section 5 of Act No. 3135, as amended, a special law
which governs extra-judicial foreclosure of real estate mortgage. The power to foreclose is not an ordinary agency
that contemplates exclusively the representation of the principal by the agent but is primarily an authority conferred
upon the mortgagee for the latter’s own protection. By virtue of the exception, the title of the mortgagee-creditor
over the property cannot be impeached or defeated on the ground that the mortgagee cannot be a purchaser at his
own sale. (Fiestan vs. Court of Appeals, 185 SCRA 751 [1990].)

Prohibition with respect to executors and administrators.

The prohibition refers only to properties under the administration of the executor or administrator at the time of
the acquisition and does not extend, therefore, to property not falling within this class. Executors do not administer
the hereditary rights of any heir. Such rights do not form part of the property delivered to the executor for
administration. Consequently, the prohibition in No. (3) of Article 1491 does not apply to a purchase by an executor of
such hereditary rights (e.g., 1/10 interest in the estate), even in those cases in which the executor administers the
property pertaining to the estate. (Naval vs. Enriquez, 3 Phil. 669 [1904]; see Garcia vs. Rivera, 95 Phil. 831 [1954].)
Prohibition with respect to public officials and employees.
The prohibition refers only to properties: (1) belonging to the State, or of any subdivision thereof, or of any
government-owned or -controlled corporation or institution, (2) the administration of which has been entrusted to
the public officials or employees. Thus, a provincial governor or treasurer entrusted with the administration of
property belonging to a province cannot buy said property while the school superintendent who has no charge of the
same is not within the scope of the prohibition. Note that the prohibition includes judges and government experts
who, in any manner, take part in the sale.

Prohibition with respect to judges, etc., and lawyers.

The prohibition in Article 1491(5) applies only to the sale or assignment of property which is the subject of
litigation to the persons disqualified therein. For the prohibition to operate, the sale or assignment must take place
during the pendency of the litigation involving the property. (Laig vs. Court of Appeals, 86 SCRA 641 [1978]; Valencia
vs. Cabanteng, 196 SCRA 302 [1991].) The prohibition applies when, for example, a lawyer has not paid for the
property and it was merely assigned to him in consideration of legal services rendered at a time when the property is
still subject of a pending case. (Ordonio vs. Eduarte, 207 SCRA 229 [1992].) The prohibition on purchase is all
embracing to include not only sales to private individuals but also public or judicial sales. (Ramos vs. Ngaseo, 445
SCRA 529 [2004].)
(1) When property considered “in litigation.” — For property to be considered “in litigation,” it is not required that
some contest or litigation over the property should have been tried by the judge. Such property is “in litigation” from
the moment it became subject to the judicial action of the judge who afterwards purchased it. Hence, a purchase
made by judge at a public auction of a property pursuant to an order of execution issued by said judge is within the
prohibition whether or not the property had been the subject of litigation in his court. (Gontingco vs. Pobinguit, 35
Phil. 81 [1911].) There is no violation of the prohibition (although it may be improper under the Canons of Judicial
Ethics) where the judge purchased the property in question after the decision involving the property had already
become final because none of the parties therein filed an appeal within the reglementary period; hence, the same
was no longer in litigation. (Macariola vs. Asuncion, 114 SCRA 77 [1982].)

(2) Where property acquired by lawyer in foreclosure sale after termination of case. — A lawyer cannot
purchase, directly or indirectly, the property or rights which are the subject of litigation in which he takes part by
virtue of his profession. (see Rubias vs. Satiller, 51 SCRA 120 [1973].) The fact that the property in question was first
mortgaged by the client to his lawyer and only subsequently acquired by the latter in a foreclosure sale long after the
termination of the case will not remove it from the scope of the prohibition for at the time the mortgage was
executed the relationship of lawyer and client still existed, the very relation of trust and confidence sought to be
protected by the prohibition, when a lawyer occupies a vantage position to press upon or dictate terms to a harassed
client. To rule otherwise would be to countenance indirectly what cannot be done directly. (Fornilda vs. Regional Trial
Court, 166 SCRA 281 [1988].)
(3) Liability of lawyer for violation of prohibition. — A violation of the prohibition constitutes a breach of professional
ethics and malpractice for which the lawyer may be reprimanded, suspended or disbarred from the practice of the legal
profession. Good faith is not a defense. (In re Attorney Melchor E. Ruste, 70 Phil. 243 [1940]; Hernandez vs. Villanueva, 40
Phil. 775 [1920]; Mananquil vs. Villegas, 189 SCRA 335 [1990].)

(4) Where lawyer member of law firm involved. — Contracts of sale or lease where the vendee or lessee is a partnership,
of which a lawyer is a member, over a property involved in a litigation in which he takes by virtue of his profession are
covered by the prohibition.

(5) Cases not covered. — The prohibition does not include sale of the property of the client effected before it became
involved in the action (Gregorio Araneta, Inc. vs. Tuazon de Paterno, 91 Phil. 786 [1952].); nor does it apply to an
assignment of the amount of a judgment made by a person to his attorney in payment of professional services in other
cases (Municipal Council of Iloilo vs. Evangelista, 55 Phil. 290 [1930].); nor to the sale of a parcel of land, acquired by a
client to satisfy a judgment in his favor, to his attorney as long as the property was not the subject of the litigation. (Daroy
vs. Abecia, 100 SCAD 376, 298 SCRA 239 [1998].) It has also been held that the law does not prohibit a lawyer from
charging a contingent fee (to be given in a case the suit is won) based on a certain percentage of the value of the property
in litigation (Recto vs. Harden, 100 Phil. 427 [1954].), because the payment of said fee is not made during the pendency of
the litigation but only after judgment has been rendered in the case handled by the lawyer. In fact, under the 1988 Code
of Professional Responsibility (Rule 16.03, Canon 10 thereof.), a lawyer may have a lien over funds and property of his
client and may apply so much thereof as may be necessary to satisfy his lawful fees and disbursements. (Fabillo vs.
Intermediate Appellate Court, 195 SCRA 28 [1991].)
Other persons especially disqualified.
Examples of persons especially disqualified by law are: (1) aliens who are disqualified to purchase private agricultural
lands (Art. XII, Secs. 3, 7, Constitution; see Krivenko vs. Register of Deeds, 79 Phil. 461 [1947].); (2) an unpaid seller having a
right of lien or having estopped the goods in transitu, who is prohibited from buying the goods either directly or indirectly in
the resale of the same at a public or private sale which he may make (Art. 1533, par. 5; Art. 1476[4].); and (3) The officer
conducting the execution sale or his deputies cannot become a purchaser, or be interested directly or indirectly in any
purchase at an execution sale. (Sec. 19, Rule 39, Rules of Court.) In the case of aliens, the disqualification is founded on
express provision of the Constitution and not by reason of any fiduciary relationship. It has been held, however, that where a
land is sold to an alien who later sold it to a Filipino, the sale to the latter cannot be impugned. In such case, there would be
no more public policy to be served in allowing the Filipino seller or his heirs to recover the land as the same is already owned
by a qualified person. (Herrera vs. Tuy Kim Guan, 1 SCRA 406 [1961]; Godinez vs. Fong Pak Luen, 120 SCRA 223 [1983].)

Effect of sale in violation of prohibition.

If the sale is made, would the transaction be void or merely voidable?
(1) With respect to Nos. 1 to 3, the sale shall only be voidable because in such cases only private interests are affected.
(see Wolfson vs. Estate of Martinez, 20 Phil. 340 [1911].) The defect can be cured by ratification of the seller. (see Arts. 1392-
1396.)
(2) With respect to Nos. 4 to 6, the sale shall be null and void, public interests being involved therein. (see Art. 1409[1];
Rubias vs. Batiller, 51 SCRA 120 [1973].) In a case, the Supreme Court affirmed the decision of a lower court declaring invalid
the sale made by the client in favor of his attorney. (Director of Lands vs. Abragat, 53 Phil. 147 [1929]; see Fornilda vs.
Regional Trial Court, 166 SCRA 281 [1988].)
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. (1450a)

Perfection of contract of sale.

 Contracts are perfected by mere consent. (Art. 1315.) The contract of sale being consensual, it is perfected at
the moment of consent without the necessity of any other circumstances. From the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price (see Art. 1624.), the reciprocal
obligations of the parties arise even when neither has been delivered. (see Pacific Oxygen & Acetylene Co. vs.
Central Bank, 37 SCRA 685 [1971]; Villongco Realty Co. vs. Bormacheco, Inc., 65 SCRA 352 [1975]; Vargas Plow
Factory, Inc. vs. Central Bank, 27 SCRA 84 [1969]; Xentrex Automotive, Inc. vs. Court of Appeals, 94 SCAD 923, 290
SCRA 66 [1998].) The essence of consent is the conformity of the parties on the term of the contract, the acceptance
by one of the offer made by the other. (Salonga vs. Farrales, 105 SCRA 359 [1981]; Firme vs. Buklod Enterprises and
Dev. Corp., 414 SCRA 190 [2003].)

