LAW ON SALES

I. GENERAL PRINCIPLES

 Definition - Sale is a contract whereby one party [the seller] obligates himself to transfer the
ownership and to deliver the possession, of a determinate thing, and the other party [the buyer]
obligates himself to pay therefor a price certain in money or its equivalent (Article 1458).

 Elements of Sale

1. Essential Elements – for validity, thus, absence of any essential elements negates the
existence of a perfected contract of sale even when earnest money (down payment) has been
paid.
a. consent – meeting of the minds to transfer ownership in exchange for the price
(Art. 1475.);
b. determinate subject matter – determinate thing which is the object of the contract
(Art. 1460); and
c. consideration – price certain in money or its equivalent (Article 1458).

2. Natural Elements – those which are inherent in the contract, and which in the absence of any
contrary provision, are deemed to exist in the contract.
a. warranty against eviction (Art. 1548.); and
b. warranty against hidden defects (Art.1561).

3. Accidental elements – those which may be present or absent depending on the stipulations of
the parties, like conditions, interest, penalty, time or place of payment, etc.

 Stages of Contract of Sale

1. Negotiation – begins from the time the prospective contracting parties manifest their interest in
the contract and ends at the moment of agreement of the parties.

2. Perfection or birth of the contract – takes place when the parties agree upon the essential
elements of the contract.

3. Consummation of the contract – occurs when the parties fulfill or perform the terms agreed
upon in the contract, culminating in the extinguishment thereof.

 Characteristics of a contract of sale

1. Consensual - a contract of sale is perfected by mere consent, manifested by the meeting of the
minds as to the offer and acceptance on the subject matter, price and terms of payment.

2. Bilateral - both the contracting parties are bound to fulfill correlative obligations towards each
other — the seller, to deliver and transfer ownership of the thing sold and the buyer,
to pay the price.

3. Onerous - the thing sold is conveyed in consideration of the price and vice versa.

4. Commutative - 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 (e.g., sweepstakes
ticket). If the ticket wins, the prize is much more than the price of the ticket.

5. Nominate - it is given a special name or designation in the Civil Code, namely, “sale”.

6. Principal – its existence does not depend upon the existence and validity of another contract.

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 Q. Is sale a mode to transfer/acquire ownership?
A. No, sale is not a mode, but merely a title. A mode is the legal means by which dominion
or ownership is created, transferred or destroyed, but title is only the legal basis by which
to affect dominion or ownership. Sale by itself does not transfer or affect ownership; the
most that sale does is to create the obligation to transfer ownership. It is tradition or
delivery, as a consequence of sale, that actually transfers ownership.

 Formal requirement for the validity of a contract of sale

1. General Rule - As a general rule, a contract of sale may be entered into in any form provided
all the essential requisites for its validity are present. (Art. 1356.) It may be in writing; it may be
oral; it may be partly in writing and partly oral.

It may even be inferred from the conduct of the parties. Sale is a consensual contract and is
perfected by mere consent. (Art. 1475.)

2. Exceptions:

a. If the form is required in order that a contract may be enforceable. In case the
contract of sale should be covered by the Statute of Frauds, the law requires that the
agreement (or some note or memorandum thereof) be in writing subscribed by the party
charged, or by his agent; otherwise, the contract cannot be enforced by action
(Art.1403[2]).

(i) Sale of personal property at a price not less than P500.00;

(ii) Sale of real property or an interest therein regardless of the price involved;
and
(iii) Sale of property not to be performed within a year from the date thereof
regardless of the nature of the property and the price involved.

Q. S orally sold to B a parcel of land, is the sale valid?

A. Yes, the sale is valid but it is unenforceable because the law requires that it be in
writing to be enforceable. (Art. 1356 and Art. 1403[e])

b. If the form is required in order that a contract may be valid. Where the “applicable
statute” requires that the contract of sale be in a certain form for its validity, the required
form must be observed in order that the contract may be both valid and enforceable.
(Art. 1356.)

 Kinds of contract of sale

1. Nature of the subject matter

a. Sale of real property
b. Sale of personal property
2. Value of the things exchanged
a. Commutative sale
b. Aleatory
3. Tangibility of the object
a. Sale of property (tangible or corporeal)
b. Sale of a right (assignment of a right or credit or other intangibles)
4.Validity or defect of the transaction
a. Valid
b. Rescissible
c. Voidable
d. Unenforceable
e. Void

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 5. Legality of the Object
a. Licit object
b. Illicit object
6. Presence or absence of conditions
a. Absolute
b. Conditional
7. Proximate inducement for the sale
a. Sale by description
b. Sale by sample
c. Sale by description and by sample
8. Price is tendered
a. Cash sale
b. Installment plan

A contract of sale may be absolute or conditional

Absolute Sale — where the sale is not subject to any condition whatsoever and where title
passes to the buyer upon delivery of the thing sold. Thus, it has been held that a deed of sale
is absolute in nature although denominated as a “Deed of Conditional Sale” in the absence of any
stipulation that the title to the property sold is reserved in the vendor until full payment of the
purchase price nor a stipulation giving the vendor the right to unilaterally rescind the contract the
moment the vendee fails to pay within a fixed period.

