REPORT ON SUBJECT MATTER OF SALES

By Gianna Cantoria and Michaela Prades

Reference: Sales by Villanueva 2009, Chapter 3
REQUISITES OF VALID SUBJECT MATTER
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A valid contract of sale would result from the meeting of the minds of the parties
on a subject matter that has at the time of perfection the following requisites:

a) It must be existing, having potential existence, a future thing, or even contingent

or subject to a resolutory condition; in other words, it must be a POSSIBLE
THING;
b) It must be LICIT; and
c) It must be DETERMINATE or at least DETERMINABLE.
1. Question: What happens when any of the requisites is lacking?
Answer:
Results in Non-existent Sale
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When the subject matter agreed upon fails to meet the requisites aboveenumerated, the situation would either engender a no contract situation,
or the resulting contract of sale would be void under various cases
provided under Article 1409 of the Civil Code.
The issue of whether there is a void contract, is important in considering
the applicability of doctrines that pertain to void contracts (e.g., no remedy
can be maintained, and courts generally leave the parties where they are),
which would have no application in a situation where the subject matter in
a sale does not fulfill a requisite. Consequently, in case of payment of the
agreed price, in a no contract situation the buyer can still recover the
amount based on the principle of unjust enrichment.
Article 1411 - provides that only when the nullity of the contract proceeds
from the illegality of the cause or object of the contract, and the act
consitutes a criminal offense, both parties being in pari delicto, would the
parties have no cause of action against each other; otherwise, the
innocent one may claim what he has given, and shall not be bound to
comply with his promise.
Article 1412 - when the act does not constitute a criminal offense, the
following rules shall apply:

(a) When the fault is on the part of both contracting parties, neither
may recover what he has given by virtue of the contract, or demand
the performance of the others undertaking;
(b) When only one of the contracting parties is at fault, he cannot
recover what he has given by reason of the contract or ask, for the
fulfillment of what has been promised him; but the one, who is not
at fault, may demand the return of what he has given without any
obligation to comply with his promise.

Article 1416 - provides that when the contract is not illegal per se but is
merely prohibited, and the legal prohibition is designed for the protection
of the plaintiff, he may, if public policy is thereby enhanced, recover what
he has paid or delivered

2. Question: What are the legal requisites of subject matter intended to govern
underlying obligations of seller?
Answer:
The underlying policy is really to safeguard the realizability and enforceability of
the primary obligations of the seller to transfer the ownership, and deliver the
possession, of the subject matter. For essentially, at perfection, what a valid sale
is able to legally effect is not the delivery of the subject matter but the constitution
of the obligation of the seller to deliver, coupled with the right of the buyer to
demand specific performance of such obligation.
3. Question:
What are the considerations in determining the difference between possible thing
and impossible thing?
Answer:
When the existence of a thing is subject to a condition, then it remains a
possible thing, for it has the capacity, not certainty, of coming into existence if
subject to a suspensive condition, or it already exists but may or may cease to
exist if it is subject to a resolutory condition. The first requisite of a valid subject
matter provides that the thing may be existing or non-existing at the time of
perfection of the contract of sale. For possible things, Article 1461 provides that
there may be a contract of sale of goods, whose acquisition by the seller
depends upon a contingency which may or may not happen, and Article 1462
provides that things having a potential existence may be the object of the
contract of sale. What must be considered is whether the seller had or did not
have ownership thereof at the time of perfection, but whether the subject matter
is of a type and nature, taking into consideration the state of technology and
science at the time the sale is perfected, that it exists or could be made to exist to

