Вы находитесь на странице: 1из 26

CHAPTER 1 NATURE OF SALE

Definition of Sale (Article 1458, NCC) Sale as a whereby one of the contracting parties (Seller) obligates himself to transfer the ownership, and to deliver the possession, of a determinate thing; and the other party (buyer) obligates himself to pay therefor a price certain in money or its equivalent. Purpose Old Civil Code the Roman Law concept; treated delivery of tangible property as the sole purpose of sale New Civil Code Article 1458; applies the common law concept of requiring the obligation to transfer the ownership of the subject matter of sale a principal obligation of the seller Nature of Obligations created in a Sale Perfection of a contract of sale brings about the creation of two (2) sets of obligation: (1) Two Obligations of the Seller: a. Transfer of Ownership b. Deliver the Possession, of the Subject Matter (2) An Obligation of the Buyer: a. Pay the Price BOTH SETS OF OBLIGATIONS ARE REAL OBLIGATIONS OR OBLIGATIONS TO GIVE as contrasted from personal obligations to do and not to do and can be the proper subject of actions for specific performance. In contrast, obligation to do or not to do, cannot be enforced through actions for specific performance because of the public policy against involuntary servitude; although the creditor can have the same executed by another at the cost of the obligor, and the obligors refusal to comply can be the basis for claims for damages. To illustrate, Article 1480 of the CC, which cross-refers to Article 1165 thereof, provides that when what is to be delivered is a determinate thing, the buyer, in addition to the right to recover damages, may compel the seller to deliver; a defaulting party cannot insist just on paying damages when non-defaulting party demands performance. Subject Matter of Sale Although Article 1458, uses the word determinate to describe the subject matter of the sale, the present Law on Sales has expanded the coverage to include generic objects which are at least determinable. (Art. 1460) The use of the word determinate seems accurate since if pertains to the performance of the obligations of the seller to transfer ownership and to deliver possession. This would require that even if the subject matter of the sale was generic (determinable), the performance of the sellers obligation would require necessarily its physical segregation or particular designation, making the subject determinate at the point of performance.

Elements of Contract of Sale Essential elements of a valid contract of sale: (1) Consent (or meeting of the minds to transfer ownership in exchange for the price) (2) Subject Matter (3) Price, certain in money or its equivalent SC Decision When some of the essential requisites are not present, the resulting sale is void Authors opinion When an essential element is not present at the meeting of the mind is to declare a NO CONTRACT situation; citing Dizon vs. CA (302 SCRA 288), holds that all 3 elements of consent, subject matter and consideration must be present for a valid sale to exist and that in situation where any of the elements is not present, there was no perfected contract of sale and that the absence of any of these essential elements negates the existence of a perfected contract of sale No Contract when one of the essential requisites is not present Void/Voidable when there is defect or illegality constituting any of the elements (Void, mandated under Article 1409; Voidable when the defect constitute a vitiation of consent) Stages in the Life of Sale Strictly speaking, there are only 2 stages in the life of a contract of sale (perfection and consummation), since it is only at the perfection that sale as a contract begins to exist in the legal world. Until a sale is perfected, it cannot serve as an independent source of obligation, nor as a binding juridical relation between the parties. SC (Ang Yu Association vs. CA [238 SCRA 602]) considered the following to be the stages in the life of a sale: (a) Policitation (negotiation or preparation) bargaining, interest, offer to buy, offer to sell; terminated when there already a meeting of the minds Covers the period from the time the prospective contracting parties indicate their interests in the contract to the time the contract is perfected (b) Perfection (conception or birth) takes place upon 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 (c) Consummation (or death) fulfilment; performance; extinguishment Begins when the parties perform their respective undertaking under the contract of sale, culminating in the extinguishment thereof. Essential Characteristics of Sale (1) Nominate and Principal

1 | MSAC-NSP [Law on Sales Villanueva]

Sale is a nominate contract since it has been given a particular name by law; more importantly, its nature and consequences are governed by a set of rules in the CC which euphemistically we refer to as the Law on Sales Sale is a principal contract as contrasted from accessory or preparatory contracts because it can stand on its own, and does not depend on another contract for its validity or existence; that parties enter into sale achieve within essence the objectives of the transaction, and simply not in preparation for another contract. The nominate and principal characteristics of sale leads to the doctrine held by the SC that in determining the real character of the contract, the title given to it by the parties is not as significant as its substance. The courts look at the intent of the parties and not at the nomenclature used to describe it, and the pivotal to deciding such issue is the true aim and purpose of the contracting parties as shown by the terminology used in the covenant, as well as by their conduct, words, actions, and deeds prior to, during and immediately after executing the agreement. Contracts are not defined by the parties thereto but by the principle of law. All other contracts which have their objective the transfer of ownership and delivery of possession of a determinate subject matter for a valuable consideration, are governed necessarily by Law on Sales. (2) Consensual Sale is consensual contract (as contrasted from solemn and real contracts), since it is perfected by mere consent, at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. A sale over a subject matter is not a real contract but a consensual contract, which become a valid and binding contract upon meeting of minds as to the price. Once there is a meeting of the minds as to the price, the sale is valid, despite the manner of its actual payment, or even when there has been breach thereof. If the real price is not stated in the contract, then the sale is valid but subject to reformation; if there is no meeting of the minds as to the price, because the price stipulated is simulated, then the contract is void. (Buenaventure vs. CA, 416 SCRA 263) Under Article 1475 of the CC, from the moment of perfection of the sale, the parties have not affixed their signatures to the written form of such sale (Gabelo v. CA), but subject to the provision of law governing the form of contracts (Co vs. CA) Non-performance does not invalidate or render void a sale that has began to exist as a valid contract at perfection; non-performance merely becomes the

legal basis for the remedies of either specific performance or rescission, with damages in either case (Gabelo vs. CA; Alcantara-Daus vs. De Leon; Buenaventura vs. CA). The binding effect of a deed of sale on the parties is based on the principle that the obligations arising therefrom have the force of law between them (Veterans Federation of the Philippines vs. CA) A contract of sale is perfected at the moment there is a meeting of the minds upon the things which is the consensual, a contract and upon the price. Being consensual, a contract of sale has the force of law between the contracting parties and they are expected to abide in good faith by their respective contractual commitments. Article 1358 of the CC which requires the embodiment of certain contracts in a public instrument, is only for convience, and registration of the instrument only adversely affects third parties. Formal requirements are therefore, for the benefit of third parties. Non-compliance therewith does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder ( Fule vs. CA). Under Article 1332 of the CC, when one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake and fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former (Vda. De Ape vs. CA). (a) Modalities that effect the Characteristics of Consensuality (i) Even if consensual, not all contracts of sale become automatically and immediately effectiveIn sales with assumption of mortgage, the assumption of mortgage is a condition precedent to the sellers consent and therefore, without approval of the mortgage, the sale is not perfected (Bian Steel Corp. vs. CA). (ii) Even the delivery and taking possession of the subject matter by the buyer with the knowledge or consent of the seller, would not bring about the perfection and binding effect of the sale, when the meeting of the minds is incomplete, there being no agreement yet on the final price (National Housing Authority vs. Grace Baptist Church).

(3) Bilateral and Reciprocal Sale is a bilateral contract embodying reciprocal obligations, as distinguished from a unilateral contract, because it imposes obligations on both parties to the relationship, and whereby the obligation or promise of each party is the cause or consideration for the obligation or promise of the other.

2 | MSAC-NSP [Law on Sales Villanueva]

Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfilment of the other. The legal effects and consequences of sale being bilateral contract composed of reciprocal obligation are as follows: (a) The power to rescind and such power need not to be stipulated in the contract in order for the innocent party to invoke the remedy (b) Neither party incurs delay if the other party does not comply, or is not ready to comply in a proper manner, with what is incumbent upon him (c) From the moment one of the parties fulfils his obligation, the default by the other begins, without the need of prior demand Each party has the remedy of specific performance; and that rescission or resolution cannot be enforced by defaulting party upon the other party who is willing to proceed with the fulfilment of his obligation (Almira vs. CA) It is therefore a general requisite for the existence of a valid and enforceable contract of sale that it be mutually obligatory, i.e. there should be a concurrence of the promise of the vendee to receive and pay for the property so delivered and transferred (Polytechnic University of the Philippines vs. CA ). Since a sale is constituted of reciprocal obligations, the the right of rescission of a party to an obligation under Article 1191 is predicated on the breach of faith by the other party who violated the reciprocity between them ( Carrascoso, Jr. vs. CA). (4) Onerous Sale is an onerous contract, as distinguished from a gratuitous contract, because it imposes a valuable consideration as a prestation, which ideally is a price certain in money or its equivalent. In Gaite vs. Fonacier, the court rules that the stipulation in a contract of sale on the payment of the balance of the purchase price must be deemed to cover a suspensive period rather than a condition. The court held that the rules of interpretation would inlcine the scales in favor of the greater recipr ocity or interests, since sale is essentially an onerous contract. (5) Commutative Sale is a commutative contract, as distinguished from an aleatory contract, because a thing of value is exchanged for equal value, i.e. ideally the value of the subject matter is equivalent to the price paid. Nevertheless, there is no requirement that the price be equal to the exact value of the subject matter; all

that is required is for the seller to believe that what was received was of the commutative value of what he gave (Buenaventura vs. CA) Test of compliance with commutativeness is therewith not objective but rather subjective: i.e. so long as the party believes in all honesty that he is receiving good value for what he transferred, then it complies with the commutative character of sale. Example: A seller, selling his old car for only Php 200,000.00, when a more objective review of the prevailing market price for the particular model shows that its correct selling value would be Php 500,000.00. The contract perfected is a contract of sale since the seller honestly believes that he is receiving the appropriate value for the car he is selling. Likewise, the consequences of negotiations and bargaining, such as being able to obtain large discount, do not destroy the commutative nature of sale, since in the end the test would be that the parties to the sale believe that they have each received the proper and appropriate value for what they each in turn gave up. Sample example but seller sold it only for Php 100.00, even if the seller is satisfied in receiving only the said amount, the resulting contract, from a strict legal standpoint, is not a sale, but more of a donation, and law will presume that the underlying consideration must have been liberality. The subjective test of the commutative nature of sale is further bolstered by the principle that inadequacy of price does not affect ordinary sale. Inadequacy of the price may be a ground for setting aside an execution sale but is not a sufficient ground for the cancellation of voluntary contract of sale otherwise free from invalidating effects. Inadequacy of price may show vice in consent, in which case the sale may be annulled, but such annulment is not for inadequacy of price, but rather for vitiation in consent. (6) Sale is Title and not Mode The perfection of a sale gives rise to the obligation on the part of the seller to transfer ownership and deliver possession of the subject matter; nevertheless, it would be delivery or tradition that is the mode to transfer ownership and possession to the buyer. Sale is merely title that creates the obligation on the part of the seller to transfer ownership and deliver possession, but on its own sale is not a mode that transfer ownership (Equitorial Realty Dev. vs. Mayfair Theater, Inc.) An asserted right or claim to ownership, or a real right over a thing arising from a juridical act, is not per se sufficient to give rise to ownership over the thing; that right or title must be completed by fulfilling certain conditions imposed by law: Hence, ownership and real rights are acquired only pursuant to a legal mode or process. While title (such as sale) is the juridical justification mode (like delivery) is the actual process of acquisition or transfer of ownership over a thing. (Acap vs. CA)

3 | MSAC-NSP [Law on Sales Villanueva]

