LE BELLE SORIANO

NATURE OF SALE
Article 1458 of the Civil Code defines "sale" as a
contract whereby one of the contracting parties
(Seller) obligates himself to transfer the ownership,
and to deliver the possession, of a determinate thing;
and the other party (Buyer) obligates himself
to pay therefor a price certain in money or its
equivalent.
(a) Two OBLIGATIONS of the SELLER to:
(i) Transfer the Ownership, and (ii)
Deliver the Possession,
of the
SUBJECT MATTER;
(b) AnOBLIGATION for the BUYER to:
(i) Pay the PRICE
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 the
thing be determinate is satisfied if at the time the
contract is entered into, the thing is capable of being
made determinate without the necessity of a new or
further agreement between the parties," which includes
"determinable" albeit generic objects as valid subject
matters of sale.
Nonetheless, the use of the word "determinate"
in the definition of sale under Article 1458 seems
accurate since it pertains to the performance of the
obligations of the seller to transfer ownership and to
deliver possession. This would require that even if
the subject matter of the sale was generic
(determinable), the performance of the seller's
obligation would require necessarily its physical
segregation or particular designation, making the
subject matter determinate at the point of
performance.
The use of the word "determinate" to describe
the subject matter emphasizes more specifically the
fact that the obligation to deliver and transfer
ownership can be performed only with the subject
matter becoming specific or determinate, and is not
meant to exclude certain generic things from validly

LAW ON SALES
becoming the proper subject matter of sale, at the
point of perfection.
Elements of Contract of Sale
(a) CONSENT, or meeting of the minds to
transfer ownership in exchange for the price;
(b) 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 obligations thereafter.
The more appropriate term to use when an essential
element is not present at meeting of the mind is to
declare a "no contract" situation. In a situation
where any of the elements is not present, "[t]there
was no perfected contract of sale," and that "the
absence of any of these essential elements negates the
existence of a perfected contract of sale," rather than
using the technical term "void."
the giving of earnest money cannot establish the
existence of a perfected contract of sale.
On the other hand, when all three elements are
present, but there is defect or illegality constituting
any of such elements, the resulting contract is either
voidable when the defect constitutes a vitiation of
consent, or void as mandated under Article 1409 of
the Civil Code.
Stages in the Life of Sale
Strictly speaking, there are only two stages in the
"life" of a contract of sale, i.e., perfection and
consummation, since it is only at perfection that
sale as a contract begins to exist in the legal world.
Until sale is perfected, it cannot serve as an
independent source of obligation, nor as a binding
juridical relation between the parties.
(a) POLICITACION, negotiation, or preparation stage;
Policitacion or negotiation covers the period from the
time the prospective contracting parties indicate
their interests in the contract to the time the
contract is perfected;
(b) PERFECTION, conception or "birth";

LE BELLE SORIANO
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;
(c) CONSUMMATION or "death."
consummation begins when the parties perform their
respective undertaking under the contract of sale,
culminating in the extinguishment thereof.
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 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 determining the real character of the contract,
the title given to it by the parties is not as significant
as its substance.
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."
The other doctrinal significance of the "nominate
and
principal" characteristics of sale is that all other
contracts which have for their objective the transfer
of ownership and delivery of possession of a
determinate subject matter for a valuable
consideration, are governed necessarily by the Law on
Sales.
2. Consensual
Sale is consensual contract (as contrasted from
solemn and real contracts), since it is perfected by
mere consent, at the moment there is a meeting of
the minds upon the thing which is the object of the

LAW ON SALES
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 of the Civil Code, from the
moment of perfection of the sale, the parties may
reciprocally demand performance, even when the
parties have not affixed their signatures to the
written form of such sale, but subject to the
provisions of the law governing the form of
contracts. Consequently, the actual delivery of the
subject matter or payment of the price agreed upon
are not necessary components to establish the
existence of a valid sale; and their non performance
do not also invalidate or render "void" a sale that has
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.
In Fule v. Court of Appeals, the Court
summarized the doctrines pertaining to sale being a
consensual contract, thus:
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

LE BELLE SORIANO
registration of the instrument only adversely
affects third parties. Formal requirements are,
therefore, for the benefit of third parties. Noncompliance therewith does not adversely affect
the validity of the contract or the contractual
rights and obligations of the parties thereunder.
Since sale is a consensual contract, the party who
alleges it must show its existence by competent
proof, as well as of the essential elements thereof.
However, when all three elements of a sale 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; and at that point
the burden is on the other party to prove the
contrary.
Despite the consensual character of a sale,
under Article 1332 of the Civil Code, when one of the
parties is unable to read, or if the contract is in a
language not understood by him, and mistake or
fraud is alleged, the person enforcing the contract
must show that the terms thereof have been fully
explained to the former.

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.
Even if consensual, not all contracts of sale
become automatically and immediately effective. . . In
sales with assumption of mortgage, the assumption of
mortgage is a condition precedent to the seller's
consent and therefore, without approval of the
mortgagee, the sale is not perfected."
Even the delivery and taking possession of the
subject matter by the buyer with the knowledge or
consent of the seller, would not bring about the
perfection and binding effect of the sale, when the
meeting of the minds is incomplete, there being no
agreement yet on the final price.
3. Bilateral and Reciprocal
Sale is a bilateral contract embodying reciprocal
obligations, as distinguished from a unilateral

LAW ON SALES
contract, because it imposes obligations on both
parties to the relationship, and whereby the
obligation or promise of each party is the cause or
consideration
for the obligation or promise of the other.
Reciprocal obligations are "those which arise from
the same cause, and in which each party is a debtor
and a creditor of the other, such that the obligation
of one is dependent upon the obligation of the other.
They are to be performed simultaneously such that
the performance of one is conditioned upon the
simultaneous fulfillment of the other."
The legal effects and consequences of sale being a
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 other
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 fulfills
his obligation, the default by the other begins,
without the need of prior demand.
Since both parties in a sale are bound by their
respective obligations which are reciprocal in nature,
then a party cannot simply choose not to proceed
with the sale by offering also the other party not to
be bound by his own obligation; that each party has
the remedy of specific performance; and that
rescission or resolution cannot be enforced by
defaulting party upon the other party who is ready
and willing to proceed with the fulfillment of his
obligation.
**"It is therefore a general requisite for the existence
of a valid and enforceable contract of sale that it be
mutually obligatory, i.e., there should be a
concurrence of the promise of the vendor to sell a
determinate thing and the promise of the vendee to
receive and pay for the property so delivered and
transferred.
The right of rescission of a party to an obligation
under Article 1191 is predicated on a breach of faith
by the other party who violates the reciprocity between
them."

LE BELLE SORIANO
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.
In Gaite v. Fonacier, the Court ruled that the
stipulation in a contract of sale on the payment of the
balance of the purchase price must be deemed to
cover a suspensive period rather than a condition
since "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, than if such obligation were
viewed as non-existing or not binding until the ore
was sold." The Court held that the rules of
interpretation would incline the scales in favor of "the
greater reciprocity of interests," since sale is
essentially an onerous contract.
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.
This confirms the view that 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.
Take a situation, where the same seller, knowing fully
well that the going price for his car is 5200,000.00,
sells it for only 5100.00 to the buyer. Even if the seller,
is satisfied in receiving only 5100.00 for the car, the
resulting contract, from a strictly legal standpoint, is
not a sale, but more of a donation, and the law will
presume that the underlying consideration must
have been liberality. Therefore, the tax authorities
may insist that the gift tax be paid on the
transaction. This is all academic discussions, of
course, since if no third party complains, the
nature of the contract would never be at issue, and
in all probability the contracting parties themselves
would be bound by their characterization of the

LAW ON SALES
contract under the principle of estoppel.
The subjective test of the commutative nature of
sale is further bolstered by the principle that
inadequacy of price does 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 in consent, in which case the
sale may be annulled, but such annulment is not for
inadequacy of price, but rather for vitiation in
consent.
Buenaventura v. Court of Appeals, held that:
"Indeed, there is no requirement that the price be
equal to the exact value of the subject matter of sale;
all that sellers believed was that they received the
commutative value of what they gave. All the
respondents believed that they received the
commutative value of what they gave."
Sale Is Title and Not Mode
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. while a sale is perfected by
mere consent, ownership of the thing sold is
acquired only upon its delivery to the buyer. Upon the
perfection of the sale, the seller assumes the obligation
to transfer ownership and to deliver the thing sold,
but the real right of ownership is transferred only "by
tradition" or delivery thereof to the buyer.
An asserted right or claim to ownership, or a real right
over a thing arising from a juridical act, is not per se
sufficient to give rise to ownership over the thing; 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 (such as sale) is the juridical
justification, mode (like delivery) is the actual process
of acquisition or transfer of ownership over a thing."
Consequently, the proper remedy was not annulment,
but rescission.
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

LE BELLE SORIANO
ownership; it is tradition or
consequence of sale, that actually
transfers ownership.

LAW ON SALES
delivery,

as

perfection and enforceability of the contract happen

upon consent.

2. From Barter
By barter or exchange, one of the parties binds
himself to give one thing in consideration of the
other's promise to give another thing; whereas, by
SALE DISTINGUISHED FROM OTHER SIMILAR
sale, one of the parties binds himself to deliver a thing
CONTRACTS
in consideration of the other's undertaking to pay the
price in money or its equivalent.
1. From Donation
It is interesting to note that in Delpher Trades
Donation is an act of liberality whereby a person Corp. v. IAC,88
disposes gratuitously of a thing or right in favor of in somewhat a complete defiance of the doctrine of
separate juridical personality of a corporation from
another person, who accepts it.
its stockholders, the Court held that an assignment
Sale is essentially an onerous contract; donation
of property to the corporation by controlling
is a gratuitous contract
shareholders in exchange for shares is not a sale nor
Sale is perfected by mere consent; donation, being
barter because the corporation cannot be considered a
a solemn contract, although consent is also
third party when it would be controlled by the
required, must comply with the formalities
transferor as part of estate planning.
mandated by law for its validity.
a contract may be entered into in the form of a "sale"
and may end up being governed by the Law on
Donations, even when there may be a formal price
agreed upon, if it is simulated, and the real intention
is that the subject matter is being donated to the
supposed "buyer." In such a case, the governing rule
on perfection of sale by mere consent does not resolve
whether the real contract is valid, since being a
donation, the formality for donation should also have
been complied with for the transaction to be
considered valid.
On the other hand, a purported donation may
have been executed by the parties, but it is not mere
liberality that permeates the contract as the only
consideration, because other consideration or
burdens are placed upon the donee. In such a case,
the issue of what is the applicable rule (i.e., Law or
Sales or Law on Donation) becomes critical in
determining the validity and enforceability of the
contract.
Under Article 726 of the Civil Code, even when
the donor imposes upon the donee a burden, but which
is less than the value of the thing given, there is still a
donation. The legal implication under said article is
clear: when the value of the burden placed upon the
donee is more than the value of the thing given, it
becomes an "onerous" donation, as either a barter or
sale, which are both governed by the Law on Sales. In
such cases, the solemnities provided for by the Law
on Donations are wholly irrelevant, even if the
contract is called a "donation"; and since the
relationship is governed by the Law on Sales, the

a. Rules to Determine Whether Contract Is Sale or

Barter
Article 1468 of the Civil Code provides for the
following rules in cases of dispute whether the
contract is a sale or a barter, especially when the
consideration agreed upon is partly in money
and partly in another thing:
a. Manifest Intention of the Parties - Even if the
acquisition of a thing is paid for by another object of
greater value than the money component, it may still
be a sale and not a barter, when such was the intention
of the parties;
b. When Intention Does Not Appear and Consideration
Consists Partly in Money andPartly 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.
The distinctions between sale and barter are
merely academic, since aside from two separate
rules applicable to barter, as to all matters not
specifically provided for, Article 1641 provides that
barter shall be governed by the Law on Sales. The two
rules specifically provided for barter contracts, but
which are similar anyway to the rules on warranty

