CHAPTER 1: Introduction

DEFINITION OF A SALE ARTICLE 1458. By the contract of sale, one of the contracting parties obligates himself to transfer ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent. A contract of sale may be absolute or conditional Sale is merely title, it is delivery that is the operative act or mode that transfers ownership to the buyer Sale brings about two obligations For the seller: To transfer ownership and to deliver possession of the subject matter For the buyer: To pay the price The obligations contained are real obligations Both can be subject to specific performance Subject matter Determinate objects Includes generic objects which are at least determinable ARTICLE 1460. A thing is determinate when it is particularly designated or physically segregated from all others 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 A thing need only be determinate at the time of consummation, i.e. of delivery Issues of risk of loss do not apply to determinable subject matter , since generic subject matters are not susceptible of being lost [Yu Tek & Co. v. Gonzales] The buyer does not assume the risk of loss of a generic subject matter under a valid contract of sale until the object is made determinate, either by physical segregation or particular designation [Elements of Contract of Sale/Coronel v Court of Appeals] a) Consent or meeting of the minds 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, then a perfected contract of sale arises When an essential element is absent is to declare a no contract situation. [Dizon v. Court of Appeals] The absence of any of the essential requisites negates the existence of a perfected contract of sale rather than the technical term void On the other hand, when all three elements are present, but there is defect or illegality constituting any element, the resulting contract is either voidable or void under 1409 Stages in the Life of Sale Negotiation Covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected Perfection Concurrence of the essential elements of the sale Consummation Parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof. Contract to Sell [Coronel v Court of Appeals/Gomez v. Court of Appeals] A contract of sale may either be absolute or conditional. One form of conditional sale is what is now popularly termed as a contract to sell [CHARACTERISTICS OF SALE] Nominate and Principal It has been given a particular name by law Sale is a principal contract as contrasted from an accessory contract Consensual Perfected by mere consent at the moment there is a meeting of the minds [Quijada v. Court of Appeals] Sale being a consensual contract is perfected by mere consent, which is manifested the moment there is a meeting of the minds as to the offer and acceptance thereof. Ownership by seller of the thing sold at the time of perfection is not an element to its perfection. What the law requires is that the seller has the right to transfer ownership. [Fule v. Court of Appeals] 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. Bilateral and Reciprocal It imposes obligations on both parties to the relationship Neither party incurs in delay if the other party does not comply, or is not ready to comply in a proper manner, with what is incumbent upon him The power to rescind is implied Onerous It imposes valuable consideration as a prestation, which is a price certain in money or its equivalent [Gaite v. Fonacier] In interpreting the provisions of a contract of sale, the Court would incline the scales in favor of the greater reciprocity of interests since sale is essentially onerous. Commutative A thing of value is exchanged for equal value Each party anticipates performance by the other from the very start. The test for compliance is not objective but rather subjective. Inadequacy of price does not affect ordinary sale. Sale is Title and Not Mode Sale gives rise to the obligation to transfer ownership and deliver possession, but it is delivery or tradition that would legally be the mode to transfer ownership and possession to the buyer. Mode: Legal means by which dominion or ownership is created, transferred, or destroyed Title: Only constitutes the legal basis ny which to affect dominion or ownership. [Acap v. Court of Appeals] Ownerhip and real rights are acquired only pursuant to a legal mode or process. [SALE DISTINGUISHED FROM OTHER CONTRACTS] The title given to a contract by the parties is not as much significant as its substance I. From Donation An act of liberality whereby a person disposes gratuitously a thing or right in favor of another person, who accepts it DONATION SALE Gratuitous Onerous Consensual Solemn ARTICLE 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 When the value of the burden placed upon the donee is more than the value of the thing given, it becomes an onerous donation and really governed by the Law on Sales. II. From Barter By the contract of barter or exchange, one of the parties binds himself to give one thing in consideration of the others promise to give another thing Rules to Determine Manifest Intention of the parties When intention does not appear and Consideration Consists Partly in Money and Partly in Another Thing: Barter where the value of the thing given exceeds the amount of money given It is a sale where the value of the thing given equals or is less than the money given When is knowing the difference critical Statute of Frauds does not apply to barter Right of legal redemption covers only resale and not exchanges of properties III. From Contract for Piece-of-Work By the contract for a piece of work, the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation; the contractor may either employ only his labor or skill, or also furnish the material [Inchausti & Co. v. Cromwell] The test is whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and

