REVIEWER – SALES  Nonetheless, the use of the word “determinate” in the definition of sale under Article

1458 seems accurate since it pertains to the performance of the obligations of the
CHAPTER 1 – NATURE OF SALE seller to transfer ownership and to deliver possession.
 SALE
 This would require that even if the subject matter of the sale was generic
 Article 1458 of the Civil Code
(determinable), the performance of the seller’s obligation would require necessarily
 a contract whereby one of the contracting parties (Seller) obligates himself to
its physical segregation or particular designation, making the subject matter
transfer the ownership, and to deliver the possession, of a determinate thing;
determinate at the point of performance.
and the other party (Buyer) obligates himself to pay therefor a price certain in
money or its equivalent.  The use of the word “determinate” to describe the subject matter emphasizes more
specifically the fact that the obligation to deliver and transfer ownership can be
 Nature of Obligations Created in a Sale
performed only with the subject matter becoming specific or determinate, and is not
 The definition of the contract of sale under Article 1458 provides that its
meant to exclude certain generic things from validly becoming the proper subject
perfection brings about the creation of two sets of obligations:
matter of sale, at the point of perfection.
A. Two OBLIGATIONS of the SELLER to:
 Elements of Contract of Sale
i. Transfer the Ownership, and
ii. Deliver the Possession, of the SUBJECT MATTER;  Essential elements of a valid contract of sale
1. CONSENT, or meeting of the minds to transfer ownership in exchange for the
B. OBLIGATION for the BUYER to: price;
i. Pay the PRICE 2. SUBJECT MATTER; and
3. PRICE, certain in money or its equivalent.
 Both sets of obligations, are real obligations or obligations “to give,” as contrasted
from personal obligations “to do” and “not to do,” and can be the proper subject of
actions for specific performance.  When all three elements are present, there being a meeting of the minds, then a
perfected contract of sale arises, and its validity is not affected by the fact that
 In contrast, obligations to do or not to do, cannot be enforced through actions for previously a fictitious deed of sale was executed by the parties, or by the fact of
specific performance because of the public policy against involuntary servitude nonperformance of the obligations thereafter.
although the creditor can have the same executed by another at the cost of the obligor
and the obligor’s refusal to comply can be the basis for claims for damages.

 To illustrate, Article 1480 of the Civil Code, which cross refers to Article 1165
 The more appropriate term to use when an essential element is not present at meeting
thereof, provides that when what is to be delivered is a determinate thing, the buyer,
of the mind is to declare a “no contract” situation.
in addition to the right to recover damages, may compel the seller to make the
delivery.
 In other words, a defaulting party in a sale cannot insist on just paying damages
when the non-defaulting party demands performance.
 Dizon v. Court of Appeals holds that all three elements of consent, subject matter and
 Subject Matter of Sale consideration must be present for a valid sale to exist; and that in a situation where
 Although Article 1458, in defining sale, uses the word “determinate” to describe the any of the elements is not present, “[t]there was no perfected contract of sale, and that
subject matter of the sale, the present Law on Sales has expanded the coverage to “the absence of any of these essential elements negates the existence of a perfected
include generic objects which are at least “determinable.” contract of sale,” rather than using the technical term “void.”

 Article 1460 states that the “requisite that the 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,” which
includes “determinable” albeit generic objects as valid subject matters of sale.
 Manila Container Corp. v. PNB, the Court held that absence of the concurrence of all
the essential elements, the giving of earnest money cannot establish the existence of a
perfected contract of sale. On the other hand, when all three elements are present, but
there is defect or illegality constituting any of such elements, the resulting contract is
 either voidable when the defect constitutes a vitiation of consent, or void as mandated
under Article 1409 of the Civil Code.
 ESSENTIAL CHARACTERISTICS OF SALE

 Before dissecting sale as a contract, it would be useful to look at sale from a general
point of view, by analyzing its essential characteristics.

 Stages in the Life of Sale

1. Nominate and Principal Sale
 Strictly speaking, there are only two stages in the “life” of a contract of sale
 is a nominate contract since it has been given a particular name by law; more
1. Perfection and importantly, its nature and consequences are governed by a set of rules in the
Civil Code, which euphemistically we refer to as the “Law on Sales.”
2. Consummation

 Since it is only at perfection that sale as a contract begins to exist in the legal world.
Until sale is perfected, it cannot serve as an independent source of obligation, nor as a
binding juridical relation between the parties.
 Supreme Court has considered the following to be the stages in the life of a sale:
 Sale is a principal contract, as contrasted from accessory or preparatory contracts,
because it can stand on its own, and does not depend on another contract for its
validity or existence; more importantly, that parties enter into sale to achieve
within its essence the objectives of the transaction, and simply not in preparation
for another contract.

1. POLICITACION, negotiation, or preparation stage;  The “nominate and principal” characteristics of sale leads to the doctrine held by
the Supreme Court that in determining the real character of the contract, the title
2. PERFECTION, conception or “birth”; and given to it by the parties is not as significant as its substance.

3. CONSUMMATION or “death.”

 In one case, the Court held that in determining the nature of a contract, the courts
look at the intent of the parties and not at the nomenclature used to describe it,
 Policitacion or negotiation covers the period from the time the prospective and that pivotal to deciding such issue is the true aim and purpose of the
contracting parties indicate their interests in the contract to the time the contract is contracting parties as shown by the terminology used in the covenant, as well as
perfected; “by their conduct, words, actions and deeds prior to, during and immediately after
executing the agreement.”

 Perfection takes place upon the concurrence of the essential elements of the sale
which are the meeting of the minds of the parties as to the object of the contract and  In another case, the Court held that contracts are not defined by the parties thereto
upon the price; and but by the principles of law; and that in determining the nature of a contract, the
courts are not bound by the name or title given to it by the contracting parties.

 Consummation begins when the parties perform their respective undertaking under  The other doctrinal significance of the “nominate and principal” characteristics of
the contract of sale, culminating in the extinguishment thereof. sale is that all other contracts which have for their objective the transfer of
 ownership and delivery of possession of a determinate subject matter for a
valuable consideration, are governed necessarily by the Law on Sales
2. Consensual Sale
 is consensual contract (as contrasted from solemn and real contracts), since it is
perfected by mere consent, at the moment there is a meeting of the minds upon
the thing which is the object of the contract and upon the price.
 Buenaventura v. Court of Appeals, held that a sale over a subject matter is not a
real contract, but a consensual contract, which becomes a valid and binding
contract upon the meeting of the minds as to the price. Once there is a meeting of
the minds as to the price, the sale is valid, despite the manner of its actual
payment, or even when there has been breach thereof.
 If the real price is not stated in the contract, then the sale is valid but subject to
reformation; if there is no meeting of the minds as to the price, because the price
stipulated is simulated, then the contract is void.
 Under Article 1475 of the Civil Code, from the moment of perfection of the sale,
the parties may reciprocally demand performance, even when the parties have not
affixed their signatures to the written form of such sale, but subject to the
provisions of the law governing the form of contracts.
 Consequently, the actual delivery of the subject matter or payment of the price
agreed upon are not necessary components to establish the existence of a valid
sale; and their nonperformance do not also invalidate or render “void” a sale that
has began to exist as a valid contract at perfection; non-performance, merely
becomes the legal basis for the remedies of either specific performance or
rescission, with damages in either case.
 Despite the consensual character of a sale, under Article 1332 of the Civil Code,
when one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been fully explained to the former.
 Modalities That Affect the Characteristic of Consensuality
 The consensual characteristic of sale can be affected by modalities that by stipulation
may be added into the contractual relationship, such as a suspensive term or
condition.
 Biñan Steel Corp. v. Court of Appeals
 reminds us that “even if consensual, not all contracts of sale become
automatically and immediately effective. . . In sales with assumption of mortgage,
the assumption of mortgage is a condition precedent to the seller’s consent and
therefore, without approval of the mortgagee, the sale is not perfected.”
 On the other hand, National Housing Authority v. Grace Baptist Church
 demonstrates clearly that even the delivery and taking possession of the subject
matter by the buyer with the knowledge or consent of the seller, would not bring
about the perfection and binding effect of the sale, when the meeting of the minds
is incomplete, there being no agreement yet on the final price.
3. Bilateral and Reciprocal Sale
 is a bilateral contract embodying reciprocal obligations, as distinguished from a
unilateral contract, because it imposes obligations on both parties to the relationship,
and whereby the obligation or promise of each party is the cause or consideration for
the obligation or promise of the other.
 Reciprocal obligations
 those which arise from the same cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of one is dependent upon the
obligation of the other.
 They are to be performed simultaneously such that the performance of one is
conditioned upon the simultaneous fulfillment of the other.
 The legal effects and consequences of sale being a bilateral contract composed of
reciprocal obligations are as follows:
a. The power to rescind is implied, and such power need not be stipulated in the
contract in order for the innocent party to invoke the remedy;
b. Neither party incurs delay if the other party does not comply, or is not ready
to comply in a proper manner, with what is incumbent upon him; and
c. From the moment one of the parties fulfills his obligation, the default by the
other begins, without the need of prior demand.
 Since both parties in a sale are bound by their respective obligations which are
reciprocal in nature, then a party cannot simply choose not to proceed with the
sale by offering also the other party not to be bound by his own obligation; that
each party has the remedy of specific performance; and that rescission or
resolution cannot be enforced by defaulting party upon the other party who is
ready and willing to proceed with the fulfillment of his obligation.
 Polytechnic University of the Philippines v. Court of Appeals
o summed up the reciprocal and nominate nature of sale, thus: “It is therefore
a general requisite for the existence of a valid and enforceable contract of
sale that it be mutually obligatory, i.e., there should be a concurrence of the
promise of the vendor to sell a determinate thing and the promise of the
vendee to receive and pay for the property so delivered and transferred.”53
Consequently, Carrascoso, Jr. v. Court of Appeals, held that since a sale is
constituted of reciprocal obligations, then “[t]he right of rescission of a
party to an obligation under Article 1191 is predicated on a breach of faith
by the other party who violates the reciprocity between them.
4. Onerous Sale
 is an onerous contract, as distinguished from a gratuitous contract, because it imposes
a valuable consideration as a prestation, which ideally is a price certain in money or
its equivalent.
 In Gaite v. Fonacier, the Court ruled that the stipulation in a contract of sale on the
payment of the balance of the purchase price must be deemed to cover a suspensive
period rather than a condition since “there can be no question that greater reciprocity
obtains if the buyer’s obligation is deemed to be actually existing, with only its
maturity (due date) postponed or deferred, than if such obligation were viewed as
non-existing or not binding until the ore was sold.” The Court held that the rules of
interpretation would incline the scales in favor of “the greater reciprocity of
interests,” since sale is essentially an onerous contract.
5. Commutative Sale
 is a commutative contract, as distinguished from an aleatory contract, because a thing
of value is exchanged for equal value, i.e., ideally the value of the subject matter is
equivalent to the price paid. Nevertheless, there is no requirement that the price be
equal to the exact value of the subject matter; all that is required is for the seller to
believe that what was received was of the commutative value of what he gave.
 A sale is “normally commutative and onerous: not only does each one of the parties
assume a correlative obligation (the seller to deliver and transfer ownership of the
thing sold, and the buyer to pay the price), but each party anticipates performance by
the other from the very start.”
 Gaite recognized that although in a sale “the obligation of one party can be lawfully
subordinated to an uncertain event, so that the other understands that he assumes the
risk of receiving nothing for what he gives (as in the case of a sale of hope or
expectancy, emptio spei), it is not in the usual course of business to do so; hence, the
contingent character of the obligation must clearly appear.”
 Gaite therefore acknowledged that obligations in a sale can be subordinated to a
suspensive condition with the party fully aware that “he assumes the risk of receiving
nothing for what he gives,” although such stipulation may seem to be contrary to the
commutative nature of a sale. This confirms the view that although
“commutativeness” is an essential characteristic of a sale, the test for compliance
therewith is not objective but rather subjective; i.e., so long as the party believes in all
honesty that he is receiving good value for what he transferred, then it complies with
the commutative character of a sale, and would not be deemed a donation nor an
aleatory contract.
 The subjective test of the commutative nature of sale is further bolstered by the
principle that inadequacy of price does not affect ordinary sale.61 Inadequacy of price
may be a ground for setting aside an execution sale but is not a sufficient ground for
the cancellation of a voluntary contract of sale otherwise free from invalidating
effects.
 Inadequacy of price may show vice in consent, in which case the sale may be
annulled, but such annulment is not for inadequacy of price, but rather for vitiation in
consent.
 Only recently Buenaventura v. Court of Appeals, held that: “Indeed, there is no
requirement that the price be equal to the exact value of the subject matter of sale; all
that sellers believed was that they received the commutative value of what they gave.
All the respondents believed that they received the commutative value of what they
gave.
6. Sale Is Title and Not Mode
 The perfection of a sale gives rise to the obligation on the part of the seller to transfer
ownership and deliver possession of the subject matter; nevertheless, it would be
delivery or tradition that is the mode to transfer ownership and possession to the
buyer.
 Although in one case the Court defined a “sale” as a “contract transferring dominion
and other real rights in the thing sold,” sale is merely title that creates the obligation
on the part of the seller to transfer ownership and deliver possession, but on its own
sale is not a mode that transfers ownership.
 Thus, Alcantara-Daus v. de Leon, held that while a sale is perfected by mere consent,
ownership of the thing sold is acquired only upon its delivery to the buyer.
 Upon the perfection of the sale, the seller assumes the obligation to transfer
ownership and to deliver the thing sold, but the real right of ownership is transferred
only “by tradition” or delivery thereof to the buyer.
 In Acap v. Court of Appeals,
 the Court held that an asserted right or claim to ownership, or a real right over a
thing arising from a juridical act, is not per se sufficient to give rise to ownership
over the thing; that right or title must be completed by fulfilling certain conditions
imposed by law.
 “Hence, ownership and real rights are acquired only pursuant to a legal mode or
process. While title (such as sale) is the juridical justification, mode (like delivery)
is the actual process of acquisition or transfer of ownership over a thing.”
 Acap held that the “Declaration of Heirship and Waiver of Rights” executed by
the heirs waiving their inheritance rights in favor of a non-heir cannot be deemed
a proper mode to affect title to the land involved because waiver of inheritance
right can only be done in favor of another heir; whereas, it could not also be
considered a sale contract because the document did not provide for the element
of price, which is required for a valid sale under Article 1458 of the Civil Code.
 Manongsong v. Estimo,
 emphasized that once a sale has been duly perfected, its validity “cannot be
challenged on the ground of the non-transfer of ownership of the property sold at
 that time of the perfection of the contract, since it is consummated upon delivery
of the property to the vendee. It is through tradition or delivery that the buyer
acquires ownership of the property sold.”
 Consequently, the proper remedy was not annulment, but rescission.
 Mode is the legal means by which dominion or ownership is created, transferred
or destroyed (e.g., succession, donation, discovery, intellectual creation, etc.);
o Title only constitutes the legal basis by which to affect dominion or
ownership. Therefore, sale by itself does not transfer or affect ownership;
the most that sale does is to create the obligation to transfer ownership; it is
tradition or delivery, as a consequence of sale, that actually transfers
ownership.
 The Roman Law concept of sale encompassing only the obligation of the seller to
deliver the property is actually consistent with the treatment of sale as merely a title,
and by its perfection does not affect the ownership nor effect the transfer thereof to
the buyer. Since it is tradition or delivery as the mode by which ownership over the
subject matter is transferred to the buyer, the Roman Law concept of mandating
delivery of possession of the subject matter as the essence of the sale contract would
be logical.
 This is in stark contrast to the common law concept that the perfection of a sale over a
determinate subject matter which is ready for delivery would legally transfer
ownership to the buyer, even when there has been no actual or constructive delivery
thereof by the seller.
 SALE DISTINGUISHED FROM OTHER SIMILAR CONTRACTS
 The other contracts by which clear distinctions had to be made by the Supreme
Court involved basically obligations to transfer ownership and deliver possession
of a subject matter.
 In determining the nature or essential characteristic of a contract purported to be a
sale, the Court has held that the title given to it by the parties is not as much
significant as its substance; that courts look at the intent of the parties and the
elements of the contractual relationship and not at the nomenclature used to
describe it.
 Pivotal to deciding this issue is the true aim and purpose of the contracting parties
as shown by the terminology used in the covenant, as well as “by their conduct,
words, actions and deeds prior to, during and immediately after executing the
agreement.
 SALE VS. DONATION
SALE DONATION
an act of liberality whereby a person
disposes gratuitously of a thing or right in
favor of another person, who accepts it.
onerous contract donation is a gratuitous contract.
perfected by mere consent being a solemn contract, although consent
is also required, must comply with the
formalities mandated by law for its validity.
 Knowing the distinctions between sale and donation is important in situations where
the consideration for the transfer or alienation of a subject matter is not certain as to
ensure that it is valuable consideration to constitute a valid sale.
 As observed in Manongsong v. Estimo, unlike in a donation by the decedent, a valid
sale cannot have the legal effect of depriving the compulsory heirs of their legitimes
 As opposed to a disposition inter vivos by lucrative or gratuitous title, a valid sale for
valuable consideration does not diminish the estate of the seller. When the disposition
is for valuable consideration, there is no diminution of the estate but merely
substitution of values, that is, the property sold is replaced by the equivalent monetary
consideration.
 Under Article 1471 of the Civil Code, when the price of a sale is simulated, the sale
itself may be void, “but the act may be shown to have been in reality a donation or
some other act or contract.”
 In other words, a contract may be entered into in the form of a “sale” and may end up
being governed by the Law on Donations, even when there may be a formal price
agreed upon, if it is simulated, and the real intention is that the subject matter is being
donated to the supposed “buyer.”
 In such a case, the governing rule on perfection of sale by mere consent does not
resolve whether the real contract is valid, since being a donation, the formality for
donation should also have been complied with for the transaction to be considered
valid.
 On the other hand, a purported donation may have been executed by the parties, but it
is not mere liberality that permeates the contract as the only consideration, because
other consideration or burdens are placed upon the donee.
 In such a case, the issue of what is the applicable rule (i.e., Law or Sales or Law on
Donation) becomes critical in determining the validity and enforceability of the
contract.
 Under Article 726 of the Civil Code, even when the donor imposes upon the donee a
burden, but which is less than the value of the thing given, there is still a donation.
The legal implication under said article is clear: when the value of the burden placed
upon the donee is more than the value of the thing given, it becomes an “onerous”
donation, as either a barter or sale, which are both governed by the Law on Sales.
 In such cases, the solemnities provided for by the Law on Donations are wholly
irrelevant, even if the contract is called a “donation”; and since the relationship is
 governed by the Law on Sales, the perfection and enforceability of the contract
happen upon consent.
 SALE VS BARTER
SALE
one of the parties binds himself to deliver
a thing in consideration of the other’s
undertaking to pay the price in money or
its equivalent.
the rules on the Statute of Frauds, which
apply to the sale of real property, and
personal property bought at 5500.00 or
more
the right of legal redemption granted by
law to an adjoining owner of an urban
land,92 covers only “resale” and does not
cover exchanges of properties
 The distinctions between sale and barter are merely academic, since aside from two
separate rules applicable to barter, as to all matters not specifically provided for,
Article 1641 provides that barter shall be governed by the Law on Sales.
 The two rules specifically provided for barter contracts, but which are similar anyway
BARTER to the rules on warranty against eviction applicable to sale, are as follows:
one of the parties binds himself to give
a. If one of the contracting parties, having received the thing promised in
one thing in consideration of the other’s
barter, should prove that it did not belong to the person who gave it, he
promise to give another thing
cannot be compelled to deliver that which he offered in exchange, but he
Not applicable shall be entitled to damages; and
b. One who loses by eviction the thing received in barter may recover that
which he gave in exchange with a right to damages, or he can only make
use of the right to recover the thing which he has delivered while the same
remains in the possession of the other party, but without prejudice to the
rights acquired in good faith by a third person.
 SALE VS CONTRACT FOR A PIECE-OF WORK

SALE CONTRACT FOR A PIECE OF WORK

 It is interesting to note that in Delpher Trades Corp. v. IAC, in somewhat a complete the contractor binds himself to execute a
defiance of the doctrine of separate juridical personality of a corporation from its piece of work for the employer, in
stockholders, the Court held that an assignment of property to the corporation by consideration of a certain price or
controlling shareholders in exchange for shares is not a sale nor barter because the compensation; the contractor may either
corporation cannot be considered a third party when it would be controlled by the employ only his labor or skill, or also furnish
the material
transferor as part of estate planning.
Constituted of real obligations and would be Where the main subject matter is the service
the proper subject of an action for specific to be rendered (obligation to do), would not
performance allow an action for specific performance in
case the contractor refuses to comply with
his obligation.
 Rules to Determine Whether Contract Is Sale or Barter Only when the subject matter is Instead, Article 1715 provides that “[S]hould
 Article 1468 of the Civil Code provides for the following rules in cases of dispute indeterminate or generic (i.e., determinable) the work be not of such quality, the employer
whether the contract is a sale or a barter, especially when the consideration agreed is the buyer granted the remedy under Article may require that the contractor remove the
upon is partly in money and partly in another thing: 1165 to have the subject matter done by a defect or execute another work. If the
1. Manifest Intention of the Parties – Even if the acquisition of a thing is paid for third party with cost chargeable to the seller. contractor fails or refuses to comply with this
by another object of greater value than the money component, it may still be a obligation, the employer may have the defect
sale and not a barter, when such was the intention of the parties; removed or another work executed at the
contractor’s cost.”
2. When Intention Does Not Appear and Consideration Consists Partly in Money Governed by the Statute of Frauds. Not governed by the Statute of Frauds.
and Partly in Another Thing:
a. It is a barter, where the value of the thing given as part of the consideration
 The similarity between a sale and a contract for a piece of work
exceeds the amount of money given or its equivalent;
b. It is a sale, where the value of the thing given as part of the consideration  “Transfer of title or an agreement to transfer it for a price paid or promised to be
equals or is less than the amount of money given paid is the essence of sale.
 Ineluctably, whether the contract be one of sale or one for a piece of work, a
transfer of ownership is involved and a party necessarily walks away with an
object.”
  There may be situations where it is difficult to determine whether the contract in  On a more practical basis, however, apart from the issue of the tax provisions
dispute is a sale or a contract for a piece of-work, because essentially, in both applicable to the transactions, there are still key areas where it would be important
instances, the client or customer walks away from the transaction bringing with to determine the proper characterization of a contract, whether it is a sale or one
him an object. for a piece-of-work, because of the different sets of laws governing each type of
contract.
 Statutory Rule on Distinguishing Sale from Contract for a Piece-of-Work
 the distinction between a sale and a contract for work, labor, and materials is  SALE VS. AGENCY TO SELL
tested by the inquiry of whether the thing transferred is one not in existence and
which never would have existed but for the order of the party desiring to acquire SALE AGENCY TO SELL
it, or a thing which would have existed and been the subject of sale to some other a person binds himself to render some service
person, even if the order had not been given. or to do something in representation or on
behalf of the principal, with the consent or
 Subsequently, Article 1467 of the Civil Code gave the statutory rules in authority of the latter.
distinguishing a sale from a contract for a pieceof-work, employing language similar one that essentially establishes a
representative capacity in the person of the
to the Inchausti & Co. ruling which gives two tests for distinction:
agent on behalf of the principal, and one
1. Manufacturing in the ordinary course of business to cover sales contracts; and
characterized as highly fiduciary. Involving
2. Manufacturing upon special order of customers, to cover contracts for piece-of-
obligations to do (i.e., to represent the
work.
principal)
Not unilaterally revocable a contract of agency to sell, because it covers
 The jurisprudential doctrine that became the basis of Article 1467 therefore an underlying fiduciary relationship, is
indicated that the term “upon special order” is really based on the ability of the essentially revocable Even in the presence of
producer to manufacture the goods in the condition that they customarily are an irrevocability clause
without having to wait for specific orders from customers. The buyer himself pays for the price of the The agent is not obliged to pay the price, and
object, which constitutes his main obligation is merely obliged to deliver the price which he
 Celestino Co recognized that the essence of a contract for a piece-of-work is the may receive from the buyer
“sale of service” unlike in a sale where the essence is the sale of an object. the buyer, after delivery, becomes the owner the agent does not become the owner of the
of the subject matter thing subject of the agency, even if the object
 It also conceded that if the company “accepts a job that requires the use of is delivered to him
extraordinary or additional equipment, or involves services not generally the seller warrants The agent who effects the sale assumes no
performed by it — it thereby contracts for a piece of work — filling special orders personal liability as long as he acts within his
within the meaning of Article 1467.” authority and in the name of the principal.

However, it is legally possible for an agent or

 In that case, however the Court found that the orders exhibited were not shown to
a broker to voluntarily bind himself to the
be special: “They were merely orders for work — nothing is shown to call them
warranties of the seller
special requiring extraordinary service of the factory.”
Fiduciary nature of the relationship, in an
agency to sell, the agent is disqualified from
 Celestino Co implies that the test of “special orders” under Article 1467 of the receiving any personal profit from the
Civil Code is not one of timing, or habit, but actually must be drawn from the transaction covered by the agency, and any
nature of the work to be performed and the products to be made: it must be of the profit received should pertain to the principal
nature that the products are not ordinary products of the manufacturer, and they must comply with the Statute of Frauds for Contract of agency to sell is valid and
would require the use of extraordinary skills or equipment, if to be performed by a enforceability enforceable in whatever form it may be
manufacturer. entered into.

