SALES Professor: Atty. Amado Paolo C. Dimayuga Source: Villanueva, Cesar L. (2009). LAW ON SALES. Quezon City: Rex Printing Company, Inc.

Title VI. - SALES

Chapter 1 – NATURE OF SALE Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. (1445a) Art. 1460. A thing is determinate when it is particularly designated or physical segregated from all other of the same class. The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties. (n)

________ Definition of Sale Article 1458 defines “sale” as a contract whereby one of the contracting parties (Seller) obligates himself to transfer the ownership and to deliver a determinate thing; and the other party (Buyer) obligates himself to pay therefor a price certain in money or its equivalent. 1. Nature of Obligations Created in a Sale Two Obligations of the Seller to: (i) Transfer the Ownership, and (ii) Deliver the Possession of the Subject Matter An obligation for the Buyer to: (i) 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, 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 executed by another at the cost of the obligor, and the obligor’s refusal to comply can be the basis for claims for damages. 2. Subject Matter of Sale 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 a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties,” which includes “determinable” albeit generic objects as valid subject matters of sale.

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. 3. Elements of Contract of Sale CORONEL V. CA

Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale are the following:

a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;

b) Determinate subject matter; and

c) Price certain in money or its equivalent.

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 non-performance of the obligation thereafter. Unfortunately, the Supreme Court has considered in a number of decisions that the resulting sale is “void: when some of the essential requisites are not present. To the author, the more appropriate term to use when an essential element is not present as meeting of the mind is to declare a “no contract” situation. On the other hand, when all three elements are present, but there is a 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. 4. Stages in the Life of Sale (a) Policitacion, negotiation, or preparation stage; (b) Perfection, conception or “birth;” and (c) Consummation or “death.” 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 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 begins when the parties perform their respective undertaking under the contract of sale, culminating in the extinguishment thereof.

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Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. (1450a)

________ Essential Characteristics of Sale 1. 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. In one case, the Court held that in determining the nature of a contract, the courts look at the intent of the parties and not at the nomenclature used to describe it, and that 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.” 2. Consensual Sale is consensual contract (as contrasted from solemn and real contracts), since 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. 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. Under Article 1475, 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 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. 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.

FULE V. CA

A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the 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 Civil Code which requires the embodiment of certain contracts in a public instrument, is only for convenience, 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.

a. Modalities That Affect the Characteristic of Consensuality The consensual characteristic of sale can be affected by modalities that by stipulation may be added into the contractual relationship, such as a suspensive term or condition. 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. ONG V. CA

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.

The legal effects and consequences of sale being bilateral contract composed of reciprocal obligations are as follows: (a) 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; (b) Neither party incurs delay if the party does not comply, or is not ready to comply in a proper manner, with what is incumbent upon him; and (c) From the moment one of the parties fulfils his obligation, the default by the other begins, without the need of prior demand. 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. GAITE V. FONACIER

If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.

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There can be no question that greater reciprocity obtains if the buyer's obligation is deemed to be actually existing, with only its maturity (due date) postponed or deferred, that if such obligation were viewed as non-existent or not binding until the ore was sold.

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. GAITE V. FONACIER

A contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the price),but each party anticipates performance by the other from the very start. While in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so; hence, the contingent character of the obligation must clearly appear.

Although “commutativeness” is an essential characteristic of a sale, the test for compliance therewith is 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 a sale, and would not be deemed a donation nor an aleatory contract. The subjective test of the commutative nature of sale is further bolstered by the principle that inadequacy of price foes not affect ordinary sale. Inadequacy of price may be a ground for setting aside an execution sale but is not a sufficient ground for the cancellation of a voluntary contract of sale otherwise free from invalidating effects. Inadequacy of price may show vice on consent, in which case the sale may be annulled, but such annulment is not for inadequacy of price, but rather vitiation of 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. Although in one case of 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. ACAP V. CA

An asserted right or claim to ownership or a real right over a thing arising from a juridical act, however justified, is not per se sufficient to give rise to ownership over the res. 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 is the juridical justification, mode is the actual process of acquisition or transfer of ownership over a thing in question.

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.

________ Art. 1466. In construing a contract containing provisions characteristic of both the contract of sale and of the contract of agency to sell, the essential clauses of the whole instrument shall be considered. (n) 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. (n) Art. 1468. If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale. (1446a) Art. 1471. 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. (n)

________ Sale Distinguished from Other Similar Contracts A contract is what the law defines it to be, taking into consideration its essential elements, and not what the contracting parties call it. The transfer of ownership in exchange for a price paid or promised is the very essence of a contract of sale. 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 DONATION

Onerous Gratuitous

Perfected by mere consent. Being a solemn contract, although consent is also required, must comply with the formalities mandated by law for its validity.

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Under Article 1471, when the price of a sale is simulated, the sale itself may be void, “but the act may be shown to have been in reality a donation, or some other act or contract.” 2. From Barter

SALE BARTER

One of the parties binds himself to deliver a thing in consideration of the other’s undertaking to pay the price in money or its equivalent.

One of the parties binds himself to give one thing in consideration of the other’s promise to give another thing.

a. Rules to Determine Whether Contract is Sale or Barter (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 “Art. 1641. As to all matters not specifically provided for in this Title, barter shall be governed by the provisions of the preceding Title relating to sales. (1541a) “Art. 1639. If one of the contracting parties, having received the thing promised him 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. (1539a) “Art. 1640. 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 may only demand an indemnity for damages. However, 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, and without prejudice to the rights acquired in good faith in the meantime by a third person. (1540a)”

3. From Contract for a Piece-of-Work By the contract for a piece-of-work, the contract 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. a. Statutory Rule on Distinguishing Sale from Contract for a Piece-of-Work Article 1467 gave the statutory rules in distinguishing a sale from a contract for a piece-of-work, which gives two tests for distinction: (a) Manufacturing in the ordinary course of business to cover sales contracts; and

(b) Manufacturing upon special order of customers, to cover contracts for piece-of-work. CELESTINO V. CIR

The important thing to remember is that Celestino Co & Company habitually makes sash, windows and doors, as it has represented in its stationery and advertisements to the public.

That it "manufactures" the same is practically admitted by appellant itself. The fact that windows and doors are made by it only when customers place their orders, does not alter the nature of the establishment, for it is obvious that it only accepted such orders as called for the employment of such material-moulding, frames, panels-as it ordinarily manufactured or was in a position habitually to manufacture.

Any builder or homeowner, with sufficient money, may order windows or doors of the kind manufactured by this appellant. Therefore it is not true that it serves special customers only or confines its services to them alone. And anyone who sees, and likes, the doors ordered by Don Toribio Teodoro & Sons Inc. may purchase from appellant doors of the same kind, provided he pays the price. Surely, the appellant will not refuse, for it can easily duplicate or even mass-produce the same doors-it is mechanically equipped to do so.

CIR V. ENGINEERING EQUIPMENT

The distinction between a contract 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 persons even if the order had not been given. 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 defendant's request, it is a contract of sale, even though it may be entirely made after, and in consequence of, the defendants order for it.

Taken together, both Celestino Co and Engineering Equipment established the proper application of the “upon special order” test under Article 1467, as not merely one of 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. The consistent theme in the decisions of the Supreme Court on the matter is that the main distinguishing factor between a sale and a contract for a piece-of-work 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 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. ENGINEERING MACHINERY V. CA

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

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another, there is a contract for a piece of work.

B. Practical Needs for Being Able to Distinguish 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 rendered (obligation to do), would not allow an action for specific performance in case the contractor refuses to comply with his obligation. “Art. 1715. x x x Should the work be not of such quality, the employer may require that the contractor remove the defect or execute another work. If the contract fails or refuses to comply with this obligation, the employer may have the defect removed or another work executed, at the contractor's cost.”

4. 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. Distinguishing Sale and Agency to Sell/Buy 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.

SALE AGENCY TO SELL/BUY

Not unilaterally revocable Because it covers an underlying fiduciary relationship, is essentially revocable

The buyer himself pays for the price of the object, which constitutes his main obligation

The agent is not obliged to pay the price, and is merely obliged to deliver the price which he may receive from the buyer

The buyer, after delivery, becomes the owner of the subject matter

The agent does not become the owner of the thing subject of the agency, even if the object is delivered to him

The seller warrants The agent who effects the sale assumes no personal liability as long as he acted within his authority and in the name of the principal

Finally, 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. b. Statutory Rule Article 1466 provides that “in construing a contract containing provisions characteristic of both the contract of sale and of the

contract of agency to sell, the essential clauses of the whole instrument shall be considered.’ The Supreme Court has identified what constitutes the “essential clauses” to warrant a conclusion as to the proper nature of the contract in issue. QUIROGA V. PARSONS

These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds.

PUYAT AND SONS V. ARCO AMUSEMENT

In the first place, the contract is the law between the parties and should include all the things they are supposed to have been agreed upon. What does not appear on the face of the contract should be regarded merely as "dealer's" or "trader's talk", which can not bind either party.

