LEGAL ASPECTS OF SALE

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.
SALES
1. Contract of sale (absolute)
 real obligation – obligation to give
 remedies available:
a. specific performance
b. rescission
c. damages

2. Contract to sell (conditional)

 personal obligation – obligation to do
 remedies available:
a. resolution
b. damages

ESSENTIAL REQUISITES OF A
CONTRACT OF SALE
1. consent
2. subject matter
3. price
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
b. obligation of buyer – pay for price

Consequence: power to rescind is

implied in bilateral contracts
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
 Test: subjective – 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.
7. Title & not a mode – gives rise to an
obligation to transfer; it is delivery w/c
actually transfer ownership; mode
which actually transfer ownership.
STAGES IN LIFE OF CONTRACT OF
SALE:
1. negotiation
2. perfection – by mere consent;
performance may be demanded
( specific performance )
3. consummation
DISTINGUISHED FROM OTHER
CONTRACTS:
1. Donation
 donation is gratuitous; sale is onerous
 donation is formal contract; sale is
consensual
 donation is governed by law on
donation; sale is governed by law on
sales
2. Barter
 in barter, the consideration is the
giving of a thing; in sale, it is giving of
money as payment
 both are governed by law on sales;
both are species of the genus sales
 if consideration consists party in
money & partly by thing – look at
manifest intention; if intention is not
clear (1468 ):
a. value of thing is equal or less than
amount of money – sale
b. value of thing is more than amount
of money – barter

3. Contract for piece of work

 test in article 1467:
a. contract for delivery of an article
which the vendor in the ordinary
course of business manufactures or
procures for general market ( whether
on hand or not ) – sale
b. goods are to be manufactured
specially for a customer and upon
special order and not for the general
market – contract for piece of work.
 jurisprudence:
a. Timing test – under art 1467;
Inchausti; whether the thing
transferred would have never existed
but for the order – contract for piece of
work (abandoned)
b. Habituality test – enunciated in
Celestino v CIR; contract of sale if
manufacturer engages in activity
without need to employ extraordinary
skills and equipment; contract for piece
of work is sale of service; contract of
sale is sale of things.
c. Nature of the object test –
enunciated in EEI v CIR; each product’s
nature of execution differs from the
others; products are not ordinary
products of manufacturer.
 main factor in decision of the SC:
essence of why parties enter into it:
a. essence is object – contract of sale
b. essence is service – contract for
piece of work
4. Agency to sell
 in sale, buyer pays for price of object;
in agency to sell, agent not obliged to
pay for price, merely obliged to deliver
price received from buyer.
 in sale, buyer becomes owner of
thing; in agency; principal remains
owner even if object delivered to him
 in sale, seller warrants; in agency,
agent assumes no risk/liability as long
as within authority given
 in sale, not unilaterally revocable; in
agency, may be revoked unilaterally
because fiduciary & even w/o ground
 in sale, seller receives profit; in
agency, agent not allowed to profit
 TEST: essential clauses of whole
instrument ( art 1466 – motherhood
statement, not good law )
 Agency is a personal contract; sale is
real contract ( to give ) – rescission not
available in agency
5. Dacion en pago
 dacion: contract where property is
alienated to satisfy/extinguish
obligation to pay debt
 in dacion: novates creditor-debtor
relationship into seller-buyer
 in dacion: delivery is required ( real
contract )
6. Lease
 in sale: obligation to absolutely
transfer ownership of thing; in lease:
use of thing is for specified period only
with obligation to return
 in sale: consideration is price; in lease:
consideration is rent
 in sale: seller needs to be owner of
thing to transfer ownership; in lease:
lessor need not be owner
 lease with option to by: really a
contract of sale but designated as lease
in name only; it is a safe by installments
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/C
ooperatives
 Status of contract valid
 Remedies available therefore are:
a. specific performance
b. rescission
c. damages
EXCEPTION TO GENERAL RULE:
1. Minors
 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
 status of contract is valid
b. Sale between parties
 Status not provided for by law but
VOID according to case law
 Reason:
i. prevent defraudation of creditors
ii. avoid situation where dominant
spouse take advantage of others
iii. avoid circumvention on prohibition
of donation between spouses
 Exception
i. separation of property agreed
(marriage settlement)
ii. judicial separation of property
c. Common Law Spouses (Paramours)
 Status of contract: VOID (per case
law)
 Rationale: evil sought to be avoided is
present
3. OTHERS PER SPECIFIC PROVISIONS
OF LAW
a. Guardian with regards to property of
ward during period of guardianship
b. Agent with regards to property of
principal
c. Executor/administrator with regards
to the estate of the deceased
d. Public officers with regards to the
property of the estate
e. Officer of court & employee – with
regards to property in litigation

