1
Part I
SALES
(Title VI, Arts. 1458-1637)
INTRODUCTION
Governing law.
The provisions of the Code of Commerce relating to sales
have been repealed by the Civil Code. (Art.* 2270[2].) Today,
sales are governed by the provisions of the Civil Code on the
subject. (Book IV, Title VI, Arts. 1458-1637.) The distinction
between the so-called civil sales and commercial sales is
eliminated.
The provisions of the Civil Code on Obligations (Title I,
Arts. 1156-1304.) and Contracts (Title II, Arts. 1305-1422.) are
applica ble to the contract of sale, but Articles 1458 to 1637 are
special rules which are peculiar to sales alone.
Sources of our law on sales.
(1) The Philippine law on sales, as it exists today, is an
admix ture of civil law and common law principles. According
to the Code Commission:
“A majority of the provisions of the Uniform Sales Law
which is in force in 31 States and Territories of the American
Union have been adopted in the Civil Code with
modifications to suit the principles of Philippine Law.”
(Report of the Code Commission, p. 60.)
*Unless otherwise indicated, refers to article in the Civil Code.
1
2 SALES
In incorporating some provisions of the Uniform Sales Act
of the United States, the Commission states:
“This incorporation of a goodly number of American
rules on sale of goods has been prompted by these reasons:
(1) The present [old] Code does not solve questions aris
ing from certain present-day business practices. Among
them are: the sale of “future goods” (Art. 1482.); sale of
goods by description or by sample (Art. 1501.); when goods
are deliv ered “on sale or return” (Art. 1522.); sale of goods
by negotia tion or transfer of a document of title (Arts. 1527
to 1540.); and the rights of the unpaid seller of goods. (Arts.
1545 to 1555.)​1
(2) The present Code fails to regulate many incidents
and aspects of delivery and acceptance of goods, of
warranty of title and against hidden defects, and of
payment of the price.
(3) It is probable that a considerable portion of the
foreign trade of the Philippines will continue for many years
with the United States. In order to lessen misunderstanding
between the merchants on both sides of the Pacific, their
transactions should, as far as possible, be governed by the
same rules. This desirable condition will not only facilitate
trade but will also perpetuate sentiments of esteem and
goodwill between the two peoples. It is but a truism to say
that fair and mutually beneficial trade incalculably enhances
international friend ship.” (​Ibid.,​ pp. 60-61.)
(2) In addition:
“The Title on ‘Sales’ has been enriched by the addition of
new provisions based on the opinions of commentators (Arts.
1479, 1480, 1481, 1485, 1490, 1491, 1497, 1498, 1512, 1516, 1558,
1561, 1569, 1570, 1571.​2​) and on judicial decisions (Arts. 1486,
1487.​3​) and of new rules adopted with modifications to suit the
philosophy and framework of Philippine Law, from the
Uniform Sales Act of
1​
The articles mentioned are now Arts. 1462, 1481, 1502, 1507-1520, 1525-1935, re
spectively, in the new Code.
2​
Now, Arts. 1459, 1460, 1461, 1465, 1470, 1471, 1477, 1478, 1492, 1496, 1538, 1541,
1549, 1550, 1551, respectively.
3​
Now, Arts. 1466, 1467, respectively.
3
INTRODUCTION
the United States, Arts. 1482 to 1484, 1494, 1496, 1501, 1503,
1514, 1522 to 1526, 1527 to 1540, 1541 to 1543, 1545 to 1555, 1565,
1566, 1567, 1582 to 1585, 1602 to 1608, 1614 to 1617, 1618 to 1619,
1657​4​ ​x x x.”
Many of the original articles were also amended for clarifica
tion or improvement.” (​Ibid.,​ p. 141.)
— oOo —
4​
Now, Arts. 1462 to 1464, 1474, 1476, 1481, 1483, 1494, 1502-1506, 1507-1520, 15211523, 1525-1535, 1545, 1546, 1547, 1562-1565, 1582-1586, 1594-1597, 1598-1599, 1637, re
spectively.
4 SALES
Chapter 1
NATURE AND FORM OF THE
CONTRACT
ART. 1458. By the contract of sale one of the con
tracting parties obligates himself to transfer the own
ership of 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)
Concept of contract of sale.
The ​contract of sale i​ s 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).
Under the Spanish Civil Code, the contract was referred to
as a contract of “purchase and sale.” As every “sale” necessarily
presupposes a “purchase,” this name was regarded as
redundant. Hence, the name of Title VI has been simplified by
calling it “sales” and the name of the contract has been changed
for the same rea son to “contract of sale.” (Report of the Code
Commission, p. 141.)
“It is required in the proposed Code that the seller trans
fers the ownership of the thing sold. (Arts. 1458, 1459, 1495,
1547.) In the present Code (Art. 1445.), his obligation is
merely to deliver the thing, so that even if the seller is not
the owner, he may validly sell, subject to the warranty (Art.
1474.) to maintain the buyer in the legal and peaceful
possession of the
4
Art. 1458 NATURE AND FORM OF THE CONTRACT5
thing sold. The Commission considers the theory of the
present law unsatisfactory from the moral point of view.”
(Ibid.)
Characteristics of a contract of sale.
The contract of sale is:
(1) ​Consensual​, because it is perfected by mere consent with
out any further act;
(2) ​Bilateral,​1 ​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 considera
tion of the price and ​vice versa (​ see Gaite vs. Fonacier, 2 SCRA
820 [1961].);
(4) ​Commutative, ​because the thing sold is considered the
equivalent of the price paid and ​vice versa. (​ see ​Ibid​.) However,
the contract may be aleatory​2 ​as in the case of the sale of a hope
(​e.g.​, sweepstakes ticket);
(5) ​Nominate, b
​ ecause it is given a special name or designa
tion in the Civil Code, namely, “sale”; and
(6) ​Principal, b
​ ecause it does not depend for its existence
and validity upon another contract.
ILLUSTRATIVE CASES:
1. ​Trial Court decided that there was no payment by buyer of
lumber covered by invoices of seller but Court of Appeals held that
1​
Obligations are bilateral when both parties are mutually bound to each other.
They are ​reciprocal w
​ hen the performance one is designed to be the equivalent and the
condi tion for the performance of the other. In a contract of sale, in the absence of any
stipula tion, the obligations of the seller and buyer are reciprocal, the obligation or
promise of each party is the cause or consideration for the obligation or promise by the
other. The reciprocal obligations would normally be, in the case of the buyer, the
payment of the agreed price and in the case of the seller, the fulfillment of certain
express warranties.
2​
Art. 2010. By an aleatory contract, one of the parties or both reciprocally bind
them selves to give or to do something in consideration of what the other shall give or
do upon the happening of an event which is uncertain, or which is to occur at an
indetermi nate time.
6 SALES
Art. 1458
delivery of lumber was not duly proved because counter-receipts is
sued by buyer merely certified to receipt of certain statement on
claims for the lumber allegedly delivered.
Facts: S
​ filed a complaint for collection of a sum of money
against B for lumber purchased on credit and received by B. B
denied all the material allegations of the complaint. The trial
court rendered judgment in favor of S. On appeal, the Court
of Appeals reversed the judgment on the ground that the
deliv ery of the lumber to B was not duly proved.
S asserts that the case having been tried and decided by
the trial court on the issue of whether or not there was pay
ment by B of the lumber covered by invoices of S and counter
receipts issued by B, it is alone on this issue that the Court of
Appeals should have decided the case and not on the issue of
whether or not there was delivery of the lumber in question.
The Court of Appeals found that the counter-receipts merely
certified the fact of having received from S certain statements
on claims for lumber allegedly delivered.
Issue: ​Did the Court of Appeals decide the case on a new
issue not raised in the pleadings before the lower court?
Held: N
​ o. The issue of delivery is no issue at all. For deliv
ery and payment in a contract of sale, or for that matter in
quasi contracts, are so interrelated and interwined with each
other that without delivery of the goods there is no
corresponding obligation to pay. The two complement each
other. (see Art. 1458, par. 1.) It is clear that the two elements
cannot be dissoci ated, for the contract of purchase and sale is,
essentially, a bi lateral contract, as it gives rise to reciprocal
obligations. ​(Pio Barretto Sons, Inc. vs. Compania Maritima, 62
SCRA 167 [1975].)
——— ———— ———2. ​To secure payment of the balance of the purchase price of iron
ore, buyer executed a surety bond in favor of seller, the buyer,
however, claiming that such payment was subject to a suspensive
condition — the sale of the iron ore by buyer.
Facts: B
​ , owner of a mining claim, appointed S as attorney
in-fact to enter into a contract with any individual or juridical
person for the exploration and development of said claim on a
royalty basis. S himself embarked upon the exploitation of the
claim.
Art. 1458 NATURE AND FORM OF THE CONTRACT7
Subsequently, B revoked the authority granted by him to
S who assented thereto subject to certain conditions. As a
result, a document was executed wherein S transferred to B all
of S’s rights and interests over the “24 tons of iron ore, more
or less” that S had already extracted from the mineral claims
in consid eration of the sum of P75,000.00, P10,000.00 of which
was paid upon the signing of the agreement, and “the balance
of P65,000.00 will be paid from and out of the first letter of
credit covering the first shipment of iron ores and of the first
amount derived from the local sale of iron ore” from said
claims.
To secure the payment of the balance, B executed in favor
of S a surety bond. No sale of approximately 24,000 tons of
iron ore had been made nor had the balance of P65,000.00
been paid to S.
Issue: ​Is the shipment or local sale of the iron ore a condi
tion precedent (or suspensive condition) to the payment of the
balance, or only a suspensive period or term?
Held: ​(1) ​Obligation of B one with a term. —
​ The words of
the contract express no contingency in the buyer’s obligation
to pay. There is no uncertainty that the payment will have to
be made sooner or later; what is undetermined is merely the
exact date ​at which it will be made. By the very terms of the
contract, therefore, the existence of the obligation to pay is
recognized; only its ​maturity ​or ​demandability ​is deferred.
Furthermore, to subordinate B’s obligation to the sale or
shipment of the ore as a condition precedent would be tanta
mount to leaving the payment at his discretion (Art. 1182.), for
the sale or shipment could not be made unless he took steps to
sell the ore.
(2) ​A contract of sale is normally commutative and onerou​s. —
In a contract of sale, not only does each one of the parties as
sume a correlative obligation, but each party anticipates per
formance by the other from the very start.
Nothing is found in the record to evidence that S desired
or assumed to run the risk of losing his right over the ore with
out getting paid for it, or that B understood that S assumed
any such risk. This is proved by the fact that S insisted on a
bond to guarantee the payment of the P65,000.00 and the fact
that B did put such bond, indicated that he admitted the
definite exist ence of his obligation to pay the balance of
P65,000.00. The only
8 SALES
Art. 1458
rational view that can be taken is that the sale of the ore to B
was a sale on credit, and not an aleatory contract, where the
transferor, S, would assume the risk of not being paid at all by
B. ​(Gaite vs. Fonacier, 2 SCRA 830 [1961].)
Essential requisites of a contract of sale.
The rules of law governing contracts in general are applica
ble to sales. Like every contract, “sale” has the following requi
sites or elements:
(1) ​Consent or meeting of the minds. ​— This refers to the con
sent on the part of the seller to transfer and deliver and on the
part of the buyer to pay. (see Art. 1475.) The parties must have
legal capacity to give consent and to obligate themselves. (Arts.
1489, 1490, 1491.) The essence of consent is the conformity of the
parties on the terms of the contract, the acceptance by one of the
offer made by the other. The contract to sell is a bilateral
contract. Where there is merely an offer by one party without
the accept ance of the other, there is no consent. (Salonga vs.
Farrales, 105 SCRA 359 [1981].) The acceptance of payment by a
party is an indication of his consent to a contract of sale, thereby
precluding him from rejecting its binding effect. (Clarin vs.
Rulova, 127 SCRA 512 [1984].)
There may, however, be a sale against the will of the owner
in case of expropriation (see Art. 1488.) and the three different
kinds of sale under the law, namely: an ordinary execution sale
(see Rules of Court, Rule 39, Sec. 15.), judicial foreclosure sale
(​Ibid.​ , Rule 68.), and extra-judicial foreclosure sale. (Act No.
3135, as amended.) A different set of law applies to each class of
sale mentioned. (see Fiestan vs. Court of Appeals, 185 SCRA 751
[1990].)
The sale of conjugal property requires the consent of both
the husband and the wife. The absence of the consent of one
renders the sale null and void (see Art. 124, Family Code.) while
the vitia tion thereof (see Art. 1390.) makes it merely voidable.
(Guiang vs. Court of Appeals, 95 SCAD 264, 290 SCRA 372
[1998].)
(2) ​Object or subject matter. — ​This refers to the ​determinate
thing w
​ hich is the object of the contract. (Art. 1460.) The thing
must be
Art. 1458 NATURE AND FORM OF THE CONTRACT9
determinate or at least capable of being made determinate
because if the seller and the buyer differ in regard to the thing
sold, there is no meeting of the minds; therefore, there is no
sale. The subject matter may be personal or real property. The
terms used in the law are “thing” (​e.g., A
​ rt. 1458), “article” (Art.
1467), “goods” (​e.g., A
​ rt. 1462), “personal property” (​e.g., ​Art.
1484), “property” (​e.g., ​Art. 1490), “movable property” (​e.g., ​Art.
1498), “real estate” (​e.g., A
​ rt. 1539), “immovable” (​e.g., Ibid.)​ ,
“immovable property” (​e.g., ​Art. 1544), and “real property.”
(Art. 1607.)
A buyer can only claim right of ownership over the object of
the deed of sale and nothing else. Where the parcel of land de
scribed in the transfer certificate of title is not in its entirety the
parcel sold, the court may decree that the certificate of title be
cancelled and a correct one be issued in favor of the buyer, with
out having to require the seller to execute in favor of the buyer
an instrument to effect the sale and transfer of the property to
the true owner. (Veterans Federation of the Philippines vs.
Court of Appeals, 138 SCAD 50, 345 SCRA 348 [2000].)
The sale of credits and other incorporeal rights is covered by
Articles 1624 to 1635; and
(3) ​Cause or consideration. — ​This refers to the “price certain
in money or its equivalent” (Art. 1458.) such as a check or a
prom issory note, which is the consideration for the thing sold.
It does not include goods or merchandise although they have
their own value in money. (see Arts. 1468, 1638.) 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.” (see Re public vs. Phil. Resources Dev.
Corp., 102 Phil. 968 [1958].)
The price must be real, not fictitious; otherwise, the sale is
void although the transaction may be shown to have been in
reality a donation or some other contract. (Art. 1471.) A seller
cannot render invalid a perfected contract of sale by merely
contradicting the buyer’s allegation regarding the price and
subsequently raising the lack of agreement as to the price.
(David vs. Tiongson, 111 SCAD 242, 313 SCRA 63 [1999].)
10 SALES
Art. 1458
The absence of any of the above essential elements negates
the existence of a perfected contract of sale.​3 ​Sale, being a consen
sual contract (see Art. 1475.), he who alleges it must show its ex
istence by competent proof. (Dizon vs. Court of Appeals, 302
SCRA 288 [1999].)
Natural and accidental elements.
The above are the essential elements of a contract of sale or
those without which no sale can validly exist. They are to be dis
tinguished from:
(1) ​Natural elements ​or those which are deemed to exist in cer
tain contracts, in the absence of any contrary stipulations, like
warranty against eviction (Art. 1548.) or hidden defects (Art.
1561.); and
(2) ​Accidental elements o
​ r those which may be present or ab
sent depending on the stipulations of the parties, like
conditions, interest, penalty, time or place of payment, etc.
ILLUSTRATIVE CASES:
1. ​Supposed sale was evidenced by a receipt acknowledging re
ceipt of P1,000.00.
Facts: B
​ bought on a partial payment of P1,000.00,
evidenced by a receipt, a portion of a subdivision from S,
administrator of the testate estate of his deceased spouse.
Subsequently, S was authorized by the court to sell the
subdivision. In the mean time, PT Co. became the new
administrator. It sold the lot to another which sale was
judicially approved.
B files a complaint which seeks, among other things, for
the quieting of title over the lot in question.
Issue: W
​ as there a valid and enforceable sale to B?
Held: ​No. An examination of the receipt reveals that the
same can neither be regarded as a contract of sale nor a prom
3​
When a contract of sale is void, the possessor is entitled to keep the fruits during
the period for which he held the property in good faith. Good faith of the possessor
ceases when an action to recover possession of the property is filed against him and he
is served summons therefor. (Development Bank of the Phils. vs. Court of Appeals, 316
SCRA 650 [1999]; see Arts. 526, 528.)
Art. 1458 NATURE AND FORM OF THE CONTRACT11
ise to sell. There was merely an acknowledgment of the sum
P1,000.00. There was no agreement as to the total purchase
price of the land nor to the monthly installments to be paid by
B. The requisites for a valid contract of sale are lacking.
(Leabres vs. Court of Appeals, 146 SCRA 158 [1986].)
———— ———— ————
2. ​Buyer did not sign draft of Contract to Sell because it cov
ered seven (7) lots instead of six (6), but sent to seller five (5) checks
as down payment which the seller did not encash.
Facts: B
​ Company and S, subdivision developer, agreed to
enter into a new Contract to Sell whereby S will sell seven (7)
lots at P423,250.00 with a down payment of P42,325.00 and the
balance payable in 48 monthly installments of P7,395.94. The
draft of the Contract to Sell prepared by S was sent to B Com
pany but B’s president did not sign it although he sent five (5)
checks covering the down payment totalling P27,542.72. S re
ceived the checks but did not encash it because B’s president
did not sign the draft contract, the reason given by the latter
was that the draft covered seven (7) lots instead of six (6).
Since no written contract was signed, S sued B to recover
possession of the lots still occupied by the latter.
Issues: (​ 1) May the unsigned draft be deemed to embody
the agreement between the parties?
(2) May the receipt of the five (5) checks by S serve to pro
duce the effect of tender of down payment by B?
Held: ​(1) Based on the facts, the parties had not arrived at
a definite agreement. The only agreement they arrived at was
the price indicated in the draft contract. The number of lots to
be sold was a material component of the Contract to Sell. With
out an agreement on the matter, the parties may not in any
way be considered as having arrived at a contract under the
law.
(2) Moreover, since the five (5) checks were not encashed,
B should have deposited the corresponding amount of the
said checks as well as the installments agreed upon. A
contract to sell, as in this case, involves the performance of an
obligation, not merely the exercise of a privilege or a right.
