SALES midterm reviewer art 1458-1502

7/27/2019 SALES midterm reviewer art 1458-1502

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Justine Dawn G. Santos/Juris Doctor/College of Law/Bulacan State University Law on Sales

SALES

ART 1458. By the contract of sale one of

the contracting parties obligates himselfto transfer the ownership of and todeliver a determinate thing, and the otherto pay therefor a price certain in moneyor its equivalent.A contract of sale may be absolute orconditional.

Characteristics of the Contracts of Sale1. Consensual perfected by mere

consentBuenaventura vs CA

A contract of Sale is not real, but a consensualcontract. As a consensual contract, a contract of salebecomes binding and valid contract upon the meetingof the minds of the parties as to price. If there is ameeting of the minds of the parties as the price, thecontract of sale is valid, despite the manner ofpayment or even the breach of that manner ofpayment. If the real price is not stated in the contract,the contract should be reformed. If there is nomeeting of the minds of the parties as to price,because the price stipulated in the contract issimulated, then the contract is void.

2. Bilateral reciprocal both parties arebound by obligations dependent upon

each other3. Onerous to acquire the rights,valuable consideration must be given

4. Commutative as a rule, because thevalues exchanged are almost equivalentto each other [by way of exception, somecontracts of sale are aleatory, what one receivesmay in time be grater or smaller than what he hasgiven]

Gaite vs FonacierA contract of sale is normally commutative andonerous; not does each one of the parties assume acorrelative obligation (the seller to deliver and transferthe ownership of the thing sold and the buyer to pay

the price), but each party participates performance bythe other is doubt whether it is subject to asuspensive condition or a suspensive period, thescales favor of the greatest reciprocity of interests,since sale is essentially onerous. That greaterreciprocity obtains if the buyers obligation is deemedto be actually existing, with only its maturity ordemandability suspended.5. Principal the contract of validly exists,

there is no necessity for it to dependupon the existence of another validcontract.

6. Nominate the Code refers to it by aspecial designation, that is, the contractof sale.

Requisites of Contract of Sale(ELEMENTS)(a) Essential elements without which

there can be no valid sale:

1. CONSENT or MEETING OF THEMINDS consent to transferownership in exchange for the price.

2. DETERMINATE SUBJECTMATTER generally, there is nosale of generic things; moreover, ifthe parties differ as to the object,there can be no meeting of theminds

3. PRICE CERTAIN IN MONEY ORITS EQUIVALENT this is thecause or the consideration

(b) Natural Elements those which areinherent in the contract, and which in theabsence of any contrary provision, aredeemed to exists in the contract

1. Warranty against eviction2. Warranty against hidden defects

(c) Accidental elements may be presentor absent in the stipulation, such as theplace or time of payment, or thepresence of conditions

Kinds of Sale(a) As to the nature of the subject

matter:1. Sale of real property2. Sale of personal property

(b) As to the value of the thingexchanged:

1. Commutative Sale2. Aleatory Sale

(c) As to whether the object is tangibleor intangible

1. Sale of property (tangible orcorporeal)

2. Sale of a right (assignment of aright or a credit, or some otherintangibles such as a copyright,a trademark, or goodwill)


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If the object is tangible, it iscalled chose in possession; ifthe object is intangible, as thecase of a right, it is chose is

action(d) As to the validity or defect of the

transaction:1. Valid sale2. Rescissible sale3. Voidable sale4. Unenforceable sale5. Void sale

(e) As to the legality of the object:1. Sale of a licit object2. Sale of an illicit object

(f) as to the presence or absence ofconditions:

1. absolute sale [no condition]2. conditional sale [ex; pacto de

retro a right to repurchase orredeem; when there is asuspensive condition]

(g) as to whether wholesale or retail1. wholesale, if to be resold for a

profit the goods being unalteredwhen resold, the quantity beinglarge.

2. Retail

(h) As to the proximate inducement forthe sale:

1. Sale by description2. Sale by sample3. Sale by description and sample

(art 1481)

(i) As to when the price is tendered:1. Cash sale2. Sale on the installment plan

Contract of Sale vs Contract to SellOf Sale To Sell

1. Title passes to the buyer

upon delivery

2. Non-payment is anegative resolutorycondition REMEDY: Art1191 (either rescissionwith damages or specificperformance withdamages)

3. Vendor has lost andcannot recover ownershipof the thing sold anddelivered, actually orconstructively unless it isRescinded

1. Ownership shall not pass

until the full payment ofthe purchase price

2. Full payment is a positivesuspensive condition, thefailure of which is not abreach, casual orserious, of the contractbut simply an event thatprevents the obligation ofthe vendor to convey titlefrom acquiring bindingforce. [where the sellerpromises to execute adeed of absolute saleupon full payment of thepurchase price

CONTRACT TO SELL]

3. Title remains in thevendor if the vendeedoes not comply with thecondition precedent ofmaking payment at timespecified in the contract.

Conditional Contract of Sale vs Contractto SellConditional Contract

of SaleContract to Sell

1. The seller may likewisereserve title to theproperty subject of the

sale until the fulfillment ofthe suspensive condition,because in a conditionalcontract of sale, the firstelement of consent ispresent, although it isconditioned upon thehappening of contingentevent which may or maynot occur. If thesuspensive condition isnot fulfilled the perfectionof the contract of sale iscompletely abated.However if the suspensivecondition is fulfilled, thecontract is perfected.

2. Upon the fulfillment of thesuspensive condition, thesale becomes absoluteand this will definitelyaffect the sellers titlethereto. If there had beenprevious delivery of thesubject property, the titleis automaticallytransferred to the buyer.Subsequent buyer cannotdefeat the first buyers titleeven the former took inpossession of theproperty first

1. Upon the fulfillment ofthe suspensive conditionwhich is the full payment

of the purchase price,ownership will notautomatically transfer tothe buyer although theproperty may have beenpreviously delivered tohim.

2. There being no previoussale of the property, athird person buying suchproperty despite thefulfillment of thesuspensive conditionsuch as full payment ofthe purchase price,cannot be deemed abuyer in bad faith.


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Coronel vs CAIn a conditional contract of sale, when the conditionhappened, its effects retroacted to the date of theconstitution of the obligation. The sale is deemed to

have been absolute on the date the contract wasentered into. Seller cannot claim that even if thecondition happened, there was still need for him tomake good on his promise to transfer ownershipbecause the contract was one of sale and not to sell.

The difference between a contract to sell andcontract of sale is that in the former ownership isexpressly reserved by the seller until the happening ofthe condition upon which, he must make good on hispromise to go on with the sale.

In a contract of sale, upon the happening ofthe condition, the sale becomes absolute and theseller can be compelled to execute the relevantdocuments. In this case, the seller has no more title to

sell the thing to another buyer. In fact, if there hasbeen previously delivery ownership is deemedautomatically vested in the buyer.

Art. 1459. The thing must be licit and thevendor must have a right to transfer theownership thereof at the time it is

delivered.

Requisites concerning object1. Things- aside from being (a)determinate [Art 1458, 1460], the law requiresthat the subject matter be (b) licit or lawful,subject to the following articles:

Art. 1347. All things which are not outside thecommerce of men, including future things, maybe the object of a contract. All rights which arenot intransmissible may also be the object ofcontracts.No contract may be entered into upon futureinheritance except in cases expressly authorizedby law.All services which are not contrary to law, morals,good customs, public order or public policy maylikewise be the object of a contract.

Art. 1348. Impossible things or services cannotbe the object of contracts.

Art. 1409. The following contracts are inexistentand void from the beginning:(1) Those whose cause, object or purpose iscontrary to law, morals, good customs, publicorder or public policy;(2) Those which are absolutely simulated orfictitious;(3) Those whose cause or object did not exist atthe time of the transaction;

(4) Those whose object is outside the commerceof men;(5) Those which contemplate an impossibleservice;(6) Those where the intention of the partiesrelative to the principal object of the contractcannot be ascertained;(7) Those expressly prohibited or declared voidby law.These contracts cannot be ratified. Neither canthe right to set up the defense of illegality bewaived.

2. Rights All rights are notintransimissible or personal may also be thesubject of sale ex, usufruct, right of conventionalredemption, credit

Kinds of Illicit Things(a) Illicit per se (of its nature) ex. Decayed

food unfit for consumption(b) Illicit per accidens ex. Lottery tickets (art

195 RPC), sale of land to an alien(Constitution) [there is a law which makesthe object illicit]


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Frenzel vs CaritoA contract that violates the Constitution and the law,is null and void and vests no rights and creates noobligations. It produces no legal effect at all. Thepetitioner, being a party to an illegal contract, cannotcome into a court of law and ask to have his illegalobjective carried out. One who loses his money orproperty by knowingly engaging in a contract ortransaction which involves his own moral turpitudemay not maintain an action for his losses. To him whomoves in deliberation and premeditation, the law isunyielding. The law will not aid either party to anillegal contract or agreement; it leaves the partieswhere it finds them.

