Ms Sales

Chapter 1
Nature anSd Form of the Contract
Art. 1458
Article 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
A. Definition
Sale is a contract where one party (seller or vendor) obligates himself to transfer the ownership of
and to deliver a determinate thing, while the other party (buyer or vendee) obligates himself to pay
for said thing a price certain in money or its equivalent. (See Art. 1458, Civil Code).
B. Elements (essential)
(a) Essential elements (those without which there can be no valid sale):
1) Consent or meeting of the minds, i.e., consent to transfer ownership in exchange for the
price.
2) Determinate subject matter (generally, there is no sale of generic thing; moreover, if the
parties differ as to the object, there can be no meeting of the minds).
3) Price certain in money or its equivalent (this is the cause or consideration). (The price
need not be in money.) (Republic v. Phil. Resources Dev. Corp., L-10414, Jan. 31, 1958)
(b) Natural elements (those which are inherent in the contract, and which in the absence of any
contrary provision, are deemed to exist in the contract).
1) Warranty against eviction (deprivation of the property bought)
2) Warranty against hidden defects
(c) Accidental elements (those which may be present or absent in the stipulation, such as the place
or time of payment, or the presence of conditions).
Manila Metal Container Corp. v. PNB
There is no perfected contract of sale when an offer is answered with a counter offer.
Toyota Shaw, Inc. v. CA
In order to perfect a contract of sale, it is not enough to agree on a price certain. The manner of
payment of the price must also be agreed.
a. Effects of presence, absence, incomplete elements

Presence of all essential requisites makes a valid contract of sale. If at least one is absent, then the
contract is void or inexistent. If at least one is defective such as the consent, then the contract is
voidable.
C. Characteristics
a. Consensual
Consensual (as distinguished from real), because the contract is perfected by mere consent
(NOTE: A real contract is one perfected by delivery, e.g., the contract of deposit or commodatum.)
b. Bilateral
Bilateral reciprocal, because both parties are bound by obligations dependent upon each other
c. Onerous
Onerous, because to acquire the rights, valuable consideration must be given
d. Nominate
Nominate (as distinguished from an innominate contract) because the Code refers to it by a special
designation or name, i.e., the contract of sale.
e. Principal
Principal (as distinguished from an accessory contract), because for the contract of sale to validly
exist, there is no necessity for it to depend upon the existence of another valid contract (Examples
of accessory contracts are those of pledge and mortgage)
f. Commutative
Commutative, as a rule, because the values exchanged are almost equivalent to each other.
(NOTE: By way of exception, some contracts of sale are aleatory, i.e., what one receives may in
time be greater or smaller than what he has given. Example: The sale of a genuine sweepstakes
ticket.)
g. Delivery transfers ownership
D.
a. vs. agency to sell (1466)

Art. 1466. In construing a contract containing provisions characteristic of both the contract of sale
and of the contract of agency to sell, the essential clauses of the whole instrument shall be
considered.
Distinctions Between a ‘Contract of Sale’ and an ‘Agency to Sell’ (like a Consignment for Sale):
(a) In sale, the buyer pays the price; the agent delivers the price which in turn he got from
his buyer.
(b) In sale, the buyer after delivery becomes the owner; the agent who is supposed to sell
does not become the owner, even if the property has already been delivered to him.
(c) In sale, the seller warrants; the agent who sells assumes no personal liability as long as
he acts within his authority and in the name of the principal
Bar Question:
X acquired a booklet of 10 sweepstakes tickets directly from the office of the Philippine Charity
Sweepstakes. X paid P1,800 for the booklet, less the customary discount. What was the nature of
X’s act in acquiring the tickets? Did he enter into a contract of purchase and sale? Briefly explain
your answer.
ANS.: Yes, X entered into a contract of purchase and sale, notwithstanding the fact that he may be
referred to as an “agent” of the Sweepstakes Office, and the fact that he may be entitled to an
“agent’s prize” should one of the tickets purchased win a principal prize. The truth is that he is not
really required to re-sell the tickets, and even if he were to do so, still failure on the part of his
purchasers to pay will not allow him to recover what he himself has paid to the office.
Moreover, the delivery of the tickets to him transferred their ownership to him; this is not true in
the case of an agency to sell. Furthermore, it has been said that in a contract of sale, the buyer pays
the price; while in an agency to sell, the agent delivers the price. The mere fact that a “discount”
or so-called commission has been given is immaterial. (See Quiroga v. Parsons Hardware Co., 38
Phil. 501).
NOTE: It is important to distinguish it from sale because the failure of the agent to sell the property
and to remit the proceeds thereof will render him liable for damages and of estafa.
1. Effect of agreement for exclusive sale of beds where the other party
is entitled to commission, among others
Quiroga v. Parsons Hardware Co.
An agreement that one will purchase a property of another at a discounted price and the former
will sell it to third persons is a contract of sale and not a contract of agency to sell. Thus, the buyer
is not liable if he fails to sell the property that he bought to third persons.
b. vs. lease of service or contract for a piece of work (1467)
Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary
course of his business manufactures or procures for the general market, whether the same is on
hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for
the customer and upon his special order, and not for the general market, it is a contract for a piece
of work.
Rules to Determine if the Contract is One of Sale or a Piece of Work:

(a) If ordered in the ordinary course of business — SALE
(b) If manufactured specially and not for the market — Piece of work contract
Example:
If I need a particular size (Size 9 1/2) of Bally Shoes, and the same is not available (for the present),
but I place and order for one, the transaction would be one of sale. If upon the other hand, I place
an order for Size 13, colored violet (something not ordinarily made by the company), the resultant
transaction is a contract for a piece of work.
1. Nature of transactions of company engaged in the design, supply and

installation of certain type of air conditioning system
CIR v. Engineering Equipment and Supply Co.
If the contract is for a piece of work, the contractor is only subject to a 3% tax. However, if the
contract is sale, the seller is subject to a 30% advance sales tax.
c. vs. barter (1468)
Art. 1468. If the consideration of the contract consists partly in money, and partly in another thing,
the transaction shall be characterized by the manifest intention of the parties. If such intention does
not clearly appear, it shall be considered a barter if the value of the thing given as a part of the
consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale.
Rules to Determine Whether Contract is One of Sale or Barter:

(a) First Rule — Intent.
(b) If intent does not clearly appear —
1) If thing is more valuable than money — BARTER
2) If 50-50 — SALE
3) If thing is less valuable than the money — SALE
Example:
If I give my car worth P900,000 to Jose in consideration of Jose’s giving to me P300,000 cash,
and a diamond ring worth P600,000, is the transaction a sale or a barter?
ANS.: It depends on our mutual intent. If the intent is not clear, the transaction is a BARTER
because the ring is more valuable than the P300,000.
[NOTE: In order to judge the intention, we must consider the contemporaneous and consequent
acts of the parties. (Art. 1371; Atl. Gulf Co. v. Insular Gov’t., 10 Phil. 166). The name given by
the parties is presumptive, of course, of their intention, but this may be rebutted. (10 Manresa 16).]
(NOTE: If I exchange at the Bangko Sentral my Philippine pesos for U.S. dollars at the rate of
exchange, plus the marginal fee, if any, this should be regarded as a sale, not as a barter.)
NOTE: It is important to distinguish it because sale is subject to the statute of fraud while barter is
not.
d. vs. dation in payment
Sale Dation in payment
1. There is no pre-existing credit. 1. There is a pre-existing credit.
2. Gives rise to obligations. 2. Extinguishes obligations.
3. The cause or consideration here is the price, 3. The cause or consideration here, from the
from the viewpoint of the seller; or the viewpoint of the person offering the dation in
obtaining of the object, from the viewpoint of payment, is the extinguishing of his debt; from
the buyer. the viewpoint of the creditor, it is the
acquisition of the object offered in lieu of the
4. There is greater freedom in the original credit.
determination of the price.
4. There is less freedom in determining the
5. The giving of the price may generally end price.
the obligation of the buyer.
5. The giving of the object in lieu of the credit
may extinguish completely or partially the
credit (depending on the agreement).
(NOTE: Example of dacion en pago: I owe Maria P1 million. But I ask her if she is willing to
accept my solid gold Rolex watch, instead of the money. If Maria agrees, my debt will be
extinguished. Please observe that in this example, although what has happened is a dation in
payment, it is as if I sold my watch for P1 millon. Hence, we have to distinguish between the two
kinds of transactions.)
e. vs. lease of things
In a sale, the seller transfers ownership; in a lease, the lessor or landlord transfers merely the
temporary possession and use of the property.
f. vs. donation
Donation is gratuitous while sale is onerous.
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.
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.
NOTE: It is important to distinguish it because in sale, the capital gains tax is only 7.5% while in
donation it is 30% if donated to a stranger. Moreover, donation is a formal contract which requires
certain formalities in order for it to be valid.
E. Promise to Sell: when binding (1479)
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.
a. If bilateral
First Paragraph: A promises to buy something and B promises to sell it at an agreed price. (This
is a promise to buy and sell, clearly a bilateral reciprocal contract.)
[NOTE: This is as good as a perfected sale. (P.N.B. v. Ah Sing, 69 Phil. 611). Of course, no title
of dominion is transferred as yet, the parties, being given the right only to demand fulfillment or
damages. (Ramos v. Salcedo, {C.A.} 48 O.G. 729; Barretto v. Santa Marina, 26 Phil. 200; and
Guerrero v. Yñigo, 50 O.G. 5281).]
b. If unilateral
Second Paragraph: Only one makes the promise. This promise is accepted by the other. Hence, A
promises to sell to B accepts the promise, but does not in turn promise to buy.
(NOTE: This is an accepted unilateral promise to sell. It is binding on the promissor only if the
promise is supported by a consideration distinct from the price.)
Example:
B, interested in a particular car at a car exchange, asked A for the price. A said “P500,000.” B,
however, could not make up his mind whether to buy or not. So A told him, “B, I’ll give you a
week to make up your mind.” B accepted, and gave A P10,000 for the option — the opportunity to
make up his mind. The contract of option here is valid, because it was supported by a consideration
distinct from the selling price. If A reneges on his word and disposes of the property in favor of
another before the end of the week, B can sue him for damages. Upon the other hand, B is not
obliged to buy the car at the end of the week. He may or he may not. After all, he did not promise
to buy. He merely accepted a unilateral promise of A to sell. (See Filipinas College, Inc. v.
Timbang, et al., [C.A.] 52 O.G. 3624).
[NOTE: In the example given, if there had been no cause or consideration for the option, the option
would not be a valid contract and therefore, A cannot be blamed for selling the car to another before
the end of the stipulated week. (See Cavada v. Diaz, 37 Phil. 982). (Of course, had the option been
given out of liberality or generosity, there would be a valid consideration, the option having been
given as a donation).]
[NOTE: Under the law of obligations and contracts, we have Art. 1324 which says: “When the
offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at anytime
before acceptance by communicating such withdrawal, except when the option is founded upon a
consideration, as something paid or promised.”
1. Option
i) Option defined
It is a contract granting a person the privilege to buy or not to buy certain objects at any time within
the agreed period at a fixed price. The contract of option is a separate and distinct contract from
the contract which the parties may enter into upon the consummation of the contract; therefore, an
option must have its own cause or consideration. (Enriquez de la Cavada v. Diaz, 37 Phil. 1982).
After the period of conventional redemption has expired, there is no more right to repurchase.
Should the period later on be extended, this would really be to sell, or any option, and, therefore,
there must be a consideration distinct from the repurchase price. (See Miller v. Nadres, 74 Phil.
307).
Eulogio v. Apeles
An option contract without a cause or consideration is void and unenforceable. However, the cause
or consideration may be shown to be the generosity of the offeror.
ii) Remedy of optionee for breach
Specific performance or, if the thing had already been sold to a third person in good faith, an action
for damages for the breach of the option contract. The sale by the optioner to a third person in
violation of the option of the optionee may also be rescinded if the third person is in bad faith.
2. Right of First Refusal
In right of first refusal, there is a pre-existing contract like a contract of lease such that when it is
terminated, the grantor cannot sell the property to another person unless he had offered to sell it
first to the grantee.
Ang Yu Asuncion v. CA
In a right of first refusal, the seller has the right to fix the price of the thing sold.
F. The Contract of Sale may be –
a. Absolute; or
When there are no conditions such that ownership of the thing sold passes to the vendee upon the
constructive or actual delivery thereof.
Ramos v. Heruela
If the contract is a contract to sell, it is governed by RA 6552 but not if the contract is a contract
of absolute sale.
Heirs of Mascunana v. CA
In a contract of absolute sale, the buyer becomes the owner of the thing sold upon delivery. Thus,
he can then sell the thing to third persons even if he does not yet paid in full the purchase price.
b. Conditional, which may in turn be –
Conditional sale (as when there is a sale with a pacto de retro, a right to repurchase or redeem; or
when there are suspensive conditions, or when the things sold merely possess a potential existence,
such as the sale of the future harvest of a designated parcel of land; or when, for example, all the
personal properties in an army depot would be sold “except all combat materials” that may be
found therein.
1. An executed contract, or
When the performance of the obligations in a contract of sale is subject to a resolutory condition
(may be positive or negative)
2. An executory contract
When the performance of the obligations in a contract of sale is subject to a suspensive condition
(may be positive or negative)
c. Distinctions
G. Contract of Sale v. Contract to Sell
(a) In a Contract of Sale, the non-payment of price is a resolutory condition, i.e., the contract of
sale may by such occurrence put an end to a transaction that once upon a time existed; in a Contract
to Sell, the payment in full of the price is a positive suspensive condition. Hence, if the price is not
paid, it is as if the obligation of the seller to deliver and to transfer ownership never became
effective and binding.
(b) In the first, title over the property generally passes to the buyer upon delivery; in the second,
ownership is retained by the seller, regardless of delivery and is not to pass until full payment of
the price.
(c) In the first, after delivery has been made, the seller has lost ownership and cannot recover it
unless the contract is resolved or rescinded; in the second, since the seller retains ownership,
despite delivery, he is enforcing and not rescinding the contract if he seeks to oust the buyer for
failure to pay. (See Santos v. Santos, C.A. 47 O.G. 6372 and Manuel v. Rodriguez, L-13435, Jul.
27, 1960)
Ong v. CA
In a contract to sell, the seller can rescind the contract in case of the nonpayment of the purchase
price by the buyer on the ground that the contract becomes ineffective and not on the ground of
breach under Art. 1191.
Coronel v. CA
In a contract to sell, the positive suspensive condition is the payment of the purchase price by the
buyer. However, in a conditional contract of sale, the positive suspensive condition may be any
other condition as agreed by the parties.
H. Contract to Sell v. Conditional Sale
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 exclusively 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, because in a conditional contract of
sale, the first element of consent 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 condition 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 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, ownership
will not automatically transfer to the buyer although the property may have been previously
delivered to him. The prospective seller still has to convey title to the prospective buyer by entering
into a contract of absolute sale to consummate the transaction.
(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 reconveyance 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.
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 second buyer of the property
who may have had actual or constructive 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 buyer may seek reconveyance of the property subject of the sale. (Coronel vs. Court of
Appeals, 75 SCAD 141, 263 SCRA 15 [1996].)
Coronel v. CA
In a contract to sell, the positive suspensive condition is the payment of the purchase price by the
buyer. However, in a conditional contract of sale, the positive suspensive condition may be any
other condition as agreed by the parties.
Nabus v. Pacson
It is not the title of the contract, but its express terms or stipulations that determine the kind of
contract entered into by the parties.
In a contract to sell, the seller retains ownership and may even sell the thing subject of the sale to
third persons as long as the buyer had not yet paid in full the purchase price.
Arts. 1459-1465
Article 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)
Article 1460. A thing is determinate when it is particularly designated or physical segregated from
all others of the same class.
The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the
thing is capable of being made determinate without the necessity of a new or further agreement
between the parties. (n)
Article 1461. Things having a potential existence may be the object of the contract of sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the
thing will come into existence.
The sale of a vain hope or expectancy is void. (n)
Article 1462. The goods which form the subject of a contract of sale may be either existing goods,
owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the seller
after the perfection of the contract of sale, in this Title called "future goods."
There may be a contract of sale of goods, whose acquisition by the seller depends upon a
contingency which may or may not happen. (n)
Article 1463. The sole owner of a thing may sell an undivided interest therein. (n)
Article 1464. In the case of fungible goods, there may be a sale of an undivided share of a specific
mass, though the seller purports to sell and the buyer to buy a definite number, weight or measure
of the goods in the mass, and though the number, weight or measure of the goods in the mass, 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)
Article 1465. Things subject to a resolutory condition may be the object of the contract of sale. (n)
I. Object
A. Qualities – The object must be:
a. Lawful (Art. 1459)
The word licit means lawful, i.e., within the commerce of man.
Things may be illicit:

1) Per se (of its nature)
Example: Sale of human flesh for human pleasure.
2) Per accidens (made illegal by provision of the law)
Examples: Sale of land to an alien after the effective date of the Constitution; sale of illegal
lottery tickets.
If the object of the sale is illicit, the contract is null and void (Art. 1409), and cannot, therefore, be
ratified.
Manlapat v. CA
A land issued by virtue of a Sales Patent cannot be sold within 5 years from the issuance thereof.
Neither can the land be sold prior to the issuance of a Sales Patent for the land is still within the
public domain.
b. Determinate or determinable
Article 1460. A thing is determinate when it is particularly designated or physical segregated from
all others of the same class.
The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the
thing is capable of being made determinate without the necessity of a new or further agreement
between the parties. (n)
The object of the sale must be determinate, i.e., specific, but it is not essential really that at the
time of perfection, the object be already specific. It is sufficient that it be capable of being
determinate without need of any new agreement. Thus, there can be a sale of 20 kilos of sugar of
a named quality.
If there is a necessity of making a new agreement to determine the amount and the quality of the
object sold, this necessarily constitutes an obstacle to the perfection of the contract. (Gonzales v.
Davis, 43 Phil. 468).
1. Sale by co-heir of definite portion of estate prior to partition

