CHAPTER 1: NATURE AND FORM OF THE CONTRACT

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.

Concept of contract of sale

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).

Characteristics of a contract of sale.

1. Consensual - Perfected by mere consent

2. Bilateral - parties are bound by their reciprocal obligation (Seller - deliver and transfer ownership of the thing
sold, Buyer - to pay the price)
3. Commutative - Thing sold is considered the equivalent of the price paid.
4. Principal - Its existence and validity does not depend upon another contract.
5. Onerous - Thing sold is conveyed in consideration of the price.
6. Nominate - Law designates a special name to it.

Element of Contract of Sale

1. Essential Elements – without which there can be no contract of sale

a. Consent – meeting of minds to transfer ownership in exchange of the price / consent that on the part of
the seller to transfer and deliver a thing, and on the part of the buyer to pay the price
b. Object/Subject – must be determinate
c. Cause/Consideration – price certain in money or its equivalent
Buyer – to obtain the determinate thing
Seller – to obtain the price
2. Natural Elements – deemed to exist in certain contract
(Warranty against eviction, warranty against hidden effects)
3. Accidental Elements – it may be present or absent the contract is still valid
(Condition, interest, penalty, time or place of payment)

Two kinds of contract of sale

Absolute
 the sale is not subject to any condition
 title of ownership passes to the buyer upon delivery

Conditional
 Sale contemplates a contingency, where the contract is subject to certain conditions.
 Full payment of the purchase price
 The delivery of the thing sold does not transfer ownership until the condition is fulfilled.

Stages of Contract of Sale

1. Negotiation - contract parties indicate interest in the contract up to the time before the contract is perfected.
2. Perfection – contract occurs when they agree upon the essential elements thereof. (Meetings of minds, as to
the object & upon the price)
3. Consummation - occurs when the parties fulfil or perform the terms agreed upon in the contract, culminating
in the extinguishment thereof.
CONTRACT OF SALE VS. CONTRACT TO SELL
CONTRACT OF SALE CONTRACT TO SELL
Ownership is automatically transferred upon it Doesn’t automatically transfer ownership bargaining conditions
signing or execution. should be fulfilled first.

Risk of loss The thing, may be in the possession of the buyer, but the
Before delivery – seller bears the loss ownership is still with the seller and will pass only to the buyer
After delivery – buyer bears the loss upon the FULL payment of the purchase price.

In case of failure to pay (remedies) Risk of loss

 Specific Performance Before delivery – seller bears the loss
 Rescission of the contract with damages After delivery –seller bears the loss

EXAMPLE: Regine offers to sell her Lenovo In case of failure to pay (remedies)
laptop to Irish amounting to 25 000. Irish  An action to recover the possession of the property or goods.
accepted the offer and purchased it.
EXAMPLE: Regine offers to sell her Lenovo laptop to Irish
amounting to 25 000. Irish accepted the offer and purchased it. On
the condition that Regine will transfer the ownership of Lenovo
laptop until the full payment of price.

CONDITIONAL SALE VS. CONTRACT TO SELL

CONDITIONAL SALE CONTRACT TO SELL
 Buyers automatically acquires the title to the real state property  Transfer of the title to the prospective
upon full payment of the purchase price buyer is not done automatically

 Any suspensive condition is inserted  Specific suspensive condition only

(which is the price)
 If the buyer did not meet the obligation, seller remains the
owners of the thing  If buyer didn’t pay, seller remains the
owners of the thing
EXAMPLE: Kath offers to sell her Mitsubishi car with a plate
number of NJS123 to Irish for Php500, 000 with the condition that it
must be payable by installment within 1 year. Irish accepted the
offer. Therefore, the title of ownership will be transferred upon full
payment of the purchase price

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

Requisites of Object of Sales

Thing
a. Must be determinate/specific
b. Must be licit or lawful, it should not be contrary to law, morals, good customs, public order or public policy.
c. Must not be impossible
Rights
d. Must be transmissible
 Right to vote
 Marital right
 Right to public office
NOTE: If the subject matter of the sale is illicit, the contract is void

Right to vendor to transfer ownership

a. One can only sell what he owns
b. Seller must be the owner at the time of delivery

EXAMPLE: Ana sold the car owned by Ben for 500,000 with a promise to deliver the car 5 days after, to Cath. Then
on the 4th day Ana buy the car from Ben and on the following day he deliver to Cath. In this case, the sale is valid
because the requirement that the seller must be the owner at the time of the delivery is complied with.
 ART.1460. A thing is determinate when it is particularly designated or physically segregated from all
others of the same class.
The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing
is capable of being made determinate without the necessity of a new or further agreement between the
parties.

