Module 1 Nature and Form of The Contract

ALDERSGATE COLLEGE SALES, AGENCY AND BAILMENT
SCHOOL OF BUSINESS AND ACCOUNTANCY
MODULE 1 NATURE AND FORM OF THE CONTRACT
Nature and Form of the Contract
ART. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership
of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional. (1445)
Sale defined
Sale is a contract where one party (known to be the seller or vendor), binds himself to transfer the ownership of and
to deliver a determinate thing, while the other party (known to be the buyer or vendee) binds himself to pay for said
thing a price certain in money or its equivalent.
Characteristics of a contract of Sale
1. Consensual because it is perfected by mere consent. Unlike in real contracts (pledge or deposit) their
perfection is upon delivery.
Mutual consent being a state of mind, its existence may only be inferred from the confluence of two acts of the
parties: an offer certain as to the object of the contract and its consideration, and an acceptance of the offer
which is absolute in that it refers to the exact object and consideration embodied in said offer. While it is
impossible to expect the acceptance to echo every nuance of the offer, it is imperative that it assents to those
points in the offer which, under the operative facts of each contract, are not only material but motivating as well.
Anything short of that level of mutuality produces not a contract but a mere counter-offer awaiting acceptance.
More particularly on the matter of the consideration of the contract, the offer and its acceptance must be
unanimous both on the rate of the payment and on its term. An acceptance of an offer which agrees to the rate
but varies the term is ineffective. (Villanueva vs. Philippine National Bank, G.R. No. 154493, December 6, 2006).
2. Bilateral and reciprocal because both parties are bound by obligation dependent upon each other.
A contract of sale is a reciprocal obligation - the seller obligates itself to transfer the ownership of and deliver a
determinate thing, and the buyer obligates itself to pay therefore a price certain in its equivalent. (Carrascoso,
Jr., vs. Court of Appeals, 477 SCRA 666)
3. Commutative because the values exchanged are almost equivalent to each other.
4. Principal because it does not depend upon the existence of other contracts.
5. Onerous because valuable consideration is given.
6. Nominate because there is a name provided for in the Civil Code.

Elements of Sale
1. Essential Elements:
a. Consent of the contracting party with respect to the transfer of ownership and the payment of the price.
b. Object of the contract which should be determinate.
c. Price which should be certain in money or its equivalent. Be it noted that the price need not be in money.
2. Natural Elements or those which are deemed to exist in the contract unless excluded.
a. Warranty against eviction.

b. Warranty against hidden defects.
3. Accidental Elements, or those present only if stipulated, such as time and place of payment.
Example:
Today, June 1, S sold to B a specific car for P500.000. The parties agreed that the delivery of the car shall be made
on June 5 at CPAR Bldg., Sampaloc, Manila, and the payment of the price shall be made on June 15 at the Security
Bank, UST branch.
1. Essential Elements:
a. Consent of S and B.
b. Subject matter or object of sale, which is the car.
c. Cause or price of the car which is P500,000.
2. Natural Elements:
a. That S at the time he will deliver the car to B must be the owner, because S obligation is to deliver and
transfer the ownership of the car.
b. That the car is free from any hidden faults or defects not declared or known to B.
3. Accidental Elements:
a. Agreement that the delivery of the car shall be made on June 5 at CPAR Bldg.
b. Agreement that the payment of the price shall be made on June 15 at the Security Bank, UST branch.
Stages in a Contract of Sale
1. Preparation - when negotiation is in progress.

2. Perfection - meeting of minds, birth of the contract.
3. Consummation - when the object is delivered and the price is paid, this is the death of the contract.
Perfection of a contract of sale should not, however, be confused with its consummation. Sale by itself does not
transfer or affect ownership; the most that sale does is to create the obligation to transfer ownership. (Flancia vs.
Court of Appeals, 457 SCRA 224)
Kinds of Sales
1. General classifications.
a. Absolute sale - no condition attached.

b. Conditional sale - the sale is subject to a contingent event. Example, sale with a right to repurchase; sale of
things having a potential existence; sale of future harvest of a designated parcel of land; or sale of a
residential house, except the "furniture inside".
2. Other classification.
A. As to the nature of the subject matter.

a. Sale of real or immovable property.
b. Sale of personal or movable property.
B. Whether object is tangible or intangible.
Sale of right (assignment of right or a credit, or a sale of copyright, trademark, or goodwill). If the object is
tangible, it is called chose in possession; if the object is intangible, it is referred to as chose in action.
C. Validity or defect of the transaction:

a. valid sale
b. rescissible sale
c. voidable sale
d. unenforceable or validable sale
e. void sale
D. Legality of the object:

a. sale of a licit object
b. sale of an illicit object
E. As to whether wholesale or retail:

a. Wholesale - when the goods are resold by the buyer for a profit, the goods being unaltered when
resold, and usually in large quantity.
b. Retail - when the goods are sold directly to the general public and usually in small quantity.
F. As to the payment of the price:

a. Cash sales
b. Installment sales
c. Straight terms
G. Proximate inducement for the sale:

a. Sale by sample
b. Sale by description
c. Sale by sample and description
Sale distinguished from other contracts
1. From contract to sell
a. In contract of sale, ownership passes to the buyer upon delivery; while in contract to sell, the title to the
goods does not pass to the buyer until some future time and oftentimes upon payment of the price.
b. In sale, the risk of loss or damage to the goods upon delivery is on the buyer, under the rule "res perit
domino", the thing perishes with the owner; while in contract to sell, the risk is borne by the seller based on
the same principle that the thing perishes with the owner.
c. In sale, the non-payment of the price is a resolutory, condition; while in contract to sell, the payment in full of
the price is a positive suspensive condition. If the price therefore is not paid, the obligations of the seller to
deliver and to transfer ownership had never existed.
2. From barter
In sale, the consideration is in money; while in barter, the consideration is another thing, or the exchange of two
things.
3. From agency to sell
a. In sale, ownership passes to the buyer; in agency to sell, ownership is retained by the principal.
b. In sale, the buyer pays the seller; while in agency to sell, the buyer pays the agent and the latter transmits
the money to the principal.
c. In sale, the goods are delivered by the seller to the buyer; while in agency to sell, it is the agent who delivers
the goods to the buyer.
4. From dacion en pago
a. In sale, there is no pre-existing credit; while in dacion, there is pre-existing credit.

b. In sale, obligation is created; while in dacion en pago, the obligation is extinguished.
c. In sale, the consideration or the cause of the contract is the price; while in dacion, the cause is the
extinguishment of the debtor's obligation.
5. From lease
In sale, the seller transfers ownership to the buyer; while in lease, what is merely transferred is only the use and
possession of the thing leased to the lessee.
ART. 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the
time it is delivered.
ART. 1460. A thing is determinate when it is particularly designated or physically segregated from all others
of the same class.
The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is
capable of being made determinate without the necessity of a new or further agreement between the parties.
1. Requisites of the object in a contract of sale.
a. The thing must be licit and that the vendor must have a right to transfer ownership at the time the object is
delivered.
b. The object must be determinate or specific otherwise there is no sale. This requirement is met if at the time
of perfection the object of sale is capable of being made determinate or it can be ascertained without the
need of entering into a new agreement.
2. When thing is determinate.
A thing is determinate when it is particularly designated or physically segregated from all others of the same
class. (Art. 1460)
3. Transfer of ownership
It is an essential element in a contract of sale that the seller must be the owner of the object sold. This
requirement is premised under the principle that nobody can dispose of that which does not belong to him.
However, this requirement of ownership is at the time of delivery and not at the time of the perfection of the
contract. There can be a sale even if at the time of perfection the seller is not the owner. What is required is that
at the time of delivery the seller must be the owner.
In contracts of sale, the vendor need not possess the title to the thing sold at the perfection of the contract.
However, the vendor must possess title and must be able to transfer at the time of delivery. In a contract of sale,
title passes to the vendee upon full payment of the stipulated consideration, or upon delivery of the thing sold.
(Heirs of Severina San Miguel vs. Court of Appeals, et. al, G.R. No. 136054, September 5, 2001)
Example: Today, S sold to B a specific car owned by X for P100, 000. S promised to deliver the car to B ten
days after. If on the ninth (9th) day S bought the car from X, and delivered it to B the following day, the sale is
valid because the requirement that the seller must be the owner at the time of delivery was complied with.
4. Illustrative Case:
D borrowed from C P100, 000, and as a security D mortgaged his land to C. Later, D sold the same land to X for
P50, 000. Is the sale between D and X valid sale?
Yes, because D is still the owner of the land although it was mortgaged to C. However, if on the due date of
payment, D cannot pay C, C's right is to foreclose the mortgaged property because his right is superior than that
of X.
ART. 1461. Things having a potential existence may be the object of the contract of sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will
come into existence.
The sale of a vain hope or expectancy is void.
1. Things with potential existence

