Introduction

DEFINITION OF SALE - Art. 1458

ART. 1458. By the contract of sale, one of the parties obligates himself to transfer the ownership of or to deliver a determinate
thing and the other to pay therefor the price certain in money or its equivalent.

- Sale is a contract where one party (seller or vendor) obligates himself to transfer the ownership of and to deliver a
determinate thing, while the other party (buyer or vendee) obligates himself to pay for said thing a price certain in
money or its equivalent. A contract of sale may be absolute or conditional. Sale is a contract and is, therefore, a source of
obligations. It has the force of law between the contracting parties, which should be complied with in good faith (Art.
1159)

NATURE OF THE OBLIGATIONS

1) Two Obligations of the contract of sale

a) Transfer of ownership
b) Deliver the possession, of the subject matter
2) On obligation for the buyer to pay the price

ESSENTIAL REQUISITES OF A CONTRACT OF SALE

1) Consent – manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. The parties must have legal capacity to give consent and to obligate themselves.
 Essence – conformity of the parties on the terms of the contract, the acceptance by one of the offer made by the other.

2) Subject Matter – refers to the determinate things which is the object of the contract (1460)
 May be personal, goods, property, movable property, real estate, immovable, real property.
 may be present or future
 must be licit and must be within the commerce of man (if outside the commerce of man – void)
 impossible thing cannot be the object of a contract. (if impossible thing – void)
 Civil code allows, the sale of credit, the sale of the while of certain rights, rents or products, the sale of inheritance
already acquired, and the sale of possession.
 Prohibits the sale of easements independent of the estate to which they belong and the sale of contagious animals.

3) Price / Cause or consideration – the price certain in money or its equivalent such as a check or a promissory note, which is
the consideration for the thing sold. The cost at which something is obtained, or something which one ordinarily accepts
voluntarily in exchange for something else, or the consideration given for the purchase of a thing.
i) Onerous contracts – the cause is understood to be, for each contracting party, the Prestation or promise of a thing or
service by the other.
ii) Must be real, certain and pecuniary, not fictitious; otherwise the sale is void although the transaction may be shown
to have been in reality a donation or some other contract.Must be real, certain and just. – proportional to the value
of the thing sold.
iii) The words “its equivalent” do not generally include goods or merchandise although they have their own value in
money and mean that payment need not be in money, so that there can be a sale where the thing given as token
of payment has “been assessed and evaluated and its price equivalent
iv) The presumption always is that a contract has sufficient consideration. It cannot be overthrown by a mere assertion
that the contract has no consideration. He who alleges the absence of any of the essential elements, must show its
existence by competent proof.

 CASE: Dizon v. CA 302 SCRA 288 (1999 - Sale is a consensual contract and he who alleges it must show its existence by
competent proof.—Under Article 1475 of the New Civil Code, “the contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties
may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.” Thus, the
elements of a contract of sale are consent, object, and price in money or its equivalent. It bears stressing that the
absence of any of these essential elements negates the existence of a perfected contract of sale. Sale is a consensual
contract and he who alleges it must show its existence by competent proof. There was no valid consent by the
petitioners (as co-owners of the leased premises) on the supposed sale entered into by Alice A. Dizon, as petitioners’
 alleged agent, and Overland Express Lines. The basis for agency is representation and a person dealing with an agent is
put upon inquiry and must discover upon his peril the authority of the agent. As provided in Article 1868 of the New Civil
Code, there was no showing that petitioners consented to the act of Alice A. Dizon nor authorized her to act on their
behalf with regard to her transaction with private respondent

D. STAGES OF CONTRACT OF SALE

1. Negotiation – covering the period from the time the prospective contracting parties indicate interest in the contract to the time
the contract is perfected.

2. 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 upon the price; and

3. Consummation – begins when the parties perform their respective undertakings under the contract of sale, culminating in the
extinguishment thereof.

 Absence of price (inexistent and void)

- There can be no sale without a price. It is 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 buyer to the
seller.
- If mere estimates – it lacks an essential requisite

 Non-payment of the purchase price is a resolutory condition (subject to rescission / specific performance)
- Failure to pay the price in full within a fixed period does not by itself dissolve a contract of sale in the absence of any
express agreement, that payment on time is essential.
- A stipulation providing for automatic rescission upon non-payment of the purchase price is valid.

 Contract of sale carries the correlative duty of the seller to deliver the property and the obligation of the buyer to pay the
agreed price.

Kinds of Contract of sale

1) As to presence or absence of conditions- either absolute or conditional

a) Absolute – where the sale is not subject to any condition whatsoever and the title to the property passes to the
purchases upon delivery of the thing sold.
b) Conditional – where the sale contemplates a contingency and in general. Where the contract is subject to certain
conditions, usually, in the case of the vendee the full payment of the agreed purchase price, in the case of the vendor,
the fulfillment of certain warranties or such other terms and conditions that may lawfully be stipulated. As in a contract
to sell, ownership remains with the vendor until fulfillment of the conditions.
c) Other kinds – As to the nature of the subject matter (real or personal, tangible or intangible), as to manner of payment
of the price (cash or installment), as to its validity (valid, rescissible, unenforceable, void), etc.

E. CHARACTERISTICS OF A CONTRACT OF SALE

1) Nominate and Principal – sale is a nominate contract since it has been given a particular name by law, but more
importantly, is that 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”. 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 but more
importantly, is that the parties enter into a contract of sale to achieve within its essence the objectives of the
transaction, and simply not in preparation for another contract.
2) Consensual- it 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. On the other hand, a real contracts are not perfected until delivery of the thing that is the subject
matter of the contract.
 Art. 1475. - The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the provision of the law governing the form of
contracts.

3) Bilateral and Reciprocal - The contract of sale is bilateral, because both the contracting parties are bound to fulfill
correlative obligations towards each other – the seller, to deliver ad transfer ownership of the thing sold and the buyer,
to pay the price.

 ART. 1169 – Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

1) When the obligation or the law expressly so declares; or

2) When from the nature and the circumstances of the obligation it appears that the designation of the time when
the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the
contract; or
3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

 ART. 1191. - The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Art.
1385 and 1388 and the Mortgage Law.

4) Onerous – because the thing sold is conveyed in consideration of the price and vice versa
5) Commutative- Because the thing sold is considered the equivalent of the price paid and vice versa. However, the contract
may be aleatory as in the case of the sale of a hope.

Art. 1355. – Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been
fraud, mistake or undue influence

Art. 1470. – Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent, or that
the parties really intended a donation or some other act or contract.

F. SALE IS TITLE AND NOT MODE

Sale is not a mode that transfers ownership but merely title that creates the obligation to transfer ownership and deliver
possession; delivery is the mode of transferring ownership.

Mode – Mode is the legal means by which dominion or ownership is created, transferred or destroyed.

Title – Title constitutes the legal basis by which to affect dominion or ownership.

G. SALE DISTINGUISHED FROM OTHER CONTRACTS

Donation - Arts. 725 and 1471

Donation
is an act of liberality whereby a person disposes gratuitously
of a thing or right in favor of another person, who accepts it.
Sale
By the contract of sale, one of the parties obligates himself to
transfer the ownership of or to deliver a determinate thing
and the other to pay therefor the price certain in money or its
equivalent.
 gratuitous contract onerous contract
a solemn contract, although consent is also required, must A sale is perfected by mere consent
comply with the formalities mandated by law for its validity.

ART. 725 - Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who
accepts it.

ART. 1471 - If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or some other
act or contract.

- 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.”

2. Options

- An optional contract is a privilege existing in one person for which he had paid a consideration which gives him the right to
buy, for example, certain merchandise or certain specified property, from another person, if he chooses, at any time within the
agreed period, at a fixed price. The contract of option is a separate and distinct contract from the contract which the parties may
enter into upon consummation of the option. A consideration for an optional contract is just as important as the consideration for
any other kind of contract.

- It is a contract by virtue of the terms of which the parties thereto promise and obligate themselves to enter into another
contract at a future time, upon the happening of certain event, or the fulfillment of certain conditions.

- It is a continuing offer upon sufficient consideration and so long as it remains unaccepted, it is a unilateral contract, lacking
the mutual elements of a contract; but when accepted, an executory contract arises, mutually binding upon the parties, and it
imposes no binding obligation on the person holding the option aside from the consideration for offer, but when the option is
accepted, it ceases to be an option and becomes a mutual binding agreement of sale.

Option Contract Right of First Refusal

Can stand on its own (principal contract) Cannot stand on its own (accessory
contract)
Requires a separate consideration distinct Does not require a separate consideration
from that of the contract of sale in order to
be valid
Not conditional Conditional
Not subject to specific performance since Can be subjected to specific performance
there is no perfected contract of sale yet
Dela Cavada vs Diaz, 37 Phil 982 (1918)
FACTS: This case requires the fulfillment of a contract option. Defendant-appellant Antonio Diaz granted an option
contract to Antonio Enriquez to purchase his hacienda consisting of 100 and odd hectares. But such sale was
subject to the approval and issuance of a Torrens title by the government for which Enriquez will pay Diaz the sum
of thirty thousand pesos (P30,000.00) in cash or within the period of six years beginning with the date of
purchase. Soon after the execution of said contract, defendant presented two petitions in the Court of Land
Registration for obtaining registration. Said petitions were granted, and each parcel as registered and a certificate
of title was issued for each part under the Torrens system to the defendant herein. Later, and pretending to
comply with the terms of said contract, the defendant offered to transfer to the plaintiff one of said parcels only,
which was a part of said "hacienda." The plaintiff refused to accept said certificate for a part only of said
"hacienda". The theory of the defendant is that the contract of sale of said "Hacienda de Pitogo" included only 100
hectares, more or less, of said "hacienda," and that by offering to convey to the plaintiff a portion of said
"hacienda" composed of "100 hectares, more or less," he thereby complied with the terms of the contract. The
theory of the plaintiff is that he had purchased all of said "hacienda," and that the same contained, at least, 100
hectares, more or less.