We agree with the trial judge that "whatever unforseen events might have taken place unfavorable to the defendant (petitioner), such as change in prices, mistake in their quotation, loss of the goods not covered by insurance or failure of the Starr Piano Company to properly fill the orders as per specifications, the plaintiff (respondent) might still legally hold the defendant (petitioner) to the prices fixed of $1,700 and $1,600." This is incompatible with the 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 (section 254, Code of Commerce), and the principal must indemnify the agent for all damages which the latter may incur in carrying out the agency without fault or imprudence on his part (article 1729, Civil Code).

The transfer of title or agreement to transfer it for a 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 to an agent, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon sales made. c. Other Practical Value of Being Able to Distinguish Knowing whether the contract is one of sale or an agency to sell is also important in considering the applicability of the Statute of Frauds. 5. From Dacion En Pago Dation is 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

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governed by the Law on Sales, since it essentially involves the transfer of ownership of a subject matter. In order that there be a valid dation in payment, the following are the requisites: (a) There must be the 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) There must be some difference between the prestation due and that which is given in substitution (aliud pro alio); and (c) There must be 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. The 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. As such, the vendor in good faith shall be responsible, for the existence and legality of the credit at the time of the sale but not for the solvency of the debtor, in specified circumstances. The legal effects of a 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 a dacion, it ought to know especially when it is a bank, and must abide by the legal consequence thereof; that the pre-existing obligation is thereby extinguished. In its modern concept, what actually takes place in dacion 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. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation. 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.

________ Chapter 2 – PARTIES OF SALE Art. 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. Necessaries are those referred to in Article 290. (1457a) 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) Art. 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises and renunciations. (n)

________ General Rule on Capacity of Parties When it comes to the issue as to who can be the proper parties to a sale, the general rule is that any person who has “capacity to act,” or “the power to do acts with legal effects,” or more specifically with the power to obligate himself, may enter into a contract of sale, whether as seller or as buyer. For natural persons or individuals, the age of majority begins at 18 years, upon which age they have the capacity to act. For juridical persons, such as corporations, partnerships, associations and cooperatives, a juridical personality separate and distinct from that of the shareholders, partners or members, is expressly recognized by law, with full “juridical capacity” to obligate themselves and enter into valid contracts. Minors, Insane or Demented Persons, and 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 benefitted by the thing or price received by him. 1. 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, “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, and not merely voidable. “Necessaries,” are now defined by Article 194 of the Family Code to cover “everything indispensable for sustenance,

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dwelling, clothing, medical attendance, education and transportation, in keeping with the financial capacity of the family...and education includes his schooling or training for some profession, trade or vocation, even beyond the age of majority. Transportation shall include expenses in going to and from school, or to and from place of work.” Since sales cover only the obligation to deliver a thing, the sale of “necessaries” considered valid under Article 1489 can only covers sales pertaining to sustenance, dwelling and clothing, and perhaps medicine and educational books and materials. 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 of consent, and the rules on voidable contracts apply. 2. Emancipation 3. Senility and Serious Illness 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 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. Given these circumstances, there is in our view sufficient reason to seriously doubt that she consented to the sale of and the price for her parcels of land. Moreover, there is no receipt to show that said price was paid to and received by her. Thus, we are in agreement with the trial court’s finding and conclusion on the matter. Sales By and Between Spouses 1. Sales With Third Parties 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.” GUIANG V. CA

Art. 124. The administration and enjoyment of the conjugal partnerhip properly shall belong to both spouses jointly. In case of disgreement, the husband's decision shall prevail, subject recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision.

In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include the powers of disposition or encumbrance which must have the authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, 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. (165a)

2. Sales Between Spouses a. 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. However, not anyone is given the right to assail the validity of 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. b. Rationale for Prohibition (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 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.” c. Rationale for Exception to Prohibition under Article 1490 3. Applicability of Incapacity to Common Law Spouses CALIMLIM-CANULLAS V. FORTUN

And this is so because if transfers or con conveyances between spouses were allowed during marriage, that would destroy the system of conjugal partnership, a basic policy in civil law. It was also designed to prevent the exercise of undue influence by one spouse over the other, as well as to protect the institution of marriage, which is the cornerstone of family law. The prohibitions apply to a couple living as husband and wife without benefit of marriage, otherwise, "the condition of those who incurred guilt would turn out to be better than those in legal union." Those provisions are dictated by public interest and their criterion must be imposed upon the will of the parties.

________ 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;

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(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) Art. 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises and renunciations. (n)

________ Specific Incapacity Mandated by Law 1. Legal Status of Contracts Entered Into In Violation of Articles 1491 and 1492 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 mean that, apart from the said 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. RUBIAS V. BATILLER

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 law, 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."

a. A Different Form of “Ratification” RUBIAS V. BATILLER

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 (Article 1491, Civil Code), as to whose transactions it had been opined that they may be "ratified" by means of and in "the form of a new contact, in which cases its validity shall be determined only by the circumstances at the time

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 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. What remains at issue with respect to the “ratification” by the execution of a “new contract” in the cases of purchases by the guardian, agent, administrator or executor, is whether such ratification involves only a new meeting of the minds with respect to the same subject matter and the same price, or it would require in addition the payment of a new price or consideration as part of the new meeting of the minds when the inhibition no longer prevails. These are issues yet to be addressed by the Court. b. Proper Party to Raise Issue of Nullity Parties Affected. — Any person may invoke the in existence of the contract whenever juridical effects founded thereon are asserted against him. Thus, if there has been a void transfer of property, the transferor can recover it by the accion reinvindicatoria; and any prossessor may refuse to deliver it to the transferee, who cannot enforce the contract. Creditors may attach property of the debtor which has been alienated by the latter under a void contract; a mortgagee can allege the inexistence of a prior encumbrance; a debtor can assert the nullity of an assignment of credit as a defense to an action by the assignee. Action On Contract. — Even when the contract is void or inexistent, an action is necessary to declare its inexistence, when it has already been fulfilled. Nobody can take the law into his own hands; hence, 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. The judgment, however, will retroact to the very day when the contract was entered into. c. Fraud or Lesion Not Relevant for Nullity PHILIPPINE TRUST CO. V. ROLDAN

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

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inducement to neglect his ward’s interest;” and therefore to avoid “The temptation which naturally besets a person holding such a fiduciary position so circumstanced, necessitates the annulment of the transaction.

2. 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. 3. 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. Precisely to avoid such temptation and quibbling, Article 1491 has entirely shut the door to such persons occupying fiduciary positions, to even desire to acquire, directly or indirectly, properties of their ward, estate or principal, as the case may be. a. Hereditary Rights Not Included in Coverage Hereditary 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, from both the practical and equity points of view, such hereditary rights derive their value only from the assets that constitute the estate of the decedent, which is clearly within the fiduciary control of the administrator or executor. Since the particular provision relating to judges covered only “property and rights in litigation,” the article applies only to the sale or assignment of the property under litigation which must take place “during the pendency of the litigation involving the property.” 5. Attorneys 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. The nullity of such prohibited contracts is definite and permanent and cannot be cured by ratification. The public interest and public policy remain paramount and do not permit of compromise or ratification. a. Contingent Fee Arrangements A contract between a lawyer and his client stipulating a contingent fee is not covered by said prohibition under Article 1491 (5) of the Civil Code 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. 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.

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. The time-honored legal maxim that a lawyer shall at all times uphold the integrity and dignity of the legal profession so that his basic ideal becomes one of rendering service and securing justice, not money-making. For the worst scenario that can ever happen to a client is to lose the litigated property to his lawyer in whom all trust and confidence were bestowed at the very inception of the legal controversy.

________ Chapter 3 – SUBJECT MATTER Art. 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered. (n) Art. 1460. A thing is determinate when it is particularly designated or physical segregated from all other of the same class. The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties. (n) Art. 1461. Things having a potential existence may be the object of the contract of sale. The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. The sale of a vain hope or expectancy is void. (n) Art. 1462. The goods which form the subject of a contract of sale may be either 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, in this Title called "future goods." There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen. (n) Art. 1463. The sole owner of a thing may sell an undivided interest therein. (n) Art. 1464. In the case 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 to buy a definite number, weight or measure of the goods in the mass, and though the number, weight or measure of the goods in the mass is undetermined. By such a sale the buyer becomes owner in common of such a share of the mass as the number, weight or measure bought bears to the number, weight or measure of the mass. If the mass contains less than the number, weight or measure bought, the buyer becomes the owner of the whole mass and the seller is bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent appears. (n)

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Art. 1465. Things subject to a resolutory condition may be the object of the contract of sale. (n)

________ Requisites of Valid Subject Matter A valid contract of sale would result from the meeting of the minds of the parties on a subject matter that has at the time of perfection the following requisites: (a) It must be existing, having the potential existence, a future thing, or even contingent or subject to a resolutory condition; in other words, it must be a “possible thing” (b) It must be licit; and (c) It must be determinate or at least determinable a. Lack of Any Requisite Results in Non-existent Sale When the subject matter agreed upon fails to meet the requisites above-enumerated, the situation would engender a “no contract” situation, or the resulting contract of sale would be void under various cases provided under Article 1409 of the Civil Code. “Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract. This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be bound to comply with his promise. (1305) “Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: (1) 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 other's undertaking; (2) 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. The other, who is not at fault, may demand the return of what he has given without any obligation to comply his promise. (1306) “Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designated for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered.”