Once a sale has been duly perfected, its validity cannot be challenged on the ground that non-transfer of ownership of the property sold at that time of the perfection of the contract, since it is consummated upon delivery of the property to the vendee. It is through tradition or delivery that the buyer acquires ownership of the property sold. ( Manongsong vs. Estimo) Consequently, the proper remedy was not annulment, but rescission. Mode is the legal means by which dominion or ownership is created, transferred, or destroyed (e.g. succession, donation, discovery, intellectual creation, etc.); title only constitutes the legal basis by which to affect dominion or 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 transfer ownership. Sale Distinguished from other similar Contracts In determining the nature or essential characteristic of a contract purported to be a sale, the court has held that the title given to it by the parties is not as much significant as its substance; that court look at the intent of the parties and the elements of the contractual relationship and not at the nomenclature used to describe it. Pivotal to deciding this issue is the true aim and purpose of the contracting parties as shown by the terminology used in the covenant, as well as by the conduct, words, actions, and deeds prior to, during and immediately after executing the agreement. (1) From Donation Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another person, who accepts it. Sale Onerous contract Perfect by mere consent Donation Gratuitous Contract Being a solemn contract, although consent is also required, must comply with the formalities mandated by law for its validity

consideration, because other consideration or burdens are placed upon the donee. In such a case, the issue of what is the applicable rule (i.e. Law on Sales or Law on Donation) becomes critical in determining the validity and enforceability of the contract. (2) From Barter By barter or exchange, one of the parties binds himself to give one thing in consideration of the others promise to give another thing, whereas, by sale, one of the parties binds himself to deliver a thing in consideration of the others undertaking to pay the price in money or its equivalent. In somewhat a complete defiance of the doctrine of separate juridical personality of a corporation from its stockholders, the court held that an assignment of property to the corporation by controlling shareholders in exchange for shares is not a sale nor barter because the corporation cannot be considered a third party when it would be controlled by the transferor as part of estate planning (Delpher Trades Corps. V. IAC). Rules to determine Whether Contract is sale or barter (Art. 1468 of the CC) a. Manifest intention of the Parties - even if the acquisition of a thing is paid for by another object of greater value than the money component, it may still be a sale and not a barter, when such was the intention of the parties; b. When Intention Does Not Appear and Consideration Consists Partly in Money and Partly in another thing; i. It is a barter, where the value of the thing given as part of the consideration exceeds the amount of money given or its equivalent ii. It is a sale, where the value of the thing given as part of the consideration equals or is less than the amount of money given. The distinctions between sale and barter are merely academic, since aside from two separate rules applicable to barter, as to all matters not specifically provided for, Article 1641 provides that barter shall be governed by the law on Sales. The two rules specifically provided for barter contracts, but which are similar anyway to the rules on warranty against eviction applicable to sale, are as follows: a. If one of the contracting parties, having received the thing promised in barter, should prove that it did not belong to the person who gave it, he cannot be compelled to deliver that which he offered in exchange, but he shall be entitled to damages; and

A contract may be entered into in the form of a sale and may end up being governed by the Law on Donations, even when there may be a formal price agreed upon, if it is simulated, and the real intention is that the subject matter is being donated to the supposed buyer. In such case, the governing rule on perfection of sale by mere consent does not resolve whether the real contract is valid, since being a donation, the formality for donation should also have been complied with for the transaction to be considered valid. On the other hand, a purported donation may have been executed by the parties, but it is not mere liberality that permeates the contract as the only

4 | MSAC-NSP [Law on Sales Villanueva]

b.

One who loses by eviction the thing received in barter may recover that which he gave in exchange with a right to damages, or he can only make use of the right to recover the thing which he has delivered while the same remains in the possession of the other party, but without prejudice to the rights acquired in good faith by a third person.

one not in existence but for the order of the party desiring to acquire it, or a thing which would have existed and been the subject of sale to other person, even if the order had not been given. Article 1467 of the CC gave the statutory rules in distinguishing a sale from a CPoW:
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.

Instances when the difference between the two types of contracts is critical the rules on the statute of Frauds, which apply to the sale of real property, and personal property bought at P500.00 or more ,do not apply to barter the right of legal redemption granted by law to an adjoining owner of an urban land, covers only resale and does not cover exchanges of properties.

(3) From Contract For a Piece-of-Work By the contract for a piece-of-work, the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation may either employ only his labor or skill, or also furnish the material The similarity between a sale and a contract for a piece of work has been by the Court that the research output delivered by the Institute of Philippine Culture of the Ateneo de Manila University pursuant to an endowment or grant given by sponsors cannot be considered a sale nor a contract for a piece-of-work, since transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale. Ineluctably, whether the contract be one of sale or one for a piece of work, a transfer of ownership is involved and a party necessarily walks away with an object (Commissioner of Internal revenue v. Court of Appeals and Ateneo de manila University). There may be situations where it is a difficult to determine whether the contract in dispute is a sale or a contract for a piece-of-work, because essentially, in both instances the client or customer walks away from the transaction bringing with him an object. (a) Statutory Rule on Distinguishing Sale From Contract For a Piece-of-work Case of Inchausti & Co. v. Cromwell: -The issue was whether the seller could be made liable for sales tax on the price it received from bailing the hemp that it sold to its customers. The seller contented that the charge for bailing is to be treated not as part of the sale but as a charge for the service of bailing the hemp -The court held that the distinction between a sale and a contract for work, labor, and materials is tested by the inquiry of whether the thing transferred is

Which gives two test for distinction: (a) Manufacturing in the ordinary course of business to cover sales contracts; and (b) Manufacturing upon special order of customers, to cover CPoW. Basis from the above statement: the term upon special order is really based on the ability of the producer to manufacture the goods in the condition that they customarily are without having to wait for specific orders from customers. Case of Celestino Co v. Collector of Internal Revenue -a duly registered co-partnership did business under the trade name Oriental Sash Factory. Although in previous years it paid the higher sales taxes on the gross receipts of its sash, door and window factory as a manufacturer-seller (sales tax), in 1952, it began to claim tax liability only to the lower contractors tax (for a piece-of-work). The company averred and adduced evidence to show that since it manufactured sash, windows and doors only for special customers and upon their special orders and in accordance with the desired specifications and not for the general public, its contractual relations with its customers was that of a CPoW. Notice that in Celestino Co the thrust of the taxpayer position in the implementation of the upon special order test was more of timing, rather than necessity: that if the manufacture of goods is made always upon or after the orders of customers, and on the basis of their specifications, the underlying relation would be that of a CPoW. -Court held that Celestino Co was actually a manufacturer, with its sales subject to the higher sales tax, taking into consideration the following: (a) the company habitually made sash, windows, and doors, as it had represented itself as manufacturer in its stationery and in advertisements to the public; (b) That the products were made only when customers placed their orders, did not alter the nature of the establishment, for it was obvious that fulfilling the order, only required the employment of such materials-moldings, frames, panels as it ordinarily anufactured or was in a position to habitually manufacture; and

5 | MSAC-NSP [Law on Sales Villanueva]

(c) the nature of the products manufactured was such that any builder or homeowner, with sufficient money, may order windows or doors of the kind manufactured, and it was not true that it served special customers only or confined its services to them alone, and that it was possible for the company to easily duplicate or even mass-produce the same doors it is even mechanically equipped to do so. The essence of a CPoW is the sale of service unlike in sale where the essence is the sale of an object. It also conceded that if the company accepts a job that requires the use of extraordinary or additional equipment, or involves services not generally performed by it it thereby contracts for a piece of work. Implies the test of special orders under Art. 1467 of the CC is not one timing, or habit but actually must be drawn from the nature of the work to be performed and the products to be made: it must be of the nature that the products are not ordinary products of the manufacturer, and they would require the use of extraordinary skills or equipment, if to be performed by a manufacturer. CIR v. Engineering Equipment and Supply Company -the Engineering Equipment and Supply Company (EEI), which was engaged in the design and installation of central type air-conditioning system, was assessed the advance sales tax for its importation of parts and materials as a manufacturer and seller of the central type air-conditioning, instead of compensating tax it paid as a contractor. In countering the assessment, EEI claimed that it is not a manufacturer and seller of air-conditioning units and spare parts or accessories thereof, but a contractor engaged in the design, supply and installation of central type of air-conditioning system, which is essentially a tax on the sale of service or labor of a contractor rather than on the sale of articles subject. -the court held that the distinction between a contra ct of sale and one for work, 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 person even if the order had not been given. It further explained the test to mean If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made at defendants request, it is a contract of sale, even though it may be entirely made after, and in consequence of, the defendants order for it. -under this case, it abandoned the timing application of the upon special order test under the Article 1467 and that just because the thing came into existence after, and was motivated to be produced by reason of, a specific order, does not necessarily qualify the underlying transaction to be CPoW.

The crucial application of the upon special order test under 1467 in Engineering Equipment was the nature of the object or test of necessity, when it took into consideration the nature of execution of each other. Both Celestino Co and Engineering Equipment established the proper application of the upon special order test under Article 1467, as not merely on of the timing of the flow of the transactions, but one that goes into the nature of the product involved when it was possible for the manufacturer or producer to be able to produce the product ahead of any special order given by a customer or client. Some other test to determine whether the contract is sales or for a piece-of-work does not prevail: Habitually Test enunciated in the Celestino Co. when a manufacturer engages in the same activity in the ordinary course of business, and does not need to employ extraordinary skills and equipment, that would classify the underlying transaction as a sale. Core test in Engineering Equipment that each product or system executed by it had, by its nature, to be unique and always different from other orders, it had to service in the past, and that even if it wanted to, EEI could not stockpile or even mass produce the products because of their very nature Large quantity of the products to be delivered do not also indicate that the underlying contract is one of sale in Dio v. CA that in a sale for the manufacture of 20,000 pieces of vinyl frogs and 20,000 copies of vinyl mooseheads according to the special samples specified and approved by the buyer and which the seller manufactured not in the ordinary course of its business, the contract executed was clearly on of PoW Consistent theme in the decision of SC on the matter is the main distinguishing factor between a sale and a CPoW is the essence of why the parties enter into it: -if the essence is the object, irrespective of the party giving or executing it, the contract is sale -if the essence is the service, knowledge or even the reputation of the person who executes or manufactures the object, the contract is for piece of work, which is essentially the sale of service or labor (As decided in Engineering & Machinery v. CA citing Tolentino)
To Tolentino, the distinction between the two contracts depends on the intention of the parties. Thus, if the parties intended that at some future date an object has to be delivered, without considering the work or labor of the party bound to deliver, the contract is one of sale. But if one of the parties accepts the undertaking on the basis of some plan, taking into account the work he will employ personally or through another, there is a CPoW. (b) Practical Needs for being able to distinguish (1) From the point of view of warranty of the contractor on the product, a CPoW is not much different from a sale. Pursuant to Art 1714, a CPoW shall be governed by the

6 | MSAC-NSP [Law on Sales Villanueva]

pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale. Sale Constituted of real obligations If determinate subject, remedy is specific performance If indeterminate, remedy is to have the subject matter done by a third person with cost chargeable to the seller (Art. 1165 of CC) Governed by the Statute of Frauds CPoW Personal Obligation (obligation to do) Remedy is for the employer may have the defect removed or another work executed at the contractors cost (Art. 1715 of CC) Not governed by the Statute of Frauds

(4) From Agency to Sell or Buy Contract of Agency (obligation to do) a person binds himself to render some service or to do something in representation or on behalf of the principal, with the consent or authority of the other. Distinguishing Sale and Agency to Sell/Buy Basis Revocability Payment of Price Effect of Delivery Sale Not unilaterally revocable Buyer himself pays for the price of the object which constitute the main obligation Buyer becomes the owner of the subject matter Agency to Sell/Buy Revocable, since it covers an underlying fiduciary relationship (even with the presence of irrevocability clause) Agent is not obliged to pay the price and is merely obliged to deliver the price which he may receive from the buyer Agent does not become the owner of the thing subject of the agency (even if the object is delivered to him) Agent who effects the sale assumes no liability as long as he acts within his authority and in the name of the principal (agent can, however, voluntary bind himself to the warranties of the seller) Agent is disqualified from receiving any personal profit from the transaction covered by the agency, and any profit received should pertain to the principal

Quiroga v. Parsons Quiroga granted Parsons the right to sell as an agent the Quiroga beds in Visayas; Quiroga however wanted to rescind the contract claiming that Parsons, as agent, had violated its obligations and breach of contract. The determination of whether the contract could be rescinded depends on whether it was one of sale or agency to sell. The court found the arrangement to be one of sale since the essential clause provides that payment was to be made at the end of sixty days, or before, at the plaintiffs request, or in cash, if the defendant so preferred, and in these last two cases, an additional discount was to be allowed for prompt payment. These conditions to the Court were precisely the essential features of a contract of purchase and sale because there was the obligation on the part of the plaintiff to supply the beds and, on the part of the defendant, to pay the price. The court further noted that it must understood that a contract is what the law defines it to be and not what it is called by the contracting parties. Gonzalo Puyat & Sons, Inc. v. Arco Amusement Company Arco Amusement Company engaged the services of Gonzalo Puyat & Sons to purchase from the Starr Piano Company in the US specified sound reproducing equipment. Later when Arco found out that Puyat had quoted to Arco not the net price but the list price, and that Puyat had received a discount from Starr Piano Company, it sought to recover the same under the premise that being only its agent any benefit or profit received from the transaction must inure to Arco, as the principal. The court had ruled that the contract between the two is a contract of sale and that such stipulation is incompatible with pretended relation of agency between the petitioner and the respondent, because in agency, the agent is exempted from all liability in the discharge of his commission provided he acts in accordance with the instructions received from his principal.