ISSUE: Whose theory is correct- defendant or the plaintiff?

RULING: The lower court sustained the contention of the plaintiff, to wit, that the sale was a sale of the "Hacienda de
Pitogo" and not a sale of a part of it, and rendered a judgment requiring the defendant to comply with the terms
of the contract by transferring to the plaintiff, by proper deeds of conveyance, all said "hacienda," or to pay in lieu
thereof the sum of P20,000 damages, together with 6 per cent interest from the date upon which said
 conveyance should have been made. The contract was not, in fact, what is generally known as a "contract of
option." It differs very essentially from a contract of option. An optional contract is a privilege existing in one
person, for which he had paid a consideration, which gives him the right to buy, for example, certain merchandise
of certain specified property, from another person, if he chooses, at any time within the agreed period, at a fixed
price. The contract of option is a separate and distinct contract from the contract which the parties may enter into
upon the consummation of the option. A consideration for an optional contract is just as important as the
consideration for any other kind of contract. If there was no consideration for the contract of option, then it
cannot be enforced any more than any other contract where no consideration exists.

The distinction is not always adequate to distinguish one from the other. Hence, the rule in Art 1467 for those cases in which the
thing given in exchange consists partly in money and partly in another thing.

In such cases, the manifest intention of the parties is paramount in determining whether it is one of barter or of sale and such
intention may be ascertained by taking into account the contemporaneous and subsequent acts of the parties. But if the intention
is that the contract shall be one of sale, then such intention must be followed even though the value of the thing given as a part
consideration is more than the amount of the money given.

The only point of difference between the 2 contracts is in the element which is present in sale but not in barter, namely: “Price
certain in money or its equivalent.”

1) It is a barter, where the value of the thing given as part of the consideration exceeds the amount of money given or its
equivalent.
2) If it is a sale, where the value of the thing given as part of the consideration equals or is less than the amount of money
given.

 ART. 1468. – If the consideration of the contract consists partly in money, and partly in another thing. The transaction
shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be
considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money or its
equivalent; otherwise, it is a sale.
 ART. 1638. – By the contract of barter or exchange. One of the parties binds himself to give one thing in consideration of
the other’s promise to give another thing.
 ART. 1641 – As to all matters not specifically provided for in this Title, barter shall be governed by the provisions of the
preceding Title relating to Sales.

Fule v. CA 286 SCRA 698 (1998)

FACTS: Gregorio Fule, a banker and a jeweller, offered to sell his parcel of land to Dr. Cruz in exchange for P40,000 and
a diamond earring owned by the latter. A deed of absolute sale was prepared by Atty. Belarmino, and on the
same day Fule went to the bank with Dichoso and Mendoza, and Dr. Cruz arrived shortly thereafter. Dr. Cruz
got the earrings from her safety deposit box and handed it to Fule who, when asked if those were alright,
nodded and took the earrings. Two hours after, Fule complained that the earrings were fake. He files a
complaint to declare the sale null and void on the ground of fraud and deceit.

ISSUE: Whether the sale should be nullified on the ground of fraud

RULING: Yes, There is fraud when, through the insidious words or machinations of one of the contracting parties, the
other is induced to enter into a contract which, without them, he would not have agreed to. The records,
however, are bare of any evidence manifesting that private respondents employed such insidious words or
machinations to entice petitioner into entering the contract of barter. Neither is there any evidence showing
that Dr. Cruz induced petitioner to sell his Tanay property or that she cajoled him to take the earrings in
exchange for said property. On the contrary, Dr. Cruz did not initially accede to petitioner’s proposal to buy the
said jewelry. Rather, it appears that it was petitioner, through his agents, who led Dr. Cruz to believe that the
Tanay property was worth exchanging for her jewelry as he represented that its value was P400,000.00 or more
than double that of the jewelry which was valued only at P160,000.00. If indeed petitioner’s property was truly
worth that much, it was certainly contrary to the nature of a businessman-banker like him to have parted with
his real estate for half its price. In short, it was in fact petitioner who resorted to machinations to convince Dr.
Cruz to exchange her jewelry for the Tanay property.

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 by their respective contractual commitments. It
is evident from the facts of the case that there was a meeting of the minds between petitioner and Dr. Cruz. As
such, they are bound by the contract unless there are reasons or circumstances that warrant its nullification.

Furthermore, petitioner was afforded the reasonable opportunity required in Article 1584 of the Civil Code
within which to examine the jewelry as he in fact accepted them when asked by Dr. Cruz if he was satisfied with
the same. By taking the jewelry outside the bank, petitioner executed an act which was more consistent with
his exercise of ownership over it. This gains credence when it is borne in mind that he himself had earlier
delivered the Tanay property to Dr. Cruz by affixing his signature to the contract of sale. That after two hours he
later claimed that the jewelry was not the one he intended in exchange for his Tanay property, could not sever
the juridical tie that now bound him and Dr. Cruz. The nature and value of the thing he had taken preclude its
return after that supervening period within which anything could have happened, not excluding the alteration
of the jewelry or its being switched with an inferior kind.

Ownership over the parcel of land and the pair of emerald-cut diamond earrings had been transferred to Dr.
Cruz and petitioner, respectively, upon the actual and constructive delivery thereof. Said contract of sale being
absolute in nature, title passed to the vendee upon delivery of the thing sold since there was no stipulation in
the contract that title to the property sold has been reserved in the seller until full payment of the price or that
the vendor has the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed
period.

4. Contract for Piece of Work - Arts. 1467, 1713 to 1715

Contract for piece of work Contract of Sale

The contractor binds himself to execute a piece of work for
the employer, in consideration of a certain price or
compensation. He is also called an independent contractor.
The contractor may either employ only his labor or skill, or
also furnish the material.
contract for the delivery at a certain price of an
article which the vendor in the ordinary course of
his business, manufactures or procures for the
general market, whether the same is on hand at
the time or not, is a contract of sale

if the goods are to be manufactured specially for the
customer and upon his special order, and not for the general
market, it is a contract for a piece work
If it accepts a job that requires the use of extraordinary or
additional equipment, or involves services not generally
performed by it, thereby contracts for a piece of work
When a person stipulates for future sale of
articles which he is habitually making, and which
at the time are not made or finished, it is
essentially a contract of sale and not a contract of
labor.
If the article ordered by the purchaser is exactly
such as the plaintiff makes and keeps on hand for
sale to anyone, and no change or modification of
it is made at defendant’s request. It is a contract
of sale, even though it may be entirely made
after, and in consequence of, the defendant’s
order for it.

Celestino v. Collector 99 Phil 841 (1956)

FACTS: Celestino Co & Company is a duly registered general co-partnership doing business under the trade name of
“Oriental Sash Factory”. From 1946 to 1951 it paid percentage taxes of 7% on the gross receipts of its sash,
door and window factory, in accordance with sec. 186 of the National Internal Revenue Code which is a tax on
the original sales of articles by manufacturer, producer or importer. However, in 1952 it began to claim only 3%
tax under Sec. 191, which is a tax on sales of services. Petitioner claims that it does not manufacture
ready-made doors, sash and windows for the public, but only upon special orders from the customers, hence, it
is not engaged in manufacturing under sec 186, but only in sales of services covered by sec 191. Having failed to
convince BIR, petitioner went to the Court of Tax Appeal where it also failed. CTA, in its decision, holds that the
“petitioner has chosen for its tradename and has offered itself to the public as a “Factory”, which means it is
out to do business, in its chosen lines on a big scale. As a general rule, sash factories receive orders for doors
and windows of special design only in particular cases but the bulk of their sales is derived from a ready-made
doors and windows of standard sizes for the average home.. Even if we were to believe petitioner’s claim that it
does not manufacture ready-made sash, doors and windows for the public and that it makes these articles only
special order of its customers, that does not make it a contractor within the purview of section 191 of the
 national Internal Revenue Code… there are no less than fifty occupations enumerated in the aforesaid
section…and after reading carefully each and every one of them, we cannot find under which the business of
manufacturing sash, doors and windows upon special order of customers fall under the category” mentioned
under Sec 191.

ISSUE: Whether the petitioner company provides special services or is engaged in manufacturing.

