Sales Midterms Notes by Charm and Mikez 1

LAW ON SALES (MIDTERM)

Lectures and Notes (Atty. Gaviola)

I. NATURE OF SALE
Contract
- A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to
give something or to render some service. (Art. 1305)
- its purpose is to create an obligation

Contract of sale
- sale as a contract whereby one of the contracting parties (Seller) obligates himself to transfer the ownership,
and to deliver the possession, of a determinate thing; and the other party (Buyer) obligates himself to pay therefor a
price certain in money or its equivalent. (Art. 1458)

A. Obligations created under the contract

(a) OBLIGATIONS OF SELLER
a) Transfer the ownership
b) Deliver possesion
(b) OBLIGATIONS OF BUYER
a) Pay the price

B. Valid contract of Sale

Cases:
Robern Development v. PLA
Thus, for a contract of sale to be valid, all of the following essential elements must concur: "a) consent or
meeting of the minds; b) determinate subject matter; and c) price certain in money or its equivalent."

As for the price, fixing it can never be left to the decision of only one of the contracting parties. "But a price
fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale."

As regards consent, "when there is merely an offer by one party without acceptance of the other, there is no
contract." The decision to accept a bidders proposal must be communicated to the bidder. However, a binding
contract may exist between the parties whose minds have met, although they did not affix their signatures to any
written document, as acceptance may be expressed or implied. It "can be inferred from the contemporaneous
and subsequent acts of the contracting parties."

There is no perfected contract of sale between PELA and Al-Amanah for want of consent and agreement on
the price.

After scrutinizing the testimonial and documentary evidence in the records of the case, we find no proof of a
perfected contract of sale between Al-Amanah and PELA. The parties did not agree on the price and no consent
was given, whether express or implied.

PUP v CA

The preponderance of evidence shows that NDC sold to PUP the whole NDC compound, including the leased
premises, without the knowledge much less consent of private respondent FIRESTONE which had a valid and existing
right of first refusal.

All three (3) essential elements of a valid sale, without which there can be no sale, were attendant in the
"disposition" and "transfer" of the property from NDC to PUP - consent of the parties, determinate subject
matter, and consideration therefor.

Consent to the sale is obvious from the prefatory clauses of Memorandum Order No. 214 which explicitly states
the acquiescence of the parties to the sale of the property - WHEREAS, PUP has expressed its willingness to
acquire said NDC properties and NDC has expressed its willingness to sell the properties to PUP (underscoring
supplied).

Binan Steel v. CA (deed of sale with assumption of mortgage)

Sales Midterms Notes by Charm and Mikez 2
It is doctrinal that a levy on attachment, duly registered, has preference over a prior unregistered sale and, even
if the prior unregistered sale is subsequently registered before the sale on execution but after the levy is made, the
validity of the execution sale should be upheld because it retroacts to the date of levy. The priority enjoyed by the levy
on attachment extends, with full force and effect, to the buyer at the auction sale conducted by virtue of such levy.
[18] The sale between the spouses Ng and the Garcias was undoubtedly a valid transaction between them. However,
in view of the prior levy on attachment on the same property, the Garcias took the property subject to the
attachment. The Garcias, in buying registered land, stood exactly in the shoes of their vendors, the Ngs, and their
title ipso facto became subject to the incidents or results of the pending litigation[19] between the Ngs and BSC.

C. Essential Characteristics of Sale

1. Nominate and Principal

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

Sale is a nominate contract since it has been given a particular name by law;20 more importantly, its nature
and consequences are governed by a set of rules in the Civil Code, which euphemistically we refer to as the
Law on Sales.

Santos v. CA
The nominate and principal characteristics of sale leads to the doctrine held by the Supreme Court that in
determining the real character of the contract, the title given to it by the parties is not as signicant as its
substance.

2. Consensual

Sale is consensual contract (as contrasted from solemn and real contracts), since it is perfected by mere
consent, at the moment there is a meeting of the minds upon the thing which is the object of the contract
and upon the price.

The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price. From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form of contracts. (Art. 1475)

Exception: Conditional Sale

Binan Steel v. CA: perfection waits for condition to happen; mortgagee should also consent

In sales with assumption of mortgage, the assumption of mortgage is a condition precedent to the
sellers consent and therefore, without approval of the mortgagee, the sale is not perfected.

3. Bilateral and Reciprocal

Sale is a bilateral contract embodying reciprocal obligations, as distinguished from a unilateral contract,
because it imposes obligations on both parties to the relationship,44 and whereby the obligation or promise
of each party is the cause or consideration for the obligation or promise of the other.

Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are
to be performed simultaneously such that the performance of one is conditioned upon the simultaneous
fulllment of the other.

