PRELIMINARIES: LAW ON SALES executed by another at the cost of the obligor, and the
obligor’s refusal to comply can be the basis for claims
1. DEFINITION OF CONTRACT. A contract is a
meeting of minds between two persons whereby one
binds himself, with respect to the other, to give
something or to render some service.
 CONTRACT OF SALE. Article 1458 of the Civil
Code defines “sale” as a contract 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.
2. NATURE OF OBLIGATIONS. The definition of the
contract of sale under Article 1458 provides that its
perfection brings about the creation of two sets of
obligations:
a) Two OBLIGATIONS of the SELLER to:
a. Transfer the Ownership, and
b. Deliver the Possession, of the SUBJECT
MATTER;
b) An OBLIGATION for the BUYER to:
a. Pay the PRICE.
 OWNERSHIP. Ownership is defined as the
independent and general power of a person over a
thing for purposes recognized by law and within the
limits established thereby — aside from the jus
utendi and the jus abutendi inherent in the right to
enjoy the thing, the right to dispose, or the jus
disponendi, is the power of the owner to alienate,
encumber, transform and even destroy the thing
owned.
3. REAL OBLIGATIONS CAN BE SUBJECT OF SPECIFIC
PERFORMANCE. 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, obligations 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
for damages.
To illustrate, Article 1480 of the Civil Code, 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 make the delivery. In other words, a
defaulting party in a sale cannot insist on just paying
damages when the non-defaulting party demands
performance.
Art. 1165 of the Civil Code: “When what is to be delivered is a
determinate thing, the creditor . . . may compel the debtor to
make the delivery. If the thing is indeterminate or generic, he
may ask that the obligation be complied with at the expense
of the debtor.”
4. SUBJECT MATTER OF SALE NOW INCLUDES GENERIC
THING SO LONG AS THE THING IS DETERMINABLE.
Although Article 1458, in defining sale, 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.” Article 1460 states that the “requisite
that the thing be determinate is satisfied if at the time
the contract is entered into, the thing is capable of
being made determinate without the necessity of a new
or further agreement between the parties,” which
includes “determinable” albeit generic objects as valid
subject matters of sale.
DESPITE INCLUSION OF GENERIC THING AS PROPER
SUBJECT, IT STILL REQUIRES, FOR PURPOSES OF
PERFORMING THE OBLIGATION TO DELIVER AND
TRANSFER OWNERSHIP, THAT THE THING BE
PARTICULARLY DESIGNATED AT THE TIME OF
PERFORMANCE. Nonetheless, the use of the word
“determinate” in the definition of sale under Article
1458 seems accurate since it 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 seller’s
obligation would require necessarily its physical
segregation or particular designation, making the
subject matter determinate at the point of performance
The use of the word “determinate” to describe the
subject matter emphasizes more specifically the fact
that the obligation to deliver and transfer ownership
can be performed only with the subject matter
becoming specific or determinate, and is not meant to
exclude certain generic things from validly becoming
the proper subject matter of sale, at the point of
perfection.
5. ELEMENTS OF CONTRACT OF SALE.
a) CONSENT, or meeting of the minds to transfer
ownership in exchange for the price;
CONSENT. This refers to the consent on the
part of the seller to transfer and deliver and on
the part of the buyer to pay (see Art. 1475). The
parties must have legal capacity to give consent
and to obligate themselves (Arts. 1489, 1490,
1491). The essence of consent is the conformity
of the parties on the terms of the contract, the
acceptance by one of the offer made by the
other. The contract to sell is a bilateral contract.
Where there is merely an offer by one party
without the acceptance of the other, there is no
consent. The acceptance of payment by a party
is an indication of his consent to a contract of
sale, thereby precluding him from rejecting its
binding effect.
b) SUBJECT MATTER; and
OBJECT OR SUBJECT MATTER MUST BE
DETERMINATE OR AT LEAST CAPABLE OF
BEING MADE DETERMINATE. This refers to the
determinate thing which is the object of the
contract (Art. 1460). The thing must be
determinate or at least capable of being made
determinate because if the seller and the buyer
differ in regard to the thing sold, there is no
meeting of the minds; therefore, there is no
sale. The subject matter may be personal or real
property.
c) PRICE, certain in money or its equivalent.
CAUSE OR CONSIDERATION. This refers to the
“price certain in money or its equivalent” (Art.
1458.) such as a check or a promissory note,
which is the consideration for the thing sold. It
does not include goods or merchandise
although they have their own value in money
(see Arts. 1468, 1638.) However, the words “its
equivalent” have been interpreted to mean that
payment need not be in money, so that there
can be a sale where the thing given as token of
payment has “been assessed and evaluated and
[its] price equivalent in terms of money [has]
been determined” (see Republic vs. Phil.
Resources Dev. Corp., 102 Phil. 968 [1958].) The
price must be real, not fictitious; otherwise, the
sale is void although the transaction may be
shown to have been in reality a donation or
some other contract (Art. 1471). A seller cannot
render invalid a perfected contract of sale by
merely contradicting the buyer’s allegation
regarding the price and subsequently raising the
lack of agreement as to the price.
