TITLE VI.

SALES

Chapter 1. Nature of Form of the Contract

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 therefore a price certain in
money or its equivalent.
A contract sale may be absolute or conditional.

●​ What is a 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 therefore a price certain in money or its
equivalent.
-​ A consensual contract, and thus, is perfected by mere consent which is manifested by
the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract.
-​ Until the contract of sale is perfected, it cannot, as an independent source of obligation,
serve as a binding juridical relation between the parties.

●​ Essential elements of a contract of sale

a.​ Consent or meeting of the minds, that is, consent to transfer ownership in exchange for
the price
b.​ Determinate subject matter
c.​ Price certain in money or its equivalent
-​ The absence of any of the essential elements shall negate the existence of a
perfected contract of sale.

I.​ CONSENT
-​ Manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the agreement.
-​ Acceptance - the same may be evidenced by some acts, or conduct, communicated to
the offeror, either in a formal or an informal manner, that clearly manifest the intention or
determination to accept the offer to buy or sell.
-​ Acceptance on the part of the vendee was manifested through a plethora of acts, such
as payment of the purchase price, declaration of the property for taxation purposes, and
payment of real estate taxes thereon, and similar acts showing vendee’s assent to the
contract.

II.​ OBJECT
-​ Must be determinate as to its kind.
-​ The fact that the quantity is not determinate shall not be an obstacle to the existence of
the contract, provided it is possible to determine the same, without the need of a new
contact between the parties.
-​ A thing is determinate when it is particularly designated and/or physically segregated
from all the others of the same class.
-​ Cause - why of the contract or the essential reason which moves the contracting parties
to enter into the contract. It must be lawful as it is not contrary to law, morals, good
customs, public order or public policy.

III.​ PRICE
-​ A definite agreement as to price is an essential element because it seriously affects the
rights and obligations of the parties.
-​ The fixing of the price can never be left to the decision of one of the contracting parties.
But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a
perfected sale.
-​ 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.
-​ A disagreement on the manner of payment is tantamount to a failure to agree on the
price.

●​ Stages of a contract of sale

1.​ Negotiation - it covers the period from the time the prospective contracting parties
indicate interest in the contract to the time the contract is perfected.
2.​ Perfection - it takes place upon the concurrence of the essential elements of the sale,
which is the meeting of the minds of the parties as to the object of the contract and upon
the price.
3.​ Consummation - it begins when the parties perform their respective undertakings under
the contract of sale, culminating in the extinguishment thereof.

●​ Sale is a title
-​ Perfection of a contract ≠ consummation.
-​ Sale is not a mode, but merely a title.
-​ Mode - legal means by which dominion or ownership is created, transferred or
destroyed.
-​ Title - only the legal basis by which to affect dominion or ownership.
-​ Article 712, “ownership and other real rights over property are acquired and transmitted
by law, by donation, by testate and intestate succession, and in consequence of certain
contracts, by tradition.”
-​ Contracts - titles or rights to the transfer or acquisition of ownership
-​ Delivery or tradition - mode of accomplishing the same.
-​ Sale by itself does not transfer or affect ownership; the most that sale does is to create
the obligation to transfer ownership. It is tradition or delivery, as a consequence of sale,
that actually transfers ownership.

●​ Two kinds of a contract of sale

1.​ Absolute - there are no conditions attached to the contract.
2.​ Conditional - there are certain conditions attached to the contract.

●​ A contract of sale may be absolute or conditional

-​ Article 1458, from the averment of perfection, the parties are bound, not only to the
fulfillment of what has been expressly stipulated, but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law.
-​ A deed of sale is considered absolute in nature where there is neither a stipulation in the
deed that title to the property sold is reserved in the seller until the full payment of the
price, nor one giving the vendor the right to unilaterally resolve the contract the moment
the buyer fails to pay within a fixed period.

●​ Contract to sell not a contract of sale

-​ Contract to sell ≠ contract of sale, because the first essential element is lacking.
-​ Contract to sell - the prospective seller explicitly reserves the transfer of title to the
prospective buyer, meaning, the prospective seller does not yet agree or consent to
 transfer ownership of the property subject of the contract to sell until the happening of an
event, which for present purposes we shall take as the full payment of the purchase
price.
-​ What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject
property when the entire amount of the purchase price is delivered to him.
-​ The full payment of the purchase price partakes of a suspensive condition, the
non-fulfillment of which prevents the obligation to sell from his arising and thus
ownership is retained by the prospective seller without further remedies by the
prospective buyer.