A. Concept
Objects of sale, which though not yet actually in existence, are reasonably certain to come into existence as the
natural increment or usual incident of something already in existence owned by the vendor shall pass to the
vendee the moment the thing comes into existence and these are called object with potential existence. (Sibal
vs. Valdez, 50 Phil. 5)
Examples:
a. Goodwill of a trade or business.

b. Sale of wine that a vineyard is expected to produce.
c. Milk which a cow may yield during the coming year.
d. Next catch of a fisherman's net.
2. Emptio rei speratae
This a sale of a thing which is expected to come into existence, the quality and quantity of which are unknown
but not the thing itself which will definitely come into existence. The validity of this titled sale, emptio rei speratae,
shall depend upon the intention of the parties that if the thing does not come into existence the contract is
without effect and as such there is no obligation to pay the price. This kind of contract is valid under the second
paragraph of this Article.
Example of Emptio Rei Speratae.
Today, for P 10,000, S sold to B his future harvest of palay on December. The price was already paid by B to S.
If on December there is no harvest, B can recover from S what he paid, and if B did not yet pay, he cannot be
obliged to pay because the agreement is without effect, no object-no sale.
3. Emptio spei
Sale of hope or expectancy, its quality and quantity, are uncertain. The validity of this titled sale, emptio spei, will
depend upon the agreement of the parties that the contract shall exist at all events, so that the buyer will have to
pay the price even if the thing does not actually come into existence. This is called sale of hope or expectancy,
an aleatory contract. Be it noted however that if the hope was already in vain, the contract is void under the last
paragraph of this article because this is a sale of a "hopeless case".
Example: S sold to B for P10, 000 lottery ticket No. 007 for tomorrow. Unfortunately, the ticket did not win the
price. In this case, B cannot recover the P10,000 he paid S because what he is buying is the "hope" that he will
win. However, if the draw was made yesterday, and the ticket was bought by B today, he can recover from S the
P10,000 because the contract is void, for this is a sale of a "vain hope" or "hopeless case". Be it noted in this
example that "collector’s item" are excepted.
4. Emptio Rei Speratae distinguished from Emptio Spei:
a. Emptio rei speratae is a sale of a future thing; emptio spei is a sale of a present thing, that is the hope or
expectancy.
b. In emptio rei speratae the thing expected will definitely come into existence, but its quantity and quality are
unknown; in emptio spei it is not certain that the thing will exist much less its quantity and quality.
c. Emptio rei speratae is subject to the condition that the tiling should exist, so that if it does not, there will be
no contract by reason of the absence of an essentia! element - subject matter; emptio spei produces effects
even though the thing does not come into existence and it cannot be said that one of the essential elements
of a contract is absent, because as already stated, the subject matter of the same is the hope (10 Manresa
29).
ART. 1462. The goods which form the subject of a contract of sale may be either existing goods, owned or
possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of
the contract of sale, in this Title called "future goods."
There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency
which may or may not happen.
1. Kinds of goods which may be the object of sale.
a. Present goods - goods owned or possessed by the seller at the time of the perfection of sale.
b. Future goods - goods to be manufactured, raised, or acquired by the seller after the perfection of the sale, or
whose acquisition depends upon a contingency which may or may not happen.
A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price. It is, therefore, not required that, at the perfection stage, the seller be the owner
of the thing sold or even that such subject matter of the sale exists at the point in time. Thus, under Art. 1434 of
the Civil Code, when a person sells or alienates a thing which, at that time, was not his, but later acquires tile
thereto, such title passes by operation of law to the buyer or grantee. This is the same principle behind the sale
of "future goods" under Art. 1462 of the Civil Code.
However, at the time of delivery or consummation stage of the sale, it is required that the seller be the owner of
the thing sold. Otherwise, he will not be able to comply with his obligation to transfer ownership to the buyer.
(Cavite Development Bank, et. al. vs. Court of Appeals, et. al., G.R. No. 131679, February 1, 2000)
2. Examples:
a. S is the owner of 100 cavans of C4 rice. S sold and delivered the 100 cavans of rice to B for P15,000, this is
a sale of present goods.
b. Sale of goods to be produced by a factory in a given period of time. This is a sale of future goods.
c. D obliged himself to give a specific car to C, if C passes the CPA examination on October 25. Later, C
enters into a contract with X whereby C agrees to sell and X agrees to buy the specific car for P100,000, if C
will pass the October 25 CPA examination. This is a sale of a thing whose acquisition by the seller depends
upon a contingency which may or may not happen.
ART. 1463. The sole owner of a thing may sell an undivided interest therein.
Sale of an undivided interest
Examples:
1. S owns a specific house. He sold one-third (1/3) of the house to B. S and B become co-owners of the
property, S for 2/3, while B 1/3.
2. S owns a parcel of land measuring 900 square meters. S may sell 1/3 to B, and retain 2/3 of the property.
After the sale they become co-owners of the property. Later, the parties may also agree to divide the
property in which case S becomes the absolute owner of 2/3 and B 1/3.
ART. 1464. In the case of fungible goods, there may be a sale of an undivided share of a specific mass,
though the seller purports to sell and the buyer to buy a definite number, weight or measure of the goods in
the mass, and though the number, weight or measure of the goods in the mass is undetermined. By such a
sale the buyer becomes owner in common of such a share of the mass as the number, weight or measure
bought bears to the number, weight or measure of the mass. If the mass contains less than the number,
weight or measure bought, the buyer becomes the owner of the whole mass and the seller is bound to make
good the deficiency from goods of the same kind and quality, unless a contrary intent appears.
1. Sale of share in a specific mass
Example: S is the owner of C4 rice stored in his bodega, the exact number of cavans still unknown. B buys 100
cavans. If the content of the bodega is 150 cavans, B becomes a co- owner of 2/3 of the entire mass. If,
however, the mass contains only 90 cavans, S must supply the deficit of 10 cavans of the same kind and quality.
2. Summary of the sale of share in a specific mass.
a. When the quantity of the mass is more than the quantity sold, the parties shall become co-owners.
b. When quantity of the mass is less than the quantity sold, the buyer becomes the owner of the whole mass,
and if there is a deficiency of the goods sold the seller is bound to make good the deficiency of the same
kind and quality, unless of course the contrary is stipulated.
ART. 1465. Things subject to a resolutory condition may be the object of the contract of sale.
Example. S sold to B for P10,000 a specific parcel of land with a right to repurchase within 6 years on June 1,2009.
S registered his right of repurchase with the Register of Deeds. B having acquired the ownership of the land may in
turn sell the property to X even within the 6-year period because he is considered as a conditional owner of the land.
X, the new buyer, acquires title to the land but subject to S's right to repurchase within 6 years. If S redeems the
property within 6 years, the sale of B to X is extinguished. However, if S fails to redeem the property within the period
of repurchase, X becomes the absolute owner.
ART. 1466. In construing a contract containing provisions characteristic of both the contract of sale and of
the contract of agency to sell, the essential clauses of the whole instrument shall be considered.
1. Sale distinguished from Agency to sell.
a. In sale, the buyer becomes the owner upon delivery; while in agency to sell, ownership is retained by the
owner even if the goods are delivered to the agent.
b. In sale, the buyer pays the price directly to the owner; while in agency to sell the buyer pays the agent who
transmits the money to his principal.
c. In sale, the seller warrants the object of the sale; while in agency to sell, the agent is not personally liable as
long as he acts within the scope of his authority and in the name of the principal.
X acquired a booklet of 10 sweepstakes tickets directly from the office of the Philippine Charity Sweepstakes. X
paid P40 for the booklet, less the customary discount.
Question:
1. What was the legal nature of X's act in acquiring the ticket?
2. Did he enter into a contract of sale or agency to sell? Explain.
Answer:
1. This is a contract of sale. Being referred to as an agent is of no moment because in agency to sell the agent
is required to sell the object; while in this case, there was no obligation on the part of X to resell them. Also,
the delivery of the tickets transferred the ownership to him, and this is not true in agency to sell.
2. The contract entered by X is a contract of sale because of the following:
a. X is not obliged to resell the tickets to others.