 As a consensual contract, a contract of sale becomes a binding and valid contract upon the meeting of the minds of
the parties as to the price, despite the manner of payment, or even the breach of that manner of payment. It is not
the act of payment of price that determines the validity of a contract of sale. (Buenaventura vs. Court of Appeals,
416 SCRA 263 [2003].)
Effect of failure to pay price.

Failure to pay the consideration of contract is different from lack of consideration; the former results in a right to demand fulfillment or
cancellation of the obligation under an existing valid contract, while the latter prevents the existence of a valid contract. (Montecillo vs. Reyes,
170 SCAD 440, 385 SCRA 244 [2002].)

(1) The failure to pay the stipulated price after the execution of the contract does not convert the contract into one without cause or
consideration as to vitiate the validity of the contract, it not being essential for the existence of cause that payment or full payment be made at
the time of the contract. (Puato vs. Mendoza, 64 Phil. 417 [1937].) Non-payment of the purchase price is not among the instances where the law
declares a contract of sale to be null and void. (Peñalosa vs. Santos, 153 SCAD 531, 363 SCRA 545 [2001].) Such failure does not ipso facto resolve
the contract in the absence of any agreement to that effect. (De la Cruz vs. Legaspi, 98 Phil. 43 [1955]; Ocampo vs. Court of Appeals, 52 SCAD 610,
233 SCRA 551 [1994].)

The situation is rather one in which there is failure to pay the consideration, with its resultant consequences. The vendor’s remedy in
such case is generally to demand specific performance or rescission with damages in either case under Article 1191. (De la Cruz vs. Legaspi,
supra; Chua Hai vs. Kapunan, Jr., 103 Phil. 110 [1958]; Lebrilla vs. Intermediate Appellate Court, 180 SCRA 188 [1989].)

(2) But a contract of sale is null and void where the purchase price, which appears thereon as paid, has, in fact, never been paid by the buyer to
the seller. In such case, the sale is without cause or consideration. (Art. 1409[3].) Such sale is non-existent or cannot be considered consummated.
It produces no effect whatsoever. (Mapalo vs. Mapalo, 17 SCRA 114 [1966]; Yu Bun Guan vs. Ong, 157 SCAD 38, 367 SCRA 559 [2001]; Montecillo
vs. Reyes, supra.)

If the real price is not stated in the contract, then the contract is valid but subject to reformation. If there is no meeting of the minds of the parties as
to the price, because the price stipulated in the contract is simulated, then the contract is void. Article 1471 states that if the price is simulated, the sale is
void. (Buenaventura vs. Court of Appeals, 416 SCRA 263 [2003].)
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.
(n)

Rules governing auction sales.

(1) Sales of separate lots by auction are separate sales. — Where separate lots are the subject of separate biddings and
are separately knocked down, there is a separate contract in regard to each lot. As soon as the hammer falls on the first
lot, the purchaser of that lot has a complete and separate
bargain. He need not make another. When a second lot is put up and knocked down to the highest bidder, there is a
separate complete contract as to the said lot whether the bidder who secured the first lot or whether another person
happens to be the highest bidder. Such is the rule in No. (1) though no doubt the parties may subsequently consolidate all
the purchases into one transaction — as by giving a single note — for the aggregate price. (see 2 Williston on Sales [1948
Rev. Ed.], pp. 199-200.)

(2) Sale perfected by the fall of the hammer. — In putting up the goods for sale, the seller is merely making an invitation
to those present to make offers which they do by making bids (Art. 1326.), one of which is ultimately accepted. Each bid is
an offer and the contract is perfected only by the fall of the hammer or in other customary manner. It follows that the
bidder may retract his bid and the auctioneer may withdraw the goods from sale any time before the hammer falls.
However, if the sale has been announced to be without reserve, the auctioneer cannot withdraw the goods from sale
once a bid has been made and the highest bidder has a right to enforce his bid. (see 2 Williston, op. cit., pp. 200-201,
204205.)

(3) Right of seller to bid in the auction. — The seller or his agent may bid in an auction sale provided: (a) such right was
reserved; (b) notice was given that the sale is subject to a right to bid on behalf of the seller; and (c) the right to bid by the
seller is not prohibited by law or by stipulation.16

(a) Where no notice given of right to bid. — Where there is no notice that the sale is subject to seller’s right to bid, it
shall be unlawful for the seller to bid either directly or indirectly or for the auctioneer to employ or induce any person to
bid on behalf of the seller. (No. 4.) The purpose of the notice is to prevent puffing or secret bidding by or on behalf of the
seller by people who are not themselves bound. The employment of a puffer or by bidder to enhance or inflate the price
of the
goods sold is a fraud upon the purchaser and a sufficient ground for relieving him from his bid and avoiding the sale.
(see Fisher vs. Hersey, 17 Hun. [N.Y.] 370.) This is true although the employment of the puffer by the auctioneer was
without the owner’s knowledge, since the auctioneer is the owner’s agent.

(b) Where notice of right to bid given. — Though bidding by the seller or his agent is fraudulent, a right to bid
may be expressly reserved by or on behalf of the seller. (No. 3.) It is, therefore, the secrecy of puffing which renders it
a fraud upon bidding. (2 Williston, op. cit., p. 208.) Where there is notice of the intention to bid by the seller, the
bidding in such a case would not operate as a fraud.

(4) Contract not to bid. — A sale may be fraudulent not only because of conduct of the seller, but because of conduct
of the buyer. It is not permissible for intending buyers at auction or other competitive sales to make an agreement for
a consideration that only one of them shall bid, in order that the property may be knocked down at a low price. The
bargain is fraudulent as regards the seller though the agreement is without consideration, if it is actually carried out,
for the fraud against the seller is the same as if there were considerations. (Ibid., pp. 209-219.)

(5) Advertisements for bidders. — They are simply invitations to make proposals, and the advertiser is not bound to
accept the highest or lowest bidder, unless the contrary appears. (Art. 1326.)
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. (1451a)

Kinds of promise treated in Article 1479.

The above article refers to three kinds of promises, namely:

(1) An accepted unilateral promise to sell in which the promisee (acceptor) elects to buy;
(2) An accepted unilateral promise to buy in which the promisee (acceptor) elects to sell; and
(3) A bilateral promise to buy and sell reciprocally accepted in which either of the parties chooses to exact fulfillment. (see
10 Manresa 71.)

Effect of unaccepted unilateral promise. A unilateral promise or offer to sell or to buy a thing which is not accepted creates
no juridical effect or legal bond. Such unaccepted imperfect promise or offer is called policitacion. A period may be given to
the offeree within which to accept the offer. (infra.)

EXAMPLE: S offers or promises to sell to B his car at a stated price and B just let the promise go by without accepting
it. Neither S nor B is bound by any contract. Obviously, this is not the one contemplated in Article 1479.
Meaning of option:

An option is a privilege existing in one person for which he has paid a consideration which gives him the right to
buy/sell, for example, certain merchandise or certain specified property, from/to another person, if he chooses, at
any time within the agreed period at a fixed price, or under, or in compliance with certain terms and conditions.

What is an option contract?

“In Beaumont v. Prieto,[19] the nature of an option contract is explained thus:

In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following language:

A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege of
buying from, or selling to, B certain securities or properties within a limited time at a specified price. (Story vs.
Salamon, 71 N. Y., 420.)

From Vol. 6, page 5001, of the work Words and Phrases, citing the case of Ide vs. Leiser (24 Pac., 695; 10 Mont.,
5; 24 Am. St. Rep., 17) the following quotation has been taken:
 An agreement in writing to give a person the option to purchase lands within a given time at a named price is neither a
sale nor an agreement to sell. 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 is, the right or privilege to buy at the election or option of the other party.
The second party gets in praesenti, not lands, nor an agreement that he shall have lands, but he does get something of
value; that is, the right to call for and receive lands if he elects. The owner parts with his right to sell his lands, except to the
second party, for a limited period. The second party receives this right, or rather, from his point of view, he receives the right
to elect to buy.

But the two definitions above cited refer to the contract of option, or, what amounts to the same thing, to the case
where there was cause or consideration for the obligation x x x. (Emphasis supplied.)” (Tuazon vs. Del Rosario-Suarez, et al.,
G.R. No. 168325, December 8, 2010)

Nature of option contract. (1) An option is a contract. It is a preparatory contract, separate and distinct from the main
contract itself (subject matter of the option) which the parties may enter into upon the consummation of the option.