LE BELLE SORIANO
against eviction applicable to sale, are as follows:
(a)

If one of the contracting parties, having received the

thing promised 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;
(b) 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 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, but without prejudice to the rights acquired in
good faith by a third person.
Nonetheless, there are a few instances when the
difference between the two types of contracts is critical.
Firstly, the rules on the Statute of Frauds, which
apply to the sale of real property, and personal
property bought at 5500.00 or more, do not apply to
barter. Secondly, the right of legal redemption granted
by law to an adjoining owner of an urban land, covers
only "resale" and does not cover exchanges of
properties.

3. From Contract for a 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.
the distinction between a sale and a contract for work,
labor, and materials is tested by the inquiry of whether
the thing transferred is one not in existence and which
never would have existed but for the order of the party
desiring to acquire it, or a thing which would have
existed and been the subject of sale to some other
person, even if the order had not been given.
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.

"If the article ordered by the purchaser is exactly

LAW ON SALES
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."
which gives two tests for distinction:
(a) Manufacturing in the ordinary
course of business to cover sales contracts;
(b)Manufacturing upon special order of
customers, to cover contracts for piece-of-work.
Celestino Co implies that the test of "special
orders" under Article 1467 of the Civil Code is not one
of timing, or habit, but actually must be drawn from the
nature of the work to be performed and the products to
be made: it must be of the nature that the products
are not ordinary products of the manufacturer, and
they would require the use of extraordinary skills or
equipment, if to be performed by a manufacturer.
The large quantity of the products to be
delivered do not also indicate that the underlying
contract is one of sale.
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-ofwork 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.
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 another, there
is a contract for a piece of work.
Practical Needs for Being Able to Distinguish
1. From the point of view of warranty of the
contractor on the product, a contract for a pieceof-work is not much different from a sale.

LE BELLE SORIANO

LAW ON SALES

Pursuant to Article 1714, a contract for a

obligations to do (i.e., to represent the
piece-of-work shall be governed "by pertinent
principal), contracts of agency to sell or to buy
provisions on warranty of title and against
the object of the agency The object of a contract of
hidden defects and the payment of price in
arrangement
is
the sale is a determinate thing.
a contract of sale.
purchase

or

sell

of

2. Issue of the tax provisions applicable to the

transactions.

determinate object.
a contract of agency to sell,

sale

because

revocable;

3. Because of the different sets of laws governing

each type of contract.

underlying

a. 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-ofwork, where the main subject matter is
the service to be rendered (obligation to
do), would not allow an action for
specific performance in case the
contractor refuses to comply with his
obligation.
b.
Article 1715 provides that "[S]hould the
work be not of such quality, the employer may
require that the contractor remove the defect or
execute another work. If the contractor fails or
refuses to comply with this obligation, the
employer may have the defect removed or
another work executed at the contractor's cost."
In a sale, only when the subject matter is
indeterminate or generic (i.e., determinable) is
the buyer granted the remedy under Article
1165 to have the subject matter done by a third
party with cost chargeable to the seller.
4. Finally a contract for a piece-of-work, unlike a
sale, is not governed by the Statute of Frauds.

it

covers

an

is

not

unilaterally

fiduciary

relationship, is essentially
revocable,

even

in

the

presence of an irrevocability
clause.
in an agency to sell, the

In sale, the buyer himself

agent is not obliged to pay

pays for the price of the

the price, and is merely

object,

obliged to deliver the price

which constitutes his main

which he may receive from

obligation

the buyer.
in an agency to buy, the

In sale, the buyer, after

agent does not become the

delivery, becomes the owner

owner of the thing subject of

of the

the

subject matter

agency,

even

if

the

object is delivered to him.

in an agency, the agent who

In sale, the seller warrants

effects the sale assumes no

personal liability as long as
he acts within his authority
and in the name of the
principal. However,
because
fiduciary

of

nature

the
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

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.

any

profit

received

should pertain to the

principal.
it is legally possible for an
agent

or

broker

to

voluntarily bind himself to

a. Distinguishing Sale and Agency to

the warranties of the seller.
are essentially different from sales. Nevertheless,
Sell/Buy
because
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

LE BELLE SORIANO

LAW ON SALES
an arrangement by which an existing obligation may
be extinguished.

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.
an agency to sell on commission basis does not
belong to any of the contracts covered by Articles
1357 and 1358 requiring them to be in a particular
form, and not one enumerated under the Statutes of
Frauds in Article 1403. Hence, unlike a sale contract
which must comply with the Statute of Frauds for
enforceability, a contract of agency to sell is valid and
enforceable in whatever form it may be entered into.
By way of exception, under Article 1874 of the
Civil Code, when the 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.
5. From Dacion En Pago
Dation in payment is one whereby property is
alienated to the creditor in full satisfaction of a debt in
money; it constitutes "the delivery and transmission
of a thing by the debtor to the creditor as an accepted
equivalent of the performance of the obligation." By
express provision of law, dation in payment is
governed by the Law on Sales since it essentially
involves the transfer of ownership of a subject matter.
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; that is why the
elements of sale must be present, including a clear
agreement that the things offered is accepted for the
extinguishment of the debt.
It must be emphasized, however, that dacion en
pago considerations are not in the realm of perfection
of contract, but rather in the stage of consummation,
for indeed dacion en pago is by definition a special
mode of payment, whereby the debtor offers another
thing to the creditor who accepts it as equivalent of
payment of an outstanding debt. Consequently, prior
to delivery of the subject matter to constitute the
dation in payment, the agreement does not
necessarily constitute a separate contract, but only

Requisites for a valid dation in payment,

there must be:
(a) 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)

(c)

Some difference between

the prestation due and
that which is given in
substitution (aliud pro
alio);

An agreement between the creditor and

debtor that the obligation is immediately
extinguished
by
reason
of
the
performance of a presentation different
from that due.

... 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 purchase price. In any case,
common consent if anessential 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.
A conditional sale may be made in the form of a
"lease with option to buy" as a device to circumvent the
provisions of the Recto Law governing the sale of
personal property on installments. It may be
stipulated in such contract that the lessee has the
option to buy the leased property for a small
consideration at the end of the term of the lease,
provided that the rent has been duly paid; or if the
rent throughout the term had been paid, title shall
vest in the lessee. Such contracts are really
conditional sales and are deemed leases in name only.

PARTIES OF SALE

LE BELLE SORIANO

GENERAL RULE ON CAPACITY OF PARTIES

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 benefited by the thing or price
received by him.

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."

LAW ON SALES
The Title on Sales in the Civil Code specifically
provides that although a minor is not capacitated to
validly enter into a sale, "[w]here necessaries are sold
and delivered to a minor or other person without
capacity to act, he must pay a reasonable price
therefore," and the resulting sale is valid, and not
merely voidable.
Since sales cover only the obligation to deliver a
thing, the sale of "necessaries" considered valid under
Article 1489 can only cover 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;
(b) delivery of the subject necessaries.
If there is only perfection at the time the case
reaches litigation, the sale of course is not void, but
voidable for vice in consent, and the rules on voidable
contracts apply.
3. Senility and Serious Illness
Although"[t]he general rule is that a
person is not incompetent to contract merely because
of advanced years or by reason of physical infirmities.
However, when such age or infirmities have impaired
the mental faculties so as to prevent the person from
properly, intelligently, and firmly protecting her
property rights then she is undeniably incapacitated.
The author posits that the essence of the
Domingo ruling
for declaring the sale void was that the
circumstances showed that there was never any
meeting of minds since there was no real
consideration agreed upon, and that the deed was
merely forged. It is unfortunate for Domingo to have
declared the sale "void ab initio" on grounds that legally
do not render it so, namely:
(a) Incapacity to give consent (senility, advanced
age, and serious illness), which constitute only vice
in consent, and would render the contract merely
voidable;
(b) That "price was never paid to and received," which
gives rise only to an action for rescission or specific
performance; and
(c) That the consideration was "grossly and shockingly

LE BELLE SORIANO
inadequate," which under Article 1470 of the Civil Code
"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.
SALES BY AND BETWEEN SPOUSES
1. Sales With Third Parties
Under the Law on Sales, it would seem that a spouse
may, without the consent of the other spouse, enter
into sale transactions in the regular or normal
pursuit of his or her profession, vocation or trade.
Nevertheless, under Articles 96 and 124 of the
Family Code, the administration and enjoyment of
the community property or the conjugal property, as
the case may be, shall belong to both spouses jointly;
and in case of disagreement, the husband's decision
shall prevail, subject to the wife seeking remedy from
the courts, which must be availed of within five (5)
years from the date of the contract. In addition, the
disposition or encumbrance of community property
or conjugal property, as the case may be, shall be
void without authority of the court or the written
consent of the other spouse. In such a case, the
transaction shall be construed as a continuing offer
on the part of the consenting spouse and the third
person, and may be perfected as a binding contract
upon the acceptance by the other spouse or
authorization by the court before the offer is
withdrawn by either or both
offerors.28
In one case,29 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."
In another case,30 the Court held that the sale
by the
husband of property belonging to the conjugal
partnership without the consent of the wife when
there was no showing that the latter was
incapacitated, was held void ab initio because it was
in contravention of the mandatory requirements of
Article 166 of the Civil Code. However, it conceded that
as an exception, the husband may dispose of conjugal
property without the wife's consent if such sale is
necessary to answer for conjugal liabilities mentioned
in Articles 161 and 162 of the Civil Code.

