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Contract of Sale

- One of the contracting parties obligates himself to transfer the ownership of

and to deliver a determinate thing, and the other pays a price certain in
money or its equivalent.
* A contract of sale may be absolute or conditional
Essential Elements of Contract Sale
1. Consent mutual agreement, meeting of the minds
2. Object a determinate thing/specific
3. Cause a price certain in money or its equivalent. The price must be
certain in money or its equivalent.
Characteristics of Contract Sale


Object of a Contract of Sale

1. A thing
2. A right
* Service can never be a valid object of a contract of sale, for one can never
transfer the ownership of service.
Thing as an Object of Sale
In order for a thing to be a valid object of a contract of sale, it must meet the
following requisites:
1. The thing must be determinate it must me specifically separated and
particularly designated from all others of the same class. It must not be
2. The thing must be licit it must not be contrary to law, morals, good
custom, public order or public policy, must not be outside the commerce of
man and must not be impossible
3. The vendor must have a right to transfer ownership thereof, at the time it
is delivered

Conditional Sale
Right as Object of Sale
Rights can be a valid object of sale as long as itss transmissible. Rights are
transmissible by:
A. Provision of Law
B. By stipulation of the parties
C. When they are personal in character
1. When the parties have fixed it
2. When its certain with reference to another thing certain.
3. When the determination of the price is left to the judgment of a specified
person or persons
In the case of price of Securities, Grains and Liquid
1. When the price fixed is that which the thing sold would have on definite
2. The price fixed is that which the thing sold would have in a particular
exchange or market
3. An amount is fixed above or below the price in such day or in such
exchange or market.
Gross Inadequacy of Price
Gross inadequacy of price does not affect the contract of sale, except as it
may indicate a defect in the consent, or that parties really intended a
donation or some other act or contract
If the Price is simulated
Simulated Price means feigned or pretended price. Article 1471 provides that
if the price is simulated, the sale is void, but the act may be shown to have
been in reality a donation or some other act or contract.
Can the fixing of prices be left to the discretion of one of the contracting
No. Because it is a violation of Art. 1308 of the Civil Code. For it is an
express provision of law that the validity of the contract cannot be left to the
will of one of the contracting parties.

No. Because it is also a violation of Art. 1473.

Art. 1473 provides that the fixing of the price can never be left to the
discretion of one of the contracting parties. However, if the price fixed by one
of the parties of accepted by the other, the sale is perfected.
Effect if the Price is not fixed
There will be no contract of sale if the price cannot be fixed in accordance
with the above procedures laid down by law.
Reasonable Price
As a general rule, the reasonable price is the market value of the goods at
the time and place of delivery.
Capacity to Buy or Sell
Based on the consent element of a contract of sale.
Who may enter into a contract of sale?
Article 1489
All persons who are authorized in this Code to obligate themselves, may
enter into a contract of sale, saving the modifications contained in the
following articles.
Where necessaries are those sold and delivered to a minor or other person
without capacity to act, he must pay a reasonable price therefor.
As a general rule therefore, persons who are capacitated to enter into any
kind of contract are also capacitated to enter into a contract of sale. Vice
Kinds of Incapacity to Enter into a Contract of Sale
1. Absolute Incapacity This exists when the person involved cannot bind
himself, who may be either:
A. Unemancipated minors
B. Insane or Demented Persons
C. Deaf-mutes who do not know how to write

*It must be remembered that a contract where one of the parties is

absolutely incapacitated to give consent is not entirely void buy simply
*Art. 1390. The following contracts are voidable or annullable, even though
there may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a
(2) Those where the consent is vitiated by mistake, violence, intimidation,
undue influence or fraud.
2. Relative Incapacity this exists with the respect to persons who generally
can give consent to a contract except in reference to a certain person or
certain properties
A. Husband and Wife
B. Persons incapacitated by reason of their relation to property
C. Aliens
Incapacity of Husband and Wife to Buy and Sell
Art. 1490. The husband and the wife cannot sell property to each other,
(1) When a separation of property was agreed upon in the marriage
settlements; or
(2) When there has been a judicial separation or property under Article 191.
Incapacity by Reason of Relation to Policy
Art. 1491. The following persons cannot acquire by purchase, even at a
public or judicial auction, either in person or through the mediation of
(1) The guardian, the property of the person or persons who may be under
his guardianship;
(2) Agents, the property whose administration or sale may have been
entrusted to them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under
(4) Public officers and employees, the property of the State or of any
subdivision thereof, or of any government-owned or controlled corporation,

