LAW ON SALES

Requisites Concerning Object

Chapter 1 (1) Things
Nature and form of the contract • Determinate
• Licit or lawful
Article 1458. By the contract of sale one of the • Not be impossible
contracting parties obligates himself to transfer the (2) (Rights – all rights which are not intransmissible
ownership and to deliver a determinate thing, and the or personal may also be the object of sale
other to pay therefor a price certain in money or its
equivalent. Right of Vendor to Transfer Ownership
A contract of sale may be absolute or conditional. 1. One can sell only what he owns
2. Sufficient if right exists at time of delivery
Concept of Contract of sale
Article 1460. A thing is determinate when it is
The contract of sale is an agreement whereby one of particularly designated or physical segregated from all
the parties (called the seller or vendor) obligates himself others of the same class.
to deliver something to the other (called the buyer or
purchaser or vendee) who, on his part, binds himself to The requisite that a thing be determinate is satisfied if
pay therefor a sum of money or its equivalent (known at the time the contract is entered into, the thing is
as the price). capable of being made determinate without the
necessity of a new or further agreement between the
parties. (n)

Subject Matter Must be Determinate

1) When a thing is determinate – particularly
designated or physically segregated from all
others of the same class
2) Sufficient if subject matter capable of being
determinate – It is sufficient that the thing is
determinable or capable of being made
determinate without the necessity of a new or
further agreement between the parties to
ascertain its identity, quantity, or quality.

Article 1461. Things having a potential existence may be

the object of the contract of sale.
The efficacy of the sale of a mere hope or expectancy is
deemed subject to the condition that the thing will
come into existence.
The sale of a vain hope or expectancy is void. (n)

Sale of thing expected and sale of hope itself

distinguished.

Emptio rei speratae (sale of thing expected) is the sale

of a thing not yet in existence subject to the condition
Article 1459. The thing must be licit and the vendor
that the thing will exist and on failure of the condition,
must have a right to transfer the ownership thereof at
the contract becomes ineffective and hence, the buyer
the time it is delivered.
has no obligation to pay the price.

