What is a condition? – it is an uncertain event which wields an influence on a legal relation.

It is
every future and uncertain event upon which an obligation or provision is made to depend.
What is a term? A term or period consist of a space of time which, having an influence on
obligations as a result of a juridical act, and either suspends their demandability or produces their
extinguishment. It may also refer to a future event, the happening of which is certain.
Distinguish condition and term. Uncertain vs certain.

Aside to Art. 1327, take note of Art. 1328, and Art 34 of RPC.

Article 1327. The following cannot give consent to a contract:

(1) Unemancipated minors;

(2) Insane or demented persons, and deaf-mutes who do not know how to write. (1263a)

Article 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a
state of drunkenness or during a hypnotic spell are voidable. (n)

Article 34. Civil interdiction. - Civil interdiction shall deprive the offender during the time of his
sentence of the rights of parental authority, or guardianship, either as to the person or property of
any ward, of marital authority, of the right to manage his property and of the right to dispose of
such property by any act or any conveyance inter vivos

Vices of Consent
Mistake
Article 1331. In order that mistake may invalidate consent, it should refer to the substance of the
thing which is the object of the contract, or to those conditions which have principally moved
one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent only when
such identity or qualifications have been the principal cause of the contract.
A simple mistake of account shall give rise to its correction
Fraud
Article 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he would
not have agreed to. (1269)
Violence (Pananakit)
Intimidation (Pananakot)
It must be unlawful – kung tatakutin ka na kakasuhan ka ,hindi yon intimidation

Article 1335. There is violence when in order to wrest consent, serious or irresistible force is
employed.

There is intimidation when one of the contracting parties is compelled by a reasonable and well-
grounded fear of an imminent and grave evil upon his person or property, or upon the person or
property of his spouse, descendants or ascendants, to give his consent.

To determine the degree of intimidation, the age, sex and condition of the person shall be borne
in mind.

A threat to enforce one's claim through competent authority, if the claim is just or legal, does not
vitiate consent. (1267a)

Article 1336. Violence or intimidation shall annul the obligation, although it may have been
employed by a third person who did not take part in the contract. (1268)

Undue influence
Article 1337. There is undue influence when a person takes improper advantage of his power
over the will of another, depriving the latter of a reasonable freedom of choice. The following
circumstances shall be considered: the confidential, family, spiritual and other relations between
the parties, or the fact that the person alleged to have been unduly influenced was suffering from
mental weakness, or was ignorant or in financial distress. (n)

See Art. 1381.

Rescissible –

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;

(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)

Voidable – Article 1390. The following contracts are voidable or annullable, even though there
may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or
fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are
susceptible of ratification. (n)

Unenforceable - It is because contract is entered in without or in excess or authority, or does not

comply with Statute of Fraud (Art. 1403), or both of the contracting parties does not possess the
required legal capacity.

Article 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers;

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum, thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received
without the writing, or a secondary evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from the
making thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual promise

to marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price not
less than five hundred pesos, unless the buyer accept and receive part of such
goods and chattels, or the evidences, or some of them, of such things in action or
pay at the time some part of the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales book, at the time of the
sale, of the amount and kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it is a sufficient
memorandum;
 (e) An agreement for the leasing for a longer period than one year, or for the sale
of real property or of an interest therein;

( f ) A representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a contract.

Article 1404. Unauthorized contracts are governed by article 1317 and the principles of agency
in Title X of this Book.

Article 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are
ratified by the failure to object to the presentation of oral evidence to prove the same, or by the
acceptance of benefit under them.

Void contract - Article 1390. The following contracts are voidable or annullable, even though
there may have been no damage to the contracting parties:

(1) Those where one of the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court. They
are susceptible of ratification. (n)

Law ON SALES

Consensual

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)

Bilaterial
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.

Each party is simultaneously a debtor and creditor of the other.

Sale is an onerous contract, as distinguished from a gratuitous contract, because it imposes a

valuable consideration as a prestation, which ideally is a price certain in money or its equivalent
Sale is a commutative contract, as distinguished from an aleatory contract, because a thing of
value is exchanged for equal value, i.e., ideally the value of the subject matter is equivalent to the
price paid. Nevertheless, there is no requirement that the price be equal to the exact value of the
subject matter; all that is required is for the seller to believe that what was received was of the
commutative value of what he gave
The thing sold is considered the equivalent of the price paid and the price paid is the equivalent
of the thing sold. (De Leon, 2014)
Sale is a principal contract, as contrasted from accessory or preparatory contracts, because it can
stand on its own, and does not depend on another contract for its validity or existence; more
importantly, that parties enter into sale to achieve within its essence the objectives of the
transaction, and simply not in preparation for another contract