LAW ON SALES

2. Sales Between
Spouses
Under Article 1490 of the Civil Code, spouses
cannot sell
property to each other, except: (a) when a separation of
property was agreed upon in the marriage
settlements; or (b) when there has been a judicial
decree for the separation of property.
In addition, Article 1492 provides that the
prohibition relating
to spouses selling to one another is applicable even to
sales in legal redemption, compromises and
renunciations.
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.31 However,
not anyone is given the right to assail the validity of
the transaction. For instance, the spouses
themselves, since they are parties to an illegal act,
cannot avail themselves of the illegality of the sale on
the ground of pari delicto;32 the courts will generally
leave them as they are. Also, the creditors who
became such only after the transaction, cannot
attack the validity of the sale, for it cannot be said
that they have been prejudiced by the transaction.
Practically, the only persons who can question the
sale are the following: the heirs of either of the
spouses who have been prejudiced; prior creditors; 33
and the State when it comes to the payment of the
proper taxes due on the
transactions.34
In Medina v. Collector of Internal Revenue,35
deficiency
sales tax were sought to be collected against the sales
of lumber products by the wife to the public,
although when the husband previously sold the
lumber products to the wife (of course at a lower price)
he had already paid the sales tax thereon. Considering
that only the first and original sales were taxable
under the then Tax Code, the spouses held that the
second and subsequent sales by the wife to the
public could not be subjected to further sales tax. In
addition, the spouses alleged that the sales between
them were valid since they were governed by the
complete separation of property regime pursuant to a
pre-nuptial agreement executed between them.

LE BELLE SORIANO
Aside from the fact that the records of the alleged
pre-nuptial
agreement were non-existent, the Court determined
that at the time of their marriage, the spouses had
no properties to have warranted them to execute a
pre-nuptial agreement for complete separation of
property. The Court considered the sales between the
spouses as void and non-existent in violation of Article
1490, and considered the sales by the wife to the
public as the first and original sales subject to the
sales tax.
b.
Rationale
for
Prohibition
Medina gave the rationale for the relative
incapacity of
spouses to sell properties to one another to be
as follows:
(a) To prevent a spouse defrauding his
creditors
by transferring his properties to
the other
s
p
o
u
se
;
(b) To avoid a situation where the
dominant
spouse would unduly take
advantage of the weaker spouse,
thereby effectively
defrauding
the
latter; and
(c) To avoid an indirect violation of
the prohibition against donations between
spouses under Article 133 of the
Civil Code.
Article 133 of the Civil Code, which declares
void every donation between spouses during marriage,
seeks to prevent the first two evils enumerated
above.36 Article 133 has been replaced by Article 87 of
the Family Code which added the provision "The
prohibition shall also apply to persons living together
as husband
and wife without a valid
marriage."
Therefore, the evils sought to be avoided under
Articles 133
and 1490 are the same. But unlike Article 1490

LAW ON SALES
which exempts from its prohibition sales between
spouses governed by the complete separation of
property regime, Article 133, and now Article 87 of
the Family Code, do not make such exception in case
of donations.
One explanation for the difference in this aspect
between
Articles 133 and 1490 is that a donation between
spouses governed by the complete separation of
property regime, being a gratuitous contract, would
necessarily reduce the estate of the donor and
increase the estate of the donee; while a sale between
such spouses, being an onerous and commutative
contract, would result in the separate estates of the
spouses being of the same value as before the sale
and no fraud could result, either to the spouses or to
their creditors.37 This position would also explain
the reason why spouses governed by the absolute
community of property regime cannot sell to one
another because having the same estate between
themselves, a sale is not possible because there simply
cannot be a purchase of what a party-buyer already
owns. The position however, does not explain why a sale
between spouses of separate or paraphernal
properties would not be allowed as an exception
under Article 1490 when the spouses are governed by
the conjugal partnership of gains.
c. Rationale for Exceptions to
Prohibition
under
Article 1490
If one were to take at face value the two
exceptions to
the prohibition of sales between spouses (i.e., sales
between spouses governed by complete separation of
property regime), it would seem that the evils sought
to be avoided also pertain to such situations, and
indeed, there is greater danger of undue inuence or
fraud in situations where the spouses are governed by
the complete separation of property regime. For in a
complete separation of property regime, where the
spouses are bound only by their separate properties
to their separate creditors and not to the creditors of
the other spouses, there would seem to be greater risk
that by allowing spouses to sell to one another, as the
law allows, the separate creditors of the selling
spouses could equally, if not with greater degree, be
defrauded.
In addition, just because spouses have a
complete
separation of property regime does not necessarily
discount that one spouse cannot exercise undue

LE BELLE SORIANO
inuence or pressure on the other spouse. Indeed, the
fact that one has a weak personality and that the
other has a dominant personality cannot be erased or
altered by entering into a complete separation of
property regime, or any other regime for that matter.
In a complete separation of property regime, the
dominant spouse may unduly inuence the weaker
spouse, and with greater impunity, legally get away
with it.
Finally, Article 133 which prohibits donations
between spouses, does not make an exception to
spouses governed by the complete separation of
property regime, and therefore donations between
such spouses would be void. By allowing under
Article 1490 spouses governed by complete
separation of property regime to sell to one another,
the law would allow
the circumvention of the prohibition against
donations between spouses governed by the complete
separation of property regime. If Article 1490 were
meant to be a stop-gap measure to Article 133, why
would it leave sales between spouses governed by the
complete separation of property regime, outside
its pale?
If the matter is considered more closely, it would
seem
that the exception under Article 1490 on the
restriction of sales between spouses, should apply
more to spouses governed by the absolute community
of property regime, because the evils sought to be
avoided by the law cannot for practical purposes
happen in such regime, since no matter what undue
inuence is exercised by the dominant spouse, or
attempt to defraud the creditor of a spouse, or
attempt to circumvent the prohibition against
donation, such attempts would prove futile because of
the continued existence of the common fund on which
both spouses(and their heirs and creditors) can
continue to claim. However, as discussed previously,
a sale between spouses governed by the absolute
community of property regime would be legally
meaningless since they have the same estate and
represent the same interest.
The key element, it seems to the author, to the
exceptions
provided for the restrictions under Article 1490, lies
in the psychology of the situation. Legally, there are
only two ways by which a complete separation of
property regime could exist between married
spouses, namely, by the execution of a pre- nuptial
agreement stipulating such property regime to apply,
or by the spouses going to court to ask for the

LAW ON SALES
dissolution of the prevailing conjugal partnership of
gains or absolute community of property regimes.
In either case, the situation bespeaks clearly of
hardness
of heart on the part of the spouses, showing a
business-like approach to the relationship, rather than
of two lovers falling head- over-heels for one another.
Whereas, the conjugal partnership of gains or the
absolute community of property regime exemplifies
spouses wishing to share most if not all with one
another confirming their romantic fervor. On the other
hand, in a situation where spouses who before or at
the time they say their "I do's"
would be so cold-hearted and unromantic to pause
and stipulate complete separation of property, or who
during marriage would be cold-blooded as to agree
and seek court separation of their properties, clearly
indicates that it would be unlikely that one spouse
would allow the other spouse to inuence him or her;
or would allow his or her properties to be involved in a
suit covering the creditors of the other spouse. After
all, if a spouse takes time and effort to insulate his or
her properties from the other spouse, why would he or
she later on involve himself or herself in the
fraudulent manipulations of the other spouse, and
consequently open himself or herself (as well as his or
her separate properties)
to suits by creditors for fraud and recovery of
damages?
But even the foregoing explanation does not
adequately
cover a situation where a dominant spouse would
insist upon the complete separation of property
regime, either at the time of the execution of the
marriage settlements, or by judicial action during
marriage, precisely to venture upon a future course
of defraudation or being in a position to defraud
either his weaker spouse or his separate creditors. In
the end, the absolute prohibition under Article 133,
now Article 87 of the Family Code, on donations
between spouses, should also be made to apply to
sales between spouses, irrespective of their
property regime.

3. Applicability of Incapacity to Common Law

Spouses
In Matabuena v. Cervantes,38 the Court was
asked to decide
the issue of whether the ban in Article 133 of the
Civil Code on a donation between the spouses during
a marriage applies to a common-law relationship. In
that case, the sister of the deceased common-law

LE BELLE SORIANO
husband, sought to annul the previous donation by
the deceased during his lifetime to his then common
law spouse, although the two subsequently married
thereafter. Today, that would no longer be an issue
because of the all-inclusive coverage under Article 87
of the Family Code to those living as husband and
wife without the benefit of a valid marriage.
The Court held the donation to be void,
although Article
133 of the Civil Code considers as void a "donation
between the spouses during the marriage." It held that
"[i]f the policy of the law . . . is to 'prohibit donations in
favor of the other consort and his descendant because
of fear of undue and improper pressure and inuence
upon the donor, a prejudice deeply rooted in our ancient
law . . . then there is every reason to apply the same
prohibitive policy to persons living together as
husband and wife without the benefit of nuptials. For
it is not to be doubted that assent to such irregular
connection . . . bespeaks greater inuence of one party
over the other, so that the danger that the law seeks
to avoid is correspondingly increased."39 In addition,
the Court held that "[s]o long as marriage remains the
cornerstone of our family law, reason and morality alike
demand that the disabilities attached to marriage
should
likewise
attach
to
[common-law
40
relationship]."
In 1984, in Calimlim-Canullas v. Fortun,41 the
Court gave
formal imprimatur to the rationale of Matabuena
being applied to sales by ruling that sales between
common-law spouses are void; that Article 1409 of
the Civil Code declares such contracts void as being
contrary to morals and public policy, and not only
because Article 1352 declares them void for having an
unlawful cause, but specifically because Article 1490
prohibits sales between spouses. The Court gave the
following reasoning for its
r
u
li
n
g:
And this is so because if transfers or
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 inuence by one
spouse over the other, as well as to
protect the institution of marriage,

LAW ON SALES
which is the cornerstone of family law.
The prohibition apply (sic) to a couple
living as husband and wife without the
benefit of marriage, otherwise, "the
condition of those who incurred guilt
would turn out to be better that those
in legal union." Those provisions are
dictated by public interest and their
criterion must
be imposed upon the will of the
parties.42
Calimlim-Canullas
ruling
reiterated in Cruz v. Court of

was

Appeals,43 but which held that

"[a]lthough under Art. 1490 the
husband and wife cannot sell property
to one another as a rule which, for
policy consideration and the dictates of
morality require that the prohibition
apply to common-law relationship,"44
but that when registered property has
been conveyed subsequently to a thirdparty-buyer in good faith and for value,
then reconveyance is no longer
available to common-law spouse, since
under the Torrens system every buyer
has a right to rely upon the title of his
immediate seller.