(2) It gives the party granted the option the right to decide, whether or not to enter into a principal contract, while it
binds the party who has given the option, not to enter into the principal contract with any other person during the agreed
time and within that period, to enter into such contract with the one to whom the option was granted if the latter should
decide to use the option.17 (see Carceller vs. Court of Appeals, 103 SCAD 258, 302 SCRA 718 [1999]; Litonjua vs. L & R
Corporation, 328 SCRA 796 [2000].)
(3) An option must be supported by a consideration distinct from the price. (Co. vs. Court of Appeals, 312 SCRA 528 [1999];
Laforteza vs. Machuca, 127 SCAD 798, 333 SCRA 643 [2000]; Abalos vs. Macatangay, Jr., 439 SCRA 649 [2004].) The
promisee has the burden of proving such consideration. (see Vasquez vs. Court of Appeals, 199 SCRA 102 [1991].)

(4) A consideration of an option contract is just as important as the consideration for any other kind of contract. (see
Enriquez de la Cavada vs. Diaz, 37 Phil. 982 [1918].) An option without consideration is void; the effect is the same as if
there was no option.

Right of first refusal- as defined in Tuazon vs. Del Rosario-Suarez, et al., G.R. No. 168325, December 8, 2010:

“On the other hand, in Ang Yu Asuncion v. Court of Appeals,[20] an elucidation on the right of first refusal was made thus:

In the law on sales, the so-called right of first refusal is an innovative juridical relation. Needless to point out, it cannot be
deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first refusal, understood
in its normal concept, per se be brought within the purview of an option under the second paragraph of Article 1479,
aforequoted, or possibly of an offer under Article 1319 of the same Code. An option or an offer would require, among
other things, a clear certainty on both the object and the cause or consideration of the envisioned contract. In a right of
first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only
on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the
price, that obviously are yet to be later firmed up.
Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed
not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and
inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on
human conduct.

Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach
cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its
existence, nor would it sanction an action for specific performance without thereby negating the indispensable
element of consensuality in the perfection of contracts. It is not to say, however, that the right of first refusal would
be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance, the
circumstances expressed in Article 19 of the Civil Code, can warrant a recovery for damages. (Emphasis supplied.)”

Option contract vs. Right of first refusal

From the foregoing, it is thus clear that an option contract is entirely different and distinct from a right of first refusal
in that in the former, the option granted to the offeree is for a fixed period and at a determined price. Lacking these
two essential requisites, what is involved is only a right of first refusal. (Tuazon vs. Del Rosario-Suarez, et al., G.R. No.
168325, December 8, 2010).
Effect of accepted unilateral promise.

The second paragraph of Article 1479 refers to what is called as “option” in the commercial world.

In Diamante v. Court of Appeals,[22] this Court further declared that: A unilateral promise to buy or sell is a mere offer,
which is not converted into a contract except at the moment it is accepted. Acceptance is the act that gives life to a juridical
obligation, because, before the promise is accepted, the promissor may withdraw it at any time. Upon acceptance, however, a
bilateral contract to sell and to buy is created, and the offeree ipso facto assumes the obligations of a purchaser; the offeror, on
the other hand, would be liable for damages if he fails to deliver the thing he had offered for sale. (Tuazon vs. Del Rosario-
Suarez, et al., G.R. No. 168325, December 8, 2010)

A unilateral promise to sell or to buy a determinate thing for a price certain does not bind the promissor even if accepted
and may be withdrawn at any time. It is only if the promise is supported by a consideration distinct and separate from the price
that its acceptance will give rise to a perfected contract.

The optionee (holder of the option), after accepting the option and before he exercises it, has the right, but not the obligation, to buy
or sell, as the case may be. Once the option is exercised, i.e., offer is accepted before a breach of the option, a bilateral promise to sell
and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. It would be a breach of
the option for the optioner-offeror to withdraw the offer during the agreed period. If in fact, he withdraws the offer before its
acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract
since it has failed to reach its own stage of perfection. The offeror, however, renders himself liable for damages for breach of the
option.18 (Asuncion vs. Court of Appeals, 56 SCAD 163, 238 SCRA 602 [1994].)
Consideration in an option contract may be anything of value, unlike in sale where it must be the price certain in money or its
equivalent. Lacking any proof of such consideration, the option is unenforceable. (San Miguel Properties Philippines, Inc. vs.
Huang, 130 SCAD 713, 336 SCRA 737 [2000].) A contract of option to buy is separate from the contract to sell, and both contracts
need separate and distinct considerations for validity. (Dijamco vs. Court of Appeals, 440 SCRA 190 [2004].)

EXAMPLE: In the preceding example, even if B accepts the promise of S (this is a case of an accepted unilateral promise to
sell), S is not bound to sell his car to B because there is no promise, in turn, on the part of B to buy. However, if the promise is
covered by a consideration distinct from the price of the car, as when B paid or promised to pay a sum of money to S for giving
him the right to buy the car if he chooses within an agreed period at a fixed price, its acceptance produces consent or meeting of
the minds. A legally binding and independent contract of option is deemed perfected.

Full payment of price not necessary for exercise of option to buy. The obligations under an option to buy are reciprocal
obligations — the performance of one obligation is conditioned upon the simultaneous fulfillment of the other obligation. (Art.
1169.) In an option to buy, the party who has an option may validly and effectively exercise his right by merely notifying the
owner of the former’s decision to buy and expressing his readiness to pay the stipulated price. The notice need not be coupled
with actual payment of the purchase price so long as this is delivered to the owner of the property upon the execution and
delivery by him of the deed of sale. The payment of the price is contingent upon the delivery of the deed of sale. Unless and
until the owner shall have done this, the buyer who has the option is not and cannot be held in default in the discharge of his
obligation to pay. (Nietes vs. Court of Appeals, 46 SCRA 654 [1972].) Consequently, since the obligation to pay is not yet due,
consignation19 in court of the purchase price is not required. (Heirs of Luis Bacus vs. Court of Appeals, 341 SCRA 2295 [2003].)
An option to buy is not, of course, a contract of purchase and sale. (Kilosbayan, Inc. vs. Morato, 63 SCAD 97, 246 SCRA 540
[1995].)
Article 1479 and Article 1324 compared.
Article 1324 of the Civil Code provides as follows: “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.” Under the above-quoted article, the general rule regarding offer and
acceptance (see Art. 1319.) is that, when the offerer has allowed the offeree a certain period within which to accept the offer, the
offer may be withdrawn as a matter of right at any time before acceptance. But if the option is founded upon a separate
consideration, the offerer cannot withdraw his offer, even if the same has not yet been accepted, before the expiration of the
stipulated period. Regardless of whether it is supported by a consideration or not, the offer, of course, cannot be withdrawn after
acceptance of the offer. This general rule as embodied in Article 1324 was interpreted as modified by the provision of Article 1479
which applies specifically to a promise “to buy or to sell.” As already stated, this rule requires that for a promise to sell to be valid,
it must be supported by a consideration distinct from the price. American authorities which hold that an offer, once accepted,
cannot be withdrawn, regardless of whether or not it is supported by a consideration (62 Am. Jur. 528.), uphold the general rule
applicable to offer and acceptance as contained in our Civil Code. (Art. 1319; see Southern Sugar & Mollasses Co. vs. Atlantic Gulf
& Pacific Co., 97 Phil. 249 [1955]; Mendoza vs. Comple, 15 SCRA 162 [1965].) In a later case (Sanchez vs. Rigos, 45 SCRA 368
[1972], infra.), the Supreme Court abandoned the view adhered to in Southwestern Sugar (supra.) which holds that an option to
sell can still be withdrawn, even if accepted, if the same is not supported by any consideration, and reaffirmed the doctrine in
Atkins, Kroll & Co., Inc. vs. Cua Hian Tek (102 Phil. 948 [1958], infra.), holding that it could no longer be withdrawn after
acceptance. In other words, if acceptance is made before withdrawal, it constitutes a binding contract of sale although the option
is given without consideration. Before acceptance, the offer may be withdrawn as a matter of right.20 Be that as it may, the
offerer cannot revoke, before the period has expired, in an arbitrary or capricious manner the offer without being liable for
damages which the offeree may suffer under Article 19 of the Civil Code.
Effect of bilateral promise to buy and sell.

When the promise is bilateral, that is, one party accepts the other’s promise to buy and the latter, the former’s promise
to sell a determinate thing for a price certain, it has practically the same effect as a perfected contract of sale since it is
reciprocally demandable.