A sale is absolute when no condition is imposed and ownership passes to the vendee upon
delivery of the thing subject of the sale. (Art. 1497, NCC)
A contract of sale is absolute when the title to the property passes to the vendee upon delivery of
the thing sold. (Rabuya, 2017)
When the sale is subject to any condition imposed on the passing of title of the thing to be
conveyed or on the obligation of a party thereto
 A. Sale vs contract to sell
SALE CONTRACT TO SELL
The title to the property passes to the Ownership is, by agreement, reserved to vendor and
vendee upon the delivery of thing sold is not to pass to the vendee until payment of the
NOTE: Vendor has lost and cannot purchase price
recover ownership until and unless the NOTE: Prior to full payment, ownership is retained
contract is resolved or rescinded by the seller
Full payment of the purchase price is a positive
Non-payment of the price is a negative suspensive condition, i.e., title remains in the
resolutory condition, i.e., the vendor vendor if the vendee does not comply with
loses ownership of the payment condition precedent of making payment at the time
property and cannot recover it until and specified in the contract. In other words, failure to
unless the contract of sales is resolved pay the price is not a breach but an event that
or rescinded. prevents the obligation of the vendor to convey title
from becoming effective
The risk of loss is on the buyer The risk of loss is on the seller
There is only one contract executed There two contracts:
between the seller and the buyer 1.The contract to sell NOTE: Preparatory sale
2. The deed of absolute sale NOTE: The principal
contract is executed after full payment of the
purchase price

Sale vs. Donation

SALE DONATION
Onerous Gratuitous/onerous
Consensual Formal contract
Law on Sales Law on Donation

Sale vs. Barter

SALE BARTER
Cause or consideration is in money Cause or consideration is another thing

Rules in determining whether a contract is a sale or barter:

Priority 1: The contract shall be one of sale or barter depending upon the manifest intention.
Priority 2: If the intention of the parties does not clearly appear:
a. The contract is one of barter if the value of the thing given is part of the consideration
exceeds the monetary consideration
b. The contract is one of sale if the monetary consideration is more than or equal to the
value of the thing given as part of the consideration. (Art. 1468)
 Sale vs. Agency to sell
SALE AGENCY TO SELL
Title to the goods is transferred to the Title to the goods is not transferred to the agent
buyer upon delivery of the thing sold upon delivery
The buyer is required to pay the price The agent is required to turn over to the principal
the price of the goods which he received from the
buyer

Sale vs. Dacion en pago

SALE DACION EN PAGO
There is no pre-existing credit There is a pre-existing credit
Creates obligations Extinguishes obligations
The cause or consideration is the The cause or consideration is the extinguishment of
price from the seller's point of view; the obligation, from the debtor's point of view; and the
and the delivery of object from the delivery of the object given in place of the credit from
buyer's point of view the creditor's point of view
There is greater freedom in fixing the There is less freedom in fixing the price because of the
price amount of the pre-existing credit which the parties
seek to extinguish

Sale vs. Lease

SALE LEASE
Obligation to absolutely transfer ownership of thing
Use of thing is for specified period only
with obligation to return
Consideration is the price Extinguishes obligations
Seller needs to be owner of thing to transfer Lessor need not be owner
ownership.
NOTE: Lease with option to buy - really a contract
of sale but designated as lease in name

Sale vs contract for a piece of work – Art 1467

SALE CONTRACT FOR PIECE OF WORK
A contract for the delivery at a certain price of an The goods are to be manufactured
article which the vendor in the ordinary course of specially for the customer and upon his
business manufactures or procures for the general special order and not for the general
market, whether the same is on hand or not market
Contracts shall be obligatory, in whatever form they have been entered into, provided all the
essential requisites for their validity are present. (Art. 1356, NCC)

XPNs:
1. If the law requires a document or other special form, the contracting parties may compel each
other to observe that form. (Art. 1357, NCC)

2. Under Statute of Frauds, the following contracts must be in writing; otherwise, they shall be
unenforceable: a. Sale of personal property at a price not less than P500;
b. Sale of a real property or an interest therein;
c. Sale of property not to be performed within a year from the date thereof; or
d. When an applicable statute requires that the contract of sale be in a certain form. (Art. 1403
(2), NCC)

3. Sale of large cattle which requires that the same be recorded with the city/municipal treasurer
and that a certificate of transfer be issued. Otherwise, the sale is not valid. (Art. 1851, NCC)

Instances where the Statute of Frauds is NOT Essential for the Enforceability of a Contract
of Sale
1. When there is a note or memorandum in writing and subscribed to by the party or his agent
(contains essential terms of the contract) (Art. 1403, NCC);