b. X cannot return the unsold ticket because he was not given the right to do so.
c. X is considered the owner of the tickets upon delivery to him, and this is not true in agency to sell.
d. The mere fact that X is entitled to an agent's prize should any of the tickets he purchased win a prize is
immaterial.
ART. 1467. 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 for the general market, whether the same is on hand at the time or
not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his
special order, and not for the general market, it is a contract for a piece of work.
1. Contract for a piece of work defined.
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 for the general market, whether the same is on hand at the time or not is a contract of
sale. But if the goods are to be manufactured especially for the customer and upon his special order, and not for
the general market, it is a contract for a piece of work.
2. Examples:
If a buyer goes to a Shoe Store buying shoes of a particular style, size No. 12, but which are out of stock, and
the buyer just the same placed his order, is the transaction a sale or for a piece of work? The contract is a sale
because the shoes are produced or manufactured in the ordinary course of business, only they are out of stock.
Now, if the order is size No. 15, flaming red color, which in the ordinary course of business the store does not
manufacture, but only made especially for him, the contract is a contract for a piece of work.
X Shoe Store, Inc. entered into a separate contract with two movie stars, B1 and B2. With B1, the agreement
was that the Shoe Store shall deliver at a specified date for a price of P1,000 a pair of shoes of a specified brand
which the store had been manufacturing for the general public but which at the time of the contract had already
been sold out, and with B2, the agreement was that the shoe store shall deliver at a specified date for a price of
P2,000 a pair of shoes to be made especially for him, in accordance with a design submitted by him. What is the
nature of these two contracts?
Answer: Between B1 and X, the contract is a sale because the goods he ordered are procured in the ordinary
course of business, only they are out of stock. Since the seller intends to manufacture again, it is considered a
contract of sale. However, the contract between B2 and X is a contract for a piece of work because they are
specially ordered by the buyer from the seller and they are not procured in the ordinary course of business.
ART. 1468. If the consideration of the contract consists partly in money, and partly in another thing, the
transaction shall be characterized by the manifest intention of the parties. If such intention does not clearly
appear, it shall be considered a barter if the value of the thing given as a part of the consideration exceeds
the amount of the money or its equivalent; otherwise, it is a sale. (1446a)
1. Summary of rules in sale and barter if partly in money and partly in another thing.
A. The intention of the parties will control the situation. Thus, the contract is a sale if the parties intended it to
be a sale even if the value of the thing is more than the monetary consideration. Conversely, it is barter if
the parties intended it to be barter even if the monetary consideration is more .than the value of the thing.
B. If the intention does not appear:
a. It is barter, if the value of the thing is more than the monetary consideration.
b. It is a sale, If the monetary consideration is more than the value of the thing.
c. If the monetary consideration and the value of the thing are the same, the majority view maintained that
the contract is a contract of sale.
2. Exchange of foreign currency.
If I were to change Australian dollars for Philippine pesos at the PNB at the prevailing rate of exchange, the
transaction is to be considered a contract of sale, and not barter.
Examples:
A Seller sold to a Buyer a piece of jewelry for a price of P30.000. The contract provides that the Buyer will pay
the Seller cash of P10,000 and for the balance, the Buyer will give the Seller a micro oven worth P20,000. What
is the nature of the contract?
Answer: It is a sale because the intention of the seller is to sell. The word used: the seller "sold".*
B ordered for his employees 1,000 pieces of T-shirts of various sizes from S Garment Manufacturing
Corporation. The t-shirts, although not available at the time, are manufactured by the corporation and consigned
regularly to its various saies outlets. The contract entered into between B and S is called?
Answer: The contract is a sale because the goods are procured in the ordinary course of business, only they
are not available but the manufacturer intends to manufacture again.
ART. 1469. In order that the price may be considered certain, it shall be sufficient that it be so with reference
to another thing certain or that the determination thereof be left to the judgment of a specified person or
persons.
Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the
parties subsequently agree upon the price.
If the third person or persons acted in bad faith or by mistake, the courts may fix the price.
Where such third person or persons are prevented from fixing the price or terms by fault of the seller or the
buyer, the party not in fault may have such remedies against the party in fault as are allowed the seller or the
buyer, as the case may be. (1447a)
1. Price defined
The sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the
fixing of the price of the sale.
2. Requisites of the price
a. It must be certain.
b. It must be real, not fictitious
c. As a rule, not inferior to the value of the thing.
3. Instances when the price is certain.
a. When it is stipulated.
b. When it is with reference to another thing which is certain.
c. When it is fixed by a third person.
d. When it is fixed by the court.
e. In case of grains, liquid or securities, the price is certain when the price fixed is that which the thing sold
would have on a definite day, or in a particular exchange or market, or when an amount is fixed above or
below the price on such day, or in such exchange or market, provided said amount is also certain.
Example: S offered for sale to B 100 cavans of wag-wag rice. B asked S the price per cavan. S told B that the
price per sack is P5.00 over the price at "X's store" in Divisoria market. If the price at "X's store" is P2,000, the
price of S is P2,005, and the-same is considered certain.
4. When no specific amount is stipulated.
When no specific amount is stipulated, the price is still considered certain:
a. If it be certain with reference to another thing certain.
Example: S offered for sale to B a specific ring, the price of which is the amount of the tuition fee being charged
by CPAR to the reviewees on cash basis.
b. If the determination of the price is left to the judgment of a specific person or persons.
Example: S offered for sale a specific pair of Converse shoes to B for P1, 500. B countered the offer by offering
X P1, 000. Since the parties cannot agree, both decided that "F" will fix the price for them. F agreed and told the
parties to meet in between the offer and counter offer. In this case, the price is certain because it is fixed by a
third person agreed by the parties.
5. Effect of price fixed by third persons.
As a rule, the price fixed by a third person designated by the parties is binding between them, except:
a. When the third person is guilty of fraud.