HELD: The important thing to remember is that Celestino Co & Company habitually makes sash, windows and doors,
as it has represented in its stationery and advertisements to the public. That it “manufactures” the same is
practically admitted by appellant itself. The fact that windows and doors are made by it only when customers
place their orders, does not alter the nature of the establishment, for it is obvious that it only accepted such
orders as called for the employment of such material-moulding, frames, panels-as it ordinarily manufactured or
was in a position habitually to manufacture. The Oriental Sash Factory does nothing more than sell the goods
that it mass-produces or habitually makes; sash, panels, mouldings, frames, cutting them to such sizes and
combining them in such forms as its customers may desire. Appellant invokes Article 1467 of the New Civil Code
to bolster its contention that in filing orders for windows and doors according to specifications, it did not sell,
but merely contracted for particular pieces of work or “merely sold its services”. In our opinion when this
Factory accepts a job that requires the use of extraordinary or additional equipment, or involves services not
generally performed by it-it thereby contracts for a piece of work — filing special orders within the meaning of
Article 1467. The orders herein exhibited were not shown to be special. They were merely orders for work —
nothing is shown to call them special requiring extraordinary service of the factory. The thought occurs to us
that if, as alleged-all the work of appellant is only to fill orders previously made, such orders should not be
called special work, but regular work. The Supreme Court affirms the assailed decision by the CTA.
Commissioner v. Engineering Equipment 65 SCRA 590 (1975)
FACTS Engineering Equipment & Supply (EES) was engaged in the business of designing and installing central
air-conditioning systems. It was assessed by the Commissioner of Internal Revenue for 30% advanced sales tax,
among other penalties pursuant to an anonymous complaint filed before the BIR. EES vehemently objected and
argued that they are contractors and not manufacturers and should be liable only for the 3% tax on sales of
services or pieces of work. The commissioner demanded upon Engineering the payment of the assessed tax and
suggested that Engineering pay P10k as compromise for Engineering’s penal liability for violation of the Tax
Code.
ISSUE W/N EES is a contractor for a piece of work thus only liable for 3% tax

HELD Contractor – a person who, in the pursuit of the independent business, undertakes to do a specific job or piece
of work for other persons, using his own means and methods without submitting himself to control as to the
petty details. True test of contractor – he renders service in the course of an independent occupation
representing the will of his employer only as to the result of his work, and not as to the means by which it is
accomplished. The SC found that EES was not a manufacturer of air-conditioning units. While it imported such
items, they were not for sale to the general public and were used as mere components for the design of the
centralized air-conditioning system, the designs and specifications of w/c are different for every client. Various
technical factors must be considered and it can be argued that no two plants are the same; all are engineered
separately and distinctly. Each project requires careful planning and meticulous layout. Such central
air-conditioning systems and their designs would not have existed were it not for the special order of the party
desiring to acquire it. EES is thus not liable for the sales tax. In comparison with Celestino case: Engineering
advertised itself as Engineering Equipment and Supply Company, Machinery Mechanical Supplies, Engineers,
Contractors while Oriental used “Oriental Sash Factory”. It also paid the contractors tax on all the contracts for
design and construction of central system unlike Oriental who did not pay contractors tax. Engineering did not
have ready-made air conditioning units for sale unlike oriental whose bulk of their sale came from ready-made
doors and windows As for their liability for violation of Tax Code, they should pay the whole amount not the
one suggested by the commissioner.

5. Agency to Buy or Sell - Art. 1466, 1868

A contract of agency is one that essentially establishes a representative and highly fiduciary capacity in the person of the agent.
Involving obligations to do to, to enter into juridical acts in behalf of the principal.

By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of
another, with the consent or authority of the latter construing a contract containing provisions characteristic of both the
contract of the agency to sell, the essential clauses of the whole instrument shall be considered. Sale may be distinguished
from an agency to sell, as follows:
 Sale
The buyer receives the goods as owner
The buyer has to pay the price
The buyer as a general rule. Cannot return the
object sold
The seller warrants the thing sold
The buyer can deal with the thing sold as he
pleases being the owner
Agency to sell
The agent receives the goods as the goods of the principal who retains
his ownership over them and has the right to fix the price and the terms
of the sale and receive the proceeds less the agent’s commission upon
the sales made
Agent has simply to account for the proceeds of the sale he may make
on the principal’s behalf
The agent can return the object in case he is unable to sell the same to a
third person
The agent makes no warranty for which he assumes personal liability as
long as he acts within his authority and in the name of the seller
The agent in dealing with the thing received, must act and is bound
according to the instruction of his principal

The transfer of title or agreement to transfer it got a price paid or promised is the essence of sale. If such transfer puts the
transferee in the attitude or position of an owner and make shim liable to the trasferor as a debtor for the agreed price, and not
merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to
sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the owner and has the right
to control the sale, fix the price, and terms, demand and receive the proceeds less the agent’s commission upon sales made.

• ART. 1466. – in construing a contract containing provisions characteristic of both the contract of sale and of the contract of
agency to sell, the essential clauses of the whole instrument shall be considered

• ART. 1868 . By the contract of agency a person binds himself to render some service or to do something in representation or
on behalf of another, with the consent or authority of the latter.

Quiroga v. Parsons 38 Phil 501 (1918)

FACTS On Jan 24, 1911, plaintiff and the respondent entered into a contract making the latter an “agent” of the
former. The contract stipulates that Don Andres Quiroga, here in petitioner, grants exclusive rights to sell his
beds in the Visayan region to J. Parsons. The contract only stipulates that J.Parsons should pay Quiroga within 6
months upon the delivery of beds.

Quiroga files a case against Parsons for allegedly violating the following stipulations: not to sell the beds at
higher prices than those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to
keep the beds on public exhibition, and to pay for the advertisement expenses for the same; and to order the
beds by the dozen and in no other manner. With the exception of the obligation on the part of the defendant to
order the beds by the dozen and in no other manner, none of the obligations imputed to the defendant in the
two causes of action are expressly set forth in the contract. But the plaintiff alleged that the defendant was his
agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency.
The whole question, therefore, reduced itself to a determination as to whether the defendant, by reason of the
contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds.

ISSUE Whether the contract is a contract of agency or of sale.

HELD In order to classify a contract, due attention must be given to its essential clauses. In the contract in question,
what was essential, as constituting its cause and subject matter, is that the plaintiff was to furnish the
defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to
pay the price in the manner stipulated. Payment was to be made at the end of sixty days, or before, at the
plaintiff’s request, or in cash, if the defendant so preferred, and in these last two cases an additional discount
was to be allowed for prompt payment. These are precisely the essential features of a contract of purchase and
sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant,
to pay their price. These features exclude the legal conception of an agency or order to sell whereby the
mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the
price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns
it. By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was
necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as
 to whether he had or had not sold the beds.

In respect to the defendant’s obligation to order by the dozen, the only one expressly imposed by the contract,
the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place
under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for
having acted thus at his own free will.

For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant
was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are
not imposed upon the defendant, either by agreement or by law.

Puyat v. Arco 72 Phil 402 (1941)

FACTS Arco Amusement Company is a business engaged in operating cinematographs. Gonzalo Puyat & Sons, Inc, was
acting as exclusive agents in the Philippines for Starr Piano Company of Indiana, USA, and dealt with
cinematographer equipment and company.

Arco Amusement approached Gonzalo Puyat & Sons entered into an agreement wherein Gonzalo Puyat will, on
behalf of Arco Amusement, order sound reproducing equipment from Starr Piano Company and that Arco
Amusement will pay Gonzalo Puyat, in addition to the price of equipment, a 10% commission plus all expenses.
Starr Piano quoted the list price of equipment as $1700 without discount to Gonzalo Puyat, which then told
Arco Amusement about it. Being agreeable, the two formalized the transaction and Arco Amusement duly paid
$1700 to Gonzalo Puyat.

Subsequently, Arco Amusement made another order again to Gonzalo Puyat for the equipment on the same
terms as the first order. The order stated that Gonzalo Puyat would pay for the equipment the amount of
$1600 which was supposed to be the exact price quoted by Starr Piano plus 10% commission and expenses.
Arco Amusement duly paid $1600 plus 10% commission plus $160 for the expenses; the $160 does not
represent actual out-of-pocket expenses but a mere flat charge and rough estimate made by Arco Amusement
equivalent to 10% of the $1,600 price.

Arco Amusement subsequently discovered that the price quoted to them with regard to their previous orders
were not the net price but rather the list price, and that the Gonzalo Puyat had obtained a discount from the
Starr Piano Company. Moreover, by reading reviews and literature on prices of machinery and cinematograph
equipment, Arco Amusement was convinced that the prices charged them were much too high. For these
reasons, they sought to obtain a reduction from Gonzalo Puyat rather than a reimbursement, and failing in this
they filed the complaint.

ISSUE Whether or not the contract between Arco Amusement and Gonzalo Puyat was one of purchase and sale, and
not agency.

HELD Yes. There was a contract of sale between the two.

In the first place, the contract is the law between the parties and should include all the things they are
supposed to have been agreed upon. What does not appear on the face of the contract should be regarded
merely as “dealer’s” or “trader’s talk”, which can not bind either party. The letters showing that Arco
Amusement accepted the prices of $1700 and $1600 for the sound reproducing equipment subject of its
contract with the petitioner, are clear in their terms and admit no other interpretation that the respondent in
question at the prices indicated which are fixed and determinate.

