Sales – Nature and Form

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. (Article 1458, Civil Code)

Absolute or conditional. A contract of sale may be absolute or conditional. (Paragraph 2, Article 1458, Ibid.)

Determinate thing; Particularly designated or physically segregated. A thing is determinate when it is particularly designated or physically segregated from all other of the same class.(Article 1460, Ibid.)

Same; Capable of being made determinate at time of contract. 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. (Paragraph 2, Article 1460, Ibid.)

Same; Must be licit. The thing must be licit and the seller must have a right to transfer the ownership thereof at the time it is delivered. (Article 1459, Ibid.)

Same; Have potential existence. Things having a potential existence may be the object of the contract of sale. (Article 1461, Ibid.)

Same; Same; Mere hope or expectancy. The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. (Paragraph 2, Article 1461, Ibid.)

Same; Same; Vain hope or expectancy. The sale of a vain hope or expectancy is void. (Paragraph 3, Article 1461, Ibid.)

Price certain.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. (Article 1469, Ibid.)

Same; When inefficacious. Should such person or persons be unable or unwilling to fix the price, the contract shall be inefficacious, unless the parties subsequently agree upon the price. (Paragraph 2, Ibid.)

Same; Bad faith or mistake. If the third person or persons acted in bad faith or by mistake, the courts may fix the price. (Paragraph 3, Ibid.)

Same; Remedies of party not in fault. 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. (Paragraph 4, Ibid.)

Same; Gross in adequacy. 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 1470, Ibid.)

Same; Simulated price. 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. (Article 1471, Ibid.)

Same; Securities, grain, liquids, etc. 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. (Article 1472, Ibid.)

Same; Fixing of price. 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. (Article 1473, Ibid.)

Same; When delivery has been made; reasonable price. 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. (Article 1474, Ibid.)

Same; Reciprocally demandable: promise to buy and sell a determinate thing for a price certain. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. (Article 1479, Ibid.)

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. (Paragraph 2, Article 1479, Ibid.)

In order that said unilateral promise may be binding upon the promisor, Article 1479 requires the concurrence of a condition, namely, that the promise be “supported by a consideration distinct from the price. Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former establishes the existence of said distinct consideration. In other words, the promisee has the burden of proving such consideration. (Sanchez v. Rigos, En Banc, G.R. No. L-25494, 14 June 1972)

There is no question that under article 1479 of the new Civil Code “an option to sell,” or “a promise to buy or to sell,” as used in said article, to be valid must be “supported by a consideration distinct from the price.” This is clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by consideration. In other words, “an accepted unilateral promise can only have a binding effect if supported by a consideration” which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. It is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance of it by appellee. (Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., En Banc, G.R. No. L-7382, 29 June 1955)

Subject to resolutory condition. Things subject to a resolutory condition may be the object of the contract of sale. (Article 1465, Ibid.)

1. Essential requisites

Essential requisites of a contract of sale:
1) Consent of the contracting parties;
2) Object certain which is the subject matter of the contract;
3) Cause of the obligation which is established. (Art. 1318, Civil Code; Heirs of Dr. Intac v. CA, G.R. No. 173211, 11 October 2012)

All these elements must be present to constitute a valid contract. Consent is essential to the existence of a contract; and where it is wanting, the contract is non-existent. In a contract of sale, its perfection is consummated at the moment there is a meeting of the minds upon the thing that is the object of the contract and upon the price. Consent is manifested by the meeting of the offer and the acceptance of the thing and the cause, which are to constitute the contract. (Heirs of Dr. Intac v. CA, supra.)

One of the three essential requisites of a valid contract is consent of the parties on the object and cause of the contract. In a contract of sale, the parties must agree not only on the price, but also on the manner of payment of the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus preventing the existence of a valid contract for lack of consent. This lack of consent is separate and distinct from lack of consideration where the contract states that the price has been paid when in fact it has never been paid. (Montecillo v. Reynes, G.R. No. 138018, 26 July 2002)

Heirs of Dr. Intac v. CA (October 2012)
… the questioned contract of sale was only for the purpose of lending the title of the property to Spouses Intac to enable them to secure a loan. Their arrangement was only temporary and could not give rise to a valid sale. Where there is no consideration, the sale is null and void ab initio.
Lequin v. Vizconde (October 2009)
There can be no doubt that the contract of sale or Kasulatan lacked the essential element of consideration. It is a well-entrenched rule that where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration. Moreover, Art. 1471 of the Civil Code, which provides that “if the price is simulated, the sale is void,” also applies to the instant case, since the price purportedly paid as indicated in the contract of sale was simulated for no payment was actually made.
Consideration and consent are essential elements in a contract of sale. Where a party’s consent to a contract of sale is vitiated or where there is lack of consideration due to a simulated price, the contract is null and void ab initio.

a. When required to be in a public document

Article 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein are governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing in a public document.
All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by Articles, 1403, No. 2 and 1405.
Cross-referenced article/s
Article 1403. The following contracts are unenforceable, unless they are ratified:
x x x
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a year from the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum;
(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.
Article 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefit under them.

2. Perfection

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. (Article 1475, Ibid.)

Reciprocal demand. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. (Paragraph 2, Article 1475, Ibid.)

Consensual, formal, combination. 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. (Article 1483, Ibid.)

3. Contract of sale v. contract to sell

Contract of saleContract to sell
A contract of sale is classified as a consensual contract, which means that 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, i.e., the vendee may compel transfer of ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold.A contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the property despite delivery thereof to the prospective buyer, binds himself to sell the property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, i.e., the full payment of the purchase price.
 A contract to sell 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. (ACE Foods, Inc. v. Micro Pacific Technologies Co., Ltd., G.R. No. 200602, 11 December 2013)

In a contract to sell, the seller retains ownership of the property until the buyer has paid the price in full. A buyer who covertly usurps the seller’s ownership of the property prior to the full payment of the price is in breach of the contract and the seller is entitled to rescission because the breach is substantial and fundamental as it defeats the very object of the parties in entering into the contract to sell. (Sps. Tumibay v. Sps. Lopez, G.R. No. 171692, 03 June 2013)

A contract to sell has been defined as “a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.” In a contract to sell, “ownership is retained by the seller and is not to pass until the full payment of the price…” It is “commonly entered into so as to protect the seller against a buyer who intends to buy the property in installments by withholding ownership over the property until the buyer effects full payment therefor.” (Ibid.)

Disclaimer: All information is for educational and general information only. These should not be taken as professional legal advice or opinion. Please consult a competent lawyer to address your specific concerns. Any statements or opinions of the author are solely his own and do not reflect that of any organization he may be connected.

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