Consequently, performance or payment may be effected not
by tender of pay ment alone but by both tender and
consignation. It is consigna tion which is essential to
extinguish B’s obligation to pay the balance of the purchase
price. (see Arts. 1256-1258.) B did not
12 SALES
Art. 1458
even bother to tender and make consignation of the
installments or to amend the contract to reflect the true
intention of the par ties as regards the number of lots to be
sold. ​(People’s Industrial Commercial Corp. vs. Court of Appeals,
88 SCAD 559, G.R. No. 112733, Oct. 24, 1997.)
Effect of absence of price/non
payment of price.
(1) There can be no sale without a price. (see Art. 1474.)
Tech nically, the cause in sale is, as to the seller, the buyer’s
promise to pay the price, and as to the buyer, the seller’s
promise to deliver the thing sold. A contract of sale is void and
produces no effect whatsoever where the same is without cause
or consideration (Art. 1409[3].) in that the purchase price, ​which
appears thereon as paid,​ has, in fact, never been paid by the buyer
to the seller. Such sale is nonexistent and cannot be considered
consummated. (Mapalo vs. Mapalo, 17 SCRA 116 [1966];
Ladanga vs. Court of Appeals, 31 SCRA 361 [1984]; Castillo vs.
Galvan, 85 SCRA 526 [1978].)
Where the figures referred to by the buyer as prices are
mere estimates given them by the seller of the condominium
units in question, the transaction lacks an essential requisite for
the per fection of the contract of sale. (Raet vs. Court of
Appeals, 98 SCAD 584, 295 SCRA 677 [1998].)
(2) Non-payment of the purchase price is a resolutory condi
tion for which the remedy is either rescission or specific
perform ance under Article 1191 of the Civil Code. It constitutes
a very good reason to rescind a sale, for it violates the very
essence of the contract of sale. (Central Bank of the Philippines
vs. Bachara, 328 SCRA 807 [2000].)
But the failure to pay the price in full within a fixed period
does not, by itself, dissolve a contract of sale in the absence of
any agreement that payment on time is essential (Ocampo vs.
Court of Appeals, 52 SCAD 610, 233 SCRA 551 [1994]; see Art.
1592.), or make it null and void for lack of consideration, but
results at most in default on the part of the vendee for which
the vendor may exercise his legal remedies. (Balatbat vs. Court
of Appeals, 73 SCAD 660, 261 SCRA 128 [1996].) It is incumbent
upon the party challenging the recital of a notarized deed of
sale that the vendor
Art. 1458 NATURE AND FORM OF THE CONTRACT13
has received the purchase price to prove his claim with clear
and convincing evidence. A notarized document is evidence of
high character. (Diaz vs. Court of Appeals, 145 SCRA 346
[1986].)
An action to declare a contract void or inexistent does not
prescribe. (Art. 1410.)
Transfer of title to property for a price,
essence of sale.
(1) ​Obligations to deliver and to pay​. — The transfer of title to
property or agreement to transfer title for a price actually paid
or promised, not a mere physical transfer of the property, is the
es sence of sale. (see Ker & Co., Ltd. vs. Lingad, 38 SCRA 524
[1971]; see Gardner vs. Court of Appeals, 131 SCRA 585 [1984];
Santos vs. Court of Appeals, 337 SCRA 67 [2000].) But neither is
the de livery of the thing bought nor the payment of the price
necessary for the perfection of the contract of sale. Being
consensual, it is perfected by mere consent. (See Art. 1475.)
However, where the seller can no longer deliver the object of
the sale to the buyer be cause the latter has already acquired
title and delivery thereof from the rightful owner, such contract
may be deemed to be in operative and may thus fall, by
analogy, under Article 1409(5) of the Civil Code: “those which
contemplate an impossible service,’’ since delivery of
ownership is no longer possible. (Nool vs. Court of Appeals, 84
SCAD 941, 276 SCRA 149 [1997]; Heirs of San Miguel vs. Court
of Appeals, 364 SCRA 523 [2001].)
It is only upon the existence of the contract of sale that the
seller is obligated to transfer ownership to the buyer and the
buyer, to pay the purchase price to the seller. (Chua vs. Court of
Ap peals, 401 SCRA 54 [2003].) In defining the contract of sale,
Arti cle 1458 merely specifies the obligations of the parties to
transfer ownership and to pay under the contract. The parties
will have these obligations even without Article 1458.
ILLUSTRATIVE CASE:
Spouses exchanged their properties for no par shares of a corpo
ration as a result of which they gained control of the corporation.
Facts: S
​ pouses H & W, stockholders of DT Corporation,
con veyed to said DT a parcel of land leased to E, in exchange
for
14 SALES
Art. 1458
2,500 shares of stock equivalent to 55% majority in the corpora
tion. E questioned the transaction on the ground that it was
not given the first option to buy the leased property pursuant
to the proviso in the lease agreement.
Issue: I​ s the “deed of exchange” a contract of sale which,
in effect, prejudiced E’s right of first refusal over the leased
prop erty?
Held: ​No. In effect, DT Corporation is a business conduit
of H and W. What they really did was to invest their
properties and change the nature of their ownership from
unincorporated to incorporated form by organizing DT to
take control of their properties and at the same time save on
inheritance taxes. The deed of exchange cannot be considered
a contract of sale. There was no transfer of actual ownership
interests by H and W to a third party. They merely changed
their ownership from one form to another. The ownership
remained in the same hands. Hence, E has no basis for its
claim of a right of first refusal un der the lease contract.
(Delpher Trades Corporation vs. Intermedi ate Appellate Court, 157
SCRA 349 [1988].)
(2) ​Where transfer of ownership not intended by the parties. —
A contract for the sale or purchase of goods/commodity to be
delivered at a future time, if entered into without the intention
of having any goods/commodity pass from one party to an
other, but with an understanding that at the appointed time,
the purchaser is merely to receive or pay the difference
between the contract and the market prices, is illegal. Such
contract falls under the definition of what is called “futures”
in which the parties merely gamble on the rise or fall in prices
and is de clared null and void by law.​4 ​(​Onapal Philippines
Commodities, Inc. vs. Court of Appeals, 218 SCRA 281 [1993].​ )
Kinds of contract of sale.
(1) ​As to presence or absence of conditions.​ — A sale may be
either:
4​
Art. 2018.If a contract which purports to be for the delivery of goods, securities or
shares of stock is entered into with the intention that the difference between the price
stipulated and the exchange or market price at the time of the pretended delivery shall
be paid by the loser to the winner, the transaction is null and void. The loser may re
cover what he has paid.
Art. 1458 NATURE AND FORM OF THE CONTRACT15
(a) ​Absolute. — ​where the sale is not subject to any condi
tion 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 mo ment the vendee fails to pay within a fixed
period. (Dignos vs. Court of Appeals, 158 SCRA 375 [1988];
Pingol vs. Court of Appeals, 44 SCAD 498, 226 SCRA 118
[1995]; People’s Indus trial and Commercial Corporation vs.
Court of Appeals, 88 SCAD 559, 281 SCRA 206 [1997].) In
such case, ownership of the property sold passes to the
vendee upon the actual or con structive delivery thereof.
(see Art. 1497.)
Payment of the purchase price is not essential to the
trans fer of ownership as long as the property sold has been
deliv ered. Such delivery (see Art. 1497.) operates to divest
the ven dor of title to the property which may not be
regained or re covered until and unless the contract is
resolved or rescinded in accordance with law (Philippine
National Bank vs. Court of Appeals, 82 SCAD 472, 272
SCRA 291 [1997].); or
(b) ​Conditional. — w
​ here the sale contemplates a contin
gency (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 pay
ment 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].)
In sales with assumption of mortgage, the assumption of
mortgage is a condition to the seller-mortgagor’s consent to
the sale so that without approval by the mortgagee no sale
is perfected and the seller remains the owner and mortgagor
of the subject property with the right to redeem in the case
of foreclosure. (Ramos vs. Court of Appeals, 87 SCAD 24,
279 SCRA 118 [1997].)
16 SALES
Art. 1458
However, a sale denominated as a “Deed of Conditional
Sale’’ is still absolute where the contract is devoid of any pro
viso that title is reserved or the right to unilaterally rescind
is stipulated, ​e.g., u
​ ntil or unless the price is paid. (Heirs of
Juan San Andres vs. Rodriguez, 332 SCRA 769 [2000].)
The delivery of the thing sold does not transfer title until
the condition is fulfilled. Where the condition is imposed, in
stead, upon the perfection of the contract the failure of such
condition would prevent such perfection (Galang vs. Court
of Appeals, 43 SCAD 737, 225 SCRA 37 [1993]; Roque vs.
Lapuz, 96 SCRA 741 [1980]; Babasa vs. Court of Appeals, 94
SCAD 679, 290 SCRA 532 [1998].) or the juridical relation
itself from com ing into existence.
If the condition is imposed on an ​obligation o
​ f a party
(​e.g., e​ jection by the vendor of squatters within a certain
period before delivery of property) not upon the perfection
of the contract itself, which is not complied with, the ​other
party m
​ ay either refuse to proceed or waive said condition.
(see Art. 1545; Romero vs. Court of Appeals, 65 SCAD 621,
250 SCRA 223 [1995].) The stipulation that the “payment of
the full consid eration [of a parcel of land] shall be due and
payable in five (5) years from the execution of a formal deed
of sale’’ is not a condition which affects the efficacy of the
contract of sale. It merely provides the manner by which the
full consideration is to be computed and the time within
which the same is to be paid. (Heirs of Juan San Andres vs.
Rodriguez, ​supra​.) Simi larly, the mere fact that the
obligation of the buyer to pay the balance of the purchase
price was made subject to the condition that the seller first
deliver the reconstituted title of the house and lot sold does
not make the contract a contract to sell for such condition is
not inconsistent with a contract of sale. (Laforteza vs.
Machuca, 127 SCAD 798, 333 SCRA 643 [2000].)
(2) ​Other kinds.​ — There are, of course, other kinds of sale
depending on one’s point of view, ​e.g.​, as to the nature of the
sub ject matter (real or personal, tangible or intangible), as to
manner of payment of the price (cash or installment), as to its
validity (valid, rescissible, unenforceable, void), etc.
Art. 1458 NATURE AND FORM OF THE CONTRACT17
Contract of sale and contract to sell
with reserved title distinguished.
At this stage, it would be desirable to point out that there
are distinctions between the two contracts.
(1) ​Transfer of title. — ​In a contract of sale, title passes to the
buyer upon delivery of the thing sold, while in a contract to sell
(or of “exclusive right and privilege to purchase”), where it is
stipulated that ownership in the thing shall not pass to the pur
chaser until he has fully paid the price (Art. 1478.), ownership is
reserved in the seller and is not to pass until the full payment of
the purchase price. In the absence of such stipulation, especially
where the buyer took possession of the property upon
execution of the contract, indicates that what the parties
contemplated is a contract of absolute sale.
(2) ​Payment of price. — ​In the first case, non-payment of the
price is a negative resolutory condition (see Art. 1179.), and the
remedy of the seller is to exact fulfillment or to rescind the con
tract (see Arts. 1191, 1592.), while in the second case, full
payment is a positive suspensive condition, the failure of which
is not a breach, casual or serious, of the contract but simply an
event that prevents the obligation of the vendor to convey title
from acquir ing binding force. (Manvel vs. Rodriguez, 109 Phil.
1 [1960]; Roque vs. Lapuz, 96 SCRA 741 [1980]; Jacinto vs.
Kaparaz, 209 SCRA 246 [1992]; Adelfa Properties, Inc. vs. Court
of Appeals, 58 SCAD 462, 240 SCRA 565 [1995].) Where the
seller promises to execute a deed of absolute sale upon full
payment of the purchase price, the agree ment is a contract to
sell. (Rayos vs. Court of Appeals, 434 SCRA 365 [2004].)
(3) ​Ownership of vendor. — ​Being contraries, their effect in
law cannot be identical. In the first case, the vendor has lost and
can not recover the ownership of the thing sold and delivered,
actu ally or constructively (see Art. 1497.), until and unless the
con tract of sale itself is resolved and set aside. In the second
case, however, the title remains in the vendor if the vendee does
not comply with the condition precedent of making payment at
the time specified in the contract. (see Heirs of P. Escanlar vs.
Court of Appeals, 88 SCAD 532, 281 SCRA 176 [1997]; People’s
Indus trial and Commercial Corporation vs. Court of Appeals,
281 SCRA
18 SALES
Art. 1458
206 [1997]; Luzon Brokerage Co. vs. Maritime Bldg. Co., Inc., 43
SCRA 93 [1972] and 86 SCRA 305 [1978]; Katigbak vs. Court of
Appeals, 4 SCRA 243 [1962]; Lim vs. Court of Appeals, 182
SCRA 564 [1990]; Tuazon vs. Garilao, 152 SCAD 699, 362 SCRA
654 [2001].) There is no actual sale until and unless full payment
of the price is made (see Bowe vs. Court of Appeals, 220 SCRA
158 [1993].) and a contract of sale is entered into to consummate
the sale. If the vendor should eject the vendee for failure to meet
the condition precedent he is enforcing the contract and not
rescind ing it. Article 1191​5 ​is not applicable. A contract to sell is
commonly entered into so as to protect the seller against a
buyer who intends to buy a property in installments by
withholding ownership over the property until the buyer effects
full payment therefore. (City of Cebu vs. Heirs of C. Rubi, 106
SCAD 61, 306 SCRA 408 [1999].)
A stipulation in a contract providing for automatic
rescission upon non-payment of the purchase price within the
stipulated period is valid. (see Art. 1191.) It is in the nature of an
agreement granting a party the right to rescind a contract
unilaterally in case of breach without need of going to court.
(Pangilinan vs. Court of Appeals, 87 SCAD 408, 279 SCRA 590
[1997].)
ILLUSTRATIVE CASES:
1. ​Vendor “sells, transfers, and conveys” a land to the vendee
who may sell or assign the land prior to full payment of all
installments.
Facts: T
​ he dispositive part of a deed entitled “Deed of Sale
of Real Property” states: “for and in consideration of the sum
of P140,000, payable under the terms and conditions stated in
the foregoing premises, the VENDOR sells, transfers and con
5​
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him. The injured
party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible. The court shall decree the
rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
(1124)
Art. 1458 NATURE AND FORM OF THE CONTRACT19
veys unto the VENDEE x x x” the property in question as of
December 22, 1971, the date of said document.”
In paragraph 5 thereof, it is provided that “should the
VENDEE prior to the full payment of all the amounts afore
mentioned, decide to sell or to assign part or all of the afore
mentioned parcel of land, the VENDOR shall be informed in
writing and shall have the option to repurchase the property x
x x. Should the VENDOR herein decide to repurchase and the
property is sold or transferred to a third person, the balance of
the consideration herein still due to the VENDOR shall consti
tute automatically a prior lien on the consideration to be paid
by the third person to herein VENDEE.”
Issue: ​Is the above instrument a contract to sell?
Held: ​No. (1) ​Title to land transferred to vendee. — ​“It is a
deed of sale in which title to the subject land was transferred
to the vendee as of the date of the transaction,
notwithstanding that the purchase price had not yet been
fully paid at that time. Under the first-cited stipulation, what
is deferred is not the transfer of ownership but the full
payment of the purchase price, which is to be made in
installments, on the dates indicated. Under the second
stipulation, it is recognized that the vendee may sell the
property even ‘prior to full payment of all the amounts
aforementioned,’ which simply means that although the
purchase price had not yet been completely paid, the vendee
had already become the owner of the land. As such, he could
sell the same subject to the right of repurchase reserved to the
vendor.”
(2) ​Right of vendor where land sold by vendee. —
​ “In fact, the
contract also provides for the possibility of the vendee selling
the property to a third person, in which case the vendor, if she
wishes to repurchase the land, shall have a lien on any
balance of the consideration to be paid by the third person to
the vendee.” ​(Filoil Marketing Corp. vs. Intermediate Appellate
Court, 169 SCRA 293 [1989].)
———— ———— ————
2. ​The sale of scrap iron is subject to the condition that the
buyer will open a letter of credit in favor of the seller for
P250,000.00 on or before May 15, 1983.
Facts: I​ n May 1, 1983, B (buyer) and S (seller) entered into
a contract entitled “Purchase and Sale of Scrap Iron” whereby
S
20 SALES
Art. 1458
bound itself to sell the scrap iron upon the fulfillment by B of
his obligation to make or indorse an irrevocable and uncondi
tional letter of credit not later than May 15, 1983.
On May 17, 1983, B, through his men, started to dig and
gather scrap iron at S’s premises. S cancelled the contract be
cause of B’s alleged non-compliance with the essential precon
ditions among which is the opening of the letter of credit. It
appeared that the opening of the letter of credit was made on
May 26, 1983 by a corporation which was not a party to the
contract, with a bank not agreed upon, and was not
irrevocable and unconditional, for it was without recourse
and stipulated certain conditions.
In his complaint, B, private respondent, prayed for judg
ment ordering S, petitioner corporation, to comply with the
contract and to pay damages.
Issue: ​Is the transaction between S and B a mere contract
to sell or promise to sell, and not a contract of sale?
Held: ​(1) ​The contract is not one of sale. —
​ “The petitioner
corporation’s obligation to sell is unequivocally subject to a
positive suspensive condition, ​i.e.,​ the private respondent’s
opening, making or indorsing of an irrevocable and uncondi
tional letter of credit. The former agreed to deliver the scrap
iron only upon payment of the purchase price by means of an
irrevocable and unconditional letter of credit. Otherwise
stated, the contract is not one of sale where the buyer acquired
owner ship over the property subject to the resolutory
condition that the purchase price would be paid after
delivery. Thus, there was to be no actual sale until the
opening, making or indorsing of the irrevocable and
unconditional letter of credit. Since what obtains in the case at
bar is a mere promise to sell, the failure of the private
respondent to comply with the positive suspensive condition
cannot even be considered a breach — casual or seri ous —
but simply an event that prevented the obligation of petitioner
corporation to convey title from acquiring binding force.”
(2) ​The obligation of the petitioner corporation to sell did not
arise. —
​ “Consequently, the obligation of the petitioner corpo
ration to sell did not arise; it, therefore, cannot be compelled
by specific performance to comply with its prestation. In
short, Article 1191 of the Civil Code does not apply; on the
contrary, pursuant to Article 1597 of the Civil Code, the
petitioner cor
Art. 1458 NATURE AND FORM OF THE CONTRACT21
poration may totally rescind, as it did in this case, the
contract.’’ Since the refusal of petitioner to deliver the scrap
iron was founded on the “non-fulfillment by the private
respondent of a suspensive condition,’’ it cannot be held liable
for damages. ​(Visayan Sawmill Company, Inc. vs. Court of
Appeals, 219 SCRA 381 [1993].)