●​ Gross inadequacy of price

-​ Gross inadequacy of price occurs when the price agreed upon in a contract is
significantly lower than the fair market value of the item being sold. However, under
Philippine law, mere inadequacy of price does not automatically invalidate a contract of
sale unless it is accompanied by fraud, mistake, undue influence, or other vices of
consent.
-​ Hulst v. PR Builders Inc., does not nullify an execution sale.
-​ In a regular sale, a transaction can be invalidated if the price is too low to the point that it
"shocks the conscience" or suggests fraud, mistake, or undue influence.
-​ However, in execution sales (e.g., foreclosure auctions), gross inadequacy of price is not
a valid reason to void the sale.
-​ The law allows the debtor (original property owner) to repurchase the property through
right of redemption.
-​ Since the debtor can reclaim the property, the low auction price is not considered unfair.
-​ The right of redemption allows a debtor (or former owner) to reacquire their property
after it has been sold at a foreclosure sale, auction, or execution sale by paying a
specific amount within a legally prescribed period.
-​ If the debtor finds the auction price too low, they can:
-​ Reacquire the property within the redemption period.
-​ Sell their right of redemption to recover potential losses.
-​ Therefore, the debtor is not necessarily harmed by the low auction price.
-​ The note emphasizes that a valid contract of sale requires:
-​ Consideration (fair value exchange)
-​ Consent (free will of both parties)
-​ If consent is vitiated (e.g., through fraud, undue influence) or if the price is illusory or
simulated, the contract is null and void from the beginning (void ab initio).

●​ Characteristics of a contract of sale

1.​ Consensual - the contract is perfected by mere consent.
2.​ Bilateral - the seller and the buyer are bound by obligations dependent upon each other.
3.​ Onerous - it imposes a valuable consideration, which is a price certain in money or its
equivalent.
4.​ Commutative - the thing of value is exchanged for equal value.
5.​ Nominate - the civil code refers to it by a special name, “contract of sale”.
6.​ Principal - it can stand on its own and does not depend on another contract for its
validity.

●​ Contract of sale is consensual

-​ The sale is perfected by mere consent.
-​ No particular form is required for its validity.
-​ Upon perfection of the contract, the parties may reciprocally demand performance.
 ●​ Contract of sale is commutative and onerous
-​ Not only does each one of the parties assume a correlative obligation, but each party
anticipates performance by the other from the very start.
-​ While in a sale, the obligation of one party can be lawfully subordinated to an uncertain
event, so that the other understands that he assumes the risk of receiving nothing for
what he gives, it is not in the usual course of business to do so; hence the contingent
character of the obligation must clearly appear.
-​ Commutative: Both parties exchange something of equal value (e.g., money for goods).
-​ Onerous: Both parties assume obligations and risks (seller transfers ownership, buyer
pays price).
-​ Sale of Hopes or Expectations (Emptio Spei)
-​ Sometimes, a sale involves uncertain or future outcomes.
-​ One party takes on the risk of receiving nothing for what he pays.
-​ This is not the usual course of business in regular sales, so the uncertain nature
of the obligation must be clearly stated in the contract.

●​ What is option or “unaccepted offer”?

-​ A continuing offer or contract by which the owner stipulates with another that the latter
shall have the right to buy the property at a fixed price within a certain time, or under, or
in compliance with, certain terms and conditions, or which gives to the owner of the
property the right to sell or demand a sale.
-​ Not of itself a purchase, but merely secures the privilege to buy.
-​ Not a sale of property, but a sale of the right to purchase.
-​ It is simply a contract by which the owner of property agrees with another person that he
shall have the right to buy his property at a fixed price within a certain time.
-​ He does not sell his land; he does not then agree to sell it; but he does sell something,
that is, the right or privilege to buy at the election or option of the other party.
-​ It imposes no binding obligation on the person holding the option, aside from the
consideration for the offer.
-​ Until acceptance, it is not a contract and does not vest, transfer, or agree to transfer, any
title to, or any interest or right in the subject matter, but is merely a contract by which the
owner of property gives the optionee the right or privilege of accepting the offer and
buying the property on certain terms.