The price is certain if:
1. The parties have fixed or agreed upon a
definite amount; or
2. It be certain with reference to another thing
certain; or
3. The determination of the price is left to the
judgment of a specified person or persons
and even before such determination. It
must be understood that the last two cases
are applicable only when no specific
amount has been stipulated by the parties.
SATISFACTION OF THESE THREE GIVES RISE TO A
PERFECTED CONTRACT OF SALE. When all three
elements are present, there being a meeting of the
minds, then a perfected contract of sale arises, and its
validity is not affected by the fact that previously a
fictitious deed of sale was executed by the parties, or by
the fact of nonperformance of the obligations
thereafter. Non-payment of the purchase price is a
resolutory condition for which the remedy is either
rescission or specific performance under Article 1191 of
the Civil Code. It constitutes a very good reason to
rescind a sale, for it violates the very essence of the
contract of sale.
WHEN ALL ELEMENTS ARE PRESENT BUT THE
CONTRACT ITSELF IS TAINTED WITH DEFECT OR
ILLEGALITY. On the other hand, when all three elements
are present, but there is defect or illegality constituting
any of such elements, the resulting contract is either
voidable when the defect constitutes a vitiation of
consent, or void as mandated under Article 1409 of the
Civil Code.
Art. 1409. The following contracts are inexistent and
void from the beginning:
(1) Those whose cause, object or purpose is contrary
to law, morals, good customs, public order or public
policy;
(2) Those which are absolutely simulated or
fictitious;
(3) Those whose cause or object did not exist at the
time of the transaction;
(4) Those whose object is outside the commerce of
men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative
to the principal object of the contract cannot be
ascertained;
(7) Those expressly prohibited or declared void by
law.
NATURAL AND ACCIDENTAL ELEMENTS. The above are
the essential elements of a contract of sale or those
without which no sale can validly exist. They are to be
distinguished from:
a) Natural elements or those which are deemed
to exist in certain contracts, in the absence of
any contrary stipulations, like warranty against
eviction (Art. 1548.) or hidden defects (Art.
1561.); and
b) Accidental elements or those which may be
present or absent depending on the stipulations
of the parties, like conditions, interest, penalty,
time or place of payment, etc.
6. STAGES OF CONTRACT OF SALE. Strictly speaking,
there are only two stages in the “life” of a contract of
sale, i.e., perfection and consummation, since it is only
at perfection that sale as a contract begins to exist in
the legal world. Until sale is perfected, it cannot serve
as an independent source of obligation, neither as a
binding juridical relation between the parties.
Nevertheless, the Supreme Court has considered the
following to be the stages in the life of a sale:
a) POLICITACION, negotiation, or preparation
stage;
b) PERFECTION, conception or “birth”; and
c) CONSUMMATION or “death.”
NEGOTIATION STAGE. Policitacion or negotiation covers
the period from the time the prospective contracting
parties indicate their interests in the contract to the
time the contract is perfected.
PERFECTION STAGE. Perfection takes place upon the
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; and
CONSUMMATION STAGE. Consummation begins when
the parties perform their respective undertaking under
the contract of sale, culminating in the extinguishment
thereof.
7. KINDS OF CONTRACT OF SALE.
a) Absolute. Where the sale is not subject to any
condition whatsoever and where title passes to
the buyer upon delivery of the thing sold. Thus,
it has been held that a deed of sale is absolute
in nature although denominated as a “Deed of
Conditional Sale” in the absence of any
stipulation that the title to the property sold is
reserved in the vendor until full payment of the
purchase price nor a stipulation giving the
vendor the right to unilaterally rescind the
contract the moment the vendee fails to pay
within a fixed period.
b) Conditional. Where the sale contemplates a
contingency (Arts. 1461, 1462, par. 2; Art.
1465.), and in general, where the contract is
subject to certain conditions (see Art. 1503, par.
1), usually, in the case of the vendee, the full
payment of the agreed purchase price (Art.
1478) and in the case of the vendor, the
fulfillment of certain warranties, e.g., the timely
eviction of squatters on the property sold.
c) Other kinds. There are, of course, other kinds of
sale depending on one’s point of view, e.g., as
to the nature of the subject matter (real or
personal, tangible or intangible), as to manner
of payment of the price (cash or installment), as
to its validity (valid, rescissible, unenforceable,
void), etc.
8. ESSENTIAL CHARACTERISTICS OF CONTRACT OF
SALE.
a) Nominate and Principal. 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 Civil Code, 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;
more importantly, that parties enter into sale to
achieve within its 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 Supreme
Court that in determining the real character of
the contract, the title given to it by the parties is
not as significant as its substance.
b) 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. Under Article 1475 of the Civil
Code, from the moment of perfection of the
sale, the parties may reciprocally demand
performance, even when the parties have not
affixed their signatures to the written form of
such sale, but subject to the provisions of the
law governing the form of contracts.
Consequently, the actual delivery of the subject
matter or payment of the price agreed upon are
not necessary components to establish the
existence of a valid sale; and their non-
performance do not also invalidate or render
“void” a sale that has begun 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. 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.