Liability

Seller warrants

Profit

The transfer of title or agreement to transfer it for price paid or promised is the essence of sale. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to sell is the delivery of an agent, not as his property, but as the property of the principal, who remains the owner and has the right to control the sale, fix the price, and terms, demand and receive the proceeds less the agents commission upon sales made. (Ker & Co., Ltd. v. Lingad) One of the factors that most clearly distinguishes agency from other legal concepts, including sale, is control; one person the agent agrees to act under the control of direction of another principal. (Victorias Milling Co. v. CA) Practical Value of Being Able to Distinguish GR: Unlike a sale contract which must comply with the Statute of Frauds for enforceability, a contract of agency to sell is valid and enforceable in whatever form it may be entered into. XPN: Under Art. 1874 of the CC, when the sale of a piece of land or any interest therein should is through an agent, the authority of the latter shall be in writing, otherwise, the sale shall be void.

Statutory Rule Article 1466 of the CC -in construing a contract containing provisions characteristics of both sale and of the contract of agency to sell, the essential clauses of the whole instrument shall be considered.

7 | MSAC-NSP [Law on Sales Villanueva]

(5) From Dacion En Pago Dation in payment is one whereby property is alienated to the creditor in full satisfaction of a debt in money; it constitutes the delivery and transmission of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is governed by the Law on Sales, since it essentially involves the transfer of ownership of a subject matter. The Court observed that in its modern concept, what actually takes place in dation en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale while the debt is considered as the purchase price; that is why the elements of sale must be present, including the clear agreement that the things offered is accepted for the extinguishment of the debt (Vda De Jayme v. CA). It must be emphasized, however, that dacion en pago considerations are not in the realm of perfection of contract, but rather in the stage of consummation, for indeed dacion en pago is by definition a special mode of payment, whereby the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. Requisites of a valid Dacion en Pago (Lo v. KJS Eco-Formwork System Phil,. Inc.) (a) 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; (b) Some difference between the prestation due and that which is given in substitution (aliud pro alio); and (c) 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 In dacion en pago, the undertaking really partakes in one sense of a 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 debtors debt. The legal effects of dacion en pago come into effect only when both the debtor and creditor agree to the terms thereof, for consent to dacion is an essential element. But once the creditor agrees to dacion, it ought to know, especially when it is a bank, and must abide the legal consequences thereof; that the pre-existing obligation is thereby extinguished. (6) From Lease In a contract of lease, the lessor binds himself to give to another (the lessee) the enjoyment, or use of a thing for a price certain, and for a period which may be definite or indefinite. A conditional sale may be made in the form of a lease with option to buy as a device to circumvent the provision of the Recto Law governing the sale of personal property on instalments. It may be stipulated in such contract that the lessee has the option to buy the leased property for a small consideration at the end of the term of lease, provided that the rent has been duly paid; or if the rent throughout the term had been paid, title shall vest in the lessee. Such contracts are really conditional sale and are deemed leases in name only.

When a lease clearly shows that the rentals are meant to be instalment payments to a sale contract, despite the nomenclature given by the parties, it is a sale by instalment (Filinvest Credit Corp. v. CA).

CHAPTER 2 PARTIES OF SALE


I. General Rule on Capacity of Parties any person who has capacity to act or the power to do acts with legal effects or the power to obligate himself, may enter into a contract of sale, whether as seller or as buyer. Natural persons/individuals 18 yrs. Upon which they have capacity to act Juridical Persons a juridical personality separate and distinct from that of the shareholders, partners or members, is expressly recognized by law, with full juridical capacity. II. Minors, Insane or Demented Persons and Deaf Mutes Generally, they have no legal capacity to contract; disqualified from being parties to a sale Contracts are not void but merely voidable, subject to annulment or ratification. The action for annulment cannot be instituted by the person who is capacitated since he is disqualified from alleging the incapacity of the person with whom he contracts Insane or Demented Persons During lucid intervals valid State of drunkenness voidable The incapacitated person is not obliged to make any restitution, except insofar as he has been benefitted by the thing or price received by him 1. Necessaries Art. 1489 although a minor is not capacitated to validly enter into a sale, where necessaries are sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefore and the resulting sale is valid. Art. 194 FC necessaries are those that cover everything indispensable for sustenance, dwelling, clothing, medical attendance, education and transportation, in keeping with the financial capacity of the family. Two elements: 1. perfection of the sale 2. delivery of the subject necessaries *if there is only perfection at the time the case reaches litigation, the sale of course is not void, but voidable for vice in consent, and the rules on voidable contracts apply. 2, Emancipation

8 | MSAC-NSP [Law on Sales Villanueva]

the issue on the validity of sales entered into by emancipated minors no longer exists.

3. Senility and Serious Illness Domingo vs CA: The general rule is that a person is not incompetent to contract merely because of advanced years or by reason of physical infirmities. However, when such age of infirmities have impaired the mental faculties so as to prevent the person from properly, intelligently, and firmly protecting her property rights then she is undeniably incapacitated. The sale is void because the circumstances showed that there was never any meeting of minds since there was no real consideration agreed upon, and that the deed was merely forged. Paragas vs Heirs of Dominador Balacano a sale executed by one who is already of advanced age and senile to be null and void, instead of being merely voidable circumstances which raise grave doubts on his physical and mental capacity to freely consent to the contract. It used Art. 24 CC for ruling that the sale was void, in all contractual, property or other relations, when one of the parties is at disadvantage on account of his moral dependence, ignorance, mental weakness, tender age or other handicap, the courts must be vigilant for his protection. It does not seem logical for the Court to declare the sale void, when annulment of the contract by reason of vitiated consent, would have been the more logical remedy to apply. III. Sale by and between Spouses 1. Sales with Third Parties CC = the alienation or encumbrance of a conjugal property requires the consent of the wife. Otherwise, the transaction will be voidable and the wife may, during the marriage and within 10 yrs from the questioned transaction, bring an action for the annulment of the contract on the entire property, and not just the portion that pertains to her share (Heirs of Ignaca Aguilar-Reyes vs. Mijares) FC = Art. 73; either spouse may exercise any legitimate profession, occupation, business or activity w/o the consent of the other, and the latter may object only on valid, serious, and moral grounds. In cases of disagreements, the court shall decide whether or not the objection is proper and depending on whether the benefits had accrued to the family prior to the objection or thereafter. Prior = the resulting obligation shall be enforced against the separate property of the spouse who has not obtained consent After = chargeable against the community property, w/o prejudice to the creditors who acted in good faith Law on Sales = a spouse may, w/o the consent of the other spouse, enter into sale transactions in the regular or normal pursuit of his or her profession, vocation or trade. Arts. 96 and 124 of the FC = the administration and enjoyment of the community property (CoP) or the conjugal property (CjP), as the case may be, shall belong to both spouses jointly; In case of disagreement, the husbands decision shall prevail, subject to the wife seeking remedy from the courts, w/c

must be availed of w/n 5 yrs from the date of the contract. The disposition or encumbrance of CoP or CjP shall be void w/o authority of the court or the written consent of the other spouse. However, said transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. Guing vs CA = the court ruled that, even when the property regime prevailing was the CPG, the court held that the sale by the husband of a CjP w/o the consent of the wife, is void and not merely voidable since the resulting contract lacked one of the essential elements of full consent. EXPN = the husband may dispose of conjugal property w/o the wifes consent if such sale is necessary to answer for conjugal liabilities.

2. Sales Between Spouses Art. 1490 of CC = spouses cannot sell property to each other, except: a. when a separation of property was agreed upon in the marriage settlements b. when there has been a judicial decree for the separation of property in relation to Art. 1492: applicable even to sales in legal redemption, compromises and renunciations.

A. Status of Prohibited Sales Between Spouses

Void Effect: not anyone is given the right to assail the validity of the transaction. The spouses themselves, since they are parties to an illegal act, cannot avail themselves of the illegality of the sale on the ground of pari delicto, the courts will generally leave them as they are Creditors after the transaction, cannot attack the validity of the sale, for it cannot be said that they have been prejudiced by the transaction The only persons who can question the sale are the ff: 1. the heirs of either of the spouses who have been prejudiced 2. prior creditors 3. the state when it comes to the payment of the proper taxes due on the transactions

B. Rationale for Prohibition


Medina vs CIR: a. To prevent a spouse defrauding his creditors by transferring his properties to the other spouse b. To avoid a situation where the dominant spouse would unduly take advantage of the weaker spouse, thereby effectively defrauding the latter c. To avoid an indirect violation of the prohibition of the prohibition against donations between spouses under the Art. 133 of the Code. Art. 87 of the FC = The prohibition shall also apply to persons living together as husband and wife w/o a valid marriage.

9 | MSAC-NSP [Law on Sales Villanueva]

Unlike Art. 1490 which exempts from its prohibition sales between spouses governed by the complete separation of property, Art. 133, and now Art. 87 of the FC, do not make such exception in cases of donations. -a donation between spouses -a sale being an onerous and governed by the complete commutative contract, would separation of property regime, result in the separate estates of being a gratuitous contract, the spouses being of the same would necessarily increase the value as before the sale and no estate of the donoe and reduce fraud could result, either to the the estate of the doner, spouses or to their creditors Why are the spouses under the ACP impossible to sell to one another? Because having the same estate between themselves, a sale is not possible because there simply cannot be a purchase of what a party-buyer already owns.

C. Rationale for Exceptions to Prohibition under Article 1490


In complete separation of property, there is greater danger of undue influence or fraud because where the spouses are bound only by their separate properties to their separate creditors and not to the creditors of the other spouses, there would seem to be greater risk that by allowing spouses to sell to one another, the separate creditors of the selling spouses could equally, if not with greater degree, be defrauded. It is also not an assurance that one spouse cannot exercise undue influence or pressure on the other spouse. The fact that one has a weak personality and that the other has a dominant personality cannot be erased or altered by entering into a CSP, or any other regime for that matter. Spouses governed by CSP are not exempted from the prohibition of donations between spouses. It will also be void for if it is the otherwise, it would be defeating the very purpose of the law. The exception on Art. 1490 should apply more to spouses governed by the Absolute Community of Property because the evils sought to be avoided by the law cannot for practical purposes happen in such regime, since no matter what undue influence is exercised by the dominant spouse, or attempt to defraud the creditor of a spouse, or attempt to circumvent the prohibition against donation, such attempts would prove futile because of the continued existence of the common fund on which both spouses (and the heirs and creditors) can continue to claim; sale would be legally meaningless since they have the same estate and represent the same interest. In the end, the absolute prohibition under Article 133 of CC, now Art, 87 of the FC, on donations between spouses, should also be made to apply to sales between spouses, irrespective of their property regime.

inclusive coverage under Art. 87 of the FC to those living as husband and wife w/o the benefit of a valid marriage. Reason: it is not to be doubted that assent to such irregular connection bespeaks greater influence of one party over the other, so that the danger that the law seeks to avoid is correspondingly increased. The Court held that so long as marriage remains the cornerstone of our family law, reason and morality alike demand that the disabilities attached to marriage should likewise attach to common-law relationship. Calimlim-Canullas vs Fortun that Art. 1409 of the CC declares such contracts void as being contrary to morals and public policy, and not only because Art. 1352 declares them void for having an unlawful cause, but specifically because Art. 1490 prohibits sales between spouses; The prohibition applies to commonlaw spouses, otherwise the condition of those who incurred guilt would turn out to be better than those in legal union Cruz vs CA ruling in Calimlim-Canullas was reiterated but when registered property has been conveyed subsequently to a third-party buyer in good faith and for value, then reconveyance is no longer available to common-law spouses

III. Specific Incapacity Mandated by Law a. Agent, with respect to the property whose administration or sale may have been entrusted to him, unless the consent of the principal has been given; b. Guardian, with respect to the property of the person who is under his guardianship c. Executor or administrator, with respect to the property of the estate under his administrations d. Public officers and employees, with respect to property of the State or any subdivision thereof, or of any gocc, or institution, the administration of which has been entrusted to them; it includes judges and government experts, who in any manner whatsoever, take part in the sale e. Justices, judges, prosecuting attys, clerks of court, and other officers and employees connected with the administration of justice, with respect to the property and rights in litigation or levied upon an execution before the court w/n whose jurisdiction or territory they exercise their respective functions f. Lawyers, w/ respect to the property and rights which may be the object of any litigation in w/c they may take part by virtue of their profession. This is also made to apply to sales in legal redemption, compromises and renunciations 1. Legal Status of Contracts Entered Into in Violation of Arts. 1491 and 1492s Only purchases made by agents of the property covered by the agency are valid and binding between when made with the express consent of their principals and no such exception is granted in all the other instances covered by said article. (b to f), consent or knowledge by the persons who is sought to be protected by the law, cannot validate any of the transactions covered.