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 and in the case of the vendor, the fulfillment of certain warranties, e.g., the timely
eviction of squatters on the property sold.

Effect of the non-performance of the condition or if the condition did not take place
Where the obligation of either party to a contract of sale is subject to any condition which is not
performed, such party may:
1. Refuse to proceed with the contract; or
2. Waive performance of the condition.

 Sale distinguished from other contracts

1. Sale v. Donation
Sale Donation
Onerous Gratuitous/onerous
Consensual Formal contract
Law on Sales Law on Donation

2. Sale v. Barter
Basis Sale Barter
As to Nature A thing is given in exchange of a price A thing is given in exchange of
certain in money or its equivalent another thing
If consideration is
partly in money and The transaction is characterized by the manifest intention of the parties
partly in another
thing If intention is not clear, and the value If intention is not clear, and the
of thing is equal or less than the value of thing is more than the
amount of money -> Sale amount of money -> Sale
Applicable law Both are governed by law on sales.

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3. Sale v. Agency to Sell
Basis Sale Agency to Sell
Obligation as Regards the Buyer pays for price of object. Agent not obliged to pay for
Price price; must account for the
proceeds of the sale.
Transfer of ownership Buyer becomes owner of Principal remains the owner
thing. even if the object delivered to
agent.
Warranty Seller warrants. Agent assumes no personal
liability as long as within
authority given.
Revocability Not unilaterally revocable. May be revoked unilaterally
even w/o ground.
As to Profit Seller receives profit Agent not allowed to profit

4. Sale v. Dacion en Pago

Basis Sale Dacion en Pago
Existence of Credit No pre-existing credit. Contract where property is
alienated to extinguish pre-
existing credit/debt.
Relationship Buyer-seller relationship. Novates creditor-debtor
relationship into seller-buyer
Obligation Obligations are created. Obligations are extinguished.
Consideration Seller: Price Debtor: Extinguishment of the
debt.
Buyer: Acquisition of the
Object Creditor: The acquisition of
the object offered in lieu of
the original credit.
Determination of the Price Freedom Limited freedom
Payment of the Price Buyer still has to pay the Debtor receives the payment
price before the contract is
perfected

5. Sale v. Lease
Sale Lease
Obligation to absolutely transfer ownership Use of thing is for specified period only with
of thing obligation to return
Consideration is the price Consideration is the rental
Seller needs to be owner of thing to transfer Lessor need not be owner
ownership.

NB: Lease with option to buy – really a

contract of sale but designated as lease in
name

6. Sale v. Contract for Piece of Work

Basis Sale Contract for Piece of Work
Existence Manufacturing in the ordinary Manufacturing upon special
course of business. order of a customer.
To Whom Made For the general market. Not for the general market,
but specially for the customer.
Applicability of the Statute of Governed by the Statute of Not within the Statute of
Frauds Frauds. Frauds.

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 Risk of Loss before Delivery Borne by the buyer. Borne by the worker or
contractor, not by the
employer.

 Contract to Sell

1. Definition - bilateral contract whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the prospective buyer, binds himself
to sell the said property exclusively to the prospective buyer upon fulfillment of the condition
agreed upon, that is, full payment of the purchase price.

NB: The payment of the price is a positive suspensive condition (to transfer the ownership of and
deliver the thing). Failure of which is not a breach but an event that prevents the obligation of the
vendor to convey title from becoming effective.

2. Contract of Sale v. Contract to Sell

Basis Sale Contract to Sell
As regards transfer of Ownership is transferred to Ownership is transferred
ownership the buyer upon delivery of the upon full payment of the
object to him. purchase price.

NB: Vendor has lost and NB: Prior to full payment,

As to the number of contracts
involved
cannot recover ownership
until and unless the contract
is resolved or rescinded
There is only one contract
executed between the seller
and the buyer.
ownership is retained by the
seller.
There are two contracts:
1. The contract to sell
NB: Preparatory sale

2. The deed of absolute sale

NB: The principal contract is

executed after full payment of
the purchase price.
Payment as a condition Non-payment of the price is a Full payment of the price is a
resolutory condition. positive suspensive condition.