2. When there has been partial performance/execution (seller delivers with the intent to transfer
title/receives price) (Art. 1405, NCC);

3. When there has been failure to object to presentation of evidence aliunde as to the existence of
a contract without being in writing and which is covered by the Statute of Frauds (Art. 1405,
NCC); or

4. When sales are effected through electronic commerce. (Villanueva, 2014; Sec. 12, R.A. No.
8792 [Electronic Commerce Act of 2000])

STAGES OF FORMATION OF CONTRACT OF SALE

1. Negotiation/Preparatory offer
2. Perfection
3. Consummation

Negotiation - occurs upon the communication of the offer to buy/sell to the other party. Prior to
acceptance of the offer, no contract of sale is perfected.

Perfection
You have learned that a contract of sale is a consensual contract, meaning it is perfected at the
moment there is meeting of the 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.

The acceptance of the offer must be absolute. It must be plain, unequivocal, unconditional and
without variance of any sort from the proposal.(Rabuya, 2017)

Effect of a qualified acceptance

It constitutes merely a counteroffer which must in turn be accepted to give rise to a valid and
binding contract (Villanueva, 2009)

Consummation
Consummation stage in a contract of sale takes place by the delivery of the thing together with
the payment of the price.

In a contract of sale, consent is present when there is a meeting of minds to transfer ownership in
exchange of the price, the object or the subject matter is the determinate thing to be delivered,
and the cause or consideration is the price certain in money or its equivalent.

OBJECT

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

There may be a contract of sale of goods, whose acquisition by the seller depends upon a
contingency which may or may not happen. (n)

Article 1461. Things having a potential existence may be the object of the contract of sale.

The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the
thing will come into existence.

The sale of a vain hope or expectancy is void. (n)

Article 1459. The thing must be licit and the vendor must have a right to transfer the ownership
thereof at the time it is delivered. (n)
Article 1347. All things which are not outside the commerce of men, including future things,
may be the object of a contract. All rights which are not intransmissible may also be the object of
contracts.

No contract may be entered into upon future inheritance except in cases expressly authorized
by law.

All services which are not contrary to law, morals, good customs, public order or public policy
may likewise be the object of a contract. (1271a)

Article 1348. Impossible things or services cannot be the object of contracts. (1272)

Article 1460. A thing is determinate when it is particularly designated or physical segregated

from all others of the same class.

The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the
thing is capable of being made determinate without the necessity of a new or further agreement
between the parties. (n)

Distinction between sale of an expected thing(emptio rei speratae) and the sale of the hope
itself(emptio spei)

Emptio rei speratae Emptio Spei

Sale of thing having potential existence Sale of mere hope or expectancy
Uncertainty is w/ regard to quantity & quality Uncertainty is W/ regard to existence of thing
Contract deals w/ future thing Contract deals W/ present thing - hope or
expectancy
Sale is valid only if the expected thing will Sale is valid even though expected thing does
exist. So that if the condition is not fulfilled, not come into existence as long as the hope
if the thing does not come into existence, the itself validly existed e.g., lotto NOTE: Sale of
contract cannot have the effect for lack of an a vain hope or expectancy however, is void
essential requisite. Although the vendee may (NCC, Art. 1461). Example: Sale of a losing
have reserved his right to claim indemnity sweepstake ticket already drawn
from the vendor in the event that the latter
knew not come into existence

Article 1463. The sole owner of a thing may sell an undivided interest therein. (n)

Article 1464. In the case of fungible goods, there may be a sale of an undivided share of a
specific mass, though the seller purports to sell and the buyer to buy a definite number, weight
or measure of the goods in the mass, and though the number, weight or measure of the goods in
the mass, and though the number, weight or measure of the goods in the mass is undetermined.
By such a sale the buyer becomes owner in common of such a share of the mass as the number,
weight or measure bought bears to the number, weight or measure of the mass. If the mass
contains less than the number, weight or measure bought, the buyer becomes the owner of the
whole mass and the seller is bound to make good the deficiency from goods of the same kind and
quality, unless a contrary intent appears. (n)

Sale of an undivided share in a specific mass of fungible goods makes the buyer a co-
owner of the entire mass in proportion to the amount he bought (Art. 1464). The
following rules shall be observed if the quantity sold is different from the quantity of the
mass:

a. If the quantity, i.e., number, weight or measure, of the mass is more than the
quantity sold, the parties shall become co-owners of the mass.
Example: Daphne sold to Eloise 200 sacks of rice. The mass, however, actually
consists of 300 sacks of rice. Thus, Daphne and Eloise will become co-owners of
the whole mass to the extent of 2/3 for Eloise and 1/3 for Daphne.

b. If the quantity of the mass is less than the quantity sold, the buyer becomes the
owner of the whole mass, with the seller being bound to make good the deficiency
from goods of the same kind and quality, unless a contrary intent appears.

