Sales-C1

Nature & Form of Contracts of Sale

ARTICLE 1458:  The term “goods” as used in the Uniform Sales Act does not ordinarily
By contract of sale one of the contracting parties obligate include choses in action (things in action). Neither does the term include
himself to transfer the ownership and to deliver a money.
determinate thing, and the other to pay therefore a price
certain in money or its equivalent. d. As to the validity or defect of the transaction
1. valid sale
Sales 2. rescissible sale
– a contract where one party (seller or vendor) obligates himself to transfer 3. voidable sale
the ownership of and to deliver a determinate thing, while the other party 4. unenforceable sale
(buyer or vendee) obligates himself to pay for said thing a price certain 5. void sale
in money or its equivalent. e. As to the legality of the object
1. sale of a licit object
- The vendor need not be the owner at the time the sale is perfected. It is 2. sale of an illicit object
sufficient that he is the owner at the time the thing sold is deliver. f. As to the presence or absence of conditions
- Suppose Art. 1458 did not specify that the seller must transfer the 1. absolute sale (no condition)
ownership of the object, he still have this obligation for after all the 2. conditional sale (as to whether there is a sale with a pacto de retro, a right
transfer of ownership is the fundamental aim of the contract. A buyer is to repurchase or redeem; or when there are suspensive conditions, or when
not interested in a mere physical transfer, he is after the ownership. 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
Essential Characteristics of the Contract of Sale personal properties in an army depot would be sold “except all combat
a. Consensual materials” that may be found therein. Therefore such combat materials
– perfected by mere consent. should be excluded from sale.)
b. Bilateral reciprocal g. As to whether wholesale or resale
– both parties are bound by obligations dependent upon each other. 1. wholesale –if to be resold for a profit the goods being unaltered when
c. Onerous resold, the quantity being large.
– to acquire the rights, valuable consideration must be given. 2. retail – if otherwise (also sold to tailors)
d. Commutative h. A to the proximate inducement for the sale
– the values exchanged are almost equivalent to each other. 1. sale by description
Note: By way of exception, some contracts are aleatory. Ex: Sale of a genuine 2. sale by sample
sweepstakes ticket. 3. sale by description and sample
e. Principal (as distinguished from accessory contract) i. As to whether the price is tendered
– there is no necessity for it to depend upon the existence of another valid 1. cash sale
contract. (Ex: Contracts of pledge and mortgage) 2. sale on the installment plan
f. Nominate (as distinguished from an innominate contract)
– a special designation or name. (Ex: the contract of sale) Sale distinguished from “Dation in Payment”
(Adjudicacion en Pago, or Dacion en Pago or Dacion en Solutum)
Elements of the Contract of Sale
a. Essential elements (those without which there can be no valid sale) SALE DATION IN PAYMENT
Consent or meeting of the minds 1. There is no pre-existing credit. 1. There is a pre-existing credit.
– (Ex: consent to transfer ownership I exchange for the price. 2. Gives rise to obligations. 2. extinguishes obligations.
Determinate subject matter 3. The cause or consideration 3. The cause or consideration here,
- (generally there is no sale of generic thing; moreover, if the parties differ here is the price, from the from the viewpoint of the person
as to the object, there can be no meeting of the minds. viewpoint of the seller, or the offering the dation in payment, is the
Price certain in money or its equivalent obtaining of the object, for the extinguishin of his debt; from the
– (This is the cause or consideration) (The price need not be in money.) viewpoint of the buyer. viewpoint of the4 creditor, it is the
4. There is greater freedom in the acquisition of the object offered in
b. Natural elements (those which are inherent in the contract, and which in determination of the price. lieu of the original credit.
the absence of any contrary provision, are deemed to exist in the contract.) 5. The giving of the price may 4. There is less freedom in the
1. warranty against eviction (deprivation of the property bought) generally end the obligation of determination of the price.
2. warranty against hidden defects the buyer. 5. The giving of the object in lieu of
the credit may extinguish completely
c. Accidental elements (those which may be present or absent in the or partially the credit (depending on
stipulation, such as the place or time of payment, or the presence of the agreement)
conditions.)
Contract of Sale distinguished from Contract to Sell
Stages in the Contract of Sale
1. Generation or negotiation CONTRACT OF SALE CONTRACT TO SELL
2. Perfection – meeting of the minds 1. The non-payment of price is a 1. The payment in full of the price is
3. Consummation – when the object is delivered and the price is paid. resolutory condition. (ex: the a positive suspensive condition.
contract of sale may by such Hence, if the price is not paid, it is as
Kinds of Sales occurrence put an end to a if the obligation of the seller to
a. As to the nature of the subject matter transaction that once upon a time deliver and to transfer ownership
1. sale of real property existed.) never became effective and binding.
2. sale of personal property 2. Title to the property generally 2. Ownership is retained by the seller,
b. As to the value of the things exchanged passes to the buyer upon regardless of delivery and is not to
1. commutative sale delivery. pass until full payment of the price.
2. aleatory sale 3. After delivery has been made, 3. Since the seller retains ownership,
c. As to whether the object is tangible or intangible the seller has lost ownership and despite delivery, he is enforcing and
1. sale of property (tangible or corporeal) cannot recover it unless the not rescinding the contract if he seeks
2. sale of a right (assignment of a right or a credit, or some other intangibles contract is resolved or rescinded. to oust the buyer for failure to pay.
such as a copyright, a trademark, or goodwill.)
tangible – chose of possession.
intangible – chose of action.
 Sales-C1
Nature & Form of Contracts of Sale
Sale distinguished from Assignment of Property in Favor of Creditors * While there can be sale of future property, there can generally be no
(Cession or Cession de Bienes) donation of future property.
SALE CESSION d. A person has a right over a thing (although he is not the owner of the thing
1. As defined, there is transfer of 1. The assignee or creditor does not itself) may sell such right. Hence, a usufructuary may generally sell his
ownership and delivery of a acquire ownership over the things usufructuary right/
determinate thing. assigned, but only the right to sell e. If the buyer was already the owner of the thing sold at the time of sale,
said things. there can be no valid contract.

