NOTES ON SALES: AGNO x MANALASTAS, UP Law G2023
LAW 103 Sales: Theory and Practice
Professor Rodolfo Waga
C. Cause or consideration (Arts. 1350-1355)
Article 1350. In onerous contracts the cause is understood to be, for
each contracting party, the prestation or promise of a thing or service
by the other; in remuneratory ones, the service or benefit which is
remunerated; and in contracts of pure beneficence, the mere
liberality of the benefactor. (1274)
Article 1351. The particular motives of the parties in entering into a
contract are different from the cause thereof. (n)
Article 1352. Contracts without cause, or with unlawful cause,
produce no effect whatever. The cause is unlawful if it is contrary to
law, morals, good customs, public order or public policy. (1275a)
Article 1353. The statement of a false cause in contracts shall render
them void, if it should not be proved that they were founded upon
another cause which is true and lawful. (1276)
Article 1354. Although the cause is not stated in the contract, it is
presumed that it exists and is lawful, unless the debtor proves the
contrary. (1277)
Article 1355. Except in cases specified by law, lesion or inadequacy
of cause shall not invalidate a contract, unless there has been fraud,
mistake or undue influence. (n)
● 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.
● It does not include goods or merchandise although they have
their own value in money. (see Arts. 1468, 1638.)
● However, the words “its equivalent” have been interpreted to
mean that payment need not be in money, so that there can
be a sale where the thing given as token of payment has
“been assessed and evaluated and [its] price equivalent in
terms of money [has] been determined.”
● The price must be real, not fictitious; otherwise, the sale is
void although the transaction may be shown to have been in
reality a donation or some other contract. (Art. 1471.)
● A seller cannot render invalid a perfected contract of sale by
merely contradicting the buyer’s allegation regarding the
price and subsequently raising the lack of agreement as to
the price.
i. General requirements on price
a) Certain;
b) Real;
c) Pecuniary;
d) Licit or Lawful
Necessity of a Price
● In accordance with the general principles on contracts, a
contract of sale is null and void and produces no effect
whatsoever if the same is without cause or consideration or
that the price which appears to have been paid has in fact
never been paid.
● The inexistence of the contract is permanent and incurable.
● The statement of a false cause in contracts shall render them
void if it should not be proven that they were founded upon
another cause which is true and lawful.
● Thus, where the sale was simulated and property was
transferred to another for the purpose of obtaining a loan
from the Social Security System, the sale is void as there was
no consideration.
● 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.
● Thus, where the contract of sales states that the
consideration is "P1 and other valuable considerations", the
Supreme Court stated that the consideration may have been
much more, as the assignor's liberality may be a sufficient
cause for a valid contract. Although fraud or bad faith may
render the contract voidable, it is binding until annulled.
GENERAL NOTES on PRICE:
● Price - 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
(Villanueva, 2004).
● NOTE: A definite agreement on the manner of payment of the
price is an essential element in the formation of a binding and
enforceable contract of sale (Co v. CA, G.R. No. 123908,
February 9, 1998).
● Requisites of price
○ It must be:
■ 1. Real, not fictitious;
■ 2. Paid in money or its equivalent;
■ 3. For valuable consideration;
■ 4. Certain or ascertainable at the time of
the perfection of the contract; and
■ 5. In some cases, must not be grossly
inferior to the value of the thing sold.
● NOTE: There is NO effect on the contract of sale in case of
breach in the agreed manner of payment. Payment of the
price has nothing to do with the perfection of the contract
(Sps. Bernardo Buenaventura and Consolacion Joaqui v. CA,
GR No. 126376, November 20, 2003).
● When price is certain
○ 1. If there is a stipulation;
○ 2. If it be with reference to another thing certain;
○ 3. If the determination of the price is left to the
judgment of specified person(s) (NCC,Art. 1469); or
○ 4. By reference to certain fact(s) as referred to in
Art. 1472.
● NOTE: If the price is based on estimates, it is uncertain.
● Simulated Price
○ The price is simulated when neither party had the
intention that the amount will be paid (Yu Bun Guan
v. Ong, G.R. No. 144735, October 18, 2001).
● Effect if price is simulated
○ GR: The sale is void.
○ XPN: If it can be shown to be a donation or another
contract (NCC, Art. 1471).
● Admission by the vendee that he did not pay any centavo for
the property makes the sale void (Labagala v. Santiago, G.R.
No. 132305, December 4, 2001).
● When price of securities, grains, liquids and things is
considered certain
○ 1. When the price fixed is that which the thing
would have on a definite day, or in a particular
exchange or market;
○ 2. When the amount is fixed above or below the
price of such day, or in such exchange or market,
provided said amount be certain (NCC, Art. 1472).
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○ 3. When it is by reference to another certain thing
(NCC, Art. 1469).
■ NOTE: Art. 1469 is not allowed for the
determination of the subject matter of
the sale.
● Fixing of the price CANNOT be left to the discretion of
one of the contracting parties
○ GR: The price cannot be fixed unilaterally by one of
the contracting parties.
○ XPN: If the price fixed by one of the parties is
accepted by the other, the sale is perfected.
● Effect when the price is unilaterally fixed by one of the
contracting parties without consent of the other party
○ There is no meeting of the minds. The sale is
inefficacious (Pineda, 2010).
● Effect when the price is fixed by the third person
designated
○ GR: Price fixed by a third person designated by the
parties is binding upon them.
○ XPNs:
■ 1. When the third person acts in bad faith
or by mistake; and
■ 2. When the third person disregards the
specific instructions or the procedure
marked out by the parties.
● Gross inadequacy of price
○ The price is grossly inadequate if a reasonable man
will not agree to dispose of his property at that
amount.
● Effect of Gross Inadequacy of Price (NCC, Art. 1470)
○ GR: It does not affect the validity of the sale.
○ XPN: (CoRDS)
■ 1. If Consent is vitiated (may be annulled
or presumed to be equitable mortgage);
■ 2. If the parties intended a Donation or
some other act/ contract;
■ 3. If the price is so low as to be
“Shocking to the conscience”; and
■ 4. If in the event of Resale, a better price
can be obtained.
● Annulment of sale NOT the remedy in a simulated sale
○ 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. Moreover, Art. 1471 of the Civil
Code, provides that “if the price is simulated, the
sale is void” (Catindig v. Vda. de Meneses, Roxas
v. CA, G.R. No. 165851& G.R. No. 165851,
February 2, 2011).
● Effect of failure to determine the price
○ 1. Where contract is executory – ineffective.
○ 2. Where the thing has been delivered to and
appropriated by the buyer – the buyer must pay a
reasonable price therefore.
● Q: Nante, a registered owner of a parcel of land in Quezon
City, sold the property to Monica under a deed of sale which
reads as follows: “That for and in consideration of the sum of
P500,000, value to be paid and delivered to me, and receipt
of which shall be acknowledged by me to the full satisfaction
of Monica, referred to as a vendee, I hereby sell, transfer,
cede, convey, and assign, as by presents, I do have sold,
transferred, ceded, conveyed and assigned a parcel of land
covered by TCT No. 2468 in favor of the Vendee.” After
delivery of the initial payment of P100,000, Monica
immediately took possession of the property. Five months
after, Monica failed to pay the remaining balance of the
purchase price. Nante filed an action for the recovery of the
possession of the property. Nante allege that the agreement
NOTES ON SALES: AGNO x MANALASTAS, UP Law G2023
was one to sell, which was not consummated as the full
contract price was not paid. Is the contention of Nante
tenable? (2014 BAR)
● A: NO. The deed itself states that for consideration received,
he sells, transfers, and conveys the land to Monica an there
was delivery of the property to the latter. The contract is
clearly one of sale as there was no reservation of ownership
on the part of the seller Nante. The non-payment of the price
in a contract of sale would only entitle the seller to rescind
the contract but it does not thereby prevent the transfer of
ownership particularly so as in this case, where there was
already delivery to the buyer.
● A contract by which the owner of the property agrees with
another person that he shall have the right to buy his property
at a fixed price within a certain time. It is binding upon the
promissor if the promise is supported by a consideration
distinct from the price. An option contract is likewise a
separate and distinct contract from a contract of sale.
● Nature of an option contract
● It is a preparatory contract in which one party grants to
another, for a fixed period and at a determined price, the
privilege to buy or sell, or to decide whether or not to enter
into a principal contract.
● NOTE: If the option is perfected, it does not result in the
perfection or consummation of the sale (Diaz, 2006).
● Period within which to exercise the option
● 1. Within the term stipulated; and
● 2. If there is no stipulation, the court may fix the term.
● Exercise of an option
● 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 (De Leon, 2011).
● A notice of acceptance must be communicated to offeror
even without actual payment as long as payment is delivered
in the consummation stage provided it still within the period
provided.
● Effect of the presence and absence of a separate
consideration in an option contract
● 1. With separate consideration:
● a. Contract is valid;
● b. Offeror cannot withdraw offer until after expiration of the
option; and
● c. Is subject to rescission and damages but not specific
performance.
● 2. Without separate consideration:
● a. The option contract is not deemed perfected; and
● b. Offer may be withdrawn at any time prior to acceptance.
● NOTE: Even though the option was not supported by a
consideration, the moment it was accepted, contract of sale
is perfected (NCC, Art. 1324).
● An option imposes no binding obligation on the person
holding the option aside from the consideration for the offer.
Until accepted, it is not treated as a sale (Tayag v. Lacson,
G.R. No. 134971, March 25, 2004).
●
ii. Price certain (Art. 1458, 1469, 1472, 1473, 1474)
Article 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional. (1445a)
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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. (1447a)
When price considered certain.
● The price in a contract of sale ought to be settled for there
can be no sale without a price.
● 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.
● 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; or
○ (3) The determination of the price is left to the
judgment of a specified person or persons and
even before such determination.
● 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.
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
NOTES ON SALES: AGNO x MANALASTAS, UP Law G2023
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.
Article 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)
Article 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)
Article 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)
a) When price certain (Art. 1469, 1472, 1473)
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. (1447a)
Article 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)
Article 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)
b) Effect when price not certain (Art. 1474)
Article 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
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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)
iii. Lack of cause or consideration (Arts. 1354, 1409(3))
Article 1354. Although the cause is not stated in the contract, it is
presumed that it exists and is lawful, unless the debtor proves the
contrary. (1277)
Article 1409. The following contracts are inexistent and void from
the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the
transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived.
a) When there is lack of cause or consideration
b) Effect of lack of cause or consideration
• Ong vs. Ong, 139 SCRA 133, G.R. No. L-67888 October 8, 1985
(Art. 1354)
Ong v. Ong (1985)
F:
H:
iv. Inadequacy of the price (Arts. 1355, 1381(1), 1470)
Article 1355. Except in cases specified by law, lesion or inadequacy
of cause shall not invalidate a contract, unless there has been fraud,
mistake or undue influence. (n)
Article 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the
wards whom they represent suffer lesion by more than one-
fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter
suffer the lesion stated in the preceding number;
NOTES ON SALES: AGNO x MANALASTAS, UP Law G2023
(3) Those undertaken in fraud of creditors when the latter cannot in
any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval
of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to
rescission. (1291a)
Article 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)
• Buenaventura vs. Court of Appeals, 416 SCRA 263, G.R. No.
126376, November 20, 2003 (Arts. 1355, 1470, 1471)
Buenaventura vs. Court of Appeals (2003)
F:
H:
Article 1355. Except in cases specified by law, lesion or inadequacy
of cause shall not invalidate a contract, unless there has been fraud,
mistake or undue influence. (n)
Article 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)
Article 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)
a) When price inadequate
b) Effect of inadequate price
– on voluntary sales (including sales with right to repurchase)
– on involuntary sales
v. Simulated price
a) When contract simulated (Arts. 1345, 1346)
Article 1345. Simulation of a contract may be absolute or relative.
The former takes place when the parties do not intend to be bound
at all; the latter, when the parties conceal their true agreement. (n)
Article 1346. An absolutely simulated or fictitious contract is void. A
relative simulation, when it does not prejudice a third person and is
not intended for any purpose contrary to law, morals, good customs,
public order or public policy binds the parties to their real agreement.
(n)
– Effect of simulated contract
b) When price simulated (Art. 1471)
Article 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)
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– Effect of simulated price
• Mate vs. Court of Appeals, 290 SCRA 463, G.R. No. 120724-25,
May 21, 1998 (Art. 1471)
Mate vs. Court of Appeals (1998)
F:
H:
Article 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)
• Bagnas vs. Court of Appeals, 176 SCRA 159, G.R. 38498, August
10, 1989 (Art. 1471)
Bagnas vs. Court of Appeals (1989)
F:
H:
Article 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)
vi. False price
a) When price false
b) Effect of false price
vii. Lawful price
a) When price lawful/unlawful
b) Effect when price unlawful (Arts. 1409[1], 1417]
Article 1409. The following contracts are inexistent and void from
the beginning:
(1) Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the
transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived.
Article 1417. When the price of any article or commodity is
determined by statute, or by authority of law, any person paying any
amount in excess of the maximum price allowed may recover such
excess.
vii. Practice notes: cause or consideration
NOTES ON SALES: AGNO x MANALASTAS, UP Law G2023
– how payment effected: cash, check, wire transfer, etc.
D. Perfection of contract (Art. 1475)
Perfection vs. Consummation
● Perfection - from the moment there is a MEETING OF
MINDS upon the things promised by each party in
consideration of the other.
● Consummation - from the time there is MUTUAL DELIVERY
by the contracting parties of the things promised.
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.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form
of contracts. (1450a)
i. Concept of perfection; perfection in consensual contracts vs. real
contracts
GR: It is deemed perfected at the moment there is meeting of minds
upon the thing which is the object of the contract and upon the price.
● NOTE: The acceptance of the offer must be absolute. It must
be plain, unequivocal, unconditional, and without variance of
any sort from the proposal.
● Upon the perfection of the contract, the parties may
reciprocally demand performance.
○ EXC: When the sale is subject to a suspensive
condition by virtue of law or stipulation.
The buyer is deemed to have accepted the goods
● 1. When he communicates to the seller that he has accepted
them;
● 2. When the goods have been delivered and he does any act
inconsistent with the ownership of the seller; and
● 3. When, after the lapse of reasonable time, he retains the
goods without intimating to the seller that he rejected them
(NCC, Art. 1585).
Rule on refusal to accept the goods by the buyer
● The buyer is not bound to return the goods to the seller and
it is sufficient that he notifies the seller of his refusal in the
absence of a contrary stipulation (NCC, Art. 1587).
● NOTE: If the refusal is without just cause, the title passes to
the buyer from the moment the goods are placed at his
disposal (NCC, Art. 1588).
Effect of a qualified acceptance
● It constitutes merely a counter-offer which must in turn be
accepted to give rise to a valid and binding contract
(Villanueva, 2009).
Q: Licup, through a letter, offered to buy parcels of land to The Holy See
and Philippine Realty Corporation (PRC). He enclosed a check for
P100,000.00 to “close the transaction” and accepted the responsibility
of removing informal settlers. Msgr. Cirilos, representative of the Holy
See and PRC signed the conforme portion of the letter and accepted
the check. A stop-payment order was issued by Licup and the latter
requested that the titles to the land instead be given to SSE. Msgr.
Cirilos wrote SSE requesting to remove the informal settlers, otherwise,
the P100,000.00 would be returned. SSE replied with an “updated
proposal” that they will comply provided that the purchase price is
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lowered. The proposal was rejected. The parcel of land was sold to
another third person. Is there a perfected contract of sale between the
two parties?
A: NO. When Msgr. Cirilos affixed his signature on that letter, he
expressed his conformity to the terms of Licup’s offer appearing on it.
There was meeting of the minds as to the object and consideration of
the contract. But when Licup ordered a stop-payment on his deposit
and proposed in his April 26, 1988 letter to Msgr. Cirilos that the
property be instead transferred to SSE, a subjective novation took
place. The proposed substitution of Licup by SSE opened the
negotiation stage for a new contract of sale as between SSE and the
owners (Starbright Sales v. Phil. Realty Corp., et. al, G.R. No. 177936,
January 18, 2012).
Q: Spouses Biong and Linda wanted to sell their house. They found a
prospective buyer, Ray. Linda negotiated with Ray for the sale of the
property. They agreed on a fair price of P2 Million. Ray sent Linda a
letter confirming his intention to buy the property. Later, another couple,
Bernie and Elena, offered a similar house at a lower price of P 1.5 Million.
But Ray insisted on buying the house of Biong and Linda for sentimental
reasons. Ray prepared a deed of sale to be signed by the couple and a
manager's check for P2 Million. After receiving the P2 Million, Biong
signed the deed of sale. However, Linda was not able to sign it because
she was abroad. On her return, she refused to sign the document saying
she changed her mind. Linda filed suit for nullification of the deed of
sale and for moral and exemplary damages against Ray. Will the suit
prosper? (2006 BAR)
A: NO, the suit will not prosper. The contract of sale was perfected
when Linda and Ray agreed on the object of the sale and the price (Art.
1475). There is therefore consent on her part as the consent need not
be given in any specific form. Hence, her consent may be given by
implication, especially since she was aware of, and participated in the
sale of the property (Pelayo v. CA, G.R. No. 141323, June 8, 2005). Her
action for moral and exemplary damages will also not prosper because
the case does not fall under any of those mentioned in Art. 2219 and
2232 of the Civil Code.
Pertinent Rules:
● (1) In a contract of sale, the vendor is not required to deliver
the thing sold until the price is paid nor the vendee to pay the
price before the thing is delivered in the absence of an
agreement to the contrary (La Font vs. Pascacio, 5 Phil. 591
[1906]; see Art. 1524.);
● (2) If stipulated, then the vendee is bound to accept delivery
and to pay the price at the time and place designated;
● (3) If there is no stipulation as to the time and place of
payment and delivery, the vendee is bound to pay at the time
and place of delivery;
● (4) In the absence also of stipulation, as to the place of
delivery, it shall be made wherever the thing might be at the
moment the contract was perfected (Art. 1251.); and
● (5) If only the time for delivery of the thing sold has been fixed
in the contract, the vendee is required to pay even before the
thing is delivered to him; if only the time for payment of the
price has been fixed, the vendee is entitled to delivery even
before the price is paid by him. (see Art. 1524.)
– necessity for payment or delivery of thing
● Perfection per se does not transfer ownership which occurs
upon the actual or constructive delivery of the thing sold.
Sale, being a consensual contract, it is perfected by mere
consent, and ownership by the seller of the thing sold is NOT
an element for its perfection.
○ It is sufficient if the seller has the “right to transfer
the ownership thereof at the time it is delivered.”
NOTES ON SALES: AGNO x MANALASTAS, UP Law G2023
○ Thus, the seller is deemed only to impliedly warrant
that “he has a right to sell the thing at the time when
the ownership is to pass.”
● 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.
○ 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.
● The ownership is not transferred until the delivery of the thing.
(Arts. 1496, 1164.14) The parties, however, may stipulate that
the ownership in the thing, notwithstanding its delivery, shall
not pass to the purchaser until after he has fully paid the
purchase price thereof.
● GR: Ownership of the thing sold shall be transferred to the
vendee upon the actual or constructive delivery.
○ XPN: Unless the contract contains a stipulation
that ownership of the thing sold shall not pass to
the purchaser until he has fully paid the price.
● Acceptance of delivery by the buyer of the thing sold
○ 1. Express – he communicates or intimates to the
seller that he has accepted (NCC, Art. 1585).
○ 2. Implied (NCC, Art. 1585)
■ a. Buyer does not act inconsistently with
ownership of seller after delivery; and
■ b. Retains the thing without
communicating to seller that he has
rejected.
● Effect if the buyer refuses to accept despite delivery of
the object of the sale
○ Delivery is completed. Since delivery of the subject
matter of the sale is an obligation on the part of the
seller, the acceptance thereof by the buyer is not a
condition for the completeness of the delivery
(Villanueva, 2009).
● NOTE: Thus, even with such refusal of acceptance, delivery
(actual/constructive), will produce its legal effects (e.g.
transferring the risk of loss of the subject matter to the buyer
who has become the owner thereof) (Villanueva, 2004).
○ Under Art. 1588 of the Civil Code, when the buyer’s
refusal to accept the goods is without just cause,
the title thereto passes to him from the moment
they are placed at his disposal (Villanueva, 2004).
● When does delivery does not transfer title?
○ 1. Sale on TRIAL, APPROVAL, OR SATISFACTION
(NCC, Art. 1502);
○ 2. When there is an EXPRESS RESERVATION;
■ a. If it was stipulated that ownership shall
not pass to the purchaser until he has
fully paid the price (NCC, Art. 1478).
○ 3. When there is an IMPLIED RESERVATION;
■ a. When goods are shipped, but the bill
of lading states that goods are
deliverable to the seller or his agent, or
to the order of the seller or his agent
(NCC, Art. 1503).
■ b. When the bill of lading is retained by
the seller or his agent (NCC, Art. 1503).
■ c. When the seller of the goods draws on
the buyer for the price and transmits the
bill of exchange and the bill of lading to
the buyer, and the latter does not honor
the bill of exchange by returning the bill
of lading to the sell (NCC, Art. 1503).
6