Modalities That Affect the Characteristic of
Consensuality:
a. SALE WITH ASSUMPTION OF
MORTGAGE. Even if consensual, not all
contracts of sale become automatically
and immediately effective. . . In sales
with assumption of mortgage, the
assumption of mortgage is a condition
precedent to the seller’s consent and
therefore, without approval of the
mortgagee, the sale is not perfected.
b. MEETING OF THE MINDS IS
INCOMPLETE. As when there is no
agreement yet on the final price.
c) 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. 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 fulfillment of the other.”
LEGAL EFFECTS OF BILATERALITY AND
RECIPROCAL NATURE OF SALE:
1. The power to rescind is implied, and
such power need not be stipulated in
the contract in order for the innocent
party to invoke the remedy.
2. 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
3. From the moment one of the parties
fulfills his obligation, the default by the
other begins, without the need of prior
demand
Since both parties in a sale are bound by their
respective obligations which are reciprocal in
nature, then a party cannot simply choose not
 to proceed with the sale by offering also the
other party not to be bound by his own
obligation; that 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 ready and
willing to proceed with the fulfillment of his
obligation.
d) ONEROUS CONTRACT. 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.
e) COMMUTATIVE CONTRACT. 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.
f) SALE IS TITLE, NOT STRICTLY A MODE OF
TRANSFERRING OWNERSHIP. 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. Although in one case the Court
defined a “sale” as a “contract transferring
dominion and other real rights in the thing
sold,” 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 transfers
ownership.
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. Therefore, sale by itself does not
transfer or affect ownership; the most that sale
does is to create the obligation to transfer
ownership; it is tradition or delivery, as a
consequence of sale, that actually transfers
ownership.
g) PRINCIPAL. Because it does not depend for its
existence and validity upon another contract.
9. SALE AS AGAINST OTHER CONTRACTS.
a) 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.
DONATION SALES
Donation is a Sale is essentially an
gratuitous contract onerous contract
Donation, being a A sale is perfected by
solemn contract, mere consent
although consent is
also required, must
comply with the
formalities mandated
by law for its validity.
A purported donation may have been executed by the
parties, but it is not mere liberality that permeates the
contract as the only 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 or Sales or Law on Donation) becomes critical
in determining the validity and enforceability of the
contract.
Under Article 726 of the Civil Code, even when the
donor imposes upon the donee a burden, but which is
less than the value of the thing given, there is still a
donation. The legal implication under said article is
clear: when the value of the burden placed upon the
donee is more than the value of the thing given, it
becomes an “onerous” donation, as either a barter or
sale, which are both governed by the Law on Sales. In
such cases, the solemnities provided for by the Law on
Donations are wholly irrelevant, even if the contract is
called a “donation”; and since the relationship is
governed by the Law on Sales, the perfection and
enforceability of the contract happen upon consent.
b) BARTER.
 BARTER SALES
By barter or exchange, By sale, one of the
one of the parties parties binds himself
binds himself to give to deliver a thing in
one thing in consideration of the
consideration of the other’s undertaking to
other’s promise to pay the price in money
give another thing or its equivalent
RULES TO DETERMINE WHETHER THE CONTRACT IS
SALE OR BARTER. Article 1468 of the Civil Code
provides for the following rules in cases of dispute
whether the contract is a sale or barter, especially when
the consideration agreed upon is partly in money and
partly in another thing:
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:
1. 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;
2. 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.
Nonetheless, there are a few instances when the
difference between the two types of contracts is critical.
Firstly, the rules on the Statute of Frauds, which apply
to the sale of real property, and personal property
bought at 5500.00 or more, do not apply to barter.
Secondly, 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.
c) CONTRACT OF 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; the contractor may either
employ only his labor or skill, or also furnish
the material.
SIMILARITY. 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 is 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.
DISTINCTION. The distinction between a sale
and a contract for work, labor, and materials is
tested by the inquiry of 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 been the subject of sale
to some other person, even if the order had not
been given.
STATUTORY DISTINCTION.
ART. 1467. A contract for the delivery at a
certain price of an article which the vendor in the
ordinary course of his business manufactures or
procures for the general market whether the same is
on hand at the time or not, is a contract of sale, but
if the goods are to be manufactured specially for the
customer and upon his special order, and not for the
general market, it is a contract for a piece of work.
This gives two tests for distinction:
1. Manufacturing in the ordinary course of
business to cover sales contracts; and
2. Manufacturing upon special order of
customers, to cover contracts for piece-of-
work
UPON SPECIAL ORDERS. The jurisprudential
doctrine that became the basis of Article 1467
therefore indicated that 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. The test of “special orders” under
Article 1467 of the Civil Code is not one of
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.
SALE OF SERVICE, SALE OF OBJECT. A decided
case recognized that the essence of a contract
for a piece-of-work is the “sale of service”
unlike in a sale where the essence is the sale of
an object.
SALE IS A REAL OBLIGATION WHILE
PIECEWORK IS A PERSONAL OBLIGATION. Sale
is constituted of real obligations and would be
the proper subject of an action for specific
performance. On the other hand, a contract for
a piece-of-work, where the main subject matter
is the service to be rendered (obligation to do),
would not allow an action for specific
performance in case the contractor refuses to
comply with his obligation. Instead, Article 1715
provides that:
Should the work be not of such quality, the employer
may require that the contractor remove the defect
or execute another work. If the contractor fails or
refuses to comply with this obligation, the employer
may have the defect removed or another work
executed at the contractor’s cost.