SPECIFIC INCAPACITY MANDATED

BY LAW
Article 1491 of the Civil Code
prohibits the following persons
from entering into contracts of sale
under the circumstances
covered therein:
(a) Agent, with respect to the
property whose
administration or sale may have
been entrusted to him, unless the
consent of the
principal has been given;
(b) Guardian, with respect to the
property of
the person who is under his
guardianship;
(c) Executor or administrator, with
respect to
the property of the estate under his
admi-

LE BELLE SORIANO
nistrations;
(d) Public officers and employees,
with respect
to property of the State or any
subdivision
thereof,
or
of
any
government-owned
or
controlled
corporation,
or
institution,
the
administration of which has been
entrusted to them; it includes judges
and government experts who, in any
manner whatsoever,
take part in the sale;
(e) Justices, judges, prosecuting
attorneys,
clerks of courts, and other officers
and employees connected with the
admi- nistration of justice, with respect
to the property and rights in litigation
or levied upon an execution before the
court within whose jurisdiction or
territory they exercise
their respective functions; and
(f) Lawyers, with respect to the
property and
rights which may be the object of
any litigation in which they may take
part by virtue of their profession.
55
The
above-enumerated
relative
incapacities are, under
Article 1492, made to apply to sales
in legal redemption, compromises and
renunciations, confirming the policy
that what cannot be done directly,
cannot be done by indirection.

1. Legal Status of Contracts Entered

Into In
Violation of Articles 1491 and 1942
Based on the wordings of Article
1491, only purchases made
by agents of the property covered by
the agency are valid and binding when
made with the express consent of their
principals;45 and no such exception is
granted in all the other instances
covered by said article.46 That would
also mean that, apart from the case of
the agents, in all cases covered under

LAW ON SALES
Article 1491, consent or knowledge by
the persons who is sought to be
protected by the law, cannot validate
any of the transactions covered.
45The prohibition against an agent
purchasing property in his hands for
sale or management is however, clearly
not absolute. When so authorized by
the principal, the agent is not
disqualified from purchasing the
property he holds under a contract of
agency to sell.
Article 1491 does not also state the legal
consequences
of having entered into contracts in violation of said
article, i.e., it does not state expressly that the
resulting contracts are "void." In the 1911 case of
Wolfson v. Estate of Martinez,47 the Court held that
the sale's "voidability can not be asserted by one not
a party to the transaction or his representative," 48
that "considering the question from the point of view
of the civil law, the view taken by the code, we must
limit ourselves to classifying as void all acts done
contrary to the express prohibition of the statute.
Now then as the code does not recognize such
nullity by the mere operation of law, the nullity of
the acts hereinbefore referred to must be asserted by
the person having the necessary legal capacity to do
so and decreed by a competent court."49 In other
words, Wolfson had classified such contracts as
being merely voidable or
annullable, and not void. Later, in Director of Lands v.
Abagat,50
covering the purchase by a lawyer of the property of
his client under litigation, the Court cited two
precedent cases decided
in Spain holding such a contract as merely
"invalid."
In Rubias v. Batiller,51 the Court discussed why
it became
necessary in Philippine jurisdiction to abandon
Manresa's position and consider such contracts as
void, and not merely voidable,
t
h
u
s
:
The reason thus given by Manresa in

LE BELLE SORIANO
considering
such
prohibited
acquisitions under Article 1459 of the
Spanish Civil Code as merely voidable
at the instance and option of the vendor
and not void "that the Code does not
recognize such nullity de pleno derecho"
is no longer true and applicable to
our own Philippine Civil Code which
does recognize the absolute nullity of
contracts "whose cause, object, or
purpose is contrary to laws, morals,
good customs, public order or public
policy"
or which
are
"expressly
prohibited or declared

In addition, Rubias held that even the Supreme

Court of Spain and modern authors have likewise
veered away from Manresa's view of the Spanish codal
provision itself, holding that since the provision is
based on public policy, that violation of the prohibition
cannot be validated by confirmation or ratification.53 It
adopted Castan's rationale for his conclusion "that
fundamental considerations of public policy render
void and inexistent such expressly prohibited
purchase (e.g., by public officers and employees of
government property intrusted [sic] to them and by
justices, judges, fiscals and lawyers of property and
rights in litigation submitted to or handled by them,
under Art. 1492, paragraphs [4] and [5] of our Civil
Code) has been adopted in a new article of our Civil
Code, viz., Art. 1409 declaring such prohibited
contracts as 'inexistent and void from the beginning."54

Rubias therefore holds that a purchase by a

lawyer of
property of a client in litigation, in which the
purchasing lawyer appeared as counsel of record, "was
void and could produce no legal effect, by virtue of
Article 1409(7) of our Civil Code which provides that
contracts 'expressly prohibited or declared void by law'
are 'inexistent and void from the beginning' and that
'(t)hese contracts cannot be ratified. Neither can the
right to set up the
defense of illegality be
waived.'"55
a. A Different Form of
"Ratification"
Rubias, however, sought to declare a difference in
the state of
"nullity" between prohibited contracts entered into by

LAW ON SALES
guardians, agents, administrators and executors, from
those entered into by
judges, judicial officers, fiscals and lawyers,
thus
In this aspect, the permanent
disqualification of public and judicial
officers and lawyers grounded on
public policy differs from the first three
cases of guardians, agents and
administrators (Art. 1491, Civil Code),
as to whose transactions, it has been
opined that they may be "ratified" by
means of and in "the form of a new
contract, in which case its validity
shall be determined only by the
circumstances at the time of execution
of such new contract. The causes of
nullity which have ceased to exist
cannot impair the validity of the new
contract. Thus, the object which was
illegal at the time of the first contract,
may have already become lawful at the
time of the ratification or second
contract; or the service which was
impossible may have become possible;
or the intention which could not be
ascertained may have been clarified by
the parties. The ratification or second
contract would then be valid from its
execution; however, it does not retroact
to the
date of the first contract."56
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.

LE BELLE SORIANO
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
Rubias quoted Tolentino in discussing who
would be the
proper parties who could raise the nullity of contracts
entered into in violation of Article 1491, stating that
"[A]ny person may invoke the inexistence of the
contract whenever juridical effects found thereon are
asserted against him,"57 and that "If the contract
has already been fulfilled, an action is necessary to
declare its inexistence since nobody can take the law
into his own hands and thus the intervention of the
competent court is necessary to declare the absolute
nullity of the contract and to decree the restitution of
what has been given under it. If the contract is still
fully executory, no party need bring an action to declare
its nullity; but if any party should bring an action to
enforce it, the other
party can simply set up the nullity as
defense."58
c. Fraud or Lesion Not Relevant
for Nullity
The existence of fraud or lesion is not a factor at
all in the
application of the prohibitions covered by Article
1491, and the proof that the person disqualified has
paid more than an adequate consideration for the

LAW ON SALES
property he purchased is no defense in an action to
declare the sale void.
The rationale for the absolute disqualifications
set by
Article 1491, is in line with "the general doctrine
that each of [such relationships] is a trust of the
highest order, and the trustee cannot be allowed to
have any inducement to neglect his ward's interest;"
and therefore to avoid "[t]he temptation which
naturally besets a [person holding such a fiduciary
position] so circumstanced, necessitates the
annulment of the
transaction."
Even in situations where the purchase by a
disqualified
person under Article 1491 had received approval by
the court as in the case of probate court approving
the purchase by the
administrator or executor, the sale would still
be void.60

2.
Age
nts
"Brokers" do not come within the coverage of the
prohibition
as their authority consist merely in looking for a buyer
or a seller, and to bring the former and the latter
together to consummate the transaction; therefore, they
are not prohibited to buy for themselves. As held in
Schmid & Oberly v. RJL Martinez Fishing Corp.,61 "[a]
broker is generally defined as one who is engaged, for
others, on a commission, negotiating contracts relative
to property with the custody of which he has no
concern; the negotiation between other parties, never
acting in his own name but in the name of those who
employed him; he is strictly a middleman and for
some purpose the agent of both parties. ... A broker is
one whose occupation it is to bring parties together to
bargain, or to bargain for them, in
matters of trade, commerce or
navigation."62

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

LE BELLE SORIANO
proceedings.
In Philippine Trust Co. v. Roldan,63 the courtappointed
guardian had filed a motion with the trial court for
authority to sell as guardian the parcels of land of
the ward for the purpose of being able to invest the
proceeds for a residential house for the ward. When
the court authority was granted, the guardian sold
the parcels of land in favor of her brother-in-law in the
sum approved by the court. The guardian
subsequently asked for and was granted judicial
confirmation of the sale. Immediately thereafter, the
brother-in-law sold the same parcels of land to the
guardian. The Philippine Trust Co., which became the
substitute guardian, brought an action to annul the
contract, on the ground that the prohibition under the
Civil Code prevented the guardian from purchasing
"either in person or through the mediation of
anot
her."
In the earlier case of Rodriquez v. Mactal,64 the
Court held that
the prohibition under the Civil Code cannot be made to
apply unless there was proof that a third-party buyer
was a mere intermediary of the guardian, or that the
latter had previously agreed with the third-party buyer
to buy the property for the disqualified guardian. In
Philippine Trust Co., the Court abandoned such
doctrine and held that even without such proof, the
sale can be rescinded: "Remembering the general
doctrine that guardianship is a trust of the highest
order, and the trustee cannot be allowed to have any
inducement to neglect his ward's interest and in line
with the court's suspicion whenever the guardian
acquires the ward's property," the Court held that the
re-sale of the parcels of land to the guardian herself,
should be declared void.
Philippine Trust Co. shows that even a courtapproved sale
would not stand against the inhibition provided by
Article 1491.
There were discussions in the decision of the
proof sought
to be shown by the guardian that the transaction
benefited the ward; however, the Court disproved
such benefit and showed that the "minor was on the
losing end." It therefore decreed that "from both the
legal and equitable standpoints these three sales
should
not
be
sustained."65
These statements of the Court in Philippine
Trust Co.
bring up the issue of whether proof of advantage or

LAW ON SALES
benefit to the ward, estate or the principal, would be
sufficient basis to take the transaction out of the
prohibition of Article 1491. The author believes that
any matter relating to advantage or benefit is wholly
irrelevant under Article 1491, which by clear
language imposes an absolute disqualification on the
persons stated therein occupying fiduciary positions.
To imply otherwise, would indeed open the oodgates
to abuse, as it would be very easy for such persons to
justify gain or advantage on the part of the ward,
estate or principal whom they represent. 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
Prescinding from the doctrine of Philippine Trust
Co., it is
hard to accept the earlier ruling in Naval v. Enriquez,66
which held that hereditary rights are not included in
the prohibition insofar as the administrator or
executor of the estate of the deceased. Although
strictly the legal reasoning of Naval is correct in that
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.
If an administrator or executor were not
disqualified from
purchasing or having interests in the hereditary
rights, once he validly acquires any of such
hereditary rights from any of the heirs, such
administrator or executor would already be in clear
conict-of-interests situation, or that in fact he may
even use his fiduciary position to compel or convince
the remaining heirs to sell or assign their hereditary
rights to him.
Besides, the language and spirit of Article 1492
would
embrace within the prohibition under Article 1491
personal dealings of administrators and executors on
the hereditary rights of the heirs.