Under Article 1412 of the New Civil Code, thepetitioner cannot have the subject properties deeded

to him or allow him to recover the money he hadspent for the purchase thereof. Equity as a rule willfollow the law and will not permit that to be doneindirectly which, because of public policy, cannot bedone directly. Where the wrong of one party equalsthat of the other, the defendant is in the strongerposition ... it signifies that in such a situation, neither acourt of equity nor a court of law will administer aremedy. The rule is expressed in the maxims: EXDOLO MALO NON ORITUR ACTIO and IN PARIDELICTO POTIOR EST CONDITIO DEFENDENTIS.

Right to Transfer ownership1. Seller must be owner or authorized by

owner of thing sold. it is essential in order fora sale to be valid that the vendor must be ableto transfer ownership or atleast be authorizedto do so. This rule is accord with the principlethat one can not transmit or dispose of thatwhich he does not have - NEMO DAT QUODNON-HABET. [ex sale of paraphernal(separate) property of the deceased wife by thehusband who was neither an owner noradministrator of the property at the time of saleis void ab initio]

2. Right must exists at time of delivery it

is not required that the vendor must have theright to transfer ownership of the property soldat the time of the perfection of the contract.

3. Where property sold in violation of rightof first refusal of another person Rescissible.A right of first refusal is neither amorphous normerely preparatory and can be executedaccording to its terms. In contracts of sale, thebasis of the right of first refusal must be thecurrent offer of the seller to sell or the offer topurchase of the prospective buyer. Only afterthe grantee fails to exercise his right under the

same terms within the period contemplated canthe owner validly offer to sell the property to athird person, again under the same terms as

offered to the grantee.Equitorial Realty Development Inc vs Mayfair IncIt was a Right of first refusal. An option clause or anoption contract to be valid needs a determined orcertain price. An accepted unilateral promise whichspecifies the thing to be sold and the price to be paidwhen coupled with a valuable consideration distinctand separate from the price is what may properly betermed as a perfected contract of option. An option isa contract granting a privilege to buy or sell within anagreed time and at a determined price. It is aseparate and distinct contract from that which theparties may enter into upon the consummation of theoption. It must be supported by consideration.

A separate consideration is not needed in a right offirst refusal. In this case, the right of first refusal is anintegral part of the lease contractthe considerationfor the lease includes the consideration for the right offirst refusal. Thus, Mayfairs consent to the lease andto pay the price agreed upon, is consideration of thelessors promise that it will give Mayfair the right tomatch the offered price and to buy the property at thatprice, in case it desires to sell the same.


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Art. 1460. A thing is determinate when itis particularly designated or physicalsegregated from all other of the same

class.The requisite that a thing be determinateis satisfied if at the time the contract isentered into, the thing is capable ofbeing made determinate without thenecessity of a new or further agreementbetween the parties.

Meaning of Determinate-The object of the sale must be determinate, that

is specific, but it is not essential really that atthe time of perfection, the object be already

specific. It is sufficient that it be capable ofbeing determinate without need of any newagreement.

Art. 1349. The object of every contract must bedeterminate as to its kind. The fact that thequantity is not determinate shall not be anobstacle to the existence of the contract,provided it is possible to determine the same,without the need of a new contract between theparties.

YU TEK & CO. V GONZALES

Facts:A) Gonzales obliged himself, via a contract, to sell600 piculs of 1st and 2nd class sugar to Yu Tek.

Gonzales received payment, in the amount of P3T.Gonzales did not fulfill his obligation to deliver sugar.Yu Tek then sues. Gonzales claims force majeure,since he was not able to produce any sugar at thisplantation.

Issue:W/N Gonzales is liable on his obligation.Held:Gonzales is liable. No specific lot of sugar segregatedor designated to make subject matter specific,therefore generic. There was no stipulation that thesugar was to be obtained exclusively from the crop.Since it was generic, there is no risk of it being lost.Contract was NOT A PERFECTED SALE, but aPROMISE TO SELL. A contract of sale is not perfecteduntil the parties have agreed upon the price and thething sold. A contract whereby a party obligateshimself to sell for a price certain specified quantity ofsugar of a given quality, without designating anyparticular lot of sugar, is not perfected until thequantity agreed upon has been selected and iscapable of being physically designated anddistinguished from all other sugar.

NATIONAL GRAINS AUTHORITY VS. IAC

Facts: National Grains Authority (later National FoodAuthority) is a government agency which buys palaygrains from qualified farmer. Leon Soriano offered tosell palay grains to the agency. After undergoing theregular application process, he was given a quota

(maximum) of 2,640 cavans of palay. On August 23and 24, 1979, Soriano delivered 630 cavans whichwere not bagged, classified and weighed. WhenSoriano demanded payment for the delivered palay,

he was informed by the Provincial Manager WilliamCabal that his payment was held in abeyancebecause there was an investigation concerning himbecause of allegations that he is not a bona fidefarmer and gets the palay from another person.Soriano filed case for specific performance. RTCfavored him and was affirmed by the IAC. Hence,this petition with National Grains Authority arguingthat there was no sale but only an offer by Sorianobecause it was not accepted by the agency asevidenced of not rebagging, classifying and weighingit.

Issue: W/N there was a sale?Held: Article 1458 of the Civil Code of the Philippinesdefines sale as a contract whereby one of the

contracting parties obligates himself to transfer theownership of and to deliver a determinate thing, andthe other party to pay therefore a price certain inmoney or its equivalent. A contract, on the otherhand, is a meeting of minds between two (2)persons whereby one binds himself, with respect tothe other, to give something or to render someservice (Art. 1305, Civil Code of the Philippines). Theessential requisites of contracts are: (1) consent ofthe contracting parties, (2) object certain which isthe subject matter of the contract, and (3) cause ofthe obligation which is established (Art. 1318, CivilCode of the Philippines.In the case at bar, Soriano initially offered to sellpalay grains produced in his farmland to NFA. When

the latter accepted the offer by noting in Soriano'sFarmer's Information Sheet a quota of 2,640 cavans,there was already a meeting of the minds betweenthe parties. The object of the contract, being thepalay grains produced in Soriano's farmland and theNFA was to pay the same depending upon its quality.The fact that the exact number of cavans of palay tobe delivered has not been determined does not affectthe perfection of the contract. Article 1349 of theNewCivil Code provides: ". . .. The fact that the quantityis not determinate shall not be an obstacle to theexistence of thecontract, provided it is possible todetermine the same, without the need of a newcontract between the parties." Inthis case, there wasno need for NFA and Soriano to enter into a new

contract to determine the exact number of cavans ofpalay to be sold. Soriano can deliver so much of hisproduce as long as it does not exceed 2,640 cavans.


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Art. 1461. Things having a potentialexistence may be the object of thecontract of sale.

The efficacy of the sale of a mere hopeor expectancy is deemed subject to thecondition that the thing will come intoexistence.

The sale of a vain hope or expectancy isvoid.

Even a future thins not existing at the time thecontract is entered into may be the object of saleprovided it has potential or possible existence,

that is, it is reasonably certain to come intoexistence as the natural increment or usualincident of something in existence alreadybelonging to the seller, and the title will vest inthe buyer the moment the thing comes intoexistence.

Emptio Rei SperatiSale of a thing not yet in existence subject of thecondition that the thing will exist and one failureof the condition, the contract becomesineffective and hence, the buyer has noobligation to pay the price.The future thing is certain as to itself butuncertain as to its quantity and quality.

Emptio SpeiThe sale of the hope itself that the thing willcome into existence, where it is agreed that thebuyer will pay the price even if the thing doesnot eventually exist.It is not certain that the thing itself will exist,much less its quantity and quality.

Pichel vs AlonzoOn August 14, 1968, plaintiff and his wife sold todefendant Luis Pichel all the fruits of the coconut

trees which may be harvested in the land in questionfor the period, September 15, 1968 to January 1,1976, in consideration of P4,200.00. Even as of thedate of sale, however, the land was still under leaseto one, Ramon Sua, and it was the agreement thatpart of the consideration of the sale, in the sum ofP3,650.00, was to be paid by defendant directly toRamon Sua so as to release the land from theclutches of the latter. Pending said payment plaintiffrefused to allow the defendant to make any harvest.In July 1972, defendant for the first time since theexecution of the deed of sale in his favor, caused theharvest of the fruit of the coconut trees in the land.