b. Legal Requisites of Subject Matter Intended to Govern Underlying Obligations of Seller The underlying policy 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. 1. Subject Matter Must Be “Possible Thing” The proper consideration of the first requisite, if it is to have a legal significance, is to consider it not in 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 with his obligations under the contract. The concepts perhaps are best embodied in terms of “possible things” as contrasted from “impossible things.” Thus when the existence of a thing is subject to a condition, then it remains a “possible thing,” for it has the capacity, not certainty, of coming into existence if subject to a suspensive condition, or it already exists but may or may cease to exist if it is subject to a resolutory condition. Even when the subject matter does not exist at the time of perfection of the sale, the contract is still valid under Article 1461 and 1409(3); however, when the subject matter is of such nature that it cannot come into existence—an impossible thing—the contract is indeed void. “Art. 1347. All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts. No contract may be entered into upon future inheritance except in cases expressly authorized by law. All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. (1271a)”

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. a. Emptio Rei Speratae Under Article 1461, things having a potential existence may be the object of the contract of sale; however, such a sale is subject to the condition that the thing will come into existence. Therefore, a sale emptio rei speratae is strictly 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.” Necessarily also, an emptio rei speratae covers only contracts of sale whose subject matter are determinate or specific, and has no application to determinable generic things since the condition that they must come into existence is wholly irrelevant, for generic subject matters are never lost. b. Emptio Spei Although the second paragraph of Article 1461 states the “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 hop to be a valid contract is provided by the last paragraph of Article 1461: that the sale of a vain hope or expectancy is void, affirming the requisite of

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“possibility” of the subject matter as contrasted from an impossible subject matter. c. Sale of Things Subject to Resolutory Condition If the resolutory condition happens to extinguish the thing, what happens to the contract of sale itself? The rule would be the same as applied to all obligations subject to a resolutory condition under Article 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 other what they have received.” This default rule will thus preserve the commutative nature of sale. d. Subject Matter is Nexus of Sale From the foregoing discussion it can be deduced that whether the contract of sale involves a present object (such as a hope or expectancy in emtio 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 into existence to be delivered to the buyer; otherwise, the contract of sale is void, or an existing contract of sale is extinguished, with the obligation on the part of the seller to return the price he has received thereby. “Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale” 2. Subject Matter Must Be Licit The subject matter of the contract of sale must be licit. A thing is licit and may be the object of a contract when it is not outside the commerce of men, and all rights which are not intransmissible. When the subject matter is illicit, the resulting contract of sale is void. a. Sales Declared Illegal by Law There are various special laws that declare certain slaes contracts as illegal and therefore void. QUIJADA V. CA

There is also no merit in petitioners' contention that since the lots were owned by the municipality at the time of the sale, they were outside the commerce of men under Article 1409 (4) of the NCC; thus, the contract involving the same is inexistent and void from the beginning. However, nowhere in Article 1409 (4) is it provided that the properties of a municipality, whether it be those for public use or its patrimonial property are outside the commerce of men. Besides, the lots in this case were conditionally owned by the municipality. To rule that the donated properties are outside the commerce of men would render nugatory the unchallenged reasonableness and justness of the condition which the donor has the right to impose as owner thereof. Moreover, the objects referred to as outsides the commerce of man are those which cannot be appropriated, such as the open seas and the heavenly bodies.

3. Subject Matter Must Be Determinate or at Least Determinable a. Determinate Subject Matter

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 which to enforce seller’s obligation to deliver, as well as the basis upon which to demonstrate breach, are certain and unequivocal. It is also when the subject matter is determinate or specific that the defense of force majeure is applicable to legally relieve the seller from the consequence of failure to deliver the subject matter of the sale. b. Determinable Subject Matter On the other hand, a thing is determinable only when two (2) requisites are present: (a) If at perfection of the sale, the subject matter is capable of being made determinate (the “capacity to segregate” test); and (b) Without the necessity of a new or further agreement between the parties (the “no further agreement” test) By its very definition, 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 V. CITY OF ILOILO

The requirement of the law that a sale must have for its object a determinate thing, is fulfilled as long as, at the time the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties.

In essence, the requisite of being “determinable” is met at perfection, the agreement between parties included a formula which can be used by the courts to establish the subject matter upon which the obligation to deliver can be enforced, without 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 Article 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 The doctrine the “one sell or buys real property as he sees it, in its actual setting and by its physical metes and bounds, and not by the mere lot number assigned to it in the certificate of title,” has been reiterated in Londres v. CA, and presents a clear and contemporary exception to the almost sacrosanct doctrine under the Torrens system that the public can deal with registered land exclusively on the basis of the title thereto. 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

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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 which will become the subject matter of performance “without need of further agreement.” Such characteristic prevents the seller from delivering something not within 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. 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. “Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. (1273)”

NATIONAL GRAINS ADMINISTRATION V. IAC

In the case at bar, Soriano initially offered to sell palay grains produced in his farmland to NFA. When the latter accepted the offer by noting in Soriano's Farmer's Information Sheet a quota of 2,640 cavans, there was already a meeting of the minds between the parties. The object of the contract, being the palay grains produced in Soriano's farmland and the NFA was to pay the same depending upon its quality. The fact that the exact number of cavans of palay to be delivered has not been determined does not affect the perfection of the contract. Article 1349 of the New Civil Code provides: "...The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without 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 number of cavans of palay to be sold. Soriano can deliver so much of his produce as long as it does not exceed 2,640 cavans.

JOHANNES SCHUBACK V. CA

While we agree with the trial court's conclusion that indeed a perfection of contract was reached between the parties, we differ as to the exact date when it occurred, for perfection took place, not on December 29, 1981. Although the quantity to be ordered was made determinate only on December 29, 1981, quantity is immaterial in the perfection of a sales contract. What is of importance is the meeting of the minds as to the object and cause, which from the facts disclosed, show that as of December 24, 1981, these essential elements had already occurred.

e. Generic Non-Determinable Objects Since “determinable” objects may be the valid subject matter of sale, then even generic things that fall within 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 with when the subject matter has been made determinate, wither 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 V. GONZALES

In the case at bar the undertaking of the defendant was to sell to the plaintiff 600 piculs of sugar of the first and second classes. Was this an agreement upon the "thing" which was the object of the contract within the meaning of article 1450? Sugar is one of the staple commodities of this country. For the purpose of sale its bulk is weighed, the customary unit of weight being denominated a "picul." There was no delivery under the contract. Now, if called upon to designate the article sold, it is clear that the defendant could only say that it was "sugar." He could only use this generic name for the thing sold. There was no "appropriation" of any particular lot of sugar. Neither party could point to any specific quantity of sugar and say: "This is the article which was the subject of our contract." How different is this from the contracts discussed in the cases referred to above! In the McCullough case, for instance, the tobacco factory which the parties dealt with was specifically pointed out and distinguished from all other tobacco factories. So, in the Barretto case, the particular shares of stock which the parties desired to transfer were capable of designation. In the Tan Leonco case, where a quantity of hemp was the subject of the contract, it was shown that that quantity had been deposited in a specific warehouse, and thus set apart and distinguished from all other hemp.

“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 cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration. (1167a)”

f. Status of Sale Not Complying with Third Requisite When the minds of the parties have met upon a subject matter which is neither determinate nor determinable, the resulting contract would be void. Again, the impetus of the law declaring sales covering subject matters which are neither determinate nor 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 Article 1409(6) of the Civil Code which 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 h. Sale of Undivided Share in Mass GAITE V. FONACIER

The subject matter of the sale is, therefore, a determinate object, the mass, and not the actual number of units or tons contained therein, so that all that was 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.

i. Sale of Mortgaged Property 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.

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4. Seller’s Obligation to Transfer Ownership Required at Time of Delivery In general, 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 the delivery; otherwise, he may be held liable for breach of warranty against eviction. a. Conflicting Rules QUIJADA V. CA

Sale, being a consensual contract, is perfected by mere consent, which is manifested the moment there is a meeting of the minds 17 as to the offer and acceptance thereof on three (3) elements: subject matter, price and terms of payment of the price. 18 Ownership by the seller on the thing sold at the time of the perfection of the contract of sale is not an element for its perfection. What the law requires is that the seller has the right to transfer ownership at the time the thing sold is delivered. 19 Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery of the thing sold. 20 A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at the time of its perfection; hence, the sale is still valid.

b. Exception: When Seller Must Be Owner at Time of Sale The exception to the rule that ownership by the seller is not essential at the time of perfection would be in the case of judicial sale. c. Subsequent Acquisition of Title by Seller “Art. 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee.”