Vagilidad v. Vagilidad
A co-heir is a co-owner of an estate prior to its partition. Thus, the co-heir can validly sell in whole
or in part his undivided interest in the estate even without the consent of his co-heirs. In such a
case, the object is determinable. However, he cannot sell a definite portion of the estate if the same
is not yet partitioned for it cannot be determined who is the owner of such definite portion and the
seller cannot be said to be the owner at the time his obligation to deliver it arises.
2. Effect of agreement where the exact number of palay to be

sold was not fixed
National Grains Authority v. IAC
An agreement where the seller can sell a quota of 1 640 cavans of palay is valid even if the seller
only sold 630 cavans thereof. This is because the quota of 1 640 cavans means that the seller can
sell any amount of palay as long as it does not exceed 1 640 cavans.
c. Existing, or Future or Contingent (Art. 1462)

Article 1462. The goods which form the subject of a contract of sale may be either existing goods,
owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the seller
after the perfection of the contract of sale, in this Title called "future goods."
There may be a contract of sale of goods, whose acquisition by the seller depends upon a
contingency which may or may not happen. (n)
Future goods are those still to be:

(a) Manufactured (like a future airplane) (Hughes v. Judd,
254 Ill. App. 14) or printed (like a subscription to a newspaper) (Leonard v. Pennypacker,
85 N.J.L. 333);
(b) Raised (like the young of animals, whether already conceived or not at the time of
perfection of the contract) (46 Am. Jur. Sales, Sec. 31, p. 224), or future agricultural
products (Lutero v. Siulong and Co., 54 Phil. 272) like copra still to be manufactured
(Esguerra v. People, L-14313, Jul. 26, 1960);
(NOTE: In Esguerra v. People, supra, the accused obtained P2,400 for future copra still to
be delivered at some future date. The Court held that the transaction is a sale of future
goods, and if the copra is not given, the liability arising therefrom is of a civil, and NOT of
a criminal nature.)
(c) Acquired by seller after the perfection of the contract (like land which the seller expects
to buy) (Martin v. Reyes, 91 Phil. 666);
(NOTE: This is also referred to as the sale of “hereafter-acquired” property.)
(d)Things whose acquisition depends upon a contingency which may or may not happen
(Example: I can sell you now a specific car which my father promised to give me, should
I pass the bar next year.)
(NOTE: The moment I get the car, however, in accordance with my father’s promise you
do not necessarily become its owner, for before title can pass to you, I must first deliver
the car to you, actually or constructively.)
1. Sale of future inheritance

Tanedo v. CA
Sale of future inheritance where the parents, who are the owners of the property, are still alive is
void even if the parents execute an Affidavit of Conformity.
d. Transferability of ownership
a) It is essential for a seller to transfer ownership (Art.1458) and, therefore, the seller must be the
owner of the subject sold. This stems from the principle that nobody can dispose of that which
does not belong to him –– nemo dat quad non habet. (See Azcona v. Reyes & Larracas, 59 Phil.
446; see Coronel v. Ona, 33 Phil. 456).
But although the seller must be the owner, he need not be the owner at the time of the perfection
of the contract. It is sufficient that he is the owner at the time the object is delivered; otherwise, he
may be held liable for breach of warranty against eviction. Be it noted that the contract of sale by
itself, is not a mode of acquiring ownership. (See Art. 712, Civil Code). The contract transfers no
real rights; it merely causes certain obligations to arise. Hence, it would seem that A can sell to B
property belonging to C at the time of the meeting of the minds. (TS, Jan. 31, 1921). Of course, if
at the time A is supposed to deliver, he cannot do so, he has to answer for damages. Having
assumed the risk of acquiring ownership from C, it is clear he must be liable in case of failure.
(See Martin v. Reyes, et al., 91 Phil. 666).
Indeed, the seller need not be the owner at the time of perfection because, after all, “future things
or goods,’’ inter alia, may be sold.
[NOTE: While there can be a sale of future property, there can generally be no donation of future
property. (Art. 751, Civil Code).]
A person who has a right over a thing (although he is not the owner of the thing itself) may sell
such right. (10 Manresa, p. 25). Hence, a usufructuary may generally sell his usufructuary right.
Of course, if the buyer was already the owner of the thing sold at the time of sale, there can be no
valid contract for then how can ownership be transferred to one who already has it?
1. Sale by mortgagee of land not proper subject of mortgage

Cavite Development Bank v. Lim
A mortgagee cannot foreclose and subsequently sell a mortgaged property if the mortgagor is not
the owner thereof. The mortgage is invalid.
2. Conveyance of privilege to purchase land before it is awarded

to tenant or occupant
Hermosilla v. Remoquillo
Transfer of ownership of a land by one to another before the land was awarded to the former is
void for the land is still part of the public domain.
Heirs of Arturo Reyes v. Beltran
Sale by a co-owner of a definite portion of the co-owned property prior to its partition is void if
such definite portion sold is adjudicated to another co-owner and not to the seller. This is because
the seller is not the owner of the thing sold at the time his obligation to deliver it arises.
Arts. 1469-1474
Article 1469. In order that the price may be considered certain, it shall be sufficient that it be so
with reference to another thing certain, or that the determination thereof be left to the judgment of
a special person or persons.
Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious,
unless the parties subsequently agree upon the price.
If the third person or persons acted in bad faith or by mistake, the courts may fix the price.
Where such third person or persons are prevented from fixing the price or terms by fault of the
seller or the buyer, the party not in fault may have such remedies against the party in fault as are
allowed the seller or the buyer, as the case may be. (1447a)
Article 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)
Article 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)
Article 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)
Article 1473. The fixing of the price can never be left to the discretion of one of the contracting
parties. However, if the price fixed by one of the parties is accepted by the other, the sale is
perfected. (1449a)
Article 1474. Where the price cannot be determined in accordance with the preceding articles, or
in any other manner, the contract is inefficacious. However, if the thing or any part thereof has
been delivered to and appropriated by the buyer he must pay a reasonable price therefor. What is
a reasonable price is a question of fact dependent on the circumstances of each particular case. (n)
I. Price
General principle in the agreement as to price

Boston bank of the Philippines v. Manalo
It is not enough for the parties to agree on the price of the property. The parties must also agree on
the manner of payment of the price of the property to give rise to a binding and enforceable contract
of sale or contract to sell. This is so because the agreement as to the manner of payment goes into
the price, such that a disagreement on the manner of payment is tantamount to a failure to agree
on the price.
A. Requisites
a. The price must be real (1471)
Article 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)
The price must not be fictitious. Therefore if the price is merely simulated, the contract as a sale
is void. It may, however, be valid as a donation or some other agreement, provided the
requirements of donations or other agreements have been complied with. If these requirements do
not exist, then, as a sale, the contract is absolutely void, not merely voidable. (Cruzado v. Bustos,
34 Phil. 17). An action for annulment is therefore not essential. (De Belen v. Collector of Customs,
46 Phil. 241).
A simulated price is fictitious. There being no price, there is no cause or consideration; hence, the
contract is void as a sale. However, it is enough that the price be agreed on at the time of perfection.
A rescission of the price will not invalidate the sale. (See 10 Manresa 39-45).
1. Effect if price is simulated

Cruzado v. Bustos
If the price is simulated, the contract of sale is void for there is no cause of consideration.
2. Effect if there is no consideration

Doles v. Angeles
If there is no cause or consideration, the contract of sale is void.
b. In money or its equivalent (1458)
ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money
or its equivalent.
A contract of sale may be absolute or conditional. (1445a)
This is the cause or consideration. The price need not be in money.
Torres v. CA
A consideration in the nature of an expectation of profits from the subdivision project is a valid
consideration for the price need not be money.
c. Certain or Ascertainable (determinable)
ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money
or its equivalent. XXX
1. How determined
i) By third person
Article 1469. In order that the price may be considered certain, it shall be sufficient that it be so
with reference to another thing certain, or that the determination thereof be left to the judgment of
a special person or persons. XXX
Barreto v. Sta. Maria
A determination by the appraisers who were appointed by the parties to fix the price of the object
of a sale is valid and binding upon the parties.
ii) By the courts
Article 1469. XXX If the third person or persons acted in bad faith or by mistake, the courts may
fix the price. XXX
iii) By reference to a definite day, etc.
Article 1472. The price of securities, grain, liquids, and other things shall also be considered
certain, when the price fixed is that which the thing sold would have on a definite day, or in a
particular exchange or market, or when an amount is fixed above or below the price on such day,
or in such exchange or market, provided said amount be certain. (1448)
iv) By reference to invoices

McCullough v. Aenille and Co.
FACTS: Furniture and tobacco were sold, the furniture at 90% of the price shown in a subsequent
inventory, and the tobacco at the invoice price. Is the price here already considered certain?
HELD: Yes, in view of the reference to certain amounts
v) By application of known facts
2. Effect of indeterminability
Article 1474. Where the price cannot be determined in accordance with the preceding articles, or
in any other manner, the contract is inefficacious. However, if the thing or any part thereof has
been delivered to and appropriated by the buyer he must pay a reasonable price therefor. What is
a reasonable price is a question of fact dependent on the circumstances of each particular case. (n)
Sale of improvements introduced in hacienda

