SALES

Nature, Forms and Requisites

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. (Article 1458, NCC)
Let’s break down the definition provided above and determine the elements
of a contract of sale. First, take note that a sale is a contract. As such, the
three (3) essential elements of a valid contract should be present,
namely: consent, object and cause (COC). In a contract of sale, consent is
present when there is a meeting of minds to transfer ownership in exchange
of the price, the object or the subject matter is the determinate thing to be
delivered, and the cause or consideration is the price certain in money or its
equivalent. Absence of any of these essential elements will render the
contract of sale void.
In addition to the essential elements, a contract of sale also has natural
elements, these are elements which are inherent and are deemed to exist
in the contract, in the absence of any stipulation to the contrary:
a. Warranty against hidden defects
b. Warranty against eviction
There are also accidental elements, these refer to the stipulations agreed
upon by the parties, such as those pertaining to the terms and manner of
payment, penalty, interest and other conditions governing the contract of
sale.
In order to understand further the concept of a contract of sale, it is
likewise necessary to determine its characteristics (CBCPON):
a. Consensual- It is perfected by mere consent
b. Bilateral- The parties are bound by their reciprocal obligations(i.e.
seller-deliver and transfer a determinate thing, buyer- pay the price)
c. Commutative- The parties exchange almost equivalent values
d. Principal- Its existence does not depend upon another contract
e. Onerous- The parties give valuable considerations in order to acquire
rights
f. Nominate- The law designates a special name to it.
As stated in letter (a) above, a contract of sale is consensual; it is perfected
at the moment there is a meeting of the minds between the seller and the
buyer as to the thing which is the object of the contract and upon the price.
Q: Is it necessary that a contract of sale be in writing in order to be valid?
A: No, the general rule is that a contract of sale may be made in writing, or
by word of mouth, or partly in writing and partly by word of mouth, or may
be inferred from the conduct of the parties .(Art. 1483, NCC)
Remember the rule under your Obligations and Contracts that contracts shall
be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. (Art. 1356,
NCC)
Exceptions:

1. If the law requires a document or other special form, the contracting

parties may compel each other to observe that form (Art. 1357, NCC)

2. Under Statute of Frauds, certain contracts must be in writing,

otherwise, they shall be unenforceable(Art. 1403(2), NCC)

3. Sale of large cattle which requires that the same be recorded with the
city/municipal treasurer and that a certificate of transfer be issued.
Otherwise, the sale is not valid (Art. 1581, NCC)

A contract of sale may be absolute or conditional.

Absolute Sale Conditional Sale

A sale is absolute when no condition
is imposed and ownership passes to
the vendee upon delivery of the
thing subject of the sale (NCC, Art.
1497).
A deed of sale is absolute when
there is no stipulation in the
contract that title to the property
remains with the seller until full
payment of the purchase price. The
sale is also absolute if there is no
stipulation giving the vendor the
right to cancel unilaterally the
It is 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
(De Leon, 2013).
In a conditional sale, as in a
contract to sell, ownership remains
with the vendor and does not pass
to the vendee until full payment of
contract the moment the vendee the purchase price. The full
fails to pay within a fixed period. payment of the purchase price
(Spouses Ramos vs. Spouses partakes of a suspensive condition,
Heruela, G.R. No. 145330, October and non-fulfillment of the condition
14, 2005) prevents the obligation to sell from
arising. (Spouses Ramos vs.
Spouses Heruela, G.R. No. 145330,
October 14, 2005)

Now, in order to understand better the features of a contract of sale, let us

distinguish it from other contracts:

A. Sale vs. Donation

SALE DONATION
Onerous Gratuitous/onerous
Consensual Formal contract
Law on Sales Law on Donation

B. Sale vs. Barter

SALE BARTER
Cause or Cause or
consideration is in consideration is
money another thing

Q: What if the consideration is partly in money and partly in another

thing?

For example, you have an old model of iPhone and you want to
upgrade to iPhone 12 Pro Max. So you went to Powermac, surrendered
your old iPhone currently valued at P25,000, then, Powermac, after
considering the value of your old iPhone as discount, sold to you the
newest iPhone 12 Pro Max at only P45,000, instead of the original
price of P70,000.

What kind of contract did you enter with Powermac?

A:

Rules in determining whether a contract is a sale or barter:

 Priority 1: The contract shall be one of sale or barter depending upon
the manifest intention.