○ 4. When sale is NOT VALID;
○ 5. When the seller is NOT THE OWNER of the
goods subject to the exceptions in Art. 1505 of
NCC
○ 6. GR: When goods are HELD BY A THIRD PARTY
■ XPN: Third person acknowledges to the
buyer that he holds the goods in behalf
of the buyer (NCC, Art. 1521).
○ 7. ON SALE or RETURN – The ownership passes
to buyer upon delivery, but he may revest
ownership in the seller by returning or tendering the
goods within the time fixed in the contract or within
reasonable time (NCC, Art. 1502).
● Q: When is ownership deemed transferred?
● A: The thing shall be understood as delivered when it is
placed in the control and possession of the vendee.
● NOTE: The most that a sale does is to create the obligation
to transfer ownership. It is only the title while the mode of
transferring ownership is delivery.
● Effect of Delivery
○ GR: Title /ownership is transferred
○ XPN: When the contrary is stipulated as in the case
of:
■ 1. Pactum reservatii in domini –
Agreement that ownership will remain
with seller until full payment of price
(contract to sell);
■ 2. Sale on acceptance/approval;
■ 3. Sale on return; or
■ 4. There is implied reservation of
ownership
● NOTE: Seller bears expenses of delivery.
● fulfillment or cancellation of the obligation under an existing
– necessity for written agreement
● Generally, a contract of sale is binding regardless of its form.
(Art. 1356.)
○ However, in case the contract of sale should fall
within the provisions of the Statute of Frauds (Art.
1403[2].) or of any other applicable statute which
requires a certain form for its enforceability or
validity (Art. 1356.), then that form must be
complied with. (Art. 1483.)
○ A contract of sale may be in a private instrument;
the contract is valid and binding between the
parties upon its perfection and a party may compel
the other to execute a public instrument
embodying the contract.
○ A sale of real estate, whether made as a result of a
private transaction or of a foreclosure or execution
sale, becomes legally effective against third
persons only from the date of its registration.
(Campillo vs. Phil. National Bank, 28 SCRA 720
[1969].)
● Appropriate conduct by the parties may be sufficient to
establish an agreement. While there may be instances where
interchanged correspondence does not disclose the exact
point at which the deal was closed, the actions of the parties
may indicate that a binding obligation has been undertaken.
– how perfection may be proved
● To overcome a public document solemnly executed before a
notary public, the evidence to the contrary must be clear,
strong, and convincing. Parol evidence will not suffice to
NOTES ON SALES: AGNO x MANALASTAS, UP Law G2023
negate the clear and positive recitals of a public document
not otherwise tainted with fraud or falsification. (Regalario vs.
Northwest Finance Corporation, 117 SCRA 45 [1982].)
– manner of payment as a requirement for perfection
● 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.
● Where the parties, however, still have to meet and agree on
how and when the down payment and installment payments
are to be made, it cannot be said that a contract of sale has
been perfected.
● Although the law does not expressly state that the minds of
the parties must also meet on the terms or manner of
payment of the price, the same is needed. Agreement on the
manner of payment goes into the price such that a
disagreement on the manner of payment is tantamount to
failure to agree on the price.
● An agreement on the price but a disagreement on the manner
of its payment will not result in consent.
○ This lack of consent is separate and distinct from
lack of consideration where the contract states that
the price has been paid when in fact it has never
never been paid.
– effect of non-payment on perfected contract
● Failure to pay the consideration of contract is different from
lack of consideration; the former results in a right to demand
valid contract, while the latter prevents the existence of a
valid contract.
● 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.
○ Why? Non-payment of the purchase price is not
among the instances where the law declares a
contract of sale to be NULL and VOID.
■ 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.
● 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.
○ NOTE: 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.
- place of perfection
● Place of delivery (Art. 1521 in relation to Art. 1582 of NCC)
7

