NATURE OF CONTRACT

Basic concepts

Definition

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

A contract of sale may be absolute or conditional.

Cited Jurisprudence
Cabling vs lumpas

Characteristics of a contract of sale

 Consensual – perfected at the moment there is a meeting of the mindsupon the thingwhich is the object
of the contractand upon the price
 Bilateral – both the contracting parties are bound to fulfill the correlative obligations towards ach other
 Onerous – the thing sold is in conveyed in consideration of nominatethe price and vice versa
 Commutative – the thing sold is considered the equivalent of the price paid and vice versa
 Nominate – given a special name and designation in the civil code namely sale.
 Principal – because it does not depend its existence and validity upon another contract.

Essential Requisites
The contract of sale, being a contract, has the same requisites, namely, consent, object, and cause.

Article 1318
There is no contract unless the following requisites concur:
1.) Consent of the contracting parties- meeting of the minds of the two parties;
2) Object certain which is the subject matter of the contract- must be definite and certain (ex. Land, or
house etc);
3) Cause of the obligation which is established- compelling reason in the performance of the contract or
why a party assumes an obligation.

Consent - Also called meeting of the minds. mutual agreement, or consensus ad idem. It essentially refers to a
situation where the two parties of the contract has a mutual understanding in the formation of the contract of
sale. This essentially means that there is consent in the part of the seller to transfer ownership of the
determinate thing and in the part of the buyer to pay the equivalent price.

*Note: that both of the parties must have the legal capacity to give their consent.

Object - This is the subject matter of the contract. It must be determinate or capable of being determinate.

Cause - This refers the the price, in terms of money or its equivalent.

*Note: price is understood to mean, 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. A thing is worth only on what someone will pay for it.Gross inadequacy of price
does not affect the validity of contract of sale (1470). There is no requirement that the price be equal to
the exact value of the thing subject matter of the sale.

*its equivalent do not generally include goods or merchandise although they have their own value of
money. 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 in terma of money has been
determined.
Natural and Accidental Elements
Natural elements – deemed to exist in certain contracts, in the absence of any contrary stipulations like
warranty against evictionsor hidden defects.

Accidental elements - or 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

The stages of a contarct of sale are as follows:

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 partiesas to the object of the contract and upon the price.
3. Consummation – begins when the parties perform their respective undertaking und er the
contract of sale.

Absence of price/non payment of price

There is a legal effect between lack of consideration and failure to pay consideration

Sale inexistent or void (lack of consideration) – there can be no sale withot a price, this is in pursuant to the
essential elements of contract. Lack of one of the essential elements which is cause or consideration renders
the contract void. .

Sale subject to recission or specific performance ( failure to pay consideration) – non payment of the purchase
price is a resolutory condition for which the remedy is either judicail recission or specific performance.

*Note: failure to pay the consideration by itself does not dissolve the contarct of sale, in the absence of
specific/express agreement that payment on time is essential.

Stipulation for Automatic recission upon non-payment of the purchase price is valid.

Transfer of title to property for a price, essence of sale

The contract of sale carries with it the correlative duty of the seller to deliver the property and the obligation of
the buyer to pay the agreed price.

Obligation to deliver and to pay – the transfer of title toproperty or agreement o transfer title for a price actually
paid or promised not mere physical transfer of the property, is the essence of sale.

Payment of the purchase price is not essential to the transfer of ownership as long as the property sold has
been delivered.

Futures – a contract of sale or purchase ,of goods/commodity to be delivered at future time, if entered into
without the intention of having the goods/commodity pass from one party to another, but with an
understandingthat at appointed time, the purchaser is merely to receive or pay the difference between the
contract and the market prices is illegal.