On the other hand, emptio spei is the sale of the hope

itself that the thing will come into existence, where it is
LAW ON SALES
agreed that the buyer will pay the price even if the thing
does not eventually exist.
Article 1462. The goods which form the subject of a Sale of an undivided share of a specific mass.
contract of sale may be either existing goods, owned or (1) Meaning of fungible goods. — It means goods of
possessed by the seller, or goods to be manufactured, which any unit is, from its nature or by mercantile
raised, or acquired by the seller after the perfection of usage, treated as the equivalent of any other unit (ex.
the contract of sale, in this Title called "future goods." Grain, oil, wine, gasoline)
(2) Effect of sale. — The owner of a mass of goods may
There may be a contract of sale of goods, whose sell only an undivided share thereof, provided the mass
acquisition by the seller depends upon a contingency is specific or capable of being made determinate.
which may or may not happen. (3) Risk of loss. — If the buyer becomes a co-owner,
with the seller, or other owners of the remainder of the
Goods Which May be the Object of Sale mass, it follows that the whole mass is at the risk of all
Goods which form the subject of a contract of sale may the parties interested in it, in proportion to their various
be either: holdings.
(1) Existing goods or goods owned or possessed by the (4) Subject matter. — Take note that in the sale of an
seller; undivided share, either of a thing (Art. 1463.) or of that
or of mass of goods (Art. 1464.), the subject matter is an
(2) Future goods or goods to be manufactured (like the incorporeal right. (Art. 1501.) Here, ownership passes to
sale of milk bottles to be manufactured with the name the buyer by the intention of the parties.
of the buyer pressed in the glass), raised (like the sale of
the future harvest of EXAMPLE:
S owns 1,000 cavans of palay stored in his warehouse. If
Article 1463. The sole owner of a thing may sell an S sells to B 250 cavans of such palay which cavans are
undivided interest therein. not segregated from the whole mass, B becomes a co-
owner of the said mass to the extent of 1/4. If the
Sale of Undivided Interest in a Thing warehouse happens to contain only 200 cavans, S must
1) By sole owner – aliquot part, becomes co-owner deliver the whole 200 cavans and supply the deficiency
2) By co-owner – can dispose his undivided of 50 cavans of palay of the same kind and quality.
share/interest without the consent of other co-
owners In the same example, the number of cavans in the
warehouse may be unknown or undetermined and S
Article 1464. In the case of fungible goods, there may may sell only1/4 share of the contents. The legal effect
be a sale of an undivided share of a specific mass, of such a sale is to make B a co-owner in that
though the seller purports to sell and the buyer to buy a proportion. It is obvious that in such case, the obligation
definite number, weight or measure of the goods in the of the seller “to make good the deficiency” will not
mass, and though the number, weight or measure of arise.
the goods in the mass, and though the number, weight
Article 1465. Things subject to a resolutory condition
or measure of the goods in the mass is undetermined.
may be the object of the contract of sale.
By such a sale the buyer becomes owner in common of
such a share of the mass as the number, weight or EXAMPLES:
measure bought bears to the number, weight or (1) S (vendor a retro) sold a parcel of land to B (vendee
measure of the mass. If the mass contains less than the a retro) subject to the condition that S can repurchase
number, weight or measure bought, the buyer becomes the property within two years from the date of sale. If S
the owner of the whole mass and the seller is bound to exercises the right to repurchase, then the sale made by
make good the deficiency from goods of the same kind B to C before the lapse of the two (2)-year period falls.
and quality, unless a contrary intent appears. The rule, however, that a vendor cannot transfer to his
vendee a better right than he had himself, suffers an
exception in case of property with Torrens title.
LAW ON SALES
(2) For failure to pay his debt, the land of S (mortgagor)
was sold to B, the highest bidder and purchaser in an Article 1467. A contract for the delivery at a certain
extrajudicial foreclosure of a real estate mortgage. price of an article which the vendor in the ordinary
Under the law (Act No. 3135, as amended.), the course of his business manufactures or procures for the
mortgagor may redeem the property at any time within general market, whether the same is on hand at the
one year from and after the date of the registration of time or not, is a contract of sale, but if the goods are to
the sale. If S redeems the property, then the sale made
be manufactured specially for the customer and upon
to B is extinguished.
his special order, and not for the general market, it is a
Article 1466. In construing a contract containing contract for a piece of work.
provisions characteristic of both the contract of sale and
of the contract of agency to sell, the essential clauses of Sale distinguished from contract for a piece of work.
the whole instrument shall be considered. By the contract for a piece of work the contractor binds
himself to execute a piece of work for the employer, in
By the contract of agency, a person binds himself to consideration of a certain price or compensation. The
render some service or to do something in contractor may either employ his labor or skill, or also
representation or on behalf of another, with the furnish the material.
consent or authority of the latter. (Art. 1868.)
In order to classify a contract, due regard must be The distinction between a contract of sale and one for
given to its essential clauses. A contract is what the work, labor or materials or for a piece of work is tested
law defines it to be, and not what it is called by the by the inquiry whether the thing transferred is one not
contracting parties. Sale may be distinguished from an in existence and which never would have existed but for
agency to sell, as follows: the order of the party desiring to acquire it, or a thing
1) In a sale, the buyer receives the goods as which would have existed and been the subject of sale
owner; in an agency to sell, the agent receives to some other person, even if the order had not been
the goods as the goods of the principal who given.
retains his ownership over them and has the
right to fix the price and the terms of the sale (1) In the first case, the contract is one for work,
and receive the proceeds less the agent’s labor and materials and in the second, one of
commission upon the sales made; sale.
2) In a sale, the buyer has to pay the price; in an (2) In the first case, the risk of loss before delivery
agency to sell, the agent has simply to account is borne by the worker or contractor, not by the
for the proceeds of the sale he may make on employer (the person who ordered). A contract
the principal’s behalf; is for a piece of work if services dominate that
3) In a sale, the buyer, as a general rule, cannot contract even though there is a sale of goods
return the object sold; in an agency to sell, the involved. Where the primary objective of a
agent can return the object in case he is unable contract is a sale of a manufactured item, it is a
to sell the same to a third person; sale of goods even though the item is
4) In a sale, the seller warrants the thing sold (see manufactured by labor furnished by the seller
Arts. 1547, 1548, 1561.); in an agency to sell, and upon previous order of the customer.
the agent makes no warranty for which he (3) (The importance of marking the line that divides
assumes personal liability as long as he acts contracts for a piece of work from contracts of
within his authority and in the name of the sale arises from the fact that the former is not
seller; and within the Statute of Frauds.
5) In a sale, the buyer can deal with the thing sold
as he pleases being the owner; in an agency to Article 1468. If the consideration of the contract
sell, the agent in dealing with the thing consists partly in money, and partly in another thing,
received, must act and is bound according to the transaction shall be characterized by the manifest
the instructions of his principal. intention of the parties. If such intention does not
LAW ON SALES
clearly appear, it shall be considered a barter if the Article 1470. Gross inadequacy of price does not affect
value of the thing given as a part of the consideration a contract of sale, except as it may indicate a defect in
exceeds the amount of the money or its equivalent; the consent, or that the parties really intended a
otherwise, it is a sale. donation or some other act or contract.