 Practical Needs for Being Able to Distinguish

 From the point of view of warranty of the contractor on the product, a contract for
a piece-of-work is not much different from a sale.
 Pursuant to Article 1714, a contract for a piece-of-work shall be governed “by
pertinent provisions on warranty of title and against hidden defects and the
payment of price in a contract of sale.”
 Statutory Rule Article 1466 of the Civil Code
 Provides that in construing a contract containing provisions characteristic of both
the sale and of the contract of agency to sell, the essential clauses of the whole
instrument shall be considered.
  The Court held that one of the factors that most clearly distinguishes agency from
other legal concepts, including sale, “is control; one person — the agent — agrees
to act under the control of direction of another — the principal.
 Other Practical Value of Being Able to Distinguish
 Knowing whether the contract is one of sale or an agency to sell is also important
in considering the applicability of the Statute of Frauds
 An agency to sell on commission basis does not belong to any of the contracts
covered by Articles 1357 and 1358 requiring them to be in a particular form, and
not one enumerated under the Statutes of Frauds in Article 1403.
 By way of exception, under Article 1874 of the Civil Code, when the sale of a
piece of land or any interest therein is through an agent, the authority of the latter
shall be in writing, otherwise, the sale shall be void.
 SALE VS DACION EN PAGO
SALE DACION EN PAGO
Dation in payment is one whereby property
is alienated to the creditor in full satisfaction
of a debt in money.
It constitutes “the delivery and transmission
of a thing by the debtor to the creditor as an
accepted equivalent of the performance of
the obligation
By express provision of law, dation in
payment is governed by the Law on Sales,
since it essentially involves the transfer of
ownership of a subject matter.
is an objective novation of the obligation
where the thing offered as an accepted
equivalent of the performance of an
obligation is considered as the object of the
contract of sale while the debt is considered
as the purchase price
that is why the elements of sale must be
present, including a clear agreement that the
things offered is accepted for the
extinguishment of the debt.
 It must be emphasized, however, that dacion en pago considerations are not in the
realm of perfection of contract, but rather in the stage of consummation, for indeed
dacion en pago is by definition a special mode of payment, whereby the debtor offers
another thing to the creditor who accepts it as equivalent of payment of an
outstanding debt.
 Consequently, prior to delivery of the subject matter to constitute the dation in
payment, the agreement does not necessarily constitute a separate contract, but only
an arrangement by which an existing obligation may be extinguished.
 In order that there be a valid dation in payment, there must be:
1. Performance of the prestation in lieu of payment (animo solvendi) which may
consist in the delivery of a corporeal thing or a real right or a credit against the
third person;
2. Some difference between the prestation due and that which is given in
substitution (aliud pro alio); and
3. An agreement between the creditor and debtor that the obligation is immediately
extinguished by reason of the performance of a presentation different from that
due.
 In dacion en pago “[t]he undertaking really partakes in one sense of the nature of sale,
that is, the creditor is really buying the thing or property of the debtor, payment for
which is to be charged against the debtor’s debt.
 As such, the vendor in good faith shall be responsible, for the existence and
legality of the credit at the time of the sale but not for the solvency of the debtor,
in specified circumstances.
 SALE VS LEASE
SALE LEASE
Conditional sale may be made in the the lessor binds himself to give to
form of a “lease with option to buy” as a another (the lessee) the enjoyment or use
device to circumvent the provisions of of a thing for a price certain, and for a
the Recto Law governing the sale of period which may be definite or
personal property on installments. indeInite
The lessee has the option to buy the
leased property for a small consideration
at the end of the term of the lease,
provided that the rent has been duly
paid; or if the rent throughout the term
had been paid, title shall vest in the
lessee. Such contract are really
conditional sales and are deemed leases
in name only.
When a “lease” clearly shows that the  Generally, minors, insane and demented persons, and deafmutes who do not know
rentals are meant to be installment how to write, have no legal capacity to contract, and therefore are disqualified from
payments to a sale contract, despite the being parties to a sale.
nomenclature given by the parties, it is a
sale by installments.  Nonetheless, contracts entered into by such legally incapacitated persons are not
void, but merely voidable, subject to annulment or ratification.

 The action for annulment cannot be instituted by the person who is capacitated since
he is disqualified from alleging the incapacity of the person with whom he contracts.

 Contracts entered into during lucid intervals by insane or demented persons are
generally valid; whereas, those entered into in a state of drunkenness, or during a
hypnotic spell, are merely voidable.

 When the defect of the contract consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution, except insofar as he has
been benefited by the thing or price received by him.

1. Necessaries
 A minor is without legal capacity to give consent to a sale, and since consent is an
essential requisite of every contract, the absence thereof cannot give rise to a valid
sale; nonetheless, the defective consent gives rise to a voidable sale, meaning “valid
until annulled.”

 The Title on Sales in the Civil Code specifically provides that although a minor is
not capacitated to validly enter into a sale, “[w]here necessaries are sold and
CHAPTER 2
delivered to a minor or other person without capacity to act, he must pay a
PARTIES OF SALE reasonable price therefore, and the resulting sale is valid, and not merely voidable.

 GENERAL RULE ON CAPACITY OF PARTIES
 When it comes to the issue as to who can be the proper parties to a sale, the general
rule is that any person who has
 capacity to act, or
 the power to do acts with legal effects, or
 the power to obligate himself, may enter into a contract of sale, whether as seller
or as buyer.
 For natural persons or individuals, the age of majority begins at 18 years, upon which
age they have the capacity to act.
 For juridical persons, such as corporations, partnerships, associations and
cooperatives, a juridical personality separate and distinct from that of the
shareholders, partners or members, is expressly recognized by law, with full “juridical
capacity”5to obligate themselves and enter into valid contracts.
 MINORS, INSANE OR DEMENTED PERSONS, AND DEAF-MUTES
 “Necessaries,” are now defined by Article 194 of the Family Code to cover
 “everything indispensable for: sustenance, dwelling, clothing, medical
attendance, education and transportation, in keeping with the financial capacity
of the family ... [and education] include[s] his schooling or training for some
profession, trade or vocation, even beyond the age of majority.
 Transportation shall include expenses in going to and from school, or to and
from place of work.”
 Since sales cover only the obligation to deliver a thing, the sale of “necessaries”
considered valid under Article 1489 can only cover sales pertaining to
sustenance, dwelling, and clothing, and perhaps medicine and educational
books and materials.
 In order for the sale of necessaries to minors to be valid, and not merely
voidable, two elements need to be present:
a. Perfection of the sale; and
b. Delivery of the subject necessaries.
 If there is only perfection at the time the case reaches litigation, the sale of course is
not void, but voidable for vice in consent, and the rules on voidable contracts apply.
2. Emancipation
  The rules on emancipation under Articles 234 to 236 of the Family Code, have been
rendered moot by Rep. Act No. 6809, which has lowered the age of majority to 18
years of age.
 Consequently, the issue on the validity of sales entered into by emancipated minors
no longer exists. Previously, under the Family Code, “emancipation takes place by
the attainment of majority ... [which] commences at the age of twenty-one years.”
 In addition, it was provided that emancipation also took place
a. By marriage of the minor; or
b. By the voluntarily emancipation by recording in the Civil Register of an
agreement in a public instrument executed by the parent exercising parental
authority and the minor at least eighteen years of age.
 Emancipation would terminate parental authority over the person and property of the
minor, who shall then be qualified and responsible for all acts of civil life, including
validly entering into contracts of sale.
 Under the present Family Code, marriages entered into below eighteen years of age
are void, rendering emancipation by marriage at the age of 18 years inutile, since by
merely reaching 18 years of age, even without marrying, one is already of legal age.
 Voluntary emancipation by registration of the public instrument requires that the
minor be at least 18 years old, which is now legally impossible, because at eighteen
years of age there is no longer a minor who may be voluntarily emancipated.
3. Senility and Serious Illness
 The effects of senility and serious illness of the seller on the validity of a sale
 The general rule is that a person is not incompetent to contract merely because
of advanced years or by reason of physical infirmities.
 However, when such age or infirmities have impaired the mental faculties so as
to prevent the person from properly, intelligently, and firmly protecting her
property rights then she is undeniably incapacitated.
 A sale executed by one who is already of advanced age and senile to be “null
and void,” instead of being merely voidable.
 SALES BY AND BETWEEN SPOUSES
1. Sales With Third Parties
 Before the enactment of the Family Code, the provisions of the Civil Code provided
limitations on when the husband or the wife may deal with conjugal partnership
property
 the alienation or encumbrance of a conjugal real property requires the consent
of the wife; that the absence of such consent rendered the transaction merely
voidable and not void; and that the wife may, during the marriage and within
ten years from the questioned transaction, bring an action for the annulment of
the contract on the entire property, and not just the one-half portion that
pertains to her share.
 Under the present Family Code, common provisions apply equally to both spouses,
not only because the default rule is the “absolute community of property regime, but
more so even when the spouses chose under their marriage settlements to be
governed by the conjugal partnership of gains, the spouses would still have joint
administration of the conjugal properties.
 Under Article 73 of the Family Code, either spouse may exercise any legitimate
profession, occupation, business or activity without the consent of the other; and the
latter may object only on valid, serious and moral grounds. In cases of
disagreements, the courts shall decide whether or not the objection is proper, and
make rulings on the benefits, depending on whether the benefits had accrued to the
family prior to the objection or thereafter.
 The article also provides that if benefits accrued prior to the objection, the
resulting obligation shall be enforced against the separate property of the
spouse who has not obtained consent; otherwise, the same shall be chargeable
against the community property, without prejudice to the creditors who acted in
good faith.
 Under the Law on Sales, therefore, it would seem that a spouse may, without the
consent of the other spouse, enter into sale transactions in the regular or normal
pursuit of his or her profession, vocation or trade.
 Nevertheless, under Articles 96 and 124 of the Family Code, the administration
and enjoyment of the community property or the conjugal property, as the case
may be, shall belong to both spouses jointly; and in case of disagreement, the
husband’s decision shall prevail, subject to the wife seeking remedy from the
courts, which must be availed of within (5) years from the date of the contract.
 In addition, the disposition or encumbrance of community property or conjugal
property, as the case may be, shall be void without authority of the court or the
written consent of the other spouse. In such a case, the transaction shall be
construed as a continuing offer on the part of the consenting spouse and the
third person, and may be perfected as a binding contract upon the acceptance
by the other spouse or authorization by the court before the offer is withdrawn
by either or both offerors.
 In one case, even when the property regime prevailing was the conjugal partnership
of gains, the Court held that the sale by the husband of a conjugal property without
the consent of the wife to be not merely voidable but void, under Article 124 of the
Family Code, since the resulting contract lacked one of the essential elements of
“full consent.”
 In another case, the Court held that the sale by the husband of property belonging to
the conjugal partnership without the consent of the wife when there was no showing
that the latter was incapacitated, was held void ab initio because it was in
contravention of the mandatory requirements of Article 166 of the Civil Code.
However, it conceded that as an exception, the husband may dispose of conjugal
property without the wife’s consent if such sale is necessary to answer for conjugal
liabilities mentioned in Articles 161 and 162 of the Civil Code.
2. Sales Between Spouses
 Under Article 1490 of the Civil Code, spouses cannot sell property to each other,
except:
a. When a separation of property was agreed upon in the marriage settlements; or
b. When there has been a judicial decree for the separation of property.
 In addition, Article 1492 provides that the prohibition relating to spouses
selling to one another is applicable even to sales in legal redemption,
compromises and renunciations.
A. Status of Prohibited Sales Between Spouses
 Contracts entered into in violation of Articles 1490 and 1492 are not merely
voidable, but have been declared as being null and void.
 However, not anyone is given the right to assail the validity of the transaction.
For instance, the spouses themselves, since they are parties to an illegal act,
cannot avail themselves of the illegality of the sale on the ground of pari
delicto; the courts will generally leave them as they are.
 Also, the creditors who became such only after the transaction, cannot attack
the validity of the sale, for it cannot be said that they have been prejudiced by
the transaction.
 Practically, the only persons who can question the sale are the following:
a. the heirs of either of the spouses who have been prejudiced;
b. prior creditors; and
c. the State when it comes to the payment of the proper taxes due on the
transactions.
B. Rationale for Prohibition
 Medina gave the rationale for the relative incapacity of spouses to sell properties to
one another to be as follows:
a. To prevent a spouse defrauding his creditors by transferring his properties to
the other spouse;
b. To avoid a situation where the dominant spouse would unduly take advantage
of the weaker spouse, thereby effectively defrauding the latter; and
c. To avoid an indirect violation of the prohibition against donations between
spouses under Article 133 of the Civil Code.
 Article 133 of the Civil Code, which declares void every donation between spouses
during marriage, seeks to prevent the first two evils enumerated above.
 Article 133 has been replaced by Article 87 of the Family Code which added the
provision
 “The prohibition shall also apply to persons living together as husband and wife
without a valid marriage.”
 Therefore, the evils sought to be avoided under Articles 87 and 1490 are the
same. But unlike Article 1490 which exempts from its prohibition sales
between spouses governed by the complete separation of property regime,
Article 87 of the Family Code, do not make such exception in case of
donations.
 One explanation for the difference in this aspect between Articles 87 and 1490 is
that a
 donation between spouses governed by the complete separation of property
regime, being a gratuitous contract, would necessarily reduce the estate of the
donor and increase the estate of the donee; while
 a sale between such spouses, being an onerous and commutative contract,
would result in the separate estates of the spouses being of the same value as
before the sale and no fraud could result, either to the spouses or to their
creditors.
 Spouses governed by the absolute community of property regime cannot sell to one
another because having the same estate between themselves, a sale is not possible
because there simply cannot be a purchase of what a party-buyer already owns.
C. Rationale for Exceptions to Prohibition under Article 1490
 If one were to take at face value the two exceptions to the prohibition of sales
between spouses (i.e., sales between spouses governed by complete separation of
property regime), it would seem that the evils sought to be avoided also pertain to
such situations, and indeed, there is greater danger of undue influence or fraud in
situations where the spouses are governed by the complete separation of property
regime.
 For in a complete separation of property regime, where the spouses are bound
only by their separate properties to their separate creditors and not to the
creditors of the other spouses, there would seem to be greater risk that by
allowing spouses to sell to one another, as the law allows, the separate creditors
of the selling spouses could equally, if not with greater degree, be defrauded.
 In addition, just because spouses have a complete separation of property regime
does not necessarily discount that one spouse cannot exercise undue influence or
pressure on the other spouse.
 In a complete separation of property regime, the dominant spouse may unduly
influence the weaker spouse, and with greater impunity, legally get away with
it.
 Finally, Article 133 which prohibits donations between spouses, does not make an
exception to spouses governed by the complete separation of property regime, and
therefore donations between such spouses would be void.
 By allowing under Article 1490 spouses governed by complete separation of
property regime to sell to one another, the law would allow the circumvention of the
prohibition against donations between spouses governed by the complete separation
of property regime.
 The key element, it seems to the author, to the exceptions provided for the
restrictions under Article 1490, lies in the psychology of the situation.
 Legally, there are only two ways by which a complete separation of property
regime could exist between married spouses, namely, by the execution of a
prenuptial agreement stipulating such property regime to apply, or by the
spouses going to court to ask for the dissolution of the prevailing conjugal
partnership of gains or absolute community of property regimes.
  The absolute prohibition under Article 87 of the Family Code, on donations between
spouses, should also be made to apply to sales between spouses, irrespective of their
property regime.
D. Applicability of Incapacity to Common Law Spouses
 The Court held the donation to be void, although Article 133 of the Civil Code
considers as void a “donation between the spouses during the marriage.” It held that
if the policy of the law . . . is to ‘prohibit donations in favor of the other consort and
his descendant because of fear of undue and improper pressure and influence upon
the donor, a prejudice deeply rooted in our ancient law . . . then there is every reason
to apply the same prohibitive policy to persons living together as husband and wife
without the benefit of nuptials.
 In addition, the Court held that so long as marriage remains the cornerstone of our
family law, reason and morality alike demand that the disabilities attached to
marriage should likewise attach to [common-law relationship].”
 the Court gave formal imprimatur to the rationale of Matabuena being applied to
sales by ruling that sales between common-law spouses are void; that Article 1409
of the Civil Code declares such contracts void as being contrary to morals and public
policy, and not only because Article 1352 declares them void for having an unlawful
cause, but specifically because Article 1490 prohibits sales between spouses.
 Although under Art. 1490 the husband and wife cannot sell property to one another
as a rule which, for policy consideration and the dictates of morality require that the
prohibition apply to common-law relationship but that when registered property has
been conveyed subsequently to a third-party-buyer in good faith and for value, then
reconveyance is no longer available to common-law spouse, since under the Torrens
system every buyer has a right to rely upon the title of his immediate seller.
 SPECIFIC INCAPACITY MANDATED BY LAW
 Article 1491 of the Civil Code prohibits the following persons from entering into
contracts of sale under the circumstances covered therein:
a. Agent, with respect to the property whose administration or sale may have
been entrusted to him, unless the consent of the principal has been given;
b. Guardian, with respect to the property of the person who is under his
guardianship;
c. Executor or administrator, with respect to the property of the estate under his
administrations;
d. Public officers and employees, with respect to property of the State or any
subdivision thereof, or of any government-owned or controlled corporation, or
institution, the administration of which has been entrusted to them; it includes
judges and government experts who, in any manner whatsoever, take part in the
sale;
e. Justices, judges, prosecuting attorneys, clerks of courts, and other officers and
employees connected with the administration of justice, with respect to the
property and rights in litigation or levied upon an execution before the court
within whose jurisdiction or territory they exercise their respective functions;
and
f. Lawyers, with respect to the property and rights which may be the object of any
litigation in which they may take part by virtue of their profession.
 The above-enumerated relative incapacities are, under Article 1492, made to apply
to sales in legal redemption, compromises and renunciations, confirming the policy
that what cannot be done directly, cannot be done by indirection.
1. Legal Status of Contracts Entered Into In Violation of Articles 1491 and 1942
 Only purchases made by agents of the property covered by the agency are valid and
binding when made with the express consent of their principals; and no such
exception is granted in all the other instances covered by said article. That would
also mean that, apart from the case of the agents, in all cases covered under Article
1491, consent or knowledge by the persons who is sought to be protected by the law,
cannot validate any of the transactions covered.
 Article 1491 does not also state the legal consequences of having entered into
contracts in violation of said article, i.e., it does not state expressly that the resulting
contracts are “void.
 The Court held that the sale’s voidability cannot be asserted by one not a party to the
transaction or his representative, that considering the question from the point of
view of the civil law, the view taken by the code, we must limit ourselves to
classifying as void all acts done contrary to the express prohibition of the statute.
 Now then as the code does not recognize such nullity by the mere operation of law,
the nullity of the acts hereinbefore referred to must be asserted by the person having
the necessary legal capacity to do so and decreed by a competent court. In other
words, had classified such contracts as being merely voidable or annullable, and not
void.
 The Supreme Court of Spain and modern authors have likewise veered away from
Manresa’s view of the Spanish codal provision itself, holding that since the
provision is based on public policy, that violation of the prohibition cannot be
validated by confirmation or ratifi cation.
 It adopted Castan’s rationale for his conclusion “that fundamental considerations of
public policy render void and inexistent such expressly prohibited purchase (e.g., by
public officers and employees of government property intrusted to them and by
justices, judges, fiscals and lawyers of property and rights in litigation submitted to
or handled by them, under Art. 1492, paragraphs [4] and [5] of our Civil Code) has
been adopted in a new article of our Civil Code, viz., Art. 1409 declaring such
prohibited contracts as ‘inexistent and void from the beginning.”
 A purchase by a lawyer of property of a client in litigation, in which the purchasing
lawyer appeared as counsel of record, “was void and could produce no legal effect,
by virtue of Article 1409(7) of our Civil Code which provides that contracts
‘expressly prohibited or declared void by law’ are ‘inexistent and void from the
 beginning’ and that these contracts cannot be ratified. Neither can the right to set up
the defense of illegality be waived.
a. A Different Form of “Ratification”
 Rubias, however, sought to declare a difference in the state of “nullity” between
prohibited contracts entered into by guardians, agents, administrators and executors,
from those entered into by judges, judicial offi cers, fiscals and lawyers, thus —
 In this aspect, the permanent disqualification of public and judicial officers and
lawyers grounded on public policy differs from the first three cases of
guardians, agents and administrators (Art. 1491, Civil Code), as to whose
transactions, it has been opined that they may be “ratified” by means of and in
“the form of a new contract, in which case its validity shall be determined only
by the circumstances at the time of execution of such new contract.
 The causes of nullity which have ceased to exist cannot impair the validity of
the new contract.
 Thus, the object which was illegal at the time of the first contract, may have
already become lawful at the time of the ratification or second contract; or the
service which was impossible may have become possible; or the intention
which could not be ascertained may have been clarified by the parties. The
ratification or second contract would then be valid from its execution; however,
it does not retroact to the date of the first contract.”
 The functional difference between the two groups of contracts declared void
under Article 1491, is that in the first group after the inhibition has ceased, the
only real wrong that subsists is the private wrong to the ward, principal or
estate; and therefore, if private parties wish to condone the private wrongs
among themselves, the State would not stand in the way.
 When it comes to the second group, however, even when the inhibition has
ceased, there exists not only the private wrong, but in fact a public wrong,
which is damage to public service or to the high esteem that should be accorded
to the administration of justice in our society. Therefore, in the second group,
even when the private parties seek to “ratify” the private wrong by executing a
new contract between themselves when the inhibition no longer exists, such
cannot resurrect and validate a relationship, which continues to be tainted with
a public wrong.
 As the policy goes, private parties cannot ratify or compromise among
themselves matters contrary to public interests.
b. Proper Party to Raise Issue of Nullity
 Any person may invoke the inexistence of the contract whenever juridical effects
found thereon are asserted against him, and that If the contract has already been
fulfilled, an action is necessary to declare its inexistence since nobody can take the
law into his own hands and thus the intervention of the competent court is necessary
to declare the absolute nullity of the contract and to decree the restitution of what
has been given under it.
 If the contract is still fully executory, no party need bring an action to declare
its nullity; but if any party should bring an action to enforce it, the other party
can simply set up the nullity as defense.
c. Fraud or Lesion Not Relevant for Nullity
 The existence of fraud or lesion is not a factor at all in the application of the
prohibitions covered by Article 1491, and the proof that the person disqualified has
paid more than an adequate consideration for the property he purchased is no
defense in an action to declare the sale void. The rationale for the absolute
disqualifications set by Article 1491, is in line with “the general doctrine that each of
such relationships is a trust of the highest order, and the trustee cannot be allowed to
have any inducement to neglect his ward’s interest; and therefore to avoid the
temptation which naturally besets a [person holding such a fiduciary position] so
circumstanced, necessitates the annulment of the transaction.
 Even in situations where the purchase by a disqualified person under Article 1491
had received approval by the court as in the case of probate court approving the
purchase by the administrator or executor, the sale would still be void.
 Even in situations where the purchase by a disqualified person under Article 1491
had received approval by the court as in the case of probate court approving the
purchase by the administrator or executor, the sale would still be void.
 Agents
 “Brokers” do not come within the coverage of the prohibition as their authority
consist merely in looking for a buyer or a seller, and to bring the former and the
latter together to consummate the transaction; therefore, they are not prohibited to
buy for themselves.
 A broker is generally defined as one who is engaged, for others, on a commission,
negotiating contracts relative to property with the custody of which he has no
concern; the negotiation between other parties, never acting in his own name but in
the name of those who employed him; he is strictly a middleman and for some
purpose the agent of both parties. ... A broker is one whose occupation it is to bring
parties together to bargain, or to bargain for them, in matters of trade, commerce or
navigation.
 Guardians, Administrators and Executors
 Guardians, administrators and executors are necessarily officers of the courts since
they are appointed or confirmed to such position pursuant to judicial proceedings.
a. Hereditary Rights Not Included in Coverage
 Hereditary rights are not included in the prohibition insofar as the administrator or
executor of the estate of the deceased. Although strictly the legal reasoning of Naval
is correct in that hereditary rights pertain immediately to the heirs upon the death of
the decedent and do not form part of the estate under the administration of the
administrator or executor; nevertheless, from both the practical and equity points of
view, such hereditary rights derive their value only from the assets that constitute the
estate of the decedent, which is clearly within the fiduciary control of the
administrator or executor.
 If an administrator or executor were not disqualified from purchasing or having
interests in the hereditary rights, once he validly acquires any of such hereditary
rights from any of the heirs, such administrator or executor would already be in clear
conflict-of-interests situation, or that in fact he may even use his fiduciary position to
compel or convince the remaining heirs to sell or assign their hereditary rights to
him.
  Besides, the language and spirit of Article 1492 would embrace within the
prohibition under Article 1491 personal dealings of administrators and executors on
the hereditary rights of the heirs.
 Judges, Justices and Those Involved in Administration of Justice
 For the prohibition under Article 1491 to apply to judges, it is not required that some
contest or litigation over the property itself should have been tried by the said judge;
such property is in litigation from the moment that it became subject to the judicial
action of the judge, such as levy on execution.
 The doctrine that prohibition under Article 1491 is “applicable only during the
period of litigation,” should cover not only lawyers, but judges as well.
 Attorneys
 The reason for the disqualification as it applies to lawyers in this wise: “Public
policy prohibits the transactions in view of the fiduciary relationship involved.
 It is intended to curtail any undue influence of the lawyer upon his client. Any
violation of this prohibition would constitute malpractice ... and is a ground for
suspension.
 Nullity of such prohibited contracts is definite and permanent and cannot be cured
by ratification. The public interest and public policy remain paramount and do not
permit of compromise or ratification.
 The prohibition under Article 1491 applies only to attorneys when the property they
are buying is the subject of litigation, and does not apply to a sale to attorneys who
were not the defendant’s attorneys in that case.
 The Court also held that the prohibition does not apply to a lawyer who acquired the
property prior to the time he intervened as counsel in an ejectment suit involving
such property.
 The prohibition applies only to sale to a lawyer who in fact represented the client in
the particular suit involving the object of the sale, and cannot cover the assignment
of the property given in judgment made by a client to an attorney, who has not taken
part in the case wherein said judgment was rendered, made in payment of
professional services in other cases.
 In another case, it was held that the prohibition does not apply to the sale of a parcel
of land, acquired by a client to satisfy a judgment in his favor, to his attorney as long
as the property was not the subject of the litigation. Also, the prohibition applies
only during the period the litigation is pending.
 However, when there is a certiorari proceeding still pending, although the subject
property is the subject of a final judgment, the disqualification still applies, and the
purchase by the lawyer during the pendency of the certiorari proceedings would
constitute malpractice in violation of Article1491 and the canons of professional
ethics.
a. Contingent Fee Arrangements
 The prohibition under Article 1491 does not apply to a contingent fee based on the
value of property involved in litigation and therefore does not prohibit a lawyer from
acquiring a certain percentage of the value of the properties in litigation that may be
awarded to his client.
 The agreement on contingent fee based on the value of the property involved is not
prohibited since the payment of said fee is not made during the pendency of the
litigation but only after judgment has been rendered in the case handled by the
lawyer.
 Contingent fee arrangement is recognized under Canon 13 of the Canons of
Professional Ethics, as an exception to Canon 10 thereof which prohibits a lawyer
from purchasing any interest in the subject matter of the litigation which he is
conducting.
 But it recognized that a contingent fee contract is always subject to the supervision
of the courts with respect to the stipulated amount and may be reduced or nullified;
so that in the event that there is any undue influence or fraud in the execution of the
contract or that the fee is excessive, the client is not without remedy because the
court will amply protect him.
 In excluding contingent fee arrangement from the coverage of Article 1491, even
when the very terms of the arrangement would grant to the lawyer an interest in the
property subject of the litigation, Ababa held: “A contract for a contingent fee is not
covered by Article 1491 because the transfer or assignment of the property in
litigation takes effect only after the fi nality of a favorable judgment.
 The Court justified excluding contingency fee arrangement from the coverage of
Article 1491 “because the payment of said fee is not made during the pendency of
the litigation but only after judgment has been rendered in the case handled by the
lawyer.
 In fact, under the 1988 Code of Professional Responsibility, a lawyer may have a
lien over funds and property of his client and may apply so much thereof as may be
necessary to satisfy his lawful fees and disbursements.
 Pendency of litigation doctrine
 The restriction under Article 1491, as it applies to lawyers cover only the
period during which the property is still subject to litigation.
 Since a contingent fee arrangement is demandable only by its nature after the
termination of litigation incident on the property subject to litigation, then it is not
covered “by the during the pendency of litigation” doctrine.
 Precisely, the “pendency of litigation” doctrine is sound mainly because when
litigation has finally been terminated, and the client legally and practically is no
longer at the mercy of his lawyer, negotiation and bargaining between the lawyer
and the client on the property that was the subject of litigation would be on
armslength basis, and no undue influence can be exercised anymore by the lawyer
on the client.
 A contingency fee arrangement, although effective and demandable only after
litigation, may in fact be negotiated and bargained for between the lawyer and the
client during the pendency of litigation, a period in which the lawyer would exercise
moral and professional influence over his client, and therefore would rightly be
covered by Article 1491.
 After all, a contingency fee arrangement is simply an obligation subject to a
suspensive condition.
 Contracts of this nature are permitted because they redound to the benefit of the poor
client and the lawyer ‘especially in cases where the client has meritorious cause of
action, but no means with which to pay for legal services unless he can, with the
sanction of law, make a contract for a contingent fee to be paid out of the proceeds
of the litigation.
 But even that reasoning only supports a contingency fee arrangement in general, and
does not justify a particular contingency fee arrangement that directly grants to the
 lawyer proprietary interests in the property subject of litigation. Indeed, the same
public policy can still be achieved by allowing contingency fee arrangement that
allows the lawyer a percentage of the “value” of the property in litigation, which is
essentially still a monetary claim with the property subject of litigation not being
sold or assigned to the lawyer, but as a measure to determine the value of the
attorney’s fee.
 Why a contingency fee arrangement, which essentially is a contract for service, is to
be governed at all by Article 1491 which covers only contracts of sale?
 The Law on Sales is a “catch-all” provision engulfing within its operations all
onerous contracts which have within their coverage the transfer of ownership
and delivery of possession of a thing. Although a contingency fee arrangement
has for its main subject matter the service of the lawyer, nevertheless when the
consideration for such service allows the lawyer to obtain ownership and
possession of the client’s property in litigation, the Court does not hesitate to
apply Article 1491 prohibitions to test the validity of such an arrangement.
CHAPTER 3
SUBJECT MATTER
 REQUISITES OF VALID SUBJECT MATTER
 A valid contract of sale would result from the meeting of the minds of the parties on a
subject matter that has at the time of perfection the following requisites:
a. It must be existing, having potential existence, a future thing, or even
contingent or subject to a resolutory condition; in other words, it must be a
“POSSIBLE THING;”
b. It must be LICIT; and
c. It must be DETERMINATE or at least DETERMINABLE.
B.
A. Lack of Any Requisite Results in Non-existent Sale
 When the subject matter agreed upon fails to meet the requisites above-enumerated,
the situation would either engender a “no contract” situation, or the resulting contract
of sale would be void under various cases provided under Article 1409 of the Civil
Code.
 The issue of whether there is a void contract, is important in considering the
applicability of doctrines that pertain to void contracts (e.g., no remedy can be
maintained, and courts generally leave the parties where they are), which would have
no application in a situation where the subject matter in a sale does not fulfill a
requisite.
1.
 Consequently, in case of payment of the agreed price, in a “no contract” situation the
buyer can still recover the amount based on the principle of “unjust enrichment.”
 Article 1411 provides that only when the nullity of the contract proceeds from the
illegality of the cause or object of the contract, and the act consitutes a criminal
offense, both parties being in pari delicto, would the parties have no cause of action
against each other; otherwise, the innocent one may claim what he has given, and shall
not be bound to comply with his promise.
 On the other hand, under Article 1412, when the act does not constitute a criminal
offense, the following rules shall apply:
a. When the fault is on the part of both contracting parties, neither may recover
what he has given by virtue of the contract, or demand the performance of the
other’s undertaking;
b. When only one of the contracting parties is at fault, he cannot recover what
he has given by reason of the contract or ask, for the fulfillment of what has
been promised him; but the one, who is not at fault, may demand the return of
what he has given without any obligation to comply with his promise.
 Finally, Article 1416 provides that when the contract is not illegal per se but is merely
prohibited, and the legal prohibition is designed for the protection of the plaintiff, he
may, if public policy is thereby enhanced, recover what he has paid or delivered.
 There is enough legal basis to posit that even when the first requisite for a valid
subject matter is not present (i.e., must be a possible thing), there is no inequity to
finding the resulting contract of sale as void (as distinguished from a “no contract”
situation), because the innocent party may still be able to recover under the principle of
unjust enrichment.
 Thus, in one case, the Supreme Court held that when a contract of sale that has been
performed is declared void, then restoration of what has been given is in order, since
the relationship between parties in any contract even if subsequently voided must
always be characterized and punctuated by good faith and fair dealing.
Legal Requisites of Subject Matter Intended to Govern Underlying Obligations of
Seller
 In discussing the statutorily-mandated requisites of what constitutes a “valid” subject
matter of sale, the underlying policy is really to safeguard the realizability and
enforceability of the primary obligations of the seller to transfer the ownership, and
deliver the possession, of the subject matter.
 For essentially, at perfection, what a valid sale is able to legally effect is not the
delivery of the subject matter but the constitution of the obligation of the seller to
deliver, coupled with the right of the buyer to demand specific performance of such
obligation.
Subject Matter Must Be “Possible Thing”
 The first requisite of a valid subject matter provides that the thing may be existing or
non-existing at the time of perfection of the contract of sale.
 Article 1461 of the Civil Code explicitly states that things having a potential existence
may be the object of the contract of sale.
 In addition, the second paragraph of Article 1462 provides that “[t]here may be a
contract of sale of goods, whose acquisition by the seller depends upon a contingency
which may or may not happen,” which clearly shows that a valid contract of sale may
exist even if at the time of its perfection, the seller was not even the owner of the thing
sold.
 Considering that the essence of a “requisite” is to set something apart from the rest, it
would then seem that the first requisite, may not really be a requisite because it
practically covers any and all situations (i.e., existing and non-existing things). What
further complicates the situation is the provision in Article 1409(3) of the Civil Code
which holds that contracts “whose cause or object did not exist at the time of the
transaction” are deemed inexistent and void from the beginning.
 The proper consideration of the first requisite, if it is to have a legal significance, is to
consider it not in terms of physical existence or non-existence or whether the seller had
or did not have ownership thereof at the time of perfection, but whether the subject
matter is of a type and nature, taking into consideration the state of technology and
science at the time the sale is perfected, that it exists or could be made to exist to allow
the seller reasonable certainty of being able to comply with his obligations under the
contract.
 For example, if a seller were to sell a particularly described chair, which at the
time of the meeting of the minds, did not yet exist, the contract of sale is valid
and enforceable, because the nature of the subject matter, is of such a type and
nature that it can be manufactured and could come into existence.
 On the other hand, if the seller were to sell a formula for a potion which would
make the buyer forever young, in spite of the fact that the seller may be a
scientist, the sale would be considered void, since the subject matter thereof, at
least under current technological and scientific developments, is something that
could not exist.
A.
 The concepts perhaps are best embodied in the terms “possible things” as contrasted
from “impossible things.” Thus, when the existence of a thing is subject to a condition,
then it remains a “possible thing”, for it has the capacity, not certainty, of coming into
existence if subject to a suspensive condition, or it already exists but may or may cease
to exist if it is subject to a resolutory condition.
 Thus, Article 1462 of the Civil Code provides that in the sale of “goods,” the subject
matter may either be existing goods, owned or possessed by the seller, or goods to be
manufactured, raised, or acquired by the seller after the perfection of the contract of
sale (called “future goods”); and there may even be sale of goods, whose acquisition
by the seller depends upon a contingency which may or may not happen. Article 1465
provides that the subject matter of a sale may be subject to a resolutory condition.
 Under Article 1409(3), contracts are inexistent and void from the beginning when “the
cause or object did not exist at the time of the transaction.”
B.
 The literal application of this particular provision is not warranted in contracts of
sale since under Article 1458, as it defines the contract, a sale exists by virtue of
the fact that an obligation “to transfer the ownership of and to deliver a
determinate thing,” is assumed by the seller; thus, whether such an obligation
exists or not, and not the existence of the subject matter, is the essence of sale,
especially since sale is not a real, but a consensual contract.
 Even when the subject matter does not exist at the time of perfection of the sale,
the contract is still valid under Articles 1461 and 1409(3); however, when the
subject matter is of such nature that it cannot come to existence — an impossible
thing — the contract is indeed void. This position is supported also by other
provisions of the Civil Code applicable to contracts in general.
 Under Article 1347, all things which are not outside the commerce of men,
“including future things,” may be the object of a contract. Requiring that the
proper subject of a valid sale is a possible thing would ensure demandability and
enforceability of the underlying obligation of the seller to deliver.
 This rationale for the first requisite is confirmed by the fact that it is not part of
the requisites of a valid subject matter, at the time of perfection, that the seller be
the owner of the subject matter thereof.
 Under Article 1459 of the Civil Code, it is only required that the seller “must
have a right to transfer the ownership thereof at the time [the subject matter] is
delivered.” The rule supports the principle that a sale constitutes merely a title
and not a mode, and its perfection does not per se affect the title or ownership
over the subject matter thereof.
 Consequently, when the first requisite does not exists as to the subject matter
(i.e., it is an impossible thing), the resulting contract of sale would be void and is
consistent with the injunction provided in Article 1409(3) of the Civil Code
when it provides for void contracts: “Those whose cause or object did not exist
at the time of the transaction.”
Emptio Rei Speratae
 Under Article 1461, things having a potential existence may be the object of the
contract of sale; however, such a sale is subject to the condition that the thing will
come into existence.
 A sale emptio rei speratae is strictly a contract covering future things, and subject to a
suspensive condition that the subject matter will come into existence. If the subject
matter does not come into existence, as in the case of conditional obligations, the
contract is deemed extinguished “as soon as the time expires or if it has become
indubitable that the event will not take place.
 Necessarily also, an emptio rei speratae covers only contracts of sale whose subject
matter are determinate or specific, and has no application to determinable generic
things since the condition that they must come into existence is wholly irrelevant, for
generic subject matters are never lost.
Emptio Spei
 Although the second paragraph of Article 1461 states that the efficacy of the sale of a
mere hope or expectancy is deemed subject to the condition that the thing will come
 into existence, it should be noted that such condition does not really refer to emptio
spei, but rather to emptio rei speratae.
 The only condition for a sale of hope to be a valid contract is provided by the last
paragraph of Article 1461: that the sale of a vain hope or expectancy is void, affirming
the requisite of “possibility” of the subject matter as contrasted from an impossible
subject matter.
 An example of emptio spei is the sale of a sweepstakes ticket, for say 5100.00, where
the buyer purchases the ticket with the hope that upon the draw the ticket would win
him, say a million pesos. The object of the sale is not the prize, but rather the ticket, or
the chance to win; if the ticket does not win, the sale is still valid, and the buyer has no
right to recover the amount paid for the ticket.
 Emptio spei typifies a situation where the commutative nature of a contract of sale
seems not to be complied with; thus, for say 5100.00, by buying a ticket, one may be
able to win a million pesos.
C. Sale of Things Subject to Resolutory Condition
 Under Article 1465 of the Civil Code, things subject to resolutory condition may be the
object of the contract of sale. However, if the resolutory condition happens to
extinguish the thing, what happens to the contract of sale itself? The rule would be the
same as applied to all obligations subject to a resolutory condition under Article 1190:
“When the conditions have for their purpose the extinguishment of an obligation to
give, the parties, upon the fulfillment of said conditions, shall return to each what they
have received.”
 This default rule will thus preserve the commutative nature of sale.
 In determining how restitution could best be achieved between the parties, Article 1187
provides that “The effect of a conditional obligation to give, once the condition has
been fulfilled, shall retroact to the day of the constitution of the obligation.
Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the
fruits and interest during the pendency of the condition shall be deemed to have been
mutually compensated.
 The ruling in Gaite v. Fonacier, should also be considered where it held that a contract
of sale being an onerous and commutative contract, that the rules of interpretation
would incline the scales in favor of “the greatest reciprocity of interests,” and unless
the stipulation is clear, a clause should be interpreted as a term rather than as a
condition.
 Subjecting the object of sale (i.e., the obligation of the seller to deliver) to either a
suspensive or a resolutory condition does not undermine the commutative nature of a
contract of sale, essentially because the existence of such a condition has tempered the
amount of the consideration or price that could be demanded from the buyer.
 In other words, under a free-market system, sellers and buyers dealing at arms length
have their own methods to properly price things, including an object of sale subject to
a condition.
D. Subject Matter Is Nexus of Sale
 From the foregoing discussions it can be deduced that whether the contract of sale
involves a present object (such as a hope or expectancy in emptio spei) or a future
thing subject to a suspensive condition (emptio rei speratae), or a present object subject
to a resolutory condition, the subject matter must be existing or must come to existence
to be delivered to the buyer; otherwise, the contract of sale is void, or an existing
contract of sale is extinguished, with the obligation on the part of the seller to return
the price he has received thereby.

