Chapter 1 oGaite v Fonacier

NATURE OF SALE 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 suspensive
SALES, DEFINED condition because a greater reciprocity obtains if the buyer’s obligation is deemed
Art 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership to be actually existing, with only its due date postponed or deferred, than if such
and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. obligation were viewed as non-existing or not binding until a condition is fulfilled.
 OBLIGATIONS OF THE PARTIES (5) COMMUTATIVE (VS. ALEATORY)
o The seller binds himself to transfer ownership and deliver a determinate thing; o Sale is commutative because a thing of value is exchanged for equal value.
 Sale by itself does not transfer or affect ownership; the most that sale o There is no necessity that the price be equal to the value of the subject matter. All
does is to create the obligation to transfer ownership and delivery that is required is for the seller to believe that what was received was of the
possession. It is tradition or delivery, as a consequence of a sale, that commutative value of what he gave.
actually transfers the real right of ownership. o Gaite v Fonacier
o The buyer obligates himself to pay the price thereof in money or equivalent. Although the obligation of one party in a sale can be subject to a condition or
uncertain event, so that he assumes the risk of receiving nothing for what he gives
ESSENTIAL CHARACTERISTICS OF SALE (i.e. emptio sei, or sale of hope), it is not in the usual course of business to do so.
(1) NOMINATE AND PRINCIPAL The contingent character of the obligation must clearly appear.
o Sale is a nominate contract since it has been given a particular name by law. Its  Gaite acknowledged that obligations can be subordinated to a
nature and consequences are governed by the “Law on Sales.” suspensive condition, where a party assumes the risk of receiving
o Sale is a principal contract, as contrasted from accessory or preparatory contracts, nothing in the end, contract to the commutative nature of a sale. But this
because it can stand on its own and does not depend on another contract for its only confirms that the test for commutativeness is NOT objective, but
validity or existence. subjective.
(2) CONSENSUAL (VS. REAL CONTRACT, FORMAL CONTRACT)  As long as the party believes in all honesty that he is receiving good value
o Once there is a meeting of minds as to the price, the sale is valid, despite the manner for what he transferred, then it complies with the commutative
of its actual payment or even when there has been a breach thereof. character of a sale, and would not be deemed a donation, not an aleatory
o If the real price is not stated, then the sale is valid but subject to reformation. If the contract.
price is simulated, then the contract is void.  The subjective test of the commutative nature of sale is further bolstered
o From the moment of perfection of the sale, the parties may reciprocally demand by the principle that mere inadequacy of prices does not affect the
performance, even when they have not affixed their signatures to the written form validity of a sale. Inadequacy of price may show vice in consent, in which
of such sale, but subject to the provisions of the law governing the form of contracts. case the sale may be annulled. But such annulment is not for inadequacy
o AS COMPARED TO REAL CONTRACTS of price but rather for vitiation in consent.
The actual delivery of the subject matter or payment of the price are not necessary
components to the existence of a valid sale; their non-performance do not render a SALES AS DISTINGUISHED FROM OTHER DISPOSITION CONTRACTS
sale void. Non-performance merely becomes the legal basis for remedies under Art (1) From a contract of donation –
1911. o A sale is onerous and consensual, and cannot deprive compulsory heirs of their
o AS COMPARED TO FORMAL CONTRACTS legitime (because, in a valid sale for valuable consideration, there no diminution of
Non-compliance with formal requirements (i.e. embodiment in a public instrument estate, but merely a substitution of value. Donation is gratuitous, solemn, and can
for certain contracts) is only for convenience and only adversely affects third parties. deprive heir of their legitime to the extent of limitations set forth by law.
Non-compliance does not adversely affect the validity of the contract, nor the o When the price of a sale is simulated, the sale itself may be void, but the act may be
contractual rights and obligations of the parties thereunder. shown to have been in reality a donation or some other act. (Art. 1471)
o Since sale is a consensual contract, the party who alleges it must show its existence.  A contract may be entered into in the form of “sale” but may end up
(3) BILATERAL AND RECIPROCAL (VS. UNILATERAL) being governed by the Law on Donations if the price is simulated, and
o Sale is a bilateral contract embodying reciprocal obligations because it imposes the real intention for the subject matter to be donated to the “buyer.”
obligations on both parties to the relationship, whereby the obligation or promise  When the donor imposes upon the donee a burden, but which is less
of each party is the cause or consideration for obligation or promise of the other. than the value of the thing given, it is still a donation (Art 726). When the
o LEGAL EFFECTS OF THE BILATERAL NATURE value of the burden placed upon the donee is more than the value of the
(a) The power to rescind is implied, and such power need not be stipulated in the thing given, it becomes an onerous donation governed by Law on Sales.
contract in order for the innocent party to invoke the remedy. (2) From a contract of barter –
(b) Neither party incurs delay if the other party does not comply, or is not ready o In a contract of sale, party binds himself to deliver a thing in consideration of the
to comply in a proper manner, with what is incumbent upon him. other’s undertaking to pay the price in money or its equivalent. In a barter, party
(c) From the moment one of the parties fulfills his obligation, the default by the binds himself to give one thing in consideration of the other’s promise to give
other begins, without need of prior demand. another thing
(4) ONEROUS (VS. GRATUITOUS)  Statute of Frauds applies to the sale of real property and personal
o Sale is an onerous contract because it imposes a valuable consideration, which property bought at P500 or more.
ideally is a price certain in money or its equivalent.  Right of redemption granted by law to an adjoining owner of an urban
land is only applicable to sales
(3) From a contract of a piece-of-work
o In a contract for piece of work, the contractor binds himself to execute a piece of ESSENTIAL ELEMENT OF A SALE
work for the employer, in consideration of a certain price or compensation; the (1) Consent of the parties
contractor may either employ only his labor or skill, or also furnish the material. a. Meeting of the minds as to the object of the contract and the price thereof,
o Sales involves goods manufacture in the ordinary course of business, while piece-of manifested by an absolute acceptance of an offer that is certain.
work is made upon special order of customers. In essence, sales of the sale is the (2) Object must be –
undertaking to transfer ownership for a price, while in a piece of work is the service, a. A possible thing;
knowledge, or reputation of the person manufacturing the object. b. A licit or legal thing (within the commerce of men);
o LEGAL EFFECTS c. Determinate or at least determinable.