Romero, J., dissenting:
(1) ​The contract reached the stage of perfection. —
​ “Evidently,
the distinction between a contract to sell and a contract of sale
is crucial in this case. Article 1458 has this definition: x x x. Ar
ticle 1475 gives the significance of this mutual undertaking of
the parties, thus: x x x. Thus, when the parties entered into the
contract entitled “Purchase and Sale of Scrap Iron” on May 1,
1983, the contract reached the stage of perfection, there being
a meeting of the minds upon the object which is the subject
mat ter of the contract and the price which is the
consideration. Applying Article 1475 from that moment, the
parties may recip rocally demand performance of the
obligations incumbent upon them, ​i.e., ​delivery by the vendor
and payment by the vendee.
(2) ​The seller has placed the goods in the control and possession
of the vendee. — F
​ rom the time the seller gave access to the
buyer to enter his premises, manifesting no objection thereto
but even sending 18 or 20 people to start the operation, he has
placed the goods in the control and possession of the vendee
and de livery is effected. For, according to Article 1497, “The
thing sold shall be understood as delivered when it is placed
in the con trol and possession of the vendee.”
(3) ​That payment of the price in any form was not yet effected is
immaterial to the transfer of ownership. — “​ That payment of the
price in any form was not yet effected is immaterial to the
trans fer of the right of ownership. In a contract of sale, the
nonpay ment of the price is a resolutory condition which
extinguishes the transaction that, for a time, existed and
discharges the obli gations created thereunder. x x x.
“​Consequently, in a contract of sale, after delivery of the
object of the contract has been made, the seller loses
ownership and cannot recover the same, unless the contract is
rescinded. But in the contract to sell, the seller retains
ownership and the buyer’s failure to pay cannot even be
considered a breach, whether casual or substantial, but an
event that prevented the seller’s duty to transfer title to the
object of the contract.”
22 SALES
Art. 1458
(4) ​The transaction is an absolute contract of sale and not a con
tract to sell. — ​“The phrase in the contract ‘on the following
terms and conditions’ is standard form which is not to be con
strued as imposing a condition, whether suspensive or reso
lutory, in the sense of the happening of a future and uncertain
event upon which an obligation is made to depend. There
must be a manifest understanding that the agreement is in
what may be referred to as “suspended animation” pending
compliance with provisions regarding payment. The
reservation of title to the object of the contract in the seller is
one such manifestation. Hence, it has been decided in the case
of ​Dignos vs. Court of Appeals (158 SCRA 375 [1988].) t​ hat,
absent a proviso in the con tract that the title to the property is
reserved in the vendor un til full payment of the purchase
price or a stipulation giving the vendor the right to
unilaterally rescind the contract the moment the vendee fails
to pay within the fixed period, the transaction is an absolute
contract of sale and not a contract to sell.”
Contract to sell and conditional sale
distinguished.
A contract to sell may be defined as a bilateral contract
whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to
the prospective buyer, binds himself to sell the said property
exclu sively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase
price.
(1) ​Transfer of title to the buyer. ​— A contract to sell as
defined above may not even be considered as a conditional
contract of sale where the seller may likewise reserve title to the
property subject of the sale until the fulfillment of the
suspensive condition, be cause in a conditional contract of sale,
the first element of con sent is present, although it is
conditioned upon the happening of a contingent event which
may or may not occur. If the suspensive condition is not
fulfilled, the perfection of the contract of sale is completely
abated. (​cf. ​Homesite and Housing Corp. vs. Court of Appeals,
133 SCRA 777 [1984].) However, if the suspensive con dition is
fulfilled, the contract of sale is thereby perfected, such that if
there had already been previous delivery of the property
subject of the sale to the buyer, ownership thereto automatically
Art. 1458 NATURE AND FORM OF THE CONTRACT 23
transfers to the buyer by operation of law without any further
act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price, own
ership will not automatically transfer to the buyer although the
property may have been previously delivered to him. The pro
spective seller still has to convey title to the prospective buyer
by entering into a contract of absolute sale to consummate the
trans action.
(2) ​Sale of subject property to a third person. ​— It is essential to
distinguish between a contract to sell and a conditional contract
of sale specially in cases where the subject property is sold by
the owner not to the party the seller contracted with, but to a
third person. In a contract to sell, there being no previous sale of
the property, a third person buying such property despite the
fulfillment of the suspensive condition such as the full payment
of the purchase price, for instance, cannot be deemed a buyer in
bad faith and the prospective buyer cannot seek the relief of re
conveyance of the property. There is no double sale in such
case. Title to the property will transfer to the buyer after
registration because there is no defect in the owner-seller’s title
per se, ​but the latter, of course, may be sued for damages by the
intending buyer.​6
In a conditional contract of sale, however, upon the
fulfillment of the suspensive condition, the sale becomes
absolute and this will definitely affect the seller’s title thereto. In
fact, if there had been previous delivery of the subject property,
the seller’s ownership or title to the property is automatically
transferred to the buyer, such that the seller will no longer have
any title to transfer to any third person. Applying Article 1544
of the Civil Code, such sec ond buyer of the property who may
have had actual or construc tive knowledge of such defect in the
seller’s title, or at least was charged with the obligation to
discover such defect, cannot be a registrant in good faith. Such
second buyer cannot defeat the first buyer’s title. In case a title
is issued to the second buyer, the first
6​
A prior contract to sell made by a decedent during his lifetime prevails over a
subsequent sale made by an administrator without probate court approval. The estate is
bound to convey the property upon full payment of the consideration. (Liu vs. Loy, Jr.,
438 SCRA 244 [2004].)
24 SALES
Art. 1458
buyer may seek reconveyance of the property subject of the
sale. (Coronel vs. Court of Appeals, 75 SCAD 141, 263 SCRA 15
[1996].)
Other cases of contract to sell.
(1) Where the subject matter is not determinate (Arts. 1458,
1460.) or the price is not certain (Art. 1458.), the agreement is
merely a contract to sell. (Yu Tek vs. Gonzales, 29 Phil. 384
[1915]; Ong & Jang Chuan vs. Wise & Co., 33 Phil. 339 [1916].)
For pur poses of the perfection of a contract of sale (see Art.
1475.), there is already a price certain where the determination
of the price is left to the judgment of a specified person or
persons (see Art. 1469, par. 1.), and notwithstanding that such
determination has yet to be made.
(2) A sale of future goods (see Art. 1462.) even though the
contract is in the form of a present sale operates as a contract to
sell the goods.
(3) Where the stipulation of the parties is that the deed of
sale and corresponding certificate of sale would be issued only
after full payment of the purchase price, the contract entered
into is a contract to sell and not a contract of sale. (David vs.
Tiongson, 111 SCAD 242, 313 SCRA 63 [1999].)
It has been held that the act of the vendor of delivering the
possession of the property (land) to the vendee contemporane
ous with the contract (deed of sale in a private instrument) was
an indication that an absolute contract of sale was intended by
the parties and not a contract to sell. (Dignos vs. Court of
Appeals, 158 SCRA 375 [1988].)
ILLUSTRATIVE CASE:
Seller of interest in a business claims the profits derived by busi
ness before the price thereof was fixed by appraisers designated by
the parties in the contract.
Facts: S
​ sold to B his interest in a company, the price to be
ascertained by three (3) appraisers. After six (6) months, the
appraisers rendered their report at which time S signed a
docu ment whereby he acknowledged receipt of the price
arrived at and relinquished any claim that he had in the
business. The
Art. 1459 NATURE AND FORM OF THE CONTRACT25
report of the appraisers did not contain any segregation of the
assets of the business from the accumulated profits.
S is now claiming the profits from B from the time of the
execution of the sale to the time he acknowledged receipt of
the price on the ground that before the price was fixed by the
appraisers, the contract was not a sale but merely a contract to
sell.
Issue: ​Is this contention of S tenable?
Held: ​No. The contract of sale is perfected when the
parties agree upon the thing sold and upon the price (see Art.
1475.), it being sufficient for the price to be certain that its
determina tion be left to the judgment of a specified person.
(Barretto vs. Sta. Maria, 26 Phil. 200 [1913].)
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)
Requisites concerning object.
(1) ​Things. —
​ Aside from being (a) determinate (Arts. 1458,
1460.), the law requires that the subject matter must be (b) licit
or lawful, that is, it should not be contrary to law, morals, good
cus toms, public order, or public policy (Arts. 1347, 1409[1, 4].),
and should (c) not be impossible. (Art. 1348.) In other words,
like any other object of a contract, the thing must be ​within the
commerce ​of men.
If the subject matter of the sale is illicit, the contract is void
and cannot, therefore, be ratified. (Art. 1409.) In such a case, the
rights and obligations of the parties are determined by applying
the following articles of the Civil Code:
“Art. 1411. When the nullity proceeds from the illegality of
the cause or object of the contract, and the act constitutes a crimi
nal offense, both parties being in ​pari delicto, ​they shall have no
action against each other, and both shall be prosecuted. Moreo
ver, the provisions of the Penal Code relative to the disposal of
effects or instruments of a crime shall be applicable to the things
or the price of contract.
This rule shall be applicable when only one of the parties is
26 SALES
Art. 1459
guilty; but the innocent one may claim what he has given, and
shall not be bound to comply with his promise.”
“Art. 1412. If the act in which the unlawful or forbidden
cause consists does not constitute a criminal offense, the fol
lowing rules shall be observed:
(1) When the fault is on the part of both contracting par
ties, neither may recover what he has given by virtue of the
contract, or demand the performance of the other’s
undertak ing;
(2) When only one of the contracting parties is at fault,
he cannot recover what he has given by reason of the
contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may demand
the return of what he has given without any obligation to
comply with his promise.”
(2) ​Rights. —
​ All rights which are not intransmissible or per
sonal may also be the object of sale (Art. 1347.), like the right of
usufruct (Art. 572.), the right of conventional redemption (Art.
1601.), credit (Art. 1624.), etc.
Examples of intransmissible rights are the right to vote,
right to public office, marital and parental rights, etc.
No contract may be entered upon future inheritance except
in cases expressly authorized by law. (Art. 1347, par. 2.) While
services may be the object of a contract (Art. 1347, par. 3.), they
cannot be the object of a contract of sale. (Art. 1458; see Art.
1467.)
Kinds of illicit things.
The thing may be illicit ​per se (​ of its nature) or ​per accidens
(be cause of some provisions of law declaring it illegal).
Article 1459 refers to both. Decayed food unfit for consump
tion is illicit ​per se, w
​ hile lottery tickets (Art. 195, Revised Penal
Code.) are illicit ​per accidens. ​Land sold to an alien is also ​per acci
dens b
​ ecause the sale is prohibited by the Constitution.​7 ​The rule
7​
A sale of land in violation of the constitutional prohibition against the transfer of
lands to aliens (Art. XII, Sec. 7, Constitution.) is void (see Art. 1409[1, 7].) and the seller
or his heirs may recover the property. But where a land is sold to an alien, who later
sold it to a Filipino, the sale to the latter cannot be impugned. (Herrera vs. Tuy Kim
Guan, 1 SCRA 406 [1961]; Godinez vs. Fong Pak Luen, 120 SCRA 223 [1983].)
Art. 1459 NATURE AND FORM OF THE CONTRACT27
is well-settled that the mortgagor (or pledgor) continues to be
the owner of the property mortgaged, and, therefore, has the
power to alienate the same; however, he is obliged, under pain
of penal liability, to secure the consent of the mortgagee.
(Service Special ist, Inc. vs. Intermediate Appellate Court, 174
SCRA 80 [1989].)
Right to transfer ownership.
(1) ​Seller must be owner or authorized by owner of thing sold. —
It is essential in order for a sale to be valid that the vendor must
be able to transfer ownership (Art. 1458.) and, therefore, he
must be the owner or at least must be authorized by the owner
of the thing sold. This rule is in accord with a well-known
principle of law that one can not transmit or dispose of that
which he does not have — ​nemo dat quod non-habet​. Accordingly,
one can sell only what one owns or is authorized to sell, and the
buyer can acquire no more than what the seller can transfer
legally. (Azcona vs. Reyes & Larracas, 59 Phil. 446 [1934];
Manalo vs. Court of Appeals, 366 SCRA 752 [2001]; Tangalin vs.
Court of Appeals, 159 SCAD 343, 371 SCRA 49 [2001]; for
exceptions, see Art. 1505.)
Thus, a sale of paraphernal (separate) property of the
deceased wife by the husband who was neither an owner nor
administra tor of the property at the time of sale is void ​ab initio.
Such being the case, the sale cannot be the subject of ratification
by the ad ministrator or the probate court. (Manotok Realty, Inc.
vs. Court of Appeals, 149 SCRA 372 [1987].) Only so much of
the share of the vendor-co-owner can be validly acquired by the
vendee even if he acted in good faith in buying the shares of the
other co-own ers. (Segura vs. Segura, 165 SCRA 368 [1988].)
Where the sale from one person to another was fictitious as
there was no considera tion, and, therefore, void and inexistent,
the latter has no title to convey to third persons. (Traders Royal
Bank vs. Court of Appeals, 80 SCAD 12, 269 SCRA 15 [1997].)
(2) ​Right must exist at time of delivery. — ​Article 1459,
however, does not require that the vendor must have the right
to transfer ownership of the property sold at the time of the
perfection of the contract. (Martin vs. Reyes, 91 Phil. 666 [1952].)
Perfection ​per se ​does not transfer ownership which occurs
upon the actual or con structive delivery of the thing sold. Sale,
being a consensual con
28 SALES
Art. 1459
tract, it is perfected by mere consent (see Art. 1475.), and owner
ship by the seller of the thing sold is not an element for its
perfec tion. It is sufficient if the seller has the “right to transfer
the own ership thereof at the time it is delivered.” Thus, the
seller is deemed only to impliedly warrant that “he has a right
to sell the thing at the time when the ownership is to pass.”
(Art. 1547[1].)
The reason for the rule is obvious. Since future goods (Arts.
1461, par. 1; 1462 par. 1.) or goods whose acquisition by the
seller depends upon a contingency (Art. 1462, par. 2.) may be
the sub ject matter of sale, it would be inconsistent for the
article to re quire that the thing sold must be owned by the
seller at the time of the sale inasmuch as it is not possible for a
person to own a thing or right not in existence. An agreement
providing for the sale of property yet to be adjudicated by a
court is thus valid and binding. (Republic vs. Lichauco, 46
SCRA 305 [1972].)
(3) ​Where property sold registered in name of seller who employed
fraud in securing his title. ​— Although generally a forged or
fraudu lent deed is a nullity and conveys no title, there are
instances when such a document may become the root of a valid
title. One such instance is where the certificate of title was
already transferred from the name of the true owner to the
forger, and while it re mained that way, the land was
subsequently sold to an innocent purchaser for value. Where
there is nothing in the certificate to indicate any cloud or vice in
the ownership of the property, or any encumbrance thereon, or
in the absence of any fact or circumstance to excite suspicion,
the purchaser is not required to explore fur ther than what the
Torrens title upon its face indicates in quest for any hidden
defect or inchoate right that may subsequently defeat his right
thereto.
If the rule were otherwise, the efficacy and conclusiveness
of the certificate of title which the Torrens System seeks to
insure would entirely be futile and nugatory. The established
rule is that the rights of an innocent purchaser for value must be
respected and protected, notwithstanding the fraud employed
by the seller in securing his title. The proper recourse of the true
owner of the property who was prejudiced and fraudulently
dispossessed of the same is to bring an action for damages
against those who caused or employed the fraud, and if the
latter are insolvent, an
Art. 1459 NATURE AND FORM OF THE CONTRACT29
action against the Treasurer of the Philippines may be filed for
recovery of damages against the Assurance Fund. (Fule vs.
Legare, 7 SCRA 351 [1951]; Pino vs. Court of Appeals, 198
SCRA 434 [1991]; Phil. National Bank vs. Court of Appeals, 187
SCRA 735 [1990]; Eduarte vs. Court of Appeals, 68 SCAD 179,
256 SCRA 391 [1996].)
(4) ​Where properly sold in violation of a right of first refusal of
another person. ​— The prevailing doctrine is that a contract of
sale entered into in violation of a right of first refusal of another
per son, while valid is rescissible. (Guzman, Bocaling and Co.
vs. Bonnevie, 206 SCRA 668 [1992]; Conculada vs. Court of
Appeals, 156 SCAD 624, 367 SCRA 164 [2001].) A right of first
refusal is neither “amorphous nor merely preparatory’’ and can
be executed according to its terms. In contracts of sale, the basis
of the right of first refusal must be the current offer of the seller
to sell or the offer to purchase of the prospective buyer. Only
after the grantee fails to exercise his right under the same terms
and within the period contemplated can the owner validly offer
to sell the prop erty to a third person, again, under the same
terms as offered to the grantee. (Polytechnic University of the
Philippines vs. Court of Appeals, 368 SCRA 691 [2001];
Equatorial Realty Development, Inc. vs. Mayfair, Inc., 76 SCAD
407, 264 SCRA 483 [1996]; Parañaque King’s Enterprises, Inc. vs.
Court of Appeals, 79 SCAD 936, 268 SCRA 727 [1997].) Where,
however, there is no showing of bad faith on the part of the
vendee, the contract of sale may not be rescinded (see Arts.
1380-1381[3].), and the remedy of the per son with the right of
first refusal is an action for damages against the vendor.
(Rosencor Development Corporation vs. Inquing, 145 SCAD
484, 354 SCRA 119 [2001].)
(5) ​Where real property, subject of unrecorded sale, subsequently
mortgaged by seller which mortgage was registered. ​— The mortga
gee’s registered mortgage right over the property is inferior to
that of the buyer’s unregistered right. The unrecorded sale
between the buyer and the seller is preferred for the reason that
if the seller the original owner, had parted with his ownership
of the thing sold then, he no longer had ownership and free
disposal of that thing so as to be able to mortgage it again.
Registration of the mortgage is of no moment since it is
understood to be without prejudice to the better right of third
parties. (State Investment
30 SALES
Art. 1460
House, Inc. vs. Court of Appeals, 69 SCAD 135, 254 SCRA 368
[1996]; Dela Merced vs. GSIS, 154 SCAD 816, 365 SCRA 1
[2001].)
ART. 1460. A thing is determinate when it is par
ticularly designated or physically segregated from
all others of the same class.
