TITLE III.

NATURAL OBLIGATIONS

A. Definition—Art. 1423
These are not based on positive law but on equity and natural law. They do not grant a right
of action to enforce their performance, but after voluntary fulfillment by the obligor, they
authorize the retention of what has been delivered or rendered by reason thereof.

B. As distinguished from civil obligations—Art. 1423

NATURAL OBLIGATIONS CIVIL OBLIGATIONS

Enforceability Not by court actions, but by Court action or coercive

good conscience of debtor. power of public authorities.

Basis Equity and Natural Justice Positive Law

C. As distinguished from moral obligations

NATURAL OBLIGATIONS PURELY MORAL

There is a juridical tie There is no juridical tie

Performance by the debtor is a legal Act is pure liberality

fulfillment of the obligation
A true obligation with a legal tie between Matter is entirely within the domain of
debtor and creditor morals.

Cases
Villaroel vs. Estrada, 71 Phil. 140 (1940)

FACTS:
1. Alejandra F. Callao contracted a debt of P1,000 from Mariano Estrada and
Severina on May 9, 1912.
2. The debt was payable after seven years.
3. Alejandra passed away, leaving Juan F. Villaroel as her sole heir.
4. Mariano Estrada and Severina also passed away, leaving Bernardino Estrada
as their sole heir.
5. On August 9, 1930, Juan signed a document acknowledging his obligation to
pay Bernardino the amount of P1,000 with an interest of 12% per annum.
6. This action is a claim for the payment of this debt.

ISSUE/S:
1. Is the action for the payment of the debt still valid and enforceable, despite
the original obligation having already prescribed?
HELD:
1. A new promise to pay a prescribed debt can be enforced based on moral
obligation.
2. The defendant, as the sole heir of the original debtor, had the right to succeed
her in her inheritance.
3. The debt contracted by his mother, although legally ineffective due to
prescription, still holds moral weight for the defendant.
4. The rule requiring a new promise to be made by the same person obligated or
by someone legally authorized by them does not apply in this case.
5. The present action does not seek to enforce the obligation of the original
debtor, but rather the obligation voluntarily assumed by the defendant
himself.

Fisher v. Robb, 69 Phil. 101 (1939)

FACTS:
1. A dispute between A. O. Fisher (plaintiff-appellee) and John C. Robb
(defendant-appellant).
2. In September 1935, the board of directors of the Philippine Greyhound Club,
Inc. instructed Robb to travel to Shanghai to study the operation of a dog
racing course.
3. Robb met Fisher, who was the manager of a dog racing course, in Shanghai.
4. Fisher expressed interest in becoming a stockholder in the Philippine
Greyhound Club, Inc. and sent a telegraphic transfer of P3,000 as the first
installment of his subscription.
5. When the second installment was due, Robb requested Fisher to send the
amount, and Fisher sent P2,000 directly to the Philippine Greyhound Club,
Inc.
6. Due to manipulations of those controlling the club, the enterprise failed.
7. Robb organized a new company called The Philippine Racing Club and
attempted to save the investment of the stockholders by acquiring the
remaining assets of the Philippine Greyhound Club, Inc.
8. Fisher demanded that Robb return the P2,000 he had paid, but Robb refused.

ISSUE/S:
1. Whether there was sufficient consideration to justify Robb’s promise to
return the P2,000 to Fisher.

HELD:
1. The court ruled in favor of Robb and held that there was no sufficient
consideration to bind him to comply with his promise.
 2. The court based its decision on Article 1261 of the Civil Code, which states
that for a contract to exist, there must be consent of the parties, a definite
object, and consideration.
3. The court found that Robb's expression of moral responsibility to return the
second payments made by stockholders, including Fisher, did not constitute
the necessary consideration for a legally binding contract.
4. Fisher did not give or promise anything to Robb that would compel him to
make the payment.
5. The promise made by Robb was purely moral and not demandable in law, but
only in conscience.

D. Conversion to civil obligation

1. By novation
2. By ratification

E. Examples—Arts. 1424-1430

Art. 1424: When a right to sue upon a civil obligation has lapsed by extinctive prescription the
obligor who voluntarily performs the contract cannot recover what he has delivered or the
value of the service he has rendered.

Ex: A’s debt to C has been extinguished by prescription. Yet, A, knowing the prescription,
voluntarily paid the prescribed debt. A cannot now recover what he has paid C.