3.Applicability of Incapacity to Common Law Spouses Matabuena vs. Cervantes issue on WON the ban in Art. 133 of the CC on a donation between the spouses during the marriage applies to a common-law relationship today, this would no longer be an issue because of the all-

10 | MSAC-NSP [Law on Sales Villanueva]

It does also state the legal consequences of having entered into contracts in violation of said article. Wolfson vs Estate of Martinez such contracts are merely voidable/annullable and not void Director of Lands vs Abagat the contract is invalid Rubias vs Batiller according to Manresa, the reason such contract is merely voidable is because the Code does not recognize such nullity de pleno derecho. However, the same no longer holds for our Phil CC which does recognize the absolute nullity of contracts whose cause, object or purpose is contrary to laws, morals, good customs, public order or public policy or which are expressly prohibited or declared void by law and declares such contracts inexistent and void from the beginning. It adopted Castans rationale that since the provision is based on public policy, that violation of the prohibition cannot be validated by confirmation or ratification. Thus, it holds that a purchase by a lawyer of property of a client in litigation, in which the purchasing lawyer appeared as counsel of record, was void and could produce no legal effect. It cannot be ratified. Neither can the right to set up the defense of illegality be waived.

Rubias vs Batiller Any person may invoke the inexistence of the contract whenever juridical effects found thereon are asserted against him. If the contract has already been fulfilled, an action is necessary to declare its inexistence since nobody can take the law into his own hands and thus the intervention of the competent court is necessary to declare the absolute nullity of the contract and to decree the restitution of what has been given under it. If the contract is still fully executory, no party need bring an action to declare its nullity; but if any party should bring an action to enforce it, the other party can simply set up the nullity as defense.

C. Fraud or Lesion Not Relevant as Nullity


The existence of fraud or lesion is not a factor Rationale: each of such relationships is a trust of the highest order, and the trustee cannot be allowed to have any inducement to neglect his wards interest and to avoid the temptation which naturally besets a person holding such a fiduciary position so circumstanced, necessitates the annulment of the transaction.

A. A Different Form of Ratification


Rubias vs Batiller There is a difference in the state of nullity between prohibited contracts entered into by guardians, agents and administrators and executors (1st group), from those entered into by judges, judicial officers, fiscals and lawyers (2nd group); The 1st group may be ratified by means of and in the form of a new contract, in which case its validity shall be determined only by the circumstances at the time of the execution of such new contract. The causes of nullity which have ceased to exist cannot impair the validity of the new contract. Thus, the object which was illegal at the time of the 1st contract, may have already become lawful at the time of the ratification or the 2nd contract; or the service w/c was impossible may have become possible; or the intention w/c could not be ascertained may have been clarified by the parties. The ratification or 2 nd contract would then be valid from its execution; however, it does not retroact to the date of the 1 st contract. What is the functional difference between the two groups? 1st group after the inhibition has ceased, the only real wrong that subsists is the private wrong to the ward, principal or estate; and therefore, if private parties wish to condone the private wrongs among themselves, the State would not stand in the way 2nd group even when the private parties seek to ratify the private wrong by executing a new contract between themselves when the inhibition no longer exists, such cannot resurrect and validate a relationship, w/c continues to be tainted with a public wrong . Private parties cannot ratify or compromise among themselves matters contrary to public interests.

2. Agents Brokers are not covered by the prohibition as their authority consists merely in looking for a buyer or a seller, and to bring the former and the latter together to consummate the transaction. They negotiate contracts relative to property with the custody of which he has no concern 3. Guardians, Administrators and Executors they are necessarily officers of the courts since they are appointed or confirmed to such position pursuant to judicial proceedings. Rodriguez vs Mactal the prohibition under the CC cannot be made to apply unless there was proof that a third-party buyer was a mere intermediary of the guardian, or that the latter had previously agreed with the third-party buyer to buy the property for the disqualified guardian. Philippine Trust Co. Even w/o such proof, the sale can be rescinded. Remembering the general doctrine that guardianship is a trust of the highest order, and the trustee cannot be allowed to have any inducement to neglect his wards interest and in line with the courts suspicion whenever the guardian acquires the wards property. The court held that the re -sale of the parcels of land to the guardian herself, should be declared void. Even a court-approved sale would not stand against the inhibition provided by Art. 1491. The issue on whether proof of advantage or benefit to the ward, estate or the principal, would be sufficient basis to take the transaction out of the prohibition any matter relating to advantage or benefit is wholly irrelevant under Art. 1491, w/c by clear language imposes an absolute disqualification on the persons stated therein occupying fiduciary positions.

B. Proper Party to Raise Issue of Nullity

A. Hereditary Rights Not Included in Coverage

11 | MSAC-NSP [Law on Sales Villanueva]

Naval vs Enriquez hereditary rights are not included in the prohibition insofar as the administrator or executor of the estate of the deceased. Reason: such rights pertain immediately to the heirs upon the death of the decedent and do not form part of the estate under the administration of the administrator or executor; Nevertheless, such rights derive their value only from the assets that constitute the estate of the decedent, w/c is clearly w/n the fiduciary control of the administrator or executor If an administrator or executor were not disqualified from purchasing or having interests in the hereditary rights, once he validly acquires any of such hereditary rights from any of the heirs, such administrator or executor would already be in clear conflict-of-interests situation, or that in fact he may even use his fiduciary position to compel or convince the remaining heirs to sell or assign their hereditary rights to him.

4. Judges, Justices and Those Involved in the Administration of Justice Gan Tingco vs Pabinguit for the prohibition to apply to judges, , it is not required that some contest or litigation over the property itself should have been tried by the said judge; such property is in litigation from the moment it became subject to the judicial action of the judge, such as levy on execution Macariola vs Asuncion held that the doctrine that prohibition under Art. 1491 is applicable only during the period of litigation, should cover not only lawyers, but judges as well. 5. Attorneys Valencia vs. Cabanting Public policy prohibits the transactions in view of the fiduciary relationship involved. It is intended to curtail any undue influence of the lawyer upon his client. Greed may get better of the sentiments of loyalty and disinterestedness. Any violation of this prohibition would constitute malpractice and is a ground for suspension. Rubias vs Batiller plaintiff is the counsel of record of the applicant, thus his claim of ownership will not stand. Gregorio Araneta, Inc. vs Tuason de Paterno it applies only to attorneys when the property they are buying is the subject of litigation, and does not apply to a sale to attorneys who were not the defendants attorneys in that case. Del Rosario vs Millado prohibition does not apply to a lawyer who acquired the property prior to the time he intervened as counsel in an ejectment suit involving such property. Applies only during the period the litigation is pending. However, when there is a certiorari proceeding still pending, although the subject property is the subject of a final judgment, the disqualification still applies and the purchase by the lawyer during the pendency of the certiorari proceedings would constitute malpractice in violation of Art. 1491 and the canons of professional ethics.

A. Contingent Fee Arrangements

Recto vs Harden does not apply to a contingent fee based on the value of the property involved in litigation and therefore does not prohibit a lawyer from acquiring a certain percentage of the value of the properties in litigation that may be awarded to his client. Vda. de laig vs CA the reason why it is not prohibited is because the payment of said fee is not made during the pendency of the litigation but only after judgment has been rendered in the case handled by the lawyer. Director of Lands vs Aldaba the contingent fee arrangement is recognized under Canon 13 of the Canons of Professional Ethics, as an exception to Canon 10 thereof w/c prohibits a lawyer from purchasing any interest in the subject matter of the litigation w/c he is conducting. But it recognized that a contingent fee is always subject to the supervision of the courts w/ respect to the stipulated amount and may be reduced or nullified; so that in the event that there is any undue influence or fraud in the execution of the contract or that the fee is excessive, the client is not w/o remedy because the court will amply protect him. Fabillo vs IAC a lawyer may have a lien over funds and property of his client and may apply so much thereof as may be necessary to satisfy his lawful fees and disbursements. What makes the pendency of litigation doctrine reasonable? It is sound mainly because when litigation has finally been terminated, and the client legally and practically is no longer at the mercy of his lawyer, negotiation and bargaining between the lawyer and his client on the property that was the subject of litigation would be on arms-length basis, and no undue influence can be exercised anymore by the lawyer on the client. A contingency fee arrangement, although effective and demandable only after litigation, may in fact be negotiated and bargained for between the lawyer and the client during the pendency of the litigation, a period in w/c the lawyer would exercise moral and professional influence over his client, and therefore would rightly be covered by Art. 1491. A contingency fee arrangement actually puts two negotiations toe-to-toe who are both handicapped, so that one cannot rightly say that the other occupies a superior or advantageous position as to the other: the client is disadvantaged by the fact that he must rely on the lawyer for the legal assessment of the case and the legal battle that must be fought; and the lawyer, by the fact that he is actually taking a risk since by the contingent fee arrangement he really would get nothing for all his efforts and trouble, by the loss of the case Ababa contracts of this nature are permitted because they redound to the benefit of the poor client and the lawyer especially in cases where the client has meritorious cause of action, but no means w/ w/c to pay for legal services unless he can, w/ the sanction of law, make a contract for a contingent fee to be paid out of the proceeds of the litigation. Indeed, the same public policy can still be achieved by allowing contingency fee arrangement that allows a lawyer a percentage of the value of the property in litigation, w/c is essentially still a monetary claim w/ the property subject of litigation not being sold or assigned to the lawyer, but as a measure to determine the value of attorneys fee.

12 | MSAC-NSP [Law on Sales Villanueva]

Why is a contingency fee arrangement, w/c is essentially a contract for service, is to be governed at all by Art. 1491 w/c covers only contracts of sale? The law on sales is a catch-all provision engulfing w/n its operations all onerous contracts w/c have w/n their coverage the transfer of ownership and delivery of possession of a thing. Although a contingency fee arrangement has for its main subject matter the service of the lawyer, nevertheless when the consideration for such service allows the lawyer to obtain ownership and possession of the clients property in litigation, the court does not hesitate to apply Art. 1491 prohibitions to test the validity of such an arrangement.

CHAPTER 3 SUBJECT MATTER


I. Requisites of a Valid Subject Matter Valid contract of sale a result of the meeting of the minds of the parties on a subject matter that has at the time of perfection the following requisites: a). a possible thing (existing, having potential existence, a future thing, or even a contingent or subject to a resolutory condition) b). must be licit c). must be determinate or at least determinable

Art. 1416 when the contract is not illegal per se but is merely prohibited, and the legal prohibition is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered. Even when the first requisite for a valid subject matter is not present, there is no inequity to finding the resulting contract of sale as void (as distinguished from a no contract situation), because the innocent party may still be able to recover under the principle of unjust enrichment/ When a contract of sale that has been performed is declared void, then restoration of what has given is in order, since the relationship between parties in any contract even if subsequently voided must always be characterized and punctuated by good faith and fair dealing. (Delos Reyes vs CA)

B. Legal Requisites of Subject Matter Intended to Govern Underlying Obligations of Seller


The underlying policy of what constitutes a valid subject matter of sale is really to safeguard the realizability and enforceability of the primary obligations of the seller to transfer the ownership, and deliver the possession, of the subject matter. At perfection, what a valid sale is able to legally effect is not the delivery of the subject matter but the constitution of the obligation of the seller to deliver, coupled with the right of the buyer to demand specific performance of such obligation.

A. Lack of Any Requisite Results in Non-existent Sale


If it fails to meet the reqs, result = a no-contract situation or void under various cases provided under Art. 1409 of the CC The issue of whether there is a void contract is important in considering the applicability of doctrines that pertain to void contracts (no remedy can be maintained; courts generally leave the parties where they are), w/c would have no application in a situation where the subject matter in a sale does not fulfill the requisite In a no contract situation, in case of payment of the agreed price, the buyer can still recover the amount based on the principle of unjust enrichment Art. 1411 only when the nullity of the contract proceeds from the illegality of the cause or objet of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, would the parties have no cause of action against each other; otherwise, the innocent one may claim what he has given, and shall not be bound to comply with his promise. Art. 1412 when the act does not constitute a criminal offense, the ff rules shall apply: a). when the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the others undertaking b). when only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract or ask, for the fulfillment of what has been promised him; but the one, who is not at fault, may demand the return of what he has given w/o any obligation to comply with his promise

1. Subject Matter Must Be Possible Thing Art. 1461 things having a potential existence may be the object of the contract of sale Art. 1462 there may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency w/c may or may not happen this clearly shows that a valid contract of sale may exist even if at the time of its perfection, the seller was not even the owner of the thing sold. Is there an ambiguity with the first requisite? It seems that it may not really be a requisite because it practically covers any and all situations; what further complicates this is Art. 1409 (3) w/c holds that contracts whose cause or object did not exist at the time of the transaction are deemed inexistent and void from the beginning. The proper consideration of the 1st req, if it is to have legal significance, is to consider it not in the terms of physical existence or non-existence or whether the seller had or did not have ownership thereof at the time of perfection, but whether the subject matter is of a type and nature, taking into consideration the state of technology and science at the time the sale is perfected, that it exists or could be made to exist to allow the seller reasonable certainty of being able to comply w/ his obligations under the contract. e.g. sell a particularly described chair, not yet existing at the time of meeting of the minds, the contract of sale is valid and enforceable, because the nature of the subject matter, is of such a type and nature that it can be manufactured and could come into existence.