○ The place of delivery shall be: (AUBRI)
■ 1. That agreed upon;
■ 2. Place determined by usage of trade;
■ 3. Seller’s place of business;
■ 4. Seller’s residence;
■ 5. In case of specific goods, where they
can be found.
• Villonco Realty Company vs. Bormaheco, Inc., 65 SCRA 352, G.R.
No. L-26872, July 25, 1975 (Arts. 1475, 1482);
Villonco Realty Company vs. Bormaheco, Inc. (1975)
F: Francisco Cervantes of Bormaheco Inc. agrees to sell to Villonco
Realty a parcel of land and its improvements located in Buendia,
Makati. Bormaheco made the terms and condition for the sale and
Villonco returned it with some modifications. The sale is for P400 per
square meter but it is only to be consummated after respondent shall
have also consummated purchase of a property in Sta. Ana, Manila.
Bormaheco won the bidding for the Sta.Ana land and subsequently
bought the property. Villonco issued a check to Bormaheco
amounting to P100,000 as earnest money. 26 days after signing the
contract of sale, Bormaheco returned the P100,000 to Villonco with
10% interest for the reason that they are not sure yet if they will
acquire the Sta.Ana property. Villonco rejected the return of the
check and demanded for specific performance.
H: The contract is already consummated when Bormaheco accepted
the offer by Villonco. The acceptance can be proven when
Bormaheco accepted the check from Villonco and then returned it
with 10% interest as stipulated in the terms made by Villonco. On
the other hand, the fact that Villonco did not object when Bormaheco
encashed the check is a proof that it accepted the offer of
Bormaheco. 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" (Art. 1482, Civil Code).
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.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form
of contracts. (1450a)
Article 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)
● Earnest money 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.
● NOTE: 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
NOTES ON SALES: AGNO x MANALASTAS, UP Law G2023
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 14542 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 vs. option money
Earnest money is part of the Option money is the money
purchase price given as distinct consideration
for an option contract
Earnest money is given only Option money applies to a sale
where there is already a sale not yet perfected
When earnest money is given, The would-be buyer who gives
the buyer is bound to pay the option money is not required to
balance buy
● BUT, option money may become earnest money if the parties
so agree.
• Traders Royal Bank vs. Cuison Lumber Co., Inc., 588 SCRA 690,
G.R. No. 174286, June 5, 2009 (Art. 1475);
Traders Royal Bank vs. Cuison Lumber Co., Inc. (2009)
F: Cuison Lumber obtained loans with Traders Bank and offered a
payment arrangement. The bank replied through a letter of its
resolution to grant the repurchase of the foreclosed property. Cuison
Lumber did not make an express acceptance.
H: A contract is perfected from the moment there is a meeting of the
offer and acceptance upon the thing and the cause that constitute
the contract. The offer must be certain and the acceptance absolute
and unqualified. The ascertainment whether there is a meeting of
minds depends on the circumstances surrounding the case. In this
case, the contract was perfected as evinced by subsequent acts of
the parties. Cuison Lumber paid continuously and even asked for
extensions.
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.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form
of contracts. (1450a)
• Heirs of Ignacio vs. Home Bankers Savings and Trust Company,
689 SCRA 173, G.R. 177783, January 23, 2013 (Art. 1475)
8