●​ Option vs Contract of Sale

Option Contract of Sale

-​ An option is an unaccepted offer. -​ Fixes definitely the relative rights and

-​ It states the terms and conditions on obligations of both parties at the time of
which the owner is willing to sell the land, its execution.
if the holder elects to accept them within -​ The offer and the acceptance are
the time limit. concurrent, since the minds of the
-​ If the holder does so elect, he must give contracting parties meet in the terms of
notice to the other party, and the the agreement.
accepted offer thereupon becomes a
valid and binding contract.
-​ If an acceptance is not made within the
time fixed, the owner is no longer bound
by his offer, and the option is at an end.
 ●​ What is the test in determining whether it is a “contract of sale or purchase
or a mere option”?
-​ The test is whether or not the agreement could be specifically enforced.
-​ An agreement is only an “option” when no obligation rests on the party to make any
payment except such as may be agreed on between the parties as consideration to
support the option until he has made up his mind within the time specified.
-​ An option, and not a contract to purchase, is effected by an agreement to sell real estate
for payments to be made within specified time and providing forfeiture of money paid
upon failure to make payment, where the purchaser does not agree to purchase, to
make payment, or to bind himself in any way other than the forfeiture of the payments
made.

●​ Earnest Money
-​ It is a statutory rule that 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.
-​ It constitutes an advance payment and must therefore, be deducted from the total price.
-​ Earnest money is given by the buyer to the seller to bind the bargain.

●​ Earnest Money vs Option Money

Earnest money Option money

-​ Part of the purchase price. -​ Money is given as a distinct consideration

-​ Is given only where there is already a for an option contract.
sale. -​ Applies to a sale not yet perfected.
-​ When the earnest money is given, the -​ When the would-be buyer gives option
buyer is bound to pay the balance. money, he is not required to buy.

●​ Contract for a piece of work vs Contract of sale

-​ It may be distinguished by the inquiry as to whether the thing transferred is one not in
existence and which would never have existed but for the order of the person desiring it.
-​ Contract for a piece of work is not a sale.
-​ If the thing subject of the contract would have existed and been the subject of sale to
some other person even if the order had not been given then the contract is of sale.

●​ Dacion en pago vs Contract of sale

-​ In dacion en pago, as a special mode of payment, the debtor offers another thing to the
creditor who accepts it as an equivalent of payment of an outstanding debt.

●​ Requisites of a valid dation in payment:

1.​ There must be the performance of the prestation in lieu of payment (animo solvendi)
which may consist in the delivery of a corporeal thing or a real right or a credit against
the third person.
2.​ There must be some difference between the prestation due and that which is given in
substitution (aliud pro alio).
3.​ There must be an agreement between the creditor and debtor that the obligation is
immediately extinguished by reason of the performance of a prestation different from that
due.
 -​ The undertaking really partakes in one sense of the nature of sale, that is, the
creditor is really buying the thing or property of the debtor, payment for which is
to be charged against the debtor’s debt.

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.

Article 1460.
​ A thing is determinate when it is particularly designated or physically segregated from all
the 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.

●​ Determinate Thing
-​ A thing is determinate when it is particularly designated or physically segregated from all
the others of the same class.

●​ Requisites of a determinate thing

1.​ At the time the contract is entered into, the thing is capable of being determinate.
2.​ There is no necessity of a new or further agreement between the parties.

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.

●​ Things having a potential existence

-​ This is a future thing that can be the object of sale.
-​ Ungrown fruits, wine expected to produce, young animals.

●​ Sale of mere hope or expectancy

-​ This is subject to the condition that the thing will come into existence.
-​ Object of the sale is the hope or the chance to win.
-​ The sale of vain hope or expectancy is void.

●​ Emptio rei speratae vs eptio spei

Emptio Rei Speratae Emptio Spei

-​ Sale of a thing with potential existence. -​ Sale of a mere hope or expectancy that
-​ Sale is subject to the condition that the the thing will come to existence. Sale of
thing will exist; if it does not, there is no the hope itself.
contract. -​ Sale is effective even if the thing does not
-​ The object is a future thing. come into existence unless it is a vain
 hope.
-​ The object is a present thing which is
hope or expectancy.

●​ General rule
-​ A person cannot sell or convey what he does not have or own.