As distinguished from other similar contracts, the essence of a contract of sale is the
meeting of minds that bring about the obligation to transfer the ownership, and deliver
the possession, of subject matter.
 Even other contracts that are not strictly sales contracts, but essentially
constitute the delivery of the ownership and possession of the subject matter as
an integral undertaking, tend to be governed by the Law on Sales, like barter
(which does not have the element of “price”), and dacion en pago (which really
is a mode of performance of a pre-existing obligation).
 The Civil Code provisions on sale are in effect “catch-all” provisions which
effectively bring within their grasp a whole gamut of transfers whereby
ownership of a thing is ceded for a consideration.
 Transfer of title or an agreement to transfer it for a price paid or promised to be
paid is the essence of sale.
2. Subject Matter Must Be Licit
 The subject matter of the contract of sale must be licit.
 A thing is licit and may be the object of a contract
 When it is not outside the commerce of men, and all rights which are not in
transmissible.
 When the subject matter is illicit, the resulting contract of sale is void.
 The sale of animals suffering from contagious diseases, and those which are unfit for
the use or service for which they are acquired as stated in the contract, is void.
 The sale of future inheritance is also void.
 However, a distinction should be drawn between a sale of future hereditary
rights and a waiver of an acquired hereditary rights, since the first presumes the
existence of a contract of sale between the parties, while the second is a mode of
extinction of ownership where there is an abdication or intentional
relinquishment of a known right with knowledge of its existence and intention to
relinquish it, in favor of co-heirs.
 Therefore, a non-heir cannot conclusively claim ownership over the property
part of the estate of the deceased person on the sole basis of the waiver
document which neither recites the elements of either a sale or a donation, or any
other derivative mode of acquiring ownership.
  Again, the illegality of the subject matter, even though it is determinate and
existing and capable of actual delivery, undermines the demandability of the
underlying obligation of the seller to deliver, and renders the sale void.
A. Sales Declared Illegal by Law
 There are various special laws that declare certain sales contracts as illegal and
therefore void. Some of them are those where subject matter is prohibited, e.g.,
narcotics; wild birds or mammals; rare wild plants; poisonous plants or fruits;
dynamited fish; gunpowder and explosives; firearms and ammunitions; and sale of
realty by non-Christians.
 The sale of friar land without the consent of the Secretary of Agriculture required
under Act No. 1120, is null and void.
 Quijada v. Court of Appeals, did not consider as void the sale by the donor of land
previously donated to a local government unit under a resolutory condition as a sale
outside the commerce of men under Article 1409(4)” of the Civil Code, in that
patrimonial properties of a local government unit, especially those conditionally owned
by said unit, as being outside the commerce of men. It held that the “objects referred to
as outside the commerce of man are those which cannot be appropriated, such as the
open seas and the heavenly bodies.
 An alien who purchased land and placed the deed of sale in the name of his Filipina
lover: such alien would have no standing to seek legal remedies to either recover the
properties or to recover the purchase price paid. The transactions was void ab initio for
being in violation of the constitutional prohibition against aliens owning private land,
and under the doctrines ex dolo oritur actio and in pari delicto potior est conditio
defendentis, neither a court of equity nor a court of law will administer a remedy.
 The provision of Article 1416 of the Civil Code will also not apply since they cover
only contracts which are merely prohibited in order to benefit private interests.
Consequently, the maxim nemo cum alterius deter detremento protest (No person
should unjustly enrich himself at the expense of another), cannot apply in this case,
since the action is proscribed by the Constitution or by the application of the in pari
delicto doctrine.
 Sales in violation of land reform laws declaring tenants-tillers as the full owners of the
lands they till, are null and void.
3. Subject Matter Must Be Determinate or at Least Determinable
a. Determinate Subject Matter
 A thing is determinate or specific when it is particularly designated or physically
segregated from all others of the same class.
 When the subject matter of a sale is determinate, the basis upon which to enforce
seller’s obligation to deliver, as well as the basis upon which to demonstrate
breach, are certain and unequivocable.
 It is also when the subject matter is determinate or specific that the defense of
force majeure is applicable to legally relieve the seller from the consequences of
failure to deliver the subject matter of the sale.
b. Determinable Subject Matter
 On the other hand, a thing is determinable only when two (2) requisites are
present:
1. If at perfection of the sale, the subject matter is capable of being made
determinate (the “capacity to segregate” test); and
2. Without the necessity of a new or further agreement between the parties
(the “no further agreement” test).
 A determinable subject matter is a generic object, because it has neither been
physically segregated nor particularly designated at the point of perfection from the
rest of its kind.
 The requisite of being “determinable” is met when at perfection, the agreement
between the parties included a formula which can be used by the courts to establish the
subject matter upon which the obligation to deliver can be enforced, without needing to
get back to any one or both the parties of the object of their intention.
 When the formula requires the court to have to go back to the parties to determine their
confirmation, then it would undermine the very enforceability and demandability of the
underlying obligation to deliver; it would actually render the sale void under Article
1409(6) because the original contractual intention of the parties cannot be determined,
and would run counter to the principle of mutuality or obligatory force of every valid
contract.
c. Test of Determinability Is the Meeting of Minds of Parties and Not the
Covering Deed
 The true Contract of sale is intangible or properly a legal concept. The deed of sale is
merely an evidence of the contract. And when the deed fails to cover the real contract
or the true meeting of the minds of the parties, then the deed must give way to the real
contract of the parties.
 The defect in the final deed would not work to invalidate the contract where all the
essential elements for its validity are present and can be proven.
 The doctrine that “one sell or buys real property as he sees it, in its actual setting and
by its physical metes and bounds, and not by the mere lot number assigned to it in the
certificate of title, and presents a clear contemporary exception to the almost sacrosanct
doctrine under the Torrens system that the public can deal with registered land
exclusively on the basis of the title thereto.
d. When Quantity of Subject Matter Not Essential for Perfection
 The meeting of the minds on the identity, the nature and quality, of the subject matter is
essential for the purpose of perfection of sale; it is what makes the subject matter
determinate or at least determinable.
 This is borne by the fact that when the nature and quantity of the subject matter is
agreed upon, the subject matter, although essentially generic or fungible, has complied
with the characteristic of being determinable, since the parties know more or less the
exact nature of the object or objects which will become the subject of performance
“without need of further agreement.”
 Such characteristic prevents the seller from delivering something not within the
contemplation of the buyer and perhaps much inferior than the price agreed upon; and
at the same time, it prevents the buyer from demanding the delivery of an object not
contemplated by the seller, and perhaps superior compared to the price agreed upon.
 Logically, the actual quantity of goods as subject matter of sale would also be essential
in the meeting of the minds, since quantity constitutes an essential ingredient to
achieve the requisite of the goods being determinate or determinable.
 If it were otherwise, the ability to enforce the obligation of the seller to deliver would
be totally lacking. Without agreement as to quantity, how much or how many of the
described goods could be the object of an action for specific performance? Even
granting arguendo that an action for specific performance is available against such a
seller, then at what price can enforcement be demanded when no quantity of the goods
is present?
 The meeting of minds on the quantity of the goods as subject matter is necessary for
the validity of the sale, because such aspect go into the very core of such contract
embodying the essential characteristic of mutuality or obligatory force.
 This position is supported by Article 1349 of the Civil Code which provides that
“every contract must be determinate as to its kind. The fact that the quantity is not
determinate shall not be an obstacle to the existence of the contract, provided it is
possible to determine the same, without the need of a new contract between the
parties.”
 Notice that the essential phrase of “without the need of a new contract between the
parties” in Article 1349 is the same formula used in defining a determinable subject
matter in Article 1460.
 Specific quantity of the subject matter is not important when it is still possible to
determine the quantity “without the need of a new contract between the parties,” and
therefore complies with the requisite of being determinable.
 Certain generic objects may be the proper object of a contract of sale, provided that
they fulfill the characteristic of being “determinable” at the point of perfection. Thus,
even when the exact quantity of the subject matter of the contract of sale has not been
agreed upon, but the parties have in fact come into an agreement as to the quality
thereof and the price, and terms of payment, there is already a valid and binding
contract.
 However, the author disagrees with the rulings of the Supreme Court, that the
resulting contract is always a contract of sale, but rather what is perfected is a
preparatory contract to enter into a contract of sale, or what is called in
commercial parlance a “supply agreement.”
 A supply agreement, much like a contract of sale, would have at the perfection thereof
goods whose quality and unit price would have been agreed upon by the parties, but
unlike a contract of sale, the underlying obligation of the “seller” and the “buyer” is to
enter into one or series of contracts of sale based thereon when they come to agree
upon the quantity.
 In other words, at the moment of meeting upon the description, quality and unit
price of the goods, there is indeed a perfected and valid contract, but it is an
agreement to enter into a contract of sale, which essentially involves obligations
“to do” (i.e., to enter into actual contracts of sale), rather than real obligations to
deliver and to pay.
 Such an agreement, like all other valid contracts, have the characteristic of
consensuality, relativity and obligatory force, and non-compliance would
constitute a breach of contract; however, the remedy of specific performance
would not be available to the non-defaulting parties because the underlying
obligation of the obligor is a personal obligation; at most the breach of such
contract would allow the recovery of damages.
e. . Generic Non-Determinable Objects
 Since “determinable” objects may be the valid subject matter of a sale, then even
generic things that fall within said definition can validly support a contract of sale.
 Although the sale of determinable generic thing is valid, the obligation to deliver the
subject matter can only be complied with when the subject matter has been made
determinate, either by physical segregation or particular designation; before such time,
even the risk of loss over the subject matter does not arise, since by definition generic
object are never lost.
 In Yu Tek & Co. v. Gonzales, the Court held Gonzales liable for breach of contract
(which meant there was a valid underlying sale) although it held that the defense of
force majeure was unavailing since the contract was not perfected as to the particular
subject matter for determining loss, until the quantity agreed upon has been selected
and is capable of being physically designated or appropriated. The Court ruled that the
buyer does not assume the risk of loss of a generic subject matter under a valid sale
until the object is made determinate, either by physical segregation or particular
designation. Article 1246 of the Civil Code provides that “[w]hen the obligation
consists in the delivery of an indeterminate or generic thing, whose quality and
circumstances have not been stated, the creditor [buyer] cannot demand a thing of
superior quality. Neither can the debtor [seller] deliver a thing of inferior quality. The
purpose of the obligation and other circumstances shall be taken into consideration.”
The courts therefore have power to set the appropriate quality of the subject matter of a
sale when the same is determinable generic. The article cannot be taken to mean that
 even when the subject matter is not determinable, any generic subject matter would
validly support a contract of sale. Under Article 1409(6) of the Civil Code, a contract is
inexistent and void from the beginning “where the intention of the parties relative to
the principal object of the contract cannot be ascertained.” As one author has held,
Article 1246 covers only “quality” of a generic subject matter, so that when it is the
“kind” and “quantity” that cannot be determined without need of a new agreement of
the parties, the contract is void.
f. Status of Sale Not Complying with Third Requisite
 When the minds of the parties have met upon a subject matter which is neither
determinate nor determinable, the resulting contract would be void.
 Again, the impetus of the law declaring sales covering subject matters which are
neither determinate nor determinable is based on the fact that the “enforceability” or
“demandability” of the underlying obligation of the seller to deliver the subject matter
is at grave risk.
 The situation would then precisely be the one covered by Article 1409(6) of the Civil
Code which declares such contract as void and inexistent: “Those where the intention
of the parties relative to the principal object of the contract cannot be ascertained.”
g. Sale of Undivided Interest
 Under Article 1463 of the Civil Code, the sole owner of thing may sell an undivided
interest therein, and there would result coownership over the subject matter.
h. Sale of Undivided Share in Mass
 In the sale of fungible goods, there may be a sale of an undivided share of a specific
mass, though the seller purports to sell and the buyer purports to buy a definite number,
weight, number or measure, of the goods in the mass, and though the number, weight,
or measure of the goods in the mass is undetermined. By such a sale, the buyer
becomes the co-owner to such share of the mass as the number, weight or measure
bought bears to the number, weight or measure of the mass. If the mass contains less
than the number, weight, or measure bought, the buyer becomes the owner of the
whole mass and the seller is bound to make good the deficiency from goods of the
same kind and quality, unless a contrary intent appears.
 Gaite v. Fonacier, held that when parties to a sale covering a specific mass had not
made any provisions in their contract for the measuring or weighing of the subject
matter sold, and that the price agreed upon was not based on such measurement, then
the subject matter of the sale is, therefore, a determinate object, the mass, and not the
actual number of units or tons contained therein, so that all that is required of the seller
was to deliver in good faith to his buyer all of the ore found in the mass,
notwithstanding that the quantity delivered is less than the amount estimated.
 In another case, the Court allowed the “sale in mass” at public auction of even separate
known lots or parcels, and held that such sale would not be set aside unless it is made
to appear that a larger sum could have been realized from a sale in parcels or that a sale
of less than the whole would have been sufficient to satisfy the debt.
i. . Sale of Mortgaged Property
 Pineda v. Court of Appeals, affirmed the principle that a prior mortgage of the property
does not prevent the mortgagor from selling the property, since a mortgage is merely
encumbrance on the property and does not extinguish the title of the debtor who does
not lose his principal attribute as owner to dispose of the property.
 It also noted that the law even considers void a stipulation forbidding the owner of the
property from alienating the mortgaged immovable.
 Seller’s Obligation to Transfer Ownership Required at Time of Delivery
 In general, a perfected contract of sale cannot be challenged on the ground that seller
had no ownership of the thing sold at the time of perfection.
 Although the seller must be the owner of the thing in order to transfer ownership to the
buyer, he need not be the owner thereof at the time of perfection; it is sufficient that he
be the owner at the time of the delivery;5 otherwise, he may be held liable for breach
of warranty against eviction.
 In fact, the acquisition by the buyer of the subject matter of the sale may even depend
upon contingency and this would not affect the validity of the sale. Article 1505 of the
Civil Code provides that when goods are sold by a person who is not the owner
thereof, and who does not sell them under authority or with the consent of the owner,
the buyer acquires no better title to the goods than the seller had, unless there is
estoppel on the part of the owner;5 but this pertains only to the consummation stage of
the sale and does not affect the validity of the contract itself.
 A contract of sale cannot be declared null and void for failure of the seller to reveal the
fact that it was not the owner of the property sold.
 The sale of a thing for future delivery does not make the seller liable for estafa for
failing to deliver because the contract is still valid and the obligation becomes civil and
not criminal.
 The sale of a lot by a seller who is yet to acquire full ownership thereof from a
government agency was still a valid sale since it involved the sale of a future thing.
a. Conflicting Rulings
 The Court held that sale by one who is not the owner of the subject matter is void, and
consequently, the right to repurchase attached to the sale would also be void.
 The Court held that although a situation (where the sellers were no longer owners)
does not appear to be one of the void contracts enumerated in Article 1409 of the Civil
Code, and under Article 1402 the Civil Code itself recognizes a sale where the goods
are to be “acquired x x x by the seller after the perfection of the contract of sale”
clearly implying that a sale is possible even if the seller was not the owner at the time
of sale, provided he acquires title to the property later on, nevertheless it held —
 In the present case however, it is likewise clear that the sellers can no longer deliver
the object of the sale to the buyers, as the buyers themselves have already acquired title
and delivery thereof from the rightful owner, the DBP.
 Thus, such contract may be deemed to be inoperative and may thus fall, by
analogy, under item no. 5 of Article 1409 of the Civil Code: “Those which
contemplate an impossible service.”
 Article 1459 of the Civil Code provides that “the vendor must have a right to
transfer the ownership thereof [object of the sale] at the time it is delivered.”
 Here, delivery of ownership is no longer possible. It has become impossible.
 In order to achieve justice, it was important in Nool to hold the contract of sale
void, in order to render the attached right to repurchase also void. The Court
found it inequitable for the sellers to exercise the right to repurchase, when they
had not complied with their obligation to transfer ownership over the subject
matter of the sale, and that the buyer was the one that eventually bought the
property from the foreclosing bank.
 The problem with the doctrine proposed by Nool is that in order to hold the sale
void by the holding that the sellers were not the owners of the subject matter
thereof, it equated the primary obligation to transfer ownership and deliver
possession as “service” and therefore constitutes them as personal obligations
“to do.”
 That position is not correct since the obligations of the seller in a contract of sale
are real obligations “to give” and which would make them enforceable by
specific performance.
 Nool would still have achieved the same equitable end by sticking to the
doctrine that in spite of the fact that the sellers were not the owners of the subject
matter of the sale, the sale was at perfection still valid and remained valid even
when the seller could no longer comply with their obligations to transfer
ownership. The result would be that the sellers would be liable for breach of
contract of a valid contract of sale, but since the obligations could be performed,
the only remedy left was to rescind the sale, with damages.
 The rescission of the sale brings with it the rescission of all ancillary features,
including the right to repurchase.
 Another way to have dealt with the situation in Nool was to recognize that
redemption rights are species of extinguishment of a valid sale, and essentially
only after full consummation of the obligation of the seller to deliver the subject
matter of sale; that redemption rights do not arise, even when stipulated at
perfection, unless there has been delivery of the subject matter to the buyer.
 Therefore, in the case of Nool, the seller not having complied with his obligation
to delivery the subject matter, his conventional right of redemption or repurchase
never arose.
 In fact, the earlier decision in Noel v. Court of Appeals, invoked the principle
that — In a contract of sale, it is essential that the seller is the owner of the
property he is selling. The principal obligation of a seller is “to transfer the
ownership of” the property sold (Civil Code of the Philippines, Art. 1458).
 This law stems from the principle that nobody can dispose of that which does not
belong to him ...NEMO DAT QUOD NON HABET.
 A close reading of Noel, which concerned primarily the resolution of the issue
of prescription, tended to go into the act of transferring ownership, an aspect of
consummation, rather than as a doctrine that pertains to the status of a sale upon
perfection. Indeed, Noel did not say that the contract of sale is void if the seller
is not the owner at the time of perfection; what it did say is that a seller cannot
“dispose of that which does not belong to him,” which is consistent with the rule
that a seller cannot transfer by delivery ownership of the thing which at the time
of delivery did not belong to him.
 The doctrine is consistent with Article 1459 of the Civil Code which states that
“the vendor must have a right to transfer the ownership thereof at the time it is
delivered.”
 These principles have been summarized in Quijada v. Court of Appeals, thus —
 Sale, being a consensual contract, is perfected by mere consent, which is
manifested the moment there is a meeting of the minds as to the offer and
acceptance thereof on three (3) elements: subject matter, price and terms of
payment of the price.
 Ownership by the seller on the thing sold at the time of perfection of the contract
of sale is not an element for its perfection. What the law requires is that the seller
has the right to transfer ownership at the time the thing sold is delivered.
 Perfection per se does not transfer ownership which occurs upon the actual or
constructive delivery of the thing sold. A perfected contract of sale cannot be
challenged on the ground of non-ownership on the part of the seller at the time
of its perfection; hence, the sale is still valid.
b. Exception: When Seller Must Be Owner at Time of Sale
 The exception to the rule that ownership by the seller is not essential at the time of
perfection would be in the case of judicial sale.
 It was held that a foreclosure sale, though essentially a “forced sale,” is still a sale in
accordance with Article 1458 of the Civil Code, under which the mortgagor in default,
the forced seller, becomes obliged to transfer the ownership of the thing sold to the
highest bidder who, in turn, is obliged to pay the bid price in money or its equivalent.
 Being a sale, the rule that the seller must be the owner of the thing sold also applies in
a foreclosure sale. This is the reason why Article 2085 of the Civil Code, in providing
for the essential requisites of the contract of mortgage, requires among other things,
that the mortgagor or pledgor be the absolute owner of the thing mortgaged, in
anticipation of a possible foreclosure sale should the mortgagor default in the payment
of the loan.
c. Subsequent Acquisition of Title by Seller
 Article 1434 of the Civil Code provides that when at the time of perfection, the seller
sells a subject matter over which he is not the owner, the subsequent acquisition of title
by a seller validates the sale and title passes to the buyer by operation of law, provided
there has been previous delivery of the subject matter by the seller to the buyer.
 It should be noted that for the transfer of ownership ipso jure to happen under Article
1434, it is essential that there not only exist a valid sale, but that previous physical
delivery of the subject matter must have been done.
 In a case, it recognized that the sale of a land previously donated by the seller to a local
government unit under a resolutely condition, was a valid sale even though at the time
of sale, ownership in the property was still with the local government.
 However, when the resolutory condition did occur which effectively reverted
ownership back to the seller, under Article 1434 the seller’s “title passes by operation
of law to the buyer.” The Court expresslly recognized that the rule under Article 1434
applies not only to sale of goods, but also to other kinds of property, including real
property.
CHAPTER 4
PRICE AND OTHER CONSIDERATION
 By definition under Article 1458, the ideal consideration for a contract of sale would
be “price” as a “sum certain in money or its equivalent.” However, it is possible that a
“sale” may still be valid when it has for its cause or consideration an item other than
price.
 Consider the Supreme Court’s ruling in Torres v. Court of Appeals, thus:
 “Consideration, more properly denominated as cause, can take different forms,
such as the prestation or promise of a thing or service by another. Therefore, it
would be valid for a sale of the subject matter to have as its consideration the
expectation of profits from the subdivision project as part of the joint venture
arrangement between the parties.”
 In other words, the usual or defined consideration for a sale is price, but that a
contract of sale may still validly exist and thereby be governed by the Law on
Sales, when it is supported by other valuable considerations.
 This is in line with the principal doctrine reiterated by the Court that the concept of
“contract of sale” under Article 1458 of the Civil Code is “in effect, a ‘catchall’
provision which effectively brings within its grasp a whole gamut of transfers whereby
ownership of a thing is ceded for a consideration.”
 In essence, existence of the “obligation to pay the price” does not play a critical role in
defining a sale, provided that valuable consideration is present, because the “obligation
to transfer ownership and deliver possession” of the subject matter is the more defining
element of sale, thus: “Transfer of title or an agreement to transfer it for a price paid or
promised to be paid is the essence of sale.”
 MEANING OF “PRICE
 “Price”
 signifies the sum stipulated as the equivalent of the thing sold and also every
incident taken into consideration for the fixing of the price put to the debit of the
buyer and agreed to by him.
 A seller cannot unilaterally increase the price previously agreed upon with the
buyer, even when the need to adjust the price of sale is due to increased
construction cost; otherwise, it would be a violation of the essential characteristic
of “obligatory force” of contracts of sale.
 In the same manner, buyer could not unilaterally withdraw from a valid sale on
the ground that the interest rate of 24% set on the payment of the price on
installments was odious.
 REQUISITES FOR VALID PRICE
 The price or consideration of a contract of sale must have the following requisites at
the time of the perfection of the sale, thus:
1. It must be REAL;
2. It must be in MONEY OR ITS EQUIVALENT, (i.e., it must be VALUABLE
CONSIDERATION); and
3. It must be CERTAIN or ASCERTAINABLE.
 As in the case for subject matter for sales, the requisites provided by law for a “valid”
price to support a valid sale are intended to preserve the integrity and enforceability of
the underlying obligation of the buyer to pay. It is also essential that the requisites for
the price promote the onerous, commutative and bilateral-reciprocal characteristics of
the contract of sale.
1. Price Must Be Real Since
 a contract of sale is an onerous and commutative contract, it is essential that
consideration agreed upon, namely the price, must be real.
A. When Price Is Real Price
 is “real” when at the perfection of the sale, there is legal intention on the part of the
buyer to pay the price, and legal expectation on the part of the seller to receive such
price as the value of the subject matter he obligates himself to deliver.
 Peñalosa v. Santos, held that when the parties execute a Deed of Absolute Sale over a
parcel of land with the understanding that the price indicated therein would be paid
from the proceeds of the loan to be obtained by the buyer from a bank using the subject
property as mortgage collateral, then neither the contract of sale nor the price can be
considered as wholly simulated, for there was valuable consideration, and the non-
payment of the price because of the refusal of the seller to turn-over the title to the
bank, would not grant the seller the right to rescind the sale after the buyer has duly
consigned the price with the courts.
B. When Price Is Simulated
 When the price is simulated because neither party to the Deed of Sale had any
intention whatsoever that the amount will be paid, the sale is void, although the act
may be shown to have been in reality a donation, or some other contract.
 The whole issue therefore boils down to contractual intent: if there was no intent by the
parties at the time of perfection to pay and to receive the price stipulated, then it is a
wholly simulated price, and the underlying contract of sale is void for lack of
consideration.
 The Court has held that In absolute simulation, there is a colorable contract but without
any substance, because the parties have no intention to be bound by it. An absolutely
simulated contract is void, and the parties may recover from each other what they may
have given under the ‘contract.
 The determination of what was the intent of the parties at perfection has been drawn by
the Court from the contemporenous and subsequent acts of the parties.
 When the price is completely simulated, then the principle of in pari delicto nonovitar
actio should apply, which denies all recovery to the guilty parties inter se. However,
such principle applies to cases where the nullity arises from the illegality of the
consideration or the purpose of the contract, but does not apply to inexistent and void
contracts where the price is merely simulated.
C. When Price Is False
 Price is “false” when there is a real price upon which the minds of the parties had met,
but not declared, and what is stated in the covering deed is not the one intended to be
paid.
 If the price indicated in the covering instrument is false, the contract of sale is valid,
but the underyling deed is subject to reformation to indicate the real price upon which
the minds of the parties have met.
 In one case, when the parties intended to be bound by the contract except that it did not
reflect the actual purchase price of the property, the Court ruled that there was only a
relative simulation of the contract which remained valid and enforceable, but subject to
reformation.
 In another case, the Court held that “if the parties state a false cause in the contract to
conceal their real agreement, such a contract is relatively simulated ... the parties’ real
agreement binds them.”
 Nevertheless, the parties may be held bound by the false price indicated in the
instrument under estoppel principle, especially when the interest of the Government or
third parties would be adversely affected by the reformation of the instrument.
D. Meeting of Minds as to Price
 The Court differentiated between a contract that had no consideration from one which
merely contained a false consideration. It ruled that according to Manresa, what is
meant by a contract that states a false consideration is one that has in effect a real
consideration but the same is not the one stated in the document.
E. Effect of Non-Payment of Price
 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. The failure to pay the price does not cancel a sale
for lack of consideration, for there is still consideration. The failure to pay a real price
goes not into perfection of the sale but into its consummation. The failure to pay the
price or the balance thereof does not render the sale inexistent or invalid, but merely
gives rise to a right in favor of the seller to either demand specific performance or
rescission of the contract of sale.
 A contract of sale is void and produces no effect whatsoever where the price, which
appears thereon as paid, has in fact never been paid by the purchaser to the vendor.
 Although the first part of the ruling is correct that a contract of sale is void if the price
stipulated is simulated, the second portion is hard to accept per se, where it says that a
sale is void where “the purchase price which appears thereon as paid has in fact never
been paid by the purchaser to the vendor.” It is not the fact of payment of the price that
determines the validity of a contract of sale, since sale is not a “real contract.”
 Sale is a consensual contract, and it becomes a binding and valid contract upon the
meeting of the minds on the price. If the minds of the parties never meet as to the price,
because the price stipulated is known by both parties as simulated, the contract is
undoubtedly void.
 On the other hand, if the minds of the parties have met as to the price, the contract of
sale is valid, irrespective of the manner of payment they agreed upon, or even by the
breach of that manner of payment agreed upon.
 Therefore, in a contract of sale where the price agreed upon was a real price, although
the parties showed on the face of the covering deed that the price had been paid, when
 in fact it has not yet been paid the contract of sale is still valid, although the non-
payment of the price is a cause either for specific performance or for rescission.
 Failure to pay the consideration is different from lack of consideration. The former
results in a right to demand the fulfillment or cancellation of the obligation under an
existing valid contract while the latter prevents the existence of a valid contract. Where
the deed of sale states that the purchase price has been paid but in fact has never been
paid, the deed of sale is null and void ab initio for lack of consideration. . .
 The ruling of the Court would mean that when the deed of sale declares that the price
has been paid, when in fact it has never been paid, that would be considered a “badge
of simulation” and would render the contract void.
F. Accommodation Does Not Make Sale Void for Lack of Price
 Yu Bun Guan v. Ong, held that when the Deed of Sale was executed merely to
facilitate the transfer of the property to the buyer pursuant to an agreement to enable
the buyer to construct a commercial building and to sell the property to the children,
but that in truth the agreement was a mere subterfuge on the part of the buyer, the
agreement cannot be taken as a consideration for the sale which the Court held to be
void.
G. Simulation of Price Affects Delivery of Subject Matter
 When a contract of sale is fictitious, and therefore void and inexistent, as there was no
consideration for the same, no title over the subject matter of the sale can be conveyed.
 Nemo potest nisi quod de jure potest — no man can do anything except what he can do
lawfully.
 Ong v. Ong, considered the validity of a sale of real property where the consideration
 Delivery of the subject matter made pursuant to a sale that is void for lack of
consideration therefore does not transfer ownership to the buyer. But care should be
made to distinguish between a simulated price that affects delivery, on one hand, and
the failure to pay the price, on the other hand, which does not affect the efficacy of
delivery of the subject matter.
 A sale is null and void and produces no effect whatsoever where the same is without
cause or consideration in that the purchase price which appears thereon as paid has in
fact never been paid by the purchaser to the vendor. The essence of the ruling is that
there was never any real price agreed upon, and the failure to delivery the price was
one of the indications to show its simulation.
2. Price Must Be in Money or Its Equivalent:
 “Valuable Consideration” Article 1458 of the Civil Code,
 in defining the obligation of the buyer, provides that he must pay the price certain
in money or its equivalent.
 It had been proposed, though not resolved, in Bagnas v. Court of Appeals, that
Article 1458 “requires that ‘equivalent’ be something representative of money, e.g.,
a check or draft, citing Manresa, to the effect that services are not the equivalent of
money insofar as said requirement is concerned and that a contract is not a true sale
where the price consists of services or prestations.”
 Nevertheless, even Article 1468 of the Civil Code recognizes that if the
consideration of the contract consists partly in money, and partly in another thing,
the transaction can still be considered a contract of sale when this is the manifest
intention of the parties. This shows that the consideration for a valid contract of
sale can be the price and other additional consideration.
 In all, the requisite that the price must be in money or its equivalent is one that has
not been held steadfast by the Supreme Court as determinative of the validity of a
sale. This shows the essence of sale is the existence of the obligation of the seller to
transfer ownership and delivery possession of the subject matter, whereas the price,
although an essential element of a valid contract, being essentially a generic
obligation, may be subject to variations.
 The significance of the use of the term “price to be in money or its equivalent” is
for the law to demonstrate the ideal example of the onerous nature of sales, that it
must be supported by a “valuable consideration.”
 Money being the highest form or representation of commercial value in society,
removes any doubt that of what is “valuable consideration” and functions merely as
the model of prestation, cause or consideration that would promote the onerous
nature of the contract of sale. There is little doubt, therefore that other forms of
cause or consideration which are “valuable” would support a valid contract of sale.
A. Adequacy of Price to Make It “Real”; Concept of “Valuable Consideration”
stated in the deed was “One Peso (1.00) and the other valuable considerations.”
 The Court held that since no evidence was adduced to show that the consideration
stated in the deed was not paid or was simulated, it is presumed to exist under
Article 1354 of the Civil Code.
 It held that the statement in the deed of the consideration of 1.00 is not unusual in
“deeds of conveyance adhering to the Anglo-Saxon practice of stating a nominal
consideration, although the actual consideration may have been much more.
 Moreover, even assuming that said consideration of 1.00 was suspicious, such
circumstance alone, does not necessarily justify the inference [that the buyers] were
not purchasers in good faith or for value.”
 In any event, the Court held “that the apparent inadequacy is of no moment since it
is the usual practice in deeds of conveyance to place a nominal amount although
there is a more valuable consideration given.”
 It is possible for parties to a sale to agree on an adequate consideration, and though
they will state a false or nominal consideration in their covering deed, it would not
affect the validity of the contract of sale, provided that valuable consideration was
in fact agreed upon.
 In effect through Ong, Philippine jurisprudence has not accepted the Anglo-Saxon
concept that “any” consideration is enough to support a contract; and what prevails
in Philippine jurisdiction is that for consideration to support an onerous contract,
 such as a contract of sale, it would have to be “valuable consideration” under the
Roman Law concept.
 The Court noted that the gross disproportion between the consideration stipulated and
the value of the property, would show that the price stated was “a false and fictitious
consideration, and no other true and lawful cause having been shown. Even though a
consideration is real in the sense that it was agreed upon and there is every intention of
the parties to pay and receive such price, it would still be considered fictious and
render the sale void if it is a mere nominal price.
3. Price Must Be Certain or Ascertainable at Perfection
 Price is certain when it has been expressed and agreed in terms of specific pesos and/or
centavos.
 This affirms the proposition that money represents the best model of valuable
consideration. Under Article 1469 of the Civil Code, in order that the price may be
considered ascertainable, 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.
A. Price Fixed by Third Party
 The designation of a third party to fix the price is valid, and such designation by itself
makes the price ascertainable as to give rise to a valid contract of sale.
 The fixing of the price cannot be validly left to the discretion of one of the contracting
parties; for to consider a contract of sale already existing when the price has yet to be
fixed by one of the parties would render the contract to be without the characteristics of
“mutuality” or “obligatory force.”
 Even before the fixing of the price by the designated third party, a contract of sale is
deemed to be perfected and existing, albeit conditional.
 To illustrate, in Barretto v. Santa Marina, it was held that in order to perfect a sale it is
only that the parties agree upon the thing sold and that the price is fixed, it being
sufficient for the latter purpose that the price is left to the judgment of a specified
person. In that case, even before the designated third party had fixed a price there was
already an existing contract of sale, as to prevent one party from unilaterally
withdrawing from the contract; however, such contract was a contract subject to a
suspensive condition, i.e., that the price will be fixed by the third party designated by
the parties.
 Under Article 1469, if the designated third party fixes the price in bad faith or by
mistake, those are the only two instances where the parties to the contract can seek
court remedy to fix the price.
 When the designated third party is either unable or unwilling to fi x the price, the
parties do not have a cause of action to seek from the court the fixing of the price
because, in a manner of speaking, the condition imposed on the contract of sale has not
happened, and its non-happening extinguished the underlying contract; consequently,
there is no longer a contract upon which the courts have any jurisdiction to fix the
price.
 In such a case, the law declares the contract of sale “inefficacious.”
 When the third party designated is prevented from fixing the price by fault of either the
seller or the buyer, the party not at fault may have such remedies against the party in
fault as are allowed the seller or the buyer, as the case may be. That means that the
party may demand from the the courts for the fixing of the reasonable price, under the
principle that when a party prevents a condition from happening, that condition can be
deemed fulfilled by the other party.
B. Fixing of Subject Matter by Third Party
 Although under Article 1469 of the Civil Code, the designation by the parties of a third
party to fix the price gives rise to a valid (albeit conditional) contract of sale, such
formula is not allowed for the determination of the subject matter of the sale.
 In the unlikely event that the parties have agreed on the price and the terms of payment
but cannot agree as to an array of similar subjects available for the contract, the
designation of a third party to choose among the subject matter is not allowed, and
when adopted would not give rise to a binding and valid sale, and would in fact
authorize any of the purported party to withdraw from the arrangement.
 The designation of a third party to fix the subject matter is not provided by law. In
order that a contract of sale can exist, the parties must have agreed on a subject matter
which is determinate or determinable.
 The test of whether the subject matter is determinate is one of fact: whether the subject
matter has been physically segregated or particularly designated. The test of being
determinable covers a of test of capacity: based on the formula agreed by the parties at
the time of perfection, could the subject matter be physically segregated or particularly
designated by the courts without further agreement between the contracting parties.
 The difference in rules between subject matter and price on designation of third party
springs from the essence of the obligations they pertain to: the obligation to pay the
price is essentially a fungible obligation, any money can be used to pay the price; the
price which is the subject of the obligation of the buyer is essentially generic, and
generally cannot be extinguished by fortuitous event. Therefore, the designation of a
third party to set the price is allowed.
 On the other hand, the obligation to deliver the subject matter and the title thereto can
only be complied with at the point when the thing is either physically segregated or
particularly designated, and it is not a generic obligation, but rather a “species”
obligation, and therefore its designation cannot be left to the will of a third party who
may choose a subject matter beyond the capacity of the seller to comply with his
obligations to deliver the same.
C. Price Ascertainable in Reference to Other Things Certain
 The price of securities, grain, liquids, and other things shall also be considered certain,
when the price fixed is that which the thing would have on a definite day, or in a
particular exchange or market, or when an amount is fixed above or below the price on
such day, or in such exchange or market, provided said amount be certain.
 The price of a thing is certain at the point of perfection by reference to another thing
certain, such as to certain invoices then in existence and clearly identified by the
agreement; or known factors or stipulated formula.
D. Effect of Unascertainability
 Where the price cannot be determined in accordance with any of the preceding rules,
or in any other manner, the contract of sale is inefficacious. Note that the law does not
use the term “void,” because of the implied acknowledgment that the existence of the
formula allowed by law at the point of perfection has actually rendered a contract valid
albeit conditional, which cannot be rendered void by what happens after perfection.
4. Manner of Payment of Price Must Be Agreed Upon
 Although the Civil Code provisions governing the contract of sale do not explicitly
require that a meeting of the minds of the parties must include the terms or manner of
payment of the price, the same is deemed to be an essential ingredient before a valid
and binding contract of sale can be said to exist, since it is part of the prestation of the
contract, and without which there can be no valid sale, nor can an action for specific
performance be made against the alleged seller.
 Manner of payment of the price goes into the essence of what makes price certain or
ascertainable. Even from an economist’s point of view, the manner and terms of
payment of the price is an integral part of the concept of “price” because of the time
value of money. A seller may be willing to accept a comparative lower price for the
object of the sale if it is payable within a short period of time as to allow him to make
investments or apply the proceeds to earn more profits; and yet would be demanding a
higher price if the purchase price were to be paid over a long stretch of time.
 When the manner of payment of the purchase price is discussed after “acceptance,”
then such “acceptance” did not produce a binding and enforceable contract of sale;
there was therefore no complete meeting of the minds and there is no basis to sue on a
“contract” that does not exist.
 Where the parties had agreed on the determinate subject matter (a parcel of land), and
the total purchase price, but not on the manner of payment of the agreed price, held
that although a downpayment had already been made by the buyer and received by the
seller, there was still no valid sale. The Court held that although part of the
downpayment has been paid, a definite agreement on the manner of payment of the
purchase price was an essential element in the formation of a binding and enforceable
contract of sale.
 The point being made is this: that the “terms of payment,” being an integral part of the
price, would have the same requisites that the law imposes on price to support a valid
contract of sale- certain or at least ascertainable.
 If a price, unknown to both parties, can support a valid and binding contract of sale,
such as when the fixing of the price is left to a third party, then also, if the terms of
payment are provided for in a formula or process that does not require the agreement
of the parties for the formula to work, then the terms of payment are deemed to have
been agreed upon and the sale would be valid, but subject to the same condition affixed
to the price.
 On the other hand, in a case, the absence of any stipulation on the manner of payment
of the purchase price would support the position that the agreement between the parties
was really a contract to sell, under the species “an agreement to agree to enter into a
contract of sale,” which essentially constitutes obligations to do and not subject to an
action for specific performance.
A. Proper Understanding of Doctrine on Agreement on Terms of Payment of
Price
 The imperative need for the meeting of the minds of the parties on the terms of
payment of the price should be qualified by the proper understanding that terms of
payment do not always have to be expressly agreed, when the law supplies by default
such terms
 The parties were to have a mode of payment of the price other than immediate
payment. In each of those cases therefore, there could not have been a final meeting of
the minds of the parties as to the price because both parties in each case knew and
expected that certain negotiations still had to be made with respect to the manner of
payment of the price. In all other cases, price is deem to be demandable at once.
 Under Article 1179 of the Civil Code, every obligation whose performance does not
depend upon a future or uncertain event, or upon a past event unknown to the parties,
is demandable at once.” Therefore, in the absence of any stipulation or agreement or
actuation indicating that a different term of payment would be applicable and for which
a meeting of the minds must be achieved, the price is deemed to be by operation of law
immediately demandable upon the perfection of the contract.
5. When There Is Sale Even When No Price Has Been Agreed Upon
 Article 1474 of the Civil Code provides: “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 therefore.
 What is reasonable price is a question of fact dependent on the circumstances of each
particular case.
 Note that in such a case, the courts have authority to fix the reasonable price for the
subject matter appropriated by the buyer.
 Article 1474 seems to present the only exception where there would still be a valid
sale even when there has been no meeting of the minds as to the price or any other
consideration.
A. What Does Article 1474 Mean by “Preceding Articles”? W
 Article 1474 states that where the price cannot be determined “in accordance with the
preceding articles,” or in any other manner, the contract is inefficacious, to which does
the phrase “preceding articles” refer to? It is posited that the phrase “preceding
articles” should start with Article 1469 which provides ascertainable of price with
reference to another thing certain, or a specified formula, etc., up to Article 1473,
which prohibits the fixing of the price by any of the parties.
 Notice that within the coverage of the “preceding articles” is Article 1471 which
covers the situation when the price is completely simulated and therefore gives rise to a
void contract of sale, although it may still be saved as a donation where the
consideration is shown to be pure liberility. It also covers Article 1473 where the
formula for the fixing of the price is left to the discretion of a party, which makes the
contract entirely void.
 Under such scenario, the proposition of ejusdem generis to qualify Article 1474 only to
situations where the price is certain or ascertainable would be totally inapplicable. To
posit that the phrase “preceding articles” in Article 1474 can be interpreted to cover
only Article 1469 (price is fixed in reference to another thing certain or left to a third-
party’s determination) and Article 1472 (price of securities, grain, liquids based on a
trading price), which is the basis to apply the principle of ejusdem generis, would have
no logical or legal basis, especially when:
a. Articles 1469 and 1472 are not even consecutive articles and the non-joinder of the
articles in-between is wholly arbitrary; and
b. The position does not seem to be supported by the immediately subsequent term “or
in any other manner” by which price cannot be ascertained, which clearly implies
the non-exclusivity of the provision only to sales of contract which are valid but
rendered inefficacious.
 In other words, the phrase “preceding articles” in Article 1474 should be construed to
refer to all articles preceding, namely Articles 1469 to 1473.
B. What Does Article 1474 mean by “Inefficacious”?
 Article 1474 uses the word “inefficacious” rather than “void,” because within the
coverage of “preceding articles” are Articles 1469 and 1472, which provide for sales
which are not void because the price, though not certain, is ascertainable.
 The standard dictionary definition of “inefficacious” means “the inability to produce
the effect wanted; inability to get things done.”
 The use of the word “inefficacious” does not exclude void sale contracts when the
price is neither certain or ascertainable.
 In other words, the use of the term “inefficacious” was not meant to exclude void sales,
but more to be able to include valid conditional contracts of sale (which have become
inefficacious) in the same group as void contracts, from the focal point of price.
C. Concept of “Appropriation”; Summation
 The proper way to evaluate Article 1474 is to determine its rationale or underlying
policy. Obviously, Article 1474 is not an old provision of the Spanish Civil Code by
the use of the term “(n)” at the end thereof, and its essence is truly Philippine
development, but with common law origin.
 The case-law basis of Article 1474 is attributed to Robles v. Lizarraga Hermanos,
which established the appropriation doctrine under Article 1474 founded on the
principles of unjust enrichment and estoppel, thus: ...
 As the defendant partially frustrated the appraisal, it violated a term of the contract
and made itself liable for the true value of the things contracted about, as such
value may be established in the usual course of proof. Furthermore, it must occur to
any one, as the trial judge pointed out, that an unjust enrichment of the defendant
[buyer] would result from allowing it to appropriate the movables without
compensating the plaintiff therefor.
 If the terms of a sale are complete except for an agreement with reference to the price,
the law implies a price equivalent to the reasonable value of the goods in cases where
the buyer has appropriated the things sold. And where the buyer accepts delivery
knowing the price claimed by the seller, he cannot thereafter refuse to pay for it at that
price, even if there is no agreement as to price. Hence, where goods used by the buyer
who knows the seller’s price for such goods, he is liable for that price, and not for the
reasonable value of the goods.
 There are two important points that can be drawn from the foregoing, thus:
a. The doctrine is based on the principle of unjust enrichment directed against the
buyer who is not allowed to retain the subject matter of the sale without being liable
to pay the price even when no such agreement on the price was previously made;
and
b. The doctrine applies even when there is a “no contract” situation because of no
meeting of the minds as to the price, although there was a meeting of the minds as to
the subject matter, and may also apply to void sale contract situation where the
defect is as to the price.
 The other important conclusion to be drawn from the background material on Article
1474 is that it is actually meant to cover all sale contract situations where there must
have been at least a meeting of the minds or an agreement to buy and sell the subject
matter, which is coupled with tradition; and that it is meant to be a remedy clause in
favor of the seller who has delivered the subject matter in accordance with an
agreement (though it may not be a full contract yet) with the buyer who has received it
and appropriated it.
 But supposing the seller does not wish to take advantage of the remedy, and seeks to
recover the subject matter? That seems not possible if the subject matter has already
 been appropriated, especially when the buyer had already incurred expenses, and also
because it would violate the essential characteristic of “binding effect” of every
contract, including a contract of sale.
 When Article 1474 uses the twin concepts of “delivery” and “appropriation” it seems
to say that it would not apply to a situation where there has only been delivery but no
appropriation, because the undoing of the contract and the return of the subject matter
to the seller would not present unjust enrichment to either party.
 Does “appropriation” mean to partly consume or transform the subject matter in such a
manner that it cannot be returned in its original manner to the seller, and requiring its
return would therefore be unfair to the seller? If one looks at the dictionary definition
of “appropriate” (“to set apart for some special use; to take for oneself; take possession
of; use as one’s own”) it seems that the use of such word under Article 1474 is meant
to cover the situation of “acceptance” by the buyer as the counterpart of delivery on the
part of the seller, and having treated thereafter the subject matter as his own, even
when it does not involve transformation.
 At that point a valid contract of sale is deemed to have come into being, and
consequently, the “binding effect” of the contract is deemed to have kicked-in; and
even if the subject matter has remained the same, the return is not “legally possible,” as
it would amount to unilateral withdrawal from the binding effect of the contract. (Of
course, if both buyer and seller agree to the return, that would be valid since it would
constitute “mutual withdrawal” which is one of the modes of extinguishing a valid
contract.)
 The gravamen of Article 1474 would mean that in spite of the lack of an agreement as
to price or defect in the agreement as to price, there would nevertheless be a valid
contract of sale upon which an action for specific performance would prosper for the
recovery of the price when the following elements are present:
a. There was a meeting of the minds of the parties of sale and purchase as to the
subject matter;
b. There was an agreement that price would be paid which fails to meet the criteria of
being certain or ascertainable; and
c. There was delivery by the seller and appropriation by the buyer, of the subject
matter of the sale.
 Taking our cue from the rulings of the Supreme Court in Raet and NHA discussed
above, the concept of “appropriation” under Article 1474 is not applicable to real estate
and that the rights of the parties to a purported sale would be under the principles
applicable to builders in good faith. It may also be an indication that “appropriation”
under Article 1474, even when applied only to movables, would necessarily entail a
“transformation” of the subject matter of sale such that it can no longer be returned to
its original state, as to warrant the fixing of reasonable price to prevent unjust
enrichment.
 RULINGS ON RECEIPTS AND OTHER DOCUMENTS EMBODYING PRICE
 The Supreme Court has followed a particular set of rulings when it comes to situations
where a receipt or some other written agreement has been entered into by the parties on
the issue of whether there is a valid and binding contract of sale between the parties.
 We begin with the decision in El Oro Engravers v. Court of Appeals, where the Court
held that sales invoices are not evidence of payment since they are only evidence of the
receipt of the goods; and that the best evidence to prove payment of the price is the
official receipt issued by the seller.
 An examination of the receipt reveals that the same can neither be regarded as a
contract of sale or a promise to sell. There was merely an acknowledgment of the
sum of One Thousand Pesos (51,000.00). There was no agreement as to the total
purchase price of the land nor to the monthly installment to be paid by the [buyer].
 The requisites of a valid Contract of Sale namely
a. consent or meeting of the minds of the parties;
b. determinate subject matter;
c. price certain in money or its equivalent—are lacking in said receipt and
therfore the “sale” is not valid nor enforceable.
 Although not particularly referring to it, it can be presumed that the Court had the
Statute of Frauds in mind when it held that the contract was unenforceable because
the memorandum allegedly evidencing the sale did not contain all the requisites of
price. However, the facts of the case indicate that not only was there partial
payment of the price, but likewise the alleged buyer was given actual possession of
the land, which are considerations that would exclude the contract from the
coverage of the Statute of Frauds, which covers only executory contracts. The
receipt itself was evidence of partial execution of the sale.
 In Toyota Shaw, Inc. v. Court of Appeals, a written agreement was entered into
between a prospective buyer of a vehicle and the sales representative of the car dealer,
which provided and acknowledged a downpayment of 5100,000.00 on a Toyota
pickup, with an understanding on a separate subsequent instrument that the balance
would be financed through a financing company.
 The Court held that there was never any perfected contract between the parties
under the agreement that only provided for a downpayment of 5100,000.00, but did
not indicate the total purchase price nor the manner by which the balance shall be
paid: “It is not a contract of sale.
 No obligation on the part of Toyota to transfer ownership of a determinate thing to
Sosa and no correlative obligation on the part of the latter to pay therefore a price
certain appears therein.
 The provision on the downpayment of 5100,000.00 made no specific reference to a
sale of a vehicle.” Such was the ruling of the Court even when the evidence
showed that the balance of the purchase price was subsequently agreed upon.
 In Limson v. Court of Appeals, it was held that
  when there is nothing in the receipt to indicate that the 520,000.00 “earnest money”
was part of the purchase price, much less was there showing of a perfected sale
between the parties nor any indication that the buyer was bound to pay any balance
of purchase price, then the only conclusion that could be made was that there was
no sale.
 In Coronel v. Court of Appeals, the seller executed a “Receipt of Down Payment” in
favor of the buyer acknowledging the receipt therein of the downpayment as purchase
price of the property described therein, and indicating the balance of the purchase
price, with specific obligation to transfer the title upon full payment of the balance.
 The Court held that there was a perfected contract of sale, there being no
reservation of any title until full payment of the purchase price.
 The Coronel ruling is consistent with the doctrine that sale being governed by the
Statute of Frauds, requires that the memorandum that would evidence the contract
should contain all the essential requisites of the subject matter and price.
 In contrast, in Cheng v. Genato,the receipt signed by the seller acknowledging receipt
of the sum of 550,000.00 as “partial payment” for the real property described by titles
in the receipt, did not provide further stipulations as to the full contract price or the
manner of payment thereof.
 The Court ruled that there was neither a valid nor enforceable “sale” since the
requisites of a valid contract of sale are lacking in said receipt.
 Cheng contrasted the receipt from that was issued in Coronel thus: In Coronel,
this Court found that the petitioners therein clearly intended to transfer title to the
buyer which petitioner themselves admitted in their pleading.
 The agreement of the parties therein was definitely outlined in the “Receipt of
Down Payment” both as to property, the purchase price, the delivery of the seller of
the property and the manner of the transfer of title to the specific condition upon
the transfer in their names of the subject property the Coronels will execute the
deed of absolute sale.
 Again, a reading of the decision in Cheng nevertheless indicates that evidence was
adduced to support the other terms of the contract to sell, but the Court determined
the binding effect of the sale based on the receipt that was issued. If one were to
consider that a sale is a consensual contract and if upon the meeting of the minds of
the parties all the essential requisites are present, then generally it does not matter
if the written evidence issued pursuant thereto (be it an agreement or a receipt)
does contain all of the requisites, then a valid contract of sale should nevertheless
exist and the only issue would be its enforceability under the Statute of Frauds.
 The fact of having received part of the purchase price would therefore have placed
the contract outside of the coverage of the Statute of Frauds as partially executed
contract and therefore parol evidence presented to prove the other elements of the
contract of sale would have been the order of the day.
 This is the same reasoning adopted in Xentrex Automotive, Inc. v. Court of Appeals,
where the Court held that a contract of sale is perfected at the moment there is a
meeting of the minds upon the thing which is the object of the contract and upon the
price.
 When the dealer of motor vehicles accepts a deposit of 550,0000.00 and by pulling
out a unit from the assembler, it obliged itself to sell to the buyer a determinate
thing for a price certain in money, and it was in breach of its contract, to have sold
the car subsequently to another buyer.
 Likewise, in David v. Tiongson, the Court clarified that the sale of real property on
installments even when the receipt or memorandum evidencing the same does not
provide for the stated installments, when there has already been partial payment, the
Statute of Frauds is not applicable because it only applies to executory and not to
completed, executed, or partially executed contracts.
 In Tigno v. Aquino, the Court held that the absence of receipts or any proof of
consideration, in itself, would not be conclusive of the inexistence of a sale since
consideration is always presumed. When it therefore comes to treating the legal
consequences of receipts embodying the price or the portion thereof, the rulings of the
Court have not followed a consistent doctrine.
 We can only quote what the Court held in Lagon v. Hooven Comalco Industries, Inc.,to
remind us of the commercial importance of receipts and invoices, thus:
 We are not unaware of the slipshod manner of preparing receipts, order slips and
invoices, which unfortunately has become a common business practice of traders
and businessmen. In most cases, these commercial forms are not always fully
accomplished to contain all the necessary information describing the whole
business transaction.
 The sales clerks merely indicate a description and the price of each item sold
without bothering to fill up all the available spaces in the particular receipt or
invoice, and without proper regard for any legal repercussion for such neglect.
 Certainly, it would not hurt if businessmen and traders would strive to make the
receipts and invoices they issue complete, as far as practicable, in material
particulars.
 These documents are not mere scraps of paper bereft of probative value but vital
pieces of evidence of commercial transactions. They are written memorials of the
details of the consummation of contracts.
 INADEQUACY OF PRICE
 Under Article 1355 of the Civil Code, which governs contracts in general, and except
in cases specified by law, it is provided that lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue influence.
 Specifically, Article 1470 on contracts of sale, provides that “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.”
 In one case, the Court held that there is gross inadequacy in price if a reasonable man
will not agree to dispose of his property at that amount.