Held: The document in question expresses a validcontract of sale as it has the essential elements of acontract of sale as defined under Article 1458 of theNew Civil Code. Article1458 provides that by the

contract of sale one of the contracting partiesobligates himself to transfer the ownership of and todeliver a determinate thing, and the other to paytherefore a price certain in money or its equivalent,and that a contract of sale maybe absolute orconditional. The subject matter of the contract of saleare the fruits of the coconut trees on the land duringthe years from 15 September 1968 up to 1January1976, which subject matter is a determinatething.Things having potential existence may be the objectof the contract of saleUnder Article 1461 of the New Civil Code, thingshaving a potential existence may be the object of the

contract of sale. A valid sale may be made of a thing,which though not yet actually in existence, isreasonably certain to come into existence as thenatural increment or usual incident of somethingalready in existence, and then belonging to thevendor, and the title will vest in the buyer the momentthe thing comes into existence. A man may sellproperty of which he is potentially and not actuallypossessed.


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Art. 1462. The goods which form thesubject of a contract of sale may beeither existing goods, owned or

possessed by the seller, or goods to bemanufactured, raised, or acquired by theseller after the perfection of the contractof sale, in this Title called "futuregoods."

There may be a contract of sale ofgoods, whose acquisition by the sellerdepends upon a contingency which mayor may not happen.

Paragraph 1 of Art 1462 does not apply if the

goods are to be manufactured especially for thebuyer and not readily saleable to others in themanufacturers regular course of business.It contemplates a contract of sale of specificgoods where one of the contracting parties bindshimself to transfer the ownership of and deliver adeterminate thing and the other to pay therefor aprice certain in money or its equivalent. The saidarticle requires that there be delivery of goods,actual or constructive, to be applicable.

Example of contingency: I can sell you now aspecific car which my father promised to give

me, would I pass the bar next year.

Art. 1463. The sole owner of a thing maysell an undivided interest therein.

Art. 493. Each co-owner shall have the fullownership of his part and of the fruits andbenefits pertaining thereto, and he may thereforealienate, assign or mortgage it, and evensubstitute another person in its enjoyment,except when personal rights are involved. But theeffect of the alienation or the mortgage, withrespect to the co-owners, shall be limited to theportion which may be alloted to him in thedivision upon the termination of the co-ownership.


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Art. 1464. In the case of fungible goods,there may be a sale of an undividedshare of a specific mass, though the

seller purports to sell and the buyer tobuy a definite number, weight ormeasure of the goods in the mass, andthough the number, weight or measureof the goods in the mass isundetermined. By such a sale the buyerbecomes owner in common of such ashare of the mass as the number, weightor measure bought bears to the number,weight or measure of the mass. If themass contains less than the number,weight or measure bought, the buyer

becomes the owner of the whole massand the seller is bound to make good thedeficiency from goods of the same kindand quality, unless a contrary intentappears.

Sale of an Undivided share of a specificmass1. Effect of sale- the owner of a mass ofgoods may sell only his undivided share thereof,provided the mass is specific or capable of beingdeterminate.

a. By such sale, the buyer becomes a co-owner with the seller of the whole massin the proportion in which the definiteshare brought bears to the mass.

b. It must follow that the aliquot share ofeach owner can be determined only bythe measurement of the entire mass. Iflater on it be discovered that the massof fungible goods contains less thanwhat was sold, the buyer becomes theowner.

c. The whole mass and furthermore, theseller shall supply whatever is lackingfrom goods of the same kind and

quality subject to any stipulation to thecontrary.

2. Risk of loss if the buyer becomes aco-owner, with the seller, or other owners of theremainder of the mass, it follows that the wholemass is at risk of all the parties interested in it, inproportion to their various holdings.3. Subject matter Incorporeal right4. Article 1464 applicable to non-fungible although Art 1464 speaks of fungible goods, itmay also apply to goods not strictly fungible innature.

Art. 1465. Things subject to a resolutorycondition may be the object of thecontract of sale.

Resolutory condition- an uncertain event uponthe happening of which the obligation subject toit is extinguished

Art. 1179. Every obligation whose performancedoes not depend upon a future or uncertain event,or upon a past event unknown to the parties, isdemandable at once.Every obligation which contains a resolutorycondition shall also be demandable, withoutprejudice to the effects of the happening of theevent.

Art. 1181. In conditional obligations, the

acquisition of rights, as well as the extinguishmentor loss of those already acquired, shall dependupon the happening of the event which constitutesthe condition.


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Art. 1466. In construing a contractcontaining provisions characteristic ofboth the contract of sale and of the

contract of agency to sell, the essentialclauses of the whole instrument shall beconsidered.

In constructing the words used in the contract, itmust be construed in its obligatory form, unlessother technical terms are used.

Sale vs Agency to sellSale Agency To Sell

1. The buyer receives thegoods as owner

2. Buyer has to pay the price

3. The buyer as a generalrule, cannot return theobject sold

4. The seller warrants thething sold

5. The buyer can deal withthe thing sold as hepleases being the owner

1. The agent receives thegoods of the principal whoretains his ownership overthem and has the right to fixthe price and the terms ofthe sale and receive theproceeds less the agentscommission upon the salesmade.

2. The agent has simply toaccount for the proceeds ofthe sale he may make onthe principals behalf

3. in an agency to sell, theagent can return the objectin case he is unable to sellthe same to a third person

4. the agent makes nowarranty for which heassumes personal liability aslong as he acts within hisauthority and in the name ofthe seller

5. the agent dealing with thething received, must act andis bound according to theinstructions of his principal.

10 PUYAT V ARCO AMUSEMENTFacts: Teatro Arco was engaged in the business ofoperating cinematographs. It later changed its name to ArcoAmusement Co. Puyat is the exclusive agents in the

Philippines for the Starr Piano Co. of Richmond, Indiana,USA. Arco wanted to equip its cinematograph with soundreproducing devices, so it approached Puyat. They agreedthat Arco will pay Puyat the amount of the equipment, plus10% commission and all other expenses. The price was$1700 and this was duly paid by Arco plus the commission. Later on another sale was made between the two foranother set of equipment for the price of $1600. 3 yearslater, in connection with a civil case that the Puyats werefacing, Arco learned that the equipment they purchased fromPuyat were overpriced. They sought for reimbursement butfailed, and so the case of Arco vs. Puyat TC: contract between Arco and Puyat was one of outrightpurchase and sale. Appelate Court: the relation betweenthem was that of agent and principal, Puyat was sentenced

to pay the alleged overpayments in the sum of $1335.52plus legal interest. Even if it was one of purchase and sale,Puyat is guilty of fraud in concealing the true priceIssue:

W/N the contract between the parties was one of purchaseand sale and not one of agencyHeld: Yes, it is one of purchase and sale because:o The contract is the law between the parties. Arco hasaccepted the price for the equipment.o The 10% commission that Puyat was to receive does notnecessarily make the petitioner an agent as this provision isonly an additional price which the respondent bound itself topay.o Puyat could not be an agent of Arco because it is knownthat Puyat is the agent of Starr Piano in the Philippines.

KER & CO V LINGADFACTS:Petitioner Ker would have us revers a decision of the CTA,holding it liable as a commercial broker uhder sec 194(t) of

the NIRC. It was shown that pettioner was assessed by thenCommissioner of Internal Revenue tax as the commercialbroker's percentage tax, surhcarge and compromise penalty.There was request on the part of petitioner for thecancellation of such assessment, which request was tunreddown.Such liability arose from a contract of petitioner with theUnited States Rubber Intl. US Rubber shall from time to timeconsign to the petitioner products under the terms of thisagreement in suh quantities as in the judgement of USRubber. All goods on consignment shall remain the propertyof US Rubber utntil sold Ker.In the contract it was stipulated that the agreement does notconstitute Ker the agent or legal representative of USRubber for any purpose whatsoever.

ISSUE:Whether the relatioship thus created is one of vendor andvendee or of broker and principal...

HELD:Though there was a denial in the agreement that thepetitioner is in no way an agent nor legal representative ofUS Rubber, the SC holds that the relationship is one ofagency. That the petititoner is by contractual stipulation anagent of US Rubber is borne out by the facts that petititonercan dispose of the products of US Rubber only to certainpersons or entities and within stipulated limits, unlessexcepted by the contract or by US Rubber and that upontermination of the Agreement, all the goods held onconsignment shall be held by petititoner for the account ofthe rubber company.If the transfer of title puts the transferee in the altitude or

position of an owner and makes him liable to the trnasferoras a debtor for the agreed price, and not merely as an agentwho must account for the prodeeds of the resale, thetransaction is a sale; while the essence of an agency to sellis the delivery to an agent, not as his property, but as theproperty of the principal who remains the owner.


