NOTES ON CONTRACT OF SALE

CONTRACT OF SALE

Definition of Contract of Sale

 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.

Essential Elements of Contract of Sale

1. Consent to transfer ownership in exchange for the price; and
2. Determinate subject matter; and
3. Price certain in money or its equivalent.

Characteristics of Contract of Sale

a. Consensual – perfected by mere consent of the parties as to the object and as to the price.
o Parties cannot unilaterally withdraw from the contract.
b. Reciprocal – both parties have the obligation to fulfill.
c. Onerous – price is the consideration for the delivery and transfer of ownership of the thing
sold.

First Element: CONSENT (Agreement to transfer ownership)

Delivery as the Mode of Acquiring Ownership

 The thing sold shall be understood as delivered when it is placed in the control and
possession of the vendee.

Kinds of Delivery
1. Actual – means actual physical transfer of control and possession to the vendee.
o A stipulation designating the place and manner of delivery is controlling on the
contracting parties.

2. Constructive – includes:
a. Execution of public instrument (applies to corporeal and incorporeal property).
b. Traditio longa manu – delivery by mere consent.
c. Traditio brevi manu – the buyer is already in possession is some other capacity.
d. Traditio symbolica – vendor delivers the symbol of possession of the movables.
e. Traditio constitum possessorium – vendor remains in possession is some other
capacity for the vendee.
f. Negotiation of a negotiable document title – for instance, bill of lading represents
title to and possession of the property covered by the document.

How Delivery of Incorporeal Property be Made if Execution of Public Instrument is Not Applicable
1. Place the title of ownership in the possession of the vendee; or
2. Use by the vendee of his rights, with the vendor’s consent (also known as Quasi – Traditio).

When Execution of Public Instrument Ineffective Delivery

1. Parties intended no delivery despite such execution; or
2. Vendor has no control over the thing.

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Double Sale
 Same thing had been delivered to different vendees.

Rules on Double Sale (Who has the preferred right?)

1. Movables
a. First possessor in good faith.

2. Immovables
a. First registration in good faith
b. First possession in good faith
c. Oldest title (acquisition)

Note: The above rules do not apply in contract to sell.

Contract of Sale, not a Formal Contract

 A contract of sale may be made in writing, or by word or by mouth, or partly in writing and
partly by word of mouth or may be inferred from the conduct of the parties.
 Except: Statute of Frauds
o Public or private instrument – if the term of the sale is to be performed not within a
year.
o Public instrument – if the sale involves real property.
o Private or public instrument – in sale of goods exceeding P 500.
 Except:
o Sale of cattle must be always in writing otherwise, void.
o In a sale of piece of land, the power to sell (not the sale itself) must be in writing,
otherwise the sale is void.

Kinds of Contract of Sale

1. Absolute vs. Conditional
a. Conditional – with conditions (e.g., payment of full price)
b. Absolute – no condition.

2. Sale or return
o Buyer is given an option to return the goods instead of paying the price, the
ownership passes to the vendee upon delivery, but he may revest the ownership in
the seller by returning or tendering the goods within the time fixed in the contract
or if no time has been fixed, within a reasonable time.

3. Sale on approval
o Ownership passes to the buyer:
 When he signifies his approval or acceptance to the seller or does any other
act adopting the transaction; or
 If he does not signify his approval or acceptance to the seller but retains the
goods without giving notice of rejection within the stipulated time, or if no
time has been fixed, on the expiration of a reasonable time.

Contract of Sale, Distinguished from Other Contracts

1. Contract to Sell

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a. In Contract to Sell, the transfer of ownership is subject to s suspensive condition

which is usually full payment of the purchase price. The happening or non-
happening of the suspensive condition prevents the contract from obtaining
obligatory force.
b. Rescission is not applicable in the Contract to Sell in case of nonpayment of the price
because ownership is not transferred. In Contract of Sale, rescission is a remedy in
case of nonpayment of the price.

2. Agency to Sell
a. In an Agency to Sell, the agent does not become the owner of the thing delivered;
the agent does not pay the price but is bound to remit whatever he may receive
from a third person who is the buyer.

3. Contract for a Piece of Work

a. The test is to determine 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.
b. On the other hand, there is sale if the thing transferred would have existed and has
been the subject of sale for some other person even if the order had not been given.

4. Option Contract
a. This is a contract whereby the prospective buyer for a consideration distinct from
the price is given the right to purchase the thing to be sold.
b. It is a preparatory contract that is not binding unless it is supported by a
consideration that is separate from the price.
c. The buyer is not duty bound to purchase the thing to be sold.
d. Even if there is no separate consideration, there is a perfected contract of sale if the
other is accepted before the offer is withdrawn.