The legal effects and consequences of sale being a bilateral contract composed of reciprocal obligations are
as follows:
Sales Midterms Notes by Charm and Mikez 3
(a) The power to rescind is implied, and such power need not be stipulated in the contract in order for the
innocent party to invoke the remedy;

(b) Neither party incurs delay if the other party does not comply, or is not ready to comply in a proper
manner, with what is incumbent upon him; and

(c) From the moment one of the parties ful lls his obligation, the default by the other begins, without the
need of prior demand

Agro-conglomerate v. CA

- once one source is extinguished, the source of others obligation is also extinguished
- Wonderland does not need to pay anymore because there was no longer a contract of sale

4. Onerous

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

In Gaite v. Fonacier,56 the Court ruled that the stipulation in a contract of sale on the payment of the balance
of the purchase price must be deemed to cover a suspensive period rather than a condition since there can
be no question that greater reciprocity obtains if the buyers obligation is deemed to be actually existing,
with only its maturity (due date) postponed or deferred, than if such obligation were viewed as non-existing
or not binding until the ore was sold.57 The Court held that the rules of interpretation would incline the
scales in favor of the greater reciprocity of interests, since sale is essentially an onerous contract

5. Commutative

Sale is a commutative contract, as distinguished from an aleatory contract, because a thing of value is
exchanged for equal value, i.e., ideally the value of the subject matter is equivalent to the price paid.
Nevertheless, there is no requirement that the price be equal to the exact value of the subject matter; all
that is required is for the seller to believe that what was received was of the commutative value of what he
gave.

Only recently Buenaventura v. Court of Appeals,64 held that: Indeed, there is no requirement that the price
be equal to the exact value of the subject matter of sale; all that sellers believed was that they received the
commutative value of what they gave. All the respondents believed that they received the commutative
value of what they gave.

E. Sale Distinguished from Other Similar Contracts

1. Contract of Agency to Sell

Sale Contract of Agency to Sell

Title passes to the buyer upon delivery of the thing
sold
Non-payment of the price is a negative resolutory
condition and the remedy of the seller is to exact
fulfilment or to rescind the contract
Vendor loses and cannot recover ownership of the
thing sold and delivered until the contract of sale is
resolved and set aside
Ownership is reserved in the seller and is not to pass until full
payment of the purchase price
Full payment is a positive suspensive condition, the failure of
which is not a breach casual or serious but simply prevents
the obligation of the vendor to convey title from having
binding force
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

2. Contract for a Piece-of-work

By the contract for a piece-of-work, the contractor binds himself to execute a piece of work for the employer,
in consideration of a certain price or compensation; the contractor may either employ only his labor or skill,
Sales Midterms Notes by Charm and Mikez 4
or also furnish the material

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. (Art. 1467)
Sale is constituted of real obligations and would be the proper subject of an action for speci c performance.
On the other hand, a contract for a piece-of-work, where the main subject matter is the service to be
rendered (obligation to do), would not allow an action for speci c performance in case the contractor refuses
to comply with his obligation.

Tests for distinction:

Manufacturing in the ordinary course of business to cover sales contracts; and
Manufacturing upon special order of customers, to cover contracts for piece-of-work.

3. Barter

By barter or exchange, one of the parties binds himself to give one thing in consideration of the others
promise to give another thing; whereas, by sale, one of the parties binds himself to deliver a thing in
consideration of the others undertaking to pay the price in money or its equivalent.

Rules to Determine Whether Contract Is Sale or Barter

Article 1468 of the Civil Code provides for the following rules in cases of dispute whether the contract is a
sale or a barter, especially when the consideration agreed upon is partly in money and partly in another thing:
(a) Manifest Intention of the Parties Even if the acquisition of a thing is paid for by another object of
greater value than the money component, it may still be a sale and not a barter, when such was the
intention of the parties;
(b) When Intention Does Not Appear and Consideration Consists Partly in Money and Partly in Another
Thing:
a) It is a barter, where the value of the thing given as part of the consideration exceeds the
amount of money given or its equivalent;
b) It is a sale, where the value of the thing given as part of the consideration equals or is less
than the amount of money given

4. Dacion en pago

Dation in payment is one whereby property is alienated to the creditor in full satisfaction of a debt in
money;133 it constitutes the delivery and transmission of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation. By express provision of law, dation in payment is
governed by the Law on Sales,135 since it essentially involves the transfer of ownership of a subject matter.

In Vda. De Jayme v. Court of Appeals, the Court observed that in its modern concept, what actually takes
place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted
equivalent of the performance of an obligation is considered as the object of the contract of sale while the
debt is considered as the purchase price; that is why the elements of sale must be present, including a clear
agreement that the things offered is accepted for the extinguishment of the debt.