The requisite that a thing be determinate is satis
fied if at the time the contract is entered into, the
thing is capable of being made determinate without
the ne cessity of a new or further agreement
between the parties. (n)
Subject matter must be determinate.
(1) ​When thing determinate. ​— A thing is determinate or spe
cific (not generic) when it is particularly designated or
physically segregated from all others of the same class. (see Art.
1636[1].) This requisite that the object of a contract of sale must
be determinate is in accordance with the general rule that the
object of every con tract must be determinate as to its kind. (Art.
1349.) A determi nate thing is identified by its individuality,
e.g.​, my car (if I have only one); the watch I am wearing; the
house located at the cor ner of Rizal and Del Pilar Streets, etc.;
(2) ​Sufficient if subject matter capable of being made determinate​.
— It is not necessary that the thing sold must be in sight at the
time the contract is entered into. It is sufficient that the thing is
determinable or capable of being made determinate without the
necessity of a new or further agreement between the parties
(Art. 460, par. 2; see Melliza vs. City of Iloilo, 23 SCRA 477
[1968].) to ascertain its identity, quantity, or quality. The fact
that such an agreement is still necessary constitutes an obstacle
to the exist ence of the contract (Art. 1349.) and renders it void.
(Art. 1409[3].)
Thus, a person may validly sell all the cavans of rice in a par
ticular bodega or a parcel of land located at a particular street
but if the bodega is not specified and the seller has more than
one bodega or owns more than one parcel of land at the
particular street, and it cannot be known what may have been
sold, the con tract shall be null and void. (Arts. 1378, par. 2;
1409[6].) Similarly, an obligation by a person to sell one of his
cars is limited to the
Art. 1460 NATURE AND FORM OF THE CONTRACT31
cars owned by him. The subject matter is determinable; it
becomes determinate the moment it is delivered.
In a case, the respondent purchased a portion of a lot
contain ing 345 square meters, which portion is located in the
middle of another lot with a total area 854 square meters, and
referred to in the receipt as the “previously paid lot.’’ ​held:
“Since the lot subse quently sold to respondent is said to adjoin
the ‘previously paid lot’ on three sides thereof, the subject lot is
capable of being de termined without the need of any new
contract. The fact that the exact area of these adjoining
residential lots is subject to the re sult of a survey does not
detract from the fact that they are deter minate or
determinable.’’ (Heirs of Juino San Andres vs. Rodriguez, 337
SCRA 769 [2000].)
ILLUSTRATIVE CASES:
1. ​Tobacco factory sold was specifically pointed out​. — A to
bacco factory with its contents having been specifically
pointed out by the parties and distinguished from all other
tobacco fac tories was held sold under a contract which did
not provide for the delivery of the price of the thing until a
future time. ​(McCullough vs. Aenille Co., 13 Phil. 284 [1909].)
——— ———— ———2. ​Payment of price was withheld pending proof by vendor of his
ownership. —
​ A sale of a specific house was held perfected
between the vendor and the vendee, although the delivery of
the price was withheld until the necessary documents of own
ership were prepared by the vendee. ​(Borromeo vs. Franco, 5
Phil. 49 [1905].)
———— ———— ————
3. ​Purchase price agreed upon had not yet been paid. — ​A
quan tity of hemp delivered by the vendor into the warehouse
of the vendee and thus set apart and distinguished from all
other hemp was held sold, although the purchase price which
had been agreed upon had not yet been paid. ​(see Tan Leoncio
vs. Go Inqui, 8 Phil. 531 [1907].)
———— ———— ————
4. ​Subject matter is sugar of specified quantity and given qual
ity. —
​ A contract whereby a party obligates himself to sell for
a
32 SALES
Art. 1460
price certain (P3,000.00) a specified quantity of sugar (600
piculs) of a given quality (of the first grade and second grade)
without designating a particular lot of sugar, is not perfected
until the quantity agreed upon has been selected and is
capable of being physically designated and distinguished
from all other sugar. ​(Yu Tek & Co. vs. Gonzales, 29 Phil. 348
[1915]; De Leon vs. Aquino, 87 Phil. 193 [1950].)
In this case, the contract is merely an executory contract to
sell, its subject matter being a generic or indeterminate thing.
A thing is ​generic w
​ hen it is indicated only by its kind and
cannot be pointed out with particularity.
———— ———— ————
5. ​Subject matter is flour of a certain brand and specified quan
tity. — ​Similarly, the undertaking of a party to sell 1,000 sacks
of “Mano” flour at P11.05 per barrel, 500 to be delivered in
Sep tember and 500, in October, is a promise to deliver a
generic thing and not a determinate thing within the meaning
of Arti cle 1460. Hence, there is no perfected sale. ​(Ong & Jang
Chuan vs. Wise & Co., 33 Phil. 339 [1916].)
———— ———— ————
6. ​Subject matter are palay grains produced in the farmland. —
Where S initially offered to sell palay grains in his farmland to
NFA and the latter accepted to buy 2,640 cavans, there was
already a meeting of the minds between the parties. The object
of the contract, being the palay grains produced in S’s farm
land and the NFA was to pay the same depending upon its
quality. The fact that the exact number of cavans of palay to
be delivered has not been determined does not affect the
perfec tion of the contract.
In this case, there was no need for NFA and S to enter into
a new contract to determine the exact number of cavans of
palay to be sold. S can deliver so much of his produce as long
as it does not exceed 2,640 cavans. ​(National Grains Authority
vs. In termediate Appellate Court, 171 SCRA 131 [1989].)
———— ———— ————
7. ​Lots sold were described by their lot numbers and area and as
the ones needed according to a named development plan. ​— The
deed of sale describes the four parcels of land sold by their lot
numbers and area; and then it goes on to further describe not
only those lots already mentioned but the lots ​object o
​ f the
sale,
Art. 1460 NATURE AND FORM OF THE CONTRACT33
by stating that said lots are the ones needed for the construc
tion of the City Hall site, avenues and parks ​according to the
Arellano Plan, t​ he development plan of the city, which was
then in existence.
It was held that the specific mention of some of the lots
plus the statement that the lots object of the sale are the ones
needed, etc., according to the aforementioned plan,
sufficiently provide a basis, as of the time of the execution of
the contract, for rendering determinate said lots without the
need of a new and further agreement of the parties. ​(Melliza
vs. City of Iloilo, 23 SCRA 477 [1968].)
———— ———— ————
8. ​Receipt issued stated that the lot being purchased was the one
earlier earmarked for the buyer’s sister. ​— B presented the fol
lowing receipt signed by S, seller, as evidence of payment: “Re
ceived from B the sum of P500.00 as additional partial
payment for the lot which is the portion formerly earmarked
for T wherein she already paid the sum of P1,500; hence, by
agree ment of B and T, who are sisters, the sum of P1,500.00 is
ap plied as additional payment for and in behalf of B, thereby
making the total payments made by B to said lot in the sum of
P2,000.00.’’ The subject lot is adequately described in the re
ceipt, or at least can be easily determinable. Any mistake in
the designation of the lot does not vitiate the consent of the
parties or affect the validity and binding effect of the contract
of sale. ​(David vs. Tiongson, 111 SCAD 242, 313 SCRA 63
[1999].)
———— ———— ————
9. ​Sugar quota of certain number of piculs sold without speci
fication of the land to which it relates.​ — Section 4 of R.A. No.
1825 (An Act to Provide for the Allocation, Reallocation and
Admin istration of the Absolute Quota of Sugar) reads: “The
produc tion allowance or quota corresponding to each piece of
land under the provisions of this Act shall be deemed to be an
im provement attaching to the land entitled thereto.
The intangible property that is the sugar quota should be
considered as real property by destination, an improvement
attaching to the land entitled thereto.” Sugar quota allocations
do not have existence independently of any particular tract of
land. There can be no sale simply of sugar quota of a certain
number of piculs without specification of the land to which it
34 SALES
Art. 1461
relates. Such a sale would be void for want of a determinate
subject matter. ​(Compania General De Tabacos De Filipinos vs.
Court of Appeals, 185 SCRA 284 [1990].)
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 expect
ancy is deemed subject to the condition that the
thing will come into existence.
The sale of a vain hope or expectancy is void. (n)
Sale of things having potential existence.
Even a future thing (Arts. 1461, par. 1; 1347, par. 1.) not exist
ing 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.
Thus, a valid sale may be made of “the wine a vine is ex
pected to produce; or the grain a field may grow in a given
time; or the milk a cow may yield during the coming year; or
the wool that shall thereafter grow upon a sheep; or what may
be taken at the next cast of a fisherman’s net; or the goodwill of
a trade, or the like. The thing sold, however, must be specific
and identified. They must be also owned by the vendor at the
time.” (Sibal vs. Valdez, 50 Phil. 522 [1927]; Pichel vs. Alonzo,
111 SCRA 341 [1982]; see 46 Am. Jur. 223.)
Sale of a mere hope or expectancy.
The efficacy of the sale of a mere hope or expectancy is
deemed subject to the condition that the thing contemplated or
expected will come into existence. (par. 2.)
The sale really 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
exist ence. But the sale of a mere hope or expectancy is valid
even if the
Art. 1461 NATURE AND FORM OF THE CONTRACT35
thing hoped or expected does not come into existence, unless
the hope or expectancy is vain in which case, the sale is void.
(par. 3.)
A plan whereby prizes can be obtained without any
additional consideration (when a product is purchased at the
usual price plus the chance of winning a prize) is not a lottery.
(Phil. Refining Co. vs. Palomar, 148 SCRA 313 [1987].)
EXAMPLES:
(1) S binds himself to sell for a specified price to B a parcel
of land if he wins a case for the recovery of said land pending
in the Supreme Court.
Here, the obligation of S to sell will arise, if the “expected
thing,’’ the land, will come into existence, ​i.e., ​if he wins the
case.
Before a decision is rendered, there is only “the mere
hope or expectancy’’ that the thing will come into existence.
(2) B buys a sweepstakes ticket in the hope of winning a
prize. Here, the object of the contract is the hope itself. The
sale is valid even if B does not win a prize because it is not
subject to the condition that the hope will be fulfilled.
Sale of thing expected and sale of hope
itself distinguished.
Emptio rei speratae(​ sale of thing expected) is the sale of a
thing not yet in existence subject to the condition that the thing
will exist and on failure of the condition, the contract becomes
ineffective and hence, the buyer has no obligation to pay the
price. On the other hand, ​emptio spei i​ s the sale of the hope itself
that the thing will come into existence, where it is agreed that
the buyer will pay the price even if the thing does not
eventually exist.
(1) In ​emptio rei speratae,​ the future thing is certain as to itself
but uncertain as to its quantity and quality. Such sale is subject
to the condition that the thing will come into existence (see Art.
1545, par. 2.), whatever its quantity or quality. In ​emptio spei
(like the sale of a sweepstake ticket), it is not certain that the
thing itself (winning a prize) will exist, much less its quantity
and quality.
(2) In the first, the contract deals with a future thing, while in
36 SALES
Art. 1461
the second, the contract relates to a thing which exists or is
present — the hope or expectancy.
(3) In the first, the sale is subject to the condition that the
thing should exist, so that if it does not, there will be no contract
by reason of the absence of an essential element. On the other
hand, the second produces effect even though the thing does
not come into existence because the object of the contract is the
hope itself, unless it is a vain hope or expectancy (like the sale
of a falsified sweepstake ticket which can never win).
Presumption in case of doubt.
In case of doubt, the presumption is in favor of ​emptio rei
speratae ​which is more in keeping with the commutative charac
ter of the contract. (see 10 Manresa 29-30.)
ILLUSTRATIVE CASE:
Buyer executed a surety bond in favor of seller to secure
payment of the balance of purchase price of iron ore, which balance
shall be paid out of amount derived from sale by buyer of the iron
ore.
Facts: ​S embarked upon the exploration and development
of mining claims belonging to B. Later, they executed a docu
ment wherein S transferred to B all of S’s rights and interest
over the 24,000 tons of iron ore, “more or less” that S had al
ready extracted from the mineral claims in consideration of a
down payment of P10,000.00, and the balance of P65,000.00
which will be paid out of the “first shipment of iron ore and of
the first amount derived from the local sale of iron ore made”
from said claims, which amount was secured by a surety bond
executed by B in favor of S.
No sale of the approximately 24,000 tons of iron ore had
been made nor had the P65,000.00 been paid.
Issue: ​Is the obligation of B to pay the remaining
P65,000.00 subordinated to the sale or shipment of the ore as a
condition precedent?
Held: ​No. A contract of sale is normally commutative and
onerous (see Art. 1458.): not only does each one of the parties
assume a correlative obligation (the seller to deliver and trans
fer ownership of the thing sold and the buyer to pay the
price),
Art. 1462 NATURE AND FORM OF THE CONTRACT37
but such party anticipates performance by the other from the
very start.
(1) ​Contingent character of obligation to pay must clearly ap
pear. —
​ Where in a sale, the obligation of one party can be law
fully subordinated to an uncertain event, so that the other un
derstands that he assumes that risk of receiving nothing for
what he gives as in the case of a sale of hopes or expectations
(emptio spei), ​it is not in the usual course of business to do so,
hence, the contingent character of the obligation must clearly
appear.
(2) ​Surety bond negates such contingent character. ​— In the
case at bar, nothing is found in the record to evidence that S
desired or assumed to run the risk of losing his rights over the
ore without getting paid for it, or that B understood that S as
sumed any such risk. This is proven by the fact that S insisted
on a bond by a surety company to guarantee payment of the
P65,000.00; and the fact that B did put up such bond indicates
that he admitted the definite existence of his obligation to pay
the balance of P65,000.00. ​(Gaite vs. Fonacier, 2 SCRA 830
[1961].)
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
manufac tured, raised, or acquired by the seller after
the per fection of the contract of sale, in this Title
called “fu ture 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 the object of sale.
Goods which form the subject of a contract of sale may be ei
ther:
or
(1) ​Existing goods o
​ r goods owned or possessed by the seller;
(2) ​Future goods ​or goods to be manufactured (like the sale of
milk bottles to be manufactured with the name of the buyer
pressed in the glass), raised (like the sale of the future harvest of
38 SALES
Art. 1462
palay from a ricefield), or acquired (like the sale of a definite
par cel of land the seller expects to buy).​8​ ​(Art. 1460.)
Future goods as object of sale.
A 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 ful filled by the acquisition and delivery of the goods
specified.
In other words, “property or goods which at the time of the
sale are not owned by the seller but which thereafter are to be
acquired by him, cannot be the subject of an executed sale but
may be the subject of a contract for the future sale and delivery
thereof,” even though the acquisition of the goods depends
upon a contin gency which may or may not happen. In such
case, the vendor assumes the risk of acquiring the title and
making the convey ance, or responding in damages for the
vendee’s loss of his bar gain. (Martin vs. Reyes, 91 Phil. 666
[1952]; 77 C.J.S. 604.)
Paragraph 1 of Article 1462 does not apply if the goods are
to be manufactured especially for the buyer and not readily
saleable to others in the manufacturer’s regular course of
business. The contract, in such case, must be considered as one
for a piece of work. (Art. 1467.)
Article 1462 contemplates a contract of sale of specific goods
where one of the contracting parties binds himself to transfer
the ownership of and deliver a determinate thing and the other
to pay therefor a price certain in money or its equivalent. The
said article requires that there be delivery of goods, actual or
constructive, to be applicable. It does not apply to a transaction
where there was no such delivery; neither was there any
intention to deliver a de terminate thing. Thus, a “futures”
contract where the parties merely speculate on the rise and fall
on the price of the goods subject matter of the transaction is a
form of gambling was de clared null and void by Article 2018 of
the Civil Code. (see note 2.)
8​
Art. 751. Donations cannot comprehend future property. By future property is un
derstood anything which the donor cannot dispose of at the time of the donation. (635)
Art. 1347. x x x No contract may be entered into upon future inheritance except in cases
expressly authorized by law. x x x.
Arts. 1463-1464 NATURE AND FORM OF THE CONTRACT39
ART. 1463. The sole owner of a thing may sell an
undivided interest therein. (n)
Sale of undivided interest in a thing.
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, there fore, 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 ter mination of the co-ownership. (Article 493.)​9
This rule operates similarly with respect to ownership of
fungible goods. (Art. 1464.)
Article 1463 covers only the sale by a sole owner of a thing
of an undivided share or interest thereof.
EXAMPLE:
S is the owner of a parcel of land with an area of 1,000
square meters. As the sole owner, S can sell to B the entire
portion; or only 500 square meters of the land by metes and
bounds in which case he becomes the sole owner of the
remaining 500 meters and B the portion sold; or he may sell
an undivided half of the land without specially designating or
identifying the portion sold, in which case they become
co-owners.
As a co-owner, S or B can convey or transfer only the title
pertaining to the undivided half of the land, for vital to the
validity of a contract of sale is that the vendor be the owner of
the thing sold. (Art. 1459.)
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
9​
Art. 493. Each co-owner shall have the full ownership of his part and of the fruits
and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it,
and even substitute another person in its enjoyment, except when personal rights are
involved. But the effect of the alienation or the mortgage, with respect to the co-owners,
shall be limited to the portion which may be allotted to him in the division upon the
termination of the co-ownership. (399)
40 SALES
Art. 1464
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)
Sale of an undivided share of a specific mass.
The Civil Code classifies movable goods into consumable or
non-consumable (Art. 418.), thereby discarding the old classifi
cation (Art. 334, old Civil Code.) into fungible and
non-fungible. This change of classification seems to be in name
only as the defi nition of fungible goods as those which cannot
be used without being consumed under the old Civil Code is
precisely that of con sumable goods. Article 1464, however, still
speaks of fungible goods.
(1) ​Meaning of fungible goods. — I​ t 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. — T
​ he owner of a mass of goods may sell
only an undivided share thereof, provided the mass is specific
or ca pable 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 defi
nite 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 con tains less than what was sold, the buyer becomes
the owner of the whole mass and furthermore, the seller
shall supply
Art. 1464 NATURE AND FORM OF THE CONTRACT41
whatever is lacking from goods of the same kind and
quality, subject to any stipulation to the contrary.
(3) ​Risk of loss. — I​ f 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. — T
​ ake 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.
EXAMPLE:
S owns 1,000 cavans of palay stored in his warehouse. If S
sells to B 250 cavans of such palay which cavans are not segre
gated from the whole mass, B becomes a co-owner of the said
mass to the extent of 1/4. If the warehouse happens to contain
only 200 cavans, S must deliver the whole 200 cavans and sup
ply the deficiency of 50 cavans of palay of the same kind and
quality.