Robles v. Lizarraga Hermanos
Sale of improvements introduced by one in the hacienda of another wherein the latter will be the
one who will fix the price by conducting an appraised valuation of the improvements is valid. The
buyer cannot frustrate the sale by refusing to conduct an appraised valuation. Such is a breach of
the contract.
3. Effect of inadequacy of price (1470)
Article 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)
In ordinary sale, the sale remains valid even if the price is very low. Of course, if there was vitiated
consent (such as when fraud or undue influence is present) the contract may be annulled but only
due to such vitiated consent.
Example: If an Igorot sells a mining claim for a ridiculously low sum, admits the fact of sale, does
nothing about it for a number of years, he should not be allowed now to claim that the contract
was invalid. The fact that the bargain was a hard one is not important, the sale having been made
freely and voluntarily. (Askay v. Cosolan, 46 Phil. 179). The rule holds true even if the price seems
too inadequate as to shock the conscience of man. (Alarcon v. Kasilag, 40 O.G. Sup. No. 16, p.
203).
In execution of judicial sales –– While mere inadequacy of price will not set aside a judicial sale
of real property Warner, Barnes and Co. v. Santos, 14 Phil. 446), still if the price is so inadequate
as to shock the conscience of the Court, it will be set aside. (National Bank v. Gonzales, 46 Phil.
693). Thus, if land worth P60,000 is sold judicially for P867, this shocks the conscience of the
Court and will be set aside. (Director of Lands v. Abarca, 61 Phil. 70). The same is true if the
properties are sold for only around 10% of their values, as when a radio-phono worth P1,000 is
sold for P100, or when a matrimonial bed worth P500 is sold for only P50. (The
Prov. Sheriff of Rizal v. CA, L-23114, Dec. 12, 1975).
As a matter of fact, it may be that the extremely low price was the result not of a sale but of a
contract of loan, with the price paid as the principal and the object, given merely as security. In a
case like this, the contract will be interpreted to be one of loan with an equitable mortgage. (Aguilar
v. Rubiato, 40 Phil. 570). The remedy would then be the reformation of the instrument. (Arts.
1603, 1604, 1605, 1365, Civil Code). However, the price of around P31,000 is not inadequate for
the foreclosure sale of a house and lot appraised by the Government Service Insurance System at
P32,000 and by a realtor at P60,000. (Pingol, et al. v. Tigno, et al., L-14749, May 31, 1960).
[NOTE: A buyer at a judicial sale is allowed to resell to others what he has acquired. The mere
fact that he demands a very high price is of no consequence. (Vda. de Syquia v. Jacinto, 60 Phil.
861).]
It is possible that a donation, not a sale, was really intended. In such a case, the parties may prove
that the low price is sufficiently explained by the consideration of liberality. (See Art. 1470, last
part, Civil Code).
Askay v. Cosalan
The fact that the bargain is a hard one, coupled with mere inadequacy of price when both parties
are in a position to form an independent judgment concerning the transaction, is not sufficient
ground for the cancellation of a contract.
Aguilar v. Rubiato
Sale with a right of repurchase where there is inadequacy of price which is so great that the minds
revolt at it may be considered as a loan with an equitable mortgage and not a sale.
4. Effect of failure of consideration

Sps. Buenaventura v. CA
Failure of consideration means failure of the buyer to pay the price. It does not nullify the contract
of sale but only results to a right of the seller to demand fulfillment or cancellation of the contract.
B. Earnest money (1482)
Art. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of
the price and as proof of the perfection of the contract.
Earnest money, called “arras,” is something of value to show that the buyer was really in earnest,
and given to the seller to bind the bargain. (See 14 Words and Phrases, p. 23).
Under the Civil Code, earnest money is considered:

(a) Part of the purchase price (Hence, from the total price must be deducted the arras; the
balance is all that has to be paid.)
(b) As proof of the perfection of the contract.
Example
B purchased S’s car for P900,000, payable after one month. To show his earnestness, B, at the time
of perfection, gave S the sum of P50,000. At the end of one month, B has to pay only the balance
of P850,000. (Note: The earnest money here of P50,000 must not be confused with the money
given as consideration for an option. Earnest money applies to a perfected sale; the money is part
of the purchase price; the buyer is required to pay the balance. Upon the other hand, option money
applies to a sale not yet perfected; the money is not part of the purchase price; the would-be buyer
is not required to buy.)
If merchandise cannot be delivered, the arras must be returned. (2 Benito 312). Of course, this
right may be renounced since neither the law nor public policy is violated. (See 10 Manresa 85).
Manila Metal Container Corporation v. PNB
A deposited money by the buyer and accepted by the seller cannot be considered as an earnest
money if the purchase price had not yet been determined by the parties.
Serrano v. Caguiat
Earnest money is only applicable in a contract of sale and not in a contract to sell.
Arts. 1475-1488
Article 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)
Article 1476. In the case of a sale by auction:

(1) Where goods are put up for sale by auction in lots, each lot is the subject of a separate
contract of sale.
(2) A sale by auction is perfected when the auctioneer announces its perfection by the fall
of the hammer, or in other customary manner. Until such announcement is made, any
bidder may retract his bid; and the auctioneer may withdraw the goods from the sale unless
the auction has been announced to be without reserve.
(3) A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise
provided by law or by stipulation.
(4) Where notice has not been given that a sale by auction is subject to a right to bid on
behalf of the seller, it shall not be lawful for the seller to bid himself or to employ or induce
any person to bid at such sale on his behalf or for the auctioneer, to employ or induce any
person to bid at such sale on behalf of the seller or knowingly to take any bid from the
seller or any person employed by him. Any sale contravening this rule may be treated as
fraudulent by the buyer. (n)
Article 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof. (n)
Article 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser
until he has fully paid the price. (n)
Article 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promisor if the promise is supported by a consideration distinct from the price. (1451a)
Article 1480. Any injury to or benefit from the thing sold, after the contract has been perfected,
from the moment of the perfection of the contract to the time of delivery, shall be governed by
articles 1163 to 1165, and 1262.
This rule shall apply to the sale of fungible things, made independently and for a single price, or
without consideration of their weight, number, or measure.
Should fungible things be sold for a price fixed according to weight, number, or measure, the risk
shall not be imputed to the vendee until they have been weighed, counted, or measured and
delivered, unless the latter has incurred in delay. (1452a)
Article 1481. In the contract of sale of goods by description or by sample, the contract may be
rescinded if the bulk of the goods delivered do not correspond with the description or the sample,
and if the contract be by sample as well as description, it is not sufficient that the bulk of goods
correspond with the sample if they do not also correspond with the description.
The buyer shall have a reasonable opportunity of comparing the bulk with the description or the
sample. (n)
Article 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part
of the price and as proof of the perfection of the contract. (1454a)
Article 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute,
a contract of sale may be made in writing, or by word of mouth, or partly in writing and partly by
word of mouth, or may be inferred from the conduct of the parties. (n)
Article 1484. In a contract of sale of personal property the price of which is payable in installments,
the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void. (1454-A-a)
Article 1485. The preceding article shall be applied to contracts purporting to be leases of personal
property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment
of the thing. (1454-A-a)
Article 1486. In the case referred to in the two preceding articles, a stipulation that the installments
or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may
not be unconscionable under the circumstances. (n)
Article 1487. The expenses for the execution and registration of the sale shall be borne by the
vendor, unless there is a stipulation to the contrary. (1455a)
Article 1488. The expropriation of property for public use is governed by special laws. (1456)
I. Rules in Ordinary Sales
A. Form
a. General Rule (1483)
Article 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute,
a contract of sale may be made in writing, or by word of mouth, or partly in writing and partly by
word of mouth, or may be inferred from the conduct of the parties. (n)
1) Verbal agreement of sale

Caoili v. CA
A verbal agreement of sale is valid as long as all the essential requisites of sale are complied with.
2) Effect of lack of technical description in the contract

Naranja v. CA
To be valid, a document of a contract of sale need not contain a technical description of the subject
property. The failure of the parties to specify with absolute clarity the object of a contract by
including its technical description is of no moment. What is important is that there is concurrence
of all the essential requisites of sale.
b. Statute of Frauds applied
Art. 1403. The following contracts are unenforceable, unless they are ratified:
XXX
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum, thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received without
the writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a year from the
making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise
to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price not
less than five hundred pesos, unless the buyer accept and receive part of such goods
and chattels, or the evidences, or some of them, of such things in action or pay at
the time some part of the purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the time of the sale, of the
amount and kind of property sold, terms of sale, price, names of the purchasers and
person on whose account the sale is made, it is a sufficient memorandum;
(e) An agreement of the leasing for a longer period than one year, or for the sale of
real property or of an interest therein;
(f) A representation as to the credit of a third person.
XXX
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are
ratified by the failure to object to the presentation of oral evidence to prove the same, or by the
acceptance of benefit under them.
c. When form essential
When the sale is of goods, chattels or things in action (personal properties) at a price of 500 pesos
and above or when it not to be performed within a year from the making thereof
B. Perfection
a. General Rule
Article 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)
NOTES:
(a) When parties are face to face, when an offer is accepted without conditions and without
qualifications. (A conditional acceptance is a counter-offer.) (NOTE: If negotiated thru a phone, it
is as if the parties are face to face.)
(b) When contract is thru correspondence or thru telegram, there is perfection when the offeror
receives or has knowledge of the acceptance by the offeree. [NOTE: If the buyer has already
accepted, but the seller does not know yet of the acceptance, the seller may still withdraw. (Laudico
v. Arias, 43 Phil. 270).]
(c) When a sale is made subject to a suspensive condition, perfection is had from the moment the
condition is fulfilled. (2 Castan 26)
Coronel v. CA
The fulfillment of the positive suspensive condition in a conditional contract of sale will perfect
the contract of sale.
Manila Mining Corp. v. Tan