EXAMPLE: S promised to sell his car to B and B promised to buy the said car for P100,000.00. The parties are bound by
their contract so that in case one of them should not comply with what is incumbent upon him, the other has the right to
choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. (Art. 1191,
par. 2.)
OPTION CONTRACT. A Privilege existing in one person, for which he had paid a consideration, which gives him the right to buy,
certain merchandise or property from another person at anytime within the agreed period at a fixed price. In case of breach of promise to
buy or to sell, injured party can only seek damages. (See Art. 1479)
Test to Determine whether a Contract is A contract of Sale or An Option. Whether or not the agreement could be specifically enforced.
If such stipulation could be independently enforced from the contract, then such stipulation is an option.
EARNEST MONEY vs. OPTION MONEY

Earnest Money Option Money

It is part of the purchase price It is given as a distinct consideration for an option contract
which gives the buyer a specific period within which to
purchase the thing

It is given only when there is already a perfected sale It is given at a time when the sale had not yet been perfected.
What had been perfected only is the option contract

When it is given, the buyer is bound to pay the balance of the Even if option money is paid by the would-be-buyer he is not
agreed purchase price bound to buy the thing

If the sale does not materialize, the earnest money paid must If the buyer decides not to buy the thing, he cannot recover the
be returned, unless a contrary agreement had been stipulated option money he paid as consideration for the contract of
option
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. (1454a)

Meaning of earnest money.

Earnest money (“arras”) is a deposit paid (often in escrow) to show a good faith intention to complete the
transaction and ordinarily forfeited if the buyer defaults.

It is something of value given by the buyer to the seller to show that the buyer is really in earnest, and
to bind the bargain. It is actually a partial payment of the purchase price and is considered as proof of the
perfection of the contract. (see Villongco Realty vs. Bormaecheco, 65 SCRA 352 [1975]; Topacio vs. Court of
Appeals, 211 SCRA 291 [1992]; see Laforteza vs. Machuca, 127 SCAD 798, 333 SCRA 643 [2000].) Since
earnest money constitutes an advance payment, it must be deducted from the total price.
By agreement of the parties, the amount given may be merely a deposit of what would eventually become earnest money or
downpayment should a contract of sale be made by them, not as a part of the purchase price and as proof of the perfection of the
contract of sale but only as a guarantee that the buyer would not back out of the sale. Thus, it is not really the giving of earnest
money but the proof of the concurrence of all the essential elements of a contract which establishes the existence of the perfected
contract. There is no sale where the parties still have to agree on the acceptable terms of payment. (San Miguel Properties
Philippines, Inc. vs. Huang, 130 SCAD 713, 336 SCRA 737 [2000].) The earnest money forms part of the consideration only if the sale
is consummated upon full payment of the purchase price. (Chua vs. Court of Appeals, 401 SCRA 54 [2003].)

Under Article 1454 of the old Civil Code, it has been held that the delivery of part of the purchase price should not be
understood as constituting earnest money to bind the agreement in the absence of something in the contract showing that such
was the intention of the parties. (Salas Rodriguez vs. Leuterio, 47 Phil. 818 [1925].)

 EARNEST MONEY AND OPTION MONEY DISTINGUISHED.

They may be distinguished as follows:

(1) Earnest money is part of the purchase price, while option money (see Art. 1479, par. 2.) is the money given as distinct
consideration for an option contract;
(2) Earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and
(3) When earnest money is given, the buyer is bound to pay the balance, while the would-be buyer who gives option money is not
required to buy. (Adelfa Properties, Inc. vs. Court of Appeals, 58 SCAD 962, 240 SCRA 565 [1995] and Limson vs. Court of Appeals,
357 SCRA 209 [2001], quoting De Leon, Comments and Cases on Sales, 1986 rev. ed., p. 67.) But option money may become earnest
money if the parties so agree.
In the case First Optima Realty Corp. vs. Securitron Security Services, Inc. GR No. 199648, January 28, 2015:

“Respondent’s subsequent sending of the February 4, 2005 letter and check to petitioner – without awaiting the
approval of petitioner’s board of directors and Young’s decision, or without making a new offer – constitutes a
mere reiteration of its original offer which was already rejected previously; thus, petitioner was under no
obligation to reply to the February 4, 2005 letter. It would be absurd to require a party to reject the very same
offer each and every time it is made; otherwise, a perfected contract of sale could simply arise from the failure to
reject the same offer made for the hundredth time.1âwphi1 Thus, said letter cannot be considered as evidence of
a perfected sale, which does not exist in the first place; no binding obligation on the part of the petitioner to sell
its property arose as a consequence. The letter made no new offer replacing the first which was rejected.

Since there is no perfected sale between the parties, respondent had no obligation to make payment through the
check; nor did it possess the right to deliver earnest money to petitioner in order to bind the latter to a sale. As
contemplated under Art. 1482 of the Civil Code, "there must first be a perfected contract of sale before we can
speak of earnest money."35 "Where the parties merely exchanged offers and counter-offers, no contract is
perfected since they did not yet give their consent to such offers. Earnest money applies to a perfected sale."36
This Court is inclined to accept petitioner’s explanation that since the check was mixed up with all other checks and
correspondence sent to and received by the corporation during the course of its daily operations, Young could not
have timely discovered respondent’s check payment; petitioner’s failure to return the purported earnest money
cannot mean that it agreed to respondent’s offer. Xxxxxxxxxx

In a potential sale transaction, the prior payment of earnest money even before the property owner can agree to
sell his property is irregular, and cannot be used to bind the owner to the obligations of a seller under an otherwise
perfected contract of sale; to cite a well-worn cliché, the carriage cannot be placed before the horse. The property
owner-prospective seller may not be legally obliged to enter into a sale with a prospective buyer through the
latter’s employment of questionable practices which prevent the owner from freely giving his consent to the
transaction; this constitutes a palpable transgression of the prospective seller’s rights of ownership over his
property, an anomaly which the Court will certainly not condone. An agreement where the prior free consent of
one party thereto is withheld or suppressed will be struck down, and the Court shall always endeavor to protect a
property owner’s rights against devious practices that put his property in danger of being lost or unduly disposed
without his prior knowledge or consent. As this ponente has held before, "[t]his Court cannot presume the
existence of a sale of land, absent any direct proof of it."37”
  Object or subject matter
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. (n)
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 the contract is entered into, the thing is
capable of being made determinate without the necessity of a new or further agreement between the parties. (n)
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. (n)
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. (n)
Art. 1463. The sole owner of a thing may sell an undivided interest therein. (n)

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. (n)

Art. 1465. Things subject to a resolutory condition may be the object of the contract of sale. (n)This refers to the
determinate thing which is the object of the contract.

 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.)

- Licit means lawful; not contrary to law, morals, good customs, public order or public policy.
Examples of void sale where the object is illicit:
1. Sale of animal suffering from contagious diseases;
2. Sale of animals if the use or service for which they have been acquired has been stated in the contract and they
are found to be unfit;
3. Sale of future inheritance;
4. Sale of land to aliens or foreigners.

 The thing must be determinate.

A thing is determinate or specific (not generic) when it is particularly designated or physically segregated from all
others of the same class. (see Art. 1636[1].) This requisite that the object of a contract of sale must be determinate
is in accordance with the general rule that the object of every contract must be determinate as to its kind. (Art.
1349.)
A determinate thing is identified by its individuality, e.g., the car in my garage (if I have only one); the gold
watch I am wearing; the house located at the corner of Rizal and Del Pilar Streets, etc.;

- It is not necessary that the thing sold must be in sight at the time the contract is entered into. It is sufficient
that the thing is determinable or capable of being made determinate without the necessity of a new or further
agreement between the parties (Art. 460, par. 2; see Melliza vs. City of Iloilo, 23 SCRA 477 [1968].) to ascertain its
identity, quantity, or quality. The fact that such an agreement is still necessary constitutes an obstacle to the
existence of the contract (Art. 1349.) and renders it void. (Art. 1409[3].)
Thus, a person may validly sell all the cavans of rice in a particular bodega or a parcel of land located at a particular street
but if the bodega is not specified and the seller has more than one bodega or owns more than one parcel of land at the
particular street, and it cannot be known what may have been sold, the contract shall be null and void. (Arts. 1378, par. 2;
1409[6].) Similarly, an obligation by a person to sell one of his cars is limited to the cars owned by him. The subject matter is
determinable; it becomes determinate the moment it is delivered.

 Potentiality of existence

General rule: A person cannot sell or convey what he does not have or own.
- Exceptions: Sale of a thing having potential existence; Sale of future goods; Contract for delivery at a certain price of
an article which the vendor in the ordinary course of business manufactures or procures for the general market

- Sale of things having potential existence. 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. Thus, a valid sale may
be made of “the wine a vine is expected to produce; or the grain a field may grow in a given time; or the milk a cow may
yield during the coming year; or the wool that shall thereafter grow upon a sheep; or what may be taken at the next cast of
a fisherman’s net; or the goodwill of a trade, or the like. The thing sold, however, must be specific and identified. They must
be also owned by the vendor at the time.” (Sibal vs. Valdez, 50 Phil. 522 [1927]; Pichel vs. Alonzo, 111 SCRA 341 [1982]; see
46 Am. Jur. 223.)
 Sale of a mere hope or expectancy.
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.) A plan whereby prizes can be obtained without any additional consideration
(when a product is purchased at the usual price plus the chance of winning a prize) is not a lottery. (Phil.
Refining Co. vs. Palomar, 148 SCRA 313 [1987].)