Lo v. KJS Eco-Formwork System Phil., Inc., holds that in order that there be a valid dation in payment, there
must be:
(a) 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;
(b) Some difference between the prestation due and that which is given in substitution (aliud pro alio); and
(c) An agreement between the creditor and debtor that the obligation is immediately extinguished by reason of
the performance of a presentation different from that due.

The third requisite that there must be an agreement that the delivery of the property is in lieu of payment is
best demonstrated in Philippine Lawin Bus Co. v. Court of Appeals, where the Court held that a transfer of
property between debtor and creditor does not automatically amount to a dacion en pago, since it is
essential that the transfer must be accompanied by a meeting of the minds between the parties on whether
the loan ... would be extinguished by dacion en pago.
Sales Midterms Notes by Charm and Mikez 5

5. Contract to Sell

Conditional Sale Contract to sell

As to reservation of title to the subject property
In both cases the seller may reserve the title to the subject property until fulfillment of the suspensive condition i.e.
full payment of the price
As to effect of fulfillment of suspensive condition
Upon fulfillment of the suspensive condition, the contract Upon fulfillment of the suspensive condition, which is the
of sale is thereby perfected, such that if there had been full payment of the purchase price, ownership will not
previous delivery of the subject property to the buyer, automatically transfer to the buyer although the property
ownership thereto automatically transfers to the buyer by may have been previously delivered to him. The
operation of law without any further act by the seller. prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute
sale.
As to effect of sale of the subject property to 3rd persons
Constructive /actual knowledge on the part of the 2nd Third person buying the property despite fulfilment of the
buyer of the defect in the sellers title renders him not a suspensive condition cannot be deemed a buyer in bad
registrant in good faith. Such second buyer cannot defeat faith and prospective buyer cannot seek the relief of
the first buyers title. Ratio: Fulfilment of the suspensive reconveyance of property. Exception: If There was no
conditions affects the sellers title to the property and previous sale of the property.
previous delivery of the property automatically transfers
ownership/title to the buyer.

David v. Misamis Occidental

In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer,
meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of
the contract to sell until the happening of an event, such as, in most cases, the full payment of the purchase
price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the
entire amount of the purchase price is delivered to him. In other words, the full payment of the purchase price
partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and,
thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.
In a contract of sale, on the other hand, the title to the property passes to the vendee upon the delivery of
the thing sold. Unlike in a contract to sell, 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. 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. The vendor loses ownership over the property and cannot
recover it until and unless the contract is resolved or rescinded.
An examination of the alleged contract to sell, "Exhibit A," despite its unconventional form, would show that
said document, with all the stipulations therein and with the attendant circumstances surrounding it, was actually
a Contract of Sale.

Santos v. CA
It must be emphasized from the outset that a contract is what the law defines it to be, taking into
consideration its essential elements, and not what the contracting parties call it.14 Article 145815 of the Civil
Code defines a contract of sale. Note that the said article expressly obliges the vendor to transfer the ownership
of the thing sold as an essential element of a contract of sale.16 We have carefully examined the contents of the
unofficial receipt, Exh. D, with the terms and conditions informally agreed upon by the parties, as well as the
proofs submitted to support their respective contentions. We are far from persuaded that there was a transfer of
ownership simultaneously with the delivery of the property purportedly sold. The records clearly show that,
notwithstanding the fact that the Casedas first took then lost possession of the disputed house and lot, the title to
the property, TCT No. 28005 (S-11029) issued by the Register of Deeds of Paraaque, has remained always in
the name of Rosalinda Santos.17 Note further that although the parties agreed that the Casedas would assume
the mortgage, all amortization payments made by Carmen Caseda to the bank were in the name of Rosalinda
Santos.18 We likewise find that the bank's cancellation and discharge of mortgage dated January 20, 1990, was
made in favor of Rosalinda Santos.19 The foregoing circumstances categorically and clearly show that no valid
transfer of ownership was made by the Santoses to the Casedas. Absent this essential element, their agreement
cannot be deemed a contract of sale. We agree with petitioner's averment that the agreement between Rosalinda
Santos and Carmen Caseda is a contract to sell. In contracts to sell, ownership is reserved the by the vendor and
is not to pass until full payment of the purchase price. This we find fully applicable and understandable in this
case, given that the property involved is a titled realty under mortgage to a bank and would require notarial and
Sales Midterms Notes by Charm and Mikez 6
other formalities of law before transfer thereof could be validly effected.

Ventura v. Sps. Endaya

Nevertheless, with respect to the second issue, a thorough review of the records reveals no sufficient reason
to warrant the reversal of the CAs August 18, 2006 Decision dismissing petitioners' complaint for specific
performance which sought to enforce the contract to sell and to compel respondents to execute a deed of sale
over the subject properties.