b. When the third person committed mistake or error.
c. When the third person disregarded specific circumstances given him by the contracting parties.
6. Effect of failure to fix the price by a third person.
If the third person or persons are unable or refuses to fix the price, the sale shall be inefficacious, unless the
parties subsequently agree upon the price. However, where the third person or persons are prevented from
fixing the price by the fault of the seller or buyer, the aggrieved party may have such remedies against the party
at fault as are allowed by the law under Article 1469 of the Civil Code.
7. Effect of bad faith or mistake by the third person.
If the third person or persons acted in bad faith or by mistake, the court may fix the price on the petition made by
either the seller or buyer.
8. Binding effect if price is fixed by various third persons.
If there are several persons designated to fix the price, the decision of these persons must be unanimous, in the
absence of an intention to be bound by mere majority.
9. Price not paid in full.
There is a valid sale though the purchase price is not paid in full. The unpaid seller's remedy is an action to
collect the balance or rescind the contract, within the time allowed by law. (Soliva vs. Villalba, G.R. No. 154017,
December 8, 2003)
ART. 1470. Gross inadequacy of price does not affect a contract of sale except as it may indicate a defect in
the consent, or that the parties really intended a donation or some other act or contract.
1. Adequacy of the price
Adequacy of the price is not necessary for the validity of the contract of sale. It is enough that there is a price
and such price is certain.
2. Effect of inadequacy of price
Gross inadequacy of price will not invalidate a contract of sale. However, if the inadequacy of the price is
coupled with a vitiated consent, the contract can be set aside due to defect in the consent. Likewise, when it
appears that aside from the manifest inadequacy of the price, there is the added circumstance that the vendor
was in an abnormal state of mind, the courts should step in to protect the vendor from the transaction. (A.
Tolentino, C. C., Volume V)
Absent any evidence of the fair market value of the land as of the time of its sale, it cannot be concluded that the
price at which it was sold was inadequate. Mere inadequacy of the price per se will not rule out the transaction
as one of sale - the price must be grossly inadequate or shocking to the conscience. (Acabal vs. Acabal, 454
SCRA 555)
3. Inadequacy of the price in judicial sale
A judicial sale of real property will be set aside when the price is so inadequate as to shock the conscience of the
court, and when there be additional circumstances against its fairness.
4. Inadequacy of price when there is right of redemption.
While in ordinary sales, when the price is so inadequate and such inadequacy shocks one's conscience as to
justify the court to interfere, such does not follow when the law gives the owner the right to redeem, as when a
sale is made at public auction upon the theory that the lesser the price, the easier for the owner to effect the
redemption. (A. Tolentino, C. C. Volume V)
ART. 1471. If the price is simulated, the sale is void, but the act may be shown to have been in reality a
donation, or some other act or contract.
1. Simulated price.
If the price in a contract of sale is simulated, the contract is valid as a donation or some other agreement
provided the requirements of donations or other agreements are complied with. Hence, if these requirements do
not exist, the contract is absolutely void, not merely voidable.
2. Example:
M bought from S a specific parcel of land for P1, 000,000. Three months after, M sold the same land to her
daughter for P50, 000 only. The fact indicates that the sale is fictitious, therefore, void. (Castillo vs. Castillo, L-18238,
Jan. 22, 1980)
3. Jurisprudence.
A simulated deed of sale has no legal effect, and the transfer certificate of title issued in consequence thereof
should be cancelled. Pari delicto does not apply to simulated sales. (Guan vs. Ong, G.R. No. 144735, October
18, 2001)
Simulation of contract and gross inadequacy of price are distinct legal concepts, with different effects - the
concept of simulated sale is incompatible with inadequacy of price. When the parties to an alleged contract do
not really intend to be bound by it, the contract is simulated and void. Gross inadequacy of the price by itself will
not result in a void contract, and it does not even affect the validity of the contract of sale, unless it signifies a
defect in the consent or that the parties actually intended a donation or some other contract. (Bravo-Guerrero vs.
Bravo, 465 SCRA 244)
Burden of proving alleged simulation of a contract falls on those who impugn its regularity and validity. A failure
to discharge this duty wili result in upholding of the contract. (Ramos vs. Heirs of Ramos, G.R. No. 140848, April
25, 2002)
ART. 1472. The price of securities, grain, liquids, and other things shall also be considered certain, when the
price fixed is that which the thing sold would have on a definite day, or a particular exchange of market, or
when an amount is fixed above or below the price on such day, or in such exchange or market, provided said
amount be certain. (1448)
Example:
Today S offered for sale 100 cavans of wag-wag rice. B asked S the price per cavan. S told B that the price per
cavan is P20.00 over the price at "X store" in Divisoria market. If the price at "X store" is P2,000, the price of S is
P2,020.00, and the same is considered certain because the amount is fixed above the price on such day.
ART. 1473. The fixing of the price can never be left to the discretion of one of the contracting parties.
However, if the price fixed by one of the parties is accepted by the other, the sale is perfected. (1449a)
1. Price fixed by one of the parties.
The fixing of the price cannot be left to the discretion of one of the parties because the law requires consent of
both parties on the price. However, if the price fixed by one of the parties is accepted by the other, the sale is
perfected because there is a meeting of the minds of the parties on the price.
S sold and delivered her diamond ring to B. It was agreed upon that after ten (10) days, S will name and fix the
price. On the tenth (10th) day, S called up B by telephone and stated the price at P10, 000 B agreed. Is the sale
perfected?
Yes, because the price stated and named by one of the contracting parties was accepted by the other.
ART. 1474. Where the price cannot be determined in accordance with the preceding articles, or in any other
manner, the contract is inefficacious. However, if the thing or any part thereof has been delivered to and
appropriated by the buyer, he must pay a reasonable price therefor. What is a reasonable price is a question
of fact dependent on the circumstances of each particular case.
1. Effect when price is uncertain
If the price cannot be determined in accordance with the preceding articles, or in any other manner, the contract
is ineffective. However, if the thing or any part thereof has been delivered to and appropriated by the buyer, he
(buyer) is required to pay a reasonable price under the principle that no person shall be unjustly enriched at the
expense of another.
"A" sold his 2008 BMW Series 7 car to "B", a compadre, and leaves it to "B" to determine the price. If "B" refuses
to fix a price and simply takes the car, is he still obliged to pay the price? Explain.
Yes, B is still obligated to pay the price. The law states that the fixing of the price can never be left to. the
discretion of one of the parties in a contract. Therefore, the act of A is illegal but will not affect the validity of the
sale since B accepted the delivery and appropriated it; therefore, he must pay a reasonable price.
ART. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which
is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the provisions of the law
governing the form of the contracts. (1450a)
1. Nature of the Contract and its perfection
Sale is a consensual contract, perfected only by mere consent. The delivery of the thing and payment of the
price is not essential for its perfection. What is required is only the meeting of minds of both parties with respect
to the object and cause which will constitute the contract.
2. Requirements for perfection
a. When parties are face to face, the offer must be accepted without qualification. Qualified acceptance
constitutes a counter-offer.
b. When the contract is thru correspondence or thru telegram, there is perfection when the offeror receives the
letter of acceptance or has knowledge of the acceptance of the offeree.
c. When a sale is made subject to a suspensive condition, the perfection is from the moment the condition is
fulfilled.
3. Illustrative Cases:
a. X and Y are good friends. X sold and delivered his car to Y. It was agreed and understood that next Sunday;
X will name and fix the price of the car. Sunday came, X called y by telephone and stated and fixed the price
at P150, 000. Is the sale perfected?
Answer: No, because the price of the sale was left to the discretion of one of the parties, that is, the seller, and it
was not consented by the buyer.
b. M, a rice miller from Tarlac, accepted the offer of B to buy 500 cavans of C4 rice at P2,000 per cavan. They
agreed that the rice will be delivered the following day at B's store, where the latter will pay the purchase
price to the agent of M. As agreed upon, M delivered the 500 cavans of rice to B's store, but the buyer was
nowhere to be found when the agent of M tried to collect the purchase price.
Question: Is the sale perfected? Can M demand the performance of the obligation?
Answer: Yes, there was a perfected sale because there was a meeting of minds between the parties with
respect to the offer and cause which will constitute the contract. M can demand performance after the perfection
because the law states that from the moment of perfection, the parties may demand performance subject to the
rules governing the forms of contracts. (Art. 1475)
c. S sold in writing a residential land to B. B paid the consideration. When B wanted to register the sale at the
Register of Deeds, the latter refused to register it and required the presentation of the certificate of capital gains
tax payment. What can B do?
Answer: B may compel S to pay the capital gains and secure the certificate of capital gains tax receipt. He may
also compel S to execute the deed of sale in a public instrument so that it can be registered with the Register of
Deeds. The execution of a public instrument can be done because the sale is valid and enforceable.
4. Provisions of law governing the form of contracts.
Art. 1356. Contracts shall he obligatory, in whatever form they may have been entered into, provided all the
essential requisites for their validity are present. However, when the law requires that a contract be in some form
in order that it may be valid or enforceable or that a contract be proved in a certain way, that requirement is
absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be
exercised.
Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the
following article, the contracting parties may compel each other to observe that form, once the contract has been
perfected. The right may be exercised simultaneously with the action upon the contract.
Art. 1358. The following must appear in a public document:
1. Acts and contracts which have for their object the creation, transmission, modification or extinguishment of
real rights over immovable property; sales of real property or of an interest therein are governed by Articles
1403, No. 2, and 1405;
2. The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;
3. The power to administer property, or any other power which has for its object an act appearing or which
should appear in a public document, or should prejudice a third person;
4. The cession of actions or rights proceeding from an act appearing in a public document.
All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private
one. But sales of goods, chattels or things in action are governed by Articles 1403, no. 2 and 1405.
ART. 1476. In the case of a sale by auction:
(1) Where goods are put up for sale by auction in lots, each lot is the subject of a separate contract of
sale.
(2) A sale by auction is perfected when the auctioneer announces its perfection by the fall of the
hammer, or in other customary manner. Until such announcement is made, any bidder may retract
his bid; and the auctioneer may withdraw the goods from the sale unless the auction has been
announced to be without reserve.
(3) A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise provided by
law or by stipulation.
(4) Where notice has not been given that a sale by auction is subject to a right to bid on behalf of the
seller, it shall not be lawful for the seller to bid himself or to employ or induce any person to bid at
such sale on his behalf or for the auctioneer, to employ or induce any person to bid at such sale on
behalf of the seller or knowingly to take any bid from the seller or any person employed by himself.
Any sale contravening this rule may be treated as fraudulent by the buyer.
1. Auction Sale
A. Perfection
A sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer, or in any
other customary manner.
B. Owner's right to withdraw the goods from auction sale.
a. Before perfection
The owner or auctioneer may, before the fall of the hammer, withdraw the goods from the sale, unless there was
an announcement that the auction is without reserve.
b. After perfection
After the fall of the hammer, the owner can no longer withdraw the goods.
C. Bidder’s right to retract his bid.
a. Before perfection
A bidder may, before the fall of the hammer, retract his bid.
b. After perfection
After the fall of the hammer, the sale is perfected; therefore, the bidder can no longer retract his bid.
2. By-bidding or puffing
A. Concept.
By-bidders or puffers are the persons who, without any intention to buy, are employed by the seller to raise the
price by fictitious bids, thereby increasing the competition among the bidders. These bidders and puffers are not
bound by their bids because they are the agents of the seller.
B. Right of owners to employ by-bidders
a. When right is reserved - the owner may give notice that he may employ third persons to bid in his behalf
and this is valid because the right is reserved.
b. When right is not reserved - when notice is not given that the auction sale is subject to a right to bid on
behalf of the seller, the seller cannot employ by-bidders; otherwise, the transaction is considered fraudulent
and may be set aside by the buyer.
3. Manner, conditions and terms of sale
The owner of the property offered for sale, either at public or private sale, has the right to prescribe the manner,
terms and condition of the sale. The conditions of the sale announced at the time and place of the sale, are
binding upon all bidders whether they knew of such conditions or not.
S, the owner of two (2) sugar mills, told his auctioneers to sell them at P800, 000 in an auction sale. Unknown to
S and to the public, his auctioneers employed by-bidders and because of this, X, a would-be-buyer bid
P700.000, the highest. The real bidding had stopped at P500,000, but X did not know this. X now seeks the
annulment of the sale. Can the contract be annulled on the ground of fraud?
Yes, the contract is fraudulent because had the public been informed of their puffers, this would have been
different. By- bidding, if secret, deceives the prospective buyers; therefore, the transaction is fraudulent. It does
not matter that the owner did not know of the auctioneer's fraud. (Veazee vs. Williams, et al., cited in the book of
Justice Edgardo L. Paras)
ART. 1477. The ownership of the thing sold shall be transferred to the vendee upon the action or
constructive delivery thereof.
ART. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has
fully paid the price.
1. Transfer of ownership of the thing sold.
Ownership of the thing sold is transferred not by the perfection of contract but by the delivery of the thing sold.
Payment of the purchase price is not essential to the transfer of ownership unless otherwise stipulated. This
reservation of ownership is called pactum reservati dominii.
The Civil Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be
delivered when it is placed "in the hands and possession of the vendee." (Civil Code, Art. 1462)
It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of
the thing which is the object of the contract, but in order that this symbolic delivery may produce the effect of
tradition, it is necessary that the vendor shall have had the control over the thing sold that, at the moment of the
sale, its material delivery could have been made.
It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be
placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of
the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is
sufficient.
But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material
tenancy of the thing and make use of it himself or through another in his name, because such tenancy and
enjoyment are opposed by the interposition of another will, then fiction yields to reality, the delivery has not been
effected. (Union Motor Corporation vs. Court of Appeals, et. al, G.R. No. 117187, July 20, 2001)
The word "delivered" should not be taken restrictively to mean transfer of actual physical possession of the
property. The law recognizes two principal modes of delivery, to wit: (1) actual delivery; and (2) legal or
constructive delivery. (Flancia vs. Court of Appeals, 457 SCRA 224)
2. Kinds of delivery
a. Actual or real delivery