EXAMPLES: (1) S binds himself to sell for a specified price to B a parcel of land if he wins a case for the
recovery of said land pending in the Supreme Court. Here, the obligation of S to sell will arise, if the
“expected thing,’’ the land, will come into existence, i.e., if he wins the case. Before a decision is rendered,
there is only “the mere hope or expectancy’’ that the thing will come into existence.

(2) B buys a sweepstakes ticket in the hope of winning a prize. Here, the object of the contract is the
hope itself. The sale is valid even if B does not win a prize because it is not subject to the condition that the
hope will be fulfilled.
Emptio Rei Speratae vs. Emptio Spei
EMPTIO REI SPERATAE EMPTIO SPEI
(sale of thing expected) (sale of the hope itself)

• Sale of a thing with potential • Sale of a mere hope or expectancy

existence that the thing will come to
existence. Sale of the hope itself.

• Sale is effective even when the

• Sale is subject to the condition thing does not come into existence
that the thing will exist. unless it is a vain hope.

• The object is a present thing which

is the hope or expectancy.
• The object is a future thing.
- Art. 1462
Goods which form the subject of a contract of sale may be either:

(1) Existing goods or goods owned or possessed by the seller; or

(2) 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).8 (Art. 1460.)

- A sale of future goods, even though the contract is in the form of a present sale, is valid only as an executory
contract to be fulfilled by the acquisition and delivery of the goods specified.

In other words, “property or goods which at the time of the sale are not owned by the seller but which thereafter
are to be acquired by him, cannot be the subject of an executed sale but may be the subject of a contract for the
future sale and delivery thereof,” even though the acquisition of the goods depends upon a contingency which may or
may not happen. In such case, the vendor assumes the risk of acquiring the title and making the conveyance, or
responding in damages for the vendee’s loss of his bargain. (Martin vs. Reyes, 91 Phil. 666 [1952]; 77 C.J.S. 604.)

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.)
Under Art. 1463
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.)9 This rule operates similarly with respect
to ownership of fungible goods. (Art. 1464.) Article 1463 covers only the sale by a sole owner of a thing of an undivided
share or interest thereof.

EXAMPLE: S is the owner of a parcel of land with an area of 1,000 square meters. As the sole owner, S can sell to B the
entire portion; or only 500 square meters of the land by metes and bounds in which case he becomes the sole owner of
the remaining 500 meters and B the portion sold; or he may sell an undivided half of the land without specially
designating or identifying the portion sold, in which case they become co-owners. As a co-owner, S or B can convey or
transfer only the title pertaining to the undivided half of the land, for vital to the validity of a contract of sale is that the
vendor be the owner of the thing sold. (Art. 1459.)

Under Art. 1464

Sale of an undivided share of a specific mass: The Civil Code classifies movable goods into consumable or non-
consumable (Art. 418.), thereby discarding the old classification (Art. 334, old Civil Code.) into fungible and non-
fungible. This change of classification seems to be in name only as the definition of fungible goods as those which
cannot be used without being consumed under the old Civil Code is precisely that of consumable goods. Article 1464,
however, still speaks of fungible goods.
(1) Meaning of fungible goods. — It means goods of which any unit is, from its nature or by mercantile usage, treated as
the equivalent of any other unit (Uniform Sales Act, Sec. 76.), such as grain, oil, wine, gasoline, etc.

(2) Effect of sale. — The owner of a mass of goods may sell only an undivided share thereof, provided the mass is
specific or capable of being made determinate. (Art. 1460.) (a) By such sale, the buyer becomes a co-owner with the seller
of the whole mass in the proportion in which the definite share bought bears to the mass. (b) It must follow that the
aliquot share of each owner can be determined only by the measurement of the entire mass. If later on it be discovered
that the mass of fungible goods contains less than what was sold, the buyer becomes the owner of the whole mass and
furthermore, the seller shall supply whatever is lacking from goods of the same kind and quality, subject to any stipulation
to the contrary.

(3) Risk of loss. — If the buyer becomes a co-owner, with the seller, or other owners of the remainder of the mass, it
follows that the whole mass is at the risk of all the parties interested in it, in proportion to their various holdings.

(4) Subject matter. — Take note that in the sale of an undivided share, either of a thing (Art. 1463.) or of that of mass
of goods (Art. 1464.), the subject matter is an incorporeal right. (Art. 1501.) Here, ownership passes to the buyer by the
intention of the parties.
EXAMPLE: S owns 1,000 cavans of palay stored in his warehouse. If S sells to B 250 cavans of
such palay which cavans are not segregated from the whole mass, B becomes a co-owner of
the said mass to the extent of 1/4. If the warehouse happens to contain only 200 cavans, S
must deliver the whole 200 cavans and supply the deficiency of 50 cavans of palay of the
same kind and quality.

In the same example, the number of cavans in the warehouse may be unknown or
undetermined and S may sell only 1/4 share of the contents. The legal effect of such a sale is
to make B a co-owner in that proportion. It is obvious that in such case, the obligation of the
seller “to make good the deficiency” will not arise.
Under Art. 1465

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. (see Arts. 1179, 1181.)

EXAMPLES: (1) S (vendor a retro) sold a parcel of land to B (vendee a retro) subject to the condition that S can
repurchase the property within two years from the date of sale. If S exercises the right to repurchase, then the sale made
by B to C before the lapse of the two (2)-year period falls. The rule, however, that a vendor cannot transfer to his vendee
a better right than he had himself, suffers an exception in case of property with Torrens title. (see Hernandez vs. Katigbak
Vda. de Salas, 69 Phil. 748 [1940].)

(2) For failure to pay his debt, the land of S (mortgagor) was sold to B, the highest bidder and purchaser in an
extrajudicial foreclosure of a real estate mortgage. Under the law (Act No. 3135, as amended.), the mortgagor may
redeem the property at any time within one year from and after the date of the registration of the sale. If S redeems the
property, then the sale made to B is extinguished.

One of the obligations of the vendor is to transfer the ownership of the thing object of the contract. (Art. 1458.) If the
resolutory condition attaching to the object of the contract, which object may include things as well as rights (Arts. 1427,
1347, par. 1.), should happen, then the vendor cannot transfer the ownership of what he sold since there is no object.
PRICE
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. (1447a)

Requisites for valid price:

1. Real
2. Certain or Ascertainable
3. In money or its equivalent
4. Manner of payment must be agreed upon

When price considered certain.

The price in a contract of sale ought to be settled for there can be no sale without a price. (see Borromeo vs.
Borromeo, 98 Phil. 432 [1955].) It must be certain or capable of being ascertained in money or its equivalent; and money
is to be understood as currency, and its equivalent means
promissory notes, checks and other mercantile instruments generally accepted as representing money. The fact that the
exact amount to be paid for the thing sold is not precisely fixed, is no bar to an action to recover such compensation,
provided the contract, by its terms furnishes a basis or measure for ascertaining the amount agreed upon. (Majarabas vs.
Leonardo, 11 Phil. 272 [1908]; Villanueva vs. Court of Appeals, 78 SCAD 484, 267 SCRA 89 [1997].)

Under the above article, the price is certain if: (1) The parties have fixed or agreed upon a definite amount; or (2) It be
certain with reference to another thing certain (see Art. 1472; Majarabas vs. Leonardo, 11 Phil. 272 [1908].); or (3) The
determination of the price is left to the judgment of a specified person or persons and even before such determination. (see
Barretto vs. Sta. Maria, 26 Phil. 200 [1913], under Art. 1458.) It must be understood that the last two cases are applicable
only when no specific amount has been stipulated by the parties.

Effect where price fixed by third person designated.

- As a general rule, the price fixed by a third person designated by the parties is binding upon them.

- There are, however, exceptions such as: (1) When the third person acts in bad faith or by mistake as when the third
person fixed the price having in mind not the thing which is the object of the sale, but another analogous or similar thing in
which case the court may fix the price. But mere error in judgment cannot serve as a basis for impugning the price fixed;
and (2) When the third person disregards specific instructions or the procedure marked out by the parties or the data given
him, thereby fixing an arbitrary price. (see 10 Manresa 53-54.)
EXAMPLE: S sold to B a diamond ring. The determination of the price was left to C whom the parties thought was a
jeweler. If C acted by mistake, as when he is incompetent to know the price of the diamond ring, or in bad faith, as
when he connived with S, the court may fix the price.

Effect where price not fixed by third person designated.