A contract to sell is 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 latter upon his fulfillment of the conditions agreed upon, i.e., the full payment of
the purchase price50 and/or compliance with the other obligations stated in the contract to sell. Given its
contingent nature, the failure of the prospective buyer to make full payment51 and/or abide by his commitments
stated in the contract to sell prevents the obligation of the prospective seller to execute the corresponding deed
of sale to effect the transfer of ownership to the buyer from arising. As discussed in Sps. Serrano and Herrera v.
Caguiat:
A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's
obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the
suspensive condition does not take place, the parties would stand as if the conditional obligation had never
existed.

To note, while the quality of contingency inheres in a contract to sell, the same should not be confused with a
conditional contract of sale. In a contract to sell, the fulfillment of the suspensive condition will not automatically
transfer ownership 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.54On the other hand, in a conditional contract of sale, the fulfillment of the suspensive condition renders the
sale absolute and the previous delivery of the property has the effect of automatically transferring the sellers
ownership or title to the property to the buyer.
II. ESSENTIAL ELEMENTS
A. Consent or Meeting of the Minds

Article 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.

a. Capacity to Buy or Sell

General rule: any person who has capacity to act, or the power to do acts with legal effects, or more
specically with the power to obligate himself, may enter into a contract of sale, whether as seller or as buyer.
- For natural persons or individuals, the age of majority begins at 18 years, upon which age they have the
capacity to act.
- For juridical persons, such as corporations, partnerships, associations and cooperatives, a juridical
personality separate and distinct from that of the shareholders, partners or members, is expressly recognized by
law, with full juridical capacity to obligate themselves and enter into valid contracts.
Generally, minors, insane and demented persons, and deaf mutes who do not know how to write, have no
legal capacity to contract, and therefore are disqualied from being parties to a sale. Nonetheless, contracts
entered into by such legally incapacitated persons are not void, but merely voidable, subject to annulment
or ratication. The action for annulment cannot be instituted by the person who is capacitated since he is
disqualied from alleging the incapacity of the person with whom he contracts.

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.

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
Sales Midterms Notes by Charm and Mikez 7
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.

b. Effect of Lack of Capacity

Cases:
Domingo v CA
The general rule is that a person is not incompetent to contract merely because of advanced years or by
reason of physical infirmities.[27] However, when such age or infirmities have impaired the mental faculties
so as to prevent the person from properly, intelligently, and firmly protecting her property rights then she is
undeniably incapacitated. The unrebutted testimony of Zosima Domingo shows that at the time of the
alleged execution of the deed, Paulina was already incapacitated physically and mentally. She narrated that
Paulina played with her waste and urinated in bed. Given these circumstances, there is in our view sufficient
reason to seriously doubt that she consented to the sale of and the price for her parcels of land.

Olaguer v. Purunggan
The general rule is that a person is not incompetent to contract merely because of advanced years or by
reason of physical infirmities.[27] However, when such age or infirmities have impaired the mental faculties
so as to prevent the person from properly, intelligently, and firmly protecting her property rights then she is
undeniably incapacitated. The unrebutted testimony of Zosima Domingo shows that at the time of the
alleged execution of the deed, Paulina was already incapacitated physically and mentally. She narrated that
Paulina played with her waste and urinated in bed. Given these circumstances, there is in our view sufficient
reason to seriously doubt that she consented to the sale of and the price for her parcels of land.

PhilTrust Co. v. Roldan

Even without proof that she had connived with Dr. Ramos. Remembering the general doctrine that
guardianship is a trust of the highest order, and the trustee cannot be allowed to have any inducement to
neglect his wards interest and in line with the courts suspicion whenever the guardian acquires the wards
property we have no hesitation to declare that in this case, in the eyes of the law, Socorro Roldan took by
purchase her wards parcels thru Dr. Ramos, and that Article 1459 of the Civil Code applies.

Macariola v. Asuncion
There was no violation because the case which the judge was involved has already become final.

Rubias v Batiller
There was no valid sale because purchase of the lawyer was made while litigation is still ongoing.

B. Subject Matter

1. Determinate (or at least Determinable)

Article 1460. A thing is determinate when it is particularly designated or physical segregated from all other of
the same class.
The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is
capable of being made determinate without the necessity of a new or further agreement between the parties.

Determinate Subject Matter: A thing is determinate or speci c when it is particularly designated or physically
segregated from all others of the same class.
Determinable Subject Matter On the other hand, a thing is determinable only when two (2) requisites are
present: (a) If at perfection of the sale, the subject matter is capable of being made determinate (the capacity
to segregate test); and
(b) Without the necessity of a new or further agreement between the parties (the no further agreement test).