allow the seller reasonable certainty of being able to comply with his obligations
under the contract. Article 1462 of the Civil Code provides that in the sale of
goods, the subject matter may either be 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 (called future goods).
4. Question:
What is the difference between Emptio Rei Speratae and Emptio Spei
Answer:
Emptio Rei Speratae is a contract covering future things, and subject to a
suspensive condition that the subject matter will come into existence. If the
subject matter does not come into existence, as in the case of conditional
obligations, the contract is deemed extinguished as soon as the time expires
or if it has become indubitable that the event will not take place. It covers only
contracts of sale whose subject matter is determinate or specific, and has no
application to determinable generic things since the condition that they must
come into existence is wholly irrelevant, for generic subject matters are never
lost. In Sibal v. Valdez,10 the Court held that pending crops which have
potential existence may be the valid subject matter of sale, and may be dealt
with separately from the land on which they grow.
Emptio Spei on the other hand, is the sale of a mere hope or expectancy (like
buying a lottery ticket.) The sale is effective even if the thing doesn't appear
unless it's a vain hope. The object is a present thing which is the hope or
expectancy (chance to win) and the uncertainty is with regard to its existence.
The object of the sale is not the prize, but rather the ticket, or the chance to
win; if the ticket does not win, the sale is still valid, and the buyer has no right
to recover the amount paid for the ticket.
In case of doubt, emptio rei speratae is presumed.
5. Question:
Can a thing subject to a resolutory condition be a valid object of sale?
Answer:
Under Article 1465 of the Civil Code, things subject to resolutory condition may
be the object of the contract of sale. However, if the resolutory condition happens
to extinguish the thing, the rule would be the same as applied to all obligations
subject to a resolutory condition under Article 1190: When the conditions have
for their purpose the extinguishment of an obligation to give, the parties, upon the
fulfillment of said conditions, shall return to each what they have received.
6. Question:
How is a contract of sale distinguished from other similar contracts?

Answer:
The essence of a contract of sale is the meeting of minds that bring about the
obligation to transfer the ownership, and deliver the possession, of subject
matter. Even other contracts that are not strictly sales contracts, but essentially
constitute the delivery of the ownership and possession of the subject matter as
an integral undertaking, tend to be governed by the Law on Sales, like barter
(which does not have the element of price), and dacion en pago (which really is
a mode of performance of a pre-existing obligation).
7. Question:
When is the subject matter of sale considered licit or legal and what are the
examples of illicit subject matter?
Answer:
As a second requisite of a valid contract of sale, the subject matter must be licit.
A thing is licit and may be the object of a contract when it is not outside the
commerce of men, and all rights which are not intransmissible. When the subject
matter is illicit, the resulting contract of sale is void. The illegality of the subject
matter, even though it is determinate and existing and capable of actual delivery,
undermines the demandability of the underlying obligation of the seller to deliver,
and renders the sale void. Sales declared illegal by law involve subject matter
that is prohibited, e.g., narcotics; wild birds or mammals; rare wild plants;
poisonous plants or fruits; dynamited fish; gunpowder and explosives; fi rearms
and ammunitions; and sale of realty by non-Christians. Sales in violation of land
reform laws declaring tenants-tillers as the full owners of the lands they till, are
null and void.
8. Question:
What is a subject matter determinate or at least determinable?
Answer:
A thing is determinate or specific when it is particularly designated or physically
segregated from all others of the same class When the subject matter of a sale is
determinate, the basis upon which to enforce sellers obligation to deliver, as well
as the basis upon which to demonstrate breach, are certain and unequivocable.
It is also when the subject matter is determinate or specific that the defense of
force majeure is applicable to legally relieve the seller from the consequences of
failure to deliver the subject matter of the sale.
On the other hand, a thing is determinable only when two (2) requisites are
present: (a) If at perfection of the sale, the subject matter is capable of being
made determinate (the capacity to segregate test); and (b) Without the
necessity of a new or further agreement between the parties (the no further
agreement test).

By its very definition, a determinable subject matter is a generic object, because