(1) If the third person designated by the parties to fix the price refuses or cannot fix it (without fault of the seller
and the buyer), the contract shall become ineffective, as if no price had been agreed upon unless, of course, the
parties subsequently agree upon the price. (par. 2.)

(2) If such third person is prevented from fixing the price by the fault of the seller or the buyer, the party not in fault
may obtain redress against the party in fault (par. 2.) which consists of a choice between rescission or fulfillment,
with damages in either case. (Art. 1191, par. 2; see Art. 1594.) If the innocent party chooses fulfillment, the court
shall fix the price.
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. (n)

(1) General rule. — While a contract of sale is commutative, mere inadequacy of the price or alleged hardness of the
bargain generally does not affect its validity when both parties are in a position to form an independent judgment
concerning the transaction. (Askav vs. Cosalan, 46 Phil. 79 [1924]; Ereñeta vs. Bezore, 54 SCRA 13 [1973]; Auyong Hian
vs. Court of Appeals, 59 SCRA 110 [1974]; see Ong vs. Ong, 139 SCRA 133 [1985].) This rule holds true in voluntary
contracts of sale otherwise free from invalidating defects. A valuable consideration, however small or nominal, if given
or stipulated in good faith is, in the absence of fraud, sufficient. (Rodriguez vs. Court of Appeals, 207 SCRA 553 [1992].)

In determining whether the price is adequate or not, the price obtaining at the date of the execution of the
contract, not those obtaining a number of years later, should be considered. (Siopongco vs. Castro, [C.A.] No. 12448-R,
Jan. 18, 1957.)

(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. Contracts of sale entered into
by guardians or representatives of absentees are rescissible whenever the wards or absentees whom they represent
suffer lesion by more than 1/4 of the value of the things which are the object thereof. (Art. 1381[1, 2].)
The unsupported claim that the sale of property was made for an inadequate price is a mere speculation which has no
place in our judicial system. Since every claim must be substantiated by sufficient evidence, such a conjectural pretension
cannot be entertained. Allegation of inadequacy of price must be proven. (Ng Cho Cio vs. Ng Diong, 1 SCRA 275 [1961].)

(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. (Aguilar vs. Rubiato, 40 Phil. 570 [1919]; De Leon vs. Salvador, 36 SCRA 507 [1970]; Art.
1602[1].) But where the price paid is much higher than the assessed value of the property and the sale is effected by a
father to his daughter in which filial love must be taken into account, the price is not to be construed “as so inadequate to
shock the court’s conscience.” (Alsua-Bett vs. Court of Appeals, 92 SCRA 332 [1979]; Jocson vs. Court of Appeals, 170 SCRA
333 [1989].)

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. (n)

Effect where price is simulated.

(1) If the price is simulated or false such as when the vendor really intended to transfer the thing gratuitously, then
the sale is void but the contract shall be valid as a donation. (Arts. 1471, 1345, 1353.)
EXAMPLE: S sold to B a parcel of land worth P50,000.00 for only P30,000.00. This contract of sale is valid although the price
is grossly inadequate. However, if it is shown that B induced S to sell the land through fraud, mistake, or undue influence,
the contract may be annulled on that ground. If the price is simulated, B may prove another consideration like the liberality
of S and if such liberality is proved, then the contract is valid as a donation; or B may prove that the act is in reality some
other contract, like barter and, therefore, the transfer of ownership is unaffected.

(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, ibid.), 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; see Catindig vs. Heirs of Catalina Roque, 74 SCRA 83 [1976].)

(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. (Tongoy vs. Court of Appeals, 123 SCRA 99 [1983]; Bayongayong vs. Court of Appeals, 430 SCRA 210 [2004].)
The fact that the seller continues to pay realty taxes on the land sold even after the execution of the contract to sell does
not necessarily prove ownership, much less simulation of said contract. 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. (Villaflor vs. Court of Appeals, 87 SCAD 778, 280
SCRA 297 [1997].) The non-payment of the price by the supposed buyer, a minor, when taken into account together with
the many intrinsic defects of the deed of sale, may, however, show that the price is simulated, making the sale void.
(Lebagela vs. Santiago, 371 SCRA 360 [2001].)

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. (1448)

The above provision follows the principle in Article 1469 that a price is considered certain if it could be determined with
reference to another thing certain. Note the last phrase of the above article: “provided said amount be certain.”

When an amount is fixed above or below the price on a given day or in a particular exchange or market, the said
amount must be certain; otherwise, the sale is inefficacious (Art. 1474.) because the price cannot be determined. This
article is especially applicable to fungible things like securities, grain, liquids, etc. the price of which are subject to
fluctuations of the market.
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. (1449a)

Fixing of price by one of the contracting parties, not allowed.

(1) If consent is essential to a contract of sale, the determination of the price cannot be left to the discretion of one of
the contracting parties; otherwise, it cannot be said that the other consented to a price he did not and could not
previously know. (see 10 Manresa 6061.) The validity or compliance of the contract cannot be made to depend upon the
will of one party. (Art. 1308.)

(2) Moreover, to be just, the price must be determined impartially by both parties (Art. 1458.) or left to the judgment
of a specified person or persons. (Art. 1469.)

However, where the price fixed by one party is accepted by the other, the contract is deemed perfected because in
this case, there exists a true meeting of minds upon the price. (Art. 1475.)

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. (n)
Effect of failure to determine price.

Where contract executory. — If the price cannot be determined in accordance with Articles 1469 and 1472, or in any
other manner, and the bargain is still executory, the contract is without effect. Price certain is an essential element of
the contract of sale. (Art. 1458.) Consequently, there is no obligation on the part of the vendor to deliver the thing and
on the part of the vendee to pay.

(2) Where delivery has been made. — If the thing or any part thereof has already been delivered and appropriated by
the buyer, the latter must pay a reasonable price therefor. This obligation of the buyer is sometimes contractual (if the
agreement omits any reference to price), and sometimes, quasi-contractual (if the agreement provides that the parties
are thereafter to agree on the price). (see Art. 2142.)

(a) If a buyer, for example, orders a cavan of rice from a store, nothing being said as to the price, the parties intend
and understand that a reasonable price shall be paid. The obligation here is contractual. The law merely enforces the
intention of the parties.
(b) Article 1474 applies only where the means contemplated by the parties for fixing the price have, for any reason,
proved ineffectual. In this case, the obligation of the buyer to pay a reasonable price is an obligation imposed by law as
distinguished from a contractual obligation. It is based on the fundamental principle that no one should enrich himself
at the expense of another. (Ibid.) In case, however, the parties do not intend to be bound until after the price is settled,
the buyer must return any goods already received or if unable to do so, must pay their reasonable value at the time of
delivery, and the seller must return any portion of the amount received.
Concept of reasonable price.

The reasonable price or value of goods is generally the market price at the time and place fixed by the contract or by
law for the delivery of the goods. Under special circumstances of unnatural conditions in the market, the market price
does not furnish the only test. In the leading case upon this point, the court said:

“A reasonable price may or may not agree with the current price of the commodity at the port of shipment when such
shipment is made. The current price of the day may be highly unreasonable from accidental circumstances, as on account
of the commodity having been purposely kept back by the vendor himself, or with reference to the price at the other ports
in the immediate vicinity, or from various other causes. This doctrine has been applied in cases where the market has been
monopolized.” (1 Williston,13 op. cit., p. 447.)
 FORM OF 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, or partly in writing and partly by word of mouth, or may be inferred from
the conduct of the parties. (n)

(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.
The purpose of the Statute of Frauds is to prevent fraud and perjury in the enforcement of obligations depending for their
evidence upon the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be
evidenced in writing. (Claudel vs. Court of Appeals, 199 SCRA 113 [1991], citing 4 Tolentino, Civil Code of the Phils., p. 580
[1973].) Contracts infringing the Statute of Frauds are ratified when the defense fails to object to the introduction of parol
evidence, or asks questions on cross-examination, which elicits evidence proving the existence of a perfected contract of
sale. (Limketkai Sons Milling, Inc. vs. Court of Appeals, 66 SCAD 136, 250 SCRA 523 [1995].)

The Statute of Frauds refers to specific kinds of transactions and cannot apply to any other transaction that is not
enumerated therein. The application of the Statute presupposes the existence of a perfected contract. A right of first refusal
is not among those listed as unenforceable under the statute. At best, it is a contractual grant not of the sale of the property
involved, but of the right of first refusal over the property sought to be sold. Hence, a right of first refusal need not be
written to be enforceable and may be proven by oral evidence. (Rosencor Development Corporation vs. Inquing, 145 SCAD
484, 354 SCRA 119 [2001].)

(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. (see 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.