4. Judges, Justices and Those

LE BELLE SORIANO
Involved
in Administration of
Justice

The early case of Gan Tingco v. Pabinguit,67

clarified that
for the prohibition under Article 1491 to apply to
judges, it is not required that some contest or
litigation over the property itself should have been
tried by the said judge; such property is in litigation
from the moment that it became subject to the
judicial action of the judge, such as levy on execution.
Macariola v. Asuncion,68 held that the doctrine
that prohibition
under Article 1491 is "applicable only during the
period of litigation," should cover not only lawyers,
but judges as well. In that case, the presiding judge,
through a corporation of which he was a stockholder,
acquired pieces of land, which previously had been
part of a partition case finally decided by him. The
Court in exonerating the judge from the provisions of
Article 1491 held that since the particular provision
relating to judges covered only "property and rights in
litigation" said that 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."69 Nevertheless, the judge was
held liable for violating the canons of judicial ethics.

5.
Attorn
eys
Valencia v. Cabanting,70 explained the reason
for the
disqualification as it applies to lawyers in this wise:
"Public policy prohibits the transactions in view of
the fiduciary relationship involved. It is intended to
curtail any undue inuence of the lawyer upon his
client. Greed may get the better of the sentiments of
loyalty and disinterestedness. Any violation of
thisprohibition would constitute malpractice ... and
is a ground for
suspension."
In Rubias v. Batiller,72 the facts proven showed
that the
plaintiff's claim of ownership over the disputed
land was predicated on his purchase made in
1956 from his father-in-law at a time when the
latter's application for registration there had
already been dismissed by the land registration
court and was pending appeal in the Court of

LAW ON SALES
Appeals. He was therefore disqualified under
Article 1491 from purchasing such property
since he was the counsel of record of the
applicant, even though the case was pending
appeal. The Court declared that "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."73
In Gregorio Araneta, Inc. v. Tuason de Paterno,74
it was held
that the prohibition under Article 1491 applies
only to attorneys when the property they are
buying is the subject of litigation, and does not
apply to a sale to attorneys who were not the
defendant's
attorneys in that case. In Del Rosario v.
Millado,75 the Court also
held that the prohibition does not apply to a
lawyer who acquired
the property prior to the time he intervened as
counsel in an ejectment suit involving such
property.
In one case,76 the Court held that the
prohibition applies
only to sale to a lawyer who in fact represented
the client in the particular suit involving the
object of the sale, and cannot cover the
assignment of the property given in judgment
made by a client to an attorney, who has not
taken part in the case wherein said judgment
was rendered, made in payment of professional
services in other cases. In another case,77 it was
held that the prohibition does not apply to the
sale of a parcel of land, acquired by a client to
satisfy a judgment in his favor, to his attorney as
long as the property was not the subject of the
litigation.
Also, the prohibition applies only during the
period the
litigation is pending.78 However, when there is a
certiorari

proceeding still pending, although the subject

property is the subject of a final judgment, the
disqualification still applies, and the purchase by the
lawyer during the pendency of the certiorari
proceedings would constitute malpractice in violation
of Article1491 and the canons of professional
ethics.79

LE BELLE SORIANO

LAW ON SALES
Article 1491."

a.
Contingent
Fee
Arrangements
Recto v. Harden,80 held that the prohibition
under Article
1491 does not apply to a contingent fee based on the
value of property involved in litigation and therefore
does not prohibit a lawyer from acquiring a certain
percentage of the value of the properties in litigation
that may be awarded to his client.
Vda. de Laig v. Court of Appeals,81 held that the
agreement
on contingent fee based on the value of the property
involved is not prohibited since the payment of said
fee is not made during the pendency of the litigation
but only after judgment has been rendered in the case
handled by the lawyer.
Director of Lands v. Ababa,82 recognized that
contingent fee
arrangement is recognized under Canon 13 of the
Canons of Professional Ethics, as an exception to
Canon 10 thereof which prohibits a lawyer from
purchasing any interest in the subject matter of the
litigation which he is conducting. But it recognized
that a contingent fee contract is always subject to the
supervision of the courts with respect to the
stipulated amount and may be reduced or nullified;
so that in the event that there is any undue inuence
or fraud in the execution of the contract or that the fee
is excessive, the client is not without remedy because
the court will amply protect him.
In excluding contingent fee arrangement from the
coverage
of Article 1491, even when the very terms of the
arrangement would grant to the lawyer an interest in
the property subject of the litigation, Ababa held: "A
contract for a contingent fee is not covered by Article
1491 because the transfer or assignment of the
property in litigation takes effect only after the
finality of a favorable judgment. In the instant case,
the attorney's fees . . . consisting of one-half (1/2) of
whatever [the client] might recover from his share in
the lots in question, is contingent upon the success
of the appeal. Hence, the payment of the attorney's fees,
that is, the transfer or assignment of one-half (1/2) of
the property in litigation will take place only if the
appeal prospers. Therefore, the transfer actually takes
effect after the finality of a favorable judgment
rendered on appeal and not during the pendency of
the litigation involving the property in question.
Consequently, the
contract for a contingent fee is not covered by

In Fabillo v. Intermediate Appellate Court,83 the

Court justified
excluding contingency fee arrangement from the
coverage of Article 1491 "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
disburseme
nts."84
However, immediately Fabillo drew the following
limitations
on contingency fee arrangements: "As long as the
lawyer does not exert undue inuence 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."85 But precisely, these are the
burdens that Article 1491 intends to avoid.
If we pin-down the core of reasoning in Ababa
and Fabillo,
it would not justify exclusion contingency fee
arrangement from Article 1491 coverage on the basis
of the improbability of the use of undue inuence by
the lawyer on the judgment of his client, but rather
on the timing of the effectivity of the obligation to pay
attorney's fees. In fact, Ababa follows to incongruous
end the "pendency of litigation" doctrine which states
that the restriction under Article 1491, as it applies to
lawyers cover only the period during which the
property is still subject to litigation. Ababa thus held
that since a contingent fee arrangement is
demandable only by its nature after the termination of
litigation incident on the property subject to litigation,
then it is not covered "by the during the pendency of
litigation" doctrine.
Precisely, the "pendency of litigation" doctrine is
sound mainly
because when litigation has finally been terminated,
and the client legally and practically is no longer at
the mercy of his lawyer, negotiation and bargaining
between the lawyer and the client on the property that
was the subject of litigation would be on arms- length
basis, and no undue inuence can be exercised
anymore by the lawyer on the client. A contingency
fee arrangement, although effective and demandable
only after litigation, may in fact be negotiated and
bargained for between the lawyer and the client during
the pendency of litigation, a period in which the lawyer

LE BELLE SORIANO
would exercise moral and professional inuence over
his client, and therefore would rightly be covered by
Article 1491.
After all, a contingency fee arrangement is
simply an
obligation subject to a suspensive condition. If it is
void and against public policy for a lawyer to
purchase the property of his client under litigation,
does the purchase become less reprehensible, if not
void, just because the purchase is made subject to
the suspensive condition that the client should win
the case and effective only after litigation has ended?
It would not seem so with the positive and clear
language of Article 1491.
Why then are contingent fee arrangements that
directly
grant to the lawyer a proprietary interest in the
property of his client that is the subject of litigation
so sacrosanct that the Supreme Court would exempt
them from what seems to be unyielding provision of
Article 1491? Certainly, not because contingent fee
arrangements are recognized in the Canons of
Professional Ethics, since the canons cannot override
a direct statutory provision. Perhaps, aside from the
fact that the Court is composed of members who
necessarily are members of the legal profession and
subconsciously have turfs to protect, a contingency
fee arrangement actually puts two negotiators toe- totoe who are both handicapped, so that one cannot
rightly say that the other occupies a superior or
advantageous position as to the other: the client is
disadvantaged by the fact that he must rely on the
lawyer for the legal assessment of the case and the
legal battle that must be fought; and the lawyer, by
the fact that he is actually taking a risk since by the
contingent fee arrangement he really would get
nothing for all his efforts and trouble, by the loss of
the case. It may be a case of two handicapped
persons
venturing together into the unknown, or at least the
uncertain.
Also the Court is faced with a public policy issue
of allowing
pauper litigants to be ably represented before the
courts for their just claims. Without a contingency
fee arrangement, even one that grants to the lawyer a
proprietary claim on the subject matter of litigation,
many otherwise meritorious causes of action would
never find competent legal representation. As Ababa
held: "Contracts of this nature are permitted because
they redound tothe benefit of the poor client and the
lawyer 'especially in cases where the client has
meritorious cause of action, but no means with

LAW ON SALES
which to pay for legal services unless he can, with
the sanction of law, make a contract for a contingent
fee to be paidout of the proceeds of the litigation.'"86
But even that reasoning only supports a contingency
fee arrangement in general, and does not justify a
particular contingency fee arrangement that directly
grants to the lawyer proprietary interests in the
property subject of litigation. Indeed, the same public
policy can still be achieved by allowing contingency
fee arrangement that allows the lawyer a percentage of
the "value" of the property in litigation, which is
essentially still a monetary claim with the property
subject of litigation not being sold or assigned to the
lawyer, but as a measure to determine the value of the
attorney's fee.
In addition, the Court deems itself solicitous
when it comes
to contingency fee arrangement, since lawyers are
officers of the courts, whose actuations are always
subject to court supervision, and that contingency fee
arrangement are not just contracts, and are always
subject to the courts' discretionary review to ensure
that clients are protected from over-bearing lawyers.
As held in Fabillo, "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."87
Perhaps the only true justification is what Ababa
held
that: "Finally, a contingent fee contract is always
subject to the supervision of the courts with respect
to the stipulated amount and may be reduced or
nullified. So that in the event that there is any undue
inuence or fraud in the execution of the contract or
that the fee is excessive, the client is not without
remedy because the court will amply protect him."88
But even then such a safeguard is also present with
respect to the prohibited contracts entered into by
guardians, administrators or executors, who are also
court officers, and yet jurisprudence does not allow
exception to their contracts.
The final issue to tackle is why a contingency fee
arrangement, which essentially is a contract for
service, is to be governed at all by Article 1491 which
covers only contracts of sale? The resolution of this
issue rightfully brings into focus the ruling of the
Supreme Court, discussed in the next chapter, that
the Law on Sales is a "catch-all" provision engulfing