Whatever unforseen events might have taken place unfavorable to Arco Amusement, such as change in prices,
mistake in their quotation, loss of the goods not covered by insurance or failure of the Starr Piano Company to
properly fill the orders as per specifications, Gonzalo Puyat might still legally hold Arco Amusement to the prices
fixed. This is incompatible with the pretended relation of agency between the petitioner and the respondent,
because in agency, the agent is exempted from all liability in the discharge of his commission provided he acts
in accordance with the instructions received from his principal (section 254, Code of Commerce), and the
principal must indemnify the agent for all damages which the latter may incur in carrying out the agency
without fault or imprudence on his part (article 1729, Civil Code).

The orders which state that the petitioner was to receive ten per cent (10%) commission does not necessarily
make Gonzalo Puyat an agent of Arco Amusement as this provision is only an additional price which Arco
Amusement bound itself to pay, and which stipulation is not incompatible with the contract of purchase and
 sale.

6. Dacion en Pago - Art. 1245

 ART. 1245. – Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be
governed by the law of sales.

Dation in payment is the alienation of property by the debtor to the creditor in satisfaction of a debt in money. It is governed by
the law on sales.

SALE DATION IN PAYMENT

There is no preexisting credit or debt The debtor has a debt to the creditor

Obligations are created Obligations are extinguished

The cause is the price paid, from the viewpoint of the The cause is extinguishment of debt from the view
seller, or the thing sold, from the viewpoint of the buyer point of the debtor, or the object acquired in lieu of
the credit from the viewpoint of the creditor
There is more freedom in fixing the price than in dation
in payment (since the value of the property may not
exactly correspond to the amount of debt
Buyer has still to pay the price The payment is effectively received by the debtor
before the contract is perfected.
Dao Heng Bank v. Sps. Lilia & Reynaldo Laigo 571 SCRA 4343 (2008)
FACTS: Respondents obtained a loan from petitioner bank to which they forged three Real Estate Mortgages covering
two parcels of land. When respondents failed to settle their outstanding obligation, they verbally offered to
cede to Dao Heng one of the two mortgaged lots by way of dacion en pago. Petitioner hired an appraiser to
appraise the value of the mortgaged lands, fees of which were shouldered by both parties, after which no
further action was taken.

Petitioner later demanded respondents’ outstanding obligation of P10,385,109.92, which respondents failed to
heed thus petitioner foreclosed the REM where the properties were sold for were sold for P10,776,242.
Petitioner negotiated for the redemption of the properties, which the bank priced at 11.5M plus 12% interest.
However, nothing was heard from respondents until 6 days before the expiration of the redemption period
when respondents filed a complaint before the RTC for Annulment, Injunction with Prayer for TRO with regard
to the foreclosure and for them to be allowed "to deliver by way of ‘dacion en pago' one of the mortgaged
properties as full payment of their mortgaged obligation. Petitioner verbally agreed to enter into a dacion en
pago.

However, in its Opposition to respondents' Application for a TRO, petitioner claimed that there was no meeting
of the minds between the parties on the settlement of respondents' loan via dacion en pago; that respondents'
action is founded is unenforceable under the Statute of Frauds. Respondents contended that their delivery of
the titles to the mortgaged properties constituted partial performance of their obligation under the dacion en
pago to take it out from the coverage of the Statute of Frauds. The trial court denied the respondents’
complaint holding that the alleged dacion en pago must be based on a document or writing, otherwise, the
same cannot be enforced in an action in court. CA reversed the TC’s decision holding that that there was partial
performance of the agreement to settle their obligation via dacion en pago when they agreed to have the
properties appraised.

ISSUE/S: W/N there was a perfected dacion en pago contract? – NO

HELD The partial execution of a contract of sale takes the transaction out of the provisions of the Statute of Frauds so
long as the essential requisites of consent of the contracting parties, object and cause of the obligation concur
and are clearly established to be present. However, there is no concrete showing that after the appraisal of the
properties, petitioner approved respondents' proposal to settle their obligation via dacion en pago. The delivery
to petitioner of the titles to the properties is a usual condition sine qua non to the execution of the mortgage,
both for security and registration purposes. For if the title to a property is not delivered to the mortgagee, what
will prevent the mortgagor from again encumbering it also by mortgage or even by sale to a third party. Finally,
that respondents did not deny proposing to redeem the mortgages, as reflected in petitioner's June 29, 2001
letter to them, dooms their claim of the existence of a perfected dacion en pago.

Dacion en pago as a mode of extinguishing an existing obligation partakes of the nature of sale whereby
 property is alienated to the creditor in satisfaction of a debt in money. It is an objective novation of the
obligation, hence, common consent of the parties is required in order to extinguish the obligation. As a special
mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an
outstanding debt. The 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 elements of a contract of sale, namely, consent, object certain, and cause or consideration must be
present.

7. Lease - Arts. 1484 and 1485

In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain and
for a period which may be definite or indefinite.

In other words, in a lease, the landlord or lessor transfers merely the temporary possession and enjoyment of the thing leased. In
as sale, the seller transfers ownership of the thing sold.

 ART. 1484 – In a contract of sale of personal property the price of which is payable in installments, the vendor may
exercise any of the following remedies:
1)Exact fulfillment of the obligation, should the vendee fail to pay;
2)Cancel the sale, should the vendee’s failure to pay cover two or more installments;
3)Foreclosure the chattel mortgage on the thing sold, if one has been constituted, should the vendee’s failure to
pay cover two or more installments. In this case, he shall have no further action against the purchaser to
recover any unpaid balance of the price. Any agreement to the contrary shall be void.

 ART 1485. – The preceding article shall be applied to contracts purporting to be leases of personal property with
option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing.

H. CONTRACT OF SALE/CONTRACT TO SELL

- A contract to sell is commonly entered into so as to protect the seller against a buyer who intends to buy a
property in installments by withholding ownership over the property until the buyer effects full payment therefor.

Contract to sell Contract of sale

Transfer of title Ownership is reserved in the seller and is not to pass
until the fulfillment of certain conditions, such as full
payment of the purchase price.
Ownership of vendor In a contract to sell where it is stipulated that ownership
of the thing shall not pass to the vendee until he has fully
paid the price, the title remains in the vendor if the
vendee does not comply with the condition precedent of
making payment at the time specified in the contract.
Type of Condition Full payment is a positive suspensive condition, the
failure of which is not a breach, casual or serious, of the
contract but simply an event that prevents the obligation
of the vendor to convey title from acquiring binding
force.
Rescission of the Art 1191 does not apply. The remedy of rescission is not
Contract available in contracts to sell
Specific performance The remedy of specific performance cannot be availed of
when the contract to sell has been canceled due to the
non-payment of the purchase price.
Execution of sale the vendor still need to execute another instrument
document conveying the property to the vendee (such as deed of
Absolute Sale) Where the seller promises to execute a
deed of absolute sale upon full payment of the purchase
price, the agreement is only a contract to sell
II. PARTIES TO A CONTRACT
Title passes to the buyer upon delivery of
the thing sold,
The vendor has lost and cannot recover
the ownership of the thing sold and
delivered, actually or constructively, until
and unless the contract of sale itself is
resolved and set aside.
In a contract of sale, non-payment of the
price is a negative resolutory condition
and the remedy of the seller is to exact
fulfillment or to rescind the contract
Art 1191 is applicable to a contract of
sale
Can be availed
No need

1) CAPACITIES OF PARTIES

• Art 1489. All persons who are authorized in this code to obligate themselves, may enter into a contract of sale, saving the
modifications contained in the following articles.
Where necessaries are sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price
therefor. Necessaries are those referred to in art. 290.

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

 When a separation of property was agreed upon in the marriage settlements; or

 When there has been a judicial separation of property under Art. 191.

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

- The guardian, the property of the person or persons who may be under his guardianship;
- Agents, the property whose administration or sale may have been intrusted to them, unless the consent of the principal
have been given;
- Executors and administrators, the property of the estate under administration;
- Public officers and employees, the property of the State or of any subdivision thereof, or of any government owned or
controlled corporation, or institution, the administration of which has been intrusted to them this provision shall apply to
judges and government experts who, in any manner whatsoever take part in the sale;
- Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected
with the administration of justice, the property and rights in litigation or levied upon an execution before the court within
whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by
assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in
which they may take part by virtue of their profession;
- Any others specially disqualified by law

- Par 1,2 & 3 – voidable. Can be ratified, and valid until annulled

- Par 4 & 5 – Void. Cannot be ratified.

• Art. 1492. The prohibition in the two preceding articles are applicable to sales in legal redemption, compromises and
renunciations.

C. ABSOLUTE INCAPACITY - Arts. 1327, 1397, 1399

- ART. 1327. – The following cannot give consent to a contract:

 Unemancipated minors
 Insane or demented persons, and deaf-mutes who do not know how to write.

- ART 1397. – The action for the annulment of contracts may be instituted by all who are thereby obliged principally or
subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can
those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action
upon these flaws of the contract.
- ART. 1399. – 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.

Necessaries - Art. 1489, 290

- Art. 1489. All persons who are authorized in this code to obligate themselves, may enter into a contract of sale, saving the
modifications contained in the following articles.

Where the necessaries are sold and delivered to a minor or other person without capacity to act, he must pay a reasonable
price therefor. Necessaries are those referred to in Art. 290.