Vendor loses ownership over NB: Failure to fully pay the

Remedies available
the property and cannot
recover it until and unless the
contract is resolved or
rescinded.
1. Specific Performance
2. Rescission
3. Damages
price is not a breach but an
event that prevents the
obligation of the vendor to
convey title from becoming
effective.
1. Resolution
2. Damages

II. PARTIES TO A CONTRACT OF SALE

 Capacity of Parties

General Rule: Every person having legal capacity to obligate himself, may validly enter into a
contract of sale, whether as seller or as buyer. (Art. 1489)

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 Exception:

1. Minors, insane and demented persons and deaf-mutes who do not know how to write

2. Persons under a state of drunkenness or during hypnotic spell

NB: Contracts of sale entered by those legally incapacitated persons are merely voidable,
subject to annulment or ratification. But, the action for annulment cannot be instituted by the
person who is capacitated since he is disqualified from alleging the incapacity of the person with
whom he contracts.

3. Husband and wife - sale by and between spouses

NB: Sales between spouses is not merely voidable, but null and void.

4. Sale between guardians and wards – the contract is void and not merely voidable. The
prohibition exists only when the guardianship exists.

5. Sale between agents and principals – the prohibition does not apply of the principal consents
to the sale of the property in the hands of the agent or administrator. Moreover, after the
termination of the affairs of the agency, the prohibition no longer applies. The transaction may be
ratified by way of a new contract which will become valid only from its execution and will not
retroact to the date of the first contract.

6. Sale between executors and administrators of estate of the deceased (Art. 1491). But
hereditary rights are not included in the prohibition.

7. Sale involving property of the government (Art. 1491).

The nullity of such prohibited contracts is definite and permanent and cannot be cured by
ratification. The public interest and public policy remain paramount and do not permit of
compromise or ratification.

8. Sale of property in litigation (Art. 1491). Nullity is permanent. Applies if the property sold is the
object of litigation.

 Absolute Incapacity

Persons who are absolutely incapacitated to enter into a contract of sale:

1. Unemancipated minors (Art. 1327); and

2. Insane or demented persons, and deaf-mutes who do not know how to write (Art. 1327).

Persons who are relatively incapacitated to enter into a contract of sale:

1. Spouses (Art. 1490);

2. Agents, Guardians, Executors and Administrators;
3. Public Officers and Employees;
4. Court Officers and Employees; and
5. Others specially disqualified by law. (Art. 1491).

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 Summary of Rules:

Relatively Property Involved Status of the Ratification

Incapacitated to Buy Sale
Agents Property entrusted to Unenforceable Can be rarified after the
them for administration. inhibition has ceased.

Except, when the Rationale: The only

principal gives his
consent
Guardian Property of the ward
during the period of
guardianship
Executors and Property of the estate
Administrators under administration
wrong that subsists is the
private wrong toward
principal; or estate; and
Voidable can be condoned by the
private parties themselves.
NB: Contracts entered by
guardian in behalf of ward
are rescissible if ward
suffers lesion (damage) by
more than ¼ of the value
the property.

Court officers and Property and rights in
employees litigation or levied upon
on execution before the
court under their
jurisdiction.
Sale by guardian of
property belonging to a
ward without Court
approval is void regardless
of the lesion, hence,
cannot be ratified.
Void Cannot be ratified.
Rationale: It is not only a
private wrong, but also a
public wrong.

Public officers and Property of the State

employees entrusted to them for
administration.

Others specially
disqualified by law

 Status of the following contract of sale

1. Entered into by minors

General Rule: Merely voidable, subject to annulment or ratification.

Exception: Where necessaries are sold and delivered to a minor or other person without
capacity to act, he must pay a reasonable price (Art. 1489).

NB: Action for annulment cannot be instituted by the person who is capacitated since he is
disqualified from alleging the incapacity of the person with whom he contracts (with partial
restitution in so far as the minor is benefited) where necessaries are sold and delivered to a minor
or other person without capacity to act, he must pay a reasonable price (Art. 1489)

2. Sale by and between husband and wife

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 a. Status of prohibited sales between spouses:
General Rule: The contract of sale is null and void
Exception: In case of sale between spouses:
i. When a separation of property was agreed upon in the marriage settlements; or
ii. When there has been a judicial separation of property agreed upon between them

b. Contract of sale with third parties:

General Rule Under the law on sales, it would seem that a spouse may, without the consent of
the other spouse, enter into sales transactions in the regular or normal pursuit of their
profession, vocation or trade. (in relation with Art. 73, Family Code)

Exception: Even when the property regime prevailing was the conjugal partnership of gains, the
Supreme Court held the sale by the husband of a conjugal property without the consent of the
wife is void, not merely voidable under Art. 124 of the Family Code since the resulting contract
lack one of the essential elements of full consent.
(Guiang v. CA, G.R. No. 125172, June 26, 1998)

c. Between Common Law Spouses

Sale between common law spouses is null and void to prevent the exercise of undue influence
by one spouse over the other. The prohibition also applies to a couple living as husband and wife
without the benefit of marriage. (Calimlim-Canullas v. Fortun G.R. No. L-57499, June 22, 1984).