been the subject of sale to some other person, even if the order had not been given. Article 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. [Celestino Co v. Collector of Internal Revenue] The essence of a contract for a piece of work is the sale of service unlike in a contract of sale where the essence is the sale of an object. The test of special orders under Article 1467 is not one of timing, or habit, but actually must be drawn from the nature of the work to be performed [Engineering & Machinery Corp v. Court of Appeals] It is a contract for a piece-of-work and not a sale, since it is not within the line of business to manufacture air-conditioning systems to be sold off-the-shelf. The need for knowing the distinction: A contract for a piece-of-work is not subject to specific performance A contract for a piece-of-work shall still be governed by pertinent provisions of warranty of title and against hidden defects and the payment of price in a contract of sale. IV. From Agency to Sell By 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. Sale Agency to Sell Essentially revocable Is not unilaterally revocable Buyer obligated to pay price Agent merely obligated to deliver price Buyer becomes owner Agent does not became owner The seller warrants Agent assumes no personal liability Seller receives profit Agent disqualified from receiving profit Article 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. [Quiroga v. Parsons] Merely because by their contract, the parties designated the arrangement as an agency did not mean the characterization to be conclusive, but it must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties. [Victorias Milling Co. v. Court of Appeals] One of the factors that most clearly distinguishes agency from other legal concepts, including sale, is control. Value of knowing the distinction Applicability of the Statute of Frauds Sale must comply, agency need not The agreement does not necessarily constitute a separate contract, but only an arrangement by which an existing obligation may be extinguished. V. From Dacion En Pago Property is alienated to the creditor in satisfaction of a debt in money, it constitutes the delivery and transmission of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. By express provision of law, dation in payment is governed by the Law on Sales (1245) Dation in Oayment novates the relationship into a sale which is already at the executed stage of its life. [PNB v. Pineda] Dation in payment requires delivery and transmission of ownership of a thing owned by the debtor to the creditor as an accepted equivalent of the performance of an obligation. VI. 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. Lease with Option to Buy is actually a conditional sale and are deemed leases in name only [Filinvest Credit Corporation v. Court of Appeals] When a lease clearly shows that the rentals are meant to be installment payments to a sale contract despite the nomenclature given by the parties, it is a sale by installments. : Parties to a contract of sale ARTICLE 1489. All persons who are authorized in this Code to obligate themselves, may enter into a contract of sale, saving the modifications contained in the following articles. Where necessaries are sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefore, Necessaries are those referred to in Article 290. For natural persons, capacity begins at the age of majority Juridical persons possess a juridical personality separate and distinct from that of the shareholders, partners or members. ARTICLE 1327. The following cannot give consent to a contract: 1) Unemancipated minors 2) Insane or demented persons, and deaf-mutes who do not know how to write. Contracts entered into by incapacitated entities are voidable Contracts entered into during a lucid interval are valid Contracts entered into in a state of drunkenness, or during a hypnotic spell, are voidable. An incapacitated person is not obligated to restitute except insofar as he has been benefitted. Necessaries: Everything indispensable for sustenance, dwelling, clothing, medical attendance, education and transportation, in keeping with the financial capacity of the family Sale of necessaries to minors and other incapacitated persons are valid provided: The contract of sale is perfected Delivery of the subject necessities [SALES BY AND BETWEEN SPOUSES] ARTICLE 73 FAMILY CODE. Either spouse may exercise any legitimate profession, occupation, business or activity without the consent of the other. The latter may object only on valid, serious, and moral grounds. In case of disagreement, the court shall decide whether or not: 1) The objection is proper 2) Benefit has accrued to the family prior to the objection or thereafter. If the benefit accrued prior to the objection, the resulting obligation shall be enforced against the separate property of the spouse who has not obtained consent. The foregoing provisions shall not prejudice the rights of creditors who acted in good faith. Under the Law on Sales, a spouse may, without the consent of the other spouse, enter into sales transactions in the regular or normal pursuit of their profession, vocation, or trade. ARTICLE 96 FAMILY CODE. The administration and enjoyment of the community property shall belong to both spouses jointly. In case of disagreement, the husband decision shall prevail, subject to recourse to the Court by the wife for a 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 common properties, the other spouse may assume sole powers of administration. These powers do not include the powers of administration. These powers do not include powers of disposition or encumberance without the authority of the court or the written consent of the other spouse. In the absent of such authority or consent, the disposition or encumberance 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. ARTICLE 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

CHAPTER 2

2) When there has been a judicial separation of property under Article 191 ARTICLE 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises, and renunciations. The sales violating 1490 and 1492 are null and void The right to assail the validity is not given to everybody Spouses are in pari delicto Heirs who became prejudiced may assail Prior creditors may assail The State may assail when it comes to the payment of the proper taxes due on the transactions. [Medina v. Collector of Internal Revenue] A spouse cannot sell to another for the following reasons: 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; and c) To avoid an indirect violation of the prohibition against donations under Article 133 of the Civil Code [Matabuena v. Cervantes] There is every reason to apply the same prohibitive policy ro persons living together as husband and wife without the benefit of nuptials. [SPECIFIC INCAPACITY MANDATED BY LAW] ARTICLE 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 intrusted to them, unless the consent of the principal have been given 3) Executors and administrators, the property of the estate under administration 4) Public officers and employees, the property of the State or of any subdivision thereof, or of any government owned or controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever take part in the sale 5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which they may take part by virtue of their profession 6) Any others specially disqualified by law All acts done contrary to statute are void Must be asserted by the person having the necessary legal capacity and decreed by a competent court [Rubias v. Batiller] Contracts whose cause, object, or purpose is contrary to laws, morals, good customs, public order or public policy or those which are expressly prohibited or declared void by law are inexistent and void from the beginning. Fundamental considerations of public policy render void and inexistent such expressly prohibited purchase. These contracts cannot be ratified, neither can the right to set up the defense of illegality be waived. A different form of ratification is available for numbers 1 to3 In the form of a new contract, however, the second contract would be valid from its execution, it does not retroact to the date of the first contract. These are private wrongs Numbers 4 and 5 cannot be ratified These are public wrongs Proper party to raise issue of nullity Any person may invoke the inexistence of the contract whenever juridical effects found thereon are asserted against him Fraud or lesion irrelevant for nullity Brokers are not included within the prohibition Agents are not parties in interest, they do not have standing to maintain an action for specific performance Court approval does not validate the sale [Philippine Trust Co. v. Roldan] Remembering the general doctrine that guardianship is a trust of the highest order, and the trustee cannot be allowed to have any inducement to neglect his wards interest and in line with

the courts suspicion whenever the guardian acquires the wards property Sale through even through an intermediary, even when court approved is void. The coverage does not include hereditary rights because these pertain immediately to the heirs upon death of the decedent and do not form part of the estate under the administration of the administrator or executor of the estate [Macariola v. Asuncion] The doctrine of prohibition applies during the period of litigation and covers not only lawyers, but judges as well. [Daroy v. Abecia] The prohibition in Article 1491 does not apply to the sale of a parcel of land, acquired by a client to satisfy a judgment in his favor, to his attorney as long as the property was not the subject of the litigation. [Director of Lands v. Ababa] Contingent fee arrangements are recognized under Canon 13 of the Canons of Professional Ethics. But a contingent fee contract is always subject to the supervision of the courts with respect to the stipulated amount and may be reduced or nullified. Article 1491 does not apply because the transfer or assignment takes effect only after the finality of a favorable judgment. [Fabillo v. Intermediate Appelate Court] Contingent fee agreements are valid because the transfer or assignment occurs after litigation. The Code of Professional Ethics validly recognizes a contingent fee agreement. 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 This is in line with the public policy of allowing pauper litigants.