LE BELLE SORIANO
within its operations all onerous contracts which
have within their coverage the transfer of ownership
and delivery of possession of a thing. Although a
contingency fee arrangement has for its main subject
matter the service of the lawyer, nevertheless when
the consideration for such service allows the lawyer
to obtain ownership and possession of the client's
property in litigation, the Court does not hesitate to
apply Article 1491 prohibitions to test the validity of
such an arrangement.
oOo
SUBJECT MATTER

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 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;
(c) It must be DETERMINATEor atleast
DETERMINABLE.
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
either 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.
The issue of whether there is a void contract, is
important in considering the applicability of
doctrines that pertain to void contracts (e.g., no
remedy can be maintained, and courts generally leave
the parties where they are), which would have no
application in a situation where the subject matter in
a sale does not fulfill a requisite. Consequently, in
case of payment of the agreed price, in a "no contract"
situation the buyer can still recover the amount based
on the principle of "unjust enrichment."
Article 1411 provides that only when the nullity of
the contract
proceeds from the illegality of the cause or object of the
contract, and the act consitutes a criminal offense,
both parties being in pari delicto, would the parties
have no cause of action against each other; otherwise,

LAW ON SALES
the innocent one may claim what he has given, and
shall not be bound to comply with his promise.
On the other hand, under Article 1412, when
the act does
not constitute a criminal offense, the following rules
shall apply:
(a) 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
under
taking
;
(b) 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; but the one, who
is not at fault, may demand the
return of what he has given
without any obligation to comply
with his promise.
Finally, Article 1416 provides that when the
contract is not
illegal per se but is merely prohibited, and the legal
prohibition is designed for the protection of the
plaintiff, he may, if public policy is thereby enhanced,
recover what he has paid or delivered.
There is enough legal basis to posit that even
when the first
requisite for a valid subject matter is not present (i.e.,
must be a possible thing), there is no inequity to finding
the resulting contract of sale as void (as distinguished
from a "no contract" situation), because the innocent
party may still be able to recover under the principle of
unjust enrichment. Thus, in one case,8 the Supreme
Court held that when a contract of sale that has been
performed is declared void, then restoration of what
has been given is in order, since the relationship
between parties in any contract even if subsequently
voided must always be characterized and punctuated
by good faith and fair dealing.
b. Legal Requisites of Subject Matter
Intended to
Govern Underlying Obligations
of Seller
In
discussing
the
statutorily-mandated
requisites of what

LE BELLE SORIANO
constitutes a "valid" subject matter of sale, 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. For
essentially, at perfection, what a valid sale is able to
legally effect is not the delivery of the subject matter
but the constitution of the obligation of the seller to
deliver, coupled with the right of the buyer to
demand specific performance of such obligation.

1. Subject Matter Must Be "Possible

Thing"
The first requisite of a valid subject matter
provides
that the thing may be existing or non-existing at the
time of perfection of the contract of sale. Article 1461
of the Civil Code explicitly states that "[t]hings
having a potential existence may be the object of the
contract of sale." In addition, the second paragraph
of Article 1462 provides that "[t]here may be a
contract of sale of goods, whose acquisition by the
seller depends upon a contingency which may or may
not happen," which clearly shows that a valid
contract of sale may exist even if at the time of its
perfection, the seller was not even the owner of the
thing sold.
Considering that the essence of a "requisite" is
to set
something apart from the rest, it would then seem
that the first requisite, may not really be a requisite
because it practically covers any and all situations
(i.e., existing and non-existing things). What further
complicates the situation is the provision in Article
1409(3) of the Civil Code which holds that contracts
"whose cause or object did not exist at the time of the
transaction" are deemed inexistent and void from the
beginning.
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. For example, if a seller were to sell a
particularly described chair, which at the time of the
meeting of the minds, did not yet exist, the contract of

LAW ON SALES
sale is valid and enforceable, because the nature of the
subject matter, is of such a type and nature that it
can be manufactured and could come into existence.
On the other hand, if the seller were to sell a
formula for
a potion which would make the buyer forever young,
in spite of the fact that the seller may be a scientist,
the sale would be considered void, since the subject
matter thereof, at least under current technological
and scientific developments, is something that could
not exist.
The concepts perhaps are best embodied in the
terms
"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. Thus, Article 1462 of the Civil
Code provides that in the sale of "goods," the subject
matter may either be 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 (called "future goods"); and there
may even be sale of goods, whose acquisition by the
seller depends upon a contingency which may or may
not happen. Article 1465 provides that the subject
matter of a sale may be subject to a resolutory
condition.
Under Article 1409(3), contracts are inexistent
and void
from the beginning when "the cause or object did not
exist at the time of the transaction." The literal
application of this particular provision is not
warranted in contracts of sale since under Article
1458, as it defines the contract, a sale exists by virtue
of the fact that an obligation "to transfer the
ownership of and to deliver a determinate thing," is
assumed by the seller; thus, whether such an
obligation exists or not, and not the existence of the
subject matter, is the essence of sale, especially since
sale is not a real, but a consensual contract.
Even when the subject matter does not exist at
the time
of perfection of the sale, the contract is still valid
under Articles 1461 and 1409(3); however, when the
subject matter is of such nature that it cannot come
to existence an impossible thing the contract is
indeed void. This position is supported also by other
provisions of the Civil Code applicable to contracts in
general. Under Article 1347, all things which are not

LE BELLE SORIANO
outside the commerce of men, "including future things,"
may be the object of a contract.
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.
This rationale for the first requisite is confirmed by
the fact that it is not part of the requisites of a valid
subject matter, at the time of perfection, that the seller
be the owner of the subject matter thereof. Under
Article 1459 of the Civil Code, it is only required that
the seller "must have a right to transfer the ownership
thereof at the time [the subject matter] is delivered."
The rule supports the principle that a sale
constitutes merely a title and not a mode, and its
perfection does not per se affect the title or
ownership over the subject matter thereof.
Consequently, when the first requisite does not
exists as to
the subject matter (i.e., it is an impossible thing), the
resulting contract of sale would be void and is
consistent with the injunction provided in Article
1409(3) of the Civil Code when it provides for void
contracts: "Those whose cause or object did not exist
[i.e.,
impossible things] at the time of the
transaction."

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."9
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.
In Sibal v. Valdez,10 the Court held that pending

LAW ON SALES
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.
In Pichel v. Alonzo,11 where the issue was
whether
the grantee of a public land under the Public Land
Act had violated the statutory prohibition from
disposing, assigning or encumbering the land, the
Court held no such violation of the law, since the
subject matter of the contract of sale were fruits of
the coconut trees on the land over specified years,
and the same could be dealt with separately from
the land itself, and even from the coconut trees
themselves. The Court also held that the subject
matter was determinate, although with a potential
existence.
In Mananzala v. Court of Appeals,12 the Court
held that 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 the a "future thing;" but
really it was a sale subject to the condition that seller
will acquire the property.
b.
Emptio
Spei
Although the second paragraph of Article 1461
states
that "[t]he 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 hope 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 "possibility" of the subject matter as contrasted from
an impossible subject matter.
An example of emptio spei is the sale of a
sweepstakes
ticket, for say 5100.00, where the buyer purchases
the ticket with the hope that upon the draw the ticket
would win him, say a million pesos. The object of the
sale is not the prize, but rather the ticket, or the
chance to win; if the ticket does not win, the sale is still
valid, and the buyer has no right to recover the
amount paid for the ticket.
Emptio spei typifies a situation where the
commutative nature
of a contract of sale seems not to be complied with;

LE BELLE SORIANO
thus, for say 5100.00, by buying a ticket, one may be
able to win a million pesos. Is that not the same
consideration when, say for a 5100.00 bet, a player
throws a pair of dice in the hope that the resulting
combination would win for him all bets placed on
the table?
c. Sale of Things Subject to Resolutory
Condition
Under Article 1465 of the Civil Code, things
subject to
resolutory condition may be the object of the contract
of sale. However, 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 what they have received." This
default rule will thus preserve the commutative
nature of sale.
In determining how restitution could best be
achieved between the parties, Article 1187 provides that "The effect
of a con- ditional 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 interest during the pendency of
the condition shall be deemed to have been mutually
compensated."
The ruling in Gaite v. Fonacier,13 should also be
considered
where it held that a contract of sale being an
onerous and commutative contract, that the rules of
interpretation would incline the scales in favor of "the
greatest reciprocity of interests," and unless the
stipulation is clear, a clause should be interpreted as
a term rather than as a condition.
Subjecting the object of sale (i.e., the obligation
of the
seller to deliver) to either a suspensive or a resolutory
condition does not undermine the commutative
nature of a contract of sale, essentially because the
existence of such a condition hastempered the
amount of the consideration or price that could be
demanded from the buyer. In other words, under a
free-market system, sellers and buyers dealing at
arms length have their own methods to properly price
things, including an object of sale subject to a
condition.

LAW ON SALES
d. Subject Matter Is Nexus
of Sale
From the foregoing discussions it can be
deduced that
whether the contract of sale involves a present object
(such as a hope or expectancy in emptio 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 to 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.