 Only a sale can be a subject of specific performance. A piece of work, (3) Consideration must be –
being a personal obligation, cannot be a subject of specific performance. a. Real (as compared to false and simulated);
 Only sales is covered by the Statute of Frauds. b. A sum certain in money;
 Party in a sale may only have the subject matter done by a third party, c. Certain or ascertainable;
with cost chargeable to the seller, when the subject matter is generic. In d. Includes the terms of payment
piece of work, party may have a third party remove a defect or execute
the obligation, at the contractor’s expense, when contractor fails or
refuses to remove a defect or to execute another work. (Art. 1715) Chapter 2
o Celestino Co v CIR; CIR v Engineering Equipment PARTIES OF SALE
The test of “special orders” under Art. 1467 is NOT one of timing or habit, but
actually must be drawn from the nature of the work to be performed, and the GENERAL RULE ON CAPACITY OF THE PARTIES
products to be made. Any person who has “capacity to act” (the power to do acts with legal effects) may enter into a contract
 It must be of the nature that the products are NOT ordinary products of of sale, whether as seller or as buyer.
the manufacturer (i.e. it was not possible for the manufacturer or
produced to be able to produce the product ahead of any special order SPECIAL RULES ON INCAPACITY OF CERTAIN PERSONS
given by a customer or client), and (1) Minors, insane, or demented persons
 That they require the use of extraordinary skills or equipment, if to be o Contracts entered into by these persons, who do not have legal capacity, are not
performed by a manufacturer. void but merely voidable, subject to either annulment or ratification.
Just because the ting came into existence after, and was motivated to be produced o Except where necessaries are sold and delivered to a minor or other person without
by reason of, a specific order, does not necessarily quality the underlying transaction capacity to act, he must pay a reasonable price therefore, and the resulting sale is
to be a contract for a piece-of- work. valid, not merely voidable.
o The core test in Engineering Equipment was that each product or system executed  The incapacitated person is not obliged to make any restitution, except
by it had, by its nature, to be unique and always difference from other orders it had insofar as he has been benefited by the thing or price received by him.
to service in the past, and that even if it wanted to, EEI could not stockpile or even o The action for annulment cannot be instituted by the person who is capacitated
mass-produce the products because of their very nature. since he is disqualified from alleging the incapacity of the person with whom he
(4) From an agency to sell contracts.
o One of the factors that most clearly distinguishes agency from other legal concepts, o Domingo v CA
including sale, is control: one person (agent) agrees to act under the control and The general rule is that a person is not competent to contract merely because of
direction of another (principal). advanced years or by reason of physical infirmities. However, when such age or
o Quiroga v Parsons infirmities have impaired the mental faculties as to prevent the person from
In a true agency, the agent who received a thing to sell it does not pay its price but properly, intelligently, and firmly protecting her property rights, then she is
delivers to the principal the price he obtains from the sale of the thing to a third undeniably incapacitated. In this case, the contract was declared void; however, as
person, and he does not succeed in selling it, returns it. the defect only constitutes a vice in consent, it is submitted that a more prudent
o Gonzalo Puyat & Sons v Arco Entertainment decision would have been to declare the contract merely voidable.
Being an contract of sale, any profits realized by the purported agent from discounts (2) Sales by and in between spouses
received from the American supplier pertain to it with no obligation to account for o Sales by spouses
it, much less to turn it over, to the principal.  The disposition or encumbrance of community property or conjugal
(5) From a dacion en pago property, as the case may be, shall be void, without authority of the
o Dacion en pago considerations are not in the realm of perfection of contract, bur court or the written consent of the other spouse.
rather in the stage of consummation. Dacion en pago is by definition a special mode  The transaction shall be construed as a continuing offer on the part of
of payment, whereby the debtor offers another thing to the creditor who accepts it the consenting spouse and the third person, and may be perfected upon
as equivalent of payment of an outstanding debt. the acceptance by the other spouse or authorization by the court before
(6) From a lease the offer is withdrawn by either or both offerors.
o The lessor binds himself to give to another (the lessee) the enjoyment or use of the
 Prohibition does not apply to sale in the regular or normal pursuit of his
thing for a price certain, and for a period which may be definite or indefinite. There
profession, vocation, or trade.
is no obligation to transfer ownership and deliver possession.
 o Sales in between spouses  Lawyers with respect to the property and rights which may be the object
 Spouses cannot sell property to each other. Such sales are not merely of any litigation in which they may take part by virtue of their profession.
voidable, but void. This prohibition applies to sales between common-  The prohibition applies to attorneys 1) when the property
law spouses. they are buying is the subject of litigation, and 2) while
 Except as between spouses in a complete separation of property regime. litigation is pending.