13 | MSAC-NSP [Law on Sales Villanueva]

A potion w/c could make the buyer forever young, in spite of the fact that the seller is a scientist, the sale is still void, since the subject matter thereof, at least under current technological and scientific developments, is something that could not exist. The concept perhaps are best embodied in the terms possible things as contrasted from impossible things Art. 1462 in the sale of goods, the subject matter may either be 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 (called future goods); and there may even be sale of goods, whose acquisition by the seller depends upon a contingency w/c may or may not happen Art. 1465 provides that the subject matter of a sale may be subject to a resolutory condition. Art. 1409 (3) contracts are inexistent and void from the beginning when the cause or object did not exist at the time of the transaction the literal application of this provision is not warranted in contracts of sale since under Art. 1458, as it defines the contract, a sale exists by virtue of the fact that an obligation to transfer the ownership of and to deliver a determinate thing, is assumed by the seller; thus, whether such an obligation exists or not, and not the existence of the subject matter, is the essence of sale, especially since sale is not a real, but a consensual contract. Even when the subject matter does not exist at the time of perfection of sale, the contract is still valid under Arts. 1461 & 1409 (3); however, when the subject matter is of such nature that it cannot come to existence (an impossible thing) the contract is indeed void. Art. 1347 all things w/c are not outside the commerce of men. including future things, may be the object of contract. Requiring that the proper subject of a valid sale is a possible thing would ensure demandability and enforceability of the underlying obligation of the seller to deliver It is not part of the reqs of a valid subject matter, at the time of perfection, that the seller be the owner of the subject matter thereof. Art. 1459 it is only required that the seller must have a right to transfer the ownership thereof at the time (the subject matter) is delivered **It supports the principle that a sale constitutes merely a title and not a mode, and its perfection does not per se affect the tittle or ownership over the subject matter thereof. Thus, when the subject matter is an impossible thing, the resulting contract of sale would be void and is consistent with Art. 1409 (3) when it provides for void contracts: Those whose cause or object did not exist at the time of the transaction

It is a contract covering future things and subject to a suspensive condition that the subject matter will come into existence. If the subject matter does not come into existence, as in the case of conditional obligations, the contract is deemed extinguished as soon as the time expires or if it has become indubitable that the event will not take place It also covers only contracts of sale whose subject matter are determinate or specific, and has no application to determinate generic things since the condition that they must come into existence is wholly irrelevant (generic matters are never lost) Sibal vs. Valdez Pending crops w/c have potential existence may be the subject matter of sale, and may be dealt with separately from the land on which they grow. Pichel vs Alonzo where the issue was whether the grantee of a Public Land Act had violated the statutory prohibition from disposing, assigning or encumbering the land, the Court held no such violation of the law, since the subject matter of the contract of sale were fruits of the coconut trees on the land over specified years, and the same could be dealt with separately from the land itself, and even from the coconut trees themselves. The court also held that the subject matter was determinate, although with a potential existence. Mananzala vs CA the Court held that the sale of a lot by a seller who is yet to acquire full ownership from the government agency is a valid sale since it involves the sale of a future thing but it was really a sale sub ject to the condition that the seller will acquire the property.

B. Emptio Spei
Although the 2nd par of Art. 1461 states that the efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence, it should be noted that such condition does not really refer to emptio spei, but rather to emptio rei speratae The only condition for a sale of hope to be a valid contract is provided by the last paragraph of Art. 1461: that the sale of a vain hope or expectancy is void, affirming the requisite of possibility of the subject matter as contrasted from an impossible subject matter. E.g. sale of a sweepstake ticket, for say P100.00, where the buyer purchases the ticket with the hope that upon the draw the ticket would win him, say a million pesos. The object of the sale is not the prize, but rather the ticket, or the chance to win; if the ticket does not win, the sale is still valid, and the buyer has no right to recover the amount paid for the ticket.

C. Sale of Things Subject to Resolutory Condition


What happens if the resolutory condition happens to extinguish the thing, what happens to the contract of sale itself? Art. 1190 when the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each what they have received; this default rule preserve the commutative nature of sale.

A. Emptio Rei Speratae


Under Art. 1461. Things having a potential existence may be the object of the contract of sale but such is subject to a condition that the thing will come into existence

14 | MSAC-NSP [Law on Sales Villanueva]

How could restitution best be achieved between the parties? Art. 1187 the effect of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. Gaite vs Fonacier a contract of sale being an onerous and commutative contract, that the rules of interpretation would incline the scales in favor of the greatest reciprocity of interests and unless the stipulation is clear, a clause should be interpreted as a term rather than as a condition. Subjecting the object of sale to either a suspensive or a resoutory condition does not undermine the commutative nature of a contract of sale. Under a freemarket system, sellers and buyers dealing at arms length have their own methods to properly price things, including an object of sale subject to a condition.

Acap vs CA A distinction should be drawn between a sale of future hereditary rights and a waiver of an acquired hereditary rights, since the first presumes the existence of a contract of sale between the parties, while the second is a mode of extinction of ownership where there is an abdication of intentional relinquishment of a known right w/ knowledge of its existence and intention to relinquish it, in favor of co-heirs. Therefore, a non-heir cannot conclusively claim ownership over the property part of the estate of the deceased person on the sole basis of the waiver document w/c neither recites the elements of either a sale or a donation, or any other derivative mode of acquiring ownership. The illegality of the subject matter, even though it is determinate and existing and capable of actual delivery, undermines the demandability of the underlying obligation of the seller to deliver, and renders the sale void.

A. Sales Declared Illegal by Law


These include those where the subject matter is prohibited Alonso vs Cebu County Club, Inc. the sale of a friar land w/o the consent of the Secretary of Agriculture required under Act No. 1120, is null and void. Quijada vs CA did not consider as void the sale by the donor of land previously donated to a lgu under a resolutory condition as a sale outside the commerce of men under Art. 1409 (4) of the CC, in that patrimonial properties of a lgu, especially those conditionally owned by said unit, as being outside the commerce of men. It held that the objects referred to as outside the commerce of man are those w/c cannot be appropriated, such as the open seas and the heavenly bodies Frenzel vs Castillo discussed the consequence of an alien who purchased land and placed the deed of sale in the name of his Filipina lover: such alien would have no standing to seek the remedies to either recover the properties or to recover the purchase price paid transaction was void ab initio for being in violation of the constitutional prohibition against aliens owning private land and neither a court of equity nor a court of law will administer a remedy. Sales in violation of the land reform laws declaring tenants-tillers as the full owners of the lands they till, are null and void. 3. Subject Matter Must Be Determinate or at Least Determinable

D. Subject Matter is Nexus of Sale


Whether the contract of sale involves a present object (such as a hope or expectancy in emptio spei) or a future thing subject to a suspensive condition (emptio rei speratae), or a present object subject to a resolutory condition, the subject matter must be existing or must come to existence to be delivered to the buyer, otherwise, the contract of sale is void, or an existing contract of sale is extinguished, w/ the obligation on the part of the seller to return the price he has received thereby. Essence of a contract of sale the meeting of minds that bring about the obligation to transfer the ownership, and deliver the possession, of subject matter. Even other contracts that are not strictly sales contracts, but essentially constitute the delivery of ownership and possession of the subject matter as an integral undertaking, tend to be governed by the Law on Sales (barter no element of price; dacion en pago a mode of performance of a pre-existing obligation). CIR vs CA transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale. PUP vs CA the CC provisions on sale are in effect catch-all provisions w/c effectively bring w/n their grasp a whole gamut of transfers whereby ownership of a thing is ceded for a consideration.

A. Determinate Subject Matter

2. Subject Matter Must be Licit A thing is licit and may be the object of contract when it is not outside the commerce of men and all rights w/c are not intransmissible. Otherwise, the resulting contract of sale is void. Sale of animals suffering from contagious diseases and those w/c are unfit for the use or service for w/c they are acquired = void Sale of future inheritance = void

a thing is determinate or specific when it is particularly designated or physically segregated from all others of the same class when the subject matter of a sale is determinate, the basis upon w/c to enforce sellers obligation to deliver, as well as the basis upon w/c to demonstrate breach, are certain and unequivocable The defense of force majeure is applicable to legally relieve the seller from the consequences of failure to deliver the subject matter of the sale.

B. Determinable Subject Matter


a thing is determinable only when two reqs are present

15 | MSAC-NSP [Law on Sales Villanueva]

1). Capacity to segregate tests - If at perfection of the sale, the subject matter is capable of being made determinate 2). No further agreement test w/o the necessity of a new or further agreement between the parties a determinable subject matter is a generic object, because it has neither been physically segregated nor particularly designated at the point of perfection from the rest of its kind. Melliza vs. City of Iloilo at the time of the perfection of the contract, the exact area of the land needed, w/c was the subject matter of the sale, could be determined by simply referring to the Arellano plan, w/o the parties needing to draw-up a new contract, nor even to clarify matters or explain their intentions. In essence, the requisite of being determinable is met when at perfection, the agreement between the parties included a formula w/c can be used by the courts to establish the subject matter upon w/c the obligation to deliver can be enforced, w/o needing to get back to any one or both the parties of the object of their intention. When the formula requires the court to have to go back to the parties to determine their confirmation, then it would undermine the very enforceability and demandability of the underlying obligation to deliver; it would actually render the sale void under Art. 1409 (6) because the original contractual intention of the parties cannot be determined, and would run counter to the principle of mutuality or obligatory force of every valid contract.

C. Test of Determinability is the Meeting of Minds of Parties and Not the Covering Deed
Atilano vs Atilano The Court held that the object of the sale was actually Lot535-A, although the deed of sale referred to lot-535-E, because there was only a mistake in designating the particular lot to be sold in the instrument, w/c mistake was deemed pro forma and did not vitiate the consent of the parties or affect the validity and binding effect of the sale. The Court reasoned that when one seeks to sell or buy a real property, one sells or buys the property as he sees it in its actual setting and by its physical metes and bounds, and not by the mere lot no. assigned to it in the certificate of title. It was clear that when the brothers entered into a contract, they were referring to Lot-535-A because even before that, the purchasing brother had been occupying said lot as his residence. The case emphasizes the point that the true contract of sale is intangible or properly a legal concept. The deed of sale is merely an evidence of the contract. And when the deed fails to cover the real contract or the true meeting of the minds of the parties, then the deed must give way to the real contract of the parties. The defect in the final deed would not work to invalidate the contract where all the essential elements for its validity are present and can be proven.

D. When Quantity of Subject Matter Not Essential for Perfection


The meeting of the minds on the identity, the nature and quality, of the subject matter is essential for the purpose of perfection of sale; it is what makes the subject matter determinate or at least determinable. This is borne by the fact that when the nature and quantity of the subject matter is agreed upon, the

subject matter, although essentially generic or fungible, has complied with the characteristic of being determinable, since the parties know more or less the exact nature of the object or objects w/c will become the subject of performance w/o need of further agreement. Such characteristic prevents the seller from delivering something not w/n the contemplation of the buyer and perhaps much inferior than the price agreed upon; and at the same time, it prevents the buyer from demanding the delivery of an object not contemplated by the seller, and perhaps superior compared to the price agreed upon. Logically, the actual quantity of goods as subject matter of sale would also be essential in the meeting of the minds, since quantity constitutes an essential ingredient to achieve the requisite of the goods being determinate or determinable. If it were otherwise, the ability to enforce the obligation of the seller to deliver would totally be lacking. The meeting of minds on the quantity of the goods as subject matter is necessary for the validity of the sale, because such aspect go into the very core of such contract embodying the essential characteristic of mutuality or obligatory force. The fact that he quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, w/o the need of a new contract between the parties. In this case, there was no need for NFA and Soriano to enter into a new contract to determine the exact no. of cavans of palay to be sold. Soriano can deliver so much of his produce so long as it does not exceed 2, 640 cavans. Specific quantity of the subject matter is not important when it is possible to determine the quantity w/o the need of a new contract between the parties and therefore complies w/ the requisite of being determinable (National Grains Authority vs. IAC) A binding contract of sale existed between parties upon issuance of the purchase order, and not upon confirmation of the buyer of the quantities covered by the order. Although the quantity to be ordered was made determinate only on December 29, 1981, quantity is immaterial in the perfection of sales contract. What is of importance is the meeting of the minds as to the object and cause, w/c from facts disclosed, show that as of December 24, 1981, these essential elements had already concurred. Certain generic objects may be the proper object of a contract of sale, provided they fulfill the characteristic of being determinable at the point of perfection. Thus, even when the exact quantity of the subject matter of the contract of sale has not been agreed upon, but the parties have in fact come into an agreement as to the quality thereof and the price, and terms of payment, there is already a valid and binding contract. However, the author disagrees with the rulings of the SC, that the resulting contract is always a contract of sale, but rather what is perfected is a preparatory contract to enter into a contract of sale, or what is called in commercial parlance a supply agreement. Supply agreement like a contract of sale, it would have at the perfection thereof goods whose quality and unit price would have been agreed upon by the parties, but unlike the contract of sale, the underlying obligation of the seller and buyer is to enter into one or series of contracts of sale based thereon when they come to agree upon the quantity. In other words, at the moment of

16 | MSAC-NSP [Law on Sales Villanueva]

meeting upon the description, quality and unit price of the goods, there is indeed a perfected and valid contract, but it is an agreement to enter into a contract of sale, w/c essentially involves obligations to do (e.g. to enter into actual contracts of sale), rather than real obligations to deliver and to pay. Such an agreement, like all other valid contracts, have the characteristic of consensuality, relativity and obligatory force, and non-compliance would constitute a breach of contract; however, the remedy of specific performance would not be available to the non-defaulting parties because the underlying obligation of the obligor is a personal obligation; at most the breach of such contract would allow the recovery of damages.

impetus of the law declaring sales covering subject matters w/c are neither determinate or determinable is based on the fact that the enforceability or demandability of the underlying obligation of the seller to deliver the subject matter is at grave risk. The situation would then precisely be the one covered by Art. 1409 (6) of the CC w/c declares such contract as void and inexistent: Those where the intention of the parties relative to the principal object of the contract cannot be ascertained.