5. Right of First Refusal

a. This agreement gives the first priority to the person to whom the right is given
(prospective buyer) to purchase the property should the owner decide to sell the
same; the owner should offer the property first to such person.

5.1 Right of First Refusal in Lease Contract

o When a lease contract contains a right of first refusal, the lessor has the legal duty to
the lessee not to sell the lease property to anyone at any price until after the lessor
has made an offer to sell the property to the lessee and the lessee has failed to
accept it.
o The lessee, or the person who is given the right of first refusal in a contract of lease
can file an action to compel the lessor to allow him to purchase the property. The
execution of such right consists in directing the grantor to comply with his obligation
according to the terms at which he should have offered the property in favor of the
grantee and at that price when the offer should have been made. If the same
property is sold to a buyer in bad faith, the sale violates the right of first refusal and
may be rescinded.

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 NOTES ON CONTRACT OF SALE

Second Element: OBJECT

Object of Contract of Sale

1. Determinate thing (specific thing)
2. Something that is determinable
o A thing is determinable if it is capable of being made determinate without necessity
of new or further agreement between the parties (e.g., generic thing)
3. Things of potential existence
o The efficacy of sale of a mere hope or expectancy is deemed subject to the condition
that the thing will come into existence.
4. Future goods
o Includes goods to be manufactured, raised, or acquired by the seller after perfection
of the contract.
5. Fungible goods
6. Things subject to resolutory condition
7. Subject to contingency
o Acquisition by the seller depends upon a contingency which or which may not
happen.

Voidable Title
 Where the seller of goods has a voidable title thereto, but his title has not been avoided at
the time of the sale, the buyer acquires a good title to the goods, provided he buys the in
good faith, for value, and without notice of the seller’s defect or title.

Object Must be Licit

 The object must be licit, otherwise the sale is void.
 The vendor has a right to transfer the ownership thereof at the time it is delivered. Thus,
future inheritance cannot be the object of sale.

Loss of Object at Perfection

1. Total loss – contract shall be without any effect.
2. Partial loss – 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.

Third Element: Price

Meaning of Price
 It is the sum that will be paid for the property that is sold.

Option Money vs. Earnest Money

o Option Money is not part of the price because it is a consideration in a separate
contract of option.
o Earnest Money is part of the purchase price. Hence, there is already a perfected and
binding contract of sale if earnest money is paid.

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 NOTES ON CONTRACT OF SALE

Price Must Be Certain, When

1. It is a fixed amount; or
2. It is certain with reference to another thing certain; or
3. That the determination thereof is left to the judgement of a special person or persons.

Rules when Power to Fix the Price is Given to Third Person

1. Should such person or persons be unable or unwilling to fix the price, the contract shall be
inefficacious, unless the parties subsequently agree upon the price.
2. If the third person or persons acted in bad faith or by mistake, the courts may fix the price.
3. 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 to the seller or the buyer, as the case maybe.

Price Cannot be Left to the Discretion of One of the Parties

 Price cannot 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.

Effect if Price Cannot be Fixed

 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.

Effect if Manner of Payment is not Agreed Upon

 There is no perfected contract.

Gross Inadequacy of the Price

 It does not affect the validity of a contract of sale. Such inadequacy may indicate either (1) a
defect in the consent, or (2) that the parties really intended a donation or some other act or
contract.
 If the price is not merely inadequate but is in fact simulated, the sale is void, but the act may
be shown to have been in reality a donation, or some other act or contract.

The Parties in a Contract of Sale

Who Can Be a Parties in the Contract of Sale?

 All persons who are authorized in the New Civil Code to obligate themselves may enter into
a contract of sale.

Incapacity of the Minors

 Where necessaries are those sold and delivered to a minor or other person without the
capacity to act, he must pay a reasonable price therefor.
 Necessaries are those that are indispensable for sustenance, dwelling, clothing, and medical
attendance, according to the social position of the family.

Sale Between Spouses

 Husband and wife cannot sell property to each other, otherwise the sale is void. This
prohibition applies to common law spouses.
 Exceptions:
o When there is a separation of property that was agreed in the marriage settlements;
or

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 NOTES ON CONTRACT OF SALE

o When there is a judicial separation of property.

Relative Incapacity to Buy

 See Art. 1491 for the complete list.
 Effect: Sale is void except is sale by an agent with the consent of the principle which is valud
under Art. 1491 (2).

References:
1. Reviewer in Civil Law, 2018 Edition, Aquino Timoteo B.
2. New Civil Code of the Philippines

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