If a contingency fee
o The only persons who can question the sale, however, are:  Fabillo v IAC
arrangement is a contract for
 The heirs of either spouses who have been prejudiced service, why is it governed by This prohibition does not apply to a contingent fee based on
Art. 1491 which covers only the value of property involved in litigation because the
 Creditors prior to the sale
contracts of sale? The Law on payment of said fee is not made during the pendency of the
 The State it terms of payment of the proper taxes due on the transactions
Sales is a “catch-all” provision litigation, but only after the finality of a favorable judgment,
o Spouses themselves, since they are parties to an illegal act, cannot avail themselves engulfing within its operations and the contingent fee contract is always subject to the
of the illegality of the sale on the ground of pari delicto. The courts will generally all onerous contracts which have supervision of the courts with respect to the stipulated
leave them as they are. within their coverage the
amount and may be reduced or nullified.
transfer of ownership and
(3) SPECIFIC INCAPACITY MANDATED BY LAW
delivery of possession of a thing.  It also does not apply to:
o Article 1491 prohibits the following persons from entering into contracts of sale Although a contingency fee o A sale after the period of litigation has ended.
under the circumstances covered therein arrangement has for its main but, if the property is to be delivered after the
 An agent with respect to the property whose administration or sale may subject matter the service of the judgment but there was an agreement during the
have been entrusted to him unless with the consent of the principal lawyer, nevertheless when the
litigation, the sale would be void because the
 Brokers do not come within the coverage of the prohibition consideration for such service
allows the lawyer to obtain contract was perfected by mere consent at the
because their authority merely consists of looking for a buyer
ownership and possession of the time of litigation.
or sellers, and to bring them together, to consummate a
client’s property in litigation, the o A sale to attorneys who were not the defendant’s
transaction. Therefore, they are not prohibited to buy for Court does not hesitate to apply
themselves. attorneys in that case.
Art. 1491. Hence, services can
o A lawyer who acquired the property PRIOR to the
 Guardian or executor/administrator with respect to the property of the be considered as valuable
person who is under his guardianship consideration. time he intervened as counsel in a suit involving
 PHILTRUSTCO v Roldan such property.
The prohibition under the Civil Code prevents a guardian from o A sale to one’s attorney of property which was
purchasing either in person or through the mediation of not the subject of the litigation.
another (a “middleman”). No proof that a third-party buyer is o These relative incapacities are applicable to sales in legal redemption, compromises,
a mere intermediary of the guardian is necessary to declare and renunciations (what cannot be done directly, cannot be done indirectly).
the sale void. It is enough that the property is resold to the o Rubias v Batiller
guardian. There is a difference in the state of “nullity” between prohibited contracts entered
 it is submitted that whether or not the ward benefited is into by guardians, agents, administrator and executors, from those entered into by
irrelevant under Art. 1491, which imposes an absolute judges, judicial officers, fiscals, and lawyers. Contracts involving the first group
disqualification on the persons stated therein occupying (agents, guardians, and administrators/executors) involve a “private wrong” and
fiduciary positions. may be “ratified” by means of executing a new contract after the inhibition has
 Public officers or employees with respect to property of the State or any ceased.
subdivision thereof, or of any GOCC or institution, the administration of  Contracts involving the second group (judges, judicial officers, fiscals,
which has been entrusted to him. and lawyers) involve a “public wrong” or damage to public service and
 Justices, Judges, Prosecuting Attorneys, Clerks of Courts, and other the administration of justice. Even when the parties seek to “ratify” the
officers and employees connected with the administration of justice public wrong by executing a new contract when the inhibition no longer
with respect to the property and rights in litigation or levied upon an exists, such cannot resurrect and validate a relationship.
execution before the court within whose jurisdiction or territory they o The existence of fraud or lesion is not a factor at all in the application of Art. 1491,
exercise their respective functions. and proof that the person disqualified has paid more than an adequate
 For the prohibition to apply to judges, it is not required that consideration is no defense in an action to declare the sale void.
some contest or litigation over the property itself should have o Any person may invoke the inexistence of the contract whenever juridical effects
been tried by the said judge; such property is in litigation from found thereon are asserted against him.
the moment it became subject to the judicial action of the  If the contract has already been fulfilled, an action is necessary to declare
judge, such as levy on execution. its inexistence since nobody can take the law into his own hands and thus
 The prohibition applies only to the sale or assignment of the the intervention of the courts is necessary to declare the absolute nullity
property under litigation, which must take place during the of the contract and to decree restitution.
pendency of the litigation involving the property.  If the contract is still fully executory, no party need bring an action to
declare its nullity; but if any party should bring an action to enforce it,
the other party can simply set up the nullity as defense.
 Chapter 3 LICIT OR LEGAL THINGS
SUBJECT MATTER A thing is licit and may be the object of a contact when it is not outside the commerce of men and consists
of all rights which are not intransmissible
 When the subject matter is illicit, the resulting contract is void under Art. 1409(1) or (4). The
REQUISITES OF A VALID SUBJECT MATTER (at the time of perfection) illegality of the subject matter, even though it is determinate and existing and capable of actual
(1) It must be a possible thing (exiting, having potential existence, a future thing, or even delivery, undermines the demandability of the underlying obligation of the seller to deliver said
contingent) thing.
(2) It must be licit
(3) It must be determinate or at least determinable. DETERMINATE OR DETERMINABLE
A thing is determinate or specific when it physically segregated and particularly designated from the rest
of its class. While a thing is only determinable when at perfection of the sale, the subject matter is capable
POSSIBLE THING (v impossible things) of being made determinate (capacity to segregated test) without necessity of a new or further agreement
Whether the subject matter is of a type and nature, taking into consideration the state of technology and between the parties (no further contract test).
science at the time the sale is perfect, that it exists or could be made to exist to allow the seller reasonable  Melliza v City of IloIlo
certainty of being able to comply with his obligations under the contract. The requisite of being “determinable” is met when at perfection, the agreement between the
 Possible thing may be parties included a formula which can be used by the courts to establish the subject matter,
o Emptio rei speretae (sale of future things) without needing to get back to any one or both the parties of the object of their intention.