GEN RULE: any person who has capacity to contract or enter into obligations may enter into a contract of sale, whether as
party-seller or as party-buyer.
 - Persons Incapacitated to give consent to a contract
- Absolute incapacity – in the case of persons who cannot bind themselves.
- Relative incapacity (disqualification) – where the incapacity exists only with reference to certain persons or a certain
class of property; persons who are merely relatively incapacitated are enumerated in Articles 1490 and 1491.

Incapacity
Impairs the exercise of the right to contract;
the incapacitated person may still enter into
a contract but with consent of his parent or
guardian.
Disqualification
Prohibition to contract the very right itself; the
disqualified person cannot enter into a
contract with respect to certain types of
properties.

Based upon subjective circumstances of Based upon public policy and morality.
certain persons which compel the law to
suspend for a definite period, their right to
contract.

Contract entered into by an incapacitated Contract entered into by a disqualified person

person is merely voidable. is void.

Incapacitated persons:

1. Minors – a minor is without capacity to give consent to a contract, and since consent is an essential requisite of every contract,
the absence thereof cannot give rise to a valid sale.

Exceptions:

1. Where the contract involves the sale and delivery of necessaries to the minor.

Minors – minors are those who have not attained the age of majority. In this jurisdiction, majority commences at the age
of eighteen years (Art. 234, Family Code).

Necessaries (in sales) – those things which are indispensable for sustenance, dwelling, clothing and in some cases medical
attendance and education, according to the financial capacity of the family of the incapacitated person (Art. 194, Family
Code)

Requisites:

- Perfection of the contract of sale.

- Delivery of the subject matter.

2. Where a contract is entered into by a minor who misrepresents his age, applying the doctrine of
estoppels.

- example: The sale of real property made by minors who have already passed the ages of puberty
and adolescence and are near the adult age when they pretend to have already reached their
majority, while in fact they have not, is valid, and they cannot be permitted afterwards to excuse
themselves from compliance with the obligation assumed by them or to seek their annulment.

3. Insane or demented persons – insane or demented persons have no capacity to contract, and
are therefore disqualified from being parties to a contract of sale. Nevertheless, contracts entered
into by such incapacitated persons are not void but merely voidable subject to annulment or
ratification.

- example: The action for annulment cannot be instituted by the person who is capacitated since
he is disqualified from alleging the incapacity of the person whom he contracts.
 - Deaf-mutes who do not know how to write – same with insane or demented persons.
- Married women in cases specified by law
- Persons suffering from civil interdiction
- Incompetents under guardianship

C. RELATIVE INCAPACITY: Married Persons

- Contracts with Third Parties -Arts. 73, 96 and Family Code

DISQUALIFIED SALES:
1. The spouses with respect to contract of sale between them.
- Sales by and between spouses

- Sales between spouses

- The husband and the wife cannot sell property to each other (Art. 1490 (1))
Exceptions:
- When a separation of property was agreed upon in the marriage settlements; or
- When there has been a judicial decree of separation of property (Art. 1490)

- Contracts entered into in violation of Article 1490 of the Civil Code are null and void (not merely voidable).
However, not anyone is given the right to assail the validity of the transaction.

Examples of persons who cannot assail the validity of such contract:

- The spouses themselves cannot assail the validity of the contract since they are parties to an illegal act under the
principle of pari delicto, the courts will generally leave them as they are.
- The creditors who became such only after the transaction (the illegal contract of sale), for it cannot be said that they
have been prejudiced by the transaction.

Persons who can assail the validity of contracts entered in violation of Article 1490:

- The heirs of either of the spouses who have been prejudiced

- Creditors who became such prior to the transaction
- The State when it comes to payment of the proper taxes due on the transaction.

Rationale for Prohibition:

o To prevent commission of fraud or prejudice to third persons;

o To prevent one from unduly influencing the other;
o To avoid indirect donations under Article 133 of the Civil Code (now Article 87, FC). Article 87, FC seeks to prevent
the first two rationales. In addition, Article 87, FC declares that the prohibition shall apply to persons living
together as husband and wife without a valid marriage

- Sales with third parties - The spouses may, without the consent of the other spouse, enter into a sale transaction in the
regular or normal pursuit of their profession, vocation or trade and the latter may object only on valid, serious and
moral grounds (Art. 73, FC)
- The administration and enjoyment of the community property shall belong to both spouses jointly. In case of
disagreement, the husband's decision shall prevail, subject to recourse to the court by the wife for proper remedy,
which must be availed of within five years from the date of the contract implementing such decision. (Art. 96, FC)

D. SPECIAL DISQUALIFICATIONS - Arts. 1491-1492

1. Guardians with respect to the property of the person under guardianship.

- Prohibition applies even if the guardian did not acquire the property of the ward from the ward directly as when there
was a third person who bought the property from the ward and that third person sold the property in question to the
guardian.
- Proof that the third-party buyer was a mere intermediary buyer is not necessary for the prohibition to apply
 (Philippine Trust Co. v. Roldan)
2. Agents with respect to property to whose administration or sale may have been entrusted to them.

Exception: when the consent of the principal have been given.

- “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.
- An agent of a principal is not automatically disqualified from acquiring property from the principal. For the prohibition
to apply, the property which is the subject of the contract must be the property entrusted to the principal. Hence if the
principal owns two parcels of land and the agent was entrusted with one these properties, the agent can acquire from
the principal the other property.
3. Executors and administrators with respect to the property of the estate under administration.
4. Public officers and employees with respect to the property of the State or any of its subdivisions, any Government-owned
and controlled corporations, or institution the administration of which has been entrusted to them.
5. Lawyers - Prohibition applies only to a sale to a lawyer of record, and does not cover assignment of the property given in
judgment made by a client to an attorney, who has not taken part in the case nor to a lawyer who acquired property
prior to the time he intervened as counsel in the suit involving such property.
Exceptions to prohibition:
a. To sale of a 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; or
b. To a contingency fee arrangement which grants the lawyer of record proprietary rights to the property in litigation
since the payment of said fee is not made during the pendency of litigation but only after judgment has been rendered.

- The purchase by a lawyer of the property in litigation from his client is categorically prohibited by Article 1491,
paragraph (5) of the Philippine Civil Code, and that consequently, plaintiff's purchase of the property in litigation from
his client (assuming that his client could sell the same since his client's claim to the property was defeated and rejected)
was void and could produce no legal effect. (Rubias v. Batiller)
-
6. Justices, judges, prosecuting attorneys and other court officers and employees connected with the administration of
justice- with respect to property and rights in litigation or levied upon on execution before the court within whose
jurisdiction or territory they exercise their respective functions. It is not required that some contest or litigation over the
property itself should have been tried by the judge; such property is in litigation from the moment it became subject to
the judicial action of the judge, such as levy on execution.

- In the case of Macariola v. Asuncion, it was held that there was no violation of paragraph 5, Article 1491 of the New Civil
Code. The prohibition in the said Article applies only to the sale or assignment of the property which is the subject of
litigation to the persons disqualified therein. For the prohibition to operate, the sale or assignment of the property must
take place during the pendency of the litigation involving the property. When Judge Asuncion purchased the subject
property, the decision was already final because none of the parties filed an appeal within the prescribed period; hence,
the lot in question was no longer subject of the litigation. Furthermore, the judge did not buy the lot directly from the
plaintiffs in the case but from Dr. Galapon who earlier purchased the same from plaintiffs after the finality of the
decision.

- However, while the Judge did not violate Article 1491 of the New Civil Code in acquiring by purchase a portion of Lot
1184-E which was in litigation in his court, it was improper for him to have acquired the same. He should be reminded
of Canon 3 of the Canons of Judicial Ethics which requires that: "A judge's official conduct should be free from the
appearance of impropriety, and his personal behavior, not only upon the bench and in the performance of judicial
duties, but also in his everyday life, should be beyond reproach."
7.
8.
 III. SUBJECT MATTER

A. REQUISITES OF A VALID SUBJECT MATTER

Arts. 1459 to 1465
Requisites: (LDE3RQ)
1.Licit
2.Determinate or determinable
3.Existing, future or contingent
4.Emptio Rei Speratae
5.Emptio Rei Spei
6.Subject to a resolutory condition
7.Quantity of subj. Matter not essential for perfection
1. MUST BE LICIT
Arts. 1347, 1459, 1575, 1409
ART. 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at
the time it is delivered. (n)

A. Requisites concerning the object (Thing: LICIT; Right: NOT INSTRANSMISBIBLE)

B. Right to transfer ownership

A. REQUISITES CONCERNING THE OBJECT

THING: MUST BE LICIT

The law requires that the subject matter must be licit or lawful, that is, it should not be contrary to law,
morals, good customs, public order, or public policy and should not be impossible. Like any other object of a
contract, the thing must be within the commerce of men.

If the subject matter of the sale is illicit, the contract is void and cannot, therefore, be ratified.

Kinds of Illicit things:

1. Illicit per se (of its nature)
2. Illicit per accidens (because of some provisions of law declaring it illegal)

Rights and obligations of parties (involving illicit cause/object)

Art. 1411: Illegality of the cause or object constitutes a criminal offense

If BOTH parties being in pari delicto:
1. they shall have no action against each other, and
2. both shall be prosecuted
If only ONE party is guilty:
1. innocent one may claim what he has given, and
2. shall not be bound to comply with his promise.