Heirs of Ignacio vs. Home Bankers Savings and Trust Company
(1475)
F: The case sprang from a real estate mortgage of two parcels of
land in August 1981. Fausto C. Ignacio mortgaged the properties to
Home Bankers Savings and Trust Company (Bank) as security for a
loan extended by the Bank. After Ignacio defaulted in the payment
of the loan, the property was foreclosed and subsequently sold to
the Bank in a public auction.Ignacio offered to repurchase the
property. Universal Properties Inc. (UPI), the bank’s collecting agent
sent Ignacio a letter on March 22, 1984 which contained the terms
of the repurchase. However, Ignacio annotated in the letter new
terms and conditions. He claimed that these were verbal agreements
between himself and the Bank’s collection agent, UPI.No repurchase
agreement was finalized between Ignacio and the Bank. Thereafter
the Bank sold the property to third parties. Ignacio then filed an
action for specific performance against the Bank for the
reconveyance of the properties after payment of the balance of the
purchase price. He argued that there was implied acceptance of the
counter-offer of the sale through the receipt of the terms by
representatives of UPI. The Bank denied that it gave its consent to
the counter-offer of Ignacio. It countered that it did not approve the
unilateral amendments placed by Ignacio.
H: A contract of sale is perfected only when there is consent validly
given. There is no consent when a party merely negotiates a qualified
acceptance or a counter-offer. An acceptance must reflect all
aspects of the offer to amount to a meeting of the minds between
the parties.In this case, while it is apparent that Ignacio proposed
new terms and conditions to the repurchase agreement, there was
no showing that the Bank approved the modified offer. The
negotiations between Ignacio and UPI, the collection agent, were
merely preparatory to the repurchase agreement and, therefore, was
not binding on the Bank. Ignacio could not compel the Bank to
accede to the repurchase of the property. A corporation may only
give valid acceptance of an offer of sale through its authorized
officers or agents. Specifically, a counter-offer to repurchase a
property will not bind a corporation by mere acceptance of an agent
in the absence of evidence of authority from the corporation’s board
of directors.
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.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form
of contracts. (1450a)
• Limketkai Sons Milling Inc. vs. Court of Appeals, 255 SCRA 626,
G.R. No. 118509, March 29, 1996 (Art. 1475, 1483)
Limketkai Sons Milling Inc. vs. Court of Appeals (1996)
F: Philippine Remnants was the owner of a piece of land which it
then entrusted to BPI. Pedro Revilla was authorized by BPI to sell
the lot for PHP1000/sqm. Revilla contacted Alfonso Lim who agreed
to buy the land. Alfonso Lim and Albino Limketkai went to BPI and
were entertained by VP Albano and Asst. VP Aromin. BPI set the
price at 1,100 while Limketkai haggled to 900. They subsequently
agreed on Php1,000 on cash basis. Alfonso Lim asked if it was
possible to pay on terms and BPI officials said there was no harm in
trying to ask for payment in terms but if disapproved, the price would
have to be paid in cash. Limketkai paid the initial 10% with the
remaining 90% to follow. Two or three days later, Alfonso Lim found
out that their offer had been frozen and then went to BPI to tender
NOTES ON SALES: AGNO x MANALASTAS, UP Law G2023
full payment of 33M to Albano but was refused by both Albano &
Bona.
H: 1995 decision –> Perfection of the contract took place when
Aromin and Albano, acting for BPI, agreed to sell and Alfonso Lim &
Albino Limketkai, agreed to buy the lot at Php1000/sqm. A
consensual contract is perfected upon mere meeting of the minds
and although the deed of sale had yet to be notarized, it does not
mean that no contract was perfected.
1996 decision —> Consent is manifested by the meeting of the offer
and acceptance upon the thing, and the cause which are to
constitute the contract. The offer must be certain and acceptance
absolute. Limketkai’s acceptance was qualified and therefore, was
actually a counter offer.
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.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form
of contracts. (1450a)
Article 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)
● GR: 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
● 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
9