G. Sale of Undivided Interest


Art. 1463 of the CC the sole owner of thing may sell an undivided interest therein, and there would result co-ownership over the subject matter.

E. Generic Non-Determinable Objects


Since determinable objects may be the valid subject matter of a sale, then even generic things that fall w/n said definition can validly support a contract of sale. Although the sale of determinable generic thing is valid, the obligation to deliver the subject matter can only be complied w/ when the subject matter has been determinate, whether by physical segregation or particular designation; before such time, even the risk of loss over the subject matter does not arise, since by definition generic objects are never lost. Yu Tek & Co. vs Gonzales The Court held Gonzales liable for breach of contract (w/c meant there was a valid underlying sale) although it held that the defense of force majeure was unavailing since the contract was not perfected as to the particular subject matter for determining loss, until the quantity agreed upon has been selected and is capable of being physically designated or appropriated. The Court ruled that the buyer does not assume the risk of loss of a generic subject matter under a valid sale until the object is made determinate, either by physical segregation or particular designation. Art. 1246 when the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor (buyer) cannot demand a thing of superior quality. Neither can the debtor (seller) deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration. The courts therefore have power to set the appropriate quality of the subject matter of a sale when the same is determinable generic. The article cannot be taken to mean that even when the subject matter is not determinable, any generic subject matter would validly support a contract of sale. Under Art. 1409 (6) of the CC, a contract is inexistent and void from the beginning where the intention of the parties relative to the principal object of the contract cann ot be ascertained. one author has held Art. 1246 covers only quality of a generic subject matter, so that when it is the kind and quality that cannot be determined w/o need of a new agreement of the parties, the contract is void.

H. Sale of Undivided Share in Mass


In the sale 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 purports to buy a definite number, weight, no. or measure, of the goods in the mass, and though the no., weight, or measure of the goods in the mass is undertermined. By such a sale, the buyer becomes the co-owner to such share of the mass as the no., weight or measure bought bears to the no., weight or measure of the mass. If the mass contains less than the no., weight, or measure bought, the buyer becomes the owner of the whole mass and the seller is bound to make good the deficiency from the goods of the same kind and quality, unless a contrary intent appears. Gaite vs Fonacier when parties to a sale covering a specific mass had not made any provisions in their contract for the measuring or weighing of the subject matter sold, and that the price agreed upon was not based on such measurement, then the subject matter of the sale is, therefore, a determinate object, the mass, and not the actual no. of units or tons contained therein, so that all tat is required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass, notwithstanding that the quantity delivered is less than the amount estimated. Republic vs NLRC the court allowed the sale in mass at public auction of even separate known lots or parcels, and held that such sale would not be set aside unless it is made to appear that a larger sum could have been realized from a sale in parcels or that a sale of less than the whole would have been sufficient to satisfy the debt.

I. Sale of Mortgaged Property


Pineda vs CA a prior mortgage of the property does not prevent the mortgagor from selling the property, since a mortgage is merely encumbrance on the property and does not extinguish the title of the debtor who does not lose his principal attribute as owner to dispose of the property. It also noted that the law even considers void a stipulation forbidding the owner of the property from alienating the mortgaged immovable.

F. Status of Sale Not Complying with Third Requisite


When the minds of the parties have met upon a subject matter w/c is neither determinate or determinable, the resulting contract would be void. Again, the

17 | MSAC-NSP [Law on Sales Villanueva]

4. Sellers Obligation to Transfer Ownership Required at Time of Delivery Generally, a perfected contract of sale cannot be challenged on the ground that seller had no ownership of the thing sold at the time of perfection. Although the seller must be the owner of the thing in order to transfer ownership to the buyer, he need not be the owner thereof at the time of perfection; it is sufficient that he be the owner at the time of delivery; otherwise, he may be held liable for breach of warranty against eviction. In fact, the acquisition by the buyer of the subject matter of the sale may even depend upon contingency and this would not affect the validity of the sale. Art. 1505 provides that when goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless there is estoppel on the part of the owner; but this pertains only to the consummation stage of the sale and does not affect the validity of the contract itself Hilltop vs Villacorta a contract of sale cannot be declared null and void for failure of the seller to reveal the fact that it was not the owner of the property sold. Esguerra vs People the sale of copra for future delivery does not make the seller liable for estafa for failing to deliver because the contract is still valid and the obligation becomes civil and not criminal Mananzala vs CA the sale of a lot by a seller who is yet to acquire full ownership thereof from a government agency was still a valid sale since it involved the sale of a future thing.

the subject matter of sale; that redemption rights do not arise, even w/ stipulated at perfection, unless there has been delivery of the subject matter to the buyer. Therefore, in the case of Nool, the seller not having complied w/ his obligation to deliver the subject matter, his conventional right of redemption or repurchase never arose. In Noel vs CA the court espoused the principle that a seller cannot dispose of that w/c does not belong to him, w/c is consistent w/ the rule that a seller cannot transfer by delivery ownership of the thing w/c at the time of delivery did not belong to him.

B. EXPN: When Seller Must be Owner at Time of Sale


The exception would be in the case of judicial sale. Cavite Development Bank vs Spouses Cyrus Lim a foreclosure sale, though essentially a forced sale, is still in accordance w/ Art. 145 8 of the CC, under w/c the mortgagor in default, the forced seller, becomes obliged to transfer the ownership of the thing sold to the highest bidder who, in turn, is obliged to pay the bid price in money or its equivalent. Being a sale, the rule that the seller must be the owner of the thing sold also applies in a foreclosure sale this is the reason why Art. 2085 of the CC, in providing for the essential requisites of the contract of mortgage, requires among things, that the mortgagor or pledger be the absolute owner of the thing mortgaged, in anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan.

C. Subsequent Acquisition of Title by Seller


Art 1434 of the CC provides that when at the time of perfection, the seller sells a subject matter over w/c he is not the owner, the subsequent acquisition of title by a seller validates the sale and title passes to the buyer by operation of law, provided there has been previous delivery of the subject matter by the seller to the buyer. It is only essential that there not only exist a valid sale, but that previous physical delivery of the subject matter must have been done. Quijada vs CA However, when the resolutory condition did occur w/c effectively reverted ownership back to the seller, under Art. 1434 the sellers title passes by operation of law to the buyer. The Court expressly recognized that the rule under Art. 1434 applies not only to sale of goods, but also to other kinds of property, including real property.

A. Conflicting Rulings
The problem with the doctrine proposed by Nool is that in order to hold the sale void by the holding that the sellers were not the owners of the subject matter thereof, it equated the primary obligation to transfer ownership and deliver possession as service and therefore constitutes them as personal obligations to do. That position is not correct since the obligations of the seller in a contract of sale are real obligations to give & w/c would make them enforceable by specific performance. Nool would still have achieved the same equitable end by sticking to the doctrine that in spite of the fact that the sellers were not the owners of the subject matter of the sale, the sale was at perfection still valid and remained valid even when the seller could no longer comply w/ their obligations to transfer ownership. The result would be that the sellers would be liable for breach of contract of a valid contract of sale, but since the obligations could be performed, the only remedy left was to rescind the sale, w/ damages. The rescission of the sale brings w/ it the rescission of all ancillary features, including the right to repurchase. Another way to have dealt w/ the situation in Nool was to recognize that redemption rights are species of extinguishment of a valid sale, and essentially only after full consummation of the obligation of the seller to deliver

CHAPTER 4 PRICE AND OTHER CONSIDERATION


By definition under Art. 1458, the ideal consideration for a contract of sale would be price as a sum certain in money or its equivalent. It is still possible that a sale may still be when it has for its cause or consideration an item other than price.

18 | MSAC-NSP [Law on Sales Villanueva]

Torres v. CA Consideration, more properly denominated as cause, can take in different forms, such as the prestation, or promise of a thing or service by another. Meaning of Price Price signifies the sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the fixing of the price put to the debt of the buyer and agreed by him. A seller cannot unilaterally increase the price previously agreed upon with the buyer, even when the need to adjust the price of sale is due to increased construction cost; otherwise, it would be a violation of the essential characteristic of obligatory force of contracts of sale. Requisites for Valid Price (a) It must be Real; (b) It must be in Money or its equivalent (i.e. it must be Valuable Consideration); and (c) It must be Certain or Ascertainable The requisites provided by law for a valid price to support a valid sale are intended to preserve the integrity and enforceability of the underlying obligation of the buyer to pay. It is also essential that the requisites for the price promote the onerous, commutative, and bilateral-reciprocal characteristics of the contract of sale. (1) PRICE MUST BE REAL i. When Price is Real Price is real when at the perfection of the sale, there is the legal intention on the part of the buyer to pay the price, and legal expectation on the part of the seller to receive such price as the value of the subject matter he obligates himself to deliver. Pealosa v. Santos held that when the parties execute a Deed of Absolute Sale over a parcel of land with the understanding that the price indicated therein would be paid from the proceeds of the loan to be obtained by the buyer froma bank using the subject property as mortgage collateral, then neither the contract of sale nor the price can be considered as wholly simulated, for there was valuable consideration, and the non-payment of the price because of the refusal of the seller to turn-over the title to the bank, would not grant the seller the right to rescind the sale after the buyer has duly consigned the price with the courts. ii. When Price is Simulated iv.