CHAPTER 3: Subject Matter

A valid and binding contract of sale would result from the meeting of the minds of the seller and the buyer on the subject matter ONLY when the subject matter shall have the following requsites AT TIME OF PERFECTION It must be existing, having potential existence, a future thing, or even contingent, or even subject to a resolutory condition, in other words, it must be a possible subject matter It must be licit, and It must be determinate or at least determinable. ARTICLE 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered. ARTICLE 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. ARTICLE 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. ARTICLE 1465. Things subject to a resolutory condition may be the object of the contract of sale. Lack of any of the requisites means no contract of sale results or that there is an inexistent contract Consequently, neither party may seek for specific performance, nor can any party be held liable for breach of contract In innocent party may still recover in certain cases: When the nullity of the contract proceeds from the illegality of the cause or object of the contract, and the act constitutes s criminal offensethe innocent one may claim what he has given, and shall not be bound to comply with his promise (1411) When the act does not constitute a criminal offense and when only one of the contracting parties is at fault, the one not at fault may demand the return of what he has given without any obligation to comply with his promise (1412) When the contract is not illegal per se but is merely prohibited, and the prohibition by law is designated for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered. (1416) Things having a potential existence may be the object of a

contract of sale The meaning of existence The meaning is best embodied in the terms possible things as contrasted from impossible things Emptio Rei Speratae Embodied in Article 1461 A contract covering future things, and subject to a suspensive condition that the subject matter will come into existence. It DOES NOT cover sales involving generic determinable subject matters since The contract is deemed extinguished as soon as the time expires or if it has become indubitable that the event will not take place (1184) [Sibal v. Valdez] Pending crops which have potential existence may be the valid subject matter of sale and may be dealt with separately from the land on which they grow. [Pichel v. Alonzo] The sale of the coconut fruits involves a subject matter distinct from the land itself and is a valid sale under 1461 [Mananzala v. Court of Appeals] The sale of a lot by a seller who is yet to acquire full ownership from the government agency is a valid sale since it involves the sale of a future thing. Emptio Spei A sale of hope To be valid, it must comply with the last paragraph of 1461: It must not be a vain hope or expectancy Sales subject to a resolutory condition, if the resolutory condition extinguishes the obligation, what happens to the things? When the condition have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said condition, shall return to each of them what they may have received (1190) In determining the extent of restitution The effect of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed mutually compensated. The thing 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. (1347) When the subject matter is illicit, the resulting contract is void according to 1409 (1) Illicit sales: Sale of animals suffering from contagious diseases shall be void (1575) A contract of sale of animals shall also be void if the use or service for which they are acquired has been stated in the contract, and they are found to be unfit therefor. (1575) Sale of future inheritance is also void (1347) NOTE: Waiver of right Sale or transfer of right ARTICLE 1460. A thing is determinate when it is particularly designated or physically segregated from all others 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. [Melliza v. City of Iloilo] The requirement that a thing be determinate or determinable is deemed fulfilled under the contract of sale because it referred to the Arellano Plan. The plan had long been in existence. Therefore, at the time of the execution of the contract, the exact area of the land needed, could be determined by simply referring to the Arellano Plan. [Atilano v. Atilano] When one seeks to sell or buy real property, one sells 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. Quantity of subject matter Identity or the nature and quality of the subject matter are what are essential for the purpose of perfection of contract of sale. Quantity is not relevant so long as the parties know more or less the exact nature of the object which will become the subject without need of further agreement. [National Grains Authority v. Intermediate Appellate Court] The agreement upon a definite quota renders the subject determinable because the quantity may be determined without need of a subsequent agreement between the parties. [Johannes Schuback & Sons Phil. Trading Corp. v. Court of Appeals] The time of perfection was during the meeting of minds as to the object and cause and during the time where the quantity to be purchased was sent to the buyer. (Defective ruling, did not show that the quantity could be determined without need of a new contract 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. The courts have the power to set the appropriate quality of the subject matter of a sale When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the buyer cannot demand a thing of superior quality. Neither can the seller deliver a thing of inferior quality (1246) When the quantity is not determinable It is void under 1409(6): The intention of the parties relative to the principal object of the contract cannot be ascertained. ARTICLE 1463. The sole owner of a thing may sell an undivided interest therein, and there would result co-ownership over the subject matter. ARTICLE 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 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, 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. It is not necessary that the seller be the owner during the perfectio, However, He must be the owner at the time of delivery, otherwise he may be held liable for breach of warranty against eviction. [Nool v. Court of Appeals] Sale made by one who is not the owner of the subject matter, is void, and consequently, the right to repurchase the property would also be void. This is based on Article 1409 (5) Those which contemplate an impossible service.(Defective ruling: Sale is not a service. The Courts could have just considered the petitioner in breach of contract since the obligations could not be performed. [Noel v. Court of Appeals] Nemo dat qoud non habet. A seller cannot dispose of that which does not belong to him. (Referred to the executory stage of the contract) Exception where seller must be the owner at time of sale In the case of a judicial sale [Cavite Development Bank v. Spouses Cyrus Lim] A mortgagor or pledgor must be the absolute owner of the thing mortgaged, in anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan. ARTICLE 1434. Where 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. There are special laws that declare certain sales contracts as illegal and therefore void. Narcotics; Wild birds or mammals; rare wild plants; poisonous plants or fruits; dynamited fish; gunpowder and explosives; firearms and ammunitions; sale of realty by non-Christians; sale of friar land without consent of the Secretary of Agriculture [Quijada v. Court of Appeals] Objects referred to as outside the commerce of man are those which cannot be appropriated, such as the open seas and the heavenly bodies. When a sale is absolutely simulated, then it is completely void and non-existent. [Rosario v. Court of Appeals] When parties enter into a contract of sale without intent to be legally bound, such sale is void and is not susceptible to ratification. [Santiago v. Court of Appeals] Failure of the parties to take exclusive possession of the property sold to them and in the contrary pay rentals to the supposed vendor are badges of simulation. [Villaflor v. Court of Appeals] When the delivery of certificate of ownership and execution of the contract of sale are suspensive conditions which gave rise to the corresponding obligation to pay the last installments, such conditions did not affect the perfection or prove simulation. [Loyola v. Court of Appeals] Simulation: The declaration of a fictitious will, deliberately made by the agreement of the parties, on order to produce, for the purposes of deception, the appearances of a juridical act which does not exist or is different with that which was really executed. Motive may nullify a sale on several instances [Olegario v. Court of Appeals]

When an illegal motive predetermined the purpose of the contract, the resulting sale is void, i.e. sale of a parcel of land to frustrate a persons right to inheritance and to avoid payment of realty tax [Uy v. Court of Appeals] When motive predetermines the cause, the motive may be regarded as the cause.