introduction of parol evidence, or asks questions
on cross-examination, which elicits evidence
proving the existence of a perfected contract of
sale.
○ 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 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.
● 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.)
● 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
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, 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.
■ 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.
■ 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.
NOTES ON SALES: AGNO x MANALASTAS, UP Law G2023
EXCEPTIONS to Coverage of Statute of Frauds in Sales Contracts
(Takes it out of the coverage of the SoF)
● a. NOTE OR MEMORANDUM: There is a note or
memorandum in writing and subscribed/signed by the party
charged or his agent
○ Note or memorandum must embody all the
essential requisites of a sale
○ It must be signed by the party sough to be charged
and must clearly provide a sale conveying the
property
○ Yuviengco vs Dacuycuy (1981):
■ In any sale of real property on
installments, the Statute of Frauds read
together with the perfection
requirements of Article 1475 of the Civil
Code must be applied such that
payment on installments of the sale must
be in the requisite note or memorandum.
● Means manner of payment must also be included
in the note or memo
● Under the Statute of Frauds, the contents of the
note or memorandum, whether in one writing or in
separate ones merely indicative for an adequate
understanding of all the essential elements of the
entire agreement, may be said to be the contract
itself, except as to the form
● Limketkai vs CA (1995):
○ An exception to the unenforceability of
contracts pursuant to the Statute of
Frauds is the existence of a written note
or memorandum evidencing the
contract, which memorandum may be
found in several writings, not necessarily
in one document.
ii. Payment of earnest money as proof of perfection (Art. 1482)
Article 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)
• Villonco Realty Company vs. Bormaheco, Inc., 65 SCRA 352, G.R.
No. L-26872, July 25, 1975 (Arts. 1475, 1482);
Villonco Realty Company vs. Bormaheco, Inc. (1975)
F: Francisco Cervantes of Bormaheco Inc. agrees to sell to Villonco
Realty a parcel of land and its improvements located in Buendia,
Makati. Bormaheco made the terms and condition for the sale and
Villonco returned it with some modifications. The sale is for P400 per
square meter but it is only to be consummated after respondent shall
have also consummated purchase of a property in Sta. Ana, Manila.
Bormaheco won the bidding for the Sta.Ana land and subsequently
bought the property. Villonco issued a check to Bormaheco
amounting to P100,000 as earnest money. 26 days after signing the
contract of sale, Bormaheco returned the P100,000 to Villonco with
10% interest for the reason that they are not sure yet if they will
acquire the Sta.Ana property. Villonco rejected the return of the
check and demanded for specific performance.
H: The contract is already consummated when Bormaheco accepted
the offer by Villonco. The acceptance can be proven when
Bormaheco accepted the check from Villonco and then returned it
with 10% interest as stipulated in the terms made by Villonco. On
the other hand, the fact that Villonco did not object when Bormaheco
encashed the check is a proof that it accepted the offer of
10