Priority 2: If the intention of the parties does not clearly appear:

a. The contract is one of barter if the value of the thing given is

part of the consideration exceeds the monetary consideration

b. The contract is one of sale if the monetary consideration is

more than or equal to the value of the thing given as part
of the consideration. (Art. 1468)

In our example, it is apparent that the intention of the parties is to

enter into a contract of sale because of the use of the term “sold”.
Even if the intention of the parties is not clear, the contract will still be
one of sale because the monetary consideration is more than the value
of the thing given as part of the consideration, which is the old iPhone
in our example.

C. Sale vs. Agency to sell

SALE AGENCY TO SELL

Title to the goods is
transferred to the buyer
upon delivery of the thing
sold
The buyer is required to pay
the price
Title to the goods is not
transferred to the agent upon
delivery
The agent is required to turn
over to the principal the price
of the goods which he
received from the buyer

D. Sale vs. Dacion en pago

SALE DACION EN PAGO

There is no pre-existing
credit
Creates obligations
The cause or consideration is
the price from the seller’s
point of view; and the
delivery of object from the
buyer’s point of view
There is a pre-existing credit
Extinguishes obligations
The cause or consideration is
the extinguishment of the
obligation, from the debtor’s
point of view; and the
delivery of the object given

There is greater freedom in
fixing the price
E. Sale vs. Lease
SALE
Obligation to absolutely
transfer ownership of thing.
Consideration is the price.
Seller needs to be owner of
thing to transfer ownership.
NOTE: Lease with option to
buy – really a contract of
sale but designated as lease
in name.
F. Sale vs contract for a piece of work
SALE
A contract for the delivery at
a certain price of an article
which the vendor in the
ordinary course of business
manufactures or procures for
the general market, whether
the same is on hand or not
G. Sale vs contract to sell
SALE
The title to the property
passes to the vendee upon
the delivery of the thing sold
NOTE: Vendor has lost and
cannot recover ownership
in place of the credit from
the creditor’s point of view.
There is less freedom in
fixing the price because of
the amount of the pre-
existing credit which the
parties seek to extinguish.
LEASE
Use of thing is for specified
period only with obligation to
return.
Extinguishes obligations
Lessor need not be owner.
CONTRACT FOR PIECE OF
WORK
The goods are to be
manufactured specially for
the customer and upon his
special order and not for the
general market
CONTRACT TO SELL
Ownership is, by agreement,
reserved to the vendor and is
not to pass to the vendee
until payment of the
purchase price
 until and unless the contract
is resolved or rescinded.
Non-payment of the price is
a negative resolutory
condition, i.e., the vendor
loses ownership of the
property and cannot recover
it until and unless the
contract of sales is resolved
or rescinded.
NOTE: Prior to full payment,
ownership is retained by the
seller.
Full payment of the purchase
price is a positive suspensive
condition, i.e., title remains
in the vendor if the vendee
does not comply with
condition precedent of
making payment at the time
specified in the contract.

In other words, failure to pay

the price is not a breach but
an event that prevents the
obligation of the vendor to
convey title from becoming
effective
The risk of loss is on the The risk of loss is on the
buyer seller
There is only one contract There are two contracts:
executed between the seller 1. The contract to sell
and the buyer NOTE: Preparatory sale
2. The deed of absolute sale

NOTE: The principal contract

is executed after full
payment of the purchase
price.

In order to understand better the distinction between a contract of sale

and contract to sell, let us define contract to sell.

CONTRACT TO SELL

A 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 (Coronel v. CA, G.R. No. 103577, October
7, 1996).
 Note that the transfer of ownership of the property is subject to a
condition, that is, the full payment of the price. Does that mean that a
contract to sell is the same as a conditional contract of sale?

No, a contract to sell may further be distinguished from a conditional

contract of sale, in that, the fulfillment of the suspensive condition, which is
the full payment of the purchase price, will not automatically transfer
ownership to the buyer although the property may have been previously
delivered to him. The prospective vendor still has to convey title to the
prospective buyer by entering into a contract of absolute sale. While in a
conditional contract of sale, the fulfillment of the suspensive condition
renders the sale absolute and affects the seller's title thereto such that if
there was previous delivery of the property, the seller's ownership or title to
the property is automatically transferred to the buyer. (Ursal vs. Court of
Appeals, G.R. No. 142411, October 14, 2005)

Now that we have distinguished contract of sale from other contracts.

Let us now discuss the parties to a contract of sale. In order to have a
contract of sale, it is of course necessary that there should be a seller and a
buyer. The seller is the one who sells and transfers the thing and ownership
to the buyer. On the other hand, the buyer is the one who buys the thing
upon payment of the consideration agreed upon.

Can anyone enter into a contract of sale?