In a sale, only when the subject matter is
indeterminate or generic (i.e., determinable) is
the buyer granted the remedy under Article
1165 to have the subject matter done by a
third party with cost chargeable to the seller.
Finally a contract for a piece-of-work, unlike a
sale, is not governed by the Statute of Frauds.
d) FROM AGENCY TO SELL OR TO BUY. By the
contract of agency, 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 latter. A
contract of agency is one that essentially
establishes a representative capacity in the
person of the agent on behalf of the principal,
and one characterized as highly fiduciary.
Involving obligations to do (i.e., to represent the
principal), contracts of agency to sell or to buy
are essentially different from sales.
Nevertheless, because the object of the agency
arrangement is the purchase or sell of a
determinate object, there is a tendency to
confuse one with the other.
AGENCY SALE
A contract of agency to From its very nature,
sell, because it covers sale is not unilaterally
an underlying fiduciary revocable
relationship, is
essentially revocable,
even in the presence
of an irrevocability
clause.
In an agency to sell, In sale, the buyer
the agent is not himself pays for the
obliged to pay the price of the object,
price, and is merely which constitutes his
obliged to deliver the main obligation
price which he may
receive from the buyer
In an agency to buy, In sale, the buyer,
the agent does not after delivery,
become the owner of becomes the owner of
the thing subject of the subject matter.
the agency, even if the
object is delivered to
him.
In an agency, the In sale, the seller
agent who effects the warrants
sale assumes no
personal liability as
long as he acts within
his authority and in
the name of the
principal.
Because of the fiduciary nature of the
relationship, in an agency to sell, the agent is
disqualified from receiving any personal profit
from the transaction covered by the agency,
and any profit received should pertain to the
principal.
e) 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.” By express provision of law, dation
in payment is governed by the Law on Sales,
since it essentially involves the transfer of
ownership of a subject matter.
AGREEMENT TO AVAIL OF DACION EN PAGO IS
NOT A SEPARATE CONTRACT. 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. Consequently, prior to
delivery of the subject matter to constitute the
dation in payment, the agreement does not
necessarily constitute a separate contract, but
only an arrangement by which an existing
obligation may be extinguished.
REQUISITES OF DACION EN PAGO.
1. 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;
i. Dation in payment requires
delivery and transmission of
ownership of a thing to the
creditor as an accepted
equivalent of the performance
of the obligation. When there is
no such transfer of ownership
in favor of the creditor, as when
re-possession of the subject
matter of a trust receipt is only
by way of security, there is no
dacion.
2. Some difference between the
prestation due and that which is given
in substitution (aliud pro alio); and
3. An agreement between the creditor
and debtor that the obligation is
immediately extinguished by reason of
the performance of a presentation
different from that due.
ii. A transfer of property between
debtor and creditor does not
automatically amount to a
dacion en pago, since it is
essential that the transfer must
be accompanied by a “meeting
of the minds between the
parties on whether the loan ...
would be extinguished by
dacion en pago.”
In dacion en pago, “[t]he undertaking really
partakes in one sense of the nature of sale,
that is, the creditor is really buying the thing or
property of the debtor, payment for which is to
be charged against the debtor’s debt.
f) 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.
CONDITIONAL SALES MASQUERADING AS
CONTRACTS OF LEASE. A conditional sale may
be made in the form of a “lease with option to
buy” as a device to circumvent the provisions of
the Recto Law governing the sale of personal
property on installments. 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 the
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 sales and are
deemed leases in name only.
In a decided case, the Court held that when a
“lease” clearly shows that the rentals are meant
to be installment payments to a sale contract,
despite the nomenclature given by the parties,
it is a sale by installments.
g) CONTRACT TO SELL.
 TRANSFER OF TITLE.
CONTRACT OF SALE CONTRACT TO SELL
In a contract of sale, In a contract to sell (or
title passes to the of “exclusive right and
buyer upon delivery of privilege to
the thing sold. purchase”), where it is
stipulated that
ownership in the thing
shall not pass to the
purchaser until he has
 fully paid the price enforcing the contract and not rescinding it.
(Art. 1478.), Article 1191 is not applicable. A contract to sell
ownership is reserved is commonly entered into so as to protect the
in the seller and is not seller against a buyer who intends to buy a
to pass until the full
property in installments by withholding
payment of the
purchase price. ownership over the property until the buyer
effects full payment therefore.
While in the absence of such stipulation,
CHAPTER 2
especially where the buyer took possession of
THE PARTIES
the property upon execution of the contract
indicates that what the parties contemplated is
1. GENERAL RULE ON CAPACITY OF PARTIES. When it
a contract of absolute sale.
comes to the issue as to who can be the proper parties
to a sale, the general rule is that any person who has
 PAYMENT OF PRICE.