Cession ARTICLE 1460:

– consists in the abandonment of all the property of the debtor for the A thing is determinate when it is particularly designated or
benefit of his creditors in order that the latter may apply the proceeds physically segregated from all others of the same class.
thereof to the satisfaction of their credits. The requisite that a thing be determinate is satisfied if at the
time the contract is entered into, the thing is capable of being
Dacion in payment distinguished from Cession made determinate without the necessity of a new or further
DATION IN PAYMENT CESSION agreement between the parties.
1. One creditor is sufficient. 1. There must be two or more
2. Not all properties of the debtor creditors. Determinate
are conveyed. 2. All the debtor’s properties are – specific, but it is not essential really that at the time of perfection, the
3. Debtor may be solvent or conveyed. object be already specific. It is sufficient that it be capable of being
insolvent. 3. Cession takes place only if the determinate without need of any new agreement. Thus, there can be a
4. The creditor becomes the owner debtor is insolvent. sale of 20 kilos of sugar of a named quality.
of the thing conveyed. 4. The creditors do not become
owners of the thing conveyed.  However, from the viewpoint of risk or loss, not until the object has
really been made determinate can we say that the object has been lost, for
Sale distinguished from lease as is well known, “generic thins cannot be lost.”
In a sale, the seller transfers ownership; in a lease, the lessor or landlord
transfers merely the temporary possession and use of the property. ARTICLE 1461:
Things having a potential existence may be the object of the
Kinds of Extrajudicial Foreclosure Sale contract of sale.
Ordinary execution The efficacy of the sale of a mere hope or expectancy is
– governed by the pertinent provisions of Rule 39 of the Rules of Court. deemed subject to the condition that the thing will come into
Judicial foreclosure existence.
– governed by Rule 68 of the Rules of Court.
Extrajudicia foreclosure The sale of a vain hope or expectancy is void.
– governed by Act 3135, as amended by Act 4118, otherwise known as Selling a thing having a potential existence
“An Act to Regulate the Sale of Property Under Special Powers Inserted – this is a future thing that may be sold.
In or Annexed to Real Estate Mortgages.” Examples:
a. young animals not yet in existence or still ungrown fruits.
ARTICLE 1459: b. the wine that a particular vineyard is expected to produce.
The thing must be licit and the vendor must have a right to c. the wool that shall, thereafter, grow upon a sheep
transfer the ownership thereof at the time it is delivered. d. the expected goodwill of a business enterprise

