Chapter1 – Nature and Form of the Contract Articles 1458 to 1) Essential elements – those without which there can be

1488 no valid sale

1) Consent or meeting of the minds
Article 1458. Sale Defined 2) Determinate subject matter
3) Price certain in money or its equivalent
 Sale is a CONTRACT where one party obligates himself to transfer 2) Natural elements – those which are inherent in the
ownership ofand to deliver a determinate thing, while the other contract, and which in the absence of any contrary
party obligates himself to pay for said thing a price certain in provision, are deemed to exist in the contract
money or its equivalent. 1) Warranty against eviction – deprivation of
property brought
2) Warranty against hidden defects
Vendor/Seller Vendee/Buyer 3) Accidental elements – those that may be present or
→ To transfer → To pay price certain in absent in the stipulation, such as the place or time of
ownership(fundamental money or its equivalent payment, or the presence of conditions
aim of the contract of  Stages in the Contract of SaleNPC
sale); and 1) Generation or Negotiation
2) Perfection – meeting of the minds
→ To deliver a determinate 3) Consummation – when the object is delivered and the
thing price is paid
 People’s Homesite v. Court of Appeals, L-61623, Dec. 26, 1984
 Essential Characteristics of the Contract of Sale COP-CBN If subdivision lot is sold to a buyer on condition that the higher
authorities would approve the same, there is as yet NO perfected
sale.
C Consensual Perfected by mere consent
O Onerous To acquire the rights, valuable  Sps. VivicencioBabasa and Elena Cantos Babasa v. CA, et.al. GR
consideration must be given 124045, May 21, 1993
P Principal For the contract of sale to validly exist, A deed of sale is ABSOLUTE in nature although a “conditional
there is no necessity for it to demand upon sale” absent such stipulation. In such cases, ownership of the
the existence of another valid contract. thing sold passes to the vendee upon the constructive or actual
C Commutative The values exchanged are almost delivery thereof.
equivalent to each other  Heirs of RomanaIngjutiro, et. al. v. Sps Leon Casals and Lilia C.
B Bilateral Both parties are bound by obligations Casals, et. al GR 134718, Aug. 20, 2001
reciprocal dependent upon each other It is essential that the vendors be the owners of the property
N Nominate Code refers to it by a special designation or sold, otherwise they cannot dispose that which does not belong
name to them.Nemodat quod non habet (No one can give more than
what he has)
 Sale Distinguished from Dation in Payment
 Elements of the Contract of Sale ENA
Sale Dation in Payment

NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 1
 1. There is NO pre-existing 1. There is a pre-existing the price.
credit credit Effect of 3. After delivery has 3. Despite delivery, the
2. Gives rise to obligation 2. Extinguishes obligation delivery been made, the seller is enforcing and
3. The cause or consideration 3. The cause or consideration seller has lost not rescinding the
here is the PRICE, from here, from the viewpoint of ownership and contract if he seeks to
the viewpoint of the seller, the person offering he cannot recover oust the buyer for
or the obtaining of the dation in payment, is the unless the contract is failure to pay , since
OBJECT, from the extinguishment of his debt; resolved or rescinded he retains the
viewpoint of the buyer. from the viewpoint of the ownership.
creditor, it is the acquisition
of the object offered in lieu  “Sale” Distinguished from “Assignment of Property in Favor of
of the original credit Creditors (Cession)”
4. There is greater freedom 4. There is less freedom in Art. 1255 of the Civil Code provides the concept of cession that
in the determination of the determining the price “debtor may cede or assign his property to pay his creditors in
price. payment of hide debts. This cession, unless there is a stipulation
5. The giving of the price 5. The giving of the object in to the contrary, shall only release the debtor from responsibility
may generally end the lieu of the credit may of the net proceeds of the thing assigned. The agreements
obligation of the buyer extinguish completely or which, on the effect of cession, are made between the debtor
partially the credit and his creditors shall be governed by special laws.”

Manresa Definition: “consists in the abandonment of all the

 “Contract of Sale” Distinguished from “Contract to Sell” property of the debtor for the benefit of his creditors in order that
the latter may apply the proceeds thereof to the satisfaction of
Contract of Sale Contract to Sell heir credits.
Non- 1. Non-payment of 1. The payment of the
payment price is a resolutory price is a positive Dation in Payment Cession
of price condition; contract of suspensive condition. 1. One creditor is sufficient 1. There must be 2 or more
sale put an end to a Hence, if the price is creditors
transaction that once not paid, it is as if the 2. Not all properties of the 2. All the debtor’s properties
upon a time existed obligation of the debtor are conveyed are conveyed
seller to deliver and 3. Debtor may be solvent or 3. Cession takes place only if
to transfer ownership insolvent the debtor is insolvent
never became 4. The creditor becomes the 4. The creditors do not
effective and binding owner of the thing become owners of the thing
Ownership 2. Title over generally 2. Ownership is retained conveyed conveyed.
passes to the buyer by the seller,
upon delivery regardless of delivery  Sale Distinguished from Lease
and is not to pass
until full payment of
NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 2
 In a sale, the seller transfers ownership; in a lease, the lessor or CONTRACTED prior to the expiration of the period of 5 years
landlord transfers merely the temporary possession and use of from and after the date of the issuance of the patent or grant.
the property. The sale, therefore of a homestead patent which was made less
 Kinds of Extrajudicial Foreclosure Sale than 4 years after the acquisition of the couple of the land is NOT
1) Ordinary execution sale – governed by the pertinent VALID.
provisions of Rule 39 of the Rules of Court  Transfer of ownership
2) Judicial foreclosure sale – governed by the pertinent a) It is essential for a seller to transfer ownership (Art.
provisions of Rule 68 of the Rules of Court 1458) and, therefore, the seller must be the owner of the
3) Extrajudicial foreclosure sale – governed by Act 3135, subject sold. (Nobody can dispose of that which does not
amended by Act 4118, “An Act to Regulate the Sale of belong to him – nemodat quad non habet)
Property Under Special Powers Inserted In or Annexed to b) Although the seller must be the owner, he need not be
Real Estate Mortgages.” the owner at the time that he is the owner at the time of
the perfection of the contract. It is sufficient that he is he
owner at the time the object is delivered.
c) The seller need not be the owner at the time of
Article 1459. Lawfulness of the Object and Right to Transfer Ownership perfection because, after all, “future things or goods,”
inter alia, may be sold.
→ There can be a sale of future property, there can
The thing must be licit and the vendor must have a right to transfer the generally be no donation of future property. (Aer.
ownership thereof at the time it is delivered. 751, CC)
d) A person who has a right over a thing (although he is not
 2 rules: the owner of the thing itself) may sell such right. Hence,
a) The object must be LICIT a usufructuary may generally sell his usufructuary right.
b) The vendor must have the RIGHT to transfer OWNERSHIP  Santos v. Macapinlac and Pinlac, 51 Phil. 224
at the time the object is delivered FACTS: A mortgaged his land to B, but sold the land to C. give
 Licit object the effect of the transaction.
a) Word licit means lawful, i.e., within the commerce of man HELD: A, being the owner, could sell the property to C who after
b) Things may be illicit: delivery became the owner, subject to B’s right to foreclose the
1) Per se (of its nature) mortgage upon non-payment of the mortgage credit. B does not
2) Per accidens (made illegal by provision of the law) have to give C anything, even if the mortgage is foreclosed, for
c) If the object of the sale is illicit, the contract is null and the simple reason that B did not sell the property to him. Neither
void. (Art. 1409), and cannot, therefore, be ratified. did B receive the purchase price.
d) The right of redemption may be sold. So also may
literary, artistic, and scientific works. A usufruct may also Note: B has no right to nullify the contract between A and C
be sold. provided that C is in good faith.
 Artates and Pojas v. Urbi, et. al. L-29421, January 30, 1971
Under Section 118 of the Public Land Act (Com. Act 141), such  Lichauco v. Olegario and Olegario, 43 Phil. 540
homestead generally cannot be sold, cannot be encumbered and FACTS: A owed B, and was declared a judgment debtor. To pay
cannot be held liable for the satisfaction of any debt the debt, A’s properties were attached. At the auction sale, B was

NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 3
 the highest bidder. Now then, under the law, the debtor, A, has A thing is determinate when it is particularly designated or physically
the right to redeem the property sold within a certain period. A, segregated from all others of the same class.
however, sold his right of redemption to C. b now seeks a court
declaration to the effect that the sale of the right of redemption The requisite that a thing be determinate is satisfied if at the time the
to C be considered fraudulent and void. contract is entered into, the thing is capable of being made determinate
HELD: The sale of the right of redemption to C is perfectly valid, without the necessity of a new or further agreement between the parties.
since A, the seller, was the owner of the right.
 Meaning of determinate:
Note: B has no right to question the sale of the right of a) The object of the sale must be determinate, i.e., specific,
redemption of A to C, unless what was sold was the property. but it is not essential really that at the time of perfection,
the object be already specific. It is sufficient that it ne
 UyPiaco v. Micking, et. al., 10 Phil. 286 capable of being determinate without the need of any
FACTS: A corporate stockholder sold his share o another, but the new agreement
sale has not yet been recorded in the books of the corporation. Is b) However, from the viewpoint of risk or loss, not until the
the sale valid? object has really been made determinate can we say that
HELD: As between the seller and the buyer, the sale is perfectly the object has been lost, for as is well known, “generic
valid since the seller was the owner of the corporate shares. things cannot be lost.”
However, as between the corporation and the buyer, the latter  Yu Tek v. Gonzales, 29 Phil. 384
has acquired only an EQUITABLE TITLE which may eventually FACTS: Seller sold 600 piculs of sugar to buyer. Because seller
ripen into a legal title after he presents himself to the corporation was not able to produce 600 piculs on his sugar plantation he
and performs the acts required to effectuate the transfer. was not able to deliver. Is he liable?
 Martin v. Reyes, et. al, 91 Phil. 666 HELD: Yes, because no specific lot of sugar can be pointed out
HELD: The vendor need not own the property at the time of as having been lost. Sugar here was still generic.
perfection, it s being sufficient that he be the owner at the time
he is to deliver the object. The contention that there is no sale is Note: Understood correctly, however, there can sometimes be
rather too technical a viewpoint. The deed of sale may be placed the sale of a generic thing but the obligations till specific
in the same category as a promise to convey the land not yet designation is made naturally different.
owned by the vendor – an obligation which nevertheless may be
enforced. Article 1461. Things with Potential Existence
 Delpher Trades Corp. v. IAC, GR 69259, Jan. 26, 1989
The Deed of Exchange of property between A and B and Delpher
cannot be considered a contract of sale. There was no transfer of Things having potential existence may be the object of the contract of
actual ownership interests by A and B to a third party. A and B sale.
merely CHANGED their ownership from one form to another. The
ownership remained in the same hands. Hence, Hydro has no The efficacy of the sale of a mere hope or expectancy is deemed subject
basis for its claim of a right of first refusal. to the condition that the thing will come into existence.

Article 1460. Meaning of Determinate The sale of a vain hope or expectancy is void.

 Sale of a “mere hope or expectancy”

NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 4
 The hope or expectancy already exists; what does not yet exist is
the expected thing. Therefore, for the 2nd paragraph to have  Sale of goods may be future or existing.
some sense, it should refer to a sale of “an expected thing,” not  Future goods are those still to be:
to the “hope or expectancy” a) Manufactured or printed
 EmptioReiSperatae and EmptioSpei b) Raised or future agricultural products
a) EmptioReiSperatae – the sale of an expected thing c) Acquired by the seller after the perfection of the contract
b) EmptioSpei – the sale of the hope itself → This is also referred to as the sale of “hereafter-
acquired” property
d) Things whose acquisition depends upon a contingency
EmptioReiSperatae EmptioSpei which may or may not happen
If the expected thing does not materialize:
The sale is not effective It does not matter whether the Article 1463. Sale of Undivided Interest
expected thing materialize or
not; what is important is that
the hope itself validly existed. The sole owner of a thing may sell an undivided interest therein.
What it deals:
Deals with a future thing – Deals with a present thing –  Fergusin v, Northern Bank of Ky., 14 Buck [Ky] 555, 29 Am. Rep.
that which is expected for certainly hope or 418)
expectancy already exists If I own a house, I may sell an aliquot part thereof (say ½ or
1/3) to somebody, I which case he and I will become co-owners.
Note: The presumption is in favour of an emptioreisperatae.  A full owner may sell the usufruct of his land leaving the naked
 Vain Hope or Expectancy ownership to himself.
If the hope or expectancy itself is vain, the sale is itself VOID. Be  Asian Terminals, Inc. v. Philam Insurance Co., Inc. 702 SCRA 88
it noted that this is NOT an aleatory contract for while in an A letter of credit (L/C) is a financial device developed by
aleatory contract there is an element of chance, here, there is merchants as a convenient and relatively safe mode of dealing
completely NO CHANCE. with sale of goods to satisfy the seemingly irreconcilable interests
Example: Sale of a losing ticket for a sweepstakes already run. of a seller, who refuses to part with his goods before he is paid,
Exception: If the ticket be a collector’s item. and a buyer, who wants to have control of his goods before
paying
Article 1462. Sale of Goods

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. Article 1464. Sale of Share in a Specific MassGoods

NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 5
 b) A usufruct that may end when the naked owner becomes a lawyer
may be sold
In the case of fungible goods, there may be a sale of an undivided share c) A sold B the former’s land a retro. After delivery to B, B becomes an
of specific mass, though the seller purports to sell and the buyer to buy a absolute owner subject to the right of redemption. This land may be
definite number, weight or measure of the goods in the mass, and sold by B to C, a stranger, subject to the right of redemption; i.e., C
though the number, weight or measure of the goods in the mass in must respect the right of A to redeem the property within the
undetermined. By such sale the buyer becomes owner in common of stipulated period if:
such a share of the mass as the number, weight or measure bought 1) A’s right is registered
bears to the number, weight or measure of the mass. If the mass 2) Or even if not, if C had actual knowledge of the right of
contains less than the number, weight or measure bought, the buyer redemption. (It has been held that actual knowledge is
becomes the owners of the whole mass and the seller s bound to make equivalent to registration)
good the deficiency from goods of the same kind and quality, unless a
contrary intent appears. Article 1466. Distinctions Between a ‘Contract of Sale’ and an ‘Agency
to Sell’ (like a Consignment for Sale)
 Example: In a stock of rice, the exact number of cavans of which
is still unknown, Jose buys 100 cavans. If there are really 150,
Jose becomes the co-owner of the whole lot, his own share being In construing a contract containing provisions characteristic of both the
2/3 thereof. contract of sale and of the contract of agency to sell, the essential
 Cassinelli v. Humphrey Supply Co., 183 Poc. 523 clauses of the whole instrument shall be considered.
The sale is of a specific object since the mass is specific.
 Forest Hills Golf and Country Club v. Vertox Sales and Trading,
Inc., 692 SCRA 706
The corporation whose shares of stocks are subject of a transfer
transaction(through sale, assignment, donation or any other Contract of Sale Agency to Sell
mode of conveyance) need not e a party to the transaction. Price The buyer pays the price The agent delivers the price
However, to bind the corporation as well as third parties, it is which in turn he get from his
necessary that the transfer is recorded in the books of the buyer
corporation. Ownership The buyer after delivery The agent who is supposed
becomes the owner to sell does not become the
owner, even if the property
has already been delivered to
Article 1465. Sale of Things Subject to a Resolutory Condition him
Warranty The seller warrants The agent who sells assumes
no personal liability as long
Things subject to a resolutory condition may be the object of the contract as he acts within his
of sale. authority and in the name of
the principal.
Examples:
a) A property subject to reservatroncal may be sold.  BAR QUESTION:

NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 6
 X acquired a booklet of 10 sweepstakes tickets directly from the FACTS: In a contract between the US Rubber International
office of the PCSO. X paid P1,800 for the booklet, less the customary Company and Ker and Co., the former consigned to the latter certain
discount. What was the legal nature of X’s act in acquiring the goods to be sold by the distributor. Prior to such sale, the Rubber
tickets? Did he enter into a contract of purchase and sale? Briefly Company would remain the owner. The contract, however, stated
explain your answer. expressly that Ker and Co. was not being made an agent, and could
ANS.: Yes, X entered into a contract of purchase and sale, not bind the company.
notwithstanding the fact that he may be referred to as “agent” of ISSUE: Between the 2 entities here, was there as contract of
the Sweepstakes Office, and the fact that he may be entitled to an SALE or one of AGENCY TO SELL?
“agent’s prize” should one of the tickets purchased win a principal HELD: This was an AGENCY TO SELL despite the disclaimer in
prize. The truth is that he is not required to re sell the tickets, and the contract referring to the non-representation. What is important is
even if he were to do so, still failure on the part of his purchasers to that the US Rubber International retained ownership over the goods,
pay will not allow him to recover what he himself has paid to the and the price subject to its control, despite the delivery.
office. Moreover, the delivery of the tickets to him transferred their
ownership to him; this is not true in the case of an agency to sell.
Furthermore, it has been said that in a contract of sale, the buyer
pays the price; while in agency to sell, the agent delivers the price. Article 1467. Contract of Sale or a Piece of Work
The mere fact that a “discount” or so called commission has been
given is immaterial. (Quiroga v. Parsons Hardware Co., 38 Phil. 501)
A contract for the delivery at a certain price of an article which the
vendor in the ordinary course of his business manufactures or procures
 Quiroga v. Pasons Hardware Co., 38 Phil. 501 for the general market, whether the same is on hand at the time or not,
FACTS: Plaintiff granted defendant the right to sell as an “agent” is a contract of sale, but if the goods are to be manufactures specially for
Quiroga beds in the Visayas. The defendant was obliged under the the customer and upon his special order, and not for the general market,
contract to pay for the neds, at a discount of 25% as commission on it is a contract for a piece of work.
the sales. The payment had ti be made whether or not the
defendant was able to sell the beds. Is this a contract of sale, or an  Rules to determine if the contract is one of sale or a piece of work
agency to sell? a) If ordered in the ordinary course of business – SALE
ANS: This is clearly a contract of sale. There was an obligation b) If manufactured specially and not for the market – PIECE OF
to supply the beds, and a reciprocal obligation to pay their price. An WORK CONTRACT
agent does not pay the price, he merely delivers it. If he is not able  Schools of taught
to sell, he returns the goods. This not true in the present contract, a) Massachusetts Rule: If specially done at the order of another,
for the price was fixed and there was a duty to pay the same this is a contract for a piece of work
regardless as to whether or not the defendant had sold the beds. → We follow Massachusetts Rule in the Phi;ippines
The phrase “commission on sales” means nothing more than a mere b) New York Rule: If the thing already exists, it is a SALE, if not,
discount on the invoice price. The word “agent” simply means that WORK
the defendant was the only one who could sell the plaintiff’s beds in c) English Rule: If material is more valuable, SALE; if skill is more
the Visayas. At any rate, a contract is what the law defines it to be, valuable, WORK
and not what it is called by the contracting parties.  QUERY:
 Ker and Co., Ltd, v. Jose B. Lingad, L-20871, April 30, 1971

NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 7
 If I ask someone to construct a house for me, is this a contract of contract shall be inefficacious, unless the parties subsequently agree
sale or for a piece of work? upon the price.
ANS: If he will construct on his own land, and I will get both
the land and the house it would seem that this can be very well If the third person or persons acted in bad faith or by mistake, the courts
treated as a sale. may fix the price.

Article 1468. Contract of Sale or Barter Where such third person or persons are prevented from fixing the price
or terms by fault of the seller or the buyer, the party not in fault may
have such remedies against the party in fault as are allowed the seller or
If the consideration of the contract consists partly in money, and partly in the buyer, as the case may be.
another thing, the transaction shall be characterized by the manifest
intention of the parties. If such intention does not clearly appear, it shall  The price must be certain; otherwise, there is no true consent
be considered a barter if the value of the thing given as part of the between the parties
consideration exceeds the amount of money or its equivalent; otherwise, → There can be no sale without a price
it is a sale. →If the price is fixed but is later on remitted or condoned, this is
perfectly all right, for then the price would not be fictitious
 Rules to determine whether contract is one of sale or barter →The failure to pay the agreed price does not cancel a sale for lack
a) First rule – intent of consideration, for the consideration is still there, namely, the
b) If the intent does not clearly appear – price.
1) If the thing is more valuable than money – BARTER  If the money is counterfeit, would sale be still valid?
2) If 50-50 – SALE ANS: Yes, for we cannot say that the consideration or cause of
3) If thing is less valuable than he money – SALE the contract is the illegal currency. The real consideration or cause is
still be the VALUE or price agreed upon.

 Reparations Commission v Judge Morfe, GR 35796, Jan. 31, 1983

If a contract for the acquisition of reparation goods does not specify
the conversion rate of the dollar value of the goods, the conversion
rate shall be the exchange rate of exchange prevailing in the free
market at the time the goods are delivered.
 If no specific amount has been agreed upon, the price is still
considered certain:
Article 1469. Certainty of the Price a) if it be certain with reference t another thing certain;
b) if the determination of the price is left to the judgment of a
specified person or persons;
In order that the price may be considered certain, it shall be sufficient c) in the case provided for under Art. 1472, Civil Code
that it be so with reference to another thing certain, or that the  Robles v. LizarragaHermanos, 50 Phil. 387
determination thereof be left to the judgment of a specified person or If the buyer and seller agreed on a sale and on determining the
persons. price by a joint appraisal, the sale is still valid even if the buyer later
on refuses to join the appraisal. The bad faith of the buyer holds him
Should such person or persons be unable or unwilling to fix it, the
NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 8
 liable for the true value of the object. The true value can be Article 1471. Simulated Price
established by competent evidence.

Article 1470. Gross Inadequacy of Price If the price is simulated, the sale is void, but the act may be shown to
have been in reality a donation, or some other act or contract.

Gross inadequacy of price does not affect a contract of sale, except as it  The price must not be fictitious. Therefore, if the price is merely
may indicate a defect in the consent, or that the parties really intended a simulated, the contract as a sale is void. It may however, be valid as
donation or some other act or contract. a donation or some other agreement provided the requirements of
donations or other agreements have been complied with. If these
 Effect of Gross Inadequacy of Price requirements do not exist, then as a sale, the contract is absolutely
a) In ordinary sale, the sale remains valid even if the price is very void, not merely voidable. An action for annulment is therefore
low. Of course, if there was vitiated consent, the contract may essential. (De Belen v. Collector of Customs, 46 Phil. 241)
be annulled but only due to such vitiated consent.  A simulated price is fictitious. There being no price, there is no cause
→ The fact that the bargain was a hard one is not important, or consideration; hence, the contract is void as a sale. However it is
the sale having been made freely and voluntarily (Askay v enough that the price be agreed on at the time of perfection. A
Cosolan, 46 Phil. 79) rescission of the price will not invalidate the sale.
→ The rule holds true even if the price seems too
inadequate as to shock the conscience of man. (Alarcon v.  If the sale of conjugal property is FICTITIOUS and therefore non-
Kasilag, 40 OG Sup. No. 16, p.203) existent, the widow who has an interest in the property subject of
b) In execution of judicial sales – While mere inadequacy of price the sale may be allowed to contest the sale, even BEFORE the
will not set aside a judicial sale of real property, still the price liquidation of the conjugal partnership, making the executor a party-
is so inadequate as to shock the conscience of the Court, it will defendant if he refuses to do so. (Borromeo v. Borromeo, 98 Phil.
set aside. 432)
→ As a matter of fact, it may be that the extremely low price 
was the result not of a sale but of a contract of loan, with Article 1472. Certainty of Priceof Securities
the price paid as the principal and the object, given
merely as security. In case like this, the contract will be
interpreted to be one of loan with an equitable mortgage. The price of securities, grain, liquids, and other things shall also be
The remedy would then be the reformation of the considered certain, when the price fixed is that which the thing sold
instrument. would have on a definite day, or in a particular exchange or market, or
→ A buyer at a judicial sale is allowed to resell to others when an amount is fixed above or below the price on such day or in such
what he has acquired. The mere fact that he demands a exchange or market, provided such amount be certain.
very high price is of no consequence.
 It is possible that a donation, not a sale, was really intended. In  Example: I can sell to you today my Mont Blanc fountain pen at the
such a case, the parties may prove that the low price is sufficiently price equivalent to the stock quotation 2 days from today of 100
explained by the consideration of liberality. (Art. 1470, last shares of PLDT
paragraph)  If the stock quotation price 2 days later cannot really be ascertained
at that time, the sale is inefficacious. Note the last clause in the
article – “provided said amounts be certain.”
NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 9
 pay a reasonable price therefore. What is reasonable price is a
question of fact dependent on the circumstance of each particular
case.

