NATURE AND FORM OF SALES CONTRACT

PART ONE. SALES

I. NATURE AND FORM OF CONTRACT

A. Nature and Characteristics

A. Definition of sale; concept (1458)

Art. 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. (1445a)

A contract of sale is consensual contract and, thus, is perfected by mere consent which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Until
the contract of sale is perfected, it cannot, as an independent source of obligation, serve as a binding juridical
relation between the parties.

By definition, the elements are:

1. consent or meeting of minds, that is, consent to transfer ownership in exchange for the price;
2. determinate subject matter; and
3. price certain in money or its equivalent

The absence of any of the essential elements shall negate the existence of a perfected contract of sale.

Example: A agrees to sell his car to B and made it appear that the price is for P1,000,000.00, when in truth
there is no consideration that is to be paid by B. In which case, price is fictitious, hence, contract of sale is void.
The contract, however, may be treated as donation.

It would be different if the purchase price is fixed by the parties at P1,000,000.00, but B, the buyer failed to
pay the same. The contract is valid because there is an amount agreed upon as purchase price albeit not paid.

Case law: Spouses Lucia Orozco and Cresente Orozco vs. Florante Lozano, et al., 3 April 2019, GRN
222616
On 23 May 1980, Spouses Cresente R. Orozco and Lucia A. Orozco (Spouses Orozco) purchased from Spouses
Reynaldo and Floriana Fuentes (Spouses Fuentes) two residential lots both situated in Barangay 2, San Francisco,
Agusan del Sur. The lots are identified as Lot No. 3780, Pls-67 and Lot No. 3105, Pls-67. On 4 September 1980,
Spouses Orozco sold half of Lot No. 3780 to Florante G. Lozano, Sr. (Lozano) for ₱5,000.00. Half of Lot No. 3780
which was sold by Spouses Orozco to Lozano was assigned as Lot No. 3780-A while the other half retained by
Spouses Orozco was designated as Lot No. 3780-B. At the time of the sale, Cresente Orozco (Orozco) used a rope
to measure Lot No. 3780, which Orozco thought had an area of 570 square meters. Lozano constructed a building
between Lot No. 3780-A and Lot No. 3780-B which Lozano used as a boarding house. Spouses Orozco did not
prevent Lozano from building the boarding house because Spouses Orozco thought that the said boarding house
was constructed within the 285 square meter portion which Spouses Orozco sold to Lozano. Allegedly, Spouses
Orozco were surprised when Lozano asked them to sign a piece of paper, purportedly an acknowledgment receipt
of the payment of ₱500.00 for the additional area on top of the 285 square meters principally sold. Spouses
Orozco claimed that they did not sign such acknowledgment receipt because according to them there was no
additional area sold to Lozano. On the other hand, Lozano claimed that Spouses Orozco agreed to sell to him an
additional 62 square meters of Spouses Orozco's 325.5 square meter portion and that Lozano agreed to make an
additional payment of ₱1,000.00 in consideration for the said added portion. On 24 April 1981, evidenced by an
acknowledgment receipt, Lozano paid Spouses Orozco P400.00. Subsequently, Lozano paid Spouses Orozco
₱300.00, totaling ₱700.00, leaving ₱300.00 as the remaining unpaid balance for the 62 square meter added
portion. Without receiving the full payment, Spouses Orozco made repeated demands to Lozano to vacate the
portion of Spouses Orozco's lot that Lozano allegedly encroached upon but the latter refused to vacate. Spouses
Orozco and Lozano then brought their dispute for barangay conciliation.

On 2 September 1998, Spouses Orozco filed a complaint for Recovery of Possession and Damages with Application
for Writ of Preliminary Injunction, docketed as Civil Case No. 648.

Issue: Is there a valid contract of sale?

Ruling: YES.
In Del Prado v. Spouses Caballero, this Court held that a perfected contract of sale of real estate effectively
gives rise to the right to transfer ownership of the real estate from the vendor to the vendee. This Court
discussed the essential elements of a contract of sale of real estate, to wit:

Contracts are the law between the contracting parties. Sale, by its very nature, is a consensual
contract, because it is perfected by mere consent. The essential elements of a contract of sale are
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 the following: (a) consent or meeting of the minds, that is, consent to transfer ownership in exchange
for the price; (b) determinate subject matter; and (c) price certain in money or its equivalent. All
these elements are present in the instant case.