“capacity to act,” or “the power to do acts with legal
SALE CONTRACT TO SELL
effects,” or more specifically with the power to obligate
Non-payment of the Full payment is a
price is a negative positive suspensive himself, may enter into a contract of sale, whether as
resolutory condition condition, the failure seller or as buyer. For natural persons or individuals, the
(see Art. 1179.), and of which is not a age of majority begins at 18 years, upon which age they
the remedy of the breach, casual or have the capacity to act. For juridical persons, such as
seller is to exact serious, of the corporations, partnerships, associations and
fulfillment or to contract but simply an cooperatives, a juridical personality separate and
rescind the contract event that prevents
distinct from that of the shareholders, partners or
the obligation of the
vendor to convey title members, is expressly recognized by law, with full
from acquiring binding “juridical capacity” to obligate themselves and enter
force. into valid contracts.

2. MINORS, INSANE OR DEMENTED PERSONS, AND

 OWNERSHIP OF VENDOR.
CONTRACT OF SALE CONTRACT TO SELL
In a contract of sale, The title remains in
the vendor has lost the vendor if the
and cannot recover the vendee does not
ownership of the thing comply with the
sold and delivered, condition precedent
actually or of making payment at
constructively (see Art. the time specified in
1497.), until and unless the contract.
the contract of sale
itself is resolved and
set aside.
There is no actual sale until and unless
full payment of the price is made (see Bowe vs.
Court of Appeals, 220 SCRA 158 [1993].) and a
contract of sale is entered into to consummate
the sale. If the vendor should eject the vendee
for failure to meet the condition precedent he is
DEAF-MUTES. Generally, minors, insane and demented
persons, and deaf-mutes who do not know how to
write, have no legal capacity to contract, and therefore
are disqualified from being parties to a sale.
Nonetheless, contracts entered into by such legally
incapacitated persons 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.
Contracts entered into during lucid intervals by insane
or demented persons are generally valid; whereas,
those entered into in a state of drunkenness, or during a
hypnotic spell, are merely voidable.
When the defect of the contract consists in the
incapacity of one of the parties, the incapacitated
person is not obliged to make any restitution, except
insofar as he has been benefited by the thing or price
received by him.
3. NECESSARIES. A minor is without legal capacity to
give consent to a sale, and since consent is an essential
requisite of every contract, the absence thereof cannot
give rise to a valid sale; nonetheless, the defective
consent gives rise to a voidable sale, meaning “valid
until annulled.”
The Title on Sales in the Civil Code specifically provides
that although a minor is not capacitated to validly enter
into a sale, “[w]here 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, and not merely voidable.
In order for the sale of necessaries to minors to be valid,
and not merely voidable, two elements need to be
present: (a) perfection of the sale; and (b) 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.
4. EMANCIPATION. Previously, under the Family Code,
“emancipation takes place by the attainment of
majority ... [which] commences at the age of twenty-
one years.”16 In addition, it was provided that
emancipation also took place “(1) By marriage of the
minor; or (2) By the voluntarily emancipation by
recording in the Civil Register of an agreement in a
public instrument executed by the parent exercising
parental authority and the minor at least eighteen years
of age.”
Emancipation would terminate parental authority over
the person and property of the minor, who shall then
be qualified and responsible for all acts of civil life,
including validly entering into contracts of sale. Under
the present Family Code, marriages entered into below
eighteen years of age are void, rendering emancipation
by marriage at the age of 18 years inutile, since by
merely reaching 18 years of age, even without
marrying, one is already of legal age. Voluntary
emancipation by registration of the public instrument
requires that the minor be at least 18 years old, which is
now legally impossible, because at eighteen years of
age there is no longer a minor who may be voluntarily
emancipated.
5. SENILITY AND SERIOUS ILLNESS. A case held that
although “[t]he 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 or 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.
SALES BY AND BETWEEN SPOUSES
1. SALES WITH THIRD PARTIES. Under the present
Family Code, common provisions apply equally to both
spouses, not only because the default rule is the
“absolute community of property regime,” but more so
even when the spouses chose under their marriage
settlements to be governed by the conjugal partnership
of gains, the spouses would still have joint
administration of the conjugal properties.
Under the Law on Sales, therefore, it would seem that a
spouse may, without the consent of the other spouse,
enter into sale transactions in the regular or normal
pursuit of his or her profession, vocation or trade.
Nevertheless, under Articles 96 and 124 of the Family
Code, the administration and enjoyment of the
community property or the conjugal property, as the
case may be, shall belong to both spouses jointly; and in
case of disagreement, the husband’s decision shall
prevail, subject to the wife seeking remedy from the
courts, which must be availed of within five (5) years
from the date of the contract. In addition, the
disposition or encumbrance of community property or
conjugal property, as the case may be, shall be void
without authority of the court or the written consent of
the other spouse. In such a case, the 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.

In one case, even when the property regime prevailing
was the conjugal partnership of gains, the Court held
that the sale by the husband of a conjugal property
without the consent of the wife to be not merely
voidable but void, under Article 124 of the Family Code,
since the resulting contract lacked one of the essential
elements of “full consent.”
2. SALES BETWEEN SPOUSES. Under Article 1490 of the
Civil Code, spouses cannot sell property to each other,
except:
a) When a separation of property was agreed
upon in the marriage settlements; or
b) When there has been a judicial decree for the
separation of property.
In addition, Article 1492 provides that the prohibition
relating to spouses selling to one another is applicable
even to sales in legal redemption, compromises and
renunciations.
STATUS OF PROHIBITED SALES BETWEEN SPOUSES.