Article 1473. Price Cannot be Left to One Party’s Discretion

Article 1475. Nature of Contract
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 The contract of sale is perfected at the moment there is a meeting of
accepted by the other, the sale is perfected. minds upon the thing which is the object of the contract and upon the
price.
 Reason why price fixing cannot be left to the discretion of one of
them: the other could not have consented to the price for he did not From that moment, the parties may reciprocally demand performance,
know what it was subject to the provisions of the law governing the form of contracts.

Article 1474. Effect If the Price Cannot be Determined  Sale is a consensual contract (perfected by mere consent).
Therefore, delivery or payment is not essential for perfection.
Where the price cannot be determined in accordance with the preceding (Warner, Barnes v. Inza, 43 Phil. 404)
articles, or in any other manner, the contract is inefficacious. However, if  The contract of sale is consummated upon delivery and payment.
the thing or any part thereof has been delivered to an appropriated by (Naval v. Enriquez, 3 Phil. 669)
the buyer, he must pay a reasonable price therefore. What is a  Pacific Oxygen and Acetylene Co. v. Central Bank, L-23391, Feb 27,
reasonable price is a question of fact, dependent on the circumstance of 1971
each particular case. The sale of foreign exchange of foreign currency is perfected from
the moment the contract of such sale is EXECUTED, not from the
 If the price cannot really be determined, the sale is void for the moment of payment or delivery of the amount of foreign currency to
buyer cannot fulfil his duty to pay the creditor.
 Of course, if the buyer has made use of it, he should not be allowed  Obana v. Court of Appeals, GR 36249, March 29, 1985
to enrich himself unjustly at another’s expense. So he must pay a FACTS: A rice miller accepted the offer of a person to buy 170
“reasonable price.” The seller’s price, however, must be the one paid cavans of clean rice at P37.26 per cavan. They agreed that the rice
if the buyer knew how much the seller was charging and there was will be delivered the following day at the buyer’s store, where the
an acceptance of the goods delivered. Here, there is an implied buyer will pay the purchase price to the miller’s representative. As
assent to the price fixed. agreed upon, the miller did deliver the 170 cavans of rice to the
 PROBLEM: buyer’s store but the buyer was nowhere to be found when the
Romy sells his Land Rover SUV (2012 model) to Oscar and leaves it miller’s representative tried to collect the purchase price.
to Oscar to determine the price. If Oscar refuses to fix a price and HELD: There was a perfected sale. Ownership of the rice, too,
simply take the 4-wheeler, is he still obliged t pay the price? Explain. was transferred to the buyer when the miller’s representative
delivered it to the buyer’s store. At the very least, the buyer had a
ANS: Yes, Oscar is bound to pay the reasonable value thereof rescissible title to the goods, since he did not pay the purchase price
on the basis of quasi-contract. Article 1474 of the Civil Code provides when the rice was delivered to him.
that where the price has not been fixed by the parties and the thing
or part thereof has been delivered to an appropriate buyer, he must
NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 10
 Lu v. IAC, Heirs of Santiago Bustos and Josefina Alberto, GR 70149, Since NEDA kept the check proceeds of a sale for 7 months without
Jan. 30, 1989 any comment, it cannot now express its objections to the sale
If the condition precedent for the sale of the property fails to  Before perfection of the contract of sale, no mutual rights and
materialize, there can be no perfected sale. obligations exist between the would-be buyer and the would-be
The decisive legal circumstance is not where the private receipts seller. The same thing is true when perfection is conditioned upon
bore the elements of a sale. The real controversy is on whether the something, and that thing is not performed. (Roman v. Grimalt, 6
contract arising from said receipts can be enforced in the light of the Phil. 96)
priority right of petitioner under the registered contract. It is well-  It has been held that in our country, an accepted bilateral promise to
settled in this jurisdiction that prior registration of a lien creates a buy and sell is in a sense similar to, but not exactly the same as, a
preference, since the act of registration shall be the operative act to perfect contract of sale. This is expressly permitted under the Civil
convey and affect the land. Code, Art. 1479, first paragraph, which reads: “A promis to buy and
 Requirements for Perfection sell a determinate thing for a price certain is reciprocally
a) When parties are face to face, when a offer is accepted without demandable.”
conditions and without qualifications  Formalities for Perfection
 A conditional acceptance is a counter-offer Under the Statute of Frauds, the sale of:
 If negotiated through a phone, it is as if the parties are a) Real property (regardless of amount)
face to face b) Personal property – if P500 or more must be in writing to be
b) When contract is through correspondence or through telegram, enforceable. (Art. 1403, No. 2, Civil Code)
there is perfection when the offeror receives or has knowledge
of the acceptance by the offeree. If orally made, it cannot be enforced by a judicial action, except
 If the buyer has already accepted, but the seller does if it has been completely or partially executed, or except if the
not know yet of the acceptance, the seller may still defense of the Statute of Frauds is waived. (Art. 1405, Civil
withdraw. Code)
c) When a sale is made subject to a suspensive condition,
perfection is had from the moment the condition is fulfilled. Also in writing should be sales which are to be performed only
 Atkins, Kroll and Co., Inc. v. B. CuaHianTek, L-9871, Jan. 31, 1958 after more than 1 year (from the time the agreement was
The sale was perfected in view of the acceptance of the offer. The entered into) – regardless as to whether the property is real or
acceptance of an offer to sell by promising to pay creates a bilateral personal, and regardless of the price involved.
contract, so much so that if the buyer had backed out after  Cirilo Paredes v. Jose L. Espino, L-23351, March 13, 1968
accepting by either refusing to get the thing sold or refusing to pay The contract is enforceable. The Statute of Frauds does not require
the price, he could be sued. that the contract itself be in writing. A written note or memorandum
 Roque v. Lapuz, L-32811, March 31, 1980 signed by the party charged (Espino) is enough to make the oral
In a contract to sell where ownership is retained by the seller and is agreement enforceable. The letters written by Espino together
not to pass until the full payment of the price, such payment is a constitute a sufficient memorandum of the transaction; they are
positive suspensive condition, the failure of which is not a breach, signed by Espino, refers to the property sold, give its area, and the
casual or serious, but simply an event that prevented the obligation purchase price – the essential terms of the contract. A “sufficient
of the vendor to convey title from acquiring binding force. memorandum” does not have to be a single instrument – it may be
 Republic v. CA, L-52774, Nov. 29, 1984 found in 2 or more documents.
 PROBLEMS:

NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 11
a) A sold to B orally a particular parcel of land for P5 million. right may be exercised simultaneously with the action upon the
Delivery and payment were to be made four months later. When contract.”
the date arrived, A refused to deliver. So B sued to enforce the  Article 1357 can be availed provided:
contract. If you were A’s attorney, what would you do? 1) The contract is VALID; and
ANS: I would file a motion to dismiss on the ground that there 2) The contract is ENFORCEABLE, that is, it does not
is no cause of action in view of the Statute of Frauds. If I do not violate the Statute of Frauds.
file said motion, I still have another remedy. In my answer, I  If the contract is oral but already executed completely or
would allege as a defense the fact that there is no written partially, Art. 1357 can be availed of, for in this case the
contract. If I still do not do this, I have one more chance: I can Statute of Frauds is not deemed violated.
object to the presentation of evidence – oral testimony – on the
point – but only if it does not appear on the face of the
complaint that the contract was ORAL.
b) Give the effect of failure to do any of the things enumerated in  If a parcel of land is given by way of donation inter vivos,
the preceding paragraph. to be valid it must be in public instrument. Now then, if
ANS: The defense of the Statute of Frauds is deemed waived, land is donated orally, Art. 1357 cannot be used whether or
and my client would be now compelled to pay, if the judge not the land has been delivered. This is because the
believes the testimony of the witnesses. donation is VOID. Before Art. 1357 is availed of, the
contract must first of all be valid and perfected.
c) A sold to B orally a particular parcel of land for P5,000. Delivery Exempted from the rule is the case of donation propter
was made of the land. The payment of the price was to be made nuptiasof land, because here the law expressly provides
3 months later. At the end of the period, B refused to pay, and that as to formalities, such a donation must merely comply
claimed in his defense the Statute of Frauds. Is B correct? with the Statute of Frauds. (Art. 127, Civil Code) Therefore,
ANS: B is wrong because the contract in this case has already even if made orally, a donation propter nuptias of land, if
been executed. It is well known that the Statute of Frauds refers already delivered, is enforceable and valid and Art. 1357
only to executory contracts. applies. Of course, if there has been no delivery yet, the
It is clear in the problem that the delivery of the land had been oral wedding gift of land is still unenforceable and Art. 1357
made and that there had been due acceptance thereof. Indeed, cannot apply.
to allow B to refuse to pay would amount to some sort of fraud.  Advertisements are mere invitations to make an offer (Art. 1325,
As has been well said by the Supreme Court, the Statute of Civil Code) and, therefore, one cannot compel the advertiser to sell.
Frauds was designed to prevent, and not to protect fraud.  Transfer of ownership
d) A sold to B in a private instrument a parcel of land for P5,000. B a) Mere perfection of the contract does not transfer ownership.
now wants A to place the contract in a public instrument so that Ownership of the object sold is transferred only after delivery
B could have the same registered in the Registry if Property. Is (tradition), actual, legal or constructive. The rule is, therefore
B given the right to demand the execution of the public this: After delivery of the object, ownership is transferred.
instrument? b) A stipulation that even with delivery there will be no change or
ANS: Yes. Under Art. 1357: “If the law requires a document or transfer of ownership till the purchase price has been fully paid
other special form, as in the acts and contracts enumerated in is valid but the stipulation is not binding on innocent third
Art. 1358, the contracting parties may compel each other to persons such as customers at a store. The customers must not
observe that form, once the contract has been perfected. This be prejudiced.

NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 12
 EarnshawDocks and HI Works v. Coll. Of Int. Rev., 54 Phil. 696 Article 1476. Sale by Auction
Even if the object sold has not yet been delivered, once there has
been a meeting of the minds, the sale is perfected and, therefore,
the sales tax is already due. It accrues on perfection, not on the In the case of a sale by auction:
consummation of the sale.
1) Where goods are put up for sale by auction in lots, each lot is the
subject of a separate contract of sale.
Retail sales of flour to bakeries to be manufactured into bread are 2) A sale by auction is perfected when the auctioneer announces its
subject to tax; if wholesale, they are not subject to tax. To perfection by the fall of the hammer, or in other customary manner.
determine if the sale is wholesale or retail, we must not consider the Until such announcement is made, any bidder may retract his bid; and
quantity sold, but the character of the purchase. If the buyer buys the auctioneer may withdraw the goods from the sale unless the
the commodity for his own consumption, the sale is retail and is auction has been announced to be without reserve.
subject to tax; if for resale, the sale is deemed wholesale, regardless 3) A right to bid may be reserved expressly by on behalf of the seller,
of the quantity, and is not subject ti the particular tax referred to. unless otherwise provided by law or by stipulation
 After perfection the parties must now comply with their mutual 4) Where notice has not been given that a sale by auction is subject to a
obligations. Thus, the buyer can now compel the seller to deliver to right to bid in behalf of the seller, it shall not be lawful for the seller to
him the object purchased. In the meantime, the buyer has only the bid himself or to employ or induce any person to bid at such sale on
personal, not a real right. Hence, if the seller sells again a parcel of his behalf or for the auctioneer, to employ or induce any person to bid
land to a stranger who is in good faith, the proper remedy of the at such sale on behalf of the seller or knowingly to take any bid from
buyer would be to sue for damages. He cannot successfully bring an the seller or any person employed by him. Any sale contravening this
accion reivindicatoria against the stranger for he cannot recover rule may be treated as fraudulent by the buyer.
ownership over something he had never owned.
 Bucton, et. al v. Gabar, et. al, L-36359, Jan. 31, 1974  The sale is perfected when the auctioneer announces its perfection
No, the action has not really prescribed. The error of the Court of by the fall of the hammer or in other customary manner.
Appeals is that it considered the execution of the receipt (1946) as
the basis of the action. The real basis of the action is Bucton’s  Before the hammer falls:
ownership (and the possession of the property). No enforcement of a) The bidder may retract his bid (Art. 1476[2]) Reason: Every
the contract of sale is needed because the property has already bidding is merely an offer and, therefore, before it is accepted,
been delivered to Bucton, and ownership thereof has already been it may be withdrawn. The assent is signified on the part of the
transferred by operation of law under Art. 1434, referring to the seller by knocking down the hammer.
property sold by a person (Gabar), who subsequently becomes the b) The auctioneer may withdraw the goods from the sale (Art.
owner thereof. The action here, therefore, is one to quite title, and 1476[2]) Reason: This bid is merely an offer, not an acceptance
as Bucton is in possession, the action is imprescriptible. of an offer to sell. Therefore it can be rejected. What the
auctioneer does in withdrawing is merely reject the offer.
 Under what conditions may the seller bid? (Art. 1476, pars. 3 and 4)
a) When such a right to bid was reserved;
b) And notice was given that the sale by auction is subject to a
right to bid on behalf of the seller

NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 13
 The seller may employ others to bid for him provided he has notified A negotiated contract is one that is awarded on the basis of a direct
the public that the auction is subject to the right to bid on behalf of agreement between the Government and the contractor without
the seller. (Art. 1476, par. 4) People who bid for the seller, but are going through the normal procurement process, like obtaining the
not themselves bound, are called “by-bidders” or “puffers.” Without prior approval from another authority, or a competitive bidding
the notice, any sale contravening the rule may be treated by the process.
buyer as fraudulent. Article 1477. When Ownership is transferred
 It may happen that the owner is not himself the auctioneer. Now
then if the auctioneer employs puffers and gives no notice to the
public, the sale would still be fraudulent, whether or not the owner The ownership of the thing sold shall be transferred to the vendee upon
of the goods knew what the auctioneer had done. (Carreta v. the actual or constructive delivery thereof.
Castillo, 209 NYS. 257)
 Veazie v. Williams, et. al, 12 L. Ed. 1081  Ownership is not transferred by perfection but by delivery. This is
The sale can be annulled in view of the fraud. Had the public been true even if the sale has been made on credit; payment of the
informed of the puffers, this would have been different. To escape purchase price is NOT essential to the transfer of ownership, as long
censure, notice of by bids is essential. By-bidding, if secret, deceives as the property sold has been delivered.
and involves a falsehood and is, therefore, bad. It is not enough to  Kinds of delivery
apologize and say that by-bidding is after all common. It does not a) Actual (Art. 1497, Civil Code)
matter that the owner did not know of the auctioneer’s fraud. After b) Constructive (Arts. 1498-1601, Civil Code), including “any other
all, the auctioneer was merely the agent. manner signifying an agreement that the possession is
 Leoquico v. Postal Savings Bank, 47 Phil. 772 transferred.” (Art. 1496, Civil Code)
Action will not prosper for there was really no sale. By participating
in the auction and offering his bid, he voluntarily submitted to the  C.N. Hodges, et. al. v. Jose Manuel Lezama, et.al. L-20630, Aug. 31,
terms and conditions of the auction sale announced in the notice 1965
and he, therefore, clearly acknowledged the right of the Board to If upon the sale by Hodges to Borja, Borja became the owner
reject any or all bids. The owner of the property offered for sale thereof, then, upon Hodge’s purchase of the shares at the
either at public or private auction has the right to prescribe the foreclosure proceedings, Hodges acquired ownership over the same.
manner, conditions and terms if such sale. He may even provide that Stock Certificate 18 must be cancelled; a new one must be given to
all of the purchase price shall be paid at the time of the sale, or any Hodges; and eventually, a new one also issued to Gurrea after the
portion thereof, or that time will be given for the payment. The deal between Hodges and Gurrea is finally settled.
conditions are binding upon the purchaser, whether he knew them Article 1478. When Ownership is not transferred despite delivery
or not.
 CFI of Rizal and Elena Ong Escutin v. CA and Felix Ong, July 25,
1981 The parties may stipulate that ownership in the thing shall not pass to
A private sale authorized by a probate court cannot be assailed by a the purchaser until he has fully paid the price.
person who is not an “interested party” one who merely offered a
higher price (without actually buying the property) is not an  Generally, ownership is transferred upon delivery, but even if
“interested party.” It would have been different had there been a delivered, the ownership may still be with the seller till full payment
public auction. of the price is made, if there is a stipulation to his effect. But, of
 Republic v. Reyes-Bakunawa, 704 SCRA 163 course, innocent third parties cannot be prejudiced. The stipulation
is usually known as pactum reservati dominii and is common in
NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 14
 sales on the installment plan. (Perez v. Erlanger and Galinger, Inc.,
[C.A] 54 OG 6088) Usually, if such a stipulation is present the sale is  Atkins, Kroll and Co., Inc. v. B. Cua Hian Tek, L-9871, Jan. 31, 1958
technically referred to not as a contract of sale, but a contract to (Also cited under Art. 1476)
sell, the payment of the price being a condition precedent. If no If the option is given without a consideration, it is a mere offer of a
payment is made, the buyer can naturally be ejected. And here, the contract of sale, which is not binding until accepted. If, however,
seller is truly enforcing, not rescinding the contractual agreement. acceptance (of the sale) is made before withdrawal, it constitutes a
(Santos, et. al. v. Santos, [CA] 47 OG 6372) binding contract of sale, even though the option was not supported
 The Court held that the stipulation regarding the payment of the by a sufficient consideration.
balance is NOT the same as the stipulation that “ownership in the  Policitacion is a unilateral promise to buy or sell which is not
thing shall not pass to the purchaser until he has fully paid the accepted. This produces no juridical effect and creates no legal
price.” Hence, the purchaser in this case still becomes the owner of bond. This is a mere offer, and has not yet been conversed into a
the object sold upon its actual or constructive delivery to him, in contract.
accordance with the general rule.
 A bilateral promise to buy and sell a certain thing for a price certain
gives to the contracting parties personal rights in that each has the
Article 1479. Mutual Promise and Accepted Unilateral Promise right to demand from the other the fulfilment of the obligation.
(Borromeo v. Franco, et. al., 5 Phil. 49)
 Borromeo v. Franco, et. al., 5 Phil. 49
A promise to buy and sell a determinate thing for a price certain is The agreement on B’s part to complete the title papers is not a
reciprocally demandable. condition precedent of the sale, but a mere incidental stipulation.
This is so because the duty to deliver depends on the payment of
An accepted unilateral promise to buy or to sell a determinate thing for a the price, and vice versa, but not on the perfection of the title
price certain is binding upon the promissory if the promise is supported papers. It may be assumed that B is willing to but the property even
by a consideration distinct from the price. with a defective title.
 A mere executor sale, one where the seller merely promises to
 Distinction between the First (Mutual Promise) and the Second transfer the property at some future date, or where some conditions
Paragraphs (Accepted Unilateral Promise) have to be fulfilled before the contract is converted from an executor
to an executed one, does not pass ownership over the real estate
Mutual Promise Accepted Unilateral Promise that may have been sold. (McCullough and Co. v. Berger, 43 Phil.
There is a promise to buy and sell, Only one makes the promise. This 823) The parties can, however, demand specific performance or
clearly a bilateral reciprocal promise is accepted by the other. damages for the breach. (Mas v. Lanuza, et. al., 5 Phil. 457)
contract.  Palay, Inc. v. Clave, GR 56076, Sept. 21, 1983
The seller of the subdivision lot unilaterally rescinded the contract to
This is as good as a perfected sale. It is binding on the promissory only
sell but failed to give notice to the buyer of said rescission. The
Of course, no title of dominion is if the promise is supported by a
judge declared the rescission illegal for want of the necessary notice
transferred yet, the parties, being consideration distinct from the
and ordered the seller to return the lot or an adequate substitute to
given the right only to demand price, which means that the option
the buyer. If the property has been sold to a 3 rd person, and no
fulfilment or damages. can still be withdrawn, even if
other lot is available, the buyer is entitled to a refund of instalments
accepted, if the same is not
paid plus 12% interest from date suit was filed.
supported by any consideration.
NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 15
 The acceptance of a unilateral promise to sell must be plain, clear
and unconditional. Therefore, if there is a qualified acceptance with  Who bears the risk of loss?
terms different from the offer, there is no acceptance, that is, there  If object is lost BEFORE PERFECTION, the SELLER bears the loss.
is no promise to buy and there is no perfected sale. (Beaumonth v. → Reason: There was no contract, for there was no cause or
Prieto, 41 Phil. 670) consideration. Being the owner, the seller bears the loss.
This means that he cannot demand payment of the price.
 If the object was lost AFTER DELIVERY to the buyer, clearly, the
 An Option is an contract granting a person the privilege to buy or BUYER bears the loss. (Res perit domino – the owner bears the
not to buy certain objects at any time within the agreed period at a loss)
fixed price. The contract of option is a separate and distinct contract  If the object is lost AFTER PERFECTION BUT BEFORE DELIVERY,
from the contract which the parties may enter into upon the the BUYER bears the loss, as exception to the rule of res perit
consummation of the contract; therefore, an option must have its domino.
own cause or consideration. (Enriquez de la Cavada v. Diaz, 37 Phil. → Reasons:
1982) a) Had the sale been perfected, the buyer would have borne
 Filemon H. Mendoza, et.al. v. Aquilina Comple, L-19311, Oct. 29, the loss, that is, he would still have to pay for the object
1965 even if no delivery has been made.
Comple is not required to sell the property to Mendoza, for this was b) Article 1480 (pars. 1 and 2) clearly, states that injuries
merely a unilateral promise on the part of Comple to sell, without a between perfection and delivery shall be governed by Art.
corresponding promise on the part of Mendoza to buy. Comple’s 1272, among others. And Art. 1262 says that “an
promise is not binding on him since there was NO CONSIDERATION obligation which consists of a determinate thing shall be
DISTINCT from the price. Hence, even if Comple’s promise had extinguished if it should be lost or destroyed without the
already been accepted by the would-be buyer, Comple could still fault of the debtor, and before he has incurred in delay.”
legally withdraw from the agreement. The answer would have been (This means that the obligation of the seller to deliver is
different, if Mendoza had himself promised to buy. extinguished, but the obligation to pay is not
extinguished.)
Article 1480. Who Bears the Risk of Loss c) Article 1583 says: “In case of loss, deterioration, or
improvement of the thing before its delivery, the rule in
Article 1189 shall be observed, the vendor being
Any injury to or benefit from the thing sold, after the contract has been considered the debtor.” Article 1189, in turn, says in part:
perfected, from the moment of the perfection of the contract to the time “If the thing is lost without the fault of the debtor, the
of delivery, shall be governed by Articles 1163 to 1166, and 1262. obligation shall be extinguished.”
d) Since the buyer gets the benefits during the intervening
This rule shall apply to the sale of fungible things, made independently period, it is clear that he must also shoulder the loss.
and for a single price, or without consideration of their weight, number
or measure. → Exceptions:
a) If the object sold consist of fungibles sold for a price fixed
Should fungible things be sold for a price fixed according to weight, according to weight, number or measure. (Art. 1480, Civil
number or measure, the risk shall not be imputed to the vendee until Code)
they have been weighed, counted or measured, and delivered, unless the
latter has incurred in delay.
NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 16
 b) If the seller is guilty of fraud, negligence, default or  There can be a sale by sample even if the sale is “as is.
violation of contractual term. (Arts. 1165, 1262, 1170,  Bell purchased a quantity of bed sheets which were wrapped up in
Civil Code) bales. The sale was done in a warehouse. Some bed sheets were
c) When the object is generic because “genus never pulled out, displayed and found to be all right. Bella then purchased
perishes” (genus nunquam perit) 100 bales, which she later discovered to be bug-eaten. What, if any,
 Fungibles are personal property which may be replaced with are Bella’s rights?
equivalent things. ANS: This is a sale by sample. Bella is allowed:
1) To return the bed sheets and recover the money paid; or
Article 1481. Sale by Description or By sample 2) She may retain said sheets and still sue for the breach of
warranty.