The acceptance by the buyer of the materials that he ordered from the seller is an indication that
there is a perfected contract of sale between them.
1) Right of examination
sample. (n)
2) Sale by description or sample
sample. (n)
Sale by description –– where seller sells things as being of a certain kind, the buyer merely relying
on the seller’s representations or descriptions. Generally, the buyer has not previously seen the
goods, or even if he has seen them, he believes (sometimes erroneously) that the description tallies
with the goods he has seen. (56 C.J. 738)
Sale by sample — that where the seller warrants that the bulk (not the major part or the majority
of the goods but the goods themselves) of the goods shall correspond with the sample in kind,
quality, and character (55 C.J. 733-734). Only the sample is exhibited. The bulk is not present, and
so there is no opportunity to examine or inspect it. (70 .R.A. 654)
Sale by description and sample –– must satisfy the requirements in both, and not in only one.
The mere exhibition of the sample does not necessarily make it a sale by sample. (L.A. Lockwood,
Jr. v. Gross, 99 Conn. 296). This exhibition must have been the sole basis or inducement of the
sale. (55 C.J. 416). A sale by sample may still be had even if the sample was shown only in
connection with a sale to the fi rst purchaser. (Wilhoff Schultze Grocer Co. v. Gross, 206 App. Div.
67). There can be sale by sample even if the sale is “as is.” (Schwartz v. Kolin, 155 N. U.S.)
Problem
Bella purchased a quantity of bed sheets which were wrapped up in bales. The sale was done in a
warehouse. Some bed sheets were pulled out, displayed, and found to be all right. Bella then
purchased 100 bales, which she later discovered to be bug-eaten. What, if any, are Bella’s rights?
ANS.: This is a sale by sample. Bella is allowed: 1) to return the bed sheets and recover the money
paid; or 2) she may retain said sheets and still sue for the breach of warranty.
b. Place of Perfection
If both parties are in the same place, then that place is the place of perfection. Otherwise, it is the
place of the seller.
C. Expenses
a. Of Execution and Registration of the sale
Article 1487. The expenses for the execution and registration of the sale shall be borne by the
vendor, unless there is a stipulation to the contrary. (1455a)
b. Of putting the goods in a deliverable state
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 the law or the stipulation of the parties requires
another standard of care. (1094a)
II. Rules in Special Sales
A. Sales at Auction (1476)
Article 1476. In the case of a sale by auction:

(1) Where goods are put up for sale by auction in lots, each lot is the subject of a separate
contract of sale.
(2) A sale by auction is perfected when the auctioneer announces its perfection by the fall
of the hammer, or in other customary manner. Until such announcement is made, any
bidder may retract his bid; and the auctioneer may withdraw the goods from the sale unless
the auction has been announced to be without reserve.
(3) A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise
provided by law or by stipulation.
(4) Where notice has not been given that a sale by auction is subject to a right to bid on
behalf of the seller, it shall not be lawful for the seller to bid himself or to employ or induce
any person to bid at such sale on his behalf or for the auctioneer, to employ or induce any
person to bid at such sale on behalf of the seller or knowingly to take any bid from the
seller or any person employed by him. Any sale contravening this rule may be treated as
fraudulent by the buyer. (n)
a. Rules
1) Validity of Supplemental Minutes on Sheriff’s Sale

Dizon v. Dizon
Considering that the auction sale has been perfected, a supplemental sale with higher consideration
at the instance of only one party (herein petitioner) could no longer be validly executed.
2) Auction sale where the seller reserved the right to reject any
and all bids
Leoquinco v. Postal Savings Bank
It is valid for the seller to reject any and all bids because the bidders are considered as the offeror
while the seller is the offeree.
B. Sales by Sample and/or Description (1481)
sample. (n)
Sale by description –– where seller sells things as being of a certain kind, the buyer merely relying
on the seller’s representations or descriptions. Generally, the buyer has not previously seen the
goods, or even if he has seen them, he believes (sometimes erroneously) that the description tallies
with the goods he has seen. (56 C.J. 738)
Sale by sample — that where the seller warrants that the bulk (not the major part or the majority
of the goods but the goods themselves) of the goods shall correspond with the sample in kind,
quality, and character (55 C.J. 733-734). Only the sample is exhibited. The bulk is not present, and
so there is no opportunity to examine or inspect it. (70 .R.A. 654)
Sale by description and sample –– must satisfy the requirements in both, and not in only one.
The mere exhibition of the sample does not necessarily make it a sale by sample. (L.A. Lockwood,
Jr. v. Gross, 99 Conn. 296). This exhibition must have been the sole basis or inducement of the
sale. (55 C.J. 416). A sale by sample may still be had even if the sample was shown only in
connection with a sale to the first purchaser. (Wilhoff Schultze Grocer Co. v. Gross, 206 App. Div.
67). There can be sale by sample even if the sale is “as is.” (Schwartz v. Kolin, 155 N. U.S.)
Problem
Bella purchased a quantity of bed sheets which were wrapped up in bales. The sale was done in a
warehouse. Some bed sheets were pulled out, displayed, and found to be all right. Bella then
purchased 100 bales, which she later discovered to be bug-eaten. What, if any, are Bella’s rights?
ANS.: This is a sale by sample. Bella is allowed: 1) to return the bed sheets and recover the money
paid; or 2) she may retain said sheets and still sue for the breach of warranty.
Sale of refrigerating machine as described in the contract
Pacific Commercial Co. v. Ermita Market and Cold Stores
The buyer cannot rescind the sale if the seller had really delivered to him the things as described
in the contract but such did not give the results expected from it.
C. Sale of Personalty payable by Installments (Recto Law)
a. Alternative remedies in case of non-payment (1484)
Article 1484. In a contract of sale of personal property the price of which is payable in installments,
the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void. (1454-A-a)
Article 1486. In the case referred to in the two preceding articles, a stipulation that the installments
or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may
not be unconscionable under the circumstances. (n)
Requisites Before Art. 1484 May Be Applied

(a) There must be a contract
(b) The contract must be one of sale (absolute sale, not a pacto de retro transaction, where
redemption is effected in installments)
(c) What is sold is personal property (sale of real property in installments is governed by
RA 6552 –– the Maceda Law –– which took effect on the date of its approval, Sept. 14,
1972). (See infra.).
(d) The sale must be on the installment plan (an installment — is any part or portion of the
buying price, including the down payment)
Purpose of the Rules For Sale of Personal Property on the Installment Plan
To prevent abuse in the foreclosure of chattel mortgages by selling at a low price and then suing
for the deficiency, is the precise purpose of the article. Otherwise, the buyer would find himself
without the property, and still indebted.
The remedies enumerated are not cumulative. They are alternative, and if one is exercised, the
others cannot be made use of. Indeed, the election of one is a waiver of the right to resort to others
(Pacific Commercial Co. v. De la Rama, 72 Phil. 380). But for this doctrine to apply, the remedy
must already have been fully exercised. If after retaking possession of the chattel, the seller desists
from foreclosure, he can still avail himself of another remedy. (See Radiowealth v. Lavin, L-18563,
Apr. 27, 1967)
Examples of the Remedies