it has neither been physically segregated nor particularly designated at the point
of perfection from the rest of its kind. The Court held that the requirement that a
sale must have for its object a determinate thing is fulfilled as long as, at the time
the contract is entered into, the object of the sale is capable of being made
determinate without the necessity of a new or further agreement between the
parties.
9. Question:
What is the test of determinability of the subject matter?
Answer:
The test is the meeting of mind of parties and not the covering deed. The Court
reasoned that when one the deed of sale is merely an evidence of the contract.
And when the deed fails to cover the real contract or the true meeting of the
minds of the parties, then the deed must give way to the real contract of the
parties. The defect in the final deed would not work to invalidate the contract
where all the essential elements for its validity are present and can be proven.
10. Question:
Is quantity of subject matter essential for perfection of sale?
Answer:
The actual quantity of goods as subject matter of sale would also be essential in
the meeting of the minds, since quantity constitutes an essential ingredient to
achieve the requisite of the goods being determinate or determinable. The
meeting of minds on the quantity of the goods as subject matter is necessary for
the validity of the sale, because such aspect go into the very core of such
contract embodying the essential characteristic of mutuality or obligatory force.
However, the fact that the quantity is not determinate shall not be an obstacle to
the existence of the contract, provided it is possible to determine the same,
without the need of a new contract between the parties. Even when the exact
quantity of the subject matter of the contract of sale has not been agreed upon,
but the parties have in fact come into an agreement as to the quality thereof and
the price, and terms of payment, there is already a valid and binding contract.
11. Question:
Can generic non-determinable objects be a valid subject matter of a sale?
Answer:
Since determinable objects may be the valid subject matter of a sale, then even
generic things that fall within said definition can validly support a contract of sale.
Although the sale of determinable generic thing is valid, the obligation to deliver
the subject 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 the subject matter does not arise,
since by definition generic object are never lost.

12. Question:
What is the status of sale not complying with the third requisite of a valid subject
matter?
Answer:
When the minds of the parties have met upon a subject matter which is neither
determinate or determinable, the resulting contract would be void. Again, the
impetus of the law declaring sales covering subject matters which are neither
determinate or determinable is based on the fact that the enforceability or
demandability of the underlying obligation of the seller to deliver the subject
matter is at grave risk. The situation would then precisely be the one covered by
Article 1409(6) of the Civil Code which declares such contract as void and
inexistent: Those where the intention of the parties relative to the principal object
of the contract cannot be ascertained.
13. Question:
What is the effect of sale of undivided interest, undivided share in mass, and sale
of mortgaged property?
Answer:
- Under Article 1463 of the Civil Code, the sole owner of thing may sell an
undivided interest therein, and there would result coownership over the
subject matter.
- In the sale 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 purports
to buy a definite number, weight, number 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 the co-owner
to such 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.
- The ruling in Pineda v. Court of Appeals affirmed the principle that a prior
mortgage of the property does not prevent the mortgagor from selling the
property, since a mortgage is merely encumbrance on the property and
does not extinguish the title of the debtor who does not lose his principal
attribute as owner to dispose of the property. It also noted that the law
even considers void a stipulation forbidding the owner of the property from
alienating the mortgaged immovable.
14. Question:
Is the seller obliged to transfer ownership at the time of delivery?
Answer:

In general, a perfected contract of sale cannot be challenged on the ground that

seller had no ownership of the thing sold at the time of perfection. Although the
seller must be the owner of the thing in order to transfer ownership to the buyer,
he need not be the owner thereof at the time of perfection; it is sufficient that he
be the owner at the time of the delivery otherwise, he may be held liable for
breach of warranty against eviction. In fact, the acquisition by the buyer of the
subject matter of the sale may even depend upon contingency and this would not
affect the validity of the sale.
15. Question:
Is there an exception when the seller must be the owner of the subject matter at
the time of sale?
Answer:
The exception to the rule that ownership by the seller is not essential at the time
of perfection would be in the case of judicial sale. Cavite Development Bank v.
Spouses Cyrus Lim, held that a foreclosure sale, though essentially a forced
sale, is still a sale in accordance with Article 1458 of the Civil Code, under which
the mortgagor in default, the forced seller, becomes obliged to transfer the
ownership of the thing sold to the highest bidder who, in turn, is obliged to pay
the bid price in money or its equivalent. Being a sale, the rule that the seller must
be the owner of the thing sold also applies in a foreclosure sale.
16. Question:
What is the effect of the subsequent acquisition of title by the seller?
Answer:
Article 1434 of the Civil Code provides that when at the time of perfection, the
seller sells a subject matter over which he is not the owner, the subsequent
acquisition of title by a seller validates the sale and title passes to the buyer by
operation of law, provided there has been previous delivery of the subject matter
by the seller to the buyer. It should be noted that for the transfer of ownership
ipso jure to happen under Article 1434, it is essential that there not only exist a
valid sale, but that previous physical delivery of the subject matter must have
been done.