As a general rule, all persons, whether natural or juridical, who can

bind themselves, have legal capacity to buy and sell.(Article 1489(1), NCC)

1. Vendor/Seller- must be legally capacitated to enter into a contract

- If the vendor is a corporation, the contract must be
executed by the board of directors or by a corporate
agent duly authorized by the board. (Spouses Firme vs.
Bukal Enterprises, G.R. No. 08, October 23, 2003)
- The vendor must have a right to transfer the ownership
at the time it is delivered. Nemo Dat Quod Non Habet(
You cannot give what you do not have) (Art. 1459, CC;
Heirs of San Miguel vs. Court of Appeals, G.R. No.
136054, September 5, 2001

2. Vendee/Buyer- The vendee must be also legally capacitated to

enter into contract. Also, if the vendor is a corporation, the contract
must be executed by the board of directors or by a corporate agent
duly authorized by the board. (Spouses Firme vs. Bukal Enterprises,
supra)
PERSONS WHO MAY NOT ENTER INTO A CONTRACT OF SALE

1. Minors, insane and demented persons and deaf-mutes who do not

know how to write;

Note: In case of minors or other persons without capacity to act, only

the purchase of necessaries is valid, for which they shall pay a reasonable
price therefor. (Art. 37, 1489, CC).

2. Husband and wife - sale by and between spouses.

Rationale for the prohibition:

a. To prevent a spouse from defrauding his creditors by transferring his
properties to the other spouse;
b. To avoid a situation where the dominant spouse would unduly take
advantage of the weaker spouse;
c. To avoid an indirect violation of the prohibition against donations
between spouses under Article 133 of the Civil Code (Medina v. Collector
of Internal Revenue, G.R. No. L-15113, January 28, 1961).

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

4. Sale between agents and principals

XPN: The prohibition does not apply if the principal consents to the sale
of the property in the hands of the agent or administrator.
Also, 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.

5. Sale between executors and administrators of estate of the deceased

But hereditary rights are not included in the prohibition.

6. Sale involving property of the government by public officers and

employees, the administration of which has been entrusted to them;
this provision shall apply to judges and government experts who, in
any manner whatsoever take part in the sale;
-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.

7. 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;

8. Sale of property in litigation [NCC, Art. 1491(5)]

9. Others specially disqualified by law. (E.g. aliens may not purchase

private agricultural lands in the Philippines)

Now that we have learned who are the persons authorized to enter into a
contract of sale, let us now proceed to the rules on the object of the contract
of sale. In other words, what may be sold?

1. The thing must be within the commerce of men

2. The thing must be licit((i.e. it must not be contrary to law, morals
good customs, public order or public policy)(Art. 1459)
3. The thing must be determinate
- A thing is determinate if it is particularly designated or
physically segregated from all others of the same class.
The requisite that a thing is 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: Can you sell something you do not own at the time of sale?

A: Yes. It is during the delivery that the law requires the seller to have the
right to transfer ownership of the thing sold. In general, a perfected contract
of sale cannot be challenged on the ground of the seller’s non-ownership of
the thing sold at the time of the perfection of the contract (Alcantara-Daus
v. De Leon, G.R. No. 149750, June 16, 2003).
This rule is in accord with a well-known principle of law that one cannot
transmit or dispose of that which he does not have — nemo dat quod non-
habet.

NOTE: Future inheritance cannot be the subject of sale.

Things having a potential existence may be the object of a contract of

sale. Thus, one can sell the future harvest from a harm. However, the
thing must come into existence, otherwise the sale will not be effective
for not having a subject matter.

Distinction between sale of an expected thing(emptio rei speratae) and the

sale of the hope itself(emptio spei)

Emptio rei speratae Emptio Spei

Sale of thing having potential
existence.
Uncertainty is w/ regard to quantity
& quality.
Contract deals w/ future thing.
Sale is valid only if the expected
thing will exist. So that if the
condition is not fulfilled, if the thing
does not come into existence, the
contract cannot have the effect for
lack of an essential requisite.
Although the vendee may have
reserved his right to claim
indemnity from the vendor in the
event that the latter knew that the
thing could not come into existence
Sale of mere hope or expectancy.
Uncertainty is w/ regard to
existence of thing.
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 e.g. lotto
NOTE: Sale of a vain hope or
expectancy however, is void (NCC,
Art. 1461). Example: Sale of a
losing sweepstake ticket already
drawn.

Future goods or goods to be manufactured, raised or acquired by the

seller after the perfection of the contract of sale and goods whose
acquisition by the seller depends upon a contingency which may or
may not happen, may also be the subject of a contract of sale.