Example: Daphne sold to Eloise 300 sacks of rice. The mass, however, actually
consists of 250 sacks of rice. In this case, Eloise becomes the owner of all 250
sacks of rice and Daphne is bound to deliver to Eloise an additional 50 sacks of
rice to complete the quantity agreed upon.

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

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)

Sale by sample and/or description

Article 1481. In the contract of sale of goods by description or by sample, the contract may be
rescinded if the bulk of the goods delivered do not correspond with the description or the sample,
and if the contract be by sample as well as description, it is not sufficient that the bulk of goods
correspond with the sample if they do not also correspond with the description.

The buyer shall have a reasonable opportunity of comparing the bulk with the description or the
sample.

"SALE OR RETURN" and "SALE ON APPROVAL"

1. Sale or return
The ownership of the goods is transferred to the buyer on delivery, but the buyer has the
option to re-vest their ownership on the seller by returning them within the time fixed in
the contract, or if no time has been fixed, within a reasonable time. (Art. 1502)

Example: On February 1, Shawn delivered to Mariah an air fryer under a sale or return
agreement. Shawn gave Mariah until February 14, to return the air fryer. Upon delivery,
Mariah became the owner of the air fryer. If on or before February 14, Mariah does not
return the air fryer, she becomes the absolute owner thereof. If she returns it, ownership is
reverted to Shawn. If, for example, the air fryer was destroyed by fire, on February 13,
Mariah is still bound to pay because she became the owner, thus, she bears the risk of
loss. (Res perit domino - The owner bears the loss of the property). The same rule applies
even if the loss was due to Mariah's fault.

2. Sale on approval or on trial or on satisfaction

Ownership of the goods remains with the seller despite delivery but shall be transferred to
the buyer in the following cases:
a. When he signifies his approval or acceptance of the goods.
b. When he does an act adopting the transaction. Thus, the buyer is deemed to have
approved of the goods if he starts consuming or using them.
c. If he does not signify his approval or acceptance of the goods but retains the
goods without giving notice of rejection within the time fixed in the contract, or
within a reasonable time, and such time has expired. (Art. 1502)

Example: On February 1, Shawn delivered to Mariah an air fryer under a sale on

approval agreement. Shawn gave Mariah until February 14, to decide if she will
 purchase the air fryer. Upon delivery, Mariah does not become the owner of the air
fryer.

If on or before February 14, Mariah signifies her approval of the air fryer, she becomes
the absolute owner thereof. If Mariah does not signify her approval but retains
possession of the air fryer, ownership is likewise passed on to her. If, for example, the
air fryer was destroyed by fire, on February 13, Mariah is not bound to pay because she
is not yet the owner, thus, the seller bears the risk of loss. (Res perit domino- The owner
bears the loss of the property). However, if the loss was due to Mariah's fault, she is
liable to pay.

PRICE

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

Price is “real” when at the perfection of the sale, there is legal intention on the part of the buyer
to pay the price, and legal expectation on the part of the seller to receive such price as the value
of the subject matter he obligates himself to deliver

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

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, 18 Oct. 2001)

When the price is simulated because neither party to the Deed of Sale had any intention
whatsoever that the amount will be paid, the sale is void,14 although the act may be shown to
have been in reality a donation, or some other contract.15 The whole issue therefore boils down
to contractual intent.

If simulated – void, except intend to be donation or any other contract

If false - subject to reformation

In money or any equivalent - see discussion in barter 1468

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).
Test of Gross Inadequacy of Price

The price is grossly inadequate if a reasonable man will not agree to dispose of his property at
that amount. (Vda. De Delfin v. Dellota, G.R. No. 143697, 28 Jan. 2008)

Adequacy of the price not necessary for validity. but maybe ground for recission, see 1381

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;

(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)

Gross inadequacy does not invalidate. however, if there is defect on the consent.

Effect of Gross Inadequacy of Price

GR: It does not affect the validity of the sale.
XPNs: (Co-R-D-S)
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. (Art. 1470, NCC)

NOTE: When the law gives the owner the right of redemption like in a sale made at public
auction, the sale is not necessarily affected even if the price is low. The reason is that the lesser
the price, the easier it is for the owner to redeem the property.

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.

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 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 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.

What if the parties have not agreed on the price of the thing sold?
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.