LEGAL STATUS OF CONTRACT:

1. VOID (PER CASE LAW) – guardian/
executor/public officers / officers of the
court
2. VOIDABLE (PER CIVIL CODE) – agent;
and if with consent, VALID

TWO GROUPS OF PROHIBITED PARTIES

FROM ENGAGING IN CONTRACT OF
SALE:
1. Guardian / Agent / Executors –
ratifiable in the sense that only private
wrong is involved
2. Public Officials / Officers of Court –
not ratifiable in the sense that public
wrong is concerned
GUARDIAN/AGENT/ADMINISTRATOR
1. Legal status of contract: VOID (case
law)
2. Direct or indirect
3. If mediator – no need to prove
collusion; inutile
4. Even if court approved sale
5. 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 mal practice
a. Client is at the mercy of the lawyer
b. Law is a noble 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
 I give that you may do (innominate
contract) so has to be governed by law
on sales but because of public policy,
considered VALID
 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, status of contract:
VALID
2. if absent : NO CONTRACT
SITUATION, THEREFORE NO CAUSE OF
ACTION
3. if mere pipe dream : VOID

a. SALE OF THINGS HAVING POTENTIAL

EXISTENCE (Emptio Rei Speratae)
 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

b. SALE OF HOPE (Emptio Spei)

 Every sale of future thing is subject to
condition that they will come into
existence
 If hope does not come true – NO
RECOVERY OF PAYMENT/NO
RESCISSION
 Aleatory character but valid

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
b. Simulated/fictitious
c. Did not exist at a time of transaction
d. Outside commerce of men
e. Impossible service
f. Intention can not 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
SOURCE: Ateneo De Manila University
College of Law
 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

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
POLITIACION
1. offer is floated but not absolute
2. acceptance is likewise floated but
conditional
RULES:
1. offer is floated – prior to acceptance,
may be withdrawn at will by offeror
2. offer floated with a period – without
acceptance, extinguished when period
has ended & maybe withdrawn at will
by offeror; right to withdrawn must not
be arbitrary otherwise, liable to
damage under Art 19, 20, 21 of civil
code
3. offer floated with a condition –
extinguished by happening/non-
happening of condition
4. offer floated without period/without
condition – continues to be valid
depending upon circumstances of time,
place & person
5. offer is floated & there is counter-
offer – original offer is destroyed, there
is a new offer; can not go back to
original offer
6. offer is floated – no authority of
offeror to modify offer
7. offer is accepted absolutely –
proceed to perfected stage

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 can not 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
 Legal consequence:
 OLD RULE:
a. offer is still valid, but
b. option contract is void
c. not subject to rescission, damages
 NEW RULE: Right if first refusal
recognized

RIGHT OF FIRST REFUSAL:

 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)
 New doctrine: may be subject to
specific performance
 Effect of new doctrine: turned the
world of policitacion upside down
because while valid option contract is
not subject to specific performance,
right of first refusal which does not
even have a separate consideration
may be subject to specific performance

OPTION RIGHT OF FIRST

CONTRACT & REFUSAL
RIGHT OF FIRST
REFUSAL
DISTINGUISHED
OPTION
CONTRACT
Principal Accessory; can
contract; stands not stand on its
on its own own
Needs separate Does not need
consideration separate
consideration
Subject matter & There must be
price must be subject matter
valid but price not
important
Not conditional Conditional
Not subject to Subject to
specific specific
performance performance