Contracts entered into in violation of Articles 1490 and
1492 are not merely voidable, but have been declared
by the Supreme Court as being null and void.31
However, not anyone is given the right to assail the
validity of the transaction. For instance, 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. Also, the creditors who became
such only after the transaction, cannot attack the
validity of the sale, for it cannot be said that they have
been prejudiced by the transaction. Practically, the only
persons who can question the sale are the following:
the heirs of either of the spouses who have been
prejudiced; prior creditors; and the State when it comes
to the payment of the proper taxes due on the
transactions.
RATIONALE FOR PROHIBITION. Medina gave the
rationale for the relative incapacity of spouses to sell
properties to one another to be as follows:
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; and
c) To avoid an indirect violation of the prohibition
against donations between spouses under
Article 133 of the Civil Code.
Article 133 of the Civil Code, which declares void every
donation between spouses during marriage, seeks to
prevent the first two evils enumerated above. Article
133 has been replaced by Article 87 of the Family Code
which added the provision “The prohibition shall also
apply to persons living together as husband and wife
without a valid marriage.”
Therefore, the evils sought to be avoided under Articles
133 and 1490 are the same. But unlike Article 1490
which exempts from its prohibition sales between
spouses governed by the complete separation of
property regime, Article 133, and now Article 87 of the
Family Code, does not make such exception in case of
donations.
Art. 1490. The husband and the wife cannot sell property to
each other, except:
(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. (1458a)
Finally, Article 133 which prohibits donations between
spouses does not make an exception to spouses
governed by the complete separation of property
regime, and therefore donations between such spouses
would be void. By allowing under Article 1490 spouses
governed by complete separation of property regime to
sell to one another, the law would allow the
circumvention of the prohibition against donations
between spouses governed by the complete separation
of property regime.
Applicability of Incapacity to Common Law Spouses In
Matabuena v. Cervantes, the Court was asked to decide
the issue of whether the ban in Article 133 of the Civil
Code on a donation between the spouses during a
marriage applies to a common-law relationship. In that
case, the sister of the deceased common-law husband,
sought to annul the previous donation by the deceased
during his lifetime to his then common law spouse,
although the two subsequently married thereafter.
Today, that would no longer be an issue because of the
all-inclusive coverage under Article 87 of the Family
Code to those living as husband and wife without the
benefit of a valid marriage.
3. SPECIFIC INCAPACITY MANDATED BY LAW. Article
1491 of the Civil Code prohibits the following persons
from entering into contracts of sale under the
circumstances covered therein:
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 government-owned or controlled
corporation, 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 attorneys, clerks of
courts, 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 within whose jurisdiction or territory they
exercise their respective functions; and
f) 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.
The above-enumerated relative incapacities are, under
Article 1492, made to apply to sales in legal redemption,
compromises and renunciations, confirming the policy
that what cannot be done directly, cannot be done by
indirection.
PROHIBITION EXTENDS TO SALES IN LEGAL
REDEMPTION, ETC.
(1) The relative incapacity provided in Articles 1490 and
1491 applies also to sales by virtue of legal redemption
(see Art. 1619.), compromises, and renunciations.
a) Compromise is a contract whereby the parties,
by reciprocal concessions, avoid litigation or put
an end to one already commenced (Art. 2028).
It is the amicable settlement of a controversy.
b) By renunciation, a creditor gratuitously
abandons his right against his debtor. The other
terms used by the law are condonation and
remission (see Art. 1270).
(2) The persons disqualified to buy referred to in
Articles 1490 and 1491 are also disqualified to become
lessees of the things mentioned therein. (Art. 1646.)
Art. 1491. The following persons cannot acquire by
purchase, even at a public or judicial auction, either in
person or through the mediation of another:
(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 administration;
(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. (1459a)
LEGAL STATUS OF CONTRACTS ENTERED INTO IN
VIOLATION OF ARTICLES 1491 AND 1942. Based on the
wordings of Article 1491, only purchases made by
agents of the property covered by the agency are valid
and binding when made with the express consent of
their principals; and no such exception is granted in all
the other instances covered by said article. That would
also mean that, apart from the case of the agents, in all
cases covered under Article 1491, consent or
knowledge by the persons who is sought to be
protected by the law, cannot validate any of the
transactions covered.
FORMER RULING, VOIDABLE. Article 1491 does not also
state the legal consequences of having entered into
contracts in violation of said article, i.e., it does not
state expressly that the resulting contracts are “void.”
In the 1911 case of Wolfson v. Estate of Martinez, the
Court held that the sale’s “voidability cannot be
asserted by one not a party to the transaction or his
representative,” that “considering the question from
the point of view of the civil law, the view taken by the
code, we must limit ourselves to classifying as void all
acts done contrary to the express prohibition of the
statute. Now, then as the code does not recognize such
nullity by the mere operation of law, the nullity of the
acts hereinbefore referred to must be asserted by the
person having the necessary legal capacity to do so and
decreed by a competent court.” In other words,
Wolfson had classified such contracts as being merely
voidable or annullable, and not void.