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Art. 1467. A contract for the delivery at acertain price of an article which thevendor in the ordinary course of his

business manufactures or procures forthe general market, whether the same ison hand at the time or not, is a contractof sale, but if the goods are to bemanufactured specially for the customerand upon his special order, and not forthe general market, it is a contract for apiece of work.

Sale Distinguished from Contract for apiece of work

Art. 1713. By the contract for a piece of

work the contractor binds himself toexecute a piece of work for the employer,in consideration of a certain price orcompensation. The contractor may eitheremploy only his labor or skill, or alsofurnish the material.

Art. 1717. If the contractor bound himselfto furnish the material, he shall suffer theloss if the work should be destroyedbefore its delivery, save when there hasbeen delay in receiving it.

Art. 1718. The contractor who hasundertaken to put only his work or skill,

cannot claim any compensation if the workshould be destroyed before its delivery,unless there has been delay in receiving it,or if the destruction was caused by thepoor quality of the material, provided thisfact was communicated in due time to theowner. If the material is lost through afortuitous event, the contract isextinguished.

CELESTINO CO. & CO. VS. COLLECTOR OF INTERNALREVENUEFacts From 1946 to 1951 Celestino Co. (Oriential Sash Factory)paid 7% tax on gross receipts of its sash, door and windowfactory in accordance with the sec. 186 of the NationalRevenue Code imposing taxes on sales of manufacturedarticles. In 1952, it began to claim liability only to the contractors3% tax under section 191. To support its contention, itpresented duplicate copies of letters sketches of doors andwindows and price quotations supposedly sent by themanager of the factory to customers who allegedly madespecial orders. Celestino & Co. habitually makes sash, windows and doorsas it has represented in its stationery and advertisements tothe public. It also manufactures its products on a made toorder basis. The Court of Tax Appeals held that Celestino & Co. is amanufacturer, as such art. 186 should be applies Celestino & Co. invokes Art. 1467 of NCC: in filling ordersfor windows and doors according to specifications, it did

not sell but merely contracted for particular pieces of work

Issuew/n Celestino & Co. is a contractor (sells it services) or a

manufacturer (sells its products)

Ruling Celestino & Co. does nothing more than sell the goods thatit mass produces or habitually makes. It is not true that Celestino & Co. serves special customersonly or confines its services to them alone. It did notmerely sell its services but also the materials ordinarilymanufactured by it. A factory which habitually makes sash, windows and doorsand sells the goods to the public is a manufacturer. Thefact that the windows and doors are made by it only whencustomers place their orders and according to such formor combination as suit to the fancy of the purchasers doesnot alther the nature of the establishment. The orders by the customers were not shown to be specialthat would require extraordinary service from Celestino &

Co. They were merely orders for work done in the ordinarycourse of the manufacturers business. It then cannot besaid that Celestino & Co. contracts for a piece of work.

CIR VS. ENGINEERING EQUIPMENT AND SUPPLYCOMPANYFacts:- Engineering Equipment and Supply Company(Engineering) is engaged in the design and installation ofcentral type air conditioning systems.- On the complaint of a Juan de la Cruz, CIR investigatedEngineering for tax evasion.- Engineering is assessed Php 740,587 as deficiency taxliabilities. They appealed to the Court of Tax Appeals.- CTA ruled that Engineering is exempt from deficiencymanufacturers sales tax because they are contractors.

They were assessed with Php 174,141 as compensating taxand 25% surcharge.- Both Engineering and CIR appealed to the SC.

Issue:- W/n Engineering is a contractor and thus, exempt frompaying the deficiency manufacturers sales tax.

Held:- Engineering is a contractor. The company did notmanufacture air conditioning units; instead, they importedthem and used them in the systems they were installing. Thesupply of air conditioning units to the companys variouscustomers was specially made for each customer andinstalled in his building upon his special order. Without thecontract with a particular customer, Engineering wont bedelivering air conditioning units. This is in accord with the

test for a contract for a piece of work, which asks whetherthe thing transferred (in this case, aircons) is one not inexistence and which never would have existed but for theorder of the party desiring to acquire it. Engineering is acontractor since it renders service representing the will of hisemployer only as to the result of his work and not as to themeans by which it is accomplished.- Being a contractor, Engineering is only subject to thecontractors tax and not to the advance sales tax. Theyshould only be taxed for the use of imported goods and notthe importation of goods because it has beenproven that the air conditioning units were used for itsconstruction business and were never resold.


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Art. 1468. If the consideration of thecontract consists partly in money, andpartly in another thing, the transaction

shall be characterized by the manifestintention of the parties. If such intentiondoes not clearly appear, it shall beconsidered a barter if the value of thething given as a part of the considerationexceeds the amount of the money or itsequivalent; otherwise, it is a sale.

Art. 1638. By the contract of barter or exchangeone of the parties binds himself to give one thingin consideration of the other's promise to giveanother thing. (1538a)

To determine whether it is a sale or barter:

(a) manifest intention of the partiesArt. 1371. In order to judge the intention of thecontracting parties, their contemporaneous andsubsequent acts shall be principally considered.

(b) if intention cannot be ascertained, lastsentence of article applies.Thing vs money

> = barter< = sale

Sales Distinguished from dation inpayment

Art. 1245. Dation in payment, whereby property isalienated to the creditor in satisfaction of a debt in

money, shall be governed by the law of sales.

(1) In sale, there is no pre-existing credit, whilein dation in payment, there is;(2) In sale, pbligations are created, while indation in payment obligations are extinguished;(3) in Sale, the cause is the price paid, from theviewpoint of the seller, or the thing sold, from theviewpoint of the buyer, while in dation inpayment, the extinguishment of the debt, fromthe viewpoint of the debtor, or the objectacquired in lieu of the credit, from the viewpointof the creditor,

(4) in Sale, there is more freedom in fixing theprice than in dation in payment, and(5) in sale, the buyer has still to pay the price,while in dation in payment, the payment isreceived by the debtor before the contract isperfected.

Art. 1469. In order that the price may beconsidered certain, it shall be sufficientthat it be so with reference to another

thing certain, or that the determinationthereof be left to the judgment of aspecial person or persons.

Should such person or persons beunable or unwilling to fix it, the contractshall be inefficacious, unless the partiessubsequently agree upon the price.If the third person or persons acted inbad faith or by mistake, the courts mayfix the price.

Where such third person or persons areprevented from fixing the price or termsby fault of the seller or the buyer, theparty not in fault may have suchremedies against the party in fault as areallowed the seller or the buyer, as thecase may be.

Price is certain if:(1) the parties have fixed or agreed upon adefinite amount; or(2) it be certain with reference to another thing

certain [Art 1472](3) the determination of the price is left to thejudgment of a specified person or persons andeven before such determination

It is binding upon the parties of the contract,howver, exceptions are: (a) 3rd person acts in bad faith or bymistake (b) 3rd person disregards specific instructions or theprocedure marked out by the parties or the data given him


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Art. 1470. Gross inadequacy of pricedoes not affect a contract of sale, exceptas it may indicate a defect in the

consent, or that the parties reallyintended a donation or some other act orcontract.

Effect of gross inadequacy of price involuntary salesGeneral rule mere inadequacy of the price oralleged hardness of the bargain generally doesnot affect its validityException (a) there is defect in the consent

Art. 1355. Except in cases specified by law, lesionor inadequacy of cause shall not invalidate acontract, unless there has been fraud, mistake orundue influence.

The contract may be annulled not because ofthe inadequacy of price but because consent isvitiated

(b) Price is so low as to be shocking toconscience

Effect of gross inadequacy of price ininvoluntary salesGeneral rule a judicial or execution sale is onemade by a court with respect to the property of adebtor for the satisfaction of his indebtedness.Does not invalidate contract

Except: shocking to conscience and seller hasgiven right to repurchase

Art. 1471. If the price is simulated, thesale is void, but the act may be shown tohave been in reality a donation, or some

other act or contract.

Art. 1345. Simulation of a contract may be absoluteor relative. The former takes place when the partiesdo not intend to be bound at all; the latter, when theparties conceal their true agreement.

Art. 1346. An absolutely simulated or fictitiouscontract is void. A relative simulation, when it doesnot prejudice a third person and is not intended forany purpose contrary to law, morals, good customs,public order or public policy binds the parties to theirreal agreement.

If the price is simulated as when the vendorreally intended to transfer the thing gratuitously,then the sale is void but the contract shall bevalid as a donation.


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Art. 1472. The price of securities, grain,liquids, and other things shall also beconsidered certain, when the price fixed

is that which the thing sold would haveon a definite day, or in a particularexchange or market, or when an amountis fixed above or below the price on suchday, or in such exchange or market,provided said amount be certain.