OPTION MONEY AND EARNEST MONEY

A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promisor if the promise is supported by a consideration distinct from the price. (Art.
1479, CC)

What is an option money?

Option money is the consideration paid for the purpose of holding one to his promise to buy or
sell a determinate thing for a certain period of time, which consideration is separate and distinct
from the purchase price (Dizon vs. Lustre) However, the consideration for an option contract is
not always monetary but could consist of other things or undertakings. If the consideration is not
monetary, there must be things or undertakings of value in of the onerous nature of the option
contract. Furthermore, when a consideration for an option contract is not monetary, said
consideration must be clearly specified as such in the option contract or clause.(Bible Baptist
Church vs. CA)
What is the effect of having an option money?
The offeror cannot withdraw the offer until after the expiration of the option

Example:
Ji-Pyeong a.k.a Goodboy promised to sell his car to Dal-mi for P1,000,000, giving Dal-mi one
week to decide whether to buy or not. Dal-mi accepted the promise and gave Goodboy P1,000 to
hold the offer for a week.

Q:May Goodboy withdraw his promise to sell to Dal-mi?

A: No, he is bound thereto because there is a contract of option that was perfected, when Dal-mi
gave the P1,000 consideration.

Q: By giving option money, is Dal-mi obliged to buy the car?

A: No, she is merely given the option to buy it.

Q: How much will Dal-mi pay if she eventually decides to buy the car? 1,000,000 or 999,000?
A: 1,000,000 because the amount paid by Dal-mi as option money is not part of the purchase
price.

Relative to the discussion of option money, is the concept of earnest money.

Q: What is earnest money?
A: Earnest money is the money given as part of the purchase price and as proof of the perfection
of the contract.(Dizon vs. Lustre) It is also called "arras" or something of value to show that the
buyer was really in earnest and given to the seller to bind the bargain.(Soriano, 2011)

Note: Earnest money is part of the purchase price and a proof of the perfection of the contract
(Art. 1482)

Example:
Lebron offered to buy Stephen's car for P500,000, to which the latter agreed. To show that he is
in earnest, Lebron gave Stephen P10,000 upon the execution of this agreement, which Stephen
accepts. Since there is already a perfected contract of sale, Lebron will only pay Stephen
P490,000 on the due date of the payment.

Note: Since there is already a perfected contract of sale, any of the parties cannot refuse to
continue with the sale on the ground that the transaction appears to be disadvantageous to them.

Q: Based on the foregoing, what is the difference between an option money and earnest
money?
OPTION MONEY EARNEST MONEY
As to Money Given Money given as distinct Forms part of the purchase price
consideration for an option
contract
As to Perfection Applies to a sale not yet perfected Given only when there is already
 a sale
Obligation of the Prospective buyer is not required When given, the buyer is bound
buyer upon payment to buy to pay the balance
of consideration
As to Recovery If buyer does not decide to buy, it If sale did not materialize, it must
cannot be recovered be returned. (Villanueva, 2014;
Pineda, 2010).
As to Transfer of Ownership is reserved to the seller Title passes to the buyer upon
Ownership and is not to pass until full delivery of the thing sold
payment
Effect of Specific performance Specific performance and
Nonpayment rescission

Right of First Refusal

It is a contractual grant, not of the sale of a property, but of the first priority to buy the property
in the event the owner sells the same. (PUP v. Golden Horizon Realty Corp., G.R. Nos. 183612
and 184260, 15 Mar. 2010)

NOTE: Where a time is stated in an offer for its acceptance, the offer is terminated at the
expiration of the time given for its acceptance. (Pineda, 2010)

Basis of the Right of First Refusal

It is based on the current offer to sell of the seller or offer to purchase of any prospective buyer.
Only after the optionee fails to exercise its right of first priority under the same terms and
within the period contemplated could the owner validly offer to sell the property to a third
person, again, under the same terms as offered to the optionee. (Tanay Recreation Center &
Development Corp. v. Fausto, G.R. No. 140182, 12 Apr. 2005)

Effect of Sale of a Property in Violation of the Right of First Refusal

The resulting contract is rescissible by the person in whose favor the right of first refusal was
given and even though no particular price is stated in the covenant granting the right of first
refusal, the same price by which the third-party buyer bought the property shall be deemed to be
the price by which the right of first refusal shall therefore be exercisable. (Equatorial Realty
Development, Inc. v. Mayfair Theater, Inc., G.R. No. 106063, 11 Nov. 1996)

Capacity of Parties (ARTS. 1489-1492, NCC)

General Rule: All persons, whether natural or juridical, who can bind themselves, have legal
capacity to buy and sell (Art. 1489, par. 1, NCC).

Exception:

Those incapacitated to enter into contracts.