On the other hand, the fact that a deed of sale is a notarized document does not necessarily justify the conclusion
that the said sale is a true conveyance to which the parties thereto are irrevocably bound. Though its notarization vests in
its favor the presumption of regularity and due execution (Manzano vs. Perez, 152 SCAD 473, 362 SCRA 430 [2001].), it is
not the function of the notary public to validate and make binding an instrument never intended by the parties to have
any binding legal effect upon them. The intention of the parties still and always is the primary consideration in
determining the true nature of the contract. (Suntay vs. Court of Appeals, 66 SCAD 711, 251 SCRA 430 [1995]; Nazareno
vs. Court of Appeals, 343 SCRA 637 [2000].) Where the vendor did not personally appear before the notary public, such
fact raises doubt regarding the vendor’s consent to the sale notwithstanding that the deed states the contrary. (Tan vs.
Mandap, 429 SCRA 711 [2004].)

An invalidly notarized deed of sale must be considered merely as a private document. Even if validly notarized, the
deed would still be classified as a private document if it is merely subscribed and sworn to by way of jurat but was not
properly acknowledged. (Tigno vs. Aquino, 444 SCRA 61 [2004].)
Sale of real property or an interest therein.

(1) 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; see Copon vs. Umali, 87 Phil. 91 [1950].)

(2) For the sale of real property to be effective against third persons, the sale must be registered in the Registry of Deeds (or
Property) of the province or city where the property is located. The sale must be in a public document (e.g., acknowledged
before a notary public or any public officer authorized by law to administer oath) for otherwise, the registration will be
refused.

(3) 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 (Phil. Suburban Dev. Corp. vs. The Auditor General, 63 SCRA 397 [1975].)
and their privies because actual notice is equivalent to registration. It is settled that registration is not a mode of acquiring
ownership. (Bollozo vs. Yu Tieng Su, 155 SCRA 50 [1987].)

(4) 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 (Bucton vs. Gabar, 55 SCRA 499 [1974]; Gallar vs.
Husain, 20 SCRA 186 [1967].), since sale is a consensual contract and is perfected by mere consent. (Carbonell vs. Court of
Appeals, 69 SCRA 99 [1976].)

(5) 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. (Heirs of Amparo del Rosario vs. Santos, 108 SCRA 43 [1981].)
EXAMPLES: (1) S orally sold to B a parcel of land. The sale is valid (Art. 1356; Lopez vs. Alvarez, 9 Phil. 28 [1907];
Guerrero vs. Raquel, 10 Phil. 52 [1908].) but it is unenforceable because the law requires that it be in writing to be
enforceable. (Art. 1403[e].)

(2) If the contract of sale above is in private writing, then it is valid and binding but only as between the parties and
their privies (Soriano vs. Latoño, 87 Phil. 757 [1950]; Gallar vs. Husain, supra.) and not as against third persons without
notice until the sale is registered in the Registry of Property. B has the right to compel S to put the contract in a public
instrument so that it can be registered to affect third persons. (Art. 1357; see Carbonell vs. Court of Appeals, supra;
Mahilum vs. Court of Appeals, 17 SCRA 482 [1966].)

Statute of Frauds applicable only to executory contracts.

The Statute of Frauds is applicable only to executory contracts (where no performance, i.e., delivery and payment,
has as yet been made by both parties) and not to contracts which are totally (consummated) or partially performed.
(see Vda. de Espiritu vs. CFI of Cavite, 47 SCRA 354 [1972].) It does not forbid oral evidence to prove a consummated
sale. (Diama vs. Macalebo, 74 Phil. 70 [1942].)
(1) Reason for the rule. — The reason is that partial performance like the writing, furnishes reliable evidence of the
intention of the parties or the existence of the contract. A contrary rule would result in injustice or unfairness to the party
who has performed his obligation, and would promote fraud or bad faith on the part of the party who has not performed
his obligation, for it would enable him to keep the benefits already derived by him from the transaction and at the same
time, evade the responsibilities or liabilities assumed or contracted by him. (Carbonnel vs. Poncio, 103 Phil. 655 [1958]; Art.
1405.) Thus, where a parol contract of sale is adduced not for the purpose of enforcing it, but as a basis of the possession of
the person claiming to be the owner, the Statute of Frauds is not applicable, in the same way that it does not apply to
contracts which are either totally or partially performed upon the theory that there is a wide field for the commission of
frauds in executory contracts which can only be prevented by requiring them to be in writing, a fact which is reduced to a
minimum in executed contracts because the intention of the parties become apparent by their execution. (Pascual vs.
Realty Invest., Inc., 91 Phil. 257 [1952].)

(2) Circumstances indicating partial performance. — Where there is partial performance of a parol contract of sale of realty,
the principle excluding evidence of such contract does not apply.

Other circumstances indicating partial performance of an oral contract of sale of realty are relinquishment of rights,
continued possession by a purchaser who is already in possession, building of improvements, tender of payment, rendition
of services, payment of taxes, surveying of the land at the vendee’s expense (Ortega vs. Leonardo, 103 Phil. 870 [1958]; see
49 Am. Jur. 44, 755756, 772.), and acceptance of initial payment. (Clarin vs. Rulona, 127 SCRA 512 [1984].)
The application of the Statute of Frauds presupposes the existence of a perfected contract and requires only that a note
or memorandum subscribed by the party charged or by his agent be executed in order to compel judicial enforcement.
Where there is no perfected contract, there is no basis for the application of the Statute. (Villanueva vs. Court of
Appeals, 78 SCAD 484, 267 SCRA 89 [1997].) Thus, the annotation on the letter-offer of the phrase “Received original, 9-
4-89,’’ beside which appears the signature of the addressee, can neither be regarded as a contract of sale nor a promise
to sell. It is merely a memorandum of the receipt of the offer. Hence, the alleged transaction is unenforceable as the
requirements under the Statute of Frauds have not been complied with. (Jovan Land, Inc. vs. Court of Appeals, 79 SCAD
428, 268 SCRA 160 [1997].)

Legal recognition of electronic data messages and electronic documents.

The following are the pertinent provisions of the implementing rules and regulations of R.A. No. 8792, otherwise
known as the “Electronic Commerce Act.’’

(1) Validity and enforceability. — Information shall not be denied validity or enforceability solely on the ground that it is
in the form of an electronic data message or electronic document, purporting to give rise to such legal effect. Electronic
data messages or electronic documents shall have the legal effect, validity or enforceability as any other document or
legal writing. In particular, subject to the provisions of R.A. No. 8792 and the Rules:

(a) A requirement under law that information is in writing is satisfied if the information is in the form of an electronic
data message or electronic document.
(b) A requirement under law for a person to provide information in writing to another person is satisfied by the
provision of the information in an electronic data message or electronic document.
(c) A requirement under law for a person to provide information to another person in a specified non-electronic form is
satisfied by the provision of the information in an electronic data message or electronic document if the information is
provided in the same or substantially the same form.
(d) Nothing limits the operation of any requirement under law for information to be posted or displayed in specified
manner, time or location; or for any information or document to be communicated by a specified method unless and
until a functional equivalent shall have been developed, installed, and implemented. (Sec. 7, Rules.)

(2) Incorporation by reference. — Information shall not be denied validity or enforceability solely on the ground that it
is not contained in an electronic data message or electronic document but is merely incorporated by reference therein.
(Sec. 8, Ibid.)

(3) Writing. — Where the law requires a document to be in writing, or obliges the parties to conform to a writing, or
provides consequences in the event information is not presented or retained in its original form, an electronic
document or electronic data message will be sufficient if the latter:

(a) maintains its integrity and reliability; and

(b) can be authenticated so as to be usable for subsequent reference, in that:
1) It has remained complete and unaltered, apart from the addition of any endorsement and any
authorized change, or any change which arises in the normal course of communication, storage and display; and
2) It is reliable in the light of the purpose for which it was generated and in the light of all relevant circumstances. (Sec. 10,
Ibid.)

(4) Original. — Where the law requires that a document be presented or retained in its original form, that requirement is met by
an electronic document or electronic data message if:

(a) There exists a reliable assurance as to the integrity of the electronic document or electronic data message from the time
when it was first generated in its final form and such integrity is shown by evidence aliunde (that is, evidence other than the
electronic data message itself) or otherwise; and
(b) The electronic document or electronic data message is capable of being displayed to the person to whom it is to be
presented.
(c) For the purposes of No. (1) above:
1) The criteria for assessing integrity shall be whether the information has remained complete and unaltered, apart
from the addition of any endorsement and any change which arises in the normal course of communication, storage and display;
and
2) The standard of reliability required shall be assessed in the light of the purpose for which the information was
generated and in the light of all relevant circumstances.