Kinds of contract of sale

As to the presence of condition

1. Absolute – sale is absolute were the sale is not subject to any condition whatsoever and the title to
property passes to the purchaser upon the delivery of the thing sold. It is devoid of any proviso that title
is reserved.
2. Conditional – sale is conditional where the sale contemplates contingency and in general, where the
contract is subject to certain condition
Contract to sell
Commonly entered so as to protect the seller against a buyer who intends tobuy a property in installments by
withholding ownership over the property until the buyer effects full payment therefore.
Contract to Sell vs Contract of Sale
Basis
As regards transfer of ownership
As to numbers of contracts
involved
Payment as a condition
Remedies available
Contract of sale vs Contract of Conditional Sale
Basis
As to consent
As to effect of fulfillment of
suspensive condition
Contract of sale
Ownership is transferred to the
buyer upon
delivery of the object to him.
NOTE: Vendor has lost and
cannot recover ownership until
and unless the contract is
resolved or rescinded.
There is only one contract
executed between the seller and
the buyer.
Non- payment of the
price is a resolutory condition.
Vendor loses ownership over the
property and cannot recover it
until and unless the contract is
resolved or rescinded.
1. Specific Performance
2. Rescission
3. Damages
Contracts to sell
The prospective seller does not as
yet agree or consent to transfer
ownership of the property subject
of the contract to sell until the
happening of an event, which may
be the full payment of the
purchase price. What the seller
agrees or obliges himself to do is
to fulfill his promise to sell the
subject property when the entire
amount of the purchase price is
delivered to him.
Upon the fulfillment of the
suspensive condition, which is the
full payment of the purchase price,
ownership will not automatically
transfer to the buyer although the
property may have been
Contract to sell
Ownership is transferred upon full
payment of the purchase price.
NOTE: Prior to full payment,
ownership is retained by the
seller.
There are two contracts:
1. The contract to sell
NOTE: Preparatory sale
2. The deed of absolute sale
NOTE: The principal contract is
executed after full payment of the
purchase price.
Full payment of the
price is a positive suspensive
condition.
NOTE: Failure to fully pay the
price is not a breach but an event
that prevents the obligation of the
vendor to convey title from
becoming effective.
1. Resolution
3. Damages
Conditinal contract of sale
The first element of consent is
present, although it is conditioned
upon the happening of a
contingent event, which may or
may not occur.
If the suspensive condition is
fulfilled, the contract of sale is
thereby perfected, such that if
there had already been previous
delivery of the property subject of
the sale to the buyer, ownership

As to effect of sale of property to
third persons
previously delivered to him. The
prospective seller still has to
convey title to the prospective
buyer by entering into a contract
of absolute sale.
There being no previous sale of
the property, a third person buying
such property despite the
fulfillment of the suspensive
condition such as the full payment
of the purchase price, cannot be
deemed a buyer bad faith. There
is no double sale in such case.
Title to the property will transfer to
the buyer after registration
because there is no defect in the
owner-seller’s title per se, but the
latter, of course, may be sued for
damages by the intending buyer.
thereto automatically transfers to
the buyer by operation of law
without any further act having to
be performed by the seller.
Upon the fulfillment of the
suspensive condition, the sale
becomes absolute and this will
definitely affect the seller’s title
thereto. The second buyer of the
property who may have had
Actual or constructive knowledge
of such defect in the seller’s title,
or at least was charged with the
obligation to discover such defect,
cannot be a registrant in good
faith. Such second buyer cannot
defeat the first buyer’s title. In
case a title is issued to the second
buyer, the first buyer may seek
reconveyance of the property
subject of the sale.

Requisites concerning Objects

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

The thing or the object of the contract of sale must be determinate or capable of being determinate. It also
needs to be licit or lawful, that is, it should not be contrary to law, morals, good customs, public order, and
public policy. Third, it should not be impossible. The object of the contract must be within the commerce of
men, which means that it is legal and its ownership is transferable.

Rights that are transmissible or personal may also be the object of the contract of sale. Examples of this is the
right of usufruct.

It should be noted that services (or obligations to do) cannot be the object of a contract of sale, even if they can
be the object of a contract. (Contract for a piece of work)

Kinds of iliicit things - Article 1459 of the Philippine Civil Code requires that the object of the contract of sale
must be licit or lawful. Illicit things are therefore things that are unlawful or illegal. Things can be illicit per se or
per accidens.

1. Per se is a Latin phrase which means "in itself". Things that are illicit or illegal per se are things that are
inherently unlawful. An example of this is the selling of rotten food for consumption, since it may be the
cause of food poisoning.

2. Per accidens is a Latin phrase which means "by chance". Things that are illicit per accidens then are
things that are illegal because of a provision that declares it unlawful. An example of this would be the
selling of jueteng tickets.

Right to transfer ownership - One can only sell what he owns. In order for the sale to be valid, the vendor must
be the owner of the object of the contract of sale (or authorized by the owner to sell the object) in order to
transfer the ownership of the thing being sold.
It should be noted however that if at the time of delivery the right to transfer the ownership exists, then the
contract is valid. This means that it is not necessary that the seller has the ownership of the object of the
contract of sale during the formation or perfection of the contract for as long as the ownership exists during the
time of delivery.