 Art. 1461 provides that things having a potential existence may be the o When the formula requires the court to have to go back to the parties to determine
object of the contract of sale; however, such a sale is subject to the their confirmation, then it would undermine the very enforceability and
condition that the thing will come into existence. demandability of the underlying obligation to deliver.
 A sale emptio rei speretae is strictly a contract covering o It would render the sale void under Art. 1409(6) because the original contractual
(a) future things; intention of the parties cannot be determined, running counter to the principle of
(b) subject to a suspensive condition that the subject
mutuality and obligatory force.
matter will come into existence.
 TEST OF DETERMINABILITY IS THE MEETING OF MINDS, NOT THE COVERING DEED
 If the subject matter does not come into existence, the
o Atillano v Atillano
contract is deemed extinguished as soon as the time expires
This case emphasizes the point that the true “contract of sale” is intangible or
or if it has become apparent that the event will not take place.
properly a legal concept. The deed of sale is merely an evidence of the contract.
 An emptio rei speretae covers only contracts of sale whose
When the deed fails to cover the true meeting of the minds of the parties, then the
subject matter are determinate or specific, and has no
deed must give way to the real contract of the parties.
application to determinable generic things since the
 WHEN QUANTITY OF SUBJECTS IS NOT ESSENTIAL
condition that they must come into existence is wholly
The meeting of the minds on the identity, nature, and quality of the subject matter is essential
irrelevant, for generic subject matters are never lost.
for the purpose of perfection of sale. It is what makes the subject matter determinate or at
o Emptio sei (sale of hope or chance)
least determinable.
 The only condition for a sale of hope to be a valid contract is provided by
o This is because when the nature and quantity of the subject matter is agreed upon,
the last paragraph of Art. 1461: that the sale of a vain hope or expectancy
the subject matter, although essentially generic of fungible, has complied with the
is void. This affirms the requisite of “possibility” of the subject matter as
characteristic of being determinable, since the parties know the nature of the object
contrasted from an impossible subject matter.
which will become the subject of performance, without need of further agreement.
o Sale of things subject to resolutory condition
o Such characteristic prevents the seller from delivering something not within the
 When the conditions have for the purpose the extinguishment of an
contemplation of the buyer.
obligation to give, the parties, upon the fulfillment of said conditions,
o GENERAL RULE is that the actual quantity of goods as subject matter of sale is
shall return to each what they have received/ (Art. 1190) When the
essential in the meeting of the minds, since quantity constitutes an essential
obligation imposes reciprocal prestations upon the parties, the fruits and
ingredient to achieve the requisite of the goods being determinate or determinable.
interest during the pendency of the condition shall be deemed to have
Otherwise, the contract is void.
been mutually compensated.
o EXCEPT when it is possible to determine the quantity without the need of a new
 A valid contract of sale may exist even if at the time of its perfect, the seller was not even the
contract between the parties.
owner of the thing sold
 National Grains Authority v IAC
 The proper consideration of the first requisite is NOT in terms of physical existence or non-
In this case, there was no need for NFA and Soriano to enter into a new
existence or whether the seller had or did not have ownership at the time of the perfection
contract to determine the exact number of cavans of palay to be sold.
 STATUS OF THE CONTRACT
Soriano can deliver so much as his produce as long as it does not exceed
Under Art. 1409(3) contracts are void when the “cause of object did not exist at the time of 2,640 cavans, as already provided for in the contract.
the transaction.” This provision should not be interpreted literally. It should contemplate a  This case supports the doctrine that certain generic objects may be the
subject matter that is an “impossible thing.” proper object of a contract of sale, provided that they fulfill the
characteristic of being “determinable” at the point of perfection.
  GENERIC/NON-DETERMINABLE OBJECTS Chapter 4.
Although the sale of determinable generic things is valid, the obligation to deliver the subject PRICE AND OTHER CONSIDERATIONS
matter can only be complied with when the subject matter has been made determinate, either
by physical segregation or particular designation. Before such time, even the risk of loss over REQUISITES OF A VALID PRICE
the subject matter does not arise, since by definition generic objects are never lost. (1) It must be real.
o Yu Tek Co v Gonzales (2) It must be in money or its equivalent (i.e. it must be a valuable consideration)
The Court ruled that the buyer (Yu Tek) does not assume the risk of loss of a generic (3) It must be certain or ascertainable.
subject matter under a valid sale until the object is made determinate, either by (4) Manner of payment must be agreed upon (jurisprudence)
physical segregation or particular designation.
o Art. 1246 provides that when the obligation consists in the delivery of an PRICE, DEFINED
indeterminate or generic thing, whose quality and circumstances have not been The ideal consideration for a contract of sale would be “price” as a sum certain in money or its equivalent.
stated, the buyer cannot demand a thing of superior quality. Neither can the seller  However, it is possible that a “sale” may still be valid when it has for its cause or consideration
deliver a thing of inferior quality. Here, the courts have the power to set the an item other than price. Consideration can take different forms, such as the prestation or
appropriate quality. When it is the “kind” or “quantity” that cannot be determined promise of a thing or service by another.
without need of a new agreement of the parties, the contract is void.  This is in line with the doctrine of Polytechnic University vs. CA, that the concept of “contract
of sale” is in effect a catch all provision that effectively brings within its grasp a whole gamut
MISCELLANEOUS PROVISIONS of transfers whereby the ownership of a thing is ceded for a consideration.
 SALE OF UNDIVIDED INTEREST:  The existence of the obligation to pay the price does not play a critical role in defining a sale,
Article 1463 provides that the sole owner of the thing may sell an undivided interest therein, provided that a valuable consideration is present, because the “obligation to transfer
and there would result co-ownership over the subject matter. ownership and deliver possession” of the subject matter is the more defining element of sale.