________ Chapter 4 – PRICE AND OTHER CONSIDERATION Art. 1469. In order that the price may be considered certain, it shall be sufficient that it be so with reference to another thing certain, or that the determination thereof be left to the judgment of a special person or persons. Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the parties subsequently agree upon the price. If the third person or persons acted in bad faith or by mistake, the courts may fix the price. Where such third person or persons are prevented from fixing the price or terms by fault of the seller or the buyer, the party not in fault may have such remedies against the party in fault as are allowed the seller or the buyer, as the case may be. (1447a) Art. 1470. 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. (n)

Art. 1472. The price of securities, grain, liquids, and other things shall also be considered certain, when the price fixed is that which the thing sold would have on a definite day, or in a particular exchange or market, or when an amount is fixed above or below the price on such day, or in such exchange or market, provided said amount be certain. (1448) Art. 1473. The fixing of the price can never be left to the discretion of one of the contracting parties. However, if the price fixed by one of the parties is accepted by the other, the sale is perfected. (1449a) Art. 1474. Where the price cannot be determined in accordance with the preceding articles, or in any other manner, the contract is inefficacious. However, if the thing or any part thereof has been delivered to and appropriated by the buyer he must pay a reasonable price therefor. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. (n)

________ By definition under Article 1458, the ideal consideration for a contract of sale would be “price” as a “sum certain in money or its equivalent.” However, it is possible that a “sale” may still be valid when it has for its cause or consideration an item other than price. TORRES V. CA

Consideration, more properly denominated as cause, can take different forms, such as the prestation or promise of a thing or service by another.

In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation of profits from the subdivision project, for which the land was intended to be used.

The concept of “contract of sale” under Article 1458 of the Civil Code is “in effect, a ‘catch-all’ provision which effectively brings within its grasp a whole gamut of transfers whereby ownership of a thing is ceded for a consideration.” 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 debit of the buyer and agreed to by him. Requisite 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. 1. Price Must Be Real Since a contract of sale is an onerous and commutative contract, it is essential that consideration agreed upon, namely the price, must be real.

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a. When Price Is Real Price is “real” when at the perfection of sale, there is 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. b. When Price Is Simulated In absolute simulation, there is colourable contract but without any substance, because the parties have no intention to be bound by it. An absolutely simulated contract is void, and the parties may recover from each other what they may have given under the ‘contract.’ 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 the illegality of the consideration or the purpose of the contract, but does not apply to inexistent and void contracts where the price is merely simulated. c. When Price Is False Price is “false” when there is a real price upon which the minds of the parties had met, 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. d. Meeting of Minds as to Price MAPALO V. MAPALO

The rule under the Civil Code, again be it the old or the new, is that contracts without a cause or consideration produce no effect whatsoever. Nonetheless, under the Old Civil Code, the statement of a false consideration renders the contract voidable, unless it is proven that it is supported by another real and licit consideration. And it is further provided by the Old Civil Code that the action for annulment of a contract on the ground of falsity of consideration shall last four years, the term to run from the date of the consummation of the contract.

Accordingly, since the deed of sale of 1936 is governed by the Old Civil Code, it should be asked whether its case is one wherein there is no consideration, or one with a statement of a false consideration. If the former, it is void and inexistent; if the latter, only voidable, under the Old Civil Code. As observed earlier, the deed of sale of 1936 stated that it had for its consideration Five Hundred (P500.00) Pesos. In fact, however, said consideration was totally absent. The problem, therefore, is whether a deed which states a consideration that in fact did not exist, is a contract without consideration, and therefore void ab initio, or a contract with a false consideration, and therefore, at least under the Old Civil Code, voidable.

e. Effect of Non-Payment of Price If the price is fixed but is 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 the balance thereof does not render the sale inexistent or invalid, but merely gives rise to a right in favor of the seller to either demand specific performance or rescission of the contract of sale. In a contract of sale, the non-payment of the full consideration did not invalidate the contract of sale. Under settled doctrine, non-payment is a resolutory condition that extinguishes the transaction existing for a time and discharges the obligations created thereunder. The remedy of the unpaid seller is to sue for collection or, in case of a substantial breach, to rescind the contract. Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment 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.

f. Accommodation Does Not Make Sale Void for Lack of Price 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. g. 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 for the same, no title over the subject matter of the sale can be conveyed. Nemo potest nisi quod de jure potest – no man can do anything except what he can do lawfully Delivery of the subject matter made pursuant to a sale that is void for lack of 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” Art. 1458 of the Civil Code, in prescribing that a sale be for a price certain in money or its equivalent requires that "equivalent" be something representative of money, e.g., a check or draft, again citing Manresa, to the 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. The significance of the use of the term “price to be in money or its equivalent” is for the law to demonstrate the ideal example of the onerous nature of sales, that it must be supported by a “valuable consideration.” Money being the highest form or

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representation of commercial value in society, removes any doubt as the model of prestation, cause or consideration that would promote the onerous nature of the contract of sale. There is little doubt, therefore that other forms of cause or consideration which are “valuable” would support a valid contract of sale. a. Adequacy of Price to Make It “Real”; Concept of “Valuable Consideration” ONG V. ONG

On June 20, 1984, respondent Intermediate Appellate Court promulgated its Decision affirming the appealed judgment and held that the Quitclaim Deed is a conveyance of property with a valid cause or consideration; that the consideration is the One (P1.00) Peso which is clearly stated in the deed itself; 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.

3. Price Must Be Certain or Ascertainable at Perfection Price is certain when it has been expressed and agreed in terms of specific pesos and/or centavos. This affirms the proposition that money represents the best model of valuable consideration. Under Article 1469 of the Civil Code, 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 judgment of a specified person or persons. a. 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 not yet to be fixed by one of the parties would render the contract to be without characteristics of “mutuality” or “obligatory force.” Even before the fixing of the price by the designated third party, a contract of sale is deemed to be perfected and existing, albeit conditional. Under Article 1469, if the designated third party fixes the rice 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 third 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 buyer, as the case may be. That means that the party may demand from the courts for the fixing of the reasonable price, under the principle that when a party prevents a condition from happening, that condition can be deemed fulfilled by the other party. b. Fixing of Subject Matter by Third Party

The obligation to deliver the subject matter and the title thereto can only be complied with at the point when the thing is either physically segregated or particularly designated, and it is not a generic obligation, but rather a “species” obligation, and therefore its designation cannot be left to the will of a third party who may choose a subject matter beyond the capacity of the seller to comply with his obligation to deliver the same. c. Price Ascertainable in Reference to Other Things Certain The price of a thing is certain at the point of perfection by reference to another thing certain, such as certain invoices the in existence and clearly identified by the agreement; or known factors or stipulated formula. d. Effects 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. 4. Manner of Payment of Price Must Be Agreed Upon Although the Civil Code provision 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 the price goes into the essence of what makes price certain or ascertainable. VELASCO V. CA

Indeed, this Court has already ruled before that a definite agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and unforceable contract of sale. The fact, therefore, that the petitioners delivered to the respondent the sum of P10,000 as part of the down-payment that they had to pay cannot be considered as sufficient proof of the perfection of any purchase and sale agreement between the parties herein under article 1482 of the new Civil Code, as the petitioners themselves admit that some essential matter — the terms of payment — still had to be mutually covenanted.

The point being made is this: the “terms of payment,” being an integral part of the price, would have the same requisites that the law imposes on price to support a valid contract of sale – certain 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 or process that does not require the agreement of the parties for the 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. a. Proper Understanding of Doctrine on Agreement on Terms of Payment of Price The imperative need for the meeting of the minds on the terms of payment of the price should be qualified by the proper

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understanding that terms of payment do not always have to be expressly agreed, when the law supplies by default such terms. 5. When There Is Sale Even When No Price Has Been Agreed Upon Article 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. a. What Does Article 1474 Mean by “Preceding Articles”? It is posited that the phrase “preceding articles” should start with Article 1469 which provides ascertainable of price with reference to another thing certain, or a specified formula, etc., up to Article 1473, which prohibits the fixing of the price by any of the parties. b. What Does Article 1474 Mean by “Inefficacious”? The standard dictionary definition of “inefficacious” means “the ability 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. c. Concept of “Appropriation”; Summation If the terms of a sale are complete except for an agreement with reference to the price, the law implies a price equivalent to the reasonable value of the goods in cases where the buyer has appropriated the things sold. And where the buyer accepts delivery knowing the price claimed by the seller, he cannot thereafter refuse to pay for it at that price, even if there is no agreement as to price. Hence, where foods used by the buyer who knows the seller’s price for such goods, he is liable for that price, and not for the reasonable value of the goods. 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 the sale without being liable to pay the price even when no such agreement on the price was previously made; and (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 contract situation where the defect is as to the price. If one looks at the dictionary definition of “appropriate” (“to set apart for some special use; to take for oneself’ take possession of; use as one’s own”) it seems that the use of such word under Article 1474 is meant to cover 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. A 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 extinguishing a valid contract.) The gravamen of Article 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 certain or ascertainable; and (c) There was delivery by the seller and appropriation by the buyer, of the subject matter of sale. Rulings on Receipt and Other Documents Embodying Price The Supreme Court has followed a particular set of rulings when it comes to situations where a receipt or some other written agreement has been entered into by the parties on the issue of whether there is a valid and binding contract of sale between the parties. TOYOTA SHAW V. CA

It is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein. The provision on the downpayment of P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract of sale, it could only refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned about the full purchase price and the manner the installments were to be paid.

This Court had already ruled that a definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement to sell personal property.