In the present case, there was a perfected contract of sale for the 62 square meter portion of Lot No. 3780-B
from Spouses Orozco to Lozano. There was a meeting of the minds between Spouses Orozco and Lozano
when the latter offered to purchase for ₱1,000.00 an additional 62 square meters of Lot No. 3780-B from
Spouses Orozco to extend the boundary of his property, Lot No. 3780-A, up to the mango tree. Lozano's offer
was accepted by Spouses Orozco and the initial payment of P400.00 was made by Lozano as evidenced by
the handwritten acknowledgment receipt dated 24 April 1981 signed by Orozco. Subsequently, another
payment of ₱300.00 by Lozano was made to Lucia Orozco, totaling the payment of Lozano to ₱700.00,
leaving a remaining unpaid balance of ₱300.00, before the dispute was brought to the barangay by Spouses
Orozco for resolution.

As a rule, forgery cannot be presumed and must be proved by clear, positive, and convincing evidence. The
burden of proof lies on the party alleging forgery. One who alleges forgery has the burden to establish his
case by a preponderance of evidence, or evidence which is of greater weight or more convincing than that
which is offered in opposition to it. The fact of forgery can only be established by a comparison between the
alleged forged signature and the authentic and genuine signature of the person whose signature is theorized
to have been forged.

We agree with the CA that Spouses Orozco failed to prove that the signature of Orozco in the
acknowledgment receipt dated 24 April 1981 was forged. During the proceedings in the RTC, Romeo O.
Varona, a document examiner of the Philippine National Police Crime Laboratory of Cebu City, testified that
the signature in the Deed of Sale and the signature appearing in the acknowledgment receipt were written by
one and the same person.

Case law: HEIRS OF DR. MARIO S. INTAC and ANGELINA MENDOZA-INTAC, Petitioners,
vs. COURT OF APPEALS and SPOUSES MARCELO ROY, JR. and JOSEFINA MENDOZA-ROY and
SPOUSES DOMINADOR LOZADA and MARTINA MENDOZA-LOZADA, 11 October 2012, GRN 173211
From the records, it appears that Ireneo Mendoza (Ireneo), married to Salvacion Fermin (Salvacion), was the
owner of the subject property, presently covered by TCT No. 242655 of the Registry of Deeds of Quezon City and
situated at No. 36, Road 8, Bagong Pag-asa, Quezon City, which he purchased in 1954. Ireneo had two children:
respondents Josefina and Martina (respondents), Salvacion being their stepmother. When he was still alive,
Ireneo, also took care of his niece, Angelina, since she was three years old until she got married. The property
was then covered by TCT No. 106530 of the Registry of Deeds of Quezon City. On October 25, 1977, Ireneo, with
the consent of Salvacion, executed a deed of absolute sale of the property in favor of Angelina and her husband,
Mario (Spouses Intac). Despite the sale, Ireneo and his family, including the respondents, continued staying in the
premises and paying the realty taxes. After Ireneo died intestate in 1982, his widow and the respondents
remained in the premises.3 After Salvacion died, respondents still maintained their residence there. Up to the
present, they are in the premises, paying the real estate taxes thereon, leasing out portions of the property, and
collecting the rentals. The controversy arose when respondents sought the cancellation of TCT No. 242655,
claiming that the sale was only simulated and, therefore, void. Spouses Intac resisted, claiming that it was a valid
sale for a consideration. On February 22, 1994, respondents filed the Complaint for Cancellation of Transfer
Certificate of Title (TCT) No. 2426555 against Spouses Intac before the RTC. The complaint prayed not only for the
cancellation of the title, but also for its reconveyance to them.

Issue: Is there a valid contract of sale?

Ruling: YES.