 SALE OF UNDIVIDED SHARE IN MASS:
in the sale of fungible goods, there may be a sale of an undivided share of a specific mass, PRICE MUST BE REAL (as distinguished from simulated and false)
though the seller purports to sell and the buyer purports to buy a definite number, weight, or The price is real when at the perfection of the sale, there is legal intention on the part of the buyer to pay
measure of the goods in the mass, and though the number, weight, or measure of the goods the price, and legal expectation on the part of the seller to receive such price as the value of the subject
in the mass is undetermined. By such a sale, the buyer becomes the co-owner to such share matter he obligates himself to deliver.
of the mass as the number, weight, or measure bought bears to the number, weight, or
measure of the mass. It is simulated when the price is simulated because neither party to the sale had any intention whatsoever
that the amount will be paid, the sale is void for lack of consideration. However, the act may be shown to
 SALE OF MORTGAGED PROPERTY:
have been in reality a donation, or some other contract.
A prior mortgage of the property does not prevent the mortgagor from selling the property,
 The whole issue therefore boils down to contractual intent: in absolute simulation, there is a
since the mortgage is merely an encumbrance on the property and does not extinguish the
colorable contract but without substance because there was no intent by the parties at the
title of the debtor. He does not lost his principal attribute as owner to dispose the property
time of perfection to pay and to receive the price stipulated.
merely because of the mortgage. (Note: forbidding an owner of the property from alienating
 The principle of pari delicto applies to cases where the nullity arises from the illegality of the
the mortgaged immovable is a void stipulation under the law)
consideration or the purpose of the contract. Pari delicto does not apply to void contracts
where the price is merely simulated. Therefore, parties to an absolutely simulated contract may
SELLER’S OBLIGATION TO TRANSFER OWNERSHIP REQUIRED AT TIME OF DELIVERY
recover from each other what they may have given under the “contract.”
 GENERAL RULE: A seller need not be the owner of the thing sold at the time of perfection.
Ownership by the seller on the thing sold is not an element for the perfection of contract of
The price is false when there is a real price upon which the minds of the parties had met, but not declared,
sale. It is sufficient that he is the owner at the time of delivery; otherwise, he may be held liable
and what is stated in the covering deed is not the one intended to be paid. Here, the contract is valid but
for breach of warranty against eviction.
subject to reformation to indicate the real price.
 EXCEPTION: judicial sale (i.e., foreclosure sale, where the forced seller becomes obliged to
 Unlike in an absolutely simulated contract, the parties in a relatively simulated contract
transfer the ownership of the thing sold to the highest bidder who, in turn, is obliged to pay
intended to be bound by the contract, except that it did not reflect the actual purchase price
the bid price in money or its equivalent.)
of the property.
 Nool v CA
o GENEREAL RULE: The parties are bound to their real agreement.
If the seller is not the owner of the subject matter at the time of perfection AND delivery, the
o EXCEPTION: The parties may be bound by the false price under the principle of
situation contemplates an impossible service which prevents the seller from complying with
estoppel, especially when the interest of the Government or third parties would be
his obligation to deliver and transfer ownership, thus rendering the contract of sale void.
adversely affected by the reformation of the instrument.
However, it is submitted that the comparison to impossible service is misplaced because the
obligations created under a sale are real obligations to give and not personal obligations to do.
STATUS OF THE CONTRACT
If the minds of the parties never meet as to the price, because the price stipulated is known by both parties
SUBSEQUENT ACQUISITION OF TITLE BY SELLER
as simulated, the contract is void.
Article 1434 provides that when at the time of perfection, the seller sells a subject matter over which he
 Rongavilla v CA: The situation covered constituted more than just fraud and vitiation of consent
is not the owner, the subsequent acquisition of title by a seller validates the sale and title passes to the
as there was no intent to enter into a contract of sale at all. Hence, it is void for lack of consent.
buyer by operation of law, provided that there has been previous delivery of the subject matter by the
seller to the buyer.
If the minds of the parties have met as to the price, the contract of sale is valid, irrespective of the manner o SUBJECT MATTER FIXED BY THIRD PARTY
of payment they agreed upon, or the breach of that manner of payment agreed upon. The designation of a third party to choose a subject matter will not give rise to a
 EFFECT ON NON-PAYMENT OF THE PRICE valid and binding sale, and would in fact authorize any of the parties to withdraw
The failure to pay the price is different from lack of consideration. Failure to pay price does not from the arrangement.
cancel a sale for lack of consideration, for there is still consideration.  The difference in rules between subject matter and price on designation
 EFFECT OF SIMULATION ON DELIVERY of third party springs from the essence of the obligations they pertain to.
When a contract of sale is fictitious, and therefore void for lack of consideration, no title over
 The obligation to pay the price is essentially a fungible
the subject matter of the sale can be conveyed. Delivery of the subject matter made pursuant
to a sale that is void for lack of consideration therefore does not transfer title. obligation and any money can be used to pay the price. The
price is generic, and cannot be extinguished by fortuitous
PRICE MUST BE IN MONEY OR ITS EQUIVALENTS (valuable v nominal considerations) event. Therefore, the designation of a third party to set the
Article 1458 recognizes that if the consideration of the contract consists partly in money and partly in price is allowed.
another thing, the transaction can still be considered a contract of sale when this is the manifest intention  The obligation to deliver the subject matter and the title
of the parties. thereto can only be complied with when the thing is either
 Payment need not be in money physically segregated or particularly designated. It is not a
 Note that what is considered in this element is the payment of the price in money or some generic obligation, but rather a species obligation. Therefore,
other consideration at the stage of perfection. If payment of price is made in some other its designation cannot be left to the will of a third party who
consideration (i.e. as a substitute for a money debt) at the stage of consummation, it might may choose a subject matter beyond the capacity of the seller
involve a case of dacion en pago). to comply with his obligations to deliver the same.