b. Constructive delivery
c. Any agreement that the possession is transferred, in any other manner from the vendor to the vendee
3. Examples:
a. S sold to B a specific radio for P900 and delivered it today. B promised to pay 10 days after. In here, B, after
the delivery of S becomes the owner even if he did not yet pay the price of the sale.
b. Today, S sold to B a specific radio for P900. B paid the price and S promised to deliver the radio 10 days
after. In here, S remains to be the owner even if B already paid because there was no delivery.
c. Today, S sold to B a specific radio for P900 and delivered it to B. B promised to pay 10 days after. However,
the parties agreed that ownership will pass only upon payment of the price. In here, S remains to be the
owner despite delivery because the contrary was stipulated.
ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the
promissory if the promise is supported by a consideration distinct from the price. (1451a)
1. Scope of the article
a. An accepted unilateral promise to sell where the promisee decides to buy.

b. An accepted unilateral promise to buy where the promisee decides to sell.
c. A bilateral promise to sell and to buy reciprocally accepted, where either party decides to exact fulfillment of
the obligation.
2. Unilateral promise
a. Not accepted by the offeree: A unilateral promise to sell or to buy, if not accepted by the offeree, does not
produce any legal effect. This is known as policitation.
b. Accepted by the offeree: An offer, even if accepted by the offeree, can still be withdrawn if not supported
by any consideration. (Southern Sugar and Molasses Co. vs. Atlantic Gulf and Pacific Co., 51 O. G. 3447).
The rule however, was modified in the case of Sanchez vs. Rigor (45 SCRA 368 - 378, citing the Atkens
case). The latest decision is that if an option is given without consideration, it is a mere offer to sell which is
not binding until accepted. However, if acceptance is made before a withdrawal, it constitutes a binding sale,
even though the option was not supported by a sufficient consideration. (Civil Code, volume 3, pages 34-35,
by Justice Ramon C. Aquino).
If the offer is supported by a consideration distinct from the price, the acceptance of the promisee will create
a binding force upon the promissor. However, the privilege of demanding its performance exists only on the
part of the offeree, who may, if he so desires, demand its performance or not, but he cannot be compelled to
buy or sell the thing.
3. Bilateral promise
A promise to buy or sell a determinate thing for a price certain when accepted by both parties has the same
effect as a contract of sale which is reciprocally demandable.
Example:
S promises to sell to B a specific radio for P900. B accepts the promises of S and in turn promises to buy the
radio for the same amount. In here, there is already a perfected contract of sale which gives to the contracting
parties the right to demand performance or their respective obligations.
S offered for sale to B a specific car for P1, 000,000 and offered him (B) a 10-day period within which to accept
counted from January 1.
a. On January 8, can B withdraw the offer? Yes, because this is a mere offer. It cart be withdrawn at any time.
b. On January 11, can S withdraw the offer? With more reason he can withdraw because the 10-day period
has already elapsed.
Supposing B gave S P10, 000 by virtue of the offer:
a. On January 8, can S withdraw the offer? No, because he gave consideration distinct from the price. This is
called option money.
b. On January 11, can S withdraw the offer? Yes, if there is no consent on the part of B. If B consented to the
offer within the 10-day period, S cannot withdraw because the contract is already perfected.
c. If B consented, how much will B pay S? P1, 000,000 because the P10, 000 given as option money is not a
part of the purchase price.
A offered to sell his house and lot to B who was interested in buying the same for P200, 000. In his letter to B, A
stated that he was giving B a period of one month within which to raise the amount and that as soon as B is
ready, they will sign the deed of sale. One week before the expiration of the one-month period, a went to B and
told him that he is no longer willing to sell the property unless the price is increased to P250, 000. May B compel
A to accept the P200, 000 first offered, and execute the deed of sale? State the reasons.
No, the offer of A is merely a unilateral promise to sell which is not binding without consideration distinct from the
price of the sale. The option does not bind the offeror for lack of a cause or consideration.
6. Contract to Sell is not an absolute sale.
A contract or promise to sell is not a contract of sale. Such a contract to sell would exist when a parcel of land is
promised to be sold and title given only after the down payment and the monthly installment therefor shall have
all been paid. Failure to pay is non-compliance of a suspensive condition, and of course the obligor is not obliged
to convey title. Also, if the obligor sells the property to another, no right of action accrues on the original buyer
because of failure to pay the installment due. (E. Paras, Civil Code, Volume V).
In contracts to sell where ownership is retained by the seller and is not to pass until the full payment of the price,
such payment is a positive suspensive condition, the failure of which is not a breach, casual or serious, but
simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. To argue
that there was only a casual breach (and therefore rescission should not be allowed) is to proceed from the
wrong assumption that the contract is one of absolute sale, where non-payment is a resolutory condition, which
is not the case. (Luzon Brokerage Co. Inc. Vs. Maritime Building, 86 SCRA 209, opinion expressed by Justice
Guerrero)
In a contract of sale, the obligations of the seller are specified in Article 1495 of the Civil Code. The obligation of
the seller is to transfer to the buyer the ownership of the thing sold. In the sale of real property, the seller is not
obligated to transfer in the name of the buyer a new certificate of title, but rather to transfer ownership of the real
property. There is a difference between the transfer of the certificate of title in the name of the buyer, and
transfer of ownership to the buyer. The buyer may become the owner of the real property even if the certificate of
title is still registered in the name of the seller. As between the seller and the buyer, ownership is transferred not
by the issuance of a new certificate of title in the name of the buyer but by the execution of the instrument of sale
in a public document.
In a contract of sale, ownership is transferred upon delivery of the thing sold. Delivery is effected when the
instrument of sale is executed in a public document. When the deed of absolute sale is signed by the parties and
notarized, then delivery of the real property is deemed made by the seller to the buyer, as provided for under
Article 1498 of the Civil Code.
In a contract to sell real property, once the seller is ready, able and willing to sign the deed of absolute sale
before a notary public, the seller is in a position to transfer ownership of the real property to the buyer. At this
point, the seller complies with his undertaking to sell the real property in accordance with the contract to sell, and
to assume all the obligations of a vendor under a contract of sale pursuant to the relevant articles of the Civil
Code. In a contract to sell, the seller is not obligated to transfer ownership to the buyer. Neither is the seller
obligated to cause the issuance of a new certificate of title in the name of the buyer. However, the seller must put
all his papers in proper order to the point that he is in a position to transfer ownership of the real property to the
buyer upon the signing of the contract of sale. (Chua vs. Court of Appeals, G.R. No. 119255, April 9, 2003)
The distinction between a contract to sell and a contract of sale is quite germane. In a contract of sale, title
passes to the vendee upon the delivery of the thing sold, whereas in a contract to sell, by agreement the
ownership is reserved in the vendor and is not to pass until the full payment of the price. (Torcuator vs. Bernabe,
459 SCRA 439)
ART. 1480. Any injury to or benefit from the thing sold, after the contract has been perfected, from the
moment of the perfection of the contract to the time of delivery, shall be governed by Articles 1163 to 1165,
and 1262.
This rule shall apply to the sale of fungible things, made independently and for a single price, or without
consideration of their weight, number, or measure.
Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall not
be imputed to the vendee until they have been weighed, counted, or measured, and delivered, unless the
latter has incurred in delay. (1452a)
1. Coverage of this Article as to object.
Art. 1480 applies only on sale of movable property.
2. Preservation of the thing sold.
Every person obliged to give something is under obligation to take good care of it with a diligence of a good
father of a family unless the law or stipulation of the parties requires another standard of care. (Art. 1163 of the
Civil Code)
3. Right to the fruits
The buyer has a right to the fruits of the thing from the time the sale is perfected. (Art. 1537, paragraph 2, of the
Civil Code).
4. Loss by fortuitous event.
If the thing is lost due to a fortuitous event after perfection and before delivery there being no negligence of delay
on the part of the vendor, the loss shall be borne by the vendee. Hence, the vendor's obligation to deliver the
thing lost is extinguished, but the buyer's obligation to pay remains to subsist, except:
a. When there is stipulation to the contrary.