- when particularly designated or physically segregated from all others of the same class
- when subject matter is capable of being determinate without need of new or further agreement between parties

Melliza v. CA
Melliza sold under a deed several tracts of land to the then Municipality of Iloilo, including lots 1214C and
1214-D. The instrument of sale did not mention lot 1214-B, although it was contiguous to the other two lots, but
stipulated that the area being sold shall include the area needed for the construction of the city hall site,
avenues and parks according to the Arellano plan. The Arellano plan had long been in existence before the
Sales Midterms Notes by Charm and Mikez 8
execution of the deed.
The Court held that the requirement that a sale must have for its object a determinate thing is fullled as
long as, at the time the contract is entered into, the object of the sale is capable of being made determinate
without the necessity of a new or further agreement between the parties. The requirement in Melliza was deemed
fullled under the contract of sale because it specically referred to such other portions of the lots required by the
Arellano plan, which had long been in existence and it specically provided for the land areas needed for the city
hall site. Therefore, at the time of the perfection of the contract, the exact area of the land needed, which was
the subject matter of the sale, could be determined by simply referring to the Arellano plan, without the parties
needing to draw-up a new contract, nor even to clarify matters or explain their intentions.

National Grains Authority v. IAC

The parties had agreed on speci ed types of rice which was to be harvested from the sellers farmland at
speci ed prices per cavan, and although the exact quantity had not been agreed upon, it was provided in the
agreement that the seller was allowed to deliver within a specied quota of 2,640 cavans. The Court held that
there was at the point of agreement already a perfected and binding contract of sale, and to which NFA was
obliged to comply and pay the purchase price for the grains actually delivered by the seller-farmer Soriano, thus

In the case at bar, Soriano initially offered to sell palay grains produced in his farmland to NFA. When
the latter accepted the offer by noting in Sorianos Farmers Information Sheet a quota of 2,640 cavans,
there was already a meeting of the minds between the parties. The object of the contract, being the palay
grains produced in Sorianos farmland and the NFA was to pay the same depending upon its quality. The fact
that the exact number of cavans of palay to be delivered has not been determined does not affect the
perfection of the contract. Article 1349 of the New Civil Code provides: ... The fact that the quantity is not
determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the
same, without the need of a new contract between the parties. In this case, there was no need for NFA and
Soriano to enter into a new contract to determine the exact number of cavans of palay to be sold. Soriano
can deliver so much of his produce as long as it does not exceed 2,640 cavans.
The controlling doctrine in National Grains Authority is that speci c quantity of the subject matter is not
important when it is still possible to determine the quantity without the need of a new contract between the
parties, and therefore complies with the requisite of being determinable.

2. Licit
Article 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the
time it is delivered.
The subject matter of the contract of sale must be licit. A thing is licit and may be the object of a contract when it
is not outside the commerce of men, and all rights which are not intransmissible. When the subject matter is
illicit, the resulting contract of sale is void.
Again, the illegality of the subject matter, even though it is determinate and existing and capable of actual
delivery, undermines the demandability of the underlying obligation of the seller to deliver, and renders the sale
void.
- Subject matter must be licit or LEGAL.
- means: must not be outside the commerce of man
- must be present at time of perfection

Second paragraph of 1459 (taken separately with first par.)

- Ownership of vendor: is required at the time of transfer or delivery (CONSUMMATION)
Cases:
Quijada v. CA
- did not consider as void the sale by the donor of land previously donated to a local government unit under
a resolutory condition as a sale outside the commerce of men under Article 1409(4) of the Civil Code, in that
patrimonial properties of a local government unit, especially those conditionally owned by said unit, as being
outside the commerce of men. It held that the objects referred to as outside the commerce of man are those
which cannot be appropriated, such as the open seas and the heavenly bodies.
- conditional donation (resolutory)
- ownership is not a requisite for the perfection of contract of sale
- by virtue of Article 1434, Mondejar has the right over the property
Article 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later the
seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee.

Heirs of San Miguel v. CA

Therefore, to insist that Dominador, et al. pay the price under such circumstances would result in Severinas
heirs unjust enrichment.[40] Basic is the principle in law, Niguno non deue enriquecerse tortizamente condano de
otro.[41] The essence of a sale is the transfer of title or an agreement to transfer it for a price actually paid or
Sales Midterms Notes by Charm and Mikez 9
promised.[42] In Nool v. Court of Appeals,[43] we held that if the sellers cannot deliver the object of the sale to
the buyers, such contract may be deemed to be inoperative. By analogy, such a contract may fall under Article
1405, No. 5 of the Civil Code, to wit:
Article 1405. The following contracts are inexistent and void from the beginning: xxx
(5) Those which contemplate an impossible service.
Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall
annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not
affected by the impossible or unlawful condition shall be valid.
- Heirs did not have ownership of property at the time of sale thus it becomes an impossible obligation (to sell the
property) so Dominador is justified in not paying the P300, 000.00.