The above provision follows the principle inArticle 1469 that a price is considered certain if itcould be determined with reference to anotherthing certain.This article is especially applicable to fungible

things like securities, grain, liquids, etc. the priceof which are subject to fluctuations of themarket.

Art. 1473. The fixing of the price cannever be left to the discretion of one ofthe contracting parties. However, if theprice fixed by one of the parties isaccepted by the other, the sale isperfected.

REASON:The determination of the price cannot be left to

the discretion of one of the contracting parties;otherwise it cannot be said that the otherconsented to a price he did not and could notpreviously know

Art. 1308. The contract must bind bothcontracting parties; its validity or compliancecannot be left to the will of one of them.

To be just, the price must be determinedimpartially by both parties or left to the judgmentof a specified person or persons (1458, 1469)

However, if the other party accepted the pricefixed by the other, the contract is deemed

perfected.(1475)

Art. 1474. Where the price cannot bedetermined in accordance with thepreceding articles, or in any other

manner, the contract is inefficacious.However, if the thing or any part thereofhas been delivered to and appropriatedby the buyer he must pay a reasonableprice therefor. What is a reasonable priceis a question of fact dependent on thecircumstances of each particular case.

Effect of failure to determine price1. Where contract executory if the pricecannot be determined in accordance withArticles 1469 and 1472, or in any other manner,

and the bargain is till executory, the contract iswithout effect. Price certain is an essentialelement of the contract of sale [1458].Consequently, there is no obligation on the partof the vendor to deliver the thing and on the partof the vendee to pay.2. Where delivery has been made if thething or any part thereof has already beendelivered and appropriated by the buyer, thelatter must pay a reasonable price thereof. Thisobligation of the buyer is sometimes contractual(if the agreement omits any reference to price),and sometimes, quasi-contractual (solutionindebiti)

Art. 2142. Certain lawful, voluntary andunilateral acts give rise to the juridical relation ofquasi-contract to the end that no one shall beunjustly enriched or benefited at the expense of

another.

Ex. If a buyer orders a cavan of rice from asrore, nothing being said as to the price, theparties intend and understand that a reasonableprice shall be paid. The obligation here iscontractual. The law merely enforces theintention of the parties.

Article 1474 applies only where the means

contemplated by the parties for fixing the pricehave, for any reason, proved ineffectual. In thiscase, the obligation of the buyer to payreasonable price is an obligation imposed by lawas distinguished from a contractual obligation. Itis based on the fundamental principle that noone should enrich himself at the expense ofanother. In case, however, the parties do notintend to be bound until after the price is settled,the buyer must return any goods alreadyreceived or if unable to do so, must pay theirreasonable value at the time of delivery, and the


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seller must return any portion of the amountreceived.

Concept of reasonable priceThe reasonable price or value goods is generallythe market price at the time and lace fixed by thecontract or by law for the delivery of the goods.

Determination of fair market valueOffers to sell are not competent evidence of thefair market value of a property, because they areno better than offers to buy, which have beenheld to be inadmissible as proof of said values.Market value reasonable sum which propertywould bring on a fair sale by a man willing butnot obliged to sell to a man willing but not oblige

to buy.

Art. 1475. The contract of sale isperfected at the moment there is ameeting of minds upon the thing which

is the object of the contract and upon theprice.

From that moment, the parties mayreciprocally demand performance,subject to the provisions of the lawgoverning the form of contracts.

Perfection of Contract of SaleGENERAL RULE: contracts are perfected bymere consent

Art. 1315. Contracts are perfected by mereconsent, and from that moment the parties arebound not only to the fulfillment of what has beenexpressly stipulated but also to all theconsequences which, according to their nature,may be in keeping with good faith, usage and law.

Art. 1319. Consent is manifested by the meeting ofthe offer and the acceptance upon the thing andthe cause which are to constitute the contract. Theoffer must be certain and the acceptance absolute.A qualified acceptance constitutes a counter-offer.Acceptance made by letter or telegram does notbind the offerer except from the time it came to hisknowledge. The contract, in such a case, ispresumed to have been entered into in the placewhere the offer was made.

1. Conduct of the parties appropriate conductby the parties may be sufficient to establishan agreement. There is no perfected salewhere it is conditional and the condition isnot fulfilled.

2. Transfer of ownership the ownership is nottransferred until the delivery of the thing[1496]. However, the parties may stipulatethat ownership in the thing not pass to thepurchaser until full payment [1478]

3. Form of Contract Art 1483General Rule : 1

stsentence of Art 1356

Art. 1356. Contracts shall be obligatory, in whateverform they may have been entered into, provided all

the essential requisites for their validity are present.However, when the law requires that a contract be insome form in order that it may be valid orenforceable, or that a contract be proved in a certainway, that requirement is absolute and indispensable.In such cases, the right of the parties stated in thefollowing article cannot be exercised.

EXCEPTION: Statute of fraudsArt. 1357. If the law requires a document or otherspecial form, as in the acts and contractsenumerated in the following article, the contractingparties may compel each other to observe thatform, once the contract has been perfected. Thisright may be exercised simultaneously with theaction upon the contract.


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Art. 1358. The following must appear in a publicdocument:

(1) Acts and contracts which have for their

object the creation, transmission, modificationor extinguishment of real rights over immovableproperty; sales of real property or of an interesttherein a governed by Articles 1403, No. 2, and1405;(2) The cession, repudiation or renunciation ofhereditary rights or of those of the conjugalpartnership of gains;(3) The power to administer property, or anyother power which has for its object an actappearing or which should appear in a publicdocument, or should prejudice a third person;(4) The cession of actions or rights proceedingfrom an act appearing in a public document.

All other contracts where the amount involvedexceeds five hundred pesos must appear in

writing, even a private one. But sales of goods,chattels or things in action are governed byArticles, 1403, No. 2 and 1405.

Art. 1403. The following contracts areunenforceable, unless they are ratified:(1) Those entered into in the name of anotherperson by one who has been given no authority orlegal representation, or who has acted beyond hispowers;

(2) Those that do not comply with the Statute ofFrauds as set forth in this number. In the followingcases an agreement hereafter made shall beunenforceable by action, unless the same, orsome note or memorandum, thereof, be in writing,and subscribed by the party charged, or by hisagent; evidence, therefore, of the agreementcannot be received without the writing, or asecondary evidence of its contents:

(a) An agreement that by its terms is not tobe performed within a year from the makingthereof;(b) A special promise to answer for the debt,default, or miscarriage of another;(c) An agreement made in consideration ofmarriage, other than a mutual promise tomarry;(d) An agreement for the sale of goods,chattels or things in action, at a price notless than five hundred pesos, unless thebuyer accept and receive part of such goodsand chattels, or the evidences, or some of

them, of such things in action or pay at thetime some part of the purchase money; butwhen a sale is made by auction and entry ismade by the auctioneer in his sales book, atthe time of the sale, of the amount and kindof property sold, terms of sale, price, namesof the purchasers and person on whoseaccount the sale is made, it is a sufficientmemorandum;(e) An agreement of the leasing for a longerperiod than one year, or for the sale of realproperty or of an interest therein;(f) A representation as to the credit of a thirdperson.

(3) Those where both parties are incapable ofgiving consent to a contract.

Campillo vs PNB

A sale of real estate, whether made as a result of aprivate transaction or of a foreclosure or executionsale, becomes legally effective against third personsonly from the date of its registration

4. Consent Reluctantly Given Acasio vs Corp. de los PP Dominicos de Filipinas

There must, them, be a distinction to be madebetween a case where a person gives his consentreluctantlyand even against his good sense andjudgment, and where he, in reality, gives no consentat all, as where he executes a contract or performs anact against his will under a pressure which he cannotresist. It is clear that one acts as voluntarily and

independently in the eye of the law when heacts reluctantly and with hesitation as when he actsspontaneously and joyously. Legally speaking he actsas voluntarily and freely when he acts wholly againsthis better sense and judgment as when he acts inconformity with them. Between the two acts there isno difference in law.

5. Notarized deed of sale states receipt of price To overcome a public document solemnlyexecuted before a notary public, the evidence tothe contrary must be clear, strong, andconvincing. Parol evidence will not suffice tonegate clear and positive recitals of a public

document not otherwise tainted with fraud orfalsification.

6. Non-fulfillment by one party of his obligation In case one of the contracting parties should notcomply with what is incumbent upon him, theinjured party may demand specific performancewith damages or rescission with damages


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Art. 1476. In the case of a sale byauction:

(1) Where goods are put up forsale by auction in lots, each lot isthe subject of a separate contractof sale.