1. Absolute incapacity - cannot bind themselves in any case. Art. 1327
2. Relative incapacity - exists only with reference to certain persons or a certain class of
property. (see. Art. 1491 as example)

Persons who are senile (Art. 24 in relation to Art. 1332, NCC)

GR: A senile person may enter into contracts, he is not incompetent merely because of his
advanced years, or by reason of his physical infirmities.

XPN: When such age or infirmity have impaired his mental faculties so as to prevent him from
properly, intelligently, and firmly protecting his rights, then he is undeniably incapacitated.

The sale is void, and not mere voidable. The essence is that there was never any meeting of the
minds, and no real consideration. (Villanueva, 2018)

Status of the following Contracts of Sale

1. Sale entered into by minors –

GR: It is voidable, subject to annulment or ratification.

XPN: Where necessaries are sold and delivered to a minor or other person without capacity to
act, he must pay a reasonable price. (Art. 1489 (2), NCC)

2. Sale by & between spouses (Art. 1490, NCC)

Rationale for the prohibition:

a. To prevent a spouse from defrauding his creditors by transferring his properties to the other
spouse; and
b. To avoid a situation where the dominant spouse would unduly take advantage of the weaker
spouse.

a. Status of prohibited sales between spouses: (also applies to common law spouses)

GR: Null and void

XPN: In case of sale between spouses:
1. When a separation of property was agreed upon in the marriage settlements; or
2. When there has been a judicial separation of property agreed upon between them under
Article 191 of the Family Code.

XPN to the XPN: The following are valid even though they involve conjugal property and are
made without the consent of the other spouse:
1. If there is a court order; and
2. If such sale of the conjugal property is necessary to answer for the conjugal liabilities
mentioned in art. 161 and 162 of the FC.

Article 1490. The husband and the wife cannot sell property to each other, except:

(1) When a separation of property was agreed upon in the marriage settlements; or

(2) When there has been a judicial separation of property under article 191. (1458a)

Article 1491. The following persons cannot acquire by purchase, even at a public or judicial
auction, either in person or through the mediation of another:

(1) The guardian, the property of the person or persons who may be under his
guardianship;

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

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

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

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

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

Effect of a Sale made by the Seller with Voidable Title over the Object
1. Perfection stage: Valid – buyer acquires title of goods.
2. Consummation stage: Valid – if the title has not yet been avoided at the time of sale and the
buyer must buy the goods under the following conditions:
a. In good faith;
b. For value; and
c. Without notice of seller’s defect of title. (Art. 1506, NCC)

Rules of preference in double sales

 Movable property
Ownership shall be transferred to the first possessor in good faith. Possession may be either
actual or constructive
Example:
1. A sold to B his rolex watch on February 14, A said that he will deliver the watch on
February 18. The next day, A sold the same watch to C who immediately took possession
of the watch but without knowledge of the prior sale to B. Who is the rightful owner of
the watch?

A: C is the rightful ownership of the watch because he is the first possessor in good faith

2. A sold to B his laptop on February 14 and they executed a public instrument for that
purpose. B told A to deliver the laptop on February 20 because he will be out of town.
The next day. A sold the laptop to C, who immediately took possession of the laptop but
without knowledge of the prior sale to B. Who is the rightful owner of the laptop?

A: B because the laptop was constructively delivered to him through the execution of the public
instrument.

 Immovable property
Priority 1: Ownership shall belong to the person who in good faith first registered the sale in the
Registry of Property.
Priority 2: If there was no registration, ownership shall pertain to the first possessor in good
faith,
Priority 3: In the absence of both registration and possession, ownership shall belong to the
person who presents the oldest title in good faith.

In all of the above cases, good faith is essential being the basic premise of preferential rights
granted to the person claiming ownership of the immovable.

Example:

On February 14, A sold to B his lot. The deed of sale was in a private instrument. On February
16, A sold the same lot to C in a public instrument. On February 20, A sold again the same lot to
D in a public instrument. D registered the sale with the Registry of Deeds. All of the buyers are
in good faith and none of them took physical possession of the lot.

Q: Who has a better right to the lot?

A: D, because he registered the sale.

Q: Suppose D did not register the sale, or he registered the sale, but he was in bad faith. Who has
the better right to the lot?
A: C, because he was the first one who took possession of the lot in good faith. The execution of
the public instrument constitutes constructive delivery

Q: Suppose all of the sales are in private instrument and all the buyers are in good faith, who has
a better right to the lot?
A: Since there was no registration and possession, B will have the better right to the lot because
he has the oldest title.