or institution, the administration of which has been intrusted to them; this

provision shall apply to judges and government experts who, in any manner
whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior
courts, and other officers and employees connected with the administration
of justice, the property and rights in litigation or levied upon an execution
before the court within whose jurisdiction or territory they exercise their
respective functions; this prohibition includes the act of acquiring by
assignment and shall apply to lawyers, with respect to the property and
rights which may be the object of any litigation in which they may take part
by virtue of their profession.
(6) Any others specially disqualified by law.
Purchase by an Agent
An agent who is empowered to sell a thing belonging to his principal cannot
buy the same and if he is empowered to buy a thing by his principal he
cannot sell the same to himself, for the reason that such agent may abuse
his power or discretion to his advantage and to the principals prejudice.
Purchase by a Lawyer
The property of w/c a lawyer is prohibited from purchasing is the property of
his client which is in litigation, in which he has taken part by virtue of his
profession. However, if the sale of the mention property to the lawyer
happened before the seller became his client, then the prohibition does not
Legal Redemption the right to be subrogated upon the same terms and
conditions stipulated in the contract, in the place of one who acquires a thing
by purchase or donation in payment, or by any other transaction whereby
ownership is transmitted by onerous title
Compromise avoiding litigation or to put an end to one already commenced
Renunciation Gratuitous abandonment by the creditor of his right against
his debtor.
Form of Contract
Subject to Statute of Frauds, a contract of sale may be made in writing or by
word of mouth, or partly in writing and party by word of mouth, or maybe
inferred from the conduct of parties.

Contracts are preferred to be in writing because.

1. The existence of a contract cannot be denied if its in writing.
2. The party suing on an oral contract has to be establish the existence of
the contract trough evidence.
3. There are certain classes of contracts which could not be enforced unless
their terms were reduced to writing and signed by the parties to be bound.
Ex. Mario agreed orally to sell his radio to Luigi. Luigi consented to orally buy
the same for the price of P 300. So far, Mario has not yet delivered the radio
to Luigi and the latter has not yet paid the price.
Is the contract valid and enforceable?
A contract is valid and enforceable when
1. Where part of the goods has been delivered and received by the buyer.
2. Where the whole of the goods has been delivered and received by the
3. Where the buyer has paid part of the price, though the seller has not yet
delivered the goods
4. Where the buyer has paid the whole of the purchase price though the
seller has not yet delivered the goods
5. In sales by auction, because the record of the sale in auctioneers sales
book is sufficient memorandum thereof.
Sale By Auction
A sale by auction is perfected when the auctioneer announces its perfection
by the fall of the hammer or in other customary manner.
May a seller bid in the auction sale?
The seller(owner of goods) may bid in the auction sale under the following:
1. Where the right to bid has been reserved expressly by or on the behalf of
the seller
2. Where his right to bid has not been prohibited by the law
3. Where notice has been given that the sale by auction is subject to right to
bid on behalf of the seller.
Unlawful Acts on Auction Sales
Where notice has not been given that a sale by auction is subject to a right
to bid on behalf of the seller:

1. It is unlawful for the seller to bid himself or to employ or induce any

person to bid at such sale on his behalf.
2. It is unlawful for the auctioneer to employ or induce any person to bid at
such sale on behalf of the seller
3. It is unlawful for the auctioneer to knowingly take any bid from the seller
or any person employed by him.
Contract of Sale V.S Agency to Sell
* Contract of sale is governed by law of sales, agency to sell governed by the
law on agency.
*Contract of Sale not bound by fiduciary relationship
Vendee obligation to pay, receives the goods as owner, can do whatever he
wants with the goods sold to him, cannot return the goods to the seller if he
cant resell them
Vendor obligation to deliver goods
*Agency to sell fiduciary relationship
Agent account transactions and proceeds to principal, receives the goods
but the principal is still the owner of the goods, agent must act within his
authority and w/in the instructions of the principal, can return the goods to
the principal if he cannot resell them
Principal Pay agents commission
A fiduciary is a person who holds a legal or ethical relationship of trust
with one or more other parties (person or group of persons). Typically,
a fiduciary prudently takes care of money or other asset for another person.
Contract of Sale V.S. Contract for Piece of Work (Art. 1467)
Contract of sale A contract for the delivery at a certain price of an article
w/c the vendor in the ordinary course of his business manufactures or
procures for the general market.
Contract for a Piece of Work Manufactured specifically for a customer and
upon his specified order, and not for the general market.
Sale V.S. Barter (Art. 1468)
The contract is a barter if the value of the thing given as part of the
consideration exceeds the amount of the money or its equivalent
The contract is a sale of the value of the thing given as part of the
consideration is less than the amount of money or its equivalent or if the
value of the thing given as part of the consideration is equal to the amount
of money or its equivalent

Sale V.S. Dation in Payment

Dation in Payment arises when the debtor delivers a property to his creditor
as equivalent performance of an obligation in money. Is governed by the law
of sales, however, it is not a sale because there already exists a former
obligation consisting in the payment of money
*Promise to buy or sell
Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable. An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the price.
4 possible stages in the perfection of a contract of sale
1. Policitation This arises where there is a unilateral promise to buy or sell
which is not accepted. This does not give rise to a contract for it produces no
juridical effect
2. Option(Art. 1324) When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn at any time before acceptance
by communicating such withdrawal, except when the option is founded upon
a consideration, as something paid or promised.
3. Accepted unilateral promise to buy or sell
4. A bilateral promise to buy and sell
Earnerst Money
Whenever earnest money is given in a contract of sale, it shall be considered
as part of the price and as proof of the perfection of contract
Earnest Money V.S. Option Money
Earnest money when given by the buyer is proof of contract of sale while
option money is proof of the perfection of the option contract
Earnest money part and parcel of purchase price
Option money separate and distinct from the purchase price.