 “The hardness of the bargain or the inadequacy of the price is not sufficient ground for
the cancellation of a contract otherwise free from invalidating defects.”
 Although sale is an onerous and commutative contract, there is no requirement that the
price given should be exactly the value of the subject matter delivered. Requiring a
one-to-one correspondence between the value of the subject property and the price is
difficult, and would leave no room for bargaining and discounts.
 As was discussed previously, the characteristic that the contract of sale is onerous is
met whenever the consideration is “valuable consideration;” and the test for its
“commutativeness” is met when parties believe honestly that they received good value
for what they have given up in exchange.
 Inadequacy of price may be a ground for setting aside an execution sale, but it is not
sufficient ground for the cancellation of a voluntary contract of sale which is otherwise
free from invalidating defects such as vitiated consent, even if shocking to the
conscience.
 Contracts are valid even though one of the parties entered into it against his own wish
and desire, or even against his better judgment.
 Even a threat of eminent domain proceedings by the government cannot be legally
classifi ed as the kind of imminent, serious and wrongful injury to a contracting party
as to vitiate his consent. Private landowners ought to realize, and eventually accept,
that property rights must yield to the valid exercise by the state of its all-important
power of eminent domain.
1. Distinguished from Simulated Price
 “Simulation of contract” and “gross inadequacy of price” are distinct legal concepts,
with different effects, and that the concept of a simulated sale is incompatible with
inadequacy of price, thus:
 “When the parties to an alleged contract do not really intend to be bound by it, the
contract is simulated and void. A simulated or fi ctitious contract has no legal effect
whatsoever because there is no real agreement between the parties. . . . Gross
inadequacy of price by itself will not result in a void contract, and it does not even
affect the validity of a contract of sale, unless it signifi es a defect in the consent or
that the parties actually intended a donation or some other contract.”
2. Rescissible Contracts of Sale
 Inadequacy of price is a ground for rescission of conventional sale in case of
rescissible contracts covered under Article 1381 of the Civil Code, namely:
a. Those entered into by guardians whenever the ward whom they represent
suffer lesion by more than one-fourth (1/4) of the value of the object of the
sale; and
b. Those agreed upon in representation of absentees, if the latter should suffer
lesion by more than one-fourth (1/4) of the value of the object of the sale.
3. Judicial Sale Gross
 Inadequacy of price may avoid judicial sale of real property.
 The difference in ruling for judicial sale is because the contract of sale is not
the result of negotiations and bargaining; in fact, the property of the supposed
seller would be sold at public auction without his intervention.
 In such a case, the courts must be allowed to come in to protect the supposed
seller from a bad bargain that is really not of his own doing. However, for a
judicial sale to be set aside on the ground of inadequacy of price, the
inadequacy must be such as to be shocking to the conscience of man.
 In addition, there must be showing that, in the event of a resale, a better price
can be obtained.
 But even if the foregoing requisites are shown, a judicial sale will not be set
aside by the court when there is a right of redemption, since the more
inadequate the winning bid at public sale, the more easily it is for the owner to
redeem the property. In this case, the proper remedy is not rescission, but to
exercise the right of redemption.
4. Sales with Right to Repurchase
 In a conventional sale with a right to repurchase feature, the gross inadequacy of price
raises a presumption of equitable mortgage.
 The proper remedy of the alleged seller, who is actually an equitable mortgagor, is
not to rescind the contract of sale, but to have it reformed or declared a mortgage
contract, and to pay off the indebtedness which is secured.
 On the other hand, the remedy of the alleged buyer would not be to appropriate the
subject matter as a buyer for that would be pactum commissorium, but to foreclose
on the quitable mortgage.
 WHEN MOTIVE NULLIFIES SALE
 In a contract of sale, consideration is, as a rule, different from the motive of the parties,
and when the primary motive is illegal, such as when the sale was executed over a
parcel of land to illegally frustrate a person’s right to inheritance and to avoid payment
of estate tax, the sale is void because illegal motive predetermined the purpose of the
contract.
 Uy v. Court of Appeals, distinguished “cause” which is the essential reason which
moves the contracting parties to enter into it, and “is the immediate, direct and
proximate reason which justifies the creation of an obligation through the will of the
contracting parties,” from motive, which is the particular reason of a contracting party
which does not affect the other party.
 Court ruled: “Ordinarily, a party’s motive for entering into the contract do not affect
the contract. However, when the motive predetermines the cause, the motive may be
regarded as the cause. x x x The realization of the mistake as regards the quality of the
land resulted in the negation of the motive/cause thus rendering the contract
 inexistent,” under Article 1318 of the Civil Code defining the essential requisite of
contracts.
 In Heirs of Spouses Balite v. Lim, where the parties to a sale agreed to a consideration,
but the amount reflected in the final Deed of Sale was lower, their motivation being to
pay lower taxes on the transaction, the Court ruled that the contract of sale remained
valid and enforceable upon the terms of the real consideration, thus: “The motives of
the contracting parties for the lowering of price of the sale — in the present case, the
reduction of the capital gains tax liability — should not be confused with the
consideration. Although illegal, the motives neither determine nor take the place of the
consideration.
CHAPTER 5
FORMATION OF SALE
 STAGES IN THE LIFE OF SALE
 The phases that a contract of sale goes through have been summarized by the Supreme
Court to be as follows:
a. POLICITACION, negotiation, preparation, conception or generation stage, which
is the period of negotiation and bargaining, ending at the moment of perfection;
b. PERFECTION or “birth” of the contract, which is the point in time when the
parties come to agree on the terms of the sale; and
c. CONSUMMATION or “death” of the contract, which is process of fulfillment or
performance of the terms agreed upon in the contract.
 The negotiation stage “covers the period from the time the prospective contracting
parties indicate interest in the contract to the time the contract is concluded (perfected).
 The perfection stage of the contract takes place upon the concurrence of the essential
elements thereof.
 The stage of consummation begins when the parties perform their respective
undertakings under the contract culminating in the extinguishment thereof.”
 POLICITACION STAGE / NEGOTIATION STAGE
 actually deals with legal matters arising prior to the perfection of sale, dealing with
the concepts of invitation to make offer, offer, acceptance, right of first refusal,
option contract, supply agreement, mutual promises to buy and sell or contracts to
sell, and even agency to sell or agency to buy.
 Normally, negotiation is formally initiated by an offer, which, however, must be
certain; an imperfect promise (policitacion) is merely an offer by an offeror to an
offeree.
 Policitacion, or unaccepted unilateral promise to buy or to sell, prior to acceptance,
does not give rise to any obligation or right, and creates no privity between the
purported seller (offeror) and buyer (offerees).
 These relations, until a contract is perfected, are not considered binding
commitments; and at any time prior to the perfection of the contract, either
negotiating party may stop the negotiation, and walk away from the situation,
generally without adverse legal consequences.
 It is important to consider that at policitation stage, there is “freedom to contract,”
which signifies the right to choose with whom to contract and what to contract,
thus: “In the Law on Sales, an owner of property is free to offer the subject
property for sale to any interested person, and is not duty bound to sell the same to
the occupant thereof, absent any prior agreement vesting the occupants the right of
first priority to buy.”
 In essence, the policitacion stage is populated of legal creatures which are not
contracts of sale as defined under Article 1458 of the Civil Code, but each of them
has, as the main object of their existence, the fervent hope of becoming or effecting
into realization, a valid and binding sale. Since none of the legal creatures within
the policitacion stage constitute a sale, it would be proper to quote the warning of
Justice Vitug: “It would be perilous a journey, first of all, to try to seek out a
common path for such juridical relations as contracts, options, and rights of first
refusal since they differ, substantially enough, in their concepts, consequences and
legal implication.”
1. Advertisements and Invitations
 Article 1325 of the Civil Code
 “Unless it appears otherwise,” business advertisements of things for sale are not
definite offers, but “mere invitations to make an offer.”
 Likewise, advertisements for bidders are simply invitations to make proposals, and
the advertiser is not bound to accept the highest or lowest bidder, unless the
contrary appears.
 The general rule for advertisements is that they are less than offers, and constitute
merely invitations to make an offer, or mere proposals; the direct acceptance of
such advertisements thereof do not give rise to a valid and binding sale.
 The exception to this general rule is when “it appears otherwise,” in which case
such advertisements would constitute offers, and if certain and accepted directly,
would give rise to a valid and binding sale.
 By way of exception to the general rule, it has been viewed that when the
advertisement specifies a determinate subject matter, the price and terms of
payment, as to be equivalent to an offer certain, then it constitute an offer covered
by the phrase “unless it appears otherwise,” and not a mere invitation to make an
offer, and once absolutely accepted would give rise to a valid and binding contract
to sell.