●​ Exceptions
1.​ Sale of a thing having potential existence.
2.​ Sale of future goods.
3.​ Contract for delivery at a certain price of an article which the vendor in the ordinary
course of business manufactures or procures for the general market, whether the same
is on hand at the time or not.

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.

●​ Kinds of goods
1.​ Existing goods - those goods that are owned by the seller.
2.​ Future goods - those goods that are to be manufactured, raised, or acquired, by the
seller after the perfection of the contract of sale.
-​ There may be a contract of sale of goods, whose acquisition by the seller
depends upon a contingency which may or may not happen.

Article 1463.
​ The sole owner of a thing may sell an undivided interest therein.

-​ A person who fully owns a property or asset can sell a portion of ownership (an
undivided interest) while still retaining co-ownership with the buyer.
-​ The property remains whole (not physically divided), but the buyer acquires rights as a
co-owner.

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.

-​ Fungible Goods: Items that are interchangeable or can be measured by weight, volume,
or quantity (e.g., rice, sugar, oil, gasoline, grains).
-​ Undivided Share in a Mass: The buyer does not receive a specific portion but instead
co-owns a fraction of a larger bulk.
-​ Ownership in Common: The buyer owns a share of the mass proportionate to what was
purchased.
-​ Shortage Rule: If the mass is less than expected, the buyer gets all that remains, and the
seller must make up the difference unless stated otherwise.

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

●​ Resolutory condition
-​ A condition that upon fulfillment terminates an already enforceable obligation and entitles
the parties to be restored to their original positions.
-​ A conditional obligation that may be immediately enforced but will come to an end when
an uncertain event that is specified occurs.
-​ A condition the happening of which will extinguish the obligation.

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.

●​ Contract of sale vs Agency to sell

Contract of sale Agency to sell

-​ The buyer receives the goods as the -​ The agent receives the goods as goods
owner. of the principal who retains his ownership
-​ The buyer pays the price. over them.
-​ The buyer, as a general rule, cannot -​ The agent delivers the price which he got
return the object sold. from his buyer, to his principal.
-​ The agent can return the goods in case
he is unable to sell the same to a third
person.

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.
 -​ What determines is whether the thing has been manufactured specially for the customer
and upon his special order.
-​ If the thing is specially done at the order of another, this is a contract for a piece of work.
-​ If the thing manufactured or procured for the general market in the ordinary course of
one’s business is a contract of sale.
-​ The distinction, labor and materials is tested by the inquiry whether the thing transferred
is one not in existence and which never would have existed but for the order of the party
desiring to acquire it, or a thing which would have existed and has been the subject of
sale to some other persons even if the order had not been given.

●​ Who is a contractor?
-​ A person who, in the pursuit of the independent business, undertakes to do a specific job
or piece of work for other persons, using his own means and methods without submitting
himself to control as to the petty details.

●​ Test of a contractor
-​ He renders service in the course of an independent occupation, representing the will of
his employer only as to the result of his work, and not as to the means by which it is
accomplished.

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.

●​ Sale vs Barter
Sale Barter

-​ A thing is given in exchange of a price -​ A thing is given in exchange of another

certain in money or its equivalent. thing.

●​ If the consideration is partly in money and partly in another thing:

1.​ The transaction is characterized by the manifest intention of the parties.
2.​ If there is no manifest intention:
a.​ Barter - if the value of the thing is more valuable than money.
b.​ Sale - if the value of the thing is equal or less than the amount of money.

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 by the seller or the buyer, as the case may be.

-​ The price of the property sold may be considered certain if it be so with reference to
another thing certain.
-​ It is sufficient if it can be determined by the stipulations of the contract made by the
parties thereto or by reference to an agreement incorporated in the contract of sale or
contract to sell or if it is capable of being ascertained with certainty in said contract; or if
the contract contains express or implied provisions by which it may be rendered certain;
or if it provides some method or criterion by which it can be definitely ascertained.
-​ The price is considered certain if, by its terms, the contract furnishes a basis or measure
for ascertaining the amount agreed upon.
-​ Certainty of Price – The price in a contract of sale must be certain or at least
determinable based on another certain thing (e.g., market value, appraisal, or a price set
by a third party).
-​ Determination by a Third Party – The buyer and seller may appoint a person or a group
to determine the price.
-​ Failure of the Third Party – If the third party refuses or is unable to fix the price, the
contract is ineffective unless the buyer and seller agree on a price later.
-​ Bad Faith or Mistake – If the third party sets an unfair price (due to fraud or error), the
court can intervene and fix the price.
-​ Fault of Buyer or Seller – If one party prevents the third party from setting the price, the
other party may seek legal remedies (e.g., damages, cancellation).