CHAPTER 4: Price
Consideration, more properly denominated as cause, can take different forms Prestation, or promise of a thing or service by another [Polyetchnic University of the Philippines v. Court of Appeals] The concept of a contract of sale uner Article 1458 is 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. Price: 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 Price cannot be unilaterally increased by any of the parties since this would be a violation of the obligatory force of contracts Requisites for a valid price It must be real ARTICLE 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. It must be in money or its equivalent (1458 and 1468) It must be certain or ascertainable at the time of the perfection of the contract (1458) A Price must be real There is every intention on the part of the buyer to pay the price, and every expectation on the part of the seller to receive the price When is price simulated When there is NO price, the sale is void for lack of cause or consideration When 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. The in pari delicto only applies when the nullity of the contract arises from the illegality of the consideration [Suntay v. Court of Appeals] The most protuberant index of simulation is when there is a complete absence of an attempt in any manner on the part of the buyer to assert his rights of ownership over the land and rice mill in question. When is price false A price is false when what is stated or declared in the sale is not the one intended to be paid. 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 (1379) [Spouses Doromal v. Court of Appeals] The parties may be held bound by the false price indicated in the instrument especially when the interest of the Government or third parties would be adversely affected by the reformation of the instrument. [Mapalo v. Mapalo] Although the deed indicates a price of P500, the price was never delivered to the sellers. There was no real consideration; therefore, the contract is one with no consideration and not one that merely states a false consideration. [Ong v. Ong] Although the consideration is not stated, it is presumed that it exists under Article 1354 of the Civil Code. Although there is a false or nominal consideration in the deed, it would not affect the validity of the sale provided that it can be proved that there was valuable consideration ARTICLE 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. [Bagnas v. Bagnas] If there is a false and fictitious consideration, and that evidence is adduced that there was no real intention to pay any valuable consideration, the sale is not merely voidable but void ab initio. [Arimas v. Arimas] The consideration is generally considered as a whole even if it consists of several parts, and even if it is contained in one or more instruments. Effect of non-payment

It does not invalidate the perfected contract. Non-payment is in the consummation not in the perfection stage. Non-payment of the price is a cause either for specific performance or rescission Accomodation (similar to an accommodation party in the Negotiable Instruments Law) does not make a sale void for lack of price Simulation of Price affects delivery of subject matter When a contract of sale is fictitious, no title may be passed Delivery pursuant to a void sale contract for lack of consideration does not transfer ownership to the buyer Price must be in money or its equivalent [Bagnas v. Court of Appeals] Article 1458 requires that equivalent be something representative of money. ARTICLE 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. The price may consist partly in money and partly in another thing At the very least, a true contract of sale must have price (money or its equivalent) as part of its consideration [Torres v. Court of Appeals] Expectation of profits may be valid consideration. [Polytechnic University of the Philippines v. Court of Appeals] Cancellation of liabilities of the seller may constitute valid consideration for a sale [Yu Bun Guan v. Ong] Where the consideration is a mere subterfuge in the part of the buyer, the agreement cannot be taken as a consideration of the sale and is void. Price must be certain or ascertainable at perfection A price is certain once it has been expressed and agreed in terms of specific pesos and/or centavos ARTICLE 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. ARTICLE 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. ARTICLE 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. ARTICLE 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 ARTICLE 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. [Barreto v. Santa Marina] When all that is left is to have a third party fix the price, there is a perfected contract of sale even before the determination of the price. Such contract is a contract subject to a suspensive condition If the designated third party fixes the price in bad faith or by mistake, the courts may fix the price Designation of a third party is allowed only with respect to the price and never with respect to the subject matter [Lawyers Cooperative v. Tabora[ Price which is subject of the obligation of the buyer is essentially generic and generally cannot be

extinguished by fortuitous event. When the price cannot be determined, the sale is inefficacious, the condition has not occurred. When is there sale even when the price is not agreed upon When the thing or any part thereof has been delivered to and appropriated by the buyer. (1474) The rule does not apply to contracts which are void from the time of perfection (price is neither certain nor ascertainable) Preceding articles in 1474 refers to 1469-1473 Inefficacious: Inability to produce the effect wanted Includes valid conditional contracts of sale [Robles v. Lizarraga Hermanos] 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 to the contrary. Where goods used by the buyer who knows the sellers price for such goods is liable for that price, and not for the reasonable value of the goods. The doctrine is based on the principle of unjust enrichment The doctrine applies even when there is a no contract situation because of no meeting of the minds as to the price but there is a meeting of the minds as to the subject matter. Appropriation: 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 For the recovery of the price to prosper, the following elements must be present: Meeting of the minds of the parties as to the subject matter Agreement that price would be paid which fails to meet the criteria of being certain or ascertainable; and There was delivery by the seller and appropriation by the buyer of the subject matter of the sale The manner of the payment of the price must be agreed upon Terms of payment, being an integral part of the price, would have the same requisites that the law imposes on price Terms of payment do not have to be expressly agreed when the law supplies by default such term. [Navarro v. Sugar Producers Corp.] When the manner of payment was discussed after acceptance, then such acceptance did not produce a binding and enforceable contract of sale [Velasco v. Court of Appeals] A definite agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and enforceable contract of sale. [Leabres v. Court of Appeals] A mere receipt of a sum without any indication of the total purchase piece or the monthly installments to be paid cannot be the basis of a valid sale. Unless the parties show that there is still a need to come to terms on the payment of the price, price is deemed to be demandable at once. ARTICLE 1179. Every obligation, whose performance does not depend upon a future or uncertain event, is demandable at once. [Development Bank of the Philippines v. Court of Appeals] Where there is no other basis for the payment of a subsequent amortization, the reasonable conclusion one can reach is that the subsequent payments shall be made in the same amount as the first payment. [Toyota Shaw, Inc. v. Court of Appeals] A mere acknowledgement of a downpayment, but did not indicate the total purchase price nor the manner by which the balance shall be paid is not a contract of sale. The downpayment made no specific reference to a sale or vehicle. [Coronel v. Court of Appeals] A receipt of downpayment indicating the balance of the purchase price, with specific obligation to transfer the title upon full payment of the balance is sufficient to prove a contract of sale. [Limson v. Court of Appeals] When there is nothing in the receipt to indicate that earnest money was part of the purchase price, nor a showing that there was a perfected contract of sale, nor any indication that the buyer was bound to pay the balance, there was no sale. Receiving part of the purchase price takes the contract outside the Statute of Frauds [Lagon v. Hooven Comalco Industries, Inc.]