Art. 1425: When without the knowledge or against the will of the debtor, a third person pays
a debt which the obligor is not legally bound to pay because the action has prescribed, but
the debtor later voluntarily reimburses the third person, the obligor cannot recover what he
has paid.

Art. 1426: When a minor between 18 and 21 years of age who has entered into a contract
without the consent of the parent or guardian, after the annulment of the contract voluntarily
returns the whole thing or price received, notwithstanding the fact that he has not been
benefited thereby, there is no right to demand the thing or price thus returned.

Art. 1427: When a minor between 18 & 21, who has entered into a contract without the
consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing
in fulfillment of the obligation, there shall be no right to recover the same from the oblige who
has spent or consumed it in good faith.

Art. 1428: When, after an action to enforce a civil obligation has failed the defendant
voluntarily performs the obligation, he cannot demand the return of what he has delivered or
the payment of the value of the service he has rendered.
 Art. 1429: When a testate or intestate heir voluntarily pays a debt of the decedent exceeding
the value of the property which he received by will or by the law of intestacy from the estate
of the deceased, the payment is valid and cannot be rescinded by the payer.

Art. 1430: When a will is declared void because it has not been executed in accordance with
the formalities required by law, but one of the intestate heirs, after the settlement of the
debts of the deceased, pays a legacy in compliance with a clause in the defective will, the
payment is effective and irrevocable.

TITLE VI. SALES

I. Nature and Form of the Contract of Sale

a. Definition (Article 1458)
• The contract of sale is an agreement whereby one of the parties (called the
seller or vendor) obligates himself to deliver something to the other (called
the buyer or purchaser or vendee) who, on his part, binds himself to pay
therefor a sum of money or its equivalent (known as the price).

b. Essential Characteristics
1. Consensual, because it is perfected by mere consent without any further
act.
2. Bilateral, because both the contracting parties are bound to fulfill correlative
obligations towards each other — the seller, to deliver and transfer ownership
of the thing sold and the buyer, to pay the price.
3. Onerous, because the thing sold is conveyed in consideration of the price
and vice versa.
4. Commutative, because the thing sold is considered the equivalent of the
price paid and vice versa. (see Ibid.) However, the contract may be as in the
case of the sale of a hope (e.g., sweepstakes ticket).
5. Nominate, because it is given a special name or designation in the Civil
Code, namely, “sale”.
6. Principal, because it does not depend for its existence and validity upon
another contract.

c. Elements
i. Essential Elements
1. Consent or Meeting of the Minds – To perfect a contract of sale, their
minds must meet with respect to the delivery and the transfer of
ownership, and with respect to the payment of price.
2. Object – This refers to the determinate thing which is the object of the
contract.
 3. Cause or Consideration – This refers to the “price certain in money
or its equivalent”, such as a check or a promissory note, which is the
consideration for the thing sold. It does not include goods or
merchandise although they have their own value in money. However,
the words “its equivalent” have been interpreted to mean that
payment need not be in money, so that there can be a sale where the
thing given as token of payment has “been assessed and evaluated
and its price equivalent in terms of money has been determined.”

ii. Natural Elements

• those which are deemed to exist in certain contracts, in the absence
of any contrary stipulations, like warranty against eviction (Art. 1548)
or hidden defects (Art. 1561).

iii. Accidental Elements

• those which may be present or absent depending on the stipulations
of the parties, like conditions, interest, penalty, time or place of
payment, etc.

d. Kinds (as to the presence or absence of conditions)

1. Absolute – where the sale is not subject to any condition whatsoever and
where title passes to the buyer upon delivery of the thing sold. Thus, it has
been held that a deed of sale is absolute in nature although denominated as
a “Deed of Conditional Sale” in the absence of any stipulation that the title to
the property sold is reserved in the vendor until full payment of the purchase
price nor a stipulation giving the vendor the right to unilaterally rescind the
contract the moment the vendee fails to pay within a fixed period.
2. Conditional – where the sale contemplates a contingency (Arts. 1461, 1462,
par. 2; Art. 1465.), and in general, where the contract is subject to certain
conditions (see Art. 1503, par. 1.), usually, in the case of the vendee, the full
payment of the agreed purchase price (Art. 1478; see People’s Homesite &
Housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984].) and in the case of
the vendor, the fulfillment of certain warranties, e.g., the timely eviction of
squatters on the property sold. (Romero vs. Court of Appeals, 65 SCAD 621,
250 SCRA 223 [1995].) Example, assumption of mortgage.

e. Contract of Sale vs. Contract to Sell

In a Contract of Sale, property or title or ownership passes to the buyer upon delivery.
Sale is not a mode of acquiring ownership. Sale is merely a title. It gives rise to the
 obligation. Title here refers to ownership. Sale is merely a title but the mode of
transferring or acquiring ownership is delivery. Upon delivery, the title passes to the
buyer.