In the same example, the number of cavans in the ware
house may be unknown or undetermined and S may sell only
1/4 share of the contents. The legal effect of such a sale is to
make B a co-owner in that proportion. It is obvious that in
such case, the obligation of the seller “to make good the
deficiency” will not arise.
(5) ​Applicability of Article 1464 to non-fungible goods. —
​ Al
though Article 1464 speaks of “fungible goods,” nevertheless it
may also apply to goods not strictly fungible in nature. “Indeed,
the earliest case in which the doctrine was applied related to bar
rels of flour. Though flour of the same grade is fungible in the
strictest sense, barrels of flour are necessarily so. Other cases
also have applied the doctrine to goods in barrels. So it has been
ap plied to bales of cotton and even to cattle or sheep. It is
obvious that all cattle are not alike and that some cattle in a
herd are more valuable than the others. But in the cases under
consideration, the parties had virtually agreed to act on the
assumption that all were alike and it can be seen that this is
really the essential thing.” (1 Williston on Sales, 3rd ed., pp.
421-423.)
42 SALES
Arts. 1465-1466
ART. 1465. Things subject to a resolutory condi
tion may be the object of the contract of sale. (n)
Sale of thing subject to a resolutory condition.
A ​resolutory condition i​ s an uncertain event upon the happen
ing of which the obligation (or right) subject to it is
extinguished. Hence, the right acquired in virtue of the
obligation is also extin guished. (see Arts. 1179, 1181.)
EXAMPLES:
(1) S (vendor ​a retro)​ sold a parcel of land to B (vendee ​a
retro) ​subject to the condition that S can repurchase the prop
erty within two years from the date of sale. If S exercises the
right to repurchase, then the sale made by B to C before the
lapse of the two (2)-year period falls.
The rule, however, that a vendor cannot transfer to his
vendee a better right than he had himself, suffers an exception
in case of property with Torrens title. (see Hernandez vs.
Katigbak Vda. de Salas, 69 Phil. 748 [1940].)
(2) For failure to pay his debt, the land of S (mortgagor)
was sold to B, the highest bidder and purchaser in an extra
judicial foreclosure of a real estate mortgage.
Under the law (Act No. 3135, as amended.), the
mortgagor may redeem the property at any time within one
year from and after the date of the registration of the sale. If S
redeems the property, then the sale made to B is extinguished.
One of the obligations of the vendor is to transfer the owner
ship of the thing object of the contract. (Art. 1458.) If the reso
lutory condition attaching to the object of the contract, which
object may include things as well as rights (Arts. 1427, 1347,
par. 1.), should happen, then the vendor cannot transfer the
owner ship of what he sold since there is no object.
ART. 1466. In construing a contract containing
pro visions 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)
Art. 1466 NATURE AND FORM OF THE CONTRACT43
Sale distinguished from agency to sell.
By the ​contract of agency, a​ person binds himself to render
some service or to do something in representation or on behalf
of an other, with the consent or authority of the latter. (Art.
1868.)
In order to classify a contract, due regard must be given to
its essential clauses. A contract is what the law defines it to be,
and not what it is called by the contracting parties. (Quiroga vs.
Par son Hardware Co., 38 Phil. 501 [1918]; Baluran vs. Navarro,
79 SCRA 309 [1977].) Sale may be distinguished from an agency
to sell, as follows:
(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 has simply 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; and
(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.​10
10​
An agreement that the buyer shall deal exclusively with the products of the seller
— a well-known practice in the business world — is not inconsistent with the contract
of sale, much less convert it into one of agency; and where the entire control and direc
tion of the business operation remains with the dealer, the latter cannot be considered a
mere ​alter ego ​of the manufacturer. (Asbestos Integrated Manufacturing, Inc. vs. Peralta,
155 SCRA 213 [1987].)
44 SALES ​ILLUSTRATIVE CASES: Art. 1466
1. ​One given exclusive right to sell beds furnished by manu
facturer, agreed to pay discounted invoice price at a certain period.
Facts: ​S granted B the exclusive right to sell the former’s
beds in Visayas. S was to furnish B with the beds which the
latter might order. The price agreed upon was the invoice
price of the beds in Manila with a discount of from 20% to
25%. Pay ment was to be made at the end of sixty days.
Issue: ​S claimed that the contract was an agency to sell
while B maintained that it was a sale.
Held: ​The stipulations are precisely the essential features
of a contract of purchase and sale. There was the obligation on
the part of S to supply the beds and on the part of B, to pay
their price.
These features exclude the legal conception of an agency
or order to sell whereby the mandatory or agent receives the
thing to sell it and does not pay its price but delivers to the
principal the price he obtains from the sale of the thing to a
third person, and if he does not succeed in selling, he returns
it. By virtue of the contract between S and B, the latter, on
receiv ing the beds was necessarily obliged to pay their price
within the terms fixed without any other consideration and
regard less as to whether he had sold the beds. ​(Quiroga vs.
Parson Hardware Co., 38 Phil. 501 [1918].)
———— ———— ————
2. ​Partial payments were made without mention of goods un
sold and without stipulation for their return.
Facts: ​B received from S 350 pairs of shoes, the price of
which is stated as P2,450.00 or P7.00 per pair. B made partial
payments on account thereof.
Issue: ​On the issue of the nature of the transaction, S
claimed that it was an absolute sale and not a consignment.
Held: ​The transaction was an absolute sale. In making said
partial payments, B made no mention whatsoever of the
number of shoes sold by him and the number of shoes re
maining unsold which he should have done had the sale been
on the consignment basis. He merely mentioned the balance
of the purchase price after deducting the several payments
made by him.
Art. 1467 NATURE AND FORM OF THE CONTRACT45
Furthermore, if the sale had been on consignment, a stipu
lation as to the period of time for the return of the unsold
shoes should have been made but that had not been done and
B kept the shoes unsold more or less indefinitely. (Royal Shirt
Factory, Inc. vs. Co Bon Tic, 94 Phil. 994 [1954].) It has been
held that where a foreign company has an agent here selling
its goods and merchandise, the same agent could not very
well act as agent for local buyers because the interests of his
foreign prin cipal and those of the buyers would be in direct
conflict. He could not serve two masters at the same time. ​(G.
Puyat & Sons, Inc. vs. Arco Amusement, 72 Phil. 402 [1941]; see
Far Eastern Ex port & Import Co. vs. Lim Teck Suan, 97 Phil. 171
[1955].)
Contract creating both a sale and an agency
relationship.
The transfer of title or agreement to transfer it for a price
paid or promised is the essence of sale. If such transfer puts the
trans feree in the position of an owner and makes him liable for
the agreed price, the transaction is a sale. On the other hand, the
es sence of an agency to sell is the delivery to an agent, not as
his property, but as the property of his principal, who remains
the owner and has the right to control sales, fix the price and
terms, demand and receive the proceeds less the agent’s
commission upon sales made. (Ker & Co., Inc. vs. Lingad, 38
SCRA 524 [1971]; Schmid and Oberly, Inc. vs. RJL Martinez
Fishing Corp., 166 SCRA 493 [1988].)
In some circumstances, however, a contract can create both
a sale and an agency relationship. For example: An automobile
dealer receives title to the cars he orders from the manufacturer
and that transaction is a sale; but he is an agent to the extent
that he is authorized to pass on to the ultimate purchaser the
limited warranty of the manufacturer. In any event, the courts
must look at the entire transaction to determine if it is a
principal-agent re lationship or a buyer-seller relationship. (1
Williston on Sales, 4th ed., pp. 16-17.)
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
46 SALES
Art. 1467
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
mar ket, it is a contract for a piece of work. (n)
Sale distinguished from contract
for a piece of work.
By the ​contract for a piece of work t​ he 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.
(1) In the first case, the contract is one for work, labor and
materials and in the second, one of sale. (Inchausti & Co. vs.
Cromwell, 20 Phil. 345 [1911]; see Celestino Co. & Co. vs. Coll.,
99 Phil. 841 [1956]; Comm. vs. Engineering Equipment and
Supply Co., 64 SCRA 590 [1975]; Comm. vs. Arnoldus
Carpentry Shop, Inc., 159 SCRA 199 [1988]; Engineering &
Machinery Corp. vs. Court of Appeals, 67 SCAD 113, 252 SCRA
156 [1996].)
(2) In the first case, the risk of loss before delivery is borne
by the worker or contractor, not by the employer (the person
who ordered). (Arts. 1717, 1718.) A contract is for a piece of
work if services dominate that contract even though there is a
sale of goods involved. Where the primary objective of a
contract is a sale of a manufactured item, it is a sale of goods
even though the item is manufactured by labor furnished by the
seller and upon previ ous order of the customer. (see 1
Williston, 4th ed., p. 23.)
(3) The importance of marking the line that divides
contracts for a piece of work from contracts of sale arises from
the fact that the former is not within the Statute of Frauds. (see
Art. 1483.)
Art. 1468 NATURE AND FORM OF THE CONTRACT47
EXAMPLE:
If B is buying a pair of shoes of a particular style and size
from S which the latter ordinarily manufactures or procures
for the general market but the same is not available, an order
for one would be a contract of sale, since the article would
have existed and been the subject of sale to some other person
even if the order had not been given.
On the other hand, if B places an order for a pair of shoes
of a particular shape because his feet are deformed, the fact
that such kind of shoes is not suitable for sale to others in the
ordi nary course of the seller’s business and is to be
manufactured especially for B and upon his special order,
makes the contract one for a piece of work.
ART. 1468. If the consideration of the contract
con sists partly in money, and partly in another
thing, the transaction shall be characterized by the
manifest in tention 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)
Sale distinguished from barter.
By the ​contract of barter o
​ r ​exchange, o
​ ne 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 con
tract of sale, the vendor gives a thing in consideration for a
price in money. (Art. 1458.)
(1) The above distinction is not always adequate to distin
guish one from the other. Hence, the rule in Article 1468 for
those cases in which the thing given in exchange consists partly
in money and partly in another thing.
(a) In such cases, the manifest intention of the parties is
paramount in determining whether it is one of barter or of
sale and such intention may be ascertained by taking into
account the contemporaneous and subsequent acts of the
parties. (Art. 1371.)
48 SALES
Art. 1468
(b) If this intention cannot be ascertained, then the last
sen tence of the article applies. But if the intention is that the
con tract shall be one of sale, then such intention must be
followed even though the value of the thing given as a part
considera tion is more than the amount of the money given.
(2) The only point of difference between the two contracts is
in the element which is present in sale but not in barter, namely:
“price certain in money or its equivalent.” (see Art. 1641.)
EXAMPLES:
(1) S, a sugar miller, and B, a manufacturer and dealer of
whisky, entered into an agreement whereby S was to deliver
sugar worth P20,000.00 to B who was to give 100 bottles of
whisky worth also P20,000.00. This is a contract of barter.
(2) Suppose at the date of delivery, B had only 25 bottles
of whisky. With the consent of S, S paid the difference of
P15,000 in cash. In this case, the contract is still barter. The
considera tion for the sugar is not cash but the whisky, and
the amount of P15,000.00 paid by B is in consideration for the
75 bottles of liquor.
(3) Suppose, in the same example, B had no whisky at the
stipulated date of delivery and he paid S P20,000.00 instead of
giving whisky. Did the contract become one of sale? No, be
cause the payment is in consideration of the value of the
whisky, and not of the sugar. The manifest intention of the
parties was to enter into a contract of barter. But if B had
whisky at the date of delivery and he paid P20,000.00 with the
consent of S, the contract would become one of sale.
(4) Assume now that the contract between S and B was for
S to deliver sugar to B who agreed to give 100 bottles of
whisky or to pay P20,000.00 cash. If B, instead of whisky, paid
P20,000.00 cash, it is clear that the resulting contract is that of
sale, and not barter.
(5) If the obligation of B is to deliver 50 bottles of whisky
and pay P10,000.00 cash, or 75 bottles of whisky and P5,000.00
cash, or 25 bottles of whisky and P15,000.00 cash, the transac
tion shall be considered a barter or sale depending on the
mani fest intention of the parties. Under Article 1468, if such
inten tion does not clearly appear, the contract shall be
considered a
Art. 1468 NATURE AND FORM OF THE CONTRACT49
barter, where the cash involved is P5,000.00, or a sale, in case
it is P15,000.00, or either in case it is P10,000.00.
Sale distinguished from lease.
In the ​lease of things, ​one of the parties binds himself to give
to another the enjoyment or use of a thing for a price certain
and for a period which may be definite or indefinite. (Art. 1643.)
In other words, in a lease, the landlord or lessor transfers
merely the tem porary possession and enjoyment of the thing
leased. In a sale, the seller transfers ownership of the thing sold.
Sale distinguished from dation in payment.
Dation in payment (​ or ​dacion en pago​) is the alienation of prop
erty to the creditor in satisfaction of a debt in money. (see Art.
1619.) It is governed by the law on sales. (Art. 1245.) As such
the essential elements of a contract of sales, namely, consent:
object certain, and cause or considerations, must be present.
The distinctions are the following:
(1) In sale, there is no preexisting credit, while in dation in
payment, there is;
(2) In sale, obligations are created, while in dation in
payment, obligations are extinguished;
(3) In sale, the cause is the price paid, from the viewpoint of
the seller, or the thing sold, from the viewpoint of the buyer,
while in dation in payment, the extinguishment of the debt,
from the viewpoint of the debtor, or the object acquired in lieu
of the credit, from the viewpoint of the creditor;​11
(4) In sale, there is more freedom in fixing the price than in
dation in payment; and
(5) In sale, the buyer has still to pay the price, while in
dation in payment, the payment is received by the debtor before
the con tract is perfected. (see 10 Manresa 16-17.)
11​
What actually takes place in dation in payment is an objective novation of the
obligation where the thing offered as an accepted equivalent of the performance of an
obligation is considered as the purchase price. (see Art. 1291[1], Civil Code.)
Art. 1469
50 SALES ​EXAMPLE:
S owes B P10,000.00. To pay his debt, S, with the consent
of B, delivers a specific television set. If the value of the
television set, however, is only P8,000.00, S is still liable for
P2,000.00 un less the parties have considered the conveyance
as full pay ment.
ART. 1469. In order that the price may be consid
ered certain, it shall be sufficient that it be so with
reference to another thing certain, or that the deter
mination thereof be left to the judgment of a
specified 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 rem edies against the party in fault as are
allowed the seller or the buyer, as the case may be.
(1447a)
When price considered certain.
The price in a contract of sale ought to be settled for there
can be no sale without a price. (see Borromeo vs. Borromeo, 98
Phil. 432 [1955].) It must be certain or capable of being
ascertained in money or its equivalent; and ​money i​ s to be
understood as cur rency, and ​its equivalent m
​ eans promissory
notes, checks and other mercantile instruments generally
accepted as representing money.
The fact that the exact amount to be paid for the thing sold
is not precisely fixed, is no bar to an action to recover such
compen sation, provided the contract, by its terms furnishes a
basis or measure for ascertaining the amount agreed upon.
(Majarabas vs. Leonardo, 11 Phil. 272 [1908]; Villanueva vs.
Court of Appeals, 78 SCAD 484, 267 SCRA 89 [1997].)
Art. 1469 NATURE AND FORM OF THE CONTRACT51
Under the above article, the price is certain if:
(1) The parties have fixed or agreed upon a definite amount;
or
(2) It be certain with reference to another thing certain (see
Art. 1472; Majarabas vs. Leonardo, 11 Phil. 272 [1908].); or
(3) The determination of the price is left to the judgment of a
specified person or persons and even before such determina
tion. (see Barretto vs. Sta. Maria, 26 Phil. 200 [1913], under Art.
1458.)
It must be understood that the last two cases are applicable
only when no specific amount has been stipulated by the
parties.
ILLUSTRATIVE CASES:
1. ​Price was fixed at 10% below the price in the inventory, at
the invoice price, and in accordance with the price list less 20% dis
count.
Facts: ​S sold to B a tobacco and cigarette factory together
with the trademark “La Maria Cristina,” the stocks of tobacco,
machinery, labels, wrappers, etc. for a sum subject to modifica
tion, in accordance with the result shown by the inventory to
be drawn up. In this inventory the value of each individual
price of furniture was fixed at 10% below the price in the part
nership inventory. The value of the tobacco, both in leaf and
in process of manufacture, was fixed at the invoice price.
The value of tobacco made up into cigars was fixed in ac
cordance with the price list of the company less 20% discount.
Issue: ​Under the terms of the agreement, may the price of
the property sold be considered certain within the meaning of
the law?
Held: ​The price may be considered certain. The articles
which were the subject of the sale were definitely and finally
agreed upon. The price for each article was fixed. It is true
that the price of the tobacco, for example, was not stated in
pesos and centavos. But by its terms B agreed to pay therefor
the amount named in the invoices then in existence. The price
could be made certain by a mere reference to these invoices.
(McCullough vs. Aenille & Co., 13 Phil. 258 [1909].)
———— ———— ————
52 SALES
Art. 1469
2. ​Price was fixed at a certain amount subject to modifications
based on known factors.
Facts: ​S contracted to sell large quantity of coal to B. The
basic price fixed in the contract was P9.45 per long ton but it
was stipulated that the price was subject to modifications “in
proportion to variations in calories and ash content and not
otherwise.”
Issue: ​Is the price certain within the meaning of the law?
Held: ​By stipulation, the price could be made certain by
the application of known factors (Art. 1469.), and for the
purposes of this case, it may be assumed that the price was
fixed at P9.45 per long ton. ​(Mitsui Bussan Kaisha vs. Manila
B.R.R. and L. Co., 39 Phil. 624 [1919].)
———— ———— ————
3. ​Price (compensation) promised was the cost of maintenance.
Facts: ​X rendered services as wet nurse and governess to
Y’s infant daughter. Y promised to compensate X for the serv
ices, providing for the maintenance of X, her husband and her
children during all the time that the services were required.
Y contends that there was no valid contract of lease of
serv ices because the price thereof was not fixed.
Issue: ​Does the contract furnish a basis or measure by
which the amount of compensation may be ascertained?
Held: ​Yes. In this case, the cost of maintenance determines
the compensation according to the agreement of the parties.
(Majarabas vs. Leonardo, supra.)
———— ———— ————
4. ​Price was fixed at “not greater than P210.00 per square me
ter.”​
Facts: ​Under the contract of lease with option to buy en
tered into in 1975, the lessee was given the option to purchase
the parcel of land lease within a period of 10 years from the
date of signing of the contract “at a price not greater than
P210.00 per square meter.”