Bormaheco. 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" (Art. 1482, Civil Code).
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.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form
of contracts. (1450a)
Article 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)
• Manila Metal Container Corporation vs. Philippine National Bank,
511 SCRA 444, G.R. No. 166862, December 20, 2006 (Art. 1482)
Manila Metal Container Corporation vs. Philippine National Bank
(2006)
F: Petitioner was the owner of 8,015 square meters of parcel of land
located in Mandaluyong City, Metro Manila. To secure a
P900,000.00 loan it had obtained from respondent Philippine
National Bank, petitioner executed a real estate mortgage over the
lot. Respondent PNB later granted petitioner a new credit
accommodation. On August 5, 1982, respondent PNB filed a petition
for extrajudicial foreclosure of the real estate mortgage and sought
to have the property sold at public auction. After due notice and
publication, the property was sold at public action where respondent
PNB was declared the winning bidder. Petitioner sent a letter to PNB,
requesting it to be granted an extension of time to
redeem/repurchase the property. Some PNB personnel informed
that as a matter of policy, the bank does not accept “partial
redemption”. Since petitioner failed to redeem the property, the
Register of Deeds cancelled TCT No. 32098 and issued a new title
in favor of PNB. Meanwhile, the Special Asset Management
Department (SAMD) had prepared a statement of account of
petitioner’s obligation. It also recommended the management of
PNB to allow petitioner to repurchase the property for
P1,574,560.oo. PNB rejected the offer and recommendation of
SAMD. It instead suggested to petitioner to purchase the property
for P2,660,000.00, in its minimum market value. Petitioner declared
that it had already agreed to SAMD’s offer to purchase for
P1,574,560.47 and deposited a P725,000.00.
H: Absent proof of the concurrence of all the essential elements of a
contract of sale, the giving of earnest money cannot establish the
existence of a perfected contract of sale →Means even if there is
earnest money but other requisites of a sale is evidently absent, a
sale cannot arise.
Article 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)
iii. Perfection of sale by auction (Art. 1476)
Article 1476. In the case of a sale by auction:
NOTES ON SALES: AGNO x MANALASTAS, UP Law G2023
(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)
• Dizon vs. Dizon, 532 SCRA 338, G.R. No. 156539, September 5,
2007 (Art. 1476);
Dizon vs. Dizon (2007)
F: Petitioner Domingo Dizon purchased from his nephew, herein
respondent Elpidio Dizon a house and lot located in Tondo, Manila.
Respondent failed to deliver the house and lot to petitioner.Co-
owner of the lot, respondent’s brother Ricardo, did not give said
respondent a written authority to sell his ½ share. Petitioner then filed
with the RTC a complaint for specific performance and sum of
money with damages against respondent. RTC rendered a decision
rescinding the contract between the parties.The trial court issued a
writ of execution implemented by sheriff Cesar Cabildo, who then
scheduled the auction sale of respondent’s properties. Petitioner’s
attorney-in-fact as well as respondent and counsel participated.
Petitioner was the highest bidder having offered P180,000.00. In the
afternoon of said auction date, the sheriff went to respondent’s
house and showed ³SupplementalMinutes on Sheriff’s Sale´ offering
a new bid at P1,690,074.41 in lieu of the earlier bid. Respondent
refused to sign contending that it would be difficult for him to redeem
the property and besides, the auction sale had already been
perfected and the subsequent sale is a new or second sale. He
moved to quash the minutes but the trial court denied the motion.
His MR was also denied.On petition for certiorari and prohibition
before the CA, it granted the petition and set aside the questioned
orders.
H: No. Article 1476 (2) of the Civil Code provides: xxx (2) A sale by
auction is perfected when theauctioneer 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.During the public auction
conducted, which began at 10:25 AM and ended at 10:45 AM, the
sheriff declared petitioner as the highest bidder. Considering that the
auction sale had already been perfected, a supplemental sale with
the higher consideration at the instance of only one party could no
longer be validly executed.CA affirmed; petition denied.
Article 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.
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 NOTES ON SALES: AGNO x MANALASTAS, UP Law G2023