Lawfulness of the Object and Right to Transfer Ownership the sale of “a mere hope or expectancy”
Two rules: – should refer to a sale of “an expected thing” not to the hope or
a. The object must be LICIT. expectancy for the hope or expectancy already exists.
b. The object must have the RIGHT to transfer OWNERSHIP at the time
the object is delivered. Emptio Rei Sperati (Sale of an expected thing)
Licit – lawful, within the commerce of man. distinguished form Emptio Spei (Sale of the hope itself)
Emptio Rei Sperati (Sale of an Emptio Spei (Sale of the hope
Things may be illicit: expected thing) itself)
1. per se (of its nature) Ex: Sale of human flesh for human pleasure. 1. If the expected thing does not 1. It does not matter whether the
2. per accidens (made illegal by provision of the law) Ex: sale of land to an materialize, the sale is not expected thing materialized or not,
alien after the effective date of the Constitution; Sale of illegal lottery effective. what is important is that the hope
tickets. 2. Deals with a future thing – that itself validly existed.
* If the object of sale is illicit, the contract is null and void. (Art 1409), and which is expected. 2. Deals with a present thing – for
cannot, be ratified. Ex: Sale of a valid sweepstakes certainly the hope or expectancy
* The right of redemption may be sold. So also may literary, artistic, and ticket whether it wins or not, the already exists.
scientific works. A usufruct may also be sold. sale itself is valid.

Transfer 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. Nemo dat quad non
habet – nobody can dispose of that which does not belong to him.
b. 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.
* The contract of sale by itself, is not a mode of acquiring ownership.
* The contract transfers no real rights; it merely causes certain
obligations to arise.
c. The seller need not be the owner at the time of perfection because, after
all, “future things or goods” inter alia, ,may be sold.
* If the hope or expectancy itself is vain, the sale is itself void. BE it noted
that this is not an aleatory contract for while in an aleatory contract there is an
element of chance, here, there is completely no chance. (Ex: Sale of a losing
ticket for a sweepstakes already run. Except if the ticket be a collector’s item)
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.