b. When the seller's obligation requires the assumption of risk.
c. When by the provisions of law the lost, even due to fortuitous event, shall not extinguish the obligation.
The principle that the vendee shall pay the price of the sale is based under the following arguments:
a. Under Article 1537, the fruits pertain to the vendee from the perfection of the contract, and as such he must
also shoulder the disadvantages.
b. Under Roman Law, the obligation of the parties are considered separate and distinct stipulations, therefore
the extinguishment of one does not affect the other.
c. The object of the sale is specific; the loss of such thing without the fault of the debtor shall extinguish the
obligation. The price of money is generic, the loss of a generic thing shall not extinguish the obligation. This
view is expressed by Manresa, Castan, De Buen and Bonet of the Spanish Civil Code.
However, others like Perez, Alguer, and one of our eminent commentators in Civil Law, Arturo Tolentino,
states that a vendee must not pay the price under the following arguments:
1. Ownership is transferred by delivery, hence, before delivery the vendor owns the thing and should
suffer its loss, under the principle of res perit domino. If he is allowed to recover the price, he suffers no
loss.
2. The obligation of both parties is reciprocal, one depends upon the other. If the obligation of the vendor
to deliver is extinguished, then the obligation of the vendee to pay the price is also extinguished.
5. Loss is due to the fault of third person.
Illustrative Case:
S on March 1, 2008 sold for P900.000 to B his (S) house and lot. It was agreed that the delivery of the house
and lot and the payment would be made on April 1, 2008. Unfortunately, X, a stranger negligently set the house
on fire on March 1, 2008, and the house was completely destroyed. On April 1, does S still have to deliver
anything, and does B have to pay for anything? State your reasons.
Answers:
a. S's obligation was extinguished because the object to be delivered is specific and it got lost due to fortuitous
event. Therefore, he is not bound to deliver anything.
b. Although B is not yet the owner of the house, he must bear the risk of loss, just as he would have been
benefited if the house had increased in value or had improved. As stated by many authors in Civil Law, the
buyer gets the benefit during the intervening period, it is clear that he must also bear the loss. (Paras, Civil
Code Vol. V, page 60).
c. However, B has a right to proceed against X, the negligent stranger, and ask for damages under the rule on
subrogation. The law states "the obligation having been extinguished by the loss of the thing, the creditor,
shall have all the rights of action which the debtor may have against third persons by reason of the loss".
(Art. 1269 of the Civil Code).
6. Sale of fungible things.
Fungibles are personal property which may be replaced with equivalent things.
If the goods are fungibles and are to be counted, weighed, or measured, the counting, weighing, or measuring is
a suspensive condition, and before fulfillment, no obligation exists. Therefore, the loss is not imputable to the
vendee. But if the goods have already been placed at the disposal of the vendee, and they are of a nature that
are generally received and counted, measured or weighed, if subsequently they were lost by fortuitous event
before they are actually counted, weighed or measured, the loss must be borne by the vendee.
ART. 1481. in the contract of sale of goods by description or by sample, the contract may be rescinded if the
bulk of the goods delivered do not correspond with the description or the sample, and if the contract be by
sample as well as by description, it is not sufficient that the bulk of goods correspond with the sample if they
do not also correspond with the description.
The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample.
1. Sale by sample
In sale by sample, the parties contract solely with reference to the sample, with the understanding that the bulk
of the goods (not majority) correspond with the sample shown to the vendee; otherwise, the contract is
rescissible under Article 1481.
2. Sale by description
In here, the seller sells things of being of a certain kind, the buyer relying on the seller's representations or
descriptions. The goods delivered must correspond with the description; otherwise, the contract can be
rescinded. However, if the goods delivered tally with the description even if the intention of the buyer is not fitted,
the contract cannot be rescinded.
3. Sale by sample and by description
In here, the seller warrants that the goods correspond with the sample and description, otherwise the contract
can be rescinded.
4. Exhibition of sample
The mere exhibition of a sample by the seller, in the absence of any showing that it was an inducement of the
sale, will not amount to such a designation of quality as to constitute a sale by sample.
5. Sale by sample of goods "AS IS"
The requirement that the goods sold by sample must be of the same quality and kind represented by the sample
is not affected by the fact that the goods are sold "as is". The phrase refers simply to the condition of the goods
and they must be of the quality represented even if in damaged condition.
6. Effect of examination before perfection.
If before perfection, the buyer examines the goods or where there is an opportunity to examine the bulk and the
buyer does not rely on the sample as a representative of the whole, there is no ah' by sample though a sample is
exhibited.
7. Illustrative Cases:
a. B purchased a quantity of bed sheets which were wrapped up in bale. The sale was done in a warehouse.
Some bed sheets were pulled out, displayed, and found to be all right. B then purchased 100 bales, which
he later discovered to be bug-eaten. What are the rights of B, if any?
Answer: This is a sale by sample. B's rights are:

1. To return the bed sheets and recover the money paid.

2. To retain the bed sheets and still sue for the breach of warranty. (Paras, Civil Code, Volume V)
b. S sold to B a refrigerator by description for P10,000. Although the description was completely correct (as
described), the machine would not work properly. The buyer refused to pay the balance of the purchase
price, hence this action.
Answer:
This is a sale by description, and the description is correct, the buyer therefore must pay the price because the
object delivered tallied with the description. (Pacific Com., Co. vs. Ermita Market and Cold Storage, 56 Phil. 617)
ART. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price
and as proof of the perfection of the contract. (1454a)
1. Concept of earnest money.
Earnest money is payment of the sum of money as a token, upon the making of a contract for the sale of goods,
to bind the bargain, the delivery and acceptance of which marks the final and conclusive assent of both parties to
the contract. This money is a part of the purchase price.
2. Proof of perfection.
The giving and acceptance of earnest money is a proof of the perfection of the contract of sale.
3. Earnest money distinguished from option money.
a. Earnest money is given only when a contract is perfected; while option money is given to bind the offer in a
unilateral promise to sell or to buy.
b. Earnest money is part of the purchase price; while option money is separate and distinct from the purchase
price.
c. If the sale is consummated, the money given as earnest is deductible on the purchase price; while option
money is not deductible on the purchase price.
4. Seller is bound to return the earnest money if sale is not consummated.
If the sale is not consummated, the seller is obliged to return the earnest money given. However, the parties may
agree that the earnest money (ARRAS) given may be forfeited in favor of the seller, especially if the seller
cannot deliver the object of sale by reason of causes not imputable to him.
ART. 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract
of sale may be made in writing, or by word of mouth, or partly in writing and partly by word of mouth, or may
be inferred from the conduct of the parties.
1. The form of a contract of sale.
a. For validity
A contract of sale may be entered into in any form. It may be made orally or in writing, or partly orally and partly
in writing, or may be inferred from the conduct of the parties.
b. For enforceability
1. Sale of real property or of an interest therein must be in writing; otherwise, the sale is
unenforceable. (Art. 1403)
2. Sale of movables:
a. Price is P500 or more - it must be in writing; otherwise, the sale is unenforceable (Art. 1403).
b. Price is less than P500 - oral contract is enforceable.
2. Sale made thru an agent.
When a sale of a piece of land or any interest therein is through an agent, the authority of the agent shall be in
writing otherwise, the sale is void. (Art. 1874 of the Civil Code)
3. Sale of immovable by the seller to the buyer.
a. Between the seller and the buyer, the contract is valid even if orally entered into.
b. However, to be enforceable it must be in writing.
c. To affect third persons, it must appear in a public instrument and it must be recorded in the Registry of
Property.
S entered into a contract with B whereby S sold his land orally to B. The land has been delivered and the money
has been paid. Is the oral sale of the land valid and enforceable?
Answer:
Yes, the contract is valid because all the essential elements of the contract are present. It is enforceable
because the contract was already executed.
ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor
may exercise any of the following remedies:
1. Exact fulfillment of the obligation, should the vendee fail to pay;
2. Cancel the sale, should the vendee's failure to pay cover two or more installments;
3. Foreclose the chattel mortgage or the thing sold, if one has been constituted, should the vendee's
failure to pay cover two or more installments. In this case, he shall have no further action against,
the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be
void. (1454-A-a)
1. Purpose of the law
Undoubtedly, the principal object of Art. 1484 is to remedy the abuses committed in connection with the
foreclosure of chattel mortgages. The law prevents mortgagee from seizing the mortgaged property, buying it at
foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency judgment. The
almost invariable result of this procedure is that the mortgagor finds himself minus the property and still owing
practically the full amount of the original indebtedness. (Bachrach Motor Co. Vs. Millan, 61 Phil. 409)
2. Requisites of this Article.
In order that the provisions of this article will apply, it must appear that there is a contract of sale of:
a. Personal property.
b. The price of the sale is payable in installment.
c. That there has been a failure to pay two or more installment.
The following therefore, are excluded from its coverage:
a. Sale of personal property on straight term or sale partly in cash and partly in term.
b. Sale of real property.
3. Remedies available to the vendor or seller.
a. Specific performance
b. Cancellation of the sale
c. Foreclosure of the chattel mortgage
These three remedies available to the vendor or seller who has sold personal property by installment plan, are
alternative, not cumulative. The exercise of one will exclude the other. This limitation applies also to contracts
purposting to be leases of personal property with option to buy as provided in Article 1585 of the Civil Code.
4. When fulfillment of the obligation is the remedy of the seller
Failure to pay one installment shall give the vendor the right of exacting fulfillment of the vendee's obligation.
This means that upon failure of the buyer to pay the first installment the seller can demand payment from him
and upon failure to pay, the seller can file an action in court for collection.
5. When cancellation is the remedy
To be able to cancel the sale, the buyer's failure to pay covers two or more installments. Be it noted that if the
seller cancels the sale, his obligation is to return to the buyer all installment paid unless there is a stipulation to
the contrary. Should there be an agreement to return the installment paid, such should not be unconscionable.
6. When foreclosure is the remedy
If a chattel mortgage is constituted on the thing sold, the mortgage can be foreclosed if the buyer fails to pay two
or more installments. But if the mortgage is foreclosed, the seller can no longer recover any unpaid balance of
the price, and any agreement to the contrary is void and no effect. The third paragraph of this Article is known to
be the "Recto Law".
S sold to B a specific car for P500, 000 payable in four (4) equal installments.
a. If B defaulted in the payment of one of the installments, can S exact fulfillment of the obligation?
No. The law requires default in two or more installments. In here, S is not cancelling the sale, he is only
demanding payment.
b. Supposing B failed to pay the 1st and 2nd installments:
1. Can S exact fulfillment of the obligation?
Yes, because of B's failure to pay any of the installments
2. Can S rescind or cancel the contract of sale?
Yes, because of B's failure to pay two installments.
c. Supposing B, as a security, executed a chattel mortgage on the car, but failed to pay two (2) installments:
1. Can S foreclose the chattel mortgage?
Yes, because of B's failure to pay two (2) installments.
2. In the foreclosure sale, the sum obtained is less than what B owed S, can S still collect the deficiency?
No, even if there is stipulation, because the stipulation is void, this is the provision of the "Recto Law".
3. When can S recover the deficiency?
If he did not foreclose, but instead filed an action as an ordinary creditor, the balance may be recovered.
8. B bought from X Co. a truck, payable in monthly installments. As security for the payment of the balance of
the purchase price, he constituted a chattel mortgage on the truck in favor of the company. Because of his
failure to pay three consecutive monthly installments, the company filed a complaint against him to recover
the unpaid balance. A writ of attachment was subsequently issued against his properties. Thereafter, the
truck was sold at public auction in which the company was the only bidder for P50, 000. Since there was still
a deficiency of more than P60,000, the court condemned B to pay to the company the deficiency plus the
interest. Is this in accordance with law?
Yes, because X Company did not foreclose the mortgaged property; therefore, the deficiency is recoverable.
The answer would be different if he foreclosed the chattel mortgage. In here the company filed an action as
an ordinary creditor.
9. Example of sale on straight term.
S sold to B a specific car for P300, 000. Upon delivery, B paid S PI 00,000 and the balance of P200, 000 is to be
paid one month after. To secure its payment, B mortgaged the car to S. One month after, B failed to pay. S
foreclosed the chattel mortgage on the car and was sold for the net amount of P180, 000, after deducting the
expense of the sale. Is S entitled to recover payment of the deficiency P20, 000 from B?
Answer:
Yes, the third paragraph of Article 1484, known as Recto Law, will not apply because this is a sale of personal
property on straight term, that is, one which the balance of the purchase price, after payment of the initial sum, is
to be paid in its totality at the time stipulated. The law to apply in this case is the Chattel Mortgage Law, and the
law states that if the property mortgage is foreclosed and there is deficiency, the mortgagee may maintain an
action against the buyer for the recovery of the deficiency.
10. Maceda Law or the Realty Installment Buyer Protection Act (R.A. No. 6552).
The Maceda Law (R.A. No. 6552) is applicable to sales of immovable property on installments. The most
important features are:
1. After having paid installments for at least two (2) years, the buyer is entitled to a mandatory grace period of
one month for every year of installment payments made, to pay the unpaid installments without interest.
If the contract is cancelled, the seller shall refund to the buyer the cash surrender value equivalent to fifty percent
(50%) of the total payments made, and after five years of installments, an additional five percent (5%) every year
but not to exceed ninety percent (90%) of the total payments made.
2. In case the installments paid were less than 2 years, the seller shall give the buyer a grace period of not
less than sixty (60) days. If the buyer fails to pay the installments due at the expiration of the grace period,
the seller may cancel the contract after thirty (30) days from receipt by the buyer of the notice of the
cancellation or demand for rescission by notarial act.
Republic Act No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial,
residential) the right of the seller to cancel the contract upon nonpayment of an installment by the buyer, which is
simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. The law
also provides for the rights of the buyer in case of cancellation. (Leano vs. Court of Appeals, et. al., G.R. No.
129018, November 15, 2001)
In a contract to sell real property on installments, the full payment of the purchase price is a positive suspensive
condition, the failure of which is not considered a breach, casual or serious, but simply an event that prevented
the obligation of the vendor to convey title from acquiring any obligatory force. The transfer of ownership and title
would occur after full payment of the price. (Rillo vs. Court of Appeals, 340 Phil. 570)
ART. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property
with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing.
(1454-A-1a)
1. Lease Contract construed as a contract of sale.
Contract of lease of personal property contains a stipulation that the alleged lessee shall pay a certain amount
upon the signing of the contract, and on or before the 5th day of every month another specific amount is to be
paid by way of rental, giving the alleged lessee the right or option to buy the said personal property before
expiration of the contract of lease, the payments made by way of advance and alleged rentals to be deducted
from the purchase price, the contract is construed as a contract of sale and not of lease.
"O", owner of a copying machine, leased it to "L" at a rental of P4,000.00 a month for a period of one year with
option on the part of "L" to buy the copying machine at the end of one year for P80,000.00 to be paid by applying
the rentals, so that "L" needs only to pay P32,000.00.
"L" failed to pay rentals for the 4th, 5th and 6th months so that "O" terminated the lease and re-possessed the
copying machine. "O" then sued "L" for the unpaid rental of three months, or P12,000.00. Is O's suit legally
tenable? Explain.
O's suit is legally untenable. When "0"iook possession of the copying machine, "O" has no further action against
"L" to recover the unpaid rents. In sale of personal property by installment and lease with option to buy, the
moment the vendee failed to pay two or more installments, the vendor may foreclose the chattel mortgage, but in
this case he cannot recover the unpaid balance from the vendee. Any stipulation to the contrary is void.
ART. 1486. In the cases referred to in the two preceding articles, a stipulation that the installments or rents
paid shall not be returned to the vendee or lessee shall be valid insofar as the same amy not be
unconscionable under the circumstances.
1. Obligation of the seller when the sale is cancelled.
As a rule, if the contract of sale is cancelled the seller is obliged to return to the vendee the paid installment
minus the reasonable amount of rent, except when there is agreement to the contrary and the same is not
unconscionable.
2. Example.
S sold to B a specific radio for P4.000 in four equal installments. B paid the 1st and 2nd installments but
defaulted on the 3rd and 4th installments. S, therefore, cancelled the sale. Is S under obligation to return the
sum paid by B on the 1st and 2nd installments?
Yes, because it is fundamental that if the contract is cancelled or rescinded, the obligation of the parties is to
return what they have received. Except, of course, if there is stipulation stating that the installment paid will be
forfeited in favor of the seller.
ART. 1487. The expenses for the execution and registration of the sale shall be borne by the vendor, unless
there is a stipulation to the contrary. (1455a)
1. Payment of expenses
Unless otherwise agreed, the seller pays for the expense of:
a. Execution of the contract of sale.
b. Registration of the sale.
ART. 1488. The expropriation of property for public use is governed by special laws. (1456)
1. Requisites for expropriation of property:
a. Private property is taken by competent authority.