Example: Sale of garments to be sewn or to be purchased by the seller

are goods to be manufactured or acquired by the seller, sale of a car
promised to you by your father, once you pass the CPA Board Exams
The sole owner of a thing may sell an undivided interest therein(Art.
1463) Such sale shall produce the effect of making the seller and the
buyer co-owners of the thing sold.
Example: Mimiyuuuh owns a parcel of land. She decided to sell ½ of
the property to Sassa Gurl. Such sale shall produce the effect of
making Mimiyuuuh and Sassa Gurl co-owners of the property, with
each party owning ½ undivided interest therein.

Sale of fungible goods

Fungible goods refer to interchangeable goods such as grain, oil, etc.

that allow one to be replaced by another without loss of value.

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). The following rules shall be observed if the
quantity sold is different from the quantity of the mass:

a. If the quantity, i.e., number, weight or measure, of the mass is

more than the quantity sold, the parties shall become co-owners of
the mass.

Example: Daphne sold to Eloise 200 sacks of rice. The mass,

however,actually consists of 300 sacks of rice. Thus, Daphne and
Eloise will become co-owners of the whole mass to the extent of 2/3
for Eloise and 1/3 for Daphne.

b. If the quantity of the mass is less than the quantity sold, the buyer
becomes the owner of the whole mass, with the seller being bound
to make good the deficiency from goods of the same kind and
quality, unless a contrary intent appears.

Example: Daphne sold to Eloise 300 sacks of rice. The mass,

however,actually consists of 250 sacks of rice. In this case, Eloise
becomes the owner of all 250 sacks of rice and Daphne is bound to
deliver to Eloise an additional 50 sacks of rice to complete the
quantity agreed upon.

Things subject to a resolutory condition may be the object of a

contract of sale.

Example: Meredith sold to George her house with right to repurchase

within 5 years from the date of the sale. The sale and the right to
repurchase were registered in the Registry of Deeds where the
 property is located. Three years after the sale, George sold the house
to Burke. Burke becomes the owner of the house although subject to
Meredith’s right to repurchase it within the five-year period from the
time she sold it to George.

We have understood the parties to a contract of sale and the object of the
sale, now let us discuss the price.

Price is the sum stipulated as the equivalent of the thing sold and also every
incident taken into consideration for the fixing of the price put to the debit of
the buyer and agreed to by him

RULES ON PRICE

1. Certainty- Price of the thing sold must be certain; otherwise the sale is
void by reason of the absence of meeting of minds between the
parties.

Q: When is a price considered certain?

a. If there is a stipulation

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

b. If it be with reference to another thing certain

Example: Mark sold to John a bag, the price of which is the price of 30
kilos of chicken being sold at SM Legazpi.

c. If the determination of the price is left to the judgment of specified

person(s)

- If such person or persons are unable or unwilling to fix the price, the
contract shall be inefficacious, unless the parties subsequently agree
upon the price
- If the third person or persons acted in bad faith or by mistake, the
courts may fix the price
- If such third persons or persons are prevented from fixing the price
or terms by the fault of the seller or buyer, the party not at fault may
have such remedies against the party at fault as are allowed the seller
or buyer, as the case may be(Art. 1469)
 d. By reference to certain fact(s) as referred to in Art. 1472 (NCC, Art.
1469).
NOTE: If the price is based on estimates, it is uncertain.

2. Simulated Price

The price is simulated when neither party had the intention that the amount
will be paid (Yu Bun Guan v. Ong, G.R. No. 144735, October 18, 2001).

Effect if price is simulated

GR: The sale is void.

XPN: If it can be shown to be a donation or another contract (NCC, Art.

1471).

Admission by the vendee that he did not pay any centavo for the property
makes the sale void (Labagala v. Santiago, G.R. No. 132305, December 4,
2001).

3. Gross Inadequacy of Price

Q: Macoy sold to Justin a Ferrari car amounting to P10,000,000 for only P

1,000,000. Does the gross inadequacy of the price affect the contract of
sale?

A: No, it does not affect the validity of the sale

XPN:
1. If Consent is vitiated (may be annulled or presumed to be equitable
mortgage);
2. If the parties intended a Donation or some other act/ contract;
3. If the price is so low as to be “Shocking to the conscience”;
4. If in the event of Resale, a better price can be obtained.

Note: The price is grossly inadequate if a reasonable man will not agree to
dispose of his property at that amount.

Q: What if the parties have not agreed on the price of the thing sold?
A: Effect of failure to determine the price
1. Where contract is executory – ineffective.
2. Where the thing has been delivered to and appropriated by the buyer –
the buyer must pay a reasonable price therefore.