PRESENT RULING, VOID. However, a Court ruling
likewise explained the necessity of abandoning the
afore-stated principle. Thus:
The reason thus given by Manresa in considering such
prohibited acquisitions under Article 1459 of the Spanish Civil
Code as merely voidable at the instance and option of the
vendor and not void — “that the Code does not recognize
such nullity de pleno derecho” — is no longer true and
applicable to our own Philippine Civil Code 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
RATIFICATION. Rubias, however, sought to declare a
difference in the state of “nullity” between prohibited
contracts entered into by guardians, agents,
administrators and executors, from those entered into
by judges, judicial officers, fiscals and lawyers, thus –
In this aspect, the permanent disqualification of public and
judicial officers and lawyers grounded on public policy differs
from the first three cases of guardians, agents and
administrators (Art. 1491, Civil Code), as to whose
transactions, it has been opined that they 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 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 first contract, may have already become lawful at
the time of the ratification or second contract; or the service
which was impossible may have become possible; or the
intention which could not be ascertained may have been
clarified by the parties. The ratification or second contract
would then be valid from its execution; however, it does not
retroact to the date of the first contract.”
The functional difference between the two groups of
contracts declared void under Article 1491, is that in the
first 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.
When it comes to the second group, however, even
when the inhibition has ceased, there exists not only
the private wrong, but in fact a public wrong, which is
damage to public service or to the high esteem that
should be accorded to the administration of justice in
our society. Therefore, in the second 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, which continues
to be tainted with a public wrong. As the policy goes,
private parties cannot ratify or compromise among
themselves matters contrary to public interests.
4. PROPER PARTY TO RAISE ISSUE OF NULLITY. Rubias
quoted Tolentino in discussing who would be the proper
parties who could raise the nullity of contracts entered
into in violation of Article 1491, stating that “Any
person may invoke the inexistence of the contract
whenever juridical effects found thereon are asserted
against him,” and that “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.
 ACTION TO ENFORCE AND EXECUTORY
CONTRACTS. 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.
5. FRAUD OR LESION NOT RELEVANT FOR NULLITY. The
existence of fraud or lesion is not a factor at all in the
application of the prohibitions covered by Article 1491,
and the proof that the person disqualified has paid
more than an adequate consideration for the property
he purchased is no defense in an action to declare the
sale void. The rationale for the absolute
disqualifications set by Article 1491, is in line with “the
general doctrine that each of [such relationships] is a
trust of the highest order, and the trustee cannot be
allowed to have any inducement to neglect his ward’s
interest;” and therefore to avoid “[t]he temptation
which naturally besets a [person holding such a
fiduciary position] so circumstanced, necessitates the
annulment of the transaction. Even in situations where
the purchase by a disqualified person under Article
1491 had received approval by the court as in the case
of probate court approving the purchase by the
administrator or executor, the sale would still be void.
6. AGENTS. “Brokers” do not come within the coverage
of the prohibition as their authority consist merely in
looking for a buyer or a seller, and to bring the former
and the latter together to consummate the
transaction; therefore, they are not prohibited to buy
for themselves. As held in Schmid & Oberly v. RJL
Martinez Fishing Corp., “[a] broker is generally defined
as one who is engaged, for others, on a commission,
negotiating contracts relative to property with the
custody of which he has no concern; the negotiation
between other parties, never acting in his own name
but in the name of those who employed him; he is
strictly a middleman and for some purpose the agent of
both parties. ... A broker is one whose occupation it is to
bring parties together to bargain, or to bargain for
them, in matters of trade, commerce or navigation.
7. GUARDIANS, ADMINISTRATORS AND EXECUTORS.
Guardians, administrators and executors are
necessarily officers of the courts since they are
appointed or confirmed to such position pursuant to
judicial proceedings.
In Philippine Trust Co. v. Roldan, the court-appointed
guardian had filed a motion with the trial court for
authority to sell as guardian the parcels of land of the
ward for the purpose of being able to invest the
proceeds for a residential house for the ward. When the
court authority was granted, the guardian sold the
parcels of land in favor of her brother-in-law in the sum
approved by the court. The guardian subsequently
asked for and was granted judicial confirmation of the
sale. Immediately thereafter, the brother-in-law sold
the same parcels of land to the guardian. The Philippine
Trust Co., which became the substitute guardian,
brought an action to annul the contract, on the ground
that the prohibition under the Civil Code prevented the
guardian from purchasing “either in person or through
the mediation of another.
In the earlier case of Rodriquez v. Mactal, the Court
held that the prohibition under the Civil Code 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.
In Philippine Trust Co., the Court abandoned such
doctrine and held that even without 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 ward’s interest and in line with the
court’s suspicion whenever the guardian acquires the
ward’s property,” the Court held that the re-sale of the
parcels of land to the guardian herself, should be
declared void. Philippine Trust Co. shows that even a
court-approved sale would not stand against the
inhibition provided by Article 1491.
8. JUDGES, JUSTICES AND THOSE INVOLVED IN
ADMINISTRATION OF JUSTICE. The early case of Gan
Tingco v. Pabinguit, clarified that for the prohibition
under Article 1491 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 that it became subject
to the judicial action of the judge, such as levy on
execution. Macariola v. Asuncion held that the doctrine
that prohibition under Article 1491 is “applicable only
during the period of litigation” should cover not only
lawyers, but judges as well.