Nool v. CA
- First agreement: Conchita sold property to Anacleto
Second agreement: Conchita can repurchase property from Anacleto
- Thus, such contract may be deemed to be inoperative[20] and may thus fall, by analogy, under item no. 5 of
Article 1409 of the Civil Code:Those which contemplate an impossible service. Article 1459 of the Civil Code provides
that the vendor must have a right to transfer the ownership thereof [object of the sale] at the time it is
delivered. Here, delivery of ownership is no longer possible. It has become impossible.

Rule: Ownership of vendor will come into play at the time of delivery. If he cannot deliver, SC will declare
it as impossible service.

Note: These rules on sale are applicable whether sale is voluntary or involuntary.

3. Possible thing
Article 1461. Things having a potential existence may be the object of the contract of sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come
into existence.
The sale of a vain hope or expectancy is void.

Article 1462. The goods which form the subject of a contract of sale may be either existing goods, owned or
possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of the
contract of sale, in this Title called "future goods."

The proper consideration of the rst requisite, if it is to have a legal signi cance, is to consider it not in terms of
physical existence or non-existence or whether the seller had or did not have ownership thereof at the time of
perfection, but whether the subject matter is of a type and nature, taking into consideration the state of technology
and science at the time the sale is perfected, that it exists or could be made to exist to allow the seller reasonable
certainty of being able to comply with his obligations under the contract.

Even when the subject matter does not exist at the time of perfection of the sale, the contract is still valid under
Articles 1461 and 1409(3); however, when the subject matter is of such nature that it cannot come to existence an
impossible thing the contract is indeed void. This position is supported also by other provisions of the Civil Code
applicable to contracts in general. Under Article 1347, all things which are not outside the commerce of men,
including future things, may be the object of a contract.

Object or Thing may be:

a. Existing goods
b. Future goods
c. Things having a potential existence
Emptio spei - hope or expectancy
Ex: Aleatory contracts like Insurance
Emptio rei speratae- possibility of existence
Difference between two:

Emptio spei Emptio rei speratae

Object Hope or Chance
If it doesnt exist Valid: sale produces effect
even if the thing does not
come into existence, unless it
is a vain hope
Possibility of existence Uncertain
Object or Thing itself
Void: sale is subject to the condition that the
thing will exist; if it does not, there is no
contract
Condition of effectivity or Reasonably
certain
Sales Midterms Notes by Charm and Mikez 10
Mananzala v. CA
- the Court held that the sale of a lot by a seller who is yet to acquire full ownership from the government
agency is a valid sale since it involves the sale of the a future thing; but really it was a sale subject to the
condition that seller will acquire the property.

C. Price and other Consideration

Price- signifies the sum stipulated as the equivalent of the thing sold and also every incident taken into consideration
for the fixing of the price put to the debit of the buyer and agreed to by him

Requisites for Valid Price:

1. It must be certain or ascertainable

Article 1469. In order that the price may be considered certain, it shall be sufficient that it be so with reference
to another thing certain, or that the determination thereof 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.

- parties has already agreed on the amount or

- if left to judgment of third person
What happens if:
- If price is not fixed, contract is inefficacious.
- If third person cannot determine because he is prevented by one party to contract, the party not involved has
the remedies available to a buyer or seller.
Ex: rescission, specific performance
-
2. It must be money or its equivalent

i. Inadequacy of 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.

ii. Exceptions to Gross inadequacy Rule

- what prevails in Philippine jurisdiction is that for consideration to support an onerous contract
Bagnas v. CA
In this case, the court noted that the gross disproportion between the consideration stipulated and the value
of the property, would show that the price stated was a false and fictitious consideration and no other true and
lawful chase having been shown, the Court finds both said deeds, insofar as they purport to be sales, not merely
voidable, but void ab initio. Therefore, even though a consideration is real in the sense that it was agreed upon
and there is every intention of the parties to pay and receive such price, it would still be considered ctious and
render the sale void if it is a mere nominal price.

3. It must be real
Price is real when at the perfection of the sale, there is legal intention on the part of the buyer to pay the price,
and legal expectation on the part of the seller to receive such price as the value of the subject matter he obligates
himself to deliver.
When the price is simulated because neither party to the Deed of Sale had any intention whatsoever that the
amount will be paid, the sale is void, although the act may be shown to have been in reality a donation, or some other
contract. The whole issue therefore boils down to contractual intent: if there was no intent by the parties at the time
of perfection to pay and to receive the price stipulated, then it is a wholly simulated price, and the underlying contract
of sale is void for lack of consideration. The Court has held that [i]n absolute simulation, there is a colorable contract
but without any substance, because the parties have no intention to be bound by it. An absolutely simulated contract
is void, and the parties may recover from each other what they may have given under the contract. The
determination of what was the intent of the parties at perfection has been drawn by the Court from the
contemporenous and subsequent acts of the parties.