auctioneer to employ or induce any person to bid

on behalf of the seller.
(2) A sale by auction is perfected when the auctioneer announces its
○ Though bidding by the seller or his agent is
perfection by the fall of the hammer, or in other customary manner.
fraudulent, a right to bid may be expressly reserved
Until such announcement is made, any bidder may retract his bid;
by or on behalf of the seller. (No. 3.) It is, therefore,
and the auctioneer may withdraw the goods from the sale unless the
the secrecy of puffing which renders it a fraud upon
auction has been announced to be without reserve.
bidding. (2 Williston, op. cit., p. 208.) Where there
is notice of the intention to bid by the seller, the
(3) A right to bid may be reserved expressly by or on behalf of the
bidding in such a case would not operate as a
seller, unless otherwise provided by law or by stipulation.
fraud.
○ A sale may be fraudulent not only because of
(4) Where notice has not been given that a sale by auction is subject
conduct of the seller, but because of conduct of
to a right to bid on behalf of the seller, it shall not be lawful for the
the buyer. It is not permissible for intending buyers
seller to bid himself or to employ or induce any person to bid at such
at auction or other competitive sales to make an
sale on his behalf or for the auctioneer, to employ or induce any
agreement for a consideration that only one of
person to bid at such sale on behalf of the seller or knowingly to take
them shall bid, in order that the property may be
any bid from the seller or any person employed by him. Any sale
knocked down at a low price.
contravening this rule may be treated as fraudulent by the buyer. (n)
○ Advertisements for bidders. — They are simply
invitations to make proposals, and the advertiser is
not bound to accept the highest or lowest bidder,
● (1) Sales of separate lots by auction are separate sales. unless the contrary appears. (Art. 1326.)
○ Where separate lots are the subject of separate
biddings and are separately knocked down, there ● Right of owner to prescribe terms of public auction.
is a separate contract in regard to each lot. As soon ○ The owner of property which is offered for sale,
as the hammer falls on the first lot, the purchaser either at public or private auction, has the right to
of that lot has a complete and separate bargain. He prescribe the manner, conditions, and terms of
need not make another. such sale.
○ When a second lot is put up and knocked down to ○ He may provide that all of the purchase price or any
the highest bidder, there is a separate complete portion thereof should be paid at the time of the
contract as to the said lot whether the bidder who sale, or that time will be given for that payment, or
secured the first lot or whether another person that any or all bids may be rejected.
happens to be the highest bidder. Such is the rule ○ The conditions of a public sale announced by an
in No. (1) though no doubt the parties may auctioneer or by the owner of the property at the
subsequently consolidate all the purchases into time and place of the sale are binding upon all
one transaction — as by giving a single note — for bidders, whether they knew of such conditions or
the aggregate price. (see 2 Williston on Sales [1948 not.
Rev. Ed.], pp. 199-200.)
● (2) Sale perfected by the fall of the hammer. • Province of Cebu vs. Heirs of Morales, 546 SCRA 315, G.R. No.
○ In putting up the goods for sale, the seller is merely 170115, February 19, 2008 (Art. 1476)
making an invitation to those present to make
offers which they do by making bids (Art. 1326.),
Province of Cebu vs. Heirs of Morales (2008)
one of which is ultimately accepted. Each bid is an
F: On September 27, 1961, petitioner Province of Cebu leased[4] in
offer and the contract is perfected only by the fall
favor of Rufina Morales a 210-square meter lot which formed part of
of the hammer or in other customary manner.
Lot No. 646-A of the Banilad Estate. Subsequently or sometime in
■ It follows that the bidder may retract his
1964, petitioner donated several parcels of land to the City of Cebu.
bid and the auctioneer may withdraw the
On July 19, 1965, the city sold Lot No. 646-A-3 as well as the other
goods from sale any time before the
donated lots at public auction in order to raise money for
hammer falls.
infrastructure projects. The highest bidder for Lot No. 646-A-3 was
● However, if the sale has been
Hever Bascon but Morales was allowed to match the highest bid
announced to be without
since she had a preferential right to the lot as actual occupant
reserve, the auctioneer cannot
thereof. Morales thus paid the required deposit and partial payment
withdraw the goods from sale
for the lot. In the meantime, petitioner filed an action for reversion of
once a bid has been made and
donation against the City of Cebu. On May 7, 1974, petitioner and
the highest bidder has a right
the City of Cebu entered into a compromise agreement. The
to enforce his bid.
agreement provided for the return of the donated lots to petitioner
● (3) Right of seller to bid in the auction.
except those that have already been utilized by the City of Cebu.
○ The seller or his agent may bid in an auction sale
Quesada, together with the other nieces of Morales namely,
provided:
respondents Nenita Villanueva and Erlinda V. Adriano, as well as
■ (a) such right was reserved;
Morales' sister, Felomina V. Panopio, filed an action for specific
■ (b) notice was given that the sale is
performance and reconveyance of property against petitioner.
subject to a right to bid on behalf of the
seller; and
H: Petitioner can no longer assail the award of the lot to Morales on
■ (c) the right to bid by the seller is not
the ground that she had no right to match the highest bid during the
prohibited by law or by stipulation.
public auction. Whether Morales, as actual occupant and/or lessee
○ Where there is no notice that the sale is subject to
of the lot, was qualified and had the right to match the highest bid is
seller’s right to bid, it shall be unlawful for the seller
a foregone matter that could have been questioned when the award
to bid either directly or indirectly or for the

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 NOTES ON SALES: AGNO x MANALASTAS, UP Law G2023

was made. When the City of Cebu awarded the lot to Morales, it is
assumed that she met all qualifications to match the highest bid. The
subject lot was auctioned in 1965 or more than four decades ago
and was never questioned. Thus, it is safe to assume, as the
appellate court did, that all requirements for a valid public auction
sale were complied with. A sale by public auction is perfected "when
the auctioneer announces its perfection by the fall of the hammer or
in other customary manner". It does not matter that Morales merely
matched the bid of the highest bidder at the said auction sale. The
contract of sale was nevertheless perfected as to Morales, since she
merely stepped into the shoes of the highest bidder.

Article 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)

iv. Expropriation (Art. 1488)

Article 1488. The expropriation of property for public use is

governed by special laws. (1456)

● The procedure for the exercise of the power of eminent

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

E. Consummation of contract – Meaning; Effect

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