 Goods may be future or existing goods.
Future goods
a. Those still to be manufactured (like a future airplane) or printed (like a
subscription to a newpaper)
b. Those still to be raised (like young animals, whether already conceived
or not at the same time of perfection of the contract), or future
agricultural products (like copra still to be manufactured.)
c. Those still to be acquired by seller after the perfection of the contract
(like land which the seller expects to buy.) 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. Ex: I can sell you now a specific car which my father
promised to give me, should I pass the bar next year. 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.
ARTICLE 1463:
The sole owner of a thing may sell an undivided interest
therein.
Example of Sale of undivided interest
a. If I own a house, I may sell an aliquot part thereof (say ½ or 1/3) to
somebody, in which case he and I will become co-owners.
b. A full owner may sell the usufruct of his land leaving the naked
ownership to himself.
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
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.
Example of Share in a Specific Mass
- In a stock of rice, the exact number of cavans which is still unknown,
Jose buys 100 cavans. If there are really 150, Jose becomes co-owner of
the whole lot, his own share being 2/3 thereof. The sale is of a specific
object since the mass is specific.
ARTICLE 1465:
Things subject to a resolutory condition may be the object
of the contract sale.
Sale of things subject to a Resolutory Condition
a. A property subject to reserve troncal may be sold.
b. A usufruct that may end when the naked owner becomes a lawyer may
be sold.
ARTICLE1466:
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.
Contract of Sale distinguished from Agency to Sell (like a Consignment for
Sale)
CONTRACT OF SALE AGENCY TO SELL
1. The buyer pays the price. 1. The agent delivers the price
2. The buyer after delivery which in turn he got from his
becomes the owner. buyer.
3. The seller warrants. 2. The agent who is supposed to
sell does not become the owner,
even if the property has already
Sales-C1
Nature & Form of Contracts of Sale
been delivered to him.
3. The agent who sells assumes no
personal liability as long as he acts within
his authority and in the name of the
principal.
Article 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
Schools of Thought
a. Massachusetts Rule
– If specially done at the order of another, this is a contract for a piece of
work.
b. New York Rule
– If the thing already exists, it is a SALE; if not, WORK.
c. English Rule
– If material is more valuable, sale; if skill is more valuable, work.
ARTICLE 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
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 specified person or persons.
Should such person or persons be unable or unwilling to fix
it, the contract shall be inefficacious, unless the parties
subsequently agree upon the price.
If the third person or persons acted in bad faith, or by
mistake, the courts may fix the price.
Where such third person or persons are prevented from
fixing the price or terms by fault of the seller or the buyer,
the party in fault as are allowed the seller or the buyer, as
the case may be.
Certainty of the Price
 The price must be certain; otherwise, there is no true consent between the
parties.
 There can be no sale without a price.
 If the price is fixed but is later on remitted or condoned, this is perfectly
all right, for then the price would not be fictitious.
 The failure to pay the agreed price does not cancel a sale for lack of
consideration, for the consideration is still there, namely, the price.
 If the money paid is counterfeit, the sale would still be valid for we
cannot say that the consideration or cause of the contract is the illegal
currency. The real consideration or caused is still the VALUE or price
agreed upon.

When no specific amount is stipulated
If no specific amount has been agreed upon, the price is still considered
certain:
a. If it be certain with reference to another thing certain.
b. If the determination of the price is left to the judgment of a specified
person or persons.
c. In the cases provided for under Art. 1472, Civil Code.
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.
Effect of Gross Inadequacy of Price
a. In ordinary sale, the sale remains valid even if the price is very low. If
there was vitiated consent (such as fraud, or undue influence is present)
the contract may be annulled but only due to such vitiated consent.
b. In execution of judicial sales – While mere inadequacy of price will not
set aside a judicial sale of real property, still if the price is so inadequate
as to shock the conscience of the Court, it will not be set aside.
In case Contract was really a Donation
- 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.
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.
Simulated price
a. 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. An action for annulment is therefore not essential.
b. 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.
Fictitious sale
- If the sale of conjugal property is fictitious and therefore non-existent,
the widow who has an interest in the property subject of the sale may be
allowed to contest the sale, even BEFORE the liquidation of the conjugal
partnership, making the executor a party-defendant if he refuses to do so.
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 exhange or
market, provided said amount be certain.
Certainty of Price of Securities
Ex: I can sell to you today my Mont Blanc fountain pen at the price
equivalent to the stock quotation two days from today of 100 shares of
PLDT.
If stock market price cannot be ascertained
- If the stock quotation price two days later cannot really be ascertained at
that time (2 days later), the sale is inefficacious.
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.
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Nature & Form of Contracts of Sale
Price cannot be left to one’s party’s discretion
Reason: The other could not have consented to the price, for he did not
know what is was.
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 therefore. What is a reasonable price
is a question of fact dependent on the circumstances of each
particular case.
Effect if the price cannot be determined
a. If the price cannot really be determined, the sale is void for the buyer
cannot fulfill his duty to pay.
b. If the buyer has made use of it, he should not be allowed to enrich himself
unjustly at another’s expense. So he must pay a “reasonable price.” The
seller’s price, however, must be the one paid if the buyer knew how much
the seller was charging and there was an acceptance of the goods
delivered. Here, there is an implied assent to the price fixed.
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.
Nature of Contract
Sale is a consensual contract (perfected by mere consent). Therefore, delivery
or payment is not essential for perfection.
Note: The contract of sale is consummated upon delivery and payment.
Requirements for Perfection
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.
c. When a sale is made subject to a suspensive condition, perfection is had
from the moment the condition is fulfilled.
Before perfection
 Before perfection of the contract of sale, no mutual rights and obligations
exist between the would-be buyer and the would-be seller. The same
thing is true when perfection is conditioned upon something, and that
thing is not performed.
Accepted Bilateral Promise to Buy and Sell
 In a sense similar to, but not exactly the same as, a perfected contract of
sale.
Note: From the moment the parties have agreed upon the kind of rice and the
price thereof, they are deemed to have entered into a perfected contract of
purchase and sale, the terms and conditions of which may not be held to
depend on subsequent events or acts of the parties unless the contrary is
stipulated. The mere fact that the seller thereafter sells an object of the same
kind to another at a lesser price is no ground for the previous buyer to be
entitled to claim the excess, his contract being independent of the other.
Formalities for Perfection
Under the statute of Frauds, the sale of:
a. Real Property (regardless of the amount)
b. Personal Property (if 500 or more must be in writing to be enforceable.
* If orally made, it cannot be enforced by a judicial action, except if it has
been completely or partially executed, or except if the defense of the
Statute of Frauds is waived.