Petitioners primarily argue that the subject deed of sale was a valid and binding contract between the parties.
They claim that all the elements of a valid contract of sale were present. Respondents are of the position that the
RTC and the CA were correct in ruling that the questioned deed of absolute sale was a simulated one considering
that Ireneo and Salvacion had no intention of selling the subject property. The true intention rather was that
Spouses Intac would just borrow the title of the subject property and offer it as a collateral to secure a loan. No
money actually changed hands.
In the case at bench, the Court is one with the courts below that no valid sale of the subject property actually took
place between the alleged vendors, Ireneo and Salvacion; and the alleged vendees, Spouses Intac. There was
simply no consideration and no intent to sell it. Critical is the testimony of Marietto, a witness to the execution of
the subject absolute deed of sale. He testified that Ireneo personally told him that he was going to execute a
document of sale because Spouses Intac needed to borrow the title to the property and use it as collateral for
their loan application. Ireneo and Salvacion never intended to sell or permanently transfer the full ownership of
the subject property to Spouses Intac. Marietto was characterized by the RTC as a credible witness.

Aside from their plain denial, petitioners failed to present any concrete evidence to disprove Marietto’s testimony.
They claimed that they actually paid P150,000.00 for the subject property. They, however, failed to adduce proof,
even by circumstantial evidence, that they did, in fact, pay it. Even for the consideration of P60,000.00 as stated in
the contract, petitioners could not show any tangible evidence of any payment therefor. Their failure to prove their
payment only strengthened Marietto’s story that there was no payment made because Ireneo had no intention to
sell the subject property.
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Angelina’s story, except on the consideration, was consistent with that of Marietto. Angelina testified that she and
her husband mortgaged the subject property sometime in July 1978 to finance the construction of a small hospital
in Sta. Cruz, Laguna. Angelina claimed that Ireneo offered the property as he was in deep financial need.

Stages of a contract of sale:

1. negotiation: covers the period from the time the prospective contracting parties indicate interest in the
contract to the time the contract is perfected
2. perfection: it takes place upon the concurrence of the essential elements of the sale, which is the
meeting of the minds of the parties as to the object of the contract and upon the price
3. consummation: it begins when the parties perform their respective undertakings under the contract of
sale, culminating in the extinguishment thereof

The perfection of the contract of sale does not, however, transfer the ownership of the property, it
merely creates the obligation to transfer the ownership. In case of sale of a piece of land, it is the execution of
the contract of sale by the seller, the consequent delivery of the owner’s copy of the transfer certificate of title
and the registration of the property in the name of the buyer that effectively transfers the ownership. In other
words, it is delivery that effectively transfers the ownership that is, when the contract of sale is consummated.

B. Characteristics of a contract of sale

1. Consensual: perfected by mere consent. No particular form is required for its validity. Upon perfection of
the contract, the parties may reciprocally demand performance, such that the buyer/vendee may compel transfer
of ownership of the object of the sale and the seller/vendor may require the buyer/vendee to pay the thing sold.

Example: If A offers to buys burger from the canteen and the sales lady accepts A’s offer, there is already a
valid contract of sale, in which case, A, the buyer, can compel the sales lady to give him the burger.

2. Bilateral: the seller and the buyer are bound by obligations dependent upon each other.
3. Onerous: it imposes a valuable consideration, which is a price certain in money or its equivalent.
4. Commutative: the thing of value is exchanged for equal value. It requires the parties to assume a
correlative obligation that is, the seller to deliver and transfer ownership of the thing and the buyer to pay the
price. Each party also anticipates performance by the other from the very start.
5. Nominate: it has a name that is, contract of sale, not merely du ut des, du et facias.
6. Principal: it can stand on its own and does not depend on another contract for its validity.

C. Sale distinguished from

a. Agency to sell (1466)

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. (n)

Sale Agency To Sell

Buyer receives the goods as owner
Buyer has to pay the price
Buyer, as a general rule, cannot return the
object sold.
The buyer can deal with the thing sold as he
pleases, being the owner.
The agent receives the goods as the goods of the
principal who retains his ownership over them.
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 in dealing with the thing received, must
act and is bound according to the instructions of
his principal.

b. Contract for a piece of work (1467)

Art. 1467. A 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, but 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 of work. (n)

By the contract for a piece of work, the contractor binds himself to execute a piece of work for the
employer, in consideration of a certain price or compensation. The contractor may either employ his labor or
skill, or also furnish the material.

From the wordings of Article 1467 above, what determines whether the contract is one of work or of sale
is whether the thing has been manufactured specially for the customer and upon his special order. Thus, if the
thing is specially done at the order of another, this is a contract for a piece of work. If, on the other hand, the
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 thing is manufactured or procured for the general market in the ordinary course of business, it is a contract of
sale.