The requisite that price must be in money or its equivalent is one that has not been held by the Supreme  EFFECT OF UNASCERTAINABILITY
Court as determinative of the validity of the sale. This shows that the essence of sale is the existence of Where the price cannot be determined in accordance with any of the preceding rules, the
the obligation of the seller to transfer ownership and delivery possession of the subject matter, whereas contract of sale is inefficacious. Note that the law does not use the term void because the
price, although an essential element of a valid contract, is essentially a generic obligation, which may be existence of the formula at the point of perfect has actually rendered a contract valid albeit
subject to variations. conditional. A contract cannot be rendered void by what happens after perfection.

MUST BE CERTAIN OR ASCERTAINABLE MANNER OF PAYMENT MUST BE AGREED UPON

Although the Civil Code does not explicitly require that a meeting of the minds of the parties must include
Price is certain when it has been expressed and agreed in terms of pesos and/or centavos.
the terms or manner of payment of the price, the same is deemed to be an essential ingredient before a
It is ascertainable when –
valid and binding contract of sale can be said to exist, without which there can be no valid sale. Manner of
(1) it is with reference to another thing; or payment of price goes into the essence of what makes price certain or ascertainable.
o The price of a thing is certain at the point of perfection by reference to another  As a rule, manner of payment can be agreed upon expressly or impliedly.
thing, provided said amount is certain. o By default, in the absence of any stipulation or agreement indicating that a different
(2) that the determination of the price is left to a third person. term of payment is intended and for which a meeting of the minds must be
o PRICE FIXED BY A THIRD PARTY (as compares subject matter fixed by third party) achieved, the price is deemed to be, by operation of law, demandable immediately.
The designation of a third party to fix the price is valid, and such designation itself o If the parties intended to have a mode of payment other than immediate payment,
makes the price ascertainable as to give rise to a valid contract of sale. then the manner of payment must be expressly agreed upon.
 The fixing of the price cannot be validly left to the discretion of one of The terms of payment, being an integral part of the price, would have the same requisites that the law
the contracting parties, in line with the principles of mutuality and imposes on price to support a valid contract of sale: certain or ascertainable. So if the terms of payment
obligatory force. are provided for in a formula or process that does not require further agreement, then the terms of
 Even before the fixing of the price by the designated third party, a payment are deemed to have been agreed upon and the contract is valid, albeit subject to the same
condition affixed to the price.
contract of sale is deemed perfected and existing, albeit conditional.
o If the third party is unwilling or unable to fix the price, the parties do not have a
WHERE THERE IS A SALE EVEN IF NO PRICE WAS AGREED UPON
cause of action because what happened is that the condition imposed on the GENERAL RULE: Where the price cannot be determined according to the preceding rules, or in any other
contract has not happened. The non-happening of the event extinguished the manner, the contract is inefficacious. (Art. 1474)
contract. Consequently, there is no longer any contract upon which the courts have EXCEPTION: There is a valid sale, even when there has been no meeting of the minds as to the price when
any jurisdiction to fix the price. In such a case, the law declares the contract of sale the thing or any part thereof has been delivered to and appropriated by the buyer, who must pay a
as inefficacious, not void. reasonable price therefore. (Art. 1474) In this case, the courts have the power to fix the reasonable price.
o INSTANCES WHEN THE COURT CAN FIX A PRICE  REQUISITES FOR THE APPLICATION OF 1474
 Third party fixes the price in bad faith; fixes the price by mistake; or when (1) There was a meeting of the minds as to the subject matter.
subbject matter has been delivered and appropriated by the buyer (2) There was an agreement that price would be paid which fails to meet the criteria of being
o When the third party is prevented from fixing the price by fault of either the seller certain or ascertainable.
or the buyer, the condition can be deemed fulfilled by the other party. In this case, (3) There was delivery by the seller and appropriation by the buyer of the subject matter of
the sale.
the innocent party can demand from the courts for the fixing of a reasonable price.
RULES ON RECEIPT AND OTHER DOCUMENTS EMBODYING PRICE Chapter 5.
Sales invoices are not evidence of payment since they are only evidence of the receipt of goods. The best FORMATION OF A CONTRACT OF SALE:
evidence to prove payment of the price is the official receipt issued by the seller. POLICITACION STAGE

INADEQUACY OF THE PRICE

Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the
STAGES IN THE LIFE OF A SALE
consent or that the parties really intended a donation or some other act or contract. (Art. 1470)
1. Policitacion (negotiation) - covers the period from the time the prospective
 Mere inadequacy of price will not invalidate a contract, unless
contracting parties indicate their interests in the contract to the time the
o EXCEPTIONS
contract is perfected
(a) fraud, mistake, or undue influence indicative of a defect in consent is present.
a. Advertisements
(b) Rescissible contracts under Art. 1381
b. Offer and acceptance
a. Those entered into by guardians whenever the ward whom they
c. Option contract
represent suffer lesion of more than ¼ of the value of the object of d. Right of first refusal
the sale e. Mutual promise to buy and sell
b. Those agreed upon in representation of absentees, if the latter
2. Perfection - takes place upon the concurrence of the essential elements of the
should suffer lesion of more than ¼ of the value of the object of the sale (meeting of the minds as to subject matter and price)
sale 3. Consummation - begins when the parties perform their respective undertaking,
(c) Judicial sale of real property (because the contract of sale is not the result of culminating in theextinguishment of the contract
negotiations and bargaining)
 HOWEVER, IT MUST BE PROVEN THAT
1. The inadequacy must be such as to be shocking to the POLICITACION STAGE
conscience of man. Deals with legal matters arising prior to the perfection of the sale. Normally, negotiation is formally
2. There must be showing that in the event of a resale, a initiated by an offer which must be certain; an unaccepted unilateral promise to buy or sell, prior to
better price can be obtaining. acceptance, does not give rise to any obligation or right and creates no privity between the offeror and
o EXCEPTION TO THE EXCEPTION offerees.