Sale distinguished from barter. Article 1471. If the price is simulated, the sale is void,
By the contract of barter or exchange, one of the parties but the act may be shown to have been in reality a
binds himself to give one thing in consideration of the donation, or some other act or contract.
other’s promise to give another thing. (Art. 1638.) On
the other hand, in a contract of sale, the vendor gives a Article 1472. The price of securities, grain, liquids, and
thing in consideration for a price in money. (Art. 1458.) other things shall also be considered certain, when the
(1) The above distinction is not always adequate to price fixed is that which the thing sold would have on a
distinguish one from the other. Hence, the rule in definite day, or in a particular exchange or market, or
Article 1468 for those cases in which the thing given in when an amount is fixed above or below the price on
exchange consists partly in money and partly in another such day, or in such exchange or market, provided said
thing. amount be certain.
(a) In such cases, the manifest intention of the parties is
paramount in determining whether it is one of barter or Article 1473. The fixing of the price can never be left to
of sale and such intention may be ascertained by taking the discretion of one of the contracting parties.
into account the contemporaneous and subsequent acts However, if the price fixed by one of the parties is
of the parties. (Art. 1371.) accepted by the other, the sale is perfected.
(b) If this intention cannot be ascertained, then the last
sentence of the article applies. But if the intention is Article 1474. Where the price cannot be determined in
that the contract shall be one of sale, then such accordance with the preceding articles, or in any other
intention must be followed even though the value of manner, the contract is inefficacious. However, if the
the thing given as a part consideration is more than the thing or any part thereof has been delivered to and
amount of the money given. appropriated by the buyer he must pay a reasonable
(2) The only point of difference between the two price therefor. What is a reasonable price is a question
contracts is in the element which is present in sale but of fact dependent on the circumstances of each
not in barter, namely: “price certain in money or its particular case.
equivalent.”
Article 1475. The contract of sale is perfected at the
Article 1469. In order that the price may be considered moment there is a meeting of minds upon the thing
certain, it shall be sufficient that it be so with reference which is the object of the contract and upon the price.
to another thing certain, or that the determination From that moment, the parties may reciprocally
thereof be left to the judgment of a special person or demand performance, subject to the provisions of the
persons. law governing the form of contracts.
Should such person or persons be unable or unwilling to
fix it, the contract shall be inefficacious, unless the Article 1476. In the case of a sale by auction:
parties subsequently agree upon the price. (1) Where goods are put up for sale by auction in lots,
If the third person or persons acted in bad faith or by each lot is the subject of a separate contract of sale.
mistake, the courts may fix the price. (2) A sale by auction is perfected when the auctioneer
Where such third person or persons are prevented from announces its perfection by the fall of the hammer, or
fixing the price or terms by fault of the seller or the in other customary manner. Until such announcement is
buyer, the party not in fault may have such remedies made, any bidder may retract his bid; and the
against the party in fault as are allowed the seller or the auctioneer may withdraw the goods from the sale
buyer, as the case may be. unless the auction has been announced to be without
reserve.
LAW ON SALES
(3) A right to bid may be reserved expressly by or on The above article refers to three kinds of promises,
behalf of the seller, unless otherwise provided by law or namely:
by stipulation. 1) An accepted unilateral promise to sell in which
(4) Where notice has not been given that a sale by the promisee (acceptor) elects to buy;
auction is subject to a right to bid on behalf of the 2) An accepted unilateral promise to buy in which
seller, it shall not be lawful for the seller to bid himself the promisee (acceptor) elects to sell; and
or to employ or induce any person to bid at such sale on 3) A bilateral promise to buy and sell reciprocally
his behalf or for the auctioneer, to employ or induce accepted in which either of the parties chooses
any person to bid at such sale on behalf of the seller or to exact fulfillment.
knowingly to take any bid from the seller or any person Effect of unaccepted unilateral promise.
employed by him. Any sale contravening this rule may A unilateral promise or offer to sell or to buy a thing
be treated as fraudulent by the buyer. which is not accepted creates no juridical effect or legal
bond. Such unaccepted imperfect promise or offer is
Rules governing auction sales called policitacion. A period may be given to the offeree
(1) Sales of separate lots by auction are separate within which to accept the offer.
sales
(2) Sale perfected by the fall of the hammer Meaning of option.
 Concept of sale without reserve – An option is a privilege existing in one person for which
auctioneer cannot withdraw the goods he has paid a consideration which gives him the right to
from sale once a bid has been made and buy/sell, for example, certain merchandise or certain
the highest bidder has a right to enforce specified property, from/to another person, if he
his bid chooses, at any time within the agreed period at a fixed
(3) Right of seller to bid in the auction – The seller price, or under, or in compliance with certain terms and
or his agent may bid in an auction sale conditions.
provided:
 such right was reserved; Effect of accepted unilateral promise.
 notice was given that the sale is subject The second paragraph of Article 1479 refers to what is
to a right to bid on behalf of the seller; called as “option” in the commercial world. A unilateral
and promise to sell or to buy a determinate thing for a price
 the right to bid by the seller is not certain does not bind the promissor even if accepted
prohibited by law or by stipulation. and may be withdrawn at any time. It is only if the
promise is supported by a consideration distinct and
Article 1477. The ownership of the thing sold shall be separate from the price that its acceptance will give rise
transferred to the vendee upon the actual or to a perfected contract.
constructive delivery thereof.
Article 1480. Any injury to or benefit from the thing
Article 1478. The parties may stipulate that ownership sold, after the contract has been perfected, from the