Case law: Commissioner of Internal Revenue vs. Arnoldus Carpentry Shop, Inc. and Court of Tax
Appeals, 25 March 1988, GRN 71122
Arnuldos "designs and makes samples or models that are 'displayed' or presented or 'submitted' to
prospective buyers who 'might choose' therefrom". If there are no orders placed for goods as represented
by the sample or model, the shop does not produce anything; on the other hand, if there are orders placed,
the shop goes into fall production to fill up the quantity ordered. The Court of Tax Appeals (CTA), however,
found out that Arnoldus had a ready stock of its shop products for sale to its foreign and local buyers. As a
matter of fact, the purchase orders from its foreign buyers showed that they ordered by referring to the
models designated by Arnoldus. Even purchases by local buyers for television cabinets were by orders for
existing models except only for some adjustments in sizes and accessories utilized.

Arnoldus, therefore, is a manufacturer and not a contractor and, as such, it is deemed to have engaged in
the contract of sale and not for a piece of work.

The distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether
the thing transferred is one not in existence and which never would have existed but for the order of the party
desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other
persons even if the order had not been given.

Sale Contract for Piece of Work

The thing transferred is one which would
have existed and been the subject of sale
to some other person, even if the order
had not been given.
Risk of loss is borne by the buyer.
Within the Statute of Frauds.
Labor or materials or for a piece of work, the
thing transferred is one not in existence and
which never would have existed but for the order
of the party desiring to acquire it.
The risk of loss before delivery is borne by the
worker or contractor, not by the employer or the
person who ordered.
Not within the Statue of Frauds.

c. Barter (1468, 1638)

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. (1446a)

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. (1538a)

Note: Intention determines nature of the contract if it is manifest, otherwise, look into the value of the
thing as opposed to the money equivalent.

d. Dation in payment (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. (n)

Dacion en pago or dation in payment is a special mode of payment of obligations in general, whereby the debtor
offers another thing to the creditor whoc accepts is as equivalent of payment of the outstanding debt.

Sale distinguished from dacion en pago:

1. Sale, there is no pre-existing credit while dacion en pago there is a pre-existing credit.
2. Sale creates obligation while dacion en pago extinguishes obligation.
3. Sale the cause or consideration is the price and delivery of the object, while dacion en pago the cause is
extinguishment of obligation.
4. Sale greater freedom from fixing the price while dacion en pago less freedom in fixing the price because the
amount of pre-existing credit which the parties seek to extinguish.

D. Absolute Sale vs. Conditional contract of sale vs. Contract to sell

Absolute: where the sale is not subject to any condition whatsoever and where title or ownership passes to
the buyer upon delivery of the thing sold.

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 A deed of absolute sale is considered absolute in nature because there is no agreement in the
deed/document that the seller reserves the right to retain title/right over the property sold until the full
payment of the price or any agreement that the seller can unilaterally rescind the moment the buyer 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 the full payment of the purchase price. The delivery of the thing sold does not
transfer ownership until the condition is fulfilled.

Contract to Sell: First element – consent or meeting of minds – is lacking. In this kind of contract, the
prospective seller explicitly reserves the transfer of title/right to the prospective buyer, meaning, 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 is usually for the full payment of the purchase price.

Illustration:
If A wants to sell his piece of land to B for P1,000,000.00 and B is willing, ready and able to pay the purchase
price in full, the contract to be executed is Deed of Absolute Sale, because the seller is to transfer the
ownership and such undertaking is no longer subject to the condition because, after all, the buyer is to pay
the purchase price in full.

If, however, the buyer would pay the purchase price in 10 equal monthly instalments that is, P100,000.00 per
month, the seller’s obligation to transfer the ownership of the piece of land would take place only after the
condition is met that is, the 10 equal monthly instalments are paid. In which case, the contract to be
executed is a Contract to Sell.