When there is a right to redemption, the judicial sale will not be set aside by the
court (easier for the owner to redeem the property) CREATURES OF POLICITACION STAGE
The policitacion stage is populated with legal creatures which are not contracts of sale per se, but each of
 Although a sale is an onerous and commutative contract, there is no requirement that the price
them has, as the main object of their existence, a realization, a valid and binding sale.
given should be exactly the value of the subject matter delivered (otherwise, this would leave
no room for bargaining and discount).
(1) ADVERTISMENT AND INVITATION
o The characteristic that the contract of sale is onerous is met whenever the o GENERAL RULE: Advertisements are less than offers, and constitute merely
consideration is “valuable consideration.” invitations to make an offer, or mere proposals. The acceptance of such
o The test for commutativeness is met when parties believe honestly that they advertisements therefore do not give rise to a valid and binding sale. Acceptance of
received good value for what they have given up in exchange. an invitation to sell constitutes an offer from the acceptor to the offeror.
 AS DISTINGUISHED BY SIMULATED PRICE o EXCEPTION: Then the advertisement specifies a subject matter that has all three
Gross inadequacy will not result in a void contract, and is does not even affect the validity of a elements, and a price that has all four elements, then it constitutes an offer. In this
contract of sale, unless it signifies a defect in consent or that the parties actually intended a case, the acceptance by the acceptor would result to a valid sale because what was
donation or some other contract. When the price is simulated because both parties to the sale accepted was a valid offer, not an invitation to offer.
had no intention that the amount will be paid, the sale is void for lack of consideration. (2) OFFERS
 SALE WITH RIGHT TO REPURCHASE An offer, prior to its acceptance, is subject to the complete will of the offeror. If the offer is
given for a period, the expiration of the period without further act or its withdrawal prior to
In a conventional sale with a right to repurchase feature, the gross inadequacy of price raises a
acceptance would destroy the offer.
presumption of equitable mortgage.
o RIGHT TO SET CONDITIONS
o The proper remedy of the alleged seller, who is actually an equitable mortgagor, is  The offeror has the right to attach to an offer any term or condition he
not to rescind the contract, but to have it reformed or declared a mortgage desires, and may fix the time, place, and manner of acceptance.
contract, and to pay off the indebtedness secured.  The offeree has no authority to treat it as consisting of separate and
o The proper remedy of the alleged buyer would not be to appropriate the subject distinct parts, since he must accept and comply with all the requirements
matter as buyer for that would be pactum commissorium, but to foreclose on the provided in the offer.
equitable mortgage. o COUNTER-OFFER
 The offeree has a choice to indicate further negotiations by making a
WHEN MOTIVE NULLIFIES THE SALE counter-offer, which would then replace and repeal the original offer. A
Generally, unlawful motive will not nullify a sale unless in cases when the illegal motive predetermines the counter-offer is always considered in law a rejection of the original offer,
cause of the contract, the contract is void. and has the effect of extinguishing the original offer.
 (3) OPTION CONTRACT PROPER EXERCISE OF OPTION
Art 1479. An accepted unilateral promise to buy or to sell a determinate thing for a price o NO ACTUAL PAYMENT NEEDED
certain is binding upon the promissor if the promise is supported by a consideration distinct Notice of the exercise of the option need not be coupled with actual payment of the
from price. price, so long as this is delivered to the owner of the property upon performance of
his part of the agreement (Nietes v. CA)
Art 1324. When the offeror has allowed the offeree a certain period to accept, the offer o SUBSTANTIAL COMPLIANCE
may be withdrawn at any time before the acceptance by communicating such withdrawal, Essentially, Carceller recognized that notice within the option period of clear
except when the option is founded upon a consideration, as something paid or promised. intention to purchase the property pursuant to such option, with request for leeway
to raise funds, is a valid or at least substantial exercise of the option. The
OPTION CONTRACT, DEFINED acceptance or exercise of the option must still be made within the option period
An option contract is a privilege existing in one person, for which he had paid a consideration to give rise to a valid and binding sale, and it is only then that the principle of
and which gives him the right to buy certain merchandise or certain specified property, if he substantial compliance would have relevance (Carceller v CA)
chooses, at any time within the agreed period at a fixed price.
EFFECT OF EXERCISE OF OPTION
OBLIGATIONS OF THE OFFEROR o RECIPROCAL OBLIGATIONS
o Personal obligation not to offer to any third party the sale of the object of the The obligation under an option contract are reciprocal obligations. The performance
option during the option period of one obligation is conditional on the simultaneous fulfillment of the other
o Personal obligation not to withdraw the offer or option during the option period obligation. When optionee opts to buy the property, his obligation is to advice the
o Obligation to hold the subject matter for sale to the offeree in the event that optioner of his decision and readiness to pay the price.
 Optionee is not yet obliged to make actual payment. Only upon
offeree exercises his option during the option period.
optioner’s actual execution and delivery of the deed of sale is the
optionee required to pay.
ELEMENTS OF A VALID OPTION CONTACT
 When the option is properly exercised, then there is already a sale
(a) Consent, or meeting of the mind;
contract existing, and the laws applicable to sales shall then apply.