 But if this view were accepted, it would mean that the general rule (which treats
advertisements as mere invitations to make offers), would never apply to a situation
when it covers a determinate subject matter, price certain or ascertainable, with the
manner of payment thereof provided, because such a situation would always be
covered by the exception. If that be the case, the general rule would be
meaningless, since always lacking any of the three requisites to constitute a certain
offer, it could never be accepted to give rise to a valid and binding sale. In other
words, even without the general rule provided under Article 1325, the situation
would be exactly the same, since such an advertisement (lacking at least one of the
three requisites) would always not constitute a valid offer. Such view would make
Article 1325 a surplusage, with no useful purpose to serve. The better view to the
author is that even when the advertisement contains a certain offer, it remains
legally a mere invitation so long as it is addressed to the public at large, and the
exception comes in whenever it expressly provides that the first absolute
acceptance shall be binding, or when it is addressed to a particular offeree.
2. Offers
 An offer, prior to its acceptance, is subject to the complete will of the offeror; it may be
withdrawn or destroyed by the offeror prior to its acceptance; and it is not even
necessary that the offeree learns of the withdrawal.
 If the offer is given for a period, the expiration of the period without further act or its
withdrawal prior to acceptance would destroy the offer. The offeror has the right to
attach to an offer any term or condition he desires, and may fix the time, place and
manner of acceptance; and the offeree has no authority to treat it as consisting of
separate and distinct parts, since he must accept and comply with all the requirements
provided in the offer.
 The offeree has only the choice to accept or reject the offer in its entirety; he has no
choice to reject that portion of the offer which is disadvantageous and accept only that
which is beneficial.
 Such an offer will be extinguished by the happening of the resolutory condition, or the
certainty that the suspensive condition will not happen, or after the lapse of the period;
and in all cases, without need of further action on the part of the offeror.
 The offeree has the choice to indicate further negotiations by making a counter-offer,
which would then replace and repeal the original offer.
 A counter-offer is always considered in law a rejection of the original offer, and has the
effect of extinguishing the original offer.
 An offer which has not been accepted absolutely would thereby be extinguished and
cannot be further accepted; whereas, the conditional acceptance will constitute a
counteroffer which must be accepted absolutely in order to give rise to a valid sale.
 Finally, an offer becomes ineffective upon the death, civil interdiction, insanity, or
insolvency of either offeror or offeree, before the acceptance is conveyed and received
by the offeror.
3. Option Contracts
a. Determining the “Location” of Options
 The second paragraph of Article 1479 of the Civil Code governing options, provides
that “An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a consideration
distinct from the price.”
 In connection therewith, Article 1324 of the Civil Code, which covers offers and
acceptance in general, provides that: “When the offeror has allowed the offeree a
certain period to accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded upon a
consideration, as something paid or promised.”
 The exception would mean the opposite of what the previous phrase provides for,
which should properly mean: When the option is founded upon a proper consideration,
then the offer may not be withdrawn at any time during the option period; it has
essentially become a “contracted offer,” bounded by the principles of mutuality and
obligatory force.
b. Definition and Essence of Option Contract Earlier,
 an option contract as a privilege existing in one person, for which he had paid a
consideration and which gives him the right to buy certain merchandise or certain
specified property, from another person, if he chooses, at any time within the agreed
period at a fixed price
 an option is a continuing offer or contract by which the owner stipulates with another
that the latter shall have the right to buy the property at a fixed price within a certain
time, or under, or in compliance with, certain terms and conditions, or which gives to
the owner of the property the right to sell or demand a sale. It is also sometimes called
an “unaccepted offer.”
 an option is not of itself a purchase, but merely secures the privilege to buy; it is not a
sale of property, but a sale of the right to purchase, thus — It is simply a contract by
which the owner of property agrees with another person that he shall have the right to
buy his property at a fixed price within a certain time. He does not sell his land; he
does not then agree to sell it; but he does sell something, that is, the right or privilege
to buy at the election or option of the other party.
 Its distinguishing characteristic is that it imposes no binding obligation on the person
holding the option, aside from the consideration for the offer. Until acceptance, it is
not, properly speaking, a contract and does not vest, transfer, or agree to transfer, any
title to, or any interest or right in the subject matter, but is merely a contract by which
the owner of property gives the optionee the right or privilege of accepting the offer
and buying the property on certain terms.
 an option contract is one “necessarily involving the choice granted to another for a
distinct and separate consideration as to whether or not to purchase a determinate thing
at a predetermined fixed price. . . . The rule so early established in this jurisdiction is
that the deed of option or the option clause in a contract, in order to be valid and
enforceable, must, among other things, indicate the definite price at which the person
granting the option, is willing to sell. . . .
 An option is a contract granting a privilege to buy or sell within an agreed time and at a
determined price. It is a separate and distinct contract from that which the parties may
enter into upon the consummation of the option. It must be supported by
consideration.”
 The binding effects of options, which seems to be a more comprehensive definition of
an option, thus —
 An option is a preparatory contract in which one party grants to the other, for a
fixed period and under specified conditions, the power to decide, whether or not to
enter into a principal contract. It binds the party who has given the option, not to
enter into the principal contract with any other person during the period designated,
and, within that period, to enter into such contract with the one to whom the option
was granted, if the latter should decide to use the option. It is a separate agreement
distinct from the contract which the parties may enter into upon the consummation
of the option.
c. Characteristics and Obligations Constituted in an Option Contract;
Compared with Sale
 When compared to a sale, an option contract is an onerous contract like sale, for it
must have a separate consideration from the purchase price, to be valid.
 An option without separate consideration from the offered purchase price is void as a
contract. Consideration in an option contract may be anything of value, unlike in sale
where it must be the price certain in money or its equivalent, or essentially a “valuable
consideration.”
 An option contract is also a consensual contract, since the meeting of the minds as to
the subject matter and the price would also give rise to the option contract, even when
the separate consideration for the option itself has not been paid. This is clear from the
wordings of Article 1324 which describes the separate consideration of an option as
“something paid or promised.”
 Although a separate consideration must exist for an option contract to be valid, unlike
a sale, it is essentially a unilateral contract, since only the optioner is obliged under an
option contract, even when the optionee has not paid the separate consideration. It is
true that the optionee is obliged to pay a separate consideration for the option right, but
his exercise of the option does not necessarily depend upon his ability to pay the
separate consideration, since Article 1324 describes the separate consideration of an
option as “something paid or promised.” More importantly, there can be a valid option
contract even when no separate consideration is paid by the optionee, as in the case
when the option if included within another valid contract, such a lease or a mortgage.
 The most important distinction with sale, is that the subject matter of an option
contract is actually not the subject matter of the sought sale, but rather the option to
purchase such subject matter, essentially an intangible subject matter or a right.
 More pointedly, the subject matter of an option contract is the accepted promise to sell
or accepted promise to buy. Consequently, unlike in a sale, the main issue on the
subject matter of a valid option contract is whether the option or right secured is on an
obligation “to do” (i.e., unaccepted promise “to sell” or unaccepted promise “to buy”),
or an obligation “to give” (i.e., unaccepted obligation to transfer ownership and
delivery possession of the subject matter).
 The distinction between an ‘option’ and a contract of sale is that an option is an
unaccepted offer: It states the terms and conditions on which the owner is willing to
sell his land, if the holder elects to accept them within the time limited. If the holder
does so elect, he must give notice to the other party, and the accepted offer thereupon
becomes a valid and binding contract. If an acceptance is not made within the time
fixed, the owner is no longer bound by his offer, and the option is at an end.
 A contract of sale, on the other hand, fixes definitely the relative rights and obligations
of both parties at the time of its execution, and leaves no choice to either party whether
to withdraw or to proceed with the contract. The offer and the acceptance are
concurrent, since the minds of the contracting parties meet in the terms of the
agreement.” Again, a valid option is in essence a “contracted certain offer.”
 Although a valid option contract has for its subject matter an option in favor of the
offeree, it is also constituted of the following obligations on the part of the offeror:
a. Personal obligation not to offer to any third party the sale of the object of the
option during the option period;
b. Personal obligation not to withdraw the offer or option during option period; and
c. Obligation to hold the subject matter for sale to the offeree in the event that
offeree exercises his option during the option period.
 Although the first two obligations in a valid option contract are personal obligations
“to do” and “not to do,” the third obligation may either be a personal obligation “to
enter into a contract of sale,” or may already constitute an “offer to transfer ownership
and deliver possession of the subject matter on a price certain” conditioned only upon
the exercise by the offeree of the option within the option period.
 Since an option contract, prior to its valid exercise, is not a species of the genus sale, it
is not covered by the Statute of Frauds, and therefore can be proved by parol evidence.
This leaves very little comfort, since with the exercise of an oral option, the resulting
sale contract itself would be subject to the Statute of Frauds and cannot be proved by
oral evidence, except if there has been partial execution of the underlying sale.
d. Elements of Valid Option Contract
 The elements of a valid option contract are therefore as follows:
a. CONSENT or the meeting of the minds upon:
b. SUBJECT MATTER: an option right to an unaccepted unilateral offer to
sell/accepted promise to sell, or unaccepted unilateral offer to buy/accepted
promise to buy:
(i) a determinate or determinable object;
(ii) for a price certain, including the manner of payment thereof;
c. PRESTATION: A consideration separate and distinct from the purchase price for
the option given.
 It is imperative therefore, that the option must have all the requisites required for
subject matter (i.e., possible thing, licit, determinate or determinable) and the price
 (i.e., real, valuable, certain or ascertainable, with terms of payment stipulated).
Otherwise, when any of the requisites is missing, even when the option is supported by
a separate consideration, it is void as an option contract, and its exercise would not
result into a valid sale. This emphasizes the point that a valid option contract is nothing
more than a “contracted certain offer,” and therefore its consequences are very similar
to a certain offer floated in the legal world.
 In an option, in order that such a promise may be binding upon the promissor, it must
contain a price certain.
 Although an option to buy is not a contract of purchase and sale, but like a contract of
sale, an option contract by its statutory definition can only arise when the minds of the
parties have met as to the specifi c object thereof, the price and the manner of payment
thereof.
e. Meaning of “Separate Consideration”
 Unlike in a sale where the price refers to cash or its equivalent (“valuable
consideration”), in an option contract the consideration may be anything or
undertaking of value.
 The more controlling concept is the “separateness” of such consideration from the
purchase price agreed upon.
 The consideration of the deed of option is “the why of the contracts, the essential
reason which moves the contracting parties to enter into the contract.”
 An option to buy the leased premises at a stipulated price in the lease contract is not
without a separate consideration for in reciprocal contracts, like lease, the obligation or
promise of each party is the consideration for that of the other.
 Held: The condition that the spouses-borrowers will pay monthly interest during the
oneyear option period granted to them by the bank after the spouses had failed to
exercise their original legal right of redemption on the foreclosed property, was
considered to be the separate consideration to hold the resulting option contract valid.
 Held: a real estate mortgage itself, being merely an accessory contract, does not have
its own consideration and is supported by the same consideration that pertains to the
principal contract of mutuum. That shows clearly the wide range of “cause or
consideration” that can validly support an option contract.
 Although no consideration is expressly mentioned in an option contract, it is presumed
that it exists and may be proved, and once proven, the contract is binding.
f. When Option Is Without Separate Consideration
 Held: Without a consideration separate from the purchase price, an option contract
would be void, as a contract, but would still constitute a valid offer; so that if the
option is exercised prior to its withdrawal, that is equivalent to an offer being accepted
prior to withdrawal and would give rise to a valid and binding sale, thus — In an
accepted unilateral promise to sell, since there may be no valid contract without a
cause or consideration, the promissor is not bound by his promise and may,
accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise
partakes, however, of the nature of an offer to sell which, if accepted, results in a
perfected contract of sale.
 The burden of proof to show that the option contract was supported by a separate
consideration is with the party seeking to show it. No reliance can be placed upon the
provisions of Article 1354 of the Civil Code which presumes the existence of a
consideration in every contract, since in the case of an option contract, Article 1479
being the specific provision, requires such separate consideration for an option to be
valid.
 There is in fact practically no difference between a contract of option to purchase land
and an offer or promise to sell it. In both cases, the purchaser has the right to decide
whether he will buy the land, and that right becomes a contract when it is exercised, or,
what amounts to the same thing, when use is made of the option, or when the offer or
promise to sell the property is accepted in conformity with the terms and conditions
specified in such option, offer, or promise.
 Moreover, the Sanchez doctrine expressly overturned the rulings in Southwestern
Sugar Molasses Co. v. Atlantic Gulf & Pacifi c Co., and Mendoza v. Comple, which
held that when an option is not supported by a separate consideration it is void and can
be withdrawn notwithstanding the acceptance made previously by the offeree.
However, lately it seems that, without expressly overturning nor modifying the
Sanchez doctrine, there has been a movement back towards the previously discarded
Southwestern Sugar ruling.
 Held: The oral promise to sell was not binding upon the offeror in view of the absence
of any consideration distinct from the stipulated price, quoting Article 1479. No
reference was made to Sanchez, nor was there any attempt to show that the withdrawal
of the option was made prior to acceptance or exercise thereof.
 Held: that a commitment by a bank to resell a property to the owner within a specified
period, although accepted by the offeree, was considered an option not supported by
consideration separate and distinct from the price, and therefore, not binding upon the
bank relying upon the Southwestern Sugar ruling. Natino did not refer to Sanchez at
all, nor did it seek to distinguish whether there was acceptance before the bank
withdrew its commitment.
g. Acceptance of Offer to Create Option Necessary to Apply Sanchez Doctrine
 Vazquez v. Court of Appeals, not only reiterated the Sanchez ruling that in an option
contract, the offeree has the burden of proving that the option is supported by a
separate consideration, it also held that the Sanchez doctrine (i.e., that the option
contract not supported by a separate consideration; is void as a contract, but valid as an
offer), can only apply if the option has been accepted and such acceptance is
communicated to the offeror. It held that not even the annotation of the option contract
on the title to the property can be considered a proper acceptance of the option.
h. Option Not Deem Part of Renewal of Lease
 An option to purchase attached to a contract of lease when not exercised within the
original period is extinguished and cannot be deemed to have been included in the
implied renewal of the lease even under the principle of tacita reconduccion.
i. Period of Exercise of Option
 Held: that when the option contract does not contain a period when the option can be
exercised, it cannot be presumed that the exercise thereof can be made indefinitely, and
even render uncertain the status of the subject matter.
 Under Article 1144(1) of the Civil Code, actions upon written contract must be brought
within ten (10) years, and thereafter, the right of option would prescribe. In an earlier
case, the Court held that the lessee loses his right to buy the leased property for a
stipulated price per square meters upon his failure to make the purchase within the time
specified. Even when an option is exercised within the option period by the proper
tender of the amount due, nevertheless the action for specific performance to enforce
the option to purchase must be fi led within ten (10) year after the accrual of the cause
of action as provided under Article 1144 of the New Civil Code.
j. Proper Exercise of Option
 Held: that in an option to buy, the party in whose favor the option contract exist may
validly and effectively exercise his right by merely advising the offeror of the decision
to buy and expressing his readiness to pay the stipulated price, provided that the same
is available and actually delivered to the offeror upon execution and delivery by him of
the corresponding deed of sale. In other words, notice of the exercise of the option
need not be coupled with actual payment of the price, so long as this is delivered to the
owner of the property upon performance of his part of the agreement.
 Carceller v. Court of Appeals, discussed “substantial” compliance with the exercise of
an option, and may even be viewed as an instance when the Court allowed the exercise
of the option beyond the original option period.
 The option shall be exercised by a written notice to the LESSOR at anytime within the
option period and the document of sale over the aforedescribed properties has to be
consummated within the month immediately following the month when the LESSEE
exercised his option under this contract.”
 Court held that since the facts showed clearly that there was every intention on the part
of the lessor to dispose the leased premises under the option, and the lessee had
intended to purchase the leased premises, and having invested very substantial amount
to introduce improvements therein, then the exercise of the option within a reasonable
period after the end of the lease, immediately after the lessee was informed of the
denial of the request for the extension of the lease, should be considered still a valid
exercise of the option that would give grounds for an action for specific performance
against the lessor to execute the necessary sale contract in favor of the lessee. The
delay of days was considered neither “substantial” nor “fundamental” that would
defeat the intention of the parties when they executed the lease contract with option to
purchase.
 However, the purchase price would have to be the fair market value of the property at
the time the option was exercised, with legal interests thereon.
 In essence, Carceller sort-of recognized that notice within the option period of clear
intention to purchase the property pursuant to such option, with request for leeway
within which to be able to raise the funds to close the deal is a valid or at least
substantial exercise of the option. In other words, the acceptance or exercise of the
option must still be made within the option period to give rise to a valid and binding
sale, and it is only then that the principle of substantial compliance would have
relevance.
 Also significant in Carceller was the ruling of the Court that in a valid option contract,
the refusal of the offeror to comply with the demand by the offeree to comply with the
exercise of his option may be enforced by an action for specific performance which
seems contrary to the earlier ruling in Ang Yu Asuncion discussed hereunder.
k. Effects of Exercise of Option
 Court held that once an option is exercised: “The obligations under an option to buy
are reciprocal obligations. The performance of one obligation is conditional on the
simultaneous fulfillment of the other obligation ... when private respondent opted to
buy the property, their obligation was to advise petitions of their decision and their
readiness to pay the price. They were not obliged to make actual payment. Only upon
petitioners’ actual execution and delivery of the deed of sale were they required to pay.
 The Court was actually describing the principles that apply to a sale that had arisen by
the proper exercise of the option. In essence, it held that when an option is properly
exercised, then there is already a sale contract existing, and the laws applicable to sales
shall then apply.
 That when there is an option contract, then the “timely, affirmatively and clearly
acceptance of the offer,” would convert the option contract “into a bilateral promise to
sell and to buy where both [parties] were then reciprocally bound to comply with their
respective undertakings.
l. Summary Rules When Period Is Granted to Promisee
 Ang Yu Asuncion v. Court of Appeals, summarized the applicable rules where a period
is given to the offeree within which to accept the offer, i.e., the option, thus:
1. If the period itself is not founded upon or supported by a separate consideration, the
offeror is still free and has the right to withdraw the offer before its acceptance, or, if
an acceptance has been made, before the offeror’s coming to know of such fact, by
communicating that withdrawal to the offeree. (This is in accordance with the Sanchez
doctrine.)
2. The right to withdraw, however, must not be exercised whimsically or arbitrarily;
otherwise, it could give rise to a damage claim under Article 19 of the Civil Code
which ordains that “every person must, in the exercise of his right and in the
 performance of his duties, act with justice, give everyone his due, and observe honesty
and good faith.”
3. If the period has a separate consideration, a contract of “option” is deemed perfected,
and it would be a breach of that contract to withdraw the offer during the agreed
period.
4. The option, however, is an independent contract by itself, and it is to be distinguished
from the projected main agreement which is obviously yet to be concluded. If, in fact,
the optioner-offeror withdraws the offer before its acceptance by the optionee-offeree,
the latter may not sue for specific performance on the proposed contract since it has
failed to reach its own stage of perfection. The optioner-offeror, however, renders
himself liable for damages for breach of the option.
5. In these cases, care should be taken of the real nature of the consideration given, for if
in fact, it has been intended to be part of the consideration for the main contract with a
right of withdrawal on the part of the optionee, the main contract could be deemed
perfected; a similar instance would be an “earnest money” in sale that can evidence its
perfection.
 Rights of First Refusal
 Ang Yu Asuncion would hold therefore that in an option contract, the granting of a
consideration separate and distinct from the purchase price of the intended sale, does
not guarantee to the optionee that he has the absolute right to exercise the option,
anytime during the option period. The separate consideration merely guarantees that
within the option period, before the optioner breaches his obligation and withdraws the
offer, an acceptance by the optionee would give rise to a valid and binding sale; and
that an acceptance within the option period after the optioner shall have unlawfully
withdrawn the offer would not give rise to a sale.
 This rule is clear from Ang Yu Asuncion, when it held that — The optionee has the
right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer
is accepted before a breach of the option, a bilateral promise to sell and to buy ensures
and both parties are then reciprocally bound to comply with their respective
undertakings.
 Such a rule would practically be the same as the Sanchez doctrine when no separate
consideration is given for the option. That would be contrary to the language of Article
1324 of the Civil Code that recognizes the right of the offeror to withdraw the offer
only when there is no separate consideration to support the period given: “When the
offeror has allowed, the offeree a certain period to accept, the offer may be withdrawn
at any time before acceptance by communicating such withdrawal, except when the
option is founded upon a consideration, as something paid or promised.”
 Under the Ang Yu Asuncion ruling, insofar as the optionee is concerned, whether or
not he gives a separate consideration for the option, he would be saddled with the same
dilemma: if the optioner withdraws the offer prior to the time he (the optionee) shall
have exercised the option or accepted the offer, his acceptance could not give rise to a
valid and binding sale. To the optioner, whether he has received consideration or not
for the grant of the option, he could in either case withdraw the offer prior to the time
the optionee shall have exercised the option.
 Ang Yu Asuncion does not therefore provide for a “commercially sound” doctrine
because it emasculates the effectiveness of an option supported by a consideration
separate, and removes any motivation for the optionee to give, and for the optioner to
demand for, a separate consideration on the option. And yet in the subsequent ruling in
Carceller v. Court of Appeals, the Court granted the optioner leeway to enforce the
conditional exercise of his option right even after the option period and after the
optioner-offeror-lessor had in fact given clear notice of the withdrawal of the option;
and even granted the remedy of specific performance requested by the optionee to
compel the optioner to execute the covering Deed of Absolute Sale.
 The Ang Yu Asuncion treatment of the option contract is also not consistent with the
doctrine it adopted for a “lesser form” of option called the “right of first refusal.” The
author therefore dares to predict that in the future the Supreme Court would “adjust”
the prevailing doctrine to conform to the essence of its rulings on rights of first refusal,
discussed hereunder.
 One of the early cases that covered the situation of a right of first refusal (i.e., a
promise on the part of the owner that if he decides to sell the property in the future, he
would first negotiate its sale to the promissee), would be the case of Guerrero v. Yñigo,
where the promise was part of the undertaking of the mortgagor to the mortgagee, thus
— The registration of the three instruments created a real right in favor of the
mortgagee.
 But the fact that in the instrument the mortgagor undertook, bound and promised to sell
the parcel of land to the mortgagee, such undertaking, obligation or promise to sell the
parcel of land to the mortgagee does not bind the land. It is just a personal obligation of
the mortgagor. So that when [mortgagor] sold one-half of the parcel of land (the
western part) ... the sale was legal and valid. If there should be any action accruing to
[mortgagee] it would be a personal action for damages against [mortgagor]. If [the
buyer] contributed to the breach of the contract by [mortgagor], the former together
with the latter may also be liable for damages. If [the buyer] was guilty of fraud which
would be a ground for rescission of the contract of sale in his favor, [mortgagor] and
not [mortgagee] would be the party entitled to bring the action for annulment.
 Note that in Guerrero, under a right of first refusal situation, the Court would not allow
an action for specific performance or a rescission of the sale to a third party which
constitute the breach of the promise, even when the third-party buyer was entering into
the purchase of the subject property in bad faith.The only remedy afforded to the
promissee was an action to recover damages.
 The Court effectively reversed itself in 1992 in Guzman, Bocaling & Co. v. Bonnevie,
where the right of first refusal was included in a contract of lease, but lessor
subsequently sold the property to another entity, holding that “[t]he respondent court
correctly held that the Contract of Sale was not voidable but rescissible.
 Under Articles 1380 to 1381(3) of the Civil Code, a contract otherwise valid may
nonetheless be subsequently rescinded by reason of injury to third persons, like
creditors. The status of creditors could be validly accorded the [lessees] for they had
substantial interest that were prejudiced by the sale of the subject property to the
petitioner without recognizing their right of first priority under the Contract of Lease.”
 Guzman, Bocaling & Co. also held that it was incorrect to say that there was no
consideration in an agreement of right of first refusal, since in reciprocal contracts,
such as a lease, the obligation or promise of each party is the consideration for that of
the other. It also recognized that a buyer of a real property who is aware of the existing
lease agreement over it cannot claim good faith nor lack of awareness of the right of
first priority provided therein, for it is its duty to inquire into the terms of the lease
contract, and failing to do so, it has only itself to blame.
 Ang Yu Asuncion had the opportunity to revisit rights of first refusal. In giving judicial
recognition to the “right of first refusal” pertaining to transactions covering specific
property, the Court distinguished it from either a sale or an option contract. While the
Court classified the “right of first refusal” to be “an innovative juridical relation,” it
pointed out that it cannot be deemed a perfected sale under Article 1458 of the Civil
Code, nor an option contract under either Articles 1319 and 1479 thereof, because it
merely pertains to a specific property without containing an agreement as to the price
or the terms of payment in case of exercise of the right of first refusal, thus — An
option or an offer would require, among other things, a clear certainty on both the
object and the cause or consideration of the envisioned contract.
 In a right of first refusal, while the object might be made determinate, the exercise of
the right, however, would be dependent not only on the grantor’s eventual intention to
enter into a binding juridical relation with another but also on terms, including the
price, that obviously are yet to be later firmed up.
 Prior thereto, it can at best be so described as merely belonging to a class of
preparatory juridical relations governed not by contracts (since the essential elements
to establish the vinculum juris would still be indefi nite and inconclusive) but by,
among other laws of general application, the pertinent scattered provisions of the Civil
Code on human [relations].
 Consequently, Ang Yu Asuncion held that if only a right of first refusal is constituted
over a subject parcel of land, even if that right is supported by a separate consideration,
its breach cannot justify correspondingly an issuance of a writ of execution under
judgment recognizing the mere existence of such right of first refusal, nor would it
sanction an action for specific performance without thereby negating the indispensable
consensual element in the perfection of contracts.
 At most, it would authorize the grantee to sue for recovery of damages under Article 19
of the Civil Code on abuse of right. Subsequently, the Court in Equatorial Realty Dev.,
Inc. v. Mayfair Theater, Inc., modified the principle pertaining to the right of first
refusal, where it held that in a contract of lease which gave the lessee a 30-day
exclusive option to purchase the leased property in the event the lessor should desire to
sell the same, such contractual stipulation which does not provide for a price certain
nor the terms of payment, actually grants a right for first refusal and is not an option
clause or an option contract, thus —
 As early as 1916, in the case of Beaumont vs. Prieto,85 unequivocal was our
characterization of an option contract as one necessarily involving the choice granted
to another for a distinct and separate consideration as to whether or not to purchase a
determinate thing at pre-determined fixed price. ... There was, therefore, a meeting of
minds on the part of the one and the other, with regard to the stipulations made in the
said document. But it is not shown that there was any cause or consideration for that
agreement, and this omission is a bar which precluded our holding that the stipulations
contained . . . is a contract of option, for . . . there can be no contract without the
requisite, among others, of the cause for the obligation to be established. . . The rule so
early established in this jurisdiction is that the deed of option or the option clause in a
contract, in order to be valid and enforceable, must, among other things, indicate the
definite price at which the person granting the option, is willing to sell. As such, the
requirement of a separate consideration for the option, has no applicability.
 In spite of the Ang Yu Asuncion ruling that found that right of first refusal provisions
are not governed by Article 1324 of the Civil Code on withdrawal of offer, or Article
1479 on promises to buy and sell, Equatorial Realty held that such ruling would render
ineffectual or inutile the provisions on right of first refusal so commonly inserted in
contracts such as lease contracts. It held that there need not be a separate consideration
in a right of first refusal since such stipulation is part and parcel of the entire contract
of lease to which it may be attached to; the consideration for the lease includes the
consideration for the right of first refusal.
 The Court decreed in Equatorial Realty that in a situation where the right of first
refusal clause found in a valid lease contract was violated and the property was sold to
a buyer who was aware of the existence of such right, the resulting contract is
rescissible by the person in whose favor the right of first refusal was given, and
although no particular price was stated in the covenant granting the right of first
refusal, the same price by which the third-party buyer bought the property shall be
deemed to be the price by which the right of first refusal shall therefore be exercisable,
thus —
 Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there
was nothing to execute because a contract over the right of fi rst refusal belongs to a
class of preparatory/juridical relations governed not by law on contracts but by the
codal provisions on human relations.
 This may apply here if the contract is limited to the buying and selling of the real
property. However, the obligation of [lessor] to first offer the property to [lessee] is
embodied in a contract. It is Paragraph 8 on the right of first refusal which created the
obligation. It should be enforced according to the law on contracts instead of the
panoramic and indefinite rule on human relations.
 The latter remedy encourages multiplicity of suits. There is something to execute and
that is of [lessor] to comply with its obligation to the property under the right of first
refusal according to the terms at which they should have been offered then to [lessee],
 at the price when that offer should have been made. Also, [lessee] has to accept the
offer. This juridical relation is not amorphous nor is it merely preparatory. Paragraph 8
of the two leases can be executed according to their terms.
 In essence, the Equatorial Realty ruling pins the enforceability of a right of first refusal
on the obligatory force of the main contract of lease to which it is attached to, and
thereby confirms the Ang Yu Asuncion doctrine that on its own, a right of first refusal
clause or contract cannot be the subject of an action for specific performance because
of lack of an agreement on the price
a. Limited Application of Equatorial Realty Ruling
 The ordinary language of a right of first refusal clause simply means that should the
lessor-promissor decide to sell the leased property during the term of the lease, such
sale should first be offered to the lessee; and the series of negotiations that transpire
between the lessor and the lessee on the basis of such preference is deemed a
compliance of such clause even when no final purchase agreement is perfected
between the parties.
 The lessor would then be at liberty to offer the sale to a third party who paid a higher
price, and there is no violation of the right of the lessee, especially, as in the case of
Riviera, if previous to the sale to the third party, a written notice was sent by the lessor
to the lessee confirming that the latter has lost his right of first refusal.
 The prevailing doctrine therefore is that a sale entered into in violation of a right of
first refusal of another person found in a valid principal contract is rescissible. The
basis of the right of first refusal must be the current offer of the seller to sell or the
offer to purchase of a prospective buyer. Only after the lessee grantee fails to exercise
its rights under the same terms and within the period contemplated can the owner
validly offer to sell the property to a third person, again under the same terms as
offered to the grantee.
b. Various Rulings On Rights of First Refusal Contained in Lease Agreement
1. Rentals Deemed to Be Consideration to Support Right
 Lucrative Realty and Dev. Corp. v. Bernabe, Jr., held that “[I]t is not correct to say that
there is no consideration for the grant of the right of fi rst refusal if such grant is
embodied in the same contract of lease. Since the stipulation forms part of the entire
lease contract, the consideration for the lease includes the consideration for the grant of
the right of fi rst refusal.”95 The reasoning of the Court is rather strange considering
that by its previous rulings, an enforceable right of fi rst refusal does not need
consideration for its validity and effectivity, since it is merely a stipulation in a valid
principal contract.
2. Sublessee May Not Take Advantage of Right of First Refusal of Sublessor
 A right of first refusal granted in the contract of lease in favor of the lessee cannot be
availed of by the sublessee because such sublessee is a stranger to the lessor who is
bound to respect the right of first refusal in favor of the lessee only; and had the
contract of lease granted the lessee the right to assign the lease, then the assignee
would be entitled to exercise such right as he steps into the shoes of the assignor-
lessee.
3. Right Does Not Extend with the Extension of the Lease
 A provision entitling the lessee the option to purchase the leased premises is not
deemed incorporated in the impliedly renewed contract because it is alien to the
possession of the lessee. The right to exercise the option to purchase expired with the
termination of the original contract of lease.
4. Proposed Doctrine on Option Contracts Vis-à-Vis Right of First Refusal Rulings
a. Alternative Doctrine of Enforceability of Rights of First Refusal
 In both his main decision = “a right of first refusal cannot have the effect of a contract
because, by its very essence, certain basic terms would have yet to be determined and
fixed,” for lacking in any meeting of the minds as to the certain price for the
determinate subject matter, the eminent justice rightfully asked the question, if there
could be a “breach of contract” of the right of first refusal, then at what price or
consideration would be the basis of specific performance? And to which his answer in
Ang Yu Asuncion was —
 In the law on sales, the so-called “right of first refusal” is an innovative juridical
relation. Needless to point out, it cannot be deemed a perfected contract of sale under
Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its
normal concept, per se be brought within the purview of an option under . . . Article
1479 . . . or possibly an offer under Article 1319 of the same Code . . . [as both of
them] require, among other things, a clear certainly on both the object and the cause or
consideration of the envisioned contract. In a right of first refusal, while the object
might be made determinate the exercise of the right, however, would be depended not
only on the grantor’s eventual intention to enter into a binding juridical relation with
another but also on terms, including the price, that obviously are yet to be later firmed
up. Prior thereto, it can at best be so described as merely belonging to class of
preparatory juridical relations governed not by contracts (since the essential elements
to establish the vinculum juris would still be indefinite and inconclusive) but by,
among other laws of general application, the pertinent scattered provisions of the Civil
Code on human conduct.
 Outside of being a stipulation in a valid contract, like a contract of lease, may an
agreement between promissor and promissee granting the latter a right of first refusal
over a determinate subject matter, and when supported by a separate consideration, not
rise to the level of becoming a binding contractual commitment?
 The author believes that such an agreement would be a valid contractual relation,
within the coverage of the innominate contract do ut facias, “I give that you may do.”
In other words, the separate consideration is given by the promissee to support a
contractual commitment on the part of the promissor that if the promissory ever
decides to sell the determinate subject matter, then he will negotiate in good faith with
the promissee for the possibility of entering into a sale. Binding oneself to enter into
negotiations for a contract to sell or a contract of sale is essentially an personal
obligation “to do.” Under such a premise, the “Agreement on Right of First Refusal,”
would be a binding contract between the promissor and the promissee, when supported
by a separate consideration, like much in the case of a valid option contract under
Articles 1319 and 1479 of the Civil Code, and a “mutual promises to negotiate a
 possible contract of sale over a determinate subject matter” would be akin to the
mutual promise to buy and sell under said Article 1479.
 The obligation is not to enter into a sale, but rather to negotiate in good faith for the
possibility of entering into a sale; and when the promissor has in fact negotiated in
good faith, but the parties’ minds could not meet on the price and the terms of
payment, then promissor has complied with his obligation. However, since the
underlying obligation in a “right of first refusal contract” is a personal obligation to do,
its breach can never be remedied by an action for specific performance, because of the
underlying public policy against involuntary servitude. The result would not be the
same as that posited by Justice Vitug, for the “right of first refusal contract” being valid
and binding, the remedy of specific performance is unavailable by reason of the nature
of the underlying obligation, but that the remedy of rescission for breach of contract
would be available which would allow recovery of damages under Contract Law,
rather than the difficult cause of action for recovery of damages based on “abuse of
right” under Article 19 of the Civil Code on Human Relations.
b. Enforceability of Option Rights Should Be at Par With, If Not at a Higher
Level Than, Rights of First Refusal
 Distinguished an option from a right of first refusal, thus: “An option is a preparatory
contract in which one party grants to another, for a fixed period and at a determined
price, the privilege to buy or sell, or to decide whether or not to enter into a principal
contract. ... In a right of first refusal, . . . while the object might be made determinate,
the exercise of the right would be dependent not only on the grantor’s eventual
intention to enter into a binding juridical relation with another but also on terms,
including the price, that are yet to be firmed up.... Consequently, the ‘offer’ may be
withdrawn anytime by communicating the withdrawal to the other party.”
 Vazquez therefore emphasizes the rather obvious point: if an option, constituted of
determinate subject matter, certain price, with separate consideration, can be
withdrawn within the option period to remove any hope of an action to enforce a sale,
then more so can the offeror withdraw a right of first refusal and destroy any chance of
there ever coming into being a sale upon which an action for specific performance
could be achieved.
 The rulings of the Court in Equatorial Realty and Parañaque Kings would have the
legal effect of placing rights of first refusal attached to principal contracts like lease, of
having greater legal enforceability than option contracts which are supported by
separate consideration. The Court should therefore revisit its ruling in Ang Yu
Asuncion on option contracts. The better rule would be that in case an option is
supported by a separate consideration, the optionee shall have the right to exercise the
option or accept the offer at anytime during the option period and the same would give
rise to a valid and binding contract of sale.
 In the same manner, if separate consideration has been received by the optioner for the
grant of the option, he cannot withdraw the offer during the option period, and any
attempt to so withdraw the offer during the option period shall be void. This position
seems to be affi rmed in the recent ruling in Carceller, and would validate the rationale
of Article 1324 of the Civil Code on why a separate consideration is required for a
valid option contract. It may happen that the optioner does not only withdraw the offer
during the option period but also sells the property to a third party during that period.
 Such a situation does not affect the above proposed rule since the acceptance of the
offer (i.e., the exercise of the option) by the optionee during the option period would
still give rise to a valid sale over the subject property, but that the rules on third party
buyer in good faith should prevail. If the third party buyer bought the property from the
optioner knowing of the existence of the option in favor of the optionee, he would be a
proper party to the action for specifi c performance that the optionee can bring against
the optioner once he has exercised his option. On the other hand, if the third party
buyer bought the property in good faith and for value, then he is protected by law, and
the remedy of the optionee (who has become the buyer in a valid and binding sale) is
to sue the optioner (who has become the seller) for recovery of damages for breach of
contract of sale, rather than to sue for damages for breach of the option contract as held
in Ang Yu Asuncion.
 In any event the ruling in Ang Yu Asuncion would suggest that the best scheme for a
prospective buyer to take if he is interested in a specific property, but wants to maintain
an option to be able to get out of it later on, would be the earnest money scheme,
whereby a sale is perfect upon the granting of the earnest money, with clear option on
the part of the buyer to withdraw from the contract by forfeiting the earnest money.
This arrangement is recognized in one case by the Supreme Court.
5. Mutual Promises to Buy and Sell
 The promise to sell a determinate thing coupled with a correlative promise to buy at a
specified price is binding as an executory agreement.Even in this case the certainty of
the price must also exist, otherwise, there is no valid and enforceable contract to sell.
Such an arrangement would be the “true” contract to sell, which embodies the main
obligation of the seller to enter into a contract of sale upon full compliance with the
condition of the buyer fully paying the purchase price, wherein the main obligation is a
person obligation “to do.” Such contracts to sell are really within the policitacion stage
for they do not represent a species of a sale defi ned under Article 1458 of the Civil
Code.
 On the other hand, Ang Yu Asuncion held that “[a]n unconditional mutual promise to
buy and sell, as long as the object is made determinate and the price is fixed, can be
obligatory on the parties, and compliance therewith may accordingly be exacted,”
which means that an action for specifi c performance is available. The ruling covers a
form of “contract to sell” that are within the perfection stage of sales defi ned by
Article 1458 for they embody the main obligation of the seller “to transfer ownership
and delivery possession” of the subject matter upon fulfillment of the condition that
buyer pays the purchase price.
 In the same manner, Villamor v. Court of Appeals, held that acceptance of the option
offered, is equivalent to an acceptance of an offer to sell for a price certain and creates
a bilateral contract to sell and buy and upon acceptance, the offeree, ipso facto assumes
obligations of a buyer. This doctrine is in stark contrast to another line of decisions that
 hold that a contract to sell merely contains obligations “to agree” to enter into contracts
of sale, and being personal obligations may not be enforced by specific performance.
 The Court of Appeals in Gan v. Reforma, held that in an agreement to buy and sell,
which is an executory contract, title to the property does not pass to the promissee and
the contracting parties are merely given the right to demand fulfi llment of the contract
in the proper cases, or damages for breach thereof where it is not possible to carry out
its terms.
 This doctrine which looks at the contract to sell or mutual promises to buy and sell as
constituting merely personal obligation to enter into a sale, and breach of which does
not authorize an action for specific performance but recovery of damages seems to
have been affirmed by the Court in Coronel v. Court of Appeals, where it held that: “In
a contract to sell, upon the fulfillment of the suspensive condition which is the full
payment of the purchase price, ownership will not automatically transfer to the buyer
although the property may have been previously delivered to him. The prospective
seller still has to convey title to the prospective buyer by entering into a contract of
absolute sale.”
 PERFECTION STAGE: OFFER AND ACCEPTANCE
 A contract of sale is “born” from the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price and the manner of its
payment. This meeting of the minds speaks of the intent of the parties entering into the
contract respecting the subject matter and the consideration thereof.
 Sale is at once perfected when a person (the seller) obligates himself for a price
certain, to deliver and to transfer ownership of a specified thing or right to another (the
buyer) over which the latter agrees.
 Consent may be vitiated by any of the following:
 mistake, violence,
 intimidation,
 undue influence and fraud
 but they do not make the contract void ab initio but only voidable, and the contract is
binding upon the parties unless annulled by proper court action, which when obtained
would restore the parties to the status quo ante insofar as legally and equitably
possible.
 Until a sale is perfected, it cannot be an independent source of obligation, nor serve as
a binding juridical relation. In sales particularly, the contract is perfected when the
seller obligates himself, for a price certain, to deliver and to transfer ownership of a
thing or right to the buyer, over which the latter agrees and obligates himself to pay the
price.
 Even when there is a duly executed written document purporting to be a sale, the same
cannot be considered valid when the evidence presented shows that there had been no
meeting of the minds between the supposed seller and the corresponding buyer.
1. Consent that Perfects a Sale
 Being a consensual contract, Article 1475 of the Civil Code provides that the 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.
 Article 1319 defines “consent” or “meeting of minds” as “manifested by the meeting of
the offer and the acceptance upon the thing and the cause which are to constitute the
contract.” It stresses that the offer must be certain, and the acceptance absolute — it
must be plain, unequivocal, unconditional and without variance of any sort from the
proposal; and that a qualified acceptance constitutes merely a counter-offer which must
in turn be absolutely accepted to give rise to a valid and binding contract.
 For a contract, like a contract to sell, involves a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something or to render
some service. Contracts, in general, are perfected by mere consent, which is manifested
by the meeting of the offer and the acceptance upon the thing and the cause which are
to constitute the contract. The offer must be certain and the acceptance absolute.
2. Offer Must Be “Certain”
 For the perfection of a valid sale, there must be a “meeting of minds,” which means
that an “offer certain” is met by an “absolute acceptance;” any other offer which is not
certain, no matter how absolutely it is accepted, can never give rise to a valid sale.
 In the Law on Sales, what makes an offer “certain” is when it is floated by the offeror
having within its terms the description of the subject matter that has all three requisites
of “possible thing,” licit, and determinate or at least determinable; and with a price that
has the requisites of being real, money or its equivalent (i.e., constitute valuable
consideration), and must be certain or at least ascertainable, including on the terms of
payment thereof. In other words, an offer is “certain” only where there is an offer to
sell or an offer to buy a subject matter and for a price having all the seven essential
requisites mandated by law for subject matter and price. The absence of even just one
of the essential requisites pertaining to either subject matter or price in the terms of the
offer, makes such offer “not certain,” and cannot give rise to a valid sale, even when
such offer is absolutely accepted by the offeree.
3. Acceptance Must Be “Absolute”
 in order for an acceptance to have the effect of converting an offer to sell into a
perfected contract, it must be plain and unconditional, and it will not be so, if it
involves any new proposition, for in that case, it will not be in conformity with the
offer, which is what gives rise to the birth of the contract.
 Clarifying the extent by which acceptance must be absolute,
 promises are binding when and so long as they are accepted in the exact terms in
which they are made, and that it would not be legally proper to modify the
conditions imposed by the offeror without his consent. In order that the acceptance
of a proposition or offer may be efficacious, perfect and binding upon the parties
thereto, it is necessary that such acceptance should be unequivocal and
unconditional and the acceptance and proposition shall be without any variation
 whatsoever. Any modification or deviation from the terms of the offer annuls the
latter and frees the offeror.
 “It is true that an acceptance may contain a request for certain changes in the terms of
the offer and yet be a binding acceptance. ‘So long as it is clear that the meaning of the
acceptance is positively and unequivocally to accept the offer, whether such request is
granted or not, a contract is formed.
 The Court also held that the fact that the deed of sale still had to be signed and
notarized did not mean that no contract had already been perfected since a sale of land
is valid regardless of the form it may have been entered into. The requisite form under
Article 1358 of the Civil Code requiring the deed to be in a public instrument was held
merely for greater efficacy or convenience and the failure to comply therewith did not
affect the validity and binding effect of the act between the parties.
 From the moment a party accepts without qualification another party’s offer to sell
within the period stipulated therein, a sale is perfected. And although subsequently, the
seller required a much higher price than the original offer, and the buyer negotiated on
the matter but no final agreement was reached, the first sale remained valid and binding
and is not deemed novated by the fact of negotiation thereafter done on the price.
 From the moment of acceptance of the original offer of the sellers by the buyers, there
arose a valid and binding sale since undisputedly the contractual elements of consent,
object certain and cause occurred. The subsequent bargaining for an increase price did
not result into a novation since there was no final agreement nor was there a resulting
new contract: “Since the parties failed to enter into a new contract that could have
extinguished their previously perfected contract of sale, there can be novation of the
latter.
 Outside of Statute of Frauds consideration, it considered that a “contract” of sale is
only what is embodied in the document, when the evidence showed that other elements
necessary to constitute a valid contract were agreed upon albeit not included in the
document. The better ruling would have been that the suspensive condition did not
materialize (i.e., not granting of the financing by the indicated finance company) as to
render the contract inefficacious.
a. When “Deviation” Allowed
 The Court held that there was a perfected sale that arose from the exchange of
correspondences, even if literally, there was a correction or modification contained in
the acceptance, the changes were not substantial, but merely clarificatory. Such is
corroborated also by the fact, that upon receipt of the check covering the earnest
money, Bormaheco had encashed the same.
b. Acceptance May Be Express or Implied
 Acceptance may be evidenced by some act, or conduct, communicated to the offeror,
either in a formal or an informal manner, that clearly manifest the intention or
determination to accept the offer to buy or sell.
 In Gomez v. Court of Appeals, the acceptance on the part of the buyer was manifested
through a plethora of acts, such as payment of the purchase price, declaration of the
property for taxation purposes, and payment of real estate taxes thereon, and similar
acts showing buyer’s assent to the contract.
 In Oesmer v. Paraiso Dev. Corp.,acceptance of the terms of the sale of co-ownership
rights through an agent was expressed by the co-owners signing as witnesses to the
covering deed of sale.
c. Acceptance by Letter or Telegram
 Acceptance made by letter or telegram does not bind the offeror except from the time it
came to his knowledge.134 Therefore, even if an acceptance has been mailed or sent to
the offeror, the offeror may still withdraw his offer anytime before he has knowledge
of the acceptance.
d. Acceptance Subject to Suspensive Condition
 Even when there is a meeting of minds as to the subject matter and the price, there is
deemed to be no perfected sale, if the sale is subject to suspensive condition.
 There can be no perfected sale of a subdivision lot where the award thereof was
expressly made subject to approval by higher authorities and there eventually was no
acceptance manifested by the supposed awardee.
 To the author, the more appropriate doctrine should be that when a sale is made subject
to a suspensive condition, there is already a contract upon the meeting of the minds,
since the principles of mutuality and obligatory force come into play, but because the
condition has not happened, the contract itself and its underlying obligations are not
yet demandable; and in case of non-happening of the condition, then the contract is
extinguished as though the contract has never been entered into, as the consequence of
the retroactive effect of the non-happening of a suspensive condition.
e. Acceptance in Auction Sales
 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.
 Where the goods are put up for sale by auction in lots, each lot is the subject of a
separate contract of sale.
 A right to bid may be reserved expressly by or on behalf of the seller. Where notice has
not been given that the sale by auction is subject to a right to bid on behalf of the seller,
it shall be unlawful for the seller to bid himself or to employ or induce any person to
bid at such sale on his behalf. Also, it shall be unlawful for the auctioneer to employ or
induce any person to bid at such sale on his behalf or the seller, or knowingly to take
any bid from the seller or any person employed by him.
 The owner of the property sold at auction may provide the terms under which the
auction will proceed and the same are binding upon all bidders, whether they knew of
such conditions or not.
4. Earnest Money

