CHAPTER 1: INTRODUCTION

CONTRACT OF SALE – One of the contracting parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a price certain money or its equivalent. A contract
of sale may be absolute or conditional. (basis: Article 1458, New Civil Code)

CHARACTERISTICS OF CONTRACT OF SALE:

1. Nominate - law gave it a name
2. Principal - can stand on its own; unlike accessory contract
3. Bilateral - imposes obligation on both parties
a. obligation of seller – transfer ownership & deliver
​ plus: sub-obligations
​ 1. to warrant the thing sold
​ 2. to take care of the thing pending delivery
b. obligation of buyer – pay for price

4. Onerous – with valuable consideration

​ Consequence: all doubts in construing contract to be resolved in greater reciprocity of interest
5. Commutative – equal value is exchanged for equal value
​ Subjective Test – as long as parties in all honesty that he is receiving equal value then it
complies with test & would not be deemed a donation; but must not be absurd.

​ Inadequacy of price or aleatory character not sufficient ground to cancel contract of sale;
inadequacy can show vitiation of consent & sale may be annulled based on vice but not on
inadequacy
6. Consensual – meeting of minds makes a perfect contract of sale but needs delivery to
consummate.

Contract of Sale Contract to Sell

Kind Absolute or conditional
Transfer of ownership ownership passes to the buyer
upon delivery of the thing sold
As a prerequisite Does not require a contract to sell
remedies available in case specific performance, rescission
of breach and damages
Obligation real obligation – obligation to give
Conditional
Ownership is reserved in the vendor and
not pass to buyer until some future time
and full payment of purchase price
Comes before a deed of sale
Resolution and damages
personal obligation – obligation to do

Donation Sale
Consideration Gratuitous Onerous
Governing law Law on donation Law on sales
Nature Formal contract Consensual
Relationship Donor-donee Buyer-seller
Cause Acceptance of donee Consent of 2 parties

Consideration/ cause
Governing law
if consideration consists party
in money & partly by thing
(Money/ Thing)
Barter Sale
giving of a thing giving of money as payment
law on sales law on sales
GENERAL RULE: Look at manifest intention
(Value Thing > Money) (Value Thing < Money) or
(Value Thing = Money)

Contract for piece of work Sale

Consideration/ cause Money or equivalent Money or equivalent
Governing law Law on sales Law on sales
Object Special order for a customer Determinate or determinable thing for a buyer
Passive subject Customer/ special market for general market
Habituality test Needs extraordinary skills and Not required
equipment
sale of service sale of things
Essence Service object

Agency to sell Sale

Nature of contract personal contract Consensual/ real
Governing law Law on Agency Law on Sales
Rescission not available Available
Obligation to pay Principal thru agent buyer pays
Ownership principal remains owner even if delivered to agent buyer becomes owner
Liability/ warranty Agent within authority, no liability seller warrants
Revocation may be revoked unilaterally Bilateral
Profitability Agent not allowed to profit seller receives profit
Relationship Principal-Agent Buyer-seller

Dacion en Pago (Dation in payment) Sale

Pre-existing credit There is None
Obligation Extinguishes Creates
Consideration Cause is extinguishment of obligation/ alienation of price and delivery of the object
obligation
Nature of contract contract where property is alienated to real contract
satisfy/extinguish obligation to pay debt
Freedom to fix price less freedom because the amount of  pre-existing greater freedom from fixing the
credit which the parties seek to extinguish price
Governing law Law on sales Law on Sales

Lease Sale
Obligation Use of thing is for specified period only obligation to absolutely transfer ownership of
with obligation to return thing
Consideration Rental fees price;
Owner lessor need not be owner seller needs to be owner of thing to transfer
ownership
Relationship Lessor-lessee Buyer-seller
Governing law Law on Lease Law on Sales

STAGES IN LIFE OF CONTRACT OF SALE:

1. Preparation/ negotiation
2. perfection – by mere consent; performance may be demanded ( specific performance )
3. consummation

ESSENTIAL REQUISITES OF A CONTRACT OF SALE

1. consent
2. subject matter
3. price

5 vices of consent:
1. mistake or error
2. fraud or deceit
3. intimidation or threat
4. violence or force
5. undue influence

CHAPTER 2: PARTIES TO A CONTRACT OF SALE

GENERAL RULE: All parties with capacity to contract can enter into a valid contract of sale
1. Natural
2. Judicial - corporation/partnership/associations/Cooperatives
​ Status of contract valid
​ Remedies available therefore are:
a. specific performance
b. rescission
c. damages

EXCEPTION TO GENERAL RULE:

1. Minors (VOIDABLE)
​ status of contract: voidable only, therefor ratifiable
 ​ remedy is action for annulment (with partial restitution in so far as the minor is benefited)

2. SALE BY & BETWEEN SPOUSES

a. Contract with 3rd parties, both of them (VALID)
b. Contract with 3rd parties, only one of them signed (VOIDABLE)
c. Sale between parties (VOID)

Reason:
i. prevent fraud of creditors
ii. avoid dominancy
iii. avoid circumvention of law

d. Sale between parties (between husband and wife) (VALID)

i. separation of property agreed (marriage settlement)
ii. judicial separation of property

3. Common Law Spouses

a. WITHOUT legal impediments to a 3rd party (VALID)

b. WITH legal impediments to a 3rd party (Void)

4. OTHERS PER SPECIFIC PROVISIONS OF LAW (POGEA)

​ Public officers with regards to the property of the state (VOID)
not ratifiable in the sense that public wrong is concerned

​ Officer of court & employee – with regards to property in litigation (VOID)

not ratifiable in the sense that public wrong is concerned

​ Guardian with regards to property of ward during period of guardianship (VOID)

ratifiable in the sense that only private wrong is involved
Reason: fiduciary relationship is based on trust

​ Executor/administrator with regards to the estate of the deceased (VOID)

ratifiable in the sense that only private wrong is involved
Reason: fiduciary relationship is based on trust

​ Agent with regards to property of principal (VOIDABLE)

ratifiable in the sense that only private wrong is involved
Reason: fiduciary relationship is based on trust

ATTORNEYS
REQUISITES:
1. Lawyer-client relationship exists
2. Subject matter – property in litigation (all types)
3. Duration – while in litigation (from filing of complaint to final judgment); may be future litigation
​ Reason: due to public policy; ground for malpractice
a. Client is at the mercy of the lawyer
b. Law is a noble profession, it is not a business but a profession
c. 2 Masters – 2 interest; one cannot serve 2 masters at the same time

​ Exception: CONTINGENT FEE ARRANGEMENT

a. Amount of legal fees is based on a value of property
b. Property itself is involved
​ Not a sale but service contract
​ Reason why contingent fee is followed:
i. constitutional prohibition v impairment of contract
ii. subject to control of courts (may be reduced if unconscionable or nullified)
iii. canons of legal ethics
iv. higher public policy litigants

CHAPTER 3: SUBJECT MATTER OF SALE

TO BE A VALID & BINDING SUBJECT MATTER, THE FOLLOWING MUST CONCUR:

1. Existing, Future & Contingent
 2. Licit
3. Determinate or determinable

EXISTING, FUTURE, CONTINGENT

​ Refers to subject matter that are existing & not existing but capable of existence
(pursuant to present, technology)
1. if this is present (VALID)
2. if absent : NO CONTRACT SITUATION, THEREFORE NO CAUSE OF ACTION
3. if mere pipe dream : (VOID)

SALE OF THINGS HAVING POTENTIAL EXISTENCE (Emptio Rei Speratae)

- Sale of a thing which is expected to come into existence, the quality and quantity of which are
unknown but not the thing itself which will be definitely come into existence.
​ Sale of future things; no physical existence yet
​ A resolutory condition that thing will come into existence
​ Non happening of condition: RESULUTORY: EXTINGUISH THE CONTRACT
​ Remedy: can recover what has been paid.
​ Validity: depends on the intention of the parties that if the thing does not come into
existence, the contract is without effect and as such there is not obligation to pay the
price.

SALE OF HOPE/ EXPECTANCY (emptio spei) ( art 1461)

i. Every sale of future thing is subject to condition that they will come into existence
ii. If hope does not come true – NO RECOVERY OF PAYMENT/NO RESCISSION
iii. Validity: depends on the agreement of the parties that the contract shall exist in all events,
so that the buyer will have to pay the price even if the thing does not actually come into
existence
iv. Type: Aleatory contract
v. If the hope is VAIN then the contract is VOID---- hopeless cause

EMPTIO REI SPERATAE EMPTIO SPEI

sale of things having potential existence sale of hope/ expectancy
Sale of A future thing Present thing, that is a hope or expectancy
Expectation of thing Definitely come into existence but its Not certain at all
quantity and quality are unknown
Subject to condition That the thing should exist, otherwise Produces the effect even though the thing
there is no contract does not come into existence