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.

Sale of things having potential existence Sale of a mere hope or expectancy

 If the expected thing does not  Doesn’t matter if the expected thing materialize
materialize, the sale is not effective. or not
 Subject to a condition that the thing  Produces effects even though the thing does not
should exist come into existence, the subject matter is the
 Deals with future thing hope itself.
 Deals with present thing
EXAMPLE: Anna sold to Ben his harvest of
palay on January amounting to 5000 and Ben EXAMPLE: Kath sells a raffle ticket number 00186 for
paid immediately. Then in January there is no PHP 250. Unfortunately, raffle ticket number 000186
harvest. So in this case, Ben may recover her was not drawn. So in this case, Irish cannot recover her
5000. Since if the expected thing does not Php 250 since what she is actually buying is the hope
materialize, the sale is not effective. that the ticket will be drawn and win a prize.

But if the draw for ticket was already made yesterday.

Irish can recover his money since it was a sale of vain
hope. (Hopeless case)

ART.1462. The goods which form the subject of a contract of sale may be either existing goods,
owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after
the perfection of the contract of sale, in this Title called “future goods.”
There may be a contract of sale of goods, whose acquisition by the seller depends upon a
contingency which may or may not happen.

Goods which may be object of sale

Existing goods - owned or possessed by the seller
Future goods - to be manufactured, raised or acquire

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

Sole owner – may sell the entire thing, or only a specific portion, or an undivided interest therein and such interest
may be designated as an aliquot part of the whole.
NOTE: Legal effect of the sale of undivided interest of a thing is to make the buyer a co-owner of the thing sold.
Co-owner – can dispose his share even without the consent of the other co-owner.

EXAMPLE: If Ana owned 1 hectare land, as a sole owner. He can sell the entire land or just portion of the land by
metes and bound. Then Anna sell her undivided interest let say 500 square meters to Ben without identifying or
specially designating the portion sold. So in this case Ana and Ben become co-owner.
 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
a definite number, weight or measure of the goods in the mass, and though the number, weight or measure
of the goods in the mass is undetermined. By such a sale the buyer becomes owner in common of such a
share of the mass as the number, weight or measure bought bears to the number, weight or measure of the
mass. If the mass contains less than the number, weight or measure bought, the buyer becomes the owner
of the whole mass and the seller is bound to make good the deficiency from goods of the same kind and
quality, unless a contrary intent appears.

Fungible goods – items that can be easily replaced with another item that is practically the same.
1. If the quantity of mass is more than the quantity sold, the parties shall become co-owners.
2. If the quantity of the mass is less than the quantity sold, the BUYER becomes the owner of the whole mass, and
the SELLER is bound to make good the deficiency which should be of the same kind and quality

EXAMPLE: Ana is an owner of rice stored in his bodega, exact number is unknown. Then Ben buys 100 sacks of rice.
Therefore, if there is 150 sacks of rice Ben becomes the co-owners since he buy 100 sacks. But if there is only 80
sacks, Ben becomes the owners of 80 sacks then Ana must supply the deficit of 20 sacks of rice of the same kind and
quality.

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

Resolutory condition – happening of condition extinguishes the obligation already existing

EXAMPLE: Regine binds hirself to lend her car to Irish until latter passes the CPA board exam. The obligation to lend
is immediately demandable. Irish’s right over the car is extinguished upon his passing the CPA board exam.
Therefore, Irish is now obliged to return the car.

Suspensive condition – give rise to an obligation

EXAMPLE: Regine hind herself to deliver the determinate car to Iris, if Irish marries Tom. The obligation is only
demandable upon the happening of the condition.

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.

Contract of sale Agency to Sell

 Seller and Buyer  Principal and Buyer
 Buyer receives the goods as owner  Agent receives the goods as a goods of the
 Buyer pay the price principal who retains his ownership over them
 Buyer cannot return the object sold  Agent has simply to account for the proceeds of
 Seller warrants the thing sold the sale he may make on the principal’s behalf
 Seller – ownership of an object  Agent can return the object in case he is unable
 Personal Liability – seller to sell the same to a third person
 Agents make no warranty for which he assumes
personal liability as long as he acts within his
authority and in the name of the seller.
 Principal – owns the object or subject
 Personal Liability – principal
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. 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.