a. Function of Earnest Money
 Under Article 1482 of the Civil Code, whenever earnest money is given in a sale, it
shall be considered as part of the price and as proof of the perfection of the contract.
The rule is “no more than a disputable presumption” and prevails only “in the absence
of contrary or rebuttal evidence.”
 Also, the presumption is founded upon the fact that there must first be a valid sale.
Thus, it was held that it is not the giving of earnest money, but the proof of the
concurrence of all the essential elements of the sale which establishes the existence of
a perfected sale.
 Held: that the presumption under Article 1482 does not apply when earnest money is
given in a contract to sell.
 Held: that even when the sale is subject to a condition, the acceptance of the earnest
money would prove that the sale is conditionally consummated or partly executed
subject to the fulfillment of the condition, the nonfulfillment of which would be a
negative resolutory condition.
 On the other hand, held: the receipt of “earnest money” could not lead to the
conclusion that there was a valid and binding sale because of documentary evidence
showing that the parties entered into a contract to sell, which is akin to a conditional
sale where the efficacy or obligatory force of the vendor’s obligation to transfer title is
subordinated to the happening of a future and uncertain event, so that if the suspensive
condition does not take place, the parties would stand as if the conditional obligation
had never existed. The Court treated the initial deposit given by the buyer to the sell
“not strictly as earnest money, but as part of the consideration to [seller’s] promise to
reserve the subject property for the [buyer].”
b. Varying Treatments of Earnest Money
 The concept of “earnest money” given under Article 1482 of the Civil Code, is the
preferred concept under the law, but nothing prevents the parties to the sale to treat
earnest money differently.
 When the amount is given only as a guarantee that the buyer would not back out of the
sale, then what was given is not earnest money as defined under Article 1482 of the
Civil Code, especially when at the time the amount is given, the final terms of the
purchase had not been agreed upon. The same is also true when earnest money is given
under the terms of a contract to sell, in which case the provisions of Article 1482
would also be inapplicable.
c. Distinguishing Earnest Money and Option Money
 Adelfa Properties, Inc. v. Court of Appeals, enumerates the distinctions between
earnest money and option money, viz.:
1. Earnest money is part of the purchase price, while option money is the money
given as a distinct consideration for an option contract;
2. Earnest money is given only where there is already a sale, while option money
applies to a sale not yet perfected; and
3. When earnest money is given, the buyer is bound to pay the balance, while when
the would-be buyer gives option money, he is not required to buy, but may even
forfeit it depending on the terms of the option.
4. Effect of Rescission on Earnest Money Received
 In the absence of a specific stipulation, the seller of real estate cannot keep the earnest
money received to answer for the damages sustained in the event the sale fails due to
the fault of the prospective buyer.
 Under Article 1482 of the Civil Code, whenever earnest money is given in a sale, it
shall be considered as part of the purchase price and as proof of the perfection of the
contract; consequently, amounts received as part of the downpayment and to be
credited to the payment of the total purchase price could not be forfeited when the
buyer should fail to pay the balance of the price, especially in the absence of a clear
and express agreement thereon. When the seller seeks to rescind the sale, under Article
1385 of the Civil Code, such rescission creates the obligation to return the things
which were the object of the contract together with their fruits and interest.
5. Place of Perfection
 Generally, the sale’s place of perfection is where there is a meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract.1 In case
of acceptance through letter or telegram, it is presumed that the contract was entered
into in the place where the offer was made.
6. Expenses of Execution and Registration
 In general, the expenses for the execution and registration of the sale shall be borne by
the seller, unless there is a stipulation to the contrary. In the case of goods, unless
otherwise agreed, the expenses of, and incidental to, putting the goods into a
deliverable state must be borne by the seller. The duty to withhold taxes due on the sale
is imposed on the seller.
7. Performance Should Not Affect Perfection
 Since sale is a consensual contract, then the ability of the parties to perform the
contract (after perfection) does not affect the perfection of the contract, which occurs
when the minds of the parties have met as to the subject matter, price and terms of
payment.
 Where the seller quoted to the buyer the items offered for sale, by item number,
quantity, part number, description and unit price and total price, and the buyer had sent
in reply a purchase order, there was already a perfected sale, even when the required
letter of credit had not been opened by the buyer, thus —
 This omission, however, does not prevent the perfection of the contract between the
parties, for the opening of a letter of credit is not to be deemed a suspensive
condition. The facts herein do not show that the petitioner reserved title to the
goods until private respondent had opened a letter of credit.
 Petitioner, in the course of its dealings with private respondent, did not incorporate
any provision declaring their contract of sale without effect until after the
fulfillment of the act of opening a letter of credit. The opening of a letter of credit
in favor of a vendor is only a mode of payment. It is not among the essential
requirements of a contract of sale enumerated in Article[s] 1305 and 1474 of the
Civil Code, the absence of any of which will prevent the perfection of the contract
from taking place.
  Non-payment of the price does not render void nor reverse the effects of the
perfection of the contract of sale, thus — . . . Devoid of any stipulation that  In other words, Article 1483 stresses that sale being a consensual contract, no form is
“ownership in the thing shall not pass to the purchaser until he has fully paid the really required for its validity.
price” [citing Art. 1478, New Civil Code], ownership in the thing shall pass from
the vendor to the vendee upon actual or constructive delivery of the thing sold even  Held: that the sale of land under private instrument is valid, and that the sale would be
if the purchase price has not yet been fully paid. The failure of the buyer to make consummated and title transferred upon delivery of the land to the buyer.
good the price does not, in law, cause the ownership to revest to the seller unless
 Held: Sale over land was not registered does not affect its validity, being consensual in
the bilateral contract of sale is first rescinded or resolved pursuant to Article 1191
nature, it is binding between the parties, thus: “Formalities intended for greater
of the New Civil Code. Non-payment only creates a right to demand the fulfillment
efficacy or convenience or to bind third persons, if not done, would not adversely
of the obligation or to rescind the contract.
affect the validity or enforceability of the contract between the contracting parties
 However, the Court on other occasions has taken the position that when the seller is no themselves.”
longer the owner of the land sold at the time of sale, the contract is void, in spite of the
a. Requirement for Public Instrument for Immovables under Article 1358
fact that Articles 1402 and 1459 of the Civil Code recognize that a sale is valid even
 In contrast, Article 1358 of the Civil Code provides that “[a]cts and contracts which
the subject matter is not owned by the seller at the time of perfection, provided the
have for their object the creation, transmission, modification or extinguishment of real
seller has a right to transfer ownership at the time of delivery.
rights over immovable property” must appear in a public document; however, it
 Although Articles 1402 and 1459 of the Civil Code recognize that the seller need not specifically provides that “sales of real property or an interest therein are governed by
be the owner of the subject matter at the time of perfection, it nevertheless considered a Articles 1403, No. 2, and 1405.”
situation where the seller is not the owner both at the time of perfection and delivery of
 The same article also provides that all other contracts not enumerated therein where the
the subject matter as to be similar to item number 5 of Article 1409 of the Civil Code
amount involved exceeds 5500.00 must appear in writing, even a private one, “[b]ut
as to “contemplate an impossible service,” which prevents the seller from complying
sales of goods, chattels or things in action are governed by Articles 1403, No. 2 and
with his obligation under Art. 1459 to transfer ownership, and therefore would render
1405.”
the contract “inoperative — and by the same analogy, void.”
 Despite the seemingly mandatory provisions of Article 1358, Dalion v. Court of
 As stated by the author elsewhere in this book, the comparison to “impossible service”
Appeals, held that the provisions thereof on the necessity of public document are for
is misplaced because the obligations created under a valid sale are real obligations “to
purposes of convenience, not for validity or enforceability. Thus, even documents
give” and not personal obligations or service.
enumerated under Article 1358 which are not found in a public instrument are still
valid and enforceable, and that the article merely grants a cause of action to the party
to the contract in a suit to sue to compel the other party to have the document covering
the contract, acknowledged before a notary public.