In a Contract to Sell, even if there is delivery, delivery in the layman’s sense of the
word (there is transfer of possession), ownership is not transferred to the buyer.

f. Objects in a Contract of Sale

i. Lawful; Seller’s Right to Transfer Ownership (Art. 1459)

Must be lawful and the seller must have a right to transfer ownership at the
time of delivery.

Ex. of unlawful per se: dangerous drugs (one cannot sell/trade it)
Ex. of not unlawful per se but because of their condition at the time of the
transfer, it cannot be the subject of sale:

• Future inheritance (cannot sell property which you expect to inherit,

not illegal per se but prohibited by provision by law
• CARP beneficiaries cannot alienate/sell property within 10 years form
the award of the property.

1. Virtudazo vs. Labuguen (G.R. No. 229693. December 10, 2019)

FACTS:
1.
ii. Thing must be determinate (Articles 1458, 1460)
Thing is considered determinate if it is physically segregated from all others
of the same class. While the law defines Sale as one where the seller is
obliged to deliver a determinate thing, in a Contract of Sale, a generic thing
can be the object of sale for as long as it is capable of being made
determinate without entering into another contract.

Tests for determinability:

• Capacity to segregate test
• No further agreement test

Can you sell an undivided portion of real property?

Yes, you become co-owners of the entire property.

Undivided share of a mass of fungibles:

 I have one warehouse full of grains, ex. 5 tons of copra, I sold 4 tons, it is not
required that the 4 tons of copra be physically segregated. You just become
the owner of 4 tons, if it turns that there are only 3 tons in the warehouse, then
I have to complete the quantity.

1. Yu Tek Co. vs. Gonzales, 29 Phil. 384

FACTS:

iii. Things with Potential Existence (Article 1461)

Even a future thing (Arts. 1461, par. 1; 1347, par. 1.) not existing at the time
the contract is entered into may be the object of sale provided it has a
potential or 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 thing comes into existence.

iv. Existing or Future Goods (Article 1462)

1. Existing Goods
Goods owned or possessed by the seller.
2. Future Goods
Goods to be manufactured or acquired.

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

v. Undivided Interest in a Thing (Article 1463)

The sole owner of a thing may sell the entire thing; or only a specific portion
thereof; or an undivided interest therein and such interest may be designated
as an aliquot part of the whole.

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 co-owner, the buyer acquires full
ownership of his part and he may, therefore, sell it. Such sale is, of course,
limited to the portion which may be allotted to him in the division of the thing
upon the termination of the co-ownership. (Article 493.) This rule operates
similarly with respect to ownership of fungible goods. (Art. 1464.)

vi. Share in a Specific Mass (Article 1464)

The Civil Code classifies movable goods into consumable or non-
consumable (Art. 418.), thereby discarding the old classification (Art. 334, old
 Civil Code.) into fungible and non-fungible. This change of classification
seems to be in name only as the definition of fungible goods as those which
cannot be used without being consumed under the old Civil Code is precisely
that of consumable goods. Article 1464, however, still speaks of fungible
goods.

(1) Meaning of fungible goods. — It means goods of which any unit is, from its
nature or by mercantile usage, treated as the equivalent of any other unit
(Uniform Sales Act, Sec. 76.), such as grain, oil, wine, gasoline, etc.

(2) Effect of sale. — The owner of a mass of goods may sell only an undivided
share thereof, provided the mass is specific or capable of being made
determinate. (Art. 1460.)
(a) By such sale, the buyer becomes a co-owner with the seller of the
whole mass in the proportion in which the definite share bought bears to
the mass.
(b) It must follow that the aliquot share of each owner can be determined
only by the measurement of the entire mass. If later on it be discovered
that the mass of fungible goods contains less than what was sold, the
buyer becomes the owner of the whole mass and furthermore, the seller
shall supply whatever is lacking from goods of the same kind and quality,
subject to any stipulation to the contrary.