(2) A sale by auction is perfectedwhen the auctioneer announcesits perfection by the fall of thehammer, or in other customarymanner. Until suchannouncement is made, anybidder may retract his bid; and

the auctioneer may withdraw thegoods from the sale unless theauction has been announced tobe without reserve.

(3) A right to bid may be reservedexpressly by or on behalf of theseller, unless otherwise providedby law or by stipulation.

(4) Where notice has not beengiven that a sale by auction issubject to a right to bid on behalfof the seller, it shall not be lawfulfor the seller to bid himself or toemploy or induce any person tobid at such sale on his behalf orfor the auctioneer, to employ orinduce any person to bid at suchsale on behalf of the seller orknowingly to take any bid fromthe seller or any person employedby him. Any sale contraveningthis rule may be treated as

fraudulent by the buyer.

Art. 1477. The ownership of the thingsold shall be transferred to the vendeeupon the actual or constructive delivery

thereof.

Art. 1478. The parties may stipulate thatownership in the thing shall not pass tothe purchaser until he has fully paid theprice.

GENERAL RULE: The delivery of the thing soldis essential in a contract of sale. Without it, thepurchaser may not enjoy the thing sold to him.[1164,1496-1497]

Art. 1164. The creditor has a right to the fruits of

the thing from the time the obligation to deliver itarises. However, he shall acquire no real rightover it until the same has been delivered to him.

EXCEPTION: 1478, stipulation by the partiesConditional contract of sale - Non-payment ofthe price, after the thing has been delivered,prevents the transfer of ownership only if such isthe stipulation of the parties [pactum reservatidominii or contractual reservation of title}

Contract to Sell payment is a positivesuspensive condition, failure of which is not abreach, casual or serious, but simply an event

that prevents the obligation of the vendor toconvey title from acquiring binding force.

Contract of Insurance a perfect contract ofsale even without delivery vests in the vendeean equitable title, an existing interest over thegoods sufficient to be the subject of insurance.


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Art. 1479. A promise to buy and sell adeterminate thing for a price certain isreciprocally demandable.

An accepted unilateral promise to buy orto sell a determinate thing for a pricecertain is binding upon the promissor ifthe promise is supported by aconsideration distinct from the price.

EffectAcceptedunilateral promiseto sell

Only one of theparties makes thepromise , whereinthe promissor(seller) promisedto sell adeterminate thing.Acceptance of thepromisee (buyer)is binding onlywhen suchpromise issupported by aconsiderationdistinct andseparate from theprice of thedeterminate thingoffered to sell

It is binding to thepromissory ononly if thepromise issupported by aconsiderationdistinct from theprice. If there isno consideration,acceptance of thepromise may bewithdrawn at anytime. (1324)

Acceptedunilateral promiseto buy

One of theparties, promisedto buy a

determinate thing.

Such promise,when accepted isbinding only if the

buyer gives aconsiderationdistinct from theprice of thedeterminate thing.If there is none,acceptance bythe seller may bewithdrawn at anytime (1324)

Bilateral promiseto buy and sell

One partyaccepts theothers promise tobuy and the latter,the formerspromise to sell adeterminate thing

for a price certain.

Perfectedcontract of salesince it isreciprocallydemandable

Art. 1324. When the offerer has allowed theofferee a certain period to accept, the offer maybe withdrawn at any time before acceptance bycommunicating such withdrawal, except whenthe option is founded upon a consideration, assomething paid or promised.

Option privilege existing in one person forwhich he has paid a consideration which giveshim right to buy/sell a determinate thing, if hechooses, at any time within the agreed period ata fixed price, or in compliance with certain termsand conditions.

Carceller vs CAOption: a preparatory contract in w/c one party grantsto the other, for a fixed period and under specifiedconditions,the power to decide, whether or not to enter into aprincipal contract.- It binds the party who has given the option, not toenter into the principal contract with any other personduring the period designated, and, within that period,to enter into such contract w/ the one to whom theoption was granted, if the latter should decide to usethe option.- It is a separate agreement distinct from the contractw/c the parties may enter into upon theconsummation of the option

Consideration in an option contract may beanything of value unlike in sale where it must be

the price certain in money or its equivalent

Sanchez vs Rigosif an option is given without a consideration, it is amere offer of a contract of sale which is not bindinguntil accepted. if however, acceptance is made beforea withdrawal, it constitutes a binding contract of saleeven though the option was not supported by asufficient consideration. the concurrence of the offerand the acceptance generates a contract os sale Provision of the same law must be reconciles. Article1324 - general principles on contract - is modified byArticle 1479 - on sales - which makes the latter theexception to the former. according to statutory

construction, exceptions are not favored unless theintention to the contrary is clear.


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Art. 1480. Any injury to or benefit fromthe thing sold, after the contract hasbeen perfected, from the moment of the

perfection of the contract to the time ofdelivery, shall be governed by Articles1163 to 1165, and 1262.

This rule shall apply to the sale offungible things, made independently andfor a single price, or withoutconsideration of their weight, number, ormeasure.

Should fungible things be sold for aprice fixed according to weight, number,

or measure, the risk shall not be imputedto the vendee until they have beenweighed, counted, or measured anddelivered, unless the latter has incurredin delay.

Risk of loss or deteriorationFour rules may be given regarding risk of loss:

(1) If the thing is lost before perfection, theseller and not the one who intends to purchase itbears the loss in accordance with the principlethat the thing perishes with the owner (res perit

domino)(2) If the thing is lost at the time ofperfection, the contract is void or inexistent[1409(3)]. The contract is ineffective [1493]

Art. 1409. The following contracts are inexistentand void from the beginning:

(3) Those whose cause or object did notexist at the time of the transaction;

(3) If the thing is lost after perfection butbefore its delivery, even before the ownership istransferred to the buyer, the risk of loss is shiftedto the buyer as an exception to the rule of resperit domino [applies to non-fungible things soldindependently and for a single price or for a pricefixed without consideration of their weight, number,measure]

(4) If the thing is lost after delivery, thebuyer bears the risk of loss following the generalrule of res perit domino.

Art. 1481. In the contract of sale of goodsby description or by sample, the contractmay be rescinded if the bulk of the

goods delivered do not correspond withthe description or the sample, and if thecontract be by sample as well asdescription, it is not sufficient that thebulk of goods correspond with thesample if they do not also correspondwith the description.

The buyer shall have a reasonableopportunity of comparing the bulk withthe description or the sample.

Sale by description- occurs where a seller sellsthings as being of a particular kind, the buyer notknowing whether the sellers representations aretrue or false, but relying on them as true; or asotherwise stated, where the purchaser has notseen the article sold and relies on thedescription given him by the vendor, or has seenthe goods but the want of identity is not apparenton inspection. [if the bulk of the goods delivered donot correspond with the description, the contract maybe rescinded]

Sale by sample the parties contracted solely withreference to the sample, with the understanding that

the bulk was like it. But a mere exhibition of a sampleby the seller in the absence of any showing that it wasan inducement of the sale or formed the sole basisthereof, does not amount to a sale by sample aswhere the quality of the articles to be furnished isexpressly described in the contract without referenceto the sample in some particular manner.- a species of sale by description. The sample isemployed instead of words to communicate to thebuyer the characteristics of the goods being sold. It isitself a tacit assertion of the qualities of the bulk itrepresents.

Sale by description and sample when a sale ismade both by sample and by description, the goodsmust satisfy all the warranties appropriate to eitherkind of sale, and it is not sufficient that the bulk of thegoods correspond with the sample if they do not alsocorrespond with the description, and vise versa.


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Art. 1482. Whenever earnest money isgiven in a contract of sale, it shall beconsidered as part of the price and as

proof of the perfection of the contract.

Earnest money something of value given bythe buyer to the seller to show that the buyer isreally in earnest, and to bind the bargain.-partial payment of the purchase price and isconsidered as proof of perfection of the contract.Since earnest money constitutes an advancepayment, it must be deducted from the totalprice.

Earnest Money Option Money1. Part of purchase price

2. Given only where there

is already a sale

3. When earnest money isgiven, the buyer isbound to pay thebalance

1. money given as distinctconsideration for anoption contract

2. applies to a sale not yetperfected

3. the would-be buyer whogives option money isnot required to buy

Art. 1483. Subject to the provisions ofthe Statute of Frauds and of any otherapplicable statute, a contract of sale may

be made in writing, or by word of mouth,or partly in writing and partly by word ofmouth, or may be inferred from theconduct of the parties.