 Both Articles 1357 and 1406 of the Civil Code refer to Article 1358, and provide that
when a contract is enforceable under the Statute of Frauds, and a public document is
 FORM OF SALES necessary for its registration in the Registry of Deeds, the parties may avail themselves
 Rules on forms, and of validity and enforceability of contracts of sale, are strictly kept
of the right and remedy to compel the other party to observe such form, and such
within the contractual relationship of the seller and buyer pursuant to the characteristic
remedy may be exercised simultaneously with the action upon the contract.
of relativity of every contract, and do not necessarily apply to third parties whose
rights may be affected adversely by the terms of a sale.  Held: that the fact that the deed of sale still has to be signed and notarized did not mean
that no contract has already been perfected — the requisite form under Article 1358 is
 In addition, except for Statute of Frauds which govern enforceability (i.e.,
merely for greater efficacy or convenience and the failure to comply therewith does not
performance), rules relating to form and validity pertain more to the perfection stage of
affect the validity and binding effect of the act between the parties. But when it comes
a sale, and would not necessarily be binding doctrines when it comes to the
to third parties, an unregistered deed of sale of a condominium unit has no binding
performance stage of a sale.
effect with respect to third persons who have no knowledge of it.
1. Form Not Generally Important for Validity of Sale
 That a sale of a piece of land appearing in a private deed cannot be considered binding
 Article 1483 provides that, subject to the provisions of the Statute of Frauds, “a
on third persons if it is not embodied in a public instrument and recorded in the
contract of sale may be made in writing, or by word of mouth, or partly in writing and
Registry of Deeds.
partly by word of mouth, or may be inferred from the conduct of the parties.”