Note: Also in writing should be sales which are to be performed only after
more than one year (from the time the agreement was entered into) –
regardless as to whether the property is real or personal, and regardless of the
price involved.
Perfection in the Case of Advertisements
 Advertisements are mere invitations to make an offer (Art. 1325, Civil
Code) and, therefore, one cannot compel the advertiser to sell.
Transfer of Ownership
a. Mere perfection of the contract does not transfer ownership. Ownership
of the object sold is transferred only after delivery (tradition), actual,
legal or constructive.
The rule is, therefore, this: After delivery of the object, ownership is
transferred.
b. It is valid If it is stipulated that even with delivery there will be no
change or transfer of ownership till the purchase price has been fully
paid. (But the stipulation is not binding on innocent third persons such as
customers at a store. The customers must not be prejudiced.
The Sales Tax
Even if the object sold has not yet been delivered, once there has been a
meeting of the minds, the sale is perfected and, therefore, the sales tax (15%
on the gross) is already due. It accrues on perfection, not on the
consummation of the sale.
 Retail sales of flour to bakeries to be manufactured into bread are
subject to tax; if wholesale, they are not subject to tax.
 To determine if a sale is wholesale or retail, we must not consider the
quantity sold, but the character of the purchase. If the buyer buys the
commodity for his own consumption, the sale is RETAIL, if for resale,
the sale is deemed wholesale, regardless of quantity, and is not subject
to the particular tax referred to.
 In sales of textiles, if it be bought for resale at a profit, the goods being
unaltered when resold, the original sale is wholesale. If he resells the
goods only after altering them by using his skill (as when he
transforms them to shirts), the original sale is retail. Same rule applies
in the case of the retail of the following:
1. Copra for the manufacture of soap or oleomargarine.
2. Hemp used to make twine or rope
3. In general, raw materials that are used in or that entered into
the manufacture of finished products.
Effect of Perfection
- After perfection the parties must now comply with their mutual
obligations. Thus, for example, the buyer can now compel the seller to
deliver to him the object purchased. In the meantime, the buyer has only
the personal, not a real right. Hence, if the seller sells again a parcel of
land to a stranger who is in good faith, the proper remedy of the buyer
would be to sue for damages.
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 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 behalf of the seller
or any person employed by him. Any sale contravening this
rule may be treated as fraudulent by the buyer.
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Nature & Form of Contracts of Sale
When Sale by Auction is Perfected
 The sale is perfected when the auctioneer announces its perfection by the
fall of the hammer or in other customary manner.
Before the Fall of the Hammer
- The bidder may retract hi bid because every bidding is merely an offer
and, therefore, before it is accepted, it may be withdrawn. The assent is
signified on the part of the seller by knocking down the hammer.
- The Auctioneer may withdraw the goods from the sale, unless the auction
has been announced to be without reserve. Reason: The bid is merely an
offer, not an acceptance of an offer to sell. Therefore, it can be rejected.
What the auctioneer does in withdrawing is merely reject the offer.
Conditions when a seller may bid
a. Provided such a right to bid was reserved;
b. and notice was given that the sale by auction is subject to a right to bid on
behalf of the seller.
 A seller may employ others to bid for him provided he has notified the
public that the auction is subject to the right to bid on behalf of the seller.
People who bid for the seller, but are not themselves bound, are called
“by-bidders” or “puffers.” In view of the notice, there would not be any
fraud, and the transaction with the rest should be considered as valid.
Without the notice, any sale contravening the rule may be treated by the
buyer as fraudulent. In other words, the purchaser could be relieved from
his bid.
Note: It may happen that the owner is not himself the auctioneer. Now then if
the auctioneer employs puffers and gives no notice to the public, the sale
would still be fraudulent, whether or not the owner of the goods knew what
the auctioneer had don
Rule in case of a Private Sale
 A private sale authorized by a probate court (and without objection on
the part of the heirs or creditors) cannot be assailed by a person who is
not an “interested party” (such as an heir or creditor). One who merely
offered a higher price (without actually buying the property) is not
“interested party.” It would have been different had there been a public
auction.
ARTICLE 1477:
The ownership of the thing sold shall be transferred to the
vendee upon the actual or constructive delivery thereof.
When Ownership is Transferred
Ownership is not transferred by perfection but by delivery.
(This is true even f the sale has been made on credit; payment of the purchase
price is NOT essential to the transfer of ownership, as long as the property
sold has been delivered. (Gabriel et. al. v. Encarnacion et. al.) A contrary
stipulation is, however, VALID.
KINDS OF DELIVERY
a. Actual (Art. 1497, Civil Code)
b. Constructive (Arts. 1498 – 1601, Civil Code), including “any other manner
signifying an agreement that the possession is transferred.” (Art. 1496,
Civil Code)
ARTICLE 1478:
The parties may stipulate that ownership in the thing shall
not pass to the purchaser until he has fully paid the price.
When ownership is not transferred despite delivery
Generally, ownership is transferred upon delivery, but even if delivered, the
ownership may still be with the seller till full payment of the price is made, if
there is a stipulation to this effect. This stipulation is usually known as
pactum reservati dominii and is common in sales on the installment plan.
But of course, innocent third parties cannot be prejudiced.
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
promissory if the promise is supported by a consideration
distinct from the price.