Issue: ​Is the price certain or definite?
Held: ​Yes, given the circumstances of the case. “Contracts
are to be construed according to the sense and meaning of the
terms which the parties themselves have used. In the present
Art. 1469 NATURE AND FORM OF THE CONTRACT53
dispute, there is evidence to show that the intention of the par
ties is to peg the price of P210 per square meter. This was con
firmed by the petitioner [lessor] himself in his testimony as fol
lows. x x x
Moreover by his subsequent acts of having the land titled
under the Torrens System, and in pursuing the back [lessee]
manager to effect the sale immediately means that he under
stood perfectly well the terms of the contract. He even had the
same property mortgaged to the respondent back sometime in
1979, without the slightest hint of wanting to abandon his
offer to sell the property at the agreed price of P210 per square
me ter.’’ ​(Serra vs. Court of Appeals, 47 SCAD 55, 229 SCRA 60
[1994].)
Effect where price fixed by third person
designated.
As a general rule, the price fixed by a third person
designated by the parties is binding upon them. There are,
however, excep tions such as:
(1) When the third person acts in bad faith or by mistake as
when the third person fixed the price having in mind not the
thing which is the object of the sale, but another analogous or
similar thing in which case the court may fix the price. But mere
error in judgment cannot serve as a basis for impugning the
price fixed; and
(2) When the third person disregards specific instructions or
the procedure marked out by the parties or the data given him,
thereby fixing an arbitrary price. (see 10 Manresa 53-54.)
EXAMPLE:
S sold to B a diamond ring. The determination of the price
was left to C whom the parties thought was a jeweler.
If C acted by mistake, as when he is incompetent to know
the price of the diamond ring, or in bad faith, as when he con
nived with S, the court may fix the price.
ILLUSTRATIVE CASE:
Price was fixed on the basis of a certain proportion of total net
value of business to be ascertained by appraisers.
54 SALES
Art. 1470
Facts: ​S executed a document whereby he agreed to trans
fer to B “the whole of the right, title, and interest” in a
business. This whole was 4/173 of the entire net value of the
business. The parties agreed that the price should be 4/173 of
the total net value. The ascertainment of such net value was
left unre servedly to the judgment of the appraisers.
Issue: ​Is the price certain?
Held: ​Yes, for the minds of the parties have met on the
thing and the price. Nothing was left unfinished and all
questions relating thereto were settled. This is an example of a
perfected sale. ​(Barretto vs. Santa Maria, 26 Phil. 200 [1913].)
Effect where price not fixed by third
person designated.
(1) If the third person designated by the parties to fix the
price refuses or cannot fix it (without fault of the seller and the
buyer), the contract shall become ineffective, as if no price had
been agreed upon unless, of course, the parties subsequently
agree upon the price. (par. 2.)
(2) If such third person is prevented from fixing the price by
the fault of the seller or the buyer, the party not in fault may ob
tain redress against the party in fault (par. 2.) which consists of
a choice between rescission or fulfillment, with damages in
either case. (Art. 1191, par. 2; see Art. 1594.) If the innocent
party chooses fulfillment, the court shall fix the price.
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)
Effect of gross inadequacy of price
in voluntary sales.
(1) ​General rule.​ — While a contract of sale is commutative,
mere inadequacy of the price or alleged hardness of the bargain
generally does not affect its validity when both parties are in a
position to form an independent judgment concerning the trans
action. (Askav vs. Cosalan, 46 Phil. 79 [1924]; Ereñeta vs.
Bezore,
Art. 1470 NATURE AND FORM OF THE CONTRACT55
54 SCRA 13 [1973]; Auyong Hian vs. Court of Appeals, 59
SCRA 110 [1974]; see Ong vs. Ong, 139 SCRA 133 [1985].) This
rule holds true in voluntary contracts of sale otherwise free
from invalidat ing defects. A valuable consideration, however
small or nominal, if given or stipulated in good faith is, in the
absence of fraud, sufficient. (Rodriguez vs. Court of Appeals,
207 SCRA 553 [1992].)
In determining whether the price is adequate or not, the
price obtaining at the date of the execution of the contract, not
those obtaining a number of years later, should be considered.
(Siopongco vs. Castro, [C.A.] No. 12448-R, Jan. 18, 1957.)
(2) ​Where low price indicates a defect in the consent​. — The inad
equacy of price, however, may indicate a defect in the consent
such as when fraud, mistake, or undue influence is present (Art.
1355.) in which case the contract may be annulled not because
of the inadequacy of the price but because the consent is
vitiated. Con tracts of sale entered into by guardians or
representatives of ab sentees are rescissible whenever the wards
or absentees whom they represent suffer lesion by more than
1/4 of the value of the things which are the object thereof. (Art.
1381[1, 2].)
The unsupported claim that the sale of property was made
for an inadequate price is a mere speculation which has no
place in our judicial system. Since every claim must be
substantiated by sufficient evidence, such a conjectural
pretension cannot be entertained. Allegation of inadequacy of
price must be proven. (Ng Cho Cio vs. Ng Diong, 1 SCRA 275
[1961].)
(3) ​Where price so low as to be “shocking to conscience”. ​—
While it is true that mere inadequacy of price is not a sufficient
ground for the cancellation of a voluntary contract of sale, it has
been held that where the price is so low that “a man in his
senses and not under a delusion” would not accept it, the sale
may be set aside and declared an equitable mortgage to secure a
loan. (Aguilar vs. Rubiato, 40 Phil. 570 [1919]; De Leon vs.
Salvador, 36 SCRA 507 [1970]; Art. 1602[1].) But where the price
paid is much higher than the assessed value of the property and
the sale is effected by a father to his daughter in which filial
love must be taken into ac count, the price is not to be construed
“as so inadequate to shock the court’s conscience.” (Alsua-Bett
vs. Court of Appeals, 92 SCRA 332 [1979]; Jocson vs. Court of
Appeals, 170 SCRA 333 [1989].)
56 SALES
1. ​Selling price is 1/26 of value of
property.
Art. 1470
ILLUSTRATIVE CASES:
Facts: ​S sold to B with ​pacto de retro ​(right to repurchase) a
land valued at P26,000 for only P1,000.00.
Issue: ​May the contract be construed as an equitable mort
gage? (see Arts. 1602, 1603.)
Held: ​As the price is so grossly inadequate, the contract
will be interpreted to be one of loan with equitable mortgage
with the price paid as principal of said loan and the land
given merely as security. ​(Aguilar vs. Rubiato, 40 Phil. 570
[1919].)
———— ———— ————
2. ​Purchaser of property earned greater profit by its subsequent
resale than that earned by seller by the sale to such purchaser.
Facts: ​S bought a land for P870.00. One year later, he sold
the same land to B for P1,125.00. Subsequently, B sold 1/20 of
the land for P681.00. S brought action to have the sale
annulled, claiming that the price of the land was “so
inadequate as to shock the conscience of men’’ as shown by
B’s sale of 1/20 of the land for more than half of what was
paid to S.
Issue: ​Is the price of P870.00 grossly inadequate?
Held: ​Having sold the land to B for the sum of P1,125.00
one year after he had purchased it for P870.00 at a profit of
about 28%, S had no ground for complaint. A sale may not be
annulled simply because the purchaser subsequently resold
the property or a part of it at a greater profit than that earned
by his vendor. ​(Alarcon vs. Kasilag, [C.A.] 40 O.G. [Supp. 11]
203.)
———— ———— ————
3. ​Conveyance of property is for P1.00 and other valuable con
siderations.
Fact: ​S, for and in consideration of P1.00 and other valu
able considerations, executed in favor of B then a minor, a
Quitclaim Deed whereby she transferred to B all her rights
and interests in the 1/2 undivided portion of a parcel of land.
Later, S claimed that the deed is null and void as it is
equivalent to a Deed of Donation, acceptance of which by the
donee is neces sary to give it validity.
lssue: I​ s the Quitclaim Deed a conveyance of property
with a valid cause or consideration?
Art. 1470 NATURE AND FORM OF THE CONTRACT57
Held: ​Yes. The cause or consideration is not the P1.00
alone but also other valuable considerations. Although the
cause is not stated in the contract it is presumed that it is
existing un less the debtor proves the contrary. (Art. 1354.)
This presump tion cannot be overcome by a simple assertion
of lack of con sideration especially when the contract itself
states that con sideration was given, and the same has been
reduced into a public instrument with all due formalities and
solemnities.
Moreover, even granting that the Quitclaim Deed is a do
nation, Article 741 of the Civil Code provides that the require
ment of the acceptance of the donation in favor of a minor by
parents or legal representatives applies only to onerous and
conditional donations where the donee may have to assume
certain charges or burdens. ​(Ong vs. Ong, 139 SCRA 133
[1985].)
Effect of gross inadequacy of price
in involuntary sales.
(1) ​General rule. —
​ A judicial or execution sale is one made
by a court with respect to the property of a debtor for the
satisfac tion of his indebtedness.​12
Like in a voluntary sale, mere inadequacy of price is not a
sufficient ground for the cancellation of an execution sale if
there is no showing that in the event of a resale, a better price
can be obtained. It has been held that the public sale of a lot
valued at P40,500.00 for P12,000.00 cash “does not appear to be
inadequate.” (see Cu Bie vs. Court of Appeals, 15 SCRA 306
[1965]; Pascua vs. Heirs of Segundo Simeon, 161 SCRA 1
[1988].)
(2) ​Where price so low as to be “shocking to the conscience.” ​— If
the “price is so inadequate as to shock the conscience of the
Court”, “such that the mind revolts at it and such that a
reasonable mind would neither directly or indirectly be likely to
consent to it,’’ a judicial sale, say, of real property, will be set
aside. (National Bank vs. Gonzales, 45 Phil. 693 [1923]; Warnes,
Barnes & Co. vs. Santos,
12​
There are three (3) types of sale arising from failure to pay a mortgage debt,
namely, the extra-judicial foreclosure sale, the judicial foreclosure sale, and the ordinary
execu tion sale. They are governed by three (3) different laws which are, respectively,
Act No. 3135, Rule 68, and Rule 39 of the Rules of Court. (Abaca Corporation of the
Phils. vs. Court of Appeals, 81 SCAD 635, 272 SCRA 475 [1997].)
58 SALES
Art. 1471
15 Phil. 446 [1910]; Paras vs. Court of Appeals, 91 Phil. 389
[1952]; Cometa vs. Court of Appeals, 143 SCAD 90, 351 SCRA
294 [2001].) Thus, where a land with an assessed value of more
than P60,000.00 was sold for only P867.00, the sale was set
aside. (Director of Lands vs. Abarca, 61 Phil. 70 [1934];
Jalandoni vs. Ledesma, 64 Phil. 1058 [1937].)
Similarly, an execution sale whereby 33 hectares of land
were ceded to the judgment creditor to satisfy a liability for 146
cavans of palay was held void for inadequacy of price. (Singson
vs. Babida, 79 SCRA 111 [1977].) So, also the price of the sale of
prop erties at around 10% of their value was held to be grossly
inad equate. (Provincial Sheriff of Rizal vs. Court of Appeals, 68
SCRA 329 [1975].)
(3) ​Where seller is given the right to repurchase. — ​The validity
of the sale is not necessarily affected where the law gives to the
owner the right to redeem, as when a sale is made at public auc
tion, upon the theory that the lesser the price, the easier it is for
the owner to effect the redemption. (De Leon vs. Salvador, 36
SCRA 567 [1970]; Ravanera vs. Imperial, 93 SCRA 589 [1979];
Ramos vs. Pablo, 146 SCRA 24 [1986]; Francia vs. Intermediate
Appellate Court, 162 SCRA 753 [1988]; Abaca Corporation of
the Phils. vs. Garcia, 81 SCAD 635, 272 SCRA 475 [1997].) He
may reacquire the property or also sell his right to redeem and
thus recover the loss he claims he suffered by reason of the
price ob tained at the execution sale. (Tolentino vs. Agcaoli,
[unrep.] 91 Phil. 917 [1952]; Barrozo vs. Macaraeg, 83 Phil. 378
[1949]; Velasquez vs. Coronel, 5 SCRA 985 [1962]; Dev. Bank of
the Phils. vs. Moll, 43 SCRA 82 [1972].)
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)
Effect where price is simulated.
(1) If the price is simulated or false such as when the vendor
really intended to transfer the thing gratuitously, then the sale
is void but the contract shall be valid as a donation. (Arts. 1471,
1345, 1353.)
Art. 1471 NATURE AND FORM OF THE CONTRACT59
EXAMPLE:
S sold to B a parcel of land worth P50,000.00 for only
P30,000.00. This contract of sale is valid although the price is
grossly inadequate. However, if it is shown that B induced S
to sell the land through fraud, mistake, or undue influence,
the contract may be annulled on that ground.
If the price is simulated, B may prove another considera
tion like the liberality of S and if such liberality is proved, then
the contract is valid as a donation; or B may prove that the act
is in reality some other contract, like barter and, therefore, the
transfer of ownership is unaffected.
(2) If the contract is not shown to be a donation or any other
act or contract transferring ownership because the parties do
not intend to be bound at all (Art. 1345, ​ibid.​), the ownership of
the thing is not transferred. The contract is void and inexistent.
(Art. 1409[2].) The action or defense for the declaration of the
inexist ence of a contract does not prescribe. (Art. 1410; see
Catindig vs. Heirs of Catalina Roque, 74 SCRA 83 [1976].)
(3) Simulation occurs when an apparent contract is a decla
ration of a fictitious will deliberately made by agreement of the
parties, in order to produce, for the purpose of deception, the
appearance of a juridical act which does not exist or is different
from that which was really executed. Its requisites are (a) an out
ward declaration of will different from the will of the parties;
(b) the false appearance must have been intended by mutual
agree ment; and (c) the purpose is to deceive third persons.
(Tongoy vs. Court of Appeals, 123 SCRA 99 [1983];
Bayongayong vs. Court of Appeals, 430 SCRA 210 [2004].)
The fact that the seller continues to pay realty taxes on the
land sold even after the execution of the contract to sell does not
nec essarily prove ownership, much less simulation of said
contract. The non-payment of the price does not prove
simulation; at most, it gives the seller the right to sue for
collection. Generally, in a contract of sale, payment of the price
is a resolutory condition and the remedy of the seller is to exact
fulfillment or, in case of a sub stantial breach, to rescind the
contract. (Villaflor vs. Court of Appeals, 87 SCAD 778, 280
SCRA 297 [1997].) The non-payment of the price by the
supposed buyer, a minor, when taken into ac
60 SALES
Arts. 1472-1473
count together with the many intrinsic defects of the deed of
sale, may, however, show that the price is simulated, making
the sale void. (Lebagela vs. Santiago, 371 SCRA 360 [2001].)
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)
Price on a given day at particular market.
The above provision follows the principle in Article 1469
that a price is considered certain if it could be determined with
refer ence to another thing certain.
Note the last phrase of the above article: “provided said
amount be certain.” When an amount is fixed ​above o
​ r ​below t​ he
price on a given day or in a particular exchange or market, the
said amount must be certain; otherwise, the sale is inefficacious
(Art. 1474.) because the price cannot be determined.
This article is especially applicable to fungible things like se
curities, grain, liquids, etc. the price of which are subject to fluc
tuations of the market.
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 ac cepted by the other, the sale is
perfected. (1449a)
Fixing of price by one of the contracting
parties, not allowed.
The reason for the rule is obvious.
(1) If consent is essential to a contract of sale, the determina
tion of the price cannot be left to the discretion of one of the con
tracting parties; otherwise, it cannot be said that the other con
sented to a price he did not and could not previously know. (see
Art. 1474 NATURE AND FORM OF THE CONTRACT 61
10 Manresa 6061.) The validity or compliance of the contract
can not be made to depend upon the will of one party. (Art.
1308.)
(2) Moreover, to be just, the price must be determined impar
tially by both parties (Art. 1458.) or left to the judgment of a
speci fied person or persons. (Art. 1469.)
However, where the price fixed by one party is accepted by
the other, the contract is deemed perfected because in this case,
there exists a true meeting of minds upon the price. (Art. 1475.)
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 reason able price therefor.
What is a reasonable price is a question of fact
dependent on the circumstances of each particular
case. (n)
Effect of failure to determine price.
(1) ​Where contract executory.​ — If the price cannot be deter
mined in accordance with Articles 1469 and 1472, or in any
other manner, and the bargain is still executory, the contract is
without effect. Price certain is an essential element of the
contract of sale. (Art. 1458.) Consequently, there is no obligation
on the part of the vendor to deliver the thing and on the part of
the vendee to pay.
(2) ​Where delivery has been made.​ — If the thing or any part
thereof has already been delivered and appropriated by the
buyer, the latter must pay a reasonable price therefor. This
obligation of the buyer is sometimes contractual (if the
agreement omits any reference to price), and sometimes,
quasi-contractual (if the agree ment provides that the parties are
thereafter to agree on the price). (see Art. 2142.)
(a) If a buyer, for example, orders a cavan of rice from a
store, nothing being said as to the price, the parties intend
and understand that a reasonable price shall be paid. The
obliga tion here is contractual. The law merely enforces the
intention of the parties.
62 SALES
Art. 1474
(b) Article 1474 applies only where the means contem
plated by the parties for fixing the price have, for any
reason, proved ineffectual. In this case, the obligation of the
buyer to pay a reasonable price is an obligation imposed by
law as dis tinguished from a contractual obligation. It is
based on the fundamental principle that no one should
enrich himself at the expense of another. ​(Ibid.) ​In case,
however, the parties do not intend to be bound until after
the price is settled, the buyer must return any goods already
received or if unable to do so, must pay their reasonable
value at the time of delivery, and the seller must return any
portion of the amount received.
Concept of reasonable price.
The reasonable price or value of goods is generally the mar
ket price at the time and place fixed by the contract or by law
for the delivery of the goods. Under special circumstances of
unnatu ral conditions in the market, the market price does not
furnish the only test. In the leading case upon this point, the
court said:
“A reasonable price may or may not agree with the cur
rent price of the commodity at the port of shipment when
such shipment is made. The current price of the day may be
highly unreasonable from accidental circumstances, as on
account of the commodity having been purposely kept back
by the ven dor himself, or with reference to the price at the
other ports in the immediate vicinity, or from various other
causes. This doctrine has been applied in cases where the
market has been monopolized.” (1 Williston,​13 ​op. cit.​ , p.
447.)
Determination of fair market value.