b. Due process of law should be observed.
c. Just compensation is to be paid.
d. The property is taken for public use.
Posttest
1. Definitions:
Define or give the meaning of the following:

1. Contract of sale
2. Natural elements
3. Sale by description
4. Fungible goods
5. Conditional goods
2. Discuss:
1. Distinguish earnest money from option money.

2. What remedies are available to a vendor in sale of personal property in installments?
a. Is the vendor allowed to recover the unpaid balance of the price?
3. Give the characteristics of a contract of sale. Explain at least three of them.
4. Under the Statute of Frauds, what contract of sale must be in writing to be enforceable by court action?
5. Give at least three (3) distinctions between a contract of sale and a contract of agency?
3. Problems:
Explain the applicable rule or reason for your answer.

1. S sold to B certain goods. At the time of the sale, C is not the owner of the goods. May there be a valid
sale to B?
2. Same example. The only problem now is that the goods sold have not yet been identified at the time of
the contract? May there still be a valid sale to B?
3. The property sold by S is portion of a parcel land without indicating the specific portion thereof. May
there be a valid sale to B?
4. Same example. The only problem now is that S and B have not agreed upon a definite price at the time
of sale. May there still be a valid contract of sale between them.
5. Same example. The only problem in the case is that the price was fixed only by S. Is the sale valid?

Module 1 Nature and Form of The Contract

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Module 1 Nature and Form of The Contract

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ALDERSGATE COLLEGE SALES, AGENCY AND BAILMENT

SCHOOL OF BUSINESS AND ACCOUNTANCY

MODULE 1 NATURE AND FORM OF THE CONTRACT

Nature and Form of the Contract

A contract of sale may be absolute or conditional. (1445)

Characteristics of a contract of Sale

5. Onerous because valuable consideration is given.

6. Nominate because there is a name provided for in the Civil Code.

a. Warranty against eviction.

Stages in a Contract of Sale

1. Preparation - when negotiation is in progress.

a. Absolute sale - no condition attached.

A. As to the nature of the subject matter.

B. Whether object is tangible or intangible.

C. Validity or defect of the transaction:

D. Legality of the object:

E. As to whether wholesale or retail:

F. As to the payment of the price:

G. Proximate inducement for the sale:

Sale distinguished from other contracts

1. From contract to sell

3. From agency to sell

4. From dacion en pago

a. In sale, there is no pre-existing credit; while in dacion, there is pre-existing credit.

1. Requisites of the object in a contract of sale.

2. When thing is determinate.

The sale of a vain hope or expectancy is void.

1. Things with potential existence

a. Goodwill of a trade or business.

2. Emptio rei speratae

Example of Emptio Rei Speratae.

4. Emptio Rei Speratae distinguished from Emptio Spei:

1. Kinds of goods which may be the object of sale.

Sale of an undivided interest

1. Sale of share in a specific mass

2. Summary of the sale of share in a specific mass.

1. Sale distinguished from Agency to sell.

2. The contract entered by X is a contract of sale because of the following:

a. X is not obliged to resell the tickets to others.

1. Contract for a piece of work defined.

B. If the intention does not appear:

2. Exchange of foreign currency.

2. Requisites of the price

3. Instances when the price is certain.

4. When no specific amount is stipulated.

When no specific amount is stipulated, the price is still considered certain:

a. If it be certain with reference to another thing certain.

5. Effect of price fixed by third persons.

a. When the third person is guilty of fraud.

6. Effect of failure to fix the price by a third person.

7. Effect of bad faith or mistake by the third person.

8. Binding effect if price is fixed by various third persons.

9. Price not paid in full.

1. Adequacy of the price

2. Effect of inadequacy of price

3. Inadequacy of the price in judicial sale

4. Inadequacy of price when there is right of redemption.

1. Price fixed by one of the parties.

1. Effect when price is uncertain

1. Nature of the Contract and its perfection

2. Requirements for perfection

4. Provisions of law governing the form of contracts.

Art. 1358. The following must appear in a public document:

ART. 1476. In the case of a sale by auction:

B. Owner's right to withdraw the goods from auction sale.

C. Bidder’s right to retract his bid.

B. Right of owners to employ by-bidders

3. Manner, conditions and terms of sale

1. Transfer of ownership of the thing sold.

a. Actual or real delivery

1. Scope of the article

a. An accepted unilateral promise to sell where the promisee decides to buy.