In the contract of goods by description or by sample, the contract may Article 1482. Earnest Money
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 Whenever earnest money is given in a contract of sale, it shall be
by description, it is not sufficient that the bulk of goods correspond with considered as part of the price and as proof of the perfection of the
sample if they do not also correspond with the description. contract.

The buyer shall have a reasonable opportunity of comparing the bulk

 Earnest Money (Arras) is something of value t show that the buyer
with the description or the sample.
was really earnest, and given to the seller to bind the bargain.
 Definitions
 Under the Civil Code, earnest money is considered:
 Sale by description – where seller sells things as being of a
a) Part of the purchase price
certain kind, the buyer merely relying on the seller’s
→ From the total price must be deducted the arras; the
representation or descriptions
balance is all that has to be paid.
→ Generally, the buyer has not previously seen the goods
b) As proof of the perfection of the contract
or even if he as seen them, he believes that the
description tallies with the goods he has seen
 Sale by sample – that where the seller warrants that the bulk Earnest money Money given as consideration for
of the goods shall correspond with the sample in kind, an option
quality and character.  Applies to a PERFECTED sale  Option money applies to a sale
→ Only the sample is exhibited. The bulk is not present, NOT yet perfected
and so there is an opportunity to examine and inspect  The money is part of the  The money is NOT part of the
 Sale by description and sample – must satisfy the purchase price purchase price
requirements in both, and not in only one  The buyer is required to pay  The would-be buyer is not
 The mere exhibition of the sample does not necessarily make it a the balance required to buy
sale by sample. This exhibition must have been the sole basis or
inducement of the sale.  Vicente and Michael Lim v CA and Liberty H. Luna, GR 118347,
 A sale by sample may still be had even if the sample was October 24, 1996
shown only in connection with a sale to the first purchaser.

NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 17
 He agreement Luna and the Lims amounted to a perfected contract
if sale with the earnest money being proof of the perfection of the  Requisites before Art. 1484 may be applied: PICS
contract. Failure of Luna to comply with the condition imposed on 1) What is sold is a Personal Property
the performance of the obligation gave the Lims the right to choose 2) The sale must be on the Instalment plan
whether to demand the return of the earnest money paid or to 3) There must be a Contract
proceed with the sale. When the Lims chose to proceeds with the 4) The contract must be one of Sale (absolute sale)
sale, private respondent could not refuse to do so.  An instalment is any part or portion of the buying price, including the
 If merchandise cannot be delivered, the arras must be returned. Of down payment
course, this right may be renounced since neither the law nor public  If the sale is for cash or on straight terms, Art. 1484 does not apply.
policy is violated.  To prevent abuse in the foreclosure of chattel mortgages by selling
at a low price and then suing for the deficiency is the precise
Article 1483. Statute of Frauds purpose of the article.
 The remedies enumerated are not cumulative. They are
Subject to the provisions of the Statute of Frauds and of any other ALTERNATIVE, and if one is exercised, the others cannot be made
applicable statute, a contract of sale may be made in writing, or by word use of. Indeed the election of one is a waiver of the right to resort to
of mouth, or partly in writing and partly by word of mouth, or may be others. (Pacific Commercial Co. v. De la Rama, 72 Phil. 380) But for
inferred from the conduct of the parties. this doctrine to apply, the remedy must already have been fully
exercised. If after retaking possession of the chattel, the seller
 See comments under Article 1475 desists from the foreclosure, he can still avail himself of another
 The sale of a piece of land or interest therein when made through remedy.
an agent is void unless the agent’s authority is in writing.  PROBLEM: B bought a particular automobile on the instalment plan.
 If the deed of sale of land is notarized by a notary public whose B defaulted in the payment of one of the instalments. Has the seller,
authority had expired, the sale would still be valid, since for validity S, the right to exact fulfilment of the obligation to pay? How much
of the sale, a public instrument is not even essential. can be successfully demanded?
 ANS: Yes. Remedy 1 does not require default in 2 or more
Article 1484. Sale of personal property on the installment plan instalments, unlike in remedies nos. 2 and 3. Generally, only the
instalments defaulted can be recovered, unless there is an
acceleration clause or if the debtor loses the benefit of the term.
In a contract of sale of personal property the price of which is payable in Should there be a DEFICIENCY in the amount collected at the levy
instalments, the vendor may exercise any of the following remedies: on execution; said deficiency can still be collected. Here, there is no
foreclosure of any chattel mortgage.
1) Exact fulfilment of the obligation, should the vendee fail to pay;
2) Cancel the sale, should the vendee’s failure to pay cover 2 or more  Zayco v. Luneta Motor Co., L-30583, Oct. 23, 1982
instalments; If the unpaid vendor of a vehicle sold on the instalment plan
3) Foreclose the chattel mortgage on the thing sold, if one has been forecloses the chattel mortgage executed on the property, but is not
constituted, should the vendee’s failure to pay cover 2 or more able to fully collect the debt, there is no right to recover the
instalments. In this case, he shall have no further action against the deficiency, and a stipulation to the contrary is void. If the vendor
purchaser to recover any unpaid balance of the price. Any assigns its right to a financing company, the latter may be regarded
agreement to the contrary shall be void. as a mere collecting agency of the vendor and cannot, therefore,

NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 18
 recover any deficiency. And even if the financing company is a  In case the thing or property to be returned has been
“distinct and separate entity” from the seller, the same result deteriorated, the aggrieved party may resort to either:
obtains, for an assignee cannot exercise any right not given to the  Special performance plus damages; or
assignor itself.  Rescission plus damages
 Ridad v. Filipinas Investment and Finance Corporation, GR 39806,  The buyer must return the equivalent of what he has received
Jan. 28, 1983 in its damaged condition plus the amount of damages.
 If a foreclosure of the mortgage is resorted to, there can be  On the part of the vendor, he should return all the instalments
recovery in case of deficiency. Other chattels given as security that has been received by him except when in the contract
cannot be foreclosed upon if they are not subject of the there is a proviso that instalments already paid shall be
instalment sale. forfeited. Such stipulation is valid, provided that it is not
 If the seller selects remedy [foreclosure], but the mortgage is unconscionable under the circumstances. Of course what is
not actually foreclosed, he can still avail himself of the other unconscionable is a question of fact.
remedies, such as the fulfilment of the obligation to pay.  Instances when Art. 1484 cannot be applied
 Where there has been no foreclosure of the chattel mortgage or a) Article 1484 does not apply to a real estate mortgage
a foreclosure sale, the prohibition against further collection of b) Article 1484 does not apply to the sale of personal property
the balance of the price does not apply. on straight terms.
 The law says that any of the aforementioned remedies “may” be → A sale on straight terms is one which the balance , after
exercised by the seller. Therefore, he is not obliged to foreclose the payment of the initial sum should be paid in its
the chattel mortgage even if there be one. He may still sue for totality at the time specified.
fulfilment or for cancellation (if he does not want to foreclose).
 Borbon II v. Servicewide Specialists, Inc., 72 SCAD 111 (1996)  Sps. Romulo de la Cruz and Delia de la Cruz, et. al. v. ASIAN
The remedies under Art. 1484 of the Civil Code are not commutative Consumer of Industrial Finance Corp. and the Court of Appeals, GR
but alternative and exclusive. When the assignee forecloses the 94828, Sept 20, 1992
mortgage, there can be no further recovery of the deficiency, and It is clear that while ASIAN eventually succeeded in taking
the seller-mortgagee is deemed to have renounced any right possession of the mortgaged vehicle, it did not pursue the
thereto. foreclosure of the mortgage as shown by the fact that no auction
sale of the vehicle was ever conducted. Thus, under the law, the
There is an ordinary alternative obligation, a mere choice delivery of possession of the mortgaged property to the mortgagee,
categorically and unequivocally made and then communicated by the the herein appellee, can only operate to extinguish appellant’s
person entitled to exercise the option. The creditor may not liability if the appellee had actually caused the foreclosure sale of the
thereafter exercise any other option, unless the chosen alternative mortgaged property when it recovered possession thereof. It is the
proves to be ineffectual or unavailing due to no fault on his part. fact of foreclosure and actual sale of the mortgaged chattel that bar
In alternative remedies, the choice generally becomes conclusive recovery by the vendor of any balance of the purchaser’s
only upon the exercise of the remedy. For instance, in one of the outstanding obligation not satisfied by the sale.
remedies expressed in Art. 1484 of the Civil Code, it is only when
there has been foreclosure of the chattel mortgage that the vendee- Article 1485. Leases of Personal Property with Option to Buy
mortgagor escape from a deficiency liability.
 It is clear that when the remedy of cancellation is availed of, there
must be mutual restitution of whatever received by either party.

NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 19
The preceding article shall be applied to contracts purporting to be leases condominium apartments where the buyer has paid at least 2 years
of personal property with option to buy, when the lessor has deprived of installments (Section 3)
the lessee of the possession or enjoyment of the thing.
 Excludes: Industrial lots, commercial buildings and sales to tenants
 This may really be considered a sale of personal property under RA 344 as amended by RA 6389 (Section 3)
instalments. Therefore, the purpose of Art. 1485 is to prevent an  The buyer is entitled to the following rights in case he defaults in the
indirect violation of Art. 1484. payment of succeeding installments: (Section 3)
 Even if the word “lease” is employed, when a sale on installment is a) To pay, without additional interest, the unpaid installments
evidently intended, it must be construed as a sale. (Abello v. due within the total grace period earned by him, which is
Gonzaga, 56 Phil. 132) fixed at the rate of 1 month grace period for every 1 year of
installment payments made
→ This right shall be exercised by the buyer only once in
every 5 years of the life of the contract and its
extensions, if any
Article 1486. Non-Return of Installments Paid b) If the contract is cancelled, the seller shall refund to the
buyer the cash surrender value (CSV) on the property
In the cases referred to in the two preceding articles, a stipulation that equivalent to 50% of the total payments made and, after 5
the installments or rents paid shall not be returned to the vendee or years of installments, an additional 5% every year but not to
lessee shall be valid insofar as the same may not be unconscionable exceed 90% of the total payments made
under the circumstances. → The actual cancellation of the contract shall take place
after 30 days from the receipt of the buyer of the notice
 As a general rule, it is required that a case of rescission or
of cancellation or the demand for rescission of the
cancellation of the sale requires mutual restitution, that is, all partial
contract by a notarial act and upon full payment of the
payments of price or “rents” must be returned.
CSV to the buyer
 However, by way of exception, it is valid t stipulate that there should
→ Downpayments, deposits or options on the contract shall
be NO returning of the price hat has been partially paid or the
be included in the computation of the total number of
“rents” given, provided the stipulation is not unconscionable.
installments made
 In the case where less than 2 years of installments were paid, the
SALE OF REAL PROPERTY IN INSTALLMENT
seller shall give the buyer a grace period of 60 days from the date
REPUBLIC ACT 6552
the installment became due. (Section 4)
(The Maceda Law)
→ If the buyer fails to pay the installments due at the
AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL ESTATE
expiration of the grace period, the seller may cancel the
ON INSTALLMENT PAYMENTS
contract after 30 days from the receipt of the buyer of the
 Known as the “Realty Installment Buyer Protection Act.”
notice of cancellation or the demand for rescission of the
(Section 1)
contract by a notarial act. (Section 4)
 Purpose: A public policy to protect buyers of real estate on
installment payments against onerous and oppressive conditions.
 Under Secs. 3 and 4, the buyer shall have the right to SELL his rights
(Section 2)
or ASSIGN the same to another person or to REINSTATE the
 Coverage: All transactions or contracts involving the sale or
contract by updating the account during the grace period and before
financing of real estate on installment payments, including
NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 20
 the actual cancellation of the contract. The deed of sale or period of 1 month for every year things sold, in case of 2
assignment shall be done by notarial act. (Section 5) of installment payments made, to or more installments,
 The buyer shall have the right to PAY IN ADVANCE any installment pay the unpaid installments with no further action
or the FULL unpaid balance of the purchase price any time without without interest. If the contract is against the purchaser
interest and to have such full payment of the purchase price cancelled, the seller shall refund  Cancel the sale if 2 or
annotated in the certificate of title covering the property. (Section 6) to the buyer the CSV equivalent more installments have
 Raison d’ Etre of The Maceda Law to 50% of the total payments not been paid; and
→ To help especially the low income lot buyers delineating the made, and after 5 years of  Exact (or specific)
rights and remedies of lot buyers and protect them from installments, an additional 5% for fulfilment.
one-sided and pernicious contract stipulations every year but not to exceed
→ To buyers of real estate on installment payments against 90% of the total payment made;
onerous and oppressive conditions. More specifically, the Act and
provided for the rights of the buyer in case of default in the  In case the installments paid
payment of succeeding installments, where he has already were less than 2 years, the seller
paid at least 2 years of installments. shall give the buyer a grace
 Problem: What are the so-called “Maceda” and “Recto” Laws, period of 60 days. If that buyer
respectively, in connection with sales on installments. In the process fails to pay the installments due
of defining, give the most important features of each law. at the expiration of the grace
period, the seller may cancel the
contract after 30 days from
receipt by the buyer of the notice
of cancellation or demand for
rescission by notarial act.

The Maceda Law The Recto Law

RA 655 Art. 1484, Civil Code Article 1487. Expenses in Execution and Registration
The Maceda Law is applicable to sales The Recto Law refers to the
of immovable property on sale of movables payable in The expenses for the execution and registration of the sale shall be
installments. installments and limiting the borne by the vendor; unless there is a stipulation to the contrary.
right of seller, in case if
In Rillo v. CA, 247 SCRA 461, the default by the buyer to one
 The seller pays for the expenses of:
most important features, have been of the remedies, namely:
a) The execution (of the deed) of sale;
laid down, namely: ForCE
b) Its registration.
 After having paid installment for
at least 2 years, the buyer is  Forclose the chattel
 There can however be a contrary stipulation.
entitled to a mandatory grace mortgage. On the

NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 21
Article 1488. Expropriation

The expropriation of property for public use is governed by special laws.

 Expropriation is involuntary in nature that is, he owner may be

compelled to surrender the property after all the essential requisites
have been complied with. Therefore, generally expropriation does
not result in a sale.
 If the property owner voluntarily sells the property to the
government, this would be a sale, and not an example of
expropriation.
 Gutierrez v. CA, L-9738, May 31, 1957
The Supreme Court held that the acquisition by the government of
private properties through the exercise of eminent domain, said
properties being justly compensated, is a sale or exchange within
the meaning of the income tax laws and profits derived therefrom
are taxable as capital gain; and this is although the acquisition was
against the will of the owner of the property and there was no
meeting of the minds between the parties.

 Essential requisites of Expropriation

a) Taking by competent authority
b) Observance of due process of law
c) Taking for public use
d) Payment of just compensation

 Just compensation is the market value PLUS the consequential

damages, if any, MINUS, the consequential benefits, if any. BUT the
benefits may be set off only against the consequential damages, and
not against the basic value of the property taken.

NGEstores Sales Notes Chapter 1 – Nature and Form of the Contract Page 22