Offers to sell are not competent evidence of the fair market
value of a property, because they are no better than offers to
buy, which have been held to be inadmissible as proof of said
values. (City of Manila vs. Estrada, 25 Phil. 208 [1913]; Manila
Railroad Co. vs. Aguilar, 35 Phil. 118 [1913].)
“In discussing the term ‘market value’, the author of a well
known treatise on the subject of damages observes that to make
a
13​
If not indicated, the 3rd edition thereof.
Art. 1475 NATURE AND FORM OF THE CONTRACT63
market there must be both buying and selling; and the ‘market
value’ is that ‘reasonable’ sum which property would bring on
a fair sale by a man willing but not obliged to sell to a man
willing but not obliged to buy.” (Sedgewick on Damages, Sec.
245, cited in Compagnie Franco-Indo Chinoise vs.
Deutsch-Australiache, 39 Phil. 474 [1919]; Perez vs. Araneta, 6
SCRA 457 [1962].)
ART. 1475. The contract of sale is perfected at
the moment there is a meeting of minds upon the
thing which is the object of the contract and upon
the price.
From that moment, the parties may reciprocally
demand performance, subject to the provisions of
the law governing the form of contracts. (1450a)
Perfection of contract of sale.
This article follows the general rule that contracts are
perfected by mere consent. (Art. 1315.) The contract of sale
being consen sual, it is perfected at the moment of consent
without the neces sity of any other circumstances. From the
moment there is a meet ing of minds upon the thing which is
the object of the contract and upon the price (see Art. 1624.), the
reciprocal obligations of the parties arise even when neither has
been delivered. (see Pa cific Oxygen & Acetylene Co. vs. Central
Bank, 37 SCRA 685 [1971]; Villongco Realty Co. vs. Bormacheco,
Inc., 65 SCRA 352 [1975]; Vargas Plow Factory, Inc. vs. Central
Bank, 27 SCRA 84 [1969]; Xentrex Automotive, Inc. vs. Court of
Appeals, 94 SCAD 923, 290 SCRA 66 [1998].) The essence of
consent is the conform ity of the parties on the term of the
contract, the acceptance by one of the offer made by the other.
(Salonga vs. Farrales, 105 SCRA 359 [1981]; Firme vs. Buklod
Enterprises and Dev. Corp., 414 SCRA 190 [2003].)
(1) ​Conduct of the parties. — A
​ ppropriate conduct by the par
ties may be sufficient to establish an agreement. While there
may be instances where interchanged correspondence does not
disclose the exact point at which the deal was closed, the actions
of the parties may indicate that a binding obligation has been
under taken. (Maharlika Publishing Corp. vs. Tagle, 142 SCRA
553 [1986].) There is, however, no perfected sale where it is
conditional
64 SALES
Art. 1475
(​e.g.​ , approval by higher authorities) and the condition is not ful
filled. (see People’s Homesite & Housing Corp. vs. Court of Ap
peals, 133 SCRA 777 [1984].)
(2) ​Transfer of ownership.​ — The ownership is not transferred
until the delivery of the thing. (Arts. 1496, 1164.​14​) The parties,
however, may stipulate that the ownership in the thing,
notwith standing its delivery, shall not pass to the purchaser
until after he has fully paid the purchase price thereof. (Arts.
1478, 1306.)
(3) ​Form of contract. ​— Generally, a contract of sale is
binding regardless of its form. (Art. 1356.) However, in case the
contract of sale should fall within the provisions of the Statute
of Frauds (Art. 1403[2].) or of any other applicable statute which
requires a certain form for its enforceability or validity (Art.
1356.), then that form must be complied with. (Art. 1483.) A
contract of sale may be in a private instrument; the contract is
valid and binding be tween the parties upon its perfection and a
party may compel the other to execute a public instrument
embodying the contract. (see Arts. 1357, 1358.)
A sale of real estate, whether made as a result of a private
trans action or of a foreclosure or execution sale, becomes
legally effec tive against third persons only from the date of its
registration. (Campillo vs. Phil. National Bank, 28 SCRA 720
[1969].)
In a case, a letter-offer to buy a particular property for a
speci fied price was received by the offeree who annotated on
the copy the phrase “Received original, 9-4-89’’ beside which
appears his signature. ​Held: T
​ he receipt can neither be regarded
as a contract of sale nor a promise to sell. Such an annotation by
the offeree amounts to neither a written nor an implied
acceptance of the offer. It is merely a memorandum of the
receipt by him of the of fer. The requisites of a valid contract of
sale are lacking in said receipt. (Jovan Land, Inc. vs. Court of
Appeals, 79 SCAD 428, 268 SCRA 160 [1997].)
(4) ​Consent reluctantly given. — ​There is no difference in law
where a person gives his consent reluctantly and even against
his
14​
Art. 1164. The creditor has a right to the fruits of the thing from the time the
obligation to deliver it arises. However, he shall acquire no real right over it until the
same has been delivered to him.
Art. 1475 NATURE AND FORM OF THE CONTRACT65
good sense and judgment as when he acts voluntarily and
freely. (Acasio vs. Corp. de los PP. Dominicos de Filipinas, 100
Phil. 253 [1956].)
(5) ​Notarized deed of sale states receipt of price. —
​ The unsup
ported verbal claim of the seller that the sale of a motor vehicle
was not consummated for failure of the purchaser to pay the
pur chase was held insufficient to overthrow a notarized deed
of sale wherein it is recited that the seller “sold, transferred and
con veyed” the motor vehicle to the purchaser “for and in
considera tion of the amount of P10,000 and other valuable
considerations, receipt of which is hereby acknowledged.”
To overcome a public document solemnly executed before a
notary public, the evidence to the contrary must be clear,
strong, and convincing. Parol evidence will not suffice to negate
the clear and positive recitals of a public document not
otherwise tainted with fraud or falsification. (Regalario vs.
Northwest Finance Cor poration, 117 SCRA 45 [1982].)
(6) ​Applicant’s qualification to buy still subject for investigation​.
— In a case, the agreement denominated as “contract of sale”
was considered by the court as a mere application to buy the
land in question, and not a perfected contract of sale. Although
it embod ied all the essential elements of a contract of sale by
installment, it appearing that “after the approval of such
application it was still necessary to have the [applicant’s]
qualifications investigated as well as whether or not he has
complied with the provisions of the law regarding the
disposition of lands by the Board of Liqui dators,” the
application was subject to revocation in case the ap plicant was
found not to possess the qualifications necessary. (Alvarez vs.
Board of Liquidators, 4 SCRA 95 [1962]; Galvez vs. Tagle Vda.
de Kangleon, 6 SCRA 162 [1962].)
(7) ​Chattel mortgage of car by mortgagor-buyer prior to transfer of
title to his name. — ​The fact that the chattel mortgage of a car by
the buyers in favor of the seller was executed on a date earlier
than the transfer of the registration certificate thereof in the
name of the buyers does not render the said mortgage made by
the buyers invalid, because the mortgagors were already the
owner of the car when the mortgage was executed, inasmuch as
at the time of the sale wherein the parties agreed over the car
and the
66 SALES
Art. 1475
price, the contract became perfected, and when part of the pur
chase price was paid and the car was delivered, upon the execu
tion of the promissory note and the mortgage by the
mortgagors, the sale became consummated. The registration of
the transfer of automobiles and of the certificates of license for
their use in the Bureau of Land Transportation merely
constitutes an administra tive proceeding which does not bear
any essential relation to the contract of sale entered into
between the parties. (Montano vs. Lim Ang, 7 SCRA 250 [1963].)
Registration of motor vehicles is required not because it is
the operative act that transfers ownership in vehicles (as in land
reg istration cases), but because it is the means to identify the
owner thereof in case of accident so that responsibility for the
same can be fixed. (De Peralta vs. Mangusang, 11 SCRA 598
[1964].)
(8) ​Non-fulfillment by one party of his obligation. —
​ In case one
of the contracting parties should not comply with what is
incum bent upon him, the injured party may sue for fulfillment
or re scission with the payment of damages in either case. (Art.
1191, pars. 1 and 2.) This right is predicated on the violation of
the reci procity between the parties brought about by a breach
of obliga tion by one of them.
ILLUSTRATIVE CASES:
1. ​Purchase order form directed to seller asking delivery of a
piano carries the address of purchaser in Dipolog City while delivery
receipt form directed to purchaser carries address of seller in
Cagayan de Oro City.
Facts: ​B, an appliance center of Dipolog City, issued a pur
chase order to S, an appliance center of Cagayan de Oro City,
directing the latter to furnish the former a Weinstein
Accousticon Piano. The order was honored by S, which issued
a delivery receipt for the item. B’s representative received the
piano, and signed the delivery receipt at Cagayan de Oro, and
assumed the responsibility and expenses of bringing it to
Dipolog City.
Upon the refusal of B to pay, S filed a complaint for collec
tion with the City Court of Cagayan de Oro. B filed a motion
to dismiss alleging that there being no written agreement
between the parties specifying where the action arising out of
the con
Art. 1475 NATURE AND FORM OF THE CONTRACT67
tract should be filed, the venue of the case properly falls in
Dipolog City under Section 1(b), Rule 4 of the Rules of Court.
Issue: ​Where is the place of the execution of the contract or
the place where there was meeting of the minds of the parties?
Held: ​The meeting of minds took place in Cagayan de Oro
City when S received the purchase order, agreed to its terms,
and acted upon it. As a matter of fact, it was not the meeting
of minds alone but also the consummation of the contract
which happened in Cagayan de Oro City.
Under the circumstances of the case, the documents evi
dencing the contract show the place of execution to be
Cagayan de Oro City. The purchase order is the contract sued
upon. By itself, it was only an offer to buy directed to S with
address at Cagayan de Oro City. It was brought to said city to
be acted upon at that place. The delivery receipt indicates the
accept ance of the offer and the delivery of the piano also at
Cagayan de Oro City. The entry on the delivery receipt
showing that the purchased item was delivered to B of
Dipolog City merely in dicates the name and address of the
buyer but not the place of the execution of the contract. ​(Raza
Appliance Center vs. Villaraza, 117 SCRA 576 [1982].)
———— ———— ————
2. ​A co-owner sold 10 hectares portion of a land owned in com
mon which portion was to be surveyed, with acknowledgment of the
receipt of an initial payment.
Facts: ​S executed two documents: in the first, S agreed to
sell and B agreed to buy, for P2,500.00, 10 hectares of land,
which is part and parcel of a bigger lot owned in common by
S and his sister although the boundaries of the 10 hectares
would be delineated at a later date and in the second, S
acknowledged receipt as initial payment of P800.
Additional payments of P300 were made. B filed a com
plaint for specific performance after S returned the amounts
paid.
Issue: ​Was there a perfected contract of sale between the
parties?
Held: ​Yes. While it is true that the two documents are in
themselves not contracts of sale, there are, however, clear evi
dence that a contract of sale was perfected. S’s acceptance of
68 SALES
Art. 1475
the initial payment of P800.00 clearly showed his consent to
the contract thereby precluding him from rejecting its binding
effect. With the contract being partially executed, the same is
no longer covered by the requirements of the Statute of
Frauds in order to be enforceable. As co-owner, S cannot
dispose of a specific portion of the land, but his share shall be
bound by the effect of the sale under Article 493 of the Civil
Code. ​(Clarin vs. Rulona, 127 SCRA 512 [1984].)
When definite agreement on manner
of payment essential.
As a consensual contract, a contract of sale becomes a bind
ing and valid contract upon the meeting of the minds of the par
ties as to the price, despite the manner of payment, or even the
breach of that manner of payment. It is not the act of payment
of price that determines the validity of a contract of sale. (Buena
ventura vs. Court of Appeals, 416 SCRA 263 [2003].)
Where the parties, however, still have to meet and agree on
how and when the downpayment and installment payments
are to be made, it cannot be said that a contract of sale has been
per fected.
Thus, in a case where the buyer is “to give a down-payment
of P10,000 to be followed by P20,000 and the balance of P70,000
would be paid in installments, the equal monthly amortization
of which has to be determined as soon as the P30,000 had been
completed,” it was held that the fact that the buyer delivered
the sum of P1,000 as part of the downpayment cannot be
considered as sufficient proof of the perfection of any purchase
and sale agree ment between the parties under Article 1482. In
this case, a defi nite agreement on the manner of payment of the
purchase price is an essential element in the formation of a
binding and enforce able contract of sale. (Velasco vs. Court of
Appeals, 51 SCRA 439 [1973]; Limketkai Sons Milling, Inc. vs.
Court of Appeals, 69 SCAD 976, 255 SCRA 626 [1996]; see
Navarro vs. Sugar Producers Corp. Mktg. Assoc., 1 SCRA 1180
[1961]; Co vs. Court of Appeals, 286 SCRA 76 [1998].)
It appears, however, that the parties in the Velasco case
agreed on the purchase price of P100,000​. ​It is believed that
upon the meeting of the minds of the parties on the thing which
is the ob
Art. 1475 NATURE AND FORM OF THE CONTRACT69
ject of the contract and the price (P100,000), the contract of sale
must be deemed to have been perfected. (Art. 1475.) The terms
and conditions of payment are merely accidental, not essential,
elements of the contract of sale except where the parties them
selves clearly stipulate that in addition to the subject matter and
the price, they are essential or material to the contract. (see A.
Magsaysay, Inc. vs. Cebu Portland Cement Co., 100 Phil. 351
[1956].) A disagreement on the manner of payment is
tantamount to a failure to agree on the price. (Swedish Match,
AB vs. Court of Appeals, 441 SCRA 1 [2004].)
Article 1197​15 ​of our Civil Code authorizes courts to fix the
period or periods of payment where there is lack of agreement
regarding the same.
In ​Uraca vs. Court of Appeals ​(86 SCAD 734, 278 SCRA 702
[1997].), S sent a letter to B, offering to sell a lot and commercial
building for P1,050,000. B sent a reply-letter within the 3-day pe
riod contained in the offer accepting the aforesaid offer. Later, B
was told by S that the price was P1,400,000 in cash or manager’s
check and not P1,050,000 as erroneously dated in the
letter-offer. B agreed to the price of P1,400,000 but
counter-proposed that payment be paid in installments, with a
downpayment of P1,000,000 and the balance of P400,000 to be
paid in 30 days. It was held that a contract of sale was perfected
at the original price of P1,050,000 but there was no agreement in
the sale at the in creased price of P1,400,000. The qualified
acceptance by B consti tutes a counter-offer and, in effect, a
rejection of S’s offer. (Art. 1319.) Since there was no definite
agreement on the manner of the payment of the purchase price
of P1,400,000, the first sale for P1,050,000 remained valid and
existing.
Although the law does not expressly state that the minds of
the parties must also meet on the terms or manner of payment
of
15​
Art. 1197. If the obligation does not fix a period, but from its nature and the cir
cumstances it can be inferred that a period was intended, the courts may fix the dura
tion thereof.
The courts shall also fix the duration of the period when it depends upon the will
of the debtor.
In every case, the courts shall determine such period as may under the circum
stances have been probably contemplated by the parties. Once fixed by the courts, the
period cannot be changed by them. (1128a)
70 SALES
Art. 1475
the price, the same is needed. Agreement on the manner of pay
ment goes into the price such that a disagreement on the
manner of payment is tantamount to failure to agree on the
price. (Toyota Shaw, Inc. vs. Court of Appeals, 61 SCAD 310,
244 SCRA 320 [1995]; San Miguel Properties Philippines, Inc. vs.
Huang, 130 SCAD 713, 336 SCRA 737 [2000].) An agreement on
the price but a disagreement on the manner of its payment will
not result in 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.
(Montecillo vs. Reyes, 170 SCAD 440, 385 SCRA 244 [2002],
infra.​ )
ILLUSTRATIVE CASE:
The buyer, having failed to open a letter of credit as required by
the seller, claimed that there was no perfected contract of sale
between the parties.
Facts: ​B (buyer) established contact with S (seller) through
the Philippine Consulate General in Hamburg, West
Germany, because he wanted to purchase MAN bus spare
parts from Ger many.
On October 16, 1981, B submitted to S a list of the parts he
wanted to purchase, with specific parts number and descrip
tion. On December 17, 1971, S submitted its formal offer con
taining the item number, quantity, part number, description,
unit price and total to B. On December 24, 1981, B informed S
of his desire to avail of the prices of the parts at that time and
enclosed its Purchase Order containing the item number, part
number and description. On December 29, 1981, B personally
submitted the quantities he wanted to the General Manager of
S in the Philippines. H, trading partner of S, sent a ​pro forma
invoice to be used by B in applying for a letter of credit; said
invoice required that said letter be opened in favor of J.
On February 16, 1982, S reminded B to open the letter of
credit to avoid delay in the shipment and payment of interest.
On October 18, 1982, S again reminded B of his order and ad
vised that the case may be endorsed to its lawyers. B replied
that he did not make any valid Purchase Order and that there
was no definite contract between him and S. Subsequently, S
filed a complaint for recovery of actual or compensatory
damages, unearned profits, interest, attorney’s fees and costs
against B.
Art. 1475 NATURE AND FORM OF THE CONTRACT71
Issue: ​The issue posed for resolution is whether or not a
contract of sale has been perfected between the parties.
Held: (​ 1) ​A meeting of the minds has occurred. — ​“The offer
by petitioner [S] was manifested on December 17, 1981 when
peti tioner submitted its proposal containing the item number,
quan tity, part number, description, the unit price and total to
pri vate respondent [B]. On December 24, 1981, private
respond ent informed petitioner of his desire to avail of the
prices of the parts at that time and simultaneously enclosed its
Purchase Order No. 0101 dated December 14, 1981. At this
stage, a meet ing of the minds between vendor and vendee
has occurred, the object of the contract being the spare parts
and the considera tion, the price stated in petitioner’s offer
dated December 17, 1981 and accepted by the respondent on
December 24, 1981.
Although said purchase order did not contain the
quantity he wanted to order, private respondent made good
his prom ise to communicate the same on December 29, 1981.
At this junc ture, it should be pointed out that private
respondent was al ready in the process of executing the
agreement previously reached between the parties.’’
(2) ​B has accepted S’s offer. — ​“There appears this statement
made by private respondent: “Note above P.O. will include a
3% discount. The above will serve as our initial P.O.” This no
tation on the purchase order was another indication of accept
ance on the part of the vendee, for by requesting a 3%
discount, he implicitly accepted the price as first offered by
the vendor. The immediate acceptance by the vendee of the
offer was im pelled by the fact that on January 1, 1982, prices
would go up, as in fact, the petitioner informed him that there
would be a 7% increase effective January 1982. On the other
hand, concurrence by the vendor with the said discount
requested by the vendee was manifested when petitioner
immediately ordered the items needed by private respondent
from Schuback Hamburg which in turn ordered from NDK, a
supplier of MAN spare parts in West Germany.”