Note: The governing principle in double sales is priore tempore, potior jure (first in time,
stronger in right)

RISK OF LOSS
Effect of Loss of Thing Sold
The thing is lost when it perishes or goes out of commerce or disappears in such a way that its
existence is unknown or it cannot be recovered (Art. 1189, NCC).

a. If occurs prior to perfection, the seller bears the loss, being the owner of the thing (res
perit domino).

b. If loss occurs at the time of perfection:

● If subject matter has been “entirely” lost, contract shall be without any effect (Art. 1493,
NCC).

● If the subject matter has been lost in part only, the buyer may choose between:
withdrawing from the contract; or demanding the remaining part, paying its price in proportion
to the total sum agreed upon (Id).

c. If loss occurs after perfection but before delivery (Villanueva, Law on Sales, 2009, p. 348):
● If lost without fault of the vendor, obligation is extinguished.
● If lost through the fault of the vendor, he is obliged to pay damages.
● If the thing deteriorates without fault of the vendor, impairment is borne by
vendee.
● If it deteriorates through fault of the vendor, vendee may choose between rescission of
obligation and its fulfillment, with indemnity for damages in either case.
● If loss without seller’s fault:
Two views:
First view: Seller is released from his obligation to deliver but buyer’s obligation to pay subsists
(Paras, Vol. V, 1990 ed., p. 58; Padilla, Civil Code, 1972, Ed., p. 840-841). Hence, the buyer
bears the risk of loss.

Second view: Counter-prestation is also extinguished (IV Tolentino, Civil Code, 1991 ed., 337).
Hence, risk of loss is borne by the seller and buyer need not pay the price.

View of Tolentino is more just and equitable and in conformity with the principle of res
perit domino.

d. If loss and deterioration occur after delivery:

General Rule: When ownership over goods has been transferred to the buyer, goods are buyer’s
risk (Art. 1504, NCC).

Exceptions:
a. When delivery is made to buyer in pursuance of contract and ownership is retained by seller
merely to secure performance of buyer’s obligations, goods are still at buyer’s risk from time of
such delivery (Art. 1504, NCC).
b. Where actual delivery is delayed thru fault of either buyer or seller, goods are at risk of party
in fault (Art. 1504, NCC).

Co-relate these topics to Art. 1494

Article 1493. If at the time the contract of sale is perfected, the thing which is the object of the
contract has been entirely lost, the contract shall be without any effect.

But if the thing should have been lost in part only, the vendee may choose between withdrawing
from the contract and demanding the remaining part, paying its price in proportion to the total
sum agreed upon. (1460a)

Article 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership
therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the
goods are at the buyer's risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer,
in pursuance of the contract and the ownership in the goods has been retained by the
seller merely to secure performance by the buyer of his obligations under the contract, the
goods are at the buyer's risk from the time of such delivery;
 (2) Where actual delivery has been delayed through the fault of either the buyer or seller
the goods are at the risk of the party in fault. (n)

Loss of or injury to the thing

a. Loss before perfection (including deterioration in quality)

i. In case of complete loss, the sale is void because of the absence of the object.
ii. In case of partial loss, the buyer may choose between:
a) Withdrawal from the contracts(rescission), and
b) Demanding the remaining part and paying its proportionate price(Arts. 1493, 1494)

b. Loss after perfection but before delivery - seller bears the risk of loss(Art. 1504) i.e., the buyer
is not obliged to pay the price.
After perfection, the goods remain at the seller's risk until the ownership of the goods is
transferred to the buyer by actual or constructive delivery. However, notwithstanding that the
ownership is not transferred to the buyer, the goods are at the buyer's risk:
a) If there is an agreement to that effect
b) If the ownership of the goods is retained by the seller merely to secure the performance by the
buyer of his obligation under the contract
c) When actual delivery has been delayed through the fault of the buyer. (Soriano, 2011)

Obligation of the seller

DELIVERY
Q: When is a thing considered to be delivered?
A: The thing sold shall be understood as delivered, when it is placed in the control and
possession of the vendee.(Art. 1497)

Kinds of Delivery/Tradition
1. ACTUAL or REAL - thing sold is placed under the physical control and possession of
buyer/agent;
2. CONSTRUCTIVE or LEGAL - does not confer physical possession of the thing, but by
construction of law, is equivalent to acts of real delivery.