Inadequacy of Price “Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. (n)”

The mere inadequacy of the price does not affect the validity of the sale when both parties in a position to form an independent judgment concerning the transaction, unless fraud, mistake, or undue influence indicative of a defect in consent is present. The fact that one may be worsted by another, of itself, furnishes no cause of complaint. One man cannot complain because another is more able, or better trained, or has better sense of judgment than he has;

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and when the two meet on a fair field the inferior cannot murmur if the battle goes against him. The law furnishes no protection to the inferior simply because he is inferior, any more than it protects the strong because he is strong. The law furnishes protection to both alike — to one or more or less than to the other. It makes no distinction between the wise and the foolish, the great and the small, the strong and the weak. The foolish may lose all they have to the wise; but that does not mean that the law will give it back to them again. Courts cannot follow one every step of his life and extricate him from bad bargains, protect him from unwise investments, relieve him from one-sided contracts, or annul the effects of foolish acts. Courts cannot constitute themselves guardians of persons who are not legally incompetent. Courts operate not because one person has been defeated or overcome by another, but because he has been defeated or overcome illegally. Men may do foolish things, make ridiculous contracts, use miserable judgment, and lose money by them — indeed, all they have in the world; but not for that alone can the law intervene and restore. There must be, in addition, a violation of law, the commission of what the law knows as an actionable wrong, before the courts are authorized to lay hold of the situation and remedy it. 1. Distinguished from Simulated Price Simulation of contract and gross inadequacy of price are distinct legal concepts, with different effects. When the parties to an alleged contract do not really intend to be bound by it, the contract is simulated and void. A simulated or fictitious contract has no legal effect whatsoever because there is no real agreement between the parties. In contrast, a contract with inadequate consideration may nevertheless embody a true agreement between the parties. A contract of sale is a consensual contract, which becomes valid and binding upon the meeting of minds of the parties on the price and the object of the sale. The concept of a simulated sale is thus incompatible with inadequacy of price. When the parties agree on a price as the actual consideration, the sale is not simulated despite the inadequacy of the price. Gross inadequacy of price by itself will not result in a void contract. Gross inadequacy of price 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. Inadequacy of cause will not invalidate a contract unless there has been fraud, mistake or undue influence.

2. Rescissible Contracts of Sale “Art. 1381. The following contracts are rescissible: (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof; (2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; x x x”

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 negotiation 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 a bad bargain that is really not of his own doing. However, for a judicial sale to be set aside on the ground of inadequacy of price, the inadequacy must be such as to be shocking to the conscience of man. 4. Sales with Right to Repurchase

In a convention with a right to repurchase feature, the gross inadequacy of price raises 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 to appropriate the subject matter as a buyer for that would be pactum commussorium, but to foreclose on the equitable 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 to illegally frustrate a person’s 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

Cause is the essential reason which moves the contracting parties to enter into it. In other words, the cause is the immediate, direct and proximate reason which justifies the creation of an obligation through the will of the contracting parties. Cause, which is the essential reason for the contract, should be distinguished from motive, which is the particular reason of a contracting party which does not affect the other party.

________ Chapter 5 – FORMATION OF SALE Art. 1476. In the case of a sale by auction: (1) Where goods are put up for sale by auction in lots, each lot is the subject of a separate contract of sale. (2) A sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer, or in other customary manner. Until such announcement is made, any bidder may retract his bid; and the auctioneer may withdraw the goods from the sale unless the auction has been announced to be without reserve. (3) A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise provided by law or by stipulation. (4) Where notice has not been given that a sale by auction is subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ or induce any person to bid at such sale on his behalf or for the auctioneer, to employ or induce any person to bid at such sale on behalf of the seller or knowingly to take any bid from the seller or any person employed by him. Any sale contravening this rule may be treated as fraudulent by the buyer. (n) Art. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price. (n) Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

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An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. (1451a) Art. 1482. 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 the contract. (1454a) Art. 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract of sale may be made in writing, or by word of mouth, or partly in writing and partly by word of mouth, or may be inferred from the conduct of the parties. (n)

________ Stages in the Life of Sale The phases that a contract goes through have been summarized by the Supreme Court as follows: (a) Policitacion, negotiation, preparation, conception or generation, which is the period of negotiation and bargaining, ending at the moment of perfection; (b) perfection or “birth” of the contract, which is the point in time when the parties come to agree on the terms of the sale; and (c) consummation or “death” of the contract, which is the process of fulfillment or performance of the terms agreed upon in the contract. ANG YU V. CA

A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected). The perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract which is consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause thereof. A contract which requires, in addition to the above, the delivery of the object of the agreement, as in a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain formalities prescribed by law, such as in a donation of real property, is essential in order to make the act valid, the prescribed form being thereby an essential element thereof. The stage of consummation begins when the parties perform their respective undertakings under the contract culminating in the extinguishment thereof.

Policitacion Stage Policitacion or negotiation stage actually deals with legal matters arising prior to the perfection of sale, dealing with the concepts of invitation to make offer, offer, acceptance, right of first refusal, option contract, supply agreement, mutual promises to buy and sell or contracts to sell, and event agency to sell or agency to buy. Normally, negotiation is formally initiated by an offer, which, however, must be certain; and imperfect promise (policitacion) is merely an offer by an offeror to an offeree. Policitacion, or unaccepted unilateral promise to buy or to sell, prior to

acceptance, does not give rise to any obligation or right, and creates no privity between the purported seller (offeror) and buyer (offerees). These relations, until a contract is perfected, are not considered binding commitments; and at any time prior to the perfection of the contract, either negotiating party may stop the negotiation, and walk away from the situation, generally without adverse legal consequences. 1. Advertisements and Invitations The general rule for advertisements is that they are less than offers, and constitutes merely invitations to make an offer, or mere proposals; the direct acceptance of such advertisements thereof do not give rise to a valid and binding sale. The exception to this general rule is when “it appears otherwise,” in which case such advertisements would constitute offers, and if certain and accepted directly, would give rise to a valid and binding sale. The better view to the author is that even when the advertisement contains a certain offer, it remains legally a mere invitation so long as it is addressed to the public at large, and the exception comes whenever it expressly provides that the first absolute acceptance shall be binding, or when it is addressed to a particular offeree. 2. Offers An offer, prior to its acceptance, is subject to the complete will of the offeror, it may be withdrawn or destroyed by the offeror prior to its acceptance; and it is not even necessary that the oferee learns of the withdrawal. If the offer is given for a period, the expiration of the period without further act or its withdrawal prior to acceptance would destroy the offer. The offeror has the right to attach to an offer any term or condition he desires, and may fix the time, place and manner of acceptance; and the offeree has no authority to treat it as consisting of separate and distinct parts, since he must accept and comply with all the requirements provided in the offer. The offeree has the choice to indicate further negotiations by making a counter-offer, which would then replace and repeal the original offer. A counter-offer is always considered in law a rejection of the original offer, and has the effect of extinguishing the original offer. An offer which has not been accepted absolutely would thereby be extinguished and cannot be further accepted; whereas, the conditional acceptance will constitute a counter-offer which must be accepted absolutely in order to give rise to a valid sale. Finally, an offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either offeror or offeree before the acceptance is conveyed and received by the offerror. 3. Option Contract a. Determining the “Location” of 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. (n)”

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The exception would mean the opposite of what the previous phrase provides for, which should property mean: When the option is founded upon a proper consideration, then the offer may not be withdrawn at any time during the option period; it has essentially become a “contracted offer,” bounded by the principles of mutuality and obligatory force. b. Definition and Essence of Option Contract A privilege existing in one person, for which he had paid a consideration and which gives him the right to buy certain merchandise or certain specified property, from another person, if he chooses, at any time within the agreed period at a fixed price. ADELFA PROPERTIES V. CA

It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, that it is, the right or privilege to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is merely a contract by which the owner of property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms.

EQUATORIAL REALTY DEVELOPMENT V. MAYFAIR THEATER

As early as 1916, in the case of Beaumont vs. Prieto, unequivocal was our characterization of an option contract as one necessarily involving the choice granted to another for a distinct and separate consideration as to whether or not to purchase a determinate thing at a predetermined fixed price.

The rule so early established in this jurisdiction is that the deed of option or the option clause in a contract, in order to be valid and enforceable, must, among other things, indicate the definite price at which the person granting the option, is willing to sell.

An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by consideration.

CARCELLER V. CA

An option is a preparatory contract in which one party grants to the other, for a fixed period and under specified conditions, the power to decide, whether or not to enter into a principal contract. It binds the party who has given the option, not to enter into the principal contract with any other person during the period designated, and, within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. It is a separate agreement distinct from the contract which the parties may enter into upon the consummation of the option.

c. Characteristics and Obligations Constituted in an Option Contract; Compared with Sale

When compared to a sale, an option contract is an onerous contract like sale, for it must have a separate consideration from the purchase price, to be valid. An option without a separate consideration from the offered purchase price is void as a contract. Consideration in an option contract may be anything of value, unlike in sale where there must be the price certain in money or its equivalent, or essentially a “valuable consideration.” An option contract is also a consensual contract, since the meeting of the minds as to the subject matter and the price would also give rise to the option contract, even when the separate consideration for the option itself has not been paid. This is clear from the wordings of Article 1324 which describes the separate consideration of an option as “something paid or promised.” Although a separate consideration must exist for an option contract to be valid, unlike a sale, it is essentially a unilateral contract, since only the optioner is obliged under an option contract, even when the optionee has not paid the separate consideration. It is true that the optionee is obliged to pay a separate consideration for the option right, but his exercise of the option does not necessarily depend upon his ability to pay the separate consideration, since Article 1324 describes the separate consideration of an option as “something paid or promised.” More importantly, there can be a valid option contract even when no separate consideration is paid by the optionee, as in the case when the option is included within another valid contract, such as a lease or a mortgage. The most important distinction with sale, is that the subject matter of an option contract is actually not the subject matter of the sought sale, but rather the option to purchase such subject matter, essentially an intangible subject matter or a right. More pointedly, the subject matter of an option contract is the accepted promise to sell or accepted promise to buy. Consequently, unlike in a sale, the main issue on the subject matter of a valid option contract is whether the option or right secured is on an obligation “to do” (i.e., unaccepted promise “to sell” or unaccepted promise “to buy”), or an obligation “to give” (i.e., unaccepted obligation to transfer ownership and deliver possession of the subject matter). The distinction between an "option" and a contract of sale is that an option is an unaccepted offer. It states the terms and conditions on which the owner is willing to sell the land, if the holder elects to accept them within the time limited. If the holder does so elect, he must give notice to the other party, and the accepted offer thereupon becomes a valid and binding contract. If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and the option is at an end. A contract of sale, on the other hand, fixes definitely the relative rights and obligations of both parties at the time of its execution. The offer and the acceptance are concurrent, since the minds of the contracting parties meet in the terms of the agreement.