Failure to Pay
The failure to pay the price or the balance thereof does not render the sale inexistent or invalid, but merely gives
Sales Midterms Notes by Charm and Mikez 11
rise to a right in favor of the seller to either demand speci c performance or rescission of the contract of sale.
Therefore, in a contract of sale where the price agreed upon was a real price, although the parties showed on the
face of the covering deed that the price had been paid, when in fact it has not yet been paid (e.g., a separate
promissory note is executed to cover the payment of the purchase price), the contract of sale is still valid, although
the non-payment of the price is a cause either for speci c performance or for rescission.

Penalosa v. Santos
Simulation is a declaration of a fictitious will, deliberately made by agreement of the parties, in order to
produce, for purposes 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. None of these requisites is present in this case.
The basic characteristic of an absolutely simulated or fictitious contract is that the apparent contract is not
really desired or intended to produce legal effects or alter the juridical situation of the parties in any way.[30]
However, in this case, the parties already undertook certain acts which were directed towards fulfillment of their
respective covenants under the second deed, indicating that they intended to give effect to their agreement.
As can be seen from above, the contract in this case is absolute in nature and is devoid of any proviso that
title to the property is reserved in the seller until full payment of the purchase price. Neither does the second
deed give Severino a unilateral right to resolve the contract the moment the buyer fails to pay within a fixed
period. At most, the non-payment of the contract price merely results in a breach of contract for non-
performance and warrants an action for rescission or specific performance under Article 1191 of the Civil Code.

a. Simulated Consideration
It effects the delivery of subject matter:
When a contract of sale is ctitious, and therefore void and inexistent, as there was no
consideration for the same, no title over the subject matter of the sale can be conveyed. Nemo potest
nisi quod de jure potest no man can do anything except what he can do lawfully.

When is price simulated?

- when neither of the parties had any intention whatsoever that the amount will be paid thus rendering
the Deed of Sale void. The whole issue boils down to the contractual intent: if there was no intention of the
parties at the time of the perfection to pay and to receive the price stipulated, then it is wholly simulated
price, and the underlying contract of sale is void for lack of consideration.

Sanchez v. Sanchez
On one side, it can be argued that said contract is void and consequently, the right to challenge such contract
is imprescriptible. The ruling of this Court in
Montecillo v. Reynes, supports this argument:
Where the deed of sale states that the purchase price has been paid but in fact has never been paid, the
deed of sale is null and void ab initio for lack of consideration.
Such ruling of the Court would mean that when the deed of sale declares that the price has been paid, when
in fact it has never been paid, that would be considered as a "badge of simulation" and would render the contract
void and consequently, the right to challenge the same is imprescriptible.

One can also deduce that what actually transpired was a simple non-payment of purchase price, which will
not invalidate a contract and could only give rise to other legal remedies such as rescission or specific
performance.

b. Fictitious/False/Simulated (Relative) Consideration

If the price indicated in the covering instrument is false, the contract of sale is valid, but the underyling
deed is subject to reformation to indicate the real price upon which the minds of the parties have met.

When is price relatively simulated?

- In one case, when the parties intended to be bound by the contract except that it did not reect the
actual purchase price of the property, the Court ruled that there was only a relative simulation of the contract
which remained valid and enforceable, but subject to reformation. In another case, the Court held that if the
parties state a false cause in the contract to conceal their real agreement, such a contract is relatively
simulated ... the parties real agreement binds them.

Macapagal v. Remorin
The fact that the deed of sale between respondents Corazon and Laurelia did not accurately reflect the
Sales Midterms Notes by Charm and Mikez 12
true consideration thereof is not cause for declaration of its nullity. When the parties intended to be bound by
the contract except that it did not reflect the actual purchase price of the property, there is only a relative
simulation of the contract which remains valid and enforceable. It cannot be declared null and void since it
does not fall under the category of an absolutely simulated or fictitious contract. The contract of sale is valid
but subject to reformation.

When is price false?

- Price is false when there is a real price upon which the minds of the parties had met, but not declared,
and what is stated in the covering deed is not one intended to be paid.

c. Absolutely Simulated Consideration

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.

Yu Bun Guan v. Ong

Held that when the Deed of Sale was executed merely to facilitate the transfer of the property to the buyer
pursuant to an agreement to enable the buyer to construct a commercial building and to sell the property to the
children, but that in truth the agreement was a mere subterfuge on the part of the buyer, the agreement cannot
be taken as a consideration for the sale which the Court held to be void.