When the price is simulated because neither party to the Deed of Sale had any intention whatsoever that the amount will be paid, the sale is void, although the act may be shown to have been in reality a donation, or some other contract. The whole issue therefore boils down to contractual intent; if there was no intent by the parties at the time of perfection to pay and to receive the price stipulated, then it is a wholly simulated price, and the underlying contract of sale is void for lack of consideration. Suntay v. CA The court considered it to be the most protuberant index of simulation of the price when there is a complete absence of an attempt in any manner on the part of the buyer to assert his rights of ownership over the land and rice mill in question. The failure of the buyer to take possession of the property allegedly sold to him is a clear badge of fraud and therefore considered the sale utterly void Labagala v. Santiago the admission of the buyer that he did not pay any centavo for the property, made the sale void, especially when evidence showed that the deed of sale was forged. The indication in the covering instrument that the price has been agreed upon and paid, when in fact there has been no such payment, has been considered to be an indication of simulation of price. When the price is completely simulated, then the principle of in pari delicto nonovitar actio should apply, which denies all recovery to the guilty parties inter se. However, such principle applies to cases where the nullity arises from illegality of the consideration of the purpose of the contract but does not apply to inexistent and void contracts where the price is merely simulated. iii. When Price is False Price is false when there is a real price upon which the minds of the parties had meet, but not declared, and what is stated in the covering deed is not the one intended to be paid. If the price indicated in the covering instrument is false, the contract of sale is valid, but the underlying deed is subject to reformation to indicate the real price upon which the minds of the parties have met. Nevertheless, the parties may be held bound by the false price indicated in the instrument under estoppels principle, especially when the interest of the Government or third parties would be adversely affected by the reformation of the instrument. Meeting of Minds as to Price

19 | MSAC-NSP [Law on Sales Villanueva]

In Mapalo v. Mapalo, the spouses Mapalo, who were simple illiterate farmers, were made to sign a deed of sale over their registered land although they were told that they were signing a donation for the eastern half of said property in favor of the brother. (Non-payment of Php 500.00) The court differentiated between a contract that had no consideration from one which merely contained a false consideration. It ruled that according to Manresa, what is meant by a contract states a false consideration is one that has in effect a real consideration but the same is not the one stated in the contract. In Mapalo, aside from the false consideration of Php 500.00, there was no real consideration as to the western half of the property; therefore, the contract was one with no consideration. It was void, and it inexistence was permanent and incurable and could not be subject of prescription. v. Effect of Non-Payment of Price If the price is fixed but later on remitted or condoned, this is perfectly all right, for then the price would not be fictitious. The failure to pay the price does not cancel a sale for lack of consideration, for there is still consideration. The failure to pay a real price goes not into perfection of the sale but into its consummation. The failure to pay the price or balance thereof does not render the sale inexistent or invalid, but merely give rise to a right in favor of the seller to either demand specific performance or rescission of the contract of sale. It is not the fact of payment that determines the validity of the contract of sale, since sale is not a real contract. Sale is a consensual contract, and it becomes binding and valid contract upon the meeting of the minds on the price. If the minds of the parties never meet as to the price, because the price stipulated is known by both parties as simulated, the contract is undoubtedly void. On the other hand, if the minds of the parties have met as to the price, the contract of sale if valid irrespective of the manner of payment they agreed upon, or even by the breach of the manner of payment agreed upon. Balatbat v. CA A contract of sale being consensual, it is perfected by the mere consent of the parties. Delivery of the thing bought or payment of the price is not necessary for the perfection of the contract; and failure of the vendee to pay the price after the execution of the contract does not make the sale null and void for lack of consideration but results at most in default on the part of the vendee, for which the vendor may exercise his legal remedies. Heirs of Pedro Escanlar v. CA In a contract of sale, 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. The remedy of an unpaid seller in a contract of sale is to seek either specific performance or rescission. Failure of Consideration vs. Lack of Consideration

Montecillo v. Reynes Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfilment or cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract. 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. vi. Accommodation Does Not Make Sale Void for Lack of Price Yu Bun Ong (2001) held that when the Deed of Sale was executed merely to facilitate the transfer of the property to the buyer pursuant to an agreement to enable the buyer to construct a commercial building and to sell the property to the children, but that in truth the agreement was a mere subterfuge on the part of the buyer, the agreement cannot be taken as a consideration for the sale which the Court held to be void. The ruling in Yu Bun Ong is in stark contrast to the Courts earlier decision in Mate v. CA (1998), which sustained the validity of agreement even when fraud may have been the intention of the party accommodated, more so when fraud has not been considered an efficient cause to render a contract void, but rather voidable by reason of vice in the consent of the party-victim. Mate is a prime example to show that even when undoubtedly the price stipulated in the covering instrument is simulated (i.e. false) the underlying sale would still be valid and enforceable provided there is another consideration (apart from the false price) to support the sale. vii. Simulation of Price Affects Delivery of Subject Matter When a contract of sale is fictitious, and therefore void, and inexistent, as there was no consideration therefore does not transfer ownership to the buyer. But care should be made to distinguish between a simulated price that affects delivery, on one hand, and the failure to pay the price, on the other hand, which does not affect the efficacy of delivery of the subject matter.

(2) PRICE MUST BE IN MONEY OR ITS EQUIVALENT: Valuable Consideration Article 1458 of the CC, in defining the obligation of the buyer, provides that he must pay the price certain in money or its equivalent. It had been proposed, though not resolved, in Bagnas v. CA, that Art. 1458 requires that equivalent be something representative of money, e.g. a check or draft, citing Manresa, to effect that services are not the equivalent of money insofar as said requirement is concerned and that a contract is not a true sale where the price consists of services or prestations. Nevertheless, Art. 1458 recognizes that if the consideration of a contract consists partly in money and partly in another thing, the transaction can still be considered a contract of sale when this is the manifest intention of the parties. This shows

20 | MSAC-NSP [Law on Sales Villanueva]

that the consideration for a valid contract if sale can be the price and other additional consideration. Republic v. Phil. Resources Development delivery of Apostol galvanized iron (owned by PRDC) as payment of the lacking amount from the previous obligation to Bureau of Prisons; The Court held that the Governments contention wer e untenable, ruling that Article 1458 provides that the purchaser may pay a price certain in money or its equivalent, which means payment of the price need not be in money. Republic is not at all authority to say that under Art. 1458, as it defines a contract of sale, the term equivalent of price can cover other than money or other media of exchange, since Republic covers not the perfection stage of a contract of sale but rather the consummation where the price agreed upon (which ideally should be in money or its equivalent) can be paid under the mutual agreements agreed upon by the parties to the contract of sale, even by dation in payment as was the case in Republic. Torres v. CA when the covering contract of sale of a parcel of land clearly provides that the consideration for the sale was the expectation of profits from the subdivision project, it constituted valid cause or consideration to validate the sale and delivery of the land. i. Adequacy of Price to make it Real; Concept of Valuable Consideration Ong v. Ong considered the validity of a sale of real property where the consideration stated in the deed was One Peso (Php 1.00) and the other valuable consideration. The Court held that since no evidence was adduced to show that the consideration stated in the deed of sale was not paid or was simulated, it presumed to exist under Art. 1354 of the CC. In any event, the Court held that the apparent inadequacy is of no moment since it is the usual practice in deeds of conveyance to place a nominal amount although there is a more valuable consideration given. The essence of the Ong ruling is that in our jurisdiction, it is possible for parties to a sale to agree on an adequate consideration, and though they will state a false nominal consideration in their covering deed, it would not affect the validity of the contract of sale, provided that valuable consideration was in fact agreed upon. For consideration to support an onerous contract, such as a contract of sale, it would have to be valuable consideration.

Bagnas v. CA Sale of real property for One Peso; the court noted that the gross disproportion between the consideration stipulated and the value of the property, would show that the price stated was a false and fictitious consideration and no other true and lawful cause having been shown, the Court finds both said deeds, insofar as they purport to be sales, not merely voidable, but void ab initio. Therefore, even though a consideration is real in the sense that it was agreed upon and there is every intention of the parties to pay and receive such price, it would still be considered fictitious and render the sale void if it is a mere nominal price. Bagnas should not be interpreted to mean that although the parties agreed that services was agreed upon to be part of the consideration, the fact that no services were rendered would make the contract void, since the non performance of the services agreed upon does not go into the validity of the contract but actually grants to the seller or his successor-in-interests the right to rescind the contract for breach thereof. The essence of the ruling in Bagnas was that evidence was adduced to indicate that there was no real intention to pay any indicated valuable consideration. (3) PRICE MUST BE CERTAIN OR ASCRETAINABLE AT PERFECTION Price is certain when it has been expressed and agreed in the terms of specific pesos and/or centavos. This affirms the proposition that money represents the best model of valuable consideration. Art. 1469 of the CC in order that the price may be considered ascertainable, it shall be sufficient that it be so with reference to another thing certain, or that the determination thereof be left to the judgement of a specified person or persons. i. Price Fixed by Third Party The designation of a third party to fix the price is valid and such designation by itself makes the price ascertainable as to give rise to a valid contract of sale. The fixing of the price cannot be validly left to the discretion of one of the contracting parties, for to consider a contract of sale already existing when the price has yet to be fixed by one of the parties would render the contract to be without the characteristics of mutuality of obligatory force. Even before the fixing of the price the designated 3rd party, a contract of sale is deemed to be perfected and existing, albeit condition. Barreto v. Santa Marina even before the designated party had fixed a price there was already an existing contract of sale, as to prevent one party from unilaterally withdrawing from the contract; however, such contract was a contract subject to a suspensive condition, i.e. that the price will be fixed by the 3rd party designated by the parties.

21 | MSAC-NSP [Law on Sales Villanueva]

Under Art. 1469, if the designated 3rd paty fixes the price in bad faith or by mistake, those are the only two instances where the parties to the contract can seek court remedy to fix the price. When the designated 3rd pary is either unable or unwilling to fix the price, the parties do not have a cause of action to seek from the court the fixing of the price because, in a manner of speaking, the condition imposed on the contract of sale has not happened, and its happening extinguished the underlying contract; consequently, there is no longer a contract upon which the courts have any jurisdiction to fix the price. In such a case, the law declares the contract of sale inefficacious. Art. 1186, CC The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfilment. When the 3rd party designated is prevented from fixing the price by fault of either the seller or the buyer, the party not at fault may have such remedies against the party in fault as are allowed the seller or the buyer, as the case may be. The party may demand from the courts for the fixing of the reasonable price. ii. Fixing of Subject Matter by 3rd party Although under Art. 1469 of the CC, the designation by the parties of a third party to fix the price gives rise to a valid (albeit condition) contract of sale, such formula is NOT ALLOWED for the determination of the subject matter of sale contract is a void contract of sale. The designation of a 3rd party to fix the subject matter is not provided by law. In order that a contract of sale can exist, the parties must have agreed on a subject matter which is determinate or determinable. The test of whether the subject matter is determinate is one of fact: whether the subject matter has been physically segregated or particularly designated. The test of being determinable covers the test of capacity: based on the formula agreed by the parties at the time of perfection, could the subject matter be physically segregated or particularly designated by the courts without further agreement between the contracting parties. iii. Price Ascertainable in reference to other things Certain The price of securities, grain, liquids, and other things shall also be considered certain, when the price fixed is that which the thing 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 iv. Effect of Unascertainability

Where the price cannot be determined in accordance with any of the preceding rules, or in any other manner, the contract of sale is inefficacious. (the law does not use the term void because of the implied acknowledgement that the existence of the formula allowed by law at the point of perfection has actually rendered a contract valid albeit conditional, which cannot be rendered void by what happens after perfection) (4) MANNER OF PAYMENT OF PRICE MUST BE AGREED UPON Although the CC provisions governing the contract of sale do not explicitly require that a meeting of the minds of the parties must include the terms or manner of payment of the price, the same is deemed to be an essential ingredient before a valid and binding contract of sale can be said to exist, since it is part of the prestation of the contract, and without which there can be no valid sale, nor can an action for specific performance be made against the alleged seller. Manner of payment of price goes into the essence of what makes price certain or ascertainable. Velasco v. CA where the parties had agreed on the determinate subject matter (a parcel of land), and the total purchase price, but not on the manner of payment of the agreed price, held that although downpayment had already been made by the buyer and received by the seller, there was still no valid sale. The Court held that although part of the downpayment has been paid, a definite agreement on the manner of payment of the purchase price was an essential element in the formation of a binding and enforceable contract of sale. The terms of payment, being an integral part of the price, would have the same requisites that the law imposes on the price to support a valid contract of salecertain or at least ascertainable. If a price, unknown to both parties, can support a valid and binding contract of sale, such as when the fixing of the price is left to a third party, then also, if the terms of payment are provided for in a formula to work, then the terms of payment are deemed to have been agreed upon and the sale would be valid, but subject to the same condition affixed to the price. i. Proper understanding of doctrine on agreement on Terms of Payment of Price The terms of payment do not always have to be expressly agreed, when the law supplies by default such terms. A close reading of the ruling isn Navarro, Velasco and Leabres indicates clearly that in each of the cases, the parties were to have a mode of payment of the price other than immediate payment. In each of those cases therefore, there could not have been a final meeting of the minds of the parties as to the price because both parties in each case knew and expected that certain negotiations still had to be made with respect to the manner of payment of the price. In all other cases, price is deem to be demandable at once. Under Art. 1179 of the CC, every obligation whose performance does not depend upon a