These documents (receipts) are not mere scraps of paper bereft of probative value but vital pieces of evidence of commercial transactions. ARTICLE 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. [Alarcon v. Kasilag] The hardness of the bargain or the inadequacy of the price is not sufficient ground for the cancellation of a contract otherwise free from invalidating defects. Inadequacy of price is relevant only in cases of judicial sale of real property [Pascua v. Simeon] The inadequacy must be such as to be shocking to the conscience of man. [Cu Bie v. Court of Appeals] There must be showing that in the event of a resale, a better price can be obtained. [Vda.de Gordon v. Court of Appeals] A judicial sale will not be set aside by the court when there is a right of redemption, since the more inadequate the winning bid, the more easy it is for the owner to redeem the property. Inadequacy of price is a ground for rescission under Article 1381 (a) and (b) In a sale with a right to repurchase, the gross inadequacy of price raises a presumption of equitable mortgage. The remedy is not to rescind the contract of sale, but to have it reformed as a contract of mortgage.

CHAPTER 5: Formation of Contract of Sale

Stages in the life of sale Negotiation or policitacion stage Perfection or birth Consummation or death The preparatory stage is negotiation or policitacion Offers; Acceptances; Rights of First Refusal; and Option Contracts At this stage there is freedom of contract: the right to choose with whom to contract [Gabelo v, Court of Appeals] An owner is free to offer the subject property for sale to any interested person and is not duty bound to sell the same to the occupant thereof, absent any prior agreement vesting the occupants the right of first priority to buy. A offer prior to acceptance is subject to the complete will of the offeror. The offeror has the right to attach to a offer any condition or term and may fix the time, place and manner of acceptance. Offeree has no authority to treat it as consisting of separate and distinct parts, since he must comply with all the requirements provided in the offer. A counter-offer is always considered a rejection of the original offer. An offer given with a condition or period is deemed extinguished by the happening of the period, resolutory condition, or when it becomes certain that the suspensive condition will not occur Offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance. (1323) ARTICLE 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. ARTICLE 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. Article 1479 posits two types of accepted offers, contracts to sell and option contracts. Requisites of a valid option contract Consent/meeting of the minds The Subject Matter: Option right to sell a determinate object for a price certain including the manner of payment thereof Prestation: A consideration separate and distinct from the purchase price for the option given [Enrique de la Cavada v. Diaz] An option contract is a privilege existing in one person for which he has 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, Inc. v. Court of Appeals] An option is a continuing offer or contract. It is not itself a purchase, but merely secures the privilege to buy; it is not a sale of property, but a sale of the right to purchase. [Equatorial Realty Development Inc., v. Mayfair Theater Inc.]

A valid option, in order to be valid and enforceable must, among other things, indicate the definite price at which the person granting an option, is willing to sell. [Carceller v. Court of Appeals] It binds the party who has given the option, not to enter into the principal contract with any other person during the period designated. It is a preparatory contract. [Ang Yu Asuncion v. Court of Appeals] Once the option is exercised timely, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. Meaning of separate consideration Unlike in a contract of sale, in an option contract the consideration may be anything or undertaking of value. The discrepancy between the price of the land and the market value thereof may be sufficient consideration to support an option contract (Villamor v. Court of Appeals) Lease may be a distinct and separate consideration which can support an option contract (Vda. De Quirino v. Palarca; Carceller v. Court of Appeals; Nietes v. Court of Appeals) A mortgage may be a distinct valid consideration sufficient to support an option contract (Soriano v. Bautista) [Sanchez v. Rigos] An option contract without a separate consideration is void as a contract but would still constitute a valid offer. [Yao Ka Sin Trading v. Court of Appeals] An option contract without a separate consideration is void and is not binding upon the parties even when accepted. (Contrary to Sanchez ruling) [Vasquez v. Court of Appeals] An option contract becomes binding only upon acceptance by the offeree and such acceptance is communicated to the offeror. [Villamor v. Court of Appeals] Where the option contract does not contain a period when the option can be exercised, it must be deemed to be for 10 years because of Article 1144(1), actions upon written contract must be brought within ten years. [Nietes v. Court of Appeals] The offeree may validly and effectively exercise his right by merely advising the debtor of the decision to buy and expressing his readiness to pay the stipulated price. [Carceller v. Court of Appeals] A delay, which is neither substantial nor fundamental, will not defeat the intention of the parties. Nevertheless, a valid or at least substantial exercise of the option must be made within the option period. [Heirs of Luis Bacus v, Court of Appeals] An offeree, after exercise of his option, is not yet obliged to make actual payment. Only upon the offerors actual execution and delivery of the deed of sale will the offeree be required to pay. [Dizon v. Court of Appeals] Implied renewal of the contract of lease does not carry with it the renewal of the option contract attached to the lease. [Ang Yu Asuncion v. Court of Appeals] The following are the summary rules when a period is granted to the offeree: a. If the period is not founded upon a separate consideration, it is still a valid offer and may be exercised before withdrawal b. The right to withdraw must not be exercised whimsically or arbitrarily; otherwise damages could be claimed under Article 19 c. In cases of an option founded upon a separate consideration, the offer cannot be withdrawn during the period without incurring in a breach of contract. d. When the offer is withdrawn despite there being a valid option contract, the offeror is liable for damages. This cannot be subject to specific performance since the option contract itself has not reached the perfected stage e. Care should be taken of the real nature of the consideration given. Rights of first refusal A promise on the part of the owner that if he decides to sell the property, he would sell it to the promisee. It is a personal obligation on the part of the promisor. (Guerrerro v. Yigo) Does not allow for specific performance, at most it would authorize the grantee to sue for recovery of damages [Equatorial Realty Development Inc. v. Mayfair Theater Inc.] A 30 day exclusive option which does not provide for a price certain nor the terms of payment, actually grant a right for first refusal. Where the right of first refusal is violated, the resulting