B. Elements
A. Essential
1. Consent or meeting of the minds
2. Object or subject matter: the determine thing
3. Cause or consideration: price certain in money or its equivalent

CONSENT

I. Parties and their consent (Arts. 1489-1492)

A. Capacity in general (1489)

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 those 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 Article 290. (1457a)

B. Special disqualifications to buy

a. Husband and wife (1490)

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

(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation or property under Article 191. (1458a)

Case law: MARIA B. CHING vs. JOSEPH C. GOYANKO, JR., EVELYN GOYANKO, JERRY GOYANKO,
IMELDA GOYANKO, JULIUS GOYANKO, MARY ELLEN GOYANKO AND JESS GOYANKO, 10
November 2006, GRN 165879

On December 30, 1947, Joseph Goyanko (Goyanko) and Epifania dela Cruz (Epifania) were married.1 Out of the
union were born respondents Joseph, Jr., Evelyn, Jerry, Imelda, Julius, Mary Ellen and Jess, all surnamed Goyanko.
Respondents claim that in 1961, their parents acquired a 661 square meter property located at 29 F. Cabahug St.,
Cebu City but that as they (the parents) were Chinese citizens at the time, the property was registered in the name
of their aunt, Sulpicia Ventura (Sulpicia).
On May 1, 1993, Sulpicia executed a deed of sale2 over the property in favor of respondents’ father Goyanko. In
turn, Goyanko executed on October 12, 1993 a deed of sale 3 over the property in favor of his common-law-wife-
herein petitioner Maria B. Ching. Transfer Certificate of Title (TCT) No. 138405 was thus issued in petitioner’s
name.
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Issue: Is the deed of sale executed by Goyanko in favor of his common-law-wife, Maria Ching valid?
Ruling: No, husband has no capacity to execute a contract of sale in favor of his wife and this proscription applies
to common-law spouses

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

ARTICLE 1490. The husband and wife cannot sell property to each other, except:
(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation of property under Article 191. (Underscoring supplied)
The proscription against sale of property between spouses applies even to common law relationships. So this Court
ruled in Calimlim-Canullas v. Hon. Fortun, etc., et al.: Anent the second issue, we find that the contract of sale was
null and void for being contrary to morals and public policy. The sale was made by a husband in favor of a
concubine after he had abandoned his family and left the conjugal home where his wife and children lived and
from whence they derived their support. The sale was subversive of the stability of the family, a basic social
institution which public policy cherishes and protects.

Article 1409 of the Civil Code states inter alia that: contracts whose cause, object, or purposes is contrary to law,
morals, good customs, public order, or public policy are void and inexistent from the very beginning. Article 1352
also provides that: "Contracts without cause, or with unlawful cause, produce no effect whatsoever . The cause is
unlawful if it is contrary to law, morals, good customs, public order, or public policy." Additionally, the law
emphatically prohibits the spouses from selling property to each other subject to certain
exceptions.1âwphi1 Similarly, donations between spouses during marriage are prohibited. And this is so because if
transfers or conveyances between spouses were allowed during marriage, that would destroy the system of
conjugal partnership, a basic policy in civil law. It was also designed to prevent the exercise of undue influence by
one spouse over the other, as well as to protect the institution of marriage, which is the cornerstone of family
law. The prohibitions apply to a couple living as husband and wife without benefit of marriage, otherwise, "the
condition of those who incurred guilt would turn out to be better than those in legal union." Those provisions are
dictated by public interest and their criterion must be imposed upon the will of the parties. . . .

b. Persons in trust relation (1491)

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:

(1) The guardian, the property of the person or persons who may be under his
guardianship;
(2) Agents, the property whose administration or sale may have been entrusted to
them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under administration;
(4) 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;
(5) 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.
(6) Any others specially disqualified by law. (1459a)

c. In auctions (1476)

Art. 1476. In the case of a sale by auction:

(1) Where goods are put up for sale by auction in lots, each lot is the subject of a
separate contract of sale.

(2) A sale by auction is perfected when the auctioneer announces its perfection by the
fall of the hammer, or in other customary manner. Until such announcement is made,
any bidder may retract his bid; and the auctioneer may withdraw the goods from the
sale unless the auction has been announced to be without reserve.

(3) A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise
provided by law or by stipulation.