Rationale: The condition of those who incurred guilt would turn out to be better than those in
legal union.

Q: Atty. Maquera acquired his client’s property as payment for his legal services, then sold
it and as a consequence obtained an unreasonable high fee for handling his client’s case.
Did he validly acquire his client’s property?
A: No. Article 1491 (5) of the New Civil Code prohibits lawyer’s acquisition by assignment
of the client’s property which is the subject of the litigation handled by the lawyer.
Furthermore, under Article 1492, the prohibition extends to sales in legal redemption.
(B.M. No. 793, July 30, 2004)

 Persons specially disqualified by law to enter into contracts of sale

1. ALIENs who are disqualified to purchase private agricultural lands (Art. XII Secs. 3 & 7)

2. Unpaid seller having a right of lien or having stopped the goods in transitu, is prohibited from
buying the goods either directly or indirectly in the resale of the same at public/private sale which
he may make (Art. 1533 [5]; Art. 1476 [4])

3. The Officer holding the execution or deputy cannot become a purchaser or be interested
directly or indirectly on any purchase at an execution. (Sec. 21 Rule 39, Rules of Court)

4. In Sale by auction, seller cannot bid unless notice has been given that such sale is subject to a
right to bid in behalf of the seller. (Art. 1476)

III. SUBJECT MATTER

 Requisites of a proper object of sale

1. Things
a. Determinate or determinable
b. Lawful (licit), otherwise contract is void

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 c. Should not be impossible (within the commerce of men)

2. Rights

General Rule: Must be transmissible.

Example: right of redemption, right of usufruct, sale of credit, right to inheritance already
assigned, etc.

Exception:
a. Future inheritance
b. Service – cannot be the object of sale since they are not determinate things and no
transfer of ownership is available. It can be the object of certain contracts such as
contract for a piece of work.

 The subject matter of sale must be determinate or at least determinable

1. When a this is determinate

A thing is determinate when it is particularly designated or physically segregated from all the
others of the same class (Art. 1460).

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 (Art. 1460)

2. When a thing is determinable

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 (Art. 1460)

Q: NU entered into a contract of sale with DLSU to convey to the latter one of the five lots
he owns, without specifying which lot it was, for the price of P10 million. Later, the parties
could not agree which of five lots he owned NU undertook to sell to DLSU. Is the contract
of sale valid?
A: No. It is a void contract since the particular lot sold cannot be determined.

 Kinds of object of sale

1. Existing Goods – owned/ possessed by seller at the time of perfection

2. Future Goods – goods to be manufactured, raised, acquired by seller after perfection of the
contract or whose acquisition by seller depends upon a contingency (Art. 1462)

3. Sale of Undivided Interest or Share

a. Sole owner may sell an undivided interest. (Art. 1463)

Example: A fraction or percentage of the property.
b. Sale of an undivided share in a specific mass of fungible goods makes the buyer a co-
owner of the entire mass in proportion to the amount he bought. (Art. 1464)

NB: A co-owner cannot sell more than his share.

4. Sale of Things in Litigation

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 a. Sale of things under litigation is rescissible if entered into by the defendant, without the
approval of the litigants or the court (Art. 1381)
b. No rescission is allowed where the thing is legally in the possession of a 3rd person
who did not acted in bad faith.

5. Things subject to Resolutory Condition – Example: Things acquired under legal or conventional
right of redemption, or subject to reserva truncal. (Art. 1465)

6. Indeterminate Quantity of Subject Matter – 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 need of a new contract. (Art. 1349)

 Emptio Rei Speratae v. Emptio Spei

Basis Emptio Rei Speratae Emptio Spei

Definition Sale of thing having potential Sale of mere hope or
existence expectancy

Uncertainty Uncertainty is w/ regard to Uncertainty is w/ regard to

quantity & quality existence of thing

Object of the sale Contract deals w/ future thing
Effectivity Sale is valid only if the
expected thing will exist.
Contract deals w/ present
thing – hope or expectancy
Sale is valid even though
expected thing does not
come into existence as long
as the hope itself validly
existed. (eg. lotto)

If the it cannot be determined, the presumption is Emptio Rei Speratae

 Sale by a person who does not own the thing sold

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