First paragraph Second paragraph
(MUTUAL PROMISE) (ACCEPTED UNILATERAL
PROMISE)
A promise to buy something and B Only one makes the promise. This
promises to sell it at an agreed price. promise is accepted by the other.
(This is a promise to buy and sell, Hence, A promise to sell to B
clearly a bilateral reciprocal accepts the promise, but does not
contract.) in turn promise to buy.
Policitacion
– a unilateral promise to buy or to sell which is not accepted. This
produces no juridical effect, and creates no legal bond. This is a mere
offer, and has not yet been conversed into a contract.
Bilateral Promise
– to buy and sell a certain thing for a price certain gives to the contracting
parties personal rights in that each has the right to demand from the
other the fulfillment of the obligation.
Unilateral Promise
– The acceptance of a unilateral promise to sell must be plain, clear, and
unconditional. Therefore, if there is a qualified acceptance with terms
different from the offer, there is no acceptance, that is, there is no
promise to buy and there is no perfected sale.
Option
– 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.
Contract to SELL is NOT an Absolute Sale
A contract or promise to sell, a parcel of land for example, is not a contract of
sale. Such a contract to sell would exist when for instance, land is promised to
be sold, and title given only after the down payment and the monthly
installment therefor shall have all been paid. Failure to make the needed
payment is failure to comply with the needed suspensive condition. Hence,
promissor was never really obliged to convey title. Nothing wrong if he sells
the property to another, after an unsuccessful demand for said price.
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 1166, and 1262.
(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))
(Art. 1164. The creditor has a right to the fruits of the thing from the time the
obligation to deliver it arises. However, he shall acquire no real right over it
until the same has been delivered to him. (1095))
(Art. 1165. When what is to be delivered is a determinate thing, the creditor,
in addition to the right granted him by Article 1170, may compel the debtor to
make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more
persons who do not have the same interest, he shall be responsible for any
fortuitous event until he has effected the delivery. (1096))
(Art. 1166. The obligation to give a determinate thing includes that of
delivering all its accessions and accessories, even though they may not have
been mentioned. (1097a))
(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))
Sales-C1
Nature & Form of Contracts of Sale
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 delay.
Who Bears the Risk of Loss
a. If the object has been lost before perfection, the seller bears the loss.
Reason: There was no contract, for there was no cause or consideration.
Being the owner, the seller bears the loss. This means that he
cannot demand payment of the price.
b. If the object was lost after delivery to the buyer, clearly the buyer bears
the loss. (Res perit domino – the owner bears the loss.)
c. If the object is lost after perfection but before delivery, the buyer bears
the loss, as exception to the rule of res perit domino.
Exceptions to the rule that between perfection and delivery, the buyer
bears the loss:
a. If the object sold consists of fungibles sold for a price fixed according to
weight, number, or measure. (Here, if there has been no delivery yet, the
seller bears the loss, unless the buyer is in mora accipiendi.) Last par.
1480
b. If the seller is guilty of fraud, negligence, default, or violation of
contractual term. Arts. 1165, 1262, 1170)
c. When the object sold is generic because “genus does not perish” (genus
nunquam perit) Note: the unfortunate effect of Art. 1504 on the question
of the risk of loss is discussed under said article.)
Fungibles
– personal property which may be replaced with equivalent things.
Consumables and non-consumables distinguished from fungibles and
non-fungibles
The former is based on the nature of the thing, while the latter is based on the
intention.
ARTICLE 1481:
In the contract 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 by 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.
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 good, or even if he has seen them, he
believes (sometimes erroneously) that the description tallies with the
goods he has seen.
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. On the sample
is exhibited. The bulk is not present, and so there is no opportunity to
examine or inspect it.
Sale by description and sample
– must satisfy the requirements in both, and not in only one.
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.