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 (4) Where notice has not been given that a sale by auction is subject to a right to bid on
behalf of the seller, it shall not be lawful for the seller to bid himself or to employ or
induce any person to bid at such sale on his behalf or for the auctioneer, to employ or
induce any person to bid at such sale on behalf of the seller or knowingly to take any bid
from the seller or any person employed by him. Any sale contravening this rule may be
treated as fraudulent by the buyer. (n)

C. Rule when an incompetent buys (1489)

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 those 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 Article 290. (1457a)

OBJECT (Arts. 1459-1465)

A. Qualities – The object must be

a. Existing, future or contingent (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 object of sale:

1. existing goods: goods owned or possessed by the seller;
2. future goods: goods to be manufactured, raised or acquired by the seller (vs. contract for a piece
of work)

Sale of future goods shall be valid as executory contract to be fulfilled by the acquisition and delivery of
the goods specified therein.

Rationale: one cannot sell what he does not own, exceptions:

1. sale of thing having a potential existence;

2. future goods; and
3. contract for delivery at a price certain 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 at the time
or not

b. Potential existence (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)

Potential existence: object with possible existence, that is, 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 object comes into existence.

However, sale of a mere hope or expectancy is void, like sale of sweepstakes ticket or lotto ticket of the past
days/years.

Example of things with potential existence: Produce of the farm, harvest from the field, young of animals

Emptio Rei Speratae Emptio Spei

Sale of a thing with potential existence Sale of mere hope or expectancy that the
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Sale is subject to the condition that the thing will
exist; if it does not, there is no contract.
The object is a future thing.
thing will come to existence. Sale of the
hope itself.
Sale is effective even if the thing does not
come into existence unless it is a vain hope.
The object is a present thing which is the
hope or expectancy.

c. Things under resolutory condition (1465)

Art. 1465. Things subject to a resolutory condition may be the object of the contract of
sale. (n)

Resolutory condition: an uncertain event upon the happening of which the obligation or right subject is
extinguished.

Example: S and B entered into a Contract of Sale with a Right of Repurchase within 1 year over the former’s
parcel of land. S then delivered said parcel of land to B. In this case, the condition or uncertain event is
whether S will repurchase the sale parcel of land within 1 year. In the meantime, however, B can sell this
parcel of land to C, a third person.

Example: Sale with right of repurchase

1) Sale of mere hope or expectancy (1461)

Sale of a mere hope or expectancy is deemed subject to the condition that the thing contemplated or
expected will come into existence. The sale refers to an expected thing which is not yet in existence, and not
to the hope or expectancy which already exists, in view of the condition that the thing will come into
existence.

Sale of hope of expectancy itself is valid even if the thing hoped or expected does not come into existence,
unless the hope or expectancy is vain.

b. Lawful (1459)

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)

Object must be within the commerce of men. It must not be contrary to law, morals, good customs, public
order or public policy.

c. Determinate or determinable (1460)

Art. 1460. A thing is determinate when it is particularly designated or physical segregated

from all other 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)

Requisites:
1. At the time the contract is entered into, the thing is capable of being made determinate; and
2. There is no necessity of a new or further agreement between the parties.

Case law: AURORA FE B. CAMACHO vs. COURT OF APPEALS and ANGELINO BANZON, 9 February
2007, GR No. 127520
Camacho was the owner of Lot 261, a 7.5-hectare parcel of land situated in Balanga, Bataan and covered by
Transfer Certificate of Title No. T-10,185. On July 14, 1968, Camacho and respondent Atty. Angelino Banzon
entered into a contract for legal services denominated as a "Contract of Attorney’s Fee” which authorizes Atty.
Banzon, among others, to o negotiate with the Municipal Government of Balanga so that the above-mentioned lot
shall be the site of the proposed Balanga Public Market; 2. To sell 1200 sq. m. for the sum of TWENTY- FOUR
THOUSAND PESOS (₱24,000.00) right at the Market Site…
Issue: is the object of the contract considered determinate?
Ruling: YES
Article 1460. A thing is determinate when it is particularly designated and/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.

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 In this case, the object of the contract is the 5,000-sq-m portion of Lot 261, Balanga Cadastre. The failure of the
parties to state its exact location in the contract is of no moment; this is a mere error occasioned by the parties’
failure to describe with particularity the subject property, which does not indicate the absence of the principal
object as to render the contract void.52 Since Camacho bound herself to deliver a portion of Lot 261 to Atty.
Banzon, the description of the property subject of the contract is sufficient to validate the same.

d. Undivided interest as object (1463)

Art. 1463. The sole owner of a thing may sell an undivided interest therein. (n)

The legal effect of the sale of an undivided interest in a thing is to make the buyer a co-owner
in the thing sold. As such co-owner, he qcquires full ownership of his part and he may,
therefore, subsequently sell it.