Contract of sale Contract for piece of work

 Parties - Seller and Buyer  Parties – contractor, worker, employee, customer
 Item is sell in ordinary course  Item exist from special order or request coming from
of business customer
 Covered by the Statue of fraud  Inapplicable of Statue of fraud
(comply with certain formality)
EXAMPLE: Kath wants to buy a tote bag with a butterfly design
from Irish’s Bag Shop. The said design is not available. But then,
Kath places an order for a tote bag of a particular design, and it
will still be manufactured especially for Kath for P1000. In this
case, upon his special order makes the contract piece of a work.
ART. 1468. If the consideration of the contract consists partly in money, and partly in another thing, the
Contract of sale Contract of barter
 transaction
Seller giveshall be characterized
a thing by thefor
in consideration manifest
a priceintention
in of the
Giveparties. If such intentionand/or
thing/subject/others does not clearly
price
appear,
money it shall be considered a barter if the value of the thing given as a part of the consideration
in consideration of the other’s promiseexceeds
 the amount
Seller of the
– object ofmoney
sale or its equivalent; otherwise, it is a sale.to give another thing
Buyer – money or its equivalent  Seller – object of sale
 Statue of fraud Buyer – another thing
 There is no need to comply formality
NOTES: (Statue of fraud
 Determine the intention of the parties
 Thing is greater than money and its equivalent = EXAMPLE: Ana and Ben enter into contract
BARTER in which Ana deliver his car worth 1 million
 Thing is equal to money and its equivalent = SALE then Ben pay 400 000 and a gold ring worth
 Thing is lesser than money and its equivalent = SALE 600 000. So in this case it is depends on the
mutual intent of the parties but if the intent is
not clear then the transaction is barter.

Contract of sale Lease

 Once the item is deliver the buyer is owner  Temporary possession or enjoyment
 Seller and buyer of the thing
 Lessor and Lease
Contract of Sale Dacion in Payment
 No credit  Has pre-existing credit
 Obligation executed  Obligation is extinguished
 More freedom in fixing the price  Less freedom in fixing the price
(based on credit)
 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 specified person or persons.

Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the parties
subsequently agree upon the price.

If the third person or persons acted in bad faith or by mistake, the courts may fix the price.

Where such third person or persons are prevented from fixing the price or terms by fault of the seller or the buyer,
the party not in fault may have such remedies against the party in fault as are allowed the seller or the buyer, as
the case may be.

Money – legal tender in Philippine peso

It’s Equivalent – promissory note

CERTAINTY OF PRICE
1. Agreement of parties
2. Reference to another thing certain
3. Specified person other than the seller or the buyer
Exception: If 3rd person acted in bad faith or mistake
 Disregarding specific instructions
 By mistake: there is no contract of sale
In case 3rd person has been prevented the fixing the price
Remedies:
 Recession + damages (cancellation of contract)
 Fulfilment of contract + damages

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.

Gross Inadequacy Price does not affect the contract of sale.

Exception:
1. Rescissible Contract
 When the lesion or damages suffered by ward is more than ¼ of the value of thing.
2. Defect of consent
 Incapacitated person (contract is voidable)
 Minors
 Deaf mute who does not know how to write and read
 Civil interdiction
 Insane person
Effect: Contract is voidable
Unenforceable Contract – if both parties is in defect consent.

SIMULATED CONTRACT - a contract that, by mutual agreement, does not express the true intent of the parties.

TWO TYPES OF SIMULATED CONTRACT

1. Relative Simulated Contract – instead of entering in a contract of donation they enter into a contract of sale
to save money.
2. Absolute Simulated Contract – sale is VOID at all

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.
 CONTRACT OF SALE SIMULATED PRICE
Absolute – contract is consider VOID. Absolute Simulated Price – Sale is void
because there is a cause on the part of the
Relative – void but the parties need to comply with
seller.
their true intention
Relative Simulated Price – Contract is void
but it can be shown in donation or some act.
FALSE PRICE NON-PAYMENT OF PRICE
Contract is consider to be void but they will follow their Contract is consider to be valid
true intention.
EXAMPLE: Kath sold her bag amounting to
EXAMPLE: From 100,000 to 50,000 (actual price is PHP 100,000 to Irish. Upon payment, Irish
100k, false price is 50k) does not paid the price.

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.