9. ATTORNEYS; RATIONALE FOR THE PROHIBITION.
Valencia v. Cabanting, explained the reason for the
disqualification as it applies to lawyers in this wise:
“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 the better of the sentiments of loyalty
and disinterestedness. Any violation of this prohibition
would constitute malpractice ... and is a ground for
suspension.”
APPLIES ONLY WHEN THE PROPERTY HE IS BUYING IS
THE SUBJECT OF LITIGATION, AND DOES NOT APPLY
WHEN THE SALE WAS MADE TO ATTORNEY WHO WAS
NOT THE DEFENDANT’S ATTORNEY(S) IN THAT CASE
WHERE THE SUBJECT OF LITIGATION WAS THE OBJECT
OF THE SALE. In Gregorio Araneta, Inc. v. Tuason de
Paterno, it was held that the prohibition under Article
1491 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
defendant’s attorneys in that case.
DOES NOT APPLY TO LAWYERS WHO ACQUIRED THE
PROPERTY PRIOR TO THE TIME HE INTERVENED. In Del
Rosario v. Millado, the Court also held that the
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.
In one case, the Court held that the prohibition applies
only to sale to a lawyer who in fact represented the
client in the particular suit involving the object of the
sale, and cannot cover the assignment of the property
given in judgment made by a client to an attorney,
who has not taken part in the case wherein said
judgment was rendered, made in payment of
professional services in other cases.
In another case, it was held that the prohibition does
not apply to the sale of a parcel of land, acquired by a
client to satisfy a judgment in his favor, to his attorney
as long as the property was not the subject of the
litigation.
CONTINGENT FEE ARRANGEMENTS NOT PROHIBITED.
Recto v. Harden, held that the prohibition under Article
1491 does not apply to a contingent fee based on the
value of 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.
REASON FOR NON-PROHIBITION; FEE IS MADE ONLY
AFTER JUDGMENT, NOT LITIS PENDENTIA. Vda. de Laig
v. Court of Appeals held that the agreement on
contingent fee based on the value of the property
involved is not prohibited since 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. Similarly, the Court recognized
that contingent fee arrangement is recognized under
Canon 13 of the Canons of Professional Ethics, as an
exception to Canon 10 thereof which prohibits a lawyer
from purchasing any interest in the subject matter of
the litigation which he is conducting. In fact, under the
1988 Code of Professional Responsibility, 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. But it
recognized that a contingent fee contract is always
subject to the supervision of the courts with 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 without
remedy because the court will amply protect him.
CONTINGENT FEE, VALID AND ENFORCEABLE SO LONG
AS THERE IS NO FRAUD OR UNDUE INFLUENCE. As long
as the lawyer does not exert undue influence on his
client, that no fraud is committed or imposition applied,
or that the compensation is clearly not excessive as to
amount to extortion, a contract for contingent fee is
valid and enforceable
PENDENCY OF LITIGATION DOCTRINE GOES WITHIN
THE AMBIT OF ARTICLE 1491. Precisely, the “pendency
of litigation” doctrine 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 the 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 litigation, a period in which the lawyer
would exercise moral and professional influence over
his client, and therefore would rightly be covered by
Article 1491.
The test therefore is for the Courts to determine
whether the arrangement falls within the prohibition is
to ascertain whether the property in question is the
subject of a pending litigation between the parties and
that the contingent fee is ought to be provided during
the litigation or before any judgment is to be rendered
with respect to the said case. It is in this phase where
the Counsel may still exercise moral, practical, and
professional influence over his client such that the
arrangement may be susceptible to undue influence.
Should this be the case, the Court’s supervisory capacity
may be exercised to the effect of reducing or even
nullifying the arrangement should it be iniquitous or too
onerous under the circumstances.
CONTINGENT FEE ARRANGEMENTS ARE ESSENTIALLY
CONTRACT OF SERVICE, NOT SALE, BUT NEVERTHELESS
GOVERNED BY ARTICLE 1491. The resolution of this
issue rightfully brings into focus the ruling of the
Supreme Court, discussed in the next chapter, that the
Law on Sales is a “catch-all” provision engulfing within
its operations all onerous contracts which have within
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 client’s property in litigation, the
Court does not hesitate to apply Article 1491
prohibitions to test the validity of such an arrangement.
10. OTHER PERSONS ESPECIALLY DISQUALIFIED. Other
persons especially disqualified. Examples of persons
especially disqualified by law are:
a) Aliens who are disqualified to purchase private
agricultural lands;
b) An unpaid seller having a right of lien or having
estopped the goods in transitu, who is
prohibited from buying the goods either directly
or indirectly in the resale of the same at a public
or private sale which he may make (Art. 1533,
par. 5; Art. 1476[4].); and
c) The officer conducting the execution sale or his
deputies cannot become a purchaser, or be
interested directly or indirectly in any purchase
at an execution sale. (Sec. 19, Rule 39, Rules of
Court.)
In the case of aliens, the disqualification is founded on
express provision of the Constitution and not by reason
of any fiduciary relationship. It has been held, however,
that where a land is sold to an alien who later sold it to
a Filipino, the sale to the latter cannot be impugned. In
such case, there would be no more public policy to be
served in allowing the Filipino seller or his heirs to
recover the land as the same is already owned by a
qualified person.