Example: B owns a piece of land with an area of 400 square meters. If B decides to sell 100 square
meters to C, they they will become co-owners of the said land.

e. Undivided share in a mass (1464)

Art. 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 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)

Fungible goods: goods of which any unit is, from its nature or by mercantile usage, treated as the equivalent
of any other unit.

Effect of sale:

1. The owner of a mass of goods may sell only an undivided share thereof, provided the mass is specific
of capable of being made determinate.
2. By such sale, the buyer becomes co-owner with the seller of the whole mass in the proportion in
which the definite share bough bears to the mass.
3. If later it be discovered that the mass of fungible goods contains less than what was sold, the buyer
becomes the owner of the whole mass.

Example: S is engaged in the business of buy and sell of rice and he owns a bodega filled with undetermined
sacks of rice. Subsequently, B buys 100 sacks of rice. If there are 300 sacks of rice stored in the bodega,
then S and B will be co-owners where S owns 200 sacks while B owns 100 sacks of rice. However, if there
are only 95 sacks of rice stored in the bodega, S is liable for the deficiency of 5 sacks to B because the
contract of sale is still valid. The 5 sacks of rice should be of the same kind and quality.

B. Transferability of ownership

1. When it must exist

2. Subsequent acquisition of title (1434)

Art. 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.

C. Acquisition of title upon a contingency (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)

CAUSE (Arts. 1469-1474)

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A. Price
Requisites
a. Real (1471)
b. In money or equivalent (1458)
c. Certain or ascertainable

Price must be real (1471)

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. (n)

GR: Mere inadequacy of the price or alleged hardness of the bargain do not affect validity of the sale when both
parties are in a position to form an independent judgment concerning the transaction.

Case law: RIDO MONTECILLO vs. IGNACIA REYNES AND SPS. REDEMPTOR AND ELISA ABUCAY, 26
July 2002, GRN 138018
Respondents Ignacia Reynes ("Reynes" for brevity) and Spouses Abucay ("Abucay Spouses" for brevity) filed on
June 20, 1984 a complaint for Declaration of Nullity and Quieting of Title against petitioner Rido Montecillo
("Montecillo" for brevity). Reynes asserted that she is the owner of a lot situated in Mabolo, Cebu City, covered by
Transfer Certificate of Title No. 74196 and containing an area of 448 square meters ("Mabolo Lot" for brevity). In
1981, Reynes sold 185 square meters of the Mabolo Lot to the Abucay Spouses who built a residential house on the
lot they bought. Reynes alleged further that on March 1, 1984 she signed a Deed of Sale of the Mabolo Lot in favor
of Montecillo ("Montecillo’s Deed of Sale" for brevity). Reynes, being illiterate,6 signed by affixing her thumb-
mark7 on the document. Montecillo promised to pay the agreed P47,000.00 purchase price within one month from
the signing of the Deed of Sale. Reynes further alleged that Montecillo failed to pay the purchase price after the
lapse of the one-month period, prompting Reynes to demand from Montecillo the return of the Deed of Sale. Since
Montecillo refused to return the Deed of Sale,9 Reynes executed a document unilaterally revoking the sale and gave
a copy of the document to Montecillo. Reynes and the Abucay Spouses alleged that on June 18, 1984 they received
information that the Register of Deeds of Cebu City issued Certificate of Title No. 90805 in the name of Montecillo
for the Mabolo Lot. Reynes and the Abucay Spouses argued that "for lack of consideration there (was) no meeting
of the minds"11 between Reynes and Montecillo. Thus, the trial court should declare null and void ab
initio Montecillo’s Deed of Sale, and order the cancellation of Certificate of Title No. 90805 in the name of
Montecillo.

Issue: W/N sale was void ab initio or only rescissible with a valid purchase price agreed upon.
Ruling: Contract of sale was void ab initio, as it lacks consideration.