(3) ​Contract was perfected on December 24, 1981. — “​ While
we agree with the trial court’s conclusion that indeed a perfec
tion of the contract was reached between the parties, we differ
as to the exact date when it occurred, for perfection took
place, not on December 29, 1981, but rather on December 24,
1981. Although the quantity to be ordered was made
determinate on
72 SALES
Art. 1475
only December 24, 1991, quantity is immaterial in the perfec
tion of sales contract. What is of importance is the meeting of
the minds as to the ​object ​and ​cause​, which from the facts dis
closed, show that as of December 24, 1981, these essential ele
ments had already concurred.”
(4) ​Opening of letter was not intended as a suspensive condi
tion. — ​“On the part of the buyer, the situation reveals that pri
vate respondent failed to open an irrevocable letter of credit
without recourse in favor of Johannes Schuback of Hamburg,
Germany. This omission, however, does not prevent the per
fection of the contract between the parties, for the opening of
a letter of credit is not to be deemed a suspensive condition.
The facts herein do not show that petitioner reserved title to
the goods until private respondent had opened a letter of
credit. Petitioner, in the course of its dealings with private
respond ent, did not incorporate any provision declaring their
contract of sale without effect until after the fulfillment of the
act of open ing a letter of credit. The opening of a letter of
credit in favor of vendor in only a mode of payment. It is not
among the essen tial requirements of a contract of sale
enumerated in Articles of day of which will prevent the
perfection of the contract from taking place.” ​(Johannes
Schuback & Sons Phil. Trading Corp. vs. Court of Appeals, 46
SCAD 240, 227 SCRA 717 [1993].)
Effect of failure to pay price.
Failure to pay the consideration of contract is different from
lack of consideration; the former results in a right to demand
fulfillment or cancellation of the obligation under an existing
valid contract, while the latter prevents the existence of a valid
contract. (Montecillo vs. Reyes, 170 SCAD 440, 385 SCRA 244
[2002].)
(1) The failure to pay the stipulated price after the execution
of the contract does not convert the contract into one without
cause or consideration as to vitiate the validity of the contract, it
not being essential for the existence of cause that payment or
full payment be made at the time of the contract. (Puato vs.
Mendoza, 64 Phil. 417 [1937].) Non-payment of the purchase
price is not among the instances where the law declares a
contract of sale to be null and void. (Peñalosa vs. Santos, 153
SCAD 531, 363 SCRA 545 [2001].) Such failure does not ​ipso facto
resolve the contract in the absence of any agreement to that
effect. (De la Cruz vs.
Art. 1475 NATURE AND FORM OF THE CONTRACT73
Legaspi, 98 Phil. 43 [1955]; Ocampo vs. Court of Appeals, 52
SCAD 610, 233 SCRA 551 [1994].)
The situation is rather one in which there is failure to pay
the consideration, with its resultant consequences. The vendor’s
rem edy in such case is generally to demand specific
performance or rescission with damages in either case under
Article 1191. (De la Cruz vs. Legaspi, ​supra; ​Chua Hai vs.
Kapunan, Jr., 103 Phil. 110 [1958]; Lebrilla vs. Intermediate
Appellate Court, 180 SCRA 188 [1989].)
(2) But a contract of sale is null and void where the
purchase price, which appears thereon as paid, has, in fact,
never been paid by the buyer to the seller. In such case, the sale
is without cause or consideration. (Art. 1409[3].) Such sale is
non-existent or cannot be considered consummated. It produces
no effect whatsoever. (Mapalo vs. Mapalo, 17 SCRA 114 [1966];
Yu Bun Guan vs. Ong, 157 SCAD 38, 367 SCRA 559 [2001];
Montecillo vs. Reyes, ​supra​.)
If the real price is not stated in the contract, then the contract
is valid but subject to reformation. If there is no meeting of the
minds of the parties as to the price, because the price stipulated
in the contract is simulated, then the contract is void. Article
1471 states that if the price is simulated, the sale is void.
(Buenaventura vs. Court of Appeals, 416 SCRA 263 [2003].)
ILLUSTRATIVE CASES:
1. ​Seller is authorized by the contract, in case of buyer’s de
fault, to recover interest sold in property which was subsequently
damaged, and buyer defaulted.
Facts: S
​ and B were the co-owners in equal shares of a mo
tor boat. By written contract, S sold her undivided interest in
the boat to B payable in three (3) equal installments. In case of
default “the buyer authorizes the seller to recover her one-half
participation of ownership of the boat without obligation to
reimburse the payments made by the buyer.” B defaulted
after P750.00 was paid. Later, the boat was damaged by a
typhoon.
S filed action to recover the balance of the purchase price.
B answered that he had notified S to take over her half interest
in the boat, which she refused to do.
Issue: U
​ nder the contract, is B relieved of the obligation to
pay the purchase price?
74 SALES
Art. 1475
Held: N
​ o. The sole fact that the contract of sale between
the parties only provides that in case of default “the buyer
author izes xxx,” and is silent on the seller’s right to exact
payment of the outstanding balance, there being no other
stipulations in compatible therewith, does not import that the
seller has thereby lost the alternative right to demand full
payment. (see Cui vs. Sun Chuan, 41 Phil. 523.) This becomes
more apparent from the circumstance that the contract as
written confers upon the seller the ​right ​(“buyer authorizes the
seller”) to rescind the sale and recover her half interest, but
does not ​obligate h
​ er to do so.
Since S chose to collect full payment as she is entitled to
do, the loss of the boat without fault of the buyer (B) is irrel
evant to the case. The generic obligation to pay monthly is not
excused by fortuitous loss of any specific property of the
debtor. ​(Ramirez vs. Court of Appeals, 98 Phil. 225 [1956].)
———— ———— ————
2. ​Subject matter of sale is “24,000 tons of iron ore, more or
less” already extracted, for a lump sum, and buyer, refusing to pay,
claims short-delivery and asks for damages.
Facts: S
​ embarked upon the exploration and development
of mining claims belonging to B. Later, they executed a docu
ment wherein S transferred to B all of S’s rights and interest
over the “24,000 tons of iron ore, more or less” that S had al
ready extracted from the mineral claims in consideration of a
downpayment of P10,000.00 and the balance of P65,000.00
which will be paid out of the “first shipment of iron ore and of
the first amount derived from the local sale of iron ore made”
from said claims, which amount was secured by a surety bond
executed by B in favor of S.
No sale of the approximately 24,000 tons of iron ore had
been made nor had the P65,000.00 been paid. S brought suit
for the recovery of the balance of the purchase price. B claims
a short delivery, and asks for damages. There is no charge that
S did not deliver to B all the ore found in the stockpiles in the
mining claims in question.
Issue: I​ f there had been short delivery, as claimed by B, is
he entitled to the payment of damages?
Held: N
​ o. (1) ​Contract is sale of specific mass of tangible goods.
— “​ The sale between the parties is a sale of specific mass of
fungible goods because no provision was made in their con
Art. 1476 NATURE AND FORM OF THE CONTRACT75
tract for the measuring or weighing of the ore sold in order to
complete or perfect the sale nor was the price of P75,000.00
agreed upon based upon any such measurement. (Art. 1480,
par. 2.) The subject matter of sale is a determinate object, the
mass, for a single price or lump sum (the quantity ‘24,000 tons
of iron ore, more or less,’ being a mere estimate by the parties
of the total tonnage weight of the mass), and not the actual
number of units or tons contained therein so that all that was
required of S was to deliver in good faith to B all the ore
found in the mass, notwithstanding that the quantity
delivered is less than the amount estimated by them.’’
(2) ​Reasonable percentage of error considered. ​— “Even grant
ing the estimate of 21,889.7 tons made by B is correct, consider
ing that the actual weighing of each unit of the mass was prac
tically impossible, a reasonable percentage of error should be
allowed anyone making an estimate of the exact quantity in
tons found in the mass. In this case, both parties predicated
their respective claims only upon an estimated number of cu
bic meters of ore multiplied by the average tonnage factor per
cubic meter. Furthermore, the contract expressly stated the
amount to be 24,000 tons more or less​.’​ ’ ​(Gaite vs. Fonacier, 2
SCRA 830 [1961].)
Right of owner to fix his own price.
(1) The owner of a thing has the right to quote his own
price, reasonable or unreasonable. It is up to the prospective
buyer to accept or reject it. He may even impose a condition
hard to fulfill and name a price quite out of proportion to the
real value of the thing offered for sale. (Cornejo vs. Calupitan,
87 Phil. 555 [1950].)
(2) He is also well within his right to quote a small or nomi
nal consideration (see Arts. 1470-1471.) and such consideration
is just as effectual and valuable a consideration as a larger sum
stipu lated or paid. (see Pelacio vs. Adiosola, [C.A.] No. 7572-R,
Sept. 10, 1952.)
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.
76 SALES
Art. 1476
(2) A sale by auction is perfected when the auc
tioneer announces its perfection by the fall of the
ham mer, or in other customary manner. Until such
an nouncement 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.
(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
him self 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)
Rules governing auction sales.
(1) ​Sales of separate lots by auction are separate sales. — W
​ here
separate lots are the subject of separate biddings and are sepa
rately knocked down, there is a separate contract in regard to
each lot. As soon as the hammer falls on the first lot, the
purchaser of that lot has a complete and separate bargain. He
need not make another. When a second lot is put up and
knocked down to the highest bidder, there is a separate
complete contract as to the said lot whether the bidder who
secured the first lot or whether an other person happens to be
the highest bidder. Such is the rule in No. (1) though no doubt
the parties may subsequently consoli date all the purchases into
one transaction — as by giving a sin gle note — for the
aggregate price. (see 2 Williston on Sales [1948 Rev. Ed.], pp.
199-200.)
(2) ​Sale perfected by the fall of the hammer. — I​ n putting up the
goods for sale, the seller is merely making an invitation to those
present to make offers which they do by making bids (Art.
1326.), one of which is ultimately accepted. Each bid is an offer
and the
Art. 1476 NATURE AND FORM OF THE CONTRACT77
contract is perfected only by the fall of the hammer or in other
customary manner. It follows that the bidder may retract his bid
and the auctioneer may withdraw the goods from sale any time
before the hammer falls. However, if the sale has been
announced to be without reserve, the auctioneer cannot
withdraw the goods from sale once a bid has been made and
the highest bidder has a right to enforce his bid. (see 2 Williston,
op. cit​., pp. 200-201, 204- 205.)
(3) ​Right of seller to bid in the auction. —
​ The seller or his
agent may bid in an auction sale provided: (a) such right was
reserved; (b) notice was given that the sale is subject to a right
to bid on behalf of the seller; and (c) the right to bid by the seller
is not pro hibited by law or by stipulation.​16
(a) ​Where no notice given of right to bid. — W
​ here there is
no notice that the sale is subject to seller’s right to bid, it
shall be unlawful for the seller to bid either directly or
indirectly or for the auctioneer to employ or induce any
person to bid on be half of the seller. (No. 4.) The purpose of
the notice is to pre vent ​puffing o
​ r secret bidding by or on
behalf of the seller by people who are not themselves
bound. The employment of a puffer or by bidder to enhance
or inflate the price of the goods sold is a fraud upon the
purchaser and a sufficient ground for relieving him from his
bid and avoiding the sale. (see Fisher vs. Hersey, 17 Hun.
[N.Y.] 370.) This is true although the em ployment of the
puffer by the auctioneer was without the owner’s
knowledge, since the auctioneer is the owner’s agent.
(b) ​Where notice of right to bid given. — ​Though bidding
by the seller or his agent is fraudulent, a right to bid may be
ex pressly reserved by or on behalf of the seller. (No. 3.) It is,
therefore, the secrecy of puffing which renders it a fraud
upon bidding. (2 Williston, ​op. cit., p
​ . 208.) Where there is
notice of the intention to bid by the seller, the bidding in
such a case would not operate as a fraud.
16​
Art. 2113. At the public auction, the pledgor or owner may bid. He shall, moreo
ver, have a better right if he should offer the same terms as the highest bidder. The
pledgee may also bid, but his offer shall not be valid if he is the only bidder. Art. 2114.
All bids at the public auction shall offer to pay the purchase price at once. If any other
bid is accepted, the pledgee is deemed to have received the purchase price, as far as the
pledgor or owner is concerned.
78 SALES
Arts. 1477-1478
(4) ​Contract not to bid. —
​ A sale may be fraudulent not only
because of conduct of the seller, but because of conduct of the
buyer. It is not permissible for intending buyers at auction or
other competitive sales to make an agreement for a
consideration that only one of them shall bid, in order that the
property may be knocked down at a low price. The bargain is
fraudulent as regards the seller though the agreement is
without consideration, if it is actually carried out, for the fraud
against the seller is the same as if there were considerations.
(​Ibid.​, pp. 209-219.)
(5) ​Advertisements for bidders. — ​They are simply invitations
to make proposals, and the advertiser is not bound to accept the
highest or lowest bidder, unless the contrary appears. (Art.
1326.)
Right of owner to prescribe terms
of public auction.
The owner of property which is offered for sale, either at
public or private auction, has the right to prescribe the manner,
condi tions, and terms of such sale. He may provide that all of
the pur chase price or any portion thereof should be paid at the
time of the sale, or that time will be given for that payment, or
that any or all bids may be rejected.
The conditions of a public sale announced by an auctioneer
or by the owner of the property at the time and place of the sale
are binding upon all bidders, whether they knew of such condi
tions or not. (Leoquinco vs. Postal Savings Bank, 47 Phil. 772
[1925].)
ART. 1477. The ownership of the thing sold shall
be transferred to the vendee upon the actual or con
structive delivery thereof. (n)
ART. 1478. The parties may stipulate that owner
ship in the thing shall not pass to the purchaser
until he has fully paid the price. (n)
Ownership of thing transferred
by delivery.
The delivery of the thing sold is essential in a contract of
sale. Without it, the purchaser may not enjoy the thing sold to
him. It
Arts. 1477-1478 NATURE AND FORM OF THE CONTRACT79
is only after the delivery of the thing sold that the purchaser ac
quires a real right or ownership over it. (Arts. 1164, 1496-1497.)
In the absence of stipulation to the contrary, the ownership
of the thing sold passes on to the vendee upon delivery thereof.
(see Froilan vs. Pan Oriental Shipping Co., 12 SCRA 276 [1964];
Boy vs. Court of Appeals, 427 SCRA 196 [2004].) This is true
even if the purchase has been made on credit. Payment of the
purchase price is not essential to the transfer of ownership, as
long as the prop erty sold has been delivered. (Sampaguita
Pictures, Inc. vs. Jalwindor Manufacturers, Inc., 93 SCRA 420
[1979].) Non-payment only creates a right to demand payment
or to rescind the contract, or to criminal prosecution in the case
of bouncing checks. (EDCA Publishing and Distributing Corp.
vs. Santos, 184 SCRA 614 [1990].)
The delivery may be actual (Art. 1497.) or constructive.
(Arts. 1498-1501.) The contract is consummated by the delivery
of the thing sold and of the purchase money.
In all forms of delivery, it is necessary that the act of
delivery, whether actual or constructive, should be coupled
with the inten tion of delivering the thing sold. The act without
the intention is insufficient; there is no tradition. (Union Motor
Corporation vs. Court of Appeals, 151 SCAD 714, 361 SCRA 506
[2001].) It has been held that the issuance of a sales invoice does
not prove transfer of ownership of the thing sold to the buyer,
an invoice being noth ing more than a detailed statement of the
nature, quantity, and cost of the thing sold, and considered not
a bill of sale. (​Ibid.​ , cit ing P.T. Cerna Corporation vs. Court of
Appeals, 221 SCRA 19 [1993]; Norkis Distributor’s, Inc. vs.
Court of Appeals, 93 SCRA 694 [1991].)
Exceptions to the rule.
(1) ​Contrary stipulation.​ — The ownership of things is trans
ferred by delivery, and not by mere payment. However, the par
ties may stipulate that despite the delivery, the ownership of
the thing shall remain with the seller until the purchaser has
fully paid the price. (see Art. 1503.) In other words,
non-payment of the price, after the thing has been delivered,
prevents the transfer of own ership only if such is the
stipulation of the parties. This stipula
80 SALES
Arts. 1477-1478
tion is usually known as ​pactum reservati dominii o
​ r contractual
reservation of title, and is common in sales on the installment
plan. (Jovellanos vs. Court of Appeals, 210 SCRA 126 [1992].) A
con tract which contains this kind of stipulation is considered a
con tract to sell. The agreement may be implied. (Adelfa
Properties, Inc. vs. Court of Appeals, 58 SCAD 462, 240 SCRA
565 [1995].)
(a) Where in a contract of sale the seller agreed that the
ownership of the goods shall remain with the seller until the
purchase price shall have been fully paid, merely to secure
the performance by the buyer of his obligation, such
stipulation cannot make the seller liable in case of loss of the
goods. (see Lawyers Cooperative Publishing Co. vs. Tabora,
13 SCRA 762 [1965]; see Art. 1503, par. 2.)
(b) If there is doubt by the wording of the contract
whether the parties intended a suspensive condition (Art.
1478.) or a suspensive period (Art. 1193, par. 1.) for the
payment of the stipulated price, the doubt shall be resolved
in favor of the greatest reciprocity of interests. (see Art.
1378.) There can be no question that greater reciprocity will
be obtained if the buyer’s obligation is deemed to be
actually existing, with only its maturity (due date)
postponed or deferred. Sale is essen tially onerous. (Gaite
vs. Fonacier, 2 SCRA 830 [1961].)
(c) A stipulation that ownership in the thing sold shall
not pass to the purchaser until after he has fully paid the
price thereof could only be binding upon the contracting
parties, their assigns, and heirs (see Art. 1311, par. 1.) but
not upon third persons without notice. Such a stipulation is
only a kind of security for the benefit of the vendor who has
not been fully paid.
(2) ​Contract to sell. —
​ In contracts to sell, where ownership is
retained by the seller and is not to pass until the full payment of
the price, such payment is a positive ​suspensive ​condition, the
fail ure of which is ​not a breach, c​ asual or serious, but simply an
event that prevents the obligation of the vendor to convey title
from acquiring binding force. To say that there is only a casual
breach is to proceed from the assumption that the contract is
one of ab solute sale, where non-payment is a resolutory
condition, which is not the case. (Luzon Brokerage Co., Inc. vs.
Maritime Bldg., Co.