22 | MSAC-NSP [Law on Sales Villanueva]

future or uncertain event, or upon a past event unknown to the parties, is demandable at once. Therefore, in the absence of any stipulation or agreement or actuation indicating that a different term of payment would be applicable and for which a meeting of the minds must be achieved, the price is deemed to be by operation of law immediately demandable upon the perfection of the contract. (5) WHEN THERE IS SALE EVEN WHEN NO PRICE HAS BEEN AGREED UPON Article 1474 of the CC Where the price cannot be determined in accordance with the preceding articles, or in any other manner, the contract is inefficacious. However, if the thing or any part thereof has been delivered to, and appropriated by the buyer, he must pay a reasonable price therefore. What is reasonable price is a question of fact dependent on the circumstance of each particular case. The court have authority to fix the reasonable price for the subject matter appropriated by the buyer. Art. 1474 seems to present the only exception where there would still be a valid sale even when there has been no meeting of the minds as to the price or any other consideration. Raet v. CA Contract of sale was declared invalid despite the fact that the buyers were already in possession of the housing units, delivered by the seller itself, on the ground that the evidence shows that the price was merely estimate. (Opinion of Villanueva following Art. 1474 of the CC the court could have directed the trial court to fix the reasonable prices of the housing units already appropriated by the buyers.) Same ruling was adapted in National Housing Authority v. Grace Baptist Church , involving the sale of parcels of land by the NHA, where possession had been turned over to the buyer which had introduced improvements thereon, when it was still clear that the final price had yet to be agreed upon. i. What does Art. 1474 mean by Preceding Articles? It is posited that the phrase preceding articles should start with Art. 1469 which provides ascertainable of price with reference to another thing certain, or a specified formula, etc., up to Art. 1473, which prohibits the fixing of the price by any of the parties. (Art. 1469-1473) Within the coverage of the preceding articles is Art. 1471 which covers the situation when the price is completely simulated and therefore gives rise to a void contract of sale, although it may still be saved as a donation where the consideration is shown to be pure liberality. It also covers Art. 1473 where the formula for the fixing of the price is left to the discretion of a party, which makes the contract entirely void. Under such scenario, the proposition of ejusdem generis to qualify Art. 1474 only to

situations where the price is certain or ascertainable would be totally inapplicable. Preceding Articles cannot be interpreted to cover only Art. 1469 (price is fixed in reference to another thing certain or left to a third-partys determination) and 1472 (price of securities, grain, liquids based on a trading price) especially when: (a) Art. 1469 and 1472 are not even consecutive articles and the non-joinder of the articles in-between is wholly arbitrary; and (b) the position does not seem to be supported by the immediately subsequent term or in any other manner by which price cannot be ascertained, which clearly implies the non-exclusivity of the provision only to sales of contract which are valid but rendered inefficacious. ii. What does Art. 1474 mean by Inefficacious? Article 1474 uses the word inefficacious rather than void, because within the coverage of preceding articles are Articles 1469 and 1472, which provides for sales which are not void because the price, though not certain, is ascertainable. Inefficacious means the inability to produce the effect wanted; inability to get things done. The use of the word inefficacious does not exclude void sale contracts when the price is neither certain or ascertainable. In other words, the use of the term inefficacious was not meant to exclude void sales, but more to be able to include valid conditional contracts of sale (which have become inefficacious) in the same group as void contracts, from the focal point of price. iii. Concept of Appropriation; Summation Article 1474 is a new provision in the CC, not under the Old CC. The case-law basis of Article 1474 is attributed to Robles v. Lizragge Hermanos, which established the appropriation doctrine under Art. 1474 founded on the principles of unjust enrichment and estoppels, thus:
as the defendant partially frustrated the appraisal, it violated a term of the contract and made itself liable for the true value of the things contracted about, as such value may be established in the usual course of proof. Furthermore, it must occur to any one, as the trial judge pointed out, that an unjust enrichment of the defendant [buyer] would result from allowing it to appropriate the movables without compensating the plaintiff thereof.

There are two important points that can be drawn from the foregoing, thus: (a) The doctrine is based on the principle of unjust enrichment directed against the buyer who is not allowed to retain the subject matter of sale without being liable to pay the price even when no such agreement on the price was previously made; and

23 | MSAC-NSP [Law on Sales Villanueva]

(b) The doctrine applies even when there is a no contract situation because of no meeting of the minds as to the price, although there was a meeting of the minds as to the subject matter, and may also apply to void sale situation where the defect is as to the price. Art. 1474 actually meant to cover all sale contract situations where there must have been at least a meeting of the minds or an agreement to buy and sell the subject matter, which is coupled with tradition; and that it is meant to be a remedy clause in favor of the seller who has delivered the subject matter in accordance with an agreement (though it may not be a full contract yet) with the buyer who has received it and appropriated it. Suppose the seller does wish to take advantage of the remedy, and seeks to recover the subject matter? Not possible if the subject matter has already been appropriated, especially when the buyer had already incurred expenses, and also because it would violate the essential characteristic of binding effect of every contract, including contract of sale. Article 1474 uses the twin concept of delivery and appropriation, it seems to say that it would not apply to a situation where there has only been delivery but no appropriation, because undoing of the contract and the return of the subject matter of the seller would not present unjust enrichment to either party. The use of the word appropriate under Art. 1474 is meant to cover the situation of acceptance by the buyer as the counterpart of delivery on the part of the seller, and having treated thereafter the subject matter as his own, even when it does not involve transformation. At that point a valid contract of sale is deemed to have come into being, and consequently, the binding effect of the contract is deemed to have kicked in; and even if the subject matter has remained the same, the return is not legally possible, as it would amount to unilateral withdrawal from the binding effect of the contract. (Of course, if both buyer and seller agree to the return, that would be valid since it would constitute mutual withdrawal which is one of the modes of extinguishment of a valid contract). The gravamen of Art. 1474 would mean that in spite of the lack of agreement as to price or defect in the agreement as to price, there would nevertheless be a valid contract of sale upon which an action for specific performance would prosper for the recovery of the price when the following elements are present: (a) There was a meeting of the minds of the parties of sale and purchase as to the subject matter;

(b) There was an agreement that price would be paid which fails to meet the criteria of being or ascertainable; and (c) There was delivery by the seller and appropriation by the buyer of the subject matter of the sale. Article 1474 is not applicable to real estate and that the rights of the parties to a purported sale would be under the principles applicable to builders in good faith. Rulings on Receipt and Other Documents Embodying Price El Oro Engravers v. CA Court held that sales invoices are not evidence of payment since they are only evidence of the receipt of the goods; and that the best evidence to prove payment of the price is the official receipt issued by the seller. Leabres v. CA where the buyer sought to enforce his purchase of a parcel of land based primarily on a receipt signed by the seller acknowledging the sum of Php 1,000.00. Basing its ruling on the language of the receipt, the Court held:
An examination of the receipt reveals that the same can neither be regarded as a contract of sale or a promise to sell. There was merely an acknowledgement of the sum of One Thousand Pesos (Php 1,000.00). There was no agreement as to the total purchase price of the land nor to the monthly instalment to be paid by the [buyer]. The requisites of a valid Contract of Sale namely (1) consent or meeting of the minds of the parties; (2) determinate subject matter; (3) price certain in money or its equivalent are lacking in said receipt and therefore the sale is not valid nor enforceable.

Toyota Shaw, Inc. v. CA a written agreement was entered into between the prospective buyer of a vehicle and the sales representative of the car dealer, which provided and acknowledged a downpayment of Php 100,000.00 on a Toyota pick-up, with an understanding on a separate subsequent instrument that the balance would be financed through a financing company. The Court held that there was never any perfected contract between the parties under the agreement that only provided for a downpayment of Php 100,000.00, but did not indicate the total purchase price nor the manner by which the balance shall be paid. Lim v. CA it was held that when there is nothing in the receipt to indicate that the Php 20,000.00 earnest money was part of the purchase price, much less was there showing of a perfected sale between the parties nor any indication that the buyer was bound to pay any balance of purchase price, then the only conclusion that could be made was that there was no sale. Coronel v. CA The seller executed a Receipt of Down Payment in favor of the buyer acknowledging the receipt therein of the downpayment as purchase

24 | MSAC-NSP [Law on Sales Villanueva]

price of the property described therein, and indicating the balance of the purchase price, with specific obligation to transfer the title upon full payment of the balance. The court held that there was a perfected sale, there being no reservation of any title until full payment of the purchase price. = Consisted with the doctrine that sale being governed by the Statute of Frauds, requires that the memorandum that would evidence the contract should contain all the essential requisites of the subject matter and price. Cheng v. Genato the receipt signed by the seller acknowledging receipt of the sum of Php 50,000.00 as partial payment for the real property described by titles in the receipt, did not provide further stipulations as to the full contract price or the manner of payment thereof. The Court ruled that there was neither a valid nor enforceable sale since the requisites of a valid contract of sale are lacking in said receipt. If one were to consider that a sale is a consensual contract and if upon the meeting of the minds of the parties all the essential requisites are present, then generally it does not matter if the written evidence issued pursuant thereto (be it an agreement or a receipt) does not contain all of the requisites, then a valid contract of sale should nevertheless exist and the only issue would be its enforceability under the Statute of Frauds (SoFs). The fact of having received part of the purchase price would therefore have placed the contract outside of the coverage of the SoFs as partially executed contract and therefore parol evidence presented to prove the other elements of the Contract of Sale would have been the order of the day. David v. Tiongson the court clarified that the sale of real property on instalments even when the receipt or memorandum evidencing the same does not provide for the stated instalments, when there has already has been partial payment, the SoFs is not applicable because it only applies to executory and not to completed, executed, or partially executed contracts. Inadequacy of Price Under Art. 1355 of the CC, which governs contracts in general, and except in cases specified by law, it is provided that lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake, or undue influence. Specifically, Art. 1470 on the contracts of sale, provides that 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. Bautista v. CA mere inadequacy of the price does not affect the validity of the sale 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.

Although sale is an onerous contract and commutative contract, there is no requirement that the price given should be exactly the value of the subject matter delivered. As discussed previously, the characteristics that the contract of sale is onerous is met whenever the consideration is valuable consideration; and the test for its commutativeness is met when parties believe honestly that they received good value for what they have given up in exchange. Tayengco v. CA inadequacy of price may be ground for setting aside an execution sale, but it is not sufficient ground for the cancellation of a voluntary contract of sale which is otherwise free from invalidating defects such as vitiated consent, even if shocking to the conscience. Contracts are valid even though one of the parties entered into it against his own wish and desire, or even against his better judgement. (1) Distinguished from Simulated Price Bravo-Guerrero v. Bravo has held that simulation of contract and gross inadequacy of price are distinct legal concepts, with different effects, and that the concept of a simulated sale is incompatible with inadequacy of price, thus: When the parties to an alleged contract do not really intend to be bound by i t, the contract is simulated and void. A fictitious contract has no legal effect whatsoever because there is no real agreement between the parties Gross inadequacy of price by itself will not result in a void contract, and it does not even affect the validity of a contract of sale, unless it signifies a defect in the consent or that the parties actually intended a donation or some other contract. (2) Rescissible Contract of Sale Inadequacy of price is a ground for rescission of conventional sale in case of rescissible contracts covered under Art. 1381 of the CC, namely: (a) Those entered into by guardians whenever the ward whom they represent suffer lesion by more than one-fourth (1/4) of the value of the object of the sale; and (b) Those agreed upon in representation of absentees, if the latter should suffer lesion by more than one-fourth (1/4) of the value of the object of the sale. (3) Judicial Sale Gross inadequacy of price may avoid judicial sale of real property. The difference in ruling for judicial sale is because the contract of sale is not the result of negotiations and bargaining; in fact, the property of the supposed seller would be sold at public auction without his intervention. In such a case, the courts must be allowed to come in to protect the supposed seller from bad bargain that is really not of his own doing.

25 | MSAC-NSP [Law on Sales Villanueva]

Judicial sale is best set aside on the ground of inadequacy of price, the inadequacy must be such as to be shocking to the conscience of man. In addition, there must be showing that, in the event of a resale, a better price can be obtained. Judicial sale will not be set aside by the court when there is a right of redemption, since the more inadequate the winning bid at public sale, the more easily it is for the owner to redeem the property. In such case, the proper remedy is not rescission, but to exercise the right of redemption. (4) Sales with Right of Repurchase In a conventional sale with a right to repurchase feature, the gross inadequacy of price rises a presumption of equitable mortgage. The proper remedy of the alleged seller, who is actually an equitable mortgagor, is not to rescind the contract of sale, but to have it reformed or declared a mortgage contract, and to pay off the indebtedness which is secured. On the other hand, the remedy of the alleged buyer would not be appropriate the subject matter as a buyer for that would be pactum commissorium, but to foreclose on the quitable mortgage. When Motive Nullifies Sale In a contract of sale, consideration is, as a rule, different from the motive of the parties and when the primary motive is illegal, such as when the sale was executed over a parcel of land illegally frustrate a persons right to inheritance and to avoid payment of estate tax, the sale is void because illegal motive predetermined the purpose of the contract. Uy v. CA distinguished cause which is the essential reason which moves the contracting parties to enter into it, and is the immediate, direct, and proximate reason which justifies the creation of an obligation through the will of the contracting parties, from motive, which is the particular reason of a contracting party which does not affect the other party. the court observed that the cause of the vendor in entering into the contract is to obtain the price, while that for the vendee is the acquisition of the land. The motive of the vendor (NHA), on the other hand, is to use the said lands for housing. The courst ruled: Ordinarily, a partys motive for entering into the contract do not affect the contract. However, when the motive predetermines the cause, the motive may be regarded as the cause. Xxx The realization of the mistake as regards the quality of the land resulted the negation of the motive/cause thus rendering the contract inexistent, under Art. 1318 of the CC defining the essential requisites of contracts.

26 | MSAC-NSP [Law on Sales Villanueva]