contract is rescissible. [So Po Ek Marketing Corp. v. Martinez] The right of first refusal must be clearly embodied in a written contract. [Paraaque Kings Enterprises, Inc. v. Court of Appeals] In order to have full compliance with the right of first refusal, the price finally sold to a third party should have likewise been first offered to the party entitled to the option. A sublessee may not take advantage of the right of first refusal of the sublessor. OPTION CONTRACTS RIGHTS OF FIRST REFUSAL Not subject to specific performance Not subject to specific performance Separate consideration No separate consideration Complete offer (contains the price, terms, manner of payment, etc.) A mere promise to sell should the owner decide to sell Mutual promises to buy and sell (Contract to Sell) First paragraph of Article 1479 Perfection: Offer and acceptance Vitiated consent does not invalidate a contract but merely makes it voidable ARTICLE 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. ARTICLE 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. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made. An offer must be CERTAIN and acceptance must be ABSOLUTE Advertisements are definite offers, but mere invitations to make an offer. ARTICLE 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. When the advertisement specifies a determinate subject matter, the price and terms of payment, as to be equivalent to an offer certain, then it constitutes an offer covered by the phrase, unless it appears otherwise [Zayco v. Serra] Acceptance must be plain and unconditional, and it will not be so if it involves any new proposition. [Beaumont v. Prieto] Promises are binding so long as they are accepted in the exact terms in which they are made, and that it would not be legally proper to modify the conditions imposed by the offeror without his consent. [Yuvienco v. Dacuycuy] The use of the term to negotiate in the letter indicates that there was no acceptance of the offer made. [Limketkai Sons Milling Inc. v. Court of Appeals] Inquiry if it would be possible to pay in credit terms does not change the fact that there was a perfected contract of sale. 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. [Limketkai Motion for Reconsideration] The acceptance was qualified. There was actually no contract of sale. There are certain instances when deviation may be allowed. [Villonco v. Bormaheco] Immaterial deviations or amendments are allowed and do not affect the perfection of a contract of sale. Acceptance may be express or implied. [Gomez v. Court of Appeals]

Acceptance on the part of the buyer was manifested through a plethora of acts, such as payment of the purchase price, declaration of the property for taxation purposes, and payment of real estate taxes thereon, and similar acts showing buyers assent to the contract. Acceptance by letter or telegram does not bind the offeror except from the time it came to his knowledge. If the sale is subject to a suspensive condition, there is deemed to be no perfected contract of sale even if there is a meeting of the minds as to the subject matter and price. Perfection takes place from the moment the condition is fulfilled ARTICLE 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. [Leoquinco v. Postal Savings Bank] The owner of the property sold 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. ARTICLE 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. [Villonco v. Bormaheco] The acceptance of the earnest money would prove that the sale is conditionally consummated or partly executed subject to the fulfillment of the condition. [Philippine National Bank v. Huang] Receipt of Earnest money does not actually mean there is a contract of sale. It may be shown to be a contract to sell. In this case, the initial deposit is not strictly earnest money but as part of the consideration to sellers promise to reserve the subject property for the buyer [San Miguel Properties Philippines v. Huang] It is not the giving of earnest money, but the proof of concurrence of all the essential elements of the contract of sale which establishes the existence of a perfected sale. There is nothing that prevents the parties from treating earnest money differently from 1482 [Spouses Doromal, Sr. v. Court of Appeals] Earnest money was considered as received under the old Civil Code concept as a guarantee that the buyer would not back out, and that if they should do so they would forfeit the amount paid. EARNEST MONEY OPTION MONEY Part of the purchase price Distinct consideration There is already a sale Applies to a sale not yet perfected Buyer is bound to pay the balance Buyer is not required to buy [Goldenrod, Inc. v. Court of Appeals] Seller cannot keep earnest money received to answer for the damages sustained in the event the sale fails due to the fault of the prospective buyer. Amounts received as part of the downpayment and to be credited to the payment of the total purchase price could not be forfeited when the buyer should fail to pay the balance of the price, especially in the absence of a clear and express agreement thereon. When the seller seeks to rescind the contract, the obligation to return the things which

were the object of the contract together with the fruits and interest. Place of perfection is where the meeting of the offer and acceptance of the thing occurred In case of acceptance through letter or telegram, place of perfection is where the offer was made. ARTICLE 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. ARTICLE 1521. Whether it is for the buyer to take possession of the goods or of the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties. Apart from any such contract, express or implied, or usage of trade to the contrary, the place of delivery is the seller's place of business if he has one, and if not his residence; but in case of a contract of sale of specific goods, which to the knowledge of the parties when the contract or the sale was made were in some other place, then that place is the place of delivery. Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time. Where the goods at the time of sale are in the possession of a third person, the seller has not fulfilled his obligation to deliver to the buyer unless and until such third person acknowledges to the buyer that he holds the goods on the buyer's behalf. Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a reasonable hour is a question of fact. Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must be borne by the seller [Equatorial Realty v. Mayfair Theater] The duty to withhold taxes due on the sale is imposed on the seller. Non-performance does not affect the perfection of the contract of the sale. [Dignos v. Court of Appeals] When the seller is no longer the owner of the land sold at the time of the sale, the contract is void. ARTICLE 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. ARTICLE 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; 2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains; 3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person; 4) The cession of actions or rights proceeding from an act appearing in a public document. 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. [Dalion v. Court of Appeals] The provisions on the necessity of public document are for purposes of convenience, not for validity or enforceability. A 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 [Santos v. Santos] Nowhere in the Civil Code does it provide that execution of a deed of sale is a conclusive presumption of delivery of possession. [Dalumpines v. Court of Appeals] An unsigned Contract of Sale though acknowledged by the notary is not entitled to full faith and credit. [Gomez v. Court of Appeals] There exists a binding contract between the parties whose minds have met on a certain matter notwithstanding that they did not affix their signatures to its written form. (Contrary to the ruling in Dalumpines) [Nazareno v. Court of Appeals]