LICIT & VENDOR MUST HAVE A RIGHT TO TRANSFER SUBJECT MATTER

1. LICIT – must be within the commerce of men
​ VOID SUBJECT MATTER:
a. Contrary to law: eg. Sale of shabu
b. Simulated/fictitious: eg. Sale under an anonymous account
c. Did not exist at a time of transaction: eg. Sale of Iphone 100
d. Outside commerce of men; eg. sale of moon, stars
e. Impossible service; eg. natural disaster, weather condition
f. Intention cannot be ascertained
g. By provision of law

2. SELLER MUST BE OWNER – only at a time of consummation since tradition transfers ownership
but to have a perfected contract of sale

Vendor need not be owner of thing; can be validated/ratified by subsequent acquisition of title by
seller

DETERMINATE & DETERMINABLE

​ Absence: VOID; there is subject matter but Intention regarding subject matter can not be
ascertained – VOID
​ Kinds of subject matter:
1. Specific - Determinate
​ Particularly designated or segregated from all others of the same class
2. Generic - Determinable
 ​ Test: reach a point of description where both minds concur
​ At the time the contract is entered in to the thing is capable of being made determinate
without the necessity of a new or further agreement between parties
​ Exact quantity not essential
​ Sale of generic things – VALID; still executory
​ There can only be contract of sale when subject is finally chosen for delivery
– already segregated or designated; but before designation, valid K of sale already exists
3. Undivided interest (BUYER becomes co-owner)
4. Undivided share in mass of fungible goods (BUYER becomes co-owner)

CHARTER 4: PRICE – signifies the sum stipulated as equivalent of the thing sold

CHARACTERISTICS OF VALID PRICE

1. Must be real
2. Must be in money or its equivalent
3. Must be certain or ascertainable at the time of the perfection of the contract
4. Manner of payment provided for

REAL
1. When price stated is one intended by parties
​ If fictitious: no intention with respect to price - VOID
​ If False/simulated: what appears in contract is not the true price
a. VALID if there is true consideration
b. VOID but if none (because it is fictitious)
2. Valuable
​ When not valuable – VOID
​ When contract is onerous, presumed to have valuable consideration
​ Nominal consideration w/c is common law concept does not apply (P1.00)
​ Gross inadequacy of price in ordinary sale does not render contract void unless it is shocking to
conscience of man.
Except:
a. Judicial sale
​ Shocking to conscience of man
​ Higher price can be obtained at re-sale
b. Rescissible contracts due to lesion
c. Sales with right to repurchase (raises presumption of equitable mortgage) – Remedy is
reformation

CERTAIN OR ASCERTAINABLE
CERTAIN
1. Sufficient that it is fixed with reference to another thing certain
​ That thing will have on a definite day, or in a particular exchange or market, or when an amount
is fixed above or below the price on such day, or in such exchange or market provided said
amount be certain

2. Determination be left to judgment of specified person/s

​ If contract states that price is to be determined by 3rd party, contract is already perfected (there
is just a suspensive condition – actual fixing of price)
​ 3rd party fixes price in bad faith or mistake – court remedy can be made
​ 3rd party is unable or unwilling to fix price – parties have no cause of action
​ Reason:
a. suspensive condition does not happen yet – courts have no jurisdiction
b. enforceable contract have not yet arisen – court with no jurisdiction to create contract
between parties
 Result: INEFFICACIOUS
​ When price can not be determined in accordance with any of the preceding rules, contract of
sale in INEFFICACIOUS
​ However, when SM delivered, BUYER must pay reasonable rice therefore – court can fix price

MANNER OF PAYMENT MUST BE AGREED UPON

​ Deemed to be an essential requisite because it is part of the presentation of the contract
​ Integral part of concept of price
​ If there is failure to meet minds as regards term of payment: CASH BASIS
​ Must be certain or at least ascertainable
 ​ Effect is absent: NO CONTRACT SITUATION

SOME RULES IN PRICE:

1. Simulated price in a contract of sale
a. Contract is VALID as a donation or some other agreement, provided that the requirements in a
donation is performed or complied
2. Simulated deed of sale
a. No legal effect and the transfer of ownership must be cancelled
3. Failure to fix price
a. Sale if INEFFICACIOUS
4. Inadequacy of price
a. Not invalidate a contract of sale
5. Inadequacy of price plus vitiation of consent
a. Voidable due to defect in the consent
6. Inadequacy of price in a judicial sale
a. May be set aside when it is shocking to the conscience of the court

CHAPTER 5: FORMATION OF CONTRACT OF SALE

3 STAGES IN LIFE OF A CONTRACT OF SALE

1. Policitacion/negotiation Stage – offer is floated, acceptance is floated but they do not meet; time
parties indicate their interest but no concurrence of offer & acceptance
2. Perfection – concurrence of all requisites; meeting of the minds
3. Consummation – parties perform their respective undertakings