Price is certain when price fixed:

 Definite day or in a particular exchange or market
 When amount is fixed ABOVE or BELOW the price on such day, or in such exchange or market
Otherwise, the sale is inefficacious because the price cannot be determined.

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.

The price must be determined by both parties or left to the judgement of a specified person however, when the price
fixed by one party and accepted by the other, the contract is deemed perfected because in this case there is a
meeting of minds upon the price.

EXAMPLE : If Anna sold her laptop to Ben and it was agreed that Ben will fix the price, so later sinabi niya na 15 000
then Anna accepted the price. So in this case the sale is perfected because there is a meeting of minds

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.

EFFECT OF FAILURE TO DETERMINE

Price cannot be determined
 Contract is inefficacious (ineffective, therefore it cannot be force in the law) consequently, there is no
obligation of the vendor to deliver the thing, and the buyer to pay a certain price.
Delivery has been made
 If the thing has already been delivered and appropriated by the buyer, the latter MUST PAY A
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 delivery of goods.

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.
PERFECTION OF CONTRACT OF SALE
 A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object
and upon the price the reciprocal obligations of the parties arises
 In case one of the parties should not comply with his/her obligation, it must be sue of FULFILLLMENT or
RESCISSION with the payment of damages.

REQUIREMENTS OF PERFECTION
1. Face to face – there is a perfection if the offer is accept without condition or qualification
2. Correspondence or Telegram – there is a perfection if the seller receive or has knowledge the acceptance of
buyer
3. Sale is subject to a suspensive condition – give rise, once it was fulfil there is now a perfection.

EFFECT OF FAILURE TO PAY PRICE

Price Stipulated
 The vendors remedy in such case is generally to demand specific performance or recession with damages in
either case
No Price Stipulated
 Sale is void

Formality of Contract
1. An agreement that its term not to perform after 1 year (executory) - in writing
2. Special promise to answer the debt of another (unforceable contract)
3. Properties of rich should not benefit to the poor pre-nuptial agreement) - in writing
4. Agreement of sale of goods - 500 or more, must be in writing unless there is an acceptance made by the
buyer
5. Sale of immovable property - interest must be in writing

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.

SALES OF SEPARATE LOTS BY AUCTION ARE SEPARATE SALES

 Each lot is subject of a separate contract of sale
SALE PEREFECTED BY THE FALL OF THE HAMMER
 Once na hinampas na ni auctioneer ang hammer hindi na sila pwedeng mag bid. Hangat hindi pa nafafall ang
hammer any bidder may reatract his bid auctioneer may withdraw the goods from the sale unless the auction
has been announced to be without reserve.

RESERVE PRICE – confidential / minimum price that is agreed upon by the seller and auctioneer.
NOTE: The seller is only obligated to sell the thing if the bid amount meet or exceed the reserve price.

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

ART. 1478. The parties may stipulate that ownership in the thing shall not pass to the
purchaser until he has fully paid the price.
OWNERSHIP OF THE THING TRANSFERRED BY DELIVERY
 Delivery of the thing sold is essential in a contract of sale, without it the buyer may not enjoy the thing sold to
him. After the delivery of the thing sold that the buyer acquires a real right or ownership over it.
 Delivery may be actual or constructive

EXCEPTION TO THIS RULE

 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.

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.
KINDS OF PROMISE TREATED IN ARTICLE 1479
“To buy or to sell”
1. An ACCEPTED UNILATERAL PROMISE TO SELL IN WHICH THE PROMISE (acceptor) elect to buy
2. An ACCEPTED UNILATERAL PROMISE TO BUY IN WHICH THE PROMISE (acceptor) elect to sell
3. A BILATERAL promise to buy and sell.

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 it is
called policitation.

OPTION privileged existing in one person for which he has paid a consideration which gives him the right to buy/sell.

It talks about mutual promise and unilateral promise.

(1) If Ana promise to buy something from Ben like a determinate thing and Ben promise to sell it to an agreed
price to Ana. So the promise to buy and sell is clearly bilateral reciprocal contract meaning the parties are
bound by their contract. If one of them did not compile their obligation other party has the right to demand
fulfilment with payment of damages.

(2) If Ana offered for sale her car for 500 000 and offered 10 day period to accept the offer from March 1. And on
March 8 Ana can withdraw the offer since this is a mere offer it can be withdrawn at any time. Supposing Ben
gave 1000 to Ana by virtue of the offer and on March 8 Ana cannot withdrawn the offer because she gave a
consideration distinct from the price. (called option money)