(a) B bought a particular automobile on the installment plan. B defaulted in the payment of one of
the installments. Has the seller, S, the right to exact fulfillment of the obligation to pay? ANS.: Yes.
Remedy 1 does not require default in two or more installments, unlike in remedies Nos. 2 and 3.
[Art. 1484(1)]. How much can be successfully demanded? Generally, only the installments
defaulted can be recovered, unless there is an acceleration clause or if the debtor loses the benefit
of the term (See Art. 1198, Civil Code) should there be a DEFICIENCY in the amount collected
at the levy on execution, said deficiency can still be collected. Here, there is no foreclosure of any
chattel mortgage. (See Tajanlangit, et al. v. Southern Motors, Inc., L-10789, May 23, 1957)
(b) B bought a particular automobile but defaulted in the payment of two installments. May the
seller ask for the cancellation (resolution) of the sale? ANS.: Yes, because two installments are
already in default (Art. 1484[2])
(c) B bought a car on the installment plan, and as security, executed a chattel mortgage on it. B
failed to pay two installments. The seller foreclosed the mortgage, but the sum he obtained was
less than what B still owed him. It had been previously agreed in the deed of sale that B would be
liable for any deficiency in this matter. May the seller still sue for the deficiency? ANS.: No, for
the law says that after foreclosure, the seller-mortgagee shall have no further action against the
purchaser to recover any unpaid balance of the price. The contrary stipulation in their contract is
VOID. (Art. 1484, par. 3)
[NOTE: Where there has been no foreclosure of the chattel mortgage or a foreclosure sale, the
prohibition against further collection of the balance of the price does not apply. Thus, in one case
the seller elected to sue on the promissory note issued for the purchase price, he wanted to exact
fulfillment of the obligation to pay. When the buyer could not pay, the mortgaged goods were sold
on execution (not foreclosure proceedings). The issue was: Could the sheriff validly levy upon
other property of the buyer for the balance of the judgment debt? HELD: Yes, for the remedy
resorted to was not foreclosure of the chattel mortgage, but specific performance of the obligation
to pay. The levy on the property is indeed not a foreclosure of the mortgage but a levy on execution.
(Tajanlangit, et al. v. Southern Motors, Inc., L-10789, May 28, 1957 and Southern Motors v.
Moscoso, 2 SCRA 168)]
[NOTE: The law says that any of the aforementioned remedies “may” be exercised by the seller.
Therefore, he is not obliged to foreclose the chattel mortgage even if there be one. He may still sue
for fulfillment or for cancellation (if he does not want to foreclose). (Bachrach Motor Co. v. Millan,
61 Phil. 409). As a matter of fact, he may, in availing himself of remedy (specific performance),
ask that a real estate mortgage be executed to secure the payment of such price. In such a case, in
the event of foreclosure, there can be recovery of the deficiency. (Manila Trading v. Jalandoni,
{C.A.} O.G. Aug. 31, 1941, p. 1698)]
It is clear that when the remedy of cancellation is availed of, there must be a mutual restitution of
whatever had been received by either party, e.g., when the seller of a car on installment asks for
cancellation of the sale, the car must be returned to him, and he in turn must give back all
installment he has received, including the downpayment. Now then, the question may be asked –
– suppose the car has so deteriorated, i.e., been so “cannibalized” that the value at which it may be
resold is much less than the balance of the purchase price (e.g., while the unpaid balance may still
be P20,000, the value of the returned car, in view of its sorry state, may be only P80,000), may the
seller still recover the difference? It is believed that the answer is “yes.” Besides under Art. 1191
of the Civil Code, in case of resolution, the aggrieved party may resort to either “Special
Performance PLUS damages,” or “rescission PLUS damages.”
1) Promissory note with chattel mortgage

Macondray & Co. v. de Santos
In order to apply the provisions of article 1454-A of the Civil Code it must appear that there was
a contract for the sale of personal property payable in installments and that there has been a failure
to pay two or more installments.
2) Sale of car on straight term

Levy Hermanos v. Gervacio
A sale of personal property on a straight term will not cause the application of the Recto Law in a
case when the seller will foreclosed the chattel mortgage of the personal property. Thus, the seller
can recover the deficiency after the foreclosure.
3) Sale of truck on installment where foreclosure was not

pursued
D. Leases of Personalty with Option to Buy
Reason for Rule on Leases of Personal Property With Option to Buy

This may really be considered a sale of personal property in installments. Therefore, the purpose
of Art. 1485 is to prevent an indirect violation of Art. 1484.
Meaning of the Clause “when the lessor has deprived the lessee of the possession or enjoyment of
the thing”
This means that for failure to pay, the “lessor” is apparently exercising the right of an unpaid seller,
and has taken possession of the property. This is so even if the property had been given up in
obedience to the “lessor’s” extrajudicial demand, such surrender not really being voluntary. (U.S.
Com. Co. v. Halili, L-5535, May 29, 1953)
E. Sale of real property on installments (Maceda Law, RA 6552, Realty

Installment Buyer Protection Act)
REPUBLIC ACT No. 6552 August 26, 1972
AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL ESTATE ON INSTALLMENT

PAYMENTS
Section 1. This Act shall be known as the "Realty Installment Buyer Act."
Section 2. It is hereby declared a public policy to protect buyers of real estate on installment
payments against onerous and oppressive conditions.
Section 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding industrial lots,
commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred
forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the
buyer has paid at least two years of installments, the buyer is entitled to the following rights in
case he defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the total grace
period earned by him which is hereby fixed at the rate of one month grace period for every
one year of installment payments made: Provided, That this right shall be exercised by the
buyer only once in every five years of the life of the contract and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value
of the payments on the property equivalent to fifty per cent of the total payments made,
and, after five years of installments, an additional five per cent every year but not to exceed
ninety per cent of the total payments made: Provided, That the actual cancellation of the
contract shall take place after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act and upon full
payment of the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the computation of the
total number of installment payments made.
Section 4. In case where less than two years of installments were paid, the seller shall give the
buyer a grace period of not less than sixty days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the seller may
cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act.
Section 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same
to another person or to reinstate the contract by updating the account during the grace period and
before actual cancellation of the contract. The deed of sale or assignment shall be done by notarial
act.
Section 6. The buyer shall have the right to pay in advance any installment or the full unpaid
balance of the purchase price any time without interest and to have such full payment of the
purchase price annotated in the certificate of title covering the property.
Section 7. Any stipulation in any contract hereafter entered into contrary to the provisions of
Sections 3, 4, 5 and 6, shall be null and void.
Section 8. If any provision of this Act is held invalid or unconstitutional, no other provision shall
be affected thereby.
Section 9. This Act shall take effect upon its approval.
a. Applicability
Section 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding industrial lots,
commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred
forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine, XXX
b. Rules when the buyer has paid at least two years of installments
1) Rights of buyer
i) In case of default in payment
XXX To pay, without additional interest, the unpaid installments due within the total grace period
earned by him which is hereby fixed at the rate of one month grace period for every one year of
installment payments made. XXX
aa) Limitation
XXX Provided, That this right shall be exercised by the buyer only once in every five years of the
life of the contract and its extensions, if any. XXX
ii) In case of cancellation of sale
XXX If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of
the payments on the property equivalent to fifty per cent of the total payments made, and, after
five years of installments, an additional five per cent every year but not to exceed ninety per cent
of the total payments made: Provided, That the actual cancellation of the contract shall take place
after thirty days XXX
aa) When cancellation takes effect
XXX Provided, That the actual cancellation of the contract shall take place after thirty days from
receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value to the buyer. XXX
c. Rules when the buyer has paid less than two years of installments
Section 4. In case where less than two years of installments were paid, the seller shall give the
buyer a grace period of not less than sixty days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the seller may
cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act.
d.
1) Where the buyer paid less than 2 years installments
2) Sale of subdivision lot on installments where the buyer defaulted
F. PD No. 957 (The Subdivision and Condominium Buyers' Protective Decree)
a. Important provisions:
1) Secs. 4, 5, 7, 18, 23, 24, 25
Section 4. Registration of Projects The registered owner of a parcel of land who wishes to convert
the same into a subdivision project shall submit his subdivision plan to the Authority which shall
act upon and approve the same, upon a finding that the plan complies with the Subdivision
Standards' and Regulations enforceable at the time the plan is submitted. The same procedure
shall be followed in the case of a plan for a condominium project except that, in addition, said
Authority shall act upon and approve the plan with respect to the building or buildings included in
the condominium project in accordance with the National Building Code (R.A. No. 6541).
The subdivision plan, as so approved, shall then be submitted to the Director of Lands for approval
in accordance with the procedure prescribed in Section 44 of the Land Registration Act (Act No.
496, as amended by R.A. No. 440): Provided, that in case of complex subdivision plans, court
approval shall no longer be required. The condominium plan as likewise so approved, shall be
submitted to the Register of Deeds of the province or city in which the property lies and the same
shall be acted upon subject to the conditions and in accordance with the procedure prescribed in
Section 4 of the Condominium Act (R.A. No. 4726).
The owner or the real estate dealer interested in the sale of lots or units, respectively, in such
subdivision project or condominium project shall register the project with the Authority by filing
therewith a sworn registration statement containing the following information:
(a) Name of the owner;
(b) The location of the owner's principal business office, and if the owner is a non-resident
Filipino, the name and address of his agent or representative in the Philippines is authorized
to receive notice;
(c) The names and addresses of all the directors and officers of the business firm, if the
owner be a corporation, association, trust, or other entity, and of all the partners, if it be a
partnership;
(d) The general character of the business actually transacted or to be transacted by the
owner; and
(e) A statement of the capitalization of the owner, including the authorized and outstanding
amounts of its capital stock and the proportion thereof which is paid-up.
The following documents shall be attached to the registration statement:

(a) A copy of the subdivision plan or condominium plan as approved in accordance with
the first and second paragraphs of this section.
(b) A copy of any circular, prospectus, brochure, advertisement, letter, or communication
to be used for the public offering of the subdivision lots or condominium units;
(c) In case of a business firm, a balance sheet showing the amount and general character of
its assets and liabilities and a copy of its articles of incorporation or articles of partnership
or association, as the case may be, with all the amendments thereof and existing by-laws
or instruments corresponding thereto.
(d) A title to the property which is free from all liens and encumbrances: Provided,
however, that in case any subdivision lot or condominium unit is mortgaged, it is sufficient
if the instrument of mortgage contains a stipulation that the mortgagee shall release the
mortgage on any subdivision lot or condominium unit as soon as the full purchase price for
the same is paid by the buyer.
The person filing the registration statement shall pay the registration fees prescribed therefor by
the Authority.
Thereupon, the Authority shall immediately cause to be published a notice of the filing of the
registration statement at the expense of the applicant-owner or dealer, in two newspapers general
circulation, one published in English and another in Pilipino, once a week for two consecutive
weeks, reciting that a registration statement for the sale of subdivision lots or condominium units
has been filed in the National Housing Authority; that the aforesaid registration statement, as well
as the papers attached thereto, are open to inspection during business hours by interested parties,
under such regulations as the Authority may impose; and that copies thereof shall be furnished to
any party upon payment of the proper fees.
The subdivision project of the condominium project shall be deemed registered upon completion
of the above publication requirement. The fact of such registration shall be evidenced by a
registration certificate to be issued to the applicant-owner or dealer.
Section 5. License to sell. Such owner or dealer to whom has been issued a registration certificate
shall not, however, be authorized to sell any subdivision lot or condominium unit in the registered
project unless he shall have first obtained a license to sell the project within two weeks from the
registration of such project.
The Authority, upon proper application therefor, shall issue to such owner or dealer of a registered
project a license to sell the project if, after an examination of the registration statement filed by
said owner or dealer and all the pertinent documents attached thereto, he is convinced that the
owner or dealer is of good repute, that his business is financially stable, and that the proposed sale
of the subdivision lots or condominium units to the public would not be fraudulent.
Section 7. Exempt transactions. A license to sell and performance bond shall not be required in
any of the following transactions:
(a) Sale of a subdivision lot resulting from the partition of land among co-owners and co-
heirs.
(b) Sale or transfer of a subdivision lot by the original purchaser thereof and any subsequent
sale of the same lot.
(c) Sale of a subdivision lot or a condominium unit by or for the account of a mortgagee in
the ordinary course of business when necessary to liquidate a bona fide debt.
Section 18. Mortgages. No mortgage on any unit or lot shall be made by the owner or developer
without prior written approval of the Authority. Such approval shall not be granted unless it is
shown that the proceeds of the mortgage loan shall be used for the development of the
condominium or subdivision project and effective measures have been provided to ensure such
utilization. The loan value of each lot or unit covered by the mortgage shall be determined and the
buyer thereof, if any, shall be notified before the release of the loan. The buyer may, at his option,
pay his installment for the lot or unit directly to the mortgagee who shall apply the payments to
the corresponding mortgage indebtedness secured by the particular lot or unit being paid for, with
a view to enabling said buyer to obtain title over the lot or unit promptly after full payment thereto;
Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision

or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the
owner or developer when the buyer, after due notice to the owner or developer, desists from further
payment due to the failure of the owner or developer to develop the subdivision or condominium
project according to the approved plans and within the time limit for complying with the same.
Such buyer may, at his option, be reimbursed the total amount paid including amortization interests
but excluding delinquency interests, with interest thereon at the legal rate.
Section 24. Failure to pay installments. The rights of the buyer in the event of his failure to pay
the installments due for reasons other than the failure of the owner or developer to develop the
project shall be governed by Republic Act No. 6552.
Where the transaction or contract was entered into prior to the effectivity of Republic Act No.
6552 on August 26, 1972, the defaulting buyer shall be entitled to the corresponding refund based
on the installments paid after the effectivity of the law in the absence of any provision in the
contract to the contrary.
Section 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to the
buyer upon full payment of the lot or unit. No fee, except those required for the registration of the
deed of sale in the Registry of Deeds, shall be collected for the issuance of such title. In the event
a mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer,
the owner or developer shall redeem the mortgage or the corresponding portion thereof within six
months from such issuance in order that the title over any fully paid lot or unit may be secured and
delivered to the buyer in accordance herewith.
Chapter 2
Capacity to Buy or Sell
Arts. 1489-1492
Article 1489. All persons who are authorized in this Code to obligate themselves, may enter into
a contract of sale, saving the modifications contained in the following articles.
Where necessaries are sold and delivered to a minor or other person without capacity to act, he
must pay a reasonable price therefor. Necessaries are those referred to in article 290. (1457a)
Article 1490. The husband and the wife cannot sell property to each other, except:
(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation of property under article 191. (1458a)
Article 1491. The following persons cannot acquire by purchase, even at a public or judicial
auction, either in person or through the mediation of another:
(1) The guardian, the property of the person or persons who may be under his guardianship;
(2) Agents, the property whose administration or sale may have been intrusted to them,
unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under administration;
(4) Public officers and employees, the property of the State or of any subdivision thereof,
or of any government-owned or controlled corporation, or institution, the administration of
which has been intrusted to them; this provision shall apply to judges and government
experts who, in any manner whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other
officers and employees connected with the administration of justice, the property and rights
in litigation or levied upon an execution before the court within whose jurisdiction or
territory they exercise their respective functions; this prohibition includes the act of
acquiring by assignment and shall apply to lawyers, with respect to the property and rights
which may be the object of any litigation in which they may take part by virtue of their
profession;
(6) Any others specially disqualified by law. (1459a)
Article 1492. The prohibitions in the two preceding articles are applicable to sales in legal
redemption, compromises and renunciations. (n)
I. Parties and their Consent
A. Capacity in general (1489)
Article 1489. All persons who are authorized in this Code to obligate themselves, may enter into
a contract of sale, saving the modifications contained in the following articles.
Where necessaries are sold and delivered to a minor or other person without capacity to act, he
must pay a reasonable price therefor. Necessaries are those referred to in article 290. (1457a)
B. Special Disqualifications
a. Between spouses
Article 1490. The husband and the wife cannot sell property to each other, except:
(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation of property under article 191. (1458a)
Reason Why Generally a Husband and Wife Cannot Sell to Each Other
To avoid prejudice to third persons; to prevent one spouse from unduly influencing the other; to
avoid by indirection the violation of the prohibition against donations.
Generally, a sale by one spouse to another is void. (Uy Siu Pin v. Cantollas, 40 O.G. No. 11 [7th
S], p. 197) However, not everybody can assail the validity of the transaction. Thus, creditors who
became such after the transaction cannot assail its validity for the reason that they cannot be said
to have been prejudiced. (Cook v. McMicking, 27 Phil. 10). But prior creditors (creditors at the
time of transfer) as well as the heirs of either spouse may invoke the nullity of the sale. The spouses
themselves since they are parties to an illegal act, cannot avail themselves of the illegality of the
sale. The law will generally leave them as they are.
Just as a married couple cannot generally sell to each other, they also generally cannot donate to
each other. (Art. 87, Family Code). Incidentally, this prohibition about donating to each other
applies also to COMMON-LAW husband and wife on the theory that here there can be an even
greater degree of undue influence; furthermore, if they will be allowed while those lawfully
married will generally be prohibited, this would be giving a reward to illicit relationship. (See
Buenaventura v. Bautista, 50 O.G. 3679, C.A.; See also Cornelia Matabuena v. Petronila
Cervantes, L-28771, Mar. 31, 1971)
1) Effect of sale of land to one’s own spouse
2) Transfer in common law relationship
b. By a spouse without consent of the other spouse
Art. 96. The administration and enjoyment of the community property shall belong to both spouses
jointly. In case of disagreement, the husband's decision shall prevail, subject to recourse to the
court by the wife for proper remedy, which must be availed of within five years from the date of
the contract implementing such decision.
In the event that one spouse is incapacitated or otherwise unable to participate in the administration
of the common properties, the other spouse may assume sole powers of administration. These
powers do not include disposition or encumbrance without authority of the court or the written
consent of the other spouse. In the absence of such authority or consent, the disposition or
encumbrance shall be void. However, the transaction shall be construed as a continuing offer on
the part of the consenting spouse and the third person, and may be perfected as a binding contract
upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn
by either or both offerors. (206a)
Art. 98. Neither spouse may donate any community property without the consent of the other.
However, either spouse may, without the consent of the other, make moderate donations from the
community property for charity or on occasions of family rejoicing or family distress. (n)
c. Persons in trust relations
1) Sale to agent: Exception to prohibition against sale by