b. Function of Deed of Sale
 The deed of sale operates as a formal or symbolic delivery of the property sold and
authorizes the buyer to use the document as proof of ownership. The ability to cover all
forms of sale, whether the subject matter is tangible or intangible, makes the execution
of a public document one of the highest form of constructive delivery in the Law on
Sales.
 To make it a public document, a deed of sale must be properly subscribed and
acknowledged before a notary public; and when so acknowledged, a deed of sale
enjoys the presumption of regularity and due execution.
 Consequently, a “Deed of Absolute Sale” that is a public document has in its favor the
presumption of regularity, and to contradict the same, there must be evidence that is
clear, convincing and more than merely preponderant; otherwise, the document should
be upheld. In addition, a notarized Deed of Absolute Sale carries the evidentiary
weight conferred upon it with respect to its execution. Likewise, between bare
allegations and the notarized deed of absolute sale, the latter, which is a public
documents, prevails for being prima facie evidence.
 Held: that notarization of the document does not guarantee its validity nor those of its
contents, because it is not the function of the notary public to validate an instrument
that was never intended by the parties to have any binding legal effect, and neither is
the notarization of a document conclusive of the nature of the transaction conferred by
the said document, nor is it conclusive of the true agreement of the parties thereto.
 The execution and notarization of a deed of sale, though a form of constructive
delivery, is not conclusive presumption of delivery of possession. On the other hand,
the buyer’s immediate taking of possession and occupation of the property subject
matter of the contract corroborates the truthfulness and authenticity of the deed of sale;
conversely, the seller’s continued possession of the property makes dubious the sale
between the parties.
 On the other hand, when a deed of sale is merely subscribed and sworn to by way of
jurat (as contrasted from a notarial acknowledgment), it would not be a public
document because it was invalidly notarized; it remains a private document, subject to
the requirements of proof under Section 20, Rule 132 of the Rules of Court, as to its
due execution and authenticity.
 Held: even if the Deeds of Sale were notarized by one who was not a notary public, it
did not affect the validity thereof nor the contents therein, and merely converted them
into private documents, which remained valid contracts of sale between the parties,
since sale is a consensual contract and is perfected by mere consent.
 Where the signature of the sellers were not affixed on their names but actually were
found in the acknowledgment of the notarized Deed of Absolute Sale, the Court held
that the deed was not entitled to full faith and credit considering that the notary public
who is designated by law to certify to the due execution of deeds, i.e., instruments
affecting title to real property, did not observe utmost care in the performance of his
duty and took for granted the solemn duties appertaining to his office, contrary to the
requirements under Section 1 of Public Act No. 2103 which requires that the notary
public shall certify that the person acknowledging the instrument or document is
known to him and that he is the same person who executed it, and acknowledged that
the same is his free act and deed. In this case, the notary public cannot acknowledge an
inexistent contract for want of the signatures of the contracting parties.
 The Court upheld the Contract to Sell, which explicitly provided for additional terms
and conditions upon which the lot awardees are bound: “Although unsigned, the
Contract to Sell . . . constitutes the law between the contracting parties. After all, under
the law there exists a binding contract between the parties whose minds have met on a
certain matter notwithstanding that they did not affix their signatures to its written
form.”
 The Court held that substantial variance in the terms between the Contract to Sell and
the concomitant Deed of Absolute Sale, did not void the transaction between the
parties “for it is truism that the execution of the Deed of Absolute Sale effectively
rendered the previous Contract to Sell ineffective and cancelled,” through the process
of novation.
2. When Form of Sale Affects Its Validity
 The general rule therefore is that form is not important for the validity of a sale, except
in the following instances:
a. The power to sell a piece of land or interest therein must be in writing, otherwise,
the sale thereof by the agent (even when the sale itself is in writing) would be
void;
b. Sale of large cattle must be in writing, otherwise the sale would be void; and no
sale of large cattle shall be valid unless the sale is registered with the municipal
treasurer who shall issue a certifi cate of transfer; and
c. Sale of land by “non-muslim hill tribe cultural minorities all throughout the
Philippines” is void if not approved by the National Commission on
Indigenous Peoples (NCIP), which took over the previous requisite of approval by
the Provincial Governor under Section 145 of Administrative Code of Mindanao
and Sulu.
 the authority of an agent to execute a contract for the sale of real estate must be
conferred in writing and must give him specific authority; and that the express mandate
required by law to enable an appointee of an agency couched in general terms to sell
must be one that expressly mentions a sale or that includes a sale as a necessary
ingredient of the act mentioned; and that the power granted to an agent to institute a
suit and to appear at pre-trial and enter into any stipulation of facts and/or compromise
agreement does not include the authority to sell the land by way of compromise, and
any sale effected under such authority is void.
 Article 1874 of the Civil Code requires for the validity of a sale involving land that the
agent should have an authorization in writing, without which the resulting sale entered
into in behalf of the principle would be void.
 When a son enters into an oral sale covering a real property registered in the name of
his father, such sale would be void under Article 1874 of the Civil Code, which
requires that when the sale of a piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be void.
 When the sale by a corporation involves a piece of land, the authority of the individual
acting as agent must be in writing, otherwise, the sale is void and cannot be saved
under principles of estoppel and apparent authority. Even the receipt by the supposed
agent of part of the purchase price does not validate the void sale.
 It should also be noted that just because the authority of the agent to sell a parcel of
land is in writing, does not mean that the actual sale would therefore be exempt from
the requirements of the Statute of Frauds. Thus, the Court held that a special power of
attorney authorizing the agent to execute a sale in their favor is not the memorandum
required under Article 1403 of the Civil Code to take the sale out of the provisions of
the Statute of Frauds because it does not contain the essential elements of the purported
contract, and more tellingly, does not even refer to any agreement for the sale of the
property.
 When the Contract to Sell was signed by the co-owners themselves as witnesses, then
the written authority mandated under Article 1874 was no longer required because their
signature was equivalent to the co-owner-principals selling the property directly and in
their own right.
3. STATUTE OF FRAUDS: WHEN FORM IS IMPORTANT FOR
ENFORCEABILITY
a. Nature and Purpose of Statute of Frauds
 Article 1403(2) of the Civil Code.
 The term “Statute of Frauds” is descriptive of the statutes which require certain classes
of contracts, such as agreements for the sale of real property, to be in writing, the
purpose being to prevent fraud and perjury in the enforcement of obligations
depending for their evidence on the unassisted memory of witnesses by requiring
certain enumerated contracts and transactions to be evidenced by a writing signed by
the party to be charged. The written note or memorandum, as contemplated by Article
1403 of the Civil Code, should embody the essentials of the contract.
 The purpose of the Statute is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence upon the unassisted memory of witnesses.
 Since the rules under the Statute of Frauds pertain not to perfection, but to
enforceability and proof, then they operate only when there is an underlying contract
that is validly perfected.
 “[t]he application of the Statute of Frauds presupposes the existence of a perfected
contract.”
b. Sales Coverage in Statute of Frauds
 Insofar as applicable to sales, Article 1403(2) of the Civil Code provides that the
following agreements shall be unenforceable by action, “unless the same, or some note
or memorandum thereof, be in writing, and subscribed by the party charged, or by his
agent:”
1. A sale agreement which by its terms is not to be performed within a year from the
making thereof;
2. An agreement for the sale of goods, chattels or things in action, at a price not less than
5500.00; and
3. sale of real property or of an interest therein. In any of the above transactions, evidence
of the agreement cannot be received without the writing, or a secondary evidence of its
contents.
c. Exceptions to Coverage of Statute in Sales Contracts
 Although a sale transaction may fall under any of the foregoing covered transactions
under the Statute of Frauds, the following sales would still not be covered and would
be enforceable:
1. When there is a note or memorandum thereof in writing, and subscribed by the
party charged or his agent;
2. When there has been partial consummation of the sale;
3. When there has been a failure to object to the presentation of evidence aliunde as
to the existence of a contract; and
4. When sales are effected through electronic commerce.
d. Nature of Memorandum
 Article 1403 of the Civil Code clearly states the nature of the memorandum that would
take the transaction out of the coverage of the Statute of Frauds against proof by oral
evidence: it must be in writing and subscribed by the party charged. The party charged
of course would either be the seller or buyer against whom the sale is sought to be
enforced.
 Sufficient memorandum may be contained in two or more documents.
 Various correspondences when taken together would constitute sufficient memorandum
— since they include the names of the parties, the terms and conditions of the contract,
the price and a description of the property as the object of the contract.
 For the memorandum to take the sale transaction out of the coverage of the Statute of
Frauds, it must contain “all the essential terms of the contract” of sale.
 Held: it is enough that “the total price or consideration is mentioned in some note or
memorandum and there is no need of any indication of the manner in which such total
price is to be paid;” that the manner by which the price is to be paid has to be found in
the or memorandum, thus — ... In the reality of the economic world and the exacting
demands of business interest monetary in character, payment or installments or
staggered payment of the total price is entirely a different matter from cash payment,
considering the unpredictable trends in the sudden fluctuation of the rate of interest. In
other words, it is indisputable that the value of money varies from day to day, hence
the indispensability of providing in any sale of the terms of payment when not
expressly or impliedly intended to be in cash.

 Held: in any sale of real property on installment, the Statute of Frauds read together
with the perfection requirements of Article 1475 of the Civil Code must be understood
and applied in the sense that the idea of payment on installments must be in the
requisite of a note or memorandum therein contemplated.”
 Held: the sale of real property on installments even when the receipt or memorandum
evidencing the same does not provide for the stated installments, when there has
already been partial payment, the Statute of Frauds is not applicable because it only
applies to executory and not to completed, executed, or partially executed contracts.
 The Court agreed with the reasoning of the Court of Appeals that when in the series of
exhibits there is a patent absence of any deed of sale categorically conveying the
subject property and was not subscribed by the party charged, it did not constitute the
memoranda required by law, thus —
 To consider them sufficient compliance with the Statute of Frauds is to betray the
avowed purpose of the law to prevent fraud and perjury in the enforcement of the
obligations. ... In adherence to the provisions of the Statute of Frauds, the
examination and evaluation of the notes or memoranda adduced by the petitioner
was confined and limited to within the four corners of the documents.
 To go beyond what appears on the face of the documents constituting the notes or
memoranda, stretching their import beyond what is written in black and white,
would certainly be uncalled for, if not violative of the Statute of Frauds and
opening the doors to fraud, the very evil sought to be avoided by the statute.
 In fine, considering that the documents adduced by the petitioner do not embody
the essentials of the contract of sale aside from not having been subscribed by the
party charged or its agent, the transaction involved definitely falls within the ambit
of the Statute of Frauds. In addition, the Court found that the exhibits failed to
establish the perfection of the sale, and therefore oral testimony could not take their
place without violating the parol evidence rule.
 It held that it was irregular for the trial court to have admitted in evidence
testimony to prove the existence of a sale of a real property between the parties
despite the persistent objection made by alleged seller’s counsel as early as the first
scheduled hearing.
e. Partial Performance
 Partial performance of the sale would take the same outside the coverage of the Statute
of Frauds. When it comes to sale of goods, chattels, or things in action, Article 1403 of
the Civil Code specifically states that the Statute of Frauds shall not apply when “the
buyer accept[s] and receive[s] a part of such goods and chattels, or the evidence, or
some of them, of such things in action, or pay at the time some part of the purchase
money.”
 Although Article 1403 does not state the same principle applicable to sale of real
property or interest therein, the doctrine of partial performance should also apply to
such contracts, especially when Article 1405 specifically states that contracts covered
by the Statute of Frauds “are ratifi ed . . . by acceptance of benefits under them.”
 Held: delivery of the deed to the agent of the buyer, with no intention to part with the
title until the purchase price is paid, does not constitute partial performance and does
not take the case out of the Statute of Frauds.
 Held that the partial execution of a sale over real property takes the transaction out of
the provisions of the Statute of Frauds, and consequently even when not complete in
form, so long as the essential requisites of consent of the contracting parties, object and
cause of the obligation concur and they were clearly established to be present (even by
parol evidence), the sale is valid and binding.
 The Court reiterated the principle that the Statute of Frauds applies only to executory
contracts and not to contracts either partially or totally performed. It held that where
one party has performed his obligation, oral evidence will be admitted to prove the
agreement; and that in addition, a contract that violates the Statute of Frauds is ratified
by the acceptance of benefits under the contract, such as the acceptance of the purchase
price and using the proceeds to pay outstanding loans.
 Court held that “the admission by the petitioner that she had accepted payments under
the oral contract of sale took the case out of the scope of the Statute of Frauds . . .
[rendering] it valid and enforceable.
f. Effect of Partial Execution on Third Parties
 The doctrine of partial execution when covering sale of real properties cannot be
applied to third parties, who are granted legal remedies against the contract. The Court
held that since the enactment of the Statute of Frauds — . . .
 A contract of sale of realty cannot be proven by means of witnesses, but must
necessarily be evidenced by a written instrument, duly subscribed by the party
charged, or by his agent, or by secondary evidence of the contents of such
document. No other evidence, therefore, can be received except the documentary
evidence referred to, in so far as regards such contracts, and these are valueless as
evidence unless they are drawn up in writing in the manner aforesaid.
 And this was especially so when the claimants-alleged-buyers were not even in
possession of the subject realty.
 Formal requirements are, therefore, for the benefit of third parties,” but as to the
immediate parties to the sale, non-compliance therewith does not adversely affect the
validity of the contract nor the contractual rights and obligations of the parties
thereunder.
 Sale of land once consummated, is valid regardless of the form it may have been
entered into; for nowhere does the law or jurisprudence prescribe that the sale be put in
writing before such contract can validly cede or transmit rights over a certain real
property between the parties themselves.
 The Court however held that in the event that a third party disputes the ownership of
the property, the person against whom that claim is brought cannot present any proof
 of such sale and hence has no means to enforce the contract. Thus, the Statute of
Frauds was precisely devised to protect the parties in a sale of real property so that no
such contract is enforceable unless certain requisites, for purpose of proof, are met.
 The Court in Claudel, after premising that the “rule of thumb is that a sale of land,
once consummated, is valid regardless of the form it may have been entered into,” held
that “in the event that a third party, as in this case, disputes the ownership of the
property, the person against whom that claim is brought cannot present any proof of
such sale and hence has no means to enforce the contract.”
 In reaching such conclusion, the Court quoted directly Article 1403, which provides
that only a note or memorandum can take the sale of real property out of the provisions
of the Statute of Frauds. It will be recalled that nothing in the subparagraph pertaining
to the sale of real property contains any provisions on partial performance, unlike the
subparagraph pertaining to sale of movables. This confirms the variance in principles
involving movables and immovables, and seemingly recognized under Article 1403
which treats partial execution as applicable only to goods.
 Under Article 559 of the Civil Code “possession of movable property acquired in good
faith is equivalent to a title.” No similar provisions apply to immovables.
Consequently, when an alleged buyer has been given possession of a movables, even
third parties would be bound to recognized and expect that he must be the proper
owner of the movable. In the case of immovables, specially under the Torrens system,
recording of the sale or its being evidenced by a written instrument are usually the
accepted means of informing the public of the sale or disposition of the immovable.
 The Court held that reliance on testimony of witnesses as secondary evidence to prove
a sale, will not prosper against counter-evidence disputing such sale, because a sale
must necessarily be evidenced by a written instrument when it involves third parties.
 A contract of sale is perfected at the moment there is a meeting of the minds upon the
thing which is the object of the contract and upon the price. Being consensual, a
contract of sale has the force of law between the contracting parties and they are
expected to abide in good faith with their respective contractual commitments.
 Article 1358 of the Civil Code, which requires certain contracts to be embodied in
a public instrument, is only for convenience, and registration of the instrument is
needed only to adversely affect third parties. Formal requirements are, therefore,
for the purpose of binding or informing third parties. Non-compliance with formal
requirements does not adversely affect the validity of the contract or the contractual
rights and obligations of the parties.
 Consequently, the wrong designation of the lot in the Deed of Absolute Sale even
when notarized will not diminish the right of the buyer to the title and possession
of the actual subject matter of their meeting of minds with the seller.
 However, under the Torrens system, the execution of a public instrument on
dealings with registered land is not even sufficient by itself to bind third parties,
since registration is the operative act. The more pertinent, and thereby prevailing,
doctrine is what the Court held in Secuya v. Vda. De Selma: that while the sale of
land appearing in a private deed is binding between the parties, it cannot be
considered binding on a third persons, if it is not embodied in a public instrument
and recorded in the Registry of Deeds.
g. Nature and Coverage of Partial Performance
 The Court held that it is not only partial payment of the purchase price that is the only
manner of partial performance to take the contract out of the coverage of the Statute of
Frauds. It recognized other modes which constitute partial performance, such as
possession, the making of improvements, rendition of services, payment of taxes,
relinquishment of rights, etc. It also held that although tender of payment by itself
would not be considered partial performance, but accompanied by other acts, such as
building of improvements, the same may be considered as partial performance.
 Partial performance to constitute as an exception to the Statute of Frauds must by itself
pertain to the subject matter or to the price of the purported sale, and must involve an
act or “complicity” on the party sought to be changed. These requisites are essential
because partial performance must amount to estoppel against the party sought to be
charged. This is in accordance with the provision of Article 1405 which states that
contracts covered by the Statute of Frauds “are ratified . . . by the acceptance of
benefits under them.”
h. Waiver of Provisions of Statute of Frauds
 The third ground by which a covered sale contract would be enforceable in spite of the
fact that it is not contained in a deed, or a note or memorandum, is when the party
against whom such oral contract is sought to be proved, fails to object during trial to
the presentation of oral evidence to prove the contract. This is embodied in Article
1405 of the Civil Code.
 Held: that where timely objections are made to the introduction of parol evidence to
prove a sale of real property and due exceptions are taken to the adverse rulings, such
evidence must be disregarded by the courts and the contract cannot be enforced. The
Statute of Frauds will not apply by reason of the failure of party to object to oral
testimony proving such party’s counteroffer; hence, by such utter failure to object, the
party is deemed to have waived any defects on the contract under the Statute of Frauds,
pursuant to Article 1405 of the Civil Code. Likewise, the cross-examination on the
contract is deemed a waiver of the defense of the Statute of Frauds.
i. Value of Business Forms to Prove Sale
 Business forms, e.g., order slip, delivery charge invoice and the like, which are issued
by the seller in the ordinary course of the business are not always fully accomplished
to contain all the necessary information describing in detail the whole business
transaction — more often than not they are accomplished perfunctorily without proper
regard to any legal repercussion for such neglect such that despite their being often
incomplete, said business forms are commonly recognized in ordinary commercial
transactions as valid between the parties and at the very least they serve as an
acknowledgment that a business transaction has in fact transpired.
 By themselves, order slip and charge invoice may be inadequate to establish the case
for the vendor but their probative weight must be evaluated not in isolation but in
conjunction with the other evidence adduced such as testimony of a witness and the
demand letter.
4. Sales Effected as Electronic Commerce
a. Legal Recognition of Electronic Data Message
 Under Section 6 of the Electronic Commerce Act, information shall not be denied
validity or enforceability solely on the ground that it is in the form of an electronic data
message purporting to give rise to such legal effect, or that it is merely incorporated by
reference in that electronic data message.
 The Act defines an “electronic document” as that referring to information or the
representation of information, data, figures, symbols or other modes of written
expression, described or however represented, by which a fact may be proved or
affirmed, which is received, recorded, transmitted, stored, processed, retrieved or
produced electronically.
 It defines an “electronic signature” as that referring to any distinctive mark,
characteristic and/or sound in electronic form, representing the identity of a person and
attached to or logically associated with the electronic data message or electronic
document or any methodology or procedures employed or adopted by a person and
executed or adopted by such person with the intention of authenticating or approving
an electronic data message or electronic document.
b.Legal Recognition of Electronic Documents
 Under Section 7 of the Act, electronic documents shall have the legal effect, validity or
enforceability as any other document or legal writing, and —
1. Where the law requires a document to be in writing, that requirement is met by an
electronic document if the said electronic document maintains its integrity and
reliability and can be authenticated so as to be usable for subsequent reference, in that
—
a. The electronic document has remained complete and unaltered, apart from the
addition of any endorsement and any authorized change, or any change which
arises in the normal course of communication, storage and display; and
b. (The electronic document is reliable in the light of the purpose for which it was
generated and in the light of all relevant circumstances.
2. Paragraph (a) applies whether the requirement therein is in the form of an obligation
or whether the law simply provides consequences for the document not being
presented or retained in its original form.
3. Where the law requires that a document be presented or retained in its original form,
that requirement is met by an electronic document if —
a. There exists a reliable assurance as to the integrity of the document from the time
when it was first generated in its final form; and
b. That document is capable of being displayed to the person to whom it is to be
presented.
 It is expressly provided, that no provision of the Act shall apply to vary any and all
requirements of existing laws on formalities required in the execution of documents for
their validity.
 For evidentiary purposes, an electronic document shall be the functional equivalent of
a written document under existing laws. The Act does not modify any statutory rule
relating to the admissibility of electronic data messages or electronic documents,
except the rules relating to authentication and best evidence.
 Under Section 12 of the Act, in any legal proceedings, nothing in the application of the
rules on evidence shall deny the admissibility of an electronic data message or
electronic document in evidence —
a. On the sole ground that it is in electronic form; or
b. On the ground that it is not in the standard written form, and the electronic data
message or electronic document meeting, and complying with the requirements
under Section 6 or 7 hereof shall be the best evidence of the agreement and
transaction contained therein.
 In assessing the evidential weight of an electronic data message or electronic
document, the reliability of the manner in which it was generated, stored or
communicated, the reliability of the manner in which its originator was identified, and
other relevant factors shall be given due regard.
 Under Section 16(1) of the Act, except as otherwise agreed by the parties, an offer, the
acceptance of an offer and such other elements required under existing laws for the
formation of contracts may be expressed in, demonstrated and proved by means of
electronic data messages or electronic documents and no contract shall be denied
validity or enforceability on the sole ground that it is in the form of an electronic data
message or electronic documents, or that any or all of the elements required under
existing laws for the formation of the contracts is expressed, demonstrated and proved
by means of electronic data messages or electronic documents.
c. Legal Recognition of Electronic Signatures
 Under Section 8 of the Act, an electronic signature on the electronic document shall be
equivalent to the signature of a person on a written document if the signature is an
electronic signature and proved by showing that a prescribed procedure, not alterable
by the parties interested in the electronic document, existed under which —
1. A method is used to identify the party sought to be bound and to indicate said
party’s access to the electronic document necessary for his consent or approval
through the electronic signature;
2. Said method is reliable and appropriate for the purpose for which the electronic
document was generated or communicated, in the light of all circumstances,
including any relevant agreement;
3. It is necessary for the party sought to be bound, in order to proceed further with
the transaction, to have executed or provided the electronic signature; and
4. The other party is authorized and enabled to verify the electronic signature and to
make the decision to proceed with the transaction authenticated by the same.
 d. Presumption Relating to Electronic Signatures
 Section 9 of the Act specifically provides that in any proceedings involving an
electronic signature, it shall be presumed that:
1. The electronic signature is the signature of the person to whom it correlates; and
2. The electronic signature was affixed by that person with the intention of signing
or approving the electronic document unless the person relying on the
electronically signed electronic document knows or has notice of defects in or
unreliability of the signature or reliance on the electronic signature is not
reasonable under the circumstances.
e. Consummation of Electronic Transactions
 Under Section 16(2) of the Act, electronic transactions made through networking
among banks, or linkages thereof with other entities or networks, and vice versa, shall
be deemed consummated upon the actual dispensing of cash or the debit of one
account and the corresponding credit to another, whether such transaction is initiated
by the depositor or by an authorized collecting party: Provided, That the obligation of
one bank, entity, or person similarly situated to another arising therefrom shall be
considered absolute and shall not be subjected to the process of preference of credits.
f. Electronic Commerce in Carriage of Goods
 The Electronic Commerce Acts is expressly applicable to any action in connection
with, or in pursuance of, a contract of carriage of goods, including but not limited to:
1. Furnishing the marks, number, quantity or weight of goods; stating or declaring
the nature or value of goods; issuing a receipt for goods; and confirming that
goods have been loaded;
2. Notifying a person of terms and conditions of the contract; and giving instructions
to a carrier;
3. Claiming delivery of goods; authorizing release of goods; and giving notice of
loss of, or damage to goods;
4. Giving any other notice or statement in connection with the performance of the
contract;
5. Undertaking to deliver goods to a named person or a person authorized to claim
delivery;
6. Granting acquiring, renouncing, surrendering, transferring or negotiating rights in
goods;
7. Acquiring or transferring rights and obligations under the contract.
g. Rule on Transport Documents
 The Act provides for the following rules when it covers the transport documents for
carriage of goods effected through electronic commerce, thus:
1. Subject to paragraph (c) below, where the law requires that any action referred be
carried out in writing or by using a paper document, that requirement is met if the
action is carried out by using one or more electronic data messages or electronic
documents.
2. Paragraph (a) above applies whether the requirement therein is in the form of an
obligation or whether the law simply provides consequences for failing either to
carry out the action in writing or to use a paper document.
3. If a right is to be granted to, or an obligation is to be acquired by, one person and
no other person, and if the law requires that, in order to effect this, the right or
obligation must be conveyed to that person by the transfer, or use of, a paper
document, that requirement is met if the right or obligation is conveyed by using
one or more electronic data messages or electronic documents: Provided, That a
reliable method is used to render such electronic data messages or electronic
document unique.
 For the purposes of paragraph (c) immediately above, the standard of reliability
required shall be assessed in the light of the purpose for which the right or obligation
was conveyed and in the light of all the circumstances, including any relevant
agreement.
 Where one or more electronic data messages or electronic documents are used to effect
any action, no paper document used to effect any such action is valid unless the use of
electronic data message or electronic document has been terminated and replaced by
the use of paper documents. A paper document issued in these circumstances shall
contain a statement of such termination. The replacement of electronic data messages
or electronic documents by paper documents shall not affect the rights or obligations of
the parties involved.
 If a rule of law is compulsorily applicable to a contract of carriage of goods which is
in, or is evidenced by, a paper document, that rule shall not be inapplicable to such a
contract of carriage of goods which is evidenced by one or more electronic data
messages or electronic documents by reason of the fact that the contract is evidenced
by such electronic data message or electronic documents instead of by a paper
document.
5. Form in Equitable Mortgage Claims
 The Supreme Court held that the Statute of Frauds does not stand in the way of treating
an absolute deed as a mortgage, when such was the intention of the parties, although
the agreement for redemption or defeasance rests wholly in parol, or is proved by parol
evidence: “The courts will not be used as a shield for fraud, or as a means for
perpetrating fraud.”
 Held: that a contract should be construed as a mortgage or a loan instead of a pacto de
retro sale when its terms are ambiguous or the circumstances surrounding its execution
or its performance are incompatible or inconsistent with a sale.
 Even when a document appears on its face to be a sale with pacto de retro, the owner
of the property may prove that the contract is really a loan with mortgage by raising as
an issue the fact that the document does not express the true intent and agreement of
the parties. In such case, parol evidence then becomes competent and admissible to
prove that the instrument was in truth given merely as a security for the repayment of a
loan.
 Equitable mortgages occupy such a hallowed position in Philippine jurisprudence such
that an equitable mortgage is not different from a real estate mortgage, and the lien
created thereby ought not to be defeated by requiring compliance with the formalities
necessary to the validity of a voluntary real estate mortgage.

6. Form in “Sales on Return or Approval”
 Held: that the conditions under Article 1502 of the Civil Code which govern the sales
on return or on approval, would have no application, unless such conditions to such
effect have been distinctly provided for in the contract between the parties to the sale.
desired or intended to produce legal effect or in any way alter the juridical situation of
the parties. ... Also in a simulated contract, the parties have no intention to be bound by
the contract.”
 The requisites for simulation are:

 The Supreme Court held that the provisions of the Uniform Sales Act and the Uniform
Commercial Code from which Article 1502 was taken, clearly requires an express
written agreement to make a sale contract either a ‘sale on return’ or a ‘sale on
approval’.
 Parol or extrinsic testimony could be not be admitted for the purpose of showing that
an invoice or bill of sale that was complete in every aspect and purporting to embody a
sale without condition or restriction constituted a contract of sale or return. If the
purchaser desired to incorporate a stipulation securing to him the right of return, he
should have done so at the time the contract was made. On the other hand, the buyer
cannot accept part and reject the rest of the goods since this falls outside the normal
intent of the parties in the ‘on approval’ situation.”
7. Right of First Refusal Must Be Contained in Written Contract
 Held: when the right of first refusal is not stipulated in the lease contract, it cannot be
exercised, and verbal grants of such right cannot be enforceable since the right of fi rst
refusal must be clearly embodied in a written contract. The ruling therefore constituted
in effect an addition to the contracts covered by the Statute of Frauds.
1. An outward declaration of will different from the will of the parties;
2. The false appearance must have been intended by mutual agreement; and
3. The purpose is to deceive third persons.
 However, R.F. Navarro & Co. v. Vailoces, warned that the bare assertion, without
evidence presented to bolster the clause that the signature appearing on the Deeds of
Sale is a forgery is not enough, since forgery is never presumed, and must be proven
by clear, positive and convincing evidence.
 When a sale is void, the right to set up its nullity or nonexistence is available to third
persons whose interests are directly affected thereby; and the action for the declaration
of the contract’s nullity is imprescriptible. Likewise, the remedy of accion pauliana is
available when the subject matter is a conveyance, otherwise valid, undertaken in fraud
of creditors.

8. WHEN SALE COMPLETELY SIMULATED

 When a sale is absolutely simulated, then it is completely void and non-existent.

 Held that when the parties enter into a sale to which they did not intend to be legally
bound, such is void and is not susceptible of ratification, produces no legal effects, and
does not convey property rights nor in any way alter the juridical situation of the
parties.

 Held: that the failure of the alleged buyers to take exclusive possession of the property
sold to them, or in the alternative, to collect rentals from the alleged vendee is contrary
to the principle of ownership and a clear badge of simulation that renders the whole
transaction void and without force and effect.

 Although the agreement to sell did not absolutely transfer ownership of the land to the
buyer, the Court held that it did not show that the agreement was simulated. The
delivery of the certificate of ownership and execution of the deed of absolute sale were
suspensive conditions, which gave rise to the corresponding obligation on the part of
the buyer to pay the last installments of the consideration. Such conditions did not
affect the perfection of the contract or prove simulation.

 Court defined “simulation” as “the declaration of a fictitious will, deliberately made by

the agreement of the parties, in order to produce, for the purposes of deception, the
appearances of a juridical act which does not exist or is different with that which was
really executed. ... Characteristic of simulation is that the apparent contract is not really