General rule: a contract may be entered into inany form provided all the essential requisites forits validity are present [1356]

Exception: Statute of FraudsSale of personal property at a price not lessthan P500.00Sale of real property or an interest therein

regardless of the price involved; andSale of property not to be performed within ayear from the date thereof regardless of thenature of the property and the price involved.Purpose of Statute of Frauds: to give notice tothird persons and to protect the buyer againstclaims of third persons arising from subsequentalienations by the vendor, it is certainly notnecessary to give efficacy to the deed of sale, asbetween the parties to the contract.-to prevent fraud and perjury in the enforcementof obligations depending for their evidence uponthe unassisted memory of witnesses by

requiring certain enumerated contracts andtransactions to be evidenced in writing.

Statute of Frauds refers to specific kinds oftransactions and cannot apply to any othertransaction that is not enumerated therein. It isApplicable only to executory contracts.

Making a public document for the transaction,furnishes reliable evidence of the intention of theparties or the existence of the contract. Theapplication of the Statute of Frauds presupposesthe existence of a perfected contract and

requires only that a note or memorandumsubscribed by the party charged or by his agentbe executed in order to compel judicialenforcement. Where there is no perfectedcontract, there is no bases for the application ofthe statute


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Art. 1484. In a contract of sale ofpersonal property the price of which ispayable in installments, the vendor may

exercise any of the following remedies:

(1) Exact fulfillment of theobligation, should the vendee failto pay;

(2) Cancel the sale, should thevendee's failure to pay cover twoor more installments;

(3) Foreclose the chattel mortgageon the thing sold, if one has been

constituted, should the vendee'sfailure to pay cover two or moreinstallments. In this case, he shallhave no further action against thepurchaser to recover any unpaidbalance of the price. Anyagreement to the contrary shall bevoid.

Remedies of vendor in sale of personalproperty payable in installmentsThe vendor of personal property payable in

installments may exercise any of the followingremedies:

(1) elect fulfillment upon the vendeesfailure to pay; (SPECIFICPERFORMANCE)[the vendor may exact the fulfillment of the

obligation not limited to the proceeds of themortgaged goods. He may still recover fromthe purchaser the unpaid balance of theprice, if any on the real and personalproperties of the purchaser not exempt fromattachment or execution]

(2) cancel the sale, if the vendee shall failedto pay two or more installments;

[vendee can demand the return of paymentsalready made unless there is stipulationabout forfeiture (1486)

(3) foreclose the chattel mortgage, if onehas been constituted, if the vendee shallhave failed to pay two or moreinstallments.[vendor is not obliged to return the amount ofthe installment already paid, but shall haveno further action against the vendee for therecovery of any unpaid balance of the priceremaining after the foreclosure and actual

sale of the mortgaged chattel, and anyagreement to the contrary is void]

Applicability of Art 1484The law is aimed at those sales of personalproperty where price is payable in severalinstallmentsNot applicable:

1. sale of personal property not payable ininstallments

2. sale or mortgage of real estate3. Action of replevin for it is a preliminary

step to foreclosure

An election of one remedy is an exclusion of theothers.


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Art. 1485. The preceding article shall beapplied to contracts purporting to beleases of personal property with option

to buy, when the lessor has deprived thelessee of the possession or enjoyment ofthe thing.

Lease of personal property with optionto buy1. Nature of transaction leases ofpersonal property with option to buy on the partof the lessee who takes possession orenjoyment of the property leased are really salesof personalty payable in installments. Art 1484 isapplicable-Sellers desirous of making conditional sales of

their goods but do not wish openly to makebargain in that form, for one reason or another,have frequently resorted to the device of makingcontracts in the form of leases wither with optionto the buyer to purchase for small considerationat the end of the term provided the so-called renthas been duly paid, or with the stipulation that isthe rent throughout the term is paid, the tile shallthereupon vest on in the lessee.2. Purpose of the Provision to preventvendors from resorting to this form of contractwhich usually is in reality contract of sale ofpersonal property payable in installments in

contravention of the provisions of art 1484.

Art. 1486. In the case referred to in twopreceding articles, a stipulation that theinstallments or rents paid shall not be

returned to the vendee or lessee shall bevalid insofar as the same may not beunconscionable under thecircumstances.

In sales of personal property by installments orleases of personal property with option to buy,the parties may stipulate that the installments orrents paid are not to be returned. Such astipulation is valid insofar as the same may notbe unconscionable under the circumstances;otherwise, the court has the power to order thereturn of a portion of the total amount paid in

installments or rents.

Art. 1487. The expenses for theexecution and registration of the saleshall be borne by the vendor, unlessthere is a stipulation to the contrary.

Art. 1488. The expropriation of propertyfor public use is governed by speciallaws.


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Art. 1489. All persons who are authorizedin this Code to obligate themselves, mayenter into a contract of sale, saving the

modifications contained in the followingarticles.Where necessaries are those sold anddelivered to a minor or other personwithout capacity to act, he must pay areasonable price therefor. Necessariesare those referred to in Article 290.

GENERAL RULE: all persons, whether naturalor juridical, who can bind themselves have alsolegal capacity to buy and sell.

Exception: incapacitated persons[absolute/relative (1490-1491)]

Necessaries definition (Art 194 FC)Art. 194. Support comprises everythingindispensable for sustenance, dwelling,clothing, medical attendance, education andtransportation, in keeping with the financialcapacity of the family.

Generally, contracts entered into by minor andother incapacitated persons are voildable(1327,1390). However, where necessaries aresold and delivered to him without intervention ofthe parent or guardian, he must pay a

reasonable price therefor. The contract is,therefore, valid but the minor has the right torecover any excess above a reasonable valuepaid by him.

Art. 1490. The husband and the wifecannot sell property to each other,except:

(1) When a separation of propertywas agreed upon in the marriagesettlements; or(2) When there has been a judicialseparation or property underArticle 191.

General Rule: A sale and donation betweenhusband and wife in violation of Article 1490 isinexistent and void from the beginning becausesuch contract is expressly prohibited by law.As to donations, there is an exception tomoderate gifts on the occasion of any familyrejoicing.

Exception: marriage settlement, judicial decreeof separation of property


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Art. 1491. The following persons cannotacquire by purchase, even at a public orjudicial auction, either in person or

through the mediation of another:

(1) The guardian, the property of theperson or persons who may be underhis guardianship;

(2) Agents, the property whoseadministration or sale may have beenentrusted to them, unless theconsent of the principal has beengiven;

(3) Executors and administrators,the property of the estate under

administration;(4) Public officers and employees,

the property of the State or of anysubdivision thereof, or of anygovernment-owned or controlledcorporation, or institution, theadministration of which has beenintrusted to them; this provision shallapply to judges and governmentexperts who, in any mannerwhatsoever, take part in the sale;

(5) Justices, judges, prosecuting

attorneys, clerks of superior andinferior courts, and other officers andemployees connected with theadministration of justice, the propertyand rights in litigation or levied uponan execution before the court withinwhose jurisdiction or territory theyexercise their respective functions;this prohibition includes the act ofacquiring by assignment and shallapply to lawyers, with respect to theproperty and rights which may be the

object of any litigation in which theymay take part by virtue of theirprofession.

(6) Any others specially disqualifiedby law.

This article enumerates the persons who, byreason of the relation of trust with the personsunder their charge or their peculiar control overthe property, are prohibited from acquiring saidproperty either directly or indirectly and whetherin private or public sale.

The persons disqualified to buy referred to inarticles 1490 and 1491 are also disqualified tobecome lessees of the things mentioned

thereon.

Reason for Prohibition under Article1491Public policy considerations which disallow thetransactions entered into by them, whetherdirectly or directly, in view of the fiduciaryrelationship involved or the peculiar controlexercised by these individuals over theproperties or rights covered.It seeks to prevent frauds on the part of suchpersons and minimize temptations to theexertion of undue and improper influence.

Prohibition with respect to Guardians therelation between guardian and ward is sointimate, the dependence so complete and theinfluence so great that any transaction betweenthe two parties entered while the relationshipexists are, in the highest sense, suspicious andpresumptively fraudulent. This influence ispresumed to last while the guardians functionsare to any extent still unperformed, while theproperty is still under his control and until theaccounts have been finally settled.

Prohibition with respect to Agents fiduciaryrelation however, the consent of the principalremoves the transaction out of the prohibitioncontained in Art 1491 (2). An agent can buy forhimself properties after the termination of theagency or other properties different from thosehe has been commissioned to sell

Prohibition with respect to executors prohibition refers only to properties under theadministration of the executor or administrator atthe time of the acquisition and does not extend,therefore, to property nor falling within this class.

Prohibition with respect to public officials andemployees prohibition refers only to:

(a) Properties belonging to the State, or ofany subdivision thereof, or of anygovernment-owned or controlledcorporation or institutions

(b) Administration of which has beenentrusted to the public officials oremployees.

