Definition of a Contract of Sale

 Article 1458. By the contract of sale one of the contracting parties obligates himself to transfer
the 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. 

Definition 

 A contract of sale is a contract where one party obligates himself to deliver a determinate thing
to another part, who in turn, obligates himself to the other to pay a sum of money or its
equivalent.

What are the 3 stages of contract?

The stages of a contract of sale are as follows:

(1) negotiation, covering the period from the time the prospective contracting parties indicate interest
in the contract to the time the contract is perfected;

(2) perfection, which takes place upon the concurrence of the essential elements of the sale which are
the meeting of the minds of the parties as to the object of the contract and upon the price; and

(3) consummation, which begins when the parties perform their respective undertakings under the
contract of sale, culminating in the extinguishment thereof.  

Kinds of Contract of Sale

  1. Absolute - This refers to a contract of sale that is not subject to any condition or does not require
any condition for the transfer of ownership.

2. Conditional - This refers to a contract of sale that contemplates contingency, or is subject to a

condition. It follows then that the delivery of the determinate thing does not necessarily transfer
ownership, unless the contingency or condition is fulfilled.

Essential elements of a contract of sale

 
The contract of sale, being a contract, has the same requisites, namely, consent, object, and cause.

1. Consent - Also called meeting of the minds. mutual agreement, or consensus ad idem. It essentially

refers to a situation where the two parties of the contract has a mutual understanding in the formation
of the contract of sale. This essentially means that there is consent in the part of the seller to transfer
ownership of the determinate thing and in the part of the buyer to pay the equivalent price.

Note that both of the parties must have the legal capacity to give their consent.

2. Object - This is the subject matter of the contract. It must be determinate or capable of being
determinate.
 A thing is determinate when it is particularly designate and/or physically segregated from all
others of the same kind.

3. Cause - This refers the price, in terms of money or its equivalent.

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.

CHARACTERISTICS OF A CONTRACT OF SALE

1. CONSENSUAL - perfected by mere consent of the parties

2. PRINCIPAL - can exist by itself without being dependent upon another contract.

3. BILATERAL - parties are bound by reciprocal obligations.

4. ONEROUS - valuable considerations are given by both parties to acquire rights.

5. COMMUTATIVE - parties exchange almost equivalent values.

6. NOMINATE - it has a special name given to it by law.

Essential requisites of contract of sale: OBJECT

 Must be licit (Art. 1459 - The thing must be licit and the vendor must have a right to transfer the
ownership thereof at the time it is delivered. )

Vendor has right to transfer ownership at the time of delivery. (Art. 1459)

Must be determinate (particularly designated or physically segregated from all others of the same class).
Determinate , if at the time of perfection, the thing is capable of being made determinate without the
necessity of a new or further agreement between the parties. Art. 1460.

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. (Art. 1461. )

5. May be “future goods” or goods to be manufactured, raised or acquired after perfection of sale. Art.
1462.

May be goods, acquisition of which by the seller depends upon a contingency which may or may not
happen. Art. 1462

SUBJECT MATTER OF SALE

What may be objects of sale?

1. Existing Goods – owned/ possessed by seller at the time of perfection

2. Future Goods – goods to be manufactured, raised, acquired by seller after perfection of the contract
or whose acquisition by seller depends upon a contingency (Art. 1462)

Note: Sale of future goods is valid only as an executory contract to be fulfilled by the acquisition &
delivery of goods specified.

3. Sale of Undivided Interest or Share

     a. Sole owner may sell an undivided interest. (Art. 1463) Ex. A fraction or percentage of such property

     b. Sale of an undivided share in a specific mass of fungible goods makes the buyer a co-owner of the
entire mass in proportion to the amount he bought. (Art. 1464)

     c. A co-owner cannot sell more than his share

ART. 1465. Things subject to a resolutory condition may be the object of the contract of sale.

Example. S sold to B for P10,000 a specific parcel of land with a right to repurchase within 6 years on
June 1,2009. S registered his right of repurchase with the Register of Deeds. B having acquired the
ownership of the land may in turn sell the property to X even within the 6-year period because he is
considered as a conditional owner of the land. X, the new buyer, acquires title to the land but subject to
S's right to repurchase within 6 years. If S redeems the property within 6 years, the sale of B to X is
extinguished. However, if S fails to redeem the property within the period of repurchase, X becomes the
absolute owner.

Article 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.

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.

Contract for a Piece of Work—The article sold is specially manufactured and upon the special
order of the customer. Article is not sold in the ordinary course of business.