Requisites:
1) The seller must have control over the thing;
2) The buyer must be put under control;
3) There must be intention to deliver the thing for purposes of ownership.

i. Traditio Simbolica - delivery of certain symbols representing the thing. Example:

Delivery of keys of a house
 ii. Traditio Longa Manu - Delivery of thing by mere agreement; when seller points
to the property without need of actually delivering
NOTE: The thing to be transferred must be within sight at that time (Rabuya,
2017).
iii. Tradicion Brevi Manu - the buyer, being already in possession of the thing sold
due to some other cause, merely remains in possession after the sale is effected,
but now in concept of owner. e.g., From lessee to becoming an owner
iv. Constitutum Possessorium - the seller remains in possession of the property in a
different capacity. e.g., From owner to lessee

3. QUASI-TRADITIO - delivery of rights, credits or incorporeal property, made by:

a. When sale is made through a public instrument
b. Placing titles of ownership in the hands of the buyer;
c. Allowing buyer to make use of rights.

4. TRADITION BY LEGAL FORMALITIES - Execution of a public instrument is

equivalent to delivery. But to be effective, it is necessary that the seller have such control
over the thing sold that, at the moment of sale, its material delivery could have been
made.

Q: What are the remedies of a buyer if the seller delivers to him a quantity of goods less
than what he contracted to sell?
A: The buyer may:
1. Reject them;
2. If the buyer accepts or retains the goods so delivered, knowing that the seller is not going
to perform the contract in full, he must pay for them at the contract rate; or
3. If, however, the buyer has used or disposed of the goods delivered before he knows that
the seller is not going to perform his contract in full, the buyer shall not be liable for more
than the fair value to him of the goods so received (Art. 1522).

Q: What are the remedies of a buyer if the seller delivers to him a quantity of goods larger
than what he contracted to sell?
A: The buyer may:
1. Accept the goods included in the contract and reject the rest;
2. If the buyer accepts the whole of the goods so delivered, he must pay for them at the
contract rate; or
3. If the subject matter is indivisible, the buyer may reject the whole of the goods (Art.
1522, CC)

Q: What are the remedies of the buyer if the seller delivers to him goods which he
contracted to sell and which are mixed with goods of a different description not included in
the contract?
A: The buyer may:
1. Accept the goods which are in accordance with the contract and reject the rest; or
 2. If the subject matter is indivisible, the buyer may reject the whole of the goods(Art. 1522,
CC)

Q: What are the rules on the sale of real estate?

A: If the sale of real estate should be made with a statement of its area at the rate of a certain
price for a unit of measure or number
1. The vendor shall be obliged to deliver to the vendee, if the latter should demand it, all
that may have been stated in the contract; or
2. Should it be not possible, the vendee may choose between:
i. Proportional reduction of the price; and
ii. Rescission of the contract, provided that the lack in the area is not less than one-
tenth (1/10) of that stated (CIVIL CODE, Art. 1539).

Q: What are the rules if any part of the immovable is not of the quality specified in the
contract?
A: The same rules above will apply if any part of the immovable is not of the quality specified in
the contract, even when the area is the same. The rescission in this case shall only take place at
the will of the vendee when the inferior value of the thing sold exceeds one-tenth (1/10) of the
price agreed upon (Art. 1539, CC).

Q: When is the seller not bound to deliver the thing sold?

A: The seller is not bound to deliver the thing sold:
1. If the buyer has not paid the price;
2. No period for payment has been fixed in the contract (Art. 1524, CC)
3. A period for payment has been fixed in the contract but the buyer has lost the right to
make use of the time.

Suspension of payment by the buyer (Art.1590,CC)

GR:
1. If he is disturbed in the possession or ownership of the thing bought
2. If he has well-grounded fear that his possession or ownership would be disturbed by a
vindicatory action or foreclosure of mortgage.

Note: If the vendee would not have bought the immovable had he known of its smaller area or
inferior quality, he may rescind the sale (CIVIL CODE, Art. 1539).

XPNS:
1. Seller gives security for the return of the price in a proper case;
2. A stipulation that notwithstanding any contingency, the buyer must make payment;
3. Disturbance or danger is caused by the seller;
4. If the disturbance is a mere act of trespass;
5. Upon full payment of the price.
Necessity of payment of the purchase price to transfer ownership - NO

GR: Ownership of the thing sold shall be transferred to the vendee upon the actual or
constructive delivery. (Art. 1477)
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 inconsistent with ownership of seller after delivery;
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 if 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. 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)

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.
What if the buyer refuses having the right to do so? (Art. 1587)
He is not bound to return them to the seller, and it is sufficient that he notifies the seller of his
refusal.

Obligation of the buyer

Pay the price

What if the buyer does not pay?

Non-payment of the consideration in the sale does not prove simulation; at most, it gives the
seller the right to sue for collection. Generally in a sale, payment of the price is a “resolutory
condition” and the remedy of the seller is to exact fulfillment or, in case of a substantial breach,
to rescind the contract under Article 1191 of the Civil Code