Although a valid option contract has for its subject matter an option in favor of the offeree, it is also constituted of the following obligations on the part of the offeror: (a) personal obligation not to offer to any third party the sale of the object of the option during the option period; (b) personal obligation not to withdraw the offer or option during option period; and

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(c) obligation to hold the subject matter for sale to the offeree in the event that offeree exercises his option during the option period. d. Elements of Valid Option Contract The elements of a valid option contract are therefore as follows: (a) Consent or the meeting of the minds upon: (b) Subject matter: an option right to an unaccepted unilateral offer to sell/accepted promise to sell, or unaccepted unilateral offer to buy/accepted promise to buy: (i) a determinate or determinable object; (ii) for a price certain, including the manner of payment thereof; (c) Prestation: a consideration separate and distinct from the purchase price for the option given e. Meaning of “Separate Consideration” Unlike a sale where the price refers to cash or its equivalent (“valuable consideration”), in an option contract the consideration may be anything or undertaking of value. The more controlling concept is the “separateness” of such consideration from the purchase price agreed upon. VILLAMOR V. CA

Consideration is "the why of the contracts, the essential reason which moves the contracting parties to enter into the contract." The cause or the impelling reason on the part of private respondent executing the deed of option as appearing in the deed itself is the petitioner's having agreed to buy the 300 square meter portion of private respondents' land at P70.00 per square meter "which was greatly higher than the actual reasonable prevailing price."

f. When Option Is Without Separate Consideration SANCHEZ V. RIGOS

"If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration.

"It can be taken for granted, as contended by the defendant, that the option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by letter, and of the acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both acts — the offer and the acceptance — could at all events have generated a contract, if none there was before (arts. 1254 and 1262 of the Civil Code)."

In other words, since there may be no valid contract without a cause or consideration, the promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale.

There is in fact practically no difference between a contract of option to purchase land and an offer or promise to sell it. In both cases the purchaser has the right to decide whether he will buy the land, and that right becomes a contract when it is exercised, or, what amounts to the same thing, when use is made of the option, or when the offer or promise to sell the property is accepted in conformity with the terms and conditions specified in such option, offer, or promise.

g. Acceptance of Offer to Create Option Necessary to Apply Sanchez Doctrine The Sanchez doctrine (i.e., that the option contract not supported by a separate consideration; is void as a contract, but valid as an offer), can only apply if the option has been accepted and such acceptance is communicated to the offeror. h. Option Not Deem Part of Renewal of Lease An option to purchase attached to a contract of lease when not exercised within the original period is extinguished and cannot be deemed to have been included in the implied renewal of the lease even under the principle of tacita reconduccion. i. Priod of Exercise of Option When the option contract does not contain a period when the option can be exercise, it cannot be presumed that the exercise thereof can be made indefinitely, and even render uncertain the status of the subject matter. Under Article 1144(1) of the Civil Code, actions upon written contract must be brought within ten (10) years, and thereafter, the right of option would prescribe. j. Proper Exercise of Option Notice of the exercise of the option need not be coupled with actual payment of the price, so long as this is delivered to the owner of the property upon performance of his part of the agreement. k. Effects of Exercise of Option The obligations under an option to buy are reciprocal obligations. The performance of one obligation is conditional on the simultaneous fulfilment of the other obligation. When there is an option contract, then the “timely, affirmatively and clearly acceptance of the offer,” would convert the option contract “into a bilateral promise to sell and to buy where both parties were then reciprocally bound to comply with their respective undertakings. ANG YU V. CA

Where a period is given to the offeree within which to accept the offer, the following rules generally govern:

(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdraw the offer before its acceptance, or, if an acceptance has been made, before the offeror's coming to know of such fact, by communicating that withdrawal to the offeree.

(2) The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under

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Article 19 of the Civil Code which ordains that "every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.”

(3) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a breach of that contract to withdraw the offer during the agreed period.

(4) The option, however, is an independent contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract ("object" of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the option.

(5) In these cases, care should be taken of the real nature of the consideration given, for if, in fact, it has been intended to be part of the consideration for the main contract with a right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar instance would be an "earnest money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).

The optionee has the right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. 3. Rights of First Refusal In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be brought within the purview of an option under the second paragraph of Article 1479 or possibly of an offer under Article 1319 of the same Code. An option or an offer would require, among other things, a clear certainty on both the object and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct.

If only a right of first refusal is constituted over a subject parcel of land, even if that right is supported by a separate consideration, its breach cannot justify correspondingly an issuance of a writ of execution under judgment recognizing the mere existence of such right of first refusal, nor would it sanction an action for specific performance without thereby negating the indispensable consensual element in the perfection of contracts. At most, it would authorize the grantee to sue for recovery of damages under Article 19 of the Civil Code on abuse of right. There need not be a separate consideration in a right of first refusal since such stipulation is part and parcel of the entire contract of lease to which it may be attached to; the consideration for the ease includes the consideration for the right of first refusal.

EQUATORIAL REALTY DEVELOPMENT V. MAYFAIR THEATER

Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there was nothing to execute because a contract over the right of first refusal belongs to a class of preparatory juridical relations governed not by the law on contracts but by the codal provisions on human relations. This may apply here if the contract is limited to the buying and selling of the real property. However, the obligation of Carmelo to first offer the property to Mayfair is embodied in a contract. It is Paragraph 8 on the right of first refusal which created the obligation. It should be enforced according to the law on contracts instead of the panoramic and indefinite rule on human relations. The latter remedy encourages multiplicity of suits. There is something to execute and that is for Carmelo to comply with its obligation to the property under the right of the first refusal according to the terms at which they should have been offered then to Mayfair, at the price when that offer should have been made. Also, Mayfair has to accept the offer. This juridical relation is not amorphous nor is it merely preparatory. Paragraphs 8 of the two leases can be executed according to their terms.

In essence, the Equatorial Realty ruling pins the enforceability of a right of first refusal on the obligatory force of the main contract of lease to which it is attached to, and thereby confirms the Ang Yu Asuncion doctrine that on its own, a right of first refusal clause or contract cannot be the subject of an action for specific performance because of lack of an agreement on the price. a. Limited Application of Equatorial Realty Ruling It is clear from the decision in Equatorial Realty that the ruling applies only to right of first refusal attached to a valid principal contract, like a contract of lease; that the ruling has no application, and that the Ang Yu ruling would still apply, to rights of first refusal constituted as separate contracts, which any way would be considered under the doctrines applicable to option contracts. The prevailing doctrine therefore is that a sale entered into in violation of a right of first refusal of another person found in a valid principal contract is rescissible. The basis of the right of first refusal must be the current offer of the seller to sell or the offer to purchase of a prospective buyer. Only after the lessee grantee fails to exercise its rights under the same terms and within the period contemplated can the owner validly offer to sell the property to a third person, again under the same terms as offered to the grantee. b. Various Rulings On Rights of First Refusal Contained in Lease Agreement (1) Rentals Deemed to Be Considered to Support Right (2) Sublesse May Not Take Advantage of Right of First Refusal of Sublessor A right of first refusal granted in the contract of lease in favor of the lessee cannot be availed of by the sublessee because such sublessee is a stranger to the lessor who is bound to respect the right of first refusal in favor of the lessee only; and had the contract of lessee granted the right to assign the lease, then the assignee would be entitled to exercise such right as he steps into the shoes of the assignor-lessee.