III. Formation of Sale

STAGES IN THE LIFE OF SALE

The phases that a contract of sale goes through have been summarized by the Supreme Court to be as
follows:
(a) POLICITACION, negotiation, preparation, conception or generation stage, which is the period of negotiation
and bargaining, ending at the moment of perfection;

(b) PERFECTION or birth of the contract, which is the point in time when the parties come to agree on the
terms of the sale; and

(c) CONSUMMATION or death of the contract, which is process of ful llment or performance of the terms
agreed upon in the contract.

Policitacion

- Policitacion, or unaccepted unilateral promise to buy or to sell, prior to acceptance, does not give rise to any
obligation or right, and creates no privity between the purported seller (offeror) and buyer (offerees). These relations,
until a contract is perfected, are not considered binding commitments; and at any time prior to the perfection of the
contract, either negotiating party may stop the negotiation, and walk away from the situation, generally without
adverse legal consequences.
- actually deals with legal matters arising prior to the perfection of sale, dealing with the concepts of invitation to
make offer, offer, acceptance, right of rst refusal, option contract, supply agreement, mutual promises to buy and
sell or contracts to sell, and even agency to sell or agency to buy.

Advertisements and Invitations:

Article 1325 of the Civil Code provides that unless it appears otherwise, business advertisements of things for
sale are not denite offers, but mere invitations to make an offer. Likewise, advertisements for bidders are simply
invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the
contrary appears.

General rule: Advertisements are less than offers, and constitute merely invitations to make an offer, or mere
proposals; the direct acceptance of such advertisements thereof do not give rise to a valid and binding sale.
Exception: when the advertisement speci es a determinate subject matter, the price and terms of payment,
as to be equivalent to an offer certain, then it constitute an offer covered by the phrase unless it appears
otherwise, and not a mere invitation to make an offer, and once absolutely accepted would give rise to a valid
and binding contract to sell.

Option contract
Sales Midterms Notes by Charm and Mikez 13
A contract granting a privilege in one person, for which he has paid a consideration, which gives him the right to
buy certain merchandise, at anytime within the agreed period, at a fixed price.
An option without consideration is void and the effect is the same as if there was no option
However, in Sanchez vs. Rigos (1972), even though the option was not supported by a consideration, the moment
it was accepted, a perfected contract of sale resulted, applying Art. 1324 of the NCC. In view of the ruling of the
Supreme Court, the only importance of the consideration for an option is that the option cannot be withdrawn by
the grantor after acceptance. * 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 formers decision to buy and expressing his readiness to
pay the stipulated price.

Right of First Refusal

It is a right of first priority all things and conditions being equal; there should be identity of the terms and
conditions to be offered to the optionee and all other prospective buyers, with optionee to enjoy the right of first
priority. A deed of sale executed in favor of a third party who cannot be deemed a purchaser in good faith, and
which is in violation of the of the right of first refusal granted to the optionee is NOT voidable under the Statute
of Frauds, such contract is valid BUT rescissible under Article 1380 to 1381(3) of the New Civil Code (Guzman
Bocaling & Co. vs. Bonnavie; Riviera Filipina, Inc vs. CA et.al. GR No. 117355, April 5, 2002).
The basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of any
prospective buyer. Only after the optionee fails to exercise its right of first priority under the same terms and
within the period contemplated could the owner validly offer to sell the property to a third person, again, under
the same terms as offered to the optionee (Paranaque Kings Enterprises, Inc. vs. CA GR No. 111538, February
26, 1997)
The lessees right of first option to buy the leased property in case of its sale is but a part of the bigger right to
lease the said property from the lessor. The option was given to the lessee because she was the lessee of the
subject property. It was a component of the consideration of the lease. The option was by no means an
independent right which can be exercised by the lessee. If the lessee is barred by the contract from assigning
her right to lease the subject property to any other party, the lessee is similarly barred to assign her first option
to buy the leased property to another. (Bangayan et.al vs. CA and Lim GR No.123581, August 29, 1997)

Earnest money
or ARRAS is something of value to show that the buyer was really in earnest, and given to the seller to bind the
bargain. It is considered as: a) part of the purchase price b) proof of perfection of the contract *It shall be deducted
from the total price.

Earnest Money Option Money

Title passes to the buyer upon delivery of the thing sold.
In case of non-payment, an action for specific
performance or for rescission can be filed by the injured
party
Part of the purchase price
When given, the buyer is bound to pay the balance
Given when there is already a sale
Ownership is reserved to the seller and is not to pass until
full paymen
In case of non-payment, there can be action for specific
performance
Money given as a distinct consideration for an option
contract
The would-be buyer is not required to buy
Applies to a sale not yet perfected