OPTION CONTRACT
​ floats in the policitacion stage
​ offer with a period but founded upon a separate consideration distinct from the price
​ no presumption of consideration
​ needs to be proven

Characteristics:
a. not the contract of sale by itself, distinct
b. nominate
c. principal; but can be attached to other principal contracts
d. onerous
e. commutative
f. unilateral – vs contract of sale which is bilateral

​ to be perfected & give rise to action, the following must concur:

a. subject matter of sale must be agreed upon
b. price of sale & manner of payment must be agreed upon
c. consideration separate & distinct from price
d. period – as per contract; if period not provided – prescribes in 10 years (written contract)
e. how exercised: notice of acceptance should be communicative to offeror without actual payment
as long as there is delivery of payment in consummation stage

2 SITUATIONS IN AN OPTION CONTRACT:

1. with separate consideration
​ Legal consequence:
a. option contract is valid
b. offeror cannot withdrawn offer until after expiry period
c. subject to rescission, damages but not to specific performance because this is not an
obligation to give

2. without separate consideration

NEW RULE: Right of first refusal recognized

creates a promise to enter into a contract of sale and it has no separate consideration, not subject to specific
performance because there is no contractual relationship here & it is not an obligation to give (not a real
contract)

OPTION CONTRACT RIGHT OF FIRST REFUSAL

 Principal contract; stands on its own Accessory; cannot stand on its own
Needs separate consideration Does not need separate consideration
Subject matter & price must be valid There must be subject matter but price not
Important

PERFECTION: OFFER & ACCEPTANCE

PERFECTION
​ Sale is a consensual contract, perfected by meeting of minds regarding subject matter & price
​ Meeting of Minds:
1. Offer – certain
2. Acceptance – absolute
​ Qualified acceptance – merely a counter-offer which needs to be absolutely accepted to give
rise to perfected contract of sale
​ Business ads are mere invitations to make an offer except when it appears to be
otherwise
​ Acceptance by letter/telegram – binds only at time it came to knowledge of SELLER; prior
thereto – offer may still be withdrawn
​ Must be exact terms to be considered absolute

When deviation is allowed:

a. anything that refers to price is material
b. small items are insignificant, does not make acceptable unconditional

RULES IN SALES AT AUCTION

1. perfected when
a. auctioneer announces its perfection by the:
i. fall of the hammer or
ii. in other customary manner may impose terms under bidder may retract his bid;
b. owner of property sold at auction may impose terms under w/c the auction will proceed & it
shall be binding w/n the bidders are aware
2. Owner’s right to withdraw the goods from auction sale
a. Before perfection
i. Before fall of hammer/ other manner
1. Unless announce that reservation cannot be made
b. After perfection
i. After fall of the happen/ Other manner, owner cannot withdraw at all

Place of perfection:
1. where the meeting of minds happen;
2. when acceptance sent by mail, perfection is deemed where the offer is made

Performance has nothing to do with perfection stage

EARNEST MONEY (part of purchase price)

1. its acceptance is proof that contract of sale exists
​ nothing in law prevents parties from treating earnest money differently
​ new concept: cannot be forfeited – part of purchase price; must be restored
​ presumption of perfection of contract of sale and such earnest money as art of purchase price is
disputable

Kinds of sale
1. General classification
a. Absolute- no condition attached
b. Conditional- subject to contingent event
i. Right to repurchase, sale of things having a potential existence, sale of future
harvest, sale of a residential house except the furnitures
2. Other classifications
a. As to nature of the subject
i. Sale of real property
ii. Sale of personal property
b. As to whether object is tangible or intangible
i. Sale of tangible or corporeal property (Chose in possession)
ii. Sale of right (Chose in action)
 1. Ex. Credit, copyright, trademark, goodwill
c. As to validity or defect of transaction
i. Valid sale
ii. Rescissible sale
iii. Voidable sale
iv. Unenforceable sale
v. Void sale
d. As to legality of sale
i. Sale of illicit object
ii. Sale of licit object
e. As to whether wholesale or retail
i. Wholesale- when the goods are resold by the buyer for a profit, the goods being
unaltered when resold and usually in large quantity
ii. Retail- when the goods are sold directly to the general public and usually in small
quantity
f. As to the payment of price
i. Cash sale
ii. Instalment sale
iii. Straight term
g. Proximate inducement for the sale
i. Sale by sample
ii. Sale by description
iii. Sale by sample and description