(3) Risk of loss. — If the buyer becomes a co-owner, with the seller, or other
owners of the remainder of the mass, it follows that the whole mass is at the
risk of all the parties interested in it, in proportion to their various holdings.

(4) Subject matter. — Take note that in the sale of an undivided share, either
of a thing (Art. 1463.) or of that of mass of goods (Art. 1464.), the subject
matter is an incorporeal right. (Art. 1501.) Here, ownership passes to the
buyer by the intention of the parties.

vii. Things subject to a Resolutory Condition (Art. 1465)

A resolutory condition is an uncertain event upon the happening of which the
obligation (or right) subject to it is extinguished. Hence, the right acquired in
virtue of the obligation is also extinguished. (see Arts. 1179, 1181.)

g. Contract of Sale vs. Agency to Sell

i. Distinctions
1) In a sale, the buyer receives the goods as owner; in an agency to sell,
the agent receives the goods as the goods of the principal who retains
his ownership over them and has the right to fix the price and the
 terms of the sale and receive the proceeds less the agent’s
commission upon the sales made.
2) In a sale, the buyer has to pay the price; in an agency to sell, the agent
simply has to account for the proceeds of the sale he may make on
the principal’s behalf.
3) In a sale, the buyer, as a general rule, cannot return the object sold;
in an agency to sell, the agent can return the object in case he is
unable to sell the same to a third person.
4) In a sale, the seller warrants the thing sold (see Arts. 1547, 1548,
1561.); in an agency to sell, the agent makes no warranty for which he
assumes personal liability as long as he acts within his authority and
in the name of the seller.
5) In a sale, the buyer can deal with the thing sold as he pleases being
the owner; in an agency to sell, the agent in dealing with the thing
received must act and is bound according to the instructions of his
principal.

ii. Construction (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.

1. Ker & Co., Ltd. Vs. Jose B. Lingad (G.R. No. L-20871, April 30, 1971,
148 Phil 541-550)

FACTS:
1. The case involved a dispute between Ker & Co., Ltd. and the
Acting Commissioner of Internal Revenue, Jose B. Lingad.
2. Ker & Co., Ltd. was assessed by the Commissioner for a
commercial broker's percentage tax, surcharge, and
compromise penalty.
3. Ker & Co., Ltd. requested the cancellation of the assessment,
but it was denied.
4. They then filed a petition for review with the Court of Tax
Appeals, which held Ker & Co., Ltd. liable as a commercial
broker, except for the compromise penalty.
5. The liability of Ker & Co., Ltd. arose from a contract they had
with United States Rubber International.
6. The contract stated that Ker & Co., Ltd. would receive, accept,
and hold consigned products from United States Rubber
International for resale.
 7. The products remained the property of United States Rubber
International until sold by Ker & Co., Ltd. to customers.
8. Ker & Co., Ltd. was required to promote the sale of the
products and make payments to United States Rubber
International for the goods sold.
9. The contract also stated that Ker & Co., Ltd. was not the agent
or legal representative of United States Rubber International.

ISSUE/S:
1. Whether the relationship between Ker & Co., Ltd. and United
States Rubber International was one of vendor and vendee or
of broker and principal.

HELD:
1. The Court of Tax Appeals held that the relationship was one of
brokerage or agency, based on the terms of the contract and
the conduct of the parties.
2. The Supreme Court affirmed the decision of the Court of Tax
Appeals, stating that the mere disclaimer in the contract did
not negate the agency relationship.
3. The Court emphasized that the terms of the contract clearly
showed the pervasive control of United States Rubber
International over the goods consigned to Ker & Co., Ltd.
4. The Court relied on the controlling decision in Commissioner
of Internal Revenue v. Constantino, which stated that the
retention of ownership of goods by the company and the
control over the goods for resale indicated an agency
relationship.

h. Contract of Sale vs. Contract for a Piece of Work (Art. 1467)

i. Rules
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. (Art. 1713.)

The distinction between a contract of sale and one for work, labor or
materials or for a piece of work 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 been the subject of sale to some other person, even if the order
had not been given.
i. Sale vs. Barter (Art. 1468)
i. Rules to determine whether sale or barter.
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. (Art.
1638.) On the other hand, in a contract of sale, the vendor gives a thing in
consideration for a price in money. (Art. 1458.)