An electronic data message or electronic document meeting and complying with the requirements of Section 6 or 7 of R.A. No. 8792 shall be
the best evidence of the agreement and transaction contained therein. (Sec. 11, Ibid.)
(5) Solemn contracts. — No provision of the R.A. No. 8792 shall apply to vary any and all requirements of existing laws and relevant judicial
pronouncements respecting formalities required in the execution of documents for their validity. Hence, when the law requires that a contract be
in some form in order that it may be valid or enforceable, or that a contract is proved in a certain way, that requirement is absolute and
indispensable. (Sec. 12, Ibid.)
 DELIVERY
Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive
delivery thereof. (n)

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

Ownership of thing transferred by delivery.

The delivery of the thing sold is essential in a contract of sale. Without it, the purchaser may not enjoy the thing
sold to him. It is only after the delivery of the thing sold that the purchaser acquires a real right or ownership over it.
(Arts. 1164, 1496-1497.)

In the absence of stipulation to the contrary, the ownership of the thing sold passes on to the vendee upon
delivery thereof. (see Froilan vs. Pan Oriental Shipping Co., 12 SCRA 276 [1964]; Boy vs. Court of Appeals, 427 SCRA
196 [2004].) This is true even if the purchase has been made on credit. Payment of the purchase price is not essential
to the transfer of ownership, as long as the property sold has been delivered. (Sampaguita Pictures, Inc. vs. Jalwindor
Manufacturers, Inc., 93 SCRA 420 [1979].) Non-payment only creates a right to demand payment or to rescind the
contract, or to criminal prosecution in the case of bouncing checks. (EDCA Publishing and Distributing Corp. vs. Santos,
184 SCRA 614 [1990].) The delivery may be actual (Art. 1497.) or constructive. (Arts. 1498-1501.) The contract is
consummated by the delivery of the thing sold and of the purchase money.
 In all forms of delivery, it is necessary that the act of delivery, whether actual or constructive, should be coupled
with the intention of delivering the thing sold. The act without the intention is insufficient; there is no tradition. (Union
Motor Corporation vs. Court of Appeals, 151 SCAD 714, 361 SCRA 506 [2001].) It has been held that the issuance of a
sales invoice does not prove transfer of ownership of the thing sold to the buyer, an invoice being nothing more than a
detailed statement of the nature, quantity, and cost of the thing sold, and considered not a bill of sale. (Ibid., citing P.T.
Cerna Corporation vs. Court of Appeals, 221 SCRA 19 [1993]; Norkis Distributor’s, Inc. vs. Court of Appeals, 93 SCRA 694
[1991].)

Exceptions to the rule. (1) Contrary stipulation. — The ownership of things is transferred by delivery, and not by mere
payment. However, the parties may stipulate that despite the delivery, the ownership of the thing shall remain with the
seller until the purchaser has fully paid the price. (see Art. 1503.) In other words, non-payment of the price, after the
thing has been delivered, prevents the transfer of ownership only if such is the stipulation of the parties. This stipulation
is usually known as pactum reservati dominii or contractual reservation of title, and is common in sales on the installment
plan. (Jovellanos vs. Court of Appeals, 210 SCRA 126 [1992].) A contract which contains this kind of stipulation is
considered a contract to sell. The agreement may be implied. (Adelfa Properties, Inc. vs. Court of Appeals, 58 SCAD 462,
240 SCRA 565 [1995].)

(a) Where in a contract of sale the seller agreed that the ownership of the goods shall remain with the seller until
the purchase price shall have been fully paid, merely to secure the performance by the buyer of his obligation, such
stipulation cannot make the seller liable in case of loss of the goods. (see Lawyers Cooperative Publishing Co. vs. Tabora,
13 SCRA 762 [1965]; see Art. 1503, par. 2.)
(b) If there is doubt by the wording of the contract whether the parties intended a suspensive condition (Art. 1478.) or a
suspensive period (Art. 1193, par. 1.) for the payment of the stipulated price, the doubt shall be resolved in favor of the greatest
reciprocity of interests. (see Art. 1378.) There can be no question that greater reciprocity will be obtained if the buyer’s obligation
is deemed to be actually existing, with only its maturity (due date) postponed or deferred. Sale is essentially onerous. (Gaite vs.
Fonacier, 2 SCRA 830 [1961].)
(c) A stipulation that ownership in the thing sold shall not pass to the purchaser until after he has fully paid the price thereof
could only be binding upon the contracting parties, their assigns, and heirs (see Art. 1311, par. 1.) but not upon third persons
without notice. Such a stipulation is only a kind of security for the benefit of the vendor who has not been fully paid.

(2) Contract to sell. — In contracts to sell, where ownership is retained by the seller and is not to pass until the full payment of
the price, such payment is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an
event that prevents the obligation of the vendor to convey title from acquiring binding force. To say that there is only a casual
breach is to proceed from the assumption that the contract is one of absolute sale, where non-payment is a resolutory condition,
which is not the case. (Luzon Brokerage Co., Inc. vs. Maritime Bldg., Co. Inc., 43 SCRA 93 [1972] and 86 SCRA 305 [1978]; Manuel
vs. Rodriguez, 109 Phil. 1 [1960]; Roque vs. Lapuz, 96 SCRA 741 [1980]; see Art. 1184.)

(3) Contract of insurance. — A perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest over the
goods sufficient to be the subject of insurance. (see Sec. 14[a], Insurance Code.) Thus, a perfected contract of sale between the vendee-consignee
and the shipper of goods operates to vest in the former an equitable title even before delivery or before he performed the conditions of the sale,
the contract of shipment, whether under F.O.B., or C.I.F., or C & F, being immaterial in the determination of whether the vendee has an insurable
interest or not in the goods. (Filipino Merchants Insurance Co., Inc. vs. Court of Appeals, 179 SCRA 638 [1989].)
1) In a contract of sale, the title to the property passes to the vendee upon the constructive or actual delivery thereof, as
provided for in Article 1477 of the New Civil Code. The vendor loses ownership over the property and cannot recover it until
and unless the contract is rescinded by a notarial deed or by judicial action as provided for in Article 1592 of the New Civil
Code. A contract of sale is absolute, absent any stipulation therein reserving title over the property to the vendee until full
payment of the purchase price nor giving the vendor the right to unilaterally rescind the contract in case of non-payment.
[61] In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a
time existed, and discharges the obligations created thereunder.[62] (Blas v. Angeles-Hutalla, G.R. No. 155594, September 27,
2004)

2) Indeed, Virginia Lim and respondent have entered into a contract of sale. Not only has the title to the subject properties
passed to the latter upon delivery of the thing sold, but there is also no stipulation in the contract that states the ownership
is to be reserved in or retained by the vendor until full payment of the price.[22]

Applying Article 1544 of the Civil Code, a second buyer of the property who may have had actual or constructive knowledge
of such defect in the sellers title, or at least was charged with the obligation to discover such defect, cannot be a registrant in
good faith. Such second buyer cannot defeat the first buyers title. In case a title is issued to the second buyer, the first buyer
may seek reconveyance of the property subject of the sale.[23] Even the argument that a purchaser need not inquire beyond
what appears in a Torrens title does not hold water. A perusal of the certificates of title alone will reveal that the subject
properties are registered in common, not in the individual names of the heirs.
Nothing in the contract prevents the obligation of the vendor to convey title from becoming effective[24] or gives the vendor the right to
unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.[25] Petitioners themselves have failed to deliver their
individual certificates of title, for which reason it is obvious that respondent cannot be expected to pay the stipulated taxes, fees, and expenses.

[A]ll the elements of a valid contract of sale under Article 1458 of the Civil Code are present, such as: (1) consent or meeting of the minds; (2)
determinate subject matter; and (3) price certain in money or its equivalent.[26] Ignacio Rubio, the Baloloys, and their co-heirs sold their
hereditary shares for a price certain to which respondent agreed to buy and pay for the subject properties. The offer and the acceptance are
concurrent, since the minds of the contracting parties meet in the terms of the agreement.[27]

In fact, earnest money has been given by respondent. [I]t shall be considered as part of the price and as proof of the perfection of the contract.
[28] It constitutes an advance payment to be deducted from the total price.[29]

Article 1477 of the same Code also states that [t]he ownership of the thing sold shall be transferred to the vendee upon actual or constructive
delivery thereof.[30] In the present case, there is actual delivery as manifested by acts simultaneous with and subsequent to the contract of sale
when respondent not only took possession of the subject properties but also allowed their use as parking terminal for jeepneys and buses.
Moreover, the execution itself of the contract of sale is constructive delivery.

Consequently, Ignacio Rubio could no longer sell the subject properties to Corazon Escueta, after having sold them to respondent. [I]n a contract
of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded x x x.[31] The
records do not show that Ignacio Rubio asked for a rescission of the contract. What he adduced was a belated revocation of the special power of
attorney he executed in favor of Patricia Llamas. In the sale of immovable property, even though it may have been stipulated that upon failure to
pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the
period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act.[32]