This would emphasize that, as distinguished from

other
similar contracts, the essence of a contract of sale is
the meeting of minds that bring about the obligation to
transfer the ownership, and deliver the possession, of
subject matter. Even other contracts that are not
strictly sales contracts, but essentially constitute the
delivery of the ownership and possession of the subject
matter as an integral undertaking, tend to be governed
by the Law on Sales, like barter (which does not have
the element of "price"), and dacion en pago (which
really is a mode of performance of a pre-existing
obligation).
Thus, the Supreme Court in Polytechnic University v.
Court
of Appeals,14 held that the Civil Code provisions on
sale are in effect "catch-all" provisions which effectively
bring within their grasp a whole gamut of transfers
whereby ownership of a thing is ceded for a
consideration. This echoed the earlier observation of
the Court in Commissioner of Internal Revenue v.
Court of Appeals,15 that "[t]ransfer 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.16
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.17 When the
subject matter is illicit, the resulting
contract of sale is void.18
The sale of animals suffering from contagious
diseases,19
and those which are unfit for the use or service for

LE BELLE SORIANO
which they are acquired as stated in the contract,20 is
void.
The sale of future inheritance is also void.21 However,
a
distinction should be drawn between a sale of future
hereditary rights and a waiver of an acquired
hereditary rights, since the first presumes the existence
of a contract of sale between the parties, while the
second is a mode of extinction of ownership where there
is an abdication or intentional relinquishment of a
known right with knowledge of its existence and
intention to relinquish it, in favor of co-heirs.
Therefore, a non-heir cannot conclusively claim
ownership over the property part of the estate of the
deceased person on the sole basis of the waiver
document which neither recites the elements of
either a sale or a donation, or any other
derivative mode of acquiring
ownership.22
Again, the illegality of the subject matter, even
though
it is determinate and existing and capable of actual
delivery, undermines the demandability of the
underlying obligation of the seller to deliver, and
renders the sale void.
a. Sales Declared Illegal
by Law
There are various special laws that declare
certain sales
contracts as illegal and therefore void. Some of them
are those where subject matter is prohibited, e.g.,
narcotics;23 wild birds or mammals;24 rare wild
plants;25 poisonous plants or fruits;26 dynamited
fish;27 gunpowder and explosives;28 firearms and
ammunitions;29 and sale of realty by nonChristians.30
The sale of friar land without the consent of the
Secretary of
Agriculture required under Act No. 1120, is null
and void.31
Quijada v. Court of Appeals,32 did not consider
as void
the sale by the donor of land previously donated to a
local government unit under a resolutory condition as
a sale "outside the commerce of men under Article
1409(4)" of the Civil Code, in that patrimonial
properties of a local government unit, especially those
conditionally owned by said unit, as being outside
the commerce of men. It held that the "objects referred
to as outside the commerce of man are those which

LAW ON SALES
cannot be appropriated,
such as the open seas and the heavenly
bodies."33
Frenzel v. Catito,34 discussed the consequence of
an alien
who purchased land and placed the deed of sale in
the name of his Filipina lover: such alien would have
no standing to seek legal remedies to either recover
the properties or to recover the purchase price paid.
The transactions was void ab initio for being in
violation of the constitutional prohibition against
aliens owning private land, and under the doctrines
ex dolo oritur actio and in pari delicto potior est
conditio defendentis, neither a court of equity nor a
court of law will administer a remedy. The provision of
Article 1416 of the Civil Code will also not apply
since they cover only contracts which are merely
prohibited in order to benefit private interests.
Consequently, the maxim nemo cum alterius deter
detremento protest (No person should unjustly enrich
himself at the expense of another), cannot apply in
this case, since the action is proscribed by the
Constitution or by the application of the in pari delicto
doctrine.
Sales in violation of land reform laws declaring
tenants-tillers
as the full owners of the lands they till, are null
and void.35

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
cla
ss.
36
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 unequivocable. 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 consequences of failure to deliver
the subject matter of the sale.

LE BELLE SORIANO

LAW ON SALES
explain their intentions.

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).37
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.
In Melliza v. City of Iloilo,38 Melliza sold under a
deed several
tracts of land to the then Municipality of Iloilo,
including lots 1214- C and 1214-D. The instrument of
sale did not mention lot 1214-B, although it was
contiguous to the other two lots, but stipulated that
the area being sold shall include the area "needed for
the construction of the city hall site, avenues and
parks according to the Arellano plan." The Arellano
plan had long been in existence before the execution of
the deed.
The Court held that the requirement 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. The requirement in Melliza was
deemed fulfilled under the contract of sale because it
specifically referred to such other portions of the lots
required by the "Arellano plan," which had long been
in existence and it specifically provided for the land
areas needed for the city hall site. Therefore, at the
time of the perfection of the contract, the exact area
of the land needed, which was the subject matter of
the sale, could be determined by simply referring to
the Arellano plan, without the parties needing to drawup a new contract, nor even to clarify matters or

In San Andres v. Rodriguez,39 it was held that

where the lot is
described to be adjoining the "previously paid lot" on
three sides thereof, the sold lot was deemed capable
of being determined without the need of a new
contract and the fact that the exact area of the
adjoining residential lot is subject to the result of a
survey does not detract from the fact that it is
determinate or determinable.
In David v. Tiongson,40 the Court ruled that
when the
receipt issued by the seller acknowledging partial
payment of the purchase price describes the subject
matter as "this lot is the portion formerly earmarked
for Mrs. Rosita Venture-Muslan where she already
paid the sum of 51,500.00," the object is deemed to
be "determinable" and sufficient to support a valid
contract of sale; and that any mistake in the
designation of the lot by its tax declaration does not
vitiate the consent of the parties or affect the validity
and binding effect of the sale.
In essence, the requisite of being "determinable"
is met
when at perfection, the agreement between the 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
In Atilano v. Atilano,41 Eulogio, who had
subdivided his land
into five parts, executed a deed of sale in favor of his
brother supposedly covering lot 535-E. His brother
thereupon obtained a transfer of certificate in his
name. But even prior to the execution of the sale, the
brother had been in possession of the subject
property and had built his house thereon. Years later,
when the heirs of the brother had his lots resurveyed

LE BELLE SORIANO
for subdivision, it was discovered that the land they
were occupying on the strength of the deed of sale was
not lot 535-E, but actually lot 535-A. On the other
hand, the lot which Eulogio was occupying as
residence was actually 535-E. The brother's heirs
filed an action in court seeking possession of the real
lot 535-E, which had a bigger lot area.
The Court held that the object of the sale was
actually lot
535-A, although the deed of sale referred to lot 535-E,
because there was only a mistake in designating the
particular lot to be sold in the instrument, which
mistake was deemed pro forma and did not vitiate the
consent of the parties or affect the validity and
binding effect of the sale. The Court reasoned that
when one seeks to sell or buy a real property, one sells
or buys the 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. It was clear that when the brothers entered into a
contract, they were referring to lot 535-A because even
before that, the purchasing brother had been
occupying said lot as his residence.
Atilano emphasizes the point that the true
"contract of sale"
is intangible or properly a legal concept. The deed of
sale is merely an evidence of the contract. And when
the deed fails to cover the real contract or the true
meeting of the minds of the parties, then the deed
must give way to the real contract of the parties. The
defect in the final deed would not work to invalidate
the contract where all the essential elements for its
validity are present and can be proven.
The doctrine that "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. Court of Appeals,42and presents a clear
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 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

LAW ON SALES
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 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.
Logically, the actual quantity of goods as subject
matter
of sale would also be essential in the meeting of the
minds, since quantity constitutes an essential
ingredient to achieve the requisite of the goods being
determinate or determinable. If it were otherwise, the
ability to enforce the obligation of the seller to deliver
would be totally lacking. Without agreement as to
quantity, how much or how many of the described
goods could be the object
of an action for specific performance? Even granting
arguendo that an action for specific performance is
available against such a seller, then at what price can
enforcement be demanded when no quantity of the
goods is present? 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.
This position is supported by Article 1349 of the
Civil Code
which provides that "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." Notice that the essential phrase of
"without the need of a new contract between the parties"
in Article 1349 is the same formula used in defining a
determinable subject matter in Article 1460.
In National Grains Authority v. Intermediate
Appellate
Court,43 where the parties had agreed on specified
types of rice which was to be harvested from the
seller's farmland at specified prices per cavan, and
although the exact quantity had not been agreed
upon, it was provided in the agreement that the
seller was allowed to deliver within a specified quota

LE BELLE SORIANO
of 2,640 cavans. The Court held that there was at the
point of agreement already a perfected and binding
contract of sale, and to which NFA was obliged to
comply and pay the purchase price for the grains
actually delivered by the seller-farmer
Soriano,
thus
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.44
The controlling doctrine in National
Grains Authority is that
specific quantity of the subject
matter is not important when it is still
possible to determine the quantity
"without the need of a new contract
between the parties," and therefore
complies with the requisite of being
determinable.
In Johannes Schuback & Sons Phil.
Trading Corp. v. Court
of Appeals,45 the seller had made a
formal offer on the following matters

LAW ON SALES
pertaining to engine parts: item
number,
quantity,
part
number,
description,
unit
price.
On
24
December 1981, the buyer confirmed
to purchase on the indicated prices
and in fact issued a purchase order
which, however, did not contain the
quantities per unit but the buyer
merely bound itself to submit the
quantities about a week thereafter, as
in
fact
the
quantities
were
confirmedlatter on 29 December 1981.
The Court held that a binding contract
of sale existed between parties upon
issuance of the purchase order, and
not upon the confirmation of the buyer
of the
quantities covered by the order, thus

While we agree with the trial court's

conclusion that indeed a perfection of
the 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, but
rather on December 24, 1981.
Although the quantity to be ordered
was made determinate only on
December 29, 1981, quantity is
immaterial in the perfection of 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 concurred.46
87

However, nothing in the facts

indicated that as of 24 December 1981
the quantity of the objects ordered
could be determined outside of a
subsequent agreement by the parties.
The ruling in Johannes Schuback
relied upon National Grains Authority,
and yet in the latter case at the time of
perfection of the contract, there was in
fact a maximum quantity agreed upon.
The foregoing rulings in effect
support the doctrine that

LE BELLE SORIANO
certain generic objects may be the
proper object of a contract of sale,
provided
that
they
fulfill
the
characteristic of being "determinable"
at the point of perfection. Thus, even
when the exact quantity of the subject
matter of the contract of sale has not
been agreed upon, but the parties have
in fact come into an agreement as to
the quality thereof and the price, and
terms of payment, there is already a
valid and binding contract. However,
the author disagrees with the rulings
of the Supreme Court, that the
resulting contract is always a contract
of sale, but rather what is perfected is
a preparatory contract to enter into a
contract of sale, or what is called in
commercial parlance
a "supply agreement."
A supply agreement, much like a
contract of sale, would
have at the perfection thereof goods whose quality
and unit price would have been agreed upon by the
parties, but unlike a contract of sale, the underlying
obligation of the "seller" and the "buyer" is to enter
into one or series of contracts of sale based thereon
when they come to agree upon the quantity. In other
words, at the moment of meeting upon the
description, quality and unit price of the goods, there
is indeed a perfected and valid contract, but it is an
agreement to enter into a contract of sale, which
essentially involves obligations "to do" (i.e., to enter
into actual contracts of sale), rather than real
obligations to deliver and to pay. Such an agreement,
like all other valid contracts, have the characteristic of
consensuality, relativity and obligatory force, and noncompliance would constitute a breach of contract;
however, the remedy of specific performance wouldnot
be available to the non-defaulting parties because
the underlying obligation of the obligor is a personal
obligation; at most the breach of such contract would
allow the recovery of damages.