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 if Consideration is partly Money and Partly Goods

1. Determine the intention of the parties.

2. If intention could not be determined, consider the value of the thing given:
 a. If value of the thing more than value of the money, it is BARTER

b. If value of the thing less than value of the money, it is SALE

c. If both values are the same, SALE

Art. 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)

Essential requisites of contract of sale: PRICE

1. REAL

The price is not simulated or not fictitious

2. CERTAIN or ASCERTAINABLE

It is certain if it is expressed and agreed in terms of specific amount of money or its equivalent.
Determination of price may be left to the judgment of a special person or persons

3. IN MONEY or its EQUIVALENT

4. MANNER of PAYMENT MUST BE AGREED UPON

The agreement on the manner of payment goes into the price, such that a disgreement on the manner
of payment is tantamount to a failure to agree to a price

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.

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.

EFFECT OF GROSS INADEQUACY OF PRICE

 NOTE: Mere inadequacy of the price does not affectthe validity of the sale, except

(1) When there is fraud, mistake, or undue influence indicative of a defect in consent is present,

(2)When it shows that the parties really intended a donation or some other act or contract.

EFFECT WHERE PRICE IS SIMULATED

[Link] act may be shown to have been in reality a donation, or some other act or contract
2. If not and neither party had any intention whatsoever that the amount will be paid (absolutely
simulated): the sale is void

3. If there is a real price but what is stated in the contract is not the one intended to be paid(only
relatively simulated): the contract of sale is valid but subject to reformation

Effect of Gross Inadequacy of Price. No effect.

Exceptions: (meaning, sale is set aside)

1. If consent is vitiated, such as VIMFU (Violence, Intimidation, Mistake, Fraud, Undue influence)

2. If the parties intended a donation or some other act or contract

3. If the price is so low as to be shocking to the conscience

Effect of Simulated Price. Sale is void, unless it could be shown that the parties intended a donation or
some other act of liberality.

 Price Simulated- No price to support a contract of sale, such that neither party had any
intention that the amount will be paid—void

 Price is False- there is a real price not declared—contract is valid, but the underlying
deed is subject to reformation to indicate the real price upon which the minds of the
parties have met.

Art. 1472. The price of securities, grain, liquids, and other things shall also be considered certain, when
the price fixed is that which the thing sold would have on a definite day, or in a particular exchange or
market, or when an amount is fixed above or below the price on such day, or in such exchange or
market, provided said amount be certain. (1448)

Art. 1473. The fixing of the price can never be left to the discretion of one of the contracting parties.
However, if the price fixed by one of the parties is accepted by the other, the sale is perfected. (1449a)

 Reason why price fixing cannot be left to the discretion of one of them, the other could not have
consented to the price, for he did not know what it was.

 However, if the price fixed by one of the parties is accepted by the other, the sale is perfected.

Art. 1474. Where the price cannot be determined in accordance with the preceding articles, or in any
other manner, the contract is inefficacious. However, if the thing or any part thereof has been delivered
to and appropriated by the buyer he must pay a reasonable price therefor. What is a reasonable price is
a question of fact dependent on the circumstances of each particular case. (n)

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.
PERFECTION OF CONTRACT OF SALE. Meeting of the minds upon the thing and price.

Effect: Parties may reciprocally demand performance

GENERAL RULE: A contract of sale is perfected at the moment there is a meeting of the minds upon the
thing which is the object of the contract and upon the price; consensual contract

Exception: When the sale is subject to a suspensive condition

REQUIREMENTS:

1. When parties are face to face – when there is absolute acceptance of an offer that is certain

2. When thru correspondence or telegram –when the offeror receives or had knowledge of the
acceptance

3. When the sale is subject to a suspensive condition – from the moment the condition is fulfilled

NOTES: Qualified acceptance: mere counter-offer which needs to be absolutely accepted to give rise to
perfected contract of sale. Business ads are mere invitations to make an offer except when it appears to
be otherwise.

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

(1) Where goods are put up for sale by auction in lots, each lot is the subject of a separate contract of
sale.

(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)

1. Sales of separate lots by auction are separate sales

2. Sale perfected by the fall of the hammer

3. Right of seller to bid in the auction

4. Contract not to bid

5. Advertisements for bidders

ART. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof. (n)

The delivery may be actual or constructive. The contract is consummated by the delivery of the thing
sold and of the purchase money.

ART. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he
has fully paid the price. (n)

The ownership of things is transferred by delivery, and not by mere payment. However, the parties may
stipulate that despite the delivery, the ownership of the thing shall remain with the seller until the
purchaser has fully paid the price.

In contracts to sell, where ownership is retained by the seller and is not to pass until the full payment of
the price, such payment is a positive suspensive condition, the failure of which is not a breach, casual or
serious, but simply an event that prevents the obligation of the vendor to convey title from acquiring
binding force.