in the thing shall not pass to the purchaser until he has moment of the perfection of the contract to the time of
fully paid the price. delivery, shall be governed by articles 1163 to 1165, and
1262.
Article 1479. A promise to buy and sell a determinate This rule shall apply to the sale of fungible things, made
thing for a price certain is reciprocally demandable. independently and for a single price, or without
An accepted unilateral promise to buy or to sell a consideration of their weight, number, or measure.
determinate thing for a price certain is binding upon the Should fungible things be sold for a price fixed according
promisor if the promise is supported by a consideration to weight, number, or measure, the risk shall not be
distinct from the price. imputed to the vendee until they have been weighed,
counted, or measured and delivered, unless the latter
Kinds of promise treated in Article 1479. has incurred in delay.
LAW ON SALES
It must appear that the exhibition of the sample
Risk of loss or deterioration. by the seller was an inducement of the sale or
Four rules may be given regarding risk of loss: formed the sole basis thereof. In a sale by
1) If the thing is lost before perfection, the seller sample, the vendor warrants that the thing sold
and not the one who intends to purchase it and to be de livered by him shall conform with
bears the loss in accordance with the principle the sample in kind, character, and quality.
that the thing perishes with the owner (res perit (3) Sale by description and sample. — When a sale
domino); is made both by sample and by description, the
2) If the thing is lost at the time of perfection, the goods must satisfy all the warranties (see Art.
contract is void or inexistent. (Art. 1409[3].) The 1565.) appropriate to either kind of sale, and it
legal effect is the same as when the object is is not sufficient that the bulk of the goods
lost before the perfection of the contract of sale correspond with the sample if they do not also
(see Art. 1493.); correspond with the description, and vice versa.
3) If the thing is lost after perfection but before its
delivery, that is, even before the ownership is Article 1482. Whenever earnest money is given in a
transferred to the buyer, the risk of loss is contract of sale, it shall be considered as part of the
shifted to the buyer as an exception to the rule price and as proof of the perfection of the contract.
of res perit domino (Arts. 1480, pars. 1 and 2,
1538, 1189, and 1269.); and Meaning of earnest money.
4) If the thing is lost after delivery, the buyer bears Earnest money is something of value given by the buyer
the risk of loss following the general rule of res to the seller to show that the buyer is really in earnest,
perit domino. and to bind the bargain. It is actually a partial payment
of the purchase price and is considered as proof of the
Article 1481. In the contract of sale of goods by perfection of the contract. Since earnest money
description or by sample, the contract may be rescinded constitutes an advance payment, it must be deducted
if the bulk of the goods delivered do not correspond from the total price.
with the description or the sample, and if the contract Earnest money and option money distinguished.
be by sample as well as description, it is not sufficient They may be distinguished as follows:
that the bulk of goods correspond with the sample if 1) Earnest money is part of the purchase price,
they do not also correspond with the description. while option money (see Art. 1479, par. 2.) is
The buyer shall have a reasonable opportunity of the money given as distinct consideration for an
comparing the bulk with the description or the sample. option contract;
2) Earnest money is given only where there is
Sale of goods by description and/or sample. already a sale, while option money applies to a
(1) Sale by description. — Sale by description sale not yet perfected; and
occurs where a seller sells things as being of a 3) When earnest money is given, the buyer is
particular kind, the buyer not knowing whether bound to pay the balance, while the would-be
the seller’s representations are true or false, buyer who gives option money is not required
but relying on them as true; or, as otherwise to buy.
stated, where the purchaser has not seen the
article sold and relies on the description given Article 1483. Subject to the provisions of the Statute of
him by the vendor, or has seen the goods but Frauds and of any other applicable statute, a contract of
the want of identity is not apparent on sale may be made in writing, or by word of mouth, or
inspection. partly in writing and partly by word of mouth, or may be
(2) Sale by sample. — To constitute a sale by inferred from the conduct of the parties.
sample, it must appear that the parties
contracted solely with reference to the sample, Form of contract of sale.
with the understanding that the bulk was like it.
LAW ON SALES
(1) General rule. — The form of a contract refers to pay cover two or more installments. In this case, he
the manner in which it is executed or shall have no further action against the purchaser to
manifested. As a general rule, a con tract may recover any unpaid balance of the price. Any agreement
be entered into in any form provided all the to the contrary shall be void.
essential requisites for its validity are present.
(2) Where form is required in order that a contract Remedies alternative.
may be enforceable. — In case the contract of These remedies are alternative and are not to be
sale should be covered by the Statute of Frauds, exercised cumulatively or successively and the election
the law requires that the agreement (or some of one is a waiver of the right to resort to the others.
note or memorandum thereof) be in writing Thus, where from the prayer of the vendor in its brief, it
subscribed by the party charged, or by his asks the appellate court to order the vendee to pay the
agent; otherwise, the contract cannot be remaining un paid sum under the promissory note, it
enforced by action. thereby waives the other remedies.
Under the Statute of Frauds (Art. 1403[2, a, d, e].) of the Right of vendor to recover unpaid balance of purchase
Civil Code, the following contracts must be in writing; price
otherwise, they shall be unenforceable by action: (1) Remedy of specific performance
(a) Sale of personal property at a price not less than (2) Remedy of cancellation
P500.00; (3) Remedy of foreclosure
(b) Sale of real property or an interest therein
regardless of the price involved; and Article 1485. The preceding article shall be applied to
(c) Sale of property not to be performed within a year contracts purporting to be leases of personal property
from the date thereof regardless of the nature of the with option to buy, when the lessor has deprived the
property and the price involved lessee of the possession or enjoyment of the thing.