principal in favor of his agent
XXX
(2) Agents, the property whose administration or sale may have been intrusted to them,
unless the consent of the principal has been given;
XXX
An agent is not allowed, without his principal’s permission, to sell to himself what he has been
ordered to buy; or to buy for himself what he has been ordered to sell. (Moreno v. Villones, 40
O.G. No. 11, p. 2322). The fiduciary relations between them estop the agent from asserting a title
adverse to that of the principal. (Severino v. Severino, 44 Phil. 343). And therefore such a sale to
himself would be ineffectual and void, because it is expressly prohibited by law. (Barton v. Leyte
Asphalt & Mineral Oil Co., 46 Phil. 938). The agent may, of course, buy after the termination of
the agency. (Valera v. Vela, 51 Phil. 695).
2) Sale to guardians
(1) The guardian, the property of the person or persons who may be under his guardianship;
XXX
3) Sale to public officers
XXX
(4) Public officers and employees, the property of the State or of any subdivision thereof,
or of any government-owned or controlled corporation, or institution, the administration of
which has been intrusted to them; this provision shall apply to judges and government
experts who, in any manner whatsoever, take part in the sale;
XXX
4) Sale/transfer to attorney
XXX
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other
officers and employees connected with the administration of justice, the property and rights
in litigation or levied upon an execution before the court within whose jurisdiction or
territory they exercise their respective functions; this prohibition includes the act of
acquiring by assignment and shall apply to lawyers, with respect to the property and rights
which may be the object of any litigation in which they may take part by virtue of their
profession;
XXX
A lawyer is not allowed to purchase the property of his client which is in litigation. (Hernandez v.
Villanueva, 40 Phil. 775). To do otherwise would be a breach of professional conduct (Beltran v.
Fernandez, 40 O.G., p. 84), and would constitute malpractice. (In re Attorney Melchor Ruste, 40
O.G., p. 78). But assigning the amount of the judgment by the client to his attorney, who did NOT
take any part is the case where said judgment was rendered, is valid. (Mun. Council of Iloilo v.
Evangelista, 56 Phil. 290). A thing is said to be in litigation not only if there is some contest or
litigation over it in court, but also from the moment that it became subject to the judicial action of
the judge. (Gan Tingco v. Pobinguit, 35 Phil. 91). Art. 1491 does not prohibit a lawyer from
acquiring a certain percentage of the value of the properties in litigation that may be awarded to
his client. A contingent fee based on such value is allowed. (Recto v. Harden, L-6897, Nov. 29,
1956).
C. Incapacity to Sell
a. Homesteaders
CA 141, SECTION 118. Except in favor of the Government or any of its branches, units, or
institutions, lands acquired under free patent or homestead provisions shall not be subject to
encumbrance or alienation from the date of the approval of the application and for a term of five
years from and after the date of issuance of the patent or grant, nor shall they become liable to the
satisfaction of any debt contracted prior to the expiration of said period, but the improvements or
crops on the land may be mortgaged or pledged to qualified persons, associations, or corporations.
No alienation, transfer, or conveyance of any homestead after five years and before twenty-five
years after issuance of title shall be valid without the approval of the Secretary of Agriculture and
Commerce, which approval shall not be denied except on constitutional and legal grounds.
1) Sale of portions of a parcel of land (1) prior to issuance and

(2) within 5 years from issuance of free patent
2) Effect of verbal sale within 5 year prohibitory period
D. When an incompetent buys

E. Effect of forbidden sales
Chapter 3
Effects of the Contract When the Thing Sold has been Lost
Arts. 1493-1494
Art. 1493. If at the time the contract of sale is perfected, the thing which is the object of the contract
has been entirely lost, the contract shall be without any effect.
But if the thing should have been lost in part only the vendee may choose between withdrawing
from the contract and demanding the remaining part, paying its price in proportion to the total sum
agreed upon.
Art. 1494. Where the parties purport a sale of specific goods, and the goods without the knowledge
of the seller have perished in part or have wholly or in a material part so deteriorated in quality as
to be substantially changed in character, the buyer may at his option treat the sale:
(1) As avoided; or
(2) As valid in all of the existing goods or in so much thereof as have not deteriorated, and
as binding the buyer to pay the agreed price for the goods in which the ownership will pass,
if the sale was divisible.
I. Distinction
A. Effect of Loss of the Thing Sold
The loss pertains to the owner of the thing at the time of the loss. Res perit domino.
a. At the time of perfection
The loss pertains to the seller being still the owner of the thing sold.
1) Total loss (1493)
Art. 1493. If at the time the contract of sale is perfected, the thing which is the object of the contract
has been entirely lost, the contract shall be without any effect. XXX
2) Partial loss (1494)
(1) As avoided; or
3) Deterioration (1494)
(1) As avoided; or
b. After perfection and before delivery (risk of loss)
The loss pertains to the seller being still the owner of the thing sold. However, after delivery, the
loss pertains to the buyer for he is now deemed to be the owner.
1) By the fault of one party (1480, 1538)
Art. 1480. Any injury to or benefit from the thing sold, after the contract has been perfected, from
the moment of the perfection of the contract to the time of delivery, shall be governed by Articles
1163 to 1166, and 1262.
shall not be imputed to the vendee until they have been weighed, counted, or measured, and
delivered, unless the latter has incurred in delay.
Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished
if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing
does not extinguish the obligation, and he shall be responsible for damages. The same rule applies
when the nature of the obligation requires the assumption of risk. (1182a)
1) By fortuitous event (1480, 1504, 1538)
Art. 1480. Any injury to or benefit from the thing sold, after the contract has been perfected, from
the moment of the perfection of the contract to the time of delivery, shall be governed by Articles
1163 to 1166, and 1262.
shall not be imputed to the vendee until they have been weighed, counted, or measured, and
delivered, unless the latter has incurred in delay.
Art. 1504. Unless otherwise agreed, the goods remain at the seller’s risk until the ownership therein
is transferred to the buyer, but when the ownership therein is transferred to the buyer, the goods
are at the buyer’s risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in the goods has been retained by the seller
merely to secure performance by the buyer of his obligations under the contract, the goods
are at the buyer’s risk from the time of such delivery.
(2) Where actual delivery has been delayed through the fault of either the buyer or seller
the goods are at the risk of the party in fault.
Art. 1538. In case of loss, deterioration or improvement of the thing before its delivery, the rules
in article 1189 shall be observed, the vendor being considered the debtor.
Art. 1189. When the conditions have been imposed with the intention of suspending the efficacy
of an obligation to give, the following rules shall be observed in case of the improvement, loss or
deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages;
it is understood that the thing is lost when it perishes, or goes out of commerce, or
disappears in such a way that its existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to be
borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the
rescission of the obligation and its fulfillment, with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the
benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than that
granted to the usufructuary. (1122)
Gaisano Cagayan Inc. v. Insurance Company of North

America, 2006
Levi Strauss remains to be the owner despite the delivery to Gaisano for the purpose of securing
the debt of the latter. However, the loss pertains to Gaisano even if ownership is with Levi Strauss
pursuant to Art. 1504 (1). Hence, Gaisano is still liable to pay the amount of the things lost to Levi
Strauss.

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Chapter 1

Nature anSd Form of the Contract

A contract of sale may be absolute or conditional.

Manila Metal Container Corp. v. PNB

Toyota Shaw, Inc. v. CA

a. Effects of presence, absence, incomplete elements

Onerous, because to acquire the rights, valuable consideration must be given

g. Delivery transfers ownership

a. vs. agency to sell (1466)

b. vs. lease of service or contract for a piece of work (1467)

Rules to Determine if the Contract is One of Sale or a Piece of Work:

1. Nature of transactions of company engaged in the design, supply and

c. vs. barter (1468)

Rules to Determine Whether Contract is One of Sale or Barter:

d. vs. dation in payment

Sale Dation in payment

1. There is no pre-existing credit. 1. There is a pre-existing credit.

2. Gives rise to obligations. 2. Extinguishes obligations.

e. vs. lease of things

Donation is gratuitous while sale is onerous.

E. Promise to Sell: when binding (1479)

ii) Remedy of optionee for breach

2. Right of First Refusal

b. Conditional, which may in turn be –

G. Contract of Sale v. Contract to Sell

H. Contract to Sell v. Conditional Sale

The sale of a vain hope or expectancy is void. (n)

A. Qualities – The object must be:

a. Lawful (Art. 1459)

Things may be illicit:

1. Sale by co-heir of definite portion of estate prior to partition

2. Effect of agreement where the exact number of palay to be

c. Existing, or Future or Contingent (Art. 1462)

Future goods are those still to be:

(NOTE: This is also referred to as the sale of “hereafter-acquired” property.)

1. Sale of future inheritance

1. Sale by mortgagee of land not proper subject of mortgage

2. Conveyance of privilege to purchase land before it is awarded

Heirs of Arturo Reyes v. Beltran

General principle in the agreement as to price

a. The price must be real (1471)

1. Effect if price is simulated

2. Effect if there is no consideration

If there is no cause or consideration, the contract of sale is void.

b. In money or its equivalent (1458)

A contract of sale may be absolute or conditional. (1445a)

This is the cause or consideration. The price need not be in money.

Barreto v. Sta. Maria

ii) By the courts

iii) By reference to a definite day, etc.

iv) By reference to invoices

HELD: Yes, in view of the reference to certain amounts

v) By application of known facts

Sale of improvements introduced in hacienda

3. Effect of inadequacy of price (1470)

4. Effect of failure of consideration

B. Earnest money (1482)

Under the Civil Code, earnest money is considered:

Manila Metal Container Corporation v. PNB

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

I. Rules in Ordinary Sales

a. General Rule (1483)

1) Verbal agreement of sale

2) Effect of lack of technical description in the contract