●​ Requisites for a valid 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. It is ascertainable if it is sufficient that it be so with
reference to another thing certain, or that the determination thereof be left to the
judgement 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 disagreement on the manner of payment is tantamount
to a failure to agree on the 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.
 -​ The mere inadequacy of the price does not affect its validity when both parties are in a
position to form an independent judgement concerning the transaction, unless fraud,
mistake or undue influence indicative of a defect in consent is present.
-​ A contract may consequently be annulled on the ground of vitiated consent and not due
to the inadequacy of the price.
-​ Mere alleged inadequacy of the price does not necessarily void a contract of sale,
although the inadequacy may indicate that there was a defect in the consent, or that the
parties really intended a donation, mortgage, or some other act or contract.
-​ Unless the price is grossly inadequate or shocking to the conscience, a sale is not set
aside.

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.

●​ What is a simulated price?

-​ A simulated price is a fictitious price.
-​ A contract of sale is not a real contract, but a consensual contract.
-​ As a consensual contract, a contract of sale becomes a binding and valid contract upon
the meeting of the minds as to price.
-​ If there is a meeting of the minds of the parties as to the price, the contract of sale is
valid, despite the manner of payment, or even the breach of that manner of payment.
-​ If the real price is not stated in the contract, then the contract of sale is valid but subject
to reformation.
-​ If there is no meeting of the minds of the parties as to price, because the price stipulated
in the contract is simulated, then the contract is void.
-​ Payment of price has nothing to do with the perfection of the contract.
-​ Failure to pay the consideration is different from lack of consideration.
-​ The former results in a right to demand the fulfillment or cancellation of the obligation
under an existing valid contract while the latter prevents the existence of a valid contract.

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.

-​ Certainty of Price – A price is considered certain if it is based on:

-​ The market price on a specific day
-​ The price in a particular exchange or market
-​ A fixed amount above or below the market price
-​ Applicability – This provision applies to commodities that have fluctuating prices, such
as:
-​ Securities (e.g., stocks, bonds, treasury bills)
 -​ Grain (e.g., rice, wheat, corn)
-​ Liquids (e.g., oil, fuel, beverages)
-​ Other market-traded goods (e.g., gold, coffee, sugar)
-​ Why This Matters – Since these goods have variable prices, parties can still enter a valid
contract of sale by referring to a specific future price.

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.

●​ Rationale
-​ 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.

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.

●​ General rule
-​ Where the price cannot be determined in accordance with the preceding articles, or in
any other manner, the contract is inefficacious. Hence, the sale is void.

●​ Exception
-​ If the thing or any part thereof has been delivered to and appropriated by the buyer, he
must pay a reasonable price therefor.

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.

-​ Sale is a consensual contract; thus, it is perfected by mere consent meaning the moment
there is a meeting of the minds.

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 an 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.

●​ Sale by auction is perfected

-​ A sale by auction 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

1.​ Any bidder may retract his bid.
2.​ The auctioneer may withdraw the goods from the sale unless the auction has been
announced to be without reserve.

Article 1477.
The ownership of the thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof.

-​ The title to the property passes to the vendee upon the constructive or actual delivery
thereof.
-​ The vendor loses ownership over the property and cannot recover it until and unless the
contract is rescinded by a notarial deed or by judicial action.
-​ A contract of sale is absolute, absent any stipulation therein reserving title over the
property to the vendee until full payment of the purchase price nor giving the vendor the
right to unilaterally rescind the contract in case of non-payment.
-​ The non-payment of the price is a resolutory condition which extinguishes the
transaction that, for a time existed, and discharges the obligations created thereunder.
-​ Until and unless the contract is resolved or rescinded in accordance with law, the vendor
cannot recover the thing sold even if the vendee failed to pay in full the initial payment
for the property.
-​ The failure of the buyer to pay the purchase price within the stipulated period does not
by itself bar the transfer of ownership or possession of the property sold, nor ipso facto
rescind the contract.
-​ Such failure will merely give the vendor the option to rescind the contract of sale
judicially or by notarial demand.