The fact that a deed of sale was notarized is not a guarantee of the validity of its contents. The form of sale affects validity in certain cases: ARTICLE 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. ARTICLE 1581. The form of sale of large cattle shall be governed by special laws. Sale of land my non-muslim hill tribe cultural minorities all throught the Philippines is void if not approved by the National Commission of Indigenous Peoples. Receipt by the supposed agent of part of the purchase price does not validate the void sale. ARTICLE 1403. The following contracts are unenforceable, unless they are ratified: 1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers; 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; b) A special promise to answer for the debt, default, or miscarriage of another; c) An agreement made in consideration of marriage, other than a mutual promise to marry; 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; f) A representation as to the credit of a third person. 3) Those where both parties are incapable of giving consent to a contract. Exceptions to the coverage of the Statute of Frauds When there is a note or memorandum thereof in writing, and subscribed by the party charged or his agent (1403) When there has been partial consummation of the contract of sale (1403) Waiver: When there has been a failure to object to the presentation of evidence aliunde as to the existence of a contract without being in writing and which is covered by the Statute of Frauds. (Barretto v. Manila Railroad Co.) When sales are effected through electronic commerce (ECommerce Act) A sufficient note or memorandum May be contained in more than one instrument (Berg v. Magdalena Estate) The memorandum must contain all the essential terms of the contract of sale (Paredes v. Espino) The manner by which the total price to be paid by the buyer has to be found in the note or memorandum (Yuvienco v. Dacuycuy) [David v. Tiongson] In the case of sale by installments, even though the installment price is not provided for in the written memorandum, partial performance will take it out of the Statute of Frauds. [Secuya v. Vda. De Selina] A sale of land is not binding on third persons if it is not embodied in a public instrument and recorded in the Registry of Deeds. ARTICLE 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefit under them. [Baretto v. Manila Railroad Co.] Delivery of the deed with no intent to part with title until the purchase price is paid, does not constitute partial performance. Partial Execution cannot be applied to third parties, who are granted legal remedies against the contract. [Claudel v. Court of Appeals] In the event a third party disputes the ownership of the property, the person against whom that

claim is brought cannot present any proof of such sale and hence, has no means to enforce the contract. [Ortega v. Leonardo] It is not only partial payment of the purchase price that is the only manner of partial performance to take the contract out of the coverage of the Statute of Frauds. It recognized other modes which constitute partial performance, such as possession, the making of improvements, rendition of services, payment of taxes, relinquishment of rights, etc. [Limketkai Sons Milling Inc. v. Court of Appeals] Cross-examination on the contract is deemed a waiver of the defense of the Statute of Frauds. [Donato C. Cruz Trading Corp. v. Court of Appeals] Business forms which are issued by the seller in the ordinary course of the business are not always fully accomplished to contain all the necessary information describing in detail the whole business transaction. At the very least they serve as an acknowledgement that a business transaction has in fact transpired. The probative weight of such documents are evaluated not in isolation but in conunction with the other evidence adduced. Sale effected as Electronic Commerce SECTION 6. Legal Recognition of Data Messages. - Information shall not be denied legal effect, validity or enforceability solely on the grounds that it is in the data message purporting to give rise to such legal effect, or that it is merely referred to in that electronic data message. Electronic Document: refers to information or the representation of information, data, figures, symbols or other modes of written expression, described or however represented, by which a right is established or an obligation extinguished, or by which a fact may be proved and affirmed, which is received, recorded, transmitted, stored, processed, retrieved or produced electronically. Electronic Signature: refers to any distinctive mark, characteristic and/or sound in electronic form, representing the identity of a person and attached to or logically associated with the electronic data message or electronic document or any methodology or procedures employed or adopted by a person and executed or adopted by such person with the intention of authenticating or approving an electronic data message or electronic document. SECTION 7. Legal Recognition of Electronic Documents. Electronic documents shall have the legal effect, validity or enforceability as any other document or legal writing, and a) Where the law requires a document to be in writing, that requirement is met by an electronic document if the said electronic document maintains its integrity and reliability and can be authenticated so as to be usable for subsequent reference, in that i. The electronic document has remained complete and unaltered, apart from the addition of any endorsement and any authorized change, or any change which arises in the normal course of communication, storage and display; and ii. The electronic document is reliable in the light of the purpose for which it was generated and in the light of all the relevant circumstances. b) Paragraph (a) applies whether the requirement therein is in the form of an obligation or whether the law simply provides consequences for the document not being presented or retained in its original form. c) Where the law requires that a document be presented or retained in its original form, that requirement is met by an electronic document if i. There exists a reliable assurance as to the integrity of the document from the time when it was first generated in its final form; and ii. That document is capable of being displayed to the person to whom it is to be presented: Provided, That no provision of this Act shall apply to vary any and all requirements of existing laws on formalities required in the execution of documents for their validity. d) For evidentiary purposes, an electronic document shall be the functional equivalent of a written document under existing laws. e) This Act does not modify any statutory rule relating to the admissibility of electronic data messages or electronic documents, except the rules relating to authentication and best evidence. SECTION 12. Admissibility and Evidential Weight of Electronic Data Message and Electronic Documents. - In any legal proceedings, nothing in the application of the rules on evidence shall deny the admissibility of an electronic data message or electronic document in evidence a) On the sole ground that it is in electronic form; or b) On the ground that it is not in the standard written form and electronic data message or electronic document meeting, and complying with the requirements under Sections 6 or 7 hereof