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(3) Right Does Not Extend with the Extension of Lease A provision entitling the lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract because it is alien to the possession of the lessee, The right to exercise the option to purchase expired with the termination of the original contract of lease. 4. Proposed Doctrine on Option Contract vis-à-vis Right of First Refusal Rulings a. Alternative Doctrine of Enforceability of Rights of First Refusal The “Agreement on Right of First Refusal,” would be a binding contract between the promissory and the promise, when supported by a separate consideration, like much in the case of a valid option contract under Article 1319 and 1479 of the Civil Code, and a “mutual promise to negotiate a possible contract of sale over a determinate subject matter” would be akin to the mutual promise to buy and sell under said Article 1479. The obligation is not to enter into a sale but rather to negotiate in good faith for the possibility of entering into a sale; and when the promissory has in fact negotiated in good faith, but the parties’ minds could not meet on the price and the terms of payment, then promissory has complied with his obligation. However, since the underlying obligation in a “right of first refusal contract” is a personal obligation to do, its breach can never be remedied by an action for specific performance, because of the underlying public policy against involuntary servitude. The “right of first refusal contract” being valid and binding, the remedy for specific performance is unavailable by reason of the nature of the underlying obligation, but that the remedy of rescission for breach of contract would be available which would allow recovery of damages under the Contract Law, rather than the difficult cause of action for recovery of damages based on “abuse of right” under Article 19 of the Civil Code on Human Relations. b. Enforceability of Option Rights Should Be at Par With, If Not at a Higher Level Than, Rights of First Refusal An option is a preparatory contract in which one party grants to another, for a fixed period and at a determined price, the privilege to buy or sell, or to decide whether or not to enter into a principal contract. In a right of first refusal, on the other hand, while the object might be made determinate, the exercise of the right would be dependent not only on the grantor’s eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that are yet to be firmed up.

Consequently, the ‘offer’ may be withdrawn anytime by communicating the withdrawal to the other party. If an option, constituted of determinate subject matter, certain price, with separate consideration, can be withdrawn within the option period to remove any hope of an action to enforce a sale, then more so can the offeror withdraw a right of first refusal and destroy any chance of there ever coming into being a sale upon which an action for specific performance could be achieved.

The better rule would be that in case an option is supported by a separate consideration, the optionee shall have the right to exercise the option or accept the offer at anytime during the option period and the same would give rise to a valid and binding contract of sale. In the same manner, if separate consideration has been received by the optioner for the grant of the option, he cannot withdraw the offer during the option period, and any attempts to so withdraw the offer during the option period shall be void. 5. Mutual Promise to Buy and Sell ANG YU ASUNCION V. CA

An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted.

VILLAMOR V. CA

The acceptance of an offer to sell for a price certain created a bilateral contract to sell and buy and upon acceptance, the offer, ipso facto assumes obligations of a vendee. Demandability may be exercised at any time after the execution of the deed.

Perfection Stage: Offer and Acceptance A contract of sale is “born” from the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price and the manner of its payment. This meeting of the minds speaks of the intent of the parties entering into the contract respecting the subject matter and the consideration thereof. A sale is at once perfected when a person (the seller) obligates himself for a price certain, to deliver and to transfer ownership of a specified thing or right to another (the buyer) over which the latter agrees. Consent may be vitiated by any of the following: mistake, violence, intimidation, undue influence and fraud, but they do not make the contract void ab initio but only voidable, and the contract is binding upon the parties unless annulled by proper court action, which when obtained would restore the parties to the status quo ante insofar as legally and equitably possible. Until a sale is perfected, it cannot be an independent source of obligation, nor serve as a binding juridical relation. In sales particularly, the contract is perfected when the seller obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to the buyer, over which the latter agrees and obligated himself to pay the price. 1. Consent that Perfects a Sale “Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. x x x”

The offer must be certain and the acceptance absolute – it must be plain, unequivocal, unconditional and without variance of any sort from the proposal; A qualified acceptance

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constitutes a counter-offer which must in turn be absolutely accepted to give rise to a valid and binding contract 2. Offer Must Be “Certain” In the Law on Sales, what makes an offer “certain” is when it is floated by the offeror having within its terms the description of the subject matter that has all three requisites of “possible thing,” licit, and determinate or at least determinable; and with a price that has the requisites of being real, money or its equivalent (i.e., constitute valuable consideration), and must be certain or at least ascertainable, including on the terms of payment thereof. In other words, an offer is “certain” only where there is an offer to sell or an offer to buy a subject matter and for a price having all the seven essential requisites mandated by law for subject matter and price. The absence of even just one of the essential requisites pertaining to either subject matter or price in terms of the offer, makes such offer “not certain,” and cannot give rise to a valid sale, even when such offer is absolutely accepted by the offeree. 3. Acceptance Must Be “Absolute” In order for an acceptance to have the effect of converting an offer to sell into a perfected contract, it must be plain and unconditional, and it will not be so, if it involves any new proposition, for in that case, it will not be in conformity with the offer, which is what gives rise to the birth of the contract. It is true that an acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance. ‘So long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not, a contract is formed.’ a. When “Deviation” Allowed The Court held that there was a perfected sale that arose from the exchange of correspondences, even if literally, there was a correction or modification contained in the acceptance, the changes were not substantial, but merely clarificatory. Such is corroborated also by the fact, that upon receipt of the check covering the earnest money, Bormacheco had encashed the same. b. Acceptance May Be Expressed or Implied Acceptance may be evidenced by some act, or conduct, communicated to the offeror, either in a formal or an informal manner, that clearly manifest the intention or determination to accept the offer to buy or sell. c. Acceptance by Letter or Telegram Acceptance made by letter or telegram does not bind the offeror except from the time it came to his knowledge. Therefore, even if an acceptance has been mailed or sent to the offeror, the offeror may still withdraw his offer anytime before he has knowledge of the acceptance. d. Acceptance Subject to Suspensive Condition Even when there is a meeting of minds as to the subject matter and price, there is deemed to be no perfected sale, if the sale is subject to suspensive condition.

To the author, the more appropriate doctrine should be that when a sale is made subject to a suspensive condition, there is already a contract upon the meeting of the minds, since the principles of mutuality and obligatory force come into play, but because the condition has not happened, the contract itself and the underlying obligations are not yet demandable; and in case of non-happening of the condition, then the contract is extinguished as though the contract has never been entered into, as the consequence of the retroactive effect of the non-happening of a suspensive condition. e. Acceptance in Auction Sales A sale by auction s perfected when the auctioneer announces its perfection by the fall of the hammer, or in other customary manner. Until such announcement is made, any bidder may retract his bid, and the auctioneer may withdraw the goods from the sale, unless the auction has been announced to be without reserve. A right to bid may be reserved expressly by or on behalf of the seller. Where notice has not been given that the sale by auction is subject to a right to bid on behalf of the seller, it shall be unlawful for the seller to bid himself or to employ or induce any person to bid at such sale on his behalf. Also, it shall be unlawful for the auctioneer to employ or induce any person to bid at such sale on his behalf or the seller, or knowingly to take any bid from the seller or any person employed by him. The owner of the property sold at auction may provide the terms under which the auction will proceed and the same are binding upon all bidders, whether they knew of such conditions or not. 4. Earnest Money a. Function of Earnest Money When the sale is subject to a condition, the acceptance of the earnest money would prove that the sale is conditionally consummated or partly executed subject to the fulfilment of the condition, the non-fulfillment of which would be a negative resolutory condition. b. Varying Treatments of Earnest Money When the amount is given only as a guarantee that the buyer would not back out of the sale, then what was given is not earnest money as defined under Article 1482 of the Civil Code, especially when at the time the amount is given, the final terms of the purchase had not been agreed upon. The same is also true when earnest money is given under the terms of a contract to sell, in which case the provisions of Article 1482 would also be inapplicable. c. Distinguishing Earnest Money and Option Money There are clear distinctions between earnest money and option money, viz.: (a) earnest money is part of the purchase price, while option money ids the money given as a distinct consideration for an option contract;

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(b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy. d. Effect of Rescission on Earnest Money Received In the absence of a specific stipulation, the seller of real estate cannot keep the earnest money received to answer for the damages sustained in the event the sale falls due to the fault of the prospective buyer. “Art. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. x x x”

5. Place of Perfection Generally, the sale’s place of perfection is where there is a meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. In case of acceptance through letter or telegram, it is presumed that the contract was entered into in the place where the offer was made. 6. Expenses of Execution and Registration In general, the expenses for the execution and registration of the sale shall be borne by the seller, unless there is a stipulation to the contrary. In the case of goods, unless otherwise agreed, the expenses of, and incidental to, putting the goods into a deliverable state must be borne by the seller. The duty to withhold taxes due on the sale is imposed on the seller. 7. Performance Should Not Affect Perfection Since sale is a consensual contract, then the ability of the parties to perform the contract (after perfection) does not affect the perfection of the contract, which occurs when the minds of the parties have met as to the subject matter, price and terms of payment. Devoid of any stipulation that “ownership in the thing shall not pass to the purchaser until he has fully paid the price,” ownership in the thing shall pass from the vendor to the vendee upon actual or constructive delivery of the thing sold even if the purchase price has not yet been fully paid. The failure of the buyer to make good the price does not, in law, cause the ownership to revest to the seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Article 1191 of the New Civil Code. Non-payment only creates a right to demand the fulfillment of the obligation or to rescind the contract.