●​ Two aspects of delivery

1.​ The de jure delivery or the execution of deeds of conveyance.
2.​ The delivery of the material possession.
Article 1478.
The parties may stipulate that ownership in the thing shall not pass to the purchaser until
he has fully paid the price.

-​ Unless the contract contains a stipulation that ownership of the thing sold shall not pass
to the purchaser until he has fully paid the price, ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive delivery thereof.
-​ Payment of the purchase price is not essential to the transfer of ownership as long as
the property sold has been delivered.
-​ Such delivery (traditio) operated to divest the vendor of title to the property which may
not be regained or recovered until and unless the contract is resolver or rescinded in
accordance with law.
-​ It does not require that such a stipulation be expressly made.
-​ An implied stipulation to that effect is considered valid, and therefore, binding and
enforceable between the parties.
-​ It should be noted that under the law and jurisprudence, a contract which contains this
kind of stipulation is considered a contract to sell.

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.

●​ What is contract to sell?

-​ 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.
-​ It 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 a
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.
-​ 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 the buyer by operation of law without
any further act having to be performed by the seller.
-​ 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.

●​ Contract to sell vs Conditional contract of sale

Contract to sell Conditional contract of sale

-​ There being no previous sale of the -​ Upon the fulfillment of the suspensive
property, a third person buying such condition, the sale becomes absolute and
property despite the fulfillment of the this will definitely affect the sellers’ title
suspensive condition such as the full thereto.
payment of the purchase price, for -​ If there had been previous delivery of the
instance, cannot be deemed a buyer in subject property, the sellers’ ownership or
bad faith and the prospective buyer title to the property is automatically
cannot seek the relief of reconveyance of transferred to the buyer such that, the
the property. seller will no longer have any title to
-​ There is no double sale in such case. transfer to any third person.
-​ Title to the property will transfer to the -​ Such second buyer of the property who
buyer after registration because there is may have had actual or constructive
no defect in the owner-sellers title per se, knowledge of such defect in the sellers’
but the latter, of course, may be sued for title, or atleast was charged with the
damages by the intending buyer. obligation to discover such defect, cannot
be a registrant in good faith.
-​ Such second buyer cannot defeat the first
buyers title.
-​ In case a title is issued to the second
buyer, the first buyer may seek
reconveyance of the property subject of
the sale.

●​ What is option contract?

-​ Beaumont v. Prieto, Law Dictionary, 1897 edition, Bouvier defines option as a contract.
-​ A contract by virtue of which A, in consideration of the payment of a certain sum to B,
acquires the privilege of buying from, or selling to, B certain securities or properties
within a limited time at a specified price.
-​ An agreement in writing to give a person the option to purchase lands within a given time
at a named price is neither a sale nor an agreement to sell.
-​ It is simply a contract by which the owner of property agrees with another person that he
shall have the right to buy his property at a fixed price within a certain time.
-​ In order to be valid and enforceable, must, among other things, indicate the definite price
at which the person granting the option, is willing to sell.

●​ What is the right of first refusal?

-​ An innovative juridical relation.
-​ It cannot be deemed a perfected contract of sale.
-​ Neither can the right of first refusal, understood in its normal concept, per se be brought
within the purview of an option, aforequoted, or possibly an offer.
 -​ An option or an offer would require, among other things, a clear certainty on both the
object and the cause or consideration of the envisioned contract.
-​ In a right of first refusal, while the object might be made determinate, the exercise of the
right, however, would be dependent not only on the grantor’s eventual intention to enter
into a binding juridical relation with another but also on terms, including the price, that
obviously are not yet to be later firmed up.
-​ It can at best be so described as merely belonging to a class of preparatory juridical
relations governed not by contract but by, among other laws of general application, the
pertinent scattered provisions of the civil code on human conduct.

●​ Option contract vs Right of first refusal

-​ Option granted to the offeree is for a fixed period and at a determined price.
-​ Lacking these two requisites is only a right of first refusal.

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.

●​ Object is lost before perfection

-​ If the object has been lost before perfection, the seller bears the loss.

●​ Object is lost after delivery to the buyer

-​ If the object was lost after delivery to the buyer, the buyer bears the loss.