Earnest money
– (“arras”) something of value to show that the buyer was really in
earnest, and given to the seller to bind the bargain.
Significance of earnest money
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. Proof of the perfection of the contract.
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.
When arras must be returned
If merchandise cannot be delivered, the arras must be returned. Of course, this
right may be renounced since neither the law nor public policy is violated.
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.
If sale is made thru an Agent
The sale of a piece of land or interest therein when made thru an agent is void.
(not merely unenforceable) unless the agent’s authority is in writing. (Art.
1874). This is true even if the sale itself s in a public instrument, or even
registered.
Interest therein
– refers to easement or usufruct for example.
 If notary public is not authorized, the sale would still be valid since
for validity of the sale, a public instrument is not even essential.
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.
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.
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 mortagages by selling at a
low price and then suing for the deficiency, is the precise purpose of this
article. Otherwise, the buyer would find himself without the property,
and still indebted.
Cancellation requires mutual restitution
- 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.
Ex: 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 installments
he has received, including the downpayment.
Sales-C1
Nature & Form of Contracts of Sale
Instances when Art. 1484 cannot be applied
a. Real estate mortgage because it can only be foreclosed only in conformity
with special provisions.
b. Sale of personal property on straight terms, in which the balance, after the
payment of the initial sum should be paid in its totality at the time
specified. Therefore, in a sale on straight terms, the mortgagee-seller will
still be entitled to recover the unpaid balance.
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.
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.
“when the lessor has deprived lessee of the possession or enjoyment of the
thing”
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.
When lease construed as sale
Even if the word lease is employed, when a sale on installment is evidently
intended, it must be construed as a sale.
ARTICLE 1486:
In the cases 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 be unconscionable under the circumstances.
Non-return of Installments Paid
a. As a general rule, it is required that a case of rescission or cancellation of
the sale requires mutual restitution, that is, all partial payments of price or
“rents” must be returned.
b. However, by way of exception, it is valid to stipulate that there should be
NO returning of the price that has been partially paid or of the “Rents”
given, provided the stipulation is not unconscionable.
SALE OF REAL PROPERTY IN INSTALLMENTS
REPUBLIC ACT No. 6552
AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL
ESTATE ON INSTALLMENT PAYMENTS. (Rep. Act No. 6552)
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 canceled, 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.lawphi1™
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.lawphi1™
Section 9. This Act shall take effect upon its approval.
Approved: August 26, 1972.
Sales-C1
Nature & Form of Contracts of Sale
When Transaction is one of Sale
If the property owner voluntarily sells the property to the government, this
would be a sale, and not an example of expropriation.
Eminent Domain distinguished from Expropriation
Eminent Domain refers to the right given to the state, whereas, expropriation
usually refers to the process.
Essential requisites for Expropriation
1. Taking by competent authority
2. Observance of due process of law.
3. Taking for public use.
4. Payment of just compensation.
Just Compensation
– market value (the price which the property will bring when it is offered
for sale by one who desires but is not obliged to sell it, and is bought by
one who is under no necessity of having it) PLUS the consequential
damages, if any, MINUS the consequential benefits, if any. BUT the
benefits may be set off only against the consequential damages, and not
against the basic value of the property taken.
 The fixing of just compensation in expropriation proceedings shall be
made in accordance with Rule 67 of the Rules of Court and not on the
basis of the valuation declared in the tax declaration of the subject
property by the owner or assessor which ahs been declared
unconstitutional.