Montecillo argues that his Deed of Sale has all the requisites of a valid contract. Montecillo points out that he
agreed to purchase, and Reynes agreed to sell, the Mabolo Lot at the price of P47,000.00. Thus, the three
requisites for a valid contract concur: consent, object certain and consideration. Montecillo asserts there is no lack
of consideration that would prevent the existence of a valid contract. Rather, there is only non-payment of the
consideration within the period agreed upon for payment.
Montecillo argues there is only a breach of his obligation to pay the full purchase price on time. Such breach merely
gives Reynes a right to ask for specific performance, or for annulment of the obligation to sell the Mabolo Lot.
This is not merely a case of failure to pay the purchase price, as Montecillo claims, which can only amount to a
breach of obligation with rescission as the proper remedy. What we have here is a purported contract that lacks a
cause - one of the three essential requisites of a valid contract. Failure to pay the consideration is different from
lack of consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under
an existing valid contract26 while the latter prevents the existence of a valid contract
Where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of
sale is null and void ab initio for lack of consideration. This has been the well-settled rule as early as Ocejo Perez &
Co. v. Flores,27 a 1920 case. As subsequently explained in Mapalo v. Mapalo28 –
"In our view, therefore, the ruling of this Court in Ocejo Perez & Co. vs. Flores, 40 Phil. 921, is squarely applicable
herein. In that case we ruled that a contract of purchase and sale is null and 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."
Applying this well-entrenched doctrine to the instant case, we rule that Montecillo’s Deed of Sale is null and void ab
initio for lack of consideration.
Montecillo asserts that the only issue in controversy is "the mode and/or manner of payment and/or whether or not
payment has been made."30 Montecillo implies that the mode or manner of payment is separate from the
consideration and does not affect the validity of the contract. In the recent case of San Miguel Properties
Philippines, Inc. v. Huang,31 we ruled that –"In Navarro v. Sugar Producers Cooperative Marketing Association,
Inc. (1 SCRA 1181 [1961]), we laid down the rule that the manner of payment of the purchase price is an essential
element before a valid and binding contract of sale can exist. Although the Civil Code does not expressly state that
the minds of the parties must also meet on the terms or manner of payment of the price, the same is needed,
otherwise there is no sale. As held in Toyota Shaw, Inc. v. Court of Appeals (244 SCRA 320 [1995]), agreement on
the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a
failure to agree on the price." (Emphasis supplied)

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One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the
contract. In a contract of sale, the parties must agree not only on the price, but also on the manner of payment of
the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent,
thus preventing the existence of a valid contract for lack of consent. This lack of consent is separate and distinct
from lack of consideration where the contract states that the price has been paid when in fact it has never been
paid.
Reynes expected Montecillo to pay him directly the P47,000.00 purchase price within one month after the signing of
the Deed of Sale. On the other hand, Montecillo thought that his agreement with Reynes required him to pay
the P47,000.00 purchase price to Cebu Ice Storage to settle Jayag’s mortgage debt. Montecillo also acknowledged a
balance of P10,000.00 in favor of Reynes although this amount is not stated in Montecillo’s Deed of Sale. Thus,
there was no consent, or meeting of the minds, between Reynes and Montecillo on the manner of payment. This
prevented the existence of a valid contract because of lack of consent.
In summary, Montecillo’s Deed of Sale is null and void ab initio not only for lack of consideration, but also for lack
of consent. The cancellation of TCT No. 90805 in the name of Montecillo is in order as there was no valid contract
transferring ownership of the Mabolo Lot from Reynes to Montecillo.

Price must be in money or equivalent (1458)

Art. 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. (1445a)

Price must be certain or ascertainable

How determined
i) By a third person (1469)

Art. 1469. 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.

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)

ii) By the courts (1469)

iii) By reference (1472)

Art. 1472. 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 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)

iv) By one of the parties (1473)

Art. 1473. 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. (1449a)

Effect of indeterminability (1474)

Art. 1474. 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
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)

GR: where price cannot be determined, contract is inefficacious or one that does produce the desired effect.
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 EXC: if the thing or any part thereof has been delivered to and appropriated by the buyer, he must pay a
reasonable price therefor.

Effect of inadequacy of price (1470)

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. (n)

B. Natural Elements
Concept: those which exist in certain contracts, in the absence of any contrary stipulations, eg
1. warranty against eviction
2. warranty against hidden defects

Vs. Accidental elements: those which may be present or absent depending on the stipulations of the parties, eg
1. conditions
2. interest
3. penalty
4. time of payment
5. place of payment

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