Art. 1412: Unlawful or forbidden cause consists does not constitute a criminal offense
Fault 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;
Only ONE of the contracting parties is at fault:
Party at fault: cannot recover what he has given by reason of the contract, or ask for the fulfillment of what
has been promised him.
Innocent party: demand the return of what he has given without any obligation to comply with his promise

RIGHTS: NOT INSTRANSMISSIBLE/PERSONAL

All rights which are not intransmissible or personal may also be the object of sale, like the right of usufruct ,
the right of conventional redemption, credit, etc.
No contract may be entered upon future inheritance except in cases expressly authorized by law. While
services may be the object of a contract, they cannot be the object of a contract of sale.
B. RIGHT TO TRANSFER OWNERSHIP

1. Seller must be owner or authorized by owner of thing sold.

In accord with a well-known principle of law that one can not transmit or dispose of that which he does not
have — nemo dat quod non-habet. Accordingly, one can sell only what one owns or is authorized to sell, and
the buyer can acquire no more than what the seller can transfer legally.

2. Right must exist at time of delivery

It is not required that the vendor must own the property sold at the time of the perfection of the contract. It is
sufficient if the seller has the “right to transfer the ownership thereof at the time it is delivered.” Thus, the
seller is deemed only to impliedly warrant that “he has a right to sell the thing at the time when the ownership
is to pass.”

* Where property sold registered in name of seller who employed fraud in securing his title.(VALID Sale)-
The rights of an innocent purchaser for value must be respected and protected, notwithstanding the fraud
employed by the seller in securing his title. The proper recourse of the true owner of the property who was
prejudiced is to bring an action for damages against those who employed the fraud.

*Where properly sold in violation of a right of first refusal of another person. (VALID BUT RESCISSIBLE
Sale)- Where there is no showing of bad faith on the part of the vendee, the contract of sale may not be
rescinded, and the remedy of the person with the right of first refusal is an action for damages against the
vendor.

*Where real property, subject of unrecorded sale, subsequently mortgaged by seller which mortgage was
registered.- The mortgagee’s registered mortgage right over the property is inferior to that of the buyer’s
unregistered right.
MARTINEZ vs. CA (1974)

Special Contracts; Sales; Vendee two is aware of defect in the thing he buys cannot
later complain thereof.—Before purchasing a parcel of land, it cannot be contended that
DOCTRINE: the appellants who were the vendees did not know exactly the condition of the land that
they were buying and the obstacles or restrictions thereon that may be put up by the
When buyer is government in connection with their project of converting Lot No. 2 in question into a
aware of defect in fishpond. Nevertheless, they willfully and voluntarily assumed the risks attendant to the
the title of the sale of said lot.
object of contract,
he CANNOT
claim GF. One who buys something with knowledge of defect or lack of title in his vendor
cannot claim that he acquired it in good faith. (Leung Lee v. Strong Machinery Co.,
et al., 37 Phil. 664).

2. MUST BE DETERMINATE OR DETERMINABLE

Art. 1460
ART. 1460. A thing is determinate when it is particularly designated or physically segregated from all others
of the same class.
The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is
capable of being made determinate without the necessity of a new or further agreement between the parties.
(n)
1. WHEN THING IS DETERMINATE/ SPECIFIC
A determinate thing is identified by its individuality; particularly designated or physically segregated from all
others of the same class.
2. CAPABLE OF BEING MADE DETERMINATE
Determinable or capable of being made determinate WITHOUT the necessity of a new or further agreement
between the parties to ascertain its identity, quantity, or quality. The fact that such an agreement is still
necessary constitutes an obstacle to the existence of the contract and renders it VOID.
MELLIZA V. CITY OF ILOILO (1968)

Sale; Object of sale must be determinate- or capable of being

DOCTRINE: determinate.—The requirement of the law is that a sale must have for its object a
Sale capable of determinate thing and this requirement is fulfilled as long as, at the time the
being contract is entered into, the object of the sale is capable of being made
determinable determinate without the necessity of a new or further agreement between
the parties.
ATILANO V. ATILANO (1969)

Reformation of instruments; Remedy where there is simple mistake in the

drafting of the document.—The remedy where there is simple mistake in the
drafting of the document of sale in designating the land object of the sale, is
DOCTRINE:
reformation of the instrument, there being a meeting of the minds of the parties
Mistake in to a contract.
designating the
object does not
invalidate the
Where the real intention of the parties is the sale of a piece of land but there is a
contract
mistake in designating the particular lot to be sold in the document, the mistake
does not vitiate the consent of the parties, or affect the validity and binding
effect of the contract.
3. MUST BE EXISTING, FUTURE OR CONTINGENT
Arts. 1347, 1348 and 1462
ART. 1462. The goods which form the subject of a contract of sale may be either existing goods, owned or
possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of
the contract of sale, in this Title called “future goods.”
There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency
which may or may not happen. (n)
GOODS WHICH MAY BE THE OBJECT OF SALE:
1. Existing goods (goods owned and possessed by the seller)
2. Future goods (goods to be Manufactured, Raised, or Acquired)

FUTURE GOODS
A sale of future goods, even though the contract is in the form of a present sale, is valid only as an
executory contract to be fulfilled by the acquisition and delivery of the goods specified.

Assumption of risk: vendor assumes the risk of acquiring the title and making the conveyance, or
responding in damages for the vendee’s loss of his bargain.
Application: Does NOT apply if the goods are to be manufactured especially for the buyer and not readily
saleable to others in the manufacturer’s regular course of business. (Contract for a piece of work)

4. -5. EMPTIO REI SPEI v. EMPTIO REI SPERATAE

Arts. 1461

ART. 1461. Things having a potential existence may be the object of the contract of sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will
come into existence.
The sale of a vain hope or expectancy is void. (n)
THINGS HAVING POTENTIAL EXISTENCE
it is reasonably certain to come into existence as the natural increment or usual incident of something in
existence already belonging to the seller, and the title will vest in the buyer the moment the thing comes into
existence.

MERE HOPE OR EXPECTANCY

The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing
contemplated or expected will come into existence. Sale of a mere hope or expectancy is valid even if the
thing hoped or expected does not come into existence, unless the hope or expectancy is vain in which
case, the sale is void.

EMPTIO REI SPERATAE- sale of a thing not yet in existence subject to the condition that the thing will exist
and on failure of the condition, the contract becomes ineffective and hence, the buyer has no obligation to
pay the price.

EMPTIO REI SPEI- sale of the hope itself that the thing will come into existence, where it is agreed that the
buyer will pay the price even if the thing does not eventually exist.

EMPTIO REI SPERATAE EMPTIO REI SPEI

(sale of thing expected) (sale of hope itself)

Certainty Future thing is certain as to itself but It is not certain that the thing itself will exist,
uncertain as to its quantity and quality. much less its quantity and quality.
Such sale is subject to the condition that
the thing will come into existence,
whatever its quantity or quality.

Subject Contract deals with a future thing Contract relates to a thing which exists or is
present — the hope or expectancy.

Effect Sale is subject to the condition that the
thing should exist, so that if it does not,
there will be no contract by reason of the
absence of an essential element.
PICHEL V. ALONZO (1981)
Produces effect even though the thing does
not come into existence because the object of
the contract is the hope itself, unless it is a
vain hope or expectancy

Same; Sale; Potential fruits of apiece of land may be the subject of sale.—The
DOCTRINE: subject matter of the contract of sale in question are the fruits of the coconut
trees on the land during the years from September 15, 1968 up to January 1,
1976, which subject matter is a determinate thing. Under Article 1461 of the New
 Civil Code, things having a potential existence may be the object of the contract
of sale.
6. SUBJECT TO A RESOLUTORY CONDITION
Arts. 1465
ART. 1465. Things subject to a resolutory condition may be the object of the contract of sale. (n)

SALE OF THING SUBJECT TO A RESOLUTORY CONDITION.

Resolutory condition is an uncertain event upon the happening of which the obligation (or right) subject to
it is extinguished. Hence, the right acquired in virtue of the obligation is also extinguished.

If the resolutory condition attaching to the object of the contract, which object may include things as well as
rights, should happen, then the vendor cannot transfer the ownership of what he sold since there is no
object.
7. QUANTITY OF SUBJECT MATTER NOT ESSENTIAL FOR PERFECTION
Arts. 1349
Article 1349. The object of 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. (1273)
B. PARTICULAR KINDS
1.Generic things -Arts. 1246 and 1409 (6)
2.Future goods - Art. 1461
3.Sale of undivided interest or share - Arts. 1463-1464
4.Sale of things in litigation- Arts. 1381 (4), 1358 (2)
1. GENERIC THINGS
Arts. 1246 and 1409(6)

Article 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality
and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can
the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be
taken into consideration. (1167a)

Article 1409. The following contracts are inexistent and void from the beginning:
(6) Those where the intention of the parties relative to the principal object of the contract cannot be
ascertained;

SALE OF GENERIC THING:

- Creditor cannot demand a thing of superior quality
- Debtor cannot deliver a thing of inferior quality
-Purpose of the obligation shall be considered

YU TEK vs. GONZALES (1915)

DOCTRINE: Sale of 600 piculs of sugar

Object physically This court has consistently held that there is a perfected sale with regard to the
segregated from "thing" whenever the article of sale has been physically segregated from
all others all other articles.
2. FUTURE GOODS
Arts. 1461
ART. 1461. Things having a potential existence may be the object of the contract of sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will
come into existence.
The sale of a vain hope or expectancy is void. (n)
FUTURE GOODS
A sale of future goods, even though the contract is in the form of a present sale, is valid only as an
executory contract to be fulfilled by the acquisition and delivery of the goods specified.