Raison d’ Etre” of the Maceda Law

 To help especially the low income lot buyers, delineating the rights and
remedies of lot buyers and protect them from one-sided and pernicious
contract stipulations. The Act’s declared public policy is to protect
buyers or real estate or installment basis against onerous and oppressive
conditions. More specifically, the Act provided for the rights of the
buyer in case of default in the payment of succeeding installments,
where he has already paid at least two years of installments.
 The act seeks to address the acute housing shortage problem in our
country that has prompted thousands of middle or lower class buyers of
houses, lots, and condominium units to enter into all sorts of contracts
with private housing developers involving installment schemes.

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.

Who Pays for Expenses in Execution and Registration

Observe that as a rule the seller pays for the expenses of:
a. The execution (of the deed) of sale;
b. its registration.
NOTE: There can, however, be a contrary stipulation.

ARTICLE 1488:
The expropriation of property for public use is governed by
special laws.

Expropriation
– involuntary in nature, that is, the owner may be compelled to surrender
the property after all the essential requisites have been complied with.
Therefore, generally expropriation does not result in a sale.

One exception to the rule

Gutierrez v. CTA –
SC held that the acquisition by the government of private properties thru the
exercise of eminent domain, said properties being justly compensated, is a
sale or exchange within the meaning of the income tax laws and profits
derived therefrom are taxable as capital gain; and this is so although the
acquisition was against the will of the owner of the property and there was no
meeting of the minds between the parties.