This is of course to give way for future goods or goods that depend on contingency to be the object of the
contract of sale.

Seller must be the owner or authorized by the owner of thing sold – such right must exist at the time of the
delivery, however it does not require that the vendor must have the right to transfer ownership of the property
sold at the time of the perfection of the contract.

Where the property sold registered in name of seller who emplyed fraud in securing his title –
General rule: considered as nullity and conveys no title.
Exception: there are instance where such document may become the root of a valid title.
1. Certificate of title was already transferred from the name of the true owner to the forger while it
remained that way, the land was subsequently sold to an innocent purchaser for value from the name.

When the property sold in violation of a right of first refusalof another person – contract in violation of a right of
first refusal of another, while valid is recissible.

*Note : right of first refusal peratins must be the curre t offer of the seller to sell or the offer to purchase
of the prospective buyer. Only after the grantee fails to exercise his right under the same terms and
within the period contemplated can the owner or seller validly offer to sell the property to a third person,
again, under the same terms offered to the guarantee.

Where the real property, subject to unrecorded sale, subsequently mortgaged by seller wgich mortgage was
registered – the mortgagees registered mortgage right over the property is inferior to that of the buyers
unregistered right.

Definition of a Determinate thing

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

The requisites 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.

Determinate thing - A thing is determinate or specific when it is distinct from all others of the same class. A
determinate thing is distinct because of its individuality. Examples of a determinate thing are: the laptop you
are viewing this website on, your car (if you own only one), the lot on 443 Sto. Cristo, Guagua, Pampanga.

As noted on the preceding articles, it is not necessary that the thing is not determinate during the perfection of
the contract, for as long as it is determinable or capable of being determinate during the delivery of the object,
without the necessity of a new or further agreement from the parties. Also, it is not necessary that the object is
seen during the formation of the contract.

Example:
Apollo obligates himself to sell all of the cattle in a particular farm to Artemis for a specific sum of money. If at
the formation of the contract Apollo did not specify the farm, or if he owns several farms, then the object of the
contract is not determinate. The contract therefore is null and void.
Requirement that the thing must exist

Article 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.

Sale of things having potential existence – a future thing, as the object of the contract, may work in two
different ways
First – its coming of existence is a conditionfor the effectivity of the contract
Second – the contract is effective and the buyer has to pay the purchase price whether or not the thing
comes into existence.

Sale of the thing expected (Emptio rei sperate) – is the sale of the thing not yet in existence subject to the
cindition that the thing will exist. If the thing does not come into existence, the contract of sale will not become
effective, as such the buyer will have no obligation to paythe price.

Sale of mere hope or expectancy (Emptio rei Spei) – is the 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

Goods which may be object of sale

Article 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."

Goods which form the subject of a contract of salemay be either

1. Existing Goods – goods owned or possessed by the seller
2. Future Goods – goods to be manufacture( like the sale of milk bottles to be manufactured with the
name of the buyer) raised (like cattles) or acquired.

Sale of future goods

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

Sale contemplated by Article 1462 – the article contemplates a sale of specific goods where one of the
contracting binds himself to transfer the ownership of and deliver a determinate and the other topay therefore a
price certain in money or its equivalent.

Sale of the undivided interest in a thing

Article 1463.
The sole owner of a thing may sell an undivided interest therein.

By the sole owner – the sole owner may sell the entire thing, or only specific portion therof, or an undivided
interest therein and such interest may be designated as an aliqout part of the whole.

*Note: aliqout means – part of the whole.

Article 1563 pertains to the sale of the sole owner of a thing of an undivided share or interest thereof.
By a co-owner – only as to their respective shares even without the consent of the other co-owners
Sale of an undivided share of specific mass

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

Distinguished from other contracts and transactions

a. Contract for a piece of work
b. Contract of lease with option to buy
c. Dacion en pago
- Barter or exchange
- Agency to sell
3. Two kinds of contracts of sale
II. Essential elements and form
1. Essential elements of contract of sale
2. Consent of the contracting parties
3. Subject matter (object of contract)
4. Parties to the contract
5. Capacity of parties a. Absolute
b. Relative
6. Formalities required in contracts of sale
III. Formation of contract of sale and perfection
1. Stages of contract of sale
2. Perfection of contract of sale
3. Rule in sale by auction