Form of Sales 1. Form Not Generally Important for Validity of Sale Article 1483 stresses that sale being a consensual contract, no form is really required for its validity.

a. Requirement for Public Instrument for Immovables under Article 1358 “Art. 1358. The following must appear in a public document: (1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed by Articles 1403, No. 2, and 1405; x x x All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by Articles, 1403, No. 2 and 1405. (1280a)”

The provisions thereof on the necessity of public document are for purposes of convenience, not for validity or enforceability. The parties may avail themselves of the right and remedy to compel the other party to observe such form, and such remedy may be exercised simultaneously with the action upon the contract. LIMKETKAI SONS MILLING V. CA

The fact that the deed of sale still had to be signed and notarized does not mean that no contract had already been perfected. A sale of land is valid regardless of the form it may have been entered into. The requisite form under Article 1458 of the Civil Code is merely for greater efficacy or convenience and the failure to comply therewith does not affect the validity and binding effect of the act between the parties. If the law requires a document or other special form, as in the sale of real property, the contracting parties may compel each other to observe that form, once the contract has been perfected. Their right may be exercised simultaneously with action upon the contract.

B. Function of Deed of Sale The deed of sale operates as a formal or symbolic delivery of the property sold and authorizes the buyer to use the document as proof of ownership. The ability to cover all forms of sale, whether the subject matter is tangible or intangible, makes the execution of a public document one of the highest form of constructive delivery in the Law on Sales. To make it a public document, a deed of sale must be properly subscribed and acknowledged before a notary public; and when so acknowledged, a deed of sale enjoys the presumption of regularity and due execution. 2. When Form of Sale Affects Its Validity The general rule is that form is not important for the validity of a sale, except in the following instances: “Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. (n) “Art. 1581. The form of sale of large cattle shall be governed by special laws. (n) “Section 145 of the Revised Administrative Code of Mindanao and Sulu provides that any transaction involving real property with said non-Christian tribes shall bear the approval of the provincial governor wherein the same was executed or of his representative duly authorized in writing for such purpose, indorsed upon it. Section 146 of the same code considers every contract or agreement made in violation of Section 145 as null and void.”

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3. Statute of Frauds: When Form Is Important For Enforceability a. Nature and Purpose of Statute of Frauds The term “Statute of Frauds” is descriptive of statutes which require certain classes of contracts, such as agreements for the sale of real property, to be in writing. It does not deprive the parties the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable. The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged. The written note or memorandum, as contemplated by Article 1403 of the Civil Code, should embody the essentials of the contract.

The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence upon the unassisted memory of witnesses. b. Sales Coverage in Statute of Frauds “Art. 1403. The following contracts are unenforceable, unless they are ratified: x x x (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: (a) An agreement that by its terms is not to be performed within a year from the making thereof; x x x (d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; (e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein; x x x”

c. Exceptions to Coverage of Statute in Sales Contracts (a) When there is a note or memorandum thereof in writing, and subscribed by the party charged or his agent; (b) When there has been partial consummation of the sale; (c) When there has been a failure to object to the presentation of evidence aliunde as to the existence of a contract; and (d) When sales are effected through electronic commerce. d. Nature of Memorandum

The Statute would no longer apply as long as the total price or consideration is mentioned in some note or memorandum and there is no need of any indication of the manner in which such total price is to be paid. The Statute of Frauds read together with the perfection requirements of Article 1475 of the Civil Code must be understood and applied in the sense that the idea of payment on installments must be in the requisite of a note or memorandum therein contemplated.

e. Partial Performance Partial performance of the sale would take the same outside the coverage of the Statute of Frauds. When it comes to sale of goods, chattels, or things in action, Article 1403 of the Civil Code specifically states that the Statute of Frauds shall not apply when “the buyer accepts and receives a part of such goods and chattels, or the evidence, or some of them, of such things in action, or pay at the time some part of the purchase money.” f. Effect of Partial Execution on Third Parties The doctrine of partial execution when covering sale of real properties cannot be applied to third parties, who are granted legal remedies against the contract. A contract of sale of realty cannot be proven by means of witnesses, but must necessarily be evidenced by a written instrument, duly subscribed by the party charged, or by his agent, or by secondary evidence of the contents of such document. No other evidence referred to, in so far as regards such contracts, and these are valueless as evidence unless they are drawn up in writing in the manner aforesaid.

FULE V. CA

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.

Partial performance to constitute as an exception to the Statute of Frauds must by itself pertain to the subject matter or to the price of the purported sale, and must involve an act or “complicity” on the party sought to be changed. These requisites are essential because partial performance must amount to estoppels against the party sought to be charged. This is in accordance with the provision of Article 1405 which states that contracts covered by the Statute of Frauds “are ratified by the acceptance of benefits under them.” h. Waiver of Provisions of Statute of Frauds The third ground by which a covered sale contract would be enforceable in spite of the fact that it is not contained in a deed, or a note or memorandum, is when the party against whom such oral contract is sought to be proved, fails to object during trial to the presentation of oral evidence to prove the contract. This is embodied in Article 1405 of the Civil Code. i. Value of Business Forms to Prove Sale 4. Sale Effected as Electronic Commerce a. Legal Recognition of Electronic Data Message

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b. Legal Recognition of Electronic Documents c. Legal Recognition of Electronic Signatures d. Presumption Relating to Electronic Signatures e. Consummation of Electronic Transactions f. Electronic Commerce in Carriage of Goods g. Rule on Transport Documents 5. Forms in Equitable Mortgage Claims Equitable mortgages occupy such hallowed position in Philippine Jurisprudence such that Rosales v. Suba, held that an equitable mortgage is not different from a real estate mortgage, and the lien created thereby ought not to be defeated by requiring compliance with the formalities necessary to the validity of a voluntary real estate mortgage. 6. Forms in “Sales on Return or Approval” The provision in the Uniform Sales Act and the Uniform Commercial Code from which Article 1502 was taken, clearly requires an express written agreement to make a sales contract either a "sale or return" or a "sale on approval". Parol or extrinsic testimony could not be admitted for the purpose of showing that an invoice or bill of sale that was complete in every aspect and purporting to embody a sale without condition or restriction constituted a contract of sale or return. If the purchaser desired to incorporate a stipulation securing to him the right of return, he should have done so at the time the contract was made. On the other hand, the buyer cannot accept part and reject the rest of the goods since this falls outside the normal intent of the parties in the "on approval" situation.

7. Right of First Refusal Must Be Contained in Written Contract When the right of first refusal is not stipulated in the lease contract, it cannot be exercised, and verbal grants of such right cannot be enforceable since the right of first refusal must be clearly embodied in a written contract. The ruling therefore constituted in effect an addition to the contracts covered by the Statute of Frauds. When Sale Completely Simulated When a sale is absolutely simulated, then it is completely void and non-existent. LOYOLA V. CA

Simulation is "the declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purposes of deception, the appearances of a juridical act which does not exist or is different what that which was really executed." Characteristic of simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties. Perusal of the questioned deed will show that the sale of the property would convert the co-owners to vendors and vendees, a clear alteration of the juridical relationships. This is contrary to the requisite of simulation that the apparent contract was not really meant to produce any legal effect. Also in a simulated contract, the parties have no intention to be bound by the contract. But in this case, the parties clearly intended to be bound by the contract of sale, an intention they did not deny.

The requisites for simulation are:

(a) an outward declaration of will different from the will of the parties;

(b) the false appearance must have been intended by mutual agreement; and

(c) the purpose is to deceive third persons. None of these are present in the assailed transaction.

When a sale is void, the right to set up its nullity or non-existence is available to third persons whose interests are directly affected thereby; and the action for the declaration of the contract’s nullity is imprescriptible. Likewise, the remedy of accion pauiana is available when the subject matter is a conveyance, otherwise valid, undertaken in frauds of creditors.

________ Other provisions: Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. (n)

________ Art. 1480. Any injury to or benefit from the thing sold, after the contract has been perfected, from the moment of the perfection of the contract to the time of delivery, shall be governed by Articles 1163 to 1165, and 1262. This rule shall apply to the sale of fungible things, made independently and for a single price, or without consideration of their weight, number, or measure. Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall not be imputed to the vendee until they have been weighed, counted, or measured and delivered, unless the latter has incurred in delay. (1452a)

________ Art. 1481. In the contract of sale of goods by description or by sample, the contract may be rescinded if the bulk of the goods delivered do not correspond with the description or the sample, and if the contract be by sample as well as description, it is not sufficient that the bulk of goods correspond with the sample if they do not also correspond with the description. The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample. (n)

________ Art. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

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(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. (1454-A-a)

________ Art. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing. (1454-A-a)

________ Art. 1486. In the case referred to in two preceding articles, a stipulation that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances. (n)

________ Art. 1487. The expenses for the execution and registration of the sale shall be borne by the vendor, unless there is a stipulation to the contrary. (1455a)

________ Art. 1488. The expropriation of property for public use is governed by special laws. (1456)

________ Art. 1493. If at the time the contract of sale is perfected, the thing which is the object of the contract has been entirely lost, the contract shall be without any effect. But if the thing should have been lost in part only, the vendee may choose between withdrawing from the contract and demanding the remaining part, paying its price in proportion to the total sum agreed upon. (1460a)

________ Art. 1494. Where the parties purport a sale of specific goods, and the goods without the knowledge of the seller have perished in part or have wholly or in a material part so deteriorated in quality as to be substantially changed in character, the buyer may at his option treat the sale: (1) As avoided; or (2) As valid in all of the existing goods or in so much thereof as have not deteriorated, and as binding the buyer to pay the agreed price for the goods in which the ownership will pass, if the sale was divisible. (n)

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