●​ Object is lost after perfection but before delivery

-​ If the object was lost after perfection but before delivery, the buyer bears the loss. This is
an exception to the principle of res perit domino.

●​ What is res perit domino?

-​ Property lost to the owner.

●​ What are fungible goods?

-​ Goods that are interchangeable with one another; goods that, by nature or trade usage,
are the equivalent of any other like unit, such as coffee or grain.

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.

●​ What is sale by sample?

-​ When a small quantity is exhibited by the seller as a fair specimen of the bulk, which is
not present and there is no opportunity to inspect or examine the same.
-​ To constitute, it must appear that the parties treated the sample as the standard of
quality and that they are contracted with reference to the sample with the understanding
that the product to be delivered would correspond with the sample.
-​ There is an implied warranty that the goods shall be free from any defect which is not
apparent on reasonable examination of the sample and which would render the goods
unmerchantable.

●​ What is sale by description?

-​ 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 buyer has not seen the article sold and relies on the description given
to him by the seller, or has seen the goods, but the want of identity is not apparent on
inspection.
-​ A seller’s description of the goods which is made part of the basis of the transaction
creates a warranty that the goods will conform to that description.
-​ Where goods are bought by description from a seller who deals in the goods of that
description, there is an implied warranty that the goods are of merchantable quality.

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.

●​ What is earnest money?

-​ A deposit paid (often in escrow) by a prospective buyer (esp. of real estate) to show a
good-faith intention to complete the transaction, and ordinarily forfeited if the buyer
defaults.

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.

●​ General rule
-​ 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.
 ●​ Exceptions
-​ When a sale of a piece of land or any interest therein is through an agent, the authority
of the latter shall be in writing; otherwise, the sale shall be void.

●​ Form is required for enforceability

-​ The following contract of sale must be in writing to be enforceable:
1.​ Sale of real property
2.​ Sale of personal property at a price not less than P500
3.​ Sale of property not to be performed within a year from the date thereof

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.

●​ Remedies are alternative

-​ The remedies are alternative, not cumulative.
-​ The exercise of one bars the exercise of the others.
-​ This limitation applies to contracts purporting to be leases of personal property with
option to buy.

●​ Three remedies
-​ Which a vendor may pursue in a contract of sale of personal property the price of which
is payable in installments, to wit:
1.​ Exact fulfillment of the obligation
2.​ Cancel the sale
3.​ Foreclose the mortgage on the thing sold.
-​ If he chooses the third remedy, the article provides that he shall have no
further action against the purchaser to recover any unpaid balance of the
purchase price.
-​ It even adds that any agreement to the contrary shall be void.

●​ Creditor not obliged to foreclose

-​ A creditor is not obliged to foreclose a chattel mortgage even if there is one; precisely
the law says that any of the remedies may be exercised by the seller.
-​ He may still sue for fulfillment or for cancellation of the obligation, if he does not want to
foreclose.
 -​ He may avail himself of specific performance and may still ask that a real estate
mortgage be executed to secure the payment of the obligation, in which case, and in the
event of foreclosure, there can still be recovery of the deficiency.

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.

-​ Some sellers structure installment sales as a "lease" with a "buy option" at the end.
-​ If the buyer misses payments, the seller takes back the item, calling it a "lease
termination" instead of a repossession.
-​ Article 1485 prohibits this workaround by treating the transaction as a sale and
applying Recto Law protections.
-​ If the lessor takes back the property, the lessee (buyer) is protected under Article
1484.
-​ The seller cannot demand further payments beyond repossession (similar to a chattel
mortgage foreclosure).
-​ Ensures fair treatment of installment buyers.

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.

-​ If the buyer (or lessee in a lease-purchase contract) fails to complete payments and
the seller takes back the item, the amount already paid will not be refunded.
-​ This discourages buyers from entering contracts they cannot fulfill.
-​ If the amount kept by the seller is too excessive, the courts can intervene and order
a refund.
-​ Unconscionable example: If a buyer paid 90% of the total price but lost everything
due to a small default, this could be unfair.

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.

●​ General rule
-​ The expenses for the execution and registration of the sale shall be borne by the vendor,

●​ Exception
-​ Contrary stipulation.

Article 1488.
The expropriation of property for public use is governed by special laws.
 ●​ What is expropriation?
-​ A governmental taking or modification of an individual’s property rights, esp. by eminent
domain.