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 perfect is binding upon the
promissor if the promise is supported by a consideration distinct from the price. (1451a)

Kinds of promise treated in Article 1479. The above article refers to three kinds of promises, namely:

(1) An accepted unilateral promise to sell in which the promisee (acceptor) elects to buy;

(2) An accepted unilateral promise to buy in which the promisee (acceptor) elects to sell; and

(3) A bilateral promise to buy and sell reciprocally accepted in which either of the parties chooses to
exact fulfillment.

Effect of unaccepted unilateral promise.

A unilateral promise or offer to sell or to buy a thing which is not accepted creates no juridical effect or
legal bond. Such unaccepted imperfect promise or offer is called policitation. A period may be given to
the offeree within which to accept the offer

An option is a privilege existing in one person for which he has paid a consideration which gives him the
right to buy/sell, for example, certain merchandise or certain specified property, from/to another
person, if he chooses, at any time within the agreed period at a fixed price, or under, or in compliance
with certain terms and conditions.

Nature of option contract

(1) An option is a contract. It is a preparatory contract, separate and distinct from the main contract
itself (subject matter of the option) which the parties may enter into upon the consummation of
the option
 (2) It gives the party granted the option the right to decide, whether or not to enter into a principal
contract, while it binds the party who has given the option, not to enter into the principal
contract with any other person during the agreed time and within that period, to enter into such
contract with the one to whom the option was granted if the latter should decide to use the
option

(3) An option must be supported by a consideration distinct from the price

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
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.

Risk of loss or deterioration. Four rules may be given regarding risk of loss:

(1) If the thing is lost before perfection, the seller and not the one who intends to purchase it bears the
loss in accordance with the principle that the thing perishes with the owner (res perit domino);

(2) If the thing is lost at the time of perfection, the contract is void or inexistent. The legal effect is the
same as when the object is lost before the perfection of the contract of sale

(3) If the thing is lost after perfection but before its delivery, that is, even before the ownership is
transferred to the buyer, the risk of loss is shifted to the buyer as an exception to the rule of res perit
domino

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

res perit domino – property lost to the owner

ART. 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 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.
(n)

Sale by description. — Sale by description occurs where a seller sells things as being of a particular kind,
the buyer not knowing whether the seller’s representations are true or false, but relying on them as
true; or, as otherwise stated, where the purchaser has not seen the article sold and relies on the
description given him by the vendor, or has seen the goods but the want of identity is not apparent on
inspection.
Sale by sample. — To constitute a sale by sample, it must appear that the parties contracted solely with
reference to the sample, with the understanding that the bulk was like it

Sale by description and sample. — When a sale is made both by sample and by description, the goods
must satisfy all the warranties appropriate to either kind of sale, and it is not sufficient that the bulk of
the goods correspond with the sample if they do not also correspond with the description, and vice
versa.

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 is something of value given by the buyer to the seller to show that the buyer is really in
earnest, and to bind the bargain. It is actually a partial payment of the purchase price and is considered
as proof of the perfection of the contract.

Since earnest money constitutes an advance payment, it must be deducted from the total price.

Earnest money and option money distinguished as follows:

(1) Earnest money is part of the purchase price, while option money (see Art. 1479, par. 2.) is the
money given as distinct consideration for an option contract;

(2) Earnest money is given only where there is already a sale, while option money applies to a sale
not yet perfected; and

(3) When earnest money is given, the buyer is bound to pay the balance, while the would-be buyer
who gives option money is not required to buy

But option money may become earnest money if the parties so agree.

ART. 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)

As a general rule, a contract may be entered into in any form provided all the essential requisites for its
validity are present. (Art. 1356.) It may be in writing; it may be oral; it may be partly in writing and partly
oral. It may even be inferred from the conduct of the parties. Sale is a consensual contract and is
perfected by mere consent.

Under the Statute of Frauds (Art. 1403[2, a, d, e].) of the Civil Code, the following contracts must be in
writing; otherwise, they shall be unenforceable by action:

(a) Sale of personal property at a price not less than P500.00;

(b) Sale of real property or an interest therein regardless of the price involved; and

(c) Sale of property not to be performed within a year from the date thereof regardless of the
nature of the property and the price involved.

ART. 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.

Remedies of vendor in sale of personal property payable in installments.

The vendor of personal property payable in installments may exercise any of the following remedies:

(1) elect fulfillment upon the vendee’s failure to pay; or

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

(3) 1foreclose the chattel mortgage, if one has been constituted, if the vendee shall have failed to
pay two or more installments.

ART. 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)

ART. 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 not be
unconscionable under the circumstances. (n)

ART. 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)

ART. 1488. The expropriation of property for public use is governed by special laws. (1456)
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