e. Generic Non-Determinable
Objects
Since "determinable" objects may be the valid
subject
matter of a 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

LAW ON SALES
only be complied with when the subject matter has
been made determinate, either 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 object are never
lost.
In Yu Tek & Co. v. Gonzales,47 the parties
entered into a
written contract whereby Gonzales bound himself to
sell and deliver 600 piculs of first class sugar (given
quality) to Yu Tek & Company, without designating
any particular lot of sugar or the particular source
thereof. Gonzales, who received payment, delivered no
part of the sugar promised, and when a suit was
brought against him to recover the amount paid and
stipulated damages for breach of contract, he
interposed the defense of force majeure because he
was not able to harvest any sugar in his plantation
due to a storm.
The Court held Gonzales liable for breach of
contract (which
meant there was a valid underlying sale) although it
held that the defense of force majeure was unavailing
since the contract was not perfected as to the
particular subject matter for determining loss, until
the quantity agreed upon has been selected and is
capable
of
being
physically
designated
or
appropriated. The Court ruled that the buyer does
not assume the risk of loss of a generic subject
matter under a valid sale until the object is made
determinate, either by physical segregation or
particular designation.
Article 1246 of the Civil Code provides that "[w]hen
the
obligation consists in the delivery of an indeterminate
or generic thing, whose quality and circumstances
have not been stated, the creditor [buyer] cannot
demand a thing of superior quality. Neither can the
debtor [seller] deliver a thing of inferior quality. The
purpose of the obligation and other circumstances
shall be taken into consideration." The courts
therefore have power to set the appropriate quality of
the subject matter of a sale when the same is
determinable generic. The article cannot be taken to
mean that even when the subject matter is not
determinable, any generic subject matter would
validly support a contract of sale. Under Article
1409(6) of the Civil Code, a contract is inexistent and
void from the beginning "where the intention of the
parties relative to the principal object of the contract
cannot be ascertained." As one author has held,
Article 1246 covers only "quality" of a generic subject
matter, so that when it is the "kind" and "quantity"

LE BELLE SORIANO
that cannot be determined without need of a new
agreement of
the parties, the contract is void.48

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 or determinable,
the resulting contract would be void. Again, the
impetus of the law declaring sales covering subject
matters
which
are
neither
determinate
or
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
Under Article 1463 of the Civil Code, the sole
owner of thing
may sell an undivided interest therein, and there would
result co- ownership over the subject matter.

h. Sale of Undivided Share

in Mass
In the sale 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 purports to buy a
definite number, weight, number 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 the
co-owner to such share of the mass as the number,
weight or measure bought bears to the number,
weight or measure of the mass.49
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
appea
rs.50

LAW ON SALES
Gaite v. Fonacier,51 held that when parties to a
sale covering
a specific mass had not made any provisions in their
contract for the measuring or weighing of the subject
matter sold, and that the price agreed upon was not
based on such measurement, then "[t]he 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 [is] 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."52
In another case,53 the Court allowed the "sale in
mass" at
public auction of even separate known lots or parcels,
and held that such sale would not be set aside unless
it is made to appear that a larger sum could have
been realized from a sale in parcels or that a sale of
less than the whole would have been sufficient to
satisfy the debt.
i. Sale of Mortgaged Property
Pineda v. Court of Appeals,54 affirmed the principle
that 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. It also noted that the law even considers
void a stipulation forbidding the owner of the property
from alienating the mortgaged immovable.
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.55
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;56 otherwise, he may be held liable for breach
of warranty against eviction. In fact, the acquisition by
the buyer of the subject matter of the sale may even
depend upon contingency and this would not affect
the
validity of the sale.57
Article 1505 of the Civil Code provides that when

LE BELLE SORIANO
goods are
sold by a person who is not the owner thereof, and
who does not sell them under authority or with the
consent of the owner, the buyer acquires no better
title to the goods than the seller
had, unless there is estoppel on the part of the
owner;58 but this pertains only to the consummation
stage of the sale and does not affect the validity of the
contract itself.
Hilltop v. Villacorta,59 held that a contract of sale
cannot be
declared null and void for failure of the seller to
reveal the fact that it was not the owner of the
property sold.
Esguerra v. People,60 held that the sale of copra
for future
delivery does not make the seller liable for estafa for
failing to deliver because the contract is still valid
and the obligation becomes civil and not criminal.
Mananzala v. Court of Appeals,61 recognized that
the sale of
a lot by a seller who is yet to acquire full ownership
thereof from a government agency was still a valid
sale since it involved the sale of a future thing.

a. Conicting
Rulings
Lately, however, in Nool v. Court of Appeals,62 the
Court held
that sale by one who is not the owner of the subject
matter is void, and consequently, the right to
repurchase attached to the sale would also be void.
The Court held that although a situation (where the
sellers were no longer owners) does not appear to
beone of the void contracts enumerated in Article
1409 of the Civil Code, and under Article 1402 the
Civil Code itself recognizes a sale where the goods are
to be "acquired x x x by the seller after the perfection of
the contract of sale" clearly implying that a sale is
possible even if the seller was not the owner at the time
of sale, provided he acquires title to the property later
on, nevertheless
it
held

In the present case however, it is

likewise clear that the sellers can no
longer deliver the object of the sale to
the buyers, as the buyers themselves

LAW ON SALES
have already acquired title and delivery
thereof from the rightful owner, the
DBP. Thus, such contract may be
deemed to be inoperative and may thus
fall, by analogy, under item no. 5 of
Article 1409 of the Civil Code: "Those
which contemplate an impossible
service." Article 1459 of the Civil Code
provides that "the vendor must have a
right to transfer the ownership thereof
[object of the sale] at the time it is
delivered." Here, delivery of ownership
is
no longer possible. It has become
impossible.63
93

In order to achieve justice, it was

important in Nool to hold the contract
of sale void, in order to render the
attached right to repurchase also void.
The Court found it inequitable for the
sellers to exercise the right to
repurchase, when they had not
complied with their obligation to
transfer ownership over the subject
matter of the sale, and that the buyer
was the one that eventually bought the
property from the foreclosing bank.
The problem with the doctrine
proposed by Nool is that in
order to hold the sale void by the
holding that the sellers were not the
owners of the subject matter thereof, it
equated the primary obligation to
transfer
ownership
and
deliver
possession as "service" and therefore
constitutes
them
as
personal
obligations "to do." That position is not
correct since the obligations of the
seller in a contract of sale are real
obligations "to give" and which
wouldmake
them
enforceable
by
specific performance. Nool would still
have achieved the same equitable end
by sticking to the doctrine that in spite
of the fact that the sellers were not the
owners of the subject matter of the
sale, the sale was at perfection still
valid and remained valid even when the
seller could no longer comply with their

LE BELLE SORIANO
obligations to transfer ownership. The
result would be that the sellers would
be liable for breach of contract of a
valid contract of sale, but since the
obligations could be performed, the
only remedy left was to rescind the
sale, with damages. The rescission of
the sale brings with it the rescission of
all ancillary features, including the
right to repurchase.
Another way to have dealt with the
situation in Nool was to
recognize that redemption rights are
species of extinguishment of a valid
sale, and essentially only after full
consummation of the obligation of the
seller to deliver the subject matter of
sale; that redemption rights do not
arise,
even
when
stipulated
at
perfection, unless there has been
delivery of the subject matter to the
buyer. Therefore, in the case of Nool,
the seller not having complied with his
obligation to delivery the subject
matter, his conventional right of
redemption or repurchase never arose.
In fact, the earlier decision in Noel v.
Court of Appeals,64
invoked the principle that
In a contract of sale, it is essential
that the seller is the owner of the
property he is selling. The principal
obligation of a seller is "to transfer the
ownership of" the property sold (Civil
Code of the Philippines, Art. 1458).
This law stems from the principle that
nobody can dispose of that which does
not belong to him ...65
NEMO DAT QUOD NON HABET.66

LAW ON SALES
to him," which is consistent with the
rule that a seller cannot transfer by
delivery ownership of the thing which
at the time of delivery did not belong to
him. The doctrine is consistent with
Article 1459 of the Civil Code which
states that "the vendor must have a
right
to transfer the ownership thereof at
the time it is delivered."
These
principles
have
been
summarized in Quijada v. Court
of Appeals,67 thus 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 on three (3) elements: subject
matter, price and terms of payment of
the price. Ownership by the seller on
the thing sold at the time of 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. Perfection per se
does not transfer ownership which
occurs upon the actual or constructive
delivery of the thing sold. 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.68

b. Exception: When Seller Must Be

Owner
at Time of Sale
95

A close reading of Noel, which

concerned primarily the resolution of
the issue of prescription, tended to go
into the act of transferring ownership,
an aspect of consummation, rather
than as a doctrine that pertains to the
status of a sale upon perfection.
Indeed, Noel did not say that the
contract of sale is void if the seller is
not the owner at the time of perfection;
what it did say is that a seller cannot
"dispose of that which does not belong

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.
Cavite Development Bank v. Spouses
Cyrus Lim,69 held
that a foreclosure sale, though
essentially a "forced sale," is still a sale
in accordance with Article 1458 of the
Civil Code, under which the mortgagor
in default, the forced seller, becomes

LE BELLE SORIANO
obliged to transfer the ownership of the
thing sold to the highest bidder who, in
turn, is obliged to pay the bid price in
money or its equivalent. Being a sale,
the rule that the seller must be the
owner of the thing sold also applies in a
foreclosure sale. This is the reason why
Article 2085 of the Civil Code, in
providing for the essential requisites of
the contract of mortgage, requires
among other things, that the mortgagor
or pledgor 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.

c. Subsequent Acquisition of Title

by Seller
Article 1434 of the Civil Code provides that
when at the
time of perfection, the seller sells a subject matter over
which he is not the owner, the subsequent acquisition
of title by a seller validates the sale and title passes to
the buyer by operation of law, provided there has
been previous delivery of the subject matter by the
seller to the buyer. It should be noted that for the
transfer of ownership ipso jure to happen under Article
1434, it is essential that there not only exist a valid
sale, but that previous physical delivery of the subject
matter must have been done.
Quijada v. Court of Appeals,70 recognized that
the sale of
a land previously donated by the seller to a local

LAW ON SALES
government unit under a resolutory condition, was a
valid sale even though at the time of sale, ownership
in the property was still with the local government.
However, when the resolutory condition did occur
which effectively reverted ownership back to the
seller, under Article 1434 the seller's "title passes by
operation of law to the buyer." The Court expresslly
recognized that the rule under Article 1434 applies
not only to sale of goods, but also to other kinds of
property, including real property.

oOo