shall be the best evidence of the agreement and transaction contained therein. In assessing the evidential weight of an electronic data message or electronic document, the reliability of the manner in which it was generated, stored or communicated, the reliability of the manner in which its originator was identified, and other relevant factors shall be given due regard. SECTION 16. Formation and Validity of Electronic Contracts. - (1) Except as otherwise agreed by the parties, an offer, the acceptance of an offer and such other elements required under existing laws for the formation of contracts may be expressed in, demonstrated and proved by means of electronic data message or electronic documents and no contract shall be denied validity or enforceability on the sole ground that it is in the form of an electronic data message or electronic document, or that any or all of the elements required under existing laws for the formation of the contracts is expressed, demonstrated and proved by means of electronic documents. (2) Electronic transactions made through networking among banks, or linkages thereof with other entities or networks, and vice versa, shall be deemed consummated upon the actual dispensing of cash or the debit of one account and the corresponding credit to another, whether such transaction is initiated by the depositor or by an authorized collecting party: Provided, that the obligation of one bank, entity, or person similarly situated to another arising therefrom shall be considered absolute and shall not be subjected to the process of preference of credits. SECTION 8. Legal Recognition of Electronic Signatures. - An electronic signature on the electronic document shall be equivalent to the signature of a person on a written document if that signature is proved by showing that a prescribed procedure, not alterable by the parties interested in the electronic document, existed under which a) A method is used to identify the party sought to be bound and to indicate said partys access to the electronic document necessary for his consent or approval through the electronic signature; b) Said method is reliable and appropriate for the purpose for which the electronic document was generated or communicated, in the light of all the circumstances, including any relevant agreement; c) It is necessary for the party sought to be bound, in order to proceed further with the transaction, to have executed or provided the electronic signature; and d) The other party is authorized and enabled to verify the electronic signature and to make the decision to proceed with the transaction authenticated by the same. SECTION 9. Presumption Relating to Electronic Signatures. - In any proceedings involving an electronic signature, it shall be presumed that a) The electronic signature is the signature of the person to whom it correlates; and b) The electronic signature was affixed by that person with the intention of signing or approving the electronic document unless the person relying on the electronically signed electronic document knows or has notice of defects in or unreliability of the signature or reliance on the electronic signature is not reasonable under the circumstances. SECTION 25. Actions Related to Contracts of Carriage of Goods. - Without derogating from the provisions of part two of this law, this chapter applies to any action in connection with, or in pursuance of, a contract of carriage of goods, including but not limited to: a) Furnishing the marks, number, quantity or weight of goods; stating or declaring the nature or value of goods; issuing a receipt for goods; confirming that goods have been loaded; b) Notifying a person of terms and conditions of the contract; giving instructions to a carrier; c) Claiming delivery of goods; authorizing release of goods; giving notice of loss of, or damage to, goods; d) Giving any other notice or statement in connection with the performance of the contract; e) Undertaking to deliver goods to a named person or a person f) Granting, acquiring, renouncing, surrendering, transferring or negotiating rights in goods; g) Acquiring or transferring rights and obligations under the contract SECTION 26. Transport Documents. - Where the law requires that any action referred to contract of carriage of goods be carried out in writing or by using a paper document, that requirement is met if the action is carried out by using one or more data messages or electronic documents. Paragraph (1) applies whether the requirement therein is in the form of an obligation or whether the law simply provides consequences for failing either to carry out the action in writing or to use a paper document. If a right is to be granted to, or an obligation is to be acquired by, one person and no other person, and if the law requires that, in order to effect this, the right or obligation must be conveyed to that person by the transfer, or use of, a paper document, that requirement is met if the right or

obligation is conveyed by using one or more electronic data messages or electronic documents unique; For the purposes of paragraph (3), the standard of reliability required shall be assessed in the light of the purpose for which the right or obligation was conveyed and in the light of all the circumstances, including any relevant agreement. Where one or more data messages are used to effect any action in subparagraphs (f) and (g) of Section 25, no paper document used to effect any such action is valid unless the use of electronic data message or electronic document has been terminated and replaced by the use of paper documents. A paper document issued in these circumstances shall contain a statement of such termination. The replacement of electronic data messages or electronic documents by paper documents shall not affect the rights or obligations of the parties involved. If a rule of law is compulsorily applicable to a contract of carriage of goods which is in, or is evidenced by, a paper document, that rule shall not be inapplicable to such a contract of carriage of goods which is evidenced by one or more electronic data messages or electronic documents by reason of the fact that the contract is evidenced by such electronic data messages or electronic documents instead of by a paper document [Cuyugan v. Santos] The Statute of Frauds does not stand in the way of treating an absolute deed as a mortgage, when such was the intention of the parties, although the agreement for redemption or defeasance rests wholly in parol, or is proved by parol evidence. The courts will not be used as a shield for fraud, or as a means for perpetrating fraud. [Lapat v. Rosario] A contract should be construed as a mortgage or a loan instead of a pacto de retro sale when its terms are ambiguous or the circumstances surrounding its execution or its performance are incompatible or inconsistent with a sale. ARTICLE 1502. When goods are delivered to the buyer "on sale or return" to give the buyer an option to return the goods instead of paying the price, the ownership passes to the buyer of 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. When goods are delivered to the buyer on approval or on trial or on satisfaction, or other similar terms, the ownership therein passes to the buyer: 1) When he signifies his approval or acceptance to the seller or does any other act adopting the transaction; 2) If he does not signify his approval or acceptance to the seller, but retains the goods without giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time. What is a reasonable time is a question of fact. [Industrial Textile Manifacturing Company of the Philippines v. LPJ Enterprises] The provisions of Article 1502 require an express written agreement to make a sale contract either a sale on return or a sale on approval. Parol or extrinsic testimony cannot be admitted.