This prohibition includes judges and governmentexperts who, in any manner, take part in thesale.


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Prohibition with respect to judges, etc., andlawyers (JUDGES) prohibition applies only to the sale or

assignment of property which is the subject oflitigation to the persons disqualified therein. Forprohibition to operate, the sale or assignmentmust take place during the pendency of thelitigation involving the property. A property isconsidered in litigation from the moment itbecame subject to the judicial action of thejudge.There is no violation of the prohibition althoughimproper under the Canons of Judicial Ethics,where a judge purchased the property inquestion after the decision involving the propertyhad already become final because none of theparties filed an appeal, hence the same is nolonger in litigation.

(LAWYERS and LAW FIRMS) prohibited topurchase, directly or indirectly, the property orrights which are the subject of litigation in whichhe takes part by virtue of his profession. Aviolation of such constitutes a breach ofprofessional ethics and malpractice for which thelawyer may be reprimanded, suspended ordisbarred from the practice of the legalprofession. Good faith is not a defense.

Effect of sale in violation or prohibitionNos. 1 to 3 sale shall only be voidablebecause such cases only private interests areaffected. The defect can be cured by ratificationof the seller.

Nos. 4 to 6 sale is null and void, cannot becured with ratification. The public interest andpublic policy remain paramount and do notpermit of compromise or ratification. It isgrounded on public policy.

Art. 1492. The prohibitions in the twopreceding articles are applicable to salesin legal redemption, compromises and

renunciations.

Art. 1619. Legal redemption is the right to besubrogated, upon the same terms and conditionsstipulated in the contract, in the place of one whoacquires a thing by purchase or dation inpayment, or by any other transaction wherebyownership is transmitted by onerous title.

Art. 2028. A compromise is a contract wherebythe parties, by making reciprocal concessions,avoid a litigation or put an end to one alreadycommenced.

Art. 1270. Condonation or remission isessentially gratuitous, and requires the

acceptance by the obligor. It may be madeexpressly or impliedly.


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Art. 1493. If at the time the contract ofsale is perfected, the thing which is theobject of the contract has been entirely

lost, the contract shall be without anyeffect.

But if the thing should have been lost inpart only, the vendee may choosebetween withdrawing from the contractand demanding the remaining part,paying its price in proportion to the totalsum agreed upon.

Art. 1494. Where the parties purport asale of specific goods, and the goods

without the knowledge of the seller haveperished in part or have wholly or in amaterial part so deteriorated in quality asto be substantially changed in character,the buyer may at his option treat thesale:

(1) As avoided; or

(2) As valid in all of the existinggoods or in so much thereof ashave not deteriorated, and asbinding the buyer to pay theagreed price for the goods inwhich the ownership will pass, ifthe sale was divisible.

Art. 1495. The vendor is bound totransfer the ownership of and deliver, aswell as warrant the thing which is the

object of the sale.

Principal obligations of a vendor are:(1) Transfer ownership of the determinatething sold;(2) Art. 1537. The vendor is bound to deliver the thing

sold and its accessions and accessories in thecondition in which they were upon the perfection ofthe contract.All the fruits shall pertain to the vendee from theday on which the contract was perfected.

(3) To warrant against eviction and againsthidden defects(4) Art. 1163. Every person obliged to give something

is also obliged to take care of it with the proper

diligence of a good father of a family, unless thelaw or the stipulation of the parties requiresanother standard of care.

(5) To pay for expenses of the deed of sale,unless there is a stipulation to the contrary

Art. 1496. The ownership of the thingsold is acquired by the vendee from themoment it is delivered to him in any ofthe ways specified in Articles 1497 to1501, or in any other manner signifyingan agreement that the possession is

transferred from the vendor to thevendee.


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Art. 1497. The thing sold shall beunderstood as delivered, when it isplaced in the control and possession of

the vendee.

Tradition derivative mode of acquiringownership by virtue of which one who has theright and intention to alienate a corporeal thing,transmits it by virtue of a just title to one whoaccepts the same.

In all different modes of affecting delivery, it isthe real intention of the parties, to deliver on thepart of the vendor, and to accept on the part ofthe vendee, which gives legal effect to the act.Without such intention, there is no tradition.

There is no delivery as to transfer ownershipwhere the vendee takes possession of thepersonal property subject matter of the contractof sale by stealing the same while in custody ofthe vendor or his agent.

Alcantara-Daus vs De LeonSellers ownership of the land is not an element in theperfection of the contract. However, this contractcreates an obligation on the part of the seller totransfer ownership and to deliver the subject matter ofthe contract. It is during delivery that the law requiresthe seller to have the right to transfer ownership of thething sold. It is through delivery or tradition that the

buyer acquires the real rights of ownership over thething sold

Delivery of the thing together with the paymentof the price, marks the consummation of thecontract of sale.

Actual delivery involves physical delivery ofthe thing and is usually done by passing of amovable thing from hand to hand.

Art. 1498. When the sale is made througha public instrument, the executionthereof shall be equivalent to the

delivery of the thing which is the objectof the contract, if from the deed thecontrary does not appear or cannotclearly be inferred.With regard to movable property, itsdelivery may also be made by thedelivery of the keys of the place ordepository where it is stored or kept.

General rule: The execution of a publicinstrument as a manner of delivery applies tomovable as well as immovable property. Thismanner of delivery is symbolic. The buyer may

use the document as proof of his ownership ofthe property sold.

Exception: if from the deed the contrary does notappear or cannot clearly inferred

Constructive delivery is symbolic when to effectthe delivery, the parties make use of a tokensymbol to represent the thing.House/car= keysArt. 1499. The delivery of movableproperty may likewise be made by themere consent or agreement of the

contracting parties, if the thing soldcannot be transferred to the possessionof the vendee at the time of the sale, or ifthe latter already had it in his possessionfor any other reason.

Traditio longa manu takes place by the mereconsent or agreement of the contracting partiesas when the vendor merely points to the thingsold which shall thereafter be at the control anddisposal of the vendee

Traditio brevi manu the vendee has alreadythe possession of the thing sold by virtue ofanother title as when the lessor sells the thingleased to the leassee. Delivery is considereddone by action of lawArt. 1500. There may also be traditionconstitutum possessorium.Tradition constitutum possessorium opposite brevimanu. Vendor continues in possession of the propertysold not as owner but in some other capacity (tenant).Instead of the vendor delivering the thing to thevendee so that the latter may, in turn deliver it back tothe vendor, the law considers that all these havetaken place by mere consent or agreement of theparties.


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Art. 1501. With respect to incorporealproperty, the provisions of the firstparagraph of article 1498 shall govern. In

any other case wherein said provisionsare not applicable, the placing of thetitles of ownership in the possession ofthe vendee or the use by the vendee ofhis rights, with the vendor's consent,shall be understood as a delivery.

Quasi-Traditio in case of incorporeal things,delivery is effected:

(1) By the execution of a public document;or

(2) When that mode of delivery is notapplicable, by the placing of the titles ofownership in the possession of thevendee; or

(3) By allowing the vendee to use his rightsas new owner, with the consent of thevendor.

Art. 1502. When goods are delivered tothe buyer "on sale or return"to give thebuyer an option to return the goods

instead of paying the price, theownership passes to the buyer ofdelivery, but he may revest theownership in the seller by returning ortendering the goods within the time fixedin the contract, or, if no time has beenfixed, within a reasonable time.

When goods are delivered to the buyeron approval or on trial or on satisfaction,or other similar terms, the ownershiptherein passes to the buyer:

(1) When he signifies his approvalor acceptance to the seller ordoes any other act adopting thetransaction;(2) If he does not signify hisapproval or acceptance to theseller, but retains the goodswithout giving notice of rejection,then if a time has been fixed forthe return of the goods, on theexpiration of such time, and, if no

time has been fixed, on theexpiration of a reasonable time.What is a reasonable time is aquestion of fact.

Contract of sale or return, and of sale ontrial or approval or satisfactionThe property shall pass to the buyer on deliverybut he may return the same if they areunsatisfactory. The duty of the buyer with regardto the return of the goods requires, ordinarily,that they be returned in the same orsubstantially the same condition in which they

were when the contract was made.Undoubtedly, if they are injured or damagedsubstantially through negligence or misuse ofthe buyer, his right to return is lost and the salebecomes absolute.

Sale or return a contract which property is soldbut the buyer, who becomes the owner of theproperty on delivery has the option to return thesame to the seller instead of paying the price.-under this contract, the option to purchase orreturn the goods rests entirely on the buyerwithout reference to the quality of the goods.


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SALES midterm reviewer art 1458-1502

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