(3) Where form is required in order that a contract may Lease of personal property with option to buy.
be valid. — Where the “applicable statute” requires that Leases of personal property with option to buy on the
the contract of sale be in a certain form for its validity, part of the lessee who takes possession or enjoyment of
the required form must be observed in order that the the property leased are really sales of personalty
contract may be both valid and enforceable. payable in installments. Accordingly, the rules provided
(4) Where form is required only for the convenience of in Article 1484 are equally applicable to the so-called
the parties. — In certain cases, a certain form (e.g., leases of personal property.
public instrument) is required for the convenience of The evident purpose of Article 1485 is to prevent
the parties in order that the sale may be registered in vendors from resorting to this form of contract which
the Registry of Deeds to make effective as against third usually is in reality contract of sale of personal property
persons the right acquired under such sale. As between payable in installments in contravention of the
the contracting parties, the form is not indispensable provisions of Article 1484.
since they are allowed by law to compel each other to
observe that form. Article 1486. In the case referred to in the two
preceding articles, a stipulation that the installments or
Article 1484. In a contract of sale of personal property rents paid shall not be returned to the vendee or lessee
the price of which is payable in installments, the vendor shall be valid insofar as the same may not be
may exercise any of the following remedies: unconscionable under the circumstances.
(1) Exact fulfillment of the obligation, should the vendee
fail to pay; Stipulation authorizing the forfeiture of installments or
(2) Cancel the sale, should the vendee's failure to pay rents paid.
cover two or more installments; In sales of personal property by installments or leases of
(3) Foreclose the chattel mortgage on the thing sold, if personal property with option to buy, the parties may
one has been constituted, should the vendee's failure to stipulate that the installments or rents paid are not to
LAW ON SALES
be returned. Such a stipulation is valid “insofar as the
same may not be unconscionable under the
circumstances’’; otherwise, the court has the power to
order the return of a portion of the total amount paid in
installments or rents.

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

Expropriation of property for public use.

The procedure for the exercise of the power of eminent
domain is provided for in Rule 67 of the Rules of Court.
Expropriation must be decreed by competent authority
and for public use and always upon payment of just
compensation.