(b) Object, which is the right of option to an unaccepted unilateral offer to sell/accepted
o TENDER AND CONSIGNATION
promise to sell, or unaccepted unilateral promise to buy/accepted promise to buy:
Tender of payment and consignation are irrelevant in the exercise of the option.
a. A determinate or determinable object
Tender of payment and consignation are in the realm of extinguishment of
b. For a price certain, including the manner of payment thereof obligations, not exercise of a right.
(c) A consideration separate and distinct from the purchase price for the option given. o RESCISSION
 Unlike in a sale where the price refers to money or its equivalent  In Ang Yu v Asuncion: The separate consideration does not guarantee
(valuable consideration), the consideration in an option contract may be that the optionee has the absolute right to exercise the option any time
anything or undertaking of value. What is controlling is the separateness during the option period: an acceptance within the option period after
of such consideration from the purchase price agreed upon. the optioner shall have unlawfully withdrawn the offer would not give
 The optionee is obliged to pay a separate consideration for the option rise to a sale. Specific performance is therefore not an available remedy
right, but his exercise of the option does not necessarily depend upon  In Carceller¸ the exercise of option may also be a subject of specific
his ability to pay the separate consideration. According to Art 1324, performance. But as per CLV, this is wrong because option contract is an
separate consideration of an option is “something paid or promised” obligation to do which cannot be a subject of specific performance.
 There can be a valid option contract even when no separate
SUMMARY OF RULES IN OPTION CONTRACT (Ang Yu v Asuncion)
consideration is paid, as when the option is included within another
(a) If the period itself is not supported by a separate consideration, the offeror is
contract such as a lease or mortgage, provided that it was not part of still free and has the right to withdraw the offer before its acceptance, or if
the price to be paid for the other parcel of land (Villamor v CA). acceptance has been made, before the offeror’s coming to know of such fact,
 Sanchez v Rigos1 by communicating that withdrawal to the offeree.
An option contract without a consideration separate from the purchase  Nevertheless, the right to withdraw cannot be exercised
price is void as a contract, but valid as an offer, so that if the option is whimsically or arbitrarily; otherwise it could give rise to a
exercised (a) prior to its withdrawal, or (b) prior to expiration of the damage claim under Art. 19 of the Civil Code.
option period, that is equivalent to an offer being accepted, giving rise (b) If the period has a separate consideration, an option contract is deemed
to a valid and binding sale. The burden of proof to show that the option perfected, and it would be a breach of that contract to withdraw the offer
contract was supported by a separate consideration is with the party during the agreed period.2
seeking to show it.

1 2 The option is an independent contract by itself. If, in fact, the optioner withdraws the offer before its
The Sanchez doctrine can only apply if the option has been accepted AND such acceptance has been
communicated to the offeror. Not even the annotation of the option contract on the title to the property acceptance, the optionee may not sue for specific performance on the propose contract since it failed to
can be considered a proper acceptance of the option. (Vasquez v. CA) reach its own stage of perfection
(4) RIGHT OF FIRST REFUSAL
It is a promise on the part of the owner that if he decides to sell the property in the future, he
would first negotiate (i.e. no certain offer yet) its sale to the promise. This is subject to a
suspensive condition that the seller would sale the property.
o AS DISTINGUISHED FROM AN OPTION CONTRACT (Ang Yv v CA)
 A right of first refusal cannot be deemed a perfected sale nor an option
contract because it merely pertains to a specific property without
containing an agreement as to the price or the terms of payment in case
of exercise of the right of first refusal.
 The right of first refusal, even if supported by separate consideration,
cannot be subject to the issuance of a write of execution, nor would it
sanction an action for specific performance. At most, it would authorize
the grantee to sue for recovery of damages under Art. 19 of the Civil
Code on abuse of right.
 EQUITORIAL REALTY v MAYFAIR
The Court also held that there need not be a separate
consideration to enforce a right of first refusal since such
stipulation is part and parcel of the entire contract of lease to
which it may be attached to; the consideration of the lease
includes the consideration for the right of first refusal.

STATUS OF CONTRACTS ENTERED INTO IN VIOLATION OF RIGHT OF FIRST REFUSAL

A sale entered into in violation of a right of first refusal of another person found in a valid
principal contract is rescissible. The basis of the right of first refusal must be the current offer
of the seller to sell or the offer to purchase of a prospective buyer. Only after the lessee-grantee
fails to exercise his rights under the same terms and conditions within the period contemplated
can the owner validly offer to sell the property to a third person, again under the same terms
as offered to the grantee.

RULES ON EXERCISING RIGHT OF FIRST REFUSAL

o When the right of first refusal is not stipulated in the lease contract, it cannot be
exercised, and verbal grants of such right cannot be enforceable since the right of
first refusal must be clearly embodied in a written contract.
o Right does not extend with the extension of the lease. The right to exercise the
option to purchase expired with the termination of the original contract of lease.
 A provision entitling the lessee the option to purchase the leased
premises is not deemed incorporated in the impliedly renewed contract
because it is alien to the possession of the lessee.

(5) MUTUAL PROMISE TO BUY AND SELL (or Contract to Sell)

The promise to sell a determinate thing coupled with a correlative promise to buy at a specified
price is binding as an executory agreement.
o However, the certainty of the price must also exist. Otherwise, there is no valid and
enforceable contract to sell.
o Such contracts are really within the policitacion stage for they do not represent a
species of sale defined under Art. 1458.
o Upon payment of the purchase price, ownership will not automatically transfer to
the buyer although the property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective buyer.
o PERSONAL OBLIGATION
The main obligation is a personal obligation “to do”: to enter into a contract of sale
upon full compliance with the condition of the buyer fully paying the purchase price.
o May be a subject of an action for specific performance, as it is an executory contract
which gives rights to demand fulfillment of the contract.