Assumption of risk: vendor assumes the risk of acquiring the title and making the conveyance, or
responding in damages for the vendee’s loss of his bargain.

Application: Does NOT apply if the goods are to be manufactured especially for the buyer and not readily
saleable to others in the manufacturer’s regular course of business. (Contract for a piece of work)
3. SALE OF UNDIVIDED INTEREST OR SHARE
Arts. 1463-2464
Article 1463. The sole owner of a thing may sell an undivided interest therein. (n)

Article 1464. In the case of fungible goods, there may be a sale of an undivided share of a specific mass,
though the seller purports to sell and the buyer to buy a definite number, weight or measure of the goods in
the mass, and though the number, weight or measure of the goods in the mass, and though the number,
weight or measure of the goods in the mass is undetermined. By such a sale the buyer becomes owner in
common of such a share of the mass as the number, weight or measure bought bears to the number, weight
or measure of the mass. If the mass contains less than the number, weight or measure bought, the buyer
becomes the owner of the whole mass and the seller is bound to make good the deficiency from goods of
the same kind and quality, unless a contrary intent appears. (n)
SALE OF UNDIVIDED INTEREST IN A THING (1463)
The sole owner of a thing may sell:
1. entire thing; or
2. only a specific portion thereof; or
3. an undivided interest therein and such interest may be designated as an aliquot part of the whole.

Legal effect: make the buyer a co-owner in the thing sold. As co-owner, the buyer acquires full ownership
of his part and he may, therefore, sell it. Such sale is, of course, limited to the portion which may be allotted
to him in the division of the thing upon the termination of the co-ownership.
Coverage: only the sale by a sole owner of a thing of an undivided share or interest thereof.

SALE OF AN UNDIVIDED SHARE OF A SPECIFIC MASS (1464)

Fungible goods- those which cannot be used without being consumed.

Effect of Sale: The owner of a mass of goods may sell only an undivided share thereof, provided the mass
is specific or capable of being made determinate.

- Buyer becomes a co-owner with the seller of the whole mass in the proportion in which the definite
share bought bears to the mass.
-The aliquot share of each owner can be determined only by the measurement of the entire mass. If later on
it be discovered that the mass of fungible goods contains less than what was sold, the (a) buyer becomes
the owner of the whole mass and furthermore, the (b) seller shall supply whatever is lacking from
goods of the same kind and quality, subject to any stipulation to the contrary.

Risk of Loss: If the buyer becomes a co-owner, with the seller, or other owners of the remainder of the
mass, it follows that the whole mass is at the risk of all the parties interested in it, in proportion to their
various holdings.

Subject Matter: In the sale of an undivided share, either of a thing (Art. 1463.) or of that of mass of goods
(Art. 1464.), the subject matter is an incorporeal right.

*Although Article 1464 speaks of “fungible goods,” nevertheless it may also apply to non-fungible goods.

4. SALE OF THINGS IN LITIGATION

Arts. 1381 (4), 1358 (2)
Article 1381. The following contracts are rescissible:
(4) Those which refer to things under litigation if they have been entered into by the defendant without the
knowledge and approval of the litigants or of competent judicial authority;

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

(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of
gains;

IV. OBLIGATION OF THE SELLER TO TRANSFER OWNERSHIP

A. SALE BY A PERSON NOT THE OWNER AT TIME OF DELIVERY

Arts.1462, 1505, 1459

The goods which form the subject of a contract of sale may be either existing goods,
owned or possessed by the seller, or goods to be manufactured, raised, or acquired by
1462
the seller after the perfection of the contract of sale, in this Title called "future goods."
There may be a contract of sale of goods, whose acquisition by the seller depends upon
 a contingency which may or may not happen. (n)

Subject to the provisions of this Title, where 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 the owner of the goods is by his conduct precluded from denying the
seller's authority to sell.
Nothing in this Title, however, shall affect:
1505 (1) The provisions of any factors' act, recording laws, or any other provision of law
enabling the apparent owner of goods to dispose of them as if he were the true owner
thereof;
(2) The validity of any contract of sale under statutory power of sale or under the order of
a court of competent jurisdiction;
(3) Purchases made in a merchant's store, or in fairs, or markets, in accordance with the
Code of Commerce and special laws. (n)

The thing must be licit and the vendor must have a right to transfer the ownership
1459
thereof at the time it is delivered. (n)

1.Estoppel -Arts. 1434

2.Recording Laws; Torrens System - PD 1529
3.Statutory Sale - Order of Courts
4.Sale in Merchant's Store, Market or Fair
1. ESTOPPEL
Art. 1434
Article 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later the
seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee.

Hernaez v. Hernaez 32 Phil 214 (1915)

DOCTRINE: ESTOPPEL; OWNER OF PROPERTY', INNOCENT PURCHASER.—Where the

When the true
true owner of property, for however short a time, holds out another or, with
owner of the knowledge of his own right, allows another to appear as the owner of or as
property allows having full power of disposition over the property, and innocent third parties are
another to appear thus led into dealing with such apparent owner, they will be protected.
as the owner and
gave him power
of disposal, SUBSEQUENT PURCHASER WITH NOTICE.— The holder of a prior equitable
innocent third right has priority over the purchaser of a subsequent estate (whether legal or
parties shall be equitable) without value or with notice of the equitable right.
protected.
Siy Cong Bien V. HSBC 56 Phil 598 (1932)

DOCTRINE: The clear import of these provisions is that if the owner of the goods permits
another to have the possession or custody of negotiable warehouse receipts
running to the order of the latter, or to bearer, it is a representation of title
upon which bona fide purchasers for value are entitled to rely, despite
breaches of trust or violations of agreement on the part of the apparent owner.
 Jalbuena v. Lizarraga 33 Phil 77 (1915)

DOCTRINE: ESTOPPEL; JUDICIAL SALE; SILENCE OF OWNER.—The owner of property

who knowingly permits his property to be sold at a judicial sale as the property of
the judgment debtor without asserting his title or right or making it known to the
bidders, cannot afterwards set up his claim.

Actual presence of the owner at the sale is not necessary in order that he may
be estopped from afterwards setting up his title to the property. It is only
necessary that the owner be chargeable with knowledge of the impending sale
under circumstances that render it his duty to assert his title.
2. RECORDING LAWS; TORRENS SYSTEM
PD 1529

3. STATUTORY SALE - ORDER OF COURTS

4. SALE IN MERCHANT'S STORE, MARKET OR FAIR

Sun Bros. V. Velasco 54 OG 5143 Aug 1958

DOCTRINE: The rule embodied in Article 1505 (3) protecting innocent third parties who have
made purchases at merchants’ stores in good faith and for value appears to us to
be a wise and necessary rule not only to facilitate commercial sales on movables
but to give stability to business transactions.

Masiclat v. Centeno GR No 8420, May 21, 1956

DOCTRINE: Although a contract of sale is perfected upon the parties having agreed as to the thing
which is the subject matter of the contract and the price, ownership is not considered
transmitted until the property is actually delivered and the purchaser has taken
possession and paid the price agreed upon.
B. SALE BY A PERSON HAVING A VOIDABLE TITLE
Arts.1506, 559

Where the seller of goods has a voidable title thereto, but his title has not been avoided
1506 at the time of the sale, the buyer acquires a good title to the goods, provided he buys
them in good faith, for value, and without notice of the seller's defect of title. (n)

The possession of movable property acquired in good faith is equivalent to a title.

559 Nevertheless, one who has lost any movable or has been unlawfully deprived thereof,
may recover it from the person in possession of the same.
Tagatac v. Jimenez 53 OG 3792 No. 12 June 1957
DOCTRINE: The disputable presumption that a person found in possession of a thing taken in the
doing of a recent wrongful act is the taker and the doer of the whole act does NOT apply
 in this case because the car was not stolen from Tagatac, and Jimenez came into
possession of the car two months after Feist swindled Tagatac. Jimenez was a
purchaser in good faith for he was not aware of any flaw invalidating the title from the
seller of the car. In addition, when Jimenez acquired the car, he had no knowledge of
any flaw in the title of the person from whom he acquired it. It was only later that he
became fully aware that there were some questions regarding the car, when he filed a
petition to dissolve Tagatac’s search warrant which had as its subject the car in
question. The contract between Feist and Tagactac was a voidable contract, it can be
annulled or ratified.

Being a voidable contract, it remains valid and binding until annulled. However, as long
as no action is taken by the party entitled, either that of annulment or of ratification, the
contract of sale remains valid and binding.
De Garcia v. CA 37 SCRA 129 (1971)

DOCTRINE: Article 559 of the Civil Code. "The possession of movable property acquired in
good faith is equivalent to a title. Nevertheless, one who has lost any movable or
has been unlawfully deprived thereof may recover it from the person in
possession of the same. If the possessor of a movable lost of which the owner
has been unlawfully deprived, has acquired it in good faith at a public sale, the
owner cannot obtain its return without reimbursing the price paid therefor."

The controlling provision is Article 559 of the Civil Code. Respondent Angelina
D. Guevara, having been unlawfully deprived of the diamond ring in question,
was entitled to recover it from petitioner Consuelo S. de Garcia who was found
in possession of the same. The only exception the law allows is when there
is acquisition in good faith of the possessor at a public sale, in which case
the owner cannot obtain its return without reimbursing the price. As
authoritatively interpreted in Cruz vs. Pahati, 98 Phil. 788 (1956), the right of the
owner cannot be defeated even by proof that there is good faith in the
acquisition by the possessor.
EDCA Publishing v. Santos 184 SCRA 614 (1990)

DOCTRINE: Sales; Possession of movable property acquired in good faith is equivalent to a

title.—It is the contention of the petitioner that the private respondents have not
established their ownership of the disputed books because they have not even
produced a receipt to prove they had bought the stock. This is unacceptable.
Precisely, the first sentence of Article 559 provides that “the possession of
movable property acquired in good faith is equivalent to a title,” thus dispensing
with further proof.

Contract of sale is consensual; Ownership shall pass from the vendor to the
vendee upon the actual or constructive delivery of the thing sold.—The contract
of sale is consensual and is perfected once agreement is reached between the
parties on the subject matter and the consideration. x x x It is clear from the
above provisions, particularly the last quoted, that ownership in the thing sold
shall not pass to the buyer until full payment of the purchase price only if there is
a stipulation to that effect. Otherwise, the rule is that such ownership shall pass
from the vendor to the vendee upon the actual or constructive delivery of the
 thing sold even if the purchase price has not yet been paid.

Aznar v. Yapdiangco 13 SCRA 486 (1965)

DOCTRINE: True owner has better right than buyer in good faith to possession of stolen
car.—A person unlawfully deprived of the possession of his personal property
has a better right to the possession thereof as against a buyer in good faith for
value from a seller who had no title thereto.

Article 1506 of the Civil Code not applicable whale seller had no title.—Under
Article 1506 of the Civil Code,it is essential that the seller should have a voidable
title at least. It is clearly inapplicable where the seller had no title at all.
V. PRICE

A. MEANING OF PRICE
Arts.1469-1474

In order that the price may be considered certain, it shall be sufficient that it be so with
reference to another thing certain, or that the determination thereof be left to the
judgment of a special person or persons.
Should such person or persons be unable or unwilling to fix it, the contract shall be
inefficacious, unless the parties subsequently agree upon the price.
1469
If the third person or persons acted in bad faith or by mistake, the courts may fix the
price.
Where such third person or persons are prevented from fixing the price or terms by fault
of the seller or the buyer, the party not in fault may have such remedies against the
party in fault as are allowed the seller or the buyer, as the case may be. (1447a)
Gross inadequacy of price does not affect a contract of sale, except as it may indicate a
1470 defect in the consent, or that the parties really intended a donation or some other act or
contract. (n)

If the price is simulated, the sale is void, but the act may be shown to have been in
1471
reality a donation, or some other act or contract. (n)

The price of securities, grain, liquids, and other things shall also be considered certain,
when the price fixed is that which the thing sold would have on a definite day, or in a
1472
particular exchange or market, or when an amount is fixed above or below the price on
such day, or in such exchange or market, provided said amount be certain. (1448)

The fixing of the price can never be left to the discretion of one of the contracting
1473 parties. However, if the price fixed by one of the parties is accepted by the other, the
sale is perfected. (1449a)

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
1474 has been delivered to and appropriated by the buyer he must pay a reasonable price
therefor. What is a reasonable price is a question of fact dependent on the
circumstances of each particular case. (n)
B. REQUISITES OF A VALID PRICE

Requisites: (RMC)
1. Must be real
2. Must be in money or its equivalent
3. Must be certain or ascertainable at time of perfection

1. MUST BE REAL
Art. 1471

Article 1471. If the price is simulated, the sale is void, but the act may be shown to have been in reality a
donation, or some other act or contract. (n)
A. WHEN PRICE SIMULATED
SIMULATION
occurs when an apparent contract is a declaration of a fictitious will deliberately made by agreement of the
parties, in order to produce, for the purpose of deception, the appearance of a juridical act which does not
exist or is different from that which was really executed.
Requisites: (OIP)
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.

B. EFFECTS WHEN PRICE SIMULATED

*If the contract is not shown to be a donation or any other act or contract transferring ownership
because the parties do not intend to be bound at all, the ownership of the thing is not transferred. The
contract is void and inexistent. The action or defense for the declaration of the inexistence of a contract
does not prescribe.

C. FALSE CONSIDERATION- Art. 1353 and 1354, 1355

Article 1353. The statement of a false cause in contracts shall render them void, if it should not be proved
that they were founded upon another cause which is true and lawful. (1276)

Article 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful,
unless the debtor proves the contrary. (1277)

Article 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue influence. (n)

Mapalo v. Mapalo 17 SCRA 114 (1966)

DOCTRINE: Contracts without cause or consideration; Statement of false consideration.—The

rule under the Civil Code, be it the old or the new, is that contracts without a
cause or consideration produce no effect whatsoever. (Art. 1275, Old Civil Code;
Art. 1352, New Civil Code.) Nonetheless, under the Old Civil Code, the statement
of a false consideration renders the contract voidable, unless it is proven that it is
supported by another real and licit consideration. (Art. 1276, Old Civil Code.)
 Statement that purchase price was paid but in fact never been paid to the
vendor.—A contract of purchase and sale is 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.
Ong v. Ong 139 SCRA 133 (1985)

DOCTRINE: Bad faith and inadequacy of monetary consideration do not render a conveyance
inexistent, as the assignor's liability may be suf icient cause for a valid
contract.—lt is not unusual, however, in deeds of conveyance adhering to the
AngloSaxon practice of stating that the consideration given is the sum of P1.00,
although the actual consideration may have been much more. Moreover,
assuming that said consideration of P1.00 is suspicious, this circumstance, alone,
does not necessarily justify the inference that Reyes and the Abellas were not
purchasers in good faith and for value. Neither does this inference warrant the
conclusion that the sales were null and void ab initio. Indeed, bad faith and
inadequacy of the monetary consideration do not render a conveyance inexistent,
for the assignor's liberality may be sufficient cause for a valid contract (Article
1350, Civil Code), whereas fraud or bad faith may render either rescissible or
voidable, although valid until annulled, a contract concerning an object certain
entered into with a cause and with the consent of the contracting parties, as in the
case at bar."
Bagnas v. CA 176 SCRA 159 (1989)

DOCTRINE: The apparent gross disproportion between the stipulated price and the
undisputably valuable real estate allegedly sold, demonstrates that the deeds of
sale in question state a false consideration, thereby making them not merely
voidable, but void ab initio. —Without necessarily according all these assertions
its full concurrence, but upon the consideration alone that the apparent gross, not
to say enormous, disproportion between the stipulated price (in each deed) of
P1.00 plus unspecified and unquantified services and the undisputably valuable
real estate allegedly sold—worth at least P10,500.00 going only by assessments
for tax purposes which, it is well-known, are notoriously low indicators of actual
value—plainly and unquestionably demonstrates that they state a false and
fictitious consideration, and no other true and lawful cause having been shown,
the Court finds both said deeds, insofar as they purport to be sales, not merely
voidable, but void ab initio.
Morales v. CA 27 SCRA 484 (1969)

DOCTRINE: Bad faith and inadequacy of monetary consideration do not render a conveyance
inexistent.—Bad faith and inadequacy of the monetary consideration do not
render a conveyance inexistent, for the assignor’s liberality may be sufficient
cause for a valid contract, whereas fraud or bad faith may render either
rescissible or voidable, although valid until annulled, a contract concerning an
object certain, entered into with a cause and with the consent of the contracting
parties, as in the case at bar. What is more, the aforementioned conveyance may
not be annulled, inasmuch as the purchasers are not parties therein.
D. WHEN PRICE SIMULATED
SIMULATION
occurs when an apparent contract is a declaration of a fictitious will deliberately made by agreement of the
parties, in order to produce, for the purpose of deception, the appearance of a juridical act which does not
exist or is different from that which was really executed.
Requisites: (OIP)
4. an outward declaration of will different from the will of the parties;
5. the false appearance must have been intended by mutual agreement; and
6. the purpose is to deceive third persons.

E. EFFECTS WHEN PRICE SIMULATED

*If the contract is not shown to be a donation or any other act or contract transferring ownership
because the parties do not intend to be bound at all, the ownership of the thing is not transferred. The
contract is void and inexistent. The action or defense for the declaration of the inexistence of a contract
does not prescribe.

F. FALSE CONSIDERATION- Art. 1353 and 1354, 1355

Article 1353. The statement of a false cause in contracts shall render them void, if it should not be proved
that they were founded upon another cause which is true and lawful. (1276)

Article 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